Monash IVF Group Ltd
Annual Report 2021

Plain-text annual report

Annual Report 2021 Leading the future of reproductive care. About Us Leading the future of reproductive care. Monash IVF Group has been providing leading reproductive care for 50 years. Our team includes experienced fertility specialists, sonologists, genetic counsellors, scientists, nurses, phlebotomists, ultrasound technicians, sonographers, donor and surrogacy experts and support teams, all of whom are passionate about supporting people through their entire fertility and pregnancy journey. We offer holistic, integrated care from pre‑conception health assessments to genetic testing and counselling through to fertility treatment options, and women’s ultrasound services, so we’re with our patients at every stage of their journey. We’re passionate about helping our patients achieve a family, no matter their life stage or circumstances. We believe it’s never too early to take care of your reproductive wellbeing which is why we provide information on early, proactive steps you can take to prepare your body for pregnancy down the track. Whether our patients need help with endometriosis or PCOS, advice on their menstrual health, are looking to preserve their fertility, or simply want peace of mind about their family prospects, we are here to support them. If they need fertility treatment, rest assured they will be in expert hands. We’re not just a fertility provider ‑ we’re a fertility partner. With more than 50 years of experience and 42,000‑plus babies delivered, we’re leaders in the reproductive field. Our patients are nurtured and cared for by a team of highly‑skilled experts at every step of their fertility journey. B. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewLeading the future of reproductive care.Best i n c y g o l o h t a p d l a ss fertilit y s o l u t i o n s , d iagnostic n s, genetics a Contents Chairman’s Report Managing Director & CEO’s Report Financial Overview Chief Financial Officer’s Report Our Strategy Our Pillars Board of Directors Management Team Directors’ Report Remuneration Report – Audited Auditor’s Independence Declaration Corporate Governance Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 4 6 8 9 10 11 22 24 25 40 58 59 73 74 75 76 111 112 116 118 .01 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Year in Review A Year in Review A Year in Review An additional Day Hospital opened 12.11.20 Sydney CBD Total domestic stimulated cycles 36.6% on FY20 (FY21; 9,808) New patient stimulated cyles 40% Ultrasound scans 12.9% on FY20 (FY21; 92,776) Non-invasive Pre Natal Testing 17.8% on FY20 (FY21; 15,877) Total Group IVF treatments 32.5% on FY20 (FY21; 19,733) Pregnancy Rates Improved by since 20184.5% Engagement – Culture of Success 61% NPS score +61% up from 58.5% in 2020 12 New Fertility Specialists joined Monash IVF Group in FY21 through recruitment, as well as through our internal training program. 02. Managing Director & CEO’s ReportChairman’s ReportAbout UsLeading the future of reproductive care. Revenue Adjusted NPAT 1,2,3 Adjusted EBITDA 1,2 $183.6m 26.3% on FY20 $23.3m 61.5% on FY20 $47.7m 37.1% on FY20 Adjusted EBIT 1,2 Reported NPAT 3 Reported EBITDA 1 $34.8m 42.6% on FY20 $25.5m 116.9% on FY20 $51.3m 56.2% on FY20 1. Non‑IFRS measure 2. Refer to page 29 for reconciliation of Reported EBITDA, EBIT and NPAT to Adjusted EBITDA, EBIT and NPAT 3. NPAT including minority interest 1 2 0 2 t r o p e R l a u n n A p u o r G F V I h s a n o M .03 Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Chairman’s Report Chairman’s Report This is an exciting time for Monash IVF Group as we gain momentum on our growth journey. As we continue to invest in the future, we maintain our commitment to scientific leadership, the highest quality standards and to improving the lives of our patients and our communities. As we grow our businesses and expand our capabilities, we are benefiting from our reputation as a leader in reproductive care in all of our markets. Strong industry growth During FY21, we responded to a strong industry shift in IVF services, resulting in positive volume growth across our business. Some of the key macro themes that favoured our core business proposition included behavioural shifts in patients as COVID‑19 created more focus on families and wellbeing, advances in technology and increased government funding support. The flow on effect from the COVID‑19 pandemic in 2020 also saw significant revenue growth in Q1FY21 due to pent‑up demand from deferred treatments created in Q4FY20, which only accelerated over the year. The strong underlying demand for domestic IVF services was evident with stimulated cycles across Australia growing by 31.1% in the period, bringing the 5‑year annual CAGR to 5.6%. To best leverage the positive industry dynamics, our marketing efforts in the period have been a key driver of our market share gains and led to a 40% increase in new patient stimulated cycles. Our current new domestic patient registrations for stimulated cycles will help us drive continued volume growth in FY22. Investing in the future The performance across our strategic pillars – scientific leadership, patient experience, doctor partnerships, clinical excellence, people engagement, brand & marketing , digital & systems transformation and international expansion ‑ has been extremely impressive. Notable developments have included the appointment of highly engaged medical specialists across our fertility and ultrasound businesses, the opening of our new Sydney CBD flagship clinic, achieving positive engagement scores, and the deployment of several successful marketing initiatives, such as the launch of our new brand positioning. MVF stimulated cycle 36.6% growth in FY21 04. Managing Director & CEO’s ReportYear in ReviewAbout UsLeading the future of reproductive care.We have set ourselves the right strategic objectives and have a strong leadership team in place to deliver sustainable growth over the long term. Mr Richard Davis Independent Chairman Our outstanding capabilities across all facets of our business are reflected in our ability to continue to improve clinical pregnancy rates, whereby the chances of our patients having a healthy baby are now 4.5% higher compared to calendar year 2018. These results, and our commitment to driving future improvements, will be key to our goal of becoming the most admired reproductive care provider in the world. I have touched on the impact the ongoing pandemic has had on the mindset of our patient cohort, with greater focus on family, health and wellbeing resulting in re‑direction of priorities towards family extension. We expect these factors to continue to drive growth in FY22, and we will keep investing in strategic initiatives that support our future growth. Quality without boundaries As we grow our businesses and expand our capabilities, we are benefiting from our reputation as a leader in reproductive care in all of our markets. Monash IVF Group has been built on a culture of quality that is reflected not just in our innovative technology, but in our people, our partnerships, and our forward thinking. Maintaining a culture with quality and patient excellence at its core will ensure we continue to deliver the highest standards in the future. Strong corporate governance In September 2020, we appointed Ms Catherine West as Independent Non‑Executive Director, who brings considerable acumen to the business with over 25 years of legal, business affairs and strategy experience in Australia, the UK and Europe. Catherine was also appointed as a member of the Remuneration and Nomination Committee. Conclusion Looking ahead to 2022 and beyond, I am very optimistic for the future of Monash IVF Group. I believe we have set ourselves the right strategic objectives and have a strong leadership team in place to deliver sustainable growth over the long term. Monash IVF Group has outstanding technology capabilities and a dedicated and passionate team working hard to deliver excellent outcomes for our patients. Over the last year, I have seen this passion and dedication first hand, and I want to take this opportunity to thank every one of the team for their hard work and commitment. Finally, on behalf of the Board I would like to thank our shareholders for their ongoing commitment as we look forward to even greater things in FY22. Sincerely, New domestic patient stimulated cycles 40% increase in FY21 Mr Richard Davis Independent Chairman .05 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportManaging Director & CEO’s Report Managing Director & CEO’s Report Our FY21 performance was ahead of market expectations not only due to record industry growth in Australia, but through Monash IVF Group’s collective efforts to increase its market share and build for future sustainable growth. We are pleased to have delivered a strong financial performance in FY21 against a backdrop of attractive industry fundamentals that saw ARS services in Australia reach record levels. By executing on our strategy, we delivered revenue growth of 26.3% to reach total revenue of $183.6m, buoyed by market share gains and strong industry volumes. Stimulated cycle market share grew by 0.6% to 21.0% in Monash IVF Group’s key markets underpinned by an increase in marketing investment, which is growing the short‑term and long‑term patient pipelines. Over the course of the year, we were able to attract new fertility specialists in New South Wales, Queensland and Victoria, who have contributed significantly to building solid patient pipelines and fostering strong patient relationships. Recent doctor engagement scores have been at record levels, demonstrating a ‘culture of success’ that our Company upholds across its fertility and ultrasound operations. New clinical infrastructure is paramount to continued execution of our strategic growth objectives, and we are excited by the progress made during FY21 to add capacity and increase our market presence. In November 2020, our new Sydney CBD flagship clinic, which represents best practice patient experience, opened and has already performed more than 200 stimulated cycles. We have a number of new clinics in the pipeline for FY22, including projects that are well advanced in Melbourne, Gold Coast and Penrith. Our South East Asian expansion strategy is also progressing despite COVID‑19 challenges. We are proud of the positive momentum we have created during the year, and we will enter the FY22 year focused on continuous improvement to pregnancy rates and patient experience. FY21 Performance Our business achieved strong growth in FY21. Revenue growth in the period was underpinned by market share gains and industry volume growth, with revenue accelerating in 2H21 compared to 1H21. FY21 started strongly due to the pent‑up demand/deferred treatment resulting from an initial COVID‑19 related shutdown of services in Q4FY20, and this momentum continued resulting in strong volume growth throughout the year. Notwithstanding on‑going and sporadic COVID‑19 related lockdowns, IVF services have been largely undisrupted and as a result, growth continued throughout the year. Market share gains were achieved in Victoria, New South Wales, Queensland and Northern Territory whilst the exceptionally high level of market share in South Australia was maintained above 60%. Building on strong foundations Since 2018, we have improved our clinical pregnancy rates by 4.5% following a huge amount of effort invested into improving outcomes for our patients, including harmonisation of laboratory protocols and new innovation. 06. Chairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.We faced a year of challenges and opportunities in 2020. I am enormously proud of how adaptive and resilient our employees were in the face of a global pandemic. Michael Knaap Chief Executive Officer & Managing Director During FY21, some of the key initiatives we implemented to drive further improvements included: • The publication of the first PIEZO clinical trial (a gentler form of microinjection) with continued recruitment of the phase 2 multi‑centre clinical trial across 5 Monash IVF Group sites • Sperm selection device development (Felix) in partnership with Memphasys (ASX:MEM) is progressing and on track for phase 1 clinical trial • A continued focus on Research and Development with the submission and presentation of 21 scientific/ clinical abstracts at national and international conferences • Transition planning of Monash IVF Group genetic laboratories to G‑Category status to enable best‑in‑class Preimplantation Genetic Screening • Looking ahead, we will be expanding our genetics capabilities and service offerings with innovation such as the soon‑to‑be launched At Home Genetic Carrier Screening Test. We are confident our strategic outputs are assisting in driving the current strong new patient and returning patient pipelines and with our sustainable marketing investment, those levels are expected to continue to grow in FY22 and beyond. Our People The Employee Value Proposition at Monash IVF Group has been a key priority in FY21. We continue to position ourselves as a dynamic industry leader in reproductive care and we offer prosperous workplaces for those driven to make a difference. At the heart of our strategy has been an effort to transform our people and culture proposition to offer exceptional employee experiences and ways of working that inspire our 771 employees across 125 locations. We were thrilled to achieve record Group engagement scores in 2021 which exceeded our 2022 targets and industry benchmarks. I have touched on some of the new fertility specialists that have joined the Group in 2021. A further key hire made in the period was the appointment of Dr Tristan Hardy, Genomic Pathologist, to the position of Medical Director of Genetics. The appointment is at a crucial time for the Company as the new NPAAC Laboratory Supervision Guidelines come into effect for all IVF laboratories from August 2021. This ensures the continuity of in‑house genetic service offerings and provides a platform for expansion of our genetics suite of offerings in the future. Looking ahead We believe there is a fundamental shift in the community whereby the on‑going pandemic has changed the mindset of our patient cohort with greater focus on family, health and wellbeing resulting in re‑direction of priorities towards family extension. This shift has driven strong industry growth in FY21 and is expected to be maintained in FY22. We faced a year of challenges in 2020 and continue to face further challenges in 2021. I am enormously proud of how adaptive and resilient our people were in the face of a global pandemic and am grateful for their unwavering commitment to delivering services for our patients in Australia and abroad. I believe we have the right team and strategy in place to deliver long‑term sustainable growth and continue to create value for all of our stakeholders. I would like to extend my thanks to our shareholders, patients, employees and partners for their continual support. Michael Knaap Chief Executive Officer & Managing Director .07 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportFinancial Overview Revenue FY21 Profit & Loss Overview Adjusted ($m) Group Revenue Adjusted EBITDA 1, 2 Adjusted EBIT 1, 2 Adjusted NPAT 1, 2, 3 Reported ($m) EBITDA 1 Depreciation & amortisation EBIT Net finance costs Profit before tax Income tax expense NPAT 3 1. Non‑IFRS measure FY21 183.6 47.7 34.8 23.3 51.3 (12.9) 38.4 (2.5) 35.9 (10.4) 25.5 FY20 % Change 145.4 34.8 24.4 14.4 32.8 (11.0) 21.8 (5.7) 16.1 (4.4) 11.8 26.3% 37.1% 42.6% 61.5% 56.2% (17.3%) 75.8% (56.1%) 123.0% (136.4%) 116.9% 2. Refer to page 29 for reconciliation of Reported EBITDA, EBIT and NPAT to Adjusted EBITDA, EBIT and NPAT 3. NPAT including minority interest FY21 Cash flow Overview ($m) Reported EBITDA Income taxes paid Net operating cash flow (post tax) Capital expenditure Payments for businesses/minority interest Cash flow from investing activities Free Cash flow 1 Proceeds from issue of shares Dividends paid Interest on borrowings Payments of lease liabilities Proceeds/(repayment) of borrowings Other Cash flow from financing activities Net cash flow movement Closing cash balance FY21 51.3 – (7.2) 44.1 (10.0) (1.3) (11.3) 32.8 – (13.1) (0.7) (7.6) (17.7) – (39.1) (6.3) 8.8 FY20 % Change 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 56.4% (100.0%) (67.4%) 41.8% (33.3%) 58.1% (6.6%) 60.0% 100% (84.5%) 80.0% (5.6%) 74.6% (100%) (303%) (158%) (41.7%) 1. Free Cash flow is Net Operating cash flow (post‑tax) less cash flow from investing activities $183.6m 26.3% on FY20 Adjusted EBIT $34.8m 42.6% on FY20 Adjusted EBITDA $47.7m 37.1% on FY20 $51.3m 56.2% on FY20 Adjusted NPAT $23.3m 61.5% on FY20 Reported NPAT $25.5m 116.9% on FY20 08. Reported EBITDA Movement in working capital Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Financial Overview Chief Financial Officer’s Report Chief Financial Officer’s Report We experienced strong industry growth during the year across all our domestic IVF markets and market share gains that drove 26.3% revenue growth on FY20. Our capex for the year was $10m which included the new Sydney CBD clinic and new equipment in our laboratories. Going into FY22 and notwithstanding the ongoing pandemic, the balance sheet is well positioned to withstand any potential impact the pandemic may present and to execute and capitalise on potential growth opportunities. These opportunities include improvements to our clinical infrastructure with project designs and approvals obtained for new infrastructure in Melbourne, Penrith, and the Gold Coast. In South East Asia we now have two clinics in Malaysia, a minority holding in Jakarta and a soon to be built clinic in Bali which all form part of our evolving strategy in the region. I would like to thank all our stakeholders, including employees, doctors, and shareholders, who collectively enable us to achieve our mission of helping to bring life to the world. Malik Jainudeen Chief Financial Officer strong notwithstanding the pandemic. Our ultrasound business also generated additional $3.8m revenue following a 13% increase in scan volumes. Our reported NPAT was up by 117% and our Adjusted NPAT of $23.3m was 61.5% higher than FY20 noting Adjusted NPAT excludes the impact from JobKeeper subsidies in FY21, commissioning costs associated with the new Sydney CBD fertility clinic and adjustments to Business Combination earn‑out provisions. The Group achieved an Adjusted EBITDA of $47.7m, up by 37.1% with EBITDA margin percentage improving from 23.9% to 26.0%. EBITDA Margin percentage improved following leverage gained from the increase in volumes which was partly offset by a 12% increase in marketing expenditure, patient communication through digital platforms and approximately $1.7m of additional costs related to the suspension of the NI‑PGT genetic testing program. Our cash flow performance during the year was extremely strong with Free Cash Flow increasing by 60% to $32.8m driven by 100% cash conversion of EBITDA to pre‑tax operating cash flows. $44.1m of post‑tax operating cash flows allowed for investment expenditure to be focused on future growth initiatives including new clinical infrastructure ($5.3m), new state‑of‑the‑art laboratory assets and technology ($2.1m) and $0.6m minority investment in a new Jakarta based fertility clinic which opened in February. Monash IVF Group achieved strong revenue growth, up 26.3% as a result of 36.6% stimulated cycle growth and 12.9% ultrasound scan growth in FY21. In Q1, we serviced all the pent‑up demand created at the end of last year and strong activity continued across the remainder of the year. Our first half revenue was close to $91m and we surpassed that in the second half with revenues of almost $93m. Activity levels from Q1, which included the pent‑up demand, continued for the rest of the year, reflecting real underlying growth in our business. As a result of the 26% increase in revenues, we generated operating leverage whilst deploying marketing initiatives to drive and maintain our strong new patient pipeline and support our doctors. In the period, we have invested heavily in our nursing and scientific workforce which is improving our patient experience and in turn increasing our staff and doctor engagement. Our KL business generated an additional $800k of revenue in a very challenging environment due to the pandemic. Movement control orders were in place for most of the year in Malaysia and the business did a great job to deliver more than 1,000 stimulated cycles in FY21. Our average IVF revenue per stimulated cycle declined which resulted in a $1.8m negative impact on revenue. This was a result of offering no out‑of‑pocket stimulated cycles to patients impacted by the suspension of the Non‑invasive preimplantation genetic testing (NI‑PGT) program. This impact will reduce in FY22. Our Fertility Solutions business in Queensland, which we acquired in FY20, generated an additional $1.7m revenue. This clinic operates a hybrid pricing model with full service and low‑cost offerings. It was pleasing that the majority of the additional revenue was generated from providing a higher proportion of full service cycles. This has helped us validate that full‑service offerings are 1 2 0 2 t r o p e R l a u n n A p u o r G F V I h s a n o M .09 Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial Report Our Strategy Vision 2026 Our Strategic Pillars remain the foundation and the core framework of Vision 2026 in providing focus in achieving our strategic goals. Vision 2022 provided a clear roadmap that enabled the organisation to recognise our priorities and guided our decisions to where we are now. Whilst a broad and deep process was undertaken in developing the Vision 2026 Strategic Plan including reflecting on the COVID‑19 pandemic, our overall vision and strategies are largely consistent and in most cases, represent an evolution of Vision 2022 with some new strategic priorities. Also evident from this process was the very clear view that the Vision 2022 Strategic Pillars remain relevant to our Vision 2026 Strategic Plan and the key priorities for Monash IVF Group. Our Mission We help bring life to the world. Vision 2026 The most admired reproductive care provider in the world. Best in class fertility solutions, diagnostics, genetics and pathology. 10. