Nanosonics Annual Report 2014

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FY2014 Annual Report · Nanosonics

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ANNUAL REPORT

NANOSONICS LIMITED ABN 11 095 076 896

Contents

Financials at a glance

Nanosonics 2014 highlights

Chairman’s letter

CEO’s report

US regional highlights

Europe regional highlights

Asia Pacific regional highlights

trophon® EPR: innovative technology delivering improved standards of care

Clinical evidence

Information on the directors, company secretaries and senior management

Directors’ report

Corporate governance statement

Contents of the financial statements

Auditor’s independence declaration

Financial statements

Notes to the financial statements

Directors’ declaration

Independent auditor’s report to the members

Shareholder information

Glossary

Corporate directory and information for investors

103

104

106

108

109

Mission statement

We improve the safety of patients, clinics, their staff and
the environment by transforming the way infection prevention
practices are understood and conducted, and introducing
innovative technologies that deliver improved standards of care.

Company overview
Nanosonics (ASX: NAN) is developing a portfolio of decontamination products designed to reduce

the spread of infection. The Company owns intellectual property relating to a unique disinfection and

sterilisation technology which can be suited to a variety of markets.

Initial market applications are designed for the reprocessing of reusable medical instruments. The

Company’s first product, the trophon® EPR, is designed to disinfect ultrasound transducers and is

commercially available in Australia, New Zealand, the US, Europe and other markets.

Nanosonics Ltd is headquartered in Sydney, Australia with offices in the US and Europe.

Financials at a glance

The year in numbers

Up 44.3%

$21.5m

$14.9m

$12.3m

Up 22.6%
$20.1m

$16.4m

Up 63.5%
$13.9m

$13.5m

$8.5m

$7.5m

2012

2013

2014

2012

2013

2014

2012

2013

2014

TOTAL SALES

GROSS PROFIT

OPERATING EXPENSES

NET LOSSES

2012

2013

2014

$4.7m

$5.8m

$2.6m
Down
55.2%

Sales by region

Up 34%

$17.7m

$13.2m

$10.2m

Up 51%

$2.3m

$1.7m

$1.5m

Up >500%
$1.6m

$0.4m

$0.2m

2012

2013

2014

2012

2013

2014

2012

2013

2014

NORTH AMERICA

AUSTRALIA & NEW ZEALAND

EUROPE & OTHER COUNTRIES

nanosonics limited | annual report 20143

2014
$’000

2013
$’000

2012
$’000

2011
$’000

2010
$’000

2009
$’000

21,492

14,899

12,301

2,247

763

309

(7,571)

(6,428)

(4,799)

(981)

(284)

(121)

13,921

8,471

7,502

1,266

479

188

1,666

1,709

1,498

150

–

161

150

–

Revenue

Operating revenue

Less cost of sales

Gross profit

Other income

Government grants received

Other

Expenses

Operating expenses (excluding depreciation and amortisation)

(19,141)

(15,335)

(12,634)

(13,229)

(8,827) (9,867)

EBITDA

(1,845)

(5,366)

(4,982)

(11,963)

(8,187) (9,529)

Depreciation and amortisation

(975)

(1,044)

(914)

(1,010)

(771)

(419)

EBIT

Interest income

Interest expense

Operating loss before tax

Net income tax benefit

Operating loss after tax

Cash assets

(2,820)

(6,410)

(5,896)

(12,973)

(8,958) (9,948)

739

(555)

1,192

(517)

586

1,052

785 1,194

–

(2,636)

(5,735)

(5,310)

(11,921)

(8,173) (8,754)

(33)

631

707

–

(2,605)

(5,768)

(4,679)

(11,214)

(8,173) (8,754)

Cash and cash equivalents

21,233

24,064

29,310

12,356 21,144 13,881

Nanosonics 2014 Highlights

NEW
AGREEMENT

GE AND NANOSONICS ANNOUNCE NEW
MARKETING AND SALES AGREEMENT
FOR NORTH AMERICAN REGION

HEALTHCARE
INDUSTRY’S COMPANY
OF THE YEAR
NANOSONICS NAMED HEALTHCARE
INDUSTRY’S COMPANY OF THE YEAR
AT JANSSEN 2013 INDUSTRY
EXCELLENCE AWARDS

APPROVED

SOUTH KOREA’S MINISTRY
OF FOOD AND DRUG SAFETY
APPROVES trophon EPR
FOR USE

NEW
LEADERSHIP
MICHAEL KAVANAGH
COMMENCES AS CEO
AND PRESIDENT

FIRST UK
HOSPITAL ADOPTS
trophon® EPR
LEADING UK HOSPITAL,
KING’S MILL, ADOPTS
trophon EPR

AUSTRALIAN
STUDY HIGHLIGHTS
RISKS
AUSTRALIAN STUDY HIGHLIGHTS
RISKS OF CROSS INFECTION USING
CONVENTIONAL DISINFECTION

nanosonics limited | annual report 2014

GUIDELINES
UPDATED
NEW AMERICAN INSTITUTE OF
ULTRASOUND IN MEDICINE (AIUM)
GUIDELINES RECOMMEND “HYDROGEN
PEROXIDE NANODROPLET EMULSION”
(trophon EPR’S TECHNOLOGY) FOR
EFFECTIVE HIGH LEVEL
DISINFECTION WITHOUT
TOXICITY

trophon EPR
RECEIVES AWARD

IN GERMANY, trophon EPR
RECEIVED MANAGEMENT & KRANKENHAUS
AWARD 2014 IN LABOR AND
HYGIENE CATEGORY

STRATEGIC
PARTNERSHIP
NANOSONICS SIGNS STRATEGIC
PARTNERSHIP WITH MIELE
PROFESSIONAL TO DISTRIBUTE
trophon EPR IN GERMANY

TOP
HOSPITAL USE
40 OF 50 US TOP HOSPITALS
NOW USE trophon EPR

STUDY
PUBLISHED
STUDY PUBLISHED IN JOURNAL
OF INFECTION AND PUBLIC HEALTH
SHOWS trophon EPR MET A RANGE
OF MAJOR INTERNATIONAL
STANDARDS FOR HIGH LEVEL
DISINFECTION

Chairman’s letter

Institute of Ultrasound (AIUM) released updated guidelines

reinforcing stricter controls for HLD of ultrasound probes.

The AIUM is recognised and respected by the health

profession internationally and changes to guidelines from

organisations such as this are an important step towards

achieving our goal of establishing trophon EPR as the new

global standard of care for HLD of ultrasound probes.

Nanosonics, together with its global strategic partners

including GE Healthcare, Toshiba and Miele Professional, is

leveraging mounting clinical evidence to support high level

disinfection technologies like trophon EPR and the rejection

of traditional, toxic chemical methods.

There were notable highlights in all markets throughout

the year. As reported in August 2013, in North America,

I am pleased to present, on behalf of the Board of

the trophon EPR is now being marketed and sold by the

Nanosonics, our 2014 Annual Report.

Ultrasound Division of GE Healthcare and supported by a

The past year has seen significant evolution of the

substantial sales and marketing investment by GE Ventures.

Company’s growth and performance, with a strong

This realigned agreement has resulted in real momentum

emphasis on our international markets. The Nanosonics

in the North American market where sales increased

team has strengthened globally and the Board recognises

34% for the period. The trophon EPR is now installed at

the significant contribution of Mr Michael Kavanagh,

40 of the top 50 Hospitals in the US (US News & World

the CEO and President, together with a number of new

Report rankings).

international appointments in our European markets.

As recognition of healthcare acquired infections relating to

This 2014 Annual Report highlights achievements in each

ultrasound grows, audit compliance has become crucial.

and every dimension of the Company’s activities which have

Customers using the trophon EPR achieved successful

resulted in a year of strong financial results and impressive

audits with no known rejections from third party auditors

achievements within our overall strategic plan. On a daily

(The Joint Commission). This is an important endorsement

basis we see confirmation of the growing awareness of the

for our product.

need for compliance with infection control guidelines and

Market penetration is tracking well in Europe where we

the increasing recognition that the automated trophon EPR

have employed dedicated Country Managers to commence

is now the emerging standard of care.

market development in the UK, Germany and France. Sales

The awareness of imaging-related healthcare acquired

in the region showed a five fold increase over last year,

infections continues to grow along with a global trend

supported by the adoption of trophon EPR in the UK where

towards strengthening requirements in guidelines for high

Nanosonics has strategic partnerships with Toshiba and GE

level disinfection (HLD). In May this year, the American

Healthcare, as well as growing direct sales.

nanosonics limited | annual report 20147

In March, a new strategic partnership for the German

Our commitment is to leverage our technical capabilities,

market with Miele Professional, a world leading authority

our R&D pipeline and our evolving distribution network to

and provider of medical disinfection and sterilisation

drive shareholder value now and well into the future. The

equipment, was announced. Miele launched the

market for microbial control is a large and growing one and

trophon EPR at the DGKH-congress (German Society of

Nanosonics is well positioned to help our customers and

Hospital Hygiene) in Berlin in March, and has now started

partners meet the increasing demands for better infection

broad market awareness and education programs across

control with integrated solutions underpinned by strong

the country.

annuity revenue.

Sales in Australia and New Zealand grew 51% driven by

I take this opportunity to recognise the enormous efforts

sales in leading corporate imaging centres as well as the

and talent of the growing Nanosonics team and the

public sector, and were supported by an underlying

important contribution of our Board. Nanosonics has

growth in sales of consumables as the installed base

achieved many milestones during the year and a strong

continued to grow.

2014 result.

Well earned recognition of Nanosonics’ achievements came

Finally, our success to date has been underpinned by

when the Company was named the Australian healthcare

our shareholders whose support and shared vision will

industry’s Company of the Year for 2013 at the Janssen

enable Nanosonics to continue on the path of innovation

Industry Excellence Awards.

and growth.

The Company achieved its first global Environmental

Management System (EMS) certification and is now

certified to ISO14001-EMS, an important certification

for healthcare organisations which require suppliers to

demonstrate their commitment to the environment. This

certification highlights the many environmental benefits

associated with trophon EPR.

Nanosonics continues to demonstrate world leading

expertise across the full spectrum of its activities which is

driving our increasing commercial success into multiple

global markets.

Mr Maurie Stang

Chairman

Sydney

21 August 2014

CEO’s report

In light of anticipated changes to UK guidelines and new

strategic partnerships, we’re looking forward to continued

growth in the European region over the next year.

Plans for expansion in Asia Pacific are beginning to take

shape. Regulatory approvals were received for both

Korea and Japan in the period and we are finalising

commercialisation strategies for these markets. Japan is a

significant market globally from an ultrasound perspective

and hence represents an important opportunity for

our technology.

Throughout the year, market fundamentals have

strengthened the outlook for our flagship product, the

trophon EPR. These fundamentals are transforming our

The 2014 financial year has been a period of strong sales

business and, in the process, are creating an opportunity

growth and global expansion for Nanosonics. This year we

to establish trophon EPR as the global standard of care for

laid the foundations to support our next phase of growth

ultrasound disinfection. These fundamentals include:

and accelerate our transition from an emerging company

with proven technology to an internationally recognised

leader in the field of infection control.

Global sales momentum building

•

Growing awareness of imaging procedure Healthcare

Acquired Infections (HAIs).

•

Trends towards stricter controls for high level

disinfection (HLD) and for automation.

Global sales were up 44.3% at the end of the year with all

• Growing importance of risk mitigation.

regions contributing towards this growth. Sales were up

34% in North America, 51% in Australia and New Zealand,

and more than five fold in Europe and other countries.

In the first quarter we announced an updated marketing

and sales agreement with GE which included a significant

• Mounting clinical evidence for trophon EPR adoption.

• Growing recognition and adoption of trophon EPR.

•

Current toxic HLD solutions progressively being rejected

by customers and regulators.

investment by GE Ventures. Nanosonics is now working

Growing awareness

closely with GE Healthcare and GE Ventures to accelerate

Awareness of HAIs associated with imaging is growing. An

growth in the North American market which is a prime

increasing number of clinical studies demonstrate that, with

region for us.

Momentum is also building in Europe where the

appointment of dedicated Country Managers resulted in

growing sales figures for the region. The increase in sales

traditional methods of ultrasound probe disinfection, probes

can remain contaminated with pathogens and pose a risk of

cross infection. There have been reported cases of hepatitis

B and hepatitis C infections being transmitted and, in both

for the region was mainly due to adoption of trophon EPR in

cases, improper ultrasound transducer disinfection was

the UK where Nanosonics has strategic partnerships with

pinpointed as a likely cause.

Toshiba and GE Healthcare, as well as direct

sales operations.

In March we were delighted to announce a new strategic

partnership with Miele Professional for the German market.

Miele Professional is a world leading authority and provider

of medical disinfection and sterilisation equipment.

Trends towards stricter controls for HLD and
for automation

Guideline changes are key to establishing trophon EPR as

the global standard of care. As the issue of poor infection

control practices receives greater attention, moves to

nanosonics limited | annual report 20149

strengthen and tighten global regulations and guidelines for

•

Chemicals traditionally used in manual disinfection are

HLD are underway.

suboptimal and may pose a risk of cross contamination.

While a number of international healthcare authorities

•

Automated systems are more effective than manual

already recommend automated reprocessing over

methods, which are prone to human errors.

manual methods, changes to the American Institute of

Ultrasound (AIUM) guidelines reinforcing stricter controls

for ultrasound probe disinfection were a significant highlight

this year.

• The superior efficacy of trophon EPR.

We have included further details of the clinical evidence

that emerged during the past year in this report. We plan

to continue investing in this important aspect of our market

Furthermore, in the UK, health board reviews of ultrasound

growth strategy in FY15.

decontamination procedures and guidelines in England,

Scotland and Wales are under review. We expect the

resulting changes to be positive for trophon EPR as

they should also focus on implementing stricter, more

effective controls.

Growing importance of risk mitigation

HAIs are a huge financial burden. With the cost of

healthcare a major focus for governments, insurers and

consumers worldwide, healthcare facilities are increasingly

being required to publically report HAI-related data. As

this trend continues, risk mitigation and audit compliance

becomes increasingly recognized as an important factor in

accountable healthcare models.

In May, The Joint Commission (TJC), which is a third

party auditor in the US, released a Quick Safety advisory

highlighting improperly sterilised or high level disinfected

medical equipment as one of the top five non-compliant

accreditation requirements for 2013. On another very

positive note for trophon EPR, I’m pleased to report

that customers in the US have achieved uniform high

Growing recognition and adoption of trophon EPR

Our Strategic Growth Plan is tracking well. In the US,

trophon EPR is now installed at 40 of the 50 top ranked

hospitals (US News & World Report). Key to the plan is

our strategic partnerships with global brands that position

us to penetrate important markets. While our partnerships

with GE in North America and Toshiba in the UK are now

well established, in March we were delighted to sign a new

agreement with Miele Professional in Germany.

Working with these leading global brands is a real testimony

to the innovation of the trophon EPR and validation of its

market potential.

Nanosonics received further recognition this year when we

were named the Australian healthcare industry’s Company

of the Year for 2013 at the Janssen Industry Excellence

Awards while in Germany the trophon EPR received the

M&K Award 2014 in the Labor and Hygiene category.

Management & Krankenhaus is the leading publication for

decision makers in the German health industry.

compliance and no known rejections from TJC to date.

Current toxic HLD solutions progressively being

In essence, this validates that adoption of the trophon

rejected by customers and regulators

EPR provides high levels of assurance of compliance for

There is a growing awareness of the occupational health

our customers.

Mounting clinical evidence

Clinical evidence supporting adoption of trophon EPR is a

key driver of changes to guidelines. During the past year,

clinical evidence continued to mount and a number of

risks for healthcare professionals using toxic chemicals

to perform traditional ultrasound disinfection procedures.

Consequently, customers and regulators are turning to safer

alternatives such as the trophon EPR, which addresses the

OHS risks posed by traditional chemical soaking methods.

significant studies were published highlighting the efficacy

Trend towards Point of Care adoption

issues and OHS risks associated with traditional disinfection

The toxic chemicals used in traditional disinfection methods

practices. To summarise, these studies showed:

involve soaking in chemicals and usually require a separate

room with ventilation. According to reports to TJC’s Office

Focusing the varied activities of a global technology

of Quality Monitoring, space issues are a contributing factor

company like Nanosonics is crucial to our success. During

preventing proper sterilisation or high level disinfection of

the year, the Senior Leadership Team formalised a new

medical equipment.

One of the many benefits of trophon EPR is that it is safe

and easy to use at the point of care. This not only saves

space, it creates workflow efficiencies and eliminates

transportation of probes, thus reducing the potential for

probe damage.

Operations

Corporate Mission statement supported by five Core

Corporate Objectives. These objectives are designed to

provide a clear direction to support our business and are:

Customer Experience, Product Innovation, Operational

Excellence, People Engagement and Value Creation.

Specific core strategies underpinning the objectives have

also been developed and are now directing the three year

growth plan for the Company.

Operating expenses of $20.1 million and a net loss of $2.6

million represent a substantial reduction of about 55% that

Outlook

supports our path to profitability. R&D activity focused on

refining and improving our product offering and identifying

Looking forward, our aim is to consolidate and expand on

the achievements of FY14 to create sustainable value

new opportunities to leverage our platform technology into

for shareholders.

the second generation of products. The company has a

I’m confident we have the foundations in place to achieve

strong and growing intellectual property portfolio. Since

our goals and support our growth strategies, and that our

April 2013, the number of granted/accepted patents has

device is uniquely positioned to take advantage of the

more than doubled – from 47 to 95.

tremendous opportunities that are presenting as the market

Validation work with ultrasound probe manufacturers

fundamentals strengthen.

also progressed and the trophon EPR is now approved

I would like to thank everyone in the Nanosonics team for

for use with more than 600 probe models across 14

their dedication and efforts this year. This is an exciting

manufacturers. This is an important selling point for our

time for the company as we emerge as a fully-fledged

product. In addition, the figure includes surface probes,

international medical technology organisation. We remain

which have the potential to become an important part of

focused on the necessary activities as well as building

our model as evidence emerges supporting the requirement

company and shareholder wealth into the future.

for disinfecting these devices.

We continued to implement our strategic LEAN program

to enable scalable manufacturing processes. In addition

to achieving improved planning and visibility, we achieved

100% on time delivery throughout the year.

Regulatory and Quality Assurance highlights for the year

Michael Kavanagh

included successful NRTL, KFDA and TüV recertification

CEO and President

audits as well as audits by Miele Professional and the

Korean Ministry of Food and Drug Safety. In addition, in

August we announced regulatory approval in Japan.

Sydney

21 August 2014

Throughout the year we also expanded our global

customer support and service capabilities into each of our

international markets with service infrastructure now set up

across all regions.

nanosonics limited | annual report 2014US regional highlights

2014 was an exciting time in the US. The strategy of implementing trophon EPR with large hospital groups is paying off.

Some key highlights this year include:

•

Amended contract executed with GE Healthcare to

•

The trophon EPR was presented at national trade

continue as exclusive North America distributor with GE

shows and more than 20 regional infection control

funding the Nanosonics US Sales Force.

scientific meetings.

•

GE Healthcare and GE Ventures sales and

• Service and repair capability in Indianapolis completed

marketing investment to accelerate the North American

and operational.

growth strategy.

•

trophon EPR installed at 40 of the top 50 Ob/Gyn best

US hospitals.*

Luminary US Institution, The Johns Hopkins Hospital, embraces trophon EPR
“The trophon EPR has been the biggest thing to hit ultrasound since colour Doppler,” said the head of ultrasound radiology

at The Johns Hopkins Hospital (JHM) following the introduction of trophon EPR.

Headquartered in Baltimore, JHM is a $6.7 billion integrated global health enterprise and widely regarded as one of

the world’s leading hospitals. It was ranked by U.S. News & World Report as the best overall hospital in America for 21

consecutive years (1991-2011), and was rated as the top institution in 2013.

After an evaluation of ultrasound probe disinfection practices, the hospital’s Radiology Department decided to move

away from chemical soaking methods and purchased 26 trophon EPR units to

reprocess its intracavitary and surface transducers.

“The amount of time and energy needed for chemical soaking was greatly

impacting patient workflow to the point where I was pushing to hire a person to

just HLD the transducers,” said Robert De Jong Jr., RDMS, RDCS, RVT, Radiology

Technical Manager, Ultrasound.

“The chemicals were also creating a separation between layers of the transducer,

causing air to be introduced. This resulted in artefacts and degraded images.

I have not had to replace a transducer for these issues since the switch to the

trophon EPR.”

The hospital has experienced other benefits such as eliminating much of the protective gear that was required for chemical

soaking and being able to use the trophon EPR at the point of care. The latter means the department no longer needs a

room dedicated to HLD. Word about the trophon EPR spread throughout the hospital and JHM now has more than 40 units

across its radiology, obstetrics/gynaecology and emergency departments.

“The reduced time waiting for the transducer to be ready has been a major plus and staff members love the ease of use of

the trophon EPR. We’re now trying to ‘trophon’ every transducer after use, not just endocavitary,” said Mr De Jong.

“Trophon was an answered prayer! It has solved so many HLD issues while offering more complete and safer protection for

our patients and staff – in half the time.”

* US News and World Report

Europe regional highlights

Strategic partnerships with leading global brands is a key part of our global expansion strategy. Our partnership with

Toshiba is reaping rewards and the Company now has a number of UK sites with multiple trophon EPRs installed. In

March Nanosonics signed a strategic partnership with Miele Professional to distribute trophon EPR in Germany. Miele

conducted a national launch in March and has started broad market awareness and education programs for trophon EPR

across Germany.

Other key highlights this year include:

•

The trophon EPR has now been adopted in a number

•

In Germany,

of hospitals throughout the UK including key university

trophon EPR

hospitals in London and Cardiff.

•

Health board reviews are underway in England,

Scotland and Wales to amend ultrasound

decontamination procedures and guidelines following

MHRA alerts*. The changes, which will be released in

the foreseeable future, are expected to be positive for

trophon EPR.

received

Management &

Krankenhaus

Award 2014.

trophon EPR provides reassurance for staff and patients at King’s Mill Hospital
Achieving clinical governance goals is just one of the benefits experienced by the ultrasound department at King’s Mill

Hospital, UK following the installation of eleven trophon EPR units.

Staff also reported feeling reassured that probes are now being ‘deep cleaned’

in-line with international best practice. “We like this disinfection process

because it removes any user subjectivity, assuring staff that the disinfection

process is reproduced perfectly each and every cycle,” said Clinical Lead

Sonographer, Ann Allen.

“It has also had a positive impact on patient confidence as they know the probe

has been automatically reprocessed rather than manually cleaned.”

The 600 bed King’s Mill Hospital has one of the UK’s most highly regarded

ultrasound departments and turned to the trophon EPR when it was looking for

a solution to high level disinfect its probes following two MHRA alerts*. An initial

purchase of six units was quickly followed by a further five units.

“The trophon EPR is extremely easy to use and fits well into our workflow,” said Mrs Allen. “It has not caused any extension

in examination times, which is crucial in a busy ultrasound department.

“While there is an additional cost required to implement the trophon EPR versus the alternative HLD wipe system we

looked at, there are very significant cost savings year on year.”

* The first MHRA (Medicines and Healthcare products Regulatory Agency alert advised users to appropriately decontaminate all types of reusable ultrasound probes while the second

advised users ensure detergent and disinfectant wipes are compatible with the medical device to avoid damage to the plastic surfaces.

Asia Pacific regional highlights

The Australian market for the trophon EPR continued to grow this year. Two significant studies coming out of Australia

added to the mounting clinical evidence that will help us establish trophon EPR as the standard of care globally.

Some key highlights this year include:

•

The trophon EPR was approved for use in South Korea

•

Named the healthcare industry’s Company of the

following receipt of a product licence from the Korean

Year for 2013. The Janssen 2013 Industry Excellence

Food and Drug Administration (KFDA).

Awards recognise excellence in the commercialisation

•

Nanosonics successfully passed its first Environmental

of innovative healthcare solutions by Australian

Management System (EMS) certification audit and is

biotechnology companies.

now certified to ISO14001-EMS.

trophon EPR “offers the best disinfection procedure”
One of the major benefits of the trophon EPR is that it delivers effective, high level disinfection of the entire ultrasound

probe, including the shaft and handle. Some probe manufacturers advise against immersing the probe in liquid

disinfectant, which Dr Andrew Ngu, Principal of East Melbourne Ultrasound, said may pose a risk of cross infection

for patients.

Dr Ngu, who is also President elect for the International Society of Ultrasound in

Obstetrics and Gynaecology (ISUOG) and on the executive of the Australasian

Society of Ultrasound in Medicine (ASUM), has been using the trophon EPR

since February 2012.

“Before trophon we were using various methods, one of which was soaking the

probes in chemical solution,” Dr Ngu said. “It wasn’t very satisfactory as we

could only disinfect part of the probe.”

Dr Ngu co-authored a study which was presented at the ISUOG World Congress

in October 2013.

The study showed that more than 70% of manually disinfected probes still

showed signs of contamination on the handles, with a large portion of the contaminants being well known pathogens

including methicillin resistant Staphylococcus aureus (MRSA). In comparison, trophon EPR completely eliminated bacteria

on the probe handles.

“With the trophon EPR I can be assured that I’m giving patients the best service all round including, most importantly, the

best disinfection procedure for probes,” Dr Ngu said.

“The staff are also relieved they don’t have to do all the [protective equipment] procedures to protect themselves from the

chemical solution.

“It’s a very easy process to go through and we’re very happy with it. In fact, now we wouldn’t look at anything else.”

trophon® EPR: innovative technology delivering improved standards of care

Nanosonics’ trophon EPR provides fast, automated high level disinfection of ultrasound probes. The fully enclosed system

reduces the risk of chemical exposure and can be conveniently located at the point of care to improve clinic workflow.

nanosonics limited | annual report 201415

Fast

The trophon EPR product range

Auto

Fast automated high level

Nanosonics has a range of consumables and accessories

disinfection at point of care

to meet the needs of customers and allow them to more

Helps Protect

Fully enclosed system limits

exposure to harmful chemicals

Consistent

Quality assured

consistency

Traceability

Best practice

documentation solution

Probe Friendly

Probe friendly process. Compatible

with more than 600 probe models

Cost Efficient

Integrates into HLD process at

point of care and improves workflows

Effective

effectively provide and monitor the high level disinfection

process. These products expand Nanosonics’ offering in

the market and provide additional revenue streams from

service contracts and consumables supply.

trophon® Connect

trophon Connect software is an audit and accreditation tool

that enables disinfection data to be downloaded from the

trophon EPR to a PC to provide fast, non-editable reports.

trophon® Printer

The trophon Printer delivers an easy-to-use traceability

solution for quality system documentation requirements.

