Annual Report
Overview
Who we are and our mission
Overview
We are Nanosonics (ASX: NAN). We have
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. Nanosonics is also
investing in research and development to deliver
a range of new innovations to address significant
unmet needs in the area of infection prevention.
Our mission is 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.
Nanosonics Annual Report 2017
Overview
Contents
Contents
Overview
Financial report
22
53
54
55
59
93
94
Directors’ report
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
100 Shareholder information
Directory
102
Corporate directory and
information for investors
103 Glossary
<
02
Who we are and
our mission
Financials snapshot
From the top
04
06
Chairman’s letter
CEO’s report
Regional highlights
10
12
14
ESG
15
North America
Europe
Asia Pacific
Environmental, social
and governance (ESG)
Product
16
17
Bios
18
20
‘trophon’ today for
a safer tomorrow
trophon® product suite
The Board and Company
Secretaries
Executive team
1
1
Overview
Financials snapshot
+58%
Sales
Total sales for the year were $67.5 million,
an increase of 58%, driven mainly by
continued strong adoption in North America
and growing uptake in the UK.
+56%
Gross profit
Gross profit increased 56% in line with the
increase in sales and reflecting changes
in the sales mix between distribution
channels and product categories.
$13.9m
Profit/(loss) before tax
Profit before tax was $13.9 million
or 21% of total sales, driven by strong
sales growth.
$15.1m
Free cash flow
m
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2013
2014
2015
2016
2017
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2013
2014
2015
2016
2017
The Company recorded its second full year
of positive free cash flow with a significant
increase to $15.1 million.
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2013
2014
2015
2016
2017
t
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2
Nanosonics Annual Report 2017
Overview
Financials snapshot
2009–2017
Results
2017
$’000
2016
$’000
2015
$’000
2014
$’000
2013
$’000
2012
$’000
2011
$’000
2010
$’000
2009
$’000
Revenue
Operating revenue
67,507
42,796
22,214
21,492
14,899
12,301
2,247
763
309
Cost of sales
Gross profit
Other income
(17,352)
(10,630)
(6,901)
(7,571)
(6,428)
(4,799)
(981)
(284)
(121)
50,155
32,166
15,313
13,921
8,471
7,502
1,266
479
188
Government grants received
–
120
119
1,666
1,498
150
780
13
2,189
1,709
–
–
–
–
161
150
–
–
Others
Expenses
Operating expenses (excluding
depreciation and amortisation)
(36,825)
(31,349)
(22,353)
(19,141)
(15,335)
(12,634)
(13,229)
(8,827)
(9,867)
EBITDA
14,110
950
(4,732)
(1,845)
(5,366)
(4,982)
(11,963)
(8,187)
(9,529)
Depreciation, amortisation
and impairment
EBIT
Interest income
Interest expense
(1,244)
(1,309)
(1,063)
(975)
(1,044)
(914)
(1,010)
(771)
(419)
12,866
(359)
(5,795)
(2,820)
(6,410)
(5,896)
(12,973)
(8,958)
(9,948)
1,063
1,098
928
739
1,192
586
1,052
785
1,194
(77)
(603)
(598)
(555)
(517)
–
–
–
–
Operating income/(loss) before tax
13,852
136
(5,465)
(2,636)
(5,735)
(5,310)
(11,921)
(8,173)
(8,754)
Net income tax benefit/(expense)
12,306
(14)
5
31
(33)
631
707
–
–
Operating income/(loss)
after tax
Cash Assets
26,158
122
(5,460)
(2,605)
(5,768)
(4,679)
(11,214)
(8,173)
(8,754)
Cash and cash equivalents
62,989
48,841
45,724
21,233
24,064
29,310
12,356
21,144
13,881
3
From the top
Chairman’s letter
Chairman’s
letter
On behalf of the Board of Directors,
I am pleased to present our
Nanosonics 2017 Annual Report.
The past year saw Nanosonics achieve a number of important
milestones in terms of its core trophon growth, the development
of its global market presence and, strategically, its new product
pipeline. During the year, sales increased 58% to $67.5 million,
driven by a 41% increase in the global installed base of trophon
units to over 14,100 and a rapidly growing annuity revenue stream
from our consumables portfolio.
The continued strong adoption of trophon technology has resulted in the
Company reporting a significant pre-tax profit of $13.9 million, with free cash
flow for the year of $15.1 million and a balance of $63.0 million of cash and cash
equivalents. The expansion and performance of the business over the last year
saw Nanosonics included in the S&P/ASX 200 from December 2016.
In North America, the Company’s “go deep and wide” marketing strategy
resulted in trophon now being adopted in multiple departments in more than
3,500 facilities. In addition, we now enjoy formal OEM partnerships with nearly
all the major ultrasound probe manufacturers who are actively recommending
and selling trophon devices to their customers. After the sale to an OEM,
Nanosonics is responsible for the ongoing training, service and, importantly,
consumables business. These initiatives have resulted in the installed base
in North America increasing to approximately 12,400 units. This figure represents
around 31% of the estimated 40,000 unit installed base potential in North America.
Nanosonics is now putting in place sales programs leveraging our installed base
of high profile adopters in the US market to drive further growth.
14,100+
INSTALLED
GLOBALLY
AND GROWING
+58%
SALES
INCREASE
THIS YEAR
$$
165+
PEOPLE IN
OUR TEAM
WORLD WIDE
4
Nanosonics Annual Report 2017 From the top
Chairman’s letter
“The past year saw Nanosonics achieve
a number of important milestones in terms
of its core trophon growth, the development
of its global market presence and, strategically,
its new product pipeline.”
Global market expansion continued with the start of Canada’s
direct sales operation and the signing of a distribution
agreement with Sakura Seiki, Japan’s leading infection
prevention company, for the introduction of trophon.
Distribution strategies in a number of countries in the Middle
East progressed and are expected to be finalised in early FY18.
Guidelines are a major key to driving accelerated momentum
in the broad recognition of trophon as the standard of care
internationally. This year the fundamentals for global adoption
of trophon were further strengthened by new guidelines
reinforcing the importance of high level disinfection being
published by leading international bodies with more
expected in 2018.
Our commitment is to continue to grow the trophon ecosystem
as a core business and value driver. In parallel we have
increased investment in Research & Development by over
30% to a total of $9.5 million. We have focussed our resources
largely on high value, regulated, infection and microbial control
markets with the potential for significant recurrent consumables
revenue. It is anticipated that there will be a number of new
product introductions over the coming years targetting
a minumum of two over the next two years.
Over the last year, the Nanosonics team has grown to over
165 people located in Australia, the Unites States, Canada
and across Europe. On behalf of the Board, I would like to
thank our outstanding CEO Michael Kavanagh, his world class
leadership group and our remarkable team for their dedication
and focussed efforts that are contributing daily to the ever
increasing success of the Company.
to Nanosonics growth as an international success. To this end,
I am also delighted to welcome Marie McDonald to the Board
as a Non-executive Director. Marie’s strong contribution to the
Board has been evident as a result of her extensive background
in corporate and commercial law and her interest in science.
Nanosonics has now established itself as an emerging leader
and innovative pioneer in delivering our products and services
to a world market with even greater needs, based on our
commitment to “infection prevention for life”. The Company
is now in a strong position to leverage its experience,
global market footprint, cash resources and, most importantly,
human capital and intellectual property to drive success
and shareholder value now and into a bright future.
I would like to recognise the outstanding efforts of my fellow
Board members, each of whom brings a depth and breadth
of skills and indeed commitment that has been fundamental
Mr Maurie Stang
Chairman
24 August 2017
5
From the top
CEO’s report
CEO’s
report
The 2017 financial year has been
one of significant achievement
and progress across all aspects
of Nanosonics’ business.
Record sales and profit results were achieved, adoption of
trophon grew within existing countries, and market fundamentals
continued to strengthen with the introduction of a series of new
guidelines. Our geographical expansion strategy progressed
as we entered into the significant Japanese market with the
leading Japanese infection prevention company, Sakura Seiki.
In addition, negotiations with a number of distribution partners
in the Middle East are progressing and close to finalisation.
Operational capabilities and capacity expanded through growth
of our talented workforce as well as implementation of important
scalability initiatives such as Lean Manufacturing. Our R&D
program made significant progress with a number of novel and
innovative infection prevention solutions, allowing us to move
into the next phase of development work and investment in FY18.
These combined outcomes from the business not only delivered
excellent financial results but importantly have also set the stage
for the implementation of the next phase of our strategic agenda.
The Nanosonics corporate strategy is focussed on five core areas, namely:
1 CUSTOMER
EXPERIENCE 2 PRODUCT
INNOVATION 3 OPERATIONAL
EXCELLENCE 4 PEOPLE
ENGAGEMENT 5 VALUE
CREATION
Significant outcomes were achieved throughout the FY17 financial year across
each of these core areas.
6
Nanosonics Annual Report 2017 From the top
CEO’s report
“Record sales and profit results were achieved,
adoption of trophon grew within existing
countries, and market fundamentals continued
to strengthen with the introduction of a series
of new guidelines.”
Customer Experience
Our suite of Customer Experience objectives
is focussed on establishing our offerings as new
standards of care globally and providing customers
with a convenient and consistent experience with
our product and brand. Some of the key highlights
for the year included:
trophon becoming established as the new
standard and benchmark
Ongoing educational, marketing and sales efforts
throughout the year by Nanosonics and its distributor
partners resulted in the installed base in North
America growing by 42% to 12,400 units across
more than 3,500 facilities. Globally the installed base
grew to over 14,100 units. In North America alone,
ultrasound probes are trophoned approximately
40,000 times a day and the figure is growing
on a daily basis.
+42%
INSTALLED BASE
INCREASE IN
NORTH AMERICA
ULTRASOUND PROBES
TROPHONED IN
NORTH AMERICA
40,000 TIMES
A DAY
New international guidelines emerging which
strengthen the fundamentals for global adoption
of trophon
Throughout FY17, trophon was referenced in a
number of new guidelines as meeting the required
optimal benchmarks of automation as well as
clinical efficacy, traceability and probe compatibility.
New guidelines were published by international
bodies including the World Federation for Ultrasound
in Medicine and Biology (WFUMB), Australasian
Society for Ultrasound in Medicine/Australasian
College for Infection Prevention and Control, and the
Health Service Executive in Ireland. In Germany,
the first official statement by DGKH (German Hospital
Hygiene Society) on ultrasound reprocessing was
made. This statement reinforced the guidelines
of the commission for hospital hygiene and infection
prevention at the Robert-Koch-Institute (RKI) and
the Federal Institute for Drugs and Medical Devices
(BfArM). The DGKH stated that ultrasound probe
OEMs must prove efficacy of their recommended
decontamination process by expert report. It also
stated that if multiple decontamination options are
available then the safest one, usually automated,
should be chosen. All these guidelines reiterate
the importance of high level disinfection for all
semi-critical probes. Further guidelines are expected
in FY18, including guidelines from the European
Society of Radiology (ESR). This follows the outcomes
of research amongst ESR members, which clearly
demonstrated the requirement to develop a set
of European recommendations encompassing all
ultrasound examinations, together with education
as a priority. New guidelines are also expected
in England, not only from the Hospital Infection
Society but also from the British Society for
Ultrasound in Medicine.
7
Throughout the year a series of market research activities
as well as professional society engagements were undertaken to
further confirm important areas of unmet need. The technology
research feasibility phase of the product development process
was completed on a number of innovations, which now provides
confidence to move to the next stage of development in FY18.
It is expected that a minimum of two new products will be
launched over the next two years.
Strengthening IP position
Nanosonics’ patent portfolio continued to make good progress
in FY17 with nine applications successfully passing examination
to proceed to allowance or grant. Patents were granted in the
US, Europe, Canada, Australia and Korea.
Operational Excellence
Our Operational Excellence objectives are focussed on
ensuring Nanosonics is agile and has scalable, compliant
and performance focussed processes.
Expanding global operations
Nanosonics now has an international operational presence
with direct facilities in Australia, North America, the UK and
Germany. At the end of FY17, the Nanosonics North American
services and logistics group moved to a larger facility to support
ongoing growth. This new facility not only expands our direct
service operation but also enables full in house direct order
fulfilment capabilities, which will be phased in over FY18.
A new warehouse and service facility was also established
in the UK to service the important, growing UK market.