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Strategy Our Pillars Our Pillars Doctor Partnerships Patient Experience Scientific Leadership People Engagement International Expansion Digital Transformation Brand & Marketing Clinical Infrastructure Our Outcomes Engagement Patients, Doctors, People, Regulators Local & International Market Share Market Leading Success Rates Value Creation Our Principles Care Commitment Communicate Collaborate Create 1 2 0 2 t r o p e R l a u n n A p u o r G F V I h s a n o M .11 Board of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Scientific Leadership Monash IVF Group is committed to providing industry leading success rates coupled with innovative technology and research to ensure our patients have the highest possible chance of a successful outcome. Monash IVF Group has a unified scientific leadership team led by the Group Scientific Advisory Committee (GSAC) which drives our scientific best practice, world class research and new technology implementation. In FY21 the GSAC (comprised of the Scientific Director team: A/Prof Deirdre Zander‑Fox, A/Prof Hassan Bakos, A/ Prof Yanhe Liu, A/Prof Mark Green, Dr Leanne Pacella‑Ince and Ms Jean Scott,) has continued to focus on improving IVF success rates across all of our clinics by further aligning and optimising our scientific protocols. In addition, strong attention was paid to updating our equipment portfolio as well as completing laboratory end‑to‑ end reviews. FY21 also saw the launch of Government facilitated success rates published through the YourIVF Success Rates website. Monash IVF Group was strongly represented as being in the top echelon of Australian clinics. In addition to continual improvement on success rates the following were undertaken in FY21: • Setting up exemplary COVID‑19‑safe measures to ensure optimal patient outcomes coupled with protection of our scientific workforce. This included having rigorous procedures for our operating scientific teams to prevent staff crossover and ensure continuity of laboratory operations, with minimal disruption to patients. • Launch of a premium laboratory in Sydney CBD, complete with state‑ of‑the‑art technology (time lapse technology, vapour cryo‑storage facilities and full integration with operating theatres and transfer suites). • Participation in the Vitrolife Embryomap ß‑trial in preparation for the introduction of a next generation PGT‑A platform, with increased throughput capacity coupled with reduced hands‑on time. • Roll‑out of the Monash IVF Group National Journal Club, as well as Group‑wide scientific workshops and courses to continue to foster scientific education, engagement and training across all laboratories. • Submission and acceptance for presentation of 21 scientific abstracts at national and international conferences, reinforcing our emphasis on science‑ driven patient care and outcomes. Success Rates have improved by 4.5%since 2018 12. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Pillars Doctor Partnerships 12 new doctors joined Monash IVF Group in FY21, contributing to market share growth in our key markets. Monash IVF attracted 12 new doctors to join our teams in Victoria, New South Wales, Queensland, South Australia and Northern Territory through acquisition, as well as through our own internal training programs. We now have a total of 123 clinicians working in IVF and Women’s Ultrasound. Our doctor engagement results were the best they have ever been. We recorded an engagement score of 61%, defined as a culture of success. This demonstrates more than ever that our doctors are strong advocates for Monash IVF. Our clinicians, in collaboration with our scientists have led the way in continuing to improve our success rates year‑on‑ year. This has been achieved through meticulous continuous improvement and implementation of best clinical practice in all of our clinics in Australia and Malaysia. We have further invested in timelapse incubators to improve embryo and gamete culture systems and PIEZO ICSI technology to improve fertilisation rates in our science laboratories. The Monash Research and Education Fund (MREF) distributed over $400K of research grants to projects led by our clinicians, scientists and nurses. In total our clinicians lead a spend of over $2.5 million dollars in research and development activities to ensure we remain at the cutting edge of reproductive healthcare. Our State Medical Directors in both IVF and Women’s Ultrasound continued to lead our clinical policy response to the fast changing COVID‑19 circumstances, to ensure the health of our people and patients was maintained. It was a significant achievement to keep our services running continuously in Victoria during the four month long lockdown. A special mention also to all clinical teams in our Women’s Ultrasound Clinics who led our people to remain open throughout the pandemic to provide critical pregnancy scan services whilst public hospital services were unable to due to COVID response priorities. The importance Monash IVF Group holds for its doctor partnerships and the significant investment of resources that will continue to be made in initiatives to improve the ability of our clinicians to provide the absolute best care for their patients, will ensure we continue to onboard doctors into the Monash IVF team through both the acquisition of fully qualified practitioners and through our own state based CREI trainee programs. 1 2 0 2 t r o p e R l a u n n A p u o r G F V I h s a n o M .13 Our StrategyBoard of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Clinical Infrastructure Monash IVF Group has delivered its commitment to provide a centre of excellence in reproductive healthcare in Sydney. already outgrown this facility. We expect our new Penrith IVF unit to be complete by the end of financial year. In Women’s Ultrasound we also have a pipeline of infrastructure improvements in both Sydney and Melbourne to enable us to meet the growing demand for private scans in these cities. We have a number of significant projects scheduled for this current year that will facilitate further growth in our key markets. The largest investment will be in establishing a state‑of‑the‑art reproductive care clinic with a fully integrated Day Surgery Unit in Melbourne. This is an exciting project that will bring all our disciplines together along with our corporate functions in the suburb of Cremorne. Similarly, we are building a comparable scaled facility to relocate our Gold Coast services into. Both projects will be completed in advance of the end of financial year. Despite establishing our Penrith unit only recently in 2019, we have Our fully integrated IVF Unit at 201 Kent St opened in November 2020 to signal Monash IVF’s arrival in the CBD of Sydney. We already have four fertility specialists embedded in the facility providing world class reproductive care services to Sydney patients. A new pathology laboratory was commissioned in our Clayton IVF unit in Melbourne to complement our genetic PGT testing laboratory. This will ensure the provision of world class Andrology and Endocrine testing services under the clinical leadership of Professor Rob McLachlan. We commissioned eighteen new General Electric (GE) E10 Voluson ultrasound machines in our Women’s Ultrasound clinics, which will enable our sonologists and sonographers to use the latest technology to provide the very best pregnancy diagnostics. 14. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Pillars Brand & Marketing In FY21 our marketing strategy continued to focus on four key drivers of growth: brand differentiation, patient acquisition and lifecycle engagement, patient value proposition and marketing effectiveness. Our new advertising campaign and patient acquisition strategies have contributed significantly to our strong FY21 new patient registration results. Our Ready, Set, Baby online content program, social media and virtual fertility retreats also continue to drive strong growth in new patients and our retention rates by offering unrivalled holistic and integrative care and support to new and existing patients. We are proud to see that our marketing strategy is proving effective and in FY21 contributed to a 40% increase in new patients, an increase of 36.6% in domestic stimulated cycles and market share gains of 0.6%. Brand differentiation We are incredibly passionate about our new brand positioning and believe we have an important role to play in challenging societal norms in how people think about and behave in relation to their reproductive care. Through our marketing we are challenging longstanding assumptions, debunking stigmas and normalising infertility by opening up conversation. By encouraging people to take a more proactive, early approach to their reproductive care. We hope to increase their success in starting their families. Patient acquisition & lifecycle engagement In FY21 we refreshed our end‑to‑end channel strategy and communication program, resulting in our new advertising campaign One in Six, our virtual events strategy, new website and improved social media engagement. Marketing Effectiveness Our robust marketing analytics and knowledge of the patient pipeline has allowed us to continue improving the efficiency and effectiveness of our marketing investment. We continue to see improvements year‑on‑year in all key marketing metrics. Patient value proposition Our best‑in‑class service proposition means patients receive the best possible knowledge, care and services across their patient journey. Holistic, integrated care with services across the entire reproductive care journey. So, we’re with our patients every step of the way. World class fertility experts who leave no stone unturned and are meticulous in tailoring services to individuals’ particular needs. Over 50 years of experience and over 42,000 babies delivered meaning we are experts even in the trickiest cases. A true pioneer in scientific advancements in reproductive care with leading success rates that continue to improve year‑on‑year. Improving access for all with 125 locations around Australia 1 2 0 2 t r o p e R l a u n n A p u o r G F V I h s a n o M .15 Our StrategyBoard of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Digital transformation COVID-19 continues to drastically change how our society functions, with lockdowns and other social restrictions impacting many aspects of our lives, including how our patients can access care. We have continued to meet these challenges by offering a robust telehealth solution and have also added additional communication channels and services to improve our ability to provide care for our patients. This gives our team more options to deliver the best patient care during these difficult times while still maintaining a secure and stable platform. We are also continuing our Cloud first digital strategy as we move multiple aspects of our business to Cloud offerings that provide improved functionality and enable our team to focus on delivering the next‑generation of Virtual Healthcare Solutions. These include extending the capabilities and integrations of our mobile patient management platform and a new Electronic Medical Records solution. We continue to invest in our technology to deliver improved cybersecurity, operational efficiencies and patient care with the focus moving towards the evolution of technology in healthcare. We are investing in data analytics, artificial intelligence and machine learning to develop new ways to support our clinicians and ensure patients receive the best care. International Expansion In FY21, Monash IVF Group continued to build on its foundations in the South-East Asian (SEA) region. Monash IVF Group continues to leverage its scientific and clinical capability, training and development programs, brand strength and industry leadership within the SEA region. During FY21, the Group opened its first clinic in Indonesia (Jakarta), with its partner Mitra Keluarga ‑ a large reputable domestic hospital provider. This added a state‑of‑the art, full‑service clinic in one of the largest metropolitan areas of Asia to the Monash IVF Group portfolio. The Group also entered into an agreement to build a full‑service clinic in Bali, Indonesia which is scheduled to open in FY22. The Group currently has a presence in three key cities in the region and will continue to build on its portfolio. 16. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Pillars Delivering best in class patient experience Providing truly empathetic and supportive patient centred care continues to be the absolute priority for our organisation. This was even more important during the last 18 months as patients felt the stress and uncertainty brought about by COVID-19. • Opening a best‑in‑class full‑service clinic in Sydney CBD, offering the best in empathetic and supportive patient centred care. • Launching a web‑based Patient Onboarding System in our South Australian business. • Implementing a new phone system into our Sydney Ultrasound for Women business to streamline calls and improve the patient booking experience. • Trialling the digitisation of the patient registration process in Victoria. • Increasing our nursing and administration resourcing to adjust to increased patient demand. • Launching a new website to provide better access, information and support to new and existing patients throughout their journey. • • Introducing an online donor portal enabling patients to view donor listings and select their preferred donors. Introducing a new patient companion handbook in Victoria to assist patients to better understand and navigate their journey. The feedback from our patients confirms that our patient care teams responded to their need for increased support incredibly well. Patients identified fertility nurse support and scientific expertise as key strengths in FY21. Our strong Group Net Promotor Score of Net Promotor Score of 65% up from 58.5% on the previous year, in what has been an incredibly challenging year, also demonstrates how we are continuing to improve patient satisfaction. This year we continued to make strong inroads into evolving and improving the patient experience. A number of key improvement initiatives were delivered including: • Implementing a sophisticated Customer Experience Management platform that will deliver stronger analytical capabilities, artificial intelligence and multi‑channel integration into our patient experience measurement system. This in turn will result in stronger insights and prioritisation of the most important improvement opportunities across the entire patient experience. .17 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportResearch and Innovation Monash IVF Group is committed to pioneering research and innovation to ensure that patient outcomes are continually improving. key opinion leader in Australia. This collaboration is set to move to clinical trial phase in FY22. 3. Identification and confirmation of a novel marker of implantation in collaboration with RMIT, resulting in scientific publication and significant media interest. Further investment will see a clinical trial begin to validate its use as a diagnostic test. Alongside these projects, a focus of FY21 was the publication of numerous internal research and innovation studies including those on: • Health and fertility of ICSI‑conceived young men • Improvements in fertilisation and embryo yield using PIEZO microinjection technology • Sperm diagnostics and the importance of measuring sperm DNA damage • Use of male nutraceuticals to improve IVF outcome • Embryo grading and links to IVF outcome • Efficiency of psychological interventions on IVF pregnancy outcomes Monash IVF Group successfully partnered with Monash University to be awarded NHMRC funding on a project ‘Mitigating the risk of Mitochondrial Donation’. Moving forward, the Monash IVF Group, with our growing number of academic and commercial partners, have an increasing number of scientific studies in which our patients are currently being recruited into. Monash Research and Education Foundation in conjunction with the Group Scientific Advisory Committee (GSAC), Chaired by A/Prof Deirdre Zander‑Fox, have continued to drive research and innovation by providing financial support and internal scientific expertise to undertake studies in the areas of failed implantation, miscarriage, fertility preservation and sperm selection. A major accomplishment for FY21 has been to foster a scientific workforce that is engaged in scientific research to advance our knowledge to continually optimise treatment outcomes. In FY21, notably three projects in the expanding research and innovation portfolio have advanced considerably: 1. Further advancement in the PIEZO microinjection technology occurred, with a publication of the initial trial as an Australian first, coupled with ongoing second‑phase clinical trial recruitment. The article “PIEZO‑ICSI increases fertilization rates compared with standard ICSI: a prospective cohort study” (https://www.rbmojournal. com/article/S1472‑6483(21)00279‑0/ fulltext#:~:text=Results,0.003)%20 compared%20with%20standard%20 ICSI.) was published in the Reproductive BioMedicine Online (RBMO) platform. 2. Development and optimisation of a novel sperm separation device in collaboration with Memphasys Ltd occurred, as their 18. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Pillars Genetics and Diagnostics Genetics is entering an exciting phase at Monash IVF Group. Genetics extends beyond traditional infertility treatment and applies to anyone who is either planning a pregnancy or is pregnant. The advances in genetics represent an opportunity to connect with a broader base of patients who are keen to understand how genetic testing can help them achieve the goal of having a healthy pregnancy. The Monash IVF Group Genetics team is extremely well placed to take advantage of all of the opportunities in this growing field and become a world leader in reproductive genetics. All areas of reproductive genetics, including preconception genetic carrier screening, preimplantation genetic testing of embryos and non‑invasive prenatal testing during pregnancy, have shown considerable growth in FY21. Our team provides a world class service to our IVF units and specialist ultrasound units and our expertise in genetics is increasingly recognised locally and internationally. Our presence at national and international conferences and publication in high quality journals of research in prenatal diagnosis and preimplantation genetic testing is testament to the high quality of our team. In recognition of the importance of genetics to the strategic direction of the company, Monash IVF Group appointed Dr Tristan Hardy to the role of Medical Director of Genetics. Dr Hardy has strong connections with the public health sector, as well as research and commercial genetics companies, which will leverage Monash IVF Group to drive innovation in this space. He is supported in his role by Dr Melody Menezes, Head Genetic Counsellor & Scientific Director, a national leader in the genetic counselling field. A key pillar of our genetics strategy is the provision of genetic counselling and laboratory services for individuals and couples who wish to have genetic carrier screening. Genetic carrier screening is the process of comparing the DNA sequences of a reproductive couple prior to pregnancy or during pregnancy to work out if there is a chance of having a child with a significant medical condition. The Royal Australian and New Zealand College of Obstetricians and Gynaecologists recommends that all individuals and couples planning pregnancy are offered carrier screening. Although genetic conditions in childhood are individually rare, collectively they are common with 1 in 40 couples at high risk. These couples will be able to access prenatal diagnosis through our ultrasound clinics or may decide to undergo IVF with genetic testing of embryos to minimise the chance of having a child with a genetic condition. The Monash IVF Group Genetics team has developed an at‑home genetic carrier screening test which will be available for patients having treatment within the Group. More importantly, it will extend the reach of our services and connect with patients who are planning pregnancy in the community, allowing them to achieve the goal of having a healthy pregnancy and beginning their journey with us if they have any reproductive difficulty along the way. In recognition of the importance of preimplantation genetic testing as part of the reproductive journey for these couples, the Federal Government committed $95.6 million to new MBS items supporting preimplantation genetic testing for couples in this scenario. As we transition to a fully‑fledged Genetic Pathology laboratory under the new national guidelines, we will continue to meet the regulatory requirements to provide this testing. Moreover, our research and development activities will continue to focus on new methods of preimplantation genetic testing and establish our team as world leaders in this space. There are many more opportunities on the horizon and our team are excited to deliver further developments to assist Monash IVF Group in its’ mission to help bring life to the world. .19 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportOur People Monash IVF Group’s Employee Value Proposition is ‘Together we lead the evolution of care’ and in the past year our employees responded with commitment to ensure we continued to deliver just that. Enabling dynamic workplaces for those driven to make a difference. Our people and culture strategy recognises that by optimising our workforce and empowering our people we are able to advance science and specialised services, improve care and enhance communication. We continue to evolve our Learning & Development Framework to facilitate formal and informal training solutions with over 1,445 active learning modules, aligned to individual and specialised learning pathways for all of our people, ensuring individual and organisational growth and development. Our People Are Brave and Future-focused Curious and Insightful Driven and Active Kind and Compassionate Our Diversity & Inclusion Council Monash IVF Group supports a diverse and inclusive workplace where every employee feels valued and respected– a place where every employee can bring their whole self to work every day. Diversity is about celebrating individual differences and acknowledging the unique blend of knowledge, skills and perspectives our people bring to the workplace. Inclusion is about empowering our people to contribute their skills and perspectives to benefit our organisational performance and allow us to achieve our mission to lead the future of reproductive care. The more we collaborate and value differences, the closer we get to living a truly inclusive community. In 2021 Monash IVF Group took positive steps relative to our diversity and inclusion strategy with the establishment of our first Diversity and Inclusion Council. This council chaired by three Executive members, plays a key role in identifying and driving strategic initiatives that make Monash IVF Group a greater place to work. We foster an environment where different perspectives can be harnessed for both our employees and, of course, our patients. The council will continue to work with key partners to champion, monitor and deliver on these key initiatives. Throughout the year, we remained focused on the health and wellbeing challenges arising from the pandemic, including education and resources to support both physical and mental health of our people. We have embraced new ways of working that support our people through the challenges of COVID 19. Since the onset of the pandemic, we have focused on embedding Our Principles and adapting to new ways of working. Our hybrid working policy has enabled our people to be flexible where possible and our COVID 19 Leave Policy, including vaccination leave, has ensured that we continue to prioritise the health and wellbeing of our people. A team that is undoubtedly proud of the successes we achieve. Our annual Employee Engagement Survey provides us with valuable insights into how our people experience working with us, including what we are doing well and where we need to focus our efforts to make improvements. The strength of our culture was recognised in 2021 with a record engagement score of 61%, the highest ever achieved in Monash IVF Group’s history. This year the survey indicated that our people have a strong alignment to our strategic vision and our principles and values and enjoy working with their talented and caring colleagues. They see an opportunity for improvement in how we support the changing environment, as well as how we respond to the increasing workload. Our teams recognised and valued the strong communication and responsiveness relative to COVID 19. 20. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Our Pillars Clinical Governance Monash IVF Group’s commitment to the provision of the highest level of patient care and safety has been demonstrated through the ongoing development of our Clinical Governance framework and Quality Management System. Patient centred care is promoted through ensuring that everyone in the organisation is accountable for ensuring that the services provided are safe, effective and continuously improving. This is achieved with an emphasis on listening and learning: Strong clinical leadership and management commitment to engaging with and listening to our clinicians ensures that our quality management system takes into account local clinic, state‑wide and national priorities and risk profile. Education, training and continued professional development of our teams to ensure that they are able to partner with all patients to provide them with access to technologies, information and resources to support their decision making about their care. Providing an environment that respects differences, maintains dignity and provides for our patients’ physical, emotional, medical and social needs. Integrated risk management capability with a focus on measuring and monitoring, evaluating clinical effectiveness, being open about adverse events and their underlying causes and having the capacity to use this data to drive targeted continuous improvement initiatives. Communication across the Group through formal meeting and committee structures, employee forums and webinars and sharing of written information. The ongoing COVID‑19 pandemic and variations in exposure risks across the country have seen the proportional implementation of safety measures including screening, infection control, social distancing and use of Personal Protective Equipment (PPE) to protect our patients and teams, while continuing to deliver the highest standard of healthcare. .21 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportBoard of Directors Mr Richard Davis Mr Josef Czyzewski Mr Neil Broekhuizen Ms Catherine West Independent Chairman 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. 22.22. Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Mr. Josef Czyzewski joined the Group in June 2014 and has over 30 years of experience in senior finance positions and significant experience in the health industry. 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. Mr. Neil Broekhuizen is the Joint Chief Executive Officer of Ironbridge. Neil has over 30 years experience in the finance industry, including 28 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. Neil is qualified as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. Ms Catherine West was appointed Non‑executive Director to Monash IVF Group on 8 September 2020. She is an experienced ASX listed non‑executive director and has over 25 years of legal, business affairs and strategy experience in customer focused businesses in the media, entertainment, telecommunications and medical sectors in Australia, the UK and Europe. Catherine is 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 and Risk Committee. Catherine is also a non‑executive director of the Endeavour Group and Peter Warren Automotive Group. In addition, she is Vice‑ President of the Sydney Breast Cancer Foundation at Chris O’Brian Lifehouse, a director of the NIDA Foundation, National Institute of Dramatic Art and a Governor of Wenona School. She was previously on the board of Southern Phone, a reginal telecommunications company, before its successful sale to AGL. Catherine is also a consultant to the healthcare sector and to media companies internationally. Catherine holds a Bachelor of Laws (Hons) and a Bachelor of Economics from the University of Sydney. She is also a Graduate Member of the Australian Institute of Company Directors. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Board of Directors Ms Zita Peach Dr Richard Henshaw Mr Michael Knaap 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. 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 October 2018. Mr Knaap has nearly 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 Practicing Accountant. 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, 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, Zita was Vice President, Business Development, for CSL Limited, a position she held for ten years. Ms Peach is Chair of Pacific Smiles Group Limited and Non‑Executive Director of ASX‑listed Starpharma Holdings 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. .23 Monash IVF Group Annual Report 2021Our StrategyOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportJ B - 1 9 0 9 1 9 - 5 7 4 0 J B - 1 9 0 9 1 9 - 5 7 5 5 J B - 1 9 0 9 1 9 - 5 7 7 5 J B - 1 9 0 9 1 9 - 5 7 8 7 Management Team Fiona Allen Chief Marketing Officer Nicolette Curtis Regional Manager VIC J B - 1 9 0 9 1 9 - 5 7 5 3 Denise Donati CEO/Clinic Manager Fertility Solutions Tedd Fuell Quality, Regulatory & Risk Manager Anthony Gurney General Manager of SUFW Pierre Abou Haila Chief Information & Projects Officer Hamish Hamilton Chief Operating Officer Ben Howat Regional Manager QLD J B - 1 9 0 9 1 9 - 5 7 7 4 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 J B - 1 9 0 9 1 9 - 5 7 6 6 J B - 1 9 0 9 1 9 - 5 7 6 9 Prof Luk Rombauts Group Medical Director Jonathan Whitty General Manager of MUFW & Pathology A/Prof Deirdre Zander-Fox Chair, Group Scientific Advisory Committee J B - 1 Rebecca Redden 9 0 Regional Manager 9 1 SA, NT & TAS 9 - 5 7 6 3 24.24. J B - 1 9 0 9 1 9 - 5 7 6 5 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Management Team Monash IVF Group Limited Directors’ Report Directors’ Report for the year ended 30 June 2021 For the year ended 30 June 2021 The Directors present their report together with the consolidated financial report of Monash IVF Group Limited ('the Group'), being the Company (Monash IVF Group Limited), its subsidiaries, and the Group's interest in associated entities as at and for the year ended 30 June 2021, 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 Mr Josef Czyzewski Ms Catherine West (appointed 8 September 2020) Ms Zita Peach Mr Neil Broekhuizen Dr Richard Henshaw Mr Michael Knaap 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 specialised women’s imaging services. Operational and Financial Review The Group reported NPAT of $25.5m(6), as compared to $11.8m in pcp. $m FY2021 FY2020 % Change Group Revenue EBITDA(1) EBIT Adjusted NPAT(1)(2) attributable to ordinary shareholders Adjusted NPAT(1)(2)(6) including non-controlling interest Reported NPAT attributable to ordinary shareholders Reported NPAT(6) EPS (cents) DPS (cents) Net Debt (m)(3) Net Debt to Equity ratio (4) Return on Equity (pa.) (5) 26.3% 56.2% 75.8% 59.4% 61.5% 114.5% 116.9% 41.3% 100.0% $183.6 $51.3 $38.4 $22.9 $23.3 $25.1 $25.5 6.5 4.2 31 Dec 20 -$7.1 -2.7% 8.6% $145.4 $32.8 $21.8 $14.4 $14.4 $11.7 $11.8 4.6 2.1 30 June 20 $4.2 1.7% 5.7% (1) (2) (6) EBITDA and Adjusted NPAT are non-IFRS measures Reported NPAT is adjusted by -$2.2m. Refer to earnings reconciliation on following pages. Debt less cash balances (3) (4) Net debt to equity is debt divided by equity (5) Return on equity is Adjusted NPAT for the twelve-month period to 30 June 2021 divided by closing equity Attributable to ordinary shareholders and non-controlling interest 3 .25 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Directors’ Report continued 26. Monash IVF Group Limited Directors’ Report for the year ended 30 June 2021 Operational and Financial Review (continued) Highlights: •Reported NPAT(1) of $25.5m, an increase of 116.9%•Adjusted NPAT(1)(2)(5) of $23.3m, an increase of 61.5% and ahead of profit guidance range, ($21m to$23m)•26.3% Revenue growth as result of 36.6% stimulated cycle(3) growth and 12.9% ultrasound scan growth•Strong IVF industry volumes(3) – 31.3% FY21 growth•21.0% market share(4) in FY2021 – 0.6% higher than pcp•Record Doctor Engagement NPS scores demonstrating a “culture of success”•$32.8m Free Cash Flow(5) generation - 100% conversion of EBITDA to pre-tax operating cash flows•2.1 cents per share fully franked final FY2021 dividendRevenue Group revenues increased by $38.2m or 26.3% to $183.6m compared to pcp. A summary of the increase in revenues is detailed in the waterfall chart below: •Strong revenue growth delivered in 1H21 and 2H21 as compared to FY2020 due to Industry volume andMVF market share growth;•Pent-up demand/deferred treatment created during Q4FY2020 as a result of temporary COVID-19related elective surgery suspension was more than recovered by September 2020;•Following meeting the pent-up demand/deferred treatment, revenue levels were maintained andaccelerated in 2H21 with $92.8m revenue generated in 2H21 compared to $90.8m in 1H21;•Average ARS revenue per stimulated cycle declined by 2% compared to FY2020 (having a negative$1.8m impact) as a result of ‘no out-of-pocket’ stimulated cycle remediation offers provided to patientsimpacted by the Ni-PGT-A suspension. Average price per stimulated cycle improved by 1.5% in 2H21 ascompared to 1H21 following price increases across all domestic markets except for Victoria whichincreased prices on 1 July 2021;•$1.7m revenue increase from Acquisitions from full-year impact from Fertility Solutions. Higher proportionof full-service treatments were performed as compared to pcp;•$0.8m International revenue growth notwithstanding the Kuala Lumpur clinic continuing to be impacted bymovement control orders. Stimulated cycles increased by 22% although average price declined by 11%;•$3.8m Ultrasound revenue growth as scan volumes and NIPT increased by 13% and 18% respectivelycompared to pcp.(1)Including Ordinary Shareholders and Non-controlling Interest (2)Refer to earnings reconciliation on following pages for reconciliation from reported to adjusted(3)MBS items 13200/1 (4)MVF Key Markets – Victoria, New South Wales, Queensland, South Australia and Northern Territory(5)Non-IFRS measure 4Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Expenditure before interest and tax The table below provides a summary of FY2021 Expenditure before interest and tax compared to FY2020: Employee benefits expense Clinician fees Raw materials and consumables used IT and communications expense Property expenses Marketing and advertising expense Professional and other fees Other expenses Total operating expenditure % of Group revenue Depreciation and amortisation Total expenditure before interest and tax % of Group revenue FY2021 $m FY2020 $m % Change 55.8 32.7 19.9 4.1 3.8 6.4 3.8 5.9 132.4 72.1% 12.9 145.3 79.1% 49.0 25.7 16.4 3.1 3.3 5.7 4.1 5.3 112.6 77.4% 11.0 123.6 85.0% (13.9%) (27.2%) (21.3%) (32.3%) (15.2%) (12.3%) 7.3% (11.3%) (17.6%) (17.3%) (17.6%) Total operating expenditure represents 72.1% of total Revenue as compared to 77.4% in FY2020. The following details key expenditure movements in FY2021 against FY2020: • • • • Employee benefits expense increased by $6.8m or 13.9% to $55.8m. The increase is reflective of the operating workforce required to deliver and support volume growth experienced across all clinics noting FY2020 included impact from workforce stand down during parts of Q4FY2020 following the initial temporary suspension of IVF services. In addition, salaries and wages includes increases in enterprise agreements for nursing and science and the full year impact from the Fertility Solutions acquisition in FY2020; Clinician fees and Raw Materials/Consumables have increased commensurate with increases in IVF volumes; IT and communication expense increased by $1.0m or 32.3% to $4.1m due to further investment to strengthen cyber security measures, safety of our IT infrastructure, additional IT operational support (including telehealth) and patient communication digitisation activities. General IT operating expenditure was also delayed in Q4FY2020 to FY2021 subject to recovery and sustainability of operating performance; Property expenses increased by $0.5m or 15.2% to $3.8m due primarily to deferral of maintenance expenditure in Q4FY2020 following the suspension of IVF services; • Marketing and advertising expense increased by $0.7m or 12.3% to $6.4m as we continue to invest in revenue generating activities supporting growth in new patients accessing our fertility network during FY2021 and building new patient pipeline growth into FY2022; Professional and other fees decreased by $0.3m or 7.3% to $3.8m due to acquisition related costs incurred in 1H20 partly offset by higher legal expenditure during FY2021; • • Other expenses increased by $0.6m or 11.3% to $5.9m due to a $0.7m increase to the Fertility Solutions • acquisition earn-out provision following strong operating performance in FY2021; Depreciation and amortisation expense increased by $1.9m primarily due to a $0.9m increase in lease amortisation (including $0.8m for the new Sydney CBD flagship clinic which opened in November 2020) and $1.0m increase in asset depreciation including depreciation on the new Sydney CBD flagship clinic and growth asset equipment depreciation. 5 .27 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Earnings before interest, depreciation, interest and tax (EBITDA(1)) Adjusted EBITDA(1)(2) is $47.7m as compared to $34.8m in FY2020, an increase of 37.1%. The increase in EBITDA(1)(2) is due primarily to: • • • • Volume leverage gained from strong industry volume growth and market share growth across domestic IVF and Ultrasound; Sustainable investment made in marketing activities (+12.3%), new clinical infrastructure including Sydney CBD fertility clinic and doctor attraction costs; Continued investment in our People including scientists and nursing resources to meet demand and improve our service offering; EBITDA includes $1.7m expenditure for ex-gratia ‘no patient out of pocket’ Ni-PGTa patient remediation offers and costs relating to the Ni-PGTa proceedings and claims against Monash IVF. Indemnity has been granted by our medical malpractice insurer in relation to the proceedings. Finance costs $2.5m Net Finance cost, a decrease of $3.2m compared to pcp. The decline was due to a $2.6m interest reduction from lower debt and $1.1m positive impact from closure of interest rate swaps in FY2020 partly offset by a $0.3m increase in the unwinding of the discount on interest for lease liabilities in accordance with AASB16 Leases. Taxation The effective tax rate is 29.0% as compared to 27.1% in pcp. The effective tax rate reflects the 30% Australian and 24% Malaysian corporate tax rates, a higher contribution of taxable income from Australian operations and adjustments relating to the FY20 tax return compared to the FY20 tax provision at 30 June 2020. Segment analysis $m Revenue Adjusted EBIT(1)(2) Reported NPAT Australia FY2021 172.9 30.6 22.4 Australia FY2020 % change 27.6% 135.5 20.6 9.0 48.4% 150.0% FY2021 10.7 4.2 3.1 International FY2020 % change 8.1% 9.9 3.8 2.8 11.8% 11.0% Australia revenue increased by 27.6% to $172.9m due to the following: ▪ MVF IVF Australia stimulated cycles grew by 36.6% or 2,627 cycles in FY2021 compared to FY2020; ▪ Pent up demand/deferred treatment created during Q4FY2020 following temporary suspension of IVF services was entirely recovered during Q1FY2021. Strong underlying growth post recovery of the pent up demand was achieved during Q2FY2021 to Q4FY2021 as a result of ARS industry volume growth and MVF domestic market share gains; Stimulated cycles grew in the following States and each achieved market share growth: o Queensland +42.0% cycle growth o Victoria +39.9% cycle growth o New South Wales +35.9% cycle growth o Northern Territory +62.9% cycle growth South Australian stimulated cycles grew by 22.7% and Tasmania by 12.5% with both experiencing slight reduction in market share; ▪ ▪ (1) (2) EBITDA and Adjusted EBIT are non-IFRS measures Refer to page 29 for a reconciliation of statutory to reported 28. 6 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Segment analysis (continued) ▪ ▪ ▪ Domestic Key Markets(3) stimulated cycle market share grew by 0.6% to 21.0% due to higher marketing investment driving a 40% increase in new patients that accessed our IVF network, new fertility specialists attracted to grow volumes in NSW, Queensland and Victoria, full year contribution from Fertility Solutions and market share recovery in our Victorian IVF business; Day Hospital revenue increased by 37.5% to $2.3m reflecting increased IVF activity in South Australia and contribution from the new day hospital as part of the Sydney CBD fertility clinic offering; Ultrasound scan volumes increased by 12.9% to 92,776 compared to pcp whilst non-invasive pre-natal testing (NIPT) increased by 17.8% to 15,877. Adjusted EBIT increased by $10.0m or 48.4% to $30.6m due primarily to volume growth as detailed above. EBIT margin increased from 15.2% to 17.7% which includes an increase in marketing ($0.7m), doctor attraction costs, increased occupancy and depreciation costs for the new Sydney CBD fertility clinic ($1.1m) and expenditure for Ni-PGT-A remediation offers which includes ex-gratia patient “no out-of-pocket” costs. International International revenue increased by$0.8m or 8.1% to $10.7m. The International segment comprises the Kuala Lumpur and Johor Bahru clinics which continued to be restricted by COVID-19 measures in-place to protect the community. The Kuala Lumpur clinic was resilient in performing 1,008 stimulated cycles compared to 829 in FY2020 and 1,034 in FY2019. Whilst more than 1,000 stimulated cycles were performed, the average price per stimulated cycle declined by 11% due to promotional and discount offerings in-light of competitive pricing pressure and weaker economic conditions. The Johor Bahru clinic, acquired in June 2020, performed relatively low volumes due to closure of the Singapore border to Malaysia. International Adjusted EBIT increased by $0.4m or 11.8% due primarily to revenue movements described above. Earnings reconciliation The table below provides a reconciliation of FY2021 Adjusted EBIT and NPAT to the reported statutory metrics: $m Reported Statutory New Sydney CBD IVF premise commissioning costs JobKeeper Subsidy Profit Impact Acquisition earn-out fair value adjustment Adjusted EBITDA EBIT NPAT 51.3 0.8 (5.1) 0.7 47.7 38.4 0.8 (5.1) 0.7 34.8 25.5 0.6 (3.5) 0.7 23.3 • • • $0.8m pre-tax New Sydney CBD IVF clinic commissioning costs prior to opening in November 2020 including costs for AASB16 lease depreciation and interest expense ($0.5m), pre-opening operational costs and accreditation costs; $5.1m pre-tax impact from Job Keeper Subsidy payments received for Q1FY2021 which had been critical to ensuring our specialised workforce was maintained and engaged; $0.7m increase to AASB3 Business Combinations earn-out provision for increase to estimated purchase price payments to Fertility Solutions vendors as a result of stronger than anticipated performance during FY2021. (3) Key Markets include Victoria, New South Wales, Queensland, South Australia and Northern Territory 7 .29 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Statement of Financial Position and Capital Metrics Balance Sheet ($m) Cash and cash equivalents Other current assets Current lease liabilities Current borrowings Other Current liabilities Net working capital Borrowings (excluding capitalised fees) Goodwill & Intangibles Right of use assets Lease liabilities Plant & Equipment Other assets/liabilities Net assets Capital Metrics Net Debt ($m)(1) Leverage Ratio (Net Debt / EBITDA(2)) Interest Cover (EBITDA(2) / Interest) Net Debt to Equity Ratio(3) Return on Equity(4) Return on Assets(5) 30 June 21 30 June 20 8.8 13.7 (5.8) (1.6) (33.7) (18.6) - 260.0 42.4 (38.5) 25.0 (1.4) 268.9 15.1 15.6 (2.3) - (35.6) (7.2) (19.3) 262.1 36.5 (36.3) 19.1 (2.8) 252.1 31 June 21 30 June 20 (7.1) (0.18x) 55.7x (2.7%) 8.6% 6.6% 4.2 0.15x 8.4x 1.7% 5.7% 4.1% % change (41.7%) (12.2%) (152.2%) (100.0%) 5.3% (158.3%) 100.0% (0.8%) 16.2% (6.1%) 30.9% 50.0% 6.7% +/- (11.3) (0.33x) 47.3x (4.3%) 2.9% 2.5% Whilst uncertainty remains due to the on-going Pandemic, the Balance Sheet is positioned to withstand any potential impact the Pandemic may present and is positioned to execute and capitalise on the following potential growth opportunities (but not limited to), as illustrated in the April 2020 Equity Raising (~$7m known opportunities at the time): • • • • • $4.5m new state-of-the-art Sydney CBD fertility clinic opened in November 2020; $0.8m to date expenditure on new clinic infrastructure projects either approved and ready to commence construction or at design stage including Melbourne, Gold Coast and Penrith; $1.3m expenditure to date on South East Asian growth opportunities (Johor Bahru and Jakarta); South East Asian expansion plans progressing although hampered due to COVID-19 environment in the region; non-organic growth opportunities – domestic and abroad. Net debt has decreased by $11.3m to net cash positive position driven by strong cash flow generation and free cash flow(6). Borrowings at 30 June 2021 is $1.6m as compared to $19.3m at 30 June 2020, a reduction of $17.7m. $38.4m of debt capacity is available under the Syndicated Debt Facility which is due to mature in January 2022. The key Net Leverage Ratio has reduced to (0.18x) which is well within the 3.5x covenant requirement. The Interest Cover Ratio improved by 47.3x to 55.7x and well above the 3.0x covenant requirement. In December 2020, the waiver of bank covenant testing, which was executed in April 2020, was voluntarily ceased which allowed for the declaration of dividends going forward. Key capital metrics improved with Return on Equity increasing from 5.7% to 8.6% and Return on Assets increasing from 4.1% to 6.6%. (1) (2) (3) (4) (5) Net debt is debt less cash balances EBITDA is based on normalized EBITDA excluding AASB16 lease impact for covenant purposes as defined in the Syndicated Debt Facility Agreement. EBITDA is not an IFRS measure Net debt divided by equity at the balance date NPAT for the previous 12-month period divided by closing equity at the balance date NPAT for the previous 12-month period divided by closing assets at the balance date 30. 