Monash IVF Group Ltd Annual Report 2016

Plain-text annual report

Invest in life Annual Report 2016 It’s about exceptional care That’s why at Monash IVF Group, our patients are at the centre of everything we do. It’s what drives our research focus, innovation and the key reason why our people are deeply invested. 100+ dedicated doctors A Monash IVF Group baby is born every 2.5hrs 35,000 babies and counting Annual General Meeting Monash IVF Group Limited 2016 AGM Details – Thursday, 24 November 2016 Monash Conference Centre Seminar Rooms 2 & 3 Level 7, 30 Collins Street Melbourne VIC 3000 at 2:00pm (AEDT). Our focus has been to continue to develop industry leading science and technology in the assisted reproductive services and broader womens health sector so our patients’ prospects to deliver a baby are as strong as possible. We have a 40-year history of leadership in scientiﬁc excellence and clinical innovation The Group continues to invest in research and innovation across the clinical network including through the Monash IVF Research and Education Foundation. Contents Investing in Excellence Investing in Growth Investing in Performance Investing in Expertise Investing in Science Monash IVF Group Research and Education Board of Directors Management Team Financial Information Corporate Directory 03 04 09 10 12 14 16 16 18 104 An online 2016 Annual Report is available at www.monashivfgroup.com/ Investor-Centre and extraordinary outcomes MONASH IVF GROUP Annual Report 2016 MONASH IVF GROUP Annual Report 2016 MMOMMOMMMMMMMMMM NASNANANASSSN SSHHHHHHHH IIIHHHHH IHHHHH IIHH IHHHH HHH VVVF VFVVFVFVFVVV GGGRROOUOUPPP AnAAnnnnnnnnA nnnnunuuuuunuauaauaannun alll RRl RReeepoppppoooopoopoortrtt rtt 2011110166 01 03 03 FY16 Highlights Revenue $156.6m FY15 $125.0m Up 25.3% on pcp EBITDA $49.6m FY15 $38.8m Up 27.6% on pcp Total FY16 Dividend 8.5c FY15 6.95 cents Up 22.3% on pcp $m Group revenues EBITDA EBIT NPAT EPS (cents) DPS (cents) Cash Inﬂow from Operations Net Debt Net Debt to Equity ratio (1) Return on Equity (pa.)(2) NPAT $28.8m FY15 $21.4m Up 34.6% on pcp Cash Conversion1 99.1% FY15 103.3% Down 4.1% on pcp Basic EPS 12.2c FY15 9.2 cents Up 32.6% on pcp FY16 $156.6 $49.6 $45.4 $28.8 12.2 8.50 $44.2 $86.5 55.9% 19.3% FY15 % change 25.3% 27.6% 28.1% 34.6% 32.6% 22.3% 22.8% $125.0 $38.8 $35.4 $21.4 9.2 6.95 $36.0 $96.8 67.2% 15.9% (1) Net Debt to Equity is calculated using Net Debt divided by equity as at 30 June 2016. (2) Return on Equity is calculated using NPAT for the previous 12 month period divided by the average equity in the same period. 02 Invest in life Investing in Excellence Chairman’s Report It gives me great pleasure to present the 2016 Annual Report for Monash IVF Group. Monash IVF Group has delivered a strong ﬁnancial result for 2016 derived from a business focus on developing and maintaining industry leading science and technology in assisted reproductive services and womens imaging. Group revenues were up 25.3% to $156.6m. Reported net proﬁt after tax (NPAT) increased 34.6% to $28.8m. The board has declared a fully franked ﬁnal dividend of 4.5 cents per share. The total fully dividend per share for FY16 is 8.5 cents and represents a dividend payout ratio of 70%. Revenue growth was driven by total IVF patient treatments up 12.9% on the previous year, well above industry growth rates. Monash IVF Group continues to grow overall market share and has made inroads in the NSW market, growing market share from 5.6% to 8.3%. In the Victorian and South Australian markets – where we are a signiﬁcant player – we maintained market share. Our low intervention assisted reproductive services clinics continue to gain momentum and are making an improved contribution to the Group. Patient treatments delivered by these clinics now represent 5% of total patient treatments. These services are complementing our full service clinics. The combination of Sydney Ultrasound and Monash Ultrasound for Women’s 17 locations now represents almost 17% of Monash IVF Group’s revenues, providing greater diversiﬁcation of earnings and an opportunity for the cross referral of services. KL Fertility in Malaysia continues its growth trajectory, with revenues up 10.7% and patient treatments up almost 20%. Our newer fertility specialists in our KL clinic are continuing to build their volumes. Our science and research investment is also paying dividends as we’ve continued to see a strong uptake by patients using our leading embryo genetic screening technology, with demand for the test up over 70% on the prior period. We have also seen a quadrupling of our non-invasive pre-natal testing (NIPT) to more than 9000 tests in FY16. We are proud to offer our patients such unique and important diagnostic testing services that can make a signiﬁcant difference to the likelihood of a healthy pregnancy outcome. We’ve also invested in new reproductive consulting locations in key suburbs to broaden our geographic footprint. We’ve expanded our Gold Coast presence with a new purpose built clinic, and added new ultrasound clinics in Sunshine and Berwick. Our Malaysian clinic will soon relocate to a superior facility over the coming months to assist with future growth. The strong ﬁnancial results for 2016 conﬁrm and validate the Group’s strategy. The results also give the company the conﬁdence to continue exploring the right growth opportunities in existing markets, and further aﬁeld. On behalf of the Board and all shareholders, I would like to thank James and the management team for delivering a signiﬁcant ﬁnancial result. Thanks also goes to the Group’s dedicated and passionate doctors, nurses, scientists and support staff that make sure every patient is provided superior care. I also express the Board’s thanks to the company’s shareholders for their continued support. I invite you to join the Board and the senior leadership team at our Annual General Meeting in November. Richard Davis Chairman Monash IVF Group MONASH IVF GROUP Annual Report 2016 03 Investing in Growth CEO/Managing Director’s Report Monash IVF Group’s strong FY16 performance reflects the quality of our businesses, a clearly articulated and executed growth strategy, and the commitment of our employees and doctors to delivering high standards of care to patients across our facilities. We’ve enjoyed a strong year of both revenue and EBITDA growth across all services and businesses. This growth has come from ensuring our core strategy of focusing on high quality research-led reproductive services and imaging is at the core of everything we do. Our position remains unchanged- to be a leader in scientiﬁc and clinical innovation driven by a philosophy of “excellence in science and care”. We now have an expanded network of fertility related services with over 40 IVF clinics, ultrasound practices and service centres across Australia and Malaysia. Our network also includes over 100 dedicated doctors, and in excess of 700 scientiﬁc, nursing, allied health and support staff. Our heritage is such that we were there at the very conception of the assisted reproductive technology specialty, having achieved the world’s ﬁrst IVF pregnancy in 1973. Since then over 35,000 babies have been born with our help. A Monash IVF baby is born every two-and-a-half hours in Australia. By the time you’ve ﬁnished reading this annual report, we will have welcomed another Monash IVF Group baby into this world! We now deliver approximately one in four of the IVF treatments undertaken in Australia. Our market share in-roads have been driven by our clinic network growing its domestic patient treatment numbers by 12.4% versus the prior corresponding period. This was well above industry growth rates. We are exceptionally proud of the pregnancy success rates we deliver across our clinics. We have been marketing and promoting these assertively and as a result we are seeing market share gains across the Monash IVF Group. Our NSW growth story is particularly impressive. We have gone from 0.6% market share a few years ago to 8.3% today through a mix of acquisitive and organic growth. Our Bondi Junction and Next Generation Fertility full service clinics in Sydney continue to go from strength to strength. The fundamental drivers of growth in our industry remain sound and unchanged. Women continue to defer child birth until their mid to late 30s. Single women and same-sex couples seeking treatment also continues to rise. We are also supporting more patients through the use of donated gametes (eggs or sperm). These treatment programs are exceptionally important – and often the last available option – for patients unable to obtain biological assistance from family and friends. Our low intervention clinics continue to gain momentum and are making an improved contribution to the Group. Patient treatments delivered by our BUMP and MyIVF clinics represented just over 5% of total patient treatments for the year. Our low intervention services are very much complementing our full service clinics with up-referral occurring into our full service clinic network. 04 Invest in life Fundamental Drivers of Growth 1 Science, technology and patient success (cid:115)(cid:0) (cid:0)(cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:0) (cid:0) (cid:0) (cid:0) industry leading science and technology (cid:115)(cid:0) (cid:0)(cid:36)(cid:69)(cid:76)(cid:73)(cid:86)(cid:69)(cid:82)(cid:0)(cid:80)(cid:65)(cid:84)(cid:73)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:67)(cid:76)(cid:73)(cid:78)(cid:73)(cid:67)(cid:65)(cid:76)(cid:76)(cid:89)(cid:0) superior services and increase market penetration (cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:77)(cid:79)(cid:84)(cid:69)(cid:0)(cid:45)(cid:79)(cid:78)(cid:65)(cid:83)(cid:72)(cid:0)(cid:41)(cid:54)(cid:38)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:7)(cid:83)(cid:0) scientiﬁc and clinical excellence with doctors and potential patients (cid:0) (cid:0) (cid:0) 2 Clinic expansion and acquisitions (cid:115)(cid:0) (cid:0)(cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:79)(cid:80)(cid:80)(cid:79)(cid:82)(cid:84)(cid:85)(cid:78)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0) increase Monash IVF Group’s scale and market position in womens health, including ARS and imaging services in Australia (cid:115)(cid:0) (cid:0)(cid:35)(cid:79)(cid:78)(cid:83)(cid:73)(cid:68)(cid:69)(cid:82)(cid:0)(cid:65)(cid:68)(cid:74)(cid:65)(cid:67)(cid:69)(cid:78)(cid:84)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0) opportunities in womens health (cid:115)(cid:0) (cid:0)(cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:0)(cid:84)(cid:79)(cid:0)(cid:76)(cid:79)(cid:79)(cid:75)(cid:0)(cid:65)(cid:84)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0) growth opportunities that meet our investment criteria, particularly building on our existing Asian hub (cid:0) (cid:0) 3 Lower intervention (cid:0) (cid:115)(cid:0) (cid:0)(cid:45)(cid:89)(cid:41)(cid:54)(cid:38)(cid:0)(cid:8)(cid:34)(cid:82)(cid:73)(cid:83)(cid:66)(cid:65)(cid:78)(cid:69)(cid:9)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:34)(cid:53)(cid:45)(cid:48)(cid:0) IVF (Sydney) ramping up and making an improved contribution (cid:115)(cid:0) (cid:0)(cid:45)(cid:79)(cid:78)(cid:65)(cid:83)(cid:72)(cid:0)(cid:41)(cid:54)(cid:38)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:87)(cid:73)(cid:76)(cid:76)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:0) to reﬁne our low intervention model and consider expansion in suitable locations for additional low intervention clinics (cid:115)(cid:0) (cid:0)(cid:51)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:71)(cid:73)(cid:67)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:78)(cid:84)(cid:0)(cid:84)(cid:79)(cid:0)(cid:71)(cid:82)(cid:79)(cid:87)(cid:0)(cid:84)(cid:79)(cid:0) no more than 10% of Patient Treatments (currently 5.6%) Ultrasound and Imaging This year marks the ﬁrst full year of ownership of our Sydney Ultrasound business, a business acquired in June 2015. We are comfortable with the way this business is performing. The combination of Sydney Ultrasound and Monash Ultrasound for Women’s 17 locations now represents almost 17% of Monash IVF Group’s revenues. We now provide in excess of 80,000 scans a year for a wide range of female health issues. The patient mix is both IVF patients and patients who have conceived spontaneously. Our network of ultrasound practices has provided us with a wide geographic footprint to further promote our non-invasive prenatal testing (NIPT) to both IVF and non-IVF patients. This screening test can determine – with great certainty – whether a yet unborn baby has a high risk of being affected by a genetic condition. We saw a quadrupling of our NIPT testing numbers to in excess of 9000 tests. As a result of the growth in this test – and our strong in-house research and development capabilities – we will be bringing this testing in-house to offer a more contemporary and faster service to our patients. We now provide in excess of 80,000 scans a year for a wide range of female health issues 17 ultrasound clinic locations MONASH IVF GROUP Annual Report 2016 05 CEO/Managing Director’s Report continued Research and Development We continue to invest heavily in research across our clinic network and through the Monash IVF Research and Education Foundation with considerable quarantined funding made available to drive activities aimed at improving treatment outcomes for our patients. We currently have 34 projects underway and funded. Many of these research activities are undertaken in collaboration with some of Australia’s leading universities and research institutes which we have deep and long term relationships. The Group has successfully submitted over 50 scientiﬁc papers and presentations both locally and internationally. A number of these research initiatives have already provided us with stepped improvements to our already leading reproductive treatment methods. The Group’s “Embryo Screen” technology remains amongst the most advanced embryo genetic screening test available in Australia. We’ve continued to see a strong uptake of this test which is up over 70% on the prior corresponding period. We continue to offer patients world’s best technology in this area through our next generation sequencing platform. Almost one in ﬁve our patients undergoing IVF treatment are now availing themselves of our Embryo Screen technology. This technology greatly assists in choosing the very best embryo and greatly improves our patients’ chance of a successful pregnancy. 06 Invest in life International Our international operation on the Malaysian peninsula – KL Fertility – continues its growth with revenues up 10.7% and patient treatments up almost 20%. Our newer fertility specialists continue to build their volumes and local proﬁles. We are now well advanced on the construction of a much larger premise in Kuala Lumpur to accommodate stronger volumes and improved patient amenity. 2 Day Hospitals MONASH IVF GROUP Annual Report 2016 07 CEO/Managing Director’s Report continued Our dedicated staff continue to play the deﬁning role in our success. The skills and expertise of our scientists, nurses, support staff, and doctors, across our Australian and Malaysian sites provide an environment for patients that is clinically world class but also warm and supportive. The reproductive journey for some of our patients can be emotionally trying. I am proud of the support and care – and the dedicated lengths our staff go to – to provide our patients with the best chance of having a child. We are now working at further enhancing the Monash IVF Group as the natural employer of choice in our industry. Internally, we have strengthened our support services across HR, ﬁnance, procurement, marketing and business development to ensure we can deliver on our growth ambitions. I am also supported by a very experienced and strong management team. In particular, I’d like to thank Michael Knaap, Group CFO and Company Secretary, for his work over the past 12 months in further improving the Group’s balance sheet and his ﬁnancial discipline that has put us in a strong position for growth. I am also grateful to Richard Davis and the Board who have provided valuable direction and guidance to the senior management team. Finally, I would like to thank all of the dedicated and committed staff at Monash IVF Group. Through your hard work and commitment to our vision and values, we are able to achieve world class outcomes for our patients. I look forward to working with you in the coming year to further build on the success of the last year. Track record of strong ﬁnancial performance Number of Patient Treatments1 3 year CAGR3 of 12.5% 1 0 9 , 7 1 1 6 8 , 5 1 7 8 2 , 4 1 2 8 5 , 2 1 3 1 Y F 4 1 Y F 5 1 Y F 6 1 Y F Revenue ($m) 3 year CAGR3 of 17.6% 6 . 6 5 1 0 . 5 2 1 0 . 4 1 1 3 . 6 9 James Thiedeman Managing Director and Chief Executive Ofﬁcer Monash IVF Group 3 1 Y F 4 1 Y F 5 1 Y F 6 1 Y F Fertility Specialists We continue to strengthen our medical specialist team – which grew to 103 net of two planned retirements. Our approach of careful and systematic succession planning and transitioning of patients to our younger up and coming doctors is working well. We have deep experience and passion across our medical, scientiﬁc and nursing teams. To further enhance cross-pollination of clinical learnings across the Group and to increase commercial engagement with our medical teams, we established two peak committees: the Group Medical Advisory Committee and the Group Medical Executive Committee. We’ve also appointed an inaugural Group Medical Director, Professor Luk Rombauts, who is one of our long serving fertility specialists. Notes: 1. Patient Treatments are the sum of fresh and cancelled cycles and frozen embryo transfers. 2. FY13 re-stated to results in June 2014 Prospectus. FY14 adjusted to exclude IPO costs and restructuring costs 3. CAGR is Compound Annual Growth Rate 4. FY15 earnings were impacted unfavourably by below industry trend growth rates and one off start up and acquisition costs of $2.5m, (Pre-tax). 08 Invest in life Investing in Performance CFO Report Strong revenue growth of 25.3% or $31.6m enabled Monash IVF Group to deliver a 34.6% increase in reported NPAT to $28.8m in FY16. The most pleasing aspect of the growth is that 10.7% of the revenue growth was organic, driven by both market share growth and above trend IVF industry growth rates, but also 14.6% of the revenue growth was derived through acquisitions from our Sydney Ultrasound for Women business and the Monash IVF Bondi Junction business. As a result of the revenue growth we experienced EBITDA growth of 27.6% to $49.6m, whilst our EBITDA margins improved 70 basis points to 31.7% as we generated the beneﬁts of leverage. The FY16 earnings growth further consolidates a track record of strong ﬁnancial performance with a 16.3% compound annual growth rate increase in NPAT over the previous 3 years. Domestically, our growth enabled a strong performance and delivered revenue growth of $31.0m, or 26%, in the Australian market. This enabled a 29.3% growth in onshore EBITDA. We again had strong revenue growth of 10.7% in our Kuala Lumpur clinic in Malaysia, where we generated an EBITDA of $2.4 million, which was up on the prior year. A real strength of our business is the excellent cash ﬂow generation and earnings conversion whereby we generated $44.2 million in net operating cash ﬂow at a pre-tax cash ﬂow conversion of nearly 100.0%. As a result of the strong cash ﬂow we were able to pay down $11.8 million in absolute debt and fund dividend payments in the period of $18.1 million. We also supported a signiﬁcant capital expenditure program of $8.2 million in FY2016 geared around improved patient management systems, new technologies and services for our patients and investment in upgrading and relocating clinic facilities. A strong balance sheet improved further during FY16 with net debt to equity ratio of 55.9% at 30 June 2016 versus the prior year at 67.2%. We have built balance sheet capacity to support strategic growth opportunities and currently have access to further debt of $60m. In June 2016, we re-ﬁnanced our Syndicated Debt Facility with a new $110m term debt facility and $5m working capital facility. In addition, a $40m accordion facility is available for strategic growth opportunities. The new Syndicated Debt Facility has a blended 3, 4 and 5 year maturity proﬁle. All of our capital management metrics have improved on the prior year with signiﬁcant headroom in all of our banking covenants. Our key leverage ratio was at 1.75 times, which improved from 2.14 times in the previous year. Our interest cover was strong at 11.8 times, improved from 9.9 times in the previous year. In addition our key capital return metrics all improved on prior year with a 19.3% return on equity and a 10.1% return on assets for FY16. The board declared a 4.5 cents fully franked FY2016 ﬁnal dividend, bringing the total fully franked dividend in FY16 to 8.5 cents per share, 22.3% growth on prior year and representing a 70% dividend payout ratio. Michael Knaap Chief Financial Ofﬁcer and Company Secretary Monash IVF Group MONASH IVF GROUP Annual Report 2016 09 EBITDA ($m)2 3 year CAGR3 of 12.4% 6 . 9 4 8 . 8 3 8 . 8 3 9 . 4 3 3 1 Y F 4 1 Y F 4 5 1 Y F 6 1 Y F NPAT ($m)2 3 year CAGR3 of 16.3% 8 . 8 2 6 . 2 2 4 . 1 2 3 . 8 1 3 1 Y F 4 1 Y F 4 5 1 Y F 6 1 Y F Investing in Expertise Group Medical Director’s Report As the inaugural Group Medical Director for the Monash IVF Group of companies I am pleased to announce the progress we have made in improving and enhancing our medical processes and the sharing of expertise and innovation across the group. We have established two peak committees that will help us to maintain our scientiﬁc leadership and competitive edge in IVF and womens imaging. They will also assist with the cross pollination of best practice clinical protocols and innovation across the group. The role of the Group Medical Advisory Committee (GMAC) is to ensure patients receive the best possible personalised care through establishing and maintaining optimal clinical processes and procedures. The second key committee is the Group Medical Executive Committee (GMEC) which facilitates appropriate consultation and communication in relation to relevant commercial and operational matters with medical practitioners across the Group. We’ve already made great inroads into a number of areas. A framework for succession planning is well advanced to develop career pathways for younger doctors and scientists. This will ensure suitable transitional arrangements and career/professional advancement opportunities are available across the Group. We expect this will further strengthen Monash IVF Group’s position as the employer of choice in fertility services. The Group’s live birth rates – the critical outcome by which our industry gets measured – remain amongst the best internationally and continue to improve across all age cohorts. We are very proud of our ability to translate new scientiﬁc developments and innovations efﬁciently and effectively into our daily work practices to give our patients access to cutting-edge fertility care. We are fortunate that much of the research that drives our clinical innovation is generated by leading investigators within the Monash IVF Group. As a group of companies with more than 500 laboratory and medical staff we have been able to develop strong mechanisms to disseminate clinical best practice across the group. This has a few elements including disseminating the latest research – both internally and from around the world. We also review the most difﬁcult cases internally to see whether there are common themes or whether other group members can contribute their expertise. Our capability to provide crucial services in womens imaging has also greatly strengthened with a rapidly growing team of clinicians and technicians highly skilled in ultrasound scanning of the infertile and pregnant woman. Their services have recently expanded to include screening for early onset preeclampsia, a severe complication of pregnancy. In addition, non-invasive prenatal testing (NIPT) will now be offered through a fast and high-quality in-house service allowing expecting mothers to have their ﬁrst trimester pregnancies to be genetically screened in a safe and affordable way. We are proud of all these outcomes that come as a result of the synergies that exist between our research teams, scientists and clinical staff and we look forward to further contributing to the industry with “excellence in science and care”. Professor Luk Rombauts Group Medical Director Monash IVF Group 500+ laboratory and medical staff 10 Invest in life MONASH IVF GROUP Annual Report 2016 11 Investing in Science Scientiﬁc Directors’ Report Over the past 12 months the genetic screening program at Monash IVF Group has expanded rapidly, with the introduction of new technologies and an increase in patient volumes. doctors are now referring all patients for genetic screening irrespective of age or reproductive history. Today, one in ﬁve patients is availing themselves of this cutting-edge screening technology. Our Preimplantation Genetic Screening (PGS) program has become an increasingly popular treatment option with patients. The PGS program involves screening IVF embryos for chromosome abnormalities associated with implantation failure, miscarriage or abnormalities at birth (eg: Down syndrome). Genetic screening is a reproductive option available to couples at risk of passing a chromosome abnormality or single gene disorder on to their child. Genetic screening involves screening IVF generated embryos for genetic conditions prior to embryo transfer, with only unaffected embryos transferred to the uterus. This testing helps ensure the embryo that is selected for transfer has the best possible chance of developing into a healthy baby. Only embryos which are found to have the correct number of chromosomes – and therefore the greatest potential to result in a healthy live birth – are selected for transfer. Research trials have demonstrated this technology has the capacity to signiﬁcantly improve clinical outcomes for patients. While initially targeted at patients older than 36 or patients with recurrent IVF failure or miscarriage, many of our IVF Monash IVF Group has offered genetic screening since 1994 and is one of the few centres in Australia that specialises in this area of reproductive medicine. Our highly specialised in-house genetics team is responsible for providing genetic screening services not only to our own patients, but also to patients undergoing IVF cycles at numerous external IVF clinics throughout Australia and New Zealand. Signiﬁcant milestones have also been achieved in our Preimplantation Genetic Diagnosis (PGD) program, with our genetic scientists being the ﬁrst in the world (outside the beta test sites) to be trained in a new PGD technology called Karyomapping. Karyomapping is suitable for patients at risk of passing a single gene disorder (eg: Cystic Fibrosis) on to their child, and is used to distinguish between affected and unaffected embryos. Only embryos which are found to be unaffected for the condition of interest are selected for transfer to the uterus. Karyomapping offers several signiﬁcant beneﬁts over previous PGD technologies, including a signiﬁcantly reduced turnaround time for test development/validation, as well as the capacity to detect some chromosome abnormalities associated with implantation failure, miscarriage, or abnormalities at birth. Alongside the clinical genetics program, our genetic scientists have been involved in numerous research studies aimed at improving our existing genetics program. Our scientists have also been actively involved in national and international conferences, with the aim of ensuring that Monash IVF Group continues to offer the highest quality of care to our patients. Ms Jayne Mullen. Acting Scientiﬁc Director Victoria Dr Hassan Bakos. Scientiﬁc Director New South Wales Dr Deirdre Zander-Fox. Regional Scientiﬁc Director for Monash IVF Group 12 Invest in life “ Our Preimplantation Genetic Screening (PGS) program has become an increasingly popular treatment option with patients. The PGS program involves screening IVF embryos for chromosome abnormalities associated with implantation failure, miscarriage or abnormalities at birth (eg: Down syndrome).” MONASH IVF GROUP Annual Report 2016 13 Monash IVF Group Research and Education FY16 has been an excellent year for scientific and clinical research achievement across the Monash IVF Group, made possible by the enthusiastic and innovative contributions from our clinical, embryological and medical imaging staff. The Monash IVF Group has been a leader in ART practice and research in Australia for four decades and is committed to maintaining its preeminent role in the ﬁeld through the Monash IVF Group Research and Education Foundation (MREF). Its membership includes representatives from our Queensland, NSW, Victoria, and Adelaide programs, the latter two with longstanding and deep connections with research and teaching at Monash and Adelaide Universities, respectively. The rapid growth of our medical imaging programs in Victoria and NSW, with their strong culture of research, adds an important dimension to our ability to undertake clinical research in womens’ health. The MREF network of academic and clinical leaders establishes the Monash IVF Group as a leader in fertility and reproductive research. The goal of MREF is to provide a solid evidence-base for safe and effective novel treatments that lead to greater chances of a healthy pregnancy. This translation of ‘knowledge into treatment’ is based on both fundamental science and strong clinical interaction. Our collaborative associations with the Hudson Institute of Medical Research, and Monash and Adelaide Universities facilitate these endeavors and many members of MREF share joint appointments at these internationally recognized research institutions. Our success is evident from the research papers and presentations for the last year and our future research directions, as outlined in the current MREF 2015 Annual Report that can be found on the Monash IVF Group website. FY16 saw initiatives focused on continued research to improve the understanding of embryo-endometrial interactions, the genetics of infertility and early embryonic development. Other work continues in fertility preservation, stem cells in the uterine lining and the roles of infectious agents in causing infertility. We also undertook the ﬁrst ever randomized placebo- controlled trial of melatonin, a potent antioxidant. This research will report in late 2016. The Repromed group focused on developing novel medical devices for clinical application. These projects were funded by joint NHMRC grants awarded to Professor Michelle Lane and Dr Deirdre Zander-Fox, and in collaboration with the University of Adelaide, have resulted in the creation of patents and IP for novel methods of culturing human embryos as well as non-invasive markers for embryo selection. Repromed also has a strong focus on clinical trials, such as the multi centre trial ‘LIGHT’ study on the efﬁcacy of growth hormone, as well as low dose stimulation protocols and the impact of obesity on fertility. Professor Kelton Tremellen continues his novel research into the impact of chronic inﬂammation and obesity on the gut ‘microbiome’ on fertility and IVF success rates. Across the Monash IVF Group, nurturing of young scientists and clinicians as future academic leaders is a priority. In collaboration with the Robinson Institute and The Gamete and Embryology Laboratory (headed by Professor Michelle Lane), Repromed focuses on supporting post graduate student research through scholarship support, internships and clinical research projects. 