INNOVATION
COLLABORATION
GROWTH
ANNUAL REPORT 2016
Contents
Financials at a glance
Chairman’s letter
CEO’s report
Regional highlights North America
Regional highlights Asia Pacific
Regional highlights Europe/rest of world
trophon® EPR: innovative technology delivering improved
standards of care
Clinical research program
Information on the directors, company secretaries and
senior management
Directors’ report
2
4
6
9
10
11
12
14
15
17
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
49
50
51
55
85
86
88
90
91
Company overview
Nanosonics (ASX: NAN) has developed a unique automated
disinfection technology, which is the first major innovation in high level
disinfection (HLD) for ultrasound probes in more than 20 years. This
proprietary technology is now being introduced around the world and
has the opportunity to become the new standard of care as it safely
and effectively addresses the issues with traditional ultrasound probe
disinfection practices.
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.
NANOSONICS 2016 Annual Report | Page 1
SALES
50000000
40000000
30000000
20000000
10000000
0
GROSS PROFIT
35000000
30000000
25000000
20000000
15000000
10000000
0
$42.8m
$27.2m
P & L AFTER TAX
5000000
6000000
5000000
4000000
0
$21.5m $22.2m
3000000
$14.9m
2000000
1000000
FREE CASH FLOW
$15.6m
$32.2m
$19.6m
2013
5000000
2014
2015
2016
8000000
7000000
6000000
4000000
3000000
2000000
1000000
0
$8.5m
$15.3m
$13.9m
$3.4m
$12.6m
Financials 2016 At a glance
93%
SALES
Total sales for the year were
$42.8 million, an increase of
93% driven by the continued
strong adoption of trophon in
North America following the
establishment of Nanosonics
direct operations in 2015.
110%
GROSS PROFIT
Gross profit increased 110%
with improvement in gross
profit rate by 6% reflecting
higher margin direct sales
in the US plus higher sales
associated with consumables
and service.
$122 THOUSAND
PROFIT/(LOSS)
AFTER TAX
The Company recorded
its maiden full year profit
of $122,000.
$1.9 MILLION
FREE CASH FLOW
The Company recorded its
first full year positive free
cash flow of $1.9 million.
NANOSONICS 2016 Annual Report | Page 2
2013
2014
2015
2013
2014
2015
$1.0m
2016
$42.8m
2016
$21.5m
$22.2m
$14.9m
$-2.6m
$6.9m
$27.2m
$15.6m
$-3.3m
2013
2014
2015
2016
2016 H1
2016 H2
4
3
2
1
0
-1
-2
-3
-4
-5
-6
$1.9m
$32.2m
$-5.5m
2015
$19.6m
2013
2014
$-5.8m
$13.9m
$15.3m
2016
$12.6m
$8.5m
2013
2014
2015
2016
2016 H1
2016 H2
$-3.1m
$3.4m
($2.6m)
$-4.7m
($5.5m)
$-5.0m
$122,000
($3.3m)
($5.8m)
$-5.9m
2013
2014
2015
2016
2016 H1
2016 H2
$6.9m
$1.9m
($5.9m)
($3.1m)
($4.7m)
($5.0m)
2013
2014
2015
2016
2016 H1
2016 H2
CASH AND CASH EQUIVALENTS
50
40
30
20
10
0
$48.8 MILLION
CASH AND CASH
EQUIVALENTS
The Company ended
the year with a strong balance
sheet and cash reserves of
$48.8 million to enable it to
continue executing on its
strategic growth agenda.
2009 - 2016 RESULTS
Revenue
Operating revenue
Less cost of sales
Gross profit
Other income
Government grants received
Other
Expenses
Operating expenses (excluding
depreciation, amortisation
and impairment)
$48.8m
$45.7m
$24.1m
$21.2m
2013
2014
2015
2016
2016
$’000
2015
$’000
2014
$’000
2013
$’000
2012
$’000
2011
$’000
2010
$’000
2009
$’000
42,796
22,214
21,492
14,899
12,301
2,247
763
309
(10,630)
(6,901)
(7,571)
(6,428)
(4,799)
(981)
(284)
(121)
32,166
15,313
13,921
8,471
7,502
1,266
479
188
120
13
119
1,666
1,498
150
2,189
1,709
–
–
–
–
161
–
150
–
(31,349 )
(22,353)
(19,141)
(15,335)
(12,634)
(13,229)
(8,827)
(9,867)
EBITDA
950
(4,732)
(1,845)
(5,366)
(4,982)
(11,963)
(8,187)
(9,529)
Depreciation, amortisation,
and impairment
EBIT
Interest income
Interest expense
(1,309)
(1,063)
(975)
(1,044)
(914)
(1,010)
(771)
(419)
(359)
(5,795)
(2,820)
(6,410)
(5,896)
(12,973)
(8,958)
(9,948)
1,098
928
739
1,192
586
1,052
785
1,194
(603)
(598)
(555)
(517)
–
–
–
–
Operating income/(loss) before tax
Net income tax benefit/(expense)
Operating income/(loss) after tax
136
(14)
122
Cash assets
(5,465)
(2,636)
(5,735)
(5,310)
(11,921)
(8,173)
(8,754)
5
31
(33)
631
707
–
–
(5,460)
(2,605)
(5,768)
(4,679)
(11,214)
(8,173)
(8,754)
Cash and cash equivalents
48,841
45,724
21,233
24,064
29,310
12,356
21,144
13,881
NANOSONICS 2016 Annual Report | Page 3
Chairman’s letter
On behalf of Board of Directors, I am pleased to present
Nanosonics’ 2016 Annual Report.
The past year has seen Nanosonics emerge as a successful global technology
business, as evidenced by a number of outstanding achievements. Sales of $42.8
million are up 93% compared with the prior year, which has been driven by continued
strong adoption of the trophon EPR technology and has led to the Company
reporting its maiden full year profit, a year ahead of expectations. Nanosonics
delivered its first full year of positive free cash flow of $1.9 million ending the year with
$48.8 million of cash and cash equivalents. The overall result for our shareholders
has been pleasing with a 31% increase in the market value of the Company over the
past 12 months and a growth for our shareholders of 248% over the last three years.
Globally, the installed base of trophon EPR has grown to an impressive 10,000 units
and since we announced the launch of our North American direct sales operations
in the second half of last year, the installed base in North America has increased by
more than 4,700 units or 118% to over 8,700 units. This represents around 22% of
the estimated 40,000 unit installed base potential in North America indicating that
trophon is not only rapidly becoming the standard of care for the reprocessing of
ultrasound probes, but increasing rates of adoption demonstrate the potential for
further high levels of growth.
An important factor contributing to the sales momentum in North America has been
the increased awareness of the issues associated with human papillomavirus (HPV)
which is responsible for 99.7% of all cervical cancer cases as well as being linked
to a range of other cancers. Clinical studies conducted by Prof. Craig Meyers from
Penn State College of Medicine have shown that the toxic liquid disinfectants being
used to high level disinfect ultrasound probes are totally ineffective against HPV and
by contrast the trophon technology is totally effective. These and other studies are
beginning to be understood in other markets and are providing motivation for the
regulators in those markets to review current practices.
TROPHON® EPR BECOMING
STANDARD OF CARE
THERE ARE NOW MORE THAN
10,000 TROPHON SYSTEMS
IN USE GLOBALLY DRIVEN
BY INCREASED AWARENESS
AND STRENGTHENING
FUNDAMENTALS FOR ADOPTION
NANOSONICS 2016 Annual Report | Page 4
Developments over the last year in our key European markets
have been encouraging. The new guidelines in Scotland
requiring high level disinfection of ultrasound probes used in
semi-critical examinations has led to a significant increase in
customer enquiries, as we saw when similar new guidelines
were released in Wales. Importantly, new guidelines are due to
be released by NHS England in which it is expected that the
importance of effective high level disinfection of semi-critical
devices will be emphasised.
Recently Nanosonics expanded its distribution footprint by
entering into a new agreement for the sale and distribution of
trophon in the Republic of Ireland and is in negotiations for
distribution in a number of countries in the Middle East.
Business development activities in the important Japan
market are progressing. Feedback received at the recent
annual conference of the Japanese Society for Ultrasound in
Medicine was very encouraging. Nanosonics is in discussions
in relation to a number of other international markets targeting
early market entry.
Nanosonics has increased its investment in Research &
Development by approximately 49% over the last year.
Nanosonics’ focus on innovation is directed at building on
our disruptive Nano-Nebulant platform and developing
new product streams to address potentially large scale
infection and microbial control opportunities. Critically, the
Company has engaged in a number of research programs
that have enabled us to develop a deep understanding of our
customers’ needs in the area of infection prevention which,
in turn, is directing our core R&D program. We are confident
that the market for microbial control is large and growing and
Nanosonics is ideally positioned to bring new and innovative
products to market that meet unmet customer needs.
Nanosonics has grown to employ over 150 people located in
Australia, the Unites States, Canada and across Europe. On
behalf of the Board, I would like to thank all our employees
for their contribution to the success of the Company over the
last year. Similarly, I thank my fellow Board members for their
important and ongoing efforts.
As recently announced, I am delighted to welcome Mr
Steven Sargent as a Non-executive Director of the Board.
Steve brings a wealth of experience and knowledge to
Nanosonics with a broad insight into international, high growth
businesses with a market leadership position. His background
in overseeing large scale businesses for GE, including
Healthcare, provides a valuable extension to the existing skills
on Nanosonics’ Board.
The objectives for the coming year are clear: build shareholder
value by continuing to deliver rapid sales growth and develop
new technologies that will position the Company as a leading
player in the infection control market, delivering solutions that
support our mission of “Infection Prevention. For Life.”
Mr Maurie Stang
Chairman
Sydney
17 August 2016
“NANOSONICS’ FOCUS ON
INNOVATION IS DIRECTED AT
BUILDING ON OUR DISRUPTIVE
NANO-NEBULANT PLATFORM
AND DEVELOPING NEW
PRODUCT STREAMS.”
NANOSONICS 2016 Annual Report | Page 5
CEO’s report
NANOSONICS 2016 Annual Report | Page 6
I am very pleased to report that the 2016 financial year has
been one of significant achievement and success for
Nanosonics. Throughout the year the organisation
consistently focussed on the execution of the core
strategies defined by our strategic growth agenda. This
focus and execution delivered excellent results as we
advance in our mission to 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.
The Nanosonics strategic growth agenda is structured around five key
growth pillars, namely:
1 Customer Experience
2 Product Innovation
3 Operational Excellence
4 People Engagement
5 Value Creation
The following outlines some of the key highlights of FY16 under each of these pillars.
Customer Experience
Our Customer Experience objective is focussed on establishing our offerings
as new standards of care globally and providing customers with a convenient
and consistent experience with our products and brand. Key highlights for the
year include:
Growing the installed base in North America during the year by 74% to
over 8,700 units where trophon is now represented in 48 of the top 50
hospitals in the USA and almost 3,000 facilities in total
This strong growth in the installed base forms a strong basis for establishing
trophon as the new standard of care across the USA, both within hospitals who
have already commenced with the trophon technology, as well as in new hospitals
and clinics. Our US direct sales team and our distribution partner, GE Healthcare
are to be congratulated on this great result.
The global installed base at the end of June 2016 was over 10,000 units.
Strengthening fundamentals for adoption in North America and key
European markets
During the year, a number of pivotal clinical papers were published that clearly
demonstrated the risks of cross contamination in the absence of effective High
Level Disinfection (HLD). Government bodies such as the CDC and FDA in the USA
reemphasised the importance of implementing effective HLD practice.
Central to the awareness and education campaigns conducted by Nanosonics were
the outcomes of the pivotal clinical studies conducted by Prof. Craig Meyers from
Penn State College of Medicine, who showed that the liquid disinfectants currently
used to decontaminate ultrasound probes were totally ineffective in killing human
papillomavirus (HPV) whereas the trophon technology using sonically activated
hydrogen peroxide was totally effective. This important finding has been published
in a number of key journals including the Medical Journal of Virology as well as a
call to action paper in the American Journal of Obstetrics
and Gynaecology. Today this is a core differentiator for
Nanosonics as well as a key driver for adoption.
In the UK, new Scottish guidelines were published requiring
high level disinfection for all semi-critical ultrasound
examinations. New guidelines in England are also due in early
FY17 which are also expected to emphasise the importance
of HLD. In France, the subject of high level disinfection is also
clearly on the agenda of the Ministry of Health and further
progress on HLD requirements are expected to be made
throughout FY17.
Market expansion activities
During FY16, Nanosonics entered into a new agreement for
the distribution of trophon in the Republic of Ireland as well as
commenced negotiations for entry into a number of countries
in the Middle East. Our business and market development
activities continued in Japan culminating in the trophon
technology being presented at the Annual Japanese Society
for Ultrasound in Medicine (JSUM) in May 2016. Further
developments in these important markets will continue
into 2017.
Product Innovation
Our Product Innovation objective aims to bring to market
a portfolio of innovative products that address unmet
customer needs.
Strategic R&D investment
Nanosonics is committed to strategic investment in R&D
and grew this investment by approximately 49% to over $7.3
million in FY16. This investment was targeted towards design
and development activities associated with future generations
of our platform trophon technology as well as investment in
research on novel new solutions directed at meeting what
we consider considerable unmet needs in the infection
prevention field.
Partnerships, collaborations and research
Throughout FY16, Nanosonics conducted a number of
research programs to identify and confirm core customer
needs in the area of infection prevention. Strategic
partnerships were formed with associations such as the
American Association for Professionals in Infection Control
and Epidemiology (APIC). Partnerships such as these provide
excellent insights and inputs through research with their
membership. The outcome of this research has been central
in guiding our R&D program.
Expanded indications
The indications for use for trophon were expanded beyond
use with ultrasound probes in Europe and Australia. These
expanded indications allow products such as Gamma Probes
to be decontaminated using trophon. Further assessments
of opportunities with other semi-critical instruments will be
explored in FY17.
Ultrasound probe compatibility
The number of ultrasound probes approved for use with
trophon passed 1,000 in FY16. This is an extremely important
program and the organisation continues to partner with the
majority of all ultrasound OEMs to ensure compatibility as new
probes are brought to market.
Strengthening our IP position
Nanosonics’ patent portfolio continued to make good
progress in FY16 with 16 applications successfully passing
examination to proceed to allowance or grant. Nanosonics
was granted 6 US patents in that period.
Operational Excellence
Ensuring our organisation is agile and has scalable, compliant
and performance focussed processes is an important
directive for the organisation.
NANOSONICS 2016 Annual Report | Page 7
CEO’s report (continued)
Successful first full year of North American
direct operations
FY16 marked the first full year of our direct sales organisation
and supporting operations being in place in North America. In
the last 12 months this team played a pivotal role in generating
awareness and demand resulting in the installed base growing
74% to over 8,700 units. During the last quarter of the year
Nanosonics also established direct operations in Canada and
these are expected to be fully operational in the first quarter
of FY17.
New global headquarters and manufacturing facility
FY16 also marked the first anniversary at our new global
headquarters and manufacturing facility in Lane Cove in
Sydney. Throughout the year numerous certifications and
regulatory approvals were achieved at our new facility and the
opportunity was taken to refine and establish more scalable
operating procedures and processes leveraging the facility’s
design and capabilities.
Enhanced global capabilities
To support our global expansion, a number of our core
systems and processes were rolled out across the USA,
UK, Germany and France. These included the expansion
of the Company’s global ERP systems, optimisation of the
IT infrastructure and the standardisation of global service
programs and processes.
Scalability of our operations globally continues to be an
important strategic imperative across the organisation.
NANOSONICS 2016 Annual Report | Page 8
People Engagement
People Engagement is a fundamental driver to the success
of our operations. This objective centres on building an
organisation that attracts and retains the best people
ensuring they are engaged and empowered to deliver on our
corporate objectives.
As in previous years, our highly skilled and dedicated team
across all functions and disciplines worked together as a
group to deliver excellent results for the organisation. Through
our strategic Human Capital planning our team grew by 18%
to over 150 employees globally bringing diverse qualifications
and experience to the company.
Value Creation
Our Value Creation objective focuses on creating sustainable
shareholder value and delivering high growth and returns.
As a consequence of the positive outcomes achieved in FY16,
significant value was created for our shareholders.
• Sales revenue increased 93% to $42.8 million
• A maiden full year profit was achieved, 12 months ahead of
market expectations
• Market capitalisation grew 31% in the 12 months to 30
June 2016 and 248% over the last 3 years
• A strong cash balance was maintained to underpin our
strategic growth investments for the future
Importantly, the foundations of the business were
strengthened for the ongoing growth and success of
the Company.
Outlook
Looking forward, our aim is to build on the success of FY16,
continue to execute on our strategic growth agenda and
leverage the positive and strengthening market fundamentals
for the adoption of the trophon technology as the new
standard of care in major markets around the world. In
addition we will continue to invest in R&D programs to develop
a diversified portfolio of products and solutions that meet real
needs in the infection prevention market.
I would like to thank the Nanosonics team and our distributor
partners for their considerable efforts in achieving the
FY16 results and the support and encouragement of our
shareholder community as they share and believe in our
vision to establish Nanosonics as a major global leader in
infection prevention.
Michael Kavanagh
CEO and President
Sydney
17 August 2016
Regional highlights
North America
The fundamentals for adoption continued to strengthen
throughout FY16 resulting in the installed base growing
approximately 74% in the year to over 8,700 units. Sales in
North America for the year grew a record 121% to $39.0
million. This excellent result reflects the superior value
proposition of the trophon technology and the tremendous
efforts of Nanosonics’ direct sales organisation as well as
continuing strong GE Healthcare sales.
Key highlights for FY16 included:
• Adoption of trophon has now commenced in 48 of the
top 50 hospitals (US News and World Report) as well as
approximately 3,000 facilities across North America.