8 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Statement of Cash Flows Cash Flows ($m) EBITDA(1) Movement in working capital Income taxes paid Net operating cash flows (post-tax) Capital expenditure Payments for businesses Cash flows used in investing activities Free Cash flow(1) 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 Key cash flow highlights are as follows: FY2021 51.3 - (7.2) 44.1 (10.0) (1.3) (11.3) 32.8 - (13.1) (0.7) (7.6) (17.7) - (39.1) (6.3) 8.8 FY2020 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 Change% 56.4% (100%) (67.4) 41.8% (33.3%) 58.1% (6.6%) 60.0% (100%) (84.5%) 80.0% (5.6%) 74.6% (100%) (303%) (158%) (41.7%) • • • • • Pre-tax conversion of EBITDA to operating cash flow remained strong at 100% as compared to 107.9% in the pcp; $32.8m Free Cash Flow(1) generation, an increase of 60.0% $25.2m operational cash flow generation(2), an increase of $11.9m compared to pcp; $11.3m Investment activities expenditure continue to focus on future growth initiatives including: o New Sydney CBD flagship fertility clinic completed in November 2020 and commencement of new footprints in Melbourne and Gold Coast ($5.3m); o $2.1m investment in new state-of-the-art laboratory assets and technology; o $2.0m investment in IT infrastructure and capability including patient management system enhancements; o $0.7m Fertility Solutions earn-out payment for FY21 performance; o $0.6m minority investment in new Jakarta clinic which opened in February. Cash flow from Financing activities includes: o $17.7m reduction of gross borrowings to $1.6m; o $13.1m dividend payments includes the FY21 interim dividend and the deferred FY20 interim dividend; o $2.8m reduction in interest payments compared to pcp as a result of lower debt; o 5.6% increase in lease payments for properties including the new Sydney CBD fertility clinic. Dividends On 24 August 2021, a fully franked final FY2021 dividend of 2.1 cents per share was declared. The record date for the dividend is 10 September 2021 and the payment date for the dividend is 8 October 2021. EBITDA and Free Cash Flow are non-IFRS measures (1) (2) Operational cash flow generation is Net Operating Cash Flow (post tax) less Cash Flow from Investing activities less Payment of Lease Liabilities 9 .31 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Commitments & Contingencies As announced to the ASX on 23 December 2020, Monash IVF Group became aware that it and certain of its subsidiaries have been named as defendants in proceedings filed in the Supreme Court of Victoria in relation to, or in connection with, the Group’s non-invasive pre-implantation genetic screening technology (Ni-PGT or cell-free PGT-A). The proceedings filed makes a series of allegations against Monash IVF Group in relation to the Ni-PGT testing including that patients who had embryos classified as aneuploid as a result of Ni-PGT testing may have had embryos destroyed or did not proceed to embryo transfer. Ni-PGT testing was suspended in October 2020. The Group has filed the defence in accordance with the Court’s directions. The Group has notified its insurers of the claim. The Group has provided for associated costs expected to be incurred in defending the claim. The claim does not specify an amount of damages and it is not currently possible to determine the ultimate impact of this claim, if any, on the Group. Outlook We believe there is a fundamental shift in the Community whereby the on-going Pandemic has changed the mindset of our patient cohort with greater focus on family, health and wellbeing resulting in re-direction of priorities towards family extension. This shift has driven strong industry growth in FY2021 and is expected to be maintained in FY2022. The Group’s current strong balance sheet positions it well to continue to navigate through the COVID-19 Pandemic and optimise future earnings through strategic and operational gains made during FY2021. Factors that will support future growth includes: • Attraction of new fertility specialists In FY2021 will drive further volume growth in FY2022 and the Group is well placed to attract further experienced fertility specialists; • Opening of new clinical infrastructure in the latter part of FY2022 including new projects that are well • • • • • • advanced in Melbourne, Gold Coast and Penrith; Conversion of the current strong new patient and returning patient pipelines. 2H21 new domestic patient registrations were 8% higher than 1H21 and 35% higher than 2H20; Sustainable marketing investment that is expected to continue to grow the new patient pipeline; Expansion of genetics capabilities and service offerings such as the soon to be commercialised reproductive genetic screening kits; Continuous improvements to pregnancy rates and patient experience; Identify and execute on non-organic growth opportunities in Australia and abroad; Continue expansion into South East Asia noting implementation and benefits derived from the Strategy will not materialise for a number of years. Subject to an adverse impact from the on-going Pandemic, the Group is confident revenue and earnings can grow in FY2022. An update will be provided at the 2021 Annual General Meeting. 32. 10 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 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: 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 & systems 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. 11 .33 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Business Strategies and Prospects for Future Financial Years (continued) Key development in particular key Pillars during the year are noted below: Scientific Leadership Clinical pregnancy rates continue to improve across the Group with pregnancy rates 4.5% higher than CY2018. Initiatives to drive future improvements include: • • • • Publication of the first PIEZO clinical trial (a gentler form of microinjection) with continued recruitment of the phase 2 multi-centre clinical trial across 5 Monash IVF sites Sperm selection device development (Felix) in partnership with Memphasys (ASX:MEM) progressing and on track for phase 1 clinical trial A continued focus on Research and Development with the submission and presentation of 21 scientific/clinical abstracts at national and international conferences Transition of Monash IVF Group genetic laboratories to G-Category status to enable best-in-class Preimplantation Genetic Screening. Doctor Partnerships • • • • Partnership and relationships with Monash IVF fertility specialists and Women’s Ultrasound sonologists have never been stronger with recent engagement scores at record levels demonstrating a “culture of success” Five new experienced Fertility Specialists joined Monash IVF to deliver future growth and succession planning; Four new Fertility Specialists credentialled following completion of the Monash IVF training program and now fully integrated, treating patients and building solid patient pipelines; Broadening Genetics Suite of Services - Acquisition of the only domestic genomic pathologist with a dual FRCPA and FRANZCOG as Monash IVF’s Medical Director of Genetics who will lead our next generation genetics services. Clinical Infrastructure • • • • • • New clinical infrastructure is paramount to execution of our strategic growth objectives; New Sydney CBD flagship clinic opened in November representing best practice patient experience with four Fertility Specialists now based at the new Clinic including three new experienced CREI qualified Fertility subspecialists; Since commencement, the new Sydney CBD clinic has performed more than 200 stimulated cycles and will improve earnings during FY22; Transformation of Melbourne footprint is well advanced with new fertility clinic and day hospital expected to open in Cremorne towards the end of FY22; New Gold Coast, Penrith and Darwin fertility clinics expected to open towards the end of FY22; New Gold Coast day hospital expected to open towards the end of FY22. People Engagement • • • • Positive Engagement scores in key stakeholder groups driving activity and a “culture of success” Record Group engagement score in 2021, with an increase of 4% points compared to FY20 and exceeded the Vision 2022 target and industry benchmark; The Employer Value proposition has been a key priority, and we continue to position ourselves as a dynamic industry leader in reproductive care and how we offer dynamic workplaces for those driven to make a difference. Transforming our people & culture through exceptional employee experiences and ways of working, continues to be at the heart of our people strategy. 34. 12 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Business Strategies and Prospects for Future Financial Years (continued) Marketing • Marketing investment is a key driver of our market share gains and a 40% increase in new patient stimulated cycles; • Over the last 12 months the new brand was launched, with targeted advertising and comprehensive events strategy and website upgrades; • Our GP engagement strategy has continued to drive strong GP referrals and engagement. 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. This includes high inherent risk presented by the COVID-19 Pandemic and is a key priority when managing risk. 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 South East Asia 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. Economic conditions during and post the Pandemic 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. 13 .35 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Business risks (continued) 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 clinicians or inability to attract new clinicians to the organisation would likely impact the revenue and profitability of the organisation. 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; ▪ Further growth in low cost offerings provided by competitors may reduce the Group’s market share; and ▪ An increase in publicly provided ARS services may reduce the Group’s market share. The Group continues to strategically position the ARS service as a specialised premium offering as a point of differentiation against low cost competitors. 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. 36. 14 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 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. Mr Neil Broekhuizen Independent Non-executive Director Member of Audit & Risk Management Committee 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. Mr. Neil Broekhuizen is the Joint Chief Executive Officer of Ironbridge. Neil has over 30 years experience in the finance industry, including 28 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. Neil is qualified as a Chartered Accountant and holds a BSC (Eng) Honours degree from Imperial College, University of London. 15 .37 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Directors’ Report continued Directors’ Report for the year ended 30 June 2021 Director Ms Catherine West Independent Non-executive Director Member of Remuneration & Nomination Committee Appointed 8 September 2020 Experience Ms Catherine West was appointed Non-executive Director to Monash IVF Group on 8 September 2020. She is an experienced ASX listed non-executive director and has over 25 years of legal, business affairs and strategy experience in customer focused businesses in the media, entertainment, telecommunications and medical sectors in Australia, the UK and Europe. Catherine is 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 and Risk Committee. Catherine is also a non- executive director of the Endeavour Group and Peter Warren Automotive Group. In addition, she is Vice-President of the Sydney Breast Cancer Foundation at Chris O’Brian Lifehouse, a director of the NIDA Foundation, National Institute of Dramatic Art and a Governor of Wenona School. She was previously on the board of Southern Phone, a reginal telecommunications company, before its successful sale to AGL. Catherine is also a consultant to the healthcare sector and to media companies internationally. Catherine holds a Bachelor of Laws (Hons) and a Bachelor of Economics from the University of Sydney. She is also a Graduate Member of the Australian Institute of Company Directors. Ms Zita Peach Independent Non-executive Director Chair of Remuneration & Nomination Committee effective 1 July 2020 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, Zita was Vice President, Business Development, for CSL Limited, a position she held for ten years. Ms Peach is Chair of Pacific Smiles Group Limited and Non-Executive Director of ASX-listed Starpharma Holdings 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. 38. 16 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report continued Directors’ Report for the year ended 30 June 2021 Director Mr Michael Knaap Chief Executive Officer Managing Director Experience 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 October 2018. Mr Knaap has nearly 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 Practicing Accountant. 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 17 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 Catherine West Ms Zita Peach Mr Neil Broekhuizen Dr Richard Henshaw Mr. Michael Knaap Committee meetings Member Mr Richard Davis Mr Josef Czyzewski (ARC Chair) Ms Zita Peach (REM Chair) Ms Catherine West Mr Neil Broekhuizen Attended 16 16 14 16 16 16 16 Eligible to Attend 16 16 14 16 16 16 16 ARC REM Attended 5 5 - - 5 Held 5 5 - - 5 Attended 5 5 5 3 - Held 5 5 5 3 - 17 .39 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Remuneration Report (Audited) Remuneration Report (Audited) for the year ended 30 June 2021 For the year ended 30 June 2021 The Company’s Directors present the 2021 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 2021 (“FY21”). 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 As a leader and at the forefront of advancements in the field of human fertility services including Assisted Reproductive Services, our business decisions are made in this context. Our approach to remuneration reflects the focus on outcomes that support the long-term sustainability of Monash IVF Group, value creation for Monash IVF Group’s key stakeholders, attraction and retention of our people and ultimately, helping our patients start or grow their family. The structure of Executive Remuneration is underpinned by key principles including alignment of remuneration to business strategy and priorities, is market competitive, rewards performance, is simple and transparent and is effectively governed through the Remuneration and Nomination Committee. Following the initial uncertainty from the Pandemic during March and April 2020 which saw IVF services temporarily suspended across Australia, Monash IVF Group has emerged stronger, demonstrating profitable growth in FY2021 and is in a position to execute both organic and non-organic growth in the short and long-term. Throughout the on- going Pandemic, the Monash IVF Group workforce has adapted to the constantly changing operating environment including lockdown of cities but have worked tirelessly to ensure Monash IVF Group patients continue to be provided with empathetic and high quality care in a manner that is safe and protects its patients, people and clinicians. In FY21, the Group achieved profit growth of 61.5% (before certain non-regular items as noted on ppaaggee 2299)) as compared to FY20. Profitable growth was achieved through industry volume growth and Monash IVF Group market share growth. In assessing performance and remuneration outcomes for FY21, the Board considered the speed of recovery from the initial temporary elective surgery suspension in March and April 2020 and the sustainability of future financial and operational outcomes. In summary, the following remuneration outcomes occurred in FY2021: • • • • • As noted in the FY2020 Remuneration Report, increases to KMP fixed remuneration including other Executives were placed on hold for review on 1 January 2021. Following this review, the CEO, CFO and COO received a 5% increase to total fixed renumeration effective 1 January 2021; As noted in the FY2020 Remuneration Report, the Board has considered and has paid a Special Bonus payment of 5% of TFR to certain KMP and Other Executives following the strong and fast market share recovery and growth experienced in the three months following the recommencement of IVF services in May 2020. No further STI was paid for the positive market share growth outcomes achieved between August 2020 to June 2021; In FY21, maximum short-term incentive available for the CFO has increased from 30% of TFR to 40%. The reason for the increase is to adjust maximum at risk remuneration which remains below peer comparators; Following performance during FY2021, Short-term incentive (STI) payments will be made to the CEO, CFO and COO whereby financial targets were out-performed (70% of STI) and some non-financial metrics were met (16.3% - 18.6%); Long-term incentive (LTI) payments for performance rights issued in FY2019 to the CEO are not expected to vest due to operational performance and capital management changes during the testing period. Effective 1 July 2021, maximum remuneration (fixed and at risk remuneration combined) for Key Management Personnel was adjusted following completion of a benchmarking process to comparable peers. The Board entered into the external benchmarking process to be informed on Executive remuneration at the time. This benchmark considered organisations of comparable size and supported an outcome that total remuneration sat below the industry benchmark (including roles and performance metrics). As of 1 July 2021, the Board agreed to increase the total remuneration for the CEO, CFO and COO to bring these closer to comparable peers. This adjustment 40. 18 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 Executive Summary (continued) included a fixed remuneration adjustment of approximately 10%. CEO, CFO and COO maximum total remuneration including “at-risk” remuneration, based on financial and non-financial targets included an adjustment of 20%, 20% and 27.7% respectively. The CEO’s 3-year remuneration CAGR is 4.9% for fixed remuneration and 8.0% for total maximum remuneration. The adjustments to the CEO, CFO and COO maximum remuneration now sit at or below the industry benchmark and supports internal promotions whilst ensuring KMP are retained and appropriately incentivised to continue to deliver the Vision 2026 business strategy. Director and Key Management Personnel (KMP) changes in FY21 Effective 8 September 2020, Monash IVF Group welcomed the appointment of Ms Catherine West as Independent Non-Executive Director. In FY21 Catherine was also appointed as a member of Remuneration and Nomination Committee. No further changes were made to the Director or Executive structure in FY21. Non-Executive Director remuneration arrangements in FY2021 As noted in last year’s report, fees payable to Non-Executive Directors were reviewed regarding fee adjustments effective 1 July 2020 and no adjustments to Director base or Committee fees were made during FY21. Following a review of Director and Committee fees it is noted that a 2% increase will be applied in FY22. This increase is inclusive of the 0.5% increase to Superannuation Contribution effective 1 July 2021 where applicable. 1.0 Remuneration Snapshot 1.1 Remuneration Governance The Board is responsible for the oversight and decision making relating to all remuneration decisions. The Remuneration and Nomination Committee (Committee) enables the board to discharge their governance responsibilities in all matters relating to remuneration and engagement of all Executive and Non-Executive. Under the Remuneration and Nomination Committee Charter, the Committee 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 Zita Peach was appointed to Chair of the Committee on 23 June 2020. Mr Richard Davis, Mr Josef Czyzewski and Ms Catherine West are also members of the Committee. During FY21, the Remuneration and Nomination Committee met four times with full attendance by all members. The Remuneration and Nomination Committee at times invites the CEO, CFO/Company Secretary, Chief People & Culture Officer and other non-executive directors (non-member of the Committee) 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 FY21. 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; Appointment of new directors, review of Board and Board committee membership and performance, Managing Director succession planning and the appointment of other Executives; • 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; • • 19 .41 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 1.0 Remuneration Snapshot (continued) • 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, inclusion objectives and pay equity. the Company’s website The Remuneration and Nomination Committee Charter at https://www.monashivfgroup.com.au/investor-centre/corporate-governance/ reviewed is annually and was last reviewed in June 2021. Further information on the Remuneration and Nomination Committee is provided in the Corporate Governance Statement in this Annual Report. is available on The Charter 1.2 Principles of Remuneration Framework The following summarises the key principles which underpin the structure of Executive Remuneration arrangements across the Group. Principle Design and operational implications of Remuneration Framework Remuneration Principles Aligned to organisations strategy and business priorities Market Competitive Rewards Performance Simple and Transparent Effective Governance ▪ Remuneration framework will ensure 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. ▪ Operates in support of Our Principles and aligns to the organisations desired culture Ensure employees including KMP and executive management are rewarded fairly and competitively according to role accountability, market positioning, skills, experience and performance. Remuneration decisions will be informed by utilising relevant market benchmarking Encompass long term and short term variable performance elements for those who have the ability to impact overall organisation performance Short term and long-term remuneration incentives and outcomes Performance targets to be met for payment (at threshold or target) are set after considering previous performance, forecast and budget A simple, flexible, consistent and scalable remuneration framework is to be used across the organisation allowing for sustainable business growth The structure must be easily communicated and can reinforce the organisations mission, principles and culture The Remuneration and Nomination Committee and Board will ensure that remuneration outcomes reflect both risk and performance and is reviewed regularly to ensure employees act ethically and responsibly Comply with all relevant legal and regulatory provisions ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ 42. 