The trophon Printer can print up to four labels per

disinfection cycle based on the operator, site or procedure

preferences and links the probe and disinfection procedure

to the patient.

trophon® Wall Mount and trophon® Cart

Enables the trophon EPR to be mounted on a wall where

there are space constraints or makes the device fully mobile

for convenient point of care use.

Clinically validated trophon EPR disinfects

Chemical Indicators

both probe shaft AND handle

Environmentally Friendly

Chemical Indicators validate each disinfection cycle by

providing a qualitative colour change.

Harmless oxygen and water by-products.

Sonex™/NanoNebulant™

More than 70% recyclable components

The trophon EPR uses cartridges of Nanosonics’ proprietary

disinfectant liquid. Each cartridge is sealed and easy

to insert into the trophon EPR. The device pierces the

cartridge once the cartridge is inserted so the user does

not come into contact with the liquid. Empty cartridges

are recyclable.

Clinical evidence supporting adoption
of trophon EPR continues to mount

Changes to decontamination procedures and guidelines are an important factor in establishing trophon EPR as the new

standard of care.

These changes are starting to happen due to growing awareness of healthcare acquired infections (HAIs) related to imaging

procedures and recognition of the risks associated with improperly sterilised or high level disinfected medical equipment.

Most notable were the recent changes in the new guidelines from the American Institute of Ultrasound Medicine (AIUM).

The guidelines reinforce stricter controls for high level disinfection of ultrasound probes and included the statement “a

hydrogen peroxide nanodroplet emulsion might provide an effective high level disinfectant without toxicity”.

Clinical evidence is another important factor in driving these changes. During the last year some significant findings were

published highlighting the efficacy issues and OHS risks associated with traditional disinfection practices, as well as studies

that further support the need to adopt automated high level disinfection in ultrasound imaging.

3210jum_online_Layout 1 9/19/13 8:45 AM Page 1799

Journal of Antimicrobial Chemotherapy Advance Access published February 4, 2014

J Antimicrob Chemother
doi:10.1093/jac/dku006

ORIGINAL RESEARCH

Susceptibility of high-risk human papillomavirus type 16
to clinical disinfectants

Jordan Meyers1†‡, Eric Ryndock2†, Michael J. Conway2§, Craig Meyers2* and Richard Robison1

Evaluation of a Hydrogen Peroxide-Based
System for High-Level Disinfection of
Vaginal Ultrasound Probes

Stephen Johnson, MD, Matthew Proctor, MD, Edward Bluth, MD, Dana Smetherman, MD,
Katherine Baumgarten, MD, Laurie Troxclair, BS, Michele Bienvenu, BS

1Department of Microbiology and Molecular Biology, Brigham Young University, Provo, UT 84602, USA; 2Department of Microbiology and
Immunology, Pennsylvania State College of Medicine, Hershey, PA 17033, USA

*Corresponding author. Tel:

1-717-531-6240; Fax:

1-717-531-4600; E-mail: cmm10@psu.edu

†Authors contributed equally.
‡Present address: Department of Medicine, Brigham and Woman’s Hospital, Boston, MA 02115, USA.
§Present address: Department of Foundational Sciences, Central Michigan University, Mount Pleasant, MI 48859, USA.

Received 7 October 2013; returned 18 November 2013; revised 31 December 2013; accepted 6 January 2014

D
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Objectives—Because of the complex process and the risk of errors associated with the
glutaraldehyde-based solutions previously used at our institution for disinfection, our
department has implemented a new method for high-level disinfection of vaginal ultra-
sound probes: the hydrogen peroxide-based Trophon system (Nanosonics, Alexandria,
New South Wales, Australia). The aim of this study was to compare the time difference,
safety, and sonographers’ satisfaction between the glutaraldehyde-based Cidex (CIVCO
Medical Solutions, Kalona, IA) and the hydrogen peroxide-based Trophon disinfection
systems.

American Journal of Infection Control 41 (2013) S67-S71

Objectives: Little to nothing is known about human papillomavirus (HPV) susceptibility to disinfection. HPV is esti-
mated to be among the most common sexually transmitted diseases in humans. HPV is also the causative agent
of cervical cancers and other anogenital cancers and is responsible for a signiﬁcant portion of oropharyngeal can-
cers. While sexual transmission is well documented, vertical and non-sexual transmission may also be important.

Contents lists available at ScienceDirect

American Journal of Infection Control

Methods: Using recombinant HPV16 particles (quasivirions) and authentic HPV16 grown in three-dimensional
organotypic human epithelial culture, we tested the susceptibility of high-risk HPV to clinical disinfectants.
Infectious viral particles were incubated with 11 common clinical disinfectants, appropriate neutralizers were
added to inactivate the disinfectant and solutions were ﬁlter centrifuged. Changes in the infectivity titres of
j o u r n a l h o m e p a g e : w w w . a j i c j o u r n a l . o r g
the disinfectant-treated virus were measured compared with untreated virus.

American Journal of
Infection Control

Methods—The Institutional Review Board approved a 14-question survey adminis-
tered to the 13 sonographers in our department. Survey questions addressed a variety
of aspects of the disinfection processes with graded responses over a standardized 5-
point scale. A process diagram was developed for each disinfection method with seg-
mental timing analysis, and a cost analysis was performed.

Assessing the risk of disease transmission to patients when there is a failure
to follow recommended disinfection and sterilization guidelines

Results: HPV16 is a highly resistant virus; more so than other non-enveloped viruses previously tested. The HPV16
quasivirions showed similar resistance to native virions, except for being susceptible to isopropanol, the triple
phenolic and the lower concentration peracetic acid-silver (PAA-silver)-based disinfectant. Authentic virus and
quasivirus were resistant to glutaraldehyde and ortho-phthalaldehyde and susceptible to hypochlorite and the
higher concentration PAA-silver-based disinfectant.

Original research article

David J. Weber MD, MPH a, b,*, William A. Rutala PhD, MPH a, b
a Department of Medicine, University of North Carolina at Chapel Hill, Chapel Hill, NC
b Department of Hospital Epidemiology, UNC Health Care, Chapel Hill, NC

Conclusions: We present the ﬁrst disinfectant susceptibility data on HPV16 native virions, which show that com-
monly used clinical disinfectants, including those used as sterilants in medical and dental healthcare facilities,
have no effect on HPV16 infectivity. Policy changes concerning disinfectant use are needed. The unusually high
resistance of HPV16 to disinfection supports other data suggesting the possibility of fomite or non-sexual trans-
mission of HPV16.

Results—Nonvariegated analysis of the survey data with the Wilcoxon signed rank test
showed a statistical difference in survey responses in favor of the hydrogen peroxide-
based system over the glutaraldehyde-based system regarding efficiency (P = .0013),
ease of use (P = .0013), ability to maintain work flow (P = .026), safety (P = .0026),
fixing problems (P = .0158), time (P = .0011), and overall satisfaction (P = .0018).
The glutaraldehyde-based system took 32 minutes versus 14 minutes for the hydrogen
peroxide-based system; the hydrogen peroxide-based system saved on average 7.5 hours
per week. The cost of the hydrogen peroxide-based system and weekly maintenance
pays for itself if 1.5 more ultrasound examinations are performed each week.

Keywords: hospital sterilants, papillomavirus, cancer, glutaraldehydes, ortho-phthalaldehydes

Conclusions—The hydrogen peroxide-based disinfection system was proven to be more
efficient and viewed to be easier and safer to use than the glutaraldehyde-based system.
The adoption of the hydrogen peroxide-based system led to higher satisfaction among
sonographers.

Key Words:
Bronchoscopy
Health care-associated infection
Failure
Endoscopy

Introduction

Medical devices that enter body tissues should be sterile, whereas devices that contact mucous
membranes should be high-level disinfected between patients. Failure to ensure proper cleaning and
sterilization or disinfection may lead to patient-to-patient transmission of pathogens. This paper
describes a protocol that can guide an institution in managing potential disinfection and sterilization
failures.

Key Words—infection control; transvaginal ultrasound; ultrasound technology

Copyright (cid:31) 2013 by the Association for Professionals in Infection Control and Epidemiology, Inc.
Published by Elsevier Inc. All rights reserved.

Due to the speciﬁc life cycle requirements of human papilloma-
virus (HPV), infectious virus has been difﬁcult to produce in labora-
tories and an assay for infectious virus has only recently become
available. The ability to produce infectious virus outside of host
animals is a great beneﬁt to basic research; it often requires less
time and is more cost-effective. HPV has a life cycle stringently
tied to differentiated epithelial tissue. This has required the devel-
opment of special systems to make in vitro propagation possible.
Because of the historical difﬁculty in producing high enough titres
of infectious HPV particles and the lack of a suitable assay to test
for infectivity, little to nothing is known about HPV susceptibility to

valuation of the female pelvis with ultrasound involves both
transabdominal and transvaginal images for increased
specificity and sensitivity. Because nondisposable invasive
ultrasound probes are needed for transvaginal image acquisition,
there is a potential for contamination of these instruments with
blood, pathogens, or debris and, thus, cross-contamination in future
patients.

Each year in the United States, approximately 101 million medical
procedures are performed, including approximately 10.8 million
gastrointestinal endoscopies and approximately 440,000 bronchos-
copies.1 All invasive procedures involve contact by a medical device
or surgical instrument with a patient’s sterile tissue or mucous
membranes. A major risk of all such procedures is the introduction of
pathogens that can lead to infection. Failure to properly disinfect
or sterilize equipment carries not only the risk associated with
breach of host barriers but also a risk for person-to-person trans-
mission (eg, hepatitis B virus, hepatitis C virus, Salmonella spp,
Mycobacterium tuberculosis) and transmission of environmental
pathogens (eg, Pseudomonas aeruginosa, non-tuberculous mycobac-
teria, environmental fungi). Thus, achieving disinfection and sterili-
zation through the proper cleaning of used medical devices followed
by proper use of disinfectants and sterilization practices is essential
for ensuring that medical and surgical instruments do not transmit
infectious pathogens to patients.2,3

More than 45 years ago, Spaulding devised a rationale approach
to disinfection and sterilization of patient care items or equip-
ment.2-4 This classiﬁcation scheme is so clear and logical that it has
been retained and reﬁned and continues to be used when planning
methods for disinfection and sterilization. Spaulding divided
medical devices into 3 categories (ie, critical, semicritical, noncrit-
ical) based on the risk of infection involved in the use of the items.

* Address correspondence to David J. Weber, MD, MPH, 2163 Bioinformatics,

CB 7030, Chapel Hill, NC 27599-7030.

E-mail address: dweber@unch.unc.edu (D.J. Weber).
Publication of this article was supported by Advanced Sterilization Products (ASP).
Conﬂicts of interest: W.A.R. reports income from ASP and Clorox, and D.J.W.

reports income from Clorox.

disinfection. Disinfectants have been tested against many import-
ant viruses and these studies are important to public health as
they provide information that can be used to reduce the preva-
lence of infection, transmission and reinfection. Presently, hospi-
tals’ and other healthcare institutes’ use of disinfectants to
inactivate HPV is based on what is used for other viruses or simply
on what someone thinks should be effective. Two systems
(recombinant based and organotypic) have been developed to
produce high amounts of infectious HPV particles in the labora-
Critical devices are items that enter sterile tissue or the vascular
tory. Infectivity can now be measured by using reverse transcrip-
system and include surgical instruments, implants, and intravenous
tion quantitative PCR (RT-qPCR) that detects the viral E1^E4
Items in this category should be
or intra-arterial catheters.
transcript. Detection of this transcript signals infectious particles
purchased as sterile or should be sterilized by steam sterilization
that were able to achieve cell entry and start their early viral
(preferred). Semicritical items are those that come into contact
with mucous membranes or nonintact skin and include gastroin-
testinal endoscopes, bronchoscopes,
laryngoscope blades and
handles, and diaphragm ﬁtting rings. These medical devices should
be free of all microorganisms (ie, mycobacteria, fungi, viruses, and
bacteria), although small numbers of bacterial spores may be
present. The minimal requirement for semicritical items is high-
level disinfection using US Food and Drug Administration-cleared,
high-level chemical disinfectants. Noncritical items are those that
come in contact with intact skin but not mucous membranes
(eg, bedpans, blood-pressure cuffs, bed rails). Such items should be
undergo low-level disinfection after use when shared by different
patients. The Spaulding classiﬁcation provides an excellent guide
for disinfection and sterilization of medical devices, but it should be
noted that the scheme is an oversimpliﬁcation and that preventing
transmission of infection by medical devices may require additional
modiﬁcations.3,5

1 of 5

Multiple studies in many countries have documented lack of
compliance with established guidelines for disinfection and steril-
ization.3 Failure to comply with scientiﬁcally based guidelines
has led to numerous outbreaks. Deﬁciencies leading to infection
have occurred either from failure to adhere to scientiﬁcally based
guidelines or misuse of the disinfection or sterilization processes.6-9
Patient notiﬁcations because of improper reprocessing of semi-
critical (eg, endoscopes) and critical medical instruments have
occurred regularly and generally involve single institutions but may
also involve multiple institutions.10 Seoane-Vazquez et al reported

# The Author 2014. Published by Oxford University Press on behalf of the British Society for Antimicrobial Chemotherapy. All rights reserved.
For Permissions, please e-mail: journals.permissions@oup.com

http://dx.doi.org/10.1016/j.ajic.2012.10.031

Received January 8, 2013, from the Departments
of Radiology (S.J., M.P., E.B., D.S., L.T., M.B.) and
Infectious Disease (K.B.), Ochsner Clinic
Foundation, and University of Queensland School
of Medicine, Ochsner Clinical School (E.B.),
New Orleans, Louisiana USA. Revision requested
January 25, 2013. Revised manuscript accepted
for publication February 19, 2013.

Address correspondence to Edward I. Bluth,
MD, Department of Radiology, Ochsner Clinic
Foundation, 1514 Jefferson Hwy, New Orleans,
LA 70121 USA.

E-mail: ebluth@ochsner.org

Abbreviations
FDA, Food and Drug Administration

doi:10.7863/ultra.32.10.1799

nanosonics limited | annual report 2014

•

A study evaluating contamination levels on ultrasound

The study called for stricter disinfection standards which

probes covered by a sheath and disinfected using wipes,

require use of devices – such as the trophon EPR – or

demonstrated a substantial persistence of potentially

techniques that ensure high level disinfection of the

pathogenic microorganisms. Human papilloma virus

whole probe, handle included.6

(HPV) DNA was found on 7% of the probes (HPV can

cause cervical and other cancers). Staphylococcus

•

Manual disinfection processes are often difficult to

validate to ensure all critical process parameters are

aureus on 4% and Chlamydia trachomatis, which can

consistently met.7

also cause serious illness, were found on 2% of samples

post decontamination.1

•

A meta-analysis of studies involving wipes for disinfection

has shown residual pathogenic bacterial contamination

•

Nurses with regular daily exposure to sterilising agents

(including glutaraldehyde) during pregnancy, are

more than twice as likely to undergo late spontaneous

abortion compared to nurses who are not exposed to

(12.9%) and viral contamination (1.0%) on transvaginal

these chemicals.8

and transrectal transducers.2

•

Manual disinfection of medical devices has been

shown to lead to an increased risk of operator error if

protocols are not followed correctly and poor protocol

compliance can lead to an increased risk of transmission

for patients.3

•

An evaluation of the trophon EPR concluded that the

trophon EPR was proven to be more efficient and viewed

to be easier and safer to use than a glutaraldehyde-based

method. The study showed that the trophon EPR process

took 14 minutes (this figure includes related activities

such as pre-cleaning the probe, wiping after disinfection

•

A case of hepatitis C infection was reported in a patient

process and logging patient information) compared to 32

after a prostate biopsy. This follows another case of a fatal

minutes for a glutaraldehyde-based disinfection system

hepatitis B infection after an imaging procedure. In both

and that the trophon EPR saved an average of 7.5 hours

cases improper ultrasound transducer disinfection may

per week.9

have been involved.4,5

•

A peer-reviewed study published in the Journal of

•

A study found that more than 70% of manually

Infection and Public Health reported on the performance

disinfected probes still showed signs of contamination

of the trophon EPR when tested against 21 different

on the handles, with a large portion of the contaminants

species of bacteria, fungi and viruses according

being well known pathogens including methicillin

to accepted international standards for high level

resistant Staphylococcus aureus (MRSA). While handles

disinfection. The study showed trophon EPR met all

do not enter body cavities they can harbour pathogens

standards for high level disinfection.10

and pose a risk of cross infection for patients.

1. M’Zali, F., et al (2014). “Persistence of Microbial Contamination on Transvaginal Ultrasound Probes despite Low-Level Disinfection Procedure.” PLoS One 9(4): e93368
2. Leroy, S. (2013). Infectious risk of endovaginal and transrectal ultrasonography: systematic review and meta-analysis. J Hosp Infect 83(2): 99-106.
3. Weber, D. J., Rutala W (2013). Assessing the risk of disease transmission to patients when there is a failure to follow recommended disinfection and sterilization guidelines. Am J Infect

Control 41(5 Suppl): S67-71.

4. Ferhi, K., et al., Hepatitis C transmission after prostate biopsy. Case Rep Urol, 2013. 2013: p. 797248.
5. Medicines and Healthcare products Regulatory Agency (UK), Medical Device Alert Ref: MDA/2012/037, Issued: 28 June 2012 at 14:00.
6. McNally G, Ngu A, ISUOG World Congress, Sydney, Oct 2013.
7. S.Klett, P. Heeg. Stellungnahme zu den Publikationen von Herrn PD Dr G Schrader in Hygiene und Medizin, 2014.
8. Meyers, J., et al., J Antimicrob Chemother, 2014.
9. Johnson et al. J Ultrasound Med. 2013 Oct;32(10):1799-804.
10. Vickery et al., Evaluation of an automated high-level disinfection technology for ultrasound transducers. J Infect Public Health. 2013 Dec.

Information on the directors, company secretaries
and senior management

1. Maurie Stang

Non-Executive Chairman

Since February 2008 he has been a director and Chairman

of Chandler Macleod Group Limited (ASX:CMG). He has

Mr Stang has been Non-Executive Director and Chairman

been director of Macquarie Atla Roads Limited (ASX:MQA)

since March 2007 and a member of the Board since

since June 2010 and a director of Japara Healthcare

November 2000.

Limited (ASX:JHC) since April 2014.

Mr Stang has more than two decades of experience

building and managing companies in the healthcare and

biotechnology industry in Australia and internationally. His

strong business development and marketing skills have

resulted in the successful commercialisation of intellectual

property across global markets. He is a Non-Executive

Director of Vectus Biosystems and has been Non-Executive

Chairman of Aeris Environmental Ltd (ASX:AEI) since 2002.

2. Michael Kavanagh BSc, MBA (Advanced)

CEO and President (from 21 October 2013)

Mr Kavanagh joined Nanosonics as CEO and President

effective 21 October 2013. He was a Non-Executive

4. David Fisher BRurSc (Hons), MAppFin, PhD, FFin

Non-Executive Director

Dr Fisher has been a member of the Board since July 2001.

Dr Fisher is founding partner of Brandon Capital Partners,

a leading Australian venture capital provider. He has more

than 25 years’ of extensive operating experience in the

biotechnology and healthcare industry in Australia and

overseas. He held senior positions with Pharmacia AB (now

part of Pfizer, Inc) and was CEO of Peptech Limited (now

part of Cephalon Inc. (Nasdaq:CEPH). He was a director

of Aeris Environmental Ltd (ASX:AEI) from May 2011 to

July 2014.

Director of the Board from 30 July 2012 to 20

5. Ron Weinberger BSc (Hons), PhD

October 2013.

President Technology Development/Commercialisation

Mr Kavanagh has more than 20 years of international

(from 21 October 2013)

commercial experience in the healthcare market having

Dr Weinberger joined the Company in August 2004 and

held local, regional and global roles in medical device and

was appointed as Executive Director in July 2008 then

pharmaceutical industries.

Before joining Nanosonics, he was Senior Vice President

of Global Marketing for the major medical device company

Cochlear Ltd, a position he held for more than 10 years.

Mr Kavanagh has no other current and former directorships

in the last three years.

3. Richard England FCA, MAICD

Non-Executive Director

Mr England joined the Board in February 2010. He is a

chartered accountant and professional Non-Executive

Director. Since 2002, Mr England has been a director and

Chairman of Ruralco Holdings Limited (ASX:RHL).

Managing Director and Chief Executive Officer in December

2011 with a period as acting CEO from May 2011. Since

October 2013, he has been President of Technology

Development/Commercialisation and is responsible for the

direction of the Company’s technology development and

commercialisation strategy.

Dr Weinberger has more than two decades of experience in

medical research and biotechnology. He is co-inventor

of several of Nanosonics’ key technology patents.

Dr Weinberger has not had any other directorships of

listed companies in the last three years.

nanosonics limited | annual report 20146

6. McGregor Grant BEc, CA, GAICD

9. Vincent Wang BSc, MSc, MBA

Chief Financial Officer and Company Secretary

Head of Global Support and Services

Mr Grant joined Nanosonics in April 2011 and is

Mr Wang has extensive experience in developing and

responsible for the overall financial management of the

implementing global service and support strategy,

Company and, together with Mr Kavanagh, has joint

establishing and managing customer support, technical

responsibility for investor relations. Mr Grant has more

service and service marketing functions in global medical

than 18 years of business experience in a number

device businesses. Before joining Nanosonics in May

of senior roles in the medical device and healthcare

2011, Mr Wang led and managed Technical Services and

industries located in Australia and the United States.

Service Operations for Sonova Hearing Healthcare Group

Previously Mr Grant worked for Coopers & Lybrand in

and Cochlear Ltd respectively.

Australia and Europe.

7. Gerard Putt BSc

Chief Operations Officer

Mr Putt joined Nanosonics full time in 2011 after 18

months on the Nanosonics advisory board. Mr Putt

has more than 15 years of experience in the medical

device industry as a leader of development, engineering,

production and operations teams. He has particular

experience in the implementation of new products

into manufacturing and rapid scaling of production to

international market needs.

8. Michael Potas BE (E&C)

Head of Research, Design and Development

10. Ruth Cremin MSc

Head of Quality and Regulatory

Ms Cremin joined Nanosonics in July 2011 and has

extensive regulatory affairs experience. Previously

she worked at Cochlear as a Senior Regulatory Affairs

Specialist for the Asia Pacific Region; at Pfizer Australia as

a QA & Regulatory Officer and at Bio-Medical Research

Ltd in Galway, Ireland as a Regulatory Affairs Associate.

11. Kirste Courtney BA

Human Resources Manager

Ms Courtney joined Nanosonics in 2008 and has more

than 16 years of human resources experience having

worked in a variety of industry sectors including chartered

Mr Potas joined Nanosonics in August 2006 and has

accounting, media, logistics and banking.

more than 16 years’ experience in the development and

commercialisation of new products and technologies.

Since joining Nanosonics in 2006, Mr Potas has been

instrumental in the research, design and development of

the trophon EPR and associated core intellectual property.

Information on the directors, company secretaries
and senior management (continued)

12. Ronald J Bacskai BSME, MBA (Hons)

15. Julien Laronze BBA, BA

President and CEO, Nanosonics Inc.

Country Manager – France

Mr Bacskai joined Nanosonics in 2010 and is responsible

Mr. Laronze joined Nanosonics in March 2014. He

for leading Nanosonics’ business in the United States.

has more than 15 years senior sales management and

Mr Bacskai is an experienced executive having worked in

executive level experience, with a proven track record

multiple industries with a broad technical, marketing and

in driving growth both domestically and internationally,

sales, and technology commercialisation background. Mr

in the medical technology industry with large and small

Bacskai has significant experience as President, CEO and

companies. Prior to joining Nanosonics, he held Sales

board member of several public and private organisations

Director positions with Sophysa and Edap-Tms.

as well as serving on the advisory board of a speciality

environmental firm.

13. Bryn Tudor-Owens BSc

Country Manager – UK

16. Robert Waring BEc (Sydney), CA, FCIS, FFin, FAICD

Company Secretary

Mr Waring was appointed Company Secretary in October

2010 and held this position at the time of the Company’s

Mr. Tudor-Owen has 20 years’ experience gained within

IPO in May 2007. He is a director of corporate advisory

the medical device industry. Prior to Nanosonics he

firm, Oakhill Hamilton Pty Ltd.

held senior positions with both GE Medical Systems and

Cardinal Health for more than 15 years before more

recently driving the UK startup operations of a German

Healthcare SME. He joined Nanosonics in August 2012.

14. Ralf Schmähling BA (Hons)

Country Manager – Germany

Mr. Schmähling joined Nanosonics in September 2012.

He has more than 12 years experience in various

business, sales and marketing management and

leadership functions within blue chip medical device

companies. He has a successful track record on strategic

and tactical sales execution in the German health

care market.

nanosonics limited | annual report 201421

Directors’ report

Your directors submit their report together with the Consolidated Financial Report of the Group, being

Nanosonics Limited and its subsidiaries, for the year ended 30 June 2014.

Principal activities

During the year the principal activities of the Group consisted of:

• Manufacturing and distribution of the trophon® EPR ultrasound probe disinfector and its associated consumables and

accessories; and

• Research, development and commercialisation of infection control and decontamination products and

related technologies.

There have been no significant changes in the nature of these activities during the year.

Operating and financial review

Revenue from sales for the year amounted to $21,492,000 (2013: $14,899,000), an increase of $6,593,000 or $44.3%.

Global sales were up with all regions contributing towards this growth. Sales were up 34% in North America, 51% in

Australia and New Zealand, and fivefold in Europe and other countries.

Other income amounted to $4,114,000 (2013: $2,690,000), which included the R&D tax refund of $1,516,000 (2013:

$1,348,000); Export Market Development grant of $150,000 (2013: 150,000); reimbursement of costs by a distributor of

$1,707,000 (2013: nil) and interest earned on cash investments of $739,000 (2013: $1,192,000).