• The fundamentals for adoption continued to strengthen
throughout the year. In September 2015, the Centers
for Disease Control and Prevention (CDC) and the FDA
issued an alert notifying healthcare providers and facilities
about the need to properly maintain, clean, and disinfect
or sterilize reusable medical devices. All healthcare
facilities with reusable medical devices are being
urged to immediately review their reprocessing
practices to protect patients and ensure they comply
with current standards and guidelines1. This alert further
strengthens the fundamentals for trophon adoption.
• Successful contracts signed with a number of major
Integrated Delivery Networks (IDNs).
• Commenced establishment of a Canadian corporate
entity, Nanosonics Canada, Inc., with a direct operation
to sell and service trophon. Canadian operations to
commence full operation in FY17.
• Significant increase in pipeline of opportunities was
created through participation in over 30 major and regional
tradeshows as well as numerous educational events being
conducted across North America.
1. CDC Health Alert Network September 11, 2015. Available
from http://emergency.cdc.gov/han/han00382.asp
North America tropon Installed Base
8,700
7,700
6,700
5,700
5,000
4,500
4,000
Sanford Health installs trophon throughout its
clinic network
Saving five minutes per ultrasound exam makes a big
difference in patient throughput at a busy fertility clinic.
This was just one of the benefits experienced by Sanford
Health when it switched to Nanosonics’ trophon system
to disinfect its ultrasound probes.
One of the largest health systems in the U.S., Sanford
Health has 43 hospitals and nearly 250 clinics in nine
states and three countries.
While saving time is important, the trophon system
was originally selected based on the outcome of
research into disinfectant effectiveness against human
papillomavirus (HPV). The study showed that trophon
is the only high level disinfection system to kill human
papillomavirus (HPV).
“We purchased some [trophon] units last year and
wanted to install more, but we waited for the efficacy
studies,” said Sue Hohenthaner, Sanford Enterprise
Director of Infection Prevention. “Primarily we were
looking at trophon for vaginal ultrasound because of the
effectiveness against HPV 16 and 18. We felt strongly
that any location with vaginal probes should have a
trophon unit.”
While transvaginal examinations were the initial focus,
Sanford has now installed more than 60 trophon
systems in a range of facilities including radiology/
imaging, emergency, OB, maternal fetal medicine, breast
centers, urology centers, interventional radiology and
family clinics.
Sanford Health was also positive about the smooth
installation and training process delivered by Nanosonics
and reports everyone loves the trophon system. “Waiting
was the hardest part,” said Ms Hohenthaner, “I can’t
tell you how many calls I received saying ‘can we get
trophon, we really want trophon, what’s the hold up?’
They were thrilled to get it.”
Q2
Q3
FY15
Q4
Q1
Q2
Q3
Q4
FY16
Sue Hohenthaner, Sanford Health
NANOSONICS 2016 Annual Report | Page 9
Regional highlights (continued)
Asia Pacific
The Australian and New Zealand markets are excellent
examples of trophon becoming standard of care.
Sales for the ANZ region grew 11% in the last 12 months to
$2.54 million.
The combined installed base across both these markets is
now in excess of 1,000 units. During the year Nanosonics
worked closely with a number of the key associations
including the Australian Society for Ultrasound in Medicine.
A number of national educational programs were developed
with ASUM focussing on the risk of cross contamination with
human papillomavirus and these programs featuring Prof.
Craig Meyers from Penn State College of Medicine are due to
commence in the first quarter of FY17.
The commercialisation strategy for Japan also progressed
during the year including the hiring of a country manager for
Japan. trophon was displayed at the annual Japanese Society
of Ultrasound in Medicine (JSUM) in Kyoto in May. Market
development strategies to increase the fundamentals for
adoption in the country will continue into FY17.
Five Years of Positive Use in Australia – The
OMNI Experience
OMNI Ultrasound has 2 Sydney sites based in St
Leonards and Penrith. OMNI is a dedicated Women’s
ultrasound practice and therefore performs a significant
number of transvaginal examinations and procedures
each year. Each practice has been using the trophon
high level disinfection system for 5 years and it
has proven to be a reliable and efficient method of
disinfecting transvaginal transducers.
Prior to the introduction of the trophon OMNI was using
a chemical based solution to clean transducers. This
method has its limitations particularly the inability to
clean the handle and cord insertion point which can be
an area of contamination. The trophon system provides
a quick and effective method for disinfecting the whole
probe in a “closed system.” The sonographers find this
system much easier to use and do not need to worry
about the potential health related issues that can be
associated with chemical methods.
The trophon also provides a validation system in the form
of the chemical indicators. Once a cycle is completed
the operator has immediate feedback as to whether
the probe has received the correct concentration of
the cleaning agent. This allows the sonographers to
confidently scan their patients knowing the probe has
been disinfected to the highest of standards.
The use of the trophons also suits the workflow in
the practice as the probes can be cleaned while the
sonographers complete reports and prepare the room
for their next patient. This provides efficient use of time
and improved workflow.
Brendan Mein
Senior Sonographer
OMNI Ultrasound
NANOSONICS 2016 Annual Report | Page 10
Europe/rest of world
Significant progress was made in strengthening the
market fundamentals for adoption in Europe throughout
FY16. Underpinning these fundamentals are guidelines
requiring high level disinfection of ultrasound probes used in
semi-critical procedures.
In the UK there are now 25 NHS Trusts with trophon with nine
of these trusts to date following up their initial purchases with
additional trophon systems.
• The Welsh guidelines published last year have resulted
in all seven Health Boards in Wales adopting trophon.
Broader usage across all relevant clinical settings in each
of these trusts is now under evaluation.
• New Scottish guidelines were published in Q4 FY16.
trophon EPR is well positioned to deliver on the
requirements published in the guidelines and Nanosonics
is in dialogue with the decontamination professionals in all
14 Health Boards in Scotland.
• New guidelines in England are expected in the first quarter
of FY17.
In Ireland, Nanosonics signed a non-exclusive distribution
agreement with Wassenburg Medical who are market leaders
in washer disinfectors in the market. New guidance in the Irish
market for the decontamination of probes is also underway.
In Germany, two key reference sites in the federal state of
Schleswig-Holstein, Kiel and Lubeck adopted trophon in their
Ob/Gyn departments. Installations into the private Ob/Gyn
market also took place. Installations at key reference sites in
Belgium, Italy and Denmark also took place during the year.
In France, the risk of cross contamination with HPV has
brought the subject of decontamination of ultrasound probes
to the attention of the Ministry of Health. An initial instruction
from Direction Generale de la Sante was published identifying
that systematic intermediate level disinfection (similar to HLD)
is more efficient than current low level disinfection (LLD)
because of the risk of non-compliance with the manual LLD.
Strict compliance with LLD is now mandated and will be
regularly audited. Further work on market development and
guidelines will continue in France during FY17.
NANOSONICS 2016 Annual Report | Page 11
trophon® EPR: innovative technology delivering
improved standards of care
Why high level disinfection (HLD) of
ultrasound probes is important
Decontamination and reprocessing of reusable medical
instruments such as ultrasound probes is crucial to help
reduce cross contamination between patients and the spread
of healthcare acquired infections (HAIs). Awareness of imaging
procedure (ultrasound) HAIs, a subset of HAIs, is growing.
There are multiple disinfection guidelines globally that now
require HLD of ultrasound probes between patients to prevent
cross infection.
Issues with traditional HLD methods
Traditional ultrasound probe disinfection practices involve
manual methods such as soaking in toxic chemicals, spraying
or wiping. Studies have demonstrated these methods are
ineffective, inefficient and environmentally unsound.
trophon® EPR: Safe. Versatile. Simple.
Nanosonics trophon® EPR addresses market needs for
fast, safe, simple and environmentally friendly HLD of
ultrasound probes.
Being fully enclosed means users are not exposed to harmful
chemicals when they use a trophon system. This allows it to
be placed at point of care where ultrasound exams are carried
out which significantly enhances clinic workflows. The system
is also fully mobile so it can be placed anywhere within close
proximity to the exam area or in a utility room.
Many guidelines now recommend automated reprocessing
over manual methods1. A key differentiator of trophon over
traditional methods is its full automation, which makes the
disinfection process simple for users and assures consistency
in every cycle.
Compatible with a wide range of
ultrasound probes
For healthcare providers, having an HLD system that is
validated for use with its ultrasound probes is an important
consideration. Nanosonics carries out extensive probe testing
and trophon’s list of validated ultrasound probes now is
more than 1,000 from all major and many smaller ultrasound
probe manufacturers.
Sonicated hydrogen peroxide dramatically
increases disinfecting power
trophon’s proprietary disinfectant (Sonex®/Nanonebulant®)
has a high concentration of hydrogen peroxide that is
sonically activated to dramatically increase its disinfecting
power. The sonic activation results in a sub-micron particle
mist which generates a high number of free radicals. These
potent free radicals have superoxidative properties, which
means the disinfectant can act quickly to destroy pathogens.
Traceability solution helps facilities meet
audit and accreditation requirements
Traceability is a hot topic in infection control. Without
monitoring or documentation of equipment reprocessing, it
becomes difficult to track the use of equipment on a specific
patient. This can complicate the patient notification process
should an outbreak occur.
The trophon EPR’s optional traceability solution provides
documentation and reporting to link the probe and
disinfection procedure to the patient.
NANOSONICS 2016 Annual Report | Page 12
trophon Consumables
1 Sonex®/Nanonebulant®
Proprietary disinfectant liquid with hydrogen peroxide
chemistry that achieves effective HLD.
2 Chemical Indicators
Chemical Indicators validate each disinfection cycle by
providing a qualitative colour change.
Accessories
3 trophon® Connect
Software tool to help clinics meet documentation and
audit requirements.
4 trophon® Printer
Provides a fast, easy to use traceability solution by helping
to link the probe and disinfection procedure to the patient.
5 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.
6 trophon® Printer Wall Mount
Custom designed for secure, horizontal mounting of the
trophon Printer to a wall.
7 trophon® Printer Cart Mount
Designed to securely attach the trophon Printer to the
trophon Cart in an easily accessible, convenient location.
8 trophon® Curved Probe Positioner (CPP)
An accessory to improve the positioning of approved
curved probes in the trophon EPR chamber.
9 trophon® Clean Ultrasound Probe Covers
Custom designed covers to protect high level disinfected
intracavity and surface ultrasound probes from
recontamination before they are used on the next patient.
2
3
1
9
8
4
5
7
6
1. Rutala W., et. al, Guideline for Disinfection and Sterilization in Healthcare Facilities, 2008, Centers of Disease Control, 1-158, 2008.
NANOSONICS 2016 Annual Report | Page 13
Clinical research program
Driving trophon adoption through
clinical evidence
Nanosonics’ strategic investment in its clinical research
program is making important contributions to the scientific
and clinical knowledge base in infection prevention.
In addition, this investment plays a key role in one of
Nanosonics’ key corporate objectives to strengthen the
fundamentals to establish trophon as the standard of care
and drive global adoption.
In the past two years a series of clinical studies have been
conducted in various centres around the world, resulting
in a number of publications which clearly demonstrate the
superior disinfection efficacy of trophon1-5. Four of these
studies have been published in peer-reviewed journals.
The fifth one is pending journal submission and focuses
on disinfecting surface ultrasound probes. This is an
important area for Nanosonics as it expands the scope
of use of trophon in a larger number of departments such
as emergency, maternal foetal medicine, breast centres,
interventional radiology and family clinics.
One of the four published studies, published in the Journal
of Medical Virology in November 2015, has already had
significant impact on awareness of trophon efficacy. In
2015, our clinical team worked closely with Distinguished
Professor Craig Meyers of Penn State College of Medicine,
PA to conduct a controlled clinical study to examine the
efficacy of trophon against the highly resistant cancer-causing
human papillomavirus (HPV). The results of the study clearly
demonstrated trophon to be totally effective in killing HPV,
which is now a unique differentiator compared to other
commonly used disinfectants.
Professor Meyers had co-authored a previous paper showing
that disinfectants commonly used on ultrasound probes
don’t work6. Both this and the trophon study were ground-
breaking as they were the first of their kind to use “real” HPV
as opposed to a surrogate virus. To date, no other disinfection
system has such published evidence, which sets trophon well
ahead of other systems. HPV accounts for 5% of all cancers
worldwide and is responsible for almost all cases of cervical
cancer plus is a leading cause of oral, throat, anal and genital
cancers. While it is widely believed to be sexually transmitted,
numerous studies have shown that this is not the case and
that HPV is present in people with no prior sexual contact,
and also exists on gynaecological equipment and surfaces
despite routine cleaning7-13.
In March 2016, an independent paper was published in the
American Journal of Obstetrics Gynecology (AJOG) calling
for changes to practices in order to reduce the risk of HPV
transmission14. The paper recommended sonicated hydrogen
peroxide [trophon’s proprietary disinfectant technology] as a
solution to achieve this.
The superior efficacy of trophon was again demonstrated in
a study published earlier this year in Ultrasound Obstetrics
Gynecology1. Conducted by the University Hospital Münster in
Germany, the study compared the efficacy of trophon against
a leading brand of disinfectant wipes used widely across most
European countries. The results demonstrated a threefold
higher risk of cross contamination with the manual wipe
method. The study concluded that wipes are generally not
used properly and that trophon is significantly more effective,
increasing patient safety.
Further information about the risks of HPV and
HPV disinfectant efficacy studies can be found
at www.hpvdisinfection.com
1.
Buescher DL, Mollers M, Falkenberg MK, Amler S, Kipp F, Burdach J, et al.
8.
Casalegno JS, Le Bail Carval K, Eibach D, Valdeyron ML, Lamblin G, Jacquemoud H,
Disinfection of transvaginal ultrasound probes in a clinical setting: comparative
et al. High risk HPV contamination of endocavity vaginal ultrasound probes: an
performance of automated and manual reprocessing methods. Ultrasound Obstet
underestimated route of nosocomial infection? PLoS One. 2012;7(10):e48137.
Gynecol. 2016;47(5):646-51.
9.
Ma ST, Yeung AC, Chan PK, Graham CA. Transvaginal ultrasound probe
2.
Ryndock E, Robison R, Meyers C. Susceptibility of HPV16 and 18 to high level
contamination by the human papillomavirus in the emergency department. Emerg
disinfectants indicated for semi-critical ultrasound probes. J Med
Med J. 2013;30(6):472-5.
Virol. 2016;88(6):1076-80.
10.
M’Zali F, Bounizra C, Leroy S, Mekki Y, Quentin-Noury C, Kann M. Persistence of
3.
Ngu A, McNally G, Patel D, Gorgis V, Leroy S, Burdach J. Reducing Transmission Risk
Microbial Contamination on Transvaginal Ultrasound Probes despite Low-Level
Through High-Level Disinfection of Transvaginal Ultrasound Transducer Handles.
Disinfection Procedure. PLoS One. 2014;9(4):e93368.
Infect Control Hosp Epidemiol. 2015;36(5):581-4.
11.
Liu Z, Rashid T, Nyitray AG. Penises not required: a systematic review of the potential
4.
Vickery K, Gorgis VZ, Burdach J, Patel D. Evaluation of an automated high-level
for human papillomavirus horizontal transmission that is non-sexual or does not
disinfection technology for ultrasound transducers. J Infect Public
include penile penetration. Sex Health. 2015.
Health. 2014;7(2):153-60.
12.
Ryndock EJ, Meyers C. A risk for non-sexual transmission of human papillomavirus?
5. AIUM conference presentation – Trophon study with Bob De Jong at Johns Hopkins
Expert Rev Anti Infect Ther. 2014;12(10):1165-70.
6.
Meyers J, Ryndock E, Conway MJ, Meyers C, Robison R. Susceptibility of high-risk
13.
Leroy S, M’Zali F, Kann M, Weber DJ, Smith DD. Impact of vaginal-rectal ultrasound
human papillomavirus type 16 to clinical disinfectants. J Antimicrob
examinations with covered and low-level disinfected transducers on infectious
Chemother. 2014;69(6):1546-50.
transmissions in france. Infect Control Hosp Epidemiol. 2014;35(12):1497-504.
7.
Gallay C, Miranda E, Schaefer S, Catarino R, Jacot-Guillarmod M, Menoud PA, et al.
14.
Combs CA, Fishman A. A proposal to reduce the risk of transmission of human
Human papillomavirus (HPV) contamination of gynaecological equipment. Sex Transm
papilloma virus via transvaginal ultrasound. American Journal of Obstetrics &
Infect. 2016;92(1):19-23.
Gynecology. 2016 Mar 16. doi: 10.1016/j.ajog.2016.03.014 [Epub ahead of print]
NANOSONICS 2016 Annual Report | Page 14
Information on the directors, company
secretaries and senior management
1
2
3
4
5
6
1. Maurie Stang
Non-executive Chairman
Mr Stang has been Non-executive Director and Chairman
since March 2007 and a member of the Board since
November 2000.
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, President and Managing Director
Mr Kavanagh joined Nanosonics as CEO and President
effective 21 October 2013. He was a Non-executive Director
of the Board from 30 July 2012 to 20 October 2013.
Mr Kavanagh has more than 25 years of international
commercial experience in the healthcare market having
held local, regional and global roles in medical device and
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). He has
been a director of Macquarie Atlas Roads Limited (ASX:MQA)
since June 2010 and a director of Japara Healthcare Limited
(ASX:JHC) since April 2014. He was a director and Chairman
of Chandler Macleod Group Limited (ASX:CMG) from
February 2008 to April 2015.
4. David Fisher BRurSc (Hons), MAppFin, PhD, FFin, GAICD
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’ 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.
5. Ron Weinberger BSc (Hons), PhD
President Technology Development/Commercialisation
Dr Weinberger joined the Company in August 2004 and
was appointed as Executive Director in July 2008. From July
2011 to October 2013 Dr Weinberger was Managing Director
and CEO and since October 2013, he has been President
Technology Development/Commercialisation, responsible for
the direction of the Company’s technology. Dr Weinberger
has more than 20 years’ 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.
