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Jazz PharmaceuticalsM o n a s h I V F G r o u p | A n n u a l R e p o r t 2 0 2 0 Brave together. Annual Report 2020 Monash IVF Group Annual Report 2020 Brave together 1 We are moving forward into another exciting era for Monash IVF Group. As the world becomes richer with diversity and society’s needs change, it is important that Monash IVF Group continues to progress. This includes evolving the way we lead and the way we look. Leading the future of reproductive care There is still a lack of information about reproductive health, and taboos about infertility, miscarriage and the role of the male factor infertility. We want to help change the way society thinks about and takes care of their fertility. We will use the knowledge and experience we have gained over the last 40+ years, and the expertise of our people and doctors to drive early awareness, promote conversation about fertility, lead the advancement of reproductive science and offer early, proactive fertility health services. We have so much more to offer than just IVF. We can educate and empower patients so they can proactively manage their reproductive health and increase their chances of achieving a family. Our new brand identity reflects the empathetic, warm and nurturing patient experience we provide to patients each and every day. Let’s be #bravetogether Contents Chairman’s Report Managing Director & CEO’s Report Financial Overview Chief Financial Officer’s Report Board of Directors Management Team Directors’ Report Remuneration Report – Audited 4 6 8 9 22 24 25 41 Auditor’s Independence Declaration 57 Corporate Governance Statement 58 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity 72 73 74 Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 75 76 117 118 123 125 Monash IVF Group Annual Report 2020 A year in review Kuala Lumpur 109 Locations 25 Fertility centres 65 Consulting locations 2 Day hospitals 17 Diagnostic sites Australia Full Service Clinics Consulting Locations Day Hospitals Diagnostic Sites Our Reproductive Care Team Doctors 121 Scientists 136 Nurses 151 Sonographers Counsellors Support staff 59 28 222 Brave together 3 8,010 Total stimulated cycles 82,311 Ultrasound scans 13,478 Non Invasive Pre Natal Testing increased by 2.9% 14,894 Total Group IVF patient treatments 94% Increase in reproductive carrier screening counselling 8 Fertility Specialists joined Monash IVF Group in FY20 Dr Vanessa King Dr Fiona Cowell Monash IVF Group Annual Report 2020 Chairman’s Report Our commitment to being one of the world’s best fertility providers has never been more strongly demonstrated than over the last 12 months. I would like to highlight five key themes which have been evident at Monash IVF Group during this time. Leading through resilience Monash IVF Group has managed an unprecedented number of operational and financial challenges resulting from COVID-19. Agility and resilience were critical as we adapted our operating model in response to the temporary elective surgery suspension, the introduction of safety and protective measures, border restrictions and the significant changes to state based health policies across Australia and Malaysia. During this time, the Board and management team worked closely to ensure our people, doctors and patients were at the centre of our decisions and operational changes. I am proud of the commitment of our people and the high level of care, empathy and support they provided in what was an unsettling time for patients. Patient and community focus As a leader in the community, we were aware that our contribution needed to extend beyond the operations of Monash IVF Group. We were considered in how we balanced the needs of our patients with the needs of the greater healthcare system in our decision making. I am proud of the commitment of our people and the high level of care, empathy and support they provided in what was an unsettling time for patients. As day-to-day business processes were adapted for the new normal, we also collaborated with our patients to co-design and improve the patient experience. This included addressing key pain points for our patients, digitising parts of the patient journey and improving patient communications. Innovation despite adversity We progressed a number of significant growth initiatives during the year. These included construction of our new flagship Sydney CBD fertility clinic which is due to open later this year, and our second international investment with the acquisition of KPJ Johor Specialist Hospital Fertility Business in Malaysia. We demonstrated our agility and willingness to respond to new ways of working and living through the shift to telehealth, remote working in some parts of our business, digital engagement with our patients and people, and the myriad of operational changes which were implemented to ensure the ongoing safety of our people, patients and doctors. Our future growth and succession plans were significantly strengthened during the year with 12 specialists participating in our fertility traineeship program, and eight new contracted fertility specialists joining Monash IVF Group. Brave together Through close collaboration with our fertility specialists and people, we have seen our business emerge from COVID-19 financially stronger, more resilient and with strong growth momentum. Strength in recovery Our management team has done an impressive job in navigating the myriad of challenges and leading us through to a strong recovery. Through close collaboration with our fertility specialists and people, we have seen our business emerge financially stronger, more resilient and with strong growth momentum. Our Adjusted Profit After Tax for certain non-regular items was $14.4m with revenues of $145.4m. There was a $3.9m adverse NPAT impact during March to June 2020 compared to the prior comparison period due predominately to the COVID-19 temporary shutdown, which includes $4.9m (pre-tax) JobKeeper subsidies to maintain our workforce during hibernation and recovery periods. The dividend for the first half of FY20 has been deferred to 2 October 2020. Importantly, following the recommencement of IVF services in Australia, our full service stimulated cycles increased by 33.6% from June to July 2020 compared to last year. Our Malaysian business has recovered well following easing of the Movement Control Orders on 9 June, which resulted in 23.5% stimulated cycle growth in June to July 2020 with July up 72% compared to the prior comparison period. This minimised the adverse impact on our volumes and is reassuring as we head into FY21. A number of initiatives were implemented to assist in mitigating the financial impact of COVID-19 during the period from March to June 2020, including an $80m equity raising to reduce debt, strengthening our balance sheet, pursuing further growth opportunities in South East Asia and investment in our domestic infrastructure. 5 Evolution and growth The next 12 months are now focused on continued investment, evolution and growth. We will continue to evolve and deliver new services and technologies that meet society’s changing needs including earlier and preventative reproductive health, and continued enhancement of the patient experience through digitisation. We have also updated our brand identity to reflect our best in class positioning and the empathetic, warm and nurturing patient experience we provide to our patients each and every day. In conclusion, we are excited about the year ahead and look forward to continuing to deliver the best possible reproductive care for our patients and strong results for our shareholders. Thanks and appreciation On behalf of the Board and Management I wish to extend thanks to Christy Boyce for her contribution to the Monash IVF Group Board. Christy tended her resignation from the Board on 29th June 2020. Christy was a foundation director and held the position of Chair of the Remuneration and Nomination Committee for the past six years. We thank Christy for her service to Monash IVF Group and wish her well for the future. Following the resignation of Christy, we are delighted to welcome Catherine West to the Board of Directors. Catherine was appointed on 8 September 2020 as an Independent Non-executive Director. We are thrilled to have the skill and expertise of Catherine on the Board and look forward to working with her. In closing, the Board wishes to thank our investor shareholders for their commitment to Monash IVF Group. Thanks must also be extended to Michael Knaap our CEO and his experienced management team, together with our doctors, nurses, scientists and support staff for their commitment and leadership during what has been a challenging 2020. Mr Richard Davis Independent Chairman Monash IVF Group Annual Report 2020 Managing Director & CEO’s Report FY20 has been a year that we will all remember for its challenges and the way we have overcome them. I am proud of Monash IVF Group for our commitment during this time. We have demonstrated strength by continuing to live by our principles and deliver a safe environment for our people, doctors and patients. FY20 performance Our experienced and capable team of 121 doctors and over 550 scientific, nursing and support team members showed exceptional resilience, agility and courage in FY20. This aided in reconfirming our best in class position as a leader in reproductive health care. Although our FY20 results were adversely impacted by a temporary suspension of elective surgery, our recovery was strong and swift. Our stimulated cycles were up by 33.6% in the June to July 2020 period versus the previous corresponding period. In our key markets, stimulated cycle market share was relatively stable at 20.4%. Our market share improved by 0.8% compared to the six-month period to December 2019, reflecting positive operational momentum and a successful recovery after the COVID-19 suspension. Our Kuala Lumpur clinic is on the path to recovery after a sustained period of Movement-Control Orders in Malaysia, having demonstrated 72% stimulated-cycle growth in the month of July versus the previous corresponding period. Our Ultrasound business operated throughout COVID-19 with a significant focus on effective infection control and social-distancing measures, providing a safe environment. We demonstrated scan growth during the June-July period of 9.5%, with total scans for FY21 across the Group increasing by 1.8%. In light of a moderate decline in the March to June period, this was a good result. Collaborating through COVID-19 Thank you to our clinician group for their exceptional contributions during COVID-19. They supported the safe clinical protocols, minimal disruption in services and the recovery phase. Our future foundations continue to be strong as we welcome and support our new clinicians to the Monash IVF Group network. We’re looking forward to collaborating with our doctors – new and existing – to develop and grow their business. This is particularly exciting with our increased focus on patient and doctor engagement through digital pathways, such as webinars, Facebook and telehealth services. People engagement remains a key priority. Our people continue to be celebrated for their exceptional work, passion and pride in Monash IVF Group and our principles. Throughout the COVID-19 crisis, our team remained supportive and responsive to provide our community with a safe environment. Safety protocols – including hygiene and infection control measures, social distancing and remote and virtual working – ensured we could continue supporting our patients. We also continue to build specialised capabilities and knowledge through our dedicated learning and development framework and platforms. Progress of our strategic roadmap Despite the challenges of COVID-19, we were able to continue the momentum of our strategic plan and break new ground, with improvements in science, patient care and services. Increased marketing activities are driving growth in the patient pipeline. Our patient engagement activities during the shutdown period have driven a strong recovery of pent-up demand. We were excited to launch a new ‘Brave Together’ advertising campaign to illustrate our progressive, empathetic and empowering approach to patient care. Brave together We are investing in expanding our clinic and consulting network, while enhancing our value proposition to patients and specialists. Our new Sydney CBD flagship clinic is on track to open during the second quarter of this financial year and will represent best-practice patient experience. This clinic is a key initiative to attract new fertility specialists into the Monash IVF family. The strategic priority of clinic infrastructure has continued to be a focus in FY20 with a particular focus on transformation of our Melbourne footprint, a new full-service clinic in Penrith, which commenced in October and a refurbishment completed in our Dulwich, South Australia clinic. In a positive milestone for our international expansion, we acquired a majority stake of a boutique IVF operation in Johor Bahru, Malaysia, increasing our footprint in the South East Asian region. Domestically, we celebrated the acquisition of Fertility Solutions and taking a majority share in the Tasmania clinic. Both our international and local acquisitions and growth are supported by our unrelenting focus on building scientific capability to give our patients the best possible outcomes. We have demonstrated improvement in our success rates in FY20. In addition, we continue to partner with innovative organisations to advance new technologies, such as a safer and softer method of ICSI that is demonstrating improved fertility rates and therefore creating more embryos for our patients. 7 Our future foundations continue to be strong as we welcome and support our new clinicians to the Monash IVF Group Network. Looking ahead Our strategic roadmap, Vision 2022, will continue to guide our priorities, actions and decisions to achieve success and deliver profitable growth in the oncoming years. Our capital metrics following the equity raise allowed us to navigate the uncertainty of COVID-19 and will allow us to maintain momentum on strategic growth initiatives to achieve our Vision 2022. As a business, we will continue to be agile to provide a safe environment for our people, doctors and patients. Thank you to our people for supporting our community in this uniquely challenging and uncertain environment. Together we will continue to embrace new ways of working to be the leaders in reproductive care. Michael Knaap Chief Executive Officer & Managing Director Our strategic roadmap, Vision 2022, will continue to guide our priorities, actions and decisions to achieve success and deliver profitable growth in the oncoming years. Monash IVF Group Annual Report 2020 Financial Overview Operating performance impacted by COVID-19 disruption and departure of specialists in Victoria Revenue $145.4m FY19 $152.0m ( 4.3%) Adjusted EBIT 1,3,5 $24.4m FY19 $32.7m (25.3%) Adjusted EBITDA1,2,3,4,5 $34.8m Adjusted NPAT 1,3,4,5 $14.4m FY19 $37.8m (8.0%) FY19 $20.9m( 31.2%) Reported EBITDA2,3 $32.8m Reported NPAT 1,3,4 $11.7m FY19 $37.2m (11.8%) FY19 $19.9m ( 40.9%) Note: Financial metrics include impact from COVID-19 and AASB16 Leases. 1. Reported EBITDA adjusted by $2.0m, Reported EBIT adjusted by $2.6m and Reported NPAT by $2.7m. Refer to page 10 for reconciliation. 2. EBITDA is a non-IFRS measure. EBITDA is defined as Earnings before interest, tax, depreciation and amortisation. 3. FY20 includes impact from changes to AASB16 Lease accounting standard (EBITDA +7.2m, EBIT +$1.6m and NPAT +$0.3m). 4. Attributable to ordinary members. 5. Adjusted EBITDA, Adjusted EBIT and Adjusted NPAT are non-IFRS measures. $m Group Revenue EBITDA (1) Adjusted EBITDA (1)(2)(6) EBIT Adjusted EBIT (1)(6) NPAT attributable to ordinary shareholders Adjusted NPAT (1)(6) EPS (cents) DPS (cents) Net Debt (m) (3) Net Debt to Equity ratio (4) Return on Equity (pa.) (5) FY20 $145.4 $32.8 $34.8 $21.8 $24.4 $11.7 $14.4 4.6 2.1 FY19 $152.0 $37.2 $37.8 $31.3 $32.7 $19.9 $20.9 8.4 6.0 % change (4.3%) (11.8%) (8.0%) (30.2%) (25.3%) (40.9%) (31.2%) (45.2%) (65.0%) 30 June 20 30 June 19 $4.2 1.7% 5.7% $84.7 48.8% 12.1% (1) Adjusted reflects non-regular items relating to transaction costs on acquisition activity, restructuring costs, certain pre-IPO patient claim, closure of interest rate swaps and work-in-progress Sydney CBD clinic premise operating costs. Refer to page 29. (2) EBITDA is earnings before interest, tax, depreciation and amortisation. EBITDA is a non-IFRS measure which is used by the Group as a key indicator of underlying performance. This non-IFRS measure is not subject to audit or review. (3) Debt less cash balances. (4) Net debt to equity is debt divided by equity. (5) Return on equity is Adjusted NPAT divided by closing equity. (6) Adjusted EBITDA, Adjusted EBIT and Adjusted NPAT are non-IFRS measures. Brave together 9 Chief Financial Officer’s Report The pandemic has created a challenging operating environment but Monash IVF Group is well positioned to grow in FY21 and beyond. The ongoing COVID-19 pandemic has had an overwhelming impact on our global community and has created challenges and presented unchartered waters that will continue into the short and medium term. The $80m equity raising completed in May 2020 and the sharp recovery following the re-opening of elective surgery in Australia, has placed the Group in a strong position to pursue its strategic growth plan and any implications the next chapter of the Pandemic may present. The impact from the shutdown of elective surgery during parts of Q4 and the departure of five Victorian fertility specialists in Q1 had an impact on profitability resulting in an Adjusted Net Profit After Tax decline of 31.2% to $14.4m. Our full year revenue declined by $6.6m or 4.3% to $145.4m. The domestic IVF businesses experienced a $5.7m revenue decline in the period March to June 2020 which included an approximate 530 stimulated cycle decline (compared to previous corresponding period (pcp)) during the COVID-19 shutdown period from early April to mid-May, followed by a strong recovery whereby stimulated cycles increased by 34% in the period from mid-May to 30 June. The strong recovery has continued into FY21 with stimulated cycles increasing by 32% in July compared to previous corresponding period (pcp). The Kuala Lumpur clinic was also impacted due to Movement Control Orders (MCO) in Malaysia resulting in a $1.7m or 14.5% revenue decline as stimulated cycles reduced by 58% in the period from March to June compared to pcp. Following the easing of the MCO, stimulated cycles have increased by 72% in July 2020 compared to pcp. Full year adjusted EBITDA (excluding the impact from AASB16) declined by $10.1m to $27.7m. The revenue decline in the period from March to June had a substantial impact on earnings. Prior to March, earnings growth was experienced in South Australia, New South Wales and Queensland, whilst Victoria declined due to the departure of five fertility specialists. There has been a $1.1m increase in Marketing investment particularly during Q4FY20, which has created a strong patient pipeline going into FY21. Net debt has reduced to $4.2m following the equity raising resulting in a stronger balance sheet to navigate through the pandemic and pursue organic and non-organic growth opportunities. Given lower debt, the Syndicated Debt Facility size has been reduced from $110m to $40m. Whilst the size of the facility has been reduced, the Group continues to have access to the $40m Accordion Facility for acquisitions and growth capital expenditure. Bank covenants have been waived to 30 June 2021 but importantly, the Net Leverage Ratio is 0.15x and well below the 3.5x covenant requirement. Operating cash flow generation was strong in FY20 with conversion of EBITDA to pre-tax operating cash flows solid at 108%. The second half was particularly strong following a 78% conversion rate in the first half reflecting several cash management initiatives implemented during the uncertain operating environment since March. Cash management initiatives included deferring the 1H20 interim dividend which was paid on 2 October 2020 and no final FY20 dividend was declared. In closing, I would like to thank all our staff including the Board and the Executive Team for the response to the Pandemic which has placed Monash IVF Group in a strong position to grow in FY21 and beyond. Malik Jainudeen Chief Financial Officer and Company Secretary Monash IVF Group Monash IVF Group Annual Report 2020 Patient Experience Creating a better patient experience We are proud of the passion and commitment our people continue to demonstrate to our patients. Despite the operational challenges presented by COVID-19, we ensured that the patient experience continued to be caring and empathetic. Net Promoter Score (NPS) remains the key measure of patient satisfaction across the Group. Our Group NPS ended the year strongly at 58.5%.This increase on last year, despite the operational impact of COVID-19, is a success for our Group. We are pleased to see that the number of patients who have had a positive experience and would recommend our services is continuing to grow. We continue to use the insights gained through our Net Promoter Score measurement program to identify service improvements. We made significant inroads during the year to progress our patient focus and experience. • An online booking system was introduced for our Sydney Ultrasound business increasing convenience for our patients. • Digitisation of the pre-treatment and day surgery admission processes was undertaken through the trial of a mobile platform in our South Australian clinic. • A patient experience vision was developed to support delivery of a consistent, best in class patient experience across our States and clinics. • The financial elements of the patient experience were reviewed to improve patient convenience, empathy and care. Our Group NPS ended the year strongly at 58.5% Brave together 11 Monash IVF Group Annual Report 2020 Scientific Leadership Monash IVF Group is dedicated to providing world-class science and research, which facilitates the delivery of market leading success rates for our patients. This commitment is led by the Group Scientific Advisory Committee (GSAC) comprising of the Group Scientific Directors. In FY20 pregnancy rates continued to improve across the country due to the end-to-end laboratory reviews. This was coupled with further alignment of laboratory protocols across Monash IVF Group in conjunction with scientific learning modules and knowledge assessments for the entire scientific workforce. Innovation and state of the art diagnostics continued to be a strong focus of FY20 with the following achievements attained: • Construction and accreditation of an IVF pathology laboratory for Monash IVF Victoria (endocrine and andrology) with a state of the art sperm vapour storage capability. • A major upgrade of the pathology laboratory in NSW including a state of the art blood analysis platform. • Further roll-out of automated semen analysis across the country. • Launch of NIPT version 2.0 (NEST+) for use in early pregnancy. With the impending launch of government facilitated success rates, the GSAC in conjunction with the Monash IVF Group Board has formalised a new way of success rate reporting to facilitate comparative benchmarking. The compiled data demonstrates steady improvements in success rates ensuring the delivery of the best possible outcomes for our patients. Brave together 13 Our foundation for the future is strong, with 12 doctors currently in our fertility specialist traineeship programs across Australia, providing us with a strong pipeline for growth and succession planning. This includes two new Victorian fertility specialists who will be ready for patient management in quarter one, FY21. Our doctors continue to play an important role in our business, particularly as we look ahead to the delivery of major projects and new technologies, such as a new fertilisation technique utilising Piezo ICSI. As we look ahead, our priority is to continue to attract like-minded experienced fertility specialists to partner with us in all our geographies, and continue to grow our doctor network in the full service IVF market domestically and abroad in South East Asia. Doctor Partnerships We have continued to develop mutually beneficial and long term partnerships with our doctors. Through these strong partnerships, we together strive to achieve the best outcomes for our patients. The strength of these partnerships was proven as we worked closely with our state Medical Directors and their clinical teams to respond to the COVID-19 pandemic. Together with our Medical Directors, we implemented safe clinical protocols to protect our staff and patients whilst causing minimal disruption in services. In collaboration with Monash Research Education Fund (MREF), we celebrated working together at the annual clinic education weekend, held in November 2019. The event was a great success and will continue in 2021. Our doctor group continues to grow in size, reflecting that Monash IVF Group is a destination of choice for developing and experienced fertility specialists. In FY20 we welcomed 8 new doctors to the Monash IVF Group network, bringing our total number of doctors to 121. Importantly, most of our doctors are now contracted to Monash IVF Group. This includes all of our Victorian fertility specialists, bringing our total proportion of contracted doctors across the group to over 97 per cent. 121Monash IVF Group doctors Monash IVF Group Annual Report 2020 Clinical Infrastructure Monash IVF Group has invested in our clinical infrastructure as part of our commitment to deliver the best services and experience for our patients. Plans for further clinical infrastructure works are underway to ensure our facilities continue to reflect the best in class treatment and patient journey that we provide. Future areas of focus include the Gold Coast, Brisbane and Victoria. Key works were undertaken at Monash IVF Gold Coast and Repromed (Dulwich) to redesign and re-purpose clinic treatment areas to improve the patient experience. We opened Monash IVF Penrith to give patients in Greater Western Sydney access to IVF services. The region is one of the fastest growing areas in Australia and Monash IVF are proud to be the first full service clinic in Penrith. The opening of our flagship site at 207 Kent Street, Sydney CBD remains a considerable focus into the next financial year. With an onsite day surgery, the location offers a fully integrated facility experience for patients. Brave together 15 People Engagement Our principles have anchored the way we work at Monash IVF Group in FY20. Our response to COVID-19 illustrated that we have a strong internal community and demonstrated the resilience of our culture. COVID-19 response Guided by our principles, we were able to adjust our workforce to meet the needs of our community and provide a safe environment ensuring the wellbeing of our people. Care Our employee health and wellbeing focus in FY20 centred on supporting our teams as they helped our patients through COVID-19. We implemented safe work practices for the safety of our people, our clinicians and our patients. At the same time, we brought the spotlight onto employee mental wellbeing with a program designed to cover self-care, staying connected and enhancing our knowledge of mental wellbeing. Communicate We prioritised ‘staying connected’ and opened up communication channels to support our employees, regardless of where they were working. Collaborate Our internal working groups are empowered to drive change and challenge traditional thinking to collectively implement new ways of working. Create We saw strength in our ability to be innovative and adaptive as we adjusted to new patterns of working. Our teams identified and implemented improvements that enabled an adjusted operating model focused on delivering best in class services to our patients. Commitment We celebrated the commitment of our people through specialised events such as World Embryology Day and International Nurse Day with collaboration and support of our patients who also shared their gratitude for the work our team do. We have continued to rollout our reward and recognition program, Cudos, with many of our employees and teams recognised through the year. We continue to prioritise the engagement of our people through developing our specialised learning and development framework. This framework is designed to continue to improve our employee value proposition and empower our workforce. We continue to prioritise the engagement of our people through developing our specialised learning and development framework. Monash IVF Group Annual Report 2020 Brand and Marketing Building on our pioneering heritage, we