Operating expenditure for the year amounted to $20,116,000 (2013: $16,379,000), an increase of $3,737,000 or 22.8%

driven by higher employment and related operating costs to support the growth of the business.

Other expense for the year of $555,000 ($517,000) relates to borrowing costs on convertible notes.

The consolidated loss after tax amounted to $2,605,000 (2013: $5,768,000), a substantial reduction of 55%.

The Group ended the year with $21,233,000 of cash and equivalents (2013: $24,064,000). The Group has adequate cash

to fund the operations of the business.

Other information on the operations of the Group and its business strategies and prospects are discussed in the review of

operations included in the CEO report and the regional reviews on pages 8 to 13 of this report.

Significant changes in the state of affairs

In the opinion of the directors, there were no significant changes in the state of affairs of the Group during the financial year

under review and to the date of this report.

Dividends – Nanosonics Limited

The directors do not recommend the payment of a dividend for the financial year ended 30 June 2014. No dividends were

proposed, declared or paid during the financial year (2013: Nil).

The Company’s dividend policy in the future, the extent of future dividends and any franking of dividends will depend upon

the profitability and the financial and taxation position of the Group at the relevant time.

nanosonics limited | annual report 201423

Matters subsequent to the end of the financial year

No matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect:

a. the Group’s operations in future financial years;

b. the results of those operations in future financial years; or

c. the Group’s state of affairs in future financial years.

Likely developments and expected results of operations

Comments on expected results of the operations of the Group are included in the review of operations on pages 8 to 13.

Further information on likely developments in the operations of the Group and the expected results of operations have not

been included in this annual report because the Directors believe it would be likely to result in unreasonable prejudice to

the Group.

Environmental regulation

The Group is subject to meeting statutory environmental regulations. To demonstrate its commitment to meeting these

regulations, the Group has put in place an Environmental Management system, which is currently certified to ISO14001.

Directors

During the year and to the date of this report, the Board of Nanosonics Limited comprised of Maurie Stang, David Fisher,

Richard England, Michael Kavanagh, and Ron Weinberger.

As at the date of this report, Nanosonics Limited has the following committees of the Board: Audit and Risk, Remuneration,

Nomination, and R&D and Innovation. Details of members of the committees of the Board during the year are included

on page 27.

Information on the directors, company secretaries and senior management is a part of the Directors’ report and can be

found on pages 18 to 20 of the Annual Report.

Meetings of directors

The number of directors’ meetings, including meetings of the committees, held during the year ended 30 June 2014,

and numbers of meetings attended by each of the directors were as follows:

Full meetings
of directors

Audit

Meetings of committees

Governance and
Nomination

Remuneration

Held1

Attended

Held1

Attended

Held1

Attended

Held1

Attended

Maurie Stang

Richard England

David Fisher

Ron Weinberger

Michael Kavanagh

1 Represents the number of meetings that a director is eligible to attend.

Directors’ report (continued)

Share-based payments

Shares issued under the DESP and options granted under ESOP and GSOP during the year are detailed below.

Shares issued

During the year ended 30 June 2014, the Company issued a total of 1,835,108 (2013:2,005,800) new ordinary shares in

Nanosonics Limited as detailed below. To the date of this report, the Company issued a total of 2,169,108 new ordinary

shares as detailed below. No amount was unpaid on any of the shares so issued.

Shares issued

Share options exercised under Share Option Plans

Total new shares issued during the year

Share options exercised under Share Option Plans post balance date

Total new shares issued and to the date of this report

Number of shares issued

1,835,108

334,000

2,169,108

As at 30 June 2014 there were 263,823,826 (2013: 261,988,718) ordinary shares in Nanosonics Limited on issue. At

the date of this report, there were 264,157,826 shares on issue. Further information on issued shares is provided in the

Contributed equity and the Share-based compensation notes to the financial statements.

Share options granted

During the financial year and to the date of this report, the Company granted, for no consideration, 3,115,869 (2013:

3,023,929) unquoted options over unissued ordinary shares in Nanosonics Limited. Further information on the grants is

provided below, in section 5 of the Remuneration report on pages 42 to 47 and in the Share-based compensation note to

the financial statements.

Share options granted

Employee Share Option Plan (ESOP)

General Share Option Plan (GSOP)

Total new options granted during the year

Employee Share Option Plan (ESOP)

Total options granted to the date of this report

Number of options granted

2,981,494

–

2,981,494

134,375

3,115,869

nanosonics limited | annual report 201425

Shares under option

At the date of this report, there were 6,159,975 unissued ordinary shares of Nanosonics Limited under option as detailed

below. As at 30 June 2014, there were 6,525,597 (2013: 5,418,625) unissued ordinary shares of Nanosonics Limited

under option. Further information on the options is provided in the Share-based compensation note to the financial statements.

Share option plan

Employee Share Option Plan (ESOP)

General Share Option Plan (GSOP)

Total shares under option at 30 June 2014

Share options exercised under Share Option Plans post balance date

Share options forfeited under Share Option Plans post balance date

Share options issued under Employee Share Option Plan (ESOP) post balance date

Total shares under option to the date of this report

Number of shares under option

5,972,263

553,334

6,525,597

(334,000)

(165,997)

134,375

6,159,975

The options entitle the holder to participate in a share issue of the Company provided the options are exercised on or after

their vesting date and prior to their expiry date. No option holder has any right under the options to participate in any other

share issue of the Company or any other entity.

Directors’ report (continued)

Remuneration report - audited

Table of contents

Section

Title

Description

Describes the scope of the Remuneration report and the individuals whose remuneration
details are disclosed.

Describes the role of the Board and the Remuneration Committee and the use of remuneration
consultants when making remuneration decisions.

Provides detail regarding the fees paid to Non-Executive Directors including all
required disclosures.

Outlines the Company’s remuneration strategy and principles applied to executive
remuneration decisions and the framework used to deliver it including the performance and
remuneration linkages, and all required executive remuneration disclosures.

Provides detail regarding the Company’s employee equity plans including that information
required by the Corporation Act and applicable accounting standards.

Provides details regarding the contractual arrangements between the Company and the
executives whose remuneration details are disclosed.

Provides details of loans and other transactions with Key Management Personnel and their
related parties.

Introduction

Remuneration
governance

Non-executive
director
remuneration

Executive
remuneration

Equity plan
disclosures

Employment
agreements

Key Management
Personnel
transactions

1.0 Introduction

Nanosonics is an emerging medical technology company with operations in a number of locations. The Board has a strong

growth focus and the executive remuneration policies are designed to direct behaviours towards achieving sustainable

growth in shareholder value over the medium to long term. However, it must be understood that to attract, motivate

and retain high performing executives and in the face of strong competition for talent, some flexibility in our approach

is required.

The Board’s executive remuneration strategy is to provide ‘fair and appropriate’ remuneration balanced on a risk and

reward framework that supports its business strategy in the short and long term. Board and executive remuneration are

reviewed independently on a regular basis. The last formal review was undertaken during the year ended 30 June 2014.

The Board believes that Nanosonics’ approach to executive Key Management Personnel (KMP) remuneration is

appropriately balanced to fairly reward and motivate an experienced executive team to deliver profitable business growth

which meets the expectations of our shareholders.

1.1 Scope

This Remuneration report sets out, in accordance with the relevant Corporations Act 2001 (Cth) (Corporations Act) and

accounting standard requirements, the remuneration arrangements in place for Key Management Personnel of Nanosonics

Limited (Nanosonics) during the financial year ended 30 June 2014 (2014 Financial Year).

nanosonics limited | annual report 201427

1.2 Key Management Personnel

Key Management Personnel have authority and responsibility for planning, directing and controlling the activities of

Nanosonics and comprise the Non-Executive Directors, Executive Directors and Executive KMP. Details of the Key

Management Personnel as at year end are set out in the table below.

Name

Title (at year end)

Change in 2014 Financial Year

Non-Executive Directors

Maurie Stang

Chairman

Full year

Member, Audit and Risk Committee

Member, Remuneration Committee

Member, Nomination Committee

Member, R&D and Innovation Committee

Appointed member, R&D and Innovation
Committee, July 2014

Richard England

Director

Full year

Chairman, Audit and Risk Committee

Chairman, Remuneration Committee

Chairman, Nomination Committee

Chairman, Remuneration Committee from
16 October 2013

David Fisher

Director

Full year

Member, Audit and Risk Committee

Member, Remuneration Committee

Member, Nomination Committee

Chairman, R&D and Innovation Committee

Appointed Chairman, R&D and Innovation
Committee, July 2014

Executive Directors

Michael Kavanagh

Chief Executive Officer (CEO) and President,
Managing Director

Member, R&D and Innovation Committee

Appointed 21 October 2013
(Non-executive Director from 30 July 2012
to 20 October 2013)

Ron Weinberger

Director and President, Technology
Development /Commercialisation
Member, R&D and Innovation Committee

Chairman, Remuneration Committee to
15 October 2013

Appointed member, R&D and Innovation
Committee, July 2014

Full year

CEO and Managing Director from 19 December
2011 to 20 October 2013

Appointed member, R&D and Innovation
Committee, July 2014

Executive KMP

McGregor Grant

Chief Financial Officer(CFO) and
Company Secretary

Gerard Putt

Chief Operations Officer

Full year

Directors’ report (continued)

2.0 Remuneration governance

This section of the Remuneration Report describes the role of the Board, the Remuneration Committee, and the use of

Remuneration Consultants when making remuneration decisions.

2.1 Role of the Board and the Remuneration Committee

The Board is responsible for Nanosonics’ remuneration strategy and policy. Consistent with this responsibility, the Board

has established a Remuneration Committee which comprises a majority of independent Non-Executive Directors. The

members of the Remuneration Committee over the 2014 Financial Year were Richard England, Maurie Stang, David Fisher

and Michael Kavanagh (until 20 October 2013).

The role and responsibilities of the Remuneration Committee is set out in its Charter, which was last revised and approved

by the Board in July 2014. In summary the Remuneration Committee’s role is to:

• Review and approve Nanosonics’ remuneration strategy and policy and ensure that appropriate processes and

procedures are in place to assess the remuneration levels of the Board and executive KMP and all other employees

across the Group;

• Consider and propose to the Board the remuneration of the CEO and consider and approve the remuneration of all

designated senior executives;

• Review and approve Nanosonics’ incentive schemes, including amounts, terms and offer processes and

procedures; and

• Determine and approve equity awards in accordance with policy and shareholder approvals, including testing of vesting

and termination provisions.

The Remuneration Committee’s role and its interaction with the Board, internal and external advisors, are illustrated below:

Reviews, applies judgement and, as appropriate, approves the Remuneration Committee’s recommendations.

The Board

The Remuneration Committee operates under the delegated authority of the Board.

The Remuneration Committee

The Remuneration Committee is empowered to source any internal resources and obtain external independent professional
advice it considers necessary to enable it to make recommendations to the Board on the following:

Remuneration policy,
composition and
quantum of remuneration
components for Executive
KMP, including STI
performance targets

Remuneration policy
in respect of
Non-Executive
Directors

Recruitment, retention
and termination
policies and practices

Design features of
employee and executive
LTI Plan awards,
including setting of
performance and other
vesting criteria

External Consultants

Internal Resources

nanosonics limited | annual report 2014

Further information on the Remuneration Committee’s role, responsibilities and membership is contained in the Corporate

Governance Statement on pages 53 to 57 of this Annual Report. The Remuneration Committee Charter can be viewed in

the Corporate Governance section of Nanosonics’ website at www.nanosonics.com.au.

2.2 Use of remuneration consultants

From 1 July 2011, all proposed remuneration consultancy contracts (within the meaning of section 206K of the

Corporations Act 2001) are subject to prior approval by the Board or the Remuneration Committee in accordance with the

Corporations Act 2001.

During the year ended 30 June 2014, several remuneration consultancy contracts were entered into by Nanosonics and

accordingly the disclosures required under section 300A (1) (h) of the Corporations Act 2001 are set out below.

Advisor/Consultant FY2014

Service Provided

Remuneration Consultant for the
purposes of the Corporations Act 2001

Ian Crichton, Remuneration Consultant,
CRA Plan Managers Pty Limited

Benchmarking of CEO and President,
Chairman and Non-Executive
Director remuneration.

Yes

Key questions regarding use of remuneration consultants

Did a remuneration consultant provide
remuneration recommendations in
relation to any of the Executive KMP for
the financial year?

How much was the remuneration
consultant paid by the Company for
remuneration related and other services?

What arrangements did the Company
make to ensure that the making of the
remuneration recommendation would be
free from undue influence by
Executive KMP?

Is the Board satisfied that the
remuneration recommendation was free
from any such undue influence? What
are the reasons for the Board being
so satisfied?

No. Benchmark data and analysis provided only.

CRA – Remuneration Services $21,585; Other Services $30,624.

The Company made the following arrangements:

• The company implemented a protocol to govern the procedure for procuring
advice relating to KMP remuneration. The protocol contained a summary of
the process for the engagement of remuneration consultants, the provision
of information to the remuneration consultant, and the communication of
remuneration recommendations.

• The remuneration consultant agreed to adhere to the protocol procedures and

was required to advise the Remuneration Committee whether or not it had been
subjected to undue influence and provided a Statement of Independence.

Yes, the Board is satisfied for the following reasons:

• The protocol with respect to the procurement of remuneration related advice
was adhered to, including with respect to engagement of the remuneration
consultant, the provision of information to the remuneration consultant in the
communication of the remit for remuneration recommendations;

• At appropriate times, the remuneration consultant provided written confirmation

that it had not been subjected to any undue influence;

• The Chairman of the Remuneration Committee met with the Remuneration

Consultant in the absence of Executive KMP. There were no concerns raised by
the Remuneration Consultant with respect to any undue influence being exerted
by the Executive KMP; and

• The Remuneration Committee did not observe any evidence that undue

influence had been applied.

Directors’ report (continued)

3.0 Non-executive Director remuneration

3.1 Non-executive Director remuneration philosophy

Principle

Comment

Fees are set by reference to
key considerations

Fees for Non-Executive Directors are based on the nature of the directors’ work and their
responsibilities, taking into account the nature and complexity of the Company and the
skills and experience of the Director. In determining the level of fees, survey data on
comparable companies are considered. Non-Executive Directors’ fees are recommended
by the Remuneration Committee and determined by the Board. Shareholders approve the
aggregate amount available for the remuneration of Non-Executive Directors. During the year
the Remuneration Committee engaged a remuneration consultant to conduct a benchmarking
study of Chairman and Non-Executive Director remuneration. Following this study the fees for
the Non-Executive Directors were increased effective 1 January 2014 to ensure they remain
reasonable and appropriate so as to attract and retain directors with the skills and experience
commensurate with the requirements of the role. No increase in fees is proposed for the 2015
Financial Year.

Remuneration is structured to
preserve independence whilst
creating alignment

To preserve independence and impartiality, Non-Executive Directors are not entitled to any
form of incentive payments and the level of their fees is not set with references to measures of
Company performance.

Aggregate Board Fees are
approved by shareholders.

The total amount of fees paid to Non-Executive Directors in the year ended 30 June 2014 is
within the aggregate amount approved at a general meeting of the Company on 19 September
2006 of $500,000 a year. No increase in the pool limit is proposed.

Flexibility in how fees are
received

Non-Executive Directors can elect how they wish to receive their total fees – i.e. as a
contribution of cash, superannuation contributions or charitable donations.

3.2 Non-executive Director fees and other benefits

Elements

Board fees per
annum – 20141

Post-employment benefits

Superannuation

Other benefits

Equity instruments

Other fees/benefits

Details

Board Chairman fee

Board NED fee

$145,000

$80,000

Superannuation contributions are included in the Board fees and are made at a rate of
9.25% of base fee (up to the Government’s prescribed maximum contributions limit)
which satisfies the Company’s statutory superannuation contributions. The rate has been
increased to 9.5% effective from 1 July 2014.

Non-Executive Directors do not receive any performance related remuneration, options or
performance shares. Options previously granted have either lapsed or been exercised.

Non-Executive Directors are reimbursed for out-of-pocket expenses that are directly related
to Nanosonics’ business.

1. Committee fees are not paid to the members of each Committee.

nanosonics limited | annual report 201431

3.3 Non-Executive Director total remuneration

Maurie Stang

Richard England

David Fisher

Michael Kavanagh1

Total

Year

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

Fees

Options

Superannuation

111,362

90,000

66,613

60,000

66,613

60,000

18,043

55,450

262,631

265,450

–

879

–

879

10,301

8,100

6,162

5,400

6,162

5,400

1,669

4,991

24,294

23,891

Total

121,663

98,100

72,775

66,279

72,775

65,400

19,712

60,441

286,925

290,220

1. Includes remuneration paid to Mr Kavanagh until his appointment as an Executive Director on 21 October 2013.

4.0 Executive remuneration

4.1 Executive KMP remuneration

Nanosonics’ executive remuneration strategy is designed to attract, retain and motivate its executives. Fixed remuneration

components are determined having regard to the specific skills and competencies of the executive with reference to

both internal and external relativities, particularly local market conditions. The ‘at risk’ components of remuneration are

strategically directed to encourage management (and all participating executives) to strive for superior (risk balanced)

performance by rewarding the achievement of targets that are challenging, clearly defined, understood and communicated

and within the ambit of accountability of the relevant executive.

Directors’ report (continued)

Executive KMP remuneration objectives are exemplified through three categories of remuneration, as illustrated below:

Executive KMP Remuneration Objectives

An appropriate
balance of ‘fixed’ and
‘at-risk’ components.

Attract, motivate and
retain executive talent.

The creation of reward
differentiation to drive
performance and
behaviours.

Shareholder value
creation through
equity components.

Total Target Remuneration (TTR) is set by reference to the relevant market and internal relativities

Fixed

At risk

Total Fixed Remuneration (TFR)

Short-Term Incentives (STI)

Long-Term Incentives (LTI)

Fixed remuneration is set based
on relevant market relativities,
reflecting responsibilities,
performance, qualifications,
experience and location.

STI performance criteria are set
by reference to Company and
Individual performance targets
relevant to the specific position.

LTI targets are linked to both
Nanosonics group internal
(Revenue) and external (relative
Total Shareholder Return (TSR))
outperformance measures.

Remuneration for each component will be delivered as:

Base Salary plus any fixed
elements related to local markets,
including superannuation
or equivalents.

Part cash and part equity. The
equity component is deferred
for 1 year. The deferred equity
component remains’ at risk
until vesting.

Equity is held subject to
performance and service for 3
years from grant date. The equity
is ‘at risk’ until vesting.

Strategic intent and market positioning

TFR will generally be positioned
at the median (+/-) compared
to relevant market based data
considering expertise and
performance in the role.

Performance incentive is directed
to achieving demanding growth
targets. TFR + STI is intended to
be positioned in 3rd quartile of
relevant benchmark.

LTI is intended to align
executive KMP with long term
growth strategy aligned with
shareholders’ interests. TFR
+ STI + LTI is intended to be
positioned in the 3rd quartile.

TTR is intended to be positioned in the 3rd quartile compared to relevant market based comparisons. 4th quartile TTR
may result if outperformance is achieved. This strategy is intended to ensure that top quartile remuneration is only
received if the Company exceeds the performance objectives set by the Board.

Total Target Remuneration (TTR)

nanosonics limited | annual report 2014

4.2 Remuneration mix and timing of receipt

4.2.1 Remuneration mix

Position

CEO and President

President, Technology Development/
Commercialisation2

TFR (Cash)

STI (Cash and Equity)

LTI (Equity)

100% 33.3% of Base Salary

33.3% of Base Salary1

100%

33% of Base Salary

Senior Executives (Executive KMP)

100%

25% of Base Salary

1. In connection with the appointment of Mr Kavanagh as CEO and President, at the 2013 AGM shareholders approved the granting of 1,500,000 Performance Rights to

Mr Kavanagh. Details of the vesting conditions associated with these Performance Rights are provided in Section 4.4.2 Long Term Incentives.

2. Effective 1 July 2014, the STI and LTI opportunity has been adjusted to 25% of Base Salary.

4.2.2

Remuneration – timing of receipt of the benefit

The three complementary components of Executive KMP remuneration are ‘earned’ over multiple time ranges.

This is illustrated in the following chart.

Year 1

Year 2

Year 3

Year 4

Year 5

TFR

Year 1

STI cash opportunity

STI equity deferral

LTI

TFR

Year 2

STI cash opportunity

STI equity deferral

LTI

TFR

Year 3

STI cash opportunity

STI equity deferral

LTI

Each year, fixed remuneration and benefits are paid (monthly) and short term incentives are awarded based on

achievement of annual performance targets set. A portion of any STI earned is ‘invested’ in service rights and deferred for a

minimum of 12 months. Each year, a long term equity incentive is provided to eligible and invited executives. The LTI vests

after three years if the specified conditions are satisfied. In this way executives are rewarded for short, medium and long

term performance aligned to shareholder interests and expectations.

Directors’ report (continued)

4.3 Total Fixed Remuneration (TFR) explained

Total Fixed Remuneration (TFR) includes all remuneration and benefits paid to an Executive KMP calculated on a

Total Employment Cost (TEC) basis. Executive KMP TFR is tested regularly for market competitiveness by reference to

appropriate independent and externally sourced comparable benchmark information. Usually, TFR adjustments are only

made in response to individual performance (as measured), an increase in job roles, changing market circumstances or

promotion. Any adjustment to Executive KMP remuneration is approved by the Board, based on recommendations by the

CEO and President and the Remuneration Committee.

4.4 Variable ‘at risk’ remuneration explained

As set out in Section 4.2, variable remuneration forms a significant portion of the CEO and President and other Executive

KMP remuneration opportunity. Apart from being market competitive, the purpose of variable remuneration is to direct

executives’ behaviours towards maximising Nanosonics’ short, medium and long term performance, as measured. The key

aspects are summarised below.

4.4.1 Short Term Incentives (STI)

Purpose

The STI arrangements at Nanosonics are designed to reward executives for the achievements against
annual performance targets set by the Board at the beginning of the performance period. The STI
program is reviewed annually by the Remuneration Committee and approved by the Board.

All STI awards to the CEO and President and other Executive KMP are approved by the Remuneration
Committee and the Board.

Performance targets

The key performance objectives of Nanosonics are currently directed to achieving a PBT target
complemented by the achievement of individual performance goals.

The weighting between the PBT target and individual performance goals will depend on the
responsibilities and scope of influence of the relevant executive.

All targets are set having regard to prior year performance, market conditions and the Board approved
budgets. The specific targets are not provided in detail due to their commercial sensitivity.

Any anomalies or discretionary elements are approved and validated by the Board.

Rewarding performance

The actual STI awards for Executive KMP in 2014 are as set out in the table in Section 4.6.1.

Payment of STI

To ensure there is an appropriate retention element of STI and to reinforce alignment with shareholders
there is a mandatory deferral of a portion of STI. The STI is delivered as follows:

• 50% of STI paid in cash

• 50% of STI delivered as Nanosonics Performance Rights deferred for one year

The equity component will be determined based on the 5 day Volume Weighted Average Market Price of
Nanosonics shares as at 31 August each year.

As the STI amount awarded as equity has already been earned, there are no further performance
measures attached to the Performance Rights. However, they are subject to service conditions until the
vesting date.

nanosonics limited | annual report 201435

4.4.2 Long Term Incentives (LTI)

The LTI provides an annual opportunity for selected executives to receive an equity award deferred for three years that is

intended to align a significant portion of an executives overall remuneration to shareholder value over the longer term. All

LTI awards remain at risk and subject to clawback (forfeiture or lapse) until vesting and must meet or exceed the defined

performance hurdles over the vesting period.

Purpose

To retain key executives and align their remuneration opportunity with shareholder value.

Type of equity awarded

Under the Nanosonics Long Term Incentive Scheme (LTIS) selected senior executives are offered
Performance Rights (being options to acquire ordinary shares of Nanosonics Limited for a nil exercise price)
under the terms of the Nanosonics Employee Share Option Plan (ESOP). See Section 5.1 for further details.
Performance Rights do not carry any dividend or voting rights prior to exercise.

Timing

Grants are made each year after shareholder approval to issue securities to Directors has been obtained at
the relevant AGM.

LTI allocation

The size of individual LTI grants for the CEO and President and other Executive KMP is determined in
accordance with the Board approved remuneration strategy mix. See Section 4.2. The target LTI $ value
for each executive once determined is then converted into a number of Performance Rights based on a
valuation methodology determined at the grant date, as follows:

Performance Rights allocated = LTI $ value divided by 5 day Volume Weighted Average Market Price of
Nanosonics shares as at the date of the AGM each year.

Performance hurdles

Equity grants to the CEO and President and other Executive KMP are subject to both internal (Revenue) and
external (relative Total Shareholder Return – TSR) Performance Conditions.

CEO and President 2013
Long Term Incentive
Scheme (2013 LTIS)

At the 2013 AGM, shareholders approved the granting of 1,500,000 Performance Rights to Mr Kavanagh.
The number of Performance Rights granted to Mr Kavanagh was determined at the Board’s discretion in
connection with Mr Kavanagh’s appointment as CEO and President. The 1,500,000 Performance Rights
granted to Mr Kavanagh was made in respect of the 2013 and 2014 LTIS grant years. Accordingly, no
additional LTIS grant will be made to Mr Kavanagh in respect of the 2014 LTIS.

Full details of the vesting conditions associated with the Performance Rights granted to Mr Kavanagh
are included in the explanatory notes included with the Notice of the 2013 AGM (Resolution 10) and are
summarised below.

Directors’ report (continued)

CEO and President 2013
Long Term Incentive
Scheme (2013 LTIS)
– continued

2016 Performance Conditions

Ranking of TSR vs. 2013 LTIS Comparator Group1

Revenue Hurdle

Tranche 1: 25% of total Performance Rights granted
(375,000)

Tranche 2: 25% of total Performance Rights granted
(375,000)

Performance

% of Performance Rights
to vest(1)

Revenue in Financial
Year 2016

% of Performance Rights
to vest(1)

< 50th percentile

< $25.7 million

50th to 75th percentile

50% to 100% pro-rata

$25.7 million

At 75th percentile

100%

$29.1 million

$32.7 million

25%

50%

75%

$36.7 million

100%

2017 Performance Conditions

Ranking of TSR vs. 2013 LTIS Comparator Group2

Revenue Hurdle

Tranche 3: 25% of total Performance Rights granted

(375,000)

Tranche 4: 25% of total Performance Rights granted
(375,000)

Performance

% of Performance Rights
to vest1

Revenue in Financial
Year 2017

% of Performance Rights
to vest1

< 50th percentile

< $30.9 million

50th to 75th percentile

50% to 100% pro-rata

$30.9 million

At 75th percentile

100%

$36.4 million

$42.6 million

25%

50%

75%

$49.5 million

100%

1. TSR measurement period is 8 November 2013 to the date of the release of Nanosonics’ FY16 financial statements.
2. TSR measurement period is 8 November 2013 to the date of the release of Nanosonics’ FY17 financial statements.
3. Straight line interpolation will apply to incremental results.