6. Steven Sargent BBus, FAICD
Non-executive Director
Mr Sargent joined the Board in July 2016. He has extensive
executive experience having worked across a range of
industries spanning the US, Europe and Asia Pacific. Mr
Sargent joined GE Capital in 1993 and was appointed Vice
President and Officer of General Electric Company in 2008
and was a member of GE’s Global Corporate Executive
Council. Prior to his retirement from GE, Mr Sargent was
President and Chief Executive Officer of GE Mining, GE’s
global mining technology and services business.
Mr Sargent has been a director of Origin Energy Limited
(ASX:ORG) since May 2015 and was appointed director
of OzForex Group Limited on 4 August 2016. He is also a
director of the Great Barrier Reef Foundation and Chairman of
The Origin Foundation. Previously, Mr Sargent was a director
of Veda Group Limited (ASX:VED) from March 2015 to March
2016, a director of Bond University Limited and was on the
board of the Business Council of Australia.
NANOSONICS 2016 Annual Report | Page 15
7
8
9
J
K
L
M
N
O
P
Q
7. McGregor Grant BEc, CA, GAICD
Chief Financial Officer and Company Secretary
Mr Grant joined Nanosonics in April 2011 and is responsible
for the overall financial management of the Company and,
together with Mr Kavanagh, has joint responsibility for
investor relations. Mr Grant has more than 20 years’ business
experience in a number of senior roles in the medical device
and healthcare industries located in Australia and the United
States. Previously Mr Grant worked for Coopers & Lybrand
(now PwC) in Australia and Europe.
8. 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 extensive
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.
9. Vincent Wang BSc, MSc, MBA
Head of Global Customer Support and Technical Services
Mr Wang has extensive experience in developing and
implementing global service and support strategy,
establishing and managing customer support, technical
service and service marketing functions in global medical
device businesses. Prior to joining Nanosonics in May 2011,
Mr Wang spent 11 years leading and managing the Technical
Support, Services Repair and Customer Service Operations
for Sonova Hearing Healthcare Group and Cochlear Ltd.
10. Ruth Cremin MSc
Regulatory Affairs Manager
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
Mrs Courtney joined Nanosonics in 2008 and has more than
18 years’ human resources experience having worked in a
variety of industry sectors including chartered accounting,
media, logistics and banking.
12. Andrew Murray BE (Elec), MBA
Head of Global Marketing
Mr Murray joined Nanosonics in July 2015. He has more than
15 years’ experience across the full spectrum of medical
NANOSONICS 2016 Annual Report | Page 16
device and technology product marketing. His career includes
senior marketing roles in Australia, USA and Europe with
blue chip companies including Cochlear and ResMed and
consulting to a wide range of technology driven businesses
across Australia.
13. Ronald J Bacskai BSME, MBA (Hons)
President and CEO, Nanosonics, Inc.
Mr Bacskai joined Nanosonics in 2010 and is responsible
for managing Nanosonics’ business in North America. Mr
Bacskai is an experienced executive having worked in multiple
industries with a broad technical, marketing and sales, and
technology commercialisation background. Mr Bacskai has
significant experience as President, CEO and board member
of several public and private organisations as well as serving
on the advisory board of a speciality environmental firm.
14. Bryn Tudor-Owens BSc
Country Manager – UK
Mr Tudor-Owen more than 24 years’ experience gained within
the medical device industry. Prior to Nanosonics he 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.
15. 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
healthcare market.
16. Julien Laronze BBA, BA
Country Manager – France
Mr Laronze joined Nanosonics in March 2014. He has more
than 15 years’ senior sales management and executive level
experience, with a proven track record in driving growth both
domestically and internationally, in the medical device industry
with large and small companies. Prior to joining Nanosonics,
he held Sales Director positions with Sophysa and Edap-Tms.
17. Robert Waring BEc, CA, FCIS, FFin, FAICD
Company Secretary
Mr Waring was reappointed Company Secretary in
October 2010 and earlier held this position at the time of the
Company’s IPO in May 2007. He is a director of corporate
advisory firm, Oakhill Hamilton Pty Ltd, and has had more
than 25 years’ experience in Company Secretarial roles for
ASX listed companies.
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 2016.
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.
• 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 $42,796,000 (2015: $22,214,000), an increase of $20,582,000 or $93% driven by
the continued strong adoption of trophon in North America. Sales in North America increased by $21,366,000 in significant part
resulting from the establishment of the Company’s direct operations in 2015. Sales in Australia and New Zealand increased by
12% compared with the previous year. Sales in Europe and other countries decreased by 46% compared with the previous year.
Other income amounting to $133,000 (2015: $2,308,000), which included: Export Market Development Grant $120,000 (2015:
119,000); reimbursement of costs by a distributor $Nil (2015: $1,200,000) and net foreign exchange gain on foreign currency
forward contracts of $11,000 (2015: $Nil. Prior year also included $988,000 in foreign exchange gains). Foreign exchange losses
are included in administration expenses.
Finance income amounting to $1,098,000 (2015: $928,000) relates to interest earned on cash investments.
Operating expenditure for the year amounted to $32,658,000 (2015: $23,416,000), an increase of $9,242,000 or 40% driven
by higher staffing and related operating costs to support the growth of the business including the direct sales operations in
North America.
Finance expense for the year of $603,000 (2015: $598,000) included borrowing costs on convertible notes of $532,000 (2015:
596,000) and interest on leases of $71,000 (2015: $2,000).
The consolidated profit after tax amounted to $122,000 (2015: loss after tax of $5,460,000).
The Group ended the year with $48,841,000 (2015: $45,724,000) of cash and equivalents. The Group has adequate cash to
fund the operations of the business.
Further information on the operations of the Group and its business strategies and prospects are included in the CEO’s report
and the Regional highlights on pages 6 to 11 of this report.
Significant changes in the state of affairs
During the year, the Company issued 12,299,726 shares on the conversion of convertible notes in accordance with the terms of
the Convertible Note Deed Poll dated 28 June, 2012 at a price $0.75 per share.
In the opinion of the directors, other than the matters described above and in the review of operations on pages 6 to 11 of this
report, there were no other significant changes in the state of affairs of the Group during the financial year under review and to
the date of this report.
NANOSONICS 2016 Annual Report | Page 17
Directors’ report (continued)
Dividends – Nanosonics Limited
The directors do not recommend the payment of a dividend for the financial year ended 30 June 2016. No dividends were
proposed, declared or paid during the financial year (2015: 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.
Matters subsequent to the end of the financial year
No matter or circumstance has arisen since 30 June 2016 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.
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 6 to 11. 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 maintains an Environmental Management System (EMS), which is currently certified to ISO14001.
Directors
During the year, the Board of Nanosonics Limited comprised of Maurie Stang, David Fisher, Richard England, Michael
Kavanagh, and Ron Weinberger. Steven Sargent joined the Board on 20 July 2016.
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 below
and on page 21.
Information on the directors, company secretaries and senior management is a part of the Directors’ report and can be found
on pages 15 to 16 of the Annual Report.
Meetings of directors
The number of directors’ meetings, including meetings of the committees, held during the year ended 30 June 2016, and
numbers of meetings attended by each of the directors were as follows:
Meetings of committees
Full meetings
of directors
Audit and Risk
Nomination
Remuneration
R&D and
Innovation
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Maurie Stang
Richard England
David Fisher
Ron Weinberger
Michael Kavanagh
11
11
11
11
11
11
10
10
10
11
4
4
4
4
4
3
1
1
1
1
1
–
4
4
4
4
4
3
1
1
1
1
1
1
1
1
NANOSONICS 2016 Annual Report | Page 18
Nanosonics 2015 Annual Report | Page 18
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 2016 and to the date of this report, the Company issued a total of 13,023,646 (2015: 19,087,064)
new ordinary shares in Nanosonics Limited as detailed below. No amount was unpaid on any of the shares issued.
Shares issued
Shares issued on redemption of convertible notes
Share options exercised under Share Option Plans
Total new shares issued during the year and to the date of this report
Number of shares issued
12,299,726
723,920
13,023,646
As at 30 June 2016, there were 295,934,536 (2015: 282,910,890) ordinary shares in Nanosonics Limited on issue. At the date of
this report, there were 295,934,536 shares on issue. Further information on issued shares is provided in the Contributed equity
and the Share-based compensation note to the financial statements.
Share options granted
During the financial year and to the date of this report, the Company granted under the terms and conditions of the Company’s
Employee Share Option Plan, for no consideration 1,446,710 (2015: 1,413,303) unquoted Performance Rights over unissued
ordinary shares in Nanosonics Limited . Further information on the grants is in section 5 of the Remuneration report on pages
38 to 43 and in the Share-based payments note to the financial statements.
Shares under option
At the date of this report, there were 4,446,833 unissued ordinary shares of Nanosonics Limited under option as detailed below.
As at 30 June 2016, there were 4,446,833 (2015: 5,694,023) unissued ordinary shares of Nanosonics Limited under option.
Further information on the options is provided in the Share-based payments 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 2016 and to the date of this report
Number of shares under option
4,416,833
30,000
4,446,833
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.
NANOSONICS 2016 Annual Report | Page 19
Directors’ report (continued)
Remuneration report – audited
Table of contents
Section
Title
Description
1
2
3
4
5
6
7
Introduction
Remuneration
governance
Non-executive
Director
remuneration
Executive
remuneration
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
governance 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.
Employee share
scheme information
Provides detail regarding the Company’s employee equity plans including that information
required by the Corporation Act and applicable accounting standards.
Employment
agreements
Provides details regarding the contractual arrangements between the Company and the
executives whose remuneration details are disclosed.
Key Management
Personnel
transactions
Provides details of loans and other transactions with Key Management Personnel and their
related parties.
1.0 Introduction
Nanosonics is a rapidly growing medical technology company with operations in a number of countries and 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. At the completion of the 2016 Financial Year, the Board obtained advice from Egan Associates
Pty Ltd in a review of fees, which were last reviewed in the 2014 Financial Year.
The Board believes that Nanosonics’ approach to executive 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 KMP of Nanosonics Limited (Nanosonics) during
the financial year ended 30 June 2016 (2016 Financial Year).
NANOSONICS 2016 Annual Report | Page 20
1.2 Key Management Personnel
Key Management Personnel (KMP) 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 KMP as at year
end are set out in the table below.
Name
Title (at year end)
Non-executive Directors
Maurie Stang
Chairman
Change
Full year
Member, Audit and Risk Committee
Member, Remuneration Committee
Member, Nomination Committee
Appointed as Chairman on 20 July 2016
Member, R&D and Innovation Committee
Richard England
Director
Full year
Chairman, Audit and Risk Committee
Chairman, Remuneration Committee
Retired on 20 July 2016
Chairman, Nomination Committee
Retired as Chairman on 20 July 2016
David Fisher
Director
Full year
Member, Audit and Risk Committee
Member, Remuneration Committee
Member, Nomination Committee
Chairman, R&D and Innovation Committee
Steven Sargent
Director
Appointed on 6 July 2016
Chairman, Remuneration Committee
Appointed on 20 July 2016
Member, Nomination Committee
Appointed on 20 July 2016
Executive Directors
Michael Kavanagh
Ron Weinberger
Executive KMP
McGregor Grant
Chief Executive Officer (CEO) and President,
Managing Director
Full year
Member, R&D and Innovation Committee
Director and President, Technology
Development/Commercialisation
Member, R&D and Innovation Committee
Chief Financial Officer (CFO) and
Company Secretary
Gerard Putt
Chief Operations Officer
Full year
Full year
Full year
NANOSONICS 2016 Annual Report | Page 21
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 during the 2016 Financial Year were Richard England, Maurie Stang and David Fisher.
The role and responsibilities of the Remuneration Committee are 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.
• 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
The Remuneration Committee operates under the delegated authority of the Board.
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 2016 Annual Report | Page 22
Further information on the Remuneration Committee’s role, responsibilities and membership is contained in the Corporate
Governance Statement. The Remuneration Committee Charter and the Corporate Governance Statement 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 2016, 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 FY2016
Service Provided
Remuneration Consultant for the
purposes of the Corporations Act 2001
John Egan, Remuneration Consultant,
Egan Associates Pty Limited
Review of remuneration of Non-
executive Directors, Long Term Incentive
(LTI) and Employee Share Scheme (ESS)
advisory services
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?
No.
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?
Egan Associates Pty Limited – Remuneration services $Nil;
Other services – $10,710
The Company made the following arrangements:
• The Company has implemented protocols to govern the procedure for procuring
advice relating to KMP remuneration. The protocols contain 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 must agree to adhere to the protocol procedures and
is required to advise the Remuneration Committee whether or not they had been
subjected to undue influence and must provide a Statement of Independence.
The Board is satisfied that the processes are appropriate. No remuneration
recommendation has been provided this year.
NANOSONICS 2016 Annual Report | Page 23
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.
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 2016 is within
the aggregate amount approved at a general meeting of the Company on 19 September 2006 of
$500,000 a year. It is the Board’s intention to seek approval to increase the fee pool to provide for
further renewal and expansion.
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
Details
Board fees per annum1
Board Chairman fee
Board Non-executive Director fee
Board Committee Chairman fee
$170,000
$85,000
$15,000
Post-employment benefits
Superannuation
Other benefits
Equity instruments
Other fees/benefits
Superannuation contributions are included in the Board fees and are made at a rate of 9.5% of
base fee (up to the Government’s prescribed maximum contributions limit) which satisfies the
Company’s statutory superannuation contributions.
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. Following a review of Non-executive Director fees, the Board fees were implemented effective 1 July 2016. Previously, the Board Chairman’s fee was $145,000, the Board Non-executive
Director fee was $80,000 and there was no separate Board Committee Chairman fee.
NANOSONICS 2016 Annual Report | Page 24
3.3 Non-executive Director total remuneration
Maurie Stang
Richard England
David Fisher
Steven Sargent1
Total
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Fees
($)
Superannuation
($)
132,420
132,420
73,059
73,059
73,059
73,059
–
–
278,538
278,538
12,580
12,580
6,941
6,941
6,941
6,941
–
–
26,462
26,462
Total
($)
145,000
145,000
80,000
80,000
80,000
80,000
–
–
305,000
305,000
1. Mr Sargent was appointed as a Non-executive Director on 6 July 2016. No remuneration was paid to Mr Sargent in respect of the 2016 Financial Year.
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.
NANOSONICS 2016 Annual Report | Page 25
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.
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 awarded if the
Company exceeds the performance objectives set by the Board.
Total Target Remuneration (TTR)
NANOSONICS 2016 Annual Report | Page 26
4.2 Remuneration mix and timing of receipt
4.2.1 Remuneration mix
Position
CEO and President
Senior Executives (Executive KMP)
TFR (Cash)
STI (Cash and Equity)
LTI (Equity)
100%
100%
50% of Base Salary
60% of Base Salary
30% of Base Salary
30% 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 may be 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.
NANOSONICS 2016 Annual Report | Page 27
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 role, 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 Profit Before Tax (PBT)
target complemented by the achievement of individual performance goals.
The weighting between the PBT target and individual performance goals varies across the leadership team
and management with PBT having a weighting from 60% to 20% and individual performance goals from 40%
to 80%.
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.
Achieving the PBT target is generally required before STI awards are approved. Any anomalies or
discretionary elements are approved and validated by the Board.
Rewarding performance
The actual STI awards for executive KMP in 2016 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 2016 Annual Report | Page 28
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 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
LTI allocation
Grants are made each year after shareholder approval to issue securities to Directors has been obtained at the
relevant AGM.
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 Performance Conditions
including internal (Revenue) and external (relative Total Shareholder Return (TSR)).
4.4.2.1 CEO and President Long Term Incentives
Details of the vesting conditions associated with the Performance Rights granted to the CEO and President in respect of the
2015 and 2013 Long Term Incentive Schemes are summarised below.
CEO and President 2015
Long Term Incentive
Scheme (2015 LTIS)
2018 Performance Conditions
Ranking of TSR vs. 2015 LTIS Comparator Group1 Ranking of TSR vs. 2015 LTIS Comparator Group 21
Tranche 1: 50% of total Performance Rights granted
Tranche 2: 50% of total Performance Rights granted
Performance
% of Performance
Rights to vest2
Performance
% of Performance Rights
to vest2
< 50th percentile
0%
< 50th percentile
0%
50th to 75th percentile
30% to 100% pro-rata
50th to 75th percentile
30% to 100% pro-rata
At 75th percentile
100%
At 75th percentile
100%
1. TSR measurement period is 20 August 2015 to the date of the release of Nanosonics’ FY18 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 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 2016 Annual Report | Page 29
Directors’ report (continued)
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 was made to Mr Kavanagh in respect of the 2014 LTIS.
CEO and President 2013
Long Term Incentive
Scheme (2013 LTIS)
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 vest3
Revenue in Financial
Year 2016
% of Performance Rights
to vest3
< 50th percentile
0%
<$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
0%
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 vest3
Revenue in Financial Year
2017
% of Performance Rights
to vest3
<50th percentile
0%
<$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
0%
25%
50%
75%
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.
$49.5 million
100%
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 2016 Annual Report | Page 30
4.4.2.2 Other Executive KMP Long Term Incentives
Details of the vesting conditions associated with the Performance Rights granted to other Executive KMP in respect of the 2015,
2014 and 2013 Long Term Incentive Schemes are summarised below.
Other Executive KMP
2015 Long Term Incentive
Scheme (2015 LTIS)
2018 Performance Conditions
Ranking of TSR vs. 2013 LTIS Comparator Group1 Ranking of TSR vs. 2015 LTIS Comparator Group 21
Tranche 1: 50% of total Performance Rights granted
Tranche 2: 50% of total Performance Rights granted
Performance
% of Performance
Rights to vest2
Revenue in Financial
Year 2016
% of Performance Rights
to vest2
< 50th percentile
0%
< 50th percentile
0%
50th to 75th percentile
30% to 100% pro-rata
50th to 75th percentile
30% to 100% pro-rata
At 75th percentile
100%
At 75th percentile
100%
1. TSR measurement period is 20 August 2015 to the date of the release of Nanosonics’ FY18 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
2014 Long Term Incentive
Scheme (2014 LTIS)
2017 Performance Conditions
Ranking of TSR vs. 2014 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 vest2
Revenue in Financial
Year 2017
% of Performance Rights
to vest2
<50th percentile
0%
<$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
0%
25%
50%
75%
1. TSR measurement period is 8 November 2013 to the date of the release of Nanosonics’ FY17 financial statements.
$49.5 million
100%
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.