Lean Manufacturing
As part of our scalability objectives, a Lean Manufacturing
program was introduced during the year. The goal of the
program was to increase our manufacturing capacity to double
the manufacturing output in half the space. This goal was
achieved by the end of FY17 and improves our manufacturing
capacity for trophon and new products moving forward.
From the top
CEO’s report
Nanosonics establishing itself as an infection
prevention leader
Education and awareness activities continued throughout
the year and included some key initiatives to position
Nanosonics as an infection prevention leader and our
products as standards of care.
To gain a better understanding of the level of awareness of
ultrasound-related infection risk and reprocessing requirements,
we commissioned research in the US amongst infection
preventionists responsible for high level disinfection of medical
devices within hospitals. The results found critical gaps in
awareness and understanding of ultrasound probe reprocessing
requirements and practices among many respondents.
An expert roundtable of infection prevention experts was
subsequently convened to discuss the survey implications and
offer recommendations. This was followed by a joint statement
in Infection Control Today (ICT), “Ultrasound Probe Infection
Risk; A Call to Action”, highlighting the need for immediate
action to bridge gaps in awareness and enhance knowledge
of reprocessing requirements and practices. The Call to Action
also recommended prioritising national guidance and activities
to improve education and awareness. Educational webinars
amongst the infection prevention community, with presentations
from members of the expert roundtable, have commenced
as part of Nanosonics’ Customer education program.
Geographical expansion – a core growth strategy
A core part of Nanosonics’ growth strategy is geographical
expansion and a key focus in FY17 was finalising the market
commercialisation and distribution strategy for the important
Japanese market. In June 2017, Nanosonics signed
a distribution agreement with Japan’s leading infection
prevention company, Sakura Seiki, for the introduction
of trophon. Local pre-marketing and clinical activities
are due to commence in Japan in early FY18.
In the Middle East, registrations are now in place in
Saudi Arabia, Kuwait, Qatar and the United Arab Emirates,
and distribution arrangements in a number of these
countries progressed positively with agreements
expected to be signed in early FY18.
Product Innovation
Our Product Innovation objectives focus on identifying
unmet customer needs and then developing and bringing
to market a portfolio of innovative products that address
those needs.
R&D investment identifies a number of exciting
new opportunities
Product expansion through strategic investment in R&D is
a core growth strategy for Nanosonics. In FY17, $9.5 million
was invested across R&D and Design & Development.
8
Nanosonics Annual Report 2017 From the top
CEO’s report
People Engagement
Our People Engagement objectives are centred
on building an organisation that attracts and retains
the best people, ensuring they are engaged and
empowered to deliver on our corporate objectives.
At Nanosonics we are fortunate to have a fantastic
team of highly skilled and dedicated professionals
working together to implement our business
strategies. Nanosonics has an active human capital
planning process in place to ensure we continually
assess the skills requirements necessary to drive our
ongoing success. During FY17 the Nanosonics team
grew to over 165 people, bringing new skills and
capabilities to the organisation to shape and support
the next phase of our growth.
Value Creation
Our Value Creation objective is focussed on creating
sustainable shareholder value and delivering high
growth and returns.
In FY17, Nanosonics delivered an excellent set
of financial results:
$67.5m
TOTAL SALES
Up 58% compared with FY16 sales of $42.8 million.
$13.9m
OPERATING PROFIT BEFORE TAX
Compared with a profit before tax of $136,000
in the prior year.
$63.0m
STRONG CASH BALANCE
Established to support our ongoing growth initiatives.
+13.6%
MARKET CAPITALISATION
Market capitalisation of the organisation grew by
13.6% to 30 June 2017 with the organisation entering
the ASX 200 during the year.
FY18 Outlook
Our three year plan, established in 2014 has delivered on the core
growth objectives for the business defined at that time. Nanosonics is
now entering the next phase of its long-term growth strategy which
is focussed on:
• continuing to grow and establish trophon as standard of care
within existing markets;
• geographical expansion into new markets; and
• product line expansion.
Our investment in R&D is planned to grow in FY18 with the aim of
bringing a minimum of two new products to market over the next two
years. As a result of this increasing investment, it is expected our total
operating expenses for the full year will be approximately $48 million
including $14 million in R&D.
In the US, the fundamentals for adoption of the trophon technology
remain strong. A degree of ongoing uncertainty surrounding healthcare
reform remains, which may impact the timing of capital equipment
purchases. Some variability in the volume and phasing of GE’s capital
equipment purchases from Nanosonics is expected throughout the FY18
financial year as GE inventory levels are managed. The installed base in
the US is expected to grow in the first half of FY18 by a similar number
as H2 FY17 driving an increasing annuity revenue stream from our
consumables business.
Our European and Asia Pacific business is expected to grow,
in particular in the UK where momentum builds as a result the MES
program. A number of new guidelines are also expected which could
open up the opportunity for entry into new markets.
Nanosonics is well positioned to leverage its expanding IP Portfolio,
growing global presence, existing customer base and reputation
amongst the infection prevention community and is committed to its
ongoing investment strategy for the long term success of the business.
I would like to thank the entire team at Nanosonics. Each and every
person plays an important role in the success of the organisation.
We are well positioned and committed to the ongoing growth of this
great organisation and delivering long term sustainable value for
our shareholders.
Mr Michael Kavanagh
CEO and President
24 August 2017
9
Regional highlights
North America
Regional
highlights
North America
During 2017, our strategic growth
plan to go wider and deeper into the
market resulted in trophon installations
increasing by 42% to approximately
12,400 units.
m
0
.
9
3
$
m
3
.
2
6
$
+60%
NORTH AMERICA
SALES
12,400
TROPHON
SYSTEMS NOW
INSTALLED
North America
Healthcare institutions across North America continue
to adopt the trophon technology and strengthen their
infection prevention protocols. Sales in North America
for the year grew 60% to $62.3 million. This result
was driven by focussed efforts to increase awareness
and demand with both new and existing customers.
The trophon technology is now present in over 3,500
facilities in total, which is helping establish trophon as
the standard of care for ultrasound probe disinfection.
Across North America, as at 30 June 2017, ultrasound
probes are now trophoned approximately 40,000
times a day and the figure is growing daily.
New market channels
Throughout the year, capital reseller agreements were
established with the majority of ultrasound OEMs.
These agreements provide the ultrasound OEMs the
opportunity to sell the trophon capital equipment to
their customers and Nanosonics is then responsible
for the customers’ ongoing requirements for training,
supply of consumables, and service. The majority of
the major ultrasound OEMs took up this opportunity
throughout the year and many of them exhibited trophon
on their booths at major medical conferences. This OEM
partnership program will continue to be a key component
of our trophon business strategy.
Investments in educational, sales and marketing
activities continue to drive market awareness
of the risks of cross contamination associated with
all semi-critical ultrasound probes. Live and digital
education activities emphasise the requirement
for high level disinfection (HLD) across a much
broader set of procedures where ultrasound
probes are used.
A key focus moving forward will be expansion of
adoption across all relevant departments in hospitals
currently using trophon, in addition to ongoing
expansion into new hospitals and the private market.
Geographic expansion
Nanosonics’ direct sales operation for Canada
was established this year and a direct sales team
is now fully operational. Health Canada approved
the necessary Drug Establishment License in
February 2017, enabling the importation and sale
of trophon consumables. In addition, a distributor
arrangement was adopted to service customers
in Puerto Rico, resulting in new business
commencing in the Caribbean.
Positioning for scalable growth
At the end of FY17, the Nanosonics North American
services and logistics group moved to a larger facility
to support ongoing growth.
10
Nanosonics Annual Report 2017
Regional highlights
North America
This new facility not only expands our direct service operation but
also enables full in house direct order fulfilment capabilities which
will be phased in over FY18. The new facility in Indianapolis occupies
an area over five times the size of the original location and will be
the central US service and support location.
Positioning Nanosonics as an infection prevention leader
Strategic partnerships are key to growing the market for trophon.
During the year Nanosonics continued to work as a strategic partner
with the Association for Professionals in Infection Control and
Epidemiology (APIC). The relationship is creating high industry visibility
and we are actively engaged with the APIC Board and leadership.
Multiple surveys were conducted throughout the year with leading
APIC-affiliated Key Opinion Leaders to assess new applications
and products. The strategy is proving highly effective in positioning
Nanosonics as an infection prevention leader in North America
and establishing credibility across other industry associations.
“The community expected the latest
and greatest technology … in the
case of high level disinfection,
[that] means trophon.”
Feisal Keshavjee, Chief Executive,
Radiology Consultants Associated (RCA),
Calgary, Canada
“The trophon is ground-breaking,
and gives an ultrasound department
its first technology-driven
disinfection process.”
Candace Goldstein, Scripps Clinic,
San Diego
“I actually went to administration
to purchase two… they said,
well this is great why don’t we just
put them in every single room.”
Christopher Iyoob, Manager Radiology
Ultrasound Section, University of Pennsylvania
Health System (Penn Medicine)
“Staff members love the ease of use of the
trophon. We’re now trying to ‘trophon’ every
transducer after use, not just endocavitary.”
“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.”
Robert De Jong Jr., RDMS, RDCS, RVT, Radiology
Technical Manager, Ultrasound, The Johns Hopkins Hospital
Sue Hohenthaner, Director of Infection
Prevention, Sanford Enterprise, South Dakota
11
Regional highlights
Europe
Regional
highlights
Europe
European sales grew by
58% to $1.7 million in FY17.
m
1
.
1
$
m
7
.
1
$
+58%
EUROPEAN
SALES
United Kingdom and Ireland
Momentum of trophon adoption builds in response
to guideline changes and Managed Equipment
Service business model.
In the UK, by the end of FY17, the number of NHS trusts
adopting trophon grew to 36.
Guidelines requiring HLD of semi-critical ultrasound probes
are an important key to establishing trophon as the standard
of care. Welsh guidelines published two years ago have
resulted in all seven Welsh Health Boards adopting the system.
Following a series of educational and awareness activities after
the release of the Scottish guidelines, eight of the 14 Scottish
National Health System (NHS) trusts have commenced their
adoption of trophon.
During the year, a Managed Equipment Service (MES) business
model was introduced in the UK. This model helps hospitals
overcome capital budget constraints and provides an immediate
benefit to the customer through earlier access to trophon.
Under the MES model, trophon capital equipment, which is
owned by Nanosonics, is placed in hospitals, for a contracted
period and the facility pays an all-inclusive price for consumables
in return for the use and maintenance of the capital equipment.
Pleasingly, this model gained momentum with approximately
130 trophon units being placed during the year, the majority in
the second half. The benefits of the MES model to Nanosonics
are attractive and it is expected that the majority of hospitals in
the UK will utilise this model.
Ahead of the publication of the expected new English guidelines,
a number of the largest NHS trusts in England have commenced
adoption of trophon and the pipeline continues to build across
English NHS trusts as well as the private hospital market.
To support the UK growth strategy, the UK sales team was
expanded and new warehouse and service operations were
also established. Further expansion for sales and marketing
12
Nanosonics Annual Report 2017
in the UK is planned for FY18. Irish guidance released in
February 2017 was also highly positive for trophon. HLD is now
recommended for semi-invasive (transvaginal and transrectal)
probes as well as for non-invasive probes used on broken skin,
which broadens the applications for trophon.
In France and Germany the focus continues to be on
market development to strengthen the fundamentals
for adoption of trophon technology. The main focus centred
on awareness and education initiatives plus consultation
with key infection prevention societies and authorities.
France
The landscape for ultrasound probe reprocessing
is starting to shift.
In the first half of FY17, the Ministry of Health (MOH) issued
a new statement that Low Level Disinfection (LLD) for
reprocessing intracavity probes remains acceptable but strict
compliance with inspection and hygiene processes is required
and will be regularly audited.
The MOH also recognised that LLD and Intermediate Level
Disinfection (ILD) do not work on HPV. The MOH has called
for additional studies on the risks associated with HPV and
ultrasound probes and commissioned an audit of current
intracavity ultrasound probe reprocessing practices
in the medical community.
The French Infection Control Society published a recommendation
last year stating that HPV is a concern and that point of care
and automated systems should be favoured.
Further good news came in the form of a report from the High
Council of Public Health stating that an HLD solution should
be permanently available in every facility performing intracavity
ultrasound examinations and that such solution should be
effective against native (“real”) HPV.
Regional highlights
Europe
“We used to use simple wipes, which took
30 seconds. However, the trophon is extremely
easy to use and fits well into our workflow.