are using our knowledge, expertise and our capabilities to define the future of reproductive health. In FY20, our marketing strategy was updated to enable us to unlock additional value and drive incremental growth. We identified four key drivers that will increase brand equity, market share and growth in our patient pipeline. These are brand differentiation, patient lifecycle engagement, patient value proposition and marketing effectiveness. Strengthening our brand differentiation This year we launched a new brand strategy and identity for Monash IVF Group. This new strategy acknowledges that reproductive health is not well understood within society and that our role extends beyond just treating patients for infertility. Our new brand identity reflects the authentic, caring and empathetic patient experience we provide to our patients every day. Patient lifecycle engagement The new channel marketing strategy implemented in FY20 is driving positive momentum across our patient pipeline. This is reflected in a significant lift in new patient enquiries post COVID-19 compared to the previous comparison period, and an increase in market share in all markets in the last quarter of FY20. Our new advertising campaign, Brave Together, was launched in the last quarter to acknowledge the bravery our patients show in pursuing their dream of starting a family. It is the start of a much needed conversation in society about fertility. The number of patients engaging with our fertility specialists has significantly increased as a result of new digital events including weekend fertility retreats, webinars, and live chats through social media. Brave together 17 Enhancing our Patient Value Proposition In FY20 we continued to focus on key priorities that will enhance the value proposition to our patients. Empower patients with the right information at the right time. Improve patient outcomes by advancing fertility science, research, and technology. Improve patient care experiences in clinic, online and over the phone. Evolve our service offering to meet changing needs. Monash IVF Group Annual Report 2020 Digital Transformation Our digital cloud-first solutions strategy allowed us to provide our patients with a robust telehealth solution and support our team with a new digital workplace. This strategy allowed us to successfully navigate the difficulties caused by COVID-19 while still providing our patients with the best care available. Looking ahead, we will build on these successes by extending the capabilities of our digital workplaces through more collaboration tools and video conferencing. Virtual healthcare will be a critical part of society’s recovery from COVID-19. With this in mind, we are positioning Monash IVF Group to support our patients by deploying a new mobile patient management system. This platform has already successfully supported patients in South Australia and is now being rolled out in New South Wales and Victoria. We’re moving with the evolution of technology in healthcare. We continue to invest in our technology to deliver: • • • improved cyber security operational efficiencies an improved patient experience. Brave together 19 International Expansion In FY20, Monash IVF Group laid further foundations for international expansion across the South East Asian (SEA) region. The Asian expansion model focuses on key strategic elements Monash IVF Group brings to its clinics and partners within the region, including scientific and clinical capability, training and development programs, brand strength and recognition, and industry leadership. During FY20, the Group acquired a clinic in Johor Bahru, Malaysia to address both the domestic Malaysian and Singapore markets. This added a bench of highly experienced clinicians and scientists in both Singapore and Malaysia. Monash IVF Group Annual Report 2020 Research and Innovation Monash IVF Group is dedicated to ensuring its research and innovation has the ability to transform patient care and improve patient outcomes. embryos cryopreserved which will provide improved outcomes for our patients. In addition, Monash IVF Group has also continued its partnership with Memphasys on developing technology for sperm preparation and selection and is further partnering on other technologies in the male infertility arena. FY20 saw the initiation of the first Monash IVF Group PhD Scholarship in conjunction with the Monash University. This will enable us to further drive our commitment to ensuring the development of excellence in scientific leadership, as well as advancement in clinical practice. In FY20 Monash IVF Group (MVF) was a successful partner in several multi-million dollar NHMRC grants. Partnerships included the University of Melbourne and Newcastle University in investigating environmental effects on male fertility; and University of South Australia investigating novel methods for isolating circulating trophoblast cells for next generation Non-Invasive Prenatal Testing (NIPT). Further industry partnerships have been established and funded through the Monash Research and Education foundation (MREF) to drive the company’s research commitment. The Group Scientific Advisory Committee (GSAC) has developed an arm dedicated to driving research and innovation within our scientific teams, in partnership with commercial and academic entities. As part of our commitment to scientific excellence, scientists from within our laboratory networks across all disciplines (embryology, genetics, andrology and endocrine) have initiated over 20 projects in FY20 that span multiple states to ensure collaboration is powered by the scale of the Monash IVF Group laboratory network. As part of our commitment to market leading success rates and being a world leader in championing new technologies, the phase one clinical trial investigating a novel and more gentle microinjection technology was completed and a multi-center phase two clinical trial initiated. This technology results in increased fertilisation rates and an increased number of Industry partnerships have been established and funded through the Monash Research and Education Foundation (MREF) to drive the company’s research commitment. Brave together 21 Clinical Governance Our patients, their needs and the care that we provide are the focus of Monash IVF’s Clinical Governance framework. We understand that working with our patients, informing them and involving them in decisions about their care will help us to meet their needs and deliver the care that they expect and desire. We have developed a Clinical Governance framework, which sets out the key systems, structures and processes that guides the quality of the care that we provide. Within this framework, clinicians and clinical teams are supported by management. Through strong clinical leadership and clinical engagement, clinicians are actively involved in risk management and continue to foster a culture that seeks to monitor our activities, learn from our experiences and implement relevant and effective, evidence based improvement activities. Recently, the COVID-19 pandemic led to a cross functional review of how our services are delivered; with telehealth services being more widely introduced and a range of infection control, social distancing and Personal Protective Equipment (PPE) measures being implemented across the organisation designed for the safety of both our patients and teams, while continuing to deliver care. Over the past year, the Monash IVF Group clinician training program has seen a further 12 doctors participate in furthering their skills and capabilities to ensure that Monash IVF is best placed to manage complex cases across our sites. Monash IVF Group Annual Report 2020 Board of Directors Ms Catherine West Independent Non-executive Director Appointed 8 Sept 2020 Michael Knaap Chief Executive Officer & Managing Director Mr Richard Davis Independent Chairman Mr Josef Czyzewski Independent Non-executive Director Ms Christina (‘Christy’) Boyce Independent Non-executive Director Resigned 29 June 2020 Dr Richard Henshaw Executive Director Ms Zita Peach Independent Non-executive Director Mr Neil Broekhuizen Independent Non-executive Director Brave together 23 Mr Richard Davis Independent Chairman Mr Josef Czyzewski Independent Non-executive Director Ms Catherine West Independent Non-executive Director 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). 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 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. Prior to that time, Josef had held various senior finance positions with BHP Billiton including VP Finance and Corporate Treasurer. He holds a Bachelor of Commerce from the University of Newcastle and is a Graduate Member of the Australian Institute of Company Directors. Ms Christina (‘Christy’) Boyce 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 companies, Greencross Limited and Oneview Healthcare. Christy is a former director of Cryosite Limited. 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. Michael Knaap Chief Executive Officer & Managing Director Mr Michael Knaap was appointed to the role of Chief Executive Officer and Managing Director for Monash IVF Group on 15 April 2019. Following his tenure as MVF Group’s Chief Financial Officer and Company Secretary since August 2015, Michael was appointed to Interim CEO in Oct 2018. Mr Knaap has over 20 years experience in executive positions with a strong operational, strategic and leadership background. Prior to joining MVF Group, Michael was with Patties Foods Limited where he held a number of executive positions over six years, including the role of Chief Financial Officer and Company Secretary. He holds a Bachelor of Accounting from Monash University and is a Certified Practising Accountant. Ms Catherine West joined the Group in September 2020 and is currently serving as a non-executive director of ASX listed Nine Entertainment where she is Chair of the People and Remuneration Committee and a member of the Audit & Risk Committee. Catherine is an experienced ASX listed non-executive director and has over 25 years of legal, business affairs and strategy experience in customer focussed businesses in the media, entertainment, telecommunications and medical sectors in Australia, the UK and Europe. Catherine was previously on the board of Southern Phone, a regional telecommunications company and she currently holds position of Vice-President of the Sydney Breast Cancer Foundation at Chris O’Brien Lifehouse, director of the NIDA Foundation and a Governor of Wenona School. Ms Zita Peach Independent Non-executive Director Ms Zita Peach has more than 25 years of commercial experience in the pharmaceutical, biotechnology, medical devices and health services industries. She worked for major industry players such as CSL Limited and Merck Sharp & Dohme, the Australian subsidiary of Merck Inc. Ms Peach’s most recent executive position was as Managing Director for Australia and New Zealand and Executive Vice President, South Asia Pacific for Fresenius Kabi, a leading provider of pharmaceutical products and medical devices to hospitals. Previously, Zita was Vice President, Business Development for CSL Limited, a position she held for ten years. Ms Peach is a Non-executive Director of the ASX listed AirXpanders, Inc., Starpharma Holdings Limited, Pacific Smiles Group Limited and Visioneering Technologies, Inc. Zita is also a member of the Hudson Institute of Medical Research Board. Ms Peach is a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Marketing Institute. Dr Richard Henshaw Executive Director Dr Richard Henshaw MD FRANZCOG FRCOG has practiced in the field of reproductive medicine since 1995. Richard works as a Fertility Specialist for the Group. Richard has served on many national bodies, including RANZCOG Council, the IVF Medical Directors Group of Australia and New Zealand, and the Reproductive Technology Accreditation Committee. Mr Neil Broekhuizen Independent Non-executive Director Mr. Neil Broekhuizen is the Joint Chief Executive Officer of Ironbridge. Neil has over 30 years experience in the finance industry, including 27 years in private equity with Investcorp and Bridgepoint in Europe and Ironbridge in Australia. He has sat on the Ironbridge Investment Committee since inception. He is the Independent Non-executive Chairman of Bravura Solutions, having previously served as a Director. Neil is qualified as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. Monash IVF Group Annual Report 2020 Management Team Fiona Allen Chief Marketing Officer Nicolette Curtis Regional Manager VIC Denise Donati CEO/Clinic Manager Fertility Solutions Tedd Fuell Quality, Regulatory & Risk Manager Anthony Gurney General Manager of SUFW Pierre Abou Haila Chief Information & Project Officer Hamish Hamilton Chief Operating Officer Malik Jainudeen Chief Financial Officer & Company Secretary Jan Lagerwij International Business Development Manager May Q, Loke Centre Manager KLFGC Shannon Neilsen Regional Manager NSW Peggy North Chief People & Culture Officer Rebecca Redden Regional Manager SA, NT & TAS Prof Luk Rombauts Group Medical Director Gillian Smith Regional Clinic Manager QLD Jonathan Whitty General Manager of MUFW & Pathology Brave together 25 Directors’ Report Directors’ Report for the year ended 30 June 2020 for the year ended 30 June 2020 The Directors present their report together with the consolidated financial report of Monash IVF Group Ltd ('the Group'), being the Company (Monash IVF Group Ltd), its subsidiaries, and the Group's interest in associated entities as at and for the year ended 30 June 2020, and the auditor's report thereon. Directors The Directors of the Company at any time during or since the end of the year are: Mr Richard Davis Ms Christina Boyce (resigned effective 29 June 2020) Mr Neil Broekhuizen Mr Josef Czyzewski Dr Richard Henshaw Ms Zita Peach Mr Michael Knaap Information on the Directors’ and Company Secretary’s experience is outlined on page 38 and 39. 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 The Group reported an Adjusted net profit after tax (NPAT)(1) of $14.4m before $2.6m non-regular items. Refer to page 29 for non-regular items adjusted. It should be noted that FY20 includes impact from AASB16 Lease accounting which increases EBITDA by $7.2m, EBIT by $1.6m and NPAT by $0.3m. $m FY20 FY19 % Change Group Revenue EBITDA(1) Adjusted EBITDA(1)(2)(6) EBIT Adjusted EBIT(1)(6) NPAT attributable to ordinary shareholders Adjusted NPAT(1)(6) EPS (cents) DPS (cents) $145.4 $32.8 $34.8 $21.8 $24.4 $11.7 $14.4 4.6 2.1 30 Jun 20 $152.0 $37.2 $37.8 $31.3 $32.7 $19.9 $20.9 8.4 6.0 30 Jun 19 (4.3%) (11.8%) (8.0%) (30.2%) (25.3%) (40.9%) (31.2%) (45.2%) (65.0%) Net Debt (m)(3) Net Debt to Equity ratio (4) Return on Equity (pa.) (5) (1) Adjusted reflects non-regular items relating to transaction costs on acquisition activity, restructuring costs, certain pre-IPO patient claim, closure of interest rate $84.7 48.8% 12.1% $4.2 1.7% 5.7% swaps and work-in-progress Sydney CBD clinic premise operating costs. Refer to page 29. Operational and Financial Review - continued EBITDA is earnings before interest, tax, depreciation and amortisation. EBITDA is a non IFRS measure which is used by the Group as a key indicator of underlying performance. This non IFRS measure is not subject to audit or review. (2) (3) Debt less cash balances (4) Net debt to equity is debt divided by equity (5) (6) Adjusted EBITDA, Adjusted EBIT and Adjusted NPAT are non-IFRS measures (7) Return on equity is Adjusted NPAT divided by closing equity Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 $14.4m Adjusted NPAT(1) is above $14m guidance provided on 29 June 2020 (reported NPAT of $11.7m); $3.9m adverse NPAT impact during March to June 2020 compared to pcp due predominately to COVID- 19 temporary shutdown; Recovery from temporary suspension of IVF procedures in Australia was strong with stimulated cycles up by 33.6% from June to July 2020 vs pcp; Kuala Lumpur clinic has recovered from Movement Control Orders in Malaysia demonstrating 72% stimulated cycle growth in July vs pcp; Ultrasound clinics continued to operate throughout Q4 although impeded by heavy but effective infection control and social distancing measures; Market share gains across SA, QLD and NSW although Victoria lost market share following departure of five specialists in September 2019; Balance Sheet strong following $80m equity raising which has reduced debt while navigating COVID-19 and allows for investment into future growth opportunities including new Sydney CBD clinic and partnerships in SE Asia; Deferred 1H20 dividend to be paid on 2 October 2020; AASB16 Lease accounting has on impact on FY20 by increasing EBITDA by $7.2m, EBIT by $1.6m and NPAT by $0.3. COVID-19 trading recovery summary Key Events On 25 March 2020, National Cabinet acting on the advice of Australian Health Protection Principal Committee temporarily suspended all non-urgent elective surgery, including IVF procedures; On 21 April 2020, National Cabinet announced that certain elective surgery procedures, including IVF could recommence from 27 April; On 27 March 2020, Movement Control Orders (MCO) were implemented in Malaysia which were subsequently eased on 9 June 2020. Impact The temporary suspension of IVF procedures resulted in a 71% decline in Australian stimulated cycles in April to mid May 2020; The MCO in Malaysia resulted in a 76% decline in International stimulated cycles in April and May 2020; $3.9m adverse NPAT impact during March to June 2020 as compared to pcp predominately due to COVID-19 which includes $4.9m (pre-tax) Job Keeper Subsidy to maintain engagement with workforce during hibernation and recovery periods; Ultrasound clinics remained open and scan volumes were moderately impacted (3.4% decline in March to June 2020) by movement restrictions in-place; however, cost of service delivery increased due to heightened infection control measures; Key Actions As a key priority, the Group implemented measures designed to protect the health and safety of its patients, employees and doctors; Implementation of a number of initiatives to assist in mitigating financial impact of COVID-19; (1) Adjusted NPAT is a non-IFRS measure Brave together 27 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 COVID-19 trading recovery summary - continued $80m equity raising in response to potential extended shutdown due to COVID-19, reduce debt and pursue growth opportunities including build of a new Sydney CBD fertility clinic, Joint venture/partnership and acquisition opportunities across South East Asia and transformation of Melbourne footprint; Patient engagement activities during shut-down period has driven the strong recovery of pent up demand and increased marketing activities post equity raising is driving growth in the patient pipeline leading into FY21. Recovery Following recommencement of IVF services in Australia, stimulated cycles increased by 34.3% between 18 May and 30 June 2020 compared to pcp, with 32.1% growth continuing into July 2020; Kuala Lumpur is in recovery following easing of the Movement Control Orders on 9 June resulting in a 23.5% stimulated cycle growth in June to July 2020 with July up by 72% compared to pcp; The Victorian IVF business has continued to operate notwithstanding Stage 4 restrictions (effective 2 August 2020) as IVF has been exempt from the current suspension of non-urgent elective surgery in Victoria. Revenue Group revenues declined by $6.6m or 4.3% to $145.4m compared to pcp. A summary of the decrease in revenues is detailed in the waterfall chart below: 151 147 M $ 143 139 3.5 152.0 5.7 3.3 2.1 0.2 1.7 145.4 FY19 MVF February YTD MVF Domestic ARS Price Fertility Solutions volume decline March-June volume decline & Tasmania MVF Malaysia Ultrasound, FY20 March-June Diagnostics volume decline & Other MVF February YTD volume decline reduced revenue by $3.5m reflecting Full-Service stimulated cycle growth in QLD, SA and NSW offset by declines in VIC due to departure of five fertility specialists MVF Domestic March to June volume decline reduced revenue by $5.7m as organic stimulated cycles declined by 472 during March to June as compared to pcp following the temporary shutdown partly offset by 34.8% stimulated cycle growth from mid May to 30 June 2020 compared to pcp Fertility Solutions and Tasmania contribution of $3.3m is due to Fertility Solutions acquisition in September and contribution from Fertility Tasmania (from August) subsequent to taking a controlling interest International revenue declined by $2.1m as stimulated cycles reduced by 189 (March to June 2020) which was largely driven during the Movement Restriction Orders in place in Malaysia Ultrasound, Diagnostics and Other income is largely in line with pcp as Ultrasound revenue increased by $0.2m, offset by ancillary services related to ARS related activity including genetic screening. Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Adjusted Earnings before interest, depreciation, interest and tax (EBITDA) Adjusted EBITDA(1)(2) is $34.8m as compared to $37.8m. For comparative purposes, Adjusted EBITDA excluding the impact from AASB16 Leases (+$7.2m) declined by $10.2m or 26.7% due primarily to: Negative impact from COVID-19 temporary suspension which reduced stimulated cycles by 71% in the period from 1 April to mid May. The Group was eligible for the Job Keeper Subsidy for Q4FY20 ($4.9m pre-tax) utilised to maintain and engage workforce; $3.4m negative impact from decline in ARS activity prior to COVID-19 suspension due to departure of Victorian specialists partly offset by growth in SA, NSW, QLD and cost out program impact as at February YTD; $1.1m marketing expenditure increase is driving pipeline growth leading into FY21 through radio, TV, digital channels and patient enquiry/registration conversion. Increase in media investment between May to July 2020 was $0.7m. Finance costs Net finance cost is $5.7m, an increase of $1.9m compared pcp. The increase is due to the closure of interest rate swaps as a result of hedge accounting in-effectiveness following repayment of debt ($1.1m), the application of the new leasing standard ($1.1m) partly offset by $0.2m lower underlying debt costs. Taxation The effective tax rate is 27.1% as compared to 27.9% in pcp. The effective tax rate reflects the 30% Australian and 24% Malaysian corporate tax rates as well as capturing the research and development tax incentives available from continued scientific innovation. Segment analysis $m Revenue Adjusted EBITDA(1)(2) Adjusted EBIT(1)(2) NPAT Australia FY20 Australia FY19 135.5 140.4 30.3 20.6 9.0 32.5 27.7 16.0 % change (3.5%) (6.8%) (25.6%) (43.8%) FY20 International FY19 9.9 4.5 3.8 2.8 11.6 5.3 5.0 3.8 % change (14.7%) (15.1%) (24.0%) (26.3%) Australia revenue declined by 3.5% to $135.5m due to the following: FY20 stimulated cycles declined by 5.6% to 7,181 reflecting: 10.1% increase in South Australian cycles February 2020 YTD resulting in market share gains; 1.9% increase in New South Wales cycles February 2020 YTD whilst maintaining total market share; 15.9% increase in Queensland cycles February 2020 YTD. The Fertility Solutions acquisition added 133 stimulated cycles between mid September 2019 to February 2020 resulting in market share gains; 14.6% decline in Victorian cycles February 2020 YTD due to departure of specialists; 366 cycle decline in March to June compared to pcp due primarily to COVID-19 disruption; Fertility Tasmania contributed 99 cycles following consolidation into the Group from August 2019; (1) Adjusted EBITDA and Adjusted EBIT are non-IFRS measures (2) Adjusted reflects non-regular items relating to transaction costs on acquisition activity, restructuring costs, certain pre-IPO patient claim, closure of interest rate swaps and AASB16 depreciation/interest on Work-in-progress Sydney CBD clinic premise costs Refer to next page Brave together 29 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Segment analysis - continued MyIVF, provider of low cost services, which ceased operations in March 2020, reducing stimulated cycles by 45 during the year; FY20 Frozen Embryos declined by 5.2% driven by the decline in stimulated cycles; Ultrasound scans increased by 1.8% to 82,311 and Non-invasive prenatal testing increased by 2.8% to 13,478. Adjusted EBIT declined by $7.1m or 25.6% to $20.6m due to impact from COVID-19 temporary shutdown of services, impact from departure of specialists in Victoria, which was partly offset by volume growth in South Australia and Queensland, $1.1m increase in marketing driving COVID-19 recovery and future pipeline. Adjusted EBIT is also increased by $1.6m due to AASB 16 Leases and $0.5m benefit from cost out program during Q3FY20. International International revenue declined by $1.7m or 14.7% to $9.9m. The International segment comprises the Kuala Lumpur clinic which was heavily impacted by movement control orders (MCO) effective 27 March. The Clinic experienced a 76% decline in April and May stimulated cycles compared to pcp. The MCO was eased on 9 June which resulted in improved volumes in June although below pcp by 14%. Strong growth has been experienced in July following conversion of some pent up demand created due to the MCO. Stimulated Cycles during FY20 declined by 205 or 19.8% and frozen embryos declined by 156 or 15.3%. International Adjusted EBIT declined by $1.2m or 24.0% due to volume declines which was heavily impacted by the MCO in place during Q4. AASB16 Leases impact Implementation of AASB16 Leases on 1 July 2019 had the following impact on FY20 profitability as compared to FY19: Increased EBITDA by $7.2m; Increased EBIT by $1.6m; Increased NPAT by $0.3m. Earnings reconciliation The table below provides a summary of FY20 non-regular items as compared to FY19: Statutory NPAT(1) 1H20 non-regular items 2H20 Restructuring costs 2H20 Acquisition costs 2H20 Interest rate swap closure 2H20 New Sydney CBD premise costs FY19 Mosman clinic closure and CEO separation costs Adjusted NPAT(1) FY20 $m 11.7 FY19 $m 19.9 1.2 0.2 0.1 0.8 0.4 - 14.4 - - - - 1.0 20.9 Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Earnings reconciliation - continued The table below provides a reconciliation of FY20 Adjusted EBITDA, EBIT and NPAT to the reported statutory metrics: $m Reported Statutory 1H20 non-regular items 2H20 Restructuring costs 2H20 Acquisition costs 2H20 Interest rate swap closure 2H20 New Sydney CBD premise costs Adjusted (1) Attributable to members EBITDA 32.8 1.7 0.2 0.1 - - 34.8 EBIT 21.8 NPAT(1) 11.7 1.7 0.3 0.1 - 0.5 24.4 1.2 0.2 0.1 0.8 0.4 14.4 $1.2m 1H20 non-regular items includes post-tax impact from Fertility Solutions acquisition transaction costs ($0.3m), pre-IPO patient claim ($0.5m) and restructuring costs associated with the cost reduction program ($0.4m); $0.2m 2H20 restructuring costs primarily relates to the closure of the MyIVF low-cost clinic; $0.1m 2H20 acquisition costs relates to the Johor Bahru, Malaysia acquisition which completed in June 2020; $0.8m closure of interest rate swaps are for the termination of $30m swaps following part repayment of Syndicated Banking Facility. This resulted in transfer of balances in the hedge reserve to profit & loss for accounting purposes; $0.4m New Sydney CBD IVF premise (lease depreciation and interest expense) from execution of the lease in February 2020. Construction works commenced in late June and is on-track to be ready for patient treatments during Q2FY21. Statement of Financial Position and Capital Metrics Balance Sheet ($m) Cash and cash equivalents Other current assets Current lease liabilities Current liabilities Net working capital Borrowings Goodwill & Intangibles Right of use assets Lease liabilities Property Plant & Equipment Other assets/liabilities Net assets FY20 15.1 15.6 (2.3) (35.6) (7.2) (19.3) 262.1 36.5 (36.3) 19.1 (2.8) 252.1 FY19 4.3 11.2 - (24.2) (8.7) (89.0) 257.1 - - 16.5 (2.5) 173.4 % change 251.2% 39.3% - (47.1%) 17.2% (78.3%) 1.9% - - 15.8% (12.0%) 45.4% Brave together 31 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Statement of Financial Position and Capital Metrics - continued Capital Metrics Net Debt ($m) Leverage Ratio (Net Debt / EBITDA) Interest Cover (EBITDA / Interest) Net Debt to Equity Ratio Return on Equity Return on Assets 4.2 0.15x 8.4x 1.7% 5.8% 4.1% 84.7 2.24x 10.6x 48.8% 12.1% 7.2% +/- (80.5) 2.09x (2.2x) 47.1% (6.3%) (3.1%) The $80m equity raising has resulted in a stronger balance sheet and reduction of debt to navigate any future developments in COVID-19. In addition, it has created flexibility to pursue identified organic and non-organic growth opportunities in Australia and South East Asia including the Sydney CBD fertility clinic construction, JV/partnership opportunities in SE Asia and transformation of Melbourne footprint. Net debt has decreased by $80.5m to $4.2m noting financial banking covenant requirements are waived until 30 June 2021 (which was executed prior to the equity raising). A decision was made to right size the $110m Syndicated Debt Facility to $40m effective 24 August 2020. The $40m accordion facility remains available for acquisitions and capex. The key Net Leverage Ratio has reduced to 0.15x which is well within the 3.5x covenant requirement when re- introduced. The Interest Cover Ratio worsened by 2.2x to 8.4x but well above the 3.0x covenant requirement. Goodwill and Intangibles increased by $5.0m due to goodwill associated with the Fertility Solutions and Johor Bahru acquisitions and software enhancements (patient management systems). Current Liabilities increased by $11.4m which includes $5.0m liability for the 1H20 deferred interim dividend due to be paid on 2 October 2020. In addition, timing of working capital increased trade payables and deferred revenue due to strong recovery experienced in June and July. Right of use assets of $36.5m and Lease Liabilities of $36.3m recognised in accordance with AASB16 Leases implemented on 1 July 2019. Cash Flows ($m) EBITDA Movement in working capital Income taxes paid Net operating cash flows (post-tax) Capital expenditure Payments for businesses Cash flows used in investing activities (1) Free cash flow Proceeds from issue of shares Dividends paid Interest on borrowings Payments of lease liabilities Proceeds/(Repayment) of borrowings Other Cash flows used in financing activities Net cash flow movement Closing cash balance FY20 32.8 2.6 (4.3) 31.1 (7.5) (3.1) (10.6) 20.5 77.5 (7.1) (3.5) (7.2) (69.7) 0.3 (9.7) 10.8 15.1 FY19 36.4 3.5 (6.8) 33.1 (6.5) - (6.5) 26.6 - (13.2) (3.6) - (9.0) (0.4) (26.2) 0.4 4.3 Change% (9.9%) (25.7%) 36.8% (6.0%) (15.4%) (100%) (63.1%) (22.9%) 100% 46.2% 2.8% (100%) (674%) 175.0% 63.0% 2600% 251.2% (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 and is not subject to audit or review. Calculated as Net cash flow generated from operating activities less Net cash flows used in investing activities. Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Statement of Financial Position and Capital Metrics - continued Key cash flow highlights are as follows: Pre-tax conversion of EBITDA to operating cash flow was strong at 107.9% following 78.0% conversion at 31 December 2019; Investment activities continued to drive future growth including: $2.5m Fertility Solutions and $0.6m Johor Bahru acquisitions (including transaction costs); Capital expenditure including commencement of new Sydney CBD clinic build, new Penrith clinic, refurbishment of Dulwich clinic, medical equipment and IT infrastructure including cyber security enhancements; Financing activities includes the $80m equity raising (net of transaction costs) partly offset by $69.7m net repayment of debt. In addition, $7.1m FY19 final dividend paid and $1.1m for termination of interest rate swaps; $7.2m Payment for Leases including premises are now classified in Financial activities due to changes in AASB16 Leases. Dividends No final FY20 dividend has been declared by the Board. The FY20 interim dividend will be paid on 2 October 2020. Outlook Industry fundamentals remain strong as the community seeks assistance when trying to conceive which has not changed due to the on-going Pandemic. The Group’s strong balance sheet, positions it well to navigate through the COVID-19 Pandemic and optimise future earnings through strategic and operational momentum gained during FY20 as illustrated in the Business Strategies and Prospects for Future Financial Years section below. Notwithstanding strong long-term industry fundamentals, current positive treatment volume recovery and patient pipelines, the Group is not providing FY21 guidance due to the continued uncertainty created by the on-going COVID-19 Pandemic. An update will be provided at the FY20 AGM. Brave together 33 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Business Strategies and Prospects for Future Financial Years Monash IVF Group’s mission is to help bring life to the World by providing Best-in-Class fertility solutions to all, including diagnostics, genetics and pathology. This is supported by our Vision to be the most admired fertility solutions provider in the world by patients, doctors, our people and other industry stakeholders. Our Mission and Vision will be delivered through Our Pillars as illustrated below: Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Business Strategies and Prospects for Future Financial Years - continued Our Pillars are defined as follows below: Patient experience - We are committed to providing best in class clinical care across the fertility and pregnancy journey; delivering through a patient experience that is empathetic, empowering and personalised. Doctor partnership - We will develop mutually beneficial long term partnerships with our doctors that benefits our patients through excellence in clinical care and to drive growth in our doctors’ businesses. Scientific leadership - Our focus in world-class research and science will deliver market leading success rates, innovative services and attract partnership opportunities. Clinical infrastructure – Provide high quality, fit-for-purpose infrastructure to support our best in class offering through investing in new and existing facilities and businesses. People engagement - Through passion, pride and capability our people are leading the way in helping bring life to the world. Brand & marketing – Our brand and marketing conveys our leadership in reproductive health and develops strong brand salience through progressive, empathetic and empowering engagement with the community, patients and our People. Digital transformation – Investing in next generation technology, platforms and systems to enhance interactions with our patients, doctors and People. Grow and diversify revenue streams through enhanced digital capabilities and partnerships. International expansion - Export our expertise in fertility services to Asia and beyond through effective partnerships. Our Pillars will drive achievement of Our Outcomes to Engage with our Key Stakeholders, continually improve our patient outcomes, grow our market share and create value for our Key Stakeholders including patients, doctors, staff and shareholders. Key development in Our Pillars during the year are noted below: Scientific Leadership Scientific advancements continue to differentiate our value proposition to patients; Improved success rates and preparation for national reporting guidelines and framework; Implementation of multi-centre clinical trial to investigate new microinjection technology with progress made to commercialise during FY21; Sperm selection device development in partnership with Memphasys (ASX: MEM) is progressing with final stages of testing in a Monash IVF clinical trial; Group scientific collaboration on the “Monash Way” is continuing to unify scientific practices through the Group Scientific Advisory Committee (GSAC) optimising patient outcomes and creating a more scalable operation. Doctor partnerships All 24 Victorian fertility specialists are now contracted with more than 97% of specialists contracted across the Group; Future growth and succession planning strengthened with 12 specialists currently in our fertility specialist traineeship program including two new Victorian fertility specialists ready for patient management in Q1FY21; Brave together 35 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Business Strategies and Prospects for Future Financial Years - continued Clear strategy to attract new experienced clinicians across the country; Priority to attract new experienced Sydney based fertility specialists to support new NSW flagship clinic in Sydney due to open in Q2; Exceptional contribution from our clinician group during COVID-19, supporting the safe clinical protocols and recovery; Creating opportunity for doctor growth and patient engagement through digital pathways (eg. Webinars/Facebook) and telehealth. Clinic infrastructure New Sydney CBD flagship clinic commenced construction in June and due to open during Q2FY20; New Sydney CBD flagship clinic will represent best practice patient experience and is a key initiative to attract new specialists in Sydney; Transformation of Melbourne footprint and patient experience is progressing to ensure our infrastructure is best-in-class in our largest state based business; New Penrith, NSW clinic opened in October 2019 servicing the western region of NSW; Refurbishment of Dulwich, SA clinic – continuation of modernising clinic atmospherics to reflect best-in-class patient experience. Patient experience Patient experience principle remains focussed on care, empathy, support, empowerment and a consistent patient journey throughout our network of clinics; Successfully maintained patient engagement during temporary suspension of services which ensured pent up patient demand converted to treatment following re-commencement of services. Digital transformation Cyber security defences protected data and systems against a targeted and sophisticated cyber attack in 1H20. Upgrades and replacement of legacy systems are further enhancing patient data security; Technology enhancements to patient management systems are enabling improvements to interactions with patients, clinicians and employees. People engagement Our pro-active approach when responding to COVID-19 included strong engagement and communication strategies to ensure our People and Patients are safe and protected in Monash IVF environments. This is a critical pillar ensuring we have a safe and secure workforce to safeguard continuity of service where possible; People engagement remains a key priority as we focus on recognising our People’s passion and pride in working at Monash IVF. Our People continue to be rewarded for demonstrating our principles in action; Building and growing capability in our People is enabling us to continue to lead the way now and in the future with a focus on a specialised learning and development framework. Brand and marketing New “Brave Together” advertising campaign illustrates innovative marketing investment following the recommencement of services during Q4FY20. The advertising campaign reflects our progressive, empathetic and empowering approach to patient care; $1.1m increase in marketing investment is supporting new patient pipeline exceeding pcp and pre COVID- 19 levels during May to July; Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Business Strategies and Prospects for Future Financial Years - continued Enhancements to the patient engagement strategy is building knowledge, support, and empowering patients to make decisions earlier in the journey and proactively safeguard their fertility; Our marketing investment, innovation and strategy are key activities to engage with our Clinician group to ensure their private practices are supported by Monash IVF. 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 a risk management framework and has implemented systematic processes for: Better identification of opportunities and threats; Prevention of potential risks from being realised; Reduction of the element of chance; Increased accountability and transparency for decisions; More effective allocation and use of resources; 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; Proactive rather than reactive management; and Enhanced governance. The risk management framework together with the risk assessments and mitigation strategies are regularly reviewed both individually and collectively by the Executive Team, the Audit and Risk 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 require continued management to ensure the Group meets its objectives: COVID-19 Pandemic COVID-19 and the risk of transmission of infection may impact Monash IVF’s operations in Australia and Malaysia through the imposition of government and regulatory requirements (which can change over time), including suspension of elective surgery, recommendations to postpone treatment where possible and the need for social distancing impacting staff movement within the partner healthcare system and patient willingness to access services. Monash IVF is continually working with industry bodies, regulator and governments to understand and shape regulatory positions but these positions and related actions can impact Monash IVF operations in the future. The short to medium term impact from COVID-19, particularly on levels of unemployment and movement restrictions may cause Monash IVF to experience reduction in demand for services, and may adversely impact financial performance and market position. In addition, Monash IVF employees may come into close proximity with patients and other members of the public during the course of business, increasing risk of transmission and impact on workforce. While protocols have been established and are effective in responding to the risk of transmission, the workforce may be infected with COVID-19 resulting in disruption of operations and services whilst they are isolating and/or recovering. Relationships with staff in key roles, including clinicians The relationships between Monash IVF Group, the staff and clinicians are key to our recruitment and retention strategies, ability to grow the businesses and replacement of retiring clinicians. The loss or disengagement of any clinicians or inability to attract new clinicians to the organisation would likely impact the revenue and profitability of the organisation. Brave together 37 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Business Strategies and Prospects for Future Financial Years - continued There are similar risks to the organisation relating to the departure or disengagement of the Executive and Leadership Teams and staff in key roles, defined by regulatory requirements. Comprehensive training and development programs, competitive remuneration frameworks, commitment to patient centred care and opportunities to participate in world class research activities all contribute to attracting and retaining the very best talent in the industry. 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: Existing competitors may undertake aggressive marketing campaigns, product innovation or price discounting; New market entrants may participate in the Sector and gain market share; An increase in publicly provided ARS services may reduce the Group’s market share. Further growth in low cost offerings provided by competitors may reduce the Group’s market share; and The Group continues to strategically position the ARS service as a specialised premium offering as a point of differentiation against low cost competitors as outlined in the Business Strategies and Prospects for Future Financial Years sections. In addition, the Group has previously partnered with State based governments in the provision of publicly provided ARS services and will look to continue to partner with governments to provide greater access to ARS services to the community. Occupational Health and Safety Monash IVF employees are at risk of workplace accidents and incidents. In the event that a Monash IVF employee is injured in the course of their employment, Monash IVF may be liable for penalties or damages. This has the potential to harm both the reputation and financial performance of Monash IVF. Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Information on directors Director Mr Richard Davis Independent Chairman Member of Audit & Risk Management Committee Member of Remuneration & Nomination Committee 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 (Chairman). 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 Limited, Richard worked as an accounting partner of Bird Cameron. Richard holds a Bachelor of Economics from the University of Sydney. Mr Josef Czyzewski Independent Non-executive Director Chair of Audit & Risk Management Committee Member of Remuneration & Nomination Committee 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. Prior to that time, Josef held various senior finance positions with BHP Billiton including VP Finance and Corporate Treasurer. He holds a Bachelor of Commerce from the University of Newcastle and is a Graduate Member of the Australian Institute of Company Directors. Ms Christina (‘Christy’) Boyce Independent Non-executive Director Chair of Remuneration & Nomination Committee Member of Audit & Risk Management Committee Resigned effective 29 June 2020 Ms Christy Boyce joined the Group in June 2014. Christy is also a director of Port Jackson Partners. Christy is a former director of 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. Mr Neil Broekhuizen Independent Non-executive Director Member of Audit & Risk Management Committee 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 over 30 years experience in the finance industry, including 27 years in private equity with Investcorp and Bridgepoint in Europe, and Ironbridge in Australia. He has sat on the Ironbridge Investment Committee since inception. Neil is currently the Independent Non-executive Chairman of Bravura Solutions, having previously served as a director. Neil is qualified as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. Brave together 39 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Information on directors - continued Director Dr Richard Henshaw Executive Director Ms Zita Peach Independent Non-executive Director Chair of Remuneration & Nomination Committee effective 1 July 2020 Mr Michael Knaap Chief Executive Officer Managing Director Experience Dr Richard Henshaw MD FRANZCOG FRCOG has practiced in the field of reproductive medicine since 1995. Richard works as a Fertility Specialist for the Group. Richard has served on many national bodies, including RANZCOG Council, the IVF Medical Directors Group of Australia and New Zealand, and the Reproductive Technology Accreditation Committee. Ms Zita Peach has more than 25 years of commercial experience in the pharmaceutical, biotechnology, medical devices and health services industries, and has worked for major industry players such as CSL Limited and Merck Sharp & Dohme, the Australian subsidiary of Merck Inc. Zita’s most recent executive position is Managing Director for Australia and New Zealand and Executive Vice President, South Asia Pacific for Fresenius Kabi, a leading provider of pharmaceutical products and medical devices to hospitals. Previously, Ms Peach was Vice President, Business Development, for CSL Limited, a position she held for ten years. Zita is Chair of Pacific Smiles Group Limited and Non-executive Director of ASX-listed, Starpharma Holdings Limited and Visioneering Technologies, inc. She is also a member of the Hudson Institute of Medical Research Board. Ms Peach is a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Marketing Institute. Mr Michael Knaap joined Monash IVF Group in August 2015 as the Chief Financial Officer and Company Secretary. In October 2018 Mr. Knaap was appointed Interim CEO and in April 2019 he was appointed Chief Executive Officer and Managing Director. Michael has more than 17 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. Monash IVF Group Annual Report 2020 Directors’ Report Directors’ Report (cont) for the year ended 30 June 2020 Company Secretary Mr Malik Jainudeen was appointed to the role of Monash IVF Group Chief Financial Officer and Company Secretary on 15 April 2019. Malik joined Monash IVF Group in 2014 as a senior finance leader and has continued to progress his career with Monash IVF Group. Malik has more than 15 years experience in the finance sector including 10 years at KPMG as a Manager in Audit and Assurance where his client portfolio included ASX listed organisations Origin Energy Limited, AusNet Services and Dulux Group Limited. Malik was also the External Audit Manager for the Monash IVF Group for 6 years prior to its listing on the ASX in 2014. Director Meetings The number of directors’ meetings and number of meetings attended by each of the directors of the Company during the financial year are: Member Mr Richard Davis (Chair) Mr Josef Czyzewski Ms Christy Boyce Ms Zita Peach Mr Neil Broekhuizen Dr Richard Henshaw Mr. Michael Knaap Attended Eligible to Attend 18 17 18 18 18 17 18 18 18 18 18 18 18 18 For the purposes of the equity raising, a Due Diligence Working Group (DDWG) was created which included participation from Richard Davis, Josef Czyzewski, Neil Broekhuizen, Michael Knaap and Malik Jainudeen (CFO). There were six DDWG meetings held and were attended by all participants. In addition, the Board of Directors participated in numerous teleconferences to the above formal Board meetings, in particular in response to the emerging COVID-19 Pandemic in March, April and May 2020. Committee meetings Member Mr Richard Davis Mr Josef Czyzewski (ARC Chair) Ms Christy Boyce (REM Chair) Ms Zita Peach Mr Neil Broekhuizen ARC REM Attended Held Attended Held 4 4 4 n/a 4 4 4 4 n/a 4 5 4 5 5 5 5 5 5 n/a n/a Brave together 41 Remuneration Report - Audited Remuneration Report – Audited for the year ended 30 June 2020 for the year ended 30 June 2020 The Company’s Directors present the 2020 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 2020 (“FY20”). 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 Group. Executive Summary The 2020 financial year has seen unprecedented challenges across Australia with the global COVID-19 pandemic. Throughout the year the employees of Monash IVF Group have worked tirelessly to adjust to these challenges, enabling the Monash IVF Group to deliver quality patient care in a safe manner that protects our patients, our people and our doctors. In response to the challenges being faced during this time, and considering the circumstances and performance in FY20, the following remuneration outcomes relate to FY20 and FY21; Short-term incentive (STI) payments for KMP in FY20 reflect the achievement of non-financial metrics ranging from 15-20%. No STI was payable for financial achievements in FY20. Long Term Incentive (LTI) FY18 plans relating to EPS and TSR are not expected to vest due to performance. Increases to the 2021 financial year fixed pay for KMP including Executives have been placed on hold for review in January 2021. No increase to the 2021 financial year fees for Directors. In taking these decisions, the Board has been mindful that returns to shareholders for the 2020 financial year did not meet our expectations. At the same time, the Board wants to acknowledge the considerable efforts of employees across the Group, and to thank them as they have continued to provide high quality service to our patients through difficult times and events and supporting our strong recovery. The Monash IVF Executive team are commended for their commitment and have worked closely with the Board to navigate the COVID-19 situation with increased consultation meetings to ensure alignment with the regulatory requirements, government recommendations, workforce planning including Stand down periods, Job Keeper, restructuring and undertaking a Capital Equity Raise. The Monash IV Group Executive had also been focused on preparing plans for strong and fast market share growth. The Board will consider in FY21 a special bonus of 5% of TFR available should market share targets be met over the first 3 month period post shutdown. Our remuneration framework continues to be focused on driving a performance culture by linking Executive Remuneration to strategic objectives both financial and non-financial. Executive Remuneration in FY20 remains at levels which are competitive with Executives in comparable companies and roles. Fixed remuneration continues to sit at or below the industry benchmark; a higher proportion of remuneration is performance based and at risk relative to industry peers. The Board varies rewards to Management in accordance with short and long term financial performance. COVID-19 continues to have an impact on many of our patients, employees, doctors and on the community more widely. We will continue to be guided by our principles as we support our patients, our people and our doctors in these challenging times. Director and KMP Changes in FY20 There have been two changes to Directors and KMP in 2020. These include; Director, Christy Boyce tendered her resignation on 29 June 2020. In the ASX announcement made on 29 June 2020 it was stated that, during Ms Boyce’s tenure as a non-executive director, she retained her partnership at Port Jackson Partners, a boutique strategy consulting firm. Port Jackson Partners has recently been acquired by Ernst & Young (EY) and Ms Boyce was appointed a partner of EY. As EY’s policy stipulates that ‘Partners and Employees should not serve as directors, officers or trustees of entities Monash IVF Group Annual Report 2020 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 Director and KMP Changes in FY20 - continued with publicly traded shares, or debt and for-profit private entities’, Ms Boyce must resign as a Director of the Company. The Board will undertake a search to appoint a new non-executive director. On the 27th March 2020, Brett Comer the Chief Operations Officer tendered his resignation. Following this Monash IVF Group made an internal succession appointment of Hamish Hamilton to the position of Chief Operations Officer on 30th March 2020. Hamish Hamilton has been with Monash IVF Group since 2009 and has extensive experience in science and scientific leadership and operational leadership. He has held positions including Scientific Director in Darwin, General Manager Repromed & Regional Manager SA/NT and Ultrasound and has provided interim leadership for both QLD and NSW. 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 four independent Directors. Ms Christina Boyce chaired the Remuneration and Nomination Committee until her resignation on 29th June 2020. 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 and Ms Peach was appointed on 16 December 2016. Ms Zita Peach was appointed to the Remuneration Chair on 23 June 2020. During FY20, the Remuneration and Nomination Committee met five times with full attendance by all members. The Remuneration and Nomination Committee may invite the CEO, CFO/Company Secretary and Chief People & Culture Officer to attend Committee meetings to assist in deliberations (excluding matters relating to their own employment). 