NANOSONICS 2016 Annual Report | Page 31
Directors’ report (continued)
Other Executive KMP
2013 Long Term Incentive
Scheme (2013 LTIS)
2016 Performance Conditions
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 vest2
Revenue in Financial
Year 2016
% of Performance Rights
to vest2
<50th percentile
0%
<$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
0%
25%
50%
75%
1. TSR measurement period is 8 November 2013 to the date of the release of Nanosonics’ FY16 financial statements.
$36.7 million
100%
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.
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 operates 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.
NANOSONICS 2016 Annual Report | Page 32
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 achieving
sustainable growth of the business and the creation of shareholder value in the short, medium and long term.
4.6.1 Short Term Incentives
Executive KMP STI opportunity and actual 2016 STI awarded are set out in the table below:
Executive KMP
Position
Michael Kavanagh
CEO/President,
Managing Director
Maximum
STI % of
2016 TFR1
STI
awarded
as a % of
potential1
Cash STI
award in
2016 ($)2
Deferred
equity STI
award ($)3
%
Forfeited4
46.4%
100.0%
112,923
112,923
–
Ron Weinberger
President, Technology Development/
Commercialisation
25.0%
95.0%
44,175
44,175
McGregor Grant
CFO/Company Secretary
Gerard Putt
Chief Operations Officer
27.3%
29.8%
98.0%
97.5%
46,414
46,415
37,848
37,849
5.0%
2.0%
2.5%
1. Relates to STI % both cash and deferred equity opportunity. The deferred equity will be awarded in the following year.
2. These amounts were finally determined on 2 August 2016 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 and relate to individual performance goals.
Short Term Incentives have been accrued in respect of the 2016 financial year because the performance conditions set by
the Board have been met. The Board considers that the performance and accomplishments of the organisation for the 2016
Financial Year well exceeded the Board’s expectation. Accordingly, the Executive KMP achieved at or close to the maximum of
their annual incentive opportunity.
NANOSONICS 2016 Annual Report | Page 33
Directors’ report (continued)
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 (50%)
Revenue targets under the 2013 and 2014 LTI grants were as follows:
Year/Vesting %
2016
2017
25%
$25.7M
$30.9M
50%
$29.1M
$36.4M
75%
$32.7M
$42.6M
100%
$36.7M
$49.5M
Nanosonics’ revenue for the financial years ended 30 June, 2013, 2014, 2015 and 2016 is set out below.
Financial year
Revenue $’000
2016
2015
2014
2013
42,796
22,214
21,492
14,899
The revenue target under the 2013 LTIS has been achieved at 100%. In respect of the 2014 LTIS, Nanosonics would have to
achieve an increase in revenue (2016 base year) of 16% for 100% of the 2014 LTI to vest. If these increases are achieved the
Board believes an appropriate balance of results and benefit will result.
NANOSONICS 2016 Annual Report | Page 34
Relative Total Shareholder Return (50%)
The relative TSR for the 2013 LTI and 2014 LTI awards measures NAN’s TSR against a selected group of comparator
companies, as summarised below:
ACG
ACL
ACR
ADO
AHZ
ANP
AVH
AVX
BLT
BNO
CDY
CIR
CMP
COH
CSL
CUV
ELX
AtCor Medical
Alchemia Limited
Acrux Limited
Anteo Diagnostics
Allied Health Ltd
Antisense Therapeutics Ltd
Avita Medical Ltd
Avexa Limited
Benitec Biopharma Ltd
Bionomics Limited
Cellmid Limited
Circadian Technologies Ltd
Compumedics Limited
Cochlear Limited
CSL Limited
GID
GTG
IDT
IPD
IVX
LCT
MSB
MVP
MYX
NEU
OIL
OSP
PAB
PBT
POH
Gi Dynamics, Inc
Genetic Technologies Ltd
IDT Australia Limited
Impedimed Limited
Invion Ltd
Living Cell Technologies Ltd
Mesoblast Ltd
PXS
PYC
QRX
RMD
RVA
SOM
SPL
Pharmaxis Ltd
Phylogica Ltd
Qrxpharma Ltd
ResMed Inc.
Reva Medical, Inc
SomnoMed Limited
Starpharma Holdings Ltd
Medical Developments International Ltd
SRX
Sirtex Medical Ltd
Mayne Pharma Group Ltd
Neuren Pharmaceuticals Ltd
TIS
UBI
Tissue Therapies Ltd
Universal Biosensors
Optiscan Imaging
UCM
Uscom Limited
VLA
Viralytics Ltd
Osprey Med Inc
Patrys Limited
Prana Biotechnology Limited
Phosphagenics Limited
Clinuvel Pharmaceuticals Ltd
PRR
Prima Biomed Ltd
Ellex Medical Lasers Limited
PVA
Psivida Corp
The relative TSR for the 2015 LTI award measures NAN’s TSR against two selected comparator groups, as summarised below:
2015 LTIS comparator group 1
3DM
ACG
AHZ
ALT
AMT
ANN
AXP
AZV
CLV
CMP
COH
CYC
3D Medical Limited
ELX
Ellex Medical Lasers Limited
OSP
Osprey Medical Inc.
AtCor Medical Holdings Limited
FPH
Fisher & Paykel Healthcare Corporation
RHT
Resonance Health Ltd.
Admedus Limited
Analytica Ltd.
Allegra Orthopaedics Limited
Ansell Ltd.
AirXpanders, Inc.
Azure Healthcare Limited
Clover Corporation Limited
Compumedics Ltd.
Cochlear Ltd.
Cyclopharm Limited
GID
IMI
IPD
ISN
ITD
LBT
MCT
MGZ
MLA
OIL
GI Dynamics, Inc.
IM Medical Ltd.
ImpediMed Limited
iSonea Limited
ITL Ltd.
RMD
ResMed Inc.
RVA
SBN
SDI
REVA Medical, Inc.
Sun Biomedical Limited
SDI Limited
SOM
SomnoMed Limited
LBT Innovations Limited
TSXV:SV
Simavita Limited
Metalicity Limited
Medigard Limited
Medical Australia Limited
Optiscan Imaging Ltd.
UBI
UCM
UNS
Universal Biosensors Inc.
Uscom Limited
Unilife Corporation
NANOSONICS 2016 Annual Report | Page 35
Directors’ report (continued)
2015 LTIS comparator group 2
The 2015 LTIS Comparator Group 2 is comprised of companies included in the S&P/ASX 300, but not in the S&P/ASX 100 Index
and excludes companies in the following sectors:
• Materials (primarily resource companies);
• Energy;
• Utilities;
• Industrials;
• Telecommunications; and
• Consumer indexes.
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. The cost of preparing an interim TSR performance
measure against the actual peer group outweighs the benefit of this disclosure in the Board’s opinion.
4.7 Executive remuneration tables
Fixed remuneration
Variable remuneration
Total
Long-term
Total
Short-term
compensation
Total
Equity
Proportion
of total
remuneration
Performance
related
Short-term
Non-
Salary and
monetary
Other long
Year
fees
($)
benefits
Other
Superannuation
term benefits
($)
($)
($)
($)
Cash bonus3
($)
($)
Options and
performance
rights4
($)
($)
($)
%
Executive
Directors
Michael
Kavanagh
2016
430,845
2015
395,477
–
–
Ron Weinberger
2016
309,529
11,180
2015
279,001
25,710
McGregor Grant1
Gerard Putt2
Total
Total
2016
283,031
2015
292,652
2016
212,549
2015
234,375
–
–
–
–
2016
1,235,954
11,180
2015
1,201,505
25,710
–
–
–
–
37
–
264
–
301
–
19,308
37,107
487,260
112,923
580,863
693,786
1,181,046
18,783
31,863
446,123
68,467
439,823
508,290
954,413
20,917
29,964
371,590
46,500
205,181
251,681
623,271
18,783
32,336
355,830
38,750
109,982
148,732
504,562
19,308
44,640
347,016
47,361
174,250
221,611
568,627
18,783
23,906
335,341
38,318
101,273
139,591
474,932
19,308
28,592
260,713
38,818
141,255
180,073
440,786
18,783
33,196
286,354
31,255
72,661
103,916
390,270
78,841
140,303
1,466,579
245,602
1,101,549
1,347,151
2,813,730
75,132
121,301
1,423,648
176,790
723,739
900,529
2,324,177
59%
53%
40%
29%
39%
26%
41%
25%
48%
38%
1. Mr Grant joined the Company on 28 April 2011 and in connection with his appointment he was granted 1,000,000 options, which vested in 4 tranches with service conditions completed
in 2015. These options were exercised in 2015.
2. Mr Putt joined the Company on 27 April 2011 and in connection with his appointment he was granted 400,000 options, which vested in 4 tranches with service conditions completed in
2015. These options were exercised in 2015.
3. The cash bonus is for the performance during the respective financial year based the criteria set out in Section 4.4.1. 2015 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.
4. The amount disclosed is the amount of the fair value of the options and performance rights recognised as an expense in each reporting period. It also covers both the performance rights
issued under the LTIS program as well as the deferred STI. The ability to exercise the options and rights are subject to vesting conditions. The fair values of the options and performance
rights that are subject to non-market performance conditions or service 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.
NANOSONICS 2016 Annual Report | Page 36
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.
Fixed remuneration and cash
incentive received
Fixed
remuneration
($)1
Incentives
($)2
Year
Past at-risk
remuneration
received
Value of
performance
rights
($)3
Actual
remuneration
received
during year
Future at risk remuneration
received during year
STI (deferred
as equity)
($)4
LTI (Equity)
granted
($)4
($)
Michael Kavanagh
2016
471,000
108,467
96,465
675,932
75,696
260,671
2015
429,999
65,305
–
495,304
121,231
–
Ron Weinberger
2016
348,622
38,750
72,533
459,905
42,842
89,450
2015
354,494
49,104
–
403,598
91,155
154,371
McGregor Grant
2016
335,087
38,318
52,810
426,215
42,364
91,108
Gerard Putt
Total
2015
2016
2015
2016
2015
325,329
35,751
136,666
497,746
66,368
110,664
254,944
31,255
39,220
325,419
34,556
74,674
266,735
26,551
54,666
347,952
49,289
91,314
1,409,653
216,790
261,028
1,887,471
195,458
515,903
1,376,557
176,711
191,332
1,744,600
328,043
356,349
1. Base salary, superannuation, non-monetary, and other cash benefits received during the year (excludes annual leave and long service leave accrual).
2. STI received as cash in respect of the previous Financial Year. The incentive paid to the CEO and President in 2016 includes a payment of $40,000 that was made at the discretion of the
Board in respect of the 2015 Financial Year.
3. Intrinsic value at vesting date of options and performance rights issued in previous periods that vested during the year.
4. 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).
NANOSONICS 2016 Annual Report | Page 37
Directors’ report (continued)
5.0 Employee Share Scheme information
1. This section provides:
2. A description of the Employee Share Schemes (ESS) Nanosonics uses to provide equity rewards to Nanosonics employees.
3. Disclosures required in relation to ESS grants provided to KMP.
4. Disclosures required about ESS instruments that Nanosonics has issued.
5. Disclosures required in relation to Nanosonics’ shares and other ESS instruments held by KMP.
5.1 Employee Share Schemes operated by Nanosonics
Type of
Instruments
Ordinary Shares
Plan Name
Nanosonics Deferred Employee
Share Plan (DESP)
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
Purpose
Details
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,
1,277,719 shares (from the exercise
of ESOP options) have been issued
to the Plan. As at the date of this
report 1,010,585 shares remain
outstanding.
No grants to date have been made
under the EESP.
Since the ESOP was last approved,
5,128,537 options have been issued,
3,107,719 options exercised, and
2,219,853 options lapsed. As at the
date of this report 4,253,250 options
remain outstanding.
Since the GSOP was last approved,
no options have been issued,
735,000 options exercised and
50,000 options lapsed. There have
been no new issues. As at the date
of this report 30,000 options remain
outstanding.
NANOSONICS 2016 Annual Report | Page 38
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 2016 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
Number
lapsed/
Expiry
Exercise
Number
vested
during
during
the
Number
vested to
forfeited
during
%
lapsed/
Balance at
Intrinsic
value at
year end
date
granted
the year
year
date
the year
forfeited
year end
($)
2017
2018
2019
Description
Grant
date
Michael
Kavanagh
2015 LTIS Tranche 1
Jan-16
30-Sep-18
2015 LTIS Tranche 2
Jan-16
30-Sep-18
2015 Deferred STI
Nov-15
01-Oct-16
2014 Deferred STI
Mar-15
01-Oct-15
2013 LTIS Tranche 1
Nov-13
30-Sep-16
2013 LTIS Tranche 2
Nov-13
30-Sep-16
price
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
2013 LTIS Tranche 3
Nov-13
30-Sep-17
$0.00
375,000
2013 LTIS Tranche 4
Nov-13
30-Sep-17
2015 LTIS Tranche 1
Jan-16
30-Sep-18
2015 LTIS Tranche 2
Jan-16
30-Sep-18
2015 Deferred STI
Nov-15
01-Oct-16
2014 Deferred STI
Mar-15
01-Oct-15
2014 LTIS Tranche 1
Mar-15
30-Sep-17
2014 LTIS Tranche 2
Mar-15
30-Sep-17
2013 LTIS Tranche 1
Nov-13
30-Sep-16
2013 LTIS Tranche 2
Nov-13
30-Sep-16
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Ron
Weinberger
McGregor
Grant
2015 LTIS Tranche 1
Jan-16
30-Sep-18
2015 LTIS Tranche 2
Jan-16
30-Sep-18
2015 Deferred STI
Nov-15
01-Oct-16
2014 Deferred STI
Mar-15
01-Oct-15
2014 LTIS Tranche 1
Mar-15
30-Sep-17
2014 LTIS Tranche 2
Mar-15
30-Sep-17
2013 LTIS Tranche 1
Mar-14
30-Sep-16
2013 LTIS Tranche 2
Mar-14
30-Sep-16
2012 LTIS1
Aug-13
30-Sep-15
2015 LTIS Tranche 1
Jan-16
30-Sep-18
2015 LTIS Tranche 2
Jan-16
30-Sep-18
2015 Deferred STI
Nov-15
01-Oct-16
Gerard Putt
2014 Deferred STI
Mar-15
01-Oct-15
2014 LTIS Tranche 1
Mar-15
30-Sep-17
2014 LTIS Tranche 2
Mar-15
30-Sep-17
2013 LTIS Tranche 1
Mar-14
30-Sep-16
2013 LTIS Tranche 2
Mar-14
30-Sep-16
2012 LTIS1
Aug-13
30-Sep-15
$0.00
119,898
103,441
103,441
48,061
-
-
-
70,479
70,479
100%
70,479
52,994
52,994
100%
52,994
375,000
375,000
375,000
35,496
35,496
27,201
50,276
50,275
67,409
67,409
36,154
36,154
26,898
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,584
38,584
100%
38,584
-
-
-
-
-
36,041
36,041
47,888
47,889
145,307
29,632
29,633
21,940
-
-
-
-
-
-
-
-
-
-
-
-
-
28,655
28,655
100%
28,655
29,739
29,739
39,514
39,515
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145,307
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
119,898
100%
103,441
103,441
35,496
35,496
36,154
36,154
29,632
29,633
103,441
103,441
48,061
-
226,536
226,536
105,254
-
48,061
375,000
821,250
375,000
375,000
821,250
375,000
375,000
821,250
375,000
821,250
375,000
375,000
35,496
35,496
27,201
-
50,276
50,275
67,409
67,409
-
36,154
36,154
26,898
-
36,041
36,041
47,888
47,889
-
29,632
29,633
21,940
-
29,739
29,739
39,514
39,515
-
77,736
77,736
59,570
-
110,104
110,102
147,626
147,626
-
79,177
79,177
58,907
-
78,930
78,930
104,875
104,877
-
64,894
64,896
48,049
-
65,128
65,128
86,536
86,538
-
27,201
67,409
67,409
26,898
47,888
47,889
21,940
39,514
39,515
50,276
50,275
36,041
36,041
29,739
29,739
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
2012 LTIS1
Nov-12
30-Sep-15
$0.00
1,220,000
- 1,220,000
100%
1. The performance conditions set out in the 2012 LTIS were not met. Accordingly, these performance rights did not vest and were forfeited in July 2015.
NANOSONICS 2016 Annual Report | Page 39
Directors’ report (continued)
5.2.2 Exercise of options granted as remuneration
During the financial year, the following shares were issued on the exercise of options and performance rights previously granted
as part of remuneration to KMP:
Number of shares
Amount paid per share ($)
Total amount paid ($)
Intrinsic value1 ($)
Michael Kavanagh
Ron Weinberger
McGregor Grant
Gerard Putt
Total
70,479
52,994
38,584
28,655
190,712
–
–
–
–
–
–
–
–
–
–
96,465
72,533
52,810
39,220
261,028
1. The intrinsic value of the shares is calculated as the market price of the shares of the company on the ASX as at close of trading on the date the options were exercised and the shares
were issued after deducting the price paid to exercise the option; or the 5-day volume weighted average price of the shares on the vesting date of zero-priced performance rights.