50+ Scientific papers presented by our doctors, staff and collaborators 14 Invest in life The Monash IVF Group’s longstanding partnership with Monash University’s Education Program in Reproduction and Development (EPRD), and the teaching at the University of Adelaide, are providing Graduate and Masters qualiﬁcations in reproductive science and embryology and are thereby addressing the national workforce needs in reproductive medicine. This helps ensure that embryology and related staff working in ART clinics and fertility services are provided with up-to-date knowledge and skills. These activities have resulted in multiple prestigious publications, presentations at national and international fertility conferences, as well as awards for research excellence. The Clinical Observership program allows overseas clinicians to observe procedures at Monash IVF and to attend various specialist centres around Melbourne, along with access to Monash University facilities and EPRD’s lab facilities. This program has an international reputation and in FY16 facilitated the tailored training programs to clinical specialists from Indonesia and India. The Group’s ultrasound group has a very active research agenda aimed at improving clinical care. Sydney and Monash Ultrasound for Women are undertaking a large joint study in Non Invasive Prenatal Testing in the ART population while other studies involve monitoring the health of ART pregnancies and exploring women’s experience of a prenatal diagnosis of fetal abnormality. Our presence at international meetings in FY16 continues to be strong and included presentations by Professor Luk Rombauts and myself at the 6th Congress of the Asia Paciﬁc Initiative on Reproduction (ASPIRE) in Jakarta April 2016, Professor Kelton Tremellen at British Association of Clinical Embryologists meeting in Newcastle, UK and Dr Deirdre Zander-Fox at the 2015 PGDIS in Chicago. Numerous publications across 2015 are listed in the full report and speak to the quality of research output from Monash IVF Group scientists and researchers. We congratulate Associate Professor Fabricio Costa on the recent awarding of a prestigious RANZCOG Scholarship to support a new research program on the relationship between uterine lining and IVF success. We also congratulate our Adelaide team for the awarding of the best papers for the ‘Established’ Leanne Pacella Ince and ‘Young’ scientists Helana Shedadeh at the national Scientists in Reproductive Technology (SIRT) meeting in May 2016, for work in the areas of genetic diagnosis of embryos and sperm DNA quality, respectively, and Professor Lane who was a ﬁnalist in South Australian Scientist of the year. We are proud of the Monash IVF Group’s research and educational reputation and we strive to maintain exceptional standards in research. We also acknowledge the extent to which our industry partners support the work of MREF through a number of independent research grants. Monash IVF Group pregnancy rates remain amongst the best internationally, driven by our strong commitment to evidence based scientiﬁc protocols and research. We remain committed to the belief that excellence in science has its roots in understanding the basic biology and the collection of clinical evidence of safe and efﬁcacy of new approaches to assist the infertile couple. Professor Rob McLachlan FRACP, PhD, AM, Monash IVF Research and Education Foundation Chairman MONASH IVF GROUP Annual Report 2016 15 Board of Directors From left to right: Mr Richard Davis (Independent Chairman), Mr Josef Czyzewski (Independent Non-Executive Director), Ms Christina Boyce (Independent Non-Executive Director), Mr Neil Broekhuizen (Non-Executive Director), Mr Benjamin ‘James’ Thiedeman (Managing Director), Dr Richard Henshaw (Executive Director) Management Team From left to right: James Thiedeman (Group CEO), Professor Luk Rombauts (Group Medical Director), Anthony Gurney (General Manager Ultrasound), Professor Michelle Lane (Regional Manager), Tracey Scott (General Manager Victoria), Tom Sexton (General Manager Queensland), Tedd Fuell (Group Quality, Risk & Compliance Manager), Michael Knaap (Group CFO), Hamish Hamilton (General Manager South Australia & Northern Territory), Alan Pritchard (Group Chief Information Ofﬁcer), Everard Hunder (Group Marketing Manager & Investor Relations), Amanda Mullins (General Manager New South Wales), Malik Jainudeen (Group Financial Controller) 16 Invest in life Mr Richard Davis Mr Josef Czyzewski Ms Christina (‘Christy’) Boyce Independent Chairman Mr Richard Davis joined the Group in June 2014 and is currently serving as a non-executive director of InvoCare and Australian Vintage (and Chairman of Australian Vintage). Independent Non-executive Director Mr Josef Czyzewski joined the Group in June 2014 and has over 30 years of experience in senior ﬁnance positions and signiﬁcant experience in the health industry. Richard worked for InvoCare for 20 years until 2008. For the majority of that time he held the position of CEO and managed the growth of that business through a number of ownership changes and over 20 acquisitions, including offshore in Singapore. Prior to InvoCare, Richard worked in venture capital and as an accounting partner of Bird Cameron. Richard holds a Bachelor of Economics from the University of Sydney. Josef has held the positions of CFO at Healthscope Limited, and more recently CFO/General Manager Strategy and Development at Spotless Group Limited following its takeover by private equity interests in 2012. Josef has held various senior ﬁnance positions with BHP Billiton and served as a non-executive chairman of CSG Limited. He holds a Bachelor of Commerce from the University of Newcastle and is a Graduate Member of the Australian Institute of Company Directors. Mr Neil Broekhuizen Non-executive Director Mr Neil Broekhuizen is the Joint Chief Executive Ofﬁcer of Ironbridge. Neil has 23 years of private equity experience with Investcorp and Bridgepoint in Europe and Ironbridge in Australia. Neil has sat on the Ironbridge Investment Committee since inception and also represents the Ironbridge Funds on the Board of Bravura Solutions. Neil is qualiﬁed as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. Mr Benjamin (‘James’) Thiedeman Managing Director Mr James Thiedeman joined the Group in 2009. James has spent the last 25 years working in healthcare in both the public and private sectors. Prior to joining the Group, he was the CEO of Noosa Private Hospital on Queensland’s Sunshine Coast and has held senior roles with Ramsay Health Care, Afﬁnity Health, Mayne Health and Health Care of Australia. Before moving to the private health industry, James held senior policy and planning positions in the public sector. James holds a Bachelor of Business (Health Administration) from the Queensland University of Technology and an MBA from Grifﬁth University and is a member of the Australian Institute of Company Directors. Independent Non-executive Director Ms Christy Boyce joined the Group in June 2014. Christy is also a director of Port Jackson Partners and a non-executive director of ASX Listed company, Greencross Limited and Oneview Healthcare. Christy has over 20 years of management consulting experience in both Australia and the United States and has worked extensively with major corporations on corporate strategy. Prior to joining Port Jackson Partners, Christy spent 14 years with McKinsey and Company, where she was a partner. She holds a Bachelor of Economics from the University of Sydney, a Masters of Management from the Kellogg Graduate School of Business (Northwestern University) and is a Graduate Member of the Australian Institute of Company Directors. Dr Richard Henshaw Executive Director Dr Richard Henshaw has practised in the ﬁeld of reproductive medicine in both the United Kingdom and Australia for the past 22 years. Richard works as a Fertility Specialist for the Group and is the National Medical Director of Repromed. He previously worked for Monash IVF in Victoria. Richard has served as Chairman of the IVF Medical Directors of Australia and New Zealand, and also on the Reproductive Technology Accreditation Technical Committee, which reviews the regulatory regime in place in Australia and New Zealand. MONASH IVF GROUP Annual Report 2016 17 Financial Information Contents Financial Information Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position 18 19 46 47 57 58 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information 59 60 61 99 100 102 18 18 Invest in life INVEST IN LIFE Directors’ Report For the Year Ended 30 June 2016 The Directors of Monash IVF Group Limited (the Company) present the financial report of the Company and its controlled entities (collectively ‘the Group’ or ‘Monash Group’) for the financial year ended 30 June 2016 and the auditor’s report thereon. Directors The names of Directors who held office during the financial year of the Company are as follows: Mr Richard Davis Mr Josef Czyzewski Ms Christy Boyce Mr Neil Broekhuizen Mr James Thiedeman Dr Richard Henshaw Information on the Directors’ and Company Secretary’s experience is outlined on pages 28 and 29. Information on the Directors’ responsibilities is outlined in the Corporate Governance Statement. Principle activity The Group is a leader in the field of human fertility services and is one of the leading providers of Assisted Reproductive Services (ARS) which is the most significant component of fertility care in Australia and Malaysia. ARS encompass a range of techniques used to assist patients experiencing infertility to achieve a clinical pregnancy. In addition, the Group is a significant provider of specialist women’s imaging services. Operational and Financial Review Monash IVF Group (ASX: MVF), a leading provider and driving force in fertility care, women’s imaging and diagnostics in Australia and Malaysia, has reported a 25.3% lift in Group revenues to $156.6m and reported net profit after tax (NPAT) increase of 34.6% to $28.8m for the year ended 30 June 2016 (FY16). $m Group Revenue EBITDA (1)(2) EBIT NPAT EPS (cents) DPS (cents) Cash Inflow from Operations Net Debt Net Debt to Equity ratio (3) Return on Equity (pa.)(4) FY16 $156.6 $49.6 $45.4 $28.8 12.2 8.50 $44.2 FY16 $86.5 55.9% 19.3% FY15 % Change 25.3% 27.6% 28.1% 34.6% 32.6% 22.3% 22.8% $125.0 $38.8 $35.4 $21.4 9.2 6.95 $36.0 FY15 $96.8 67.2% 15.9% (1) EBITDA is a non-IFRS measure which is used by the Group as a key indicator of underlying performance (2) EBITDA is earnings before interest, tax, depreciation and amortisation (3) Net Debt to Equity is calculated using Net Debt divided by equity as at 30 June 2016 (4) Return on Equity is calculated using NPAT for the previous 12 month period divided by the average equity in the same period MONASH IVF GROUP Annual Report 2016 19 Directors’ Report continued Operational and Financial Review continued Highlights for the period were: (cid:115)(cid:0) Revenue growth of $31.6m (25.3%) to $156.6m vs prior corresponding period (pcp) with 14.6% derived from acquisition and 10.7% from organic growth; (cid:115)(cid:0) NPAT increased 34.6% or $7.4m to $28.8m vs pcp; (cid:115)(cid:0) Growth in FY16 MVF Australian total Patient Treatments (2) was 9.8% on a like for like basis, well above industry wide growth rates. (Total growth including acquisitions was 12.4%); (cid:115)(cid:0) Total Australia ARS market share increased to 23.8% from 22.8% in pcp; (cid:115)(cid:0) Marginal growth in ARS market share in the Key Markets in which Monash IVF operates 39.7% vs 39.5% in pcp; (cid:115)(cid:0) Total industry IVF Patient Treatments (2) for FY16 in the Key Markets (1) in which MVF operates are up 8.2% on pcp; (cid:115)(cid:0) Gaining penetration in the New South Wales IVF market with 8.3% market share vs 5.6% in the pcp; (cid:115)(cid:0) Recently acquired businesses, Monash IVF Bondi Junction and Sydney Ultrasound for Women, have broadened our NSW footprint whereby NSW now represents 19.6% of total revenue vs 7.4% in pcp. Integration is in advanced stages; (cid:115)(cid:0) Low Intervention business continues to ramp up and making an improved contribution; (cid:115)(cid:0) Balance sheet strengthened and delivering a Return on Equity of 19.3% pa; (cid:115)(cid:0) Successful refinance of total debt facility in June 2016 with more favourable terms; and (cid:115)(cid:0) Established formal Group wide doctor feedback and engagement framework. Revenue Group revenues increased by $31.6m (25.3%) to $156.6m compared to FY15. Of the increase in revenue, 14.6% was derived from acquisitions and 10.7% from organic growth. A summary of the increase in revenues is detailed in the waterfall chart below: FY16 Revenue Growth ($M) 18.3 0.6 2.2 156.6 3.4 1.3 5.8 125.0 FY15 Market growth (ARS) Market share (ARS) Price (ARS) Acquisitions International (ARS) Other FY16 (1) Key Markets include Victoria, South Australia, Queensland, Northern Territory and regional market of Albury, New South Wales (2) Includes Fresh cycles, cancelled cycles and frozen embryo transfers 20 Invest in life Directors’ Report continued The following details key movements in revenue: (cid:115)(cid:0) Market Growth: $5.8m or 4.6% revenue growth due to overall ARS market growth experienced in all Australian states MVF operates in. For the twelve month period to 30 June 2016, Patient Treatments in Australia increased by 8.2% reflecting a reversion to long-term market trend growth rates of 4.1%. (cid:115)(cid:0) Market Share: $3.4m or 2.7% revenue growth as a result of ARS market share growth in Australia. Australian Fresh cycle market share(1) was up 1.3% derived from MVF’s largest markets (Victoria, South Australia and New South Wales). Frozen Embryo Transfer (FET) market share was up 1.2% derived from growth in New South Wales, Queensland and South Australia, partly offset by some minor FET market share loss in Victoria as competitors catch up to MVF’s clinical practice. (cid:115)(cid:0) Minimal change in Patient Treatment mix: Fresh cycles % of total Patient Treatments marginally reduced to 61.3% as compared to 61.6% in FY15. This marginal shift is due to stabilisation of “freeze all” clinical practice changes and strong growth in Frozen Embryo Transfers at MVF’s lower intervention clinics as both BUMP and MyIVF mature with existing patients accessing their available cryopreserved embryos. (cid:115)(cid:0) Price: IVF Revenue per Patient Treatment was stable with price increases and additional PGS/D revenue offset by growth in low intervention IVF services. (cid:115)(cid:0) Acquisitions: $18.3m or 14.6% revenue growth from full year impact from Sydney Ultrasound for Women (acquired in June 2015) and Fertility East (re-branded to Monash IVF Bondi Junction and acquired in December 2014) acquisitions. (cid:115)(cid:0) International: $0.6m or 10.7% revenue growth in the International segment from KL Fertility & Gynaecological Centre. The growth is attributable to a 7.1% increase in Fresh cycle activity which was partly offset by unfavourable foreign exchange variances due to weakness in the MYR against the AUD. (cid:115)(cid:0) Other revenue: $2.2m revenue growth largely derived from related ARS services (predominately PGS and NIPT). Patient Treatments IVF Treatment numbers Monash IVF Group – Australia IVF Cycles (1) Frozen embryo transfers Total IVF Patient Treatments Monash IVF Group – International IVF Cycles (1) Frozen embryo transfers Total IVF Patient Treatments Total Monash Group IVF Cycles (1) Frozen embryo transfers Total IVF Patient Treatments IVF Cycles (1) as a % of Total Patient Treatments Other Treatment numbers Ultrasound Scans Pre-implantation Genetic Screening/Diagnosis Non Invasive Prenatal Testing (NIPT) (1) Fresh cycles (IVF cycles) include cancelled cycles FY16 FY15 % Change 12.3% 12.6% 12.4% 10.3% 33.4% 19.4% 12.2% 14.0% 12.9% % Change 10,282 6,396 16,678 684 539 9,156 5,681 14,837 620 404 1,223 1,024 9,776 6,085 15,861 61.6% FY15 10,966 6,935 17,901 61.3% FY16 80,270 1,783 9,071 24,284 230.5% 1,027 2,003 73.6% 352.9% MONASH IVF GROUP Annual Report 2016 21 Directors’ Report continued Operational and Financial Review continued Patient Treatments continued IVF Patient Treatments grew by 2,040 or 12.9% to 17,901 with 12.4% growth in Australia and 19.4% growth in International. Australian Fresh cycles grew by 12.3% with 1.6% of the growth derived from the full year impact of the Monash IVF Bondi Junction acquisition in 2015. International fresh cycles increased by 10.3% reflecting growth from new doctor activity notwithstanding general economic weakness in the Malaysian market. International Frozen Embryo Transfers increased by 135 or 33.4% as the penetration of freeze all cycles increases from change of scientific protocol. Ultrasound scan volumes increased by 230.5% as compared to FY15 as a result of the Sydney Ultrasound for Women acquisition. Pre-implantation Genetic Screening/Diagnosis (PGS/D) and Non Invasive Prenatal Testing continues to grow with improvements in this technology resulting in 73.6% and 352.9% growth respectively. Expenditure before interest and tax The table below provides a summary of Expenditure before interest and tax compared to FY15: Employee expenses Clinician fees Raw materials and consumables used Marketing and advertising expense IT and communications expense Property expenses Professional and other fees Start-up and acquisition costs Other fixed costs Total operating expenditure % of Group revenues Depreciation and amortisation Total expenditure before interest and tax % of Group revenues FY16 $m 45.7 25.1 14.4 4.5 2.6 7.9 3.0 – 3.7 106.9 68.3% 4.2 111.1 71.1% % Change 34.8% 31.4% 10.7% 7.1% 0.0% 25.3% 50.0% -100.0% 42.3% 24.0% 23.5% 23.9% FY15 $m 33.9 19.1 13.0 4.2 2.6 6.3 2.0 2.5 2.6 86.2 69.0% 3.4 89.6 71.7% The following details key expenditure movements in FY16 against FY15: (cid:115)(cid:0) Employee benefits expense increased by $11.8m or 34.8%. Of the increase, 21.3% is due to full year impact from FY15 acquisitions, 2.6% increase for management incentives, 2-3% average annual wage increases, head count investment made in scientific services and additional labour costs reflecting ARS activity increases; (cid:115)(cid:0) Clinician fees increased by $6.0m or 31.4%. Of the increase, 20.9% is due to full year impact from FY15 acquisitions whilst the remaining increase is derived from higher ARS activity and commensurate with revenue growth; (cid:115)(cid:0) Raw material and consumables largely increased in line with ARS revenue growth; (cid:115)(cid:0) Marketing and advertising expense increased by $0.3m or 7.1% as greater investment was made into targeted branded marketing initiatives in Key Markets and New South Wales; (cid:115)(cid:0) Property expenses increased by $1.6m or 25.3% which is primarily due to the impact from acquisitions; (cid:115)(cid:0) Professional and other fees increased by $1.0m or 50.0% due to higher legal and consulting services; (cid:115)(cid:0) Other fixed costs increased by $1.1m or 42.3% due to acquisitions and increased ARS activity commensurate with revenue growth; (cid:115)(cid:0) Depreciation and amortisation increased by $0.8m or 23.5% largely due to additional depreciation from SUFW, Monash IVF Bondi Junction and growth assets acquired. 22 Invest in life Directors’ Report continued EBITDA growth of 27.6% whilst margins improved to 31.7% due to: (cid:115)(cid:0) Benefits of cost base leverage as we experienced strong ARS volume growth; (cid:115)(cid:0) Effective cost management; and (cid:115)(cid:0) Impact of non-recurring start up and acquisition costs in FY15. The EBITDA margin improvement was partially offset by the following: (cid:115)(cid:0) Anticipated margin dilution due to Sydney Ultrasound for Women acquisition; (cid:115)(cid:0) Low intervention ARS growth at lower than average margins; and (cid:115)(cid:0) Increase in provisions for management and fertility specialist incentives. Net interest expense The average debt levels during FY16 were higher than FY15, however interest expense is consistent with FY15 due to a lower cost of debt during the year. Taxation The effective tax rate has reduced to 29.1% compared to 30.3% in FY15 after recognition of research and development incentives available during the year and a reduction in the Malaysian corporate tax rate from 25% to 24%. Segment analysis $m Revenue Segment EBITDA (1) Reported EBITDA NPAT Australia International FY16 150.4 47.2 47.2 27.1 FY15 119.4 39.0 36.5 19.7 % change 26.0% 21.0% 29.3% 37.6% FY16 FY15 6.2 2.4 2.4 1.7 5.6 2.3 2.3 1.7 % change 10.7% 4.3% 4.3% 0.8% (1) Segment EBITDA excludes start-up and acquisition costs Key segment earnings highlights are detailed below: Australia Australia revenues increased by $31.0m (26.0%) to $150.4m vs pcp driven by: (cid:115)(cid:0) Market share growth in Key Markets and NSW; (cid:115)(cid:0) Reversion to trend IVF market growth rates; (cid:115)(cid:0) ARS Patient Treatment growth of 12.4% to 16,678; (cid:115)(cid:0) Acquisition growth from Monash IVF Bondi Junction (previously Fertility East) and Sydney Ultrasound for Women; (cid:115)(cid:0) Ramp up of lower intervention volumes, particularly BUMP IVF. Australia EBITDA growth of $10.7m (29.3%) to $47.2m. International International revenues increased by $0.6m (10.7%) to $6.2m vs pcp driven by: (cid:115)(cid:0) ARS Patient Treatment growth of 19.4% to 1,223; (cid:115)(cid:0) Revenues impacted by weakening of MYR foreign exchange against AUD. International EBITDA growth of $0.1m (4.3%) to $2.4m after investment in fertility specialists and new clinic facility. MONASH IVF GROUP Annual Report 2016 23 Directors’ Report continued Operational and Financial Review continued Sydney Ultrasound for Women (SUFW) acquisition In June 2015, the Group acquired Sydney Ultrasound for Women, a network of specialised women’s imaging clinics in Sydney, New South Wales. FY16 revenue contribution from SUFW was $17.7m (reflecting 13.6% of Group revenues) and EBITDA contribution was $4.0m. In combination with the existing Monash Ultrasound for Women clinics in Melbourne, specialised women’s imaging services now contribute 16.4% of Group overall revenues, providing greater diversification of earnings. A key benefit of the acquisition is synergies that will be derived from operating a broader women’s imaging service. Statement of financial position and Capital Metrics Balance Sheet ($m) Cash and cash equivalents Other current assets Current liabilities Net working capital Borrowings Goodwill & Intangibles Property Plant & Equipment Other assets/liabilities Net assets Capital Metrics Net Debt ($m) Leverage Ratio (Net Debt/EBITDA) (1)(2) Interest Cover (EBITDA/Interest)(1)(2) Net Debt to Equity Ratio (3) Return on Equity(4) Return on Assets (5) Jun 16 $m 8.5 9.3 (36.1) (18.3) (95.0) 254.0 15.2 (1.0) 154.9 Jun 16 86.5 1.75x 11.8x 55.9% 19.3% 10.1% Jun 15 $m 10.0 6.8 (31.7) (14.9) (106.8) 250.9 14.5 0.3 144.0 Jun 15 96.8 2.14x 9.9x 67.2% 15.9% 8.0% % change (15.0%) 36.8% (13.9%) (22.8%) (11.2%) 1.2% 4.8% (433.3%) 7.6% +/- (10.3) 0.39x 1.9x 11.3% 3.4% 2.1% (1) FY15 EBITDA reflects the full year impact of the Sydney Ultrasound for Women and Monash IVF Bondi Junction acquisitions adjusted for acquisition costs (2) EBITDA is a non IFRS measure which is used by the Group as a key indicator of underlying performance (3) Debt, net of cash balance, divided by equity at 30 June (4) NPAT for the previous 12 month period divided by average equity in the same period (5) NPAT for the previous 12 month period divided by average assets in the same period The Group continues to strengthen its balance sheet with improved net debt to equity ratio of 55.9% as compared to 67.2% in FY15. Net debt reduced by $10.3m to $86.5m after $8.2m capital expenditure, $2.6m acquisition payments and $18.1m dividend payments. In June 2016, the Group re-financed its Syndicated Debt Facility with a new $110m term debt facility and $5m working capital facility. In addition, a $40m accordion facility is available for strategic growth opportunities. The new Syndicated Debt Facility has a blended 3, 4 and 5 year maturity profile. The Group has improved its covenant ratios at 30 June. The leverage ratio is 1.75x (FY15: 2.14x) and interest cover ratio is 11.8x (FY15: 9.9x). 