Service Conditions

In addition to the above performance conditions, the Performance Rights will only vest if Mr Kavanagh
remains in continuous employment with Nanosonics from the date of the grant to the respective vesting date
of each Tranche.

Special provisions, in accordance with company policies, may apply in the event of termination of
employment or a change of control.

nanosonics limited | annual report 201437

Other Executive KMP
2013 Long Term
Incentive Scheme
(2013 LTIS)

A summary of the vesting conditions associated with the Performance Rights granted to other Executive KMP
under the 2013 LTIS are summarised below.

Ranking of TSR vs. 2013 LTIS Comparator Group1

Revenue Hurdle

Tranche 1: 50% of total Performance Rights granted

Tranche 2: 50% of total Performance Rights granted

Performance

% of Performance
Rights to vest1

Revenue in Financial
Year 2016

% of equity to vest1

< 50th percentile

< $25.7 million

50th to 75th percentile

50% to 100% pro-rata

$25.7 million

At 75th percentile

100%

$29.1 million

$32.7 million

25%

50%

75%

$36.7 million

100%

1. TSR measurement period is 8 November 2013 to the date of the release of Nanosonics’ FY16 financial statements.
2. Straight line interpolation will apply to incremental results.

Service Conditions

In addition to the above performance conditions, the Performance Rights will only vest if the Executive KMP
remains in continuous employment with Nanosonics from the date of the grant to the respective vesting date
of each Tranche.

Special provisions, in accordance with company policies, may apply in the event of termination of
employment or a change of control.

Other Executive KMP
2012 Long Term
Incentive Scheme
(2012 LTIS)

In August 2013, Performance Rights were granted to other Executive KMP under the 2012 LTIS with an
FY15 revenue hurdle of $50.0 million or more and Net Profit After Tax hurdle of 12% of revenue or more. In
addition to the performance conditions, the Performance Rights will only vest if the Executive KMP remains
in continuous employment with Nanosonics from the date of the grant to the respective vesting date. 100%
of the Performance Rights will vest once the performance hurdles and service conditions are achieved.

Directors’ report (continued)

4.5 Other remuneration elements and disclosures relevant to Executive KMP

4.5.1 Clawback

In accordance with the ASX Corporate Governance Guidelines the Board has clear policies regarding the deferral of

performance-based remuneration as set out in Section 4.4.1. Policies concerning the reduction, cancellation or clawback

of performance-based remuneration in the event of serious misconduct or a material misstatement in the entity’s financial

statements have not been determined, as yet. These policies will be developed as clear market trends emerge.

4.5.2 Securities trading restrictions

Under the Nanosonics Limited Securities Trading Policy and in accordance with the Corporations Act 2001, securities

granted under Nanosonics’ equity incentive schemes must remain at risk until vested, or until exercised if options or

performance rights. It is a specific condition of grant that no schemes are entered into by an individual or their associates,

that specifically protects the unvested value of shares, options or performance rights allocated.

KMPs are not permitted to deal at any time in financial products such as options, warrants, futures or other financial

products issued over Nanosonics’ securities by third parties such as banks and other institutions without the prior approval

of the Board. An exception may apply where the securities form a component of a listed portfolio or index product.

KMPs are not permitted to enter into transactions in products associated with the securities without the prior approval of the

Board, which operate to limit the economic risk of their security holding in the Company (e.g. hedging arrangements).

Nanosonics, as required under the ASX Listing Rules, has a formal policy setting down how and when employees, including

KMPs of Nanosonics Limited, may deal in Nanosonics securities. A copy of the Company’s Securities Trading Policy is

available on the Nanosonics website, www.nanosonics.com under Investor Centre, Corporate Governance.

4.5.3 Cessation of employment provisions

The provisions that apply for STI and LTI awards in the case of cessation of employment are detailed in Section 6.

4.5.4 Change of control

The provisions that apply for STI and LTI awards in the case of a change of control are detailed in Section 6.

4.5.5 Conditions of LTI grants

The conditions under which LTI awards (Performance Rights) are granted are approved by the Board in accordance with

the relevant scheme rules as summarised in Section 5.

4.6 Relationship between Nanosonics’ performance and Executive KMP remuneration

As explained in Section 4.2, Nanosonics’ remuneration framework aims to incentivise executive KMP towards sustainable

growth of the business and the creation of shareholder value in the short, medium and long term.

nanosonics limited | annual report 201439

4.6.1 Short Term Incentives

Executive KMP STI opportunity and actual 2014 STI awarded are set out in the table below:

Executive KMP

Position

Maximum
STI % of
2014 TFR1

STI awarded
as a % of
potential1

STI cash
award in
2014 ($)2

Deferred
equity STI
award ($)3

% Forfeited4

Michael
Kavanagh

CEO and President, Managing
Director

Ron Weinberger President, Technology

Development/Commercialisation

McGregor Grant CFO and Company Secretary

Gerard Putt

Chief Operations Officer

43%

27%

23%

100%

65,305

65,306

96%

49,104

97.5%

92.5%

35,751

26,551

–

2.5%

7.5%

1. Relates to STI % both cash and deferred equity opportunity. The deferred equity will be awarded the following year.
2. Amounts included in the remuneration for the financial year represent the maximum cash STI opportunity related to the financial year based on the

achievement of individual goals and satisfaction of specified performance criteria. The amount was finally determined on 8 August 2014 after performance
reviews were completed and approved by the Board.

3. The equivalent number of Performance Rights to be awarded in the following year will be determined as set out in section 4.4.1 of the

Remuneration Report.

4. The amounts forfeited are due to the performance criteria not being fully met in relation to the current financial year.

Short Term Incentives have been accrued in respect of the 2014 financial year because the performance conditions set by

the Board have been met.

4.6.2 Long Term Incentives

Executive KMP are only entitled to a benefit under the current Company’s LTI scheme if both Revenue and relative Total

Shareholder Return (TSR) targets are met.

Revenue growth is considered a priority for Nanosonics at this stage of its development, in the opinion of the Board.

Relative TSR is a generally accepted proxy for creation of shareholder value. The Board believes a balance between these

two performance criteria is a sound guide to medium and long term performance.

Revenue

The table below summarises Nanosonics’ revenue for the financial years ended 30 June, 2012, 2013 and 2014.

Financial year

Revenue $’000

2014

2013

2012

21,492

14,899

12,301

A portion of the 2013 LTI grant to all Executive KMP, including the CEO and President, requires that revenues in FY16 equal

or exceed $36.7 million for full vesting. A portion of the 2013 LTI grant for the CEO and President requires that revenues in

FY17 equal or exceed $49.5 million for full vesting. This represents a 70.8% and 130.3% increase respectively relative to

the 2014 Financial Year for the maximum opportunity to be realised. Momentum achieved in the 2014 Financial Year will

need to continue into the 2015 Financial Year and beyond for these targets to be met. If they are met the Board believes an

appropriate balance of results and benefit will have been achieved.

Relative Total Shareholder Return

Testing of performance against the relevant comparator group will only occur at the vesting date of each grant. To date, no

equity grant subject to a TSR hurdle has vested. The TSR hurdle set and the relative vesting schedule meet contemporary

market standards according to independent advice received by the Board.

Directors’ report (continued)

4.7 Executive remuneration tables

Fixed Remuneration

Variable Remuneration

Total

Proportion of Total Remuneration

Short-term benefits

Long-term benefits

Total

Short-
term

Equity
Compensation

Total

Performance
related

Non-
performance
related2

Value of
options
and rights

Salary
and
fees8

Non-
monetary
benefits Other Superannuation

Year

Other
long
term
benefits8

Cash
bonus6

Options and
performance
rights7

Michael
Kavanagh1

2014 267,446

2013

–

2014 290,923 39,459

Ron
Weinberger

–

13,094

20,903

301,443 65,305

232,933 298,238 599,681

50%

–

17,885 30,473

378,740 49,104

147,533 196,637 575,377

2013 300,077 42,886 3,100

16,470 24,116

386,649 32,901

125,877 158,778 545,427

McGregor
Grant3

2014 273,037

2013 270,892

Gerard
Putt4

2014 214,575

2013 208,546

–

506

17,775 22,933

314,251 35,751

107,373 143,124 457,375

527

16,470 13,909

301,798 29,751

173,075 202,826 504,624

–

17,775 17,819

250,169 26,551

59,737 86,288 336,457

231

16,470 21,031

246,278 24,227

79,424 103,651 349,929

–

39%

–

26%

23%

15%

23%

29%

34%

18%

17%

23%

–

34%

28%

16%

11%

18%

13%

Total

2014 1,045,981 39,459

506

66,529 92,128 1,244,603 176,711

547,576 724,287 1,968,890

32%

28%

Total
(restated)5 2013 779,515 42,886 3,858

49,410 59,056

934,725 86,879

378,376 465,255 1,399,980

15%

18%

27%

Includes remuneration paid to Mr Kavanagh since his appointment as an Executive Director on 21 October 2013.

2. Non-performance related remuneration relates to options granted as part of employment contracts subject to service conditions.

3. Mr Grant joined the Company on 28 April 2011 and in connection with his appointment, he was granted 1,000,000 options which vest in 4 tranches, subject

to service conditions.

4. Mr Putt joined the Company on 27 April 2011 and in connection with his appointment, he was granted 400,000 options, which vest in 4 tranches, subject

to service conditions.

5. The 2013 KMP remuneration disclosure was restated to exclude executives Michael Potas, Kirste Courtney and Vincent Wang who were previously included as one of the

five named executives who received the highest remuneration in 2013.

6. The cash bonus is for the performance during the respective financial year based the criteria set out in Section 4.4.1. 2014 amounts represent the maximum cash

STI opportunity related to the financial year based on the achievement of individual goals and satisfaction of specified performance criteria. Actual cash STI award is
disclosed in Section 4.6.1.

7. The amount disclosed is the amount of the fair value of the options and rights recognised as an expense in each reporting period. The ability to exercise the options and
rights are subject to vesting conditions. The fair values of the options and rights that are subject to non-market performance conditions are calculated at the date of the
grant using Binomial Approximation model. The fair values of performance rights that are subject to TSR performance conditions are calculated at the date of the grant
using the Monte-Carlo simulation model.

8. As disclosed in note 2 to the financial statements, the Group changed its accounting policy in respect of employee benefits with the adoption of AASB119

Employee Benefits. As a result of this change, annual leave is included in other long term benefits, previously shown as a short term employee benefit. Consistent
with that change, cash compensated annual leave absences and accrual is now classified as other long term benefit in both current and prior periods. Other long term
benefits include annual leave and long service leave benefits.

nanosonics limited | annual report 201441

4.8 Executive remuneration tables – unaudited

This table represents the value to the Executive KMP of cash paid and vested equity awards (intrinsic value) received

during the year, and unvested equity awards (IFRS-2 value) granted during the financial year at risk. The LTI equity granted

is a value determined under IFRS-2 which may or may not vest depending on future outcomes that are uncertain.

Accordingly, this table incorporates data that could represent an accumulation of outcomes arising from multiple years.

Short-term benefits

Fixed
Remuneration2

Incentives3

Past at-risk
remuneration
received

Value of
Performance
Rights4

–

73,940

27,963

52,433

–

32,901

–

29,751

–

42,670

24,227

–

Actual
remuneration
received
during year

Future at risk remuneration
received during year

STI (deferred
as equity)

LTI (Equity)
granted 5

287,369

–

465,129

433,320

364,059

331,549

290,078

270,505

–

33,861

1,158,938

–

103,089

671,000

–

181,902

30,573

–

150,093

24,865

–

1,237,592

–

169,043

1,406,635

–

1,594,022

920,532

86,879

27,963

1,035,374

89,299

671,000

Michael Kavanagh1

Ron Weinberger

McGregor Grant

Gerard Putt

Total

Year

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

287,369

–

391,189

372,456

311,626

301,798

247,408

246,278

Includes remuneration paid to Mr Kavanagh since his appointment as an Executive Director on 21 October 2013.

2. Base salary, non-monetary, other cash benefits received during the year (excludes Annual Leave and Long Service Leave accrual).

3. STI received as cash in respect of the 2013 Financial Year. Excludes cash STI accrued in respect of the 2014 Financial Year.

Intrinsic value at vesting date of options and performance rights issued in previous periods that vested during the year.

5. Accounting value of performance rights awarded during the year that are unvested and subject to vesting conditions (i.e. achievement of performance conditions

and/or service conditions).

Directors’ report (continued)

5.0 Employee Share Scheme information

This section provides:

1. A description of the Employee Share Schemes (ESS) Nanosonics uses to provide equity rewards to

Nanosonics employees;

2. Disclosures required in relation to ESS grants provided to KMP;

3. Disclosures required about ESS instruments that Nanosonics has issued; and

4. Disclosures required in relation to Nanosonics’ shares and other ESS instruments held by KMP.

5.1 Employee Share Schemes operated by Nanosonics

Plan Name

Type of Instruments

Purpose

Details

Nanosonics Deferred
Employee Share Plan (DESP)

Ordinary Shares

Established in 2007

Date last approved by
shareholders: 8 November
2013

Nanosonics Exempt Employee
Share Plan (EESP)

Established in 2007

Date last approved by
shareholders: 8 November
2013

Nanosonics Employee Share
Option Plan (ESOP)

Options

Established in 2007

Date last approved by
shareholders: 8 November
2013

Nanosonics General Share
Option Plan (GSOP)

Established in 2007

Date last approved by
shareholders: 8 November
2013

The purpose of the Share Plans
is to provide eligible employees
(including Executive Directors but
excluding Non-Executive Directors)
with performance incentives
through opportunities to acquire
beneficial ownership of shares in
the Company and to access the
taxation concessions available
under the Income Tax Assessment
Act. The DESP is also used for
the settlement of shares on
exercise of options in the Share
Option Plans.

The purpose of the Share Option
Plans is to permit the Company,
as part of its overall remuneration
programs, to provide long-
term incentives for employees
(including Executive Directors),
consultants and contractors to
Nanosonics who deliver long-
term shareholder returns. The
Plans provide participants with
an opportunity to acquire a
beneficial ownership of shares in
the Company and to access the
taxation concessions available
under the Income Tax
Assessment Act.

Since the DESP was last approved
673,697 shares (from the exercise
of ESOP options) have been issued
to the Plan. As at the date of this
report 1,111,874 shares remain
outstanding.

No grants to date have been made
under the EESP.

Since the ESOP was last approved
2,402,899 options have been
issued and 1,073,697 options
exercised. As at the date of this
report 5,656,641 options
remain outstanding.

Since the GSOP was last approved
261,666 options have been
exercised. There have been no
new issues. As at the date of this
report 503,334 options
remain outstanding.

nanosonics limited | annual report 201443

5.2 ESS grants to KMP

5.2.1 Analysis of share-based payments granted as remuneration

Details of the vesting profiles for the year and as at 30 June 2014 of the Options and Performance Rights granted as

remuneration to each Executive KMP are set out below:

Options/Performance Rights

Vesting in future years

Number
vested
during the
year

%
vested
during
the
year

Number
lapsed/
forfeited
during the
year

Number
vested to
date

% lapsed/
forfeited

Balance at
year end

Intrinsic
value at
year end

2015

2016

2017

2018

Description

Grant
Date

Expiry
Date

Exercise
Price

Number
granted

Michael
Kavanagh

2013 LTIS Tranche 1

Nov-13 30-Sep-16

$0.00

375,000

2013 LTIS Tranche 2 Nov-13 30-Sep-16

$0.00

375,000

2013 LTIS Tranche 3

Nov-13 30-Sep-17

$0.00

375,000

2013 LTIS Tranche 4

Nov-13 30-Sep-17

$0.00

375,000

2013 LTIS Tranche 1

Nov-13 30-Sep-16

$0.00

67,409

2013 LTIS Tranche 2

Nov-13 30-Sep-16

$0.00

67,409

–

Ron
Weinberger

2013 Deferred STI

Apr-13 01-Apr-14

$0.00

38,726

100%

38,726

2012 LTIS

Nov-12 30-Sep-15

$0.00 1,220,000

–

2012 Deferred STI

Nov-12 01-Oct-13

$0.00

29,881

100%

29,881

Options

Jul-10 19-Jul-14

$0.56

200,000

68,000

34% 200,000

2013 LTIS Tranche 1 Mar-14 30-Sep-16

$0.00

47,888

2013 LTIS Tranche 2 Mar-14 30-Sep-16

$0.00

47,889

–

McGregor
Grant

2013 Deferred STI

Apr-13 01-Apr-14

$0.00

35,578

100%

35,578

2012 LTIS

Aug-13 30-Sep-15

$0.00

145,307

–

2012 Deferred STI

Nov-12 01-Oct-13

$0.00

26,478

100%

26,478

Options

May-11 28-Apr-16

$0.85 1,000,000

333,333

33% 833,334

2013 LTIS Tranche 1 Mar-14 30-Sep-16

$0.00

39,514

2013 LTIS Tranche 2 Mar-14 30-Sep-16

$0.00

39,515

–

Gerard
Putt

2013 Deferred STI

Apr-13 01-Apr-14

$0.00

29,357

100%

29,357

2012 LTIS

Aug-13 30-Sep-15

$0.00

119,898

–

2012 Deferred STI

Nov-12 01-Oct-13

$0.00

21,189

100%

21,189

Options

May-11 27-Apr-16

$0.85

400,000

133,333

33% 333,334

–

375,000 296,250

67,409

53,253

67,409

53,253

–

375,000

67,409

– 1,220,000 963,800

1,220,000

–

200,000

46,800

47,888

37,832

47,889

37,832

–

145,307 114,793

145,307

–

– 1,000,000

– 166,666

–

39,514

31,216

39,515

31,217

–

119,898

94,719

119,898

–

400,000

–

66,666

47,888

47,889

39,514

39,515

Directors’ report (continued)

5.2.2 Exercise of options granted as remuneration

During the financial year, the following shares were issued on the exercise of options previously granted as part of

remuneration to Key Management Personnel:

Richard England

Ron Weinberger

McGregor Grant

Gerard Putt

Total

Number
of shares

50,000

68,607

62,056

50,546

231,209

Amount paid
per share ($)

0.55

Total amount
paid ($)

27,500

–

27,500

Net market
value ($)

14,750

57,276

51,763

42,132

165,921

There are no amounts unpaid on the shares issued as a result of the exercise of the options in prior years.

5.2.3 Analysis of movement in options

The movement in number and value during the financial year of Options and Performance Rights over ordinary shares of

Nanosonics Limited held by Key Management Personnel is detailed below.

Balance at start
of the year

Granted in year

Exercised in year

Forfeited in year

Balance at end
of the year

Number

Value ($)1

Number

Value ($)1

Number

Value($)2 Number

Richard
England

Michael
Kavanagh

Ron
Weinberger

McGregor
Grant

Gerard
Putt

Total

50,000

15,075

–

50,000

14,750

–

– 1,500,000

1,158,938

–

1,488,607

767,761

134,818

103,089

68,607

58,028

1,062,056

531,773

241,084

181,902

62,056

52,433

450,546

224,865

198,927

150,093

50,546

42,670

3,051,209

1,539,474 2,074,829

1,594,021

231,209

167,881

–

Value
($)2

Number

Value ($)1

–

– 1,500,000

1,158,938

– 1,554,818

836,989

– 1,241,084

683,102

–

598,927

350,093

– 4,894,829

3,029,121

1. The ‘fair value’ of options granted in the year is the fair value of the options calculated as grant date using the Black-Scholes model and derived applying the valuation

methodology prescribed under IFRS-2. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting
period (i.e. in years 30 June 2012 to 30 June 2015).

2. The value of options exercised and forfeited during the year is calculated as the market price of shares of the company on the ASX as at close of trading on the date the

options were exercised or forfeited after deducting the price paid or payable to exercise the option.

nanosonics limited | annual report 2014

5.3 Fair value of share-based compensation

The following factors and assumptions were used in determining the fair value on grant date of options and performance

rights granted to directors and Key Management Personnel under ESOP which were unexpired on 30 June 2014, including

those granted during the period:

Option/
Performance
Rights
Description

Options

2012 LTIS

2013 LTIS
Tranche 1
- CEO

2013 LTIS
Tranche 2
- CEO

2013 LTIS
Tranche 3
- CEO

2013 LTIS
Tranche 4
- CEO

2013 LTIS
Tranche 1 -
Other KMP

2013 LTIS
Tranche 2 -
Other KMP

Vesting
Conditions

Service
Condition

Service
condition

FY15 Revenue,
net profit after
tax and service

Relative TSR
performance
and service

FY16 Revenue
and service

Relative TSR
performance
and service

FY17 Revenue
and service

Relative TSR
performance
and service
condition

FY16 Revenue
and service

Grant
date Expiry date

Share
price at
grant
date($)

Exercise
price ($)

Valuation
Model

Estimated
volatility

Risk free
interest
rate

Fair
Value of
option($)

Aug-10

19-Jul-14

0.54

0.56

Binomial

74.87%

4.77%

0.31

May-11

28-Apr-16

0.80

0.85

Binomial

73.62%

5.14%

0.50

Nov-12

30-Sep-15

0.55

–

Binomial

45.46%

2.58%

0.55

Aug-13

30-Sep-15

0.78

–

Binomial

45.49%

2.35%

0.78

Nov-13

30-Sep-16

0.85

–

Monte
Carlo

45.00%

3.00%

0.68

Nov-13

30-Sep-16

0.85

–

Binomial

45.00%

3.00%

0.85

Nov-13

30-Sep-17

0.85

–

Monte
Carlo

45.00%

3.20%

0.71

Nov-13

30-Sep-17

0.85

–

Binomial

45.00%

3.20%

0.85

Mar-14

30-Sep-16

0.80

–

Monte
Carlo

45.00%

2.68%

0.63

Mar-14

30-Sep-16

0.80

–

Binomial

45.00%

2.68%

0.80

Directors’ report (continued)

5.4 KMP equity interests

In accordance with the Corporations Act (section 205G (1)), Nanosonics is required to notify the interests (shares and rights

to shares) of directors to the ASX. In the interests of transparency and completeness of disclosure we have provided this

information for each director (as required under the Corporations Act) and all other Executive KMP.

Equity interests
as at 30 June 2014

Non-Executive Directors

Maurie Stang

Richard England

David Fisher

Executive Directors

Michael Kavanagh

Ron Weinberger

Other Executive KMP

McGregor Grant

Gerard Putt

Nanosonics Limited
ordinary shares1

Options over Nanosonics
Limited ordinary shares

Total intrinsic value of NAN
securities as at year end ($)2/3

28,402,424

128,301

812,705

150,000

68,607

77,056

69,046

–

1,500,000

1,554,818

1,241,084

598,927

22,437,915

101,358

642,037

1,303,500

1,171,306

251,331

211,699

Includes the number of Nanosonics shares issued to Executives under the DESP.

The intrinsic value of Nanosonics shares calculated as at the closing NAN price on 30 June 2014 times the number of shares.

The intrinsic value of options calculated as at the closing NAN price on 30 June 2014 less the applicable exercise price times the number of options.

Equity interests as at the date of this report

Nanosonics Limited ordinary
shares1

Options over Nanosonics
Limited ordinary shares

Non-Executive Directors

Maurie Stang

Richard England

David Fisher

Executive Directors

Michael Kavanagh

Ron Weinberger

Other Executive KMP

McGregor Grant

Gerard Putt

Includes the number of Nanosonics shares issued to Executives under the DESP.

Refer to Section 4.5.2 regarding Securities Trading Restrictions.

28,402,424

128,301

812,705

150,000

120,607

77,056

69,046

–

1,500,000

1,354,818

1,241,084

598,927

nanosonics limited | annual report 2014

5.5 KMP Share movement

The numbers of shares in the Company held during the financial year by Key Management Personnel, including their

personally-related parties, are set out below.

Non-Executive Directors

Maurie Stang

Richard England

David Fisher

Executive Directors

Michael Kavanagh

Ron Weinberger

Other Executive KMP

McGregor Grant

Gerard Putt

Balance at start
of the year

Received during
the year on the
exercise of options

Other net changes
during the year

Balance at
end of the year

28,402,424

78,301

812,705

100,000

859,672

15,0001

18,5001

–

50,000

–

68,607

62,056

50,546

–

28,402,424

128,301

812,705

50,000

(859,672)

–

150,000

68,607

77,056

69,046

This represents shareholding of a close family member of the KMP.

Directors’ report (continued)

6.0 Employment agreements

6.1 CEO and President

The following sets out the key terms of the employment agreement for the CEO and President, Michael Kavanagh.

Length of contract

Ongoing employment contract until notice is given by either party.

Fixed Remuneration

$410,000 p.a., inclusive of superannuation and reviewed annually. Increased to $430,000 p.a.,
inclusive of superannuation effective 1 July 2014.

Short-term Incentive

33.3% of Base Salary

Long-term Incentive

33.3% of Base Salary. LTI arrangements in respect of 2013 and 2014 are described in section 4.4.2

Notice periods

In order to terminate the employment arrangements, is required to provide Nanosonics with 9 months
written notice. Nanosonics must provide with 9 months written notice.

Resignation

On resignation, unless the Board determines otherwise:

• All unvested STI or LTI benefits are forfeited; and

• All vested but unexercised STI or LTI benefits are forfeited after 30 days following cessation

of employment.

Termination on notice
by Nanosonics

Nanosonics may terminate employment by providing 9 months’ written notice or payment in lieu of
the notice period based on fixed remuneration. Upon termination on notice by Nanosonics, unless the
Board determines otherwise:

Change of control

Termination for
serious misconduct

• All unvested STI or LTI benefits are forfeited; and

• All vested but unexercised STI or LTI benefits are forfeited after 30 days following cessation

of employment.