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 KMP 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($)2 Number Value ($)2
Number
Value ($)1
1,570,479
1,280,169
254,943
336,367
70,479
96,465
-
-
1,754,943
1,495,305
1,508,363
1,019,614
98,193
132,291
52,994
72,533 1,220,000
671,000
333,562
389,751
351,750
358,934
99,206
133,472
38,584
52,810
145,307
113,339
267,065
312,698
Michael
Kavanagh
Ron
Weinberger
McGregor
Grant
Gerard Putt
287,060
290,696
81,205
109,229
28,655
39,220
119,898
93,520
219,712
257,116
Total
3,717,652
2,949,413
533,547
711,359
190,712
261,028 1,485,205
877,859 2,575,282
2,454,870
1. The ‘fair value’ of options granted in the year is the fair value of the options calculated at grant date and derived applying the valuation methodology prescribed under IFRS-2. The total
value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period.
2. The value of options exercised and forfeited during the year is calculated as the market price of shares of the company on the ASX as at close of trading on the date the options were
exercised or forfeited after deducting the price paid or payable to exercise the option.
NANOSONICS 2016 Annual Report | Page 40
5.3 Fair value of share-based compensation
The following factors and assumptions were used in determining the fair value on grant date of options and performance rights
granted to directors and KMP under ESOP which were unexpired on 30 June 2016, including those granted during the period:
Option/
performance
rights
description
2013 LTIS
Tranche 1
– CEO
2013 LTIS
Tranche 2
– CEO
2013 LTIS
Tranche 3
– CEO
2013 LTIS
Tranche 4
– CEO
Vesting
conditions
Grant
date
Expiry
date
Share price
at grant
date($)
Exercise
price ($)
Valuation
model
Estimated
volatility
Risk free
interest rate
Fair value
of option($)
Relative TSR
performance and
service
FY16
Revenue and
service
Relative TSR
performance and
service
FY17 Revenue
and service
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
2013 LTIS
Tranche 1
– Other KMP
Relative TSR
performance and
service
2013 LTIS
Tranche 2
– Other KMP
FY16
Revenue and
service
2014 LTIS
Tranche 1
– Other KMP
Relative TSR
performance and
service
Mar-15 30-Sep-17
1.72
2014 LTIS
Tranche 2
– Other KMP
2015
Deferred STI
FY17
Revenue and
service
Mar-15 30-Sep-17
1.72
Service
Nov-15
01-Oct-16
1.58
2015 LTIS
Tranche 1
– CEO & KMP
Relative TSR
performance and
service
2015 LTIS
Tranche 2
– CEO & KMP
Relative TSR
performance and
service
Jan-16 30-Sep-18
1.67
Jan-16 30-Sep-18
1.67
–
–
–
–
–
Monte
Carlo
45.00%
1.88%
1.36
Binomial
45.00%
1.88%
1.71
Binomial
49.58%
2.11%
1.58
Monte
Carlo
Monte
Carlo
37.50%
2.00%
1.46
37.50%
2.00%
1.06
NANOSONICS 2016 Annual Report | Page 41
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 2016
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
22,599,701
128,301
503,940
220,479
104,994
633,584
128,751
–
–
–
1,754,943
333,562
267,065
219,712
49,493,345
280,979
1,103,629
4,326,174
960,438
1,972,421
763,134
1. Includes the number of Nanosonics shares issued to executives under the DESP.
2. The intrinsic value of Nanosonics shares calculated as at the closing NAN price on 30 June 2016 times the number of shares.
3. The intrinsic value of options calculated as at the closing NAN price on 30 June 2016 less the applicable exercise price times the number of options.
Equity interests as at the
date of this report
Non-Executive Directors
Maurie Stang
Richard England
David Fisher
Steven Sargent
Executive Directors
Michael Kavanagh
Ron Weinberger
Other Executive KMP
McGregor Grant
Gerard Putt
Nanosonics Limited
ordinary shares1
Options over Nanosonics
Limited ordinary shares
22,599,701
128,301
503,940
66,000
220,479
104,994
633,584
128,751
–
–
–
–
1,754,943
333,562
267,065
219,712
1. Includes the number of Nanosonics shares issued to executives under the DESP
Refer to Section 4.5.2 regarding Securities Trading Restrictions.
NANOSONICS 2016 Annual Report | Page 42
5.5 KMP Share movement
The numbers of shares in the Company held during the financial year by KMP, including their personally-related parties,
are set out below.
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
Non-Executive Directors
Maurie Stang
Richard England
David Fisher
Executive Directors
Michael Kavanagh
Ron Weinberger
Other Executive KMP
McGregor Grant1
Gerard Putt1
25,099,701
128,301
953,940
150,000
52,000
645,578
100,096
–
–
–
70,479
52,994
38,584
28,655
(2,500,000)
22,599,701
–
(450,000)
–
–
(50,578)
–
128,301
503,940
220,479
104,994
633,584
128,751
1. This includes shareholding of a close family member of the KMP.
NANOSONICS 2016 Annual Report | Page 43
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
$520,000 p.a., inclusive of superannuation and reviewed annually.
Short-term Incentive
50% of Base Salary.
Long-term Incentive
60% of Base Salary. LTI arrangements in respect of 2013, 2014 and 2015 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 Mr Kavanagh with 9 months written notice.
Resignation
On resignation, unless the Board determines otherwise:
• All unvested STI or LTI benefits are forfeited.
• 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.
• 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.
• Carrying-on or becoming in any way involved in any trade or business that is in competition with
Nanosonics.
NANOSONICS 2016 Annual Report | Page 44
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.
• 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.
• 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.
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.
NANOSONICS 2016 Annual Report | Page 45
Directors’ report (continued)
7.0 Key Management Personnel transaction
7.1 Loans to KMP and their related parties
During the financial year and to the date of this report, the Group made no loans to directors and other KMP and none were
outstanding as at 30 June 2016 (2015: Nil).
7.2 Other transactions with KMP
Certain directors and KMP, or their personally-related entities (Related Parties), 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 2015 and 2016 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.
Related Party
Related entity
Maurie Stang
Gryphon Capital Pty Ltd
Maurie Stang
Ramlist Pty Ltd
Maurie Stang
Regional Healthcare Group Pty Ltd
Transactions
Director fees
Rent of premises
Products purchased, services received and
products sold
Richard England
Angleterre Pty Ltd and Domkirke Pty Ltd
Director fees
The following transactions occurred with entities controlled by Related Parties:
Sale of products and services to Related Parties
1,821,765
1,748,033
Purchases of goods and services from Related Parties
Rent of premises and equipment from Related Parties and make good payments
210,697
210,079
344,923
177,093
The following balances are outstanding at the end of the reporting period in relation to transactions with Related Parties:
2016
$
2015
$
Current trade receivables (supply of goods and services)
Current trade payables (purchases of goods and services)
2016
$
639,133
–
2015
$
501,246
3,743
NANOSONICS 2016 Annual Report | Page 46
Indemnifying officers or auditor
During the financial year, the Company paid insurance premiums to insure the directors and secretary and KMP 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 Instrument 2016/191. The Company
is an entity to which that Instrument 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.
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.
NANOSONICS 2016 Annual Report | Page 47
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 50 of this report.
Auditor
UHY Haines Norton continues in office as auditor in accordance with section 327 of the Corporations Act 2001.
Corporate Governance
The Company’s Corporate Governance Statement and ASX Appendix 4G are released to ASX on the same day the Annual
Report is released, and the Corporate Governance Statement and Corporate Governance Manual can be found on the
Company’s website at http://www.nanosonics.com.au/Investor-Centre/Corporate-Governance.
This report, which includes the review of operations (on pages 6 to 11) and the Information on the directors, company
secretaries and senior management (on pages 15 to 16), is made and signed in accordance with a resolution of directors,
pursuant to section 298 (2)(a) of the Corporations Act 2001, on 17 August 2016.
Richard England
Director
Sydney
17 August 2016
NANOSONICS 2016 Annual Report | Page 48
Contents of the financial statements
For the year ended 30 June 2016
Auditor’s independence declaration
Financial statements
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
1. General accounting policies
1.1 Reporting entity
1.2 Basis of preparation
2. Performance for the year
2.1 Segment information
2.2 Individually significant items
2.3 Other income
2.4 Earnings per share
2.5 Dividends
3. Income taxes
3.1 Income tax expense
3.2 Deferred taxes
4. Employee benefits
4.1 Staffing costs
4.2 Employee benefit liabilities
4.3 Share based payments
5. Financial assets and financial liabilities
5.1 Cash and cash equivalents
5.2 Trade and other receivables
5.3 Derivative financial instruments – foreign currency forward contracts
5.4 Trade and other payables
5.5 Borrowings
6. Operating assets and liabilities
6.1 Inventories
6.2 Property, plant and equipment
6.3 Intangible assets
6.4 Provisions
7. Financial risk management
8. Capital structure
8.1 Capital and reserves
8.2 Capital management
9. Other notes
9.1 Commitments
9.2 Related party transactions
9.3 Controlled entities
9.4 Parent entity information
9.5 Remuneration of auditors
9.6 Changes in accounting policies
9.7 New standards and interpretations not yet adopted
9.8 Events occurring after the reporting period
Directors’ declaration
Independent auditor’s report to the members
50
51
52
53
54
55
55
55
55
57
57
58
58
59
60
60
60
60
61
61
61
62
66
66
68
68
69
69
70
70
71
72
73
74
79
79
80
81
81
81
83
83
84
84
84
84
85
86
NANOSONICS 2016 Annual Report | Page 49
Auditor’s independence declaration
Level 11 | 1 York Street | Sydney | NSW | 2000
GPO Box 4137 | Sydney | NSW | 2001
t: +61 2 9256 6600 | f: +61 2 9256 6611
sydney@uhyhn.com.au
www.uhyhnsydney.com.au
Auditor's Independence Declaration under section 307C of the Corporations Act 2001
To the Directors of Nanosonics Limited
As auditor for the audit of Nanosonics Limited for the year ended 30 June 2016, I declare that, to the
best of my knowledge and belief, there have been:
(a) no contraventions of the independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Nanosonics Limited and the entities it controlled during the period.
Mark Nicholaeff
Partner
Sydney
17 August 2016
UHY Haines Norton
Chartered Accountants
An association of independent fi rms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting fi rms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
Passion beyond numbers
NANOSONICS 2016 Annual Report | Page 50
Consolidated statement of profit or loss
and other comprehensive income
For the year ended 30 June 2016
Notes
2.1
2.3
3.1
Sale of goods and services
Cost of sales
Gross profit
Selling and general expenses
Administration expenses
Research and development expenses
Other income
Results from operating activities
Finance income – interest
Finance expense – borrowing costs
Net finance income
Operating income/(loss) before income tax
Income tax benefit/(expense)
Net income/(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/(loss) for the period attributable to
owners of the parent entity
Earnings/(loss) per share for losses attributable to ordinary
shareholders of the company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
2.4 (a)
2.4 (b)
The notes on pages 55 to 84 form an integral part of these consolidated financial statements.
2016
$’000
42,796
(10,630)
32,166
(17,943)
(7,418)
(7,297)
133
(359)
1,098
(603)
495
136
(14)
122
205
–
205
205
327
Cents
0.04
0.04
2015
$’000
22,214
(6,901)
15,313
(11,947)
(6,567)
(4,902)
2,308
(5,795)
928
(598)
330
(5,465)
5
(5,460)
14
–
14
14
(5,446)
Cents
(2.03)
(2.03)
NANOSONICS 2016 Annual Report | Page 51
Consolidated statement of financial position
As at 30 June 2016
Notes
2016
$’000
2015
$’000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Prepayments and 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
LIABILITIES
Current liabilities
Trade and other payables
Deferred revenue
Employee benefit liabilities
Provisions
Borrowings
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred revenue
Employee benefit liabilities
Provisions
Borrowings
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Option premium on convertible notes
Reserves
Accumulated losses
Total equity
5.1
5.2
6.1
5.3
6.2
6.3
5.4
4.2
6.4
5.5
5.4
4.2
6.4
5.5
8.1(a)
5.3(b)
48,841
7,734
6,935
35
1,050
64,595
3,304
260
10
3,574
68,169
4,617
989
2,238
643
395
8,882
252
747
205
70
1,349
2,623
11,505
56,664
112,698
–
7,346
(63,380)
56,664
45,724
3,871
6,209
–
636
56,440
3,568
207
150
3,925
60,365
2,725
443
1,823
1,498
8,700
15,189
238
–
181
70
11
500
15,689
44,676
103,059
376
4,743
(63,502)
44,676
The notes on pages 55 to 84 form an integral part of these consolidated financial statements.
NANOSONICS 2016 Annual Report | Page 52
Consolidated statement of changes in equity
For the year ended 30 June 2016
Contributed
equity
Note 8.1(a)
$’000
Option
premium on
convertible
note
Note 5.3(b)
$’000
At 30 June 2014
74,410
376
Share-based
payments
$’000
3,671
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 2015
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
–
–
–
28,000
(962)
1,611
103,059
–
–
–
9,601
(28)
66
At 30 June 2016
112,698
–
–
–
–
–
–
376
–
–
–
(376)
–
–
–
–
–
–
–
–
1,038
4,709
–
–
–
–
–
2,398
7,107
Reserves
Foreign
currency
translation
$’000
20
–
14
14
–
–
–
34
–
205
205
–
–
–
239
Total
reserves
Accumulated
losses
Total
equity
$’000
3,691
–
14
14
–
–
1,038
4,743
–
205
205
–
–
2,398
7,346
$’000
(58,042)
(5,460)
$’000
20,435
(5,460)
–
14
(5,460)
(5,446)
–
–
–
28,000
(962)
2,649
(63,502)
44,676
122
-
122
–
–
–
122
205
327
9,225
(28)
2,464
(63,380)
56,664
The notes on pages 55 to 84 form an integral part of these consolidated financial statements.
NANOSONICS 2016 Annual Report | Page 53
Consolidated statement of cash flows
For the year ended 30 June 2016
Notes
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Receipts from government grants
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes refunded/(paid)
Net cash provided by/(used in) operating activities
5.1(b)
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of shares
Share issue costs
Proceeds from exercise of options
Proceeds from borrowings
Repayments of borrowings
Interest paid on borrowings
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash 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
5.1(a)
The notes on pages 55 to 84 form an integral part of these consolidated financial statements.
2016
$’000
41,243
120
(39,138)
1,004
(5)
3,224
(1,087)
(217)
23
(1,281)
66
(27)
–
2,048
(322)
(71)
1,694
3,637
45,724
(520)
48,841
2015
$’000
26,873
119
(30,265)
837
15
(2,421)
(2,135)
(176)
–
(2,311)
28,000
(962)
1,611
–
(8)
–
28,641
23,909
21,233
582
45,724
NANOSONICS 2016 Annual Report | Page 54
Notes to the financial statements
For the year ended 30 June 2016
1. General accounting policies
This section sets out the Company’s accounting policies that relate to the financial statements as a whole. Where an accounting
policy is specific to one note, the policy is described in the note to which it relates.
1.1 Reporting entity
Nanosonics Limited (the Company or Parent Entity) is a publicly listed company, limited by shares, incorporated and domiciled
in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2016 comprise the
Company and its subsidiaries (together referred to as Nanosonics, the Group or the Consolidated Entity).
Nanosonics Limited is a for-profit entity for the purpose of preparing the financial statements. A description of the nature of the
Group’s operations and its principal activities is included in the review of operations on pages 6 to 11 and in the Directors’ report
on page 17, both of which are not part of this financial report.
1.2 Basis of preparation
(a) Statement of Compliance
The Financial Report is a general purpose financial report which has been prepared in accordance with Australian Accounting
Standards (AASBs) and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001.
The consolidated financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
The Board of directors approved the consolidated financial statements on 17 August 2016.
(b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for financial assets and financial
liabilities including derivative instruments which are measured at fair value.
(c) Basis of consolidation
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. The
financial statements of the subsidiaries are included in the financial statements from the date the control commences until the
date that control ceases. Information on subsidiaries is contained in note 9.3 to the financial statements.
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.
(d) Functional and presentation currency
The consolidated financial statements are presented in Australian dollars (AUD), which is Nanosonics Limited’s
functional currency.
(e) Foreign currency
(i) Transactions and balances
Foreign currency transactions are translated into the respective functional currencies of the entities using the exchange rates
that approximate the actual exchange rates 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 consolidated 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 the profit and loss statement as part of the fair
value gain or loss.
(ii) Financial statements of foreign operations
The results and financial position of foreign operations are translated into the Company’s functional and 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 profit and loss 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
NANOSONICS 2016 Annual Report | Page 55
Notes to the financial statements (continued)
For the year ended 30 June 2016
• 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.
(f) Use of judgments and estimates
The preparation of financial statements in conformity with IFRS requires management to exercise judgment and make estimates
and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities,
revenues and expenses. 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 and in any
future periods affected.
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 included in the following notes:
Note 3.2
Recognition of deferred tax assets
Note 4.2
Employee benefit liabilities
Note 4.3
Share-based payments
Note 6.4
Provisions
Note 7
Financial risk management
(g) Changes to the presentation of the financial statements and notes to the financial statements
The presentation of income and expenses shown in the consolidated statement of profit or loss and other comprehensive
income has been changed from using a classification based on the nature of the income and expense items to a classification
based on business function as it is considered that this provides information that is more relevant to the readers. The
consolidated statement of profit or loss under the previous report presentation using a classification based on the nature of
income and expense items is shown below:
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
Borrowing costs
Operating income/(loss) before income tax
Income tax benefit/(expense)
Net income/(loss) after income tax expense
attributable to owners of the parent entity
NANOSONICS 2016 Annual Report | Page 56
2016
$’000
42,796
(10,630)
32,166
1,231
20,098
474
349
2,981
2,826
2,707
3,223
32,658
603
136
(14)
122
2015
$’000
22,214
(6,901)
15,313
3,236
13,906
342
272
1,479
2,885
1,421
3,111
23,416
598
(5,465)
5
(5,460)
Further, to make the financial statements and notes easier to understand, changes have been made to the location and wording
used to describe certain accounting policies within the notes, certain sections have been reordered and immaterial disclosures
removed. In applying materiality to financial statements, consideration was given to both the nature and amount of each item.