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 FY20. The Committee is responsible for reviewing and making recommendations to the Board in relation to: Group remuneration principles, strategy and practices Non-executive director fee frameworks, policy regarding fee allocation, and fee pools sufficient for appropriate fee levels, Board renewal, Board roles, market practice, and director workload Overall remuneration framework for Executives Terms and conditions underpinning Executive & Doctor Service Agreements (ESA), including restraint and notice period Eligibility for, and conditions of, incentive plans, including equity-based incentive plans Remuneration packages for all Senior Executives including structure and incentives Metrics and associated targets for Incentive plans Terms and conditions associated with incentive plans including equity plan rules, escrow and other restrictions on disposal Structure and quantum of Senior Executive termination payments Treatment of outstanding incentives in case of cessation of employment Exercise of malus or clawback if relevant to incentive plan payments. The Remuneration and Nomination Committee are also responsible for monitoring and reporting to the Board; Remuneration relative to industry benchmarks Achievement of performance requirements for the payment of incentives Diversity and pay equity. Brave together 43 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 1.0 Remuneration Snapshot - continued The Remuneration and Nomination Committee Charter 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 May 2020. Further information on the Remuneration and Nomination Committee is provided in the Corporate Governance Statement in this Annual Report. is available on 1.2 Principles used to determine the nature and amount of remuneration The executive remuneration framework is designed to: Ensure employees including KMP and executive management are rewarded fairly and competitively according to role accountability, market positioning, skills, experience and performance. Alignment with the overall business strategy and ensure all policies and processes are observed to enable the attraction and retention of key personnel who create value for shareholders Be simple, flexible, consistent and scalable across the organisation allowing for sustainable business growth Encompass long term and short term variable performance elements for Executives, employees and contractors who have the ability to impact overall organisation performance to best align incentives Support the business strategy Reinforce the organisations mission, principles and culture and is reviewed regularly to ensure employees act ethically and responsibly Comply with all relevant legal and regulatory provisions 2.0 Remuneration Policy 2.1 Executive remuneration policy For the majority of senior executives, total remuneration consists of: Total Fixed Remuneration (TFR) • Is determined as base salary and inclusive of all standard leave provisions and superannuation guaranteed contributions. • Reflects the individuals’ accountability, position requirements and experience. • Benchmarked by the scale and size of the company. Short Term Incentive (STI) • Ensures a proportion of remuneration is tied to key performance indicators for the relevant financial year and aligned to the strategic goals of the organization. • The STI is available to eligible employees and is based on a balanced scorecard of financial and non-financial objectives. Long Term Incentive (LTI) • Ensures that a proportion of remuneration is tied to longer term Group performance measured over 3 years. • Creates alignment with long term shareholder interests and reward the creation of sustainable shareholder wealth. The Group’s remuneration framework for FY20 for the CEO, CFO and COO had three components, two of which vary with performance. TFR levels sit at or below median for similar organisations. A higher proportion performance based remuneration is at risk relative to peers. The remuneration structure aligns the remuneration opportunity with the level of position accountability. Monash IVF Group Annual Report 2020 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 2.0 Remuneration Policy - continued The diagram below summarises the framework for FY20. The framework continues to be reviewed each year. Executive Remuneration Framework Total Fixed Remuneration (TFR) At Risk Remuneration Comprises: Short Term Incentive (STI) Long Term Incentive Plan (LTI) • Cash salary • Salary sacrifice items • Employer superannuation contributions in line with statutory regulations TFR is determined on the basis of market rates (where applicable, 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. • The STI includes a Non- Financial Gateway (ANZARD Success Rate Average) • Financial Measure (70%) being EBITDA for Group and/or Specific Business Units • Non-financial Measures (30%) are linked to key strategic initiatives built around a balanced scorecard including but not limited to; • Engagement (People, Patient, Doctor) • Market Share • Scientific Success Rates • EPS growth hurdles based on predefined growth rates over a 3 year period (50%) • TSR hurdles based on Group’s relative TSR performance against ASX300 Healthcare Index (50%) Comprise share rights which vest in accordance with 3 year EPS growth and relative TSR above 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 the median level for ASX listed companies of similar size (based on a market capital of $175M - $375M). Brave together 45 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 2.0 Remuneration Policy - continued Short-term Incentive Plan Overview of FY20 Short term incentive plan: STI Structure Non-Financial Measure Gateway (ANZARD above average Success Rates) Financial Measure (70%) Group EBITDA • • • ("EPS Hurdle") Non-Financial Measure (30%) 70% of allocation subject to the hurdle • le ("EPS Hurdle") 70% of allocation subject to the hurdle • Patient engagement • Clinician engagement • Employee engagement • Market Share • Scientific Success Rates • ("EPS Hurdle") Less than $40.08m 0% Payable hurdle • $40.08m $42.75m • 70% of allocation subject to the hurdle Some but not all Qualitative Objectives achieved le ("EPS Hurdle") All Qualitative Objectives achieved No Qualitative Objectives achieved • 0% Payable • 70% of Minimum performance for payment Stretch is built into budget • • • • hurdle le ("E PS Hu rdl e") le (" EP S Hu rdl e" ) le ("EP S Hur dle" ) allocation subject to the hurdle 100% Payable to subject the hurdle 70% of allocation subject to the hurdle 30% Payable • allocatio n subject to the hurdle Proportion payable relative to number and weighting of qualitative objectives achieved • 100% • 70% of allocation subject to the Payable • 70% of allocatio n subject The Group’s STI is a variable component of remuneration and is designed to focus on strategic objectives prioritised to the by the Board for the financial year. hurdle The introduction of a Non-Financial Gateway was introduced in FY20 for the Short Term Incentive Plan (STI). This le target required the Group to achieve above the average ANZARD (Australia and New Zealand Assisted le ("EP Reproduction Database) clinical pregnancy rates (success rates). In FY20 Clinical Pregnancy rates achieved were (" above the ANZARD average. S EP Hur The financial measure within the STI Plan is Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA). S EBITDA is compared to budget EBITDA to assess achievement. EBITDA may be normalised to assess cash earning dle" operating performance by adjustment for any amounts for individually significant, non-recurring, abnormal or H ) unusual gains or losses of the Group. For the majority of the senior management team, threshold performance was ur set at $40.08m for FY20. At this level, 30% of the amount allocated for EBITDA achievement is payable. Stretch dl EBITDA performance was set at $42.75m, 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. e" ) The qualitative non-financial measures defined for KMP (including the CEO) include Patient Engagement which is measured using Patient NPS, Clinician Engagement assessed using an annual Doctor Engagement survey, Employee Engagement also measured annually using an employee engagement survey, Scientific Success Rates based on • 70 clinical pregnancy rates and Market Share based on MBS data. The CEO and CFO both were measured on % of all oc ati on • 70 % of all oc ati on su bj ec t to th e hu • 70% of allo cati on subj ect to the hur dle • 70% of allo cati on subj ect to the hur dle • 70 % of all oc ati on su bje ct to the allocation subject to the hurdle le ("EPS Hurdle") • 70% of • • Monash IVF Group Annual Report 2020 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 2.0 Remuneration Policy - continued International Expansion targets and the CFO included a Domestic Acquisition target. In FY20 the maximum STI payout for KMP’s was 20% of the Non-Financial metrics. STI in FY21 In FY20 Monash IVF Group performed a review of the STI framework and will introduce the following change to the Financial Metric in FY21. The Financial Metric change will replace Group EBITDA for an Earnings Per Share (EPS) target to further align variable incentives to shareholder value. Long-term Incentive plan KMP including CEO, CFO & COO are eligible to receive an LTI grant. Grants under LTI Plan are subject to the following conditions: • The invitations issued to eligible persons will include information such as award conditions and, upon acceptance of an invitation, the Board 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 Board. • Awards will only vest where the conditions advised to the participant by the Board 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 Board, 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 Board 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. • 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. • Where there is a takeover bid or a scheme of arrangement proposed in relation to the Company, the Board may determine that the participant’s unvested awards will become vested awards. In such circumstances, the Board 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. • • 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. Participants who hold an award issued pursuant to the LTI plan have no rights to vote 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. • 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. Brave together 47 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 2.0 Remuneration Policy - continued Overview of the FY20 LTI Plan: Performance Rights Granted EPS Compound Annual Growth Rate (“EPS Hurdle”) 50% of allocation subject to the hurdle Relative Total Shareholder Return ("TSR Hurdle") 50% of allocation subject to the hurdle Vesting Framework Vesting Framework 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% will vest at maximum performance, with pro-rata vesting between threshold and maximum. EPS threshold performance is 10% per annum over the three-year period 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 percentage points on an annualised basis, with pro-rata vesting between threshold and maximum 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. Performance rights were granted in two tranches during FY20, with each tranche subject to separate vesting conditions. 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. Details of current performance rights granted to Executives during FY20 are set out in the following table: Mr. Michael Knaap (CEO) Mr. Malik Jainudeen (CFO) EPS TSR EPS TSR 50% 50% 50% 50% 147,205 147,205 36,801 36,801 The performance periods and vesting schedules for the performance rights granted in FY20 are as follows: Performance Measure Earnings Per Share Relative TSR Performance Period 1 July 2019 to 30 June 2022 11 days after FY19 results announcement to 11 days after FY22 results announcement Monash IVF Group Annual Report 2020 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 2.0 Remuneration Policy - continued Earnings per share Performance Less than 10% 10% Between 10 and 12% Greater than or equal to 12% % of rights that will vest 0% 20% 20% to 100% (pro-rata) 100% Relative TSR Performance Less than ASX300 Healthcare Index Equal to ASX300 Healthcare Index Between ASX300 Healthcare Index and ASX300 Healthcare Index + 5% Greater than ASX300 Healthcare Index + 5% % of rights that will vest 0% 20% 20% to 100% (pro-rata) 100% 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. 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 $950,000. For the 2020 financial year, the fees payable to the current NEDs are $569,943 in aggregate. Role Fees Chair Other Non-Executive Directors Additional Fees Audit & Risk Committee – Chair Audit & Risk Committee – Member Remuneration & Nomination Committee – Chair Remuneration & Nomination Committee – Member 2020 $ 143,222 89,116 16,974 8,487 16,974 8,487 2019 $ 139,050 86,520 16,480 8,240 16,480 8,240 Brave together 49 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 3.0 Executive and Non-Executive Remuneration Remuneration Summary The Executive Remuneration outcomes for FY20 for the CEO and KMP Executives reflect the performance outcomes achieved over the year. Executive CEO Michael Knaap Component TFR Commentary $500,000 per annum. STI The CEO has the opportunity to earn an annual incentive of 60% of his total fixed remuneration package based on meeting certain defined criteria. The FY20 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. LTI (Performance Rights) 294,410 performance rights were granted in FY20. These rights vest at the end of the 3 year performance period subject to meeting certain EPS and TSR outcomes. Notice Period Term of Agreement 6 Months No Fixed Term Executive Director Dr Richard Henshaw TFR $346,951 per annum. Dr Richard Henshaw was the only doctor during FY20 who served as a Director. He was paid a salary by Monash IVF Group. STI LTI (Performance Rights) Notice Period Term of Agreement TFR STI LTI (Performance Rights) Notice Period Term of Agreement TFR STI LTI (Performance Rights) n/a n/a 6 Months No Fixed Term $300,000 per annum. The CFO has the opportunity to earn an annual incentive of 30% of his total fixed remuneration package based on meeting certain defined criteria. The FY20 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. 73,602 performance rights were granted in FY20. These rights vest at the end of the 3 year performance period subject to meeting certain EPS and TSR outcomes. 3 Months No Fixed Term $350,000 per annum n/a COO forfeited performance rights due to his resignation. Notice Period Term of Agreement n/a n/a CFO Malik Jainudeen COO Brett Comer COO for the period of 1 July 2019 to 27 March 2020 Monash IVF Group Annual Report 2020 Remuneration Report - Audited Remuneration Report – Audited (cont) for the year ended 30 June 2020 3.0 Executive and Non-Executive Remuneration - continued Executive COO Hamish Hamilton Component TFR COO for the period from 30 March 2020 STI Commentary $300,000 per annum The COO has the opportunity to earn an annual incentive of 30% of his total fixed remuneration package based on meeting certain defined criteria. The FY20 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. LTI (Performance Rights) No performance rights were granted in FY20 Notice Period Term of Agreement 3 Months No Fixed Term The following table shows the proportional weighting of each element of remuneration for each of the senior executives based on achieving maximum opportunity: Mr. Michael Knaap Mr. Richard Henshaw Mr. Malik Jainudeen Mr Hamish Hamilton(1) Fixed Remuneration (%) 45.4 100 64.5 76.9 Short Term Incentive (%) 27.3 - 19.4 23.1 Long Term Incentive (%) 27.3 - 16.1 - (1) Mr Hamish Hamilton commenced as COO on 30 March 2020 and is considered KMP from that date. The proportional weighting of each element of remuneration has been calculated from 30 March 2020 and in accordance with the contract terms of the position held from this time. 3.1 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 executives for the Group named in this report. Name Non-Executive Directors Mr Richard Davis Ms Christina Boyce Mr Josef Czyzewski Mr Neil Broekhuizen Ms Zita Peach Executive Directors Mr Michael Knaap Dr Richard Henshaw Other KMP Mr Malik Jainudeen Mr Brett Comer Mr Hamish Hamilton Position Period Covered Under this Report Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Full Financial Year From 1 July 2020 to 29 June 2020 Full Financial Year Full Financial Year Full Financial Year Chief Executive Officer Executive Director Full Financial Year Full Financial Year Chief Financial Officer Chief Operations Officer Chief Operations Officer Full Financial Year From 1 July 2020 – 27 March 2020 From 30 March 2020 Brave together Remuneration Report – Audited (cont) 51 $ l a t o T $ s t h g R i 1 9 1 6 5 1 , 0 3 5 5 5 1 , 3 1 7 1 1 1 , 0 4 2 1 1 1 , 3 1 7 1 1 1 , 0 4 2 1 1 1 , 3 6 1 5 9 , 0 6 7 4 9 , 3 6 1 5 9 , 0 6 7 4 9 , 3 4 9 9 6 5 , 0 3 5 7 6 5 , - 8 4 4 1 6 5 , 5 6 1 0 2 5 , 1 5 9 6 4 3 , 4 2 1 7 1 3 , - - - - - - - - - - - - - - - 5 7 4 1 1 , 8 6 9 8 1 , - - - - - - - - - - - - - - - - - 9 9 3 8 0 9 , 5 7 4 1 1 , - 6 5 3 4 1 6 , ) 4 4 5 7 2 , ( 6 5 1 4 8 4 , , 5 4 6 1 5 4 1 , ) 6 7 5 8 , ( 6 5 1 4 8 4 , - - - - - - - - - - - - - - - - - - - - 1 5 5 3 1 , 3 9 4 3 1 , 2 9 6 9 , 1 5 6 9 , 2 9 6 9 , 1 5 6 9 , 6 5 2 8 , 1 2 2 8 , 6 5 2 8 , 1 2 2 8 , 7 4 4 9 4 , 7 3 2 9 4 , - 2 0 0 1 2 , 1 3 5 0 2 , 3 0 0 1 2 , 7 7 9 4 2 , 6 6 0 0 1 , 5 0 0 2 4 , 4 7 5 5 5 , 0 4 6 2 4 1 , 7 3 0 2 4 1 , 1 2 0 2 0 1 , 9 8 5 1 0 1 , 1 2 0 2 0 1 , 9 8 5 1 0 1 , 7 0 9 6 8 , 9 3 5 6 8 , 7 0 9 6 8 , 9 3 5 6 8 , 6 9 4 0 2 5 , 3 9 2 8 1 5 , - 1 7 9 8 2 5 , 6 6 6 0 8 4 , 8 4 9 5 2 3 , 7 4 1 2 9 2 , 8 7 6 7 4 1 , 9 1 9 4 5 8 , - - - - - - - - - - - - - - - - - - 6 7 0 5 3 , - - - - - - - - - - - - - - - - 0 0 5 9 4 , 4 8 8 3 4 , 0 0 5 9 4 , 1 9 4 0 2 9 , 6 7 0 5 3 , 4 8 8 3 4 , n o i t a n m i r e T g n o l r e h t O $ s t i f e n e b $ $ $ s t i f e n e b m r e t n o i t a u n n a r e p u S l a t o T $ r e h t O s t i f e n e b $ h s a C I T S e v i t n e c n i $ s e e f & y r a a S l 0 4 6 2 4 1 , 7 3 0 2 4 1 , , 1 2 0 2 0 1 9 8 5 1 0 1 , 1 2 0 2 0 1 , 9 8 5 1 0 1 , 7 0 9 6 8 , 9 3 5 6 8 , 7 0 9 6 8 , 9 3 5 6 8 , 6 9 4 0 2 5 , 3 9 2 8 1 5 , - 1 7 4 9 7 4 , 6 0 7 1 0 4 , 8 4 9 5 2 3 , 7 4 1 2 9 2 , 8 7 6 7 4 1 , 9 1 4 5 0 8 , 1 3 5 1 4 8 , 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 s r o t c e r i D e v i t u c e x E - n o N ) 1 ( s i v a D d r a h c i R r M ) 1 ( i k s w e z y z C f e s o J r M ) ( 1 e c y o B a n i t s i r h C s M ) ( 1 n e z i u h k e o r B l i e N r M s r o t c e r i D e v i t u c e x E - n o N l a t o T ) ( 1 h c a e P a t i Z s M s r o t c e r i D e v i t u c e x E ) 2 ( p a a n K l e a h c i M r M w a h s n e H d r a h c i R r D ) 3 ( s i r r o M d v a D r i M s r o t c e r i D e v i t u c e x E l a t o T r M . , 3 7 3 6 1 4 $ s a w O E C m i r e t n I d n a O E C s a d e t c a p a a n K r M d o i r e p e h t r o f n o i t a r e n u m e r l a t o T . , 2 9 7 3 0 1 $ s a w r o t c e r i D g n i g a n a M & O E C s a d e t c a p a a n K r M d o i r e p e h t r o f n o i t a r e n u m e r l a t o t e h T . r o t c e r i D g n i g a n a M & O E C d e t n i o p p a s a w e h 9 1 0 2 l i r p A 5 1 n O . y r a t e r c e S y n a p m o C d n a O F C s a w e h e t a d s i h t o t r o i r P . 8 1 0 2 r e b o t c O 9 n o O E C m i r e t n i d e t n i o p p a s a w p a a n K l e a h c i M r M , 9 1 Y F n I ) 2 ( . 9 1 0 2 l i r p A o t 8 1 0 2 r e b o t c O f o d o i r e p e h t r e v o O E C m i r e t n I s a g n i t c a t s l i h w e c n a w o l l a s e i t u d r e h g i h a d e v i e c e r p a a n K . 8 1 0 2 r e b o t c O 9 n o t n e m y o p m e l s i h d e s a e c s i r r o M d i v a D r M ) 3 ( . I 9 1 - D V O C o t e s n o p s e r n i l i r p A f o h t n o m e h t n i % 0 3 f o n o i t c u d e r n o i t a r e n u m e R d r a o B s e d u l c n I ) 1 ( d e s a b e r a h S s t n e m y a p s t i f e n e b l t n e m y o p m e - t s o P s t i f e n e b l e e y o p m e m r e t t r o h S . s r a e y l a i c n a n i f r o i r p d n a t n e r r u c e h t r o f P M K s ’ p u o r G e h t y b d e v i e c e r n o i t a r e n u m e r e h t f o s l i a t e d l e b a t i g n w o l l o f 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f e h T d e t i d u A - t r o p e R n o i t a r e n u m e R Monash IVF Group Annual Report 2020 Remuneration Report – Audited (cont) $ l a t o T 3 6 9 1 2 3 , 0 5 6 9 1 2 , 7 5 8 7 7 2 , - , 1 5 0 1 2 3 7 3 8 6 7 3 , - - - $ s t h g R i 1 4 6 6 , 5 4 1 2 1 , ) 5 4 1 2 1 , ( 1 7 8 0 2 9 , ) 4 0 5 5 ( , 7 8 4 6 9 5 , 5 4 1 2 1 , , 3 1 2 9 9 3 2 , , 2 6 6 5 1 6 2 , 1 7 9 5 , 9 6 5 3 , - - - - - - - - - $ s t i f e n e b n o i t a n m i r e T g n o l r e h t O s t i f e n e b m r e t n o i t a u n n a r e p u S l a t o T $ - - - - - 6 7 5 0 5 , $ $ 3 0 0 1 2 , 2 5 2 5 1 , 3 0 0 1 2 , - 0 4 0 5 1 , 0 0 0 5 2 , 9 1 3 4 9 2 , 8 9 3 4 0 2 , 4 5 8 6 5 2 , - 0 8 5 7 6 2 , 2 9 6 9 3 3 , 6 7 5 0 5 , 6 4 0 7 5 , 3 5 7 8 1 8 , - - - - - $ - r e h t O s t i f e n e b 7 4 7 4 3 , $ h s a C I T S e v i t n e c n i 0 5 8 4 1 , 3 2 4 2 1 , 1 4 8 2 1 , - - 0 3 4 2 2 , $ s e e f & y r a a S l , 9 6 4 9 7 2 8 2 2 7 5 1 , , 3 1 0 4 4 2 - , 0 8 5 7 6 2 2 6 2 7 1 3 , 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 1 9 6 7 2 , , 2 6 0 1 9 7 0 2 0 2 - 2 5 2 0 4 , 0 9 0 4 4 5 , 7 4 7 4 3 , 3 5 8 4 3 , 0 9 4 4 7 4 , 9 1 0 2 6 5 1 4 8 4 , - 3 6 0 5 4 1 , , 4 7 8 2 8 9 1 , 6 7 5 0 5 , 8 9 4 8 4 1 , , 8 6 1 4 9 1 2 , - 1 9 1 7 7 , 3 2 8 9 6 , 7 3 7 8 7 , , 7 7 9 6 1 1 2 , , 4 1 3 4 3 8 1 , 0 2 0 2 9 1 0 2 t n e m e g a n a M y e K r e h O t ) 1 ( ) 2 ( n e e d u n a J i k i l a M l e n n o s r e P . r M n o t l i m a H h s i m a H . r M l e n n o s r e P t n e m e g a n a M y e K r e h O t l a t o T n o i t a r e n u m e R P M K l a t o T ) 3 ( r e m o C t t e r B r M y n a p m o C & O F C d e t n i o p p a s a w e h 9 1 0 2 l i r p A 5 1 n O . e t a d t a h t m o r f l e n n o s r e P t n e m e g a n a M y e K d e r e d i s n o c s i d n a 8 1 0 2 r e b o t c O 9 n o O F C m i r e t n I s a d e c n e m m o c n e e d u n i a J k i l a M r M , 9 1 Y F n I ) 1 ( . n o i t a n g i s e r s i h n o p u d e t i e f r o f e r e w d n a 0 2 Y F n i s t h g i r e r a h s d e v i e c e r r e m o c t t e r B r M i . t u o d a p s t n e m e l t i t n e l l a e d u l c n i s t i f e n e b r e h t o , 0 2 0 2 h c r a M 7 2 n o t n e m y o p m e l s i h d e s a e c r e m o C t t e r B r M . e t a d t a h t m o r f l e n n o s r e P t n e m e g a n a M y e K d e r e d i s n o c s i . d n a 0 2 0 2 h c r a M 0 3 n o O O C f o n o i t i s o p e h t n i d e c n e m m o c n o t l i m a H h s i m a H r M . 9 1 0 2 l i r p A o t 8 1 0 2 r e b o t c O f o d o i r e p e h t r e v o O F C m i r e t n I s a g n i t c a t s l i h w e c n a w o l l A s e i t u D r e h g H a d e v i e c e r i n e e d u n i a J k i l a M r M . y r a t e r c e S ) 2 ( ) 3 ( d e s a b e r a h S s t n e m y a p s t i f e n e b l t n e m y o p m e - t s o P s t i f e n e b l e e y o p m e m r e t t r o h S d e u n i t n o c – l e n n o s r e P t n e m e g a n a M y e K r o f n o i t a r e n u m e R f o s l i a t e D 1 . 3 d e t i d u A - t r o p e R n o i t a r e n u m e R 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f Brave together 53 Remuneration Report – Audited (cont) l e u a V r i a F r e p y t i r u c e S 3 6 0 . 9 1 1 . 9 4 0 . 0 0 1 . 5 4 0 . 4 9 0 . 6 4 0 . $ 4 9 0 . 6 4 0 . 0 0 1 . 5 4 0 . 4 9 0 . 6 4 0 . - - 0 8 6 9 2 , 5 4 1 7 5 , 0 9 4 4 2 , , 5 0 2 7 4 1 , 5 0 2 7 4 1 , 5 2 7 5 0 4 1 0 8 6 3 , 1 0 8 6 3 , 2 0 6 3 7 , - - - - - , 7 2 3 9 7 4 e c n a a B l f o d e t s e v n U 0 3 y t i u q E 0 2 0 2 n u J r e b m u N r e b m u N r e b m u N r e b m u N r e b m u N d e t i e f r o F r o d e s p a L n i d e t s e V 0 2 Y F 0 2 Y F n i d e t n a r G f o e c n a a B l y t i u q E d e t s e v n U e c n a m r o f r e P d n E d o i r e P 9 1 l u J 1 e t a D e t a D t n a r G l s e d r u H e p y T e m a N : w o e b l d e u n i t n o c - l e n n o s r e P t n e m e g a n a M y e K r o f n o i t a r e n u m e R f o s l i a t e D 1 . 3 d e t i d u A - t r o p e R n o i t a r e n u m e R 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f d e l i a t e d s i r a e y l a i c n a n i f e h t g n i r u d t n e m e v o m e h t d n a s t h g i r e c n a m r o f r e p d e t s e v n u f o s l i a t e D ) 7 4 4 9 1 , ( ) 0 8 6 9 2 , ( - - - - - - - - ) 7 2 1 9 4 ( , ) 6 2 4 1 5 , ( ) 0 4 0 2 2 , ( ) 2 2 5 1 5 , ( ) 1 2 5 1 5 , ( ) 9 0 5 6 7 1 ( , ) 6 3 6 5 2 2 ( , - - - - - - - - - - - - - - - - - - - - - - - - - , 5 0 2 7 4 1 , 5 0 2 7 4 1 , 0 1 4 4 9 2 1 0 8 6 3 , 1 0 8 6 3 , 2 0 6 3 7 , - - 2 2 5 1 5 , 1 2 5 1 5 , , 3 4 0 3 0 1 , 5 5 0 1 7 4 - - 7 4 4 9 1 , 0 8 6 9 2 , 0 8 6 9 2 , 5 4 1 7 5 , 0 9 4 4 2 , , 2 4 4 0 6 1 - - - - - 6 2 4 1 5 , 0 4 0 2 2 , 6 6 4 3 7 , , 8 0 9 3 3 2 9 1 - p e S - 9 0 2 - n u J - 0 3 0 2 - p e S - 4 1 2 - n u J - 0 3 1 2 - g u A - 0 3 2 2 - n u J - 0 3 2 2 - n u J - 0 3 7 1 - r a M - 7 1 8 1 - n a J - 9 2 8 1 - n a J - 9 2 8 1 - c e D - 0 2 8 1 - c e D - 0 2 9 1 - t c O - 6 1 9 1 - t c O - 6 1 2 2 - n u J - 0 3 2 2 - n u J - 0 3 9 1 - t c O - 6 1 9 1 - t c O - 6 1 0 2 - n u J - 0 3 1 2 - g u A - 0 3 2 2 - n u J - 0 3 2 2 - n u J - 0 3 8 1 - c e D - 0 2 8 1 - c e D - 0 2 9 1 - t c O - 6 1 9 1 - t c O - 6 1 R S T S P E R S T S P E R S T S P E R S T S P E R S T S P E R S T S P E R S T s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i s t h g R i p a a n K l e a h c i M . r M n e e d u n i a J k i l a M . r M ) 1 ( r e m o C t t e r B . r M l t a o T . s t h g i r e c n a m r o f r e p l l a s t i e f r o f e r o f e r e h t 0 2 0 2 h c r a M 7 2 n o n o i t a n g i s e r s i h d e r e d n e t r e m o C t t e r B r M ) 1 ( Monash IVF Group Annual Report 2020 Remuneration Report - Audited for the year ended 30 June 2020 Remuneration Report – Audited (cont) 3.1 Details of Remuneration for Key Management Personnel - continued Analysis of incentives included in remuneration Details of the vesting profile of the STI cash incentives awarded as remuneration to each director of the Company and other KMP are detailed below: Cash Incentive (2020) Cash Incentive (2019) % of Available Incentive % of Available Incentive Payable Payable $ Executive Directors Mr Michael Knaap Dr Richard Henshaw Other Key Management Personnel Mr Malik Jainudeen Mr Brett Comer Mr Hamish Hamilton 49,500 - 14,850 - 12,841 % 16.5 - 16.5 - 20 Not Payable % 83.5 - 83.5 - 80 Paid $ 43,884 - 12,423 22,430 - Paid % 21.4 - 25.0% 21.4% - Not Paid % 78.6 - 75.0 78.6 - STI Non – Financial The qualitative non-financial measures defined for KMP in Fy20 included the following: Strategic Objective Measure Patient Engagement Deliver an ongoing improvement in Patient Engagement. A patient NPS Survey is undertaken. FY20 Outcome Partial Achievement Due to COVID-19 IVF was significantly impacted whilst Ultrasound maintained a strong NPS. People Engagement Doctor Engagement Scientific Success Rates To foster a culture of Engagement with all Monash IVF Group employees, assessed via an annual employee survey on improvement targets Achieved Foster a culture of engagement with all Monash IVF Group Clinicians, assessed via a clinician engagement survey on improvement targets Achieved Deliver a focused improvement in clinical pregnancy success rates above ANZARD and improvement above previous year Achieved Domestic Market Growth Increase market share growth in all IVF Key markets Not Achieved Note: CEO and CFO Non-Financial Metrics included a focus on the International Expansion. In addition, the CFO included a metric focused on Domestic Acquisitive Growth. In FY20 these measures were not achieved due to the impact of COVID-19 and resources realigned to the hibernation and recovery requirements associated to COVID-19. 3.2 Loans to Key Management Personnel No loans were issued to KMP during 2020. Brave together 55 Remuneration Report - Audited for the year ended 30 June 2020 Remuneration Report – Audited (cont) 3.3 Key Management Personnel Shareholdings The following details Monash IVF Group ordinary shares held by Directors and KMP during 2020: Name Non-Executive Directors Mr Richard Davis Mr Josef Czyzewski Ms Christina Boyce Mr Neil Broekhuizen Ms Zita Peach Executive Directors Mr Michael Knaap Dr Richard Henshaw Other Key Management Personnel Mr Malik Jainudeen Mr Hamish Hamilton Mr Brett Comer Total Balance at start of year Granted as remuneration 52,799 142,027 106,215 100,000 56,000 54,444 1,411,632 - N/A - 1,923,117 - - - - - - - - - - - Net Change 129,268 99,355 48,104 32,787 36,803 96,211 (52,790) 19,231 71,535 - 480,504 Balance at end of year 182,067 241,382 154,319 132,787 92,803 150,655 1,358,842 19,231 71,535 N/A 2,403,621 (1) Net Change primarily comprises pro rata allocations from the $80M Equity Raising completed in May 2020. 4.0 Link to Group Performance 4.1 Group Performance The revenue and earnings of the Group for the five years to 30 June 2020 are summarised below: Measure Revenue Reported EBITDA Adjusted EBITDA (2) Net Profit After Tax (1) STI Payable Total Shareholder Return (1) Closing Share Price ($) Dividend Per Share (cents) Earnings per Share (cents) (1) 2020 $’000 145,417 32,833 34,797 11,726 24.1% -61% 0.53 2.1 4.6 2019 $’000 151,980 37,242 37,815 19,807 29.4% 34% 1.40 6.0 8.4 2018 $’000 150,736 38,109 38,109 21,181 0% -35% 1.08 6.0 9.1 2017 $’000 155,182 48,974 48,974 29,619 17.8% 3% 1.78 8.8 12.6 2016 $’000 156,561 49,584 49,584 28,775 84.6% 48% 1.82 8.5 12.2 1) 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. 2) Adjusted reflects non-regular items relating to transaction costs on acquisition activity ($539,000 pre-tax), restructuring costs ($848,000) pre-tax), certain pre-IPO patient claim ($728,000 pre-tax). During the period, Revenue, EBITDA, NPAT, TSR and EPS were key performance measures. EBITDA is a major component of the STI plans for KMP including the CEO, CFO and COO whilst TSR and EPS growth are long term metrics used to measure the CEO, CFO and COO’s remuneration via the Executive Long Term Incentive Plan. CEO, CFO and COO remuneration varies with the outcomes of these measures above a required threshold performance level. Monash IVF Group Annual Report 2020 Directors’ Report for the year ended 30 June 2020 Directors’ Report for the year ended 30 June 2020 Matters subsequent to the end of the financial year Subsequent to 30 June 2020 and related to the COVID-19 Pandemic, the Group’s largest operating market, Victoria in Australia has experienced a surge in COVID-19 cases resulting in its capital city, Melbourne moving to Stage 4 restrictions. Whilst this is disrupting operational efficiency and patient movement, provision of IVF and Ultrasound services are continuing notwithstanding Stage 4 restrictions. IVF services are exempt from the non-urgent elective surgery ban in-place in Victoria due to the service being “time critical and has minimal impact on hospital bed capacity”. Effective 24 August 2020, the Group has right sized the $110m Syndicated Debt Facility to $40m. The $40m accordion facility remains available for acquisitions and capital expenditure. 