20 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 2.0 Remuneration Structure 2.1 Executive Remuneration Structure The Group combines Total Fixed Remuneration, Short and Long term incentives to form an overall Total Remuneration position. This structure is designed to consider market positioning and benchmarking which is intended to attract and retain people, reward individual and company performance aligned to the execution of strategy and drive sustainable high performance over the short and long term. The Board reviews the structure and effectiveness of the remuneration arrangements annually to ensure their alignment to business performance and strategy. Purpose of each remuneration component Total Fixed Remuneration (TFR) Short Term Incentive (At Risk) Long-Term Incentive (At Risk) To attract and retain, paying competitively, reflecting the individuals accountability, position requirements and experience. TFR is determined as base salary and inclusive of all standard leave provisions and superannuation guaranteed contributions. Rewards performance for achieving stretch targets and further rewards the achievement of both financial and non-financial goals. Achievement is measured using an annual balanced scorecard of measures aligned to the organisations strategic vision and objectives. Rewards and retains key contributors by creating alignment with long term shareholder interests and reward the creation of sustainable shareholder wealth. The Group’s remuneration framework for FY21 for the CEO, CFO and COO continued to retain these three components, with short-term incentives and long-term incentives at risk. In FY21, the CEO and CFO TFR sat below the average of similar organisations whilst the COO TFR was at the median for similar organisations. The remuneration structure aligns the remuneration opportunity with the level of position accountability. 2.2 Executive Remuneration Structure for FY21 The diagram below summarises the framework for FY21. The framework continues to be reviewed each year. Performance Driven Alignment with Shareholder Interests Market Competitive Remuneration Total Available Remuneration Total Fixed Remuneration (TFR) At Risk Remuneration 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 Comprises of: • Cash salary • Salary sacrifice items • Employer superannuation contributions in line with statutory regulations TFR levels are reviewed annually by the Committee through a process that considers market rates and individual the experience position. TFR is also reviewed on promotion. There are no guaranteed increases in executive remuneration. in Short Term Incentive (STI) • Balanced Scorecard Model that includes a Non-Financial Gateway (ANZARD Success Rate Average) • 70% financial Measure based on EPS performance • 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 growth Scientific Success Rates Doctor attraction Long Term Incentive Plan (LTI) • EPS growth hurdles based on predefined growth rates over a 3 year period (70%) • TSR hurdles based on Group’s relative TSR performance against ASX300 Healthcare Index (30%) • Comprise performance rights which vest in accordance with 3 year EPS growth and relative TSR above threshold performance requirements. 21 .43 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.0 At Risk Remuneration Framework The following table summarises the short term incentive and long term incentive reward components for certain KMP including the performance measures and delivery mechanism applicable for the performance period ended 30 June 2021. Short Term Incentive (at risk) Long Term Incentive (at risk) Incentive Opportunity Threshold Target Threshold Target Short and Long – Term Incentive opportunities are expressed as a percentage of TFR CEO CFO COO Performance Measures 30% 30% 30% 100% 100% 100% 20% 20% 20% 100% 100% 100% • • • LTI KPIs are earnings per share growth (EPS)(70%) and Total Shareholder Return (TSR)(30%) TSR measures returns made against the performance of a comparator group with hurdles based on predefined growth rates over a 3-year period EPS compound annual growth rate (CAGR) provides a tangible measure of shareholder value with hurdles based on predefined growth rates over a 3-year period • • • • • STI scorecard KPIs include financial and non-financial measures A non-financial gateway is in-place whereby no STI is payable if the Group’s clinical pregnancy rates (success rates) is below the ANZARD average 70% of STI is based on the Earnings per Share (EPS) financial measure. EPS may be adjusted for certain individual significant, non-regular, abnormal or unusual gains or losses 30% of STI is based on qualitative non-financial measures which include patient engagement, people engagement, doctor engagement, scientific success rates and domestic market share Pro-rata payment of STI is made if achievement is between threshold and target Delivery Mechanisms STI awards for the CEO, CFO and COO are paid as cash and subject to continued employment LTI awards are granted as performance rights, are subject to testing against the above performance measures and continued employment. The CEO, CFO and COO were not required to pay any money to be granted performance rights 3.1 FY21 Special Business Recovery Short Term Incentive As noted in the FY2020 Remuneration Report, the Board indicated that the Executives have been and continue to focus on planning and execution for recovery of the Business following the Federal Government’s initial Pandemic response in March and April 2020 whereby elective surgery including IVF treatments were temporarily suspended. The Board offered the Executives a special bonus of 5% of TFR available should market share targets be met over the period from May to July 2020. The market share target was set at 1% above the pre-COVID Key Markets market share (VIC, NSW, SA, NT, QLD) average between the period from October 2019 to March 2020. Following performance in the period between May and July 2020, the Group’s Key Markets market share increased by greater than 1% compared to the period October 2019 to March 2020, and accordingly, the Executives achieved the special business recovery bonus of 5% of TFR available. Following the special bonus STI payment, a stretch market share target was offered for the period August 2020 to June 2021. The detail and outcome of this market share target is detailed on page 45. 44. 22 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.2 FY21 Short Term Incentive A non-financial gateway is in-place whereby no STI is payable if the Group’s clinical pregnancy rates (success rates) is below the ANZARD average for the period 1 July 2020 to 31 March 2021. This period is applicable due to the availability of pregnancy outcomes information at the time of reporting. The available ANZARD target average applicable is 38.13%. The Group’s clinical pregnancy rates for the period between July 2020 to March 2021was 42.3% and accordingly, the non-financial gateway was achieved. The quantitative financial measure defined for the CEO, CFO and COO in FY21 was as follows: Strategic Objective Weighting Measure FY21 Outcome Earnings per Share (EPS) 70% EPS is considered the most relevant financial measure to further align variable incentives to shareholder value. EPS Target was set at FY21 Group Budget (4.8 cents per share normalised) and threshold set at 93.75% (4.5 cents per share normalised) of FY21 Group Budget. The FY21 Group Budget includes minority interest and excludes Job Keeper Subsidy impact and adjustment to acquisition earn- out provisions. Normalised EPS achieved was 6.0 cents per share and was above the 4.8 cents per share target as a result of operating performance. Accordingly, payout for the EPS measure was 100%. STI Non – Financial The qualitative non-financial measures defined for KMP in FY21 included the following: Strategic Objective Weighting Measure FY21 Outcome Patient Engagement 5% (CEO, CFO, COO) Deliver an ongoing improvement in Patient Engagement as measured by the patient Net Promoter Score (NPS) Survey targeting engagement improvements. Patient Engagement NPS was measured in the IVF and Ultrasound businesses separately. Patient Engagement NPS achieved for the IVF business was above stretch target by +1. Payout for the Patient Engagement measure was 100%. The Patient Engagement NPS achieved for the Ultrasound business was +4 above threshold and therefore was between threshold and target. Payout for the Ultrasound Patient Engagement measure was 53.3%. People Engagement 5% (CEO, CFO, COO) To foster a culture of Engagement with all Monash IVF Group employees as measured by annual employee Net Promoter Score (NPS) Survey targeting engagement improvements. Employee Engagement Percentage achieved 1% above stretch target. Payout for the People Engagement measure was 100%. 23 .45 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.0 At Risk Remuneration Framework (continued) Strategic Objective Weighting Measure FY21 Outcome Doctor Engagement 5% (CEO, CFO, COO) Foster a culture of engagement with all Monash IVF Group Clinicians. This is measured by a clinician Net Promoter Score (NPS) Survey targeting engagement improvements. Doctor engagement Percentage achieved was 1% above threshold target and therefore payout for Doctor Engagement was 44%. Scientific Success Rates Domestic Market Growth 7.5% (CEO, CFO) 5% (COO) 7.5% (CEO, CFO) 5% (COO) Dr. Acquisition (COO only) 5% (COO only) Deliver a focused improvement in clinical pregnancy success rates above ANZARD and improvement above previous year. Clinical Success Rate target was set at 42.4% and threshold set at 41.55%. The period subject to testing is July 2020 to March 2021. Target set is compared to 40% in FY2020. Market share growth in all IVF Key markets. Market Share target was set at 24.4% for the period from August 2020 to June 2021 compared to 21.7% in the period from May to July 2020 whereby the special market share bonus was paid. This also compared to 20.4% during FY20. Refer to ppaaggee 4444 for further information on the special bonus. Threshold was set at 23.3%. Increased fertility specialists nationally through acquisition of new doctors and conversion of trainee doctors to fully contracted to support succession planning and growth. Clinical Success Rates achieved was 0.1% below stretch target. Payout is calculated between threshold and stretch target for Clinical Success Rates at 91.8%. Market share for the period from August 2020 to June 2021 was below threshold and stretch target. Payout for the Market Share measure was 0%. Notwithstanding the STI target was not met, actual market share was above FY2020 by 0.6%. Targets set for Dr acquisitions in FY21 were not met. Payout for Dr acquisitions was 0%. 3.3 FY21 Long-term Incentive grant The LTI plan is a performance rights plan with vesting rights dependent upon the satisfaction of pre-determined performance hurdles and continuous employment. LTI grants are made on a rolling annual basis to ensure Executives maintain a continuous focus on sustainable long-term growth and returns and provides an appropriate balance with short-term incentives which are focussed on annual returns. The terms and overview of the FY2021 LTI grant to KMP and other eligible employees, including the CEO, CFO and COO are summarised below. 46. 24 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.0 At Risk Remuneration Framework (continued) The LTI award opportunity is based on a percentage of the participant’s total fixed remuneration as at the grant date. The number of performance rights issued is determined by dividing the long-term incentive component of the participant’s fixed remuneration by the volume weighted average price of Monash IVF Group Limited shares traded on the Australian Stock Exchange over the 10 trading days immediately following the release of the FY2020 full-year results announcement. The grant price for the 2021 grant was therefore $0.628. Performance rights were granted in two tranches during FY2021, with each tranche subject to separate vesting conditions. Executives did not pay any money to be granted the performance rights and the expiry date of the rights will be on the fifth anniversary of their grant. Details of the FY2021 LTI grant to KMP is set out below: KMP % of TFR Performance Rights granted Allocation # of performance rights Mr. Michael Knaap (CEO) 60% Mr. Malik Jainudeen (CFO) 25% Mr. Hamish Hamilton (COO) 25% EPS TSR EPS TSR EPS TSR 70% 30% 70% 30% 70% 30% 351,140 150,489 83,604 35,831 83,604 35,831 25 .47 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.0 At Risk Remuneration Framework (continued) The performance periods and vesting schedules for the FY2021 performance rights are set out in the following table: Performance Measure Earnings per share Performance Period 1 July 2020 to 30 June 2023 Performance % of rights that will vest Less than 10% per annum 10% per annum 0% 20% Between 10% to 12% per annum 20% to 100% pro rata Greater than 10% per annum 100% Performance Measure Relative TSR Performance Period 11 days after FY2020 results announcement to 11 days after FY2023 results announcement Performance % of rights that will vest Less than Index return Equal to index return 0% 20% Between Index return and Index return +5% 20% to 100% pro rata Equal to or greater than Index return +5% 100% The graduated vesting scale in the 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. Further terms and conditions of the LTI plan are as follows: • • • 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. 48. 26 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 3.0 At Risk Remuneration Framework (continued) • 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. 4.0 Executive and Non-Executive Remuneration 4.1 KMP Remuneration The respective total reward mix for KMP in FY21 is as follows, assuming business performance results in target vesting for STI and maximum grant value for LTI. KMP Mr. Michael Knaap Mr. Malik Jainudeen Mr. Hamish Hamilton Dr. Richard Henshaw Fixed Pay 45.4% 60.6% 64.5% 100% STI 27.3% 24.2% 19.4% 0.0% LTI 27.3% 15.2% 16.1% 0.0% At Risk 54.6% 39.4% 35.5% 0.0% KMP Component Commentary Mr. Michael Knaap – Chief Executive Officer & Managing Director TFR STI LTI (performance rights) Notice period Term of Agreement 1 July to 31 December 2020 - $500,000 per annum pro rata 1 January to 30 June 2021 - $525,000 per annum pro rata The CEO has the opportunity to earn an annual incentive of 60% of total fixed remuneration based on meeting certain defined criteria. The FY2021 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. STI is only applicable if the clinical pregnancy rate is at or above the ANZARD mean. 501,629 performance rights were granted in FY2021 which is equivalent to 60% of TFR. These rights vest at the end of the 3-year performance period subject to meeting certain EPS and TSR outcomes. 6 months No Fixed Term 27 .49 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 4.0 Executive and Non-Executive Remuneration (continued) KMP Component Commentary Dr. Richard Henshaw (Executive Director) TFR STI $369,000 per annum. Dr. Henshaw was the only doctor during FY2021 who served as a director. He was paid a salary for his clinician duties and medical leadership roles. Not eligible for a STI payment LTI (performance rights) Notice period Term of Agreement Not eligible for a LTI offer 6 months No Fixed Term KMP Component Commentary Mr. Malik Jainudeen (Chief Financial Officer & Company Secretary) TFR STI LTI (performance rights) Notice period Term of Agreement 1 July to 31 December 2020 - $300,000 per annum pro rata 1 January to 30 June 2021 - $315,000 per annum pro rata The CFO has the opportunity to earn an annual incentive of 40% of total fixed remuneration based on meeting certain defined criteria. The FY2021 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. STI is only applicable if the clinical pregnancy rate is at or above the ANZARD mean. 119,435 performance rights were granted in FY2021 which is equivalent to 25% of TFR. 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 KMP Component Commentary Mr. Hamish Hamilton (Chief Operating Officer) TFR STI LTI (performance rights) Notice period Term of Agreement 1 July to 31 December 2020 - $300,000 per annum pro rata 1 January to 30 June 2021 - $315,000 per annum pro rata The COO has the opportunity to earn an annual incentive of 30% of total fixed remuneration based on meeting certain defined criteria. The FY2021 STI criteria were subject to both financial (70%) and non-financial (30%) outcomes. STI is only applicable if the clinical pregnancy rate is at or above the ANZARD mean. 119,435 performance rights were granted in FY2021 which is equivalent to 25% of TFR. 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 50. 28 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 4.0 Executive and Non-Executive Remuneration (continued) 4.2 Non-Executive Director (NED) Remuneration Policy Under the Constitution, the Directors decide the total amount paid to all Directors as remuneration for their services as Directors. However, under the ASX Listing Rules, the total amount paid to all Directors for their services must not exceed in aggregate in any financial year, the amount fixed by the Company in a general meeting. This amount has been fixed by the Company at $950,000. For the 2021 financial year, the fees payable to the current NEDs are $559,804 in aggregate reflecting a $10,139 reduction compared to FY2020. It should be noted that in FY2020, the Board made a decision to reduce NED remuneration by 30% in the month of April 2020 in response to COVID-19. Regular fee payments re-commenced in May 2020. 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 2021 $ 143,222 89,116 16,974 8,487 16,974 8,487 2020 $ 143,222 89,116 16,974 8,487 16,974 8,487 5.0 Details of Remuneration for Key Management Personnel 5.1 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 Position Period Covered Under this Report Non-Executive Directors Mr Richard Davis Mr Josef Czyzewski Mr Neil Broekhuizen Ms Zita Peach Ms Catherine West Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Full Financial Year Full Financial Year Full Financial Year Full Financial Year 8 September 2020 to 30 June 2021 Name Position Period Covered Under this Report Executive Directors Mr Michael Knaap Dr Richard Henshaw Other KMP Mr Malik Jainudeen Mr Hamish Hamilton Chief Executive Officer Executive Director Full Financial Year Full Financial Year Chief Financial Officer Chief Operations Officer Full Financial Year Full Financial Year 29 .51 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Remuneration Report (Audited) continued - 6 9 1 0 6 1 , , 1 9 1 6 5 1 7 7 5 , 4 1 1 , 3 1 7 1 1 1 , 3 1 7 1 1 1 3 0 6 , 7 9 3 6 1 5 9 , 3 6 1 5 9 , 2 9 0 , 6 0 1 6 3 3 , 1 8 - 4 0 8 9 5 5 , , 3 4 9 9 6 5 9 5 1 8 0 9 , , 5 3 5 0 7 5 6 8 4 5 6 3 , , 1 5 9 6 4 3 0 3 , 9 9 3 8 0 9 , 5 4 6 3 7 2 1 , - - - - - - - - - - - - - - 2 9 0 1 8 , 5 7 4 1 1 , - - 2 9 0 1 8 , 5 7 4 1 1 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 9 8 3 1 , 1 5 5 3 1 , 0 4 9 9 , 2 9 6 9 , - 2 9 6 9 , 3 2 8 2 , 6 5 2 8 , 4 0 2 9 , 6 5 2 8 , 7 5 0 7 , - 2 2 9 2 4 , 7 4 4 9 4 , 4 9 6 1 2 , 2 0 0 1 2 , 4 9 6 1 2 , 3 0 0 1 2 , 8 8 3 3 4 , 5 0 0 2 4 , - 8 9 2 6 4 1 , , 0 4 6 2 4 1 7 3 6 4 0 1 , , 1 2 0 2 0 1 , 1 2 0 2 0 1 - 0 8 7 4 9 , 7 0 9 6 8 , 8 8 8 6 9 , 7 0 9 6 8 , 9 7 2 4 7 , 2 8 8 6 1 5 , , 6 9 4 0 2 5 3 7 3 5 0 8 , , 1 7 9 8 2 5 2 9 7 3 4 3 , , 8 4 9 5 2 3 , 9 1 9 4 5 8 , 5 6 1 9 4 1 1 , - - - - - - - - - - - - - - - - - - - - n o i t a n m i r e T m r e t - g n o l r e h t O $ l a t o T $ s t h g R i $ s t i f e n e b $ s t i f e n e b $ $ $ n o i t a u n n a r e p u S l a t o T t i f e n e b r e h t O $ 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 - - - - - - - - - - - - - - 8 3 1 4 0 3 , 0 0 5 9 4 , - - 8 3 1 4 0 3 , 0 0 5 9 4 , - 8 9 2 6 4 1 , , 0 4 6 2 4 1 7 3 6 4 0 1 , , 1 2 0 2 0 1 , 1 2 0 2 0 1 - 0 8 7 4 9 , 7 0 9 6 8 , 8 8 8 6 9 , 7 0 9 6 8 , 9 7 2 4 7 , 2 8 8 6 1 5 , , 6 9 4 0 2 5 5 3 2 1 0 5 , , 1 7 4 9 7 4 2 9 7 3 4 3 , , 8 4 9 5 2 3 7 2 0 5 4 8 , , 9 1 4 5 0 8 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 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 ) 2 ( t s e W e n i r e h a C s M 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 - n o N l t a o T s r o t c e r i D e v i t u c e x E 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 s r o t c e r i D e v i t u c e x E l t a o T . 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 0 2 0 2 Y F . 0 2 0 2 r e b m e t p e S 8 n o r o t c e r i D e v i t u c e x E - n o N a s a d e t n o p p a s a w i t s e W e n i r e h t a C s M 1 2 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 t n e m y o l p m e - t s o P s t i f e n e b e e y o l 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 g n i w o l l o f e h T ) 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 0 5 . 1 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 t i d u A ( t r o p e R n o i t a r e n u m e R d e t i m i L p u o r G F V I h s a n o M 52. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Remuneration Report (Audited) continued 1 3 - 1 8 2 3 6 4 , , 1 1 1 9 2 3 1 0 8 9 2 4 , , 7 5 8 7 7 2 , 1 5 0 1 2 3 2 8 0 3 9 8 , , 1 7 8 0 2 9 , 1 3 5 6 2 7 2 , , 3 1 2 9 9 3 2 , - - 5 0 4 8 1 , 1 4 6 6 , 9 7 9 4 1 , 4 8 3 3 3 , ) 5 4 1 2 1 , ( ) 4 0 5 5 , ( 1 7 9 5 , 6 7 4 4 1 1 , - - - - - - - - - - $ l a t o T $ s t h g R i $ s t i f e n e b n o i t a n m i $ - - - - - - 6 7 5 0 5 , 6 7 5 0 5 , - 6 7 5 0 5 , $ $ - 6 3 2 1 2 , 3 0 0 1 2 , 8 6 3 1 2 , 3 3 0 1 2 , 0 4 0 5 1 , 4 0 6 2 4 , 6 4 0 7 5 , 4 1 9 8 2 1 , , 8 9 4 8 4 1 - 0 4 6 3 2 4 , , 9 1 3 4 9 2 4 5 4 3 9 3 , , 4 5 8 6 5 2 , 0 8 5 7 6 2 4 9 0 7 1 8 , , 3 5 7 8 1 8 , 1 4 1 3 8 4 2 , , 8 6 1 4 9 1 2 , $ - - - - - - - - - - r e T m r e t - g n o l r e h t O s t i f e n e b n o i t a u n n a r e p u S l a t o T t i f e n e b r e h t O $ h s a C I T S e v i t n e c n i 5 5 6 6 2 1 , 0 5 8 4 1 , 5 7 5 6 9 , 1 4 8 2 1 , - - 0 3 2 3 2 2 , 1 9 6 7 2 , 8 6 3 7 2 5 , 1 9 1 7 7 , - 5 8 9 6 9 2 , , 9 6 4 9 7 2 9 7 8 6 9 2 , , 3 1 0 4 4 2 , 0 8 5 7 6 2 4 6 8 3 9 5 , , 2 6 0 1 9 7 $ s e e F & y r a a S l , 3 7 7 5 5 9 1 , , 7 7 9 6 1 1 2 , 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 n o i t a r e n u m e R P M K r e h O t l t a o T n o i t a r e n u m e R P M K l t a o T n e e d u n a J i k i l a M r M n o t l i m a H h s i m a H r M ) 1 ( r e m o C t t e r B r M ) P M K ( 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 . t u o d a p i t n e m e l t i t n e s e d u l c n i s t i f e n e b m r e t - g n o l 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 1 .53 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 t n e m y o l p m e - t s o P s t i f e n e b e e y o l 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 0 5 . 