24 Invest in life Directors’ Report continued Statement of cash flows Net operating cash flow Cash flow from investing activities Cash flow from financing activities Net cash flow movement Closing cash balance Free cash flow(1) Jun 16 $m Jun 15 $m 44.2 (10.8) (34.8) (1.5) 8.5 33.4 36.0 (29.3) (5.5) 1.2 10.0 6.7 Change % 22.8% 63.1% (532.7%) (225.0%) (15.0%) 398.5% (1) Free cash flow is a non-IFRS measure used by the Group as a key indicator of cash generated from operating and investing activities. Calculated as Net cash flow generated from operating activities less Net cash flows used in investing activities Key cash flow highlights are as follows: (cid:115)(cid:0) Strong cash flow generation with a pre-tax conversion of operating cash flow to EBITDA of 99.1% (FY15: 103.3%); (cid:115)(cid:0) Free cash flow increased to $33.4m or ~400% strengthening cash available for dividends, debt repayments and growth opportunities; (cid:115)(cid:0) Financing activities include debt reductions of $11.8m and $18.1m dividends paid in FY16; and (cid:115)(cid:0) Investing activities include capital expenditure of $8.2m on patient management system, non-invasive pre-natal testing technology, new IVF facilities on the Gold Coast and Kuala Lumpur, and equipment replacement. Dividends The Board has declared a fully franked final dividend of 4.5 cents per share (FY15: 3.7cps) representing a 21.6% increase on pcp. Therefore the total fully franked dividend per share for FY16 is 8.5cps (FY15: 6.95cps) representing a dividend payout ratio of 70%. The record date for determining this entitlement is 7 September 2016 and the payment date is 14 October 2016. Outlook Monash IVF Group is well positioned to continue to grow its revenues and earnings in FY17 as a result of: (cid:115)(cid:0) Strong underlying demand fundamentals for ARS and women’s imaging services; (cid:115)(cid:0) Market leading success rates and a highly respected doctor group; (cid:115)(cid:0) Effective cost management and leverage from its international and domestic business; and (cid:115)(cid:0) Acquisitive growth strategy, both domestically and internationally. Further commentary will be provided at the 2016 Annual General Meeting. MONASH IVF GROUP Annual Report 2016 25 Directors’ Report continued Operational and Financial Review continued Business strategies and prospects for future financial years The Group’s strategy remains consistent and focused, to profitably grow our business through leveraging our scientific capabilities and scale across the clinic network both domestically and internationally. The key initiatives to deliver the profitable growth are outlined below: Science, technology and patient success The Group is responsible for significant industry advancements and this success and innovation continues to drive a culture of excellence and passion throughout the Group’s network of clinicians and scientists. This ethos and capability enables the Group to continue to develop industry leading science and technology, deliver clinically superior services to existing and future patients and increase market penetration. The Group will continue to invest and expand its range of services offered to patients whilst improving its scientific and clinical practices. Additionally, the Group is focussed on investing in its people through development opportunities and training programs. To enhance medical and commercial engagement across the growing network, two new peak doctor committees were formed during FY16. The Group Medical Advisory Committee (GMAC) was established to identify and promulgate best in breed clinical processes and the Group Medical Executive Committee (GMEC) was established to engage doctors in commercial decision making across the Group. These initiatives are expected to derive greater collaboration across the vast network and large group of specialists to ultimately aid scientific progress and sharing. During 2016, the Monash IVF Group Research and Education Foundation (MREF) combined its activities with the research team at Repromed and the University of Adelaide, to strengthen the research potential and capability across the Group. The alignment of the Group’s world leading research teams reinforces and solidifies Monash IVF Group as a leader in scientific and clinical innovation driven by a philosophy of excellence in science. Clinic expansion and acquisitions The Group continues to identify and assess opportunities for clinic expansion both domestically and internationally. These opportunities are geared to increase the Group’s scale and market position in women’s health, including ARS and imaging services. The Group is experiencing strong growth in Malaysia and subject to meeting our investment criteria, we are looking to build our international business, particularly in the Asian region, in the forthcoming years. The Group remains open to expansion through complementary and adjacent opportunities in the broader women’s health sector. Lower intervention The Group strategically positions the ARS lower intervention offering as a complementary service to its larger full service business. Both MyIVF in Brisbane and BUMP IVF in Sydney are ramping up and are now making an improved contribution to Group earnings. The Group is focussed on refining its lower intervention model and may consider expansion into suitable locations. Lower intervention currently reflects 5.6% of total ARS Patient Treatments across the Group and strategically, the Group expects lower intervention Patient Treatments to represent less than 10% of total Patient Treatments. Business risks The Monash IVF Group continually considers the benefits of implementing a risk management framework, all of which contributes to the increased likelihood that the Group will be able to achieve its organisational objectives. Accordingly, the Group has developed a risk management framework and has implemented systematic processes to: (cid:115)(cid:0) Better identify opportunities and threats; (cid:115)(cid:0) Prevention of potential risks from being realised; (cid:115)(cid:0) Reduction of the element of chance; Increased accountability and transparency for decisions; (cid:115)(cid:0) (cid:115)(cid:0) More effective allocation and use of resources; (cid:115)(cid:0) (cid:115)(cid:0) Improved incident management and reduction in loss and the cost of risk; Improved stakeholder confidence and trust; Improved compliance with relevant legislation and accreditation processes; (cid:115)(cid:0) (cid:115)(cid:0) Proactive rather than reactive management; and (cid:115)(cid:0) Enhanced governance. 26 Invest in life Directors’ Report continued The risk management framework together with the risk assessments and mitigation strategies are regularly reviewed both individually and collectively by the Senior Management Committee, the Audit and Risk Management Committee and the Board. A simple prioritisation system has been adopted to scale the relative importance of all the identified risks. From review of the Group’s key business, operational and financial risks, processes are in-place to reduce the inherent nature of these risks to an acceptable and manageable level. As a result, the Group does not have any ‘high’ priority residual risks. Notwithstanding this, the Group considers the below as important risks that will need continued management to ensure the Group meets its objectives: Change in Government funding arrangements for Assisted Reproductive Services There is a risk that the Commonwealth Government will change the funding (including levels, conditions or eligibility requirements) it provides for Assisted Reproductive Services (ARS). Patients receive partial re-imbursement for ARS treatment through Commonwealth Government Programs, including the Medicare Benefit Schedule (MBS) and Extended Medicare Safety Net (EMSN). If the level of re-imbursement were to be reduced or capped, patients would face higher out-of-pocket expenses for ARS potentially reducing the demand for services provided by the Group. The Group is not aware of any changes to Commonwealth Government funding for ARS in the short to medium term. Risk of increased competition In each of the markets the Group operates in, there is a risk that: (cid:115)(cid:0) Existing competitors may undertake aggressive marketing campaigns, product innovation or price discounting; (cid:115)(cid:0) New competitors may launch fertility treatments, including ARS; and (cid:115)(cid:0) Low cost offerings provided by competitors, reducing the Group’s market share. The Group closely monitors competitor activity and is in a position to respond to any adverse actions by existing or new competitors. The Group is focussed on enhancing its premium offering which includes: (cid:115)(cid:0) Quality of science and breadth of service offerings; (cid:115)(cid:0) Reputation and availability of doctors; (cid:115)(cid:0) Best-of-breed scientists and embryologists; (cid:115)(cid:0) Location and accessibility of fertility clinics; (cid:115)(cid:0) Strong sales and marketing capability; and (cid:115)(cid:0) Strength of brand. Matters subsequent to the end of the financial year On 26 August 2016, a fully franked final dividend of 4.5 cents per share was declared. The record date for the dividend is 7 September 2016 and the payment date for the dividend is 14 October 2016. Except as disclosed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial periods. Environmental regulations The Group is not subject to any significant environmental regulations under Commonwealth or State legislation. MONASH IVF GROUP Annual Report 2016 27 Directors’ Report continued Information on Directors Director Mr Richard Davis Independent Chairman Member of Audit & Risk Management Committee Member of Remuneration & Nomination Committee Mr Josef Czyzewski Independent Non-executive Director Chair of Audit & Risk Management Committee Member of Remuneration & Nomination Committee Ms Christina (‘Christy’) Boyce Independent Non-executive Director Chair of Remuneration & Nomination Committee Member of Audit & Risk Management Committee Mr Neil Broekhuizen Non-executive Director 28 Invest in life Experience Mr. Richard Davis joined the Group in June 2014 and is currently serving as a non-executive director of ASX listed companies, InvoCare Limited and Australian Vintage Limited (and Chairman of Australian Vintage Limited). Richard worked for InvoCare Limited for 20 years until 2008. For the majority of that time he held the position of CEO and managed the growth of that business through a number of ownership changes and over 20 acquisitions, including offshore in Singapore. Prior to InvoCare Limited, Richard worked in venture capital and as an accounting partner of Bird Cameron. Richard holds a Bachelor of Economics from the University of Sydney. Mr. Josef Czyzewski joined the Group in June 2014 and has over 30 years of experience in senior finance positions and significant experience in the health industry. Josef has held the positions of CFO at Healthscope Limited, and more recently CFO/General Manager Strategy and Development at Spotless Group Limited following its takeover by private equity interests in 2012. Josef has held various senior finance positions with BHP Billiton Limited and served as a non-executive chairman of CSG Limited. He holds a Bachelor of Commerce from the University of Newcastle and is a Graduate Member of the Australian Institute of Company Directors. Ms Christy Boyce joined the Group in June 2014. Christy is also a director of Port Jackson Partners and a non-executive director of ASX listed company, Greencross Limited and Oneview Healthcare. Christy has over 20 years of management consulting experience in both Australia and the United States and has worked extensively with major corporations on corporate strategy. Prior to joining Port Jackson Partners, Christy spent 14 years with McKinsey and Company, where she was a partner. She holds a Bachelor of Economics from the University of Sydney, a Masters of Management from the Kellogg Graduate School of Business (Northwestern University) and is a Graduate Member of the Australian Institute of Company Directors. Mr. Neil Broekhuizen is the Joint Chief Executive Officer of Ironbridge. Neil has 23 years of private equity experience with Investcorp and Bridgepoint in Europe and Ironbridge in Australia. Neil has sat on the Ironbridge Investment Committee since inception and also represents the Ironbridge Funds on the Board of Bravura Solutions. Neil is qualified as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. Directors’ Report continued Director Experience Mr Benjamin (‘James’) Thiedeman Chief Executive Officer Mr James Thiedeman joined the Group in 2009. James has spent the last 25 years working in healthcare in both the public and private sectors. Dr Richard Henshaw Executive Director Prior to joining the Group, he was the CEO of Noosa Private Hospital on Queensland’s Sunshine Coast and has held senior roles with Ramsay Health Care, Affinity Health, Mayne Health and Health Care of Australia. Before moving to the private health industry, James held senior policy and planning positions in the public sector. James holds a Bachelor of Business (Health Administration) from the Queensland University of Technology, an MBA from Griffith University and is a Member of the Australian Institute of Company Directors. Dr Richard Henshaw has practiced in the field of reproductive medicine in both the United Kingdom and Australia for the past 22 years. Richard works as a Fertility Specialist for the Group and is the National Medical Director of Repromed. He previously worked for Monash IVF in Victoria. Richard has served as Chairman of the IVF Medical Directors of Australia and New Zealand, and also on the Reproductive Technology Accreditation Technical Committee, which reviews the regulatory regime in place in Australia and New Zealand. Company Secretary Mr Michael Knaap was appointed to the role of Group Chief Financial Officer (CFO) and Company Secretary on 31 August 2015. Michael has more than 15 years’ experience in senior finance executive roles in the FMCG sector in both listed and unlisted organisations. Michael’s role prior to joining Monash IVF Group was with Patties Foods Limited where he held a number of executive positions in 6 years, including the role of CFO and Company Secretary. Michael holds a Bachelor of Accounting from Monash University and is a Certified Practising Accountant. Mr. Rodney Fox resigned as CFO and Company Secretary and ceased employment on 4 September 2015. Director meetings The number of directors’ meetings and number of meeting attended by each of the directors of the Company during the financial year are: Mr Richard Davis (Chair) Mr Josef Czyzewski Ms Christy Boyce Mr Neil Broekhuizen Dr Richard Henshaw Mr Benjamin (‘James’) Thiedeman Attended Held 11 11 11 10 10 11 11 11 11 11 11 11 MONASH IVF GROUP Annual Report 2016 29 Directors’ Report continued Remuneration Report – Audited The Company’s Directors present the 2016 Remuneration Report prepared in accordance with Section 300A of the Corporations Act 2001, for the Company and the Group for the year ending 30 June 2016 (“FY16”). The information provided in this Remuneration Report has been audited by KPMG as required by Section 308(3C) of the Corporations Act 2001. The Remuneration Report forms part of the Directors’ Report. The Remuneration Report outlines the remuneration strategies and arrangements for the Key Management Personnel (KMP), who have authority and responsibility for planning, directing and controlling the activities of Monash IVF. Introduction The Board varies rewards to Management in accordance with short and longer term financial and clinical performance. Because fixed remuneration sits at or below industry benchmarks, a higher proportion of remuneration is at risk relative to industry peers. The reward framework encourages a strategy of driving existing Monash clinic performance improvement as well as judicious merger and acquisition to expand Monash’s footprint domestically and internationally. As indicated last year, a revised rolling annual Long Term Incentive (LTI) grant was introduced in 2016. CEO share right grants for the 2016 LTI remain subject to shareholder approval. The executive LTI grant has two tranches with each subject to an independent measure of performance. Half the grant will be subject to EPS compound annual growth over 3 years. The other half of the grant is subject to total shareholder return relative to the ASX 300 Healthcare Accumulation Index. Vesting for both performance requirements is graduated, with 20% vesting on reaching threshold performance, 100% vesting on reaching maximum performance, and pro rata vesting in between. In FY16, our second year as a publicly listed company, we have grown our market presence and share whilst integrating and capturing the financial benefits of acquisitions executed in FY15, which contributed to a net profit after tax growth in FY16 of 34.6% versus the prior year. Given the financial performance and achievement of qualitative measures, realised remuneration in FY16 includes base pay and an STI payment. The quantitative tranche of the STI grant was dependent on the achievement of target EBITDA. Given this target was met and there were substantial achievements in non-financial areas, the Board awarded full or partial STI payments to management. No LTI vested, as a performance test on the first grant is not due until FY2017. The remainder of this report outlines the Company’s policy and practice in greater detail. 1.0 Remuneration Snapshot 1.1 Remuneration Governance The Board is ultimately responsible for remuneration decisions. To assist the Board’s governance and oversight of remuneration, this is delegated to the Remuneration and Nomination Committee (Committee). Under the Remuneration and Nomination Committee charter, it must have at least three members, the majority of whom (including the Chair) must be independent Directors and all of whom must be non-executive Directors. The Committee is composed of the three independent directors and is chaired by Ms Christina Boyce. Ms Boyce was appointed Chair of the Remuneration and Nomination Committee on 4 June 2014. Mr Davis and Mr Czyzewski were appointed on 4 June 2014. During FY16, the Remuneration and Nomination Committee met five times with full attendance by all members. The Remuneration and Nomination Committee may invite the CEO and CFO/Company Secretary to attend Committee meetings to assist in deliberations (excluding matters relating to their own employment). 30 Invest in life Directors’ Report continued From time to time, the Remuneration and Nomination Committee seeks independent external advice on the appropriateness of the remuneration framework and remuneration arrangements. No recommendations as defined in section 9B of the Corporations Act were received in FY16. The Committee is responsible for reviewing and making recommendations to the Board with respect to the following issues: (cid:115)(cid:0) Executive recruitment, retention and termination policies and other employee benefits (cid:115)(cid:0) Appropriate remuneration of senior executives and executive Directors, including the structure and payment of Short Term Incentives (“STI”) and Long Term Incentives (“LTI”), including equity based plans (cid:115)(cid:0) Senior executive and executive director performance evaluation (cid:115)(cid:0) Senior executive and executive director succession planning (cid:115)(cid:0) Structure of LTI plan offered to Fertility Specialists (cid:115)(cid:0) Composition, size, diversity and expertise of the Board and its sub-committees (Audit & Risk and Remuneration & Nominations) (cid:115)(cid:0) Evaluation of Director, Board and Board sub-committee performance (cid:115)(cid:0) Board and Director succession planning, nominations and development (cid:115)(cid:0) Transparent disclosure of the Company’s remuneration policies and requirements (cid:115)(cid:0) The company’s superannuation arrangements. The Remuneration and Nomination Committee Charter is available on the Company’s website at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance. The Charter is reviewed annually and was last reviewed in June 2016. Further information on the Remuneration and Nomination Committee is provided in the Corporate Governance Statement in this Annual Report. 1.2 Principles used to determine the nature and amount of remuneration The executive remuneration framework is designed to: (cid:115)(cid:0) Assist in attracting and retaining exceptional people, rewarding capability and experience (cid:115)(cid:0) Focus management on both financial and non-financial drivers of economic value (cid:115)(cid:0) Align management incentives with long term value creation for shareholders (cid:115)(cid:0) Vary remuneration realised with performance and shareholder returns (cid:115)(cid:0) Allow clear and transparent disclosure of remuneration arrangements of relevant employees to the market (cid:115)(cid:0) Control for market and operational risk appropriate for the required shareholder returns (cid:115)(cid:0) Provide fair and consistent remuneration across the Group consistent with corporate values and principles. The Group’s performance metrics on which pay can be varied support: (cid:115)(cid:0) Continued profitable development and expansion of the business (cid:115)(cid:0) Delivery of safe, high quality clinical care for its patients (cid:115)(cid:0) Maintenance of a safe working environment for its people (cid:115)(cid:0) Effective and appropriate engagement with Government and regulatory bodies. MONASH IVF GROUP Annual Report 2016 31 Directors’ Report continued Remuneration Report – Audited continued 2.0 Remuneration Policy 2.1 Executive remuneration policy For the majority of senior executives, total remuneration consists of: (cid:115)(cid:0) Fixed annual remuneration including base pay, superannuation and leave entitlements (cid:115)(cid:0) Short term incentives (cid:115)(cid:0) Long term incentives. The Group’s remuneration framework for FY16 for the CEO and CFO has three components, two of which vary with performance. TFR levels sit at or below industry benchmarks. A higher proportion of remuneration is at risk relative to peers. The remuneration structure is designed so that there is a remuneration opportunity that varies with the level of position accountability. The diagram below summarises the framework for FY16. The framework will be reviewed each year. Executive Remuneration Framework Total Fixed Remuneration (TFR) At Risk Remuneration Comprises: Short Term Incentives (STI) Long Term Incentives (LTI) (cid:115)(cid:0) Cash salary; (cid:115)(cid:0) Salary sacrifice items; and (cid:115)(cid:0) Employer Superannuation contributions in line with statutory obligations. TFR is determined on the basis of market rates (where applicable) and the size and complexity of the role and the individual’s skill and experience relative to position requirements. TFR is at or below median for companies of similar size. Total fixed annual remuneration (cid:115)(cid:0) Budgeted EBITDA (cid:115)(cid:0) Specific Business Unit EBITDA (cid:115)(cid:0) Up to 50% of STI is at risk if certain qualitative measures are not achieved. EPS Hurdles based on Pre-defined growth rates over 3 year period. TSR Hurdle based on Group’s relative TSR performance againstASX300 Healthcare Index. Comprise of share rights which vest in accord with 3 year EPS growth and relative TSR above a threshold performance requirement. Total fixed remuneration (TFR) consists of base remuneration (which is calculated on a total cost basis) as well as non-monetary benefits and superannuation. TFR levels are reviewed annually by the Remuneration and Nomination Committee through a process that considers market rates and individual experience in the position. TFR is also reviewed on promotion. There are no guaranteed increases in base pay or superannuation included in executive contracts. KMP TFR sits at or below median for companies of similar size. 32 Invest in life Directors’ Report continued Short-term incentives Short term incentive plan overview: STI Structure 50% Financial Measure (cid:115)(cid:0) Group EBITDA (cid:115)(cid:0) Key Markets EBITDA 50% Non-Financial Measure (cid:115)(cid:0) Quality (cid:115)(cid:0) Capability and Capacity Less than 95% of budget 0% Payable 95% of budget Minimum performance for payment. Set with reference to analyst consensus post FY 15 results. 25% Payable Budget performance Stretch is built into budget 100% Payable No qualitative objectives achieved 0% Payable All qualitative objectives achieved Up to 100% Some but not all qualitative objectives achieved Proportion payable depending on extent, number and weighting of qualitative objectives achieved Executive KMP are eligible to receive an STI payment. The Group’s STI is an incentive to focus on board prioritised requirements for the financial year. It focuses on a financial measure for up to 50% of the maximum payable, and key non-financial measures for the other 50%. The financial measure is Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA is normalised and compared to budget EBITDA to assess achievement. EBITDA may be normalised by adjustment for any amounts in respect of the period for individually significant, non-recurring, abnormal or unusual gains or losses of the Group, whether realised or unrealised. The amount allocated for EBITDA achievement is 50% of the maximum STI. Threshold performance is 95% of budget which is broadly in line with analyst consensus post the FY2015 result announcement. At this level, 25% of the amount allocated for EBITDA achievement is payable. Maximum EBITDA performance is set at 100% or more of a stretch budget, at which the entire amount allocated for EBITDA is payable. Achievement between these two levels of performance results in a pro-rata payment of STI. Non-financial measures focus management on market share, business efficiency, clinical outcomes, doctor relationships, risk management (including occupational health and safety) and team development. KMP executives had 9 non-financial objectives. Each has a weighting which sum to 50% of the maximum STI. Achievement of a non-financial objective is binary, that is, it is either achieved or not achieved. The amount of STI paid for the non-financial objectives is the sum of weightings for the objectives achieved. The Board retains the right to exercise negative discretion on Non-Financial KPI achievement if Financial KPIs are not achieved. This was exercised in FY15. STI is paid in cash after annual results have been audited. MONASH IVF GROUP Annual Report 2016 33 Directors’ Report continued Remuneration Report – Audited continued 2.0 Remuneration Policy continued 2.1 Executive remuneration policy continued Long-term incentive plan Executive KMP are eligible to receive an LTI grant. Fertility Specialists are eligible to participate in the Fertility Specialist LTI. Mr James Thiedeman (CEO) and the CFO are eligible to participate in the Senior Executive LTI Plan. Professor Michelle Lane, (COO) became eligible in FY16, however as a result of her ceasing as a KMP on 16 November 2015, post re-organisation of management structure resulting in Professor Lane’s appointment as Regional Manager – NSW, SA & NT, she is no longer eligible to participate in the Senior Executive Plan. Dr. Richard Henshaw, an Executive Director, will not be eligible to participate in the Fertility Specialist LTI given he does not meet the eligibility criteria of being a fee for service fertility specialist. Grants under both Plans are subject to the following conditions: (cid:115)(cid:0) The invitations issued to eligible persons will include information such as award conditions and, upon acceptance of an invitation, the Directors will grant awards in the name of the eligible person. Awards may not be transferred, assigned or otherwise dealt with except with the approval of the Directors. (cid:115)(cid:0) Awards will only vest where the conditions advised to the participant by the Directors have been satisfied. An unvested award will lapse in a number of circumstances, including where conditions are not satisfied within the relevant time period, or in the opinion of the Directors, a participant has committed an act of fraud or misconduct or gross dereliction of duty. If a participant’s engagement with the Company (or one of its subsidiaries) terminates before an award has vested, the Directors may determine the extent to which the unvested awards that have not lapsed will become vested awards or, if the award offer does not so provide and the Board does not decide otherwise, the unvested awards will automatically lapse. (cid:115)(cid:0) Awards are subject to malus and clawback conditions whereby the Board may, in its discretion, and subject to applicable laws, determine the performance rights or shares already allocated following the vesting or exercise of a performance right are forfeited, recovered or the conditions modified. The Board’s decision in regards to unfair benefits obtained by the participant is final and binding. (cid:115)(cid:0) Where there is a takeover bid or a scheme of arrangement proposed in relation to the Company, the Directors may determine that the participant’s unvested awards will become vested awards. In such circumstances, the Directors shall promptly notify each participant in writing that the awards have become vested awards, or that he or she may, within the time period specified in the notice and where applicable in accordance with the class or category of award, exercise such vested awards. A participant is not entitled to participate, in their capacity as holder of awards, in any new issue of shares in the Company, nor in any return of capital, buyback or other distribution or payment to shareholders, unless the Board determines otherwise. In the event of a bonus issue or rights issue, the rights of the award will be altered in a manner (if any) determined by the Board, consistent with the ASX Listing Rules. (cid:115)(cid:0) (cid:115)(cid:0) In the event of any reorganisation of the issued ordinary capital of the Company before the exercise of an award, the number of shares attached to each award will be reorganised in the manner specified in the LTI plan and in accordance with the ASX Listing Rules or, if the manner is not specified, the Board will determine the reorganisation. In any event, the reorganisation will not result in any additional benefits being conferred on participants which are not conferred on shareholders of the Company. (cid:115)(cid:0) Participants who hold an award issued pursuant to the LTI plan have no rights to vote any shares under the LTI award at meetings of the Company until that award has vested (and is exercised, if applicable) and the participant is the holder of a valid share in the Company. Shares acquired upon vesting of the award will, upon issue, rank equally in all respects with other shares. (cid:115)(cid:0) No award or share may be offered under the LTI plan if to do so would contravene the Corporations Act, the ASX Listing Rules or instruments of relief issued by ASIC from time to time. 34 Invest in life Directors’ Report continued Senior Executive LTI Overview of current Senior Executive LTI: Performance Rights granted Relative Total Shareholder Return EPS Compound Annual Growth Rate (“TSR Hurdle”) (“EPS Hurdle”) 50% of allocation subject to the hurdle 50% of allocation subject to the hurdle Vesting Framework Vesting Framework The TSR component of the allocation will be measured at the end of the 3 year performance period relative to the ASX300 Healthcare Accumulation Index (Index) performance. 