(h) 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 from sale of goods 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 sale of services are recognised when services have been provided to the customers and where there are no
continuing unfulfilled obligations. Revenue from service contracts are recognised as services are rendered over the service
period, typically over one year.
(iii) Deferred revenue
Unearned service revenue is deferred and recognised as a liability in the consolidated statement of financial position.
Deferred revenue expected to be realised within twelve months after the reporting period is classified as current.
(iv) Interest income
Interest income is recognised on a time proportion basis using the effective interest method.
(i) 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) Rounding
The Company is of a kind referred to in ASIC Instrument 2016/191 issued in 2016 and in accordance with that Instrument, all
financial information presented in AUD has been rounded to the nearest one thousand dollars ($’000), unless otherwise stated.
2. Performance for the year
2.1 Segment information
(i) Operating segment
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. Accordingly, the Group’s
consolidated total assets is the total reportable assets of the operating segment.
(ii) 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.
NANOSONICS 2016 Annual Report | Page 57
(iii) Major customers
The Group has a number of customers to which it provides products and services. The most significant customer accounts
for 55.2% (2015: 73.8%) of external revenue. The next most significant customer accounts for 8.0% of external revenue
(2015: 7.9%).
(iv) Geographical information
Geographically, the Group operates in the global markets. Australia is the home country of the parent entity. Revenues are
allocated based on the country in which the customer is located. Revenue from external customers by geographical location is
detailed below.
North America
Australia and New Zealand
Europe and other countries
Total revenue
2016
$’000
39,029
2,544
1,223
42,796
2015
$’000
17,663
2,282
2,269
22,214
For the purpose of this note, non-current assets 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. The analysis of non-current
assets is detailed below:
North America
Australia and New Zealand
Europe and other countries
Total assets
2.2 Individually significant items
The profit/(loss) from ordinary activities before income tax includes:
Depreciation, amortisation and impairment
Research and development (R&D) costs
Rental expenses relating to operating leases
Bad debts provision
Inventories provision/write off
Loss on disposal of fixed assets
Unrealised (gain)/loss on foreign currency forward contracts
Realised loss on foreign currency forward contracts
Net foreign exchange losses/(gains)
2016
$’000
248
3,303
23
3,574
2016
$’000
1,322
7,297
895
9
195
4
(35)
24
541
2015
$’000
127
3,768
30
3,925
2015
$’000
1,063
4,902
1,116
1
412
120
–
496
(988)
2.3 Other income
Other income, including government grants, is recognised on a systematic basis over the period necessary to match it with
related costs for which it is intended to compensate. If the costs have already been incurred, the amount is recognised in the
period the entitlement is confirmed.
NANOSONICS 2016 Annual Report | Page 58
Notes to the financial statements (continued)For the year ended 30 June 2016 Government grants
Net foreign exchange gain on foreign currency forward contracts
Net foreign exchange gains
Other income
Total other income
2016
$’000
120
11
–
2
133
2015
$’000
119
–
988
1,201
2,308
Government grants comprise receipt of payments under the Export Market Development Grant scheme. There were no
unfulfilled conditions or other contingencies attaching to these grants. The Group did not benefit directly from any other form of
government assistance.
Previous period other income included reimbursement of cost by a distributor of $1,200,000. The related costs were included in
selling and general expenses.
2.4 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.
(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.
(a) Basic earnings/(loss) per share
Basic loss attributable to the ordinary equity holders of the company
(b) Diluted earnings/(loss) per share
Diluted earnings/(loss) attributable to the ordinary equity holders of the company
(c) Earnings/(losses) used in calculating EPS
Net earnings/(losses) after income tax expense attributable to shareholders
(d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
Adjustments for calculation of diluted earnings per share:
Options and performance rights unvested
Convertible notes
Weighted average number of ordinary shares and potential ordinary shares used as
the denominator in calculating diluted earnings per share
2016
Cents
0.04
0.04
2016
$’000
122
2015
Cents
(2.03)
(2.03)
2015
$’000
(5,460)
2016
Number
2015
Number
285,619,275
269,533,917
3,972,299
–
–¹
–¹
289,591,574
269,533,9171
1. Options and performance rights granted under the ESOP and the GSOP and the Convertible notes are considered to be potential ordinary shares and have been excluded
from the calculation of diluted loss per share in 2015 as the effect would have been anti-dilutive. These options and performance rights and convertible notes dilute basic
earnings per share in 2016.
NANOSONICS 2016 Annual Report | Page 59
2.5 Dividends
No dividends were proposed, declared or paid during the financial year and to the date of this report (2015: Nil).
3. Income taxes
Nanosonics Limited and its wholly-owned Australian resident entity, Saban Ventures Pty Limited, are part of a tax consolidated
group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-
consolidated group is Nanosonics Limited.
3.1 Income tax expense
The income tax expense or benefit for the period is the tax payable on or benefit attributable to 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. Current and any deferred tax utilised are recognised in the
consolidated statement of profit or loss except to the extent that they relate to items recognised directly in other comprehensive
income or equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax
payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the
reporting date.
Reconciliation of income tax expense to prima facie tax payable
Operating profit/(loss) from ordinary activities
The prima facie income tax (expense)/benefit applicable to the operating profit/(loss)
is calculated at the Australian tax rate of 30% (2015: 30%)
Tax effect of amounts in calculating taxable income
Other deductible items
Research and development expense
Other non-deductible expenses
Other temporary differences
Effect of tax rate in foreign jurisdictions
Sub-total
Utilisation/(derecognition) of deferred tax assets
Non-refundable current R&D tax offset
Adjustment in respect of current income tax of previous years
Income tax (expense)/ benefit
2016
$’000
136
(41)
257
(2,189)
(723)
(315)
(320)
(3,331)
419
2,919
(21)
(14)
2015
$’000
(5,465)
1,640
4
(1,471)
(316)
(45)
(166)
(354)
(1,616)
1,961
14
5
3.2 Deferred taxes
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.
Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the reporting 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 and tax offsets only if
it is probable that future taxable amounts will be available to utilise these temporary difference, losses and offsets, 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.
Significant management judgment 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. These are reviewed at each
reporting date.
Deferred tax asset and liabilities, if recognised, are classified as non-current assets and liabilities.
NANOSONICS 2016 Annual Report | Page 60
Notes to the financial statements (continued)For the year ended 30 June 2016
Unrecognised deferred tax assets include:
Estimated tax losses carried forward (a)
Non-refundable R&D tax offset (b)
(a) Estimated tax losses carried forward:
Beginning of the year unrecognised tax losses carried forward
Adjustment in respect of unrecognised tax losses carried forward from previous year
Australian carried forward tax losses utilised
Tax losses for the year in foreign jurisdictions
Estimated tax losses carried forward at the end of the year
(b) Estimated non-refundable R&D tax offset:
Beginning of the year non-refundable R&D tax offset brought forward
Arose during the year
Utilised during the year
Adjustment in respect of non-refundable R&D tax offset carried forward
from previous year
Estimated non-refundable R&D tax offset at the end of the year
4. Employee benefits
4.1 Staffing costs
Staffing costs included in the profit and loss statement consist of:
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
4.2 Employee benefit liabilities
(i) Wages, salaries and annual leave
2016
$’000
18,077
–
18,077
56,423
(354)
(7,392)
8,812
57,489
2016
$’000
3,841
7,297
(11,085)
(53)
–
2016
$’000
15,713
1,515
129
3,282
2,398
(2,939)
20,098
2015
$’000
17,061
1,536
18,597
54,137
(859)
–
3,145
56,423
2015
$’000
3,438
4,902
(3,727)
(772)
3,841
2015
$’000
11,944
1,182
96
2,520
1,038
(2,874)
13,906
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
NANOSONICS 2016 Annual Report | Page 61
employee benefits. The liability is calculated on remuneration rates as at the reporting date including related on-costs such as
workers compensation insurance and payroll tax.
(ii) 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 corporate bonds with terms to maturity
that match as closely as possible, the estimated future cash outflows.
The current portion of this liability includes the unconditional entitlements to long service leave where employees
have completed the required period of service and also those where employees are entitled to pro-rata payments in
certain circumstances.
(iii) 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.
(iv) 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.
Employee benefit liabilities as of the reporting date:
Provision for annual leave
Provision for long service leave
Provision for bonuses
Total employee benefit liabilities
2016
Non-
current
Current
Total
Current
$’000
$’000
$’000
$’000
956
272
1,010
2,238
–
205
–
205
956
477
1,010
2,443
856
195
772
1,823
2015
Non-
current
$’000
–
181
–
181
Total
$’000
856
376
772
2,004
4.3 Share based payments
Share-based compensation benefits are equity-settled transactions provided to employees via the Nanosonics share-based
compensation plans.
(i) Share 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 at the 2013 Annual General Meeting on 7 November 2013. Under the plans,
participants are granted options for no consideration. Options may only be exercised 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.
Employee Share Option Plan
The ESOP 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. 1,446,710 share options were issued under the ESOP
during the financial year (2015: 1,413,303 issued).
General Share Option Plan
The GSOP 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 (2015: Nil issued).
NANOSONICS 2016 Annual Report | Page 62
Notes to the financial statements (continued)For the year ended 30 June 2016 (ii) 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 (iii) of this note.
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.
(iii) 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 and
lapsed during
the year
Unexpired
options as at
30 June
ESOP
GSOP
2016
Number of
options and
rights
WAEP
($)
2015
Number of
options and
rights
2016
Number
of options
and rights
2015
Number of
options and
rights
WAEP
($)
WAEP
($)
All Option Plans
2016
2015
Number of
options and
rights
Number of
options and
rights
WAEP
($)
5,537,356
1,446,710
(597,253)
(2,133,563)
4,253,250
–
–
–
–
–
5,972,263
0.24
156,667
0.51
553,334
0.57
5,694,023
6,525,597
1,413,303
–
–
–
–
–
1,446,710
1,413,303
(1,770,769)
0.79
(126,667)
0.52
(346,667)
0.60
(723,920)
(2,117,436)
(77,441)
5,537,356
–
–
–
–
(50,000)
0.52
(2,133,563)
(127,441)
30,000
0.51
156,667
0.51
4,283,250
5,694,023
No options expired during the periods covered by the above table.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Option
Plan
Exercise
price
($)
Grant
date
Assessed
fair value at
grant date
($)
Expiry date
Number at
start of the
year
Number
granted
during the
year
Number
exercised
during the
year
Number
forfeited
during the
year
Number at
end of the
year
Number
vested and
exercisable at
end of year
30-Sep-15
1,220,000
–
(1,220,000)
–
–
30,000
30,000
ESOP
GSOP
GSOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
Total
0.00
0.51
0.52
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Nov-12
Nov-12
Dec-12
Aug-13
Nov-13
Nov-13
Nov-13
Nov-13
Mar-14
Mar-14
Jul-14
Mar-15
Mar-15
Mar-15
Nov-15
Jan-16
Jan-16
0.55
0.27
0.20
0.78
0.68
0.85
0.71
0.85
0.63
0.80
0.80
1.36
1.71
1.72
1.58
1.46
1.06
24-Nov-16
21-Nov-16
30-Sep-15
30-Sep-16
30-Sep-16
30-Sep-17
30-Sep-17
30-Sep-16
30-Sep-16
30-Jul-15
30-Sep-17
30-Sep-17
01-Oct-15
01-Oct-16
30-Sep-18
30-Sep-18
90,000
66,667
712,970
442,409
442,409
375,000
375,000
287,803
287,814
134,375
394,622
394,606
470,348
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(60,000)
(66,667)
–
–
–
–
–
–
–
–
–
(712,970)
–
–
–
–
(38,693)
(38,695)
–
–
442,409
442,409
375,000
375,000
249,110
249,119
(134,375)
–
–
–
–
(462,878)
–
–
–
(29,122)
(29,121)
(7,470)
(19,955)
(18,768)
(18,769)
365,500
365,485
–
387,942
500,631
500,645
–
–
–
407,897
519,399
519,414
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,694,023
1,446,710
(723,920)
(2,133,563)
4,283,250
30,000
NANOSONICS 2016 Annual Report | Page 63
(iv) Fair value of options and performance rights granted
The assessed fair value on the date options and performance rights were granted was independently determined using an
appropriate option valuation model that takes into account the exercise price, the term of the option, the impact of dilution,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free
interest rate for the term of the option.
The inputs used in the measurement of the fair values at the grant date are the following:
Exercise
price
($)
Grant
date
Expiry
date
Estimated share
price at grant
date
($)
Valuation
model
Expected
price
volatility
of the
company’s
shares
Expected
dividend
yield
Risk-free
interest
rate
Assessed
fair value at
grant date
($)
0.00
Nov-15
1-Oct-16
1.58
Binomial
49.58%
0%
2.11%
0.00
Jan-16 30-Sep-18
1.67 Monte Carlo
37.50%
0%
2.00%
0.00
Jan-16 30-Sep-18
1.67 Monte Carlo
37.50%
0%
2.00%
1.58
1.46
1.06
Option type Vesting Conditions
Granted during the year:
ESOP
ESOP
ESOP
Service condition until
exercise date
Relative TSR performance
and service
Relative TSR performance
and service
Granted in prior periods and unexpired at report date:
0.51
Nov-12 24-Nov-16
0.56
Binomial
54.96%
0%
2.71%
0.27
GSOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
Service condition until
first exercise date of each
tranche
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
Relative TSR performance
and service
0.00
Nov-13 30-Sep-16
0.85 Monte Carlo
45.00%
0%
3.00%
0.00
Nov-13 30-Sep-16
0.85
Binomial
45.00%
0%
3.00%
0.00
Nov-13 30-Sep-17
0.85 Monte Carlo
45.00%
0%
3.20%
0.00
Nov-13 30-Sep-17
0.85
Binomial
45.00%
0%
3.20%
0.00
Mar-14 30-Sep-16
0.80 Monte Carlo
45.00%
0%
2.68%
0.00
Mar-14 30-Sep-16
0.80
Binomial
45.00%
0%
2.68%
0.00
Mar-15 30-Sep-17
1.72
Binomial
45.00%
0%
1.88%
0.68
0.85
0.71
0.85
0.63
0.80
1.36
1.71
ESOP
FY17 Revenue and service
0.00
Mar-15 30-Sep-17
1.72 Monte Carlo
45.00%
0%
1.88%
(v) Recognition of expense of options and performance rights granted
ESOP
The fair value of options and performance rights granted under the ESOP is recognised as an employee expense with a
corresponding increase in equity, on a straight line monthly basis over the vesting period in which the performance and/or
service conditions are fulfilled after which the employees become unconditionally entitled to them. 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 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.
NANOSONICS 2016 Annual Report | Page 64
Notes to the financial statements (continued)For the year ended 30 June 2016 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.
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were as follows:
Options issued under ESOP
Options issued under GSOP
(vi) Employee share plans
2016
$’000
2,394
4
2,398
2015
$’000
1,025
13
1,038
The Company has two Employee Share Plans, being the Deferred Employee Share Plan (DESP) and the Exempt Employee
Share Plan (EESP).
The EESP and DESP were 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 DESP and the
EESP in accordance with the Corporations Act 2001.
a) Deferred Employee Share Plan
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.
b) Exempt Employee Share Plan
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.
c) Shares granted
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.
Recognition of expense of shares granted
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.
During the financial year there were no shares directly granted under the DESP (2015: Nil)
Share issued on the exercise of zero-priced performance rights 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.
NANOSONICS 2016 Annual Report | Page 65
Shares on issue under employee share plans
Number of Shares
2016
2015
2016
2015
2016
2015
DESP
EESP
All Share Plans
Employee Shares on issue as at 1 July
715,366
1,125,469
Granted during the year
–
–
Issued on exercise of zero-priced options during
the year
Issued on share purchase plan allotment during
the year
Withdrawn during the year
Forfeited during the year
597,253
6,769
–
–
(302,034)
(416,872)
–
–
Employee Shares on issue as at 30 June
1,010,585
715,366
–
–
–
–
–
–
–
–
–
–
–
–
–
–
715,366
1,125,469
–
–
597,253
6,769
–
–
(302,034)
(416,872)
–
–
1,010,585
715,366
5. Financial assets and financial liabilities
5.1 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.
(i) Cash and cash equivalents
Cash and cash equivalents at the reporting date as shown in the consolidated statements of cash flows and financial position
are as follows:
Cash at bank and on hand
Deposit on call
Short term deposits
Total cash and cash equivalents
2016
$’000
16,591
750
31,500
48,841
2015
$’000
1,886
2,138
41,700
45,724
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 7(a)(ii). The maximum exposure to credit risk at the reporting date
is the carrying amount of each class of cash and cash equivalents mentioned above.
NANOSONICS 2016 Annual Report | Page 66
Notes to the financial statements (continued)For the year ended 30 June 2016 (ii) Reconciliation of profit/(loss) after income tax to net cash inflow/(outflow) from operating activities
Operating profit/(loss) after income tax
Adjustments for:
Depreciation, amortisation, and impairment
Share based payments expense
Borrowing costs
Unrealised foreign exchange (gains)/losses
Loss on disposal of fixed assets
Changes in assets and liabilities
(Increase)/decrease in derivative financial instruments
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in other current assets
(Increase)/decrease in other non-current assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in deferred revenue
Increase/(decrese) in employee benefit liabilities
Increase /(decrease) in provisions
(Increase) / decrease in net current tax assets
Net cash provided by/(used in) operating activities
(iii) Credit standby arrangements unused
Facility limits:
Borrowing facilities
Guarantee facility
Facility remaining available:
Borrowing facilities
Guarantee facility
2016
$’000
122
1,322
2,398
603
896
4
(35)
(4,075)
(965)
(416)
140
2,286
1,334
456
(855)
9
3,224
2016
$’000
2,115
475
365
14
2015
$’000
(5,460)
1,063
1,038
598
121
120
–
1,873
(2,832)
(205)
(6)
343
134
290
493
9
(2,421)
2015
$’000
115
475
94
178
NANOSONICS 2016 Annual Report | Page 67
5.2 Trade and other receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are
presented as non-current assets. Trade receivables generally have 30 to 60 days credit terms and therefore are all classified
as current.