1 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 t i d u A ( t r o p e R n o i t a r e n u m e R d e t i m i L p u o r G F V I h s a n o M Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Remuneration Report (Audited) continued l e u a V r i a F y t i r u c e S r e p $ 9 4 0 . 0 0 1 . 5 4 0 . 4 9 0 . 6 4 0 . 1 6 0 . 2 3 0 . 4 9 0 . 6 4 0 . 1 6 0 . 2 3 0 . 1 6 0 . 2 3 0 . 2 3 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 f o e c n a a B l y t i u q E d e t s e v n U 1 2 0 2 n u J 0 3 r o d e s p a L d e t i e f r o F d e t s e V 1 2 Y F n i d e t n a r G 1 2 Y F n i f o e c n a a B l d e t s e v n U 0 2 l u J 1 y t i u q E d o i r e P e t a D d n E e c n a m r o f r e P e t a D t n a r G s e l d r u H e p y T - - 0 9 4 4 2 , , 5 0 2 7 4 1 , 5 0 2 7 4 1 , 0 4 1 1 5 3 , 9 8 4 0 5 1 9 2 5 0 2 8 , 1 0 8 6 3 , 1 0 8 6 3 , 4 0 6 3 8 , 1 3 8 5 3 , 7 3 0 3 9 1 , 4 0 6 3 8 , 1 3 8 5 3 , 5 3 4 9 1 1 , , 1 0 0 3 3 1 1 , ) ) 0 8 6 9 2 , ( 5 4 1 7 5 , ( - - - - - ) 5 2 8 6 8 ( , - - - - - - - - ) 5 2 8 6 8 ( , - - - - - - - - - - - - - - - - - - - - - - , 0 4 1 1 5 3 , 9 8 4 0 5 1 9 2 6 1 0 5 , - - 4 0 6 3 8 , 1 3 8 5 3 , 5 3 4 9 1 1 , 4 0 6 3 8 , 1 3 8 5 3 , 5 3 4 9 1 1 , 9 9 4 0 4 7 , 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 , 0 2 p e S 7 8 1 n a J 9 2 1 2 n u J 0 3 8 1 c e D 0 2 1 2 p e S 7 8 1 c e D 0 2 2 2 n u J 0 3 9 1 t c O 6 1 2 2 g u A 0 3 9 1 t c O 6 1 3 2 n u J 0 3 0 2 t c O 6 1 3 2 g u A 0 3 0 2 t c O 6 1 2 2 n u J 0 3 9 1 t c O 6 1 2 2 g u A 0 3 9 1 t c O 6 1 3 2 n u J 0 3 0 2 t c O 6 1 3 2 g u A 0 3 0 2 t c O 6 1 3 2 n u J 0 3 0 2 t c O 6 1 3 2 g u A 0 3 0 2 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 e m a N n e e d u n a J i k i l a M r M n o t l i m a H h s i m a H r M : w o e b l d e l i a t e d s i ) 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 0 5 . 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 1 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 t i d u A ( t r o p e R n o i t a r e n u m e R d e t i m i L p u o r G F V I h s a n o M 54. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 5.0 Details of Remuneration for Key Management Personnel (continued) 5.2 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 (2021) Cash Incentive (2020) % of Available Incentive % of Available Incentive Payable and Paid Payable and Paid Not Payable Paid Paid Not Paid $ % % $ % % Executive Directors Mr Michael Knaap Dr Richard Henshaw $304,138 - 89.4% - 10.6% - 49,500 - 16.5% - 83.5% - Other Key Management Personnel Mr Malik Jainudeen Mr Hamish Hamilton $126,655 $96,575 89.8% 88.2% 10.2% 11.8% 14,800 12,841 16.5% 20.0% 83.5% 80.0% 5.3 Loans to Key Management Personnel No loans were issued to KMP during 2021. 5.4 Key Management Personnel Shareholdings The following details Monash IVF Group ordinary shares held by Directors and KMP during 2021: Name Non-Executive Directors Mr Richard Davis Mr Josef Czyzewski Mr Neil Broekhuizen Ms Zita Peach Ms Catherine West Executive Directors Mr Michael Knaap Dr Richard Henshaw Other Key Management Personnel Mr Malik Jainudeen Mr Hamish Hamilton Total Balance at start of year Granted as remuneration Net Change Balance at end of year 182,067 241,382 132,787 92,803 - 150,655 1,358,842 19,231 71,535 2,249,302 - - - - - - - - - - - - 217,213 - 37,100 - - - 52,300 306,613 182,067 241,382 350,000 92,803 37,100 150,655 1,358,842 19,231 123,835 2,555,915 33 .55 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report   Monash IVF Group Limited Remuneration Report (Audited) continued Remuneration Report (Audited) for the year ended 30 June 2021 6.0 Link to Group Performance 6.1 Group Performance The revenue and earnings of the Group for the five years to 30 June 2021 are summarised below: Measure Revenue Reported EBITDA Underlying EBITDA Net Profit After Tax (1) STI Payable Total Shareholder Return (1) Closing Share Price ($) Dividend Per Share (cents) Earnings per Share (cents) (1) 2021 $’000 183,605 51,281 47,749 25,505 81.1% 61% 0.85 4.2 6.5 2020 $’000 145,417 32,833 34,797 11,726 24.1% -59% 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 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. 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. 34 56. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Report Directors’ Report continued for the year ended 30 June 2021 Matters subsequent to the end of the financial year On 24 August 2021, a fully franked dividend of 2.1 cents per share was declared. The record date for the dividend is 10 September 2021 and the payment date for the dividend is 8 October 2021. 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 58 and forms part of the directors’ report for the year ended 30 June 2021. This report is made in accordance with a resolution of the directors. Richard Davis Chairman Michael Knaap Chief Executive Officer and Managing Director Dated in Melbourne this 24th day of August 2021 35 .57 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report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 2021 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG KPM_INI_01  Chris Sargent Partner Melbourne 24 August 2021 PAR_SIG_01  PAR_NAM_01  PAR_POS_01  PAR_DAT_01  PAR_CIT_01  KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 58. 36 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.                             Monash IVF Group Limited 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 2021. 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 Limited complies in all material respects with the fourth edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. 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 Limited 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 Limited 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 website https://www.monashivfgroup.com.au/investor-centre/corporate-governance/ IVF Group Limited Board Charter is available on the Monash IVF Group Limited 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 Limited. 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. .59 37 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement 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 Remuneration and Nomination 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 Limited 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 as supported by a Diversity & Inclusion policy. 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 Total Staff (inc above) Number of Women 2 9 43 669 % of Women 40% 50% 80% 91% Target 30% 50% 50% 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. The Remuneration and Nomination Committee sets measurable objectives to achieve gender diversity and 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. These measures were met during the year. Senior Management is defined as Executive Directors and Management personnel in operational leadership positions generally specific to state leadership teams. 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 FY21, 58 employees have taken primary and secondary parental leave, utilising the Group’s generous parental leave policy. Flexible hour working arrangements either formally and informally are widely used across Monash IVF Group. 60. 38 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement 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 Limited website https://www.monashivfgroup.com.au/investor-centre/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. 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 Limited Board was undertaken in July 2021. 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 Limited 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 be effective and 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 Limited 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 Limited 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 in-place; the Remuneration and Nomination Committee and the Audit and Risk Committee. The Board Charter prescribes that all committee members be Independent Directors. 39 .61 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 2 Structure of the Board to be effective and add value (continued) 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 Limited website at https://www.monashivfgroup.com.au/investor-centre/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. Ms Catherine West was appointed to the Remuneration and Nomination Committee on 8 September 2020. The Remuneration and Nomination Committee consist of four independent Directors of the Board: • Ms Zita Peach (Chair) • Mr Richard Davis • Mr Josef Czyzewski • Ms Catherine West The Committee met 5 times with all Committee members in attendance. 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; 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 FY21: 62. 40 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 2 Structure of the Board to be effective and to add value (continued) Monash IVF Group Limited 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 members, roles and independence 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 Independent non-executive Director Ms Zita Peach Independent non-executive Director Mr Neil Broekhuizen Independent non-executive Director Yes Yes Yes Yes Appointment Date 4/6/2014 4/6/2014 12/10/2016 4/6/2014 .63 41 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 2 Structure of the Board to be effective and to add value (continued) Director Position Independent Mr Michael Knaap CEO and Managing Director Dr Richard Henshaw Executive Director No – CEO and Managing Director No – Fertility Specialist with Monash IVF Group Limited Appointment Date 15/4/2019 30/4/2014 Ms Catherine West Independent non-executive Director Yes 8/9/2020 The Board Charter outlines that at least half of the Board should be independent directors, one of whom is the Chairman. A director is deemed to be “independent” if free of any business or other relationship with the Company that could materially interfere with, or could reasonably be perceived to interfere with, the exercise of unfettered and independent judgement. The Board has assessed, using the criteria set out in the ASX Corporate Governance Principles and Recommendation, the independence of non-executive directors in light of their interests and relationships and considers at least half to be independent. The independence status and length of service of each director is outlined in the table above. The percentage of Board members considered independent was 71%. Mr Richard Davis was appointed Monash IVF Group Limited 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 Limited 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 3.1 Organisational values 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: 64. 42 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 3 Instill a culture of acting lawfully, ethically and responsibly (continued) Monash IVF Group Limited Corporate Governance Statement Principle 3 Instill a culture of acting lawfully, ethically and responsibly (continued) Our Principles Care • Promotes a team environment that values, encourages and supports differences. • Genuinely cares about people. • Is available and ready to help. • Demonstrates real empathy with the joys and pains of others. Replace image Collaborate • Build strong formal and informal, internal and external networks across a variety of functions and locations. • Partners with others to achieve quality outcomes and share in the successes. • Values, calls upon and utilises the experience and expertise of others. • Shares information for the benefit of individual, team, clinic and or organisation. Replace image Communicate • Provides the information people need to know, to do their jobs and to feel valued as a member of the team, clinic and organisation. • Utilises different types of communication to deliver timely and meaningful messages. • Has the patience to hear people out . Commitment • Is dedicated to meeting the expectations and requirements of patients, clinicians and internal stakeholders. • Persists in accomplishing objects despite obstacles and setbacks. • Pushes self and others to achieve. 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. Create • Challenges the traditional way of thinking and adopts change where required. • Shows initiative and can spot and seize opportunities. • Empowers others to bring creative ideas and suggestions to life. The principles are provided with sufficient guidance to enable personnel to make decisions consistent with the Board’s risk appetite and core values. 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 3.2 Code of Conduct and whistleblower program annual employee CUDOS Awards, recognising and celebrating outstanding employee behaviour in line with these values. Monash IVF Group Limited 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 The principles are provided with sufficient guidance to enable personnel to make decisions consistent with the outlines Monash IVF Group Limited policies on various matters including ethical conduct, business and personal Board’s risk appetite and core values. 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 3.2 Code of Conduct and whistleblower program Company. The Code recognises the numerous legislative and compliance matters that affect the business. Monash IVF Group Limited 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 Limited 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. .65 43 43 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 3 Instill a culture of acting lawfully, ethically and responsibly (continued) 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 Limited Board members and staff, detailing guidelines to ensure the highest standards are maintained. Monash IVF Group holds all staff to act according to this code to maintain standards in confidentiality and general behaviour. The code is provided to all staff as part of the Group induction process and compliance is reviewed regularly. The Board or Audit and Risk Management Committee are informed of any material breaches of the entity’s code of conduct. 3.3 Whistleblower policy 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. Monash IVF Group Limited 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/ 3.4 Anti-Bribery and Corruption policy The Company has an Anti-Bribery and Corruption policy which has been communicated to all Company personnel and published on the Company’s website. The Anti-Bribery and Corruption policy describes the standards of ethical conduct and behaviour required of all Individuals within the Monash IVF Group, noting that all representatives must act within the law and not engage in corrupt practices or acts of bribery that expose Monash IVF Group, its employees and clinical partners to the risks of prosecution, fines and imprisonment, as well as endangering Monash IVF Group’s reputation. Where these standards are not met, then appropriate disciplinary action may be taken. Monash IVF Group will apply a zero-tolerance approach to acts of bribery and/or corruption by any Individual or third-party representative. The Board or Audit and Risk Committee are informed of any material breaches of the entity’s Anti-Bribery and Corruption policy. Monash IVF Group Limited Anti-Bribery and Corruption 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 Limited 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 Limited 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. 66. 44 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 4 Safeguard integrity in corporate reporting (continued) The Audit and Risk Management Committee consists of three non-executive Independent Directors with experience and qualifications in financial management as outlined in the Audit and Risk Management Committee Charter. Current members of the Committee are: • Mr Josef Czyzewski (Chair) • Mr Richard Davis • Mr Neil Broekhuizen The Committee met five times during the year. 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. The Audit and Risk Management Committee Charter is available on the Monash IVF Group Limited website at https://www.monashivfgroup.com.au/investor-centre/corporate-governance/ 4.2 Financial Statement Approval Monash IVF Group Limited 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 Limited. 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 Limited 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 Limited 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 Limited 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. .67 45 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 5 Make timely and balanced disclosure (continued) 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 Limited. Continuous disclosure principles and requirements are well understood by the Monash IVF Group Limited 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 Limited 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 https://www.monashivfgroup.com.au/investor-centre/corporate-governance/ Principle 6 Respect the rights of security holders 6.1 Communication with Shareholders Monash IVF Group Limited 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 Limited 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; all announcements and releases to the ASX; copies of presentations to shareholders, institutional investors, brokers and analysts; 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 is a dedicated the Company website, found In addition at https://www.monashivfgroup.com.au/investor-centre/corporate-governance/ which provides investors and shareholders with information on Monash IVF Group Limited 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: https://www.monashivfgroup.com.au/investor-centre/ corporate-governance/ Investor Relations page 68. 46 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 6 Respect the rights of security holders (continued) 6.3 and 6.4 Attendance at Company meetings As cited in the Monash IVF Group Limited 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 19 November 2021. 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 https://www.monashivfgroup.com.au/investor-centre/agms/ 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. 6.5 Electronic Communication The Company recognises that electronic communication is often a more efficient and more desired form of communication. Monash IVF Group Limited 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 Limited Communications Policy can be located at https://www.monashivfgroup.com.au/ investor-centre/corporate-governance/ Principle 7 Recognise and Manage Risk The Monash IVF Group Limited Board, primarily through the Audit and Risk Management Committee, reviews and manages risk areas for the Group. Refer to section 4.1 for further information. 7.1 Audit and Risk Committee The identification and appropriate management of risks is an important priority for the Monash IVF Group Limited 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 Limited’s Audit & Risk Management Committee Charter can be found on the website at: https://www.monashivfgroup.com.au/investor-centre/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. .69 47 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 7 Recognise and Manage Risk (continued) 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. 7.3 Internal Audit Monash IVF Group Limited 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 Limited 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 Limited 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 and social perspective, Monash IVF Group Limited 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. 70. 48 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement Principle 7 Recognise and Manage Risk (continued) • • 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 Limited 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. 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 Limited. 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 Limited 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. .71 49 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s ReportMonash IVF Group Limited Corporate Governance Statement continued Corporate Governance Statement 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 Limited 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 Limited Board has established a framework for remuneration that is designed to ensure consistent and reasonable remuneration policies and practices are observed which optimise the attraction and retention of directors and management and fairly rewards Directors and senior management for positive performance. Monash IVF Group Limited remuneration practices for Executive appointments are expanded on in the Remuneration Report. The Monash IVF Group Limited Remuneration Policy can be found on the Group website at: https://www.monashivfgroup.com.au/investor-centre/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 at minimum 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. 72. 50 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care.Monash IVF Group Limited 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 2021 for the year ended 30 June 2021 93 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 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 4.4 1.5 Consolidated 2021 $’000 183,605 (55,765) (32,673) (19,893) (4,104) (10,703) (2,189) (3,820) (6,387) (3,814) (5,866) 38,391 (2,451) 35,940 (10,435) 25,505 - - (233) (233) 25,272 25,148 357 25,505 24,915 357 25,272 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 1.4 1.4 6.5 6.4 4.6 4.5 (1) Includes JobKeeper Subsidy impact of $5.06m (refer note 1.1). The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. .73 51 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Consolidated Statement of Financial Position Consolidated Statement of Financial Position For the year ended 30 June 2021 for the year ended 30 June 2021 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 Borrowings Lease liabilities Current tax liabilities Contingent consideration Employee benefits Total current liabilities Non current liabilities Borrowings Lease liabilities 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 4.5 2.1 2.2 2.1 2.4 2.5 2.6 2.3 4.3 3.1 4.3 3.1 1.5 4.1 Consolidated 2021 $’000 8,761 9,523 - 4,217 22,501 942 460 24,940 42,350 259,976 328,668 351,169 18,559 1,629 5,840 3,137 1,205 10,710 41,080 - 38,519 628 1,239 769 41,155 82,235 268,934 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 96,907 252,122 506,786 (136,874) 59,501 (162,735) 266,678 2,256 268,934 506,786 (136,778) 42,535 (162,735) 249,808 2,314 252,122 The consolidated statement of financial position should be read in conjunction with the accompanying notes. 