20% will vest at threshold performance when TSR equals Index returns, 100% vest at maximum performance if TSR equals Index returns +5% on an annualised basis, with pro rate vesting between threshold and maximum. The EPS component of the allocation will be measured at the end of the 3 year performance period. 20% will vest at threshold performance, 100% vest at maximum performance, with pro rata vesting between threshold and maximum. EPS threshold performance is 10% per annum over the 3 year period Senior Executive LTI Grant – FY16 The LTI plan is a performance rights plan with vesting rights dependent upon the satisfaction of pre-defined performance hurdles and continuous employment. As indicated in the last remuneration report, LTI grants will be issued on a rolling annual basis. This ensures executives maintain a continuous focus on sustainable long term growth and returns, and provides an appropriate balance to the focus on annual results demanded by the STI. The performance period for these rights is 3 years from 1 July 2015 to 30 June 2018. The executives did not pay any money to be granted those performance rights. The expiry date of the rights will be on the fifth anniversary of their grant. The performance rights will be delivered as share rights with disposal restrictions. The CEO and CFO were granted 163,425 and 70,144 performance rights respectively. However, the CEO grant remains subject to, and is conditional upon, shareholder approval at the 2016 Annual General Meeting. Current performance hurdles are based on achievement of pre-defined EPS Hurdles and a TSR Hurdle over a three year performance period. The performance hurdles for each tranche of performance rights are independent, and it is possible for one tranche to vest even if the other does not. In each case, the performance hurdles will only be measured once and there will be no retesting. No value will be received if the performance hurdles are not met and the rights do not vest. The Senior Executive performance rights granted include terms which provide that, on vesting, each performance right is exercisable into one share (subject to adjustments in accordance with the ASX Listing Rules for certain capital actions). These performance rights were granted in two tranches, with each tranche subject to separate vesting conditions based upon external measures as follows: Earnings Per Share. The hurdle for 50% of the rights is based on an earnings per share hurdle which measures the compound growth of the Company’s basic earnings per share (‘EPS’) over a three year period from 1 July 2015 to 30 June 2018. Basic EPS is subject to audit applying the requirements of Australian Accounting Standard AASB 133. The base EPS is the FY2015 EPS of 9.2c. No vesting occurs up to a threshold level of EPS growth of 10% per annum. Twenty percent will vest at threshold performance, 100% will vest at maximum performance, with pro rata vesting between threshold and maximum. The target and threshold hurdle are set with reference to the Board’s expectations of long term growth and the forward market consensus. In FY16 EPS performance requirements were set to encourage executive KMP’s in the undertaking of judicious merger and acquisition to expand Monash’s footprint domestically and internationally. Further details of EPS growth requirements and the proportion of the grants that vest (if any) will be disclosed in FY2019. MONASH IVF GROUP Annual Report 2016 35 Directors’ Report continued Remuneration Report – Audited continued 2.0 Remuneration Policy continued 2.1 Executive remuneration policy continued Senior Executive LTI Grant – FY16 continued Relative Total Shareholder Return. The hurdle for the other 50% of the rights is based on the Company’s total shareholder return (‘TSR’) relative to the ASX300 Healthcare Accumulation Index (Index) from 1 July 2015 to 30 June 2018. In respect of this tranche, no performance rights will vest if the TSR performance is less than the Index performance. Twenty percent will vest at threshold performance when TSR equals Index returns, 100% vest at maximum performance if TSR equals Index returns +5% on an annualised basis, with pro rata vesting between threshold and maximum. TSR is calculated based on the closing share price, adjusted for dividends and capital movements, as at the start of the performance period and the end of the performance period. In FY16 the Board has redefined the TSR reference peer group to the Index as it is considered a more transparent and readily available measure, whilst including an increased range of companies with similar business characteristics to the Company. The graduated vesting scale in the senior executive LTI plan was designed to minimise the likelihood of excessive risk taking as a performance threshold is approached. The Board believes this vesting framework strengthens the performance link over the long-term and accordingly encourages executives to focus on long-term performance. The Board also acknowledges that the value of certain strategic initiatives may take several years to deliver. Prior year legacy Senior Executive LTI Grant – FY15 Options were granted to the CEO and the former CFO on 30 July 2014. The key terms and conditions attached to that grant of options are set out below: These options were granted in two tranches, with each tranche subject to separate vesting conditions based upon external measures as follows: Earnings Per Share. The hurdle for 50% of the options is based on an earnings per share hurdle which measures the compound growth in the Company’s earnings per share (‘EPS’) growth over a three year period. No vesting occurs up to a threshold level of EPS growth of 8% per annum and then vests directly proportionally between the threshold and a maximum specified performance requirement. Further details of EPS growth requirements and the proportion of the grants that vest (if any) will be disclosed in FY2018. Relative Total Shareholder Return. The hurdle for the other 50% of the options is based on the Company’s total shareholder return (‘TSR’) relative to a peer group of ASX listed companies determined by the Board over the three year performance period. In respect of this tranche, no options will vest if the TSR performance is less than the 50th percentile, 50% will vest at median (i.e. the 50th percentile). TSR performance and vesting thereafter will be determined on a straight line scale, with 100% vesting if the TSR performance is greater than or equal to the 75th percentile. TSR growth is calculated based on the closing share price, adjusted for dividends and capital movements, as at the start of the performance period and the end of the performance period. The performance hurdles for each tranche of options are independent, and it is possible for one tranche to vest even if the other does not. In each case, the performance hurdles will only be measured once and there will be no retesting. The expiry date of the options will be on the fifth anniversary of their grant. The options will be delivered as share rights with associated disposal restrictions. No value will be received if the performance hurdles are not met and the options do not vest. Given the departure of the former CFO early in FY16, his options were forfeited. 36 Invest in life Directors’ Report continued Doctors LTI programme The Remuneration and Nomination Committee implemented an LTI plan for Fertility Specialists, including those considered KMP executives, in FY2016. The plan was developed to recognise and reward the ongoing contribution from our clinicians. Dr. Richard Henshaw, an Executive Director, will not be eligible to participate in the Fertility Specialist LTI given he does not meet the eligibility criteria of being a fee for service fertility specialist. The Doctors LTI has two tranches subject to independent performance requirements: 1. A Practice Development Award; and 2. A Key Doctor Award Participation is subject to a number of qualitative criteria aligned with the patient experience and clinical excellence. Both tranches also require growth in the number of Fresh Cycles(1) above a threshold requirement. The Practice Development Award recognises the consistent development of a fertility specialist’s practice at above industry growth rates. The Practice Development Award is calculated based on the annual average number of “Growth Cycles” they perform in year 1 and maintain over the subsequent two years. Growth Cycles reflect growth over and above the long term industry average. The payment will be paid in the form of 50% cash and 50% MVF shares. Any share allocated will be subject to escrow conditions applicable to current holdings (see section 4.1 in Financial Report). The Practice Development Award will vest on the final day of the Growth Maintenance Period being the 30 June 2018, subject to the eligible Doctor remaining contracted to MVF at the end of the vesting period which is when the number of Fresh Cycles have been audited after the close of FY2018. The Key Doctor Award recognises the significant contribution of key fee-for-service fertility specialists and their commitment to the development of Monash IVF. It is a reward and retention device. It is calculated based on the total number of Fresh Cycles achieved over a base level of 250 fresh cycles. The performance period is 4 years. The volume must be attained after the first year (FY2016), and be maintained for a further 3 years (FY2017 – FY2019). The Award Payment will be paid in the form of 50% cash and 50% MVF shares. The Board has the discretion to decide to pay the total Award Payment as cash. Any share allocated will be subject to similar escrow conditions as current holdings (see section 4.1 in Financial Report). The Key Doctor Award will vest post the final day of the Growth Maintenance Period being the 30 June 2019, provided the eligible Doctor remains contracted to MVF at the end of the vesting period. 2.2 Non-executive Director (NED) remuneration policy Under the constitution, the Directors decide the total amount paid to all Directors as remuneration for their services as Directors. However, under the ASX Listing Rules, the total amount paid to all Directors for their services must not exceed in aggregate in any financial year, the amount fixed by the Company in a general meeting. This amount has been fixed by the Company at $750,000. For the 2016 financial year, the fees payable to the current NEDs are $420,000 in aggregate. Role Base fees Chair Other non-executive directors Additional fees Audit & risk committee – chair Audit & risk committee – member Remuneration & Nomination committee – chair Remuneration & Nomination committee – member (1) Medicare Benefit Schedule item #13200 and #13201. In addition, social egg freezing is included. $ 130,000 80,000 15,000 7,500 10,000 5,000 The Board has determined that Directors fees will increase by 5% in FY17 for the main board and Audit and Risk Committee. There were no Director fees increase in FY16. Remuneration and Nomination Committee fees will be brought into line with the Audit and Risk Committee fees reflecting similar workloads. MONASH IVF GROUP Annual Report 2016 37 Directors’ Report continued Remuneration Report – Audited continued 3.0 Executive and Non-Executive remuneration 3.1 Remuneration Summary The Executive Remuneration outcomes for FY16 for the CEO and KMP Executives reflect the performance outcomes achieved over the year. Executive Component Commentary CEO Fixed Remuneration Short Term Incentives Long term incentives – Performance Rights $407,732 per annum (effective 1 July 2015). This sits below market median for companies of comparable size. The CEO has the opportunity to earn an annual incentive up to 75% of his fixed remuneration package based on meeting certain defined criteria. The FY16 STI criteria were subject to both financial (50%) and non-financial (50%) outcomes. EBITDA achieved was $49.6m, which was above the stretch target. Non financial measures include strategy review and development (including acquisition and science); risk management; investor relations; employee engagement and development; and Fertility Specialist engagement recruitment and retention. Given EBITDA target was 100% met, along with 74% of the non financial targets, STI was payable at 87%, equal to $266,041. 163,425 Performance Rights were granted to the CEO subject to shareholder approval at the 2016 AGM. These rights vest at the end of the performance period, subject to meeting certain EPS and TSR outcomes. No rights were eligible to vest during 2016. Notice period 6 months Term of agreement No fixed term CFO Fixed Remuneration Short Term Incentives Long term incentives – Performance Rights Fixed remuneration of $350,000 per annum for the CFO was benchmarked against industry peers and reflects the market for the role and relative size of the Company. The CFO has the opportunity to earn an annual incentive up to 30% of his fixed remuneration package based on meeting certain defined criteria. The FY16 STI criteria were subject to both financial (50%) and non-financial (50%) outcomes. EBITDA achieved was $49.6m, which was above the stretch target. Non financial measures include financial reporting, risk and debt management, and business integration. Given EBITDA target was 100% met, along with 100% of the non financial targets, STI was payable at 100%, equal to $105,000. 70,144 Performance Rights were granted to the CFO during FY2016. These rights vest at the end of the 3 year performance period, subject to meeting certain EPS and TSR outcomes. No rights were eligible to vest during 2016. Notice period 3 months Term of agreement No fixed term Executive Director Fixed Remuneration Fixed remuneration of $348,324 per annum for the Executive Director was benchmarked against industry peers and reflects the market for the role and relative size of the Company. Notice period 6 months Term of agreement No fixed term 38 Invest in life Directors’ Report continued The following table shows the proportional weighting of each element of remuneration for each of the senior executives based on achieving target performance: James Thiedeman Michael Knaap Richard Henshaw Fixed Remuneration (%) Short Term Incentive (%) Long Term Incentive (%) 44.5% 64.5% 100.0% 33.3% 19.4% Nil 22.2% 16.1% Nil 3.2 Details of remuneration for Key Management Personnel Key Management Personnel (“KMP”) KMP have authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors of the Company and other executives. KMP comprise the directors of the Company and the senior executive for the Group named in this report. Name Position Period Covered Under This Report Non-Executive Directors Mr. Richard Davis Ms. Christina Boyce Mr. Josef Czyzweski Mr. Neil Broekhuizen Executive Directors Non-executive Chairman Non-executive Director Non-executive Director Non-executive Director Mr. Benjamin Thiedeman Chief Executive Officer Dr. Richard Henshaw Executive Director Full Financial Year Full Financial Year Full Financial Year Full Financial Year Full Financial Year Full Financial Year Other KMP Mr. Michael Knaap Mr. Rodney Fox Chief Financial Officer & Company Secretary Chief Financial Officer & Company Secretary 31 August 2015 to 30 June 2016 1 July to 31 August 2015 Professor Michelle Lane Chief Operating Officer 1 July to 16 November 2015 MONASH IVF GROUP Annual Report 2016 39 Directors’ Report continued Remuneration Report – Audited continued 3.0 Executive and Non-Executive remuneration continued 3.2 Details of remuneration for Key Management Personnel continued Key Management Personnel (“KMP”) continued The following tables show details of the remuneration received by the Group’s KMP for the current and prior financial years. 2016 Post employment benefits Super- annuation benefit Other long-term benefits Termination benefits Share based payments Rights Short term employee benefits Salary & fees STI Cash bonus Non- monetary benefits $ Non-executive Directors Mr Richard Davis 130,137 Mr Josef Czyzewski Ms Christina Boyce Mr Neil Broekhuizen (1) Total non-executive Directors Executive Directors 91,324 89,041 80,000 390,502 $ – – – – – Mr Benjamin Thiedeman 389,554 266,041 Dr Richard Henshaw 362,867 – $ – – – – – – – Total $ $ 130,137 12,363 91,324 89,041 80,000 8,676 8,459 – 390,502 29,498 655,595 20,568 362,867 19,316 Total executive Directors 752,421 266,041 – 1,018,462 39,884 Other key management personnel Mr Michael Knaap (2) 267,098 125,000 Mr Rodney Fox (3) Dr Michelle Lane (4) 60,561 139,205 – – Total other key management personnel 466,864 125,000 – – – – 392,098 15,595 60,561 139,205 4,827 9,654 591,864 30,076 Total 1,609,787 391,041 – 2,000,828 99,458 $ – – – – – – – – – – – – $ – – – – – – – – – – – – Total $ 142,500 100,000 97,500 80,000 420,000 $ – – – – – 66,770 742,933 – 382,183 66,770 1,125,116 260 407,953 65,388 – 148,859 260 622,200 67,030 2,167,316 (1) Fees to Mr. Neil Broekhuizen was payable to Ironbridge Capital Management Pty Ltd. (2) Mr. Michael Knaap became a KMP on 31 August 2015 following appointment as Chief Financial Officer. Included in Mr. Michael Knaap’s STI is a $20,000 payment for satisfying the six-month probationary period. (3) Mr. Rodney Fox ceased as a KMP on 31 August 2015. (4) Professor Michelle Lane ceased as a KMP on 16 November 2015 after re-organisation of management structure resulting in Professor Lane’s appointment as Regional Manager – NSW, SA & NT. 40 Invest in life Directors’ Report continued Remuneration Report – Audited continued 3.0 Executive and Non-Executive remuneration continued 3.2 Details of remuneration for Key Management Personnel continued Key Management Personnel (“KMP”) continued 2015 Short term employee benefits Salary & fees STI Cash bonus Non- monetary benefits Post employment benefits Super- annuation benefit Other long-term benefits Termination benefits Share based payments Rights $ Non-executive Directors Mr Richard Davis 130,137 Mr Josef Czyzewski Ms Christina Boyce Mr Neil Broekhuizen (1) Total non-executive Directors Executive Directors 91,324 89,041 80,000 390,502 Mr Benjamin Thiedeman 377,998 Dr Richard Henshaw 344,214 Total executive Directors 722,212 Other key management personnel Mr Rodney Fox Dr Michelle Lane (2) 272,945 15,825 Total other key management personnel Total 288,770 1,401,484 $ – – – – – – – – – – – – Total $ $ 130,137 12,363 91,324 89,041 80,000 8,676 8,459 – 390,502 29,498 377,998 25,000 344,214 18,099 722,212 43,099 272,945 25,000 15,825 1,503 288,770 26,503 $ – – – – – – – – – – – – 1,401,484 99,100 $ – – – – – – – – – – – – $ – – – – – – – – – – – – Total $ 142,500 100,000 97,500 80,000 420,000 $ – – – – – 36,056 439,054 – 362,313 36,056 801,367 – – – 297,945 17,328 315,273 36,056 1,536,640 (1) Fees to Neil Broekhuizen were paid to Ironbridge Capital Management Pty Ltd. (2) Dr. Michelle Lane became a KMP on 29 May 2015 following her appointment to the role of Chief Operating Officer. Prior to this, Dr. Lane was Chief Scientific Director. MONASH IVF GROUP Annual Report 2016 41 Directors’ Report continued Remuneration Report – Audited continued 3.0 Executive and Non-Executive remuneration continued 3.2 Details of remuneration for Key Management Personnel continued Key Management Personnel (“KMP”) continued Details of unvested share options held by the CEO and CFO and its movement during the financial year are detailed below: Perfor- mance Hurdles Grant Date Type Perfor- mance Period End Date Balance of Unvested Equity 1 Jul 15 Number Balance of Unvested Equity 1 Jul 16 Granted in FY 16 Vested in FY16 Lapsed or Forfeited Balance of Unvested Equity 30 Jun 2016 Share Based Payment Expense FY16 Fair Value per Security $ Number $ Number $ Number $ Number $ $ Mr. Benjamin Thiedeman Options EPS 30-Jul-14 (1) 30-Jul-17 400,000 84,000 Options TSR 30-Jul-14 (1) 30-Jul-17 400,000 76,000 – – – – Rights EPS 29-Jun-16 28-Aug-18 Rights TSR 29-Jun-16 12-Sep-16 – – – 81,713 134,826 – 81,713 107,044 Total Mr. Michael Knaap Total 800,000 160,000 163,426 241,870 Rights EPS 29-Jun-16 28-Aug-18 Rights TSR 29-Jun-16 12-Sep-16 – – – – 35,072 57,869 – 35,072 45,944 – 70,144 103,813 – – – – – – – – – – – – – – – – – – – – – – – – – 400,000 40,834 0.21 – 400,000 25,333 0.19 – 81,713 334 1.65 – 81,713 271 1.31 – 963,426 66,772 – 35,072 143 1.65 – 35,072 117 1.31 – 70,144 260 (1) The exercise price for the unvested options granted on 30 July 2014 were $1.85 per share. Analysis of bonuses included in remuneration Details of the vesting profile of the STI cash bonuses awarded as remuneration to each director of the Company and other KMP are detailed below: Cash Bonus (2016) Cash Bonus (2015) Payable % of available bonus Paid % of available bonus $ Payable% Not Payable% Executive directors Mr Benjamin Thiedeman 266,041 Dr Richard Henshaw N/A 87% N/A 13% N/A $ – N/A Paid% Not Paid% – N/A 100% N/A Other key management personnel Mr. Michael Knaap 125,000 100% 0% – – 100% 42 Invest in life Directors’ Report continued 3.3 Loans to Key Management Personnel No new loans were issued to KMP during 2016. 3.4 Other transactions with Key Management Personnel Dr. Richard Henshaw was the only doctor during FY2016 who served as a Director. He was paid a salary by the Group. 3.5 Key Management Personnel ownership of shares The following details Monash IVF Group ordinary shares held by Directors and KMP during 2016: Name Non-executive directors Mr Richard Davis Mr Josef Czyzewski Ms Christina Boyce Mr Neil Broekhuizen Executive directors Mr Benjamin Thiedeman Dr Richard Henshaw Other key management personnel Mr Michael Knaap (1) Mr Rodney Fox(2) Prof Michelle Lane (2) Total Balance at start of year Granted as remuneration Net change Balance at end of year 27,026 62,027 26,215 100,000 1,102,758 2,014,960 N/A 138,431 813,909 4,285,326 – – – – – – – – – – – 27,026 60,000 122,027 – – – – 26,215 100,000 1,102,758 2,014,960 46,670 46,670 N/A N/A – – 3,439,656 (1) Net change reflects 22,370 ordinary shares held prior to becoming a KMP (2) Net change is n/a as Mr Rodney Fox and Professor Lane ceased as KMP during the year During FY17 the Board established Non-Executive Director (NED) share ownership guidelines whereby the Company encourages its Directors to build and maintain a shareholding in the Company to the value of at least one year of their total fixed remuneration. For existing NED’s the requirement to be compliant with the guideline is 3 years from the 2016 annual general meeting, where as for new NED’s the requirement is 3 years from commencement on the Board. MONASH IVF GROUP Annual Report 2016 43 Directors’ Report continued Remuneration Report – Audited continued 4.0 Link to Group Performance 4.1 Group performance The revenue and earnings of the Consolidated Entity for the five years to 30 June 2016 are summarised below: Measure Revenue EBITDA (1) Net Profit After Tax(1)(2) STI payable (4) Total Shareholder Return (2) Closing share price ($) Dividend per share (cents) Earnings per Share (cents)(2)(3) 2016 $’000 2015 $’000 2014 $’000 2013 $’000 2012 $’000 156,561 124,955 114,012 96,598 93,243 49,584 38,805 36,782 36,746 21,309 28,775 21,373 4,852 84.6% 48% 1.82 8.50 12.2 0.0% -27% 1.28 6.95 9.2 N/A N/A 1.77 N/A 2.0 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (1 The EBITDA and Net Profit after Tax for 2014 is adjusted to add back costs associated with the IPO. EBITDA is a non IFRS measure. (2) The Net Profit after Tax, total shareholder return and earnings per share are not comparable for certain years due to the capital structure and discontinued operations. (3) Earnings per share is based on the weighted average number of shares during that year. In 2014 if the number of shares were based on shares on issue at year end, earnings per share would have been 1.1 cents per share. (4) STI payable is total KMP and Management bonuses approved for FY16 as compared to maximum incentive entitlement. During the period, Revenue, EBITDA, NPAT, TSR and EPS were key performance measures. EBITDA is a major component of the STI plans for both the CEO and CFO whilst TSR and EPS are long term metrics used to measure the CEO and CFO’s remuneration via the Executive Long Term Incentive Plan. CEO and CFO remuneration varies with the outcomes of these measures above a required threshold performance level. 44 Invest in life Directors’ Report continued Insurance of officers During or since the end of the year, the Group paid a premium in respect of a contract insuring each of the Directors of the Company, the Company Secretary and executives of the Company against liabilities that are permitted to be covered by Section 199B of the Corporations Act 2001. It is a condition of the insurance contract that the limit of indemnity, the nature of the liability and the amount of the premium is not disclosed. Indemnification of officers The Company has agreed to indemnify the Directors and Secretary of the Company, and its controlled entities against all liabilities to another person (other than the Company) that may arise from their position as Directors or Secretary, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. Rounding off The Company is of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that legislative instrument, amounts in the Annual Financial Report are rounded off to the nearest thousand dollars, the Remuneration report is rounded off to the nearest dollar, and the Directors’ Report is rounded off to the nearest decimal of a million dollars, unless otherwise stated. Non-audit services During the year KPMG, the Company’s auditor has performed certain other services in addition to its statutory duties. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: (cid:115)(cid:0) All non-audit services are subject to corporate governance procedures adopted by the Group and have been reviewed by those charged with governance throughout the year to ensure they do not impact the integrity and objectivity of the auditor; and (cid:115)(cid:0) The non-audit services provided do not undermine the general principles relating to audit independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details on audit and non-audit service fees paid or payable to the Company’s auditors during the year are disclosed in Section 6.5 of the Financial Report. The Directors’ report is made out in accordance with a resolution of the directors: Mr Richard Davis Chairman Dated at Melbourne this 26th day of August 2016. 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(cid:31)(cid:80) (cid:30)(cid:78)(cid:45)(cid:69)(cid:69)(cid:80)(cid:35)(cid:59)(cid:70)(cid:45)(cid:73)(cid:79)(cid:11)(cid:80) (cid:24)(cid:45)(cid:31)(cid:32)(cid:45)(cid:53)(cid:47)(cid:70)(cid:79)(cid:80)(cid:51)(cid:45)(cid:56)(cid:49)(cid:70)(cid:35)(cid:34)(cid:80)(cid:32)(cid:79)(cid:80) (cid:31)(cid:80)(cid:69)(cid:33)(cid:42)(cid:35)(cid:56)(cid:35)(cid:80)(cid:31)(cid:62)(cid:62)(cid:65)(cid:61)(cid:77)(cid:35)(cid:34)(cid:80)(cid:75)(cid:60)(cid:34)(cid:35)(cid:64)(cid:80) (cid:28)(cid:63)(cid:61)(cid:38)(cid:35)(cid:69)(cid:69)(cid:49)(cid:61)(cid:59)(cid:31)(cid:51)(cid:80)(cid:30)(cid:70)(cid:31)(cid:60)(cid:34)(cid:31)(cid:64)(cid:34)(cid:69)(cid:80)(cid:25)(cid:35)(cid:41)(cid:49)(cid:69)(cid:53)(cid:31)(cid:70)(cid:49)(cid:61)(cid:59)(cid:12)(cid:80) 46 Invest in life Corporate Governance Statement This statement, approved by the Board, reports on the Group’s key governance framework, principles and practices as at 30 June 2016. These principles and practices are subject to regular review and when necessary revised to reflect legislative changes or corporate governance best practice. The Board of Directors are committed to maintaining the Group’s pre-eminent status as a leader in the fields of Assisted Reproductive Services (ARS) and specialist women’s imaging. This commitment will lead to sustainable growth and shareholder returns. The Board is a strong advocate of good corporate governance and through its fulfilment of these practices and obligations will ensure shareholders are appropriately rewarded. Monash IVF Group Ltd complies in all material respects with the third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations released in 2014. The details of this compliance and reasons for any non compliance are set out in this statement. A separate Appendix 4G has been lodged with the Australian Securities Exchange Limited (ASX). Principle 1 Lay solid foundations for management and oversight 1.1 Roles and responsibilities of the Board and Management and delegation The role of the Board is to oversee good governance practice in all aspects of the Group’s undertakings. This includes setting and approving the strategic direction of the Group and to guide and monitor Monash IVF Group management and its businesses in achieving their strategic objectives. The Board is committed to maximising performance through continued investment in all aspects of the business including research, education and innovation in clinical services to improve patient outcomes. The Board is committed to a high standard of corporate governance practice and fosters a culture of compliance which values ethical behaviour, integrity, teamwork and respect for others. The Monash IVF Group Ltd Board Charter outlines the role and responsibilities of the Board along with direction on Board composition, structure and membership requirements. The Charter clearly outlines matters expressly reserved for the Board’s determination and those matters delegated to Management. The Company’s Chief Executive Officer and Managing Director, James Thiedeman, has responsibility for day-to-day management of Monash IVF Group Ltd in its entirety. James is supported by a Senior Management Committee which is responsible for implementation of Board directed strategies at an operational level. The Monash IVF Group Ltd Board Charter is available on the Monash IVF Group Ltd website http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance 1.2 and 1.3 Board and Senior Executive Appointments In the event of a new appointment to a director or senior executive role, appropriate probity and integrity checks are undertaken to ensure the individual has an appropriate background to hold the role with Monash IVF Group Ltd. Should the role be for election of a director for the first time a comprehensive check of the candidates personal and professional history would occur including details of any other material directorships or non executive roles. There have been no new Directors appointed this year. All Board members have a written agreement outlining the terms of their appointment clearly articulating the expectations, roles and responsibilities and remuneration of their role. All employment agreements for senior executives clearly set out their terms of appointment, remuneration and requirements to adhere to company policies and procedures. Industry regulation requires police checks for employees and these are updated regularly. Employment contracts require employees to disclose any offences that would result in an adverse police check. 