Due to the short-term nature of the receivables, their carrying amount is assumed to be the same as their fair value.
Information about the impairment of trade and other receivables, their credit quality and the group’s exposure to credit risk,
foreign currency risk and interest rate risk can be found in note 7.
Trade receivables net of allowance for impairment loss
GST/VAT receivable
Interest and other receivables
Total trade and other receivables
2016
$’000
7,092
286
356
7,734
2015
$’000
3,417
229
225
3,871
Further information relating to loans to related parties and key management personnel is set out in note 9.2.
5.3 Derivative financial instruments – foreign currency forward contracts
The Group uses derivative financial instruments (foreign currency forward 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 profit and loss 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 the profit and loss statement.
• 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 the profit and loss statement.
During the year, all foreign exchange forward contracts entered into by the Group do not satisfy the requirements for hedge
accounting (economic hedges).
The Group uses the following hierarchy 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.
All of the Group’s foreign exchange forward contracts were valued using market comparison technique (Level 2) and there were
no transfers between levels during the year. 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 2016, the Group holds foreign currency forward contracts carried at fair value of $35,000 (2015: Nil).
NANOSONICS 2016 Annual Report | Page 68
Notes to the financial statements (continued)For the year ended 30 June 2016 5.4 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. Amounts due to be settled within twelve months after the reporting period are classified as current.
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their
short-term nature.
Trade payables
Lease straight-lining liability
Other payables
Total trade and other payables
2016
Non-
current
$’000
–
252
–
252
Current
$’000
2,586
10
2,021
4,617
Total
$’000
2,586
262
2,021
4,869
Current
$’000
1,034
–
1,691
2,725
2015
Non-
current
$’000
–
238
–
238
Total
$’000
1,034
238
1,691
2,963
5.5 Borrowings
Loans and borrowing are recognised initially at fair value less attributable transaction costs. Subsequently loans and borrowings
are stated at amortised cost using the effective interest method. Amounts due to be settled within twelve months after the
reporting period are classified as current.
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.
Finance leases - secured (Note (a))
395
1,349
2016
Non-
current
$’000
Current
$’000
Total
$’000
1,744
Convertible notes - unsecured (Note (b))
Total borrowings
–
–
–
395
1,349
1,744
2015
Non-
current
$’000
11
–
11
Current
$’000
7
8,693
8,700
Total
$’000
18
8,693
8,711
(a) Finance leases
On 21 September 2015, the Company entered into a finance lease arrangement with its bank for the leasehold improvements
of its global corporate and manufacturing facility in Lane Cove, NSW, Australia for $2,048,000 repayable in fixed monthly
instalments for a period of 5 years at 4.92% per annum. This borrowing is secured by the leasehold improvements included in
Property, plant and equipment.
Finance lease and hire purchase liability at the end of the year is as follows:
Within one year
After one year but not more than 5 years
Total minimum lease payments
Less future finance charges
Present value of minimum lease payments
2016
2015
Minimum
payments
$000
Present value
of payments
$’000
Minimum
payments
$’000
Present value
of payments
$’000
472
1,460
1,932
188
1,744
395
1,349
1,744
–
1,744
8
11
19
1
18
7
11
18
-
18
The carrying value of the finance lease liability approximates its fair value since the interest payable on this borrowing is close to
current market rates.
NANOSONICS 2016 Annual Report | Page 69
(b) 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. The carrying value of the convertible note approximates its
fair value.
Interest related to the financial liability is recognised in the profit and loss statement. On conversion, the financial liability is
reclassified to equity and no gain or loss is recognised.
Face value of notes issued
Option premium on convertibles notes
Accumulated interest expense1
Liability
2016
$’000
–
–
–
–
–
2015
$’000
7,500
(376)
7,124
1,569
8,693
1. Interest expense is calculated by applying the effective interest rate of 7.364% to the liability component.
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 accrued 6% interest per annum on a simple
interest basis calculated on each anniversary of issue date and were able to be converted at any time up until the maturity date
at $0.75 per share, subject to certain adjustments. The noteholder elected to have all accrued interest form part of the face
value of the note.
On 20 April 2016, the noteholder exercised its right to redeem the convertible notes. As a result, 12, 299,726 shares were issued
on 28 April 2016 in accordance with the terms of the Convertible Note Deed Poll.
6. Operating assets and liabilities
6.1 Inventories
Inventories are measured at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring the
inventories and bringing them to their existing condition and location. In the case of manufactured inventory and work in
progress, cost includes materials, labour and an appropriate level of production overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and
selling, marketing and distribution expenses.
Raw materials and stores
Work in progress
Finished goods
Total inventories
NANOSONICS 2016 Annual Report | Page 70
2016
$’000
2,608
832
3,495
6,935
2015
$’000
2,822
831
2,556
6,209
Notes to the financial statements (continued)For the year ended 30 June 2016 Inventories recognised as an expense (cost of sales) during the year ended 30 June 2016 amounted to $9,796,000
(2015: $5,671,000).
Write-downs of inventories during the year ended 30 June 2016 amounted to $195,000 (2015:$412,000). The expense has been
included in selling and general expenses in the profit and loss statement.
6.2 Property, plant and equipment
(i) Owned assets
All property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. 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 profit and loss 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 profit
and loss statement.
(ii) Leased assets
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 and loss statement.
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
expensed on a straight-line basis over the term of the lease. Minimum lease payments include fixed rate increases.
(iii) Depreciation
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. Depreciation is expensed. The depreciation rates or useful lives used in the current and comparative years are as
follows: leasehold improvements over the lease term; and plant and equipment two to seven years.
The assets’ residual values, useful lives and depreciation methods are reviewed prospectively and adjusted, if appropriate, at
least annually.
(iv) Impairment
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Non-financial
assets, other than intangibles 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 its 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.
NANOSONICS 2016 Annual Report | Page 71
Total property, plant and equipment at net book value
Leasehold
improvements
$’000
Plant and
equipment
$’000
Capital work
in progress
$’000
Year ended 30 June 2015
Opening net book amount
Additions
Retirement and others
Impairment
Depreciation charge
Foreign currency translation effect (net)
Closing net book amount at 30 June 2015
At 30 June 2015
Cost
Impairment
Accumulated depreciation
Net book amount at 30 June 2015
Year ended 30 June 2016
Opening net book amount
Additions
Retirement and others
Impairment
Depreciation charge
Foreign currency translation effect (net)
Closing net book amount at 30 June 2016
At 30 June 2016
Cost or fair value
Impairment
Accumulated depreciation
Net book amount at 30 June 2016
6.3 Intangible assets
(i) Research and development
38
2,062
(4)
–
(64)
–
2,032
2,059
–
(27)
2,032
2,032
335
–
–
(378)
–
1,989
2,393
–
(404)
1,989
1,489
906
(149)
(92)
(801)
7
1,360
4,250
(92)
(2,798)
1,360
1,360
655
(105)
–
(785)
3
1,128
4,619
(9)
(3,482)
1,128
Total
$’000
1,641
3,030
(153)
(92)
(865)
7
114
62
–
–
–
–
176
3,568
176
–
–
176
176
14
–
–
–
(3)
187
187
–
–
187
6,485
(92)
(2,825)
3,568
3,568
1,004
(105)
–
(1,163)
–
3,304
7,199
(9)
(3,886)
3,304
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.
(ii) Patents and Trademarks
The costs of registering and protecting patents and trademarks are expensed as incurred.
(iii) ERP system and computer software
The expenditure incurred on the Enterprise Resource Planning (ERP) system and computer software and the costs necessary
for the implementation of the system are recognised as an intangible asset, to the extent Nanosonics controls future economic
benefits as a result of the costs incurred, and are stated at cost less accumulated amortisation. Costs include expenditure that
is directly attributable to the development and implementation of the system.
NANOSONICS 2016 Annual Report | Page 72
Notes to the financial statements (continued)For the year ended 30 June 2016
(iv) Amortisation
Amortisation is calculated to expense the cost of the intangible assets less its estimated residual values on a straight line basis
over their estimated useful lives. The estimated useful lives for the current and comparative years are as follows: development
costs five years and ERP system three years.
Amortisation is recognised in the profit and loss statement from the date the asset is available for use unless their lives are
indefinite. Intangible assets with an indefinite useful live are systematically tested for impairment annually.
(v) Impairment
Intangible assets are tested annually for impairment or more frequently if events or changes in circumstances indicate that they
might be impaired. No impairment of intangibles were assessed during the period (2015: Nil)
Year ended 30 June 2015
Opening net book amount
Additions
Amortisation
Closing net book amount at 30 June 2015
At 30 June 2015
Cost
Accumulated depreciation
Net book amount at 30 June 2015
Year ended 30 June 2016
Opening net book amount
Additions
Amortisation
Foreign currency translation effect (net)
Closing net book amount at 30 June 2016
At 30 June 2016
Cost or fair value
Accumulated depreciation
Net book amount at 30 June 2016
6.4 Provisions
(i) General
Development
costs
$’000
ERP and computer
software
$’000
–
–
–
–
201
(201)
–
–
–
–
–
–
201
(201)
–
137
176
(106)
207
1,055
(848)
207
207
217
(159)
(5)
260
1,267
(1,007)
260
Total
$’000
137
176
(106)
207
1,256
(1,049)
207
207
217
(159)
(5)
260
1,468
(1,208)
260
Provisions 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.
NANOSONICS 2016 Annual Report | Page 73
(ii) Provision for warranty
Provision for warranty related costs are made in respect of the Group’s estimated liability on all products sold or services
provided under warranty at the reporting 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.
(iii) Provision for make good
The Group has operating leases over its offices that require the premises to be returned to the lessor in their original condition.
The operating lease payments do not include an element for repairs or make good. A provision for make good lease costs
is recognised at the time it is determined that it is probable that such costs will be incurred in a future year, measured at
the expected cost of returning the asset to the lessor in its original condition. An offsetting asset of the same value is also
recognised and is classified in property, plant and equipment. This asset is amortised to the profit and loss statement over the
life of the lease.
(iv) Provision for onerous contracts
A provision for onerous contracts is recognised when expected benefits to be derived by the Group from a contract are lower
than the unavoidable cost of meeting contractual obligations. The provision is measured at the lower of the expected cost of
terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, The Group
recognises any impairment loss on the assets associated with the contract.
a. Provisions as at the reporting date follows:
Provision for warranty
Make good provision
Onerous lease
Total provisions
b. Movements in provisions
Carrying amount at start of year
Additional provision recognised
Amounts used during the year
Unused amount reversed during the year
Carrying amount at end of year
2016
2015
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
643
–
–
643
–
70
–
70
643
70
–
713
1,004
382
112
1,498
–
70
–
70
Provision for
warranty
$’000
Make good
provision
$’000
Onerous
Lease
$’000
1,004
383
(346)
(398)
643
452
–
(382)
–
70
112
–
(112)
–
–
Total
$’000
1,004
452
112
1,568
Total
$’000
1,568
383
(840)
(398)
713
7. Financial risk management
The Group is exposed to a variety of risks, including market risk (comprising foreign currency risk and interest rate risk), credit
risk and liquidity risk.
The Board of directors has overall responsibility for the Group’s risk management framework. Responsibility for the development
and implementation of controls to address risks is assigned to the Audit and Risk Committee. This responsibility is supported by
the development of standards, policies and procedures for the management of these risks.
NANOSONICS 2016 Annual Report | Page 74
Notes to the financial statements (continued)For the year ended 30 June 2016 (a) Market risk
Market risk is the risk that changes in market prices will affect the Group’s financial performance.
(i) Foreign exchange risk
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.
Exposure
The group’s exposure to foreign currency risk in the consolidated balance sheet at the end of the reporting period
mainly comprised:
2016
2015
USD
$’000
7,371
1,721
(784)
8,308
GBP
$’000
Euro
$’000
231
135
(14)
352
18
100
–
118
USD
$’000
391
651
(385)
657
GBP
$’000
Euro
$’000
209
200
(26)
383
–
100
(47)
53
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Total exposure
Sensitivity
The following table demonstrates the sensitivity to a reasonable possible change in the USD, EUR and GBP against the AUD,
with all other variables held constant.
2016
2015
Effect on
profit before
tax and other
comprehensive
income
$’000
Effect on
profit before
tax and other
comprehensive
income
£’000
Effect on
profit before
tax and other
comprehensive
income
€’000
Change in
EUR rate
Change in
GBP rate
641
(2,136)
149
(498)
3%
-6%
3%
-6%
32
(64)
13
(25)
3%
-6%
3%
-8%
2
(5)
2
(7)
Change in
USD rate
3%
-10%
3%
-10%
Profit is more sensitive to movements in the Australian dollar/US dollar exchange rates in 2016 than 2015 because of the
increased amount of US dollar denominated sales, trade receivables and bank balances. The sensitivity analysis above takes
into account foreign currency denominated intercompany receivables and payables which do not form part of a net investment
in foreign operations as although intercompany balances are eliminated in the consolidated balance sheet, the effect on profit or
loss of their revaluation is not fully eliminated. The group’s exposure to other foreign exchange movements is not material.
(ii) Interest rate risk
The Group’s main interest rate risk arises from the cash reserves in the operating bank accounts and short-term deposits,
which expose the group to cash flow interest rate risk.
NANOSONICS 2016 Annual Report | Page 75
The Group’s exposure to interest rate risk is noted below:
2016
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
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
Notes
Non-
interest
bearing
$’000
Total
$’000
5.1
5.2
5.3
5.4
5.5
17,341
31,500
–
–
–
–
17,341
0.11%
31,500
3.03%
–
–
–
–
–
395
395
5.01%
31,105
–
–
–
–
–
–
1,349
1,349
4.92%
(1,349)
–
–
–
–
–
–
–
–
–
–
–
48,841
7,734
7,734
35
35
7,769
56,610
–
–
4,869
–
4,869
–
4,869
1,744
6,613
–
2,900
49,997
Net financial assets (liabilities)
17,341
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
Notes
Non-
interest
bearing
$’000
Total
$’000
5.1
5.2
5.4
5.5
15,524
30,200
–
15,524
2.71%
–
–
–
–
15,524
–
30,200
3.09%
–
8,700
8,700
6.01%
21,500
–
–
–
–
–
11
11
8.09%
(11)
–
–
–
–
–
–
–
–
–
–
45,724
3,871
3,871
–
2,963
–
3,871
49,595
–
2,963
8,711
2,963
11,674
–
–
908
37,921
2015
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Weighted average interest rate
Financial liabilities
Trade and other payables
Borrowings
Total financial liabilities
Weighted average interest rate
Net financial assets (liabilities)
Sensitivity
The profit and loss statement is sensitive to higher/lower interest income from cash and cash equivalents as a result of changes
in interest rates.
NANOSONICS 2016 Annual Report | Page 76
Notes to the financial statements (continued)For the year ended 30 June 2016
Interest rates – increase by 25 basis points ( 25 bps)
Interest rates – decrease by 25 basis points (25 bps)
Impact on pre-tax profit
2016
$’000
118
(118)
2015
$’000
84
(84)
(b) Credit risk
Credit risk is the risk of financial loss to Nanosonics if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. Credit risk arises from cash and cash equivalents, favourable derivative financial instruments, deposits
with banks and financial institutions, and credit exposures to customers. The maximum exposure to credit risk as at the
reporting date is the carrying amount of the financial assets as described in note 5. The Company exposure to credit risk is
influenced mainly by the geographical location, the type and characteristics of individual customers.
Maximum exposure to credit risk for trade receivable by geographical region was as follows:
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
End-user customers
2016
$’000
5,617
872
603
7,092
2016
$’000
3,457
3,635
7,092
2015
$’000
2,247
629
541
3,417
2015
$’000
1,908
1,509
3,417
As of 30 June 2016, GE Healthcare Group and Regional Healthcare Group, combined, accounted for over 44% of the
trade receivables (2015: GE Healthcare Group and Regional Healthcare Group, combined, accounted for over 41% of the
trade receivables).
Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities.
(i) Risk management
Credit risk is managed on a group basis. The Group invests only in deposits and floating rate notes offered by Australia’s four
main banks.
Customer credit risk is managed subject to the Group’s established policy, procedures and control relating to credit risk
management. The Group performs credit assessments of its customers prior to entering into any sales agreements. The
Group utilises an external credit rating agency to assess the credit worthiness of its customers. In North America, outstanding
customer receivables are regularly monitored and are generally covered by credit insurance.
As a result, the Group believes that its accounts receivable credit risk exposure is mitigated and has not experienced significant
write-downs in its accounts receivable balances.
The credit risk arising from derivative financial instruments is not significant.
(ii) Credit quality
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information about counterparty default rates.
NANOSONICS 2016 Annual Report | Page 77
An analysis of the credit policy of trade receivables that are neither past due nor impaired as follows:
External financial ratings at least 1A from Dun & Bradstreet
Covered by credit insurance
Other customers:
Four or more years trading history with the Group
Less than four years of trading history with the Group
2016
$’000
2,163
1,834
554
51
4,602
2015
$’000
1,139
905
523
85
2,652
Impaired trade receivables
Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. The other
receivables are assessed collectively to determine whether there is objective evidence that an impairment has been incurred
but not yet been identified. For these receivables the estimated impairment losses are recognised in a separate provision for
impairment. The Group considers that there is evidence of impairment if any of the following indicators are present:
• significant financial difficulties of the debtor
• probability that the debtor will enter bankruptcy or financial reorganisation, and
• default or delinquency in payments.
Receivables for which an impairment provision was recognised are written off against the provision when there is no expectation
of recovering additional cash.
Impairment losses are recognised in the profit and loss statement within selling and general expenses. Subsequent recoveries
of amounts previously written off are credited against selling and general expenses.