It has not caused any extension in examination
times, which is crucial in a busy ultrasound
department … there are very significant
cost savings year on year”
Ann Allen, Clinical Lead Sonographer, King’s Mill Hospital,
Nottingham, UK
Germany
Guidelines strengthening in support of HLD for ultrasound probes.
A revised agreement was put in place between the health insurance
funds and the National Association of Statutory Health Insurance
Physicians whereby its members must decontaminate ultrasound probes
in accordance with the guidance provided by the ultrasound probe OEMs.
The guidance by the ultrasound probe OEMs must in turn be supported
by expert report on the virucidal, bactericidal and fungicidal efficacy
of the decontamination process.
In December 2016, the first official statement by DGKH (German Hospital
Hygiene Society) on ultrasound reprocessing was made. The DGKH
stated that ultrasound probe OEMs must prove efficacy of their
recommended decontamination process by expert report. It also stated
that if multiple decontamination options are available then the safest one,
usually automated, should be chosen.
Market development work will continue across both France and
Germany in FY18. Further guidelines in Europe are also expected
throughout the year, including guidelines from the European Society
of Radiology, in addition to guidelines in England from the Hospital
Infection Society, and also from the British Society for Ultrasound
in Medicine. As part of our market expansion strategy across Europe,
a senior management position is also planned for FY18 to drive
our geographical expansion strategies in the region.
Middle East
Registrations are now in place for Saudi Arabia, Kuwait, Qatar and United
Arab Emirates. The trophon technology was presented at Arab Health and
demonstrated in hospitals across a number of the Middle East countries.
Distribution strategies in a number of countries progressed and are
expected to be finalised in early FY18.
“...trophon’s visibility to patients gives
them confidence in the cleanliness
of the examination procedure.”
Jane MacDonald, Acting Radiology Manager,
NHS Western Isles, Scotland
“Our staff like the fact the probes
are properly cleaned with trophon
and that the machine is easy to use.”
Professor Grant P Cumming, Consultant
Obstetrician and Gynaecologist,
Dr Gray’s Hospital, Scotland
“We wanted trophon to help with
workflow and make the department
even more efficient, and ensure
we deliver a consistent
decontamination process.”
Gill Rooney, Superintendent Sonographer,
NHS Fife
“Comparing trophon to the three
wipe manual system that we used
previously, our team is confident
that trophon provides a better
option to deliver probe disinfection.”
Dr Bettina Kleine, Clinical Lead,
Diagnostic Ultrasound Coventry, England
13
Regional highlights
Asia Pacific
Regional
highlights
Asia Pacific
Australia is a perfect example
of trophon becoming the standard
of care when relevant guidelines
and strong fundamentals
for adoption are in place.
Australia and New Zealand
Sales in ANZ grew 22% to $3.1 million
with adoption of trophon continuing in
a highly penetrated market. While existing
Australian guidance has already had
a positive impact, a new joint guideline
between the Australian Society of
Ultrasound in Medicine (ASUM) and
the Australasian College for Infection
Prevention and Control (ACIPC),
was published in the second half of the
year. The new guideline emphasised the
importance of HLD of all semi-critical
ultrasound devices. Educational activities
will continue across ANZ throughout FY18
to ensure these requirements are fully
understood by all sites using semi-critical
ultrasound probes. This includes surface
probes used in procedures on broken skin
or exposed to blood due to needle-guided
biopsies, or in emergency care and surgery.
m
7
.
2
$
m
5
.
3
$
+30%
ASIA PACIFIC SALES
Japan
Nanosonics continued geographic
expansion during 2017 with the market
commercialisation and distribution
strategy implemented for Japan.
During the year the trophon technology
was demonstrated at the annual meeting
of the Japanese Society of Infection
Prevention and Control (JSIPC) in Kobe
in February and at the Japanese Society
of Obstetrics and Gynaecology (JSOG)
in April 2017. In June 2017, Nanosonics
entered into a distribution agreement
with Japan’s leading infection prevention
company, Sakura Seiki, for the introduction
of trophon. Local pre-marketing and clinical
activities are due to commence in Japan
in early FY18.
“With the trophon EPR
I can be assured that I’m
giving patients the best
service all round including,
most importantly, the best
disinfection procedure
for probes.”
Dr Andrew Ngu, Principal of East
Melbourne Ultrasound, Australia.
“Each practice has been
using the trophon for five
years and it has proven to
be a reliable and efficient
method of disinfecting
transvaginal transducers.”
Dr Brendan Mien, Senior
Sonographer, OMNI Ultrasound,
Sydney, Australia
14
Nanosonics Annual Report 2017
ESG
Environmental, social and governance
Environmental, social
and governance (ESG)
Nanosonics’ commitment to environmental, social
and governance (ESG) factors is embedded in the
Company’s culture and approach to business.
Our focus on these important factors
enables the Company to continue
delivering quality products and
services, creating a foundation
for long-term performance.
End to end environmental practice
From the beginning, our trophon product
was designed to improve environmental
safety by eliminating the toxic waste
management required in traditional
ultrasound probe reprocessing.
• Hydrogen peroxide disinfectant is broken
down into harmless, environmentally
friendly by-products: water and oxygen.
• More than 70% of trophon
components are recyclable.
• The disinfectant (Sonex-HL®/
Nanonebulant®) bottles are recyclable.
• The device enters sleep mode
when not in use.
In addition to the environmental benefits
of its product, Nanosonics follows the
General Guidelines for Environmental
Management in an organisation (ESOP004)
and has identified Environmental risks and
put appropriate mitigations in place
to control these risks.
A range of environmental initiatives is in
place throughout the Company, including:
• Manufacturing and Service
recycling program
• Paper recycling
• Battery recycling program
• E-waste program
The Nanosonics Green Team initiative
The Nanosonics Green Team was set up
to encourage and implement environmental
initiatives throughout the Company.
The team publishes newsletters and
runs a biannual Green Award program
to reward individual employees for their
green initiatives.
Social
Increasing global awareness
of infection prevention practices
for ultrasound probe reprocessing
Nanosonics is committed to transforming
the way infection prevention practices
are understood and conducted, and has
a program of digital and face-to-face
clinical education that is helping to drive
growing awareness in this area.
Supporting education and research
This year Nanosonics partnered with the
Armstrong Institute for Patient Safety and
Quality, which aims to improve health care
delivery at Johns Hopkins Medicine,
Baltimore and around the world. The
initiative is focusing on further research
into infection control in clinical settings.
The Company also provides intern
placements for students from Sydney
University, New South Wales University
and the University of Technology Sydney.
Placements are available across a range
of departments including Technology
Development and Commercialisation,
Design Development, Service and Finance.
Giving back to the community
Nanosonics supports employees to
undertake charity events and fundraising
initiatives throughout the year by providing
entry fees, raffle prizes, and often matching
amounts raised. Nanosonics also supports
workplace giving via a Corporate Citizen
Program, which enables employees
to select a charity and have donations
automatically deducted from their pay.
Governance
The Board of Directors of Nanosonics
is committed to high standards of corporate
governance. The Board regularly reviews
the policies and practices applied by the
Group to ensure they meet the interests
of shareholders and other key stakeholders,
both for the present and as the Group
grows in operational complexity.
Nanosonics believes it complies with
the ASX Listing Rules and the ASX
Corporate Governance Principles
and Recommendations (3rd Edition).
Each year Nanosonics describes its
corporate governance framework and
its adherence to the Recommendations
in its Corporate Governance Statement,
which is available in the Corporate
Governance Investor Centre on Nanosonics’
website. Additionally, the Board and
management are committed to continuing
to review the Company’s corporate
governance practices in response
to changes in market conditions
or recognised best practices.
15
Product
trophon® and product suite
‘trophon’ today for
a safer tomorrow
With the ever-increasing challenges in the fight against
the spread of Healthcare Acquired Infections (HAIs),
trophon’s powerful disinfection technology is setting
a new benchmark in protecting patients from the risk
of cross contamination from ultrasound procedures.
‘trophoning’ ultrasound probes
reduces cross infection risks
To reduce the risk of cross infection,
multiple guidelines now recommend high
level disinfection (HLD) of ultrasound
probes used in semi-critical procedures.
This includes both intracavity (internal
examination) procedures and surface
ultrasound procedures (external
examination) involving non-intact skin.
Studies have demonstrated that
traditional methods of disinfection,
such as soaking in chemicals, spraying
or wiping, are inefficient, environmentally
unsound and ineffective.
Nanosonics’ trophon is clinically proven
to inactivate all the mandated bacteria,
fungi and viruses as well as an extended
range of clinically infectious pathogens
that other HLD products do not.
This includes sexually transmitted
infections (STIs), Clostridium difficile
spores, drug resistant bacteria1 and
high-risk HPV.2
Why trophon is so effective:
sonicated hydrogen peroxide
The trophon system uses a proprietary
hydrogen peroxide disinfectant that
is sonically activated to create an
ultrafine mist and free radicals. These
potent free radicals have superoxidative
properties enabling the disinfectant to act
quickly to destroy pathogens.
This significantly broadens the scope
for trophon usage, and is a major benefit
that we are leveraging as part of our
‘go deep and wide’ sales strategy.
Safe, versatile and simple to use
Many guidelines now recommend
automated reprocessing over manual
methods.3 While manual methods are
prone to human error, trophon is fully
automated, making it simple to use
and assuring consistency with every
disinfection cycle.
Unlike other decontamination methods,
with trophon there is no exposure to
harmful chemistries. The system is fully
enclosed, allowing it to be placed at the
point of care (POC) where examinations
are carried out, maximising patient
throughput and cost effectiveness.
POC ultrasound has become a cornerstone
in the diagnosis and treatment of patients
in the emergency department, Intensive
Care and Obstetrics and gynaecology
in the private markets. Together with its
range of consumables and accessories,
trophon is ideally positioned to meet
HLD requirements at the POC.
Helps facilities meet audit and
accreditation requirements
Traceability, which involves monitoring
and documenting equipment
reprocessing, is highly important in
infection control. trophon provides the
ability to link the probe and disinfection
procedure to the patient, helping
facilities to meet audit and accreditation
requirements.
The probe compatible solution
Having an HLD system that is validated
for use on their ultrasound probes is an
important consideration for healthcare
providers. Nanosonics continually works
with probe manufacturers to carry out
extensive probe compatibility testing.
More than 1,000 surface and intracavity
ultrasound probes from all major and
many smaller probe manufacturers are
validated for use with trophon.
16
Product
trophon® and product suite
trophon®
product suite
Each sale of a trophon system results
in a robust annuity revenue stream of
consumables, accessories, and service
and maintenance contracts.
Consumables
Sonex-HL®/Nanonebulant®
Proprietary disinfectant liquid
with hydrogen peroxide
chemistry to achieve
effective HLD.
Chemical indicators
Chemical indicators provide
additional validation of each
disinfection cycle by providing
a qualitative colour change.
trophon® printer roll
Refill paper cartridges
for the trophon Printer.
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.
Accessories
trophon® Connect
Traceability software to help
clinics meet documentation
and audit requirements.
trophon® Printer
Provides a fast, easy to use
traceability solution by helping
to link the probe and disinfection
procedure to the patient.
trophon® Logbook
Allows easy recording of
disinfection steps to meet
best practice standards.
trophon® Wall Mount
and trophon® Cart
Enables the trophon to be mounted
on a wall where there are space
constraints or makes the device
fully mobile for convenient
POC use.
trophon® Printer Wall Mount
Custom designed for secure,
horizontal mounting of the
trophon Printer to a wall.
trophon® Printer Cart Mount
Designed to securely attach the
trophon Printer to the trophon
Cart in an easily accessible,
convenient location.
1. Nanosonics test data.
2. Ryndock E, Robison R, Meyers C. Susceptibility of HPV16 and 18
to high level disinfectants indicated for semi-critical ultrasound probes.
J Med Virol. 2016 Jun;88(6):1076-80.
3. Rutala W., et. al, Guideline for Disinfection and Sterilization
in Healthcare Facilities, 2008, Centers of Disease Control, 1-158, 2008.
17
Marie McDonald
– BSc (Hons), LLB (Hons)
NON-EXECUTIVE DIRECTOR
Ms McDonald joined the Nanosonics Board
in October 2016, bringing with her a strong
background in corporate and commercial
law, having practised for many years as
a partner at Ashurst. Ms McDonald was
Chair of the Corporations Committee
of the Business Law Section of the Law
Council of Australia (2012 to 2013) and
was a member of the Australian Takeovers
Panel from 2001 to 2010. Ms McDonald is
currently a Non-executive Director of CSL
Limited, Nufarm Limited and the Walter
and Eliza Hall Institute of Medical Research.