1.4 Company Secretary Mr Michael Knaap holds the role of Company Secretary with Monash IVF Group Ltd. Michael’s role is to work closely with the Board and its committees to advise on governance matters and to oversee meeting protocols are adhered to including comprehensive minutes. Mr Michael Knaap took on the role of Company Secretary following Rodney Fox’s resignation in September 2015 and his appointment was approved by the Board. MONASH IVF GROUP Annual Report 2016 47 Corporate Governance Statement continued Principle 1 Lay solid foundations for management and oversight continued 1.5 Diversity Policy Monash IVF Group Ltd is a dynamic organisation that recognises its employees are its greatest asset. The Company’s workforce is made up of individuals with a diverse set of skills, values, experiences, backgrounds and attributes including those gained on account of their gender, age, disability, ethnicity, marital or family status, religious or cultural background and sexual orientation. Monash IVF Group Ltd is a relevant employer under the terms of the Workplace Gender Equality Act 2012 and is compliant with the requirements of the Australian Government Workplace Gender Equality Agency. The breakdown of gender is listed in organisational list below: Organisational Level CEO and Directors Senior Management Team Leader Total Staff (inc above) Number of Women % of Women 1 6 12 601 17% 40% 80% 92% The Board recognises the high proportion of women in the workplace and feels that this gender diversity is appropriate given the nature of the business. Senior Management is defined as Key Management Personnel plus the next level of management being primarily State general managers. Monash IVF Group Ltd has in place a Flexible Work Arrangements Policy to promote work/life balance and to accommodate family care in line with operational requirements of the business. During FY16, 34 staff utilised the Group’s generous parental leave options. Flexible hour working arrangements either under formal or informal agreements are widely used across the Monash IVF Group. The workplace Diversity Policy is overseen by the Remuneration and Nomination Committee. The Committee has no executive powers with regard to its findings and recommendations however is responsible for monitoring, reviewing and reporting to the Board on the Company’s performance in respect of gender diversity in accordance with the Company’s Diversity Policy. The Board is committed to targeting a board composition aligned to its workforce and patient base overtime. The Diversity Policy is available on the Monash IVF Group Ltd website http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance The Group has policies in relation to harassment, discrimination and grievance procedures including independent avenues that employees can pursue. The policies are contained in manuals provided to employees upon commencement and are also available via the company intranet. The Group also offers an employee assistance program that provides counselling services to employees for issues that may impact their work performance. 1.6 Director Performance Evaluation The Remuneration and Nomination Committee under the Chair of Ms Christy Boyce undertakes the process of performance reviews of the Board, its Committees and the Chairman. Objectives of the review are to ensure the Board adheres to ASX governance principles and to identify opportunities to improve the functioning of the Board as a whole. The focus is on the performance of the Board as a whole and, to a lesser extent, the Board committees. It is not intended to evaluate the performance of individual directors. The Chairman performs individual appraisals on each director. The annual review completed by Monash IVF Group Ltd Board was undertaken in May 2015 and repeated in May 2016. It involved directors completing a confidential online questionnaire covering aspects outlined in the Board Charter. The results were aggregated and discussed by the Board to inform areas or opportunities for improvement. Individual review of Board members was undertaken at the end of FY16 by the Chairman. This process allowed for evaluation of contributions made during the previous year and provided the Chair with the opportunity to set development plans and issue specific guidance to individual Directors. 48 Invest in life Corporate Governance Statement continued 1.7 Senior Executive Evaluations Monash IVF Group Ltd has an annual Performance Review Policy for all senior executives and managers as stated in the Board Charter. Senior executive and manager performance is reviewed by the CEO against KPIs which are both financial and non financial in nature. The Remuneration and Nomination Committee has oversight of this process. The Chairman of the Board performs the CEO performance review against annual key performance indicators. James Thiedeman’s performance was formally reviewed in June and recommendations as a result were taken to the Board. The Board oversees and monitors the key performance indicators and strategic plan for the Group which also allows the Board to monitor the performance of senior executives outside the annual review process. In FY16 a newly established format of review has been used to identify, assess and enhance competencies of senior executives. Principle 2 Structure of the Board to add value The Constitution of the Company provides that the number of Directors must at any time be no more than ten and no less than three members. The Monash IVF Group Ltd Board currently consists of six directors, three independent and three non independent members. The Board Charter prescribes that the Chair of the Board must be independent and the Board should consist of individuals who contribute a mix of skills and a diversity of professional backgrounds. Further information on the Board members is available in the Director’s Report. Monash IVF Group Ltd believes the current Board of six members adequately allows its members to carry out its responsibilities without unnecessarily debasing its effectiveness with an excessive number that can hinder individual engagement and involvement of Board members. To add efficiency to the Board two committees are in-place; the Remuneration and Nomination Committee and the Audit and Risk Committee whereby meetings occurred during FY16. The Board Charter prescribes that all committee members be Independent Directors. A summary of the Board members, their roles, independence and appointment dates shows: Director Position Independent Appointment Date Mr Richard Davis Independent Chairman Mr Josef Czyzewski Ms Christina Boyce Independent non-executive Director Independent non-executive Director Yes Yes Yes Mr Neil Broekhuizen Non-executive Director No – deemed a principal of a material professional advisor through Ironbridge as a previous owner and advisor to the Monash IVF Group in the last 3 years. 4/6/2014 4/6/2014 4/6/2014 4/6/2014 Mr James Thiedeman CEO and Managing Director No – CEO and Managing Director 30/4/2014 Dr Richard Henshaw Executive Director No – Fertility Specialist with Monash IVF Group Ltd 30/4/2014 2.1 Remuneration and Nomination Committee The Remuneration and Nomination Committee is governed by the Remuneration and Nomination Committee Charter as found on the Monash IVF Group Ltd website at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance The Remuneration and Nomination Committee consists of three independent Directors of the Board: (cid:115)(cid:0) Ms Christina Boyce (Chair) (cid:115)(cid:0) Mr Richard Davis (cid:115)(cid:0) Mr Josef Czyzewski MONASH IVF GROUP Annual Report 2016 49 Corporate Governance Statement continued Principle 2 Structure of the Board to add value continued 2.1 Remuneration and Nomination Committee continued The Committee assists the Board by reviewing and making recommendations to the Board in relation to: the Company’s Remuneration Policy; (cid:115)(cid:0) (cid:115)(cid:0) Board succession issues and planning; (cid:115)(cid:0) Board member and re-election of members to the Board and its committees; (cid:115)(cid:0) Director induction and continuing professional development programs for Directors; remuneration packages of senior executives; (cid:115)(cid:0) (cid:115)(cid:0) non-executive Directors and executive Directors, equity-based incentive plans and other employee benefit programs; (cid:115)(cid:0) Company superannuation arrangements; the Company’s recruitment, retention and termination policies; (cid:115)(cid:0) (cid:115)(cid:0) succession plans of the CEO, senior executives and executive Directors; (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) the process for the evaluation of the performance of the Board, its Board Committees and individual Directors; the review of the performance of senior executives; review of the Company’s remuneration policies and packages; and the size and composition of the Board and strategies to address Board diversity and the Company’s performance in respect of the Company’s Diversity Policy, including whether there is any gender or other inappropriate bias in remuneration for Directors, senior executives or other employees. 2.2 Board Skill Matrix On establishing the Board in 2014 the desirable skills, attributes and experience required was considered in searching for potential Board members. The below skill matrix outlines the current Board Director skill set: Strategic direction setting New business development Mergers and acquisitions International business development Health services Clinical/ medical experience Accounting/ Finance Regulatory/ government relations Mr Richard Davis Mr Joe Czyzewski Ms Christy Boyce Mr Neil Broekhuizen Mr James Thiedeman Dr Richard Henshaw 100% 75% 50% 25% 0% Monash IVF Group Ltd believes the current Director skill set is adequate to ensure an appropriate and diverse mix of backgrounds, expertise, experience and qualifications exist to assist with being able to understand and effectively advise on Group strategy and growth. 50 Invest in life Corporate Governance Statement continued 2.3 2.4 and 2.5 Board Independence The Board Charter outlines that at least half of the Board should be independent directors, one of whom is the Chairman. A director is deemed to be “independent” if free of any business or other relationship with the Company that could materially interfere with, or could reasonably be perceived to interfere with, the exercise of unfettered and independent judgement. The Board has assessed, using the criteria set out in the ASX Corporate Governance Principles and Recommendation, the independence of non-executive directors in light of their interests and relationships and considers at least half to be independent. The Company will provide immediate notification to the market where the independence status of a director changes. The independence status and length of service of each director is outlined in the table under Principle 2. Whilst 50% of the Board are considered independent, the Board remains committed to increasing the proportion of independent directors over time. Mr Richard Davis was appointed Monash IVF Group Ltd Chairman in June 2014. He is a non-executive Independent Director. Mr Davis in his role as Chair provides leadership to the Board and advice and support to the CEO. The Chair of the Board is responsible for overseeing Board dynamics and ensuring all directors contribute effectively and constructively to Group meetings and strategic agendas. 2.6 Director Induction and Professional Development Monash IVF Group Ltd has a comprehensive induction process for Directors and senior executives. This induction includes meetings with senior management and staff to gain an understanding of the core business as well as visits to laboratories and clinics to gain a more in depth understanding of the business. There have not been any new appointments to the Board during the year. Board members have been continuously informed via research papers and presentations, financial and business results and discussion involving market strategic initiatives contributing to the continued professional development of the Board. Principle 3 Act ethically and responsibly Monash IVF Group Ltd recognises the need to observe the highest standards of corporate practice, business conduct and responsible decision making. Accordingly, the Board adheres to a formal Code of Conduct which outlines Monash IVF Group Ltd policies on various matters including ethical conduct, business and personal conduct, compliance, privacy, security of information, financial integrity and conflicts of interest. This Code clearly states the standard of responsibility and ethical conduct expected of staff, directors or doctors engaged by the Company. The Code recognises the numerous legislative and compliance matters that affect the business. 3.1 Code of Conduct The Code of Conduct promotes ethical and responsible decision making by directors, contractors and employees. The Code also gives direction in the avoidance of conflicts of interest and mandates high standards of personal integrity, objectivity and honesty in the dealings of all Monash IVF Group Ltd Board members and staff, detailing guidelines to ensure the highest standards are maintained. Monash IVF Group holds all staff to act according to this Code to maintain standards in confidentiality and general behaviour. The Code is provided to all staff as part of the Group induction process and compliance is reviewed regularly. Monash IVF Group Ltd Code of Conduct policy can be found in full on our website under www.monashivfgroup.com.au/investor-centre/corporate-governance/ and includes a Whistleblowers Policy. MONASH IVF GROUP Annual Report 2016 51 Corporate Governance Statement continued Principle 4 Safeguard integrity in corporate reporting 4.1 Audit Committee The Audit and Risk Management Committee for Monash IVF Group Ltd is responsible for supervising the process of corporate governance, financial reporting and risk management, internal control, continuous disclosure, non-financial risk monitoring and external audit. The Committee’s role, as outlined in the Audit and Risk Management Committee Charter, is to monitor the Group’s compliance with laws and regulations and adherence to the Group Code of Conduct and to promote discussion with regard to risk between Board, management and the external auditor. Monash IVF Group Ltd engages the services of an external auditor; who’s independence and performance is monitored and reviewed by the Audit and Risk Management Committee. The external auditors and Audit & Risk Committee and audit Chair met on a number of occasions independently of Management during 2016. The current Audit and Risk Management Committee consists of three non-executive Independent Directors with experience and qualifications in financial management as outlined in the Audit and Risk Management Committee Charter. Current members of the Committee are: (cid:115)(cid:0) Mr Josef Czyzewski (Chair) (cid:115)(cid:0) Mr Richard Davis (cid:115)(cid:0) Ms Christina Boyce The Audit and Risk Management Committee Charter is available on the Monash IVF Group Ltd website at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance 4.2 Financial Statement Approval Monash IVF Group Ltd CEO, Mr James Thiedeman, and CFO, Mr Michael Knaap, reviewed and verified that the FY16 half year and full year reporting statements as listed in reports to the ASX and shareholders are true and accurate. A declaration to that effect has been signed by both to declare that the financial records have been entered and maintained as per the Corporations Act (2001) accounting standards and they give a fair and true view of the financial position and performance of Monash IVF Group Ltd. Further a detailed questionnaire is completed by senior operational, administrative and financial management attesting to the validity and integrity of the processes that they control prior to the approval of the Financial Statements. These questionnaires are reviewed by the Audit and Risk Management Committee. 4.3 Auditor in attendance at Annual General Meeting Monash IVF Group Ltd has retained the services of KPMG as an external auditor for the annual financial audit of the Group. KPMG will be in attendance at the Annual General Meeting (AGM) on 24 November 2016 to respond to Shareholders’ questions and provide information and feedback if required on the Auditor’s report. The external auditors attended the AGM held on 26 November 2015. Shareholders were able to supply questions to the auditor before the AGM via numerous methods as well as being provided with the opportunity to ask questions at the AGM. Principle 5 Make timely and balanced disclosure 5.1 Continuous Disclosure Monash IVF Group Ltd is committed to effective communication with its investors and the wider community. The Company strives to ensure that all Stakeholders, market participants, patients and the wider community are and in a timely manner, informed of its activities and performance in line with its Continuous Disclosure Policy. This policy complies with the continuous disclosure obligations under the Corporations Act (2001) and the ASX Listing Rules and as much as possible seeks to achieve and exceed best practice to promote investor confidence in Monash IVF Group Ltd. Continuous disclosure principles and requirements are well understood by the Monash IVF Group Ltd Company Secretary and the Board Directors and are in place to ensure all relevant information, especially of a sensitive nature, is made available in a timely manner. Any matters requiring disclosure are raised for consideration whenever necessary. The Monash IVF Group Ltd website is structured to provide shareholders and the community with easy access to information. The Continuous Disclosure Policy can be found on the Monash IVF Group website at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance 52 Invest in life Corporate Governance Statement continued Principle 6 Respect the rights of security holders 6.1 Communication with Shareholders Monash IVF Group Ltd ensures shareholders are fully informed of its governance processes and are notified of any major developments affecting the Group. In line with the Monash IVF Group Ltd Communications Policy the Company’s website is considered to be the primary means to provide information to all stakeholders. It has been designed to enable information to be accessed in a clear and readily accessible manner including: (cid:115)(cid:0) Company information including Board members; (cid:115)(cid:0) A ’Corporate Governance’ landing page with documents including Company codes, policies and charters; (cid:115)(cid:0) all announcements and releases to the ASX; (cid:115)(cid:0) copies of presentations to shareholders, institutional investors, brokers and analysts; (cid:115)(cid:0) any media or other releases; (cid:115)(cid:0) all notices of meetings and explanatory material; (cid:115)(cid:0) a copy of the Company’s Prospectus and Annual Reports; (cid:115)(cid:0) previous annual, half yearly and quarterly reports; (cid:115)(cid:0) any other relevant information concerning non-confidential activities of the Company including business developments. The company website can be found at www.monashivfgroup.com.au where information can be clearly located under heading: (cid:115)(cid:0) Home – homepage with Company history and overview (cid:115)(cid:0) About – information on Our People, Collaborations and Career Opportunities (cid:115)(cid:0) Our Business – lists the Monash IVF Group Ltd subsidiary companies (cid:115)(cid:0) Research and Innovation – lists current and published research and our scientific firsts. 6.2 Investor Relations In addition to the Company website, there is a dedicated Investor Relations page found at http://ir.monashivfgroup.com.au/ Investor-Centre/ which provides investors and shareholders with information on Monash IVF Group Ltd Board members, Announcements, Corporate Governance documents, Results presentations and webcasts. The Investor Centre also acts as a portal for two way communication between the Company and investors with links to a ‘Contact Us’ page which allows individuals to email enquiries and also provides postal address and contact number to allow access to the Company. The Communications Policy can be located at: http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance 6.3 Attendance at Company meetings As cited in the Monash IVF Group Ltd Communications Policy, the Company encourages full participation of Shareholders at the Annual General Meeting which provides an excellent opportunity for the Company to provide information to its shareholders and to receive Shareholder feedback. The next Annual General Meeting will be held on 24 November 2016. In the event Shareholders are not able to attend the meetings, questions can be directed to the Group for addressing at the Annual General Meeting and the presentations and webcasts are promptly added to the website. These can be found at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Presentations-Webcasts Shareholders are also able to direct any questions via the Group’s share registry provider, Link Market Services. 6.4 Electronic Communication The Company recognises that electronic communication is often a more efficient and more desired form of communication. Monash IVF Group Ltd Communications Policy addresses this and accordingly Shareholders are given the option to communicate with the Company Share Registry electronically. The Company’s email system allows staff and stakeholders to communicate with ease with management and staff of the Company. Doctors, employees and other stakeholders have access to this system and are encouraged to use it to improve the flow of information and communication generally. The Monash IVF Group Ltd Communications Policy can be located at: http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance MONASH IVF GROUP Annual Report 2016 53 Corporate Governance Statement continued Principle 7 Recognise and manage risk The Monash IVF Group Ltd Board, primarily through the Audit and Risk Management Committee, reviews and manages risk areas for the Group. 7.1 Audit and Risk Management Committee The identification and appropriate management of risks is an important priority for the Monash IVF Group Ltd Board. ‘Risks’ are identified as any possible outcomes that could materially impact the Company’s financial performance, assets, reputation, people or the environment. Risk recognition and management are viewed by the Company as integral to its objectives of creating and maintaining shareholder value, and to the successful execution of the Company’s strategies. The Audit and Risk Management Committee oversees and governs risk management strategy and policy, to monitor risk management and to establish procedures which seek to provide assurance that major business risks are identified, consistently assessed and appropriately addressed. The Committee abides by the Audit and Risk Management Committee Charter to assist the Board in fulfilling its corporate governance and oversight responsibilities in actively identifying risks and developing appropriate mitigants. The Board Committee adheres to the Risk Management Policy for the business which highlights the risks relevant to Company operations. Monash IVF Group Ltd’s Audit & Risk Management Committee Charter can be found on the website at: http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance This Charter prescribes that the Audit and Risk Management Committee consist of three Board Directors that are non-executive independent Directors as detailed earlier in this report. 7.2 Risk Management The Group Audit and Risk Management Committee employs the Risk Management Matrix and Risk Assessment Tool utilised by the Group entities. Both are used to assist in determining the action required in response to an actual or perceived risk based on the corporate and clinical consequences of a risk assessed against the likelihood of an event occurring. Recognising the importance of appropriate and timely risk management for the Group, the Board has engaged with an external advisor to review the current risk management framework and tools and use of the same to work with the Committee and Senior Management Committee to review risk and the management of risk and actual events. This has been a comprehensive body of work that continues to be developed. The Group maintains a Risk Register that documents all identified risks, lists appropriate preventative actions to mitigate risks, reviews process of risk reduction and nominates responsible persons who take ownership of the risk strategy process. The Risk Register is currently reviewed by the Leadership Team internally every six months who then report results to the Audit and Risk Management Committee. During the year independent examination was undertaken of the Risk policies and the Risk Register of the Group and the policies and procedures whilst found to be sound identified areas of improvement and the policies and practices are being improved to meet these challenges. The results of this examination formed the basis of the annual review of the risk management framework and were reported to the Committee. The Risk Register is also used to ensure that appropriate risks are identified and classified in the Matrix and Risk Assessment Tool. A separate Workplace Health and Safety register is also maintained and reviewed by the Committee annually. The Company system of reporting allows for formal reporting of risks or adverse events and near misses. The Company framework is compliant with the Audit and Risk Management Committee Charter as found at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance The Group Audit and Risk Management Committee has been apprised of the risk culture in the organisation as evidenced by the high standard of processes and procedures evident in the laboratories of the business and the recognition of this risk averse culture is maintained via the ongoing commitment to education and training of our doctors and staff. 54 Invest in life Corporate Governance Statement continued 7.3 Internal Audit Monash IVF Group Ltd did not have a designated Internal Audit Function during FY16 however our external auditors review and report on internal controls. The Group appointed PriceWaterhouseCoopers as its internal audit provider in August 2016 who will be performing financial and non-financial internal audits in the financial, operational, information systems and compliance areas within the Group. PriceWaterhouseCoopers has been engaged for a 3 year term. The CEO and CFO also have key responsibility in ensuring that internal controls are in place and operating effectively. As part of the various accreditation and licensing processes undertaken by the business key internal audit functions are undertaken. These audits are then made available to accrediting/licensing bodies. The Group believes internal controls implemented such as segregation of duties, delegation processes and structured approval processes are in place to counter many risks. 