As at 30 June 2016, trade receivables with a nominal value of $9,000 (2015: $5,000) were considered impaired.
The movement in provision for impairment in respect of trade and other receivables during the year was as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
Unused amount reversed
At 30 June
Past due but not impaired
2016
$’000
5
9
(5)
–
9
2015
$’000
5
1
–
(1)
5
As at 30 June 2016, trade receivables of $2,490,000 (2015: $765,000) were past due but not impaired. These relate to a number
of independent customers for whom there is no recent history of default.
The aging analysis of trade receivables is as follows:
Neither past due nor impaired
Past due but not impaired
< 30 days
30-60 days
>60 days
NANOSONICS 2016 Annual Report | Page 78
2016
$’000
4,602
829
793
868
7,092
2015
$’000
2,652
692
72
1
3,417
Notes to the financial statements (continued)For the year ended 30 June 2016
(c) 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.
At the end of the reporting period the Group held short term deposits of $31,500,000 (2015: $41,700,000) that are expected to
readily generate cash inflows for managing liquidity risk.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for
financial liabilities.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their
carrying balances as the impact of discounting is not significant.
Less than 3
months
$’000
3 to 12 months
$’000
1 to 5 years
$’000
Over 5 years
$’000
4,607
96
4,703
2,725
2
2,727
10
299
309
–
9,306
9,306
230
1,349
1,579
238
11
249
22
–
22
–
–
–
Total
$’000
4,869
1,744
6,613
2,963
9,319
12,282
2016
At 30 June 2016
Trade and other payables
Borrowings
Total financial liabilities
At 30 June 2015
Trade and other payables
Borrowings
Total financial liabilities
8. Capital structure
8.1 Capital and reserves
(a) 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.
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, are fully paid and the Company does not have a limited amount of authorised capital.
NANOSONICS 2016 Annual Report | Page 79
Movements in ordinary share capital
Opening balance 1 July 2014
Exercise of options - proceeds received
Shares issued under share placement and Share Purchase Plan
Less: Transaction costs arising on share issues
Balance 30 June 2015
Exercise of options - proceeds received
Shares issued on redemption of convertible notes
Less: Transaction costs arising on share issues
Balance 30 June 2016
(b) Reserves
Share-based payments reserve
Number of shares
263,823,826
2,117,436
16,969,628
282,910,890
–
282,910,890
723,920
12,299,726
295,934,536
–
295,934,536
$’000
74,410
1,611
28,000
104,021
(962)
103,059
66
9,601
112,726
(28)
112,698
The share-based payments reserve is used to recognise the grant date fair value of options and performance rights issued but
not exercised.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign subsidiaries are recognised in other comprehensive income as
described in note 1.2(e) and accumulated in a separate reserve within equity.
8.2 Capital management
The Board and 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. The Board and 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 2016 Annual Report | Page 80
Notes to the financial statements (continued)For the year ended 30 June 2016 9. Other notes
9.1 Commitments
Non-cancellable operating leases
The Group leases offices and warehouses under non-cancellable operating leases. The leases have varying terms, escalation
clauses and renewal rights. On renewal, the terms of the leases are renegotiated.
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Capital commitments
2016
$’000
802
3,293
161
4,256
2015
$’000
922
3,241
977
5,140
As at 30 June 2016, the Group had commitments to purchase plant and equipment of $129,000 (2015: $294,000).
These commitments are not recognised as liabilities as the relevant assets have not yet been received.
9.2 Related party transactions
Note 9.3 provides the information about the Group’s structure including the details of the subsidiaries and the parent entity.
(a) Directors and key management personnel compensation
Director fees
Short-term employee benefits
Long-term benefits
Termination benefits
Share based payments
Total directors and key management personnel compensation
Group and Company
2016
($)
278,538
1,493,037
245,606
–
1,101,549
3,118,730
2015
($)
278,538
1,404,005
222,895
–
723,739
2,629,177
Total compensation includes total remuneration for executive and non-executive
directors of the parent entity
2,109,317
1,763,975
Detailed remuneration disclosures are provided in the remuneration report on pages 20 to 46.
NANOSONICS 2016 Annual Report | Page 81
(b) Transactions with other related parties
Certain directors and Key Management Personnel, or their personally-related entities (Related Parties), hold positions in other
entities that result in them having control or significant influence over the financial or operating policies of those entities. Details
of the type of transactions that were entered into with Related Parties are as follows:
Related Party
Maurie Stang
Maurie Stang
Maurie Stang
Related entity
Gryphon Capital Pty Ltd
Ramlist Pty Ltd
Transactions
Director fees
Rent of premises
Regional Healthcare Group Pty Ltd
Products purchased, services received and products sold
Richard England
Angleterre Pty Ltd and Domkirke Pty Ltd
Director fees
The following transactions occurred with entities controlled by Related Parties:
Sale of products and services to Related Parties
Purchases of goods and services from Related Parties
Rent of premises and equipment from Related Parties and make good payments
2016
($)
1,821,765
210,697
210,079
2015
($)
1,748,033
344,923
177,093
(c) Outstanding balances arising from sales/purchases of goods and services
The following balances are outstanding at the end of the reporting period in relation to transactions with Related Parties:
Current trade receivables (supply of goods and services)
Current trade payables (purchases of goods and services)
2016
($)
639,133
–
2015
($)
501,246
3,743
There were no provisions for impaired receivables in relation to any outstanding balances from Related Parties (2015: Nil) and no
expense has been recognized during the period in respect of impaired receivables due from related parties.
(d) 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 2016 (2015: Nil).
(e) Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Outstanding balances are unsecured and are repayable in cash.
NANOSONICS 2016 Annual Report | Page 82
Notes to the financial statements (continued)For the year ended 30 June 2016 9.3 Controlled entities
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
Sales and distribution of Nanosonics’
products and provision of sales and
customer support services to Nanosonics
Limited in the USA
Country of
incorporation
Class of
shares
Germany
Ordinary
Equity holdings
2016
100%
2015
100%
Australia
Ordinary
100%
100%
USA
Ordinary
100%
100%
Nanosonics Europe Limited
Nanosonics UK Limited
Sales and distribution of Nanosonics’
products in Europe
Provision of sales and customer support
services in Europe
UK
UK
Ordinary
100%
100%
Ordinary
100%
100%
Nanosonics Canada, Inc.1
Sales and distribution of Nanosonics’
products and services in Canada
1 Nanosonics Canada, Inc. was incorporated in Canada on 7 January 2016.
Canada
Ordinary
100%
-
9.4 Parent entity information
As at and throughout the financial year ended 30 June 2016, the parent entity of the Group is Nanosonics Limited which is
based and listed in Australia. The individual financial statements for the parent entity show the following aggregate amounts:
(a) Summary financial information
Statement of financial position
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Share capital
Value of conversion rights - Convertible Notes
Share based payments reserve
Accumulated losses
Total equity
Profit/(loss) for the year
Total comprehensive income/(loss)
2016
$’000
78,227
81,764
7,267
8,891
112,697
–
6,953
(46,776)
72,874
12,539
12,539
2015
$’000
59,662
63,613
5,985
14,939
103,059
376
4,554
(59,315)
48,674
(1,319)
(1,319)
(b) Guarantees entered into by the parent entity
During the period, the parent entity provided assurances to its controlled entities, Nanosonics Europe GmbH, Nanosonics
Europe Limited and Nanosonics UK Limited that the intercompany debts will not be required to be repaid until such time as the
controlled entities have sufficient funds available. No other guarantees were provided during the year. (2015: Nil).
NANOSONICS 2016 Annual Report | Page 83
Notes to the financial statements (continued)
For the year ended 30 June 2016
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2016 or 30 June 2015.
(d) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2016, the parent entity had commitments to purchase plant and equipment of $129,000 (2015: $294,000).
These commitments are not recognised as liabilities as the relevant assets have not yet been received.
(e) Accounting policies
The accounting policies of the parent entity is consistent with the Group except for Investment in controlled entities which are
carried in the parent company financial statements at the lower of cost or recoverable amount.
9.5 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related
practices and non-related audit firms:
(a) UHY Haines Norton
Audit and other assurance services
Audit and review of financial reports
Total remuneration of UHY Haines Norton
(b) Network firms of UHY Haines Norton
Audit and other assurance services
Audit and review of financial reports
Tax compliance services
Total remuneration of network firms of UHY Haines Norton
Total auditors’ remuneration
2016
($)
82,500
82,500
2016
($)
16,300
2,547
18,847
101,347
2015
($)
59,200
59,200
2015
($)
–
–
–
59,200
9.6 Changes in accounting policies
There have been no changes to accounting standards impacting Nanosonics in the current financial year.
9.7 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for financial years beginning after 1 July
2016 and have not been applied in preparing these consolidated financial statements. Of the new standards, only the following
are expected to have an effect on the consolidated financial statements of the Group:
• AASB 9 Financial instruments, which becomes mandatory for Nanosonics’ 2019 consolidated financial statements.
• AASB 15 Revenue from contracts with customers, which becomes mandatory for Nanosonics’ 2019 consolidated
financial statements.
• AASB 16 Leases, which becomes mandatory for Nanosonics 2020 consolidated financial statements.
The Group has yet to undertake a detailed assessment of these new standards. At this stage, the Group is not able to estimate
the impact of the new rules on the Group’s financial statements. The Group will make more detailed assessments of the impact
over the next financial years.
9.8 Events occurring after the reporting period
No matters or circumstances have arisen since 30 June 2016 that have 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 2016 Annual Report | Page 84
Directors’ declaration
For the year ended 30 June 2016
In the directors’ opinion:
1. the financial statements and notes set out on pages 51 to 84 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 2016 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
17 August 2016
NANOSONICS 2016 Annual Report | Page 85
Independent auditor’s report to the members
Level 11 | 1 York Street | Sydney | NSW | 2000
GPO Box 4137 | Sydney | NSW | 2001
t: +61 2 9256 6600 | f: +61 2 9256 6611
sydney@uhyhn.com.au
www.uhyhnsydney.com.au
INDEPENDENT AUDITOR’S REPORT
To the Members of Nanosonics Limited
Report on the Financial Report
We have audited the accompanying financial report of Nanosonics Limited (the Company), which
comprises the consolidated statement of financial position as at 30 June 2016, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flows for the year then ended, notes comprising a
summary of significant accounting policies and other explanatory information, and the directors’
declaration of the consolidated entity comprising the Company and the entities it controlled at the
year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal controls as the directors determine are necessary to enable the preparation of
the financial report that is free from material misstatement, whether due to fraud or error.
In Note 1.2(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation
of Financial Statements, that the financial statements comply with International Financial Reporting
Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation of the financial report that gives a true and fair view in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as
well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
An association of independent fi rms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting fi rms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
Passion beyond numbers
NANOSONICS 2016 Annual Report | Page 86
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
Opinion
In our opinion:
(a) The financial report of Nanosonics Limited is in accordance with the Corporations Act 2001,
including:
i.
ii.
giving a true and fair view of the consolidated entity’s financial position as at 30
June 2016 and of its performance for the financial year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001; and
(b) The financial report also complies with International Financial Reporting Standards as
disclosed in Note 1.2(a).
Report on the Remuneration Report
We have audited the Remuneration Report included on pages 20 to 46 of the directors’ report for the
year ended 30 June 2016. The directors of the Company are responsible for the preparation and
presentation of the Remuneration Report in accordance with s300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Nanosonics Limited for the financial year ended 30 June
2016, complies with s 300A of the Corporations Act 2001.
Mark Nicholaeff
Partner
Sydney
17 August 2016
UHY Haines Norton
Chartered Accountants
An association of independent fi rms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting fi rms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
Passion beyond numbers
NANOSONICS 2016 Annual Report | Page 87
Shareholder information
The shareholder information set out below was applicable as at 8 August 2016.
A. Equity security holders
Twenty largest holders of quoted equity securities
Ordinary shares
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Mr Maurie Stang1
National Nominees Limited
Mr Bernard Stang
BNP Paribas Noms Pty Ltd
Mr Steve Kritzler
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
Asia Union Investments Pty Ltd
Dr Harry Hirschowitz
Australian Shareholder Nominees Pty Ltd
Avanteos Investments Limited <2349414 Hofbauer A/C>
Bennelong Resources Pty Limited
AET SFS Pty Ltd
Community Care Consulting Pty Ltd
Citicorp Nominees Pty Limited
CS Fourth Nominees Pty Limited
Larinda 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
Number of quoted
shares held
40,934,183
35,944,078
27,680,106
22,599,701
21,381,906
19,484,056
8,527,287
8,489,737
6,609,639
6,377,501
3,569,091
2,010,000
1,725,000
1,200,000
1,200,000
1,010,585
920,000
886,849
800,307
800,000
212,150,026
83,784,510
295,934,536
Percentage
13.83%
12.15%
9.35%
7.64%
7.23%
6.58%
2.88%
2.87%
2.23%
2.16%
1.21%
0.68%
0.58%
0.41%
0.41%
0.34%
0.31%
0.30%
0.27%
0.27%
71.69%
28.31%
100%
Number of options
over ordinary shares
Number of holders
General Share Options to take up unissued ordinary shares
Employee Share Options to take up unissued ordinary shares
Total options on issue
30,000
4,253,250
4,283,250
1
87
87
NANOSONICS 2016 Annual Report | Page 88
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
There were 208 holders of less than a marketable parcel of 183 ordinary shares
C. Substantial holders
Substantial holders in the Company are shown below:
JCP Investment Partners Ltd
Mr Maurie Stang1
Mr Bernard Stang
Allan Gray Australia Pty Ltd
1 Includes indirect holdings of 116,368 shares.
Quoted ordinary shares
Unquoted
options
1,593
2,351
1,073
1,481
134
6,632
26
33
-
17
11
87
Number of ordinary shares
Percentage
24,829,090
22,599,701
19,484,056
16,184,022
8.39%
7.64%
6.58%
5.47%
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.
NANOSONICS 2016 Annual Report | Page 89
Australian Accounting Standards Board
Annual General Meeting
IDN
IFRS
Integrated Delivery Network
International Financial Reporting Standards
American Institute of Ultrasound in Medicine
ISO 13485
Quality Management System for Medical Devices –
Requirements for Regulatory Purposes
Glossary
AASB
AGM
AIUM
AJOG
ANZ
APIC
ASIC
ASUM
ASX
CDC
CEO
CFO
Company or
Nanosonics
Date of this
report
DESP
EESP
EMS
EPS
ERP
ESOP
FCF
FDA
American Journal of Obstetrics Gynecology
Australia and New Zealand
Association for Professionals in Infection Control
and Epidemiology
Australian Securities and Investments Commission
Australasian Society for Ultrasound in Medicine
Australian Securities Exchange Limited
Centers for Disease Control and Prevention
Chief Executive Officer
Chief Financial Officer
Nanosonics Limited ABN 11 095 076 896
17 August 2016
Deferred Employee Share Plan
Exempt Employee Share Plan
Environmental Management System
Earnings Per Share
Enterprise Resource Planning
Employee Share Option Plan
Free Cash Flow
Food and Drug Administration
Fiscal Year
Year to 30 June
FY
Group
Financial year, eg. FY2016 is the financial year ended
30 June 2016
Nanosonics Limited and its wholly owned subsidiary
companies
GSOP
General Share Option Plan
trophon®
GST
HAI
HLD
HPV
IAS
IASB
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 papillomavirus
International Accounting Standards
International Accounting Standards Board
NANOSONICS 2016 Annual Report | Page 90
ISO 14001
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
Japanese Society for Ultrasound in Medicine
Key management personnel
Low Level Disinfection
Long Term Incentives
Long Term Incentive Scheme
JSUM
KMP
LLD
LTI
LTIS
NanoNebulant®
The biocide used in Nanosonics’ technological process
NED
NHS
OEM
PBT
Non-executive Director
National Health System
Original Equipment Manufacturer
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 2016
STI
TEC
TFR
TSR
TTR
Short Term Incentives
Total Employment Cost
Total Fixed Remuneration
Total Shareholder Return
Total Target Remuneration
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
UK
USA
VAT
United Kingdom
United States of America
Value Added Tax
WAEP
Weighted Average Exercise Price
Corporate directory and information for investors
Nanosonics Limited ABN 11 095 076 896 incorporated 14 November 2000
Directors
Maurie Stang
Richard England
David Fisher
Steven Sargent
Michael Kavanagh
Ron Weinberger
Company Secretaries
McGregor Grant
Robert Waring
Registered Office
14 Mars Road, Lane Cove
NSW 2066 Australia
Ph: +61 2 8063 1600
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
Dibbs Barker
Level 8, Angel Place
123 Pitt Street
Sydney NSW 2000 Australia
Shelston IP
Level 21, 60 Margaret Street
Sydney NSW 2000 Australia
Baker & McKenzie
AMP Centre
Level 27, 50 Bridge Street
Sydney NSW 2000 Australia
Bankers
Australia: Australia and New Zealand Banking Group
Limited, HSBC Bank Australia Limited and National
Australia Bank Limited
United Kingdom: HSBC Bank plc
Germany: Deutsche Bank AG
United States: HSBC Bank USA NA and PNC Financial
Services Group, Inc.
Stock Exchange Listings
Nanosonics Limited shares are listed on the
Australian Securities Exchange
ASX code: NAN
Industry Group: Healthcare Equipment & Services
2016 Annual General Meeting
The 2016 AGM of Nanosonics Limited will be held:
At 11.00am on 4th November 2016
Brisbane Room, Sofitel Sydney Wentworth
61-101 Phillip Street, Sydney NSW 2000
Website Address
www.nanosonics.com.au
NANOSONICS 2016 Annual Report | Page 91
Notes
Nanosonics Limited
14 Mars Road, Lane Cove
NSW 2066 Australia
T +61 2 8063 1600
E info@nanosonics.com.au
www.nanosonics.com.au
ABN 11 095 076 896