74. 52 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Consolidated Statement of Changes in Equity For the year ended 30 June 2021 l t a o T y t i u q e - n o N t s e r e t n i g n i l l o r t n o c l t a o T 0 6 7 1 1 , 1 9 5 1 7 1 , 2 0 7 2 6 4 2 1 , 4 3 9 1 2 - 4 3 0 0 0 $ ’ 0 0 0 $ ’ 6 2 7 1 1 , 2 7 3 1 7 1 , 2 0 7 8 2 4 2 1 , 0 0 0 $ ’ 4 1 6 0 2 , 9 2 0 8 7 , ) 5 2 0 2 1 , ( - - - 2 2 1 2 5 2 , 4 1 3 2 , 5 0 5 5 2 , 2 2 1 2 5 2 , ) 3 3 2 ( 2 7 2 5 2 , 7 5 3 4 1 3 2 , - 7 5 3 1 6 0 2 , - 4 9 2 0 8 7 , ) 5 2 0 2 1 , ( 8 0 8 9 4 2 , 8 4 1 5 2 , 8 0 8 9 4 2 , ) 3 3 2 ( 7 3 1 - 7 3 1 ) 7 9 5 8 , ( ) 5 1 4 ( ) 2 8 1 8 , ( 4 3 9 8 6 2 , 6 5 2 2 , 8 7 6 6 6 2 , - 7 3 1 ) 3 6 ( 5 1 9 4 2 , ) 3 3 2 ( ) 3 ( r e h O t s e v r e s e r 0 0 0 $ ’ ) 3 7 6 ( - 2 0 7 2 0 7 - - 4 - 3 3 - 3 3 ) 3 3 2 ( i d e n a 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 - - - - - - - 0 0 0 $ ’ ) 5 3 7 2 6 1 ( , 0 0 0 $ ’ 4 3 8 2 4 , 6 2 7 1 1 , - 6 2 7 1 1 , - - - ) 5 2 0 2 1 , ( - - - - - - - - - - - - - 9 2 0 8 7 , ) 5 3 7 2 6 1 ( , 5 3 5 2 4 , ) 1 1 8 6 3 1 ( , 6 8 7 6 0 5 , - - - - - ) 5 3 7 2 6 1 ( , 5 3 5 2 4 , 8 4 1 5 2 , - 8 4 1 5 2 , - ) 2 8 1 8 , ( - - - - - - - - - - ) 1 1 8 6 3 1 ( , 6 8 7 6 0 5 , 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 t a 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 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 t a 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 0 2 0 2 e n u J 0 3 0 2 0 2 e n u J 0 3 t l a e c n a a b d e t a d t l a e c n a a b d e t a d i l o s n o C i l o s n o C 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 i d r o f o e u s s I y t i u q e n i y l t c e r i d s r e n w o ) ( 4 d e r a l c e d / d a p i s d n e d i v i D 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 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 y t i u q e n i y l t c e r i d s r e n w o ) ( i 5 d a p s d n e d i v i D 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 ) 1 ( r e h O t y t i u q e e v r e s e r 0 0 0 $ ’ 0 0 0 $ ’ y t i u q e d e t u b i r t n o C ) 1 1 8 6 3 1 ( , 7 5 7 8 2 4 , 9 1 0 2 e n u J 0 3 t l a e c n a a b d e t a d i l o s 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 1 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 t i m i L p u o r G F V I h s a n o M 3 5 .75 . 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 u o h s l 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 . 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 . 0 2 0 2 r e b o t c O l i t n u i d a p t o n t u b 0 2 0 2 y r a u r b e F n i d e r a l c e d s a w t a h t d n e d i v i d m i r e t n i 0 2 0 2 Y F e h t d n a 0 2 0 2 Y F g n i r u d i d a p d n e d v d i i 9 1 0 2 Y F l a n i f e h t s e d u l c n i 0 2 0 2 Y F n i d e r a l c e d / d a p i s d n e d v D i i . 1 2 0 2 Y F g n i r u d i d a p i d n e d v d m i i r e t n i 0 2 0 2 Y F e h t s e d u l c n i 1 2 0 2 Y F n i i d a p s d n e d v D i i ) 1 ( ) 2 ( ) 3 ( ) 4 ( ) 5 ( ) 5 3 7 2 6 1 ( , 1 0 5 9 5 , ) 1 1 8 6 3 1 ( , 6 8 7 6 0 5 , 1 2 0 2 e n u J 0 3 t l a e c n a a b d e t a d i l o s n o C Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows For the year ended 30 June 2021 for the year ended 30 June 2021 Cash flows from operating activities Receipts from customers JobKeeper Subsidy receipts Payments to suppliers and employees 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 Net proceeds from issue of ordinary shares Net cash flows used in financing activities Total cash flows from activities Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on foreign currency cash flows and cash balances Cash and cash equivalents at end of the year Note 4.5 Consolidated 2021 $’000 2020 $’000 183,067 7,406 (139,149) 51,324 (7,270) 44,054 146,351 3,313 (114,304) 35,360 (4,281) 31,079 (10,033) (1,254) (11,287) (7,507) (3,056) (10,563) (17,650) (725) - (7,569) (13,134) - - (39,078) (69,721) (3,450) (1,087) (7,202) (7,074) 1,300 77,532 (9,702) (6,311) 10,814 15,072 - 4,281 (23) 4.5 8,761 15,072 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. 76. 54 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended 30 June 2021 For the year ended 30 June 2021 Contents Section 1: Our financial performance Revenue and expenses 1.1 1.2 Operating segments Dividends 1.3 Earnings per share 1.4 Taxation 1.5 Section 3: Our people 3.1 3.2 3.3 Employee benefits Share-based payments Key management personnel Section 2: Our operating asset base 2.1 2.2 2.3 2.4 2.5 2.6 Trade and other receivables Inventory Trade and other payables Plant and equipment Right of use assets Intangible assets Section 4: Our funding structure 4.1 4.2 4.3 4.4 4.5 Share capital and reserves Financial risk management Borrowings Net finance costs Cash and cash equivalents Section 5: Our business portfolio Section 6: Other disclosures 5.1 5.2 5.3 5.4 Controlled entities Investments accounted for using the equity method Parent entity Deed of cross guarantee 6.1 6.2 6.3 6.4 6.5 6.6 Auditors’ remuneration Events occurring after the reporting period Commitment and contingencies Reporting entity Basis of preparation New standards and interpretations 55 .77 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 was used to fund existing employee wages during the period. The grant amount recognised in employee benefits expense is $5.7m (FY20: $4.9m). 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 South East Asia. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 were eligible for the subsidy if their turnover reduces by more than 30 per cent relative to the comparable prior year period for 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. Accordingly, the Group was eligible to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020 to 30 September 2020. 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 was intended to compensate. 78. 56 57 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 was used to fund existing employee wages during the period. The grant amount recognised in employee benefits expense is $5.7m (FY20: $4.9m). 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 South East Asia. 57 .79 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 Segment results 2021 Total revenue – external Monash IVF Group Australia $’000 172,902 Monash IVF Group International $’000 10,703 Total $’000 183,605 Adjusted EBIT (before non-recurring items)(1) 30,613 4,246 34,859 Proceeds from Jobkeeper(1) Fertility Solutions Earn Out(1) Sydney CBD clinic premise costs(1) 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 5,058 (678) (848) 34,145 (2,350) 31,795 (9,399) 22,396 (12,252) 337,246 9,916 79,335 - - - 4,246 (101) 4,145 (1,036) 3,109 (640) 13,923 117 2,900 5,058 (678) (848) 38,391 (2,451) 35,940 (10,435) 25,505 (12,892) 351,169 10,033 82,235 2020 Total revenue – external Adjusted EBIT (before non-recurring items)(2) Acquisition costs Restructuring costs Provision for patient claim Sydney CBD clinic premise costs 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 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 International $’000 9,914 3,797 - - - - 3,797 (110) - 3,687 (885) 2,802 (655) 10,825 40 4,534 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 (1) Non-recurring items include the receipt of Jobkeeper subsidy impact ($5,058,000 pre-tax), Sydney CBD clinic premise and commissioning costs prior to opening in November 2020 ($848,000 pre-tax) and Fertility Solutions earn out fair value adjustment ($678,000). (2) 2020 one-off 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 certain historical patient claim in FY13 ($728,000 pre-tax) and new Sydney CBD clinic premises costs prior to commencement of construction ($480,000 pre-tax). The Jobkeeper subsidies received in FY20 is included within Adjusted EBIT as it supported the Business during temporary suspension of services and ramp up activities following re-commencement of operations. 80. 58 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 1.3 Dividends Dividends during the year Franking Payment Date Per share (cents) 2021 $’000 2020 $’000 Interim dividend in respect of the current financial year Fully franked 7 April 2021 2.1 8,182 4,952 Final dividend in respect of the prior financial year Fully franked - Total Current liability – Dividend payable(1) Paid in cash during the year - 2.1 - 7,074 8,182 12,025 - 13,134 4,952 7,074 (1) On 1 April 2020, The Company announced the deferral of the payment of the interim dividend until 2 October 2020 which was recognised as a liability as at 30 June 2020 and paid during FY2021. 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 11,998 12,803 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. Subsequent to 30 June 2021, the Board has declared a fully franked 2021 final dividend of 2.1 cents per share. Total dividend declared for FY21 is 4.2 cents. The aggregate amount of the proposed dividend expected to be paid out of retained profits at 30 June 2021, but not recognised as a liability at year end is $8,182,332. 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 2021 Cents per share 6.5 6.4 2020 Cents per share 4.6 4.5 2021 $’000 25,148 2021 Number 2020 $’000 11,726 2020 Number 389,634,840 257,550,107 Adjustments for calculation of diluted earnings per share (1) Weighted average number of ordinary shares used in calculating diluted earnings per share 1,309,892 550,148 390,944,732 258,100,255 (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 3.2 for further details. 59 .81 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 1.4 Earnings per share (continued) 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. 1.5 Taxation Income Tax expense Current tax Deferred tax Under/(over) provided in prior year Total income tax expense Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30% (2020: 30%) Tax effect of amounts which are not deductible in calculating taxable income: Effect of tax rates in foreign jurisdiction Research and development Other items Under/(over) provision of previous year Income tax expense 2021 $’000 11,241 (894) 88 10,435 2020 $’000 3,867 661 (162) 4,366 35,940 10,782 16,126 4,838 (256) (250) 71 88 10,435 (231) (250) 171 (162) 4,366 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. 82. 60 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Notes to the Consolidated Financial Statements continued y t i l i b a i l t e s s a x a t d e r r e f e D x a t d e r r e f e D y t i u q e n i y l t c e r i d d e s i n g o c e R s s o l d e s i n g o c e R r o t i f o r p n i x a t y t i l i b a i l d e r r e f e D d e r r e f e D t e s s a x a t y t i u q e n i y l t c e r i d d e s i n g o c e R s s o l d e s i n g o c e R r o t i f o r p n i x a t y t i l i b a i l d e r r e f e D d e r r e f e D t e s s a x a t 1 2 0 2 e n u J 0 3 0 2 0 2 e n u J 0 3 9 1 0 2 l y u J 1 ) 3 3 5 ( - - - - - - 8 0 7 5 , ) 9 6 7 ( ) 7 7 4 6 ( , 1 6 ) 4 4 9 5 , ( - - - - 4 3 7 5 9 5 0 9 5 9 8 7 3 , 8 0 7 5 , - ) 8 0 7 5 , ( - - - ) 1 1 1 ( - - - - - - ) 1 1 1 ( - - 4 9 4 ) 0 4 ( - 3 1 1 5 6 4 9 8 - - ) 5 2 2 ( ) 8 0 3 ( ) 4 4 9 5 , ( ) 4 9 4 ( - - - - - ) 6 4 7 6 ( , 5 9 1 5 , ) 1 5 5 1 ( , - - - - 5 4 8 5 3 6 7 7 5 8 3 1 3 , 5 9 1 5 , - ) 5 9 1 5 , ( - - - - 5 4 8 ) 6 3 3 ( - - 9 0 5 - - - - ) 4 9 ( ) 4 9 4 ( ) 5 5 1 ( ) 8 0 2 ( - - 0 9 2 ) 1 6 6 ( ) 4 1 2 ( ) 4 4 9 5 , ( - - - - - - ) 8 5 1 6 ( , 9 6 9 3 , ) 9 8 1 2 ( , - - - - - 6 3 3 5 8 7 8 4 8 2 , 9 6 9 3 , - ) 9 6 9 3 , ( ) d e u n i t n o c ( n o i t a x a T 5 1 . t n e m p i u q e d n a t n a P l 0 0 0 $ ’ x a T d e r r e f e D s t e s s a i l e b g n a t n I f f o t e s e r o f e b s t e s s a / ) s e i t i l i b a i l ( x a T s n o i s i v o r p d n a l s e b a y a p e d a r T s t i f e n e b e e y o p m E l ) s e i t i l i b a i l ( / s t e s s a x a t t e N x a t f f o t e S l s e b a v i e c e R s e v i t a v i r e D r e h t O s e s a e L .83 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 1 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 t i m i L p u o r G F V I h s a n o M Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 1.5 Taxation (continued) Recognition and Measurement Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: • • The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Offsetting deferred tax Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their assets and liabilities will be realised simultaneously. Tax consolidation Monash IVF Group Limited and its wholly Australian owned controlled entities are part of a tax consolidation group under Australian taxation law. Monash IVF Group Limited is the head entity in the tax-consolidated group. Entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, Monash IVF Group Limited and each of the entities in the tax consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Key estimate and judgement: Recovery of deferred tax assets Key estimate and judgement: 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. 84. 62 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 Net trade receivables Other debtors Accrued income Prepayments GST receivable Total current trade and other receivables Non current Other debtors Provision for expected credit losses 2021 $’000 5,030 (831) 4,199 731 328 2,942 1,323 9,523 2020 $’000 4,183 (747) 3,436 2,431 1,060 2,761 754 10,442 460 181 The consolidated entity has recognised an expense of $84,000 (2020: $287,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2021. The increase in provision for expected credit losses during the year was predominately driven to reflect counterparties that have been impacted by the current 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 .85 63 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 2021 $’000 4,217 4,217 2020 $’000 3,949 3,949 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 Total trade and other payables 2021 $’000 2,245 9,019 7,295 - 18,559 2020 $’000 3,024 10,804 6,725 4,951 25,504 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. 2.4 Plant and equipment Cost Opening balance at 1 July Additions Acquisitions through business combinations Disposals Closing balance at 30 June Accumulated depreciation and impairment losses 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) 86. 2021 $’000 58,169 10,033 - - 68,202 (39,058) (4,204) - - (43,262) 19,111 24,940 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 64 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements continued for the year ended 30 June 2021 2.4 Plant and equipment (continued) Capital commitments Expenditure contracted for but not recognised as liabilities: Capital plant and equipment 2021 $’000 613(1) 2020 $’000 3,345 (1) Capital plant and equipment includes the new Melbourne, Darwin and Gold Coast fertility clinic and day hospital projects in development. 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 plant 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 recognised in profit or loss on a straight line basis over the estimated useful lives of each part of an item of plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. 2.5 Right of Use Assets Leases as lessee $’000 Cost Opening balance at 1 July Additions / modifications Disposals Closing balance at 30 June Accumulated depreciation Opening balance at 1 July Depreciation for the year Disposals Closing balance at 30 June Carrying amount At 1 July (Opening balance) At 30 June (Closing balance) Buildings 2021 Equipment Total 57,705 12,397 (1,780) 68,322 (22,566) (6,323) 1,718 (27,171) 1,770 59,475 - 12,397 (1,780) - 70,092 1,770 (395) (176) - (571) (22,961) (6,499) 1,718 (27,742) 35,139 41,151 1,375 1,199 36,514 42,350 65 .87 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 2.5 Right of Use Assets (continued) $’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 / modifications 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 (Adjusted opening balance) At 30 June (Closing balance) Buildings 2020 Equipment Total - 46,143 - - 46,143 - 46,143 9,469 2,132 (39) 57,705 - (17,360) (17,360) (5,245) 39 (22,566) - 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 28,783 36,514 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. 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. 88. 66 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 2.5 Right of Use Assets (continued) Amounts recognised in profit and loss Depreciation on right of use assets Interest on lease liabilities Expenses relating to low value assets Amounts recognised in statement of cash flows Payments of lease liabilities Extension options 2021 $’000 6,499 1,386 89 7,569 2020 $’000 5,640 1,046 77 7,202 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 $5.1 million. 2.6 Intangible assets $’000 2021 Net book value Balance at 1 July 2020 Amortisation expense Balance at 30 June 2021 At 30 June 2021 Cost Accumulated amortisation and impairment losses Balance at 30 June 2021 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 Accumulated amortisation and impairment losses Balance at 30 June 2020 Software Goodwill Software Trademark Total 233,169 - 233,169 233,169 - 233,169 229,108 - 4,061 - 233,169 233,169 - 233,169 9,151 (2,189) 6,962 14,046 (7,084) 6,962 8,151 2,894 - (1,894) 9,151 14,046 (4,895) 9,151 19,845 - 19,845 19,845 - 19,845 19,845 - - - 19,845 19,845 - 19,845 262,165 (2,189) 259,976 267,060 (7,084) 259,976 257,104 2,894 4,061 (1,894) 262,165 267,060 (4,895) 262,165 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. 67 .89 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 2.6 Intangible assets (continued) International Financial Reporting Standards Interpretations Committee final agenda decisions not yet adopted The International Financial Reporting Standards Interpretations Committee (IFRIC) issued a final agenda decision, Configuration or customisation costs in a cloud computing arrangement. The decision discusses whether configuration or customisation expenditure relating to cloud computing arrangements is able to be recognised as an intangible asset and if not, over what time period the expenditure is expensed. The Group’s accounting policy has historically been to capitalise all costs related to cloud computing arrangements as intangible assets in the Statement of Financial Position. The adoption of this agenda decision could result in a reclassification of these intangible assets to either a prepaid asset in the Statement of Financial Position and/or recognition as an expense in the Statement of Comprehensive Income, impacting both the current and/or prior periods presented. As at 30 June 2021, the Group has not adopted this IFRIC agenda decision. The impact of the change is not reasonably estimable as the Group has yet to complete its assessment of the impact of the IFRIC agenda decision. The Group expects to adopt this IFRIC agenda decision in its half year financial statements ending on 31 December 2021. 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. 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. 90. 68 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 2.6 Intangible assets (continued) The following CGUs were tested for impairment during the year: Goodwill and trademark allocated to: Australia Ultrasound International 2021 $’000 219,030 28,232 5,752 253,014 2020 $’000 219,030 28,232 5,752 253,014 Impairment testing assumptions 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 10.4% (FY20: 10.5%) for the Australian CGU, 10.4% (FY20: 11.0%) for the Ultrasound CGU and 11.1% (FY20: 10.5%) 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 FY22 budget, projected for four years plus a terminal value. The FY22 budget reflects management’s best estimate of forecast operating performance having regard to the IVF markets in Australia and Malaysia, anticipated ultrasound activity and economic uncertainties during and post the COVID-19 pandemic. - A long-term growth rate into perpetuity of 2.5% (FY20: 2.5%-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. Result of Impairment testing The recoverable amount of all CGU’s are deemed recoverable. 69 .91 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 Provision for employee benefits 2021 $’000 5,483 5,227 10,710 1,239 1,239 11,949 2020 $’000 4,021 5,421 9,442 1,037 1,037 10,479 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 grant 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. 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. 92. 70 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 3.2 Share-based payments (continued) 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 (2021 Plan) 16 October 2020 (2020 Plan) 16 October 2019 (2019 Plan) 20 December 2018 (2018 Plan) 29 January 2018 (2017 Plan) 17 March 2017 EPS - Subject to meeting certain EPS hurdles and 3 year service period to 30 June 2023 TSR - Subject to Total Shareholder Return hurdles and a 3 year service period to the 11th trading day after the FY23 results announcement 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 71 .93 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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) 2021 $0.61 $0.32 $0.62 40% 16% 6 0.00% 0.13% 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% 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: 2021 Grant Date 29 Jan 2018 20 Dec 2018 16 Oct 2019 16 Oct 2020 Expiry Date 30 June 2020 30 June 2021 30 June 2022 30 June 2023 Balance at 1July 2020 47,605 134,531 368,012 - 550,148 Granted during the year - - - 901,521 901,521 Lapsed during the year (47,605)1 (94,172)2 - - (141,777) Forfeited during the year - - - - - Balance at Vested 30 June during the 2021 year - - 40,359 - 368,012 - - 901,521 - 1,309,892 (1) (2) TSR vesting conditions for performance rights granted in FY18 were not satisfied therefore these rights lapsed. EPS vesting conditions for performance rights granted in FY19 were not satisfied therefore these rights lapsed. 2020 Grant Date 17 Mar 2017 29 Jan 2018 20 Dec 2018 16 Oct 2019 Expiry Date 30 June 2019 30 June 2020 30 June 2021 30 June 2022 Balance at 1July 2019 19,447 95,210 207,997 - 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) (2) (3) TSR vesting conditions for performance rights granted in FY17 were not satisfied therefore these rights lapsed. EPS vesting conditions for performance rights granted in FY18 were not satisfied therefore these rights lapsed The performance rights for Brett Comer (Chief Operating Officer) were forfeited due to resignation and departure on 27 March 2020. 