7.4 Risk Exposure Monash IVF Group Ltd provides assisted reproductive services in Australia and Malaysia and specialist women’s imaging services in Australia. As a Group we are committed to conducting our services in an open and transparent environment and in a manner that is honest and ethical. The Group’s focus embraces responsibility for corporate actions and encourages a positive impact on the environment and stakeholders including patients, employees, investors and the community. Since our early pioneering days in assisted reproductive treatment, resulting in the first IVF pregnancy in 1973, Monash IVF Group Ltd has played an important role in the local communities we serve and society at large. Our focus on evidenced based fertility care provides the opportunity to commit resources to scientific research, clinical teaching and training. From an ethical perspective, Monash IVF Group Ltd and its companies ensure national regulation and state legislation drive the standards of care to ensure we protect our patients, donors and any children produced through our treatments. Our assisted reproductive treatment sites in Australia are accredited with the Reproductive Technology Accreditation Committee (RTAC) and we ensure continued appropriate registrations are held by our sites, doctors, nurses and scientists. This accreditation incorporates components covering ethics and safety in practice and management of adverse events. Our two day surgeries are accredited with National Safety and Quality Health Service (NSQHS) standards which ensure quality standards are consistent with an exceptional standard of care expected by consumers in health facilities. Our Malaysian site whilst not legally requiring the same level of approval operates to the same standards having been externally accredited to RTAC standards during the year. Monash IVF Group laboratories have a formal Quality Management System to review and monitor quality of product from suppliers. New consumables undergo a full quality screening process and products are thoroughly evaluated to review where and how products are manufactured before being used in the laboratories. All products are reviewed formally on an annual basis to ensure they maintain quality standards and informally on a day to day basis. Suppliers are reviewed and audited annually in a formal process to monitor customer service and compliance. Currently all Monash IVF Group sites use predominantly products from the top two suppliers in lab products supplying to Australia in order to maintain consistency in quality. The Monash IVF Group Workplace Health and Safety Policy covers policies on general safety in the work environment including management and disposal of chemicals to ensure all are being utilised and disposed of under best practice guidelines to reduce environmental impact. Monash IVF Group Ltd recognises protecting the environment is a critical issue and a key responsibility of the business and corporate community. With 22 fertility clinics, 17 specialist women’s imaging sites, 5 service centres, 2 specialised diagnostic laboratories, 2 day hospitals and one central administration headquarters we consider our impact environmentally to be minimal. Monash IVF Group is an organisation that is not involved in manufacturing or resource extractions and hence we consider our environmental footprint to be small and we sincerely adopt a philosophy of clinical excellence in an environment of safe and supportive service provision. No material environmental or social sustainability risks have been identified. The Group takes cyber security and its potential consequences extremely seriously. The Group has comprehensive security arrangements in place to isolate attacks on its systems and ensure that attempted intrusions are identified and viruses are not spread across the Group’s network or systems. The Group’s IT systems operate safely, securely and with a high degree of resilience. Numerous levels of redundancy and backup are built into the IT systems providing a high degree of system availability and protection of data. Monash IVF Group Ltd recognises our staff are a significant asset to our business and we work with our staff to provide an environment that is open and flexible. Staff have the opportunity to shape standards and quality of care and contribute to our internal policies and processes that aim to provide career expansion, training and development opportunities. Our team of scientists and nurses are supported to develop their own career path supported by the Group through education and research sponsorship and professional development funding. MONASH IVF GROUP Annual Report 2016 55 Corporate Governance Statement continued Principle 7 Recognise and manage risk continued 7.4 Risk Exposure continued Our business operates in accordance with relevant Workplace Health and Safety laws and is committed to training and encouraging staff and doctors to be vigilant with regard to safety for themselves and our patients. A Group incident reporting structure ensures transparency and appropriate data collection and ensures appropriate corrective actions are undertaken. Economic risk continues to be potentially material to Monash IVF Group Ltd. Our services in Australia are indirectly funded to a significant extent by the Australian Federal Government through Medicare Benefit Schedule and Extended Medicare Safety Net. Any change to the funding arrangements could lead to reduced demand for our services affecting financial performance and sustainability of the Group. Market contraction and changes to market dynamics can significantly affect business outcomes and are a risk for the Group. Market competitiveness has heightened for this reason. One area where Monash IVF Group Ltd has been integral in leading the industry has been in advocating for governing bodies to be more transparent in reporting outcomes of treatments to allow patients to be better informed before commencing treatment. Tightening industry standards to ensure policies on consistency of data gathering, outcome reporting and transparency of results to the community will lead to improved outcomes for patients and the industry generally. The Group supports its employees to actively engage in community events and as a Group we take pride in sponsoring local causes and individuals who are striving to achieve personal goals. As an ASX listed company we encourage staff to get involved in community engagement initiatives and we have supported staff in ‘giving back’ to the community through charity events and sporting ventures for charitable purposes. Principle 8 Remunerate fairly and responsibly 8.1 Remuneration and Nomination Committee As outlined above under ‘Structure the Board to add value’ Monash IVF Group Ltd has a combined Remuneration and Nomination Committee which assists the Board with discharging its responsibilities to Shareholders with regard to developing and monitoring remuneration policies and practices for Directors, Senior Executives and employees. The Committee works under the guidance of the Remuneration and Nomination Committee Charter and Remuneration Policy. 8.2 Remuneration of executive and non-executive directors Under the guidance of the Remuneration and Nomination Committee and the Remuneration Policy the Monash IVF Group Ltd Board has established a framework for remuneration that is designed to ensure consistent and reasoned remuneration polices and practices are observed which enable the attraction and retention of directors and management and fairly rewards Directors and senior management for positive performance. Monash IVF Group Ltd remuneration practices for Executive appointments are expanded on in the Remuneration Report. The Monash IVF Group Ltd Remuneration Policy can be found on the Group website at: http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance 8.3 Equity-based remuneration Currently the CEO and CFO have long-term incentives that are equity based. The participants have no mechanisms available to limit the risk associated with that scheme. 56 Invest in life Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2016 Revenue Employee benefits expense Clinicians fees Raw materials and consumables used IT and communications expense Depreciation expense Amortisation expense Property expense Marketing and advertising expense Professional and other fees Other expenses Start up & acquisition costs Operating Profit Finance income Finance expenses Net finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Cash flow hedges Tax on cash flow hedges Exchange difference on translation of foreign operations Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit attributable to: Owners of the company Non-controlling interests Profit for the year Total comprehensive income attributable to: Owners of the company Non-controlling interests Total comprehensive income for the year Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) Note 2.2 2.3 4.4 1.4 Consolidated 2016 $’000 2015 $’000 Restated 156,561 124,955 (45,694) (25,130) (14,402) (2,617) (3,713) (501) (7,910) (4,534) (2,975) (3,715) – (33,891) (19,142) (13,014) (2,514) (3,067) (350) (6,314) (4,215) (2,032) (2,521) (2,468) 45,370 35,427 26 (4,799) (4,773) 40,597 (11,822) 28,775 165 (49) (32) 84 50 (4,776) (4,726) 30,701 (9,328) 21,373 (673) 202 (4) (475) 28,859 20,898 28,775 21,373 – – 28,775 21,373 28,859 20,898 – – 28,859 20,898 1.3 1.3 12.2 12.2 9.2 9.2 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. MONASH IVF GROUP Annual Report 2016 57 Consolidated Statement of Financial Position As at 30 June 2016 Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Equity accounted investment Trade and other receivables Plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax liability Employee benefits Total current liabilities Non-current liabilities Trade and other payables Borrowings Employee benefits Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Profits reserve Retained earnings Total equity attributable to ordinary shareholders of Monash IVF Group limited Total equity Note 4.5 2.1 2.1 2.2 2.3 1.4 2.4 4.3 3.1 2.4 4.3 3.1 1.4 Consolidated 2016 $’000 2015 $’000 8,472 4,454 4,883 9,989 3,110 3,703 17,809 16,802 100 413 100(1) 423 15,244 14,466 253,952 250,861(1) – 401 269,709 266,251 287,518 283,053 19,174 20,595(1) 453 9,685 6,831 729 3,920(1) 6,468 36,143 31,712 283 – 94,548 106,260 952 717 1,056 – 96,500 107,316 132,643 139,028 154,875 144,025 4.1 428,347 428,347 (137,093) (137,293) 24,513 13,863 (160,892) (160,892) 154,875 144,025 154,875 144,025 (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. The consolidated statement of financial position should be read in conjunction with the accompanying notes. 58 Invest in life Consolidated Statement of Changes in Equity For the Year Ended 30 June 2016 Transactions with owners in their capacity as owners directly in equity Contributed equity $’000 Other equity reserve (1) $’000 Profits reserve (2) $’000 Retained earnings $’000 Other reserves (3) $’000 Non- controlling interest $’000 Total $’000 Total Equity $’000 422,566 (136,811) – (160,892) (43) 124,820 – 124,820 – – – – – – 21,373 – 21,373 5,781 – – – – – – – (7,510) – – – – – – 28,775 – 28,775 – – – – – (18,125) – – – – – – 21,373 (475) (475) (475) 20,898 – 36 – 5,781 36 (7,510) – – – – – – 84 28,775 84 84 28,859 116 116 – (18,125) 428,347 (136,811) 13,863 (160,892) (482) 144,025 – – – – – – – – – – – – 21,373 (475) 20,898 5,781 36 (7,510) 144,025 28,775 84 28,859 116 (18,125) Consolidated Balance at 30 June 2014 Profit for the year Total other comprehensive income Total comprehensive income for the year Issue of ordinary shares in Monash IVF Group Ltd Share-based payment transactions Dividends paid Consolidated Balance at 30 June 2015 Profit for the year Total other comprehensive income Total comprehensive income/(loss) for the year Share-based payment transactions Dividends paid Consolidated Balance at 30 June 2016 Transactions with owners in their capacity as owners directly in equity 428,347 (136,811) 24,513 (160,892) (282) 154,875 – 154,875 (1) The Other equity reserve represents the difference between the Issued Capital in Healthbridge Enterprises Pty Ltd and the consideration paid to acquire Healthbridge Enterprises Pty Ltd on 26 June 2014. (2) The Profits reserve comprises the transfer of net profit for the period and characterises profits available for distributions as dividends in future periods. (3) Other reserves includes share-based payments, foreign currency translation and hedging reserve. The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. MONASH IVF GROUP Annual Report 2016 59 Consolidated Statement of Cash Flows For the Year Ended 30 June 2016 Consolidated 2016 $’000 2015 $’000 Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash generated from operations Income taxes paid Net cash flows generated from operating activities 4.5 Cash flows from investing activities Payments for property, plant and equipment Payments for subsidiaries Net cash flows used in investing activities Cash flows from financing activities Net proceeds from issue of share capital Receipt of borrowings Receipt of loans receivable Repayments of borrowings Interest paid Debt facility refinance cost Dividends paid Net cash flows used in financing activities Total cash flows from activities Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on foreign currency cash flows and cash balances Cash and cash equivalents at end of the year 4.5 156,855 125,509 (107,707) (85,365) 49,148 (4,986) 44,162 40,144 (4,136) 36,008 (8,203) (2,619) (5,527) (23,768) (10,822) (29,295) – 5,000 10 (3,320) 28,310 57 (16,810) (17,500) (4,507) (393) (18,125) (34,825) (1,485) 9,989 (32) 8,472 (5,543) – (7,510) (5,506) 1,207 8,786 (4) 9,989 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. 60 Invest in life Notes to the Consolidated Financial Statements Contents Reporting entity Basis of preparation Section 1 Our Financial Performance 1.1 Operating segments 1.2 Dividends 1.3 Earnings per share 1.4 Taxation Section 2 Our Operating Asset Base 2.1 Trade and other receivables 2.2 Plant and equipment 2.3 Intangible assets 2.4 Trade and other payables Section 3 Our People 3.1 Employee benefits 3.2 Long-term incentive plan 3.3 Share-based payments arrangements 3.4 Key management personnel Section 4 Our Funding Structure 4.1 Contributed equity and reserves 4.2 Financial risk management 4.3 Borrowings 4.4 Net finance Costs 4.5 Cash and cash equivalents Section 5 Our Business Portfolio 5.1 Business combinations 5.2 Controlled entities Section 6 Other Disclosures 6.1 New standards and interpretations 6.2 Commitments 6.3 Parent entity disclosures 6.4 Deed of cross guarantee 6.5 Auditors’ remuneration 6.6 Events occurring after the reporting period 62 62 63 63 66 66 67 70 70 71 72 75 76 76 77 78 79 80 80 83 86 88 89 90 90 92 93 93 94 94 95 98 98 This is the financial report of Monash IVF Group Ltd (the Company) and its subsidiaries (together referred to as ‘the Group’) and including the Group’s interest in associates. Over the past year we have reviewed the content and structure of the financial report looking for opportunities to make them less complex and more relevant to users. This includes: (cid:115)(cid:0) a thorough review of content to eliminate immaterial disclosures that may undermine the usefulness of the financial report by obscuring important information: and (cid:115)(cid:0) reorganisation of the notes in the financial statements into sections to assist users in understanding the Group’s performance. The purpose of these changes is to provide users with a clearer understanding of what drives the financial performance and financial position of the Group, and a better alignment with the Group’s strategy, whilst still complying with the provisions of the Corporations Act 2001. In order to develop this financial report, management is required to make a number of judgements and apply estimates of the future as part of the application process of the Group’s accounting policies. Judgements and estimates, which are material to the report, are highlighted in the following notes: 1.4 Recovery of deferred tax assets and income taxes 2.2 Plant and equipment 2.3 Goodwill & other indefinite life assets and goodwill impairment testing assumptions 3.1 Annual leave and long service leave 3.3 Share-based payments 5.1 Business acquisitions MONASH IVF GROUP Annual Report 2016 61 Notes to the Consolidated Financial Statements For the Year Ended 30 June 2016 Reporting entity Monash IVF Group Ltd (the ‘Company’) is a for profit company primarily involved in the area of assisted reproductive services and the provision of specialist women’s imaging services. The Company is incorporated in Australia and listed on the Australian Stock Exchange. Its registered office is at Level 1, 21-31 Goodwood Street, Richmond, Victoria and is limited by shares. The consolidated financial statements comprise the Company and its controlled entities (collectively ‘the consolidated entity’, ‘Monash Group’ or ‘Group’). Monash IVF Group Ltd and its wholly owned subsidiary Monash IVF Group Acquisitions Pty Ltd were incorporated on 30 April 2014. Basis of preparation Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with: (cid:115)(cid:0) Australian Accounting Standards (AASB) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB); and (cid:115)(cid:0) the Corporations Act 2001. The financial report of the Group also complies with the International Financial Reporting Standards (IFRSs) and interpretations adopted by the international Accounting Standards Board (IASB). The financial report was approved by the Board of Directors on the 26 August 2016. Going concern As at 30 June 2016 the Group has a net current asset deficiency of $18,334,000 (FY15: $14,910,000). The directors consider that there are reasonable grounds to believe the Group will be able to pay its debts as and when they fall due based on forecast operating cashflows which indicate that cash reserves are sufficient to fund operations, the availability of committed but undrawn external debt facilities, and given certain current liabilities such as employee entitlements and deferred income will not be fully settled in the short term to cause a liquidity shortfall. Basis of measurement The financial report has been prepared on an accrual basis and is based on historical cost (unless otherwise stated), except for derivative financial instruments and contingent consideration assumed in a business combination, which have been measured at fair value. Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is the functional and presentational currency of the Company and the majority of the Group. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission (ASIC), relating to the rounding off of amounts in the consolidated financial statements. Amounts in the consolidated financial statements have been rounded off in accordance with that legislative instrument to the nearest thousand, unless specifically stated to be otherwise. Basis of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Monash IVF Group Ltd as at 30 June 2016 and the results of all subsidiaries for the year then ended. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The acquisition method of accounting is used to account for business combinations by the Group. 62 Invest in life Notes to the Consolidated Financial Statements continued Section 1 Our Financial Performance This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made. 1.1 Operating segments 1.2 Dividends 1.3 Earnings per share 1.4 Taxation 1.1 Operating segments Identification of reportable operating segments The two geographic segments being Australia and International reflect Monash IVF Group’s reporting structure to the Chief Executive Officer, its chief operating decision maker (CODM). Monash IVF Group considers that the two geographic segments are appropriate for segment reporting purposes under AASB 8 “Operating Segments”. These segments comprise the following operations: (cid:115)(cid:0) Monash IVF Group Australia: provider of Assisted Reproductive Services, Ultrasound and other related services. (cid:115)(cid:0) Monash IVF Group International: provider of Assisted Reproductive Services in Malaysia. Segment revenue The revenue from external parties is measured in the same way as in the profit or loss. If any sales occur between segments, they are carried out at arm’s length and are eliminated on consolidation. Segment EBITDA Segment performance is measured based on segment EBITDA as included in the internal management reports that are reviewed by the Group’s CODM. Segment EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating the results of segments relative to other entities that operate within the industry. Any intersegment pricing is determined on an arm’s length basis. Segment assets and liabilities Segment assets and liabilities are measured in the same way as in the financial statements. These assets are allocated based on the operations of the segment, physical location of the asset and liabilities residing within each geographic segment. Information about reportable segments Information related to each reportable segment is set out on the next page. Segment profit before tax, as included in internal management reports reviewed by the Group’s CODM, is used to measure performance because management believes that such information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industries. Given the nature of services provided, no segment is reliant on any major customers. Revenue recognition Revenue is recognised when the significant risks and rewards of ownership have been transferred to the patient, recovery of the consideration is probable and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable. Rendering of services Revenue from rendering of services is recognised on completion of services provided. Revenue is recognised on completion of a medical procedure, on supply of drugs, or on completion of analytical tests. If payments received from patients exceed the revenue recognised, the difference is recognised as deferred revenue. Deferred revenue Fees for fertility treatment cycles paid in advance of the provision of the service are recognised as deferred revenue until the time the service is rendered to the patient when the fees are recognised as revenue. MONASH IVF GROUP Annual Report 2016 63 Notes to the Consolidated Financial Statements continued 1.1 Operating segments continued Other revenue Other revenue is recognised when the right to receive revenue has been established. Segment results 2016 Revenue External revenue Intersegment sales Total Revenue Segment EBITDA Depreciation and amortisation expense Interest revenue Interest expense Lending fees and others Profit before income tax expense Income tax expense Profit for the year Segment assets Monash IVF Group Australia $’000 Monash IVF Group International $’000 Total reportable segments $’000 Intersegment eliminations/ unallocated $’000 150,406 6,155 156,561 – – – 150,406 6,155 156,561 47,157 2,427 49,584 (4,126) 26 (4,406) (393) 38,258 (11,203) 27,055 (88) (4,214) – – – 26 (4,406) (393) 2,339 40,597 (619) (11,822) 1,720 28,775 279,503 8,016 287,518 Total $’000 156,561 – 156,561 49,584 (4,214) 26 (4,406) (393) 40,597 (11,822) 28,775 287,518 8,203 (132,643) – – – – – – – – – – – – – – Acquisition of plant and equipment and intangibles 7,361 Segment liabilities (132,184) 842 (459) 8,203 (132,643) 64 Invest in life Notes to the Consolidated Financial Statements continued 2015 Revenue External revenue Intersegment sales Total Revenue Segment EBITDA Monash IVF Group Australia $’000 Monash IVF Group International $’000 Total reportable segments $’000 Intersegment eliminations/ unallocated $’000 119,364 5,591 124,955 – – – 119,364 5,591 124,955 38,978 2,334 41,312 Start-up and acquisition costs Depreciation and amortisation expense Interest revenue Interest expense Lending fees and others Profit before income tax expense Income tax expense Profit for the year Segment assets (2,468) (3,356) 50 (4,406) (370) 28,428 (8,760) 19,668 276,362 Acquisition of plant and equipment and intangibles 5,467 Segment liabilities (138,872) – (61) – – – (2,468) (3,417) 50 (4,406) (370) 2,273 30,701 (568) 1,705 6,690 173 (156) (9,328) 21,373 283,053 5,640 (139,028) Total Restated $’000 124,955 – 124,955 41,312 (2,468) (3,417) 50 (4,406) (370) 30,701 (9,328) 21,373 283,053(1) 5,640 (139,028)(1) – – – – – – – – – – – – – – – (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. Foreign currency translation Transactions in foreign currencies are translated at foreign exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised costs in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rate at the date of transaction. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income (OCI), and presented in the foreign currency translation reserve (translation reserve) in equity. MONASH IVF GROUP Annual Report 2016 65 Notes to the Consolidated Financial Statements continued 1.2 Dividends On 26 February 2016, the Board declared a fully franked interim dividend of 4.00 cents per share. Payment of the interim dividend occurred on 8 April 2016. On 28 August 2015, a fully franked 2015 final dividend of 3.70 cents per share was declared and paid on 15 October 2015. Total dividends declared during the 2016 financial year were 7.70 cents per share ($18.1m). Monash IVF Group’s dividend policy is to intend a target payout ratio of between 60% and 70% of Statutory NPAT. The level of payout ratio is expected to vary between periods depending on general operating conditions, operating cashflow and profit, funding and availability of franking credits. Subsequent to 30 June 2016, the Board has declared a fully franked 2016 final dividend of 4.50 cents per share. Total dividend declared for 2016 is 8.50 cents per share. Franking credits surplus as at 30 June 2016 is $0.2m (2015: $1.1m). 1.3 Earnings per share Basic earnings per share The calculation of basic earnings per share has been based on profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding. Diluted earnings per share The calculation of diluted earnings per share has been based on profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Earnings per share Basic earnings per share Diluted earnings per share Profit attributable to ordinary shareholders 2016 Cents per share 2015 Cents per share 12.2 12.2 9.2 9.2 2016 $’000 2015 $’000 Profit after income tax attributable to the ordinary shareholders used in calculating basic and diluted earnings per share 28,775 21,373 Weighted average number of shares (basic) Issued ordinary shares at 1 July Effect of shares issued Adjustments for calculation of diluted earnings per share (1) 2016 Number 2015 Number 235,395,438 231,081,089 – 165,482 1,033,570 800,000 Weighted average number of ordinary shares (diluted) at 30 June 236,429,008 232,046,571 (1) The calculation of the weighted average number of shares has been adjusted for the effect of share-based options/rights granted from the date of issue. Refer to Section 3.3 for further details. 66 Invest in life Notes to the Consolidated Financial Statements continued 1.4 Taxation Recognition and measurement Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or to items recognised directly in equity or in OCI. Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Income tax Current tax Deferred tax Total income tax expense Deferred income tax expense included in income tax expense comprises: Decrease in deferred tax assets Increase in deferred tax liabilities Total deferred tax expense Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30% (2015: 30%) Tax effect of amounts which are not deductible in calculating taxable income: Effect of tax rates in foreign jurisdiction Research and development Other items Over provision of previous year Income tax expense 2016 $’000 10,752 1,070 11,822 1,141 (71) 1,070 2015 $’000 6,969 2,359 9,328 2,418 (59) 2,359 40,597 12,179 30,701 9,210 (117) (175) 125 (190) (114) – 232 – 11,822 9,328 MONASH IVF GROUP Annual Report 2016 67 Notes to the Consolidated Financial Statements continued Deferred tax liability at 1 July 2015 (356) (5,944) – – – – (6,300) 6,300 – Deferred tax liability at 1 July 2014 (415) (5,944) – – – – – Recognised in profit or loss Recognised directly in equity Deferred tax asset at 30 June 2016 Deferred tax liability at 30 June 2016 71 – (1,160) – (59) 78 (1,070) – – – – – (48) – – (48) – – – – 2,318 172 687 2,335 5,512 (5,512) – (285) (5,944) – – – – (6,229) 5,512 (717) Recognised in profit or loss Recognised directly in equity Deferred tax asset at 30 June 2015 Deferred tax liability at 30 June 2015 59 – (1,019) – (688) 378 (1,089) – – – 203 – – – (6,359) 6,359 – (2,359) 203 – – – – – – 3,478 220 746 2,257 – 6,701 (6,300) 401 (356) (5,944) – – – – – (6,300) 6,300 – 1.4 Taxation continued Deferred tax 2016 In thousands of dollars Plant and equipment Intangible assets IPO transaction costs Derivatives Trade payables and provision Employee benefits Tax (liabilities)/assets before set off Set off tax Net tax assets/(liabilities) 2015 In thousands of dollars Plant and equipment Intangible assets IPO transaction costs Derivatives Trade payables and provision Employee benefits Carry forward tax losses Tax (liabilities)/assets before set off Set off tax Net tax assets Deferred tax asset 1 July 2015 – – 3,478 220 746 2,257 6,701 (6,300) 401 Deferred tax asset 1 July 2014 – – 4,497 17 1,434 1,879 1,089 8,916 (6,359) 2,557 68 Invest in life Notes to the Consolidated Financial Statements continued Recognition and measurement Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: (cid:115)(cid:0) (cid:115)(cid:0) the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Offsetting deferred tax Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their assets and liabilities will be realised simultaneously. Tax consolidation Monash IVF Group Limited and its wholly Australian owned controlled entities are part of a tax consolidation group under Australian taxation law. Monash IVF Group Limited is the head entity in the tax-consolidated group. Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, Monash IVF Group Limited and each of the entities in the tax-consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Key estimate and judgement: Recovery of deferred tax assets A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Key estimate and judgement: Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgement is required in determining the worldwide provision for income taxes and in assessing whether deferred tax balances are recognised on the statement of financial position. Changes in circumstances will alter expectations, which may impact the amount of provision for income taxes and deferred tax balances recognised. MONASH IVF GROUP Annual Report 2016 69 Notes to the Consolidated Financial Statements continued Section 2 Our Operating Asset Base This section provides information relating to the Group’s Operating Base, highlighting the primary operating assets used and liabilities incurred to support the Group’s operating activities. 2.1 Trade and other receivables 2.2 Plant and equipment 2.3 Intangible assets 2.4 Trade and other payables 2.1 Trade and other receivables Recognition and measurement Trade receivables are recognised initially at fair value and subsequently measured at amortised costs using the effective interest method less provision for impairment. A financial asset (including trade receivables) not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. Trade and other receivables are impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Particularly for trade receivables a review is performed as to whether they are collectable according to the original terms of the sale transaction. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Current Trade receivables Provision for impairment Other debtors Accrued income Total current trade and other receivables Non-current Other receivables and debtors Total trade and other receivables Credit risk 2016 $’000 2015 $’000 3,778 2,839 (519) 870 325 (446) 604 113 4,454 3,110 413 423 4,867 3,533 Credit risk is the risk of financial loss to the Group if a patient or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s trade receivables, being patients. Credit risk is managed at a business unit level and reviewed regularly by the administrative/accounts receivables function. Up to 100% of patient fees are received in advance and recognised as deferred revenue if the procedure is yet to be performed. This reduces the risk of non-collectability. Trade receivables reflect 2.4% of annual revenue (FY2015: 2.3%). Payment reminder notices are issued to patients with outstanding balances at 30, 60 and 90 days. After which, collection of this debt is handled by a collection agency. The Group does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the Group. 70 Invest in life Notes to the Consolidated Financial Statements continued 2.2 Plant and equipment Recognition and measurement Items of plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment and are recognised on a net basis within “other income” in profit or loss. Subsequent costs The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied with the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of the plant and equipment are recognised in the profit or loss as incurred. Key estimate and judgement: Plant and equipment The Group’s plant and equipment are depreciated/amortised over their useful economic lives. Management reviews the appropriateness of useful economic lives of assets and any impairment indicators annually by evaluating conditions specific to the consolidated Group and to the particular asset. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each part of an item of plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual values are reviewed at each reporting date. Assets in work-in-progress are not depreciated until commissioned for use. MONASH IVF GROUP Annual Report 2016 71 Notes to the Consolidated Financial Statements continued 2.2 Plant and equipment continued Plant and equipment Cost Opening Balance at 1 July Additions through business combinations Additions Asset write off(2) Reclassification to software (3) Closing balance at 30 June Depreciation and impairment losses Opening Balance at 1 July Depreciation for the year(1) Asset write off(2) Reclassification to software (3) Closing balance at 30 June Carrying amount At 1 July (Opening balance) At 30 June (Closing balance) 2016 $’000 2015 $’000 36,214 27,812 – 8,069 (160) (3,823) 2,875 5,527 – – 40,300 36,214 (21,748) (18,681) (3,713) (3,067) 40 365 – – (25,056) (21,748) 14,466 9,131 15,244 14,466 (1) The estimated useful lives of plant & equipment in 2016 and 2015 are between 2-10 years from the acquisition date. (2) Accidental damage to assets (recovered through insurance). (3) Reclassification of software related assets previously held as work-in-progress and capitalised to software upon completion in the current financial year. Refer to Section 2.3. 2.3 Intangible assets Recognition and measurement Goodwill Goodwill on consolidation represents the excess of the cost of an acquisition over the fair value of the Company’s share of net identifiable assets of the acquired entities at the date of acquisition. Goodwill on the acquisition of subsidiaries is included in intangible assets. Goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. 72 Invest in life Notes to the Consolidated Financial Statements continued Amortisation Amortisation is calculated over the cost of the asset, or another amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight line basis over the estimated useful lives of intangible assets, other than goodwill and trademark, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives of software in 2016 and 2015 are between 5-10 years from the acquisition date. Cost Balance at 1 July 2014 Additions Acquisition through business combination (restated) (3) Balance at 30 June 2015 (restated)(3) Balance at 1 July 2015 Additions Reclassification of software (2) Balance at 30 June 2016 Amortisation and impairment losses Balance at 1 July 2014 Amortisation for the year Impairment loss Balance at 30 June 2015 Balance at 1 July 2015 Amortisation for the year Reclassification of software (2) Impairment loss Goodwill $’000 199,235 – 31,422 230,657 230,657 – – Software $’000 Trademark $’000 Others (1) $’000 Total $’000 8,635 113 – 8,748 8,748 134 3,823 19,845 9,587 237,302 – – 19,845 19,845 – – – – 9,587 9,587 – – 113 31,422 268,837 268,837 134 3,823 230,657 12,705 19,845 9,587 272,794 (1,549) (6,490) – – (1,549) (1,549) – – – (350) – (6,840) (6,840) (501) (365) – – – – – – – – – – (9,587) (17,626) – – (9,587) (9,587) – – – (350) – (17,976) (17,976) (501) (365) – (9,587) (18,842) Balance at 30 June 2016 (1,549) (7,706) Carry amounts at 30 June 2015 at 30 June 2016 229,108 229,108 1,908 4,999 19,845 19,845 – – 250,861 253,952 (1) Public Contracts, Public Relationships and Employment Contracts amortised to nil prior to 1 July 2014. (2) Reclassification of software related assets from Section 2.2 previously held in plant and equipment as work-in-progress. (3) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. Impairment testing Recognition and measurement on impairment on non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. MONASH IVF GROUP Annual Report 2016 73 Notes to the Consolidated Financial Statements continued 2.3 Intangible assets continued Impairment testing continued Recognition and measurement on impairment on non-financial assets continued For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows of other assets or groups of assets (the ‘cash-generating’ units). The recoverable amount of an asset or cash-generating unit (CGU) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised. In FY16, an Ultrasound CGU was identified and tested separately reflecting the Group’s ultrasound businesses. The following CGUs were tested for impairment during the 2016 financial year: Goodwill allocated to: Monash IVF Group (Australia) Monash IVF Group (Ultrasound) Monash IVF Group (International) 2016 $’000 2015 $’000 restated (1) 195,727 223,959 28,232 – 5,149 5,149 229,108 229,108 (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. Key estimate and judgement: Goodwill & Other indefinite life assets Goodwill and other indefinite life intangible assets become impaired when their carrying value exceeds their recoverable amount. Recoverable amount is the greater of fair value less costs to sell or value in use. In determining the recoverable amount, judgements and assumptions are made in the determination of likely net sale the proceeds or in the determination of future cash flows which support a value in use. Specifically with respect to future cash flows, judgements are made in respect to the quantum of those future cash flows, the discount rates (cost of capital and debt) applied to determining the net present value of these future cash flows. Goodwill impairment testing assumptions The recoverable amount of each CGU was calculated using a value in use calculation determined by discounting the future cash flows generated from each CGU. From impairment testing performed, the recoverable amount was determined to be higher than the carrying amount and any reasonable possible change to relevant assumptions and inputs would not result in the recoverable amount being lower than the carrying amount. The following key assumptions and inputs were utilised for the impairment testing: (cid:115)(cid:0) The respective discount rate was a pre-tax measure based on the rate of 10 year Government bonds issued by the Australian and Malaysian Government respectively in the relevant market, adjusted for a risk premium to reflect the increased risk of investing in equities generally and the systemic risk of the specific CGU. A pre-tax discount rate of 11.12% (2015: 9.41%) for the Australian and Ultrasound CGUs and pre-tax discount rate of 11.46% (2015:11.18%) for the International CGU was applied in determining the recoverable amount. The discount rate was estimated based on past experience, and the industry average weighted cost of capital. (cid:115)(cid:0) Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity of 3.00% (2015:3.00%) has been determined based on an assessment of historical growth rates, expectations of future growth rates and market specific dynamics. Budgeted EBIT was based on the expectation of future outcomes taking into account past experience, adjusted for the anticipated revenue growth. 74 Invest in life Notes to the Consolidated Financial Statements continued 2.4 Trade and other payables Recognition and measurement Trade and other payables Trade and other payables are recognised when the Group becomes obligated to make future payments resulting from the purchase of goods and services. Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. Current Trade payables Accrued expenses Prepaid income Deferred consideration Contingent consideration 2016 $’000 3,808 6,680 8,186 – 500 2015 $’000 Restated 2,081(1) 8,771 6,624 2,619(1) 500 Total current trade and other payables 19,174 20,595 Non-current Doctor LTIP provision Total trade and other payables 283 – 19,457 20,595 (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. MONASH IVF GROUP Annual Report 2016 75 Notes to the Consolidated Financial Statements continued Section 3 Our People This section provides financial insight into employee reward and recognition for creating a high performance culture and the Group’s ability to attract and retain talent. This section is to be read in conjunction with the Remuneration Report, as set out in the Directors’ Report. 3.1 Employee benefits 3.2 Long-term incentive plan 3.3 Share-based payments arrangements 3.4 Key management personnel 3.1 Employee benefits Recognition and measurement Short-term obligations Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits are 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. Other long-term obligations All other employee benefits are measured at their present value of the estimated future cash outflow to be made in respect of services provided by the employees up to the reporting date. The discount rate is the yield at the reporting date on Corporate bonds issued by the relevant markets that have maturity dates approximating the terms of the Group’s obligations. The aggregate amount of employee benefits is comprised of: Current liability Long service leave Annual leave Total current employee benefits Non-current liability Long service leave Total non-current employee benefits 2016 $’000 2015 $’000 3,321 3,510 6,831 952 952 2,986 3,482 6,468 1,056 1,056 The aggregate employee entitlement provision is $7,783,000 (2015: $7,524,000). Employee benefits incurred during the year were $45,694,000 (2015: $33,891,000). Key estimate and judgement: Annual leave and long service leave Long-term employee benefits are measured at the present value of estimated future payments for the services provided by employees up to the end of the reporting period. This calculation requires judgement in determining the following key assumptions: (cid:115)(cid:0) Future increase in wages and salary rates; (cid:115)(cid:0) Future on-cost rates; and (cid:115)(cid:0) Expected settlement dates based on staff turnover history The liability is discounted using the Australian corporate bond rates which most closely match the terms to maturity of the entitlement. 76 Invest in life Notes to the Consolidated Financial Statements continued 3.2 Long-term incentive plan Recognition and measurement – Share-based payments The Group will provide benefits to certain employees in the form of share-based payment options and/or performance rights. The fair value of these instruments granted under the plans are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the instruments. Fair value is measured at grant date using a combination of Binomial tree and Monte Carlo simulation models, for the respective performance hurdles. The valuation was performed by an independent valuer which models the future security price. The fair value of the instruments granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of instruments that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of instruments that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in profit and loss with a corresponding adjustment to equity. Under the Company’s Long Term Incentive (“LTI”) Plan, awards (constituting SARs, performance rights or options, or any different class or category of award on such terms as the Board determines) may be offered to eligible persons (including executives, contractors, senior management, doctors and other employees) selected by the Directors. Key management personnel, other senior management and fertility specialists are eligible to participate under the LTI Programs. Senior executives’ long-term incentive plan The senior executives’ LTI are share options and performance rights plans with vesting rights dependent upon the satisfaction of pre-defined performance hurdles and continuous employment. Current performance hurdlers are based on achievement of pre-defined Earning Per Share (“EPS”) Hurdles and a Total Shareholder Return (“TSR”) Hurdle over a three year performance period. The Board may amend the performance hurdles or specify a different performance hurdle(s) if it considers it necessary. For further detail on the specific LTI plans, refer to the Remuneration Report. Fertility specialist long-term incentive plan The fee for service fertility specialists were eligible to participate in the Fertility Specialist LTI Plan during FY16. Two separate tranches were offered: (cid:115)(cid:0) A Practice Development Award to recognise the consistent development of a fertility specialist’s practice at above industry growth rates; and (cid:115)(cid:0) A Key Doctor Award to recognise the significant contribution of key fee-for-service fertility specialists and their commitment to the development of Monash IVF. Eligibility criteria also included a number of qualitative criteria focused on optimising the patient experience and clinical excellence. For further detail on the LTI plans, refer to the Remuneration Report. MONASH IVF GROUP Annual Report 2016 77 Notes to the Consolidated Financial Statements continued 3.3 Share-based payments arrangements Long Term Incentive program (equity settled) Key management personnel are entitled to participate in the Group long-term incentive plan. As detailed below, share options and performance rights were granted in FY15 and FY16 respectively, under the program. There will be no loan from the Company for the acquisition of shares upon vesting of the options. A description of the equity plans in place during the year ended 30 June 2016 is described below: Grant date/ employees entitled Number of performance rights 29 June 2016 233,570 Vesting conditions EPS – Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2018 TSR – Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY18 results announcement Exercise Price Contractual life of options N/A 5 years Grant date/ employees entitled Number of options Vesting conditions 30 July 2014 1,000,000 Three years’ service from grant date and subject to meeting certain EPS and Total Shareholder Return (“TSR”) hurdles Exercise Price Contractual life of options $1.85 5 years Key estimate and judgement: Share-based payments As a result of the combination of non-market (EPS) and market (TSR) vesting conditions, the fair value of the share rights plan has been measured using Binomial tree and Monte Carlo simulation respectively. The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows: Fair value at grant date (EPS condition) Fair value at grant date (TSR condition) Share price at grant date Exercise price Expected volatility – Monash IVF Expected volatility – ASX 300 Healthcare Index Expected life (years) Expected dividends Risk-free interest rate (based on government bonds) 2016 $1.65 $1.31 $1.83 N/A 32% 14% 5 4.80% 1.55% 2015 $0.21 $0.19 $1.73 $1.85 24% – 4 4.55% 2.82% Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behaviour. 78 Invest in life Notes to the Consolidated Financial Statements continued Reconciliation of outstanding share options The number and weighted-average exercise prices of share options under the share option program were as follows: Outstanding at 1 July 2014 Granted during the year Forfeited during the year Outstanding at 30 June 2015 Granted during the year Outstanding at 30 June 2016 Outstanding at 1 July 2015 Granted during the year Forfeited during the year Outstanding at 30 June 2016 3.4 Key management personnel Compensation Short-term employee benefits Post-employment benefits Share-based payments Total key management personnel compensation Number of share options – 1,000,000 (200,000) 800,000 – 800,000 Weighted- average exercise price $ 1.85 1.85 1.85 – 1.85 Number of performance rights – 233,570 – 233,570 Weighted- average exercise price $ – N/A – – 2016 $ 2015 $ 2,000,828 1,401,484 99,458 99,100 67,030 36,056 2,167,316 1,536,640 For further information on key management personnel refer to the Remuneration Report. Transactions with key management personnel and related parties During 2015 and 2016, $80,000 pa was paid to Ironbridge Capital Management Pty Ltd for director fees. Refer to the Remuneration Report for further information. MONASH IVF GROUP Annual Report 2016 79 Notes to the Consolidated Financial Statements continued Section 4 Our Funding Structure This section provides information relating to the Group’s capital structure and its exposure to financial risk, how they affect the Group’s financial position and performance, and how the risks are managed. The capital structure of the Group consists of debt and equity. The Directors determine the appropriate capital structure of Monash IVF, specifically how much is raised from the shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the current and future activities of the Group. The Directors review the Group’s capital structure regularly and do so in the context of the Group’s ability to continue as a going concern, to invest in opportunities that grow the business and enhance shareholder value. 4.1 Contributed equity and reserves 4.4 Net finance costs 4.2 Financial risk management 4.5 Cash and cash equivalents 4.3 Borrowings 4.1 Contributed equity and reserves Recognition and measurement Ordinary shares 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 equity reserve The other equity reserve represents the difference between the issued capital in Healthbridge Enterprises Pty Ltd and Monash IVF Group Ltd on 26 June 2014, being the date Monash IVF Group Ltd acquired Healthbridge Enterprises Pty Ltd. Profits reserve The profit reserve comprises the transfer of net profit for the period and characterises profits available for distribution as dividends in future periods. Share option reserve Share option reserve represents the grant-date fair value of equity-settled share-based payment awards granted to employees, which is generally recognised as an expense, with corresponding increase in equity over the vesting period of the awards. Hedge reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to highly probable forecast transactions. The hedging reserve is used to record gains or losses on derivatives that are designated and qualify as cash flow hedges and that are recognised in OCI. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss. 80 Invest in life Notes to the Consolidated Financial Statements continued Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Opening balance (1/7/14) Issued in business combination Closing balance (30/6/15) Opening balance (1/7/15) Issued in business combination Closing balance (30/6/16) Number of shares issued $’000 231,081,089 422,566 4,314,349 5,781 235,395,438 428,347 235,395,438 428,347 – – 235,395,438 428,347 No shares were issued during the year. All shares are fully paid. No ordinary shares have been issued under the long-term incentive plan. In June 2015, Monash IVF Group Ltd issued 4,314,349 ordinary shares as partial consideration for the acquisition of Sydney Ultrasound for Women (“SUFW”). Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares entitle the holder to one vote, either in person or by proxy, at a meeting of the Company. The fully paid ordinary shares have no par value. Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor and market confidence and to sustain future growth of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders. The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital structure. In order to maintain an optimal capital structure, the Group may amend the amount of dividends declared and paid, return capital to shareholders or increase borrowings or equity to fund growth and future acquisitions. Escrow arrangements The following ordinary Shareholders have entered into voluntary escrow arrangements in relation to certain ordinary shares they hold in Monash IVF Group Ltd. An ‘escrow’ is a restriction on sale, disposal, or encumbering of, or certain other dealings in respect of, the Shares concerned for the period of the escrow, subject to exceptions set out in the escrow arrangement. Doctors (1) Sydney Ultrasound for Women Total (1) Includes 1.2m shares subject to escrow held by Richard Henshaw (Executive Director). Number of Shares subject to escrow (m) – 30/6/16 21.2 3.7 24.9 Escrowed Shares (as a % of shares on issue) 9.01% 1.57% 10.58% MONASH IVF GROUP Annual Report 2016 81 Notes to the Consolidated Financial Statements continued 4.1 Contributed equity and reserves continued Recognition and measurement continued Doctors The escrow applied to a pre-IPO doctor was calculated by reference to the aggregate value of that person’s pre-reorganisation equity interests in Healthbridge Enterprises Pty Ltd as follows: Shares equivalent to 10% of a doctor’s interest prior to the re-organisation are held in short-term escrow, with 3.33% being released from escrow on the first trading day in Shares following the announcement to the ASX by the Company of its preliminary final report for FY2015. Following each of the two subsequent announcements of the Company’s preliminary final report (up to and including the preliminary final report for FY2017), shares equivalent to a further 3.33% per year of a doctor’s interest prior to re-organisation will be released (if not otherwise released) from escrow. All of this short-term escrow can be released prematurely where the doctor becomes a ‘good leaver’ (as described below). 1. Shares equivalent to 20% of a doctor’s interest prior to the re-organisation will be released when the doctor reaches the age of 63. These shares may be otherwise released from escrow in the following circumstances: (cid:115)(cid:0) for doctors who are aged 63 or older at the time of re-organisation or who turn 63 within two years of Completion, these shares will be released from escrow on the second anniversary of re-organisation; or (cid:115)(cid:0) where a doctor becomes a ‘relocated leaver’ (as described below), these Shares will be released from escrow five years after the date that they become a ‘relocated leaver’; or (cid:115)(cid:0) where a doctor dies or leaves the Group as a result of becoming permanently disabled or seriously disabled, these shares will be released from escrow on the date of the relevant occurrence (as resolved by the Board acting reasonably); or (cid:115)(cid:0) if the Board determines to release the shares from escrow earlier. 2. Shares equivalent to the final 20% of a doctor’s interest prior to re-organisation will be released from escrow: (cid:115)(cid:0) on retirement by the doctor from the ARS industry (provided a doctor must have used their best endeavours to transition their practice to another doctor to the satisfaction of the Board); or (cid:115)(cid:0) (cid:115)(cid:0) if the doctor becomes a ‘good leaver’ or a ‘relocated leaver’ (as described below); or five years after the doctor leaves Monash IVF Group in other circumstances. Doctors will be able to sell any non-escrowed shares at any time, subject to complying with insider trading restrictions and the Group’s Securities Trading Policy. The escrow arrangements describe the circumstances in which a doctor is a ‘good leaver’ or a ‘relocated leaver’ in the following manner: (a) A doctor is a ‘good leaver’ where: (cid:115)(cid:0) (cid:115)(cid:0) they leave the Group as a result of death, serious disability or permanent incapacity through ill health (as determined by the Group’s Board, acting reasonably); or they or the Group terminates the doctor’s contract in specific circumstances; or The Board determines, in its discretion, that the doctor is a ‘good leaver’. (b) A doctor is a ‘relocated leaver’ if they terminate their contract and the Board is satisfied that: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) the doctor genuinely intends to relocate permanently to a place which is more than 100 km from any clinic operated by the Group or any of its subsidiaries; and the doctor also intends to provide Assisted Reproductive Services in the place the doctor is relocating to; and the doctor has used their best endeavours to transition their practice to another doctor at the Group. Management & Ironbridge For management shareholders, shares equivalent to 50% of their interest prior to the re-organisation held by or on behalf of the member of management was released from escrow on 31 August 2015 in shares following an announcement to the ASX by the Group of its final report for FY2015. Ironbridge shares escrowed (11.6m shares) were released from escrow on 31 August 2015. There are no management and Ironbridge escrowed shares currently held. 82 Invest in life Notes to the Consolidated Financial Statements continued Escrow for Sydney Ultrasound for Women (SUFW) All shares issued to the vendors of SUFW are escrowed such that 53.3% of the shares issued are escrowed until the first trading day after the release of the FY2016 results, 3.3% are escrowed until the first trading day after the release of the FY2017 results, 3.3% are escrowed until the first trading day after the release of the FY2018 results. The remaining 40% is subject to escrow and is consistent with the doctors above in points 1 and 2. Doctors will be able to sell any non-escrowed Shares at any time following re-organisation, subject to complying with insider trading restrictions and the Group’s Securities Trading Policy. The escrow arrangements describing the circumstances in which a SUFW doctor is a ‘good leaver’ or a ‘relocated leaver’ are the same as described above. 