In the event of a takeover or change in control of Nanosonics Limited, any unvested Performance
Rights will vest on a pro-rata basis based on the most current financial reports available at the time
a change of control occurs, unless otherwise determined by the Board. The pro-rata period will be
calculated from the grant date to the change of control date. Performance Rights that vest following a
change of control will not generally be subject to restrictions on dealings.

Nanosonics may immediately terminate employment at any time in the case of serious misconduct, and
Mr Kavanagh will be only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by Nanosonics in the event of serious misconduct all unvested STI or LTI
benefits will be forfeited. The treatment of any vested but unexercised STI or LTI benefits will be at the
discretion of the Board.

Statutory
Entitlements

Payment of statutory entitlements of long service leave and annual leave applies in all events
of separation.

Post-employment
Restraints

Mr Kavanagh will be restrained for a period of up to 24 months after termination of his employment by
either party from being engaged in any of the following activities:

• Engaging with clients of Nanosonics with a view to obtaining the custom of those clients in a

business that is the same as or similar to Nanosonics’ business;

•

Interfering with the relationship between Nanosonics, its customers, employees, agents, contractors
or suppliers;

Inducing or assisting in the inducement of any employee, agent or contractor of Nanosonics to
leave their employment or terminate their contract; or

• Carrying-on or becoming in any way involved in any trade or business that is in competition

with Nanosonics.

nanosonics limited | annual report 201449

6.2 Other Executive KMP

The following sets out details of the employment agreements relating to other Executive KMP. The terms for all other

Executive KMP are similar, but do on occasion, vary to suit different needs.

Length of contract

Ongoing employment contract until notice is given by either party.

Notice periods

In order to terminate the employment arrangements, either Nanosonics or the Executive KMP are
required to provide the other party with written notice as summarised below:

• Ron Weinberger: 6 months

• McGregor Grant: 4 months

• Gerard Putt: 3 months

Resignation

On resignation, unless the Board determines otherwise:

• All unvested STI or LTI benefits are forfeited; and

• All vested but unexercised STI or LTI benefits are forfeited after 30 days following cessation

of employment.

Termination on notice
by Nanosonics

Nanosonics may terminate employment by providing the relevant written notice or payment in lieu of
the notice period based on fixed remuneration. On termination on notice by Nanosonics, unless the
Board determines otherwise:

Change of control

• All unvested STI or LTI benefits are forfeited; and

• All vested but unexercised STI or LTI benefits are forfeited after 30 days following cessation

of employment.

Termination for
serious misconduct

Nanosonics may immediately terminate employment at any time in the case of serious misconduct,
and the Executive KMP will only be entitled to payment of fixed remuneration up to the date
of termination.

On termination without notice by Nanosonics in the event of serious misconduct, all unvested STI or
LTI benefits will be forfeited. The treatment of any vested but unexercised STI or LTI benefits will be
at the discretion of the Board.

Statutory
Entitlements

Payment of statutory entitlements of long service leave and annual leave applies in all events
of separation.

Post-employment
Restraints

All Executive KMP will be restrained for a period of up to 24 months after termination of their
employment by either party from being engaged in any of the following activities:

• Engaging with clients of Nanosonics with a view to obtaining the custom of those clients in a

business that is the same as or similar to Nanosonics’ business.

•

Interfering with the relationship between Nanosonics, its customers, employees, agents,
contractors or suppliers.

Inducing or assisting in the inducement of any employee, agent or contractor of Nanosonics to
leave their employment or terminate their contract.

• Carrying-on or becoming in any way involved in any trade or business that is in competition

with Nanosonics.

Directors’ report (continued)

7.0 Key Management Personnel transactions

7.1 Loans to Key Management Personnel and their related parties

During the financial year and to the date of this report, the Group made no loans to directors and other Key Management

Personnel and none were outstanding as at 30 June 2014 (2013: Nil).

7.2 Other transactions with Key Management Personnel

Certain directors and Key Management Personnel, or their personally-related entities, hold positions in other entities that

result in them having control or significant influence over the financial or operating policies of those entities. A number of

these entities transacted with the Company in the 2013 and 2014 Financial Years. The terms and conditions of the

transactions were no more favourable than those available, or which might reasonably be expected to be available, on

similar transactions with unrelated entities on an arms-length basis.

Directors and
Key Management
Personnel

Maurie Stang

Related entities

Transactions

Gryphon Capital Pty Ltd

Director fees and services received

Novapharm Research (Australia) Pty Ltd

Services received

Ramlist Pty Ltd

Rent of premises

Regional Healthcare Group Pty Ltd

Products purchased, services received and
products sold

Richard England

Angleterre Pty Ltd and Domkirke Pty Ltd

Director fees and services received

The aggregate amounts of each of the above types of transactions with directors and key management personnel of the

Group were:

Amounts recognised as revenue

Products and services sold

Amounts recognised as expenses

Products purchased and services received

Rent of premises

2014

$’000

2013

$’000

1,812

1,056

357

184

553

185

The aggregate amounts of assets and liabilities relating to the above types of transactions with directors and key

management personnel of the Group were:

Assets

Current receivables

Liabilities

Current liabilities

2014

$’000

450

2013

$’000

150

nanosonics limited | annual report 2014

Indemnifying officers or auditor

During the financial year, the Company paid insurance premiums to insure the directors and secretary and Key Management

Personnel of the Company and its controlled entities.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought

against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities

incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct

involving a wilful breach of duty by the officers or the improper use by the officers of their positions or of information to

gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the

premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

The directors have not included in this report the amount of the premium paid in respect of the insurance policy, as such

disclosure is prohibited under the terms of the contract.

No indemnities have been given or insurance premiums paid, during or since the financial year, for any person who is or

has been an auditor for the Group.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf

of the Company or intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on

behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of

the Corporations Act 2001.

Rounding

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding

is applicable) and where noted ($’000) under the option available to the Company under ASIC CO 98/100. The Company is

an entity to which the class order applies.

Non-audit services

The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s

expertise and experience with the Company and/or the Group are important.

The Board of directors has considered the position and, in accordance with advice received from the Audit and Risk

Committee, is satisfied that the provision of the non-audit services by the auditor, if any, did not compromise the auditor

independence requirements of the Corporations Act 2001 for the following reasons:

a. all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the

impartiality and objectivity of the auditor; and

b. none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of

Ethics for Professional Accountants.

The auditor of the Group, UHY Haines Norton and its related practice firms did not provide any non-audit services during

the year.

Directors’ report (continued)

Officers of the Company who are former audit partner of UHY Haines Norton

There are no officers of the company who are former audit partners of UHY Haines Norton.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included

on page 59 of this report.

Auditor

UHY Haines Norton continues in office as auditor in accordance with section 327 of the Corporations Act 2001.

This report, which includes the review of operations (on pages 8 to 13) and the Information on the directors, company

secretaries and senior management (on pages 18 to 20), is made and signed in accordance with a resolution of directors,

pursuant to section 298 (2)(a) of the Corporations Act 2001, on 21 August 2014.

Richard England

Director

Sydney

21 August 2014

nanosonics limited | annual report 2014Corporate governance statement

The Board of directors of Nanosonics Limited is committed

of directors’ attendances at meetings of the Board are

to ensuring that its policies and practices reflect good

shown in the Directors’ report contained in the

corporate governance consistent with the ASX Listing

Company’s Annual Report.

Rules and the ASX Corporate Governance Principles and

Recommendations with 2010 Amendments (2nd Edition).

The Company has commenced work on implementing

the recommendations in the March 2014 Amendments

(3rd Edition).

This Corporate Governance Statement sets out Nanosonics

Limited’s key corporate governance principles and practices

and was approved by the Board on 28 July 2014. A copy

is available on the Company’s website at http://www.

nanosonics.com.au/Investor-Centre/Corporate-Governance.

Principle 1 – Lay solid foundations for
management and oversight

Role of the Chairman

The Chairman is responsible for leading the Board, its

meetings and directors, so that all directors are able to

contribute effectively, all matters are properly considered

and there is clear decision-making. The Chairman has

ultimate responsibility for corporate governance.

Role of the Board

Under the leadership of the Chairman, the role of the Board

is to provide strategic guidance to the Company and to

provide effective oversight of its management for the benefit

of all stakeholders.

The Board acts on behalf of shareholders and is

accountable to the shareholders for the overall strategy,

governance and performance of the Company. The Board

retains ultimate authority over the management of the

Group; however day-to-day management of the Group’s

affairs and the implementation of its strategies are formally

delegated by the Board to the CEO and President (Managing

Director) and senior executives. The respective roles and

responsibilities of the Board and senior executives, and how

they are separate, are set out in detail in the Company’s

Board Charter.

Roles of senior executives

The Company sets responsibilities and performance

expectations for all senior executives, including executive

directors, as described in Information on directors,

company secretaries and senior management and in the

remuneration report in the Company’s Annual Report.

The Nanosonics Performance and Development Program

requires individual appraisals by a director at least annually

for all senior executives, including executive directors but

excluding the CEO and President, who is assessed by the

Non-Executive Directors. In accordance with that program,

individual appraisals of the performance of all senior

executives were undertaken by the CEO and President

during the year.

Committees of the Board

The Board is assisted by committees, which are responsible

for aspects of the operation of the Group and which act by

examining relevant matters and making recommendations

to the Board. The Board may establish additional

committees to assist it in carrying out its responsibilities.

The Board may also delegate specified responsibilities to

ad-hoc committees. The directors must be satisfied that the

members of a committee are competent and will

exercise their delegated functions in accordance with

directors’ duties.

Currently there are four committees of the Board: the

Nomination Committee, the Audit and Risk Committee,

the Remuneration Committee and the R&D and Innovation

Committee. Details of directors’ attendances at meetings of

the committees are shown in the Directors’ report contained

in the Company’s Annual Report.

Principle 2 – Structure the board to
add value

The Board currently consists of three Non-Executive

The Board meets regularly in accordance with an agreed

Directors and two executive directors.

schedule and special meetings are held as required. Details

Corporate governance statement (continued)

The role of the Chairman is separate from that of the Chief

as Managing Director of Aeris Environmental Ltd where

Executive Officer.

Mr Stang is the non-executive Chairman.

• Mr Maurie Stang is non-executive Chairman:

appointed director 14 November 2000.

• Dr David Fisher is an independent non-executive

director: appointed director 30 July 2001.

• Mr Richard England is an independent non-executive

director: appointed director 5 February 2010.

• Mr Michael Kavanagh is an executive director and CEO

• Mr England is considered to be an independent director.

The Board is considering opportunities to appoint additional

suitably qualified and experienced independent directors.

At the time when the Company has appointed other

independent directors, the Board will also consider its

opportunities to appoint an independent chairman.

and President: appointed non-executive director 30 July

Nomination Committee

2012 and became an executive director on

21 October 2013.

• Dr Ron Weinberger is an executive director and the

The members of the Nomination Committee are: Mr Richard

England (Chairman), Dr David Fisher, and Mr Maurie

Stang. The Committee comprises a majority of independent

President Technology Development / Commercialisation:

directors and is chaired by an independent director.

appointed as an executive director 2 July 2008.

The Nomination Committee is appointed by the Board to

Details of each director, including their qualifications and

experience, are set out in the Information on the directors,

company secretaries and senior management on pages

18 to 20 of the Annual Report and on the Nanosonics

website, www.nanosonics.com.au.

Directors’ independence

Directors’ independence is assessed according to the

provisions set out in the Company’s Board Charter

and in the ASX Corporate Governance Principles and

Recommendations with 2010 Amendments (2nd

Edition). Accordingly:

assist the Board to discharge its responsibilities in relation to:

• The composition, structure and operation of the Board

and ensuring the Board is comprised of individuals

who are best able to discharge their responsibilities as

Directors; and

• Ensuring the Company meets the requirements of the

ASX Diversity Guidelines.

A copy of the Nomination Committee Charter is available on

the Company’s website.

Selection and appointment of directors

The Nomination Committee is responsible for the

• Mr Stang is not considered to be an independent

identification and selection of suitable candidates for

director as: he is a founder of the Company; he held

appointment as a director. The Committee assesses

executive office in the Company until March 2007; he

potential directors to ensure the Board includes an

is a major shareholder of the Company; and he is a

appropriate mix of skills to allow the Board to maximise its

director and/or shareholder of companies with which

effectiveness and contribution to the Company. Selection

the Company had significant transactions during

criteria include relevant experience and qualifications,

the year (refer to the Directors report included in the

availability, communication capabilities, community

Annual Report).

standing and integrity. After assessment, candidates are

• Mr Kavanagh is not considered to be an independent

recommended to the Board by the Committee.

director as he is an executive of the Company.

• Dr Weinberger is not considered to be an independent

director as he is an executive of the Company.

• Dr Fisher is considered to be an independent director,

except that he served as interim executive director for

the period 14 December 2007 to 16 June 2008. For the

period 9 May 2011 to 29 March 2013 Dr Fisher served

Induction, education and access of directors

Every new director receives an appointment letter

accompanied by:

• Director’s Deed of Access;

• Director’s Handbook (containing Company policies and

charters); and

•

Induction training.

nanosonics limited | annual report 201455

Directors and the Board have the right, in connection with

of this, the Company is committed to maintaining a culture

their duties and responsibilities, to obtain independent

where all directors, staff, contractors and consultants to the

professional advice at the Company’s expense. Subject

Company are encouraged to raise concerns about poor and/

to prior approval from within the Board, which will not

or unacceptable practices and misconduct.

reasonably be withheld, a director may have direct access

to any employee or contractor of the Group and seek any

information from any employee in order to perform his or

her responsibilities.

Board performance evaluation

The Company has a Whistleblower Policy to provide a

process through which staff, contractors and consultants

to the Company can express serious concerns and report

misconduct. The Whistleblower policy is available on the

Company’s website.

The Board requires that each director has the appropriate

Diversity

competencies to fulfil their role and that they perform

effectively in their respective role and on the Board. The

Nomination Committee is responsible for recommending

a framework for the assessment and evaluation of the

performance of each director individually, of each committee

and of the Board as a whole. The performance of the Board

and each of the Board committees is reviewed annually with

the most recent being completed in October 2013.

Principle 3 – Promote ethical and
responsible decision-making

Code of Conduct

All directors, officers, employees, advisors, consultants and

contractors of the Group are expected to act with integrity

and objectivity and to maintain the highest possible ethical

standards which have been formalised and set out in the

Nanosonics believes that the pursuit of diversity in the

workplace increases its ability to attract, retain and develop

the best talent available, creates an engaged workforce,

delivers the highest quality services to its customers,

enhances individual work-life balance, encourages personal

achievement, improves co-operation and assists in the

optimisation of organisational performance. Diversity in the

workplace mirrors the diversity of the broader community,

encompassing age, gender, ethnicity, cultural and other

personal factors. The Company respects the diversity of

all employees, consultants and contractors, and cultivates

an environment of fairness, respect and equal opportunity.

A copy of Nanosonics’ Diversity policy is available on the

Company’s website.

Set out below are the diversity objectives established by

the Board.

Company’s Code of Conduct and Ethics which is available

• Hiring: The Board will ensure that appropriate

on the Company’s website.

Securities trading policy

The Company has a Securities Trading Policy, which applies

to all Designated Persons, comprising its directors, officers,

employees, advisors, consultants and contractors and such

other persons as the Board nominates. Designated Persons

may only deal in the Company’s securities in accordance

with the policy and the Company regularly reviews share

trading reports and its share register to ensure compliance

with the policy. A copy of the Securities Trading Policy is

available on the Company’s website.

Whistleblower policy

The Company recognises its responsibilities to conduct

its business in accordance with both Australian and

internationally accepted practices and procedures. As part

selection criteria, based on diverse skills, experience

and perspectives, are used when recruiting new staff

and directors.

• Job specifications, advertisements, application

forms and contracts will not contain any direct or

inferred discrimination.

• Training: All internal and external training opportunities

will be based on merit, and Company and individual

needs. The Board will consider senior management

training and executive mentoring programmes to

develop skills and experience to prepare employees for

senior management and Board positions.

• Career Advancement: All decisions associated with

career advancement, including promotions, transfers,

and other assignments, will meet the Company’s needs,

and be determined on skill and merit.

Corporate governance statement (continued)

• Work Environment: The Company will ensure that

processes, key personnel and cost. The Committee then

all officers, employees, consultants and contractors

provides the Board with its recommendation. In line with

have access to a work environment that is free from

current professional standards the external auditor is

harassment and unwanted conduct in relation to

required to rotate after 5 years and cannot return as auditor

personal circumstances or characteristics. Directors,

for a further 2 years.

managers and supervisors will ensure that complainants

It is the external auditor’s role to provide an independent

or reports of sexual, racial or other harassment are

treated seriously, confidentially and sympathetically by

opinion that the Company’s financial reports are true and fair

and comply with the Australian Accounting Standards and

the Company.

the Corporations Act 2001.

The Board assesses annually the above diversity objectives

and Company’s progress in achieving these objectives.

As at 30 June 2014, women represented 36% (2013: 33%)

Principle 5 – Make timely and balanced
disclosure

of the Group’s workforce, 31% in key executive positions

The Company has a Continuous Disclosure and Shareholder

(2013: 36%) and 0% at Board level (2013: 0%)

Communications Policy to ensure compliance with the

Principle 4 – Safeguard integrity in
financial reporting

Audit and Risk Committee

disclosure requirements of the ASX Listing Rules and to

ensure individual accountability at senior executive level

for that compliance. In determining whether information

should be disclosed, the Board takes into consideration

the needs and interests of the Group’s shareholders and

The members of the Audit and Risk Committee are:

other stakeholders in the context of the Board’s obligations

Mr Richard England (Chairman), Dr David Fisher and

under the Corporations Act 2001 and the ASX Listing Rules.

Mr Maurie Stang. The Committee comprises only Non-

ASX announcements are prepared directly when the Board

Executive Directors and has a majority of independent

or executive management becomes aware of information

directors. The Committee Chairman is an independent

required to be disclosed to the market.

director who is appropriately qualified and financially literate

A copy of the Continuous Disclosure and Shareholder

and who is not Chairman of the Board.

Communications Policy is available on the

The purpose of the Audit and Risk Committee is to assist

Company’s website

the Board to discharge its responsibilities in relation to the

oversight and monitoring of:

• Corporate reporting processes, including the financial

reporting process;

• External audit;

• Risk management and internal control;

Principle 6 – Respect the rights of
shareholders

The Company recognises and respects the rights of

shareholders and seeks to facilitate the effective exercise

of those rights within the limitations of the continuous

• Compliance with laws, regulations, internal policies and

disclosure provisions of the ASX Listing Rules. Nanosonics’

industry standards; and

policy for communication with shareholders and

• Activities to prevent, deter, detect and report on fraud.

encouraging their participation at general meetings is

A copy of the Audit and Risk Committee Charter is available

contained in the Company’s Continuous Disclosure and

on the Company’s website.

External auditors

The Audit and Risk Committee is responsible for selecting

and recommending the appointment of the external auditor.

The Committee considers a number of criteria in appointing

the external auditor, such as audit approach, governance

Shareholder Communications Policy.

The Company encourages shareholder participation,

particularly attendance of the general meetings of the

Company. The external auditor attends the annual general

meeting and is available to answer shareholder questions

about the conduct of the audit of the Company and the

nanosonics limited | annual report 201457

preparation and content of the auditor’s report on the

of material business risks to mitigating controls so that

financial statements of the Company.

the performance of the Company’s enterprise risk and

The Company ensures relevant corporate information is

complete and available in a timely manner on its website:

www.nanosonics.com.au. Measures include:

• Placing all announcements to the market on the

Company website after they have been released to

the ASX.

• Posting webcasts or recordings of teleconferences to

the website.

•

Including at least the last three years’ financial data on

the website.

• Providing updates and reports to shareholders by email.

Shareholders and prospective shareholders are welcome,

by prior appointment, to speak with executive managers

responsible for investor relations and to view the

Company’s operations.

Principle 7 – Recognise and manage risk

The Company has established and documented an

enterprise risk management program for the oversight and

compliance programs can be monitored continuously.

Management reports to the Board on the effectiveness of

the Company’s management of its material business risks

with the most recent report being provided in July 2014.

The CEO and President and Chief Financial Officer have

jointly confirmed to the Board that the declaration provided

in the Annual Report in accordance with section 295A of the

Corporations Act 2001 is founded upon sound systems of

internal control and that the systems are operating effectively

in all material respects in relation to financial reporting risks.

Principle 8 – Remunerate fairly and
responsibly

The Company’s remuneration philosophy and policies are

set out in the Remuneration Report in the Annual Report.

The Remuneration Committee oversees remuneration

policies and strategies to ensure that performance is

rewarded in a manner that is competitive and appropriate

for the results delivered.

management of the Company’s material business risks. The

Remuneration Committee

Audit and Risk Committee is responsible for overseeing and

The members of the Remuneration Committee are: Mr

monitoring risk and compliance management. A summary

Richard England (Chairman), Dr David Fisher and Mr

of the Audit and Risk Committee’s responsibilities in relation

Maurie Stang. The Committee is chaired by an independent

to risk and compliance are included in the Audit and Risk

director and has a majority of independent directors.

Committee Charter.

The purpose of the Remuneration Committee is to assist the

Nanosonics’ enterprise risk management system is based

Board to discharge its responsibilities by:

on the International Risk Standard AS/NZS ISO 31000:2009

and is complemented by an internal control program based

upon the principles set out in the Australian Compliance

Standard AS 3806:2006.

• Recommending appropriate remuneration policies to the

Board and monitoring their implementation;

• Establishing systems designed to enhance the

performance of individual employees and Directors of

Nanosonics has developed a common risk language

the Company and of the Company as a whole;

through which it considers internal risks such as those

• Fairly and responsibly rewarding executives and other

arising from financial and human resource management

employees having regard to the performance of the

and external risks such as those arising from dealings with

Company, the performance of the executive or employee

key stakeholders and macro environmental issues such

and the general pay environment; and

as regulatory changes or economic events beyond the

• Recommending to the Board a system of performance

Company’s control. In assessing material business risks,

appraisal for Directors and the Board of the Company

each identified risk is individually assessed in terms of

as a whole.

the likelihood of the risk event occurring and the potential

consequences in the event that the risk event was to occur.

During the year the Company implemented an electronic

A comprehensive summary of the Company’s remuneration

strategy together with details of securities trading

restrictions are set out in the Remuneration Report in the

risk and compliance system, which facilitates linking

Annual Report.

Contents of the financial statements
For the year ended 30 June 2014

Auditor’s independence declaration

Financial statements

Notes to the financial statements

1. Corporate information

2. Summary of significant accounting policies

3. Financial risk management

4. Critical accounting estimates and judgments

5. Segment information

6. Other income

7. Loss before income tax expense

8. Taxation

9. Current assets – Cash and cash equivalents

10. Current assets – Trade and other receivables

11. Current assets – Inventories

12. Current assets – Other

13. Non-current assets – Property plant and equipment

14. Non-current assets – Intangible assets

15. Non-current assets – Other

16. Current liabilities – Trade and other payables

17. Current liabilities – Deferred revenue

18. Employee provisions

19. Borrowings

20. Convertible notes

21. Contributed equity

22. Reserves

23. Dividends

24. Capital and leasing commitments

25. Auditor’s remuneration

26. Information relating to subsidiaries

27. Related party disclosures

28. Notes to the cash flow statements

29. Loss per share

30. Share-based compensation

31. Parent entity information

32. Events subsequent to reporting date

Directors’ declaration

Independent auditor’s report to the members

102

103

104

nanosonics limited | annual report 2014Auditor’s independence declaration

Consolidated statement of profit or loss
and other comprehensive income
For the year ended 30 June 2014

Continuing operations

Sale of goods and services

Cost of sales

Gross profit

Other income

Operating expenses

Staffing costs

Intellectual property

Quality & regulatory management

Business development

Premises, plant & equipment

External consultants & advisors

Other operating costs

Total operating expenses

Other expense

Borrowing costs

Operating loss before income tax

Income tax benefit (expense)

Net loss after income tax expense attributable to owners of
the parent entity

Other comprehensive income
Items that may be reclassified subsequently to profit or loss

Exchange difference on foreign currency translation

Income tax on items of other comprehensive income

Total items that may be reclassified subsequently to profit
or loss

Total other comprehensive income

Total comprehensive income for the period attributable to
owners of the parent entity

(Loss) per share for losses attributable to ordinary
shareholders of the company

Basic (loss) per share

Diluted (loss) per share

Notes

2014
$’000

21,492

(7,571)

13,921

4,114

12,005

594

298

1,094

1,635

1,534

2,956

20,116

555

(2,636)

2013
$’000

14,899

(6,428)

8,471

2,690

9,177

459

247

988

1,567

1,861

2,080

16,379

517

(5,735)

(33)

(2,605)

(5,768)

(7)

–

(7)

–

(2,612)

(5,730)

Cents

(1.0)

Cents

(2.2)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.

nanosonics limited | annual report 2014Consolidated statement of financial position
As at 30 June 2014

Current assets

Cash and cash equivalents

Trade and other receivables

Inventories

Other current assets

Total current assets

Non-current assets

Property, plant and equipment

Intangible assets

Other non-current assets

Total non-current assets

Total assets

Current liabilities

Trade and other payables

Derivative financial instruments

Deferred revenue

Employees provisions

Borrowings

Total current liabilities

Non-current liabilities

Employees provisions

Borrowings

Convertible notes

Total non-current liabilities

Total liabilities

Net assets

Equity

Contributed equity

Option premium on convertible notes

Reserves

Accumulated loss

Total equity

Notes

2014
$’000

21,233

5,712

4,237

440

31,622

1,778

–

144

1,922

33,544

3,000

–

308

1,521

4,835

159

8,097

8,274

13,109

20,435

74,410

376

3,691

(58,042)

20,435

2013
$’000

24,064

4,199

2,909

488

31,660

1,812

144

1,993

33,653

3,002

198

209

783

4,198

183

7,541

7,748

11,946

21,707

74,068

376

2,700

(55,437)

21,707

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Consolidated statement of changes in equity
For the year ended 30 June 2014

Option
premium on
convertible
note

Note 20
$’000

Employee
equity
benefits
reserve

Note 22
$’000

Foreign
currency
translation
reserve

Note 22
$’000

Accumulated
losses

Total equity

$’000

376

1,775

(11)

(49,669)

26,003

Contributed
equity

Note 21
$’000

73,532

–

381

(48)

203

–

898

74,068

376

2,673

–

342

–

998

–

(7)

–

(5,768)

–

(5,768)

(5,730)

–

381

(48)

1,101

(55,437)

21,707

(2,605)

–

(7)

(2,605)

(2,612)

–

1,340

At 30 June 2012

Loss for the period

Other comprehensive income

Total comprehensive income (loss)

Transactions with owners in their capacity
as owners

Shares issued

Transaction costs

Share-based payment

At 30 June 2013

Loss for the period

Other comprehensive income

Total comprehensive income (loss)

Transactions with owners in their capacity
as owners

Shares issued

Share-based payment

At 30 June 2014

74,410

376

3,671

(58,042)

20,435

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

nanosonics limited | annual report 2014
Consolidated statement of cash flows
For the year ended 30 June 2014

Cash flows from operating activities

Receipts from customers (inclusive of GST)

Receipts from government grants (inclusive of refundable
R&D tax offset)

Payments to suppliers and employees (inclusive of GST)

Interest received

Income taxes paid

Net cash used in operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Net cash used in investing activities

Cash flow from financing activities

Notes

Net proceeds from issue of shares and exercise of options

Repayment of borrowings

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the financial year

Effects of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at the end of year

2014
$’000

23,027

1,666

(28,020)

727

(2,594)

(479)

342

(6)

336

(2,737)

24,064

(94)

21,233

2013
$’000

14,025

1,498

(21,086)

1,096

(39)

(4,506)

(1,359)

536

(6)

530

(5,335)

29,310

24,064

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the financial statements
For the year ended 30 June 2014

1. Corporate information
The financial report on pages 60 to 102 covers Nanosonics Limited as a consolidated entity consisting of Nanosonics
Limited (the Company) and its subsidiaries (the Group).