Steven Sargent – BBus, FAICD
NON-EXECUTIVE DIRECTOR
Mr Sargent joined the Nanosonics Board
in July 2016. He had a 22-year career with
General Electric and has extensive global
experience across a range of industries
including financial services and healthcare.
He was Vice President and Officer of GE,
a member of GE’s Corporate Executive
Council and CEO of GE Australia NZ.
Mr Sargent is currently a director of Origin
Energy, Chairman of OFX Group, a Director
of the Great Barrier Reef Foundation
and Chairman of The Origin Foundation.
Previously, Mr Sargent was a Director
of Veda Group, a Director of Bond University
and a Director of the Business Council
of Australia.
Bios
The Board and Company Secretaries
The Board
Maurie Stang
NON-EXECUTIVE CHAIRMAN
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.
Mr England 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.
In August 2016 Mr England was appointed
Director and Chairman of QANTM Intellectual
Property Ltd (ASX:QIP). Mr England was
appointed a Non-executive Director of
Bingo Industry Limited in March 2017.
He was a Director and Chairman of Chandler
Macleod Group Limited (ASX:CMG) from
February 2008 to April 2015 and a Director
and Chairman of Ruralco Holdings Limited
(ASX:RHL) from 2002 to September 2016.
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 a 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.
Robert Waring
– BEc, CA, FCIS, FFin, FAICD
COMPANY SECRETARY
Mr Waring was re-appointed 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.
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.
Michael Kavanagh
– BSc, MBA (Advanced)
CEO, PRESIDENT AND
MANAGING DIRECTOR
Mr Kavanagh joined Nanosonics as CEO
and President effective October 2013.
He was a Non-executive Director of the
Board from July 2012 to 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.
Company Secretaries
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,
the IT function and, together with Michael
Kavanagh, has joint responsibility for
investor relations. He has more than 21
years’ business experience in a number
of senior roles in the medical device and
healthcare industries located in Australia
and the United States and previously
worked for Coopers & Lybrand (now PwC)
in Australia and Europe.
18
Nanosonics Annual Report 2017
Bios
The Board and Company Secretaries
2
1
5
4
7
3
The Board and Company Secretaries
Left to right: Marie McDonald (1), Robert Waring (2), Michael Kavanagh (3),
Steven Sargent (4), McGregor Grant (5), Maurie Stang (6), David Fisher (7),
Richard England (8).
6
8
19
Bios
Executive team
Executive
team
Anthony Harrington
– BSc, MBA, GAICD
SENIOR VICE PRESIDENT,
GLOBAL MARKETING
Anthony joined Nanosonics in April 2017.
He has more than 25 years’ experience
in senior marketing and business
development roles in the healthcare sector.
This includes seven years at Zimmer
in senior regional product marketing
management roles. Mr Harrington has
also held executive and non-executive
directorship roles, including Managing
Director of Biomet ANZ (orthopaedics) and
Vice Chairman of the Medical Technology
Association of Australia (MTAA).
Leanne Baxendale
HEAD OF PEOPLE AND CULTURE
Leanne joined Nanosonics in March 2017.
She has extensive experience in the People
and Culture field gained from her work
as an executive level strategic business
partner in a wide range of national and
international workplaces. Her key areas
of experience include people and culture
strategies, alignment and engagement
strategies, high performance culture
development, capability building and
change management.
Michael Kavanagh
– BSc, MBA (Advanced)
CEO, PRESIDENT AND
MANAGING DIRECTOR
Michael joined Nanosonics as CEO and
President effective October 2013. He was
a Non-executive Director of the Board from
July 2012 to 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.
McGregor Grant – BEc, CA, GAICD
CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY
McGregor joined Nanosonics in April 2011
and is responsible for the overall financial
management of the Company, the IT function
and, together with Mr Kavanagh, has joint
responsibility for investor relations. He has
more than 21 years’ business experience
in a number of senior roles in the medical
device and healthcare industries located
in Australia and the United States and
previously worked for Coopers & Lybrand
(now PwC) in Australia and Europe.
Ron Weinberger – BSc (Hons), PhD
PRESIDENT TECHNOLOGY DEVELOPMENT/
COMMERCIALISATION
Ron joined the Company in August 2004
and was appointed as Executive Director
in July 2008. From July 2011 to October
2013 he 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
and the identification of new product and
commercial opportunities. Dr Weinberger
has more than 20 years’ experience in
medical research and biotechnology and
is co-inventor of several of Nanosonics’
key technology patents.
Gerard Putt – BSc GAICD
CHIEF OPERATIONS OFFICER
Gerard joined Nanosonics full time in 2011
after 18 months on the Nanosonics advisory
board and 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. Mr Putt is responsible for
the Product Supply, Service and Quality
functions at Nanosonics.
Steven Farrugia – BE PhD
SENIOR VICE PRESIDENT,
DESIGN AND DEVELOPMENT
Steven joined Nanosonics as Senior
Vice President, Design and Development,
in September 2016. He has over 20 years’
experience leading the development
of medical devices. Prior to Nanosonics,
Dr Farrugia held a range of senior executive
roles with ResMed, including VP of Technology
and VP of Product Development. He is an
inventor of almost 300 granted and pending
patents and is an Adjunct Professor of
Engineering at The University of Sydney.
In addition to Design and Development,
Dr Farrugia is responsible for the Regulatory
Affairs function of the Company.
20
Nanosonics Annual Report 2017
Bios
Executive team
2
4
1
3
5
7
6
Executive team
Left to right: Leanne Baxendale (1), Anthony Harrington (2),
Michael Kavanagh (3), Gerard Putt (4), Steven Farrugia (5),
Ron Weinberger (6), McGregor Grant (7).
21
Directors’ report
Directors’ report
Your directors submit their report together with the Consolidated Financial Report of Nanosonics Limited and
its subsidiaries (the Group or Nanosonics), for the year ended 30 June 2017, and the Auditor’s Report thereon.
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.
Review of operations and financial results
Revenue from sales for the year amounted to $67,507,000 (2016: $42,796,000), an increase of $24,711,000 or
58%, driven by the continued strong adoption of trophon in North America. Sales in North America increased
by $23,276,000 to $62,305,000. Sales in Europe increased by 58% to $1,673,000 compared with the previous
year. Sales in Asia Pacific amounted to $3,529,000, an increase of 30% compared with the previous year.
Gross profit increased by 56% to $50,155,000 compared with $32,166,000 in the prior period. Gross margin
as a percentage of sales was 74% compared with 75% in previous year, reflecting changes in the sales mix
between distribution channels and product categories.
Other income amounting to $780,000 (2016: $133,000) primarily consisted of net foreign exchange gains
on foreign currency forward contracts and options of $771,000 (2016: $11,000). There were no government
grants received during the year (2016: Export Market Development Grant $120,000). The Group also incurred
net foreign exchange losses of $1,032,000 (2016: $541,000), which are included in administration expenses.
Finance income amounting to $1,063,000 (2016: $1,098,000) relates to interest earned on cash investments.
Selling, general and administration expenses (SG&A) were $28,581,000 (2016: $25,361,000). The increase
in SG&A of $3,220,000 was mainly to support the increased sales in North America and market expansion
activities in Europe and other markets as well as expanding internal operational capacity and capabilities
to support a growing global organisation.
Research and development expenses (R&D) for the year were $9,488,000, an increase of 30% compared with
2016. This increase is consistent with the Company’s commitment to strategic investment in R&D targeted
at design and development activities associated with future generations of the trophon technology, as well
as investment in research into novel solutions aimed at addressing considerable unmet needs in the infection
prevention field.
Finance expense for the year of $77,000 related to interest on leases (2016: $71,000). 2016 finance expenses
also included borrowing costs on convertible notes of $532,000. The convertible notes were converted into
shares in April 2016.
Following an assessment of the operations of the Group during the year, it has been determined that it is
probable that taxable profits will be generated against which carried forward losses and tax credits will be
utilised. As a result, previously unrecognised deferred tax assets in relation to the Australian entities were
recognised as a non-current asset. As at 30 June 2017, net deferred tax assets recognised amounted
to $14,134,000 (2016: Nil). Accordingly, the Company recorded a net income tax benefit for the period
of $12,306,000 (2016: net income tax expense of $14,000), as further detailed in note 3.
The consolidated profit after tax amounted to $26,158,000 (2016: $122,000).
The Group ended the year with $62,989,000 (2016: $48,841,000) in cash and cash equivalents, an increase
of $14,148,000. The cash and cash equivalents balance provides a strong balance sheet for the Company
to continue executing on its growth strategies.
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 14 of this Annual Report.
22
Nanosonics Annual Report 2017Financial report Material business risks
Nanosonics has a risk management framework to identify, assess and appropriately manage risks. Details of
the risk management framework are set out in the 2017 Corporate Governance Statement, which is available
on the Company’s website.
Nanosonics’ material business risks and how they are addressed are outlined below. These are risks that may
materially adversely affect the Group’s business strategy, financial position or future performance. It is not
possible to identify every risk that could affect the Group’s business, and the actions taken to mitigate these
risks cannot provide absolute assurance that risk will not materialise.
• Significant distribution customer – The Group’s key distribution customer accounts for approximately 66%
of the Group’s revenue (see note 2.1 of the financial statements), the majority of which is in United States,
Nanosonics’ largest market. The Group made a strategic decision to establish its own direct operations
in North America and has significant direct sales operations in place which continue to grow and can be
scaled further. The Group also has its own operations in its other key markets.
• Research & development and commercialisation – Nanosonics has one core technology, trophon,
and recognises the need to diversify its product portfolio by creating new products. Development and
subsequent commercialisation of any new product requires a significant amount of investment and is
necessarily uncertain. They are also likely to require a range of regulatory approvals. Nanosonics engages
with a range of experts in relevant fields to determine the focus of its R&D efforts. To manage these risks,
the Company has a clearly defined framework to support the processes covering product ideation,
development and subsequent commercialisation.
• Competition – The potential for increased competition exposes Nanosonics to the risk of losing market
share. Nanosonics is also exposed to the risk of medical and technological advancement by competitors
where alternative products or methods are developed and commercialised that will render trophon
obsolete. To address this risk, the Company continues to invest in R&D for the second generation
of trophon as well as product diversification.
• Intellectual Property – The Company relies heavily on its portfolio of intellectual property (IP). This IP
portfolio is essential for safeguarding Nanosonics’ existing revenue streams, as well as protecting its
business when it develops new products and enters new markets. Nanosonics recognises the potential
risk of third party infringement claims on its IP portfolio, the expiry of its IP, and the risk of being unable
to register the underlying subject matter or processes in any new products. Nanosonics works closely
with specialists and advisors to continually manage its IP opportunities and risks.
• Supply chain – The Group is highly aware of managing risks in the supply chain particularly its dependence
on critical suppliers for the supply of key materials which carries the risk of delay and disruption.
Certain materials are available from sole suppliers and regulatory requirements make substitution costly
and time-consuming. The Group regularly monitors its suppliers and their performance. Inventories are
managed in sufficient quantities for continued product supply in the short term.
• Regulation – The Group operates in a highly regulated industry. Medical devices are subject to strict
regulations of various regulatory bodies where the products are sold. Regulatory bodies perform regular
audits of Nanosonics’ manufacturing sites as well as its 3rd party suppliers and failure to satisfy regulatory
requirements could impact the Company’s ability to sell the products or may result in a recall that could
cause reputational harm. The Group has a highly developed Quality Management System to manage this risk.
• Financial risks – The Group is exposed to foreign currency risk and credit risk which are managed
through its internal financial risk management policy. Further information is available in note 7 to the
financial statements.
• Product liability – This is the risk that the product or the use of the product would cause damages to a third
party. The Group has product liability insurance and operates a strict Quality Assurance system across
all aspects of the design, manufacture and release of products to market.
• Talent management – Nanosonics operate in a competitive environment in relation to attracting scientific
and engineering talent. The Company has programs in place both for the attraction and retention of talent
for the business.
Significant changes in the state of affairs
In the opinion of the Directors, other than the matters described above and in the review of operations
included in the CEO’s report and Regional highlights on pages 6 to 14 of this report, there were no significant
changes in the state of affairs of the Group during the financial year under review and to the date of this report.
23
Financial reportDirectors’ report (continued) Dividends – Nanosonics Limited
The directors do not recommend the payment of a dividend for the financial year ended 30 June 2017.