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. Likely developments The Group remains committed, prudent and focused on profitably growing the Business through leveraging its scientific capabilities and scale across the clinic network both domestically and internationally. Indemnification and insurance of officers and auditors Since the end of the previous financial period, the Group has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has been an officer or auditor of the Group. Lead auditor’s independence declaration The lead auditor’s independence declaration is set out on page 57 and forms part of the directors’ report for the year ended 30 June 2020. This report is made in accordance with a resolution of the directors. Richard Davis Michael Knaap Chairman Chief Executive Officer and Managing Director Dated in Melbourne this 24th day of August 2020 Brave together Auditor’s Independence Declaration 57 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Monash IVF Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Monash IVF Group Limited for the financial year ended 30 June 2020 there have been: i.no contraventions of the auditor independence requirements as set out in theCorporations Act 2001 in relation to the audit; andii.no contraventions of any applicable code of professional conduct in relation to the audit.KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG BW Szentirmay Partner Melbourne 24 August 2020 35 Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement This statement, approved by the Board, reports on the Group’s key governance framework, principles and practices as at 30 June 2020. 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 is 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 its fulfilment of these practices and obligations will enhance the ability for shareholders to be 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, Michael Knaap, has responsibility for day-to-day management of Monash IVF Group Ltd in its entirety. Michael was previously the Chief Financial Officer and held the position of Interim Chief Executive Officer between October 2018 and April 2019. Michael was appointed to Chief Executive Officer and Managing Director on 15 April 2019 and is supported by the Executive Team which is responsible for implementation of Board directed strategies at an operational level. The Monash http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance IVF Group Ltd Board Charter is available on the Monash IVF Group Ltd website 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, such as experience, education, criminal record and bankruptcy history, 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. With the exception of the Managing Director & CEO, one third of all eligible Directors, and any other Director who has held office for over three years since their last election, must retire in rotation at the Annual General Meeting (AGM). This is in accordance with the Company’s Constitution. A retiring Director holds office until the conclusion of the meeting at which he or she retires. They may stand for re-election by security holders at that meeting. The Board may appoint a new Director to fill a casual vacancy and that Director will hold office until the close of the next AGM, unless elected at that meeting. Brave together 59 Corporate Governance Statement Corporate Governance Statement (cont) Principle 1 Lay solid foundations for management and oversight - continued The Board makes recommendations in respect of the election or re-election of each Director based on tenure, skills and experience of the Director in relation to Board composition. The Nomination and Remuneration Committee ensures that appropriate background checks take place for the appointment of a new Director. The details of those Directors who stand for re-election will be provided in the Notice of Meeting which is sent to security holders prior to the AGM. The Board provides security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director, in addition a statement by the Board as to whether it supports the election or re-election of the candidate and a summary of the reasons as to why the Board has taken this view. Additionally, each Director standing for re-election makes a short presentation to security holders at the meeting itself. 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 and Company policy requires police checks for employees which are undertaken prior to commencement. Employment contracts require employees to disclose any offences that would result in an adverse police check. 1.4 Company Secretary Mr Malik Jainudeen was appointed in the role of Company Secretary and Chief Financial Officer with Monash IVF Group Ltd in April 2019. Malik’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. 1.5 Diversity and Inclusion Policy Monash IVF Group recognises that its business success is a reflection of the quality of its people, and is proud of its strong diverse and inclusive workforce. 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 is committed to supporting and further developing this through attracting, engaging and retaining diverse talent. Monash IVF Group is a recognised employer under the Workplace Gender Equity Act 2012 and is compliant with the requirements of the Australian Government Workplace Gender Equity Agency. The breakdown of gender diversity at Monash IVF Group is listed below: Organisational Level Non-Executive Directors Senior Management Team Leader Number of Women 2 8 35 % of Women 40% 57% 92% Total Staff (inc above) 590 91% The Board recognises the high proportion of women in the workplace and acknowledges that this gender diversity is reflective of the nature of the organisation. Senior Management is defined as Executive Directors and Management personnel in operational leadership positions generally specific to state leadership teams. Monash IVF Group confirms compliance with the Workplace Gender Equality Agency (Agency) for the 2019-20 reporting period and confirms compliance with the Workplace Gender Equality Act 2012 (Act). Monash IVF Group achieves diversity above industry standard with 50% female representation of Executives reporting to the CEO. Board representation continues to be targeted at a minimum of 30% female representation. Monash IVF Group has in place a Flexible Work Arrangements policy to promote work/life balance and to accommodate family care in line with the operational requirements of the Business. During FY20, 51 employees have taken primary and secondary parental leave, utilizing the Group’s generous parental leave policy. Flexible hour working arrangements either formally and informally are widely used across Monash IVF Group. Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement (cont) Principle 1 Lay solid foundations for management and oversight - continued The Diversity and Inclusion 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 to diversity in accordance with the Company’s Diversity and Inclusion Policy. The Board is committed to targeting a board composition aligned to its workforce and patient base over time.The Diversity Policy is available on the Monash IVF Group Ltd website http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance Monash IVF Group is committed to providing a diverse and culturally inclusive work environment to ensure that all employees are valued and safe in their workplace. Monash IVF Group provides an Equal Employment Opportunity policy framework in relation to harassment, bullying, discrimination and grievance procedures. The policies are available to all employees via the Company intranet. The Group also offers an employee assistance program that provides a confidential counselling service to support employee wellbeing in the workplace. To ensure a full understanding of respectful workplace obligations, the organisation utilises a Learning Management System, an online learning management portal to manage and track the full compliance of all respectful workplace topics. In FY20 Monash IVF Group continued their partnership with Pride in Diversity, a national not-for-profit employer support program for LGBTI workplace and is specifically designed to assist employers and employees with all aspects of inclusion including awareness and education. 1.6 Director Performance Evaluation The Remuneration and Nomination Committee Chair 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. The Chairman performs individual appraisals on each director. The annual review completed by Monash IVF Group Ltd Board was undertaken in July 2019. 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. 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 performance evaluation process has been undertaken in accordance with this policy for the current financial year. 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. Michael Knaap’s performance was formally reviewed in August 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. 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 seven directors, five independent and two 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 Directors Report. Monash IVF Group Ltd believes the current Board of seven 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 Brave together 61 Corporate Governance Statement Corporate Governance Statement (cont) Principle 2 Structure of the Board to add value - continued in-place; the Remuneration and Nomination Committee and the Audit and Risk Committee. The Board Charter prescribes that all committee members be Independent Directors. A summary of the Board members, their roles, independence and appointment dates are as follows: Director Position Independent Mr Richard Davis Independent Chairman Mr Josef Czyzewski Ms Christina Boyce Independent non-executive Director Independent non-executive Director Ms Zita Peach Mr Neil Broekhuizen Independent non-executive Director Independent non-executive Director Mr Michael Knaap CEO and Managing Director Dr Richard Henshaw Executive Director Yes Yes Yes Yes Yes No – CEO and Managing Director No – Fertility Specialist with Monash IVF Group Ltd Appointment Date 4/6/2014 4/6/2014 4/6/2014 (resigned 29/6/20) 12/10/2016 4/6/2014 15/4/2019 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 Following the resignation of the Chair of the Remuneration and Nomination Committee, Christina Boyce on 29 June 2020, Ms Zita Peach has been appointed the Chair of the Remuneration and Nomination Committee. It is anticipated that a new member of the Remuneration and Nomination Committee will be appointed. The Remuneration and Nomination Committee consist of four independent Directors of the Board: Ms Zita Peach (Chair) Mr Richard Davis Mr Josef Czyzewski To be appointed The Committee assists the Board by reviewing and making recommendations to the Board in relation to: the Company's remuneration policy; Board succession issues and planning; Board member and re-election of members to the Board and its committees; Director induction and continuing professional development programs for Directors; remuneration packages of senior executives; Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement (cont) Principle 2 Structure of the Board to add value - continued non-executive Directors and executive Directors, equity-based incentive plans and other employee benefit programs; Company superannuation arrangements; the Company's recruitment, retention and termination policies; succession plans of the CEO, senior executives and executive Directors; 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 and Inclusion 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 Board of Director skill set during FY20: Monash IVF Group Ltd believe 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 advice on Group strategy and growth. 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. Brave together 63 Corporate Governance Statement Corporate Governance Statement (cont) Principle 2 Structure of the Board to add value - continued 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 independence status and length of service of each director is outlined in the table under Principle 2. The percentage of Board members considered independent was 71%. 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, strategy, financial, operational and risk management matters and factors relevant to the sectors and environments in which the Company operates as well as visits to laboratories and clinics to gain a more in depth understanding of the business. The Chairman periodically reviews whether there is a need for Directors to undertake professional development to maintain the skills and knowledge needed to perform their role as Directors effectively. Directors are active in undertaking professional development opportunities for the purpose of development and maintenance of their skills. The Board and its Committees are provided with updates and information from both management and external experts on various topics relevant to the Company’s circumstances, including emerging business and governance issues relevant to the Company and material developments in laws and regulations. The Board and individual Directors attend at operational sites, meet staff in operations and receive presentations from management across the Group’s operations. 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 Instill a culture of acting lawfully, ethically and responsibly The Board and senior executives are firmly committed to ensuring that all employees observe high standards of lawful, ethical behaviour and conduct. Setting the cultural tone for the organisation, Monash IVF Group’s core values are as follows: Monash IVF Group Annual Report 2020 Corporate Governance Statement (cont) Corporate Governance Statement Principle 3 Instill a culture of acting lawfully, ethically and responsibly - continued Our Principles Monash IVF Group’s performance review process requires assessment of the extent to which personnel have demonstrated behaviour consistent with these values. The values also form the foundation for the monthly and annual employee CUDOS Awards, recognising and celebrating outstanding employee behaviour in line with these values. The principles are provided with sufficient guidance to enable personnel to make decisions consistent with the Board’s risk appetite and core values. 3.2 Code of Conduct and whistleblower program 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. 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 Brave together 65 Corporate Governance Statement Corporate Governance Statement (cont) Principle 3 Instil a culture of acting lawfully, ethically and responsibly - continued 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. The Board or Audit and Risk Management Committee are informed of any material breaches of the entity’s code of conduct. The Company has a Whistleblower policy which has been communicated to all Company personnel and published on the Company’s website. The Whistleblower Policy promotes and supports the reporting of matters of concern and suspected wrongdoing, such as dishonest or fraudulent conduct, breaches of legislation and other conduct that may cause financial loss or be otherwise detrimental to its reputation or interests. The Policy sets out the approach to disclosure, investigation and reporting and outlines the protection to be afforded to those who report such conduct against reprisals, discrimination, harassment or other disadvantage resulting from their reports. All disclosures received under the Whistleblower Policy are reported to the Audit and Risk Management Committee with details of investigations completed. 3.3 Anti-Bribery and Corruption policy The Group has a number of policies intended to foster a culture of lawful, ethical and responsible decision-making. In addition to specific behaviours set out in the Code of Conduct where Monash IVF Group confirms it has no tolerance for corrupt practices and as part of improvements planned to align practices with the Fourth Edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, Monash IVF Group has committed to the adoption and disclosure of a formal Anti Bribery and Corruption Policy in the next reporting period. Monash IVF Group Ltd Code of Conduct policy and Whistle Blower policy can be found in full on our website under www.monashivfgroup.com.au/investor-centre/corporate-governance/ Principle 4 Safeguard integrity in corporate reporting 4.1 Audit and Risk Management Committee The Audit and Risk Management Committee for Monash IVF Group Ltd are 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. The Audit and Risk Management Committee consists of four 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: Mr Josef Czyzewski (Chair) Mr Richard Davis Ms Christina Boyce (resigned 29 June 2020) Mr Neil Broekhuizen Details of the Committee members’ experience and technical expertise are set out in the directors’ biographies which can be viewed on the Board of Directors pages in the latest Annual Report. Details of the number of times the Committee met throughout the period and individual attendances of the members can be viewed in the Directors Report in the latest Annual Report. 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 Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement (cont) Principle 4 Safeguard integrity in corporate reporting - continued 4.2 Financial Statement Approval Monash IVF Group Ltd CEO and Managing Director, Mr Michael Knaap, and CFO, Mr Malik Jainudeen, reviewed and verified that the 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 Process for verifying Periodic Corporate Reports Monash IVF Group Ltd is committed to providing security holders and other external stakeholders with timely, consistent and transparent corporate reporting. The process which is followed to verify the integrity of periodic corporate reports is tailored based on the nature of the relevant report, its subject matter and where it will be published. Monash IVF Group Ltd seeks to adhere to the following general principles with respect to the preparation and verification of its corporate reporting: periodic corporate reports prepared by, or under the oversight of, the relevant subject matter expert for the area being reported on; the relevant report is in compliance with any applicable legislation or regulations; the relevant report reviewed (including any underlying data), with regard to ensuring it is not inaccurate, false, misleading or deceptive; and where required by law or by Monash IVF Group policy, relevant reports authorised for release by the appropriate approver required under that law or policy. Consistent with these principles, the non-audited sections of the Annual Report and Corporate Governance Statement for the Reporting Period were prepared by the relevant subject matter experts and reviewed and verified by relevant senior executives and senior managers prior to Board approval. ASX announcements (other than administrative announcements) during the Reporting Period were also reviewed and approved in accordance with the Continuous Disclosure policy, which includes review by the Board, CEO and CFO prior to publication. 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 informed in a timely manner of its activities and performance in line with its Continuous Disclosure Policy. This policy complies with the continuous disclosure obligations under the Corporation 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 of 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. 5.2 and 5.3 Material market announcements and presentations The Company Secretary ensures that the Board receives copies of all material market announcements promptly after they have been made and ensures that any new investor or analyst presentation is released on the ASX before the presentation is given. The Continuous Disclosure Policy can be found on the Monash IVF Group website at http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance. Brave together 67 Corporate Governance Statement Corporate Governance Statement (cont) 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 Communication 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: Company information including Board members; A ’Corporate Governance’ landing page with documents including the Company's codes, policies and charters; copies of presentations to shareholders, institutional investors, brokers and analysts; all announcements and releases to the ASX; any media or other releases; all notices of meetings and explanatory material; annual and half yearly reports; 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: Home – homepage with Company history and overview About – information on Our People, Collaborations and Career Opportunities Research and Innovation – lists current and published research and our scientific firsts. 6.2 Investor Relations to there the Company website, In addition 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 Communication Policy can be located at: http://ir.monashivfgroup.com.au/Investor-Centre/?page=Corporate-Governance is a dedicated 6.3 and 6.4 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 26 November 2020. 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 All resolutions put to the Annual General Meeting will be decided by way of a poll. Shareholders are also able to direct any questions via the Group’s share registry provider, Link Market Services. Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement (cont) Principle 6 Respect the rights of security holders - continued 6.5 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 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 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 mitigating actions. The Committee adheres to the Risk Management Policy for the business which highlights the risks relevant to Company operations and oversees that the entity is operating with due regard to the risk appetite set by the Board. 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 at least three Board Directors that are non-executive independent Directors. 7.2 Risk Management Monash IVF Group provides a framework for risk management which supports the achievement of our strategic and operational objectives. We are committed to maintaining an organisational philosophy and culture which ensures that effective risk management is integrated into day to day activities. 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 reviewed by the Risk Owners, Leadership teams and Executive Team help determine whether risks are still current, controls are effective and identify any emerging risks, which are then flagged to the Audit and Risk Management Committee. A review of Risk Management is undertaken annually. Specialist software used to record adverse events and feedback ensures that exposures to risk are continually monitored to ensure they are adequately understood and managed. This system of reporting also allows for formal monitoring of patient safety, identification training needs and informs clinical policy decision making. Brave together 69 Corporate Governance Statement Corporate Governance Statement (cont) Principle 7 Recognise and Manage Risk - continued 7.3 Internal Audit Monash IVF Group Ltd does not have a designated Internal Audit Function at present but the Group performs internal audit activities from a clinical and operational perspective to ensure compliance with various external accreditation requirements. The CEO and CFO have key responsibility in ensuring that internal controls are in place, operating effectively and reviewed for continual improvement. As part of the various accreditation and licencing processes undertaken by the business, key internal audit functions are undertaken. These audits are then made available to accreditation and licensing bodies. Certain financial internal controls are tested by KPMG as part of their financial statement audit procedures. The Group believes internal controls implemented such as segregation of duties, delegation processes, treasury controls and structured approval processes counter many risks. The Group will continue to assess whether an independent third party internal audit function or designated in-house internal audit function is required. 7.4 Risk Exposure Monash IVF Group Ltd provides assisted reproductive services in Australia and Malaysia and specialist women’s imaging services in Australia. The Group is committed to performing services in an open and transparent environment and in a manner that is honest and ethical. The Group embraces responsibility for corporate actions and encourages a positive impact on the environment and stakeholders including patients, employees, investors and the community. Since its 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 it serves and society at large. Its focus on evidenced based fertility care provides the opportunity to commit resources to scientific research, clinical teaching and training. The Group’s services are offered to all and do not discriminate, including nature and complexities of infertility. From an ethical perspective, Monash IVF Group Ltd and its subsidiary companies ensure national regulation and state legislation drives the standards of care to ensure its protects its patients, donors and any children born as a result of treatment provided by the Group. All Monash IVF Group facilities meet the appropriate standards for accreditation including: Assisted reproductive treatment sites in Australia are accredited with the Reproductive Technology Accreditation Committee (RTAC) and the Group ensures appropriate documentation is held by sites, doctors, nurses and scientists. This accreditation incorporates components covering ethics and safety in practice and management of adverse events. 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. Diagnostic laboratories are accredited to ISO 15189 and relevant NPAAC Guidelines. Diagnostic imaging (ultrasound) facilities are accredited with the Department of Health Diagnostic Imaging Accreditation Scheme (DIAS). The Group’s Malaysian clinic whilst not legally requiring the same level of regulation, operates to the same standards having been externally accredited to the international RTAC standards. The Group recognises that its staff and Doctors are instrumental to the success of the Organisation. Comprehensive recruitment, credentialing, induction, training and development programs are designed to attract and retain staff equipped to deliver outstanding customer care. Staff actively participate in the continual improvement of the Group’s internal policies and processes and are encouraged to participate in innovation and research. The Monash IVF Group Workplace Health and Safety Policy framework covers policies on general safety in the workplace. Monash IVF Group Ltd recognises protecting the environment is a critical issue and a key responsibility of the Business and corporate community. Monash IVF Group is an organisation that is not involved in manufacturing or resource extraction and hence it considers its environmental footprint to be small. Monash IVF Group Annual Report 2020 Corporate Governance Statement Corporate Governance Statement (cont) Principle 7 Recognise and Manage Risk - continued The Group adopts 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 adopts the approach of a responsible corporate citizen with regard to the management of waste and hazardous materials. The Group is not a significant consumer of electricity, water or gas and accordingly, the opportunities for material reductions in utility consumption are limited. The Quality Management System in place in each laboratory supports the review and monitoring of 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. Currently all Monash IVF Group clinics use predominantly products from the top two suppliers of laboratory products in Australia in order to maintain consistency in quality. 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 and securely as demonstrated by a recent cyber-attack that failed to propagate through our systems. Our preventative controls isolated the attack to a comparatively small subset of system resources, while we hardened our firewall and email filtering to stop this and future attacks from coming through. Numerous levels of redundancy and backup are built into the IT systems providing a high degree of system availability and protection of data. The Group periodically engages an independent third party to review the Group’s cyber security risk. Recommendations from these reviews continue to be implemented and the Group continues to invest to further enhance cyber security measures in place. 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 the Medicare Benefit Schedule and Extended Medicare Safety Net. Any change to the funding arrangements could lead to a reduction in revenue affecting financial performance and sustainability of the Group. Market contraction and changes to market dynamics can significantly affect business outcomes and is a risk for the Group. Market competitiveness has heightened in recent years with the introduction of low cost providers. 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 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. 