94. 72 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 3.3 Key management personnel Compensation Short-term employee benefits Post-employment benefits Share-based payments Total key management personnel compensation 2021 $ 2,483,141 128,914 114,476 2,726,531 2020 $ 2,194,168 199,074 5,971 2,399,213 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. 73 .95 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 Net finance costs 4.2 Financial risk management 4.5 Cash and cash equivalents 4.3 Borrowings 4.1 Share capital and reserves Opening balance at 1 July 2019 Shares issued Capital raising fees Closing balance at 30 June 2020 Opening balance at 1 July 2020 Closing balance at 30 June 2021 Number of shares issued 235,785,884 153,848,956 - 389,634,840 389,634,840 389,634,840 $’000 428,757 80,001 (1,972) 506,786 506,786 506,786 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. 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. 96. 74 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 4.1 Share capital and reserves (continued) 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 2021 Number of shares subject to escrow (m) 14.3 1.2 15.5 Escrowed shares (as a % of shares on issue 3.7% 0.3% 4.0% Number of shares subject to escrow (m) 15.0 1.5 16.5 30 June 2020 Escrowed shares (as a % of shares on issue) Escrowed shares (as a % 3.8% 0.4% 4.2% FY21 Includes 1.0m shares subject to escrow held by Richard Henshaw (Executive Director) (FY20:1.0m shares) (1) (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 - 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. - 75 .97 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 4.1 Share capital and reserves (continued) 2. Shares equivalent to 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. 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 40.1% 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 - - - - Market 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. 98. 76 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 - - (14,971) - (14,971) Over 5 years 1,629 18,559 44,359 1,833 66,380 (1,629) (18,559) (48,704) (1,833) (70,725) (1,629) (18,559) (6,412) (1,205) (27,805) - - (27,321) (628) (27,949) Carrying amount $’000 Total Contractual cash flows $’000 Within 1 year 1-5 years $’000 $’000 $’000 19,279 25,503 38,631 1,800 85,213 (19,964) (25,503) (42,417) (1,800) (89,684) (457) (25,503) (2,545) (600) (29,105) (19,507) - (20,360) (1,200) (41,067) - - (19,512) - (19,512) 2021 Non-derivative financial liabilities Secured bank loans Trade and other payables Lease liabilities Contingent consideration 2020 Non-derivative financial liabilities Secured bank loans Trade and other payables Lease liabilities Contingent consideration Foreign exchange risk The Group is not exposed to material levels of foreign currency risk at the reporting date or during the financial year. 77 .99 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 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 2021, there was no fixed interest rate exposure following the closure or maturity of the $50 million of interest rate swaps during FY20. There were no fixed interest rate swaps in place at 30 June 2021 (FY20: nil). 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 2021 $’000 1,754 (44,359) (42,605) 7,007 (1,629) 5,378 2020 $’000 2,004 (38,631) 36,627 13,068 (19,279) (6,211) Cash flow sensitivity analysis for variable rate instruments A reasonable possible change of a 100 basis points in interest rates at the reporting date would have increased /(decreased) equity and profit or loss by $53,780 (FY20: $62,110). 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. 4.3 Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least twelve months after the reporting date, the loans and borrowings are classified as non-current. 100. 78 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 4.3 Borrowings (continued) Total loan facilities available to the Group in Australian dollars $’000 Syndicated Debt facility(1) Working capital facility Accordion facility(2) Total loan facilities Borrowings Borrowings Capitalised finance facility fees Total borrowings 2021 2020 Limit Utilised Limit Utilised 40,000 5,000 40,000 85,000 110,000 5,000 40,000 155,000 500 1,129 - 1,629 1,629 - 1,629 16,000 3,279 - 19,279 19,279 (336) 18,943 In August 2020, the Group right sized and reduced the $110m Syndicated Debt Facility to $40m. (1) (2) An un-committed $40m accordion facility for acquisition and capital expenditure purposes. 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. As at 30 June 2021, the Group is compliant with its financial undertakings. As at 30 June 2021, the Group had $3,165,022 of bank guarantees in place (FY20: $2,969,000). Reconciliation of movements of liabilities arising from financing activities $’000 Loans Lease liabilities Balance at 1 July 2020 19,279 38,631 Additions Principal repayments 11,000 13,297 (28,650) (7,569) Total interest bearing loans and borrowings 57,910 24,297 (36,219) Other Balance at 30 June 2021 - - - 1,629 44,359 45,988 Recognition and measurement Derivative financial instruments, including hedge accounting The Group may hold 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. 79 .101 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 4.3 Borrowings (continued) 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. 4.4 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 2021 $’000 1 725 - 341 1,386 2,452 2,451 (1) Includes interest and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. 4.5 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 Fertility Solutions Earn-out Provision for expected credit losses 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 102. 2021 $’000 7,007 1,754 8,761 2021 $’000 25,505 12,891 1,065 678 84 390 40,613 640 (268) (1,958) 1,470 3,557 44,054 2020 $’000 11 3,272 1,087 313 1,046 5,718 5,707 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 80 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 Section 5 Our Business Portfolio This section provides further insight into the legal structure and group of subsidiary companies. 5.1 Controlled entities 5.3 Parent equity 5.2 Investments accounted for using the equity method 5.1 Controlled entities Parent entity Monash IVF Group Limited Controlled entities 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 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 Hobart IVF Pty Ltd 5.4 Deed of cross guarantee Place of business/country Australia Place of business /country 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 Ownership interest 2021 2020 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% 90% 100% 100% 100% 100% 100% 100% 100% 100% 57.4% .103 81 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 5.1 Controlled entities (continued) Controlled entities Gold Coast Ultrasound for Women Pty Ltd Monash IVF Asia Pte Ltd Monash IVF South Malaysia Pte Ltd Place of business /country Australia Singapore Malaysia 5.2 Investments accounted for using the equity method 2020 Ownership interest 2021 51% 90% 62% 51% 90% 62% Principal Activity Ownership Interest % Share of Net Profit/Loss $’000 Fertility Services 2021 25% 2020 25% 2021 55 2020 205 Name of company Compass Fertility 5.3 Parent entity As at 30 June 2021 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 2021 $’000 13,977 - 13,977 - 494,365* 6,006 27,153 521,518 506,786 14,732 521,518 2020 $’000 11,189 - 11,189 2,472 541,171* 4,952 25,447 515,724 506,786 8,938 515,724 *Includes Intercompany balances with its subsidiaries, as at 30 June 2021, 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 2021 $’000 613 2020 $’000 3,345 Parent entity guarantees in respect of the debts of its subsidiaries The parent entity has entered into a Deed of cross guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries 104. 82 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 5.4 Deed of cross guarantee The below listed entities are parties to a Deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (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’): - Monash IVF Group Ltd - Monash IVF Group Acquisition Pty Ltd Healthbridge Enterprises Pty Ltd - Healthbridge Shared Services Pty Ltd - Healthbridge IVF Holdings Pty Ltd - Healthbridge Repromed 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 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 - - MVF Sunshine Coast Pty Ltd 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: .105 83 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 5.4 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 Deferred tax asset Intangible assets Total non current assets Total assets Current liabilities Trade and other payables Borrowings Lease liabilities Current tax payable Contingent consideration Employee benefits Total current liabilities Non current liabilities Borrowings Lease liabilities Deferred tax liability Contingent consideration Employee benefits Total non current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2021 $’000 28,608 (9,273) 19,335 - - - 19,335 (117,917) 19,335 (8,182) (106,764) 5,629 8,931 - 4,038 18,598 13,174 778 23,187 42,321 11,251 254,224 344,935 363,533 25,822 1,629 5,749 2,943 1,205 10,695 48,043 - 38,519 11,885 628 1,215 52,247 100,290 263,243 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) (106,764) 263,243 506,786 (136,779) (117,917) 252,090 As at 30 June 2021, the Deed of cross guarantee Group has a net current asset deficiency of $19,699,000 (FY20: $12,563,000). Refer to the basis of preparation note in relation to going concern considerations. 106. 84 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 Section 6 Other disclosures 6.1 Auditors’ remuneration 6.4 Reporting entity 6.2 Events occurring after the reporting period 6.5 Basis of preparation 6.3 Commitment and contingencies 6.6 New standards and interpretations 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 6.2 Events occurring after the reporting period 2021 $ 2020 $ 273,500 270,000 128,650 177,000 10,600 412,750 11,122 458,122 On 24 August 2021, a fully franked final dividend of 2.1 cents per share was declared. The record date for the dividend is 10 September 2021 and the payment date for the dividend is 8 October 2021. 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 Commitment and contingencies As announced to the ASX on 23 December 2020, Monash IVF Group became aware that it and certain of its subsidiaries have been named as defendants in proceedings filed in the Supreme Court of Victoria in relation to, or in connection with, the Group’s non-invasive pre-implantation genetic screening technology (Ni-PGT or cell-free PGT-A). The proceedings filed makes a series of allegations against Monash IVF Group in relation to the Ni-PGT testing including that patients who had embryos classified as aneuploid as a result of Ni-PGT testing may have had embryos destroyed or did not proceed to embryo transfer. Ni-PGT testing was suspended in October 2020. The Group has filed the defence in accordance with the Court’s directions. The Group has notified its insurers of the claim. The Group has provided for associated costs expected to be incurred in defending the claim. The claim does not specify an amount of damages and it is not currently possible to determine the ultimate impact of this claim, if any, on the Group. .107 85 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 6.4 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’). 6.5 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 2021. 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 2021 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 until the date on which control ceases. The acquisition method of accounting is used to account for business combinations by the Group. Intra-group balances and transactions, arising from intra-group transactions are eliminated at consolidation. Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The Group’s interests in equity-accounted investees comprise interests in associates. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Interests in associates and the joint venture are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity accounted investees, until the date on which significant influence ceases. 108. 86 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 6.5 Basis of preparation (continued) 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. 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 2.6 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 2.1. (iii) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. .109 87 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report Monash IVF Group Limited Notes to the Consolidated Financial Statements continued Notes to the Consolidated Financial Statements for the year ended 30 June 2021 6.5 Basis of preparation (continued) (iv) 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. (v) 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 Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of- use asset has been reduced to zero. Going concern As at 30 June 2021, the group has a net current asset deficiency of $18,579,000 (FY20: $7,197,000). 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 operations, 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 Directors have considered forecast cash flow scenarios (including adverse downside scenarios due to COVID- 19) 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. 6.6 New standards and interpretations A number of new standards are effective for annual periods beginning after 1 July 2021 and earlier applications permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following new and amended standards are not expected to have a significant impact on the Group’s consolidated financial statements. Reference to Conceptual Framework (Amendments to AASB 3) • • Onerous contracts – Cost of Fulfilling a Contract (Amendments to AASB 137) • • Property, Plant and Equipment: Proceeds before Intended Use (Amendments to AASB 116) Classification of Liabilities as Current or Non-current (Amendments to AASB 101) 110. 88 Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Monash IVF Group Limited Directors’ Declaration Directors’ Declaration for the year ended 30 June 2021 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 77 to 110 and the Remuneration report on pages 40 to 56 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 2021 and of its performance for the financial year ended on that date; and complying with Australian Accounting Standards, the Corporations Regulations 2001; and (ii) (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. 3. 4. 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. 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 2021. The Directors draw attention to page 108 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 in Melbourne and Sydney, 24th day of August 2021 Mr. Richard Davis Chairman Mr. Michael Knaap Chief Executive Officer and Managing Director 24 August 2021 24 August 2021 .111 89 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report112. KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2021 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • 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. 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. 90 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2021 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • 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. 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. 90Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care..113 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 2021 the Group’s balance sheet includes goodwill contained within three cash generating units (CGUs) – Australia, International and Ultrasound. A key audit matter for us was the Group’s annual testing of goodwill for impairment, given the size of the balance (being 66% of total assets). We focused on the significant forward-looking assumptions the Group applied in its value in use models, including: • Forecast cash flows, growth rates and terminal growth rates in light of market conditions impacting each CGU and continued economic uncertainties during and post the COVID-19 pandemic. These conditions impact our consideration of forecasting risk; and • Discount rates, which vary according to the conditions and environment the specific CGU is subject to from time to time. The models are largely manually developed, use adjusted historical performance and a range of internal and external sources as inputs to the assumptions. Modelling using forward-looking assumptions tends to be prone to greater risk for potential bias, error and inconsistent application. Where the Group has not met prior year forecasts in relation to a specific CGU we factor this into our assessment of forecast assumptions. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Our procedures included: • We considered the appropriateness of the Group’s value in use methodology to perform the annual test of goodwill for impairment against the requirements of the accounting standards. • We assessed the integrity of the value in use models used, including the accuracy of the underlying calculations formulas. • We met with management and those charged with governance to understand the impact of COVID-19 on each CGU, including its expected impact on forecast results, particularly in relation to the International CGU. • We compared the forecast cash flows contained in the value in use models to Board approved forecasts. • We assessed the Group’s underlying methodology and documentation for the allocation of corporate costs and corporate assets to each CGU, for consistency with our understanding of the business and the criteria in the accounting standards. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts included in the models. • We considered the sensitivity of the models by varying key assumptions, such as forecast cash flows, growth rates and discount rates, within a reasonably possible range. We did this to identify those assumptions at higher risk of bias or 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 and growth assumptions in light of the expected continuation of uncertainties arising from the COVID-19 global pandemic. We used our knowledge of the Group, business and customers and our industry experience. • Working with our valuation specialists, we: - independently developed a comparable discount rate range from publicly available 91Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report114. market data for comparable entities and adjusted by specific risk factors to the Group and the industry it operates in; - independently assessed the growth rates based on the industry in which the Group operates and current economic environment; and - compared the implied multiples for comparable entities to the implied multiples from the Group’s value in use models. • We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. 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 (including the Remuneration Report), Appendix 4E and Corporate Governance Statement. The Chairman’s Report, Managing Director & CEO’s Report, Financial Overview, Chief Financial Officer’s 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 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 Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. 92Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care..115 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 from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Monash IVF Group Limited for the year ended 30 June 2021 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 within the Directors’ report for the year ended 30 June 2021. 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 KPMG Chris Sargent Partner Melbourne 24 August 2021 93Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report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, 2021. 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 Ordinary Shares 1,488 2,627 1,040 1,255 114 6,524 958,799 7,071,020 8,065,210 34,901,439 323,125,376 374,121,844 % of issued Capital .26% 1.89% 2.16% 9.33% 86.37% 100.00% The number of security investors holding less than a marketable parcel of 521 securities ($0.96 on 30/9/2021) is 552 and they hold 174,198 securities. 116. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. Shareholder Information continued Shareholder Information continued 20 Largest Shareholders – Ordinary Shareholders Rank 1 Name J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED ARGO INVESTMENTS LIMITED BNP PARIBAS NOMINEES PTY LTD CS FOURTH NOMINEES PTY LIMITED BRISPOT NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 BNP PARIBAS NOMS PTY LTD UBS NOMINEES PTY LTD NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> PACIFIC CUSTODIANS PTY LIMITED IPPOLITI PTY LTD VOLLENHOVEN INVESTMENTS PTY LTD MR PRASHANT NADKARNI DR ROBERT IAN MCLACHLAN + MRS EDWINA MARGARET MCLACHLAN 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 No. of fully paid shares 66,595,376 65,624,403 54,722,835 41,179,976 19,982,646 18,851,171 6,784,523 5,388,019 4,879,377 3,407,584 3,199,536 2,483,708 2,474,369 2,011,336 1,478,787 1,461,484 1,385,944 % of issued Capital 17.09% 16.84% 14.04% 10.57% 5.13% 4.84% 1.74% 1.38% 1.25% .87% .82% .64% .63% .52% .38% .38% .36% BNP PARIBAS NOMINEES PTY LTD 1,384,809 .36% 19 PAYNE MEDIA PTY LTD BNP PARIBAS NOMINEES PTY LTD 20 Total for Top 20 Total other investors Grand Total Substantial Shareholders 1,300,850 1,300,000 305,896,733 88,775,232 .33% .33% 78.50% 21.50% 389,671,965 100.00% As at 30 September 2021, 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 5 Name Allan Gray Australia Pty Ltd Challenger Limited Lennox Capital Partners Pty Ltd BlackRock Group Argo Investments Limited Voting Rights No. of fully paid shares 51,858,105 30,652,394 28,634,592 27,156,042 19,982,646 % of issued Capital 13.31% 7.87% 7.35% 6.96% 5.13% In accordance with the Constitution, each member present at a meeting (whether in person, by proxy, by power of attorney or by a duly authorised representative), upon a poll, shall have one vote for each fully paid ordinary share. .117 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Report 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 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 Mr Neil Broekhuizen Mr Josef Czyzewski Dr Richard Henshaw Mr Michael Knaap Ms Zita Peach Ms Catherine West 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 118. Managing Director & CEO’s ReportChairman’s ReportYear in ReviewAbout UsLeading the future of reproductive care. .119 Monash IVF Group Annual Report 2021Our StrategyBoard of DirectorsOur PillarsManagement TeamFY21 Financial ReportFinancial OverviewChief Financial Officer’s Reportmonashivfgroup.com.au 

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