No dividends were proposed, declared or paid during the financial year (2016: 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 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 2017 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 in the review of operations included
in the CEO’s report and Regional highlights on pages 6 to 14 of this report.
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 statutory environmental regulations. The Board believes that the Group has adequate
processes in place to manage its environmental regulatory obligations and is not aware of any breach of
those environmental regulations as they apply to the Group.
Directors and company secretaries
During the year, the Board of Nanosonics Limited comprised of Maurie Stang, David Fisher, Richard England,
Michael Kavanagh, Steven Sargent (appointed 6 July 2016) and Marie McDonald (appointed 24 October
2016). Ron Weinberger ceased being a director on 4 November 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 27.
During the year, McGregor Grant and Rob Waring were in office as company secretaries.
Information on the directors, company secretaries and the executive team is a part of the Directors’ report
and can be found on pages 18 to 21 of the Annual Report.
Meetings of directors
The number of directors’ meetings, including meetings of the committees, held during the year ended
30 June 2017, and numbers of meetings attended by each of the directors were as follows:
Full meetings
of directors
Audit and Risk
Held Attended Held Attended Held Attended
Nomination
Remuneration
Held Attended Held Attended
R&D and
Innovation
Meetings of committees
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald1
Michael Kavanagh
Ron Weinberger2
10
10
10
10
7
10
5
2
6
6
5
10
10
9
10
7
10
4
2
2
2
1
2
6
5
5
2
2
2
1
6
6
3
5
3
6
5
2
5
3
4
4
4
4
1
4
4
4
4
1
1. Ms McDonald was appointed on 24 October 2016. The number of full meetings of directors attended by Ms McDonald includes a meeting
by invitation before becoming a director.
2. Dr Weinberger ceased being a director on 4 November 2016.
24
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued)
Share-based payments
Shares issued under the DESP and performance rights and options granted under ESOP and GSOP
and the new Nanosonics Omnibus Equity Plan during the year are detailed below.
Shares issued
During the year ended 30 June 2017 and to the date of this report, the Company issued a total
of 1,798,419 (2016: 13,023,646) new ordinary shares in Nanosonics Limited as detailed below.
No amount was unpaid on any of the shares issued.
Shares issued
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
1,798,419
1,798,419
As at 30 June 2017, there were 297,732,955 (2016: 295,934,536) ordinary shares in
Nanosonics Limited on issue. At the date of this report, there were 297,732,955 shares
on issue. Further information on issued shares is provided in the Contributed equity and
the Share-based payments 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 Nanosonics Omnibus Equity Plan for no consideration, 583,258
unquoted performance rights (2016: 1,446,710 under Employee Share Option Plan) and
495,783 unquoted share options (2016: Nil) over unissued ordinary shares in Nanosonics
Limited. Further information on the grants is in Section 5 of the Remuneration report
on pages 42 to 47 and in the Share-based payments note to the financial statements.
Shares under option
At the date of this report, there were 3,521,209 unissued ordinary shares of Nanosonics
Limited under option as detailed below. As at 30 June 2017, there were 3,522,522
(2016: 4,283,250) 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-based compensation plan
Number of shares under option
Omnibus Equity Plan
Employee Share Option Plan
Total shares under option at 30 June 2017
Performance rights lapsed
Omnibus Equity Plan
Total shares under option to the date of this report
1,070,230
2,452,292
3,522,522
(1,313)
3,521,209
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.
25
Financial reportDirectors’ 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
Employee share scheme
information
Employment agreements
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.
Provides detail regarding the Company’s employee equity plans
including that information required by the Corporation Act
and applicable accounting standards.
Provides details regarding the contractual arrangements
between the Company and the executives whose remuneration
details are disclosed.
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 six countries.
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 should be understood that to attract, motivate and retain
high performing executives and in the face of strong competition for talent, some flexibility
in the Company’s approach is required.
The Board’s executive remuneration strategy is to provide ‘fair and appropriate’ remuneration
balanced on a risk and reward framework that supports its business strategy in the short and
long term. Board and executive remuneration are reviewed independently on a regular basis.
The Board believes that Nanosonics’ approach to Executive Key Management Personnel (KMP)
remuneration is appropriately balanced to fairly reward and motivate an experienced executive
team to deliver profitable business growth which meets the expectations of our shareholders.
26
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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 during the financial year ended 30 June 2017 (2017 Financial Year).
1.2 Key Management Personnel
Key Management Personnel have authority and responsibility for planning, directing and controlling
the activities of Nanosonics and comprise the Non-executive Directors, Executive Director and
Executive KMP. Details of the KMP during the year are set out in the table below.
Name
Position (at year end) 1
Change in 2017 Financial Year
Non-executive Directors
Maurie Stang 2
Richard England 3
David Fisher 4
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Executive KMP
Ron Weinberger
McGregor Grant
Appointed as Chairman on 20 July 2016
Chairman
Chairman, Nomination Committee
Member, Remuneration Committee
Member, R&D and Innovation Committee
Director
Chairman, Audit and Risk Committee
Member, Remuneration Committee
Member, Nomination Committee
Director
Chairman, R&D and Innovation Committee
Member, Audit and Risk Committee
Member, Nomination Committee
Director
Chairman, Remuneration Committee
Member, R&D and Innovation Committee
Member, Nomination Committee
Appointed on 6 July 2016
Appointed on 20 July 2016
Appointed on 27 September 2016
Appointed on 20 July 2016
Director
Member, Audit and Risk Committee
Member, Remuneration Committee
Member, Nomination Committee
Appointed on 24 October 2016
Appointed on 24 October 2016
Appointed on 24 October 2016
Appointed on 24 October 2016
Chief Executive Officer & President
(CEO&P) and Managing Director
Member, R&D and Innovation Committee
President, Technology Development/
Commercialisation
Ceased being an Executive Director
on 4 November 2016
Chief Financial Officer (CFO) and
Company Secretary
Gerard Putt
Chief Operations Officer
Steven Farrugia
SVP – Design and Development
Appointed on 5 September 2016
1. Position held for full year, unless otherwise stated.
2. Mr Stang ceased being a member of the Audit and Risk Committee on 14 December 2016.
3. Mr England ceased being Chairman of the Remuneration Committee on 20 July 2016.
4. Dr Fisher ceased being a member of the Remuneration Committee on 20 July 2016.
27
Financial reportDirectors’ 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 2017 Financial Year are shown in Section 1.2.
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&P 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, is 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
28
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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
During the year ended 30 June 2017, no remuneration recommendations were made in relation
to any Key Management Personnel.
John Egan, Remuneration Consultant, Egan Associates Pty Limited was engaged during
the 2017 Financial Year to provide other services including salary benchmarking data.
Fees paid for these services amounted to $57,540.
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.
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
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.
Maximum aggregate Board
fees are approved by
shareholders
The total amount of fees paid to Non-executive Directors in the year ended 30 June
2017 is within the aggregate maximum amount approved at a general meeting of the
Company on 4 November 2016 of $1,000,000 a year.
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.
29
Financial reportDirectors’ report (continued) 3.2 Non-executive Director fees and other benefits
Elements
Board fees
Details
Board Chairman fee
Board Non-executive Director fee
Board Committee Chairman fee
$170,000
$85,000
$15,000
Post-employment benefits
Superannuation
Other benefits
Equity instruments
Other fees/benefits
Superannuation contributions are included in the Board fees and are
made at a rate of 9.5% of base fee up to the Australian Government’s
prescribed maximum contributions limit.
Non-executive Directors do not receive any performance related
remuneration, options or performance shares.
Non-executive Directors are reimbursed for out-of-pocket expenses
that are directly related to Nanosonics’ business.
3.3 Non-executive Director total remuneration
Maurie Stang
Richard England
David Fisher
Steven Sargent1
Marie McDonald 2
Total
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Fees
($)
Superannuation
($)
155,251
132,420
91,324
73,059
91,324
73,059
90,236
–
53,598
–
481,733
278,538
14,749
12,580
8,676
6,941
8,676
6,941
8,572
–
5,092
–
45,765
26,462
Total
($)
170,000
145,000
100,000
80,000
100,000
80,000
98,808
–
58,690
–
527,498
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.
2. Ms McDonald was appointed as a Non-executive Director on 24 October 2016. No remuneration was paid
to Ms McDonald in respect of the 2016 Financial Year.
30
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued)
4.0 Executive remuneration
4.1 Executive KMP remuneration
Nanosonics’ executive remuneration policies are designed to attract, retain and motivate
its executives.
Executive KMP remuneration objectives are delivered 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/or EPS) 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 subject to service and
deferred for 1 year.
Equity is held subject
to performance and service
for up to 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.
Total Target Remuneration (TTR)
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.
4.2 Remuneration mix and timing of receipt
4.2.1 Remuneration mix
Position
TFR (Cash)
STI (Cash and Equity)
LTI (Equity)
CEO & President
Other Executive KMP
100%
100%
50% of Base Salary
60% of Base Salary
30% of Base Salary
30% of Base Salary
31
Financial reportDirectors’ report (continued) 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
YEAR 1
TFR
STI cash opportunity
STI equity deferral
LTI
YEAR 2
YEAR 3
TFR
STI cash opportunity
STI equity deferral
LTI
TFR
STI cash opportunity
STI equity deferral
LTI
Fixed
At risk
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 performance 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.
32
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 4.3 Total Fixed Remuneration explained
Total Fixed Remuneration (TFR) includes all remuneration and benefits paid to an executive
KMP calculated on a total employment cost basis. In addition to base salary, executives may
receive benefits in line with local practice, such as superannuation and health insurance.
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 Remuneration
Committee and CEO&P.
4.4 Variable (at risk) remuneration explained
As set out in Section 4.2, variable remuneration forms a significant portion of the 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&P 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 financial
targets (sales and Profit Before Tax (PBT)) complemented by the achievement of individual
performance goals.
The weighting between the financial targets and individual performance goals varies across
the leadership team. In the case of the CEO&P the weighting is 60% financial targets and
40% individual performance goals and in the case of other executive KMP the weighting
is 50% financial targets and 50% individual performance goals.
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.
Achievement of financial targets above a threshold level is generally required before STI
awards are approved, subject to Board discretion. In the 2017 Financial Year, the Board
exercised its discretion in this regard.
The actual STI awards for executive KMP in respect of the 2017 Financial Year are
as set out in the table in Section 4.6.2.
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.
33
Financial reportDirectors’ report (continued) 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 align the executive KMP remuneration opportunity with shareholder value and provide
retention stimulus.
Type of equity
awarded
The Nanosonics Omnibus Equity Plan (NOEP) was adopted in November 2016.
See Section 5.1 for further details.
Timing
LTI allocation
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) or options (being an option at a pre-set exercise price to
acquire a fully paid ordinary share on Nanosonics Limited) under the terms of the NOEP.
For the 2016 LTIS, executive KMP can elect to receive a combination of performance
rights and options, provided a minimum of 20% of the value of the award is received
as performance rights and 20% of the value of the award is received as options.
Performance rights and options do not carry any dividend or voting rights prior
to exercise.
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 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 and options based on a valuation / methodology determined by an independent
consultant, as follows.
Performance rights allocated = LTI $ value / Binominal Approximation Option
Pricing value.
Options allocated = LTI $ value / Black Scholes value.
Performance hurdles
Equity grants to the executive KMP are subject to Performance Conditions including
internal (revenue and/or EPS) and external (relative Total Shareholder Return (TSR)).
Time restrictions
Equity grants are tested against the performance hurdles set at the end of three financial
years. If the performance hurdles are not met at the vesting date the performance rights
and options lapse.
Service conditions
In addition to the Performance Conditions, performance rights and options will only vest
if the executive KMP remains in continuous employment with Nanosonics in their current
or equivalent position from the date of grant to the respective vesting date of each grant.
A summary of the components of the Performance Conditions associated with the performance
rights and options granted to the executive KMP in respect of the 2016, 2015 and 2014 Long Term
Incentive Schemes is set out below.
LTIS year
TSR–1
TSR–2
2016
2015
2014
25%
50%
50%
25%
50%
–
EPS
50%
–
–
Revenue
–
–
50%
Total
100%
100%
100%
34
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) Details of the each of the components of the Performance Conditions associated with the
2016, 2015 and 2014 Long Term Incentive Schemes are summarised below.