4.2 Financial risk management The Group has exposure to the following risks from its use of financial instruments: (cid:115)(cid:0) Liquidity risk; (cid:115)(cid:0) Foreign exchange risk Interest risk; and (cid:115)(cid:0) (cid:115)(cid:0) Price risk This note presents information about the Group’s exposure to each of the above risks, objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report. Risk management policies are in place to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its recruitment, training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: (cid:115)(cid:0) Preparing forward-looking financial analysis in relation to its operational, investing and financing activities; (cid:115)(cid:0) Monitoring undrawn credit facilities; (cid:115)(cid:0) Obtaining funding from a variety of sources; (cid:115)(cid:0) Maintaining a reputable credit profile; (cid:115)(cid:0) Managing credit risk related to financial assets; (cid:115)(cid:0) Only investing surplus cash with major financial institutions; and (cid:115)(cid:0) Comparing the maturity profile of financial liabilities with the realisation profile of financial assets. MONASH IVF GROUP Annual Report 2016 83 Notes to the Consolidated Financial Statements continued 4.2 Financial risk management continued Liquidity risk continued The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting arrangements, subject to the Group meeting future undertakings. Carrying amount $’000 Contractual cash flows $’000 Within 1 year $’000 1-5 years $’000 Over 5 years $’000 2016 Non-derivative financial liabilities Secured bank loans Trade and other payables Derivative financial liabilities Interest rate swaps 2015 Non-derivative financial liabilities 95,000 19,457 (104,193) (3,046) (95,302) (5,845) (19,457) (19,174) (283) 564 (564) (564) – 115,021 (124,214) (22,784) (95,585) (5,845) – – Secured bank loans 106,810 (112,343) (4,164) (108,179) Trade and other payables (restated)(1) 20,595 (20,595) (20,595) – Derivative financial liabilities Interest rate swaps 729 (789) (400) (389) 128,134 (133,727) (25,159) (108,568) – – – – (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. Foreign exchange risk The Group is not exposed to material levels of foreign currency risk at the reporting date or during the financial year. Interest rate risk Interest rate risk is managed using a mix of floating rate debt and fixed rate instruments. At 30 June 2016 approximately 60% of the interest rate exposure is fixed (2015: 47%). This is achieved by entering into interest rate swaps to mitigate interest rate risk on floating rate debt. Interest rate swaps are not entered into for trading purposes and are not classified as held for trading. The interest rate profile of the Group’s interest-bearing financial instruments as reported to management of the Group is as follows including the impact of hedging instruments: Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities 84 Invest in life Consolidated 2016 $’000 2015 $’000 600 562 (57,000) (50,000) (56,400) (49,438) 7,872 9,427 (38,000) (56,810) (30,128) (47,383) Notes to the Consolidated Financial Statements continued Cash flow sensitivity analysis for variable rate instruments A reasonable possible change of a 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by $301,000 (FY15: $474,000). This assumes that all other variables remain constant. Market risk – Price risk The Group is exposed to legislative and/or Government policy changes to funding for IVF and related healthcare services which may impact patient out-of-pocket costs resulting in potentially higher or lower demand. Fair values (a) Accounting classifications and fair values The following table shows the carrying amounts and fair value of financial assets and financial liabilities, including their levels in the fair value hierarchy. The Group has not disclosed the fair values for financial assets such as short-term trade receivables, and financial liabilities such as payables (including variable rate secured bank loans), because these carrying amounts are a reasonable approximation of fair values. 2016 Financial liabilities measured at fair value Interest rate swaps for hedging 2015 Financial liabilities measured at fair value Interest rate swaps for hedging Financial liabilities not measured at fair value Deferred consideration (restated)(1) Carrying Amount $’000 Fair Value Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 564 564 – – 564 564 – – 564 564 Carrying Amount $’000 729 729 2,619 2,619 Fair Value Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – – 729 729 2,619 2,619 – – – – 729 729 2,619 2,619 (1) Comparative information has been adjusted for changes in the acquisition accounting for Sydney Ultrasound for Women during the provisional period. Refer Section 5.1 for further information. Deferred consideration also includes $980,000 paid during 2016 relating to the Reproductive Medicine Albury acquisition which occurred in 2014. The table above analyses financial assets and liabilities carried at fair value. The different levels have been defined as follows: (cid:115)(cid:0) Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; (cid:115)(cid:0) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and (cid:115)(cid:0) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). MONASH IVF GROUP Annual Report 2016 85 Notes to the Consolidated Financial Statements continued 4.2 Financial risk management continued Fair values continued (b) Measurement of fair value (i) Valuation techniques and significant unobservable inputs The following table shows the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used. Financial instruments measured at fair value Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value measurement Not applicable Not applicable Type Valuation technique Interest rate swaps for hedging Market comparison technique: The fair values are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments 4.3 Borrowings Recognition and measurement Derivative financial instruments, including hedge accounting The Group holds derivative financial instruments to hedge certain floating interest rate exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedging items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the change in the cash flows of the respective hedged items during the period for which hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value; attributed transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes to therein are accounted for as described below. All derivative financial instruments are valued using unadjusted quoted prices in active markets for identical assets or liabilities. Cash flow hedge Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised in OCI and presented in the hedging reserve in equity. To the extent that the hedge is ineffective changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in OCI and presented in the hedge reserve in equity remains there until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then the balance in OCI is recognised immediately in profit or loss. In other cases the amount recognised in OCI is transferred to profit or loss in the same period that the hedged item affects profit or loss. 86 Invest in life Notes to the Consolidated Financial Statements continued Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least twelve months after the reporting date, the loans and borrowings are classified as non-current. On 21 June 2016, the Group refinanced its syndicate debt facility. The new facility comprises of a $110.0m syndicated debt and $5.0m working capital facility. In addition, the Group has access to an uncommitted $40.0m accordion facility for acquisition and capital expenditure purposes. The maturity profile of the syndicated debt facility is as follows for amounts utilised: Commercial loans Total interest-bearing liabilities Currency AUD AUD AUD Nominal interest rate 3.08% 3.23% 3.38% Year of maturity 2020 2021 2022 Currency Nominal interest rate Year of maturity 30 June 2016 Face value $’000 66,000 22,000 7,000 95,000 Carrying amount $’000 66,000 22,000 7,000 95,000 30 June 2015 Face value $’000 Carrying amount $’000 Commercial loans AUD 3.95% 2017 106,810 106,810 Total interest-bearing liabilities 106,810 106,810 Borrowing carrying values are as follows: Current borrowings Derivatives Capitalised finance facility fees Non-current borrowings Commercial loans Capitalised finance facility fees 2016 $’000 2015 $’000 564 (111) 453 729 – 729 95,000 106,810 (452) (550) 94,548 106,260 The banking facilities are secured via a first ranking security over substantially all of the Group’s entities. The Group is subject to certain financial undertakings under the banking facilities which will be tested at 31 December and 30 June each year. As at 30 June 2016, the Group is compliant with its financial undertakings and expects to remain in compliance with these financial undertakings. During the prior year, there were no defaults or breaches of covenants on any loans. As at 30 June 2016, the Group had $900,000 bank guarantees in place (2015: $800,000). MONASH IVF GROUP Annual Report 2016 87 Notes to the Consolidated Financial Statements continued 4.4 Net finance Costs Recognition and measurement Finance income and finance costs include: (cid:115)(cid:0) Interest income; Interest expense; (cid:115)(cid:0) (cid:115)(cid:0) The fair value gain or loss on contingent consideration classified as a financial liability; (cid:115)(cid:0) The net gain or loss on hedging activities that are recognised in profit or loss; and (cid:115)(cid:0) The reclassification of net gains previously recognised in OCI. Finance income Interest income Finance expense Interest expense Amortisation of bank fees (1) Lending fees and other Total finance expense Net finance costs 2016 $’000 2015 $’000 26 50 (4,249) (4,406) (550) – (4,799) (4,773) (182) (188) (4,776) (4,726) (1) Includes $280,000 of capitalised bank charges released to profit and loss after re-financing of the previous syndicated bank facility on 21 June 2016. 88 Invest in life Notes to the Consolidated Financial Statements continued 4.5 Cash and cash equivalents Recognition and measurement For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash balances and term deposits with original maturities of three months or less that are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. The Group limits its exposure to credit risk on liquid funds because the counterparties engaged are banks with high credit ratings assigned by international credit agencies. At balance date, the Group had $8,472,000 in short-term deposits or cash at bank with ‘A’ rated or higher Australian banks. Cash at bank and in hand Short-term bank deposits Total cash and cash equivalents Cash flow information Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the period Adjustments for: Net finance expense Depreciation and amortisation Income tax expense Share options expense Write offs of plant and equipment Doctor LTIPs expense 2016 $’000 7,872 600 2015 $’000 9,427 562 8,472 9,989 2016 $’000 2015 $’000 28,775 21,373 4,773 4,214 11,822 117 120 283 4,726 3,417 9,328 36 – – Operating profit before changes in working capital and provisions 50,104 38,880 (Increase)/decrease in trade and other receivables Increase in other assets Increase in trade and other payables Increase in provisions and employee benefits Income taxes paid Net cash from operating activities (1,334) (1,114) 1,234 259 (4,987) 701 (1,118) 1,560 121 (4,136) 44,162 36,008 MONASH IVF GROUP Annual Report 2016 89 Notes to the Consolidated Financial Statements continued Section 5 Our Business Portfolio This section provides further insight into the business acquired and group of subsidiary companies. 5.1 Business combinations 5.2 Controlled entities 5.1 Business combinations Recognition and measurement The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the following: (cid:115)(cid:0) fair values of the assets transferred fair value of liabilities assumed (cid:115)(cid:0) (cid:115)(cid:0) equity interests issued by the Group (cid:115)(cid:0) (cid:115)(cid:0) fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Key estimate and judgement: Business acquisitions The consolidated financial statements include information and results of each subsidiary from the date on which the Company obtains control until such time as the Company ceases to control the entity. The determination as to the existence of control or significant influence over an entity necessarily requires management judgement to assess the Group’s ability to govern the financial and operating activities of an investee. In making such an assessment, a range of factors are considered including voting rights in an investee and board and management representation. A business acquisition also requires judgement with respect to the determination of the fair value of purchase consideration given and the fair value of identifiable assets and liabilities acquired. The identification and valuation for such assets and liabilities including brand names, patient relationships, patents, trademarks and contingent liabilities are initially recorded on a provisional basis which requires estimation and certain judgements on inputs. During the year, provisional accounting for the Fertility East and Sydney Ultrasound for Woman acquisitions was finalised. 90 Invest in life Notes to the Consolidated Financial Statements continued Sydney Ultrasound for Women During the period, the provisional fair values included in the 30 June 2015 financial statements have been finalised subsequent to the completion review. The effect of these changes to the provisional fair values of assets and liabilities acquired and consideration transferred resulted in a reduction in the total consideration transferred by $1,361,000, increase in current tax liabilities of $519,000, an increase in trade and other payables of $106,000 and reduction in fair value of equity accounted investments by $973,000. The net impact of these adjustments increases goodwill by $237,000. The finalised consideration and net asset acquired is as follows: Consideration Initial cash payment Deferred cash payment Ordinary share issue Total Identifiable assets required and liabilities assumed Cash and cash equivalents Trade and other receivables Prepayments Investments Plant and equipment Tax liability Employee provisions Trade and other payables Net assets acquired Fertility East $’000 21,069 1,613 5,781 28,463 $’000 539 128 52 100 2,261 (532) (888) (1,429) 231 The provisional amounts for assets and liabilities acquired were finalised during the period. There were no changes to the values as disclosed at 30 June 2015. MONASH IVF GROUP Annual Report 2016 91 Notes to the Consolidated Financial Statements continued 5.2 Controlled entities The below entities are 100% owned by Monash IVF Group Limited. Place of business/country Parent Entity Monash IVF Group Limited Healthbridge Enterprises Pty Ltd Monash IVF Group Acquisitions Pty Ltd Healthbridge IVF Holdings Pty Ltd Healthbridge Shared Services Pty Ltd Healthbridge Repromed Pty Ltd Repromed Finance Pty Ltd Repromed Holdings Pty Ltd Repromed NZ Holding Pty Ltd Repromed Australia Pty Ltd Adelaide Fertility Centre Pty Ltd Monash IVF Holdings Pty Ltd Monash IVF Finance Pty Ltd Monash IVF Pty Ltd Monash Reproductive Pathology and Genetics Pty Ltd Monash Ultrasound Pty Ltd Monash IVF Auchenflower Pty Ltd (formerly Wesley Monash IVF Pty Ltd) Yoncat Pty Ltd My IVF Pty Ltd ACN 169060495 Pty Ltd Palantrou Pty Ltd ACN 166701819 Pty Ltd ACN 166702487 Pty Ltd KL Fertility & Gynaecology Centre Sdn. Bhd. KL Fertility Daycare Sdn. Bhd. Sydney Ultrasound for Women Partnership Ultrasound Diagnostic Services Trust No.2 ACN 604384661 Pty Ltd Ultrasound Diagnostic Services Pty Ltd Fertility Australia Pty Ltd Fertility Australia Trust 92 Invest in life Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Malaysia Malaysia Australia Australia Australia Australia Australia Australia Notes to the Consolidated Financial Statements continued Section 6 Other Disclosures 6.1 New standards and interpretations 6.2 Commitments 6.3 Parent entity disclosures 6.4 Deed of cross guarantee 6.5 Auditors’ remuneration 6.6 Events occurring after the reporting period 6.1 New standards and interpretations New or amended standards AASB 9 Financial Instruments AASB 15 Revenue from contracts with customers AASB 16 Leases Summary of the requirements AASB 9, published in December 2014, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. AASB 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction contracts, and AASB Interpretation 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. Possible impact on consolidated financial statements The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 9. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 15. AASB 16 removes the classification of leases as either operating leases or finance leases for the lessee, effectively treating all leases as finance leases. This will effectively move all off-balance sheet operating leases onto the balance sheet. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 16. The following new or amended standards are not expected to have a significant impact on the Group’s consolidated financial statements: (cid:115)(cid:0) AASB 14 Regulatory Deferral Accounts; (cid:115)(cid:0) Accounting for Acquisitions of Interests in Joint Operations (Amendments to AASB 11); (cid:115)(cid:0) Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138); (cid:115)(cid:0) Equity Method in Separate Financial Statements (Amendments to AASB 127); (cid:115)(cid:0) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to AASB 10 and AASB 128); (cid:115)(cid:0) Annual Improvements to AASBs 2014–2016 Cycle – various standards; Investment Entities: Applying the Consolidation Exception (Amendments to AASB 10, AASB 12 and AASB 128); (cid:115)(cid:0) (cid:115)(cid:0) Disclosure Initiative (Amendments to AASB 101); and (cid:115)(cid:0) Agriculture: Bearer Plants (Amendments to AASB 116 and AASB 141). MONASH IVF GROUP Annual Report 2016 93 Notes to the Consolidated Financial Statements continued 6.2 Commitments Capital commitments The Group has $710,000 capital expenditure contracted for at the end of the reporting period but not recognised as a liability (2015: $357,000). Non-cancellable operating leases The Group is party to various non-cancellable operating leases expiring within 1 to 10 years which are subject to various terms. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: within one year later than one year but no later than five years later than five years 2016 $’000 5,281 2015 $’000 4,469 12,934 13,766 2,506 4,227 20,721 22,462 During the financial year ended 30 June 2016, $5,959,000 was recognised as an expense in the income statement in respect of operating leases (2015: $4,891,000). 6.3 Parent entity disclosures The individual financial statements for the parent entity show the following aggregate amounts: 2016 $’000 2015 $’000 24,754 9,284 – – 24,754 9,284 434,098 421,295 437,964 425,161 (10,036) (10,036) (3,758) (3,758) 427,928 421,403 428,347 428,347 (419) (6,944) 427,928 421,403 Results of parent entity Profit after tax Other comprehensive income Total comprehensive income Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Share capital Retained earnings Total equity 94 Invest in life Notes to the Consolidated Financial Statements continued Contractual commitments for the acquisition of property, plant & equipment The parent entity did not have any capital commitments for the acquisition of property, plant or equipment as at 30 June 2016 (2015: nil). Parent entity guarantees in respect of the debts of its subsidiaries The parent entity has entered into a deed of cross guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries. 6.4 Deed of cross guarantee The below listed entities are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission. The below companies represent the parties to the deed of cross guarantee (‘closed group’) for the purposes of the legislative instrument entered into on 26 June 2014: (cid:115)(cid:0) Monash IVF Group Ltd (cid:115)(cid:0) Monash IVF Group Acquisition Pty Ltd (cid:115)(cid:0) Healthbridge Enterprises Pty Ltd (cid:115)(cid:0) Healthbridge Shared Services Pty Ltd (cid:115)(cid:0) Healthbridge IVF Holdings Pty Ltd (cid:115)(cid:0) ACN 169060495 Pty Ltd (cid:115)(cid:0) ACN 166701819 Pty Ltd (cid:115)(cid:0) HBIVF Johor Bahru Lab Pty Ltd (cid:115)(cid:0) My IVF Pty Ltd (cid:115)(cid:0) Healthbridge Repromed Pty Ltd (cid:115)(cid:0) Monash IVF Holdings Ply Ltd (cid:115)(cid:0) Palantrou Pty Ltd (cid:115)(cid:0) ACN 166702487 Pty Ltd (cid:115)(cid:0) Repromed Finance Pty Ltd (cid:115)(cid:0) Monash IVF Finance Pty Ltd (cid:115)(cid:0) Repromed Holdings Pty Ltd (cid:115)(cid:0) Monash IVF Pty Ltd (cid:115)(cid:0) Repromed Australia Pty Ltd (cid:115)(cid:0) Repromed NZ Holding Pty Ltd (cid:115)(cid:0) Monash Ultrasound Pty Ltd (cid:115)(cid:0) Monash Reproductive Pathology & Genetics Pty Ltd (cid:115)(cid:0) Monash IVF Auchenflower Pty Ltd (cid:115)(cid:0) Yoncat Pty Ltd (cid:115)(cid:0) Adelaide Fertility Centre Pty Ltd MONASH IVF GROUP Annual Report 2016 95 Notes to the Consolidated Financial Statements continued 6.4 Deed of cross guarantee continued An extract of the consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities which are party to the deed of cross guarantee, after eliminating all transactions between parties to the deed of cross guarantee, for the year ended 30 June 2016 is set out as follows: Extract of the statement of profit or loss and other comprehensive income Profit before tax Income tax expense Net profit after tax Other comprehensive income Profit for the period Items that may subsequently be reclassified to profit or loss Cash flow hedges Tax on cash flow hedges Other comprehensive income for the year, net of tax Summary of movements in consolidated retained earnings Retained earnings at the beginning of the financial year Profit for the period 2016 $’000 2015 $’000 35,699 30,154 (10,709) (8,844) 24,990 21,310 24,990 21,310 165 (49) (673) 202 25,106 20,839 (140,665) (154,465) 24,990 21,310 Changes in ownership interest in subsidiaries that do not result in change in control – – Dividends paid – ordinary shares Retained earnings at the end of the financial year (18,125) (7,510) (133,800) (140,665) 96 Invest in life Notes to the Consolidated Financial Statements continued Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Investment in subsidiaries Trade and other receivables Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax liability Employee benefits Total current liabilities Non-current liabilities Trade and other payables Borrowings Employee benefits Contingent consideration Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2016 $’000 2015 $’000 6,269 3,131 4,730 7,910 2,827 3,419 14,130 14,156 15,873 15,873 28,711 27,918 10,841 11,203 217,502 214,410 (812) 409 272,115 269,813 286,245 283,969 18,296 16,672 564 8,392 6,285 729 3,416 5,628 33,537 26,445 393 – 94,437 106,260 582 – 827 – 95,412 107,087 128,949 133,532 157,296 150,437 428,347 428,347 (137,251) (137,245) (133,800) (140,665) 157,296 150,437 MONASH IVF GROUP Annual Report 2016 97 Notes to the Consolidated Financial Statements continued 6.5 Auditors’ remuneration During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit services – KPMG Audit and review of financial statements Other services – KPMG Taxation services Other services Total other services – KPMG Other auditors (non-KPMG) Audit and review of financial statements Total services 2016 $ 2015 $ 284,000 302,000 38,094 40,000 131,617 11,000 169,711 51,000 8,805 7,500 462,516 360,500 6.6 Events occurring after the reporting period On 26 August 2016, a fully franked dividend of 4.5 cents per share was declared. The record date for the dividend is 7 September 2016 and the payment date for the dividend is 14 October 2016. Except as disclosed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial periods. 98 Invest in life Directors’ Declaration 1. In the opinion of the directors of Monash IVF Group Ltd (the ‘Company’): (a) the consolidated financial statements and notes set out on pages 57 to 98 and the Remuneration report on pages 30 to 44 in the Directors’ report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards, the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the Company and the Group entities identified in Section 5.2 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those Group entities pursuant to ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. 3. The Directors have been given the declarations required by section 295A of the Corporations Act 2001 by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2016. 4. The Directors draw attention to page 62 to the consolidated financial statements, which include a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Dated at Sydney, 26th day of August 2016 Mr Richard Davis Chairman 26 August 2016 Mr Benjamin (‘James’) Thiedeman Chief Executive Officer 26 August 2016 MONASH IVF GROUP Annual Report 2016 99 Independent Auditor’s Report (cid:11)(cid:27)(cid:19)(cid:20)(cid:29)(cid:20)(cid:27)(cid:19)(cid:20)(cid:27)(cid:33)(cid:35) (cid:16)(cid:34)(cid:19)(cid:24)(cid:33)(cid:28)(cid:30)(cid:1)(cid:32)(cid:35)(cid:30)(cid:20)(cid:29)(cid:28)(cid:30)(cid:33)(cid:35) (cid:33)(cid:28)(cid:35) (cid:33)(cid:23)(cid:20)(cid:35) (cid:26)(cid:20)(cid:26)(cid:17)(cid:20)(cid:30)(cid:32)(cid:35)(cid:28)(cid:21)(cid:35)(cid:13)(cid:28)(cid:27)(cid:16)(cid:32)(cid:23)(cid:35) (cid:11)(cid:15)(cid:9)(cid:35) (cid:10)(cid:30)(cid:28)(cid:34)(cid:29)(cid:35) (cid:12)(cid:24)(cid:26)(cid:24)(cid:33)(cid:20)(cid:19)(cid:35) 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(cid:17)(cid:33)(cid:37)(cid:35)(cid:33)(cid:37)(cid:21)(cid:40)(cid:28)(cid:33)(cid:31)(cid:39)(cid:45)(cid:16)(cid:23)(cid:40)(cid:45)(cid:11)(cid:7)(cid:7)(cid:9)(cid:4)(cid:45) (cid:20)(cid:22)(cid:16)(cid:68) (cid:13)(cid:27)(cid:68) (cid:25)(cid:67)(cid:35)(cid:50)(cid:59)(cid:43)(cid:55)(cid:48)(cid:28)(cid:66)(cid:68) (cid:19)(cid:21)(cid:37)(cid:40)(cid:31)(cid:25)(cid:37)(cid:45) (cid:22)(cid:35)(cid:46)(cid:31)(cid:51)(cid:61)(cid:57)(cid:35)(cid:68) (cid:10)(cid:14)(cid:45) (cid:12)(cid:61)(cid:41)(cid:62)(cid:58)(cid:59)(cid:68) (cid:10)(cid:6)(cid:8)(cid:14)(cid:45) MONASH IVF GROUP Annual Report 2016 101 Shareholder Information Additional Information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This information is current as at 12 September 2016. Distribution of Shareholders – ordinary Shareholders Size of Holding 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total No of Shareholders Ordinary Shares % of issued capital 1,280 2,331 872 835 100 805,791 6,462,309 6,669,669 20,014,834 0.34% 2.75% 2.83% 8.50% 201,442,835 85.58% 5,418 235,395,438 100.00% Based on a closing share price of $2.28 on 12 September 2016, the number of shareholders holding less than a marketable parcel of 220 securities is 76 and they hold 3,863 shares. 102 Invest in life Shareholder Information continued 20 Largest Shareholders – Ordinary Shareholder Rank Name No. of fully paid shares % of Issued Capital 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED ARGO INVESTMENTS LIMITED GATTACA HOLDINGS NV CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD MR FEI WANG PACIFIC CUSTODIANS PTY LIMITED CITICORP NOMINEES PTY LIMITED UBS NOMINEES PTY LIMITED BAINPRO NOMINEES PTY LIMITED IPPOLITI PTY LTD AUST EXECUTOR TRUSTEES LTD AUST EXECUTOR TRUSTEES LTD VOLLENHOVEN INVESTMENTS PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED MR PRASHANT NADKARNI 19 WARBONT NOMINEES PTY LTD 20 UBS NOMINEES PTY LTD Total Balance of register Grand total Substantial Shareholders Rank Name 1 2 AUSTRALIANSUPER PTY LTD THE CAPITAL GROUP COMPANIES, INC. Voting Rights 53,808,417 46,751,762 11,207,466 7,711,645 7,598,385 7,306,352 4,853,834 3,300,000 3,299,876 2,604,337 2,270,786 2,102,986 2,011,336 1,970,741 1,970,741 1,812,787 1,812,649 1,705,065 1,642,326 1,253,965 22.86% 19.86% 4.76% 3.28% 3.23% 3.10% 2.06% 1.40% 1.40% 1.11% 0.96% 0.89% 0.85% 0.84% 0.84% 0.77% 0.77% 0.72% 0.70% 0.53% 166,995,456 70.94% 68,399,982 29.06% 235,395,438 100.00% No. of fully paid shares % of Issued Capital 22,583,554 18,520,000 9.59% 7.87% In accordance with the Constitution, each member present at a meeting (whether in person, by proxy, by power of attorney or by a duly authorised representative), upon a poll, shall have one vote for each fully paid ordinary share. MONASH IVF GROUP Annual Report 2016 103 Auditor KPMG 147 Collins Street Melbourne, VIC, 3000 Corporate Office Pelaco Building 1 Level 1 21-31 Goodwood Street Richmond, VIC, 3121 Phone: 03 9420 8235 Website www.monashivfgroup.com Corporate Directory Stock Exchange Listing The shares of Monash IVF Group Ltd are listed by ASX Ltd on the Australian Securities Exchange trading under “MVF”. Directors Mr Richard Davis – Chairman Ms Christy Boyce Mr Neil Broekhuizen Mr Joe Czyzewski Dr Richard Henshaw Mr James Thiedeman Company Secretary Mr Michael Knaap Share Registry Link Market Services Level 12 680 George Street Sydney, NSW, 2000 Phone: 1300 554 474 Legal Clayton Utz 18/333 Collins St, Melbourne VIC 3000 Phone: (03) 9286 6000 104 Invest in life www.colliercreative.com.au #MON0009 www.monashivfgroup.com

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