Nanosonics Limited is a publicly listed company, limited by shares, incorporated and domiciled in Australia and listed on
the Australian Securities Exchange (ASX code NAN). The Company’s registered office and principal place of business is:

Unit 24, 566 Gardeners Road
Alexandria, NSW 2015
Australia

A description of the nature of the Group’s operations and its principal activities is included in the review of operations on
pages 8 to 13 and in the Directors’ report on page 22, both of which are not part of this financial report.

The financial report was authorised for issue in accordance with the resolution of the directors on 21 August 2014.

2. Summary of significant accounting policies

a. Basis of preparation
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements
of the Corporations Act 2001, Australian Accounting Standards, and other authoritative pronouncements of the Australian
Accounting Standards Board. The financial report has also been prepared on a historical cost basis and do not take into
account changes in money values, except for derivative financial instruments, which have been measured at fair value.

The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class
Order, all financial information presented in Australian dollars has been rounded to the nearest one thousand dollars
($’000) unless otherwise stated.

b. Compliance with IFRS
The financial report of Nanosonics Limited also complies with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB).

c. New accounting standards and interpretations
1) Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year except as follows:

The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of
1 July 2013:

• AASB 10 Consolidated Financial Statements, AASB 127 Separate Financial Statements

• AASB 11 Joint Arrangements, AASB 128 Investments on Associates and Joint Ventures

• AASB 12 Disclosure of Interests in Other Entities

• AASB 13 Fair Value Measurement

• AASB 119 Employee Benefits (revised 2011)

• AASB 2012-2 Amendments to AASB 7 Financial Instruments: Disclosures – Offsetting Financial Assets and

Financial Liabilities

• AASB 2012-5 Improvements to AASBs 2009-2011 Cycle

• AASB 2012-9 Withdrawal of interpretation 1039

• AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel

Disclosure Requirements

• AASB CF 2013-1 Australian Conceptual Framework

nanosonics limited | annual report 201465

The effect of the adoption of the above standards or interpretations or other amendments applied for the first time
are disclosed below:

• AASB 119 Employee Benefits – The revised standard introduced changes to accounting for defined benefit plans,

termination benefits and definition of short term employee benefits. The distinction between short-term and other long-

term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after

the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. The adoption of

this standard by the Group impacted the measurement of annual leave obligations. The effect of change in the annual

leave expense and provision as previously reported in 2013 is not material.

• AASB 13 Fair Value Measurement – AASB 13 establishes a single source of guidance for all fair value measurements.

AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to

measure fair value under Australian Accounting Standards. AASB 13 defines fair value as an exit price. As a result of

the guidance in AASB 13, the Group reassessed its policies for measuring fair values, in particular, its valuation inputs

such as non-performance risk for fair value measurement of liabilities. AASB 13 also requires additional disclosures.

Application of AASB13 has not materially impacted the fair value measurements of the Group. Additional disclosures

where required, are provided in the individual notes relating to the assets and liabilities whose fair values were

determined. Fair value hierarchy is provided in note 3.

• AASB 2011-4 Amendments to Australian Accounting Standards and revised Corporations Regulations 2M.3.03 –

Transfer of Individual KMP disclosures to the Remuneration Report. The amendments removed the individual Key

Management Personnel (KMP) disclosures about equity holdings, loans and other transactions with KMP from the

notes to the financial statements and were transferred to the Remuneration Report. Comparative information is not

required for these items in the Remuneration Report. Accordingly, individual KMP disclosures are now included in the

Remuneration report on page 26 to 50.

Adoption of the other standards affected the disclosures but did not have a material impact on the financial statements of
the Group.

2) Accounting Standards and Interpretations issued but not yet effective
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not
yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2014, are
outlined below:

Standards effective 1 Jan 2014, applicable to the Group by 1 July 2014
• AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities.
AASB 2012-3 adds application guidance to AASB 132 to address inconsistencies identified in applying some of the

offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off”

and that some gross settlement systems may be considered equivalent to net settlement. When AASB 2012-3 is first

adopted for the year ending 30 June 2015, there will be no impact on the entity as this standard merely clarifies existing

requirements in AASB 132.

• AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosure for Non-Financial Assets. The

amendments include the requirement to disclose additional information about the fair value measurement when

the recoverable amount of impaired assets is based on fair value less cost of disposal. When these amendments are

adopted for the first time, they are unlikely to have any significant impact to the Group given that they are largely of the

nature of clarification of existing requirements.

• Annual improvements 2010-2012 Cycle – Annual Improvements to IFRSs 2010-2012 Cycle. Annual Improvements to

IFRSs 2010-2012 Cycle is a collection of amendments to IFRSs in response to eight issues addressed during the

2010-2012 cycle for annual improvements to IFRSs. The amendments have not yet been adopted by the AASB.

Among the items addressed by this standard, the following are relevant to the Group:

–

IFRS 2 – Clarifies the definition of ‘vesting conditions’ and ‘market condition’ and introduces the definition of

‘performance condition’ and ‘service condition’. The group is yet to assess the effect if any of this amendment on its

accounting of share-based payments.

–

IFRS 8 – Requires entities to disclose factors used to identify the entity’s reportable segments when operating

segments have been aggregated. An entity is also required to provide reconciliation of total reportable segments’

assets to the entity’s total assets.

–

IAS 16 & IAS 38 – Clarifies the determination of accumulated depreciation does not depend on the selection of
valuation technique and that it is calculated as the difference between the gross and net carrying amounts.

–

IAS 24 – Defines a management entity providing KMP services as a related party of the reporting entity. The

amendments added an exemption from the detailed disclosure requirements in paragraph 17 of IAS 24 for KMP

services provided by a management entity. Payments made to a management entity in respect of KMP services

should be separately disclosed.

• Annual Improvements 2011-2013 Cycle – Annual Improvements to IFRSs 2011-2013 Cycle. Annual Improvements

to IFRSs 2011-2013 Cycle is a collection of amendments to IFRSs in response to four issues addressed during the

2011-2013 cycle. Among other improvements, the amendments clarify that an entity should assess whether an

acquired property is an investment property under IAS 40 Investment Property and perform a separate assessment

under IFRS 3 Business Combinations to determine whether the acquisition of the investment property constitutes a

business combination. The amendments have not yet been adopted by the AASB.

• AASB 1031 Materiality – The revised AASB 1031 is an interim standard that cross-references to other Standards and

the Framework (issued December 2013) that contain guidance on materiality. AASB 1031 will be withdrawn when

references to AASB 1031 in all Standards and Interpretations have been removed.

Unless otherwise stated above, the adoption of the above standards is not expected to have a significant effect on
the way the Group accounts for and presents its financial results.

Standards to be applied by the Group beyond 1 July 2014
• Amendments to IAS 16 and IAS 38 – Clarification on the Acceptable Methods of Depreciation and Amortisation

(Amendments to IAS 16 and IAS 38), effective I January 2016, applicable 1 July 2016. IAS 16 and IAS 38 both

establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of

the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the

depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset

generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also

clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic

benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.

•

IFRS 15 Revenue from Contracts with Customers, effective 1 January 2017, applicable 1 July 2017. IFRS 15

establishes principles for reporting useful information to users of financial statements about the nature, amount, timing

and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of IFRS

15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount

that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An

entity recognises revenue in accordance with that core principle by applying the following steps:

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201467

– Step 1: Identify the contract(s) with a customer.

– Step 2: Identify the performance obligations in the contract.

– Step 3: Determine the transaction price.

– Step 4: Allocate the transaction price to the performance obligations in the contract.

– Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

• AASB 9 Financial Instruments, effective 1 January 2018, applicable 1 July 2018. AASB 9 includes requirements for

the classification and measurement of financial assets. It was further amended by AASB 2010-7 and AASB 2012-6 to

reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for

classification and measurement of financial assets compared with the requirements of AASB 139.

The Group has not yet assessed the full impact of the above standards that will be applied by the Group beyond
1 July 2014.

d. Basis of consolidation
The consolidated financial statements comprise the financial statements of Nanosonics Limited (‘Company’ or ‘parent
entity’) and its subsidiaries as at 30 June each year. Nanosonics Limited and its subsidiaries together are referred to in this
financial report as the Group or the consolidated entity.

Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired.
Any goodwill that arises is tested annually for impairment. Any gain or a bargain purchase is recognised in profit or loss
immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.

Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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 over
the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-
consolidated from the date that control ceases.

Information on subsidiaries is contained in note 26 to the financial statements.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using
consistent accounting policies.

Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related
non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any
interest retained in the former subsidiary is measured at fair value when control is lost.

Transactions eliminated on consolidation
In preparing the consolidated financial statements, all inter-company balances and transactions between entities in the
Group, including any unrealised profits or losses, have been eliminated in full.

e. Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the Managing Director and
CEO, who is the Group’s chief operating decision maker. The chief operating decision maker is responsible for allocating
resources and assessing performance of the operating segments.

f. Foreign currency
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are
presented in Australian dollars, which is Nanosonics Limited’s functional and presentation currency.

(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the statement of profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges or are attributable to part of the net investment in a foreign operation.

Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets and liabilities are recognised in profit or loss as part of the fair
value gain or loss.

(iii) Group companies
The functional currency of the overseas subsidiaries is as follows:

• Nanosonics Europe GMBH is Euro; and

• Nanosonics Inc. is US dollars.

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation currency are translated into the presentation currency
as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that statement of

financial position

•

income and expenses for each income statement are translated at average exchange rates (unless this is not a

reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income

and expenses are translated at the dates of the transactions), and

• all resulting exchange differences are recognised in other comprehensive income – foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid,
a proportionate share of such exchange differences is reclassified to profit or loss, as part of the gain or loss on sale
where applicable.

g. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, taking into account defined terms of
payment and excluding taxes or duty. Amounts disclosed as revenue are net of returns, trade allowances, rebates and
amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each
of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until
all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into
consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised for the major business activities as follows:

(i) Sale of goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the distributor or end
customer. Sales are recorded based on the prices specified in the sales contracts net of any discounts and returns at the
time of sale. No element of financing is deemed to be present as the sales are made with credit terms which are consistent
with practices in each market.

(ii) Sale of services
Revenue from trophon® EPR maintenance and repairs are recognised as services are rendered. Revenue from service
contracts are recognised as services are rendered over the service period, typically over one year. Unearned service
revenue is deferred and recognised as liability in the Statement of financial position.

(iii) Interest income
Interest income is recognised on a time proportion basis using the effective interest method.

h. Government grants
Grants from 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 the attached conditions.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201469

i. Income tax and other taxes
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on
the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable
income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business
combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance date and are
expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses and on the assumption that
no adverse change will occur in income tax legislation enabling the benefit to be realised and comply with the conditions of
deductibility imposed by the law.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where
the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle
the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.

Tax consolidation
Nanosonics Limited and its wholly-owned Australian controlled entity, Saban Ventures Pty Limited, are part of a tax
consolidated group.

The head entity, Nanosonics Limited, and the controlled entity in the tax consolidated group account for their own current
and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be
a standalone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Nanosonics Limited also recognises the current tax liabilities (or
assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities
in the tax consolidated group.

Goods and services tax (GST), Value added tax (VAT)
Revenues, expenses and assets are recognised net of the amount of associated GST or VAT as applicable, unless the GST/
VAT incurred is not recoverable from the taxation authority, in which case, the GST/VAT is recognised as part of the cost of
acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST/VAT receivable or payable. The net amount of GST/
VAT recoverable from, or payable to, the taxation authority is included with other current receivables or payables in the
statement of financial position.

Cash flows are presented on a gross basis. The GST/VAT components of cash flows arising from investing or financing
activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows.

j. Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

Group as a lessee
Finance leases that transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item,
are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value
of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease

liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised
in finance costs in the profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the
asset and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are
classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to the income statement on a straight-line basis over the period of the lease.

Group as a lessor
Leases in which the Group does not transfer all the risks and benefits of ownership of an asset are classified as operating
leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset
and recognized over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the
period in which they are earned.

k. Borrowing costs
Borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.

l. Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call
with financial institutions, other short-term, highly liquid investments presented at market value that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities in the statement of financial position.

m. Inventories
Raw materials, starting components, consumable stores, work in progress and finished goods are stated at the lower of cost
and net realisable value.

Costs of purchased inventory are determined to be actual costs on a batch basis, after including import duties, taxes
(other than those subsequently recoverable by the entity), transport, handling and other costs directly attributable to the
acquisition of the inventory, and after deducting rebates and discounts.

Costs of work in progress and finished goods comprise purchased materials at cost, direct labour and an appropriate
proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.

n. Financial assets
Classification
Financial assets are classified at initial recognition as financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.

The Group’s financial assets include cash and short-term deposits, trade and other receivables, and derivative
financial instruments.

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive intention and ability to hold to maturity. All of the Group’s
cash term investments are captured in this category. Cash term investments, which are highly liquid irrespective of
their maturity dates, are classified as current assets, as they may not necessarily be held for their full term.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. Trade receivables generally have 30 to 60 days credit terms. Loans and receivables are included
in current assets, except for those with maturities greater than 12 months after the reporting period which are
classified as non-current assets. Receivables are disclosed in trade and other receivables (note 10) in the statement
of financial position.

Derivative financial instruments are classified as held for trading unless they are designated as effective
hedging instruments.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201471

Recognition and derecognition
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are attributable to the acquisition of the financial assets.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognised on the trade dates. i.e. the date that the Group
commits to purchase or sell the asset.

Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs
are expensed in profit or loss.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Subsequent measurement
Receivables and held-to-maturity investments are carried at amortised cost using the effective interest method, less
impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
and costs that are an integral part of the effective interest rate. The losses arising from impairment are recognised in
the statement of profit or loss.

Receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.

Investments in controlled entities are carried in the Company’s financial statements at the lower of cost and
recoverable amount.

Impairment of financial assets
For financial assets carried at amortised cost, at each reporting date, the Group assesses whether there is objective
evidence that a financial asset is impaired. For trade receivables, collectability is reviewed on an on-going basis.
An impairment exists if one or more events that has occurred since the initial recognition of the assets (an incurred
“loss event”) has an impact on the estimated future cash flows of the financial asset or the group of financial assets
that can be reliably estimated. Evidence of impairment may include indications that the debtors or group of debtors
is experiencing significant financial difficulty, default or delinquency in payments, the probability that they will enter
bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in
the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

If any such evidence exists, the amount of any impairment loss is measured as the difference between the assets
carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that
have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial
assets original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in
the statement of profit or loss. Receivables together with the associated allowance are written off when there is no
realistic prospect of future recovery. If in a subsequent year, the amount of the estimated impairment loss increases
or decreases because of an event occurring after the impairment were recognised, the previously recognised
impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the
recovery is credited to other expense in the statement of profit or loss.

o. Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, i.e. forward currency contracts, to hedge its foreign currency risks.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract
is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the
fair value is positive and as financial liabilities when the fair value is negative.

The fair values of forward currency contracts are calculated by reference to current forward exchange rates for
contracts with similar maturity profiles.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to the income statement,
except for the effective portion of cash flow hedges, which is recognised in other comprehensive income.

For the purposes of hedge accounting, hedges are classified as:

•

fair value hedges, when they hedge the exposure to changes in the fair value of a recognised asset or liability; or

• cash flow hedges, when they hedge the exposure to variability in cash flows that is attributable either to a particular risk

associated with a recognised asset or liability or to a forecast transaction.

Hedges that meet the strict criteria for hedge accounting are accounted as follows:

• For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity,

while the ineffective portion is recognised in profit or loss.

• For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk

being hedged and the derivative is remeasured to fair value. Gains and losses from both are taken to profit or loss.

p. Convertible notes
Convertible notes are compound financial instruments which are separated into liability and equity components
based on the terms of the contract.

On issuance of the convertible note, the fair value of the liability component is determined using a market rate
for an equivalent non-convertible note. The equity component is initially recognised at the difference between
the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any
directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial
carrying amounts.

Subsequent to initial recognition, the liability component of the convertible notes is measured at amortised cost
using the effective interest method. The equity component is not remeasured.

Interest related to the financial liability is recognised in profit or loss. On conversion, the financial liability is
reclassified to equity and no gain or loss is recognised.

q. Property, plant and equipment
All property, plant and equipment is stated at historical cost less depreciation and/or accumulated impairment
losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of any component accounted for as a separate assets is
derecognised when it is replaced. All other repairs and maintenance are charged to the income statement during
the reporting period in which they are incurred. Production tooling used to manufacture component parts qualifies
as property, plant and equipment when the Company expects to use it during more than one period.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in
the income statement.

All assets have limited useful lives and are depreciated using the straight line method over their estimated useful
lives, or in the case of leasehold improvements, over the estimated useful life or lease term, whichever is shorter,
taking into account residual values. The assets’ residual values, useful lives and depreciation methods are reviewed
prospectively and adjusted if appropriate at least annually. Depreciation is expensed. The depreciation rates or
useful lives used for each class of assets are as follows:

Depreciation of property, plant and equipment

Laboratory fit-out

Laboratory and manufacturing equipment

Office furniture and equipment

Computer equipment and software

Leasehold improvements

Service, test and demonstration equipment

2014

6 years

5 years

7 years

3 years

Lease

2-3 years

2013

6 years

5 years

7 years

3 years

Lease

2-3 years

r. Intangible assets
(i) Research and development
Research and development expenditure is expensed as incurred except that costs incurred on development projects,
relating to the design and testing of new or improved products, are recognised as intangible assets when it is probable
that the project will, after considering its commercial and technical feasibility, be completed and generate future economic
benefits and its costs can be measured reliably. The expenditure capitalised comprises directly attributable costs,
including costs of materials and services. Other development expenditures that do not meet these criteria are recognised

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201473

as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a
subsequent period.

Capitalised development expenditure which has a finite life is recorded as an intangible asset from the point at which the
asset is ready for use and amortised on a straight-line basis over the period during which the related benefits are expected
to be realised.

(ii) Patents and Trademarks
The costs of registering and protecting patents and trademarks are expensed as incurred.

s. Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Intangible assets
are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value
in use. 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). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.

Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in
expense categories consistent with the function of the impaired asset.

t. Trade and other payables
Trade and other payables are carried at amortised cost. These amounts represent liabilities for goods and services provided
to the Group prior to the end of financial year which are unpaid and arise when the Group becomes obliged to make future
payment in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within
60 days of recognition.

u. Provisions
Provisions for legal claims, service warranties and other obligations are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the
obligation and the amount has been reasonably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the
present obligation at the reporting date. The discount rate used is to determine the present value reflects current market
assessments of the time value of money and the risks specific to the liability. An increase in the provision due to the
passage of time is recognised as interest expense.

Provision for warranties
Provision is made in respect of the Group’s estimated liability on all products under warranty at balance date. The provision
is measured at current values estimated to be required to settle the warranty obligation. The initial estimate of warranty-
related costs is revised annually. The provision is included in Current liabilities – trade and other payables in the statement
of financial position.

v. Employee benefits
Wages, salaries and annual leave and sick leave
Liabilities for employee benefits, including wages, salaries and non-monetary benefits, and accumulating annual and other
leave, represent present obligations resulting from employees’ services provided to reporting date. Employee benefits have
been measured at the amounts expected to be paid when the liability is settled and are recognised in the provision for
employee benefits. Sick leaves are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave
The liability for long-service leave is recognised in the provision for employee benefits and measured as the present value of
expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration
is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected
future payments are discounted using market yields at the reporting date on national government bonds with terms to
maturity that match as closely as possible, the estimated future cash outflows.

Bonuses
The Group recognises a liability and an expense for bonuses. The Group recognises a provision where contractually obliged
and where there is a past practice that has created a constructive obligation.

Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement or end of employment
contract date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises
termination benefits when it is demonstrably committed to either terminating the employment of current employees
according to a formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to
encourage voluntary redundancy.

Share-based compensation
Share-based compensation benefits are equity-settled transactions provided to employees via the Nanosonics share-based
compensation plans. Information relating to the plans is set out in note 30 to the financial statements.

Share option plans
The assessed fair value on the date options are granted is independently determined using the appropriate valuation model
that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and
expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of
the option.

General Share Option Plan (GSOP)
The assessed fair values of options granted under the GSOP are expensed in full in the month in which they are granted
with a corresponding increase in a share based payments reserve as part of shareholders’ equity, except where the options
are granted as part of a capital raising programme, in which case no cost is recognised.

Employee Share Option Plan (ESOP)
The fair value of options and performance rights granted under the ESOP is recognised as an employee benefit expense
with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled.
The cumulative expense recognised for share-based payments at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that
will ultimately vest. The statement of profit or loss expense or credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of the period.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting are
conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market
or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
When the terms of an equity-settled award are modified, the minimum expense recognised is the expense had the terms
had not been modified. If the original terms of the award are met. An additional expense is recognised for any modification
that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as
measured at the date of modification.

Deferred Employee Share Plan (DESP)
The issue price of DESP shares granted during the year is calculated as the 5-day weighted average market price of shares
of the Company on the Australian Securities Exchange as at close of trading on the date the shares are granted. The fair
value of DESP shares granted is taken to be the issue price.
The assessed fair values of DESP shares are expensed in full in the month in which they are granted with a corresponding
increase in equity, except if they are granted with a vesting condition, in which case the fair value of DESP shares granted is
apportioned on a straight line monthly basis over the period between grant date and the date on which the shares all vest.
At the end of a period the Company assesses the probability of achievement of a benefit, being the percentage probability
that employees will achieve at least the fair value of the unvested shares. The value of DESP shares with vesting conditions
expensed in any period is calculated as that portion of the fair value applicable to the period factored by the probability of
achievement and a share based payments reserve is created as part of shareholders’ equity.

w. Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.

x. Earnings per share
(i) Basic earnings per share
Basic earnings per share (“EPS”) is calculated by dividing the net profit or loss attributable to equity holders of the
Company for the reporting period, by the weighted average number of ordinary shares of the Company outstanding during
the financial year.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201475

(ii) Diluted earnings per share
Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the after income tax
effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average
number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential
ordinary shares.

y. Current versus non-current classification
The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An
asset is current when it is:

• Expected to be realised or intended to be sold or consumed in normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months after the reporting period, or

• Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months

after the reporting period.

All other assets are classified as non-current. A liability is current when it is:

• Expected to be settled in normal operating cycle

• Held primarily for the purpose of trading

• Due to be settled within twelve months after the reporting period, or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The Group classifies all other liabilities as non-current.

Deferred tax asset and liabilities, if recognised, are classified as non-current assets and liabilities.

3. Financial risk management
The Group is exposed to financial risks, predominantly interest rate risk, foreign currency risk and credit risk and it has a
financial risk management program which seeks to minimise potential adverse effects on financial performance. The Board
provides written principles for investment of the Group’s cash reserves, so as to ensure operational liquidity whilst optimising
interest earnings from a mix of instruments with one or more of Australia’s four main banks.

The Group held the following financial instruments and their classification:

Financial assets

Loans and receivables

Trade and other receivables

Other financial assets

Cash and cash equivalents

Total Financial assets

Financial liabilities

Fair value through profit or loss

Derivative financial instruments

Other financial liabilities

Trade and other payables

Convertible notes

Borrowings

Total Financial liabilities

Notes

2014
$’000

5,712

21,233

26,945

2013
$’000

4,199

24,064

28,263

–

198

2,104

8,097

10,225

2,553

7,541

10,322

a. Interest rate risk exposures
Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group’s exposure to interest rate risk is noted below:

Net financial assets (liabilities)

6,013

15,214

(8,115)

8.06%

0.00%

2014

Financial assets

Cash and cash equivalents

Trade and other receivables

Total financial assets

Weighted average interest rate

Financial liabilities

Trade and other payables

Convertible notes

Borrowings

Total financial liabilities

Weighted average interest rate

2013

Financial assets

Cash and cash equivalents

Trade and other receivables

Derivative financial instruments

Total financial assets

Weighted average interest rate

Financial liabilities

Trade and other payables

Derivative financial instruments

Convertible notes

Borrowings

Total financial liabilities

Weighted average interest rate

Fixed interest rate maturing in:

Floating
interest rate
$’000

1 year or
less
$’000

Over 1 to
5 years
$’000

More than
5 years
$’000

Non-interest
bearing
$’000

Notes

Total
$’000

Fixed interest rate maturing in:

Floating
interest rate
$’000

1 year or
less
$’000

Over 1 to
5 years
$’000

More than
5 years
$’000

Non-interest
bearing
$’000

Notes

Total
$’000

6,013

15,220

–

6,013

15,220

0.21%

3.73%

5,477

18,587

–

5,477

18,587

3.34%

4.20%

–

8,097

8,115

–

7,541

7,565

–

21,233

5,712

26,945

–

2,104

–

2,104

8,097

2,104

10,225

–

3,608

16,720

–

24,064

4,199

–

4,199

28,263

–

2,553

198

–

198

7,541

2,751

10,322

–

1,448

17,941

Net financial assets (liabilities)

5,477

18,581

(7,565)

8.06%

6.01%

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014

Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables
held constant:

2014

2013

Increase /decrease
in basis points

Effect on profit before tax and
other comprehensive income
$’000

+ 25

– 25

+ 75

– 100

(57)

200

(266)

b. Foreign currency risk exposures
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily
to the Group’s operating activities (when revenue or expense is denominated in different currency from the Group’s
functional currency) and the Group’s net investments in foreign subsidiaries. The Group enters into foreign currency
forward contracts to mitigate its foreign currency risk on its trade receivables.