Relative Total Shareholder Return hurdle (TSR-1 and TSR-2)
The performance rights and options granted that are subject to a TSR hurdle will vest subject
to Nanosonics’ relative TSR performance against the companies within the relevant TSR
Comparator Groups over the defined Measurement Period. In 2016 and 2015 two TSR
Comparator Groups were used, TRS-1 and TSR-2. In 2014 only one TSR Comparator
Group was used. Details of the TSR Comparator Groups are set out in Section 4.6.3.
Vesting of performance rights and options, subject to Relative TSR Performance, are in the
proportions summarised below.
TSR vs Comparator Groups 1 and 2
Proportion of performance rights and options to Vest
Below the 50th percentile
0%
50th to 75th percentile
At the 75th Percentile
30% to 100% (pro-rata)
100%
Straight line interpolation applies to the incremental results.
The TSR Measurement periods for the 2016, 2015 and 2014 Long Term Incentive Schemes
are summarised below.
LTIS year
Measurement period
2016
2015
2014
17 August 2016 to the date of the release of Nanosonics’ FY19 financial statements
20 August 2015 to the date of the release of Nanosonics’ FY18 financial statements
In the case of the LTIS awarded to the CEO&P, 8 November 2013 to the date of the
release of Nanosonics’ FY17 financial statements and in the case of other Executive KMP,
11 March 2015 to the date of release of Nanosonics’ FY17 financial statements.
Earnings Per Share hurdle
The performance rights and options granted that are subject to an EPS hurdle will vest if Nanosonics
achieves a target pre-tax Earnings Per Share (EPS), as pre-determined by the Board. For the 2016
LTIS, the relevant year for determining achievement of the EPS hurdle is the financial year ending
on 30 June 2019.
Vesting of the performance rights and options, subject to achieving the pre-tax EPS hurdle,
is in the proportions summarised below.
Achievement of pre-tax EPS target
Proportion of performance rights and options to Vest
Below 75% of target pre-tax EPS
0%
75% to 100% of target pre-tax EPS
75% to 100% (pro-rata)
Above 100% of target pre-tax EPS
100%
Straight line interpolation applies to the incremental results.
35
Financial reportDirectors’ report (continued) Revenue hurdle
In respect of the 2014 LTIS, the performance rights granted that are subject to a revenue
hurdle will vest subject to Nanosonics achieving a target revenue.
Vesting of the performance rights, subject to achieving the Revenue hurdle, is in the
proportions summarised below.
Revenue in
Financial Year 2017
Proportion of Performance
Rights to Vest
<$30.9 million
$30.9 million
$36.4 million
$42.6million
0%
25%
50%
75%
$49.5 million
100%
4.5 Relationship between Nanosonics’ performance and executive KMP remuneration
As explained in Section 4.1, Nanosonics’ remuneration framework aims to reward executive KMP
to achieve sustainable growth of the business and the creation of shareholder value in the short,
medium and long term.
4.5.1 Nanosonics’ financial performance
Sales revenue ($’000)
Profit/(loss) before tax ($’000)
Net profit/(loss) after tax ($’000)
Pre-tax basic earnings per share
(Pre-tax EPS) (cents)
Basic earnings per share (EPS) (cents)
Share price as at 30 June ($)
TSR percentile ranking 2
1. Not measured.
2017
67,507
13,852
26,158
4.66
8.79
2.54
2016
2015
2014
2013
42,796
22,214
21,492
14,899
136
122
0.05
0.04
2.19
91st
(5,465)
(5,460)
(2,636)
(2,605)
(5,735)
(5,768)
nm 1
(2.03)
1.70
nm 1
nm 1
(0.99)
0.79
nm 1
nm 1
(2.21)
0.60
nm 1
2. TSR percentile ranking is measured over the 3 Financial Years from the date of release of the Company’s result at the beginning of the
performance cycle through to the period when the Company’s results for Year 3 of the performance cycle are known to the market.
Further explanation of details on Nanosonics’ performance for the 2017 Financial Year is provided
in the CEO’s report and the Regional highlights on pages 6 to 14 of this Annual Report.
4.5.2 Short Term Incentives
Nanosonics’ STI is dependent upon sales, PBT and individual performance goals. The relationship
between Nanosonics’ financial performance and the average STI payouts to executive KMP for
each of the last five years is shown in the chart below.
0
0
0
,
$
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
–
(10,000)
36
%
I
T
S
120%
100%
80%
60%
40%
20%
0%
2013
2014
2015
2016
2017
Sales revenue
Profit/(loss) before tax
Average executive KMP STI %
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued)
The average STI payout to executive KMP for the 2017 Financial Year was 87.60% and details
of the award to each executive KMP are set out in the table below.
Executive
KMP
Position
Michael
Kavanagh
CEO/President,
Managing Director
Ron
Weinberger
President, Technology
Development/
Commercialisation
McGregor
Grant
CFO/Company
Secretary
Gerard Putt Chief Operations
Officer
Steven
Farrugia
SVP – Design
and Development
Maximum STI
% of 2017
Base Salary1
STI awarded
as a % of
potential2
Cash STI
award in
2017 ($)3
Deferred
equity STI
award ($)3 % Forfeited
50%
89.50%
111,961
111,961
10.50%
30%
86.25%
41,309
41,309
13.75%
30%
89.75%
43,782
43,782
10.25%
30%
87.75%
35,341
35,341
12.25%
30%
84.75%
33,053
33,053
15.25%
1. Refers to the total STI opportunity, including cash and deferred equity as indicated in Section 4.2.1. The deferred equity will be
awarded in the following year.
2. These amounts were finally determined by the Board on 18 August 2017 after the audited results for the 2017 Financial Year were
known and 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.
The annual STI awarded to each executive KMP was based on the achievement of Board
agreed financial objectives as well as specific corporate initiatives associated with the installed
base expansion, geographic market expansion and product development. The Board determined
the actual STI payments in respect of the 2017 Financial Year, which were based on the relative
achievement of the financial hurdles and each executive KMP’s performance across a number
of targets approved at the beginning of the financial fear. Details of the key achievements of the
business are outlined in the CEO’s report and the Regional highlights on pages 6 to 14 of this
Annual Report.
4.5.3 Long Term Incentives
Executive KMP are only entitled to a benefit under the current Company’s LTI scheme if the
relevant performance hurdles are met. Relative TSR and EPS hurdles are generally accepted
proxies for creation of shareholder value and in the earlier stages of Nanosonics’ development,
the Board considered revenue growth to be a priority. The Board believes an appropriate balance
between these performance criteria is a sound guide to medium and long term performance.
The mix of each of these components in respect of the 2016, 2015 and 2014 Long Term Incentive
Schemes is summarised in Section 4.4.2 and the specific details of each of these components
are discussed below.
37
Financial reportDirectors’ report (continued) Relative Total Shareholder Return
The comparator groups of companies that have been used in in respect of the 2016, 2015 and
2014 Long Term Incentive Schemes are summarised below.
2016 LTIS Comparator Group 1 (TSR-1)
ACG AtCor Medical Holdings Limited
ELX
Ellex Medical Lasers Limited
RHT
Resonance Health Limited
AHZ
Admedus Limited
FPH
Fisher & Paykel Healthcare Corporation RMD
ResMed Inc.
ALT
Analytica Limited
AMT Allegra Orthopaedics Limited
ANN Ansell Limited
AXP
AirXpanders, Inc.
GID
IMI
IPD
ITD
GI Dynamics, Inc.
IM Medical Limited
ImpediMed Limited
ITL Limited
RSH
RVA
SDI
Respiri Limited
REVA Medical, Inc.
SDI Limited
SOM
SomnoMed Limited
AZV
Azure Healthcare Limited
LBT
LBT Innovations Limited
TSXV:SV Simavita Limited
CLV
Clover Corporation Limited
M7T
Mach7 Technologies Limited
CMP Compumedics Limited
MGZ Medigard Limited
COH Cochlear Limited
MLA Medical Australia Limited
CYC Cyclopharm Limited
OIL
Optiscan Imaging Limited
DXB Dimerix Limited
OSP
Osprey Medical Inc.
2016 LTIS Comparator Group 2 (TSR-2)
ACX Aconex Limited
ALU Altium Limited
API
Australian Pharmaceutical
Industries Limited
IPD
IFM
IRE
Impedimed Limited
Infomedia Limited
IRESS Limited
CL1
Class Limited
CSV CSG Limited
ISD
iSentia Group Limited
JHC
Japara Healthcare Limited
EHE
Estia Health Limited
MYX Mayne Pharma Group Limited
FPH Fisher & Paykel Healthcare
MSB Mesoblast Limited
Corp Limited
UBI
UCM
UNS
Universal Biosensors Inc.
Uscom Limited
Unilife Corporation
NTC
NXT
REG
SIG
SPL
TNE
VRT
Netcomm Wireless Limited
Nextdc Limited
Regis Healthcare Limited
Sigma Pharmaceuticals Limited
Starpharma Holdings Limited
Technology One Limited
Virtus Health Limited
GBT GBST Holdings Limited
MVF Monash IVF Group Limited
WTC
Wisetech Global Limited
HSN Hansen Technologies Limited
MYO MYOB Group Limited
2015 LTIS Comparator Group 1 (TSR-1)
3DM 3D Medical Limited
ELX
Ellex Medical Lasers Limited
OSP
Osprey Medical Inc.
ACG AtCor Medical Holdings Limited
FPH
Fisher & Paykel Healthcare Corporation RHT
Resonance Health Ltd.
AHZ
Admedus Limited
GID
GI Dynamics, Inc.
RMD
ResMed Inc.
ALT
Analytica Ltd.
AMT Allegra Orthopaedics Limited
ANN Ansell Ltd.
AXP
AirXpanders, Inc.
IMI
IPD
ISN
ITD
IM Medical Ltd.
ImpediMed Limited
iSonea Limited
ITL Ltd.
RVA
SBN
SDI
REVA Medical, Inc.
Sun Biomedical Limited
SDI Limited
SOM
SomnoMed Limited
AZV
Azure Healthcare Limited
LBT
LBT Innovations Limited
TSXV:SV Simavita Limited
CLV
Clover Corporation Limited
MCT Metalicity Limited
CMP Compumedics Ltd.
MGZ Medigard Limited
COH Cochlear Ltd.
MLA Medical Australia Limited
CYC Cyclopharm Limited
OIL
Optiscan Imaging Ltd.
UBI
UCM
UNS
Universal Biosensors Inc.
Uscom Limited
Unilife Corporation
38
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 2015 LTIS Comparator Group 2 (TSR-2)
CIP
Centuria Industrial REIT (formerly
360 Capital Industrial Fund)
FPH
Fisher & Paykel Healthcare
Corporation Limited
JHC
Japara Healthcare Limited
ABP
Abacus Property Group
FXL
Flexigroup Limited
MYX
Mayne Pharma Group Limited
ACR Acrux Limited
ALU Altium Limited
ARF
Arena REIT
AJA
Astro Japan Property Group
FET
GTY
GBT
GDI
Folkestone Education Trust
Gateway Lifestyle Group
GBST Holdings Limited
GDI Property Group Limited
VLW Villa World Limited
GHC
Generation Healthcare REIT
API
Australian Pharmaceutical
Industries Limited
AOG Aveo Group
GMA
GMF
Genworth Mortgage Insurance
Australia Limited
MSB
MVF
MOC
MYO
NSR
NXT
Mesoblast Limited
Monash IVF Group Limited
Mortgage Choice Limited
MYOB Group Limited
National Storage REIT
Nextdc Limited
Growthpoint Metro Office Fund
(formerly GPT Metro Office Fund Units)
NHF
NIB Holdings Limited
BNO Bionomics Limited
GXL
Greencross Limited
BTT
BT Investment
Management Limited
GOZ
Growthpoint Properties
Australia Limited
BWP BWP Trust
HSN
Hansen Technologies Limited
CAJ Capitol Health Limited
HFA
HFA Holdings Limited
CWP Cedar Woods Properties Limited HIL
Hills Limited
CHC Charter Hall Group
HPI
Hotel Property Investments Limited
CQR Charter Hall Retail REIT
IMF
IMF Bentham Limited
CVO Cover-More Group Limited
IPD
Impedimed Limited
CMW Cromwell Property Group
CSV CSG Limited
ECX
Eclipx Group Limited
EQT
EQT Holdings Limited
EHE
Estia Health Limited
IDR
IFM
INA
IRE
ISD
Industria REIT Fund
Infomedia Limited
Ingenia Communities Group
IRESS Limited
iSentia Group Limited
2014 LTIS Comparator Group 1 (TSR-1)
ACG AtCor Medical
ACL
Alchemia Limited
ELX
GID
Ellex Medical Lasers Limited
Gi Dynamics, Inc
ACR Acrux Limited
GTG
Genetic Technologies Ltd
ADO Anteo Diagnostics
AHZ
Allied Health Ltd
ANP Antisense Therapeutics Ltd
IDT
IPD
IVX
IDT Australia Limited
Impedimed Limited
Invion Ltd
OFX
PAC
PTM
RKN
REG
SCP
SIG
SMX
SPL
SDF
TNE
UXC
VRT
PBT
PRR
PVA
PXS
PYC
QRX
OzForex Group Limited
Pacific Current Group Limited
Platinum Asset
Management Limited
Reckon Limited
Regis Healthcare Limited
Shopping Centres Australasia
Property Group RE Limited
Sigma Healthcare Limited (formerly
Sigma Pharmaceuticals Limited)
SMS Management
& Technology Limited
Starpharma Holdings Limited
Steadfast Group Limited
Technology One Limited
UXC Limited
Virtus Health Limited
Phosphagenics Limited
Prima Biomed
Psivida Limited
Pharmaxis Ltd
Phylogica Ltd
Qrxpharma Ltd
AVH Avita Medical Ltd
LCT
Living Cell Technologies Ltd
RMD
ResMed Inc.