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. All members of the Committee are non-executive independent Directors. Details of the Committee members’ experience and technical expertise are set out in the directors’ biographies which can be viewed on the Board of Directors pages in the latest Annual Report. Details of the number of times the Committee met throughout the period and individual attendances of the members can be viewed in the Directors Report in the latest Annual Report. 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 reasonable remuneration polices and practices are observed which optimise the attraction and retention of directors and management and fairly rewards Directors and senior management for positive performance. Brave together 71 Corporate Governance Statement Corporate Governance Statement (cont) Principle 8 Remunerate fairly and responsibly - continued 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 The Board may award incentive payments to the CEO, CFO and Senior Executives in the form of equity. The Corporations Act prohibits key management personnel (or closely-related parties) of an ASX-listed Australian company from entering into an arrangement that would limit their exposure to an element of their remuneration subject to a holding lock. Equity-based awards are made on the condition that Corporations Act requirements are complied with. Directors and officers cannot buy and sell securities when in possession of price sensitive information and during the following periods, referred to as Prohibited Periods: the period from the end of the Company’s financial year (30 June) until the announcement of the Company’s full year results to the ASX; the period from the end of the Company’s half year (31 December) until the announcement of the Company’s half year results to the ASX. Approval from the Chair is required prior to any transacting in shares contemplated by directors and Managing Director, and approval from the Managing Director for any transacting contemplated by the CFO and Company Secretary. A copy of the Securities Trading Policy is available on the Company’s website. Directors and senior executives are not permitted to hedge their exposure to Company securities. Employees, directors and senior executives are not permitted to use Company securities as collateral in any financial transaction, including margin loan arrangements. Monash IVF Group Annual Report 2020 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2020 for the year ended 30 June 2020 Revenue from services Employee benefits expense(1) Clinician 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(2) Operating profit Net finance costs Profit before tax Income tax expense Net profit after tax for the year Other comprehensive income/(loss) 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/(loss) 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 2.4,2.5 2.6 4.5 1.5 Consolidated 2020 $’000 145,417 (48,996) (25,743) (16,408) (3,059) (9,106) (1,894) (3,345) (5,718) (4,052) (5,263) 21,833 (5,707) 16,126 (4,366) 11,760 1,115 (336) (77) 702 12,462 11,726 34 11,760 12,428 34 12,462 2019 $’000 151,980 (48,095) (25,754) (15,547) (2,948) (3,712) (1,361) (9,732) (4,989) (3,069) (5,486) 31,287 (3,802) 27,485 (7,678) 19,807 (603) 181 (15) (437) 19,370 19,852 (45) 19,807 19,415 (45) 19,370 1.4 1.4 4.6 4.5 8.4 8.4 *The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognized in retained earnings at the date of initial application. (1) Includes JobKeeper income of $4.9m (refer note 1.1). (2) Prior year Includes Mosman clinic closure accelerated depreciation ($882,000), Mosman make good provision ($100,000) and CEO separation costs ($473,000). The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Brave together Consolidated Statement of Financial Position Consolidated Statement of Financial Position as at 30 June 2020 as at 30 June 2020 73 Current assets Cash and cash equivalents Trade and other receivables Current tax assets Inventory Total current assets Non current assets Equity accounted investment Trade and other receivables Plant and equipment Right of use assets Intangible assets Total non current assets Total assets Current liabilities Trade and other payables Lease liabilities Derivative financial instruments Contingent consideration Employee benefits Total current liabilities Non current liabilities Borrowings Lease liabilities Derivative financial instruments Contingent consideration Employee benefits Deferred tax liability Total non current liabilities Total liabilities Net assets Equity Share capital Reserves Profits reserve Retained earnings Total equity attributable to Owners of the Company Non-controlling interests Total equity Note 4.6 2.1 2.2 2.1 2.4 2.5 2.6 2.3 4.4 5.2 3.1 4.3 4.4 5.2 3.1 1.5 4.1 Consolidated 2020 $’000 15,072 10,442 1,202 3,949 30,665 393 181 19,111 36,514 262,165 318,364 349,029 25,504 2,316 - 600 9,442 37,862 18,943 36,314 - 1,200 1,037 1,551 59,045 96,907 252,122 2019 $’000 4,281 6,631 638 3,983 15,533 763 114 16,523 - 257,104 274,504 290,037 15,460 - 171 - 8,572 24,203 88,349 - 942 - 920 2,189 92,400 116,603 173,434 506,786 (136,778) 42,535 (162,735) 249,808 2,314 252,122 428,757 (137,484) 42,834 (160,892) 173,215 219 173,434 *The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognized in retained earnings at the date of initial application. The consolidated statement of financial position should be read in conjunction with the accompanying notes. Monash IVF Group Annual Report 2020 Consolidated Statement of Changes in Equity for the year ended 30 June 2020 l a t o T y t i u q e 0 0 0 $ ’ ) 7 3 4 ( 5 8 5 9 , 2 5 8 9 1 , 8 5 8 6 6 1 , 0 1 4 ) 2 1 ( ) 2 9 1 3 1 , ( 4 3 4 3 7 1 , 4 3 4 3 7 1 , ) 3 4 8 1 , ( 0 6 7 1 1 , 1 9 5 1 7 1 , 2 0 7 2 6 4 2 1 , 4 1 6 0 2 , 9 2 0 8 7 , ) 5 2 0 2 1 , ( 2 2 1 2 5 2 , 0 0 0 $ ’ t s e r e t n i - n o N g n i l l o r t n o c 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ l a t o T r e h t O ) 3 ( s e v r e s e r d e n a i t e R i s g n n r a e s t i f o r P ) 2 ( e v r e s e r r e h t O y t i u q e 0 0 0 $ ’ ) 1 ( e v r e s e r 0 0 0 $ ’ y t i u q e d e t u b i r t n o C y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 2 0 2 e n u J 0 3 d e d n e r a e y e h t r o f - 4 6 2 ) 5 4 ( ) 5 4 ( - - - - 9 1 2 9 1 2 9 1 2 4 3 - 4 3 ) 7 3 4 ( 7 1 6 9 , 2 5 8 9 1 , 4 9 5 6 6 1 , 0 1 4 ) 2 1 ( ) 2 9 1 3 1 , ( 5 1 2 3 7 1 , 5 1 2 3 7 1 , ) 3 4 8 1 , ( 2 7 3 1 7 1 , 6 2 7 1 1 , 2 0 7 8 2 4 2 1 , 1 6 0 2 , - - - - 4 1 3 2 , 4 9 2 0 8 7 , ) 5 2 0 2 1 , ( 8 0 8 9 4 2 , ) 4 2 2 ( ) 2 9 8 0 6 1 ( , - ) 7 3 4 ( ) 7 3 4 ( - - ) 2 1 ( - ) 3 7 6 ( ) 3 7 6 ( ) 3 7 6 ( - 2 0 7 2 0 7 - - 4 - 3 3 - - - - - - , ) 2 9 8 0 6 1 ( ) 3 4 8 1 , ( , ) 2 9 8 0 6 1 ( ) 5 3 7 2 6 1 ( , - - - - - - - ) 5 3 7 2 6 1 ( , - 4 3 8 2 4 , 6 2 7 1 1 , - 6 2 7 1 1 , - - - 5 3 5 2 4 , ) 5 2 0 2 1 , ( - - - - - - - 4 7 1 6 3 , 2 5 8 9 1 , - 2 5 8 9 1 , - - 4 3 8 2 4 , ) 2 9 1 3 1 , ( , ) 1 1 8 6 3 1 ( 7 4 3 8 2 4 , 8 1 0 2 e n u J 0 3 t a e c n a l a b d e t a d i l o s n o C - - - - - - - - - d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c r e h o t l a t o T ) s s o l ( / e m o c n i e v i s n e h e r p m o c r e h t o l a t o T d o i r e p e h t r o f ) s s o l ( / t i f o r P y t i u q e n i y l t c e r i d s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T - - 0 1 4 s n o i t c a s n a r t t n e m y a p d e s a b - e r a h S s e r a h s y r a n d r o i f o e u s s I i d a p s d n e d v D i i ) 1 1 8 6 3 1 ( , 7 5 7 8 2 4 , 9 1 0 2 e n u J 0 3 t a e c n a l a b d e t a d i l o s n o C 4 3 8 2 4 , ) 1 1 8 6 3 1 ( , 7 5 7 8 2 4 , 9 1 0 2 e n u J 0 3 t a e c n a l a b d e t a d i l o s n o C - - ) 1 1 8 6 3 1 ( , 7 5 7 8 2 4 , - - - * ) x a t f o t e n ( 6 1 B S A A f o n o i t a c i l p p a l a i t i n i n o t n e m j t s u d A d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c r e h o t l a t o T ) s s o l ( / e m o c n i e v i s n e h e r p m o c r e h t o l a t o T 9 1 0 2 l y u J 1 t a e c n a l a b d e t s u d A j d o i r e p e h t r o f ) s s o l ( / t i f o r P ) 1 1 8 6 3 1 ( , 6 8 7 6 0 5 , 0 2 0 2 e n u J 0 3 t a e c n a l a b d e t a d i l o s n o C y t i u q e n i y l t c e r i d s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T - - - 9 2 0 8 7 , s n o i t c a s n a r t t n e m y a p d e s a b - e r a h S e g n a h c t s e r e t n i g n i l l o r t n o c - n o N s e r a h s y r a n d r o i f o e u s s I d e r a l c e d / d a p i s d n e d v D i i 6 1 B S A A g n i y p p a y l l l a i t i n i f o t c e f f e e v i t a l u m u c e h t d n a d e t a t s e r t o n s i n o i t a m r o f n i e v i t a r a p m o c , h c a o r p p a s i h t r e d n U . h c a o r p p a e v i t c e p s o r t e r d e i f i d o m e h t g n i s u , 9 1 0 2 y l u J 1 t a 6 1 B S A A d e i l p p a y l l a i t i n i s a h p u o r G e h T * . 4 1 0 2 e n u J 6 2 n o d t L y t P s e s i r p r e t n E e g d i r b h t l a e H e r i u q c a o t i d a p n o i t a r e d i s n o c e h t d n a d t L y t P s e s i r p r e t n E e g d i r b h t l a e H n i l a t i p a C d e u s s I e h t n e e w t e b e c n e r e f f i d e h t s t n e s e r p e r e v r e s e r y t i u q e r e h t o . s d o i r e p e r u t u f n i s d n e d i v i d s a s n o i t u b i r t s i d r o f l e b a l i a v a s t i f o r p s e s i r e t c a r a h c d n a d o i r e p e h t r o f t i f o r p t e n f o r e f s n a r t e h t s e s i r p m o c e v r e s e r s t i f o r p e h T e h T . e v r e s e r g n i g d e h d n a n o i t a l s n a r t y c n e r r u c i n g e r o f , s t n e m y a p d e s a b e r a h s s e d u l c n i s e v r e s e r r e h t O ) 1 ( ) 2 ( ) 3 ( . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u j n o c n i d a e r e b d l u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e h T . n o i t a c i l p p a l a i t i n i f o e t a d e h t t a s g n i n r a e d e n i a t e r n i d e z i n g o c e r s i Brave together Consolidated Statement of Cash Flows for the year ended 30 June 2020 Consolidated Statement of Cash Flows for the year ended 30 June 2020 75 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Other income received Cash generated from operations Income taxes paid Net cash flows generated from operating activities Cash flows from investing activities Payments for plant and equipment and intangible assets Payments for business acquisitions (including transactions costs) Net cash flows used in investing activities Cash flows from financing activities Proceeds/(Repayment) of borrowings Interest paid on borrowings Interest paid on closure of interest rate swaps Payments of lease liabilities Dividends paid Proceeds from sale of non-controlling interest Debt facility refinance cost Net proceeds from issue of ordinary shares Net cash flows used in financing activities Total cash flows from activities Note 4.6 Consolidated 2020 $’000 2019 $’000 146,351 (114,304) 3,313 35,360 (4,281) 31,079 152,922 (113,043) - 39,879 (6,786) 33,093 (7,507) (3,056) (10,563) (69,721) (3,450) (1,087) (7,202) (7,074) 1,300 - 77,532 (9,702) (6,536) - (6,536) (9,000) (3,592) - - (13,192) - (330) - (26,114) 10,814 443 4,281 (23) 15,072 3,853 (15) 4,281 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 4.6 *The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognized in retained earnings at the date of initial application. The consolidated statement of cash flows should be read in conjunction with the accompanying notes. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements for the year ended 30 June 2020 Notes to the Consolidated Financial Statements for the year ended 30 June 2020 Contents Section 1: Section 2: Our financial performance Our operating asset base 1.1 Revenue and expenses 77 2.1 Trade and other receivables 85 1.2 Operating segments 78 2.2 Inventory 86 1.3 Dividends 80 2.3 Trade and other payables 86 1.4 Earnings per share 81 2.4 Plant and equipment 87 1.5 Taxation 82 2.5 Right of use assets 88 2.6 Intangible assets 89 Section 3: Section 4: Our people Our funding structure 3.1 Employee benefits 92 4.1 Share capital and reserves 96 3.2 Share-based payments 92 4.2 Financial risk management 98 3.3 Key management personnel 95 4.3 Borrowings 101 4.4 Derivative financial instruments 103 4.5 Net finance costs 103 4.6 Cash and cash equivalents 104 Section 5: Section 6: Our business portfolio Other disclosures 5.1 Controlled entities 105 6.1 Auditors’ remuneration 111 5.2 5.3 Acquisitions and disposals Investments using the equity method 106 107 6.2 Events occurring after the reporting period 111 5.4 Parent entity 108 6.3 Reporting entity 111 5.5 Deed of cross guarantee 109 6.4 Basis of preparation 112 6.5 Changes in accounting policies 114 6.6 New standards and interpretations 115 Brave together 77 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 Section 1 Our Financial Performance This section provides 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 Revenue and Expenses 1.4 Earnings per Share 1.2 Operating Segments 1.5 Taxation 1.3 Dividends 1.1 Revenue and Expenses Revenue recognition Revenue is recognised when performance obligations have been satisfied, 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 when the customer has consumed the benefits of the service, whether 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 paid in advance of performing the service are recognised as deferred revenue until the time the service is rendered to the customer when the fees are recognised as revenue. Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are recognised in comprehensive income over the period necessary to match them with the costs that they are intended to compensate. In March 2020, the Australian Government announced the introduction of JobKeeper, an economic response package to the Coronavirus pandemic. Under the JobKeeper grant, businesses impacted by the Coronavirus were able to access a subsidy from the Government to continue paying their employees. Employers who have turnover under $1 billion are eligible for the subsidy if their turnover reduces by more than 30 per cent relative to the comparable prior year period of at least a month between April and September 2020. The COVID-19 impact on the group turnover in April 2020 resulted in a greater than 30% reduction compared to April 2019 due to the temporary suspension of IVF procedures requiring hospitalisation between 25 March and 27 April 2020 in Australia as well as movement control orders in Malaysia. Accordingly, the Group is eligible to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020 for a maximum period of 6 months. JobKeeper payments receivable from the ATO are recognised by a ‘for profit’ entity as a government grant as the payment is a wage subsidy provided by the Government with the objective of keeping the organisation connected with the economy and their workers during the COVID-19 pandemic period between April and September 2020. The related amounts paid to employees are recognised as employee benefit expenses. The JobKeeper payment is recognised only when there is reasonable assurance that the organisation will comply with the conditions and that the grant will be received. The income is recognised in profit and loss matching the employee salary expense which is what the grant is intended to compensate. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 1.1 Revenue and Expenses - continued As a government grant, there is an accounting policy choice whereby the organisation presents the grant income gross from the expense or net of the related expense. The grant income has been disclosed net of the related employee expense as the subsidy support is used to fund existing employee wages during the period. The grant amount recognised in employee benefits expense is $4.9m (FY19: nil). The amount recognised as a sundry debtor as at 30 June 2020 is $1.6m, and was received in July 2020. 1.2 Operating segments The Group determines and presents operating segments based on information that internally is provided to and used by the Chief Executive Officer, who is the Group’s Chief Operating Decision Maker (CODM). An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The financial results of each operating segment are regularly reviewed by the Group’s Chief Executive Officer in order to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the Chief Executive Officer include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets other than goodwill. The basis of inter-segmental transfers is market pricing. Results are calculated before consideration of net borrowing costs and tax expense. Segment assets exclude deferred tax balances and cash, which have been included as unallocated assets. Identification of reportable operating segments The two geographic segments being Australia and International reflect Monash IVF Group’s reporting structure to the 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: - Monash IVF Group Australia: provider of Assisted Reproductive Services, Ultrasound and other related services. - Monash IVF Group International: provider of Assisted Reproductive Services in Malaysia. Brave together 79 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 Segment results 2020 Total revenue – external Adjusted EBIT (before non-recurring items)(1) (2) Acquisition costs(1) Restructuring costs(1) Provision for patient claim(1) Sydney CBD clinic premise costs(2) Reported EBIT Net finance costs Finance cost - Interest rate swaps closure cost Profit before income tax expense Income tax expense Profit for the year Depreciation and amortisation expense Segment assets Acquisition of plant and equipment and intangibles Segment liabilities 2019 Total revenue – external Adjusted EBIT (before non-recurring items)(3) Mosman clinic closure and CEO separation costs Reported EBIT Net finance costs Profit before income tax expense Income tax expense Profit for the year Depreciation and amortisation expense Segment assets Acquisition of plant and equipment and intangibles Segment liabilities Monash IVF Group Australia $’000 135,503 20,631 (539) (848) (728) (480) 18,036 (4,510) (1,087) 12,439 (3,481) 8,958 (10,345) 338,204 7,759 92,373 Monash IVF Group Australia $’000 140,378 27,729 (1,455) 26,274 (3,802) 22,472 (6,477) 15,995 (4,792) 280,922 6,261 116,084 Monash IVF Group International $’000 9,914 3,797 - - - - 3,797 (110) - 3,687 (885) 2,802 (655) 10,825 40 4,534 Monash IVF Group International $’000 11,602 5,013 - 5,013 - 5,013 (1,201) 3,812 (281) 9,115 275 519 Total $’000 145,417 24,428 (539) (848) (728) (480) 21,833 (4,620) (1,087) 16,126 (4,366) 11,760 (11,000) 349,029 7,799 96,907 Total $’000 151,980 32,742 (1,455) 31,287 (3,802) 27,485 (7,678) 19,807 (5,073) 290,037 6,536 116,603 (1) Non-recurring items include transaction costs on acquisition activity including Fertility Solutions and Johor Bahru ($539,000 pre-tax), restructuring costs ($848,000 pre-tax) and provision for patient claim ($728,000 pre-tax). (2) Relates to period from lease commencement for new Sydney CBD fertility clinic in work in progress stage ($480,000 pre-tax). (3) 2019 one-off non recurring items include Mosman clinic closure asset accelerated depreciation ($882,000), Mosman clinic make-good provision ($100,000) and CEO separation costs ($473,000). Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 1.3 Dividends Dividends during the year Franking Payment Date Per share (cents) 2020 $’000 2019 $’000 Interim dividend in respect of the current financial year Fully franked 2 October 2020 (2019: 5 April 2019) 2.1 (2019: 3.0) 4,951 7,067 Final dividend in respect of the prior financial year Fully franked 11 October 2019 (2019: 12 October 2018) 3.0 (2019: 2.6) 7,074 6,125 Total Current liability – Dividend payable(1) Paid in cash during the year 5.1 (2019: 5.6) 12,025 13,192 4,951 7,074 - 13,192 (1) On 1 April 2020, The Company announced the deferral of the payment of the interim dividend until 2 October 2020. This deferral was considered a prudent measure due to the economic environment caused by the COVID-19 pandemic. Dividend franking account Amount of franking credits available at 30 June to shareholders for subsequent financial years 8,724 13,031 Monash IVF Group’s dividend policy is to target a 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, strategic growth opportunities and availability of franking credits. The Board has not declared a 2020 final dividend. Brave together 81 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 1.4 Earnings per share Earnings per share Basic earnings per share Diluted earnings per share Profit attributable to ordinary shareholders Profit after income tax attributable to the ordinary shareholders used in calculating basic and diluted earnings per share Weighted average number of shares Weighted average number of ordinary shares used in calculating basic earnings per share 2020 Cents per share 4.6 4.5 2019 Cents per share 8.4 8.4 2020 $’000 11,726 2020 Number 2019 $’000 19,852 2019 Number 257,550,107 235,598,078 Adjustments for calculation of diluted earnings per share (1) Weighted average number of ordinary shares used in calculating diluted earnings per share 550,148 322,654 258,100,255 235,920,732 (1) The calculation of the weighted average number of shares has been adjusted for the effect of share based rights granted from the date of issue. Refer to Section 3.3 for further details. 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. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 1.5 Taxation Income Tax expense Current tax Deferred tax Over/(under) provided in prior year Total income tax expense 2020 $’000 3,867 661 (162) 4,366 2019 $’000 8,222 (508) (36) 7,678 Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30% (2019: 30%) 16,126 4,838 27,485 8,245 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/(under) provision of previous year Income tax expense (231) (250) 171 (162) 4,366 (301) (250) 20 (36) 7,678 )) 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 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. 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Deferred tax is not recognised for the following temporary differences: 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: Key estimate and judgement: Recovery of deferred tax assets Income taxes 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. The Group is subject to income taxes in Australia and jurisdictions where foreign operations. it has 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. Brave together 85 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 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 2.4 Plant and equipment 2.2 Inventory 2.5 Right of use of assets 2.3 Trade and other payables 2.6 Intangible assets 2.1 Trade and other receivables Current Trade receivables Provision for expected credit losses Other debtors Accrued income Prepayments GST receivable Total current trade and other receivables Non current Other debtors Provision for expected credit losses 2020 $’000 4,183 (747) 3,436 2,431 1,060 2,761 754 10,442 181 2019 $’000 3,218 (460) 2,758 409 129 2,327 1,008 6,631 114 The consolidated entity has recognised an expense of $287,000 (2019: $2,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2020. The increase in provision for expected credit losses during the year was predominately driven to reflect counterparties that have been impacted by COVID-19 in combination with a general increased loss expectation as a result of a deterioration in the economic environment. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised costs using the effective interest method less provision for expected credit losses. 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. AASB 9 replaced the ‘incurred loss model’ in AASB 139 with an ‘expected credit loss’ (ECL) model. Loss allowances for trade receivables are measured at an amount equal to 12 month ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience, debtor ageing and credit assessment including forward-looking information. Credit Risk 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. Patient fees for most treatments are received in advance and recognised as deferred revenue if the procedure is yet to be performed. This reduces the risk of non-collectability. Outstanding receivables predominantly relate to amounts owing from Medicare and storage fee patient accounts. Payment reminder notices are issued to patients Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 2.1 Trade and other receivables - continued with outstanding balances at 30, 60 and 90 days. After which, collection of this debt may be 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. Prepayments Payments made for the receiving of goods or services rendered in future years are recognised as a prepayment. 2.2 Inventory Consumables – at cost Total inventory 2020 $’000 3,949 3,949 2019 $’000 3,983 3,983 Inventories are recorded using the FIFO method and are valued at the lower of cost and net realisable value. Inventories include medical supplies to be consumed in providing future patient services. 2.3 Trade and other payables Current Trade payables Accrued expenses Deferred revenue Dividend payable Other liabilities Total trade and other payables 2020 $’000 3,024 10,804 6,725 4,951 - 25,504 2019 $’000 4,388 4,753 6,050 - 269 15,460 Trade and other payables are carried at amortised cost and are not discounted. These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are paid in accordance with vendor terms. Brave together Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 87 2.4 Plant and equipment Cost Opening balance at 1 July Additions Acquisitions through business combinations Disposals Closing balance at 30 June Opening balance at 1 July Depreciation for the year Acquisitions through business combinations Disposals Closing balance at 30 June Carrying amount At 1 July (Opening balance) At 30 June (Closing balance) 2020 $’000 53,678 4,613 2,030 (2,152) 58,169 (37,155) (3,466) (589) 2,152 (39,058) 16,523 19,111 2019 $’000 49,496 4,182 - - 53,678 (32,561) (4,594)(1) - - (37,155) 16,935 16,523 (1) Includes Mosman clinic closure accelerated depreciation of $882,000. Capital commitments Expenditure contracted for but not recognised as liabilities: Capital plant and equipment (1) Capital plant and equipment includes the new Sydney CBD Fertility Clinic in development. 2020 $’000 3,345(1) 2019 $’000 863 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. 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. 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 profit or loss as incurred. Key estimate and judgement: Depreciation The Group’s plan and equipment are depreciated over their useful economic lives between 2-10 years. Depreciation methods, useful lives and residual values are reviewed at each reporting date. Depreciation is recognized 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. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 2.5 Right of Use Assets Leases as lessee $’000 Cost Opening balance at 1 July Recognition of right-of-use asset on initial application of AASB16 Adjusted Opening balance at 1 July Additions Acquisitions through business combinations Disposals Closing balance at 30 June Accumulated depreciation Opening balance at 1 July Recognition of right-of-use asset on initial application of AASB16 Adjusted Opening balance at 1 July Depreciation for the year Disposals Closing balance at 30 June Carrying amount At 1 July (Opening balance) Adjusted balance at 1 July At 30 June (Closing balance) 2020 Buildings Equipment Total 2019 Total - 46,143 46,143 9,469 2,132 (39) 57,705 - (17,360) (17,360) (5,245) 39 (22,566) - - - 46,143 - 1,770 - - 1,770 46,143 11,239 2,132 (39) 59,475 - - - (17,360) - (395) - (395) (17,360) (5,640) 39 (22,961) - 28,783 35,139 - - 1,375 - - 36,514 - - - - - - - - - - - - - - - The Group leases property and equipment. The leases typically run for a period of between one to ten years, with an option to renew the lease after this date. Lease payments are renegotiated at periods to reflect market rentals. The Group has elected not to recognise right of use assets and lease liabilities for short term and/or low value assets such as IT and office equipment. Amounts recognised in profit and loss Interest on lease liabilities Expenses relating to leases of low value assets Lease expense – operating leases under AASB117 Amounts recognised in statement of cash flows Payments of lease liabilities Extension options 2020 $’000 1,046 77 - 7,202 2019 $’000 - - 7,122 - Some leases contain extension options exercisable by the Group up to one year before the end of the non- cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. The Group has estimated that the potential future lease payments, should it exercise the extension option, would result in an increase in lease liability of $8.2 million. Brave together 89 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 2.6 Intangible assets $’000 2020 Net book value Balance at 1 July 2019 Additions Acquisitions through business combinations Amortisation expense Balance at 30 June 2020 At 30 June 2020 Cost Amortisation and impairment losses Balance at 30 June 2020 2019 Net book value Balance at 1 July 2018 Additions Amortisation expense Balance at 30 June 2019 At 30 June 2019 Cost Amortisation and impairment losses Balance at 30 June 2019 Software Goodwill Software Trademark Total 229,108 - 4,061 - 233,169 233,169 - 233,169 229,108 - - 229,108 229,108 - 229,108 8,151 2,894 - (1,894) 9,151 13,721 (4,570) 9,151 7,158 2,354 (1,361) 8,151 19,025 (10,874) 8,151 19,845 - - - 19,845 19,845 - 19,845 19,845 - - 19,845 19,845 - 19,845 257,104 2,894 4,061 (1,894) 262,165 267,060 (4,570) 262,165 276,760 2,354 (1,361) 257,104 269,527 (12,423) 257,104 Software has a finite useful life and is carried at cost less accumulated amortisation and impairment losses. The cost of system development, including purchased software, is capitalised and amortised over the estimated useful life, being three to eight years. Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. Trademark Trademarks are reported at historical cost less impairment. Trademarks have an indefinite useful life where there is no expiry and no foreseeable limit on the period of time over which these assets are expected to contribute to the cash flows of the Group. Similar to goodwill, these are tested for impairment annually. Goodwill Goodwill on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’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. Impairment testing 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, judgments and assumptions are made in the determination of likely net sale proceeds or in the determination of future cash flows which support a value in use. Specifically, with respect to future cash flows, judgments are made in respect to the quantum of those future cash flows and the discount rates (cost of capital and debt) applied to determining the net present value of these future cash flows. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 2.6 Intangible assets - continued The carrying amounts of the Group’s non financial 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. 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. The following CGUs were tested for impairment during the year: Goodwill and trademark allocated to: Australia Ultrasound International Impairment testing assumptions 2020 $’000 219,030 28,232 5,752 253,014 2019 $’000 215,572 28,232 5,149 248,953 The recoverable amount of a CGU is based on value-in-use calculations. The following key assumptions were utilised for the impairment testing: - 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 10.5% (FY19: 10.47%) for the Australian CGU, 11.0% (FY19: 11.70%) for the Ultrasound CGU and 10.5% (FY19: 11.27%) for the International CGU was applied in determining the recoverable amount. The discount rate and related risk factors also had regard to the current COVID-19 environment. - Cash flow forecasts are based on the Board-approved FY21 budget, projected for four years plus a terminal value. The FY21 budget reflects management’s best estimate of forecast operating performance having regard to the market and economic uncertainties posed by the COVID-19 pandemic. The underpinning assumptions include a return to pre-COVID-19 volumes in FY21 driven by pent up demand for IVF and Ultrasound services and a general stabilization in economic activity, the continuation of cost containment initiatives, no inclusion of expected JobKeeper payments, and no further extended Government restrictions or lockdowns that impact the Group’s ability to provide its services to customers. - A long-term growth rate into perpetuity of 2.5%-3.0% (FY19: 3.0%) has been determined based on an assessment of historical growth rates, expectations of future growth rates and market specific dynamics. Impact of possible changes in key assumptions All CGU’s in the Group have been tested for impairment and have met their required hurdle rates to support the current carrying values. Any reasonable possible change to relevant assumptions and inputs would not result in the recoverable amount being lower than the carrying amount. Brave together 91 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 2.6 Intangible assets - continued Result of Impairment testing The recoverable amount of all CGU’s are deemed recoverable. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 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 3.3 Key management personnel 3.2 Share-based payments 3.1 Employee benefits Current liability Long service leave Annual leave Total current employee benefits Non current liability Long service leave Total non current employee benefits Total employee benefits provision Provisions 2020 $’000 4,021 5,421 9,442 1,037 1,037 10,479 2019 $’000 5,095 3,477 8,572 920 920 9,492 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. Provision for employee benefits 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. 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. 3.2 Share-based payments Senior executives’ long-term incentive plan The Group will provide benefits to certain employees in the form of share-based payment options and/or performance rights. The fair values of these instruments granted under the plans are recognized as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grand date and recognized 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. Brave together 93 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 3.2 Share-based payments - continued 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 share appreciation rights, 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 selected by the Directors. Key management personnel and other senior management are eligible to participate under the LTI Program. The senior executive LTI are performance rights plans with vesting rights dependent upon the satisfaction of pre- defined performance hurdles and continuous employment. Current performance hurdles are based on achievement of pre-defined Earning Per Share (“EPS”) Hurdle 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. Long term incentive program (equity settled) A description of the equity plans applicable during the year are described below: Grant date Vesting conditions (2020) 16 October 2019 (2019) 20 December 2018 (2018) 29 January 2018 (2017) 17 March 2017 EPS - Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2022 TSR - Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY22 results announcement EPS - Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2021 TSR - Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY21 results announcement EPS - Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2020 TSR - Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY20 results announcement EPS - Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2019 TSR - Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY19 results announcement Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 3.2 Share-based payments - continued 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 Expected volatility – Monash IVF Expected volatility – ASX 300 Healthcare Index Expected life (years) Expected dividends Risk free interest rate (based on government bonds) 2020 $0.94 $0.46 $0.94 35% 15% 6 6.0% 0.83% 2019 $1.00 $0.45 $1.00 30% 15% 6 6.0% 1.88% 2018 $1.19 $0.49 $1.36 37% 14% 5 5.5% 2.13% 2017 $1.69 $0.63 $1.90 32% 15% 5 4.8% 1.91% 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 instrument holder behavior. Reconciliation of outstanding performance rights The number of performance rights under the company’s long-term incentive plan were as follows: 2020 Grant Date 17 Mar 2017 29 Jan 2018 20 Dec 2018 16 Oct 2019 Balance at 1July 2019 Expiry Date 30 June 2019 19,447 30 June 2020 95,210 30 June 2021 207,997 - 30 June 2022 322,654 Granted during the year - - - 471,055 471,055 Lapsed during the year (19,447)1 (47,605)2 - - (67,052) Forfeited during the year - - (73,466)3 (103,043)3 (176,509) Balance at Vested 30 June during the 2020 year - - - 47,605 - 134,531 - 368,012 - 550,148 (1) TSR vesting conditions for performance rights granted in FY17 were not satisfied therefore these rights lapsed. (2) EPS vesting conditions for performance rights granted in FY18 were not satisfied therefore these rights lapsed (3) The performance rights for Brett Comer (Chief Operating Officer) were forfeited due to resignation and departure on 27 March 2020. 2019 Grant Date 29 June 2016 17 Mar 2017 29 Jan 2018 20 Dec 2018 Expiry Date 30 June 2018 30 June 2019 30 June 2020 30 June 2021 Balance at 1July 2018 35,072 38,894 287,262 - 361,228 Granted during the year - - - 207,997 207,997 Lapsed during the year (35,072)1 (19,447)1 - - (54,519) Forfeited during the year - - (192,052)2 - (192,052) Balance at Vested 30 June during the 2019 year - - 19,447 - - 95,210 - 207,997 - 322,654 (1) TSR vesting conditions for performance rights granted in FY16 and EPS vesting conditions for performance rights granted in FY17 were not satisfied therefore these rights lapsed. (2) David Morris (CEO) FY18 performance rights were forfeited due to his resignation and departure. Brave together 95 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 3.3 Key management personnel Compensation Short-term employee benefits Post-employment benefits Share-based payments Termination benefits Total key management personnel compensation 2020 $ 2,194,168 199,074 5,971 - 2,399,213 2019 $ 1,982,874 145,063 3,569 484,156 2,615,662 For further information on key management personnel refer to the Remuneration Report. Transactions with key management personnel and related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 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 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 Share capital and reserves 4.4 Derivative financial instruments 4.2 Financial risk management 4.5 Net finance costs 4.3 Borrowings 4.6 Cash and cash equivalents 4.1 Share capital and reserves Opening balance at 1 July 2018 Shares issued (1) Closing balance at 30 June 2019 Opening balance at 1 July 2019 Shares issued (2) Capital raising fees (2) Closing balance at 30 June 2020 Number of shares issued 235,395,438 390,446 235,785,884 235,785,884 153,848,956 - 389,634,840 $’000 428,347 410 428,757 428,757 80,001 (1,972) 506,786 (1) Issue of shares to a consultant under the terms of their consultancy agreement. (2) In May 2020, the Company issued 153,848,956 shares under its non-renounceable entitlement offer at a price of $0.52 per share, resulting in an increase in share capital of $80.0 million less transaction costs of $2.8 million pre tax ($2.0m post tax). Ordinary shares Ordinary shares are classified as share capital. 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. 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. 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. 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. Brave together 97 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.1 Share capital and reserves - continued Profits reserve The profits 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. Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. 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) (2) Sydney Ultrasound for Women(3) Total 30 June 2020 Number of shares subject to escrow (m) 15.0 1.5 16.5 Escrowed shares (as a % of shares on issue 3.8% 0.4% 4.2% Number of shares subject to escrow (m) 15.3 1.5 16.8 30 June 2019 Escrowed shares (as a % of shares on issue) Escrowed shares (as a % 6.5% 0.6% 7.1% (1) FY20 Includes 1.0m shares subject to escrow held by Richard Henshaw (Executive Director) (FY19:1.0m shares) (2) 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 were held in short-term escrow, with 3.33% released each year from escrow on the first trading day in Shares following the Company’s FY15, FY16 and FY17 financial results announcements to the ASX. This concluded the release of the pre-IPO doctor short-term escrow. Shares held in long-term escrow are subject to the following conditions: 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: - for Doctors who were aged 63 or older at the time of re-organisation or who turned 63 within two years of Completion, these shares can be released from escrow from June 2016; or - where a Doctor becomes a ‘relocated leaver’ (as described below), these Shares can be released from escrow five years after the date that they become a ‘relocated leaver’; or Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.1 Share capital and reserves - continued - where a Doctor dies or leaves the Group as a result of becoming permanently disabled or seriously disabled, these shares can be released from escrow on the date of the relevant occurrence (as resolved by the Board acting reasonably); or 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 can be released from escrow: - 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 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: - - 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: - - - 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. (3) 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 were escrowed until the first trading day after the release of the FY16 results at which time 3.3% of escrowed shares were released. 3.3% were escrowed until the first trading day after the release of the FY17 results and 3.3% are escrowed until the first trading day after the release of the FY18 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, 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’ is the same as described above. 4.2 Financial risk management The Group has exposure to the following risks from its use of financial instruments: - - - - Liquidity risk; Foreign exchange risk; Interest risk; and 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. Brave together 99 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.2 Financial risk management - continued 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: - Preparing forward-looking financial analysis in relation to its operational, investing and financing activities; - Monitoring undrawn credit facilities; - Obtaining funding from a variety of sources; - Maintaining a reputable credit profile; - Managing credit risk related to financial assets; - Only investing surplus cash with major financial institutions; and - Comparing the maturity profile of financial liabilities with the realisation profile of financial assets. 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 Total Contractual cash flows $’000 Within 1 year 1-5 years Over 5 years $’000 $’000 $’000 - - (17,646) - (17,646) Over 5 years 19,279 25,503 38,631 1,800 85,213 (19,964) (457) (19,507) (25,503) (25,503) (38,631) (1,800) (85,898) (2,316) (600) (28,876) - (18,669) (1,200) (39,376) Carrying amount $’000 Total Contractual cash flows $’000 Within 1 year 1-5 years $’000 $’000 $’000 89,000 15,460 (95,411) (15,460) (2,564) (15,460) (92,847) - 1,113 105,573 (1,113) (111,984) (171) (18,195) (942) (93,789) - - - - 2020 Non-derivative financial liabilities Secured bank loans Trade and other payables Lease liabilities Contingent consideration 2019 Non-derivative financial liabilities Secured bank loans Trade and other payables Derivative financial liabilities Interest rate swaps Foreign exchange risk The Group is not exposed to material levels of foreign currency risk at the reporting date or during the financial year. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.2 Financial risk management - continued Interest rate risk The consolidated entity’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the consolidated entity to interest rate risk. Interest rate risk may be managed using a mix of floating rate debt and fixed rate instruments. Interest rate swaps may be used 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. At 30 June 2020, there was no fixed interest rate exposure (FY19: 56%) following the closure or maturity of the $50 million of interest rate swaps during the year. There were no fixed interest rate swaps in place at 30 June 2020 (FY19: $1.1m). 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 2020 $’000 2,004 (38,631) 36,627 13,068 (19,279) (6,211) 2019 $’000 565 (50,000) (49,435) 3,716 (39,000) (35,284) Cash flow sensitivity analysis for variable rate instruments A reasonable possible change of a 100 basis points in interest rates are the reporting date would have increased /(decreased) equity and profit or loss by $62,110 (FY19: $352,840). This assumes that all other variables remain constant. Market risk – Operational 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. 2020 Financial liabilities measured at fair value Interest rate swaps for hedging Fair Value Carrying amount $’000 Level 1 Level 2 Level 3 $’000 $’000 $’000 Total $’000 - - - - - Brave together 101 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.2 Financial risk management - continued 2019 Financial liabilities measured at fair value Interest rate swaps for hedging Fair Value Carrying amount $’000 Level 1 Level 2 Level 3 $’000 $’000 $’000 Total $’000 1,113 - 1,113 - 1,113 The table above analyses financial assets and liabilities carried at fair value. The different levels have been defined as follows: - - - Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; 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 Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). (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. 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 Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value measurement Not applicable Not applicable 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. Total loan facilities available to the Group in Australian dollars $’000 Syndicated Debt facility Working capital facility Accordion facility(1) Total loan facilities Non current borrowings Borrowings Capitalised finance facility fees Total non current borrowings 2020 2019 Limit Utilised Limit Utilised 110,000 5,000 40,000 155,000 110,000 5,000 40,000 155,000 16,000 3,279(2) - 19,279 19,279 (336) 18,943 89,000 - - 89,000 89,000 (651) 88,349 (1) An un-committed $40m accordion facility for acquisition and capital expenditure purposes. (2) The working capital facility limit is fully utilised after the allocation of bank guarantees of $1,721,000. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.3 Borrowings - continued In December 2018, the Group amended and extended the syndicated debt facility, working capital facility and accordion facility with a maturity date of January 2022. 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. In conjunction with the Equity raise and the impact of the global economic environment caused by COVID-19, in April 2020, the Facility was amended to suspend covenant testing until 30 June 2021. As at 30 June 2020, the Group is compliant with its financial undertakings. As at 30 June 2020, the Group had $2,969,000 of bank guarantees in place (FY19: $1,369,000). $’000 Loans Lease liabilities Interest rate swap Balance at 1 July 2019 88,349 19,226(1) 1,113 Additions Principal repayments - 26,607 - (69,721) (7,202) (1,087) Total interest bearing loans and borrowings 108,688 26,607 (78,010) Other 315 - (26) 289 Balance at 30 June 2020 18,943 38,631 - 57,574 (1) Includes lease liabilities recognised on 1 July 2019 on adoption of AASB16. 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 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 the 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. Brave together Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 103 4.4 Derivative financial instruments Current Derivatives Non current Derivatives Total derivative financial instruments All interest rate swaps matured or were terminated during the financial year. 4.5 Net Finance Costs Finance income Interest income Finance costs Interest expense Interest expense on closure of swaps Amortisation of borrowing costs(1) Interest on lease liabilities Total finance costs Net finance costs 2020 $’000 - - - 2020 $’000 11 3,272 1,087 313 1,046 5,718 5,707 2019 $’000 171 942 1,113 2019 $’000 7 3,656 - 153 - 3,809 3,802 (1) Includes interest and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 4.6 Cash and cash equivalents Cash at bank Short-term bank deposits Total cash and cash equivalents Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the period Adjustments: Depreciation and amortisation Net finance cost included in financing activities Provision for expected credit losses Mosman clinic closure accelerated depreciation Other Operating profit before changes in working capital and provisions Change in net operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventory Increase/(decrease) in trade and other payables Increase/(decrease) in provisions and employee benefits Increase/(decrease) in income and deferred taxes Net cash from operating activities 2020 $’000 13,068 2,004 15,072 2020 $’000 11,760 11,000 5,707 287 - 1,224 29,978 (3,811) 34 5,092 987 (1,201) 31,079 2019 $’000 3,716 565 4,281 2019 $’000 19,807 5,073 3,802 2 882 232 29,798 316 (129) 1,626 769 713 33,093 Brave together 105 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 Section 5 Our Business Portfolio This section provides further insight into the legal structure and group of subsidiary companies. 5.1 Controlled entities 5.4 Parent equity 5.2 Acquisitions and Disposals 5.5 Deed of cross guarantee 5.3 Investments accounted for using the equity method 5.1 Controlled entities Parent entity Monash IVF Group Limited Controlled entities Place of business/country Australia Place of business /country Ownership interest 2020 2019 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 169 060 495 Pty Ltd Palantrou Pty Ltd ACN 166 701 819 Pty Ltd ACN 166 702 487 Pty Ltd KL Fertility & Gynaecology Centre Sdn. Bhd. KL Fertility Daycare Sdn. Bhd. Sydney Ultrasound for Women Partnership Ultrasonic Diagnostic Services Trust No.2 ACN 604 384 661 Pty Ltd Ultrasonic Diagnostic Services Pty Ltd Fertility Australia Pty Ltd Fertility Australia Trust MVF Sunshine Coast Pty Ltd (formerly HBIVF Johor Bahru Lab Pty Ltd) Hobart IVF Pty Ltd 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 Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 100% 100% 100% 100% 100% 57.4% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 47.3% Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 5.1 Controlled entities - continued Controlled entities Gold Coast Ultrasound for Women Pty Ltd Monash IVF Asia Pte Ltd(1) Monash IVF South Malaysia Pte Ltd(1) Place of business /country Australia Singapore Malaysia 2019 Ownership interest 2020 51% 90% 62% 51% - - (1) In June 2020, the Group established Monash IVF Asia Pte Ltd and Monash IVF South Malaysia Pte Ltd, and acquired majority share (62%) of the assets and liabilities of IVF Consultancy SDN. BHD in Johor Bahru, Malaysia for $0.6m. 5.2 Acquisitions and disposals Acquisition of Fertility Solutions On 16 September 2019, the Group acquired Fertility Solutions which operates two clinics located in Buderim (on the Sunshine Coast) and Bundaberg. The business brings six fertility specialists who have worked together for several years into the Monash IVF clinician network. The transaction includes the acquisition of certain assets, liabilities and contracts of Fertility Solutions for an initial cash consideration of $2.1million on a debt free basis, with the potential of additional earn out payments over a four year period to 30 June 2023. In this financial report, Fertility Solutions contributed $2.2m of revenue and net profit before tax of $0.4m to the consolidated results. If the acquisition had occurred on 1 July 2019, Management estimate that consolidated revenue would have been $2.8m and consolidated profit before tax for the period would have been $0.5m. In determining these amounts, management assumed that the fair value adjustments, determined provisionally would have been the same if the acquisition had occurred on 1 July 2019. The identifiable assets acquired and liabilities assumed have been determined at fair value: Consideration Cash Contingent consideration Current Non Current Total contingent consideration Total consideration Identifiable assets acquired and liabilities assumed Prepayments Plant and equipment Inventory Trade and other payables Employee entitlements Total identifiable net assets Total consideration less Fair value of identifiable assets Goodwill $'000 2,100 600 1,200 1,800 3,900 28 943 88 (325) (199) 535 3,900 (535) 3,365 The Group incurred acquisition related costs of $0.5m relating to external legal fees, due diligence and stamp duty costs. These costs are included in ‘professional and other fees’ in the Group’s statement of profit or loss and other comprehensive income. Accounting estimates and judgements – Contingent consideration Deferred or contingent consideration relates to businesses acquired and is initially measured at fair value as at the acquisition date. Subsequent to initial recognition, deferred consideration continues to be measured at fair value with any changes in fair value recognised in the profit or loss. Brave together 107 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 5.2 Acquisitions and disposals - continued The measurement of contingent consideration requires management to estimate the amount likely to be paid in the future. This requires the exercise of judgement, in particular where the amounts is payable is dependent to the future financial performance of the business that has been acquired. Accounting policy for business combinations The acquisition method of accounting is used to account for business combinations. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition date. Where the business combination is achieved in stages, the Group measures its previously held equity interest in the acquiree at the acquisition date fair value and the difference between fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets and liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition date. The measurement period ends on either the earlier of (i) twelve months from the date of the acquisition or (ii) when the acquirer received all the information possible to determine fair value. Sale of 10% of KL Fertility & Gynaecology Centre Sdn Bhd (KLFGC) On 31 December 2019, a share sale agreement was executed for the sale of 10% of KLFGC to two Malaysian fertility specialists. The strategic disposal of part of the Kuala Lumpur clinic is to align and facilitate further growth in Kuala Lumpur and other Asian regions. Total consideration under the share sale agreement was $1.7m payable in cash. Hobart IVF Pty Ltd Ownership Interest % change (Refer to 5.3) On 6 August 2019, a buy back agreement was signed between Hobart IVF Pty Ltd and a minority interest shareholder. The purchase price paid for the 17.6% shareholding was $195k. As a result, the Group’s shareholding increased from 47.3% to a 57.4% majority shareholding. Accordingly, this resulted in a change of control with full consolidation of this entity in the Group financial statements. 