The Groups’ exposure to foreign currency risk at the reporting date comprised:

Cash and cash equivalents

Trade and other receivables

Trade and other payables

Euro
€’000

104

178

(88)

194

2014

USD
$’000

4,580

4,125

(525)

8,180

2013

GBP
£’000

152

223

(83)

292

Euro
€’000

(27)

USD
$’000

695

3,503

(174)

4,024

Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonable possible change in the US dollar, Euro and Sterling pound
against the Australian dollar, with all other variables held constant:

Effect on profit
before tax and other
comprehensive income
$’000

Change in
USD rate

2014

2013

– 8%

– 7%

245

(654)

121

(282)

Change in
EUR rate

– 10%

– 9%

Effect on profit
before tax and other
comprehensive income
€’000

Effect on profit
before tax and other
comprehensive income
£’000

Change in
GBP rate

(19)

–

(1)

– 6%

–

(18)

–

c. Operational risk
Operational risk is the risk of direct and indirect loss arising from a wide variety of causes associated with company
processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks
such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.
Operational risks arise from all of the Company’s operations.

An objective of the Company is to manage operational risk so as to balance the avoidance of financial losses and damage to
the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of control to address operational risk is assigned to the
Audit and Financial Risk Management Committee. This responsibility is supported by the development of standards for the
management of operational risk in the following areas:

•

requirements for appropriate segregation of duties, including the independent authorisation of transactions;

requirements for the reconciliation and monitoring of transactions;

• compliance with regulatory and other legal requirements;

• documentation of controls and procedures;

•

requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to

address the risks identified;

• development of contingency plans;

•

training and professional development;

• ethical and business standards; and

•

risk mitigation, including insurance where this is effective.

d. Credit risk
Credit risk arises from holdings in cash and cash equivalents, trade receivables, and derivative financial instruments.

The Group invests only in deposits and floating rate notes offered by Australia’s four main banks.

The Company has limited number of customers. The Company, by policy, performs customer credit assessment prior to
entering into a distribution agreement or sales and routinely assesses the financial strength of its customers and reviews
distribution agreements. As a result, the Company believes that its accounts receivable credit risk exposure is mitigated
and has not experienced significant write-downs in its accounts receivable balances. As of 30 June 2014, GE Healthcare
and Regional Healthcare, combined, accounts for over 91% of the trade receivables (2013: GE Healthcare and Regional
Healthcare, combined, accounts for over 99% of the trade receivables).

The credit risk arising from derivative financial instruments is not significant.

The maximum exposure to credit risk as at the reporting date is the carrying amount of the financial assets as set out above.
The carrying amount is determined according to the Group’s accounting policies.

e. Liquidity risk
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities. Surplus funds are invested in short and medium term instruments which are
tradeable in highly liquid markets.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201479

Maturity profile
Following is the contractual maturity profiles of undiscounted cash flows from financial liabilities:

On demand
$’000

Less than
3 months
$’000

3 to 12
months
$’000

1 to 5 years
$’000

Over 5 years
$’000

Total
$’000

2014

Trade and other payables

Borrowings

Convertible notes

Total financial liabilities

2013

Trade and other payables

Borrowings

Derivative financial instruments

Convertible notes

Total financial liabilities

–

2,104

–

2,106

2,553

198

–

2,753

–

450

456

–

8,850

8,869

–

9,300

9,328

–

2,104

9,300

11,431

2,553

198

9,300

12,087

Fair values
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are
carried in the financial statements

2014
$’000

2013
$’000

Notes

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets

Cash and cash equivalents

Trade and other receivables

Financial liabilities

Fair value through profit and loss

Derivative financial instruments

Not measured at fair value

Other financial liabilities

Trade and other payables

Convertible notes

Borrowings

21,233

5,712

26,945

21,233

5,712

26,945

24,064

4,199

28,263

24,064

4,199

28,263

–

(198)

(2,104)

(8,097)

(24)

(2,104)

(8,097)

(24)

(2,553)

(7,541)

(30)

(2,553)

(7,541)

(30)

(10,225)

(10,322)

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and
assumptions were used to estimate fair values:

• Cash and cash equivalents, trade and other receivables, trade and other payables approximate their carrying amounts

largely due to the short term maturities of these instruments.

• The Group enters into derivative financial instruments with various counterparties principally with Australia’s major

banks. Derivatives valued using valuation techniques with market observable inputs are mainly foreign exchange

forward contract. The valuation technique is described below.

Fair value hierarchy
The Group uses the following hierarchy above for determining and disclosing the fair value of financial instruments by
valuation technique:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

• Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable,

either directly or indirectly.

• Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on

observable market data.

The valuation techniques used in measuring Level 2 fair values:

Type

Valuation technique

Derivative financial instruments – foreign
exchange forward contracts

Market comparison technique: The fair values are based on bank quotes. Similar
contracts are traded in an active market and the quotes reflect the actual
transactions in similar instruments.

As at 30 June 2014, the Group did not hold any derivative financial instruments carried at fair value (2013: derivative
financial liability $198,000).

Foreign exchange forward contracts

30 June 2014

Foreign exchange forward contracts

30 June 2013

$’000

–

(198)

Level 1

$’000

–

Level 2

$’000

–

(198)

Level 3

$’000

–

4. Critical accounting estimates and judgments
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates
and requires management to exercise judgment in the process of applying the Group’s accounting policies. Estimates and
associated assumptions and judgments affect the recognised amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent liabilities and are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods.

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of
certain assets and liabilities are:

Provision for warranty
The Group has recognised a provision in accordance with the accounting policy describe in note 2. The Group has made
assumptions in relation to the values estimated to be required to settle the warranty obligation on all products under
warranty at balance date.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201481

Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. Estimating the fair value for share based payment transactions requires
determining the most appropriate valuation model, which is depended on the terms and conditions of the grant. This
estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the
share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for
estimating fair value for share based-payment transactions are disclosed in note 30 to the financial statements.

Recognition of deferred tax assets
Deferred tax assets are only recognised for unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant management judgement is required to determine the amount
of deferred tax asset that can be recognised, based upon the likely timing and level of future taxable profits together with
future tax planning strategies. Details of the unrecognised deferred tax assets on unused tax losses and non-refundable
R&D tax offset are disclosed in note 8 to the financial statements.

5. Segment information
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing
Director and CEO (the chief operating decision maker) in assessing performance and in determining the allocation of
resources. The Group operates in a single operating segment, being the healthcare equipment segment.

Types of products and services
The principal products and services of the healthcare equipment segment are the manufacture and commercialisation of
infection control and decontamination products and related technologies.

Major customers
The Group has a number of customers to which it provides products and services. The most significant customer accounts
for 82% (2013: 88%) of external revenue. The next most significant customer accounts for 8.4% of external revenue
(2013: 7%).

Geographical information
Geographically, the Group operates in the global markets. Australia is the home country of the parent entity.

Revenue from external customers by geographical location is detailed below.

North America

Australia and New Zealand

Europe and other countries

Total revenue

Revenues above are allocated based on the country in which the customer is located.

The analysis of the location of non-current assets is as follows:

North America

Australia and New Zealand

Europe and other countries

Total assets

2014
$’000

17,665

2,267

1,560

21,492

2014
$’000

1,903

1,922

2013
$’000

13,165

1,497

237

14,899

2013
$’000

1,962

1,993

Non-current assets for this purpose consist of property, plant and equipment, intangible assets and other non-current
assets. Assets and capital expenditure are allocated based on where the assets are located.

6. Other income

Government grants

Interest income

Other income

Total

Government grants comprise

2014
$’000

1,666

739

1,709

4,114

2013
$’000

1,498

1,192

–

2,690

• payments under the Export Market Development Grant scheme,

• 45% research and development refundable tax offset received during the year.

There were no unfulfilled conditions or other contingencies attaching to these grants. The Group did not benefit directly
from any other form of governmental assistance.

Other income includes reimbursement of cost by a distributor of $1,707,000. The related costs are included in the
operating expenses.

7. Loss before income tax expense

The loss from ordinary activities before income tax includes:

2014
$’000

2013
$’000

Expenses

Staffing costs broken into :

Salaries and wages

Superannuation and social security contribution

Workers compensation costs

Other employee benefits and staffing costs

Share based payments

Less: Staffing costs included in cost of sales

Total staffing costs

Depreciation and amortisation

Research and development costs

Rental expenses relating to operating leases

Bad debts provision (reversal)

Inventories provision / write off

Unrealised loss (gain) on foreign exchange forward contracts

Realised loss (gain) on foreign exchange forward contracts

Net foreign exchange losses (gains)

No development costs were capitalised during the year (2013: Nil).

10,118

1,001

2,677

997

(2,886)

12,005

975

4,103

576

536

–

414

7,859

849

112

2,126

898

(2,667)

9,177

1,044

3,167

537

(1)

197

198

(221)

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014

8. Taxation

(a) Income tax expense

Operating loss from ordinary activities

The prima facie income tax benefit applicable to the operating loss is calculated at
28.3% (2013:30%)

Non-assessable income

Research and development tax offset received during the year

Other deductible items

Non-deductible items:

Research and development expense

Equity based benefits

Entertainment

Other temporary differences

Deferred tax benefit not recognised

Non-refundable research and development tax offset

Adjustment in respect of current income tax of previous years

2014
$’000

2,636

745

455

307

(1,231)

(282)

(1)

(270)

(277)

(1,459)

1,641

126

2013
$’000

5,735

1,721

404

–

(950)

(157)

(13)

1,015

(1,048)

–

Income tax benefit (expense) reported on the Consolidated statement of profit or loss
and other comprehensive income

(33)

(b) Deferred tax assets

The potential deferred tax assets in a controlled entity, which is a company, arising from tax losses, non-refundable tax offsets
and timing differences are only recognised when it is probable that future taxable amounts will be available to utilise those tax
losses and temporary differences.

Unrecognised deferred tax assets include:

Estimated tax losses carried forward

Non-refundable R&D tax offset

Estimated tax losses carried forward:

2014
$’000

2013
$’000

16,241

1,375

17,616

16,157

–

16,157

Beginning of the year unrecognised tax losses carried forward

53,856

50,201

Adjustment in respect of unrecognised tax losses carried forward from previous year

Tax losses for the year

Estimated non-refundable R&D tax offset at the end of the year

281

–

54,137

3,438

273

3,382

53,856

–

The potential future income tax benefit of tax losses carried forward and non-refundable R&D tax offset will only be obtained if:

(i) the Company and the Group derive future assessable income of a nature and an amount sufficient to enable the benefit to

be realised

(ii) the Company and the Group continue to comply with the conditions for deductibility imposed by the law; and

(iii) no changes in tax legislation adversely affect the Company and the Group is realising the benefit.

9. Current assets – Cash and cash equivalents

Cash at bank and on hand

Deposits on call

Short term deposits

2014
$’000

5,705

308

15,220

21,233

2013
$’000

972

1,005

22,087

24,064

Cash term investments which are highly liquid irrespective of their maturity dates are classified as current assets at market
value as they may not necessarily be held by the Company for their full term.

The Group’s exposure to interest rate risk is discussed in note 3. The maximum exposure to credit risk at the reporting date
is the carrying amount of each class of cash and cash equivalents mentioned above.

10. Current assets – Trade and other receivables

Trade receivables net of allowance for impairment loss

GST receivable

VAT receivable

Interest and other receivables

2014
$’000

5,338

204

111

2013
$’000

3,972

118

5, 712

4,199

Trade receivables by geographic region were as follows:

Carrying amount

North America

Australia and New Zealand

Europe and other countries

Maximum exposure to credit risk for trade receivable
by type of counterparty was as follows:

Distributors

Others

2014
$’000

4,382

472

484

5,338

Carrying amount

2014
$’000

5,310

5,338

2013
$’000

3,846

3,972

2013
$’000

3,944

3,972

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201485

Past due but not impaired

<30 days
$’000

30-60 days
$’000

>60 days
$’000

As at 30 June 2014, the aging analysis of trade receivables is as follows:

2014

2013

Total
$’000

5,338

3,972

Neither past due
nor impaired
$’000

5,295

3,964

2013
$’000

3,878

An analysis of the credit policy of trade receivables that are neither past due nor impaired is as follows:

External financial ratings at least 1A from Dun & Bradstreet

Other customers:

Four or more years trading history with the Group

Less than four years of trading history with the Group

2014
$’000

4,826

453

Information about the Group’s exposure to foreign currency risk in relation to trade and other receivables is provided in

note 3.

Due to the short-term nature of the receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above.

Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities.

As at 30 June 2014, trade receivables with a nominal value of $5,000 (2013: Nil) were considered impaired.

5,295

3,964

The movement in allowance for impairment in respect of trade and other receivables during the year was as follows:

At 1 July 2012

Increase for the year

Utilised

Unused amount reversed

At 30 June 2013

Increase for the year

Utilised

Unused amount reversed

At 30 June 2014

$000

–

(1)

–

11. Current assets – Inventories

Raw materials and stores – at net realisable

Work in progress – at cost

Finished goods – at net realisable value

2014
$’000

2,211

737

1,289

4,237

2013
$’000

1,854

673

382

2,909

Write-downs of inventories to net realisable values during the year ended 30 June 2014 amounted to $536,000 (2013:$197,000).
The expense has been included in other operating costs in profit or loss.

Roll forward of provision for inventories:

Beginning balance

Provided during this year

Utilised during this year

Ending balance

12. Current assets – Other

Prepaid expenses

Prepaid foreign income tax

Service work in progress

2014
$’000

147

536

(326)

357

2014
$’000

388

440

2013
$’000

485

197

(535)

147

2013
$’000

475

488

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201487

13. Non-current assets – Property plant and equipment

Laboratory
fit out

Laboratory
equipment

Office
furniture &
equipment

Leasehold
improvements

Manufacturing
equipment

Service,
test &
demo
equipment

Computer
equipment
& software

Capital
Work in
Progress

Total

Year ended 30 June 2013

Opening net
book amount

Additions

Retirement and
others

Depreciation
charge

Foreign currency
translation effect
(net)

Closing net book
amount at
30 June 2013

At 30 June 2013

Cost

Accumulated
depreciation

Net book amount
at 30 June 2013

–

118

–

149

–

674

159

838

290

275

–

1,468

1,345

–

(3)

(26)

(49)

(138)

(300)

(283)

(205)

–

(1,004)

–

462

716

361

1,812

343

351

817

882

1,546

1,462

1,057

6,555

(333)

(285)

(734)

(865)

(1,084)

(746)

(696)

–

(4,743)

462

716

361

1,812

Year ended 30 June 2014

Opening net
book amount

Additions

Retirement and
others

Depreciation
charge

Foreign currency
translation effect
(net)

Closing net book
amount at
30 June 2014

At 30 June 2014

–

462

716

601

361

179

1,812

1,081

–

(177)

–

(3)

(29)

(41)

(37)

(250)

(353)

(225)

–

(177)

(938)

–

140

308

787

315

114

1,778

Cost or fair value

343

383

915

940

1,642

1,804

1,235

114

7,376

Accumulated
depreciation

Net book amount
at 30 June 2014

(336)

(314)

(775)

(902)

(1,334)

(1,017)

(920)

–

(5,598)

140

308

787

315

114

1,778

14. Non-current assets – Intangible assets

Development Costs

At cost

Accumulated amortisation

Net book value

2014
$’000

201

(201)

–

2013
$’000

201

(164)

Development costs relate to the trophon® EPR project and are carried at cost less accumulated amortisation. The intangible asset
has been assessed as having a finite life and is amortised using the straight line method over a period of 5 years. Amortisation of
$37,000 (2013:$40,000) is included in depreciation and amortisation expense in the statement of profit or loss.

15. Non-current assets – Other

Refundable deposits and bonds

Total

16. Current liabilities – Trade and other payables

Trade payables

Other payables

Provision for warranty

Total

Roll forward of provision for warranty:

Beginning balance

Provided during this year

Utilised during this year

Balance as at 30 June

2014
$’000

144

2014
$’000

575

1,529

896

3,000

2014
$’000

449

701

(254)

896

2013
$’000

144

2013
$’000

1,302

1,251

449

3,002

2013
$’000

368

638

(557)

449

The Group has recognised a provision for warranty in accordance with the accounting policy describe in note 2. The Group has made
assumptions in relation to the values estimated to be required to settle the warranty obligation on all products under warranty at
balance date.

17. Current liabilities – Deferred revenue

Beginning balance

Deferred during the year

Released to profit or loss

Ending balance

2014
$’000

209

616

(517)

308

2013
$’000

416

(298)

209

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201418. Employee provisions

Provision for bonuses

Provision for annual leave

Provision for long service leave

Total

Employee provisions – current

Provision for bonus

Provision for annual leave

Provision for long service leave

Total

Employee provisions – non-current

Provision for long service leave

Total

2013
$’000

157

607

202

966

157

607

783

183

2014
$’000

723

690

267

1,680

723

690

108

1,521

159

The provision for long service leave includes all unconditional entitlements where employees have completed the required period
of service and also where employees are entitled to pro-rata payments in certain circumstances.

Superannuation commitments
The Company makes contributions to superannuation plans for the benefit of eligible employees. The Company has a legally
enforceable obligation to make these contributions under the auspices of the Superannuation legislation and related guidelines
proclaimed by the federal government. The contributions are made as a fixed percentage of salary.

19. Borrowings

Finance lease obligations

Current portion

Non-current portion

Total

2014
$’000

2013
$’000

20. Convertible notes

Non-current liabilities

Convertible notes at amortised value

Equity

Option premium on convertible notes

2014
$’000

2013
$’000

8,097

7,541

376

On 28 June 2012, the Company issued unsecured Tranche A convertible note of $4,000,000 and Tranche B convertible note of
$3,500,000 which matures 4 years after the issue date. The convertible notes bear 6% interest per annum on a simple interest
basis calculated on each anniversary of the issue date. No interest repayment will be made to the noteholder in the first two years
but the interest will accrue and form part of the face value of the note but will not bear any further interest. After that period, the
noteholder may elect whether to receive interest in cash or to have such interest accrue and form part of the Face Value (but this
will not bear further interest). The convertible notes may be converted at any time up until the Maturity Date at $0.75 per share,
subject to certain adjustments. The effective interest on convertible notes is 7.364%.

As at 30 June 2014, the amortised value of convertible notes recognised in non-current liabilities including accrued interest
amounted to $8,097,000 (2013: $7,541,000) and borrowing costs related to the convertible notes amounted to $555,000
(2013: 517,000).

21. Contributed equity

Share capital

263,823,826 ordinary fully paid shares (2013: 261,988,718 )

Movements in ordinary shares on issue

At 30 June 2012

Share options exercised

Share issued

At 30 June 2013

Share options exercised

Shares issued

At 30 June 2014

Number of shares

$’000

259,982,918

73,532

1,287,604

718,196

203

333

261,988,718

74,068

1,835,108

–

342

–

263,823,826

74,410

All ordinary shares are fully paid. Ordinary shares carry one vote per share and entitle the holder to participate in dividends and
the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands, every ordinary
shareholder present at a meeting in person or by proxy is entitled to one vote and upon a poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

At 30 June 2014 there were 6,525,597 (2013: 5,418,625) options to acquire one ordinary share each outstanding, of which
1,705,668 (2013: 1,397,002) had vested and were exercisable.

Information relating to the Company’s employee share-based payment schemes, including details of shares and options issued,
options exercised and options lapsed during the financial year, as well as options outstanding at the end of the financial year,
is set out in note 30.

Capital Management
Management controls the capital of the Group to ensure that the Group can fund its operations and continue as a going concern.

The Group’s capital includes ordinary share capital and financial liabilities supported by financial assets. There are no externally
imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and
adjusting its capital structure in response to changes in these risks and in the market. These responses include the management
of share issues.

There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201422. Reserves

Employee equity benefits reserve

Foreign currency translation reserve

Balance 30 June

Employee equity benefits reserve

Balance 1 July

Share-based payment (ESOP)

Share-based payment (GSOP)

Balance 30 June

2013
$’000

2,673

2,700

2013
$’000

1,775

804

2,673

2014
$’000

3,671

3,691

2014
$’000

2,673

940

3,671

The employee equity benefits reserve is used to record the value of share based payments provided to employees, including KMP,
as part of their remuneration. Refer to note 30 for further details of these plans.

Foreign currency translation reserve

Balance 1 July

Exchange difference on foreign currency translation during the year

Balance 30 June

2014
$’000

(27)

2013
$’000

(11)

(27)

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial
statements of foreign subsidiaries.

23. Dividends
No dividends were proposed, declared or paid during the financial year and to the date of this report (2013: Nil).

24. Capital and leasing commitments

Future operating lease commitments not provided for in the financial statements
and payable:

Within one year

One year or later and no later than five years

The Group does not have any non-cancellable capital expense commitments.

2014
$’000

2013
$’000

473

105

578

462

189

651

Finance lease and
hire purchase commitments

Within one year

After one year but not more than 5 years

Total minimum lease payments

Less finance charges

Present value of minimum lease payments

2014

2013

$’000

Minimum
payments

Present value
of payments

Minimum
payments

Present value
of payments

–

25. Auditor’s remuneration

Audit services

Audit and review of financial reports

Total remuneration for audit services

Non-audit services

Assurance related services

Audit of regulatory returns

Total remuneration for assurance related services

Total remuneration for non-audit services

2014
$’000

56,000

–

2013
$’000

52,000

–

26. Information relating to subsidiaries

The consolidated financial statements of the Group include:

Name of controlled entity

Principal activities

Nanosonics Europe GmbH

Saban Ventures Pty Limited

Nanosonics Inc.

Provision of sales and customer
support services to Nanosonics
Limited in Germany

Owner of the registered
intellectual property of the Group

Provision of sales and customer
support services to Nanosonics
Limited in USA

Country of
incorporation

Class of
shares

Germany

Ordinary

Equity Holdings

2014

100%

2013

100%

Australia

Ordinary

100%

USA

Ordinary

100%

Parent entity
The parent entity within the Group is Nanosonics Limited which is based and listed in Australia.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014

27. Related party disclosures
Note 26 provides the information about the Group’s structure including the details of the subsidiaries and the parent entity.

(a) Transactions with related parties
Certain directors and Key Management Personnel, or their personally-related entities, hold positions in other entities that
result in them having control or significant influence over the financial or operating policies of those entities. Details of the
type of transactions that were entered into with directors and KMP are as follows:

Directors and
Key Management Personnel

Related entities

Transactions

Maurie Stang

Gryphon Capital Pty Ltd

Director fees and services received

Novapharm Research (Australia) Pty Ltd

Services received

Ramlist Pty Ltd

Rent of premises

Regional Healthcare Group Pty Ltd

Products purchased, services received
and products sold

Richard England

Angleterre Pty Ltd and Domkirke Pty Ltd

Director fees and services received

The following transactions occurred with related parties:

Key Management Personnel – Other directors’ interests

Sales of goods and services

Sale of products to related parties

Purchases of goods

Purchases of goods and services from related parties

Other transactions

Rent of premises and equipment from related parties

(b) Outstanding balances arising from sales/purchases of goods and services
The following balances are outstanding at the reporting date in relation to transactions with related parties:

Key Management Personnel – Other directors’ interests

Current receivables (supply of goods and services)

Current payables (purchases of goods and services)

2014
$’000

450

There were no provisions for doubtful debts relating to the outstanding balances from related parties (2013: Nil) and there
were no expenses recognized during the period in respect of doubtful debts from related parties.

2014
$’000

2013
$’000

1,812

1,056

357

184

553

185

2013
$’000

No guarantees were provided during the year under review and none were in effect at the year-end between the Company
and its subsidiaries (2013: Nil).

(d) Terms and conditions
The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions with unrelated entities on an arms-length basis.

All other transactions were made on normal commercial terms and conditions and at market rates, except that there are no
fixed terms for the repayment of loans between the parties.

Outstanding balances are unsecured and are repayable in cash.

(e) Directors and key management personnel compensation

Director fees

Short-term employee benefits

Long-term benefits

Termination benefits

Share based payments

Total compensation

Total compensation includes total remuneration for
executive and non-executive directors of the parent entity

Group and Company

2014
$’000

262,631

1,262,657

182,951

–

2013
(Restated)
$’000

265,450

913,138

132,357

–

547,576

379,255

2,255,815

1,690,200

1,461,983

835,647

The 2013 KMP remuneration disclosure was restated to exclude executives who were previously included as among the
five named executives who received the highest remuneration in 2013, whose roles and responsibilities were determined
to have not met the definition of KMP. Accordingly, the 2013 Directors and KMP compensation as previously reported of
$2,347,711 was restated to $1,690,200. In addition, annual leave is now included in other long term benefits (previously
shown as short term employee benefit).

Options and performance rights were granted to KMP as part of their compensation. Details of options and performance
rights provided as remuneration and shares issued on exercise of such options, together with the terms and conditions of
the options, can be found in Sections 4 to 5 of the Remuneration Report on pages 31 to 47.

(f) Loans to directors and key management personnel
During the financial year and to the date of this report, the Group made no loans to directors and key management
personnel and none were outstanding at the year ended 30 June 2014 (2013: Nil).