AVX
Avexa Limited
MSB Mesoblast Ltd
RVA
Reva Medical, Inc
BLT
Benitec Biopharma Ltd
MVP Medical Developments
International Ltd
BNO Bionomics Limited
MYX Mayne Pharma Group Ltd
CDY Cellmid Limited
NEU
Neuren Pharmaceuticals Ltd
CIR
Circadian Technologies Ltd
OIL
Optiscan Imaging
CMP Compumedics Limited
OSP
Osprey Med Inc
SOM
SomnoMed Limited
SPL
SRX
TIS
UBI
Starpharma Holdings Ltd
Sirtex Medical Ltd
Tissue Therapies Ltd
Universal Biosensors
COH Cochlear Limited
CSL CSL Limited
PAB
PBT
CUV Clinuvel Pharmaceuticals Ltd
Patrys Limited
UCM
Uscom Limited
Prana Biotechnology Limited
VLA
Viralytics Ltd
The TSR hurdle set and the relative vesting schedule meet contemporary market standards
according to independent advice received by the Board. Testing of performance against the
relevant comparator group will only occur at the vesting date of each grant because, in the
opinion of the Board, the cost of preparing an interim TSR performance measure against each
of the Comparator Groups outweighs the benefit of this disclosure.
39
Financial reportDirectors’ report (continued) Earnings Per Share
The total number of performance rights and options granted subject to Nanosonics achieving a target
pre-tax Earnings Per Share (EPS), as pre-determined by the Board. Further details of the vesting
of performance rights and options are set out in Section 4.4.2. For the 2016 LTIS, the relevant year
for determining achievement of the EPS hurdle is the financial year ending on 30 June 2019.
Nanosonics’ pre-tax EPS for the financial years ended 30 June 2016 and 2017 is as follows.
Year
2017
2016
Pre-tax EPS
4.66 cents
0.05 cents
Revenue
The revenue target under the 2014 LTIS required Nanosonics to achieve sales in 2017 of $49.5 million for
100% vesting. 2017 sales were $67.5 million, 36% higher than the performance hurdle set by the Board.
Accordingly, 100% of the performance rights granted under the 2014 LTIS will vest.
Vesting outcome of 2013 LTIS
The performance conditions associated with the 2013 LTIS included a TSR hurdle and a revenue hurdle.
To achieve 100% vesting, Nanosonics’ relative TSR performance compared against the selected group
of comparator companies for the 2013 LTIS was required to be at or above the 75% percentile and revenue
was required to be at or above $36.7 million. Following the release of the Company’s 2016 financial
statements Nanosonics’ relative TSR ranking was determined to be in the 91st percentile and for the year
ended 30 June 2016 Nanosonics’ sales were $42.8 million. Accordingly, 100% of the performance rights
granted under the 2013 LTIS vested during the 2017 Financial Year.
4.6 Executive remuneration
4.6.1 Executive remuneration table – audited statutory disclosure (accounting cost to Nanosonics)
Fixed remuneration
Variable remuneration
Total
Short-term
Long-term
Total
Short-
term
Equity
compensation
Total
Non-
monetary
benefits
and others
Super-
annuation
Other
long
term
benefits
Cash
bonus3
Performance
rights and
options 4
–
–
–
19,616
54,084
539,443 111,961
446,663
558,624 1,098,067
19,308
37,107
487,260 112,923
580,863
693,786 1,181,046
19,616
34,254
340,012
41,309
178,125
219,434
559,446
Salary
and fees
465,743
430,845
286,142
309,529
11,180
20,917
29,964
371,590
46,500
205,181
251,681
623,271
311,492
283,031
231,224
212,549
192,697
–
–
37
–
19,616
30,744
361,852
43,782
150,636
194,418
556,270
19,308
44,640
347,016
47,361
174,250
221,611
568,627
19,616
28,664
279,504
35,341
122,889
158,230
437,734
264
19,308
28,592
260,713
38,818
141,255
180,073
440,786
–
–
–
16,583
16,484
225,764
33,053
31,777
64,830
290,594
–
–
–
–
–
–
–
95,047 164,230 1,746,575 265,446
930,090 1,195,536 2,942,111
Michael
Kavanagh 1
Ron
Weinberger
McGregor
Grant
Gerard Putt
Steven
Farrugia2
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Total
2017 1,487,298
2016 1,235,954
11,481
78,841 140,303 1,466,579 245,602
1,101,549 1,347,151 2,813,730
Proportion
of total
remuneration
Performance
related
%
51%
59%
39%
40%
35%
39%
36%
41%
22%
–
41%
48%
1. As part of Mr Kavanagh’s appointment as CEO and President, he was granted 1,500,000 performance rights in respect of the 2013 and 2014
LTIS subject to the relevant vesting conditions. This grant was approved by the shareholders at the 2013 AGM.
2. Dr Farrugia joined the Company on 5 September 2016. No “sign on bonus” was paid.
3. The cash bonus is for the performance during the respective financial year based on the criteria set out in Section 4.4.1. 2017 amounts represent
the cash STI opportunity accrued related to the financial year based on the achievement of individual goals and satisfaction of specified
performance criteria. The actual cash STI award is disclosed in Section 4.5.2.
4. The amount disclosed is the amount of the fair value of the performance rights and options recognised as an expense in each reporting period.
It also covers both the performance rights and options issued under the 2016 LTIS as well as the deferred STI. The ability to exercise the
performance rights and options is subject to vesting conditions.
4.6.2 Executive remuneration table – 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
40
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) which may or may not vest depending on future outcomes that are uncertain. Accordingly, this table
incorporates data that could represent an accumulation of outcomes arising from multiple years.
Short-term benefits
Fixed
remuneration 3
($)
Incentives 4
($)
Past at-risk
remuneration received
Value of
performance
rights5/6 ($)
Actual remuneration
received during year
Future at risk remuneration
received during year
STI (deferred
as equity) 7
($)
LTI (Equity)
granted 7
($)
($)
2,448,375
3,081,298
113,047
Michael
Kavanagh 1
Ron
Weinberger
McGregor
Grant
Gerard Putt
Steven
Farrugia 2
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
520,000
471,000
338,916
348,622
340,594
335,087
267,878
254,944
212,280
–
112,923
108,467
45,338
38,750
46,888
38,318
38,333
31,255
–
–
1,679,668
1,621,933
243,482
216,790
96,465
497,408
72,533
376,745
52,810
310,080
39,220
–
–
3,632,608
261,028
675,932
881,662
459,905
764,227
426,215
616,291
325,419
212,280
–
75,696
45,387
42,842
46,940
42,364
38,375
34,556
–
–
332,044
260,671
105,943
89,450
110,111
91,108
87,623
74,674
89,797
–
5,555,758
2,099,751
243,749
195,458
725,517
605,700
1. As part of Mr Kavanagh’s appointment as CEO and President, he was granted 1,500,000 performance rights in respect of the 2013 and 2014
LTIS subject to the relevant vesting conditions. This grant was approved by the shareholders at the 2013 AGM.
2. Dr Farrugia joined the Company on 5 September 2016. No “sign on bonus” was paid.
3. Includes base salary, superannuation, and other cash benefits received during the year (excludes annual leave and long service leave accrual).
4. STI received as cash in respect of the previous Financial Year. The incentive paid to the CEO&P in 2016 includes a payment of $40,000 that
was made at the discretion of the Board in respect of the 2015 Financial Year.
5. Intrinsic value at vesting date of performance rights and options issued in previous periods that vested during the year.
6. Includes 2015 deferred STI and 2013 LTIS which vested at 100% following the achievement of the performance hurdles.
7. Accounting value of performance rights and options awarded during the year that are unvested and subject to vesting conditions
(i.e. achievement of performance conditions and service conditions).
4.7 Other remuneration elements and disclosures relevant to Executive KMP
4.7.1 Clawback
Nanosonics has implemented a policy that gives the Board discretion to clawback or reduce STI or LTI
awards if it becomes aware of circumstances that have resulted in an unfair benefit to the executive KMP
including a material mistatement of the Group’s financial statements or misconduct of an executive KMP.
The policy is available on Nanosonics’ website, www.nanosonics.com under Investor Centre,
Corporate Governance.
4.7.2 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 Nanosonics’ website, www.nanosonics.com under
Investor Centre, Corporate Governance.
4.7.3 Cessation of employment provisions
No benefits are payable on termination other than accrued entitlements. The provisions that apply for STI
and LTI awards in the case of cessation of employment are detailed in Section 6.
41
Financial reportDirectors’ report (continued) 4.7.4 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.
4.7.5 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.
5.0 Employee Share Scheme information
This section provides:
1. A description of the Employee Share Schemes (ESS) Nanosonics uses to provide equity
rewards to Nanosonics employees.
2. Disclosures required in relation to ESS grants provided to KMP.
3. Disclosures required about ESS instruments that Nanosonics has issued.
4. Disclosures required in relation to Nanosonics’ shares and other ESS instruments held by KMP.
5.1 Employee Share Schemes operated by Nanosonics
On 4 November 2016 the Nanosonics Omnibus Equity Plan (NOEP) was adopted following approval
by shareholders at the Annual General Meeting of shareholders. The Omnibus Plan allows the Board
to issue a range of incentive awards with the purpose of providing competitive, performance-based
remuneration in alignment with the interests of shareholders. The NOEP operates in accordance with
the terms of the Nanosonics Omnibus Equity Plan Trust Deed, under which the trustee may subscribe
for, or acquire, deliver, allocate or hold, shares for the benefit of the participant. The key terms of the
NOEP were set out in the notice of meeting for the 2016 AGM. Participants will be able to access the
relevant taxation concessions available under the Income Tax Assessment Act 1997 (ITAA 1997).
Following the adoption of the NOEP, the Nanosonics Employee Share Option Plan (ESOP), the General
Share Option Plan (GSOP), the Deferred Employee Share Plan (DESP) and the Nanosonics Exempt
Employee Share Plan (EESP) are being phased out and replaced by the NOEP.
Details of securities issued during the 2017 Financial Year and the number of outstanding securities
as at the date of this report were as follows.
Plan name
Type of instruments
Details
Nanosonics Omnibus
Equity Plan (NOEP)
Performance rights
Options
Nanosonics Deferred
Employee Share Plan
(DESP)
Ordinary shares
Since the NOEP was approved, 495,783 options and
583,258 performance rights have been issued to the Plan.
495,783 options and 573,134 performance rights remain
outstanding as at the date of this report.
The purpose of the plan is provide eligible employees
(including Executive Directors but excluding NED) 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. As at the date of this report, the DESP holds
2,152,589 unrestricted shares held in trust for employees.
No new shares were issued under the plan.
No grants have been made under the EESP. This plan was
phased out accordingly.
Performance Rights
No new options were granted under the ESOP.
As at the date of this report, 2,452,292 performance
rights remain outstanding.
Options
No options were granted under the GSOP in 2017 and there
were no outstanding options as at the date of this report.
This plan was phased out accordingly.