5.3 Investments accounted for using the equity method Name of company Compass Fertility Hobart IVF Pty Ltd (Trading as Fertility Tasmania)* *Refer to Note 5.2 Principal Activity Ownership Interest % Share of Net Profit/Loss $’000 Fertility Services Fertility Services 2020 25% 2019 25% - 47.3% 2020 205 (8) 2019 111 8 Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 5.4 Parent entity As at 30 June 2020 and throughout the financial year ending on that date, the parent company of the Group was Monash IVF Group Limited. Results of parent entity Profit after tax Other comprehensive income Total comprehensive income Financial position of 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 2020 $’000 11,189 - 11,189 2,472 541,171* 4,952 25,447 515,724 506,786 8,938 515,724 2019 $’000 13,535 - 13,535 499,137* 503,003* 64,317 64,317 438,686 428,757 9,929 438,686 *Includes Intercompany balances with its subsidiaries, as at 30 June 2020, these balances are not expected to be settled within twelve months. Expenditure contracted for but not recognised as liabilities: Parent Entity Capital plant and equipment (1) Capital plant and equipment includes the new Sydney CBD Fertility Clinic in development. Parent entity guarantees in respect of the debts of its subsidiaries 2020 $’000 3,345(1) 2019 $’000 - The parent entity has entered into a Deed of cross guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries Brave together 109 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 5.5 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 (Wholly Owned Companies) Instrument 2016/785 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; Healthbridge Repromed Pty Ltd - Monash IVF Group Ltd - Monash IVF Group Acquisition Pty Ltd Healthbridge Enterprises Pty Ltd - Healthbridge Shared Services Pty Ltd - Healthbridge IVF Holdings Pty Ltd - ACN 169060495 Pty Ltd - ACN 166701819 Pty Ltd - - My IVF Pty Ltd - - Monash IVF Holdings Pty Ltd Palantrou Pty Ltd - ACN 166702487 Pty Ltd - Repromed Finance Pty Ltd - - Monash IVF Finance Pty Ltd Repromed Holdings Pty Ltd - - Monash IVF Pty Ltd - - - Monash Ultrasound Pty Ltd - Monash Reproductive Pathology & Genetics Pty Ltd - Monash IVF Auchenflower Pty Ltd - - - - - - - - - MVF Sunshine Coast Pty Ltd (formerly HBIVF Johor Bahru Lab Pty Ltd) Yoncat Pty Ltd Adelaide Fertility Centre Pty Ltd Sydney Ultrasound for Women Partnership Ultrasonic Diagnostic Services Trust No. 2 ACN 604384661 Pty Ltd Ultrasonic Diagnostic Services Pty Ltd Fertility Australia Pty Ltd Fertility Australia Trust Repromed Australia Pty Ltd Repromed NZ Holding Pty Ltd 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 is set out as follows: Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 5.5 Deed of cross guarantee - continued 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, Items that will not be reclassified to profit or loss: Cash flow hedges Tax on cash flow hedges Other comprehensive income for the year, net of tax Total comprehensive income for the year Summary of movements in retained earnings Opening balance at 1 July Profit for the period Dividends paid/declared Closing balance at 30 June Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Current tax asset Inventory Total current assets Non current assets Investment in subsidiaries Trade and other receivables Plant and equipment Right of use assets Intangible assets Total non current assets Total assets Current liabilities Trade and other payables Lease liabilities Derivative financial instruments Contingent consideration Employee benefits Total current liabilities Non current liabilities Borrowings Lease liabilities Derivative financial instruments Deferred tax liability Contingent consideration Employee benefits Total non current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2020 $’000 13,890 (3,463) 10,427 779 (62) 717 11,144 (116,319) 10,427 (12,025) (117,917) 12,421 9,477 1,098 3,806 26,802 12,943 - 17,085 36,514 256,412 322,954 349,756 27,014 2,316 - 600 9,435 39,365 18,942 36,314 - 819 1,200 1,026 58,301 97,666 252,090 506,786 (136,779) (117,917) 252,090 2019 $’000 25,654 (6,516) 19,138 (603) 181 (422) 18,716 (122,265) 19,138 (13,192) (116,319) 2,511 6,415 650 3,756 13,332 13,343 69 14,170 - 251,954 279,536 292,868 16,888 - 171 - 8,559 25,618 88,349 - 942 2,128 - 913 92,332 117,950 174,918 428,757 (137,520) (116,319) 174,918 As at 30 June 2020, the Deed of cross guarantee Group has a net current asset deficiency of $13,331,000 (FY19: $12,286,000). Refer to the basis of preparation note in relation to going concern considerations. Brave together 111 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 Section 6 Other disclosures 6.1 Auditors’ remuneration 6.4 Basis of preparation 6.2 Events occurring after the reporting period 6.5 Taxation 6.3 Reporting entity 6.1 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 auditors (Non-KPMG) Audit and review of financial statements Total services 2020 $ 2019 $ 270,000 284,000 177,000 146,000 11,122 458,122 11,949 441,949 6.2 Events occurring after the reporting period Subsequent to 30 June 2020 and related to the COVID-19 Pandemic, the Group’s largest operating market, Victoria in Australia has experienced a surge in COVID-19 cases resulting in its capital city, Melbourne moving to Stage 4 restrictions. Whilst this is disrupting operational efficiency and patient movement, provision of IVF and Ultrasound services are continuing notwithstanding Stage 4 restrictions. IVF services are exempt from the non-urgent elective surgery ban in-place in Victoria due to the service being “time critical and has minimal impact on hospital bed capacity”. Effective 24 August 2020, the Group has right sized the $110m Syndicated Debt Facility to $40m. The $40m accordion facility remains available for acquisitions and capital expenditure. 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. 6.3 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. Monash IVF Group Ltd was incorporated on 30 April 2014. 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 Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 6.4 Basis of preparation Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements of the Group comply with the International Financial Reporting Standards (IFRSs) and interpretations adopted by the international Accounting Standards Board (IASB). The consolidated financial statements were approved by the Board of Directors on 24 August 2020. 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 2020 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. 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. 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. Brave together 113 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 6.4 Basis of preparation - continued Use of estimates and judgements The preparation of the consolidated financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Estimated recoverable amount of goodwill and other non-current assets The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy for intangible assets. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows, which are largely independent of the cash inflows from other assets or groups of assets (cash generating units, or CGUs). Refer to Note 12 for further details on impairment testing. (ii) Provision for ECL on receivables The Group calculates the doubtful debts provision under the expected credit loss (ECL) model. The Group assesses credit losses based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Measurement of ECL allowance for trade receivables is disclosed in Note 8. (iii) Deferred consideration The measurement of deferred consideration requires management to estimate the amount likely to be paid in the future. This requires the exercise of judgement, in particular where the amounts is payable is dependent to the future financial performance of the business that has been acquired. (iv) Leases The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the lease liabilities and right-of-use assets recognised. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if the rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Going concern As at 30 June 2020, the group has a net current asset deficiency of $7,196,000 (FY19: $8,670,000). 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 cash flows which indicate that cash reserves are sufficient to fund operation, the availability of committed but undrawn external debt facilities, and given certain current liabilities such as employee entitlements and deferred revenue will not be fully settled in the short term to cause a liquidity shortfall. The spread of novel coronavirus (COVID-19) was declared a public health emergency by the World Health Organisation on 31 January 2020 and upgraded to a global pandemic on 11 March 2020. The rapid rise of the virus has seen an unprecedented global response by Governments, regulators and industry sectors. The Australian Federal Government enacted its emergency plan on 29 February 2020 which has seen the closure of Australian borders from 20 March, an increasing level of restrictions on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdowns and uncertainties. Community disruption has continued beyond 30 June 2020 with further restrictions in-place in Victoria and localised outbreaks emerging across Australia. In response to declaration of a global pandemic in March 2020, the Group implemented a range of measures designed to protect the health and safety of its patients, employee and clinicians. On 25 March 2020, for public safety reasons, the Fertility Society of Australia recommended the postponing of patients planning to start fertility treatment following Federal Cabinet’s decision to temporarily suspend non-urgent elective surgery, which was lifted on 27 April 2020. Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 6.4 Basis of preparation - continued This significantly impacted the Group’s operating performance during Q4FY20 including a 73% decline in Australian stimulated cycles in April 2020 compared to pcp and a 76% decline in International stimulated cycles in April and May. As a result, the Group initiated the following actions and activities: Cash preservation activities across operating and capital expenditure to reduce the Group’s monthly net operating cash flow burn during the period of restriction and uncertainty. This included stand-down of employees, a reduction in science, consumables and other clinical variable costs and a reduction in fixed non-essential expenditure including temporary reduction in premise costs. In addition, non-essential capital projects were paused; 1H20 interim dividend due for payment in April 2020 was deferred to 2 October 2020; Execution of an $80m equity raise comprising an institutional placement and pro-rata accelerated non- renounceable entitlement offer, which was completed on 28 May 2020. The purpose of the equity raising was to improve liquidity, strengthen the balance sheet by reducing debt to navigate through COVID-19 uncertainty in FY20 and beyond, and provide flexibility to pursue identified organic and non-organic growth opportunities in Australia and South East Asia; Agreement was reached with the Group’s financiers to waive financial covenant obligations until 30 June 2021 under the Syndicated Debt Facility. Following the actions implemented above and COVID-19 developments, the Directors have considered plausible forecast cash flow scenarios (including adverse downside scenarios) for at least the twelve month period from the date of approval of these financial statements. As a result, the Directors consider that the Group is able to pay its debts as and when they are due and these financial statements can be prepared on a going concern basis. 6.5 Changes in significant accounting policies The Group has applied AASB 16 Leases from 1 July 2019. A number of other new standards are effective from 1 July 2019 but they do not have a material effect on the Group’s financial statements. This is the first set of the Group’s financial statements where AASB 16 Leases has applied, the changes are described below. AASB 16 Leases 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. In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard: the use of a single discount rate across a portfolio of leases with reasonably similar characteristics in relation to lease term; the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short term leases which are recognised on a straight line basis as an expense; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. On transition to AASB 16, the Group recognized right-of-use assets and lease liabilities, recognizing the difference in retained earnings. The impact of the adoption of AASB 16 is set out below: On 1 July 2019 Right of use assets Lease liabilities Deferred tax asset Retained earnings $’000 29,547 (31,180) 790 1,843 Brave together 115 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 6.5 Changes in significant accounting policies - continued When measuring lease liabilities for leases that were classified as operating leases, The Group discounted lease payments using its incremental borrowing rate at 1 July 2019. The weighted average rate applied is 3%. Operating lease commitment as disclosed at 30 June 2019 Discounted using the incremental borrowing rate at 1 July 2019 Lease liabilities recognised as at 30 June 2019 Recognition exemption for leases of low-value assets Recognition for leases with less than 12 months of lease term at transition Extension options reasonably certain to be exercised Lease liabilities recognised at 1 July 2019 14,073 (2,159) 11,914 - - 20,266 32,180 * In November 2019, the International Financial Reporting Standards Interpretations Committee (IFRIC) issued a final agenda decision, Lease Term and Useful Life of Leasehold Improvements, on how lease term of a cancellable or renewable lease should be determined for both the lessor and lessee when applying AASB 16 Leases. IFRIC clarifies that the broader economics and not only the contractual termination payments should be considered in determining lease terms. The adoption of this clarification increased right of use assets by $8,154 and lease liabilities by $8,926 in the Statement of Financial Position. In relation to the leases under AASB 16, the Group has recognized depreciation and interest costs, instead of operating lease expense. During the year ended 30 June 2020, the Group recognised: Depreciation expense Interest expense Accounting policy 5,640 1,046 The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if the rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the lease liabilities and right-of-use assets recognised. At transition, for leases classified as operating leases under AASB 117 Leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 July 2019. Right-of-use assets are measured at their carrying value as if AASB 16 has been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application – the Group applied this approach to its largest property lease. 6.6 New standards and interpretations The following accounting standards, amendments to accounting standards and interpretations have been identified as those which will impact the Group in the period of initial adoption. They were available for early adoption for the Group’s annual reporting period beginning 1 July 2019, but have not been applied in preparing this financial report. These standards are not expected to have a material impact to the Group: Monash IVF Group Annual Report 2020 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements (cont) for the year ended 30 June 2020 6.6 New standards and interpretations - continued - - - Amendments to References to Conceptual Framework in IFRS standards Definition of a business (Amendments to AASB 3) Definition of material (Amendments to AASB 101 and AASB 108) Brave together Directors’ Declaration for the year ended 30 June 2020 117 Directors’ Declaration for the year ended 30 June 2020 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 72 to 116 and the Remuneration Report on pages 41 to 55 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 2020 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 Note 5.1 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 (Wholly Owned Companies) Instrument 2016/785. 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 2020. 4. The Directors draw attention to page 112 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 Melbourne, 24th day of August 2020 Mr. Richard Davis Mr. Michael Knaap Chairman Chief Executive Officer and Managing Director 24 August 2020 24 August 2020 Monash IVF Group Annual Report 2020 Independent Auditor’s Report This is the original version of the Audit Report over the Financial Statements signed by the Directors on 24 August 2020. Page references should be read as follows to reflect the correct references now that the Financial Statements have been presented in the context of the Annual Report in its entirety: page references to our Report on the Remuneration Report as set out in the Director’s Report, should be updated to read pages 41 to 55. 96 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the shareholders of Monash IVF Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Monash IVF Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of theGroup’s financial position as at 30June 2020 and of its financialperformance for the year ended onthat date; and•complying with AustralianAccounting Standards and the Corporations Regulations 2001.The Financial Report comprises: •Consolidated statement of financial position as at 30June 2020•Consolidated statement of profit or loss and othercomprehensive income, consolidated statement ofchanges in equity and consolidated statement ofcash flows for the year then ended•Notes including a summary of significant accountingpolicies•Directors’ Declaration.The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the Directors of Monash IVF Group Limited, would be in the same terms if given to the Directors as at the time of this Auditor’s Report. Brave together 119 Independent Auditor’s Report (cont) This is the original version of the Audit Report over the Financial Statements signed by the Directors on 24 August 2020. Page references should be read as follows to reflect the correct references now that the Financial Statements have been presented in the context of the Annual Report in its entirety: page references to our Report on the Remuneration Report as set out in the Director’s Report, should be updated to read pages 41 to 55. 97 Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Goodwill ($233.2 million) Refer to Note 2.6 of the Financial Report The key audit matter How the matter was addressed in our audit At 30 June 2020 the Group’s balance sheet includes goodwill, contained within three cash generating units (CGUs) – Australian IVF, International IVF and Ultrasound. A key audit matter for us was the Group’s annual testing of goodwill for impairment, and the estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. We focused on the significant forward-looking assumptions the Group applied in its value in use models, including: •Forecast cash flows, growth ratesand terminal growth rates in light ofthe changes in market conditions,including the impact from COVID-19,that have impacted the actual andexpected performance of the relevantCGUs. These conditions impact ourconsideration of forecasting risk; and•Discount rate – these vary accordingto the conditions and environmentthe specific CGU is subject to fromtime to time.The Group uses a range of internal and external sources as inputs to the model assumptions. Modelling, including those containing judgemental allocations of corporate costs to CGUs, that use forward-looking assumptions can be prone to greater risk for potential bias, error and inconsistent application especially in this current environment. Where the Group has not met prior year forecasts in relation to a specific CGU we factor this into our assessment of Our procedures included: •We considered the appropriateness of the Group’svalue in use methodology to perform the annual testof goodwill for impairment against the requirementsof the accounting standards;•We assessed the Group’s underlying methodologyand documentation for the allocation of corporatecosts to the respective CGUs. We examined theforecast cash flows contained in the value in usemodel for consistency with our understanding of thebusiness and the criteria in the accounting standards;•We met with management and those charged withgovernance to understand the impact of COVID-19to the Group and impact of government responseprograms to the actual and forecast results;•We assessed the integrity of the value in use modelsused, including the accuracy of the underlyingcalculations formulas;•We compared the forecast cash flows contained inthe value in use models to revised forecastsreflecting the COVID-19 expected recovery rateapproved by the Board;•We assessed the accuracy of previous Groupforecasting to inform our evaluation of forecastsincluded in the value in use models.We applied increased scepticism to current periodCGU forecasts when there was a shortfall inperformance against previous forecasts;•We considered the sensitivity of the models byvarying key assumptions, such as forecast growthrates, terminal growth rates and discount rates,within a reasonably possible range. We did this toidentify those assumptions at higher risk of bias or Monash IVF Group Annual Report 2020 Independent Auditor’s Report (cont) This is the original version of the Audit Report over the Financial Statements signed by the Directors on 24 August 2020. Page references should be read as follows to reflect the correct references now that the Financial Statements have been presented in the context of the Annual Report in its entirety: page references to our Report on the Remuneration Report as set out in the Director’s Report, should be updated to read pages 41 to 55. 98 forecast assumptions. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. In addition to the above, the carrying amount of the net assets of the Group exceeded the Group’s market capitalisation at year end, increasing the possibility of goodwill being impaired. This further increased our audit effort in this key audit area. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. inconsistency in application and to identify those CGUs at higher risk of impairment and to focus our further procedures; •We challenged the Group’s forecast cash flow andgrowth assumptions in light of the expectedcontinuation of significant uncertainties arising fromthe COVID-19 global pandemic. We compared keyevents to the Board approved plan and strategy. Wecompared forecast growth rates and terminal growthrates to authoritative published informationregarding industry trends and expectations, andconsidered differences for the Group’s operations.We used our knowledge of the Group, business andcustomers and our industry experience;•We checked the consistency of growth rates to theGroup’s revised plans and our experience regardingthe feasibility of these plans in the industry in whichit operates and current economic environment;•We assessed the Group’s explanation of differencesbetween the year-end market capitalisation and thecarrying amount of the net assets based on ourunderstanding of the business and the industry itoperates in;•Working with our valuation specialists, weindependently developed a comparable discount raterange from publicly available market data forcomparable entities and adjusted by specific riskfactors to the Group and the industry it operates in;and•We assessed the disclosures in the financial reportusing our understanding obtained from our testingand against the requirements of the accountingstandards.Other Information Other Information is financial and non-financial information in Monash IVF Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report, Appendix 4E, Corporate Governance Statement and FY20 Results Presentation. The Chairman’s Report, CEO/Managing Director’s Report, CFO Report, Group Medical Director’s Report, Scientific Directors’ Report and Shareholder Information are expected to be made available to us after the date of the Auditor’s report.Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception Brave together 121 Independent Auditor’s Report (cont) This is the original version of the Audit Report over the Financial Statements signed by the Directors on 24 August 2020. Page references should be read as follows to reflect the correct references now that the Financial Statements have been presented in the context of the Annual Report in its entirety: page references to our Report on the Remuneration Report as set out in the Director’s Report, should be updated to read pages 41 to 55. 99 of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with AustralianAccounting Standards and the Corporations Act 2001•implementing necessary internal control to enable the preparation of a Financial Report thatgives a true and fair view and is free from material misstatement, whether due to fraud orerror•assessing the Group’s ability to continue as a going concern and whether the use of thegoing concern basis of accounting is appropriate. This includes disclosing, as applicable,matters related to going concern and using the going concern basis of accounting unlessthey either intend to liquidate the Group or to cease operations, or have no realisticalternative but to do so.Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free frommaterial misstatement, whether due to fraud or error; and•to issue an Auditor’s Report that includes our opinion.Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at:http://www.auasb.gov.au/auditors_responsibilities/ar2_2020.pdf. This description forms part of our Auditor’s Report. Monash IVF Group Annual Report 2020 Independent Auditor’s Report (cont) This is the original version of the Audit Report over the Financial Statements signed by the Directors on 24 August 2020. Page references should be read as follows to reflect the correct references now that the Financial Statements have been presented in the context of the Annual Report in its entirety: page references to our Report on the Remuneration Report as set out in the Director’s Report, should be updated to read pages 41 to 55. 100 Report on the Remuneration ReportOpinion In our opinion, the Remuneration Report of Monash IVF Group Limited for the year ended 30 June 2020, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 19 to 33 of the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG BW Szentirmay Partner Melbourne 24 August 2020 Brave together 123 Shareholder Information 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 30 September, 2020. Distribution of Shareholders – Ordinary Shareholders Size of Holding 1 to 1000 1001 to 5000 5001 to 10000 10001 to 100000 100001 and Over Total No of Shareholders 1,472 2,689 1,139 1,395 148 6,843 Ordinary Shares 959,046 7,373,598 8,881,137 39,428,274 332,992,785 389,634,840 % of issued Capital 0.25% 1.89% 2.28% 10.12% 85.46% 100.00% The number of security investors holding less than a marketable parcel of 766 securities ($0.645 on 30/9/2020) is 822 and they hold 344,526 securities. Monash IVF Group Annual Report 2020 Shareholder Information - Continued Shareholder Information (cont) 20 Largest Shareholders – Ordinary Shareholders Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Name J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Argo Investment Limited BNP Paribas Nominees Pty Ltd Jangho Health Care Australia Pty Ltd XLY Holding Pty Ltd Citicorp Nominees Pty Limited BNP Paribas NOMS Pty Ltd Neweconomy COM AU Nominees Pacific Custodians Pty Limited Ippoliti Pty Ltd Vollenhoven Investments Pty Ltd Mr Prashant Nadkarni Dr Robert Ian McLachlan & Mrs Edwina Margaret McLachlan Payne Media Pty Ltd Ong Administration Pty Ltd Merrill Lynch Dalyne Pty Ltd Total for Top 20 Total other investors Grand Total Substantial Shareholders No. of fully paid shares 96,545,066 55,976,455 36,242,265 32,957,311 19,982,646 12,793,956 12,022,159 4,901,414 3,686,700 2,744,622 2,606,362 2,474,369 2,011,336 1,739,787 1,461,484 1,385,944 1,300,850 1,201,906 1,192,203 1,170,000 294,386,846 95,247,994 389,634,840 % of issued Capital 24.78% 14.37% 9.30% 8.46% 5.13% 3.28% 3.08% 1.26% .95% .70% .67% .64% .52% .45% .38% .36% .33% .31% .31% .30% 75.55% 24.45% 100.00% As at 30 September 2020, the following details the names of substantial shareholders in Monash IVF Group Limited and the number of shares held, as disclosed in substantial holding notices given to the Company: Rank 1 2 3 4 Name BlackRock Group Allan Gray Australia Pty Ltd Lennox Capital Partners Pty Limited Argo Investments Limited No. of fully paid shares 56,745,317 51,858,105 28,634,592 19,982,646 % of issued Capital 14.56% 13.31% 7.35% 5.13% Voting Rights In accordance with the Constitution, each member present at a meeting (whether in person, by proxy, by power of attorney or by a duly authorized representative), upon a poll, shall have one vote for each fully paid ordinary share. Brave together 125 Corporate Directory Corporate Directory Stock Exchange Listing Auditor KPMG Australia Tower Two, Collins Square 727 Collins Street Docklands VIC 3008 T +61 (0)3 9288 5555 Corporate Office Pelaco Building 1 Level 1 21-31 Goodwood Street Richmond VIC 3121 T +61 (0)3 9420 8235 E groupenquiries@monashivf.com Website www.monashivfgroup.com.au The shares of Monash IVF Group are listed by ASX Ltd on the Australian Securities Exchange trading under “MVF”. Directors Mr Richard Davis – Chairman Ms Christina Boyce (Resigned 29 June 2020) Mr Neil Broekhuizen Mr Josef Czyzewski Dr Richard Henshaw Mr Michael Knaap Ms Zita Peach Ms Catherine West (Appointed 8 September 2020) Mr Malik Jainudeen – Company Secretary Share Registry Link Market Services Tower 4, 727 Collins Street Melbourne VIC 3008 T 1300 554 474 Legal Clayton Utz 1 Bligh Street Sydney NSW 2000 T +61 (0)2 9353 4000 126 THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. Inside back cover Monash IVF Group Limited Monash IVF Group (Monash IVF Group Ltd or The Group) is a leading provider of Assisted Reproductive Services (ARS) in Australia and Malaysia. Since the early 1970s the Group has been a market leader in fertility care and over the last 40 years has grown into a specialised fertility and women’s’ imaging group receiving international recognition for research, science and innovation, helping individuals and families achieve their goal of having a healthy baby. Annual General Meeting Thursday 26 November 2020 at 2pm Virtual Meeting The online platform for the AGM can be accessed at https://agmlive.link/MVF20 M o n a s h I V F G r o u p | A n n u a l R e p o r t 2 0 2 0 monashivfgroup.com.au
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