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201428. Notes to the cash flow statements

(a) Reconciliation of cash

Cash and cash equivalents

2014
$’000

21,233

2013
$’000

24,064

For the purpose of the Statement of cash flows, cash includes cash on hand and at bank, deposits on call and short term
deposits, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the Statement of cash flow is
reconciled to the related items in the statement of financial position as follows:

(b) Reconciliation of operating loss after income tax to net cash provided by operating activities

Operating loss after income tax

Adjustment for :

Depreciation and amortisation

Share based payments expense

Borrowing costs on convertible notes

Unrealised foreign exchange loss (gain)

Changes in assets and liabilities

(Increase) / decrease in receivables

(Increase) / decrease in inventories

(Increase) / decrease in other current assets

(Increase) / decrease in other non-current assets

Increase / (decrease) in derivative financial instruments

Increase /(decrease) in trade and other payables

Increase /(decrease) in provisions

Increase / (decrease) in other current liabilities

Increase / (decrease) in current tax liabilities

Net cash used in operating activities

Borrowing facilities

30 June 2014

30 June 2013

2014
$’000

(2,605)

975

997

555

119

(1,573)

(1,752)

–

(198)

(728)

717

854

(6)

2013
$’000

(5,768)

1,044

898

517

(70)

(1,171)

(512)

(285)

(3)

238

130

(151)

623

(2,594)

(4,506)

Facility

Limit

$’000

256

Facility

used by

$’000

Facility

available at

$’000

206

182

29. Loss per share

(a) Basic loss per share

Loss attributable to ordinary shareholders of the Company

(b) Diluted loss per share

Loss attributable to ordinary shareholders of the Company

2014
Cents

(1.0)

2013
Cents

(2.2)

Net loss after income tax expense attributable to shareholders

(2,605)

(5,768)

(d) Weighted average number of shares used

For basic earnings per share

For diluted earnings per share

263,072,467

261,201,368

263,072,467

261,201,368

(e) Information concerning options granted
Options granted under the Nanosonics Employee Share Option Plan and the Nanosonics General Share Option Plan are
considered to be potential ordinary shares and have been excluded from the calculation of diluted loss per share as the
effect would have been anti-dilutive. Details relating to the options are set out in note 30 to these financial statements.

30. Share-based compensation
The Company’s share based compensation schemes comprise option plans and share plans. Options have been granted
under the option plans. Shares have been granted under the Deferred Employee Share Plan. To the date of this report no
shares have been granted under the Exempt Employee Share Plan.

(a) Option plans
The Nanosonics Employee Share Option Plan (ESOP) and the Nanosonics General Share Option Plan (GSOP) were
established in 2007 and last approved by the shareholders in the 2013 Annual General Meeting (AGM) on 8 November
2013. Under the plans, participants are granted options for no consideration. Options may only be excercised on or after
any vesting dates specified by the Board at the time of offer. The exercise price of options is determined by the Board at the
time of issue. Participation in the plans is at the Board’s discretion and no individual has a contractual right to participate in
a plan or to receive any guaranteed benefits.

General Share Option Plan (GSOP)
The General Share Option Plan is designed to provide incentive, recognition and reward for non-employees, usually
consultants and contractors, who create long-term value for the Company.

No share options were issued under the GSOP during the financial year (2013: 536,038 issued).

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 201497

Employee Share Option Plan (ESOP)
The Employee Share Option Plan is designed to provide the deferred equity component of the short-term incentive and
long-term incentives for employees (including executive directors) to deliver long-term shareholder returns. All employees
and directors are eligible to participate in the ESOP at the invitation of the Board. The maximum number of options able
to be on issue under the ESOP during any five-year period is 5% of the total number of shares on issue. 2,981,494 share
options were issued under the ESOP during the financial year (2013: 2,487,891 issued).

(b) Exercise of options
Options are granted under the plans for no consideration and options carry no dividend or voting rights. When exercisable,
each option is convertible into one ordinary share that ranks equally with any other share on issue in respect of dividends
and voting rights. The exercise prices of all options issued to the date of this report were fixed on the dates the options were
granted. Details are provided in section (c) of this note.

(c) Reconciliation of outstanding share options and performance rights
The number and weighted average exercise price (WAEP) of share options and performance rights under the share option
plans were as follows:

Number of
Options

Unexpired
options as
at 1 July

Granted
during
the year

Exercised
during
the year

Forfeited
during
the year

Expired
during
the year

Unexpired
options as
at 30 June

Number of
holders as
at 30 June

ESOP

GSOP

All Option Plans

2014

2013

2014

2013

2014

2013

Number of
options and
rights

WAEP
($)

Number of
options and
rights

WAEP
($)

Number
of options
and rights

WAEP
($)

Number
of options
and rights

WAEP
($)

Number of
options and
rights

4,603,625

0.35 3,330,719

0.54

815,000

0.55

427,550

0.56 5,418,625

3,758,269

2,981,494

–

2,487,891

–

536,038

0.45 2,981,494

3,023,929

(1,573,442)

0.13 (1,173,016)

0.16

(261,666)

0.53 (114,588)

0.15 (1,835,108)

(1,287,604)

(39,414)

–

(41,969)

–

(34,000)

0.35

(39,414)

(75,969)

–

5,972,263

0.24 4,603,625

0.35

553,334

0.57

815,000

0.55 6,525,597

5,418,625

Set out below are details of unexpired options granted under the plans as at 30 June 2014:

Option
Plan

Exercise
price

Grant
date

Assessed
fair value
at grant

date Expiry date

Number at
start of the
year

Number
granted
during the
year

Number
exercised
during the
year

Number
forfeited
during
the year

Number at
end of the
year

Number
vested and
exercisable
at end of
year

GSOP

$0.55

Jan-10

$0.30 05-Jan-14

50,000

ESOP

$0.56 Aug-10

$0.31

19-Jul-14

500,000

$0.78

Oct-10

$0.49 01-Oct-14

100,000

$0.56 Mar-11

$0.63

19-Jul-14

200,000

$0.92 Mar-11

$0.58 23-Feb-15

30,000

$0.85 May-11

$0.50 28-Apr-16 1,400,000

$0.53 Nov-11

$0.38 21-Nov-15

195,000

$0.00

Jun-12

$0.49 01-Apr-15

13,537

$0.00 Nov-12

$0.55 30-Sep-15 1,220,000

$0.00 Nov-12

$0.55 01-Oct-13

544,191

$0.51 Nov-12

$0.27 24-Nov-16

195,000

$0.52 Dec-12

$0.20 21-Nov-16

275,000

$0.00

Apr-13

$0.45 01-Apr-14

695,897

(50,000)

(166,000)

–

(200,000)

–

334,000

100,000

–

30,000

– 1,400,000 1,166,668

(80,000)

(6,768)

–

6,769

115,000

50,000

– 1,220,000

(533,745)

(10,446)

–

(40,000)

(91,666)

–

183,334

155,000

25,000

–

$0.00 Aug-13

$0.78 30-Sep-15

$0.00 Nov-13

$0.68 30-Sep-16

$0.00 Nov-13

$0.85 30-Sep-16

$0.00 Nov-13

$0.71 30-Sep-17

$0.00 Nov-13

$0.85 30-Sep-17

$0.00 Mar-14

$0.63 30-Sep-16

$0.00 Mar-14

$0.80 30-Sep-16

–

712,970

442,409

375,000

316,847

316,859

(666,929)

(28,968)

–

712,970

442,409

375,000

316,847

316,859

–

GSOP

ESOP

GSOP

ESOP

GSOP

ESOP

Total

5,418,625 2,981,494 (1,835,108)

(39,414) 6,525,597 1,705,668

(d) Fair value of options and performance rights granted
The assessed fair value on the date options were granted was independently determined using an appropriate option
valuation model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at
grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for
the term of the option.

Terms and condition of the options and performance rights granted and the inputs to the valuations of options and
performance rights granted and not expired to 30 June 2014 included:

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014
99

Option
type Vesting Conditions

Exercise
price

Grant
date

Expiry
date

Estimated
share price
at grant
date

Valuation
model

Expected price
volatility of
the company’s
shares

Expected
dividend
yield

Risk-free
interest
rate

Assessed
fair value
at grant
date

Granted during the year:

ESOP
(a)

ESOP
(b)

ESOP
(c)

ESOP
(d)

ESOP
(e)

ESOP
(f)

ESOP
(g)

FY15 Revenue, net
profit after tax and
service condition
Relative TSR
performance and
service condition
FY16 Revenue, net
profit after tax and
service condition
Relative TSR
performance and
service condition
FY17 Revenue, net
profit after tax and
service condition
Relative TSR
performance and
service condition
FY16 Revenue, net
profit after tax and
service condition

$0.00 Aug-13 30-Sep-15

$0.78 Binomial

45.49%

0% 2.35%

$0.78

$0.00 Nov-13 30-Sep-16

$0.85

Monte
Carlo

45.00%

0% 3.00%

$0.68

$0.00 Nov-13 30-Sep-16

$0.85 Binomial

45.00%

0% 3.00%

$0.85

$0.00 Nov-13 30-Sep-17

$0.85

Monte
Carlo

45.00%

0% 3.20%

$0.71

$0.00 Nov-13 30-Sep-17

$0.85 Binomial

45.00%

0% 3.20%

$0.85

$0.00 Mar-14 30-Sep-16

$0.80

Monte
Carlo

45.00%

0% 2.68%

$0.63

$0.00 Mar-14 30-Sep-16

$0.80 Binomial

45.00%

0% 2.68%

$0.80

Granted in prior periods and unexpired at report date:

ESOP Service Condition
until first exercise
date of each tranche

$0.56 Aug-10 19-Jul-14

$0.54

GSOP Not applicable

$0.78 Oct-10 01-Oct-14

$0.80

$0.92 Mar-11 23-Feb-15

$0.93

$0.85 May-11 28-Apr-16

$0.80

$0.53 Nov-11 21-Nov-15

$0.63

Black &
Scholes

Black &
Scholes
Black &
Scholes

Black &
Scholes

74.87%

0% 4.77%

$0.31

77.58%

0% 4.95%

$0.49

80.48%

0% 5.15%

$0.58

73.62%

0% 5.14%

$0.50

73.09%

0% 3.44%

$0.38

$0.00 Jun-12 01-Apr-15

$0.49 Binomial

49.04%

0% 2.43%

$0.49

$0.00 Nov-12 30-Sep-15

$0.55 Binomial

45.46%

0% 2.58%

$0.55

$0.51 Nov-12 24-Nov-16

$0.56 Binomial

54.96%

0% 2.71%

$0.27

$0.52 Dec-12 21-Nov-16

$0.49 Binomial

53.13%

0% 2.87%

$0.20

ESOP Service Condition
until first exercise
date of each tranche

GSOP Service Condition
until first exercise
date of each tranche

ESOP
(a)

ESOP Service Condition
until first exercise
date of each tranche
FY15 Revenue, net
profit after tax and
service condition
GSOP Service Condition
until first exercise
date of each tranche

GSOP Service Condition
until first exercise
date of each tranche

Options marked as per below were granted to key management personnel. Further information is included in section 5 of the Remuneration report.

a. 2012 LTIS granted to key management personnel
b. 2013 LTIS - Tranche 1 granted to the CEO and the Executive Director
c. 2013 LTIS - Tranche 2 granted to the CEO and the Executive Director
d. 2013 LTIS - Tranche 3 granted to the CEO
e. 2013 LTIS - Tranche 4 granted to the CEO
2013 LTIS - Tranche 1 granted to other key management personnel and senior employees
f.
g. 2013 LTIS - Tranche 2 granted to other key management personnel and senior employees

100

(e) Recognition of expense of options granted
General Share Option Plan (GSOP)
The assessed fair values of options granted under the GSOP are expensed in full in the month in which they are granted
and a share based payments reserve is created as part of shareholders’ equity, except where the options are granted as
part of a capital raising program, in which case no cost is recognised.

Employee Share Option Plan (ESOP)
Options granted under the ESOP require the holder to be an employee of the Company at the time the options are
exercised, except that they may be exercised, if vested, up to 30 days after voluntary termination of employment. The
assessed fair value of ESOP options granted is apportioned on a straight line monthly basis over the period between grant
date and the date on which the options all vest. At the end of a period the Company assesses the probability of achievement
of a benefit, being the percentage probability that employees will achieve a benefit if the options are exercised. The value
of ESOP options expensed in any period is calculated as that portion of the assessed fair value applicable to the period
factored by the probability of achievement and a share based payments reserve is created as part of shareholders’ equity.

(f) Employee share plans
The Company has two Employee Share Plans, being the Exempt Employee Share Plan (“EESP”) and the Deferred
Employee Share Plan (“DESP”).

The EESP and DESP was established in 2007 and last approved at a general meeting of shareholders on 8 November 2013.
Shareholder approval was also granted to enable the Company to grant financial assistance under both the EESP and the
DESP in accordance with the Corporations Act 2001.

Exempt Employee Share Plan (“EESP”)
The EESP enables eligible employees, including directors, to acquire up to $1,000 worth of Nanosonics shares each year
on a tax-exempt basis in accordance with enabling tax legislation. As a contemporary company the Board believes allowing
employees to acquire equity in the Company on tax-preferred terms should be encouraged. No shares have been issued
under the EESP to the date of this report.

Nanosonics Deferred Employee Share Plan (“DESP”)
The DESP allows invited eligible employees, including directors, to receive Nanosonics shares as a bonus or incentive or
as remuneration sacrifice and, subject to certain conditions, not to pay tax for up to 10 years on the benefit in accordance
with enabling tax legislation. The DESP is designed to allow the Company to meet contemporary executive equity incentive
practices. No shares were issued under the DESP during the financial year.

(g) Shares granted
During the financial year there were no shares directly granted under the DESP. Details of shares granted under the DESP
to the date of this report are set out below.

Share Plan

Share issue price

Grant date

Assessed fair value at
grant date

Closing share price on
grant date

Number granted

DESP

0.2880

23 March 2009

0.4251

0.9080

26 June 2009

3 May 2011

0.2880

0.4251

0.9080

Total Employee Shares granted to date

0.2950

0.4100

0.9080

336,424

176,400

75,000

102,403

690,227

Share issued on the exercise of zero-priced options granted to employees as part of their performance bonus or short term
incentive has been issued to the DESP.

No shares have been granted to the date of this report under the EESP.

(h) Fair value of shares granted
The issue price for shares granted is calculated as the 5-day weighted average market price of shares of the Company
on the Australian Securities Exchange as at close of trading on the date the shares were granted. The fair value of shares
granted is taken to be the issue price.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014101

(i) Recognition of expense of shares granted
Deferred Employee Share Plan (DESP)
The assessed fair values of shares granted under the DESP are expensed in full in the month in which they are granted,
except if they are granted with a vesting condition, in which case the fair value of DESP shares granted is apportioned on
a straight line monthly basis over the period between grant date and the date on which the shares all vest. At the end of a
period, the Company assesses the probability of achievement of a benefit, being the percentage probability that employees
will achieve at least the fair value of the unvested shares. The value of DESP shares expensed in any period is calculated as
that portion of the fair value applicable to the period factored by the probability of achievement. A share based payments
reserve is created as part of shareholders’ equity.

(j) Shares on issue under employee share plans

Number of Shares

2014

2013

2014

2013

2014

2013

DESP

EESP

All Share Plans

Employee Shares on issue as at 1 July

779,053

305,483

Granted during the year

–

Issued on exercise of zero-priced options
during the year

Issued on share purchase plan allotment
during the year

1,207,442

626,416

–

7,548

Withdrawn during the year

(861,026)

(160,394)

Forfeited during the year

Employee Shares on issue as at 30 June

1,125,469

779,053

Number of holders as at 30 June

–

(k) Expenses arising from share-based compensation transactions

Options issued under ESOP

Options issued under GSOP

Shares issued under DESP

Total share-based compensation

–

779,053

305,483

–

1,207,442

626,416

–

7,548

(861,026)

(160,394)

–

1,125,469

779,053

2014
$’000

940

–

997

2013
$’000

804

–

898

102

31. Parent entity information
As at and throughout the financial year ended 30 June 2014, the parent entity of the Group was Nanosonics Limited.

Set out below is the supplementary information about the parent entity.

Financial position of parent entity at year end

Current assets

Total assets

Total current liabilities

Total liabilities

Total equity of the parent entity comprising of:

Contributed Equity

Convertible Notes

Share option reserve

Accumulated losses

Total equity

Result of parent entity

Profit or loss for the year

Total comprehensive income (loss)

Hire purchase commitment

For acquisition of Manufacturing equipment

Contingent liabilities
The parent entity had no contingent liabilities.

2014
$’000

31,157

33,147

4,567

12,855

74,410

376

3,502

(57,996)

20,292

(2,448)

2013
$’000

31,335

33,385

3,964

11,926

74,068

376

2,562

(55,547)

21,459

(5,819)

32. Events subsequent to reporting date
No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect:

a. the Group’s operations in future financial years;

b. the results of those operations in future financial years; or

c. the Group’s state of affairs in future financial years.

nanosonics limited | annual report 2014Notes to the financial statements (continued)For the year ended 30 June 2014Directors’ declaration

103

In the directors’ opinion:

1. the financial statements and notes set out on pages 60 to 102 are in accordance with the

Corporations Act 2001, including:

a. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting

requirements, and

b. giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2014 and of their

performance for the financial year ended on that date; and

2. there are reasonable grounds to believe that the Company and its subsidiaries will be able to pay their debts as and when

they become due and payable.

The directors have been given the declarations by the Managing Director and CEO and Chief Financial Officer required by
section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of directors.

Richard England

Director

Sydney

21 August 2014

104

Independent auditor’s report to the members

nanosonics limited | annual report 2014Independent auditor’s report to the members (continued)

105

106

Shareholder information

The shareholder information set out below was applicable as at 12 August 2014.

A. Equity security holders
Twenty largest holders of quoted equity securities

Ordinary shares

Mr Maurie Stang1

Mr Bernard Stang

Citicorp Nominees Pty Limited

National Nominees Limited

J P Morgan Nominees Australia Limited

Mr Steve Kritzler

HSBC Custody Nominees (Australia) Limited

Link Traders (Aust) Pty Ltd

Asia Union Investments Pty Ltd

BNP Paribas Noms Pty Ltd

Dr Harry Hirschowitz

Armada Trading Pty Ltd

Bennelong Resources Pty Limited

Citicorp Nominees Pty Limited

RBC Investor Services Australia Nominees Pty Limited

Bevan Holdings Pty Ltd

Hofbauer Nominees Pty Ltd

Nan Employee Share Plan Managers Pty Limited

Moore Family Nominee Pty Ltd

Bentale Pty Ltd

Total top 20 holders

Total all other holders

Total shares on issue

1 Includes indirect holdings of 116,368 shares.

Unquoted equity securities

Options on issue

General Share Options to take up unissued ordinary shares

Employee Share Options to take up unissued ordinary shares

Total options on issue

Number of quoted
shares held

28,402,424

27,713,255

26,169,408

25,006,402

23,198,503

10,651,439

8,337,727

3,252,381

3,000,000

2,256,243

2,010,000

2,000,000

1,500,000

1,491,521

1,295,489

1,229,317

1,200,000

1,111,874

1,044,315

1,025,000

171,895,298

92,262,528

264,157,826

Percentage

10.75%

10.49%

9.91%

9.47%

8.78%

4.03%

3.16%

1.23%

1.14%

0.85%

0.76%

0.57%

0.56%

0.49%

0.47%

0.45%

0.42%

0.40%

0.39%

65.07%

34.93%

100%

Number of options
over ordinary shares

Number of holders

503,334

5,656,641

6,159,975

nanosonics limited | annual report 2014
Shareholder information (continued)

107

B. Distribution of equity securities
Analysis of numbers of ordinary shares and options by size of holding:

1 - 1,000

1,001 - 5,000

5,001 - 10,000

10,001 - 100,000

100,001 and over

Total Holders

Quoted ordinary shares

Unquoted
options

341

974

647

1,259

190

3,411

–

There were 141 holders of less than a marketable parcel of 599 ordinary shares.

C. Substantial holders
Substantial holders in the Company are shown below:

Mr Maurie Stang1

Mr Bernard Stang

Citicorp Nominees Pty Limited

National Nominees Limited

J P Morgan Nominees Australia Limited

1 Includes indirect holdings of 116,368 shares.

Number of ordinary shares

Percentage

28,402,424

10.75%

27,713,255

10.49%

26,169,408

25,006,402

23,198,503

9.91%

9.47%

8.78%

D. Voting rights
The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and on a poll each
share shall have one vote.

(b) Options

Options have no voting rights.

108

Glossary

AASB

AGM

AIUM

ANZ

ASIC

ASUM

ASX

BBSW

CEO

CFO

Australian Accounting Standards Board

Annual General Meeting

American Institute of Ultrasound

Australia and New Zealand

Australian Securities and Investments Commission

Australasian Society for Ultrasound in Medicine

Australian Securities Exchange Limited

Bank bill swap reference rate

Chief Executive Officer

Chief Financial Officer

Company

Nanosonics Limited

Date of this
report

21 August 2014

DESP

EESP

EMS

EPS

ESOP

Deferred Employee Share Plan

Exempt Employee Share Plan

Environmental Management System

Earnings Per Share

Employee Share Option Plan

Financial Year

Year to 30 June

Fiscal Year

Year to 30 June

Financial year, eg. FY2014 is the financial year
ended 30 June 2014

Glutaraldehyde Organic compound used as a disinfectant and

sterilizing agent in medical and dental settings,
as well as other uses.

Group

GSOP

GST

HAI

HLD

HPV

IAS

IASB

IFRS

ISO 13485

ISO 14001

Nanosonics Limited and its wholly owned
subsidiary companies

General Share Option Plan

Goods and Services Tax

Healthcare Acquired Infection

High Level Disinfection – involves the complete
elimination of all microorganisms in or on an
instrument, except for small numbers of bacterial
spores

Human papilloma virus

International Accounting Standards

International Accounting Standards Board

International Financial Reporting Standards

Quality Management System for Medical Devices –
Requirements for Regulatory Purposes

Environmental Management System – An
international standard developed by the
International Organisation for Standardisation
through dedicated technical committees
representing approximately 150 countries around
the world. Its purpose is to enable organisation
of any type or size to develop and implement a
policy committing it to prevention of pollution,
compliance with legal and other requirements and
continual improvement.

ISUOG

KFDA

KMP

International Society for Ultrasound in Obstetrics
and Gynecology

Korean Food and Drug Administration

Key management personnel

LEAN Program Program designed to maximize customer value

LTI

LTIS

M&K

MHRA

MRSA

while minimizing waste.

Long Term Incentives

Long Term Incentive Scheme

Management & Krankenhaus, the leading
publication for decision makers in the German
health industry

Medicines and Healthcare Products Regulatory
Agency (MHRA)

Methicillin resistant staphylococcus aureus, a
bacterium resistant to broad-spectrum antibiotics

NanoNebulant™ The biocide used in Nanosonics’ technological

NED

NRTL

OHS

PBT

process

Non-executive Director

Nationally Recognised Testing Laboratory

Occupational Health & Safety

Profit before tax

Q1, 2, 3, or 4

3-monthly periods beginning 1 July, 1 October, 1
January and 1 April respectively

R&D

Research and Development

Reporting
period

Year to 30 June 2014

STI

TEC

TFR

TJC

TSR

TTR

Short Term Incentives

Total Employment Cost

Total Fixed Remuneration

The Joint Commission, an independent, non-for-
profit organisation, that accredits and certifies
more than 20,500 health care organisations and
programs in the United States of America

Total Shareholder Return

Total Target Remuneration

trophon®

The brand representing Nanosonics’ range of
infection control solutions designed specifically for
healthcare settings

trophon® EPR

The brand of Nanosonics’ device specifically
designed to disinfect intracavity and surface
ultrasound probes. See also www.trophon.com.au

TÜV

VAT

WAEP

TÜVs are German organisations that validate
product safety and provide certification for
international standards such as ISO9001.

United Kingdom

Value Added Tax

Weighted Average Exercise Price

nanosonics limited | annual report 2014Corporate directory and information for investors
Nanosonics Limited ABN 11 095 076 896 incorporated 14 November 2000

109

Directors

Maurie Stang

Richard England

David Fisher

Michael Kavanagh

Ron Weinberger

Company Secretaries

McGregor Grant

Robert Waring

Registered Office

Unit 24, 566 Gardeners Road

Alexandria NSW 2015 Australia

Ph: +61 2 8063 1600

European Office

Nanosonics Europe GmbH

Falkenried 88. House A

D-20251 Hamburg Germany

Ph: +49 40 468 56885

Share Register

Computershare Investor Services Pty Ltd

GPO Box 2975

Melbourne, VIC 3001 Australia

Ph: +61 3 9415 4088

Ph: 1300 555 159 (within Australia)

www.au.computershare.com/au/contact

Investor/Media Relations

Buchan Consulting

Ph: +61 3 9866 4722

Ph: 1300 557 010 (within Australia)

McGregor Grant – Company Secretary

Ph: +61 2 8063 1600

Email: info@nanosonics.com.au

Auditor

UHY Haines Norton Level 11,

1 York Street

Sydney NSW 2000 Australia

Legal Advisors

Shelston IP

Level 21, 60 Margaret Street

Sydney NSW 2000 Australia

Baker & McKenzie

AMP Centre

Level 27, 50 Bridge Street

Sydney NSW 2000 Australia

Dibbs Barker

Level 8, Angel Place

123 Pitt Street

Sydney NSW 2000 Australia

Bankers

ANZ Banking Group Limited,

Level 17, 242 Pitt Street

Sydney NSW 2000 Australia

National Australia Bank Limited

Level 36, 100 Miller Street

North Sydney NSW 2060 Australia

Deutsche Bank AG,

Eppendorfer Landstrasse 70

Hamburg 20249 Germany

PNC

1015 S Bethlehem Pike

Ambler PA 19002 USA

Stock Exchange Listings

Nanosonics Limited shares are listed on the

Australian Securities Exchange

ASX code: NAN

Industry Group: Healthcare Equipment & Services

2014 Annual General Meeting

The 2014 AGM of Nanosonics Limited will be held:

At 11.00am on Friday 7th November 2014

Level 3, Sydney Harbour Marriott Hotel

30 Pitt Street Sydney

Website Address

www.nanosonics.com.au

Nanosonics Limited

Unit 24, 566 Gardeners Road
Alexandria NSW 2015 Australia

T +61 2 8063 1600
E info@nanosonics.com.au

www.nanosonics.com.au

NANOSONICS LIMITED ABN 11 095 076 896