Nanosonics Exempt
Employee Share Plan
(EESP)
Nanosonics Employee
Share Option Plan
(ESOP)
Nanosonics General
Share Option Plan
(GSOP)
42
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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 2017 of the performance rights and options
granted as remuneration to each Executive KMP are set out below:
Performance Rights
Options
KMP
Michael
Kavanagh
Ron
Weinberger
McGregor
Grant
Gerard Putt
Steven
Farrugia
Description
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 Deferred STI
2015 LTIS Tranche 1
2015 LTIS Tranche 2
2015 Deferred STI
2013 LTIS Tranche 11
2013 LTIS Tranche 21
2013 LTIS Tranche 3
2013 LTIS Tranche 4
Total
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 Deferred STI
2015 LTIS Tranche 1
2015 LTIS Tranche 2
2015 Deferred STI
2014 LTIS Tranche 1
2014 LTIS Tranche 2
2013 LTIS Tranche 11
2013 LTIS Tranche 21
Total
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 Deferred STI
2015 LTIS Tranche 1
2015 LTIS Tranche 2
2015 Deferred STI
2014 LTIS Tranche 1
2014 LTIS Tranche 2
2013 LTIS Tranche 11
2013 LTIS Tranche 21
Total
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 Deferred STI
2015 LTIS Tranche 1
2015 LTIS Tranche 2
2015 Deferred STI
2014 LTIS Tranche 1
2014 LTIS Tranche 2
2013 LTIS Tranche 11
2013 LTIS Tranche 21
Total
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
Total
Grant Date
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
04-Jan-16
04-Jan-16
11-Nov-15
08-Nov-13
08-Nov-13
08-Nov-13
08-Nov-13
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
04-Jan-16
04-Jan-16
11-Nov-15
11-Mar-15
11-Mar-15
08-Nov-13
08-Nov-13
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
04-Jan-16
04-Jan-16
11-Nov-15
11-Mar-15
11-Mar-15
03-Mar-14
03-Mar-14
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
04-Jan-16
04-Jan-16
11-Nov-15
11-Mar-15
11-Mar-15
03-Mar-14
03-Mar-14
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
05-Jan-17
Vesting
Date
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
01-Sep-17
31-Aug-18
31-Aug-18
01-Sep-16
31-Aug-16
31-Aug-16
31-Aug-17
31-Aug-17
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
01-Sep-17
31-Aug-18
31-Aug-18
01-Sep-16
31-Aug-17
31-Aug-17
31-Aug-16
31-Aug-16
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
01-Sep-17
31-Aug-18
31-Aug-18
01-Sep-16
31-Aug-17
31-Aug-17
31-Aug-16
31-Aug-16
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
01-Sep-17
31-Aug-18
31-Aug-18
01-Sep-16
31-Aug-17
31-Aug-17
31-Aug-16
31-Aug-16
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
31-Aug-19
Expiry
Date
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
01-Sep-20
30-Sep-18
30-Sep-18
01-Oct-16
30-Sep-16
30-Sep-16
30-Sep-17
30-Sep-17
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
01-Sep-20
30-Sep-18
30-Sep-18
01-Oct-16
30-Sep-17
30-Sep-17
30-Sep-16
30-Sep-16
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
01-Sep-20
30-Sep-18
30-Sep-18
01-Oct-16
30-Sep-17
30-Sep-17
30-Sep-16
30-Sep-16
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
01-Sep-20
30-Sep-18
30-Sep-18
01-Oct-16
30-Sep-17
30-Sep-17
30-Sep-16
30-Sep-16
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
31-Aug-22
Exercise
Price
$
-
-
-
2.85
2.85
2.85
-
-
-
-
-
-
-
-
-
-
-
2.85
2.85
2.85
-
-
-
-
-
-
-
-
-
-
-
2.85
2.85
2.85
-
-
-
-
-
-
-
-
-
-
-
2.85
2.85
2.85
-
-
-
-
-
-
-
-
-
-
-
2.85
2.85
2.85
Number
granted
10,535
10,534
21,069
-
-
-
36,823
103,441
103,441
48,061
Number
vested
during
the
year
-
-
-
-
-
-
-
-
-
48,061
375,000 375,000
375,000 375,000
-
375,000
-
375,000
1,833,904 798,061
-
-
-
-
-
-
-
-
-
27,201
-
-
67,409
67,409
361,791 162,019
-
-
-
-
-
-
-
3,361
3,361
6,723
-
-
-
14,784
35,496
35,496
27,201
50,276
50,275
67,409
67,409
2,568
2,567
5,135
-
-
-
15,290
36,154
36,154
26,898
36,041
36,041
47,888
47,889
2,043
2,043
4,087
-
-
-
12,500
29,632
29,633
21,940
29,739
29,739
39,514
39,515
26,898
-
-
47,888
47,889
292,625 122,675
-
-
-
-
-
-
-
-
-
21,940
-
-
39,514
39,515
240,385 100,969
-
-
-
-
-
-
-
1,369
1,368
2,737
-
-
-
5,474
3,361
3,361
6,723
Number
granted
-
-
-
52,827
52,826
36,823
103,441
103,441
-
-
-
375,000
375,000
Balance
Balance
at year
at year
end
end
-
10,535
-
10,534
-
21,069
52,827
-
-
52,826
- 105,653 105,653
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
798,061 1,035,843 211,306 211,306
-
-
-
16,855
16,854
33,710
-
-
-
-
-
-
-
-
67,419
-
-
-
20,028
20,028
40,056
-
-
-
-
-
-
-
-
80,112
-
-
-
15,937
15,937
31,875
-
-
-
16,855
16,854
33,710
-
-
-
-
-
-
-
-
67,419
-
-
-
20,028
20,028
40,056
-
-
-
-
-
-
-
-
80,112
-
-
-
15,937
15,937
31,875
15,290
36,154
36,154
-
36,041
36,041
-
-
169,950
2,043
2,043
4,087
14,784
35,496
35,496
-
50,276
50,275
-
-
199,772
2,568
2,567
5,135
%
vested
during
the year
-
-
-
-
-
-
-
-
-
Number
vested
to date
-
-
-
-
-
-
-
-
-
100% 48,061
100% 375,000
100% 375,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0%
0%
-
-
-
-
-
-
-
-
-
100% 27,201
-
-
100% 67,409
100% 67,409
162,019
-
-
-
-
-
-
-
-
-
100% 26,898
-
-
100% 47,888
100% 47,889
122,675
-
-
-
-
-
-
-
-
-
100% 21,940
-
-
100% 39,514
100% 39,515
100,969
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0%
0%
-
-
-
-
-
-
-
0%
0%
0%
0%
12,500
29,632
29,633
-
29,739
29,739
-
-
139,416
1,369
1,368
2,737
-
-
-
5,474
-
-
-
-
-
-
-
63,749
-
-
-
18,299
18,299
36,599
73,197
-
-
-
-
-
-
-
63,749
-
-
-
18,299
18,299
36,599
73,197
1. The performance conditions associated with the 2013 LTIS were fully met. Accordingly, these performance rights vested on 31 August 2016.
There were no performance rights or options forfeited or lapsed during the period. No share-based
payments were settled in cash.
Total intrinsic
value of
performance
rights and
options at
year end ($)
26,759
26,756
53,515
-
-
-
93,530
262,740
262,740
-
-
-
952,500
952,500
2,631,041
8,537
8,537
17,076
-
-
-
37,551
90,160
90,160
-
127,701
127,699
-
-
507,421
6,523
6,520
13,043
-
-
-
38,837
91,831
91,831
-
91,544
91,544
-
-
431,673
5,189
5,189
10,381
-
-
-
31,750
75,265
75,268
-
75,537
75,537
-
-
354,117
3,477
3,475
6,952
-
-
-
13,904
43
Financial reportDirectors’ report (continued) 5.2.2 Exercise of performance rights and options granted as remuneration
During the financial year, the following shares were issued on the exercise of performance
rights previously granted as part of remuneration to KMP:
KMP
Michael Kavanagh
Ron Weinberger
McGregor Grant
Gerard Putt
Steven Farrugia
Total
Number
of shares
Amount paid
per share ($)
Total amount
paid ($)
798,061
162,019
122,675
100,969
–
1,183,724
–
–
–
–
–
–
–
–
–
–
–
–
Intrinsic
value1 ($)
2,448,375
497,408
376,745
310,080
–
3,632,608
1. The intrinsic value of the shares is calculated as the market price of the shares of the 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 the current financial year or in prior years. There were no options exercised during the year.
5.2.3 Analysis of movement in performance rights and options
The movement in number and value during the financial year of performance rights
and options 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
KMP
Number
Value ($)1 Number Value ($)1
Number
Value ($)2 Number Value ($)2
Number
Value ($)1
Performance rights
Michael
Kavanagh
Ron
Weinberger
McGregor
Grant
1,754,943
1,495,305
78,961
229,558
798,061 2,448,375
333,562
389,751
28,229
82,563
162,019
497,408
267,065
312,698
25,560
75,337
122,675
376,745
Gerard Putt
219,712
257,116
19,398
60,974
100,969
310,080
Steven
Farrugia
–
–
5,474
15,136
–
–
Total
2,575,282
2,454,870
157,622
463,567 1,183,724 3,632,608
Options
Michael
Kavanagh
Ron
Weinberger
McGregor
Grant
Gerard Putt
Steven
Farrugia
Total
–
–
–
–
–
–
–
211,306
215,532
–
67,419
68,767
–
80,112
81,714
–
65,024
65,024
–
73,197
74,661
–
497,058
505,699
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,035,843 1,075,680
–
199,772
326,384
–
169,950
277,109
–
138,141
226,961
–
5,474
15,136
–
1,549,180 1,921,269
–
211,306
215,532
–
67,419
68,767
–
–
–
80,112
81,714
65,024
65,024
73,197
74,661
–
497,058
505,699
1. The fair value of the performance rights and options granted in the year is the fair value of the options calculated at grant date and
derived by applying the valuation methodology prescribed under IRS-2. The total value of performance rights and options granted
is included in the table above. This amount is allocated to remuneration over the vesting period.
2. The value of performance rights and options exercised and forfeited during the year is calculated as the market price of the shares
of the 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.
3. No performance rights or options as at 30 June 2017 have vested or are exercisable.
44
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 5.3 Fair value of share-based compensation
The following factors and assumptions were used in determining the fair value on grant date
of performance rights and options granted to directors and KMP under ESOP which were
unexpired on 30 June 2017, including those granted during the period:
Description
Performance rights
Vesting
conditions
2013 LTIS Tranche 3
– CEO
Relative TSR
performance
and service
2013 LTIS Tranche 4
– CEO
FY17 Revenue
and service
2014 LTIS Tranche 1
– Other KMP
2014 LTIS Tranche 2
– Other KMP
2015 LTIS Tranche 1
– CEO & KMP
2015 LTIS Tranche 2
– CEO & KMP
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
Relative TSR
performance
and service
FY17
Revenue and
service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
Grant date Vesting date Expiry date
Share
price at
grant
date ($)
Exercise
price ($)
Valuation
model
01-Nov-13
31-Aug-17
30-Sep-17
0.85
– Monte Carlo
01-Nov-13
31-Aug-17
30-Sep-17
0.85
–
Binomial
11-Mar-15
31-Aug-17
30-Sep-17
1.72
– Monte Carlo
11-Mar-15
31-Aug-17
30-Sep-17
1.72
–
Binomial
04-Jan-16
31-Aug-18
30-Sep-18
1.67
– Monte Carlo
04-Jan-16
31-Aug-18
30-Sep-18
1.67
– Monte Carlo
05-Jan-17
31-Aug-19
31-Aug-22
3.07
– Monte Carlo
05-Jan-17
31-Aug-19
31-Aug-22
3.07
– Monte Carlo
05-Jan-17
31-Aug-19
31-Aug-22
3.07
– Black-Scholes
2016 Deferred STI
Service
05-Jan-17
01-Sep-17
01-Sep-20
3.07
– Black-Scholes
Options
2016 LTIS Tranche 1
2016 LTIS Tranche 2
2016 LTIS Tranche 3
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
05-Jan-17
31-Aug-19
31-Aug-22
3.07
2.85 Monte Carlo
05-Jan-17
31-Aug-19
31-Aug-22
3.07
2.85 Monte Carlo
05-Jan-17
31-Aug-19
31-Aug-22
3.07
2.85 Black-Scholes
45
Financial reportDirectors’ report (continued) 5.4 KMP equity interests
In accordance with the Corporations Act (section 205G (1)), Nanosonics is required to notify the
interests (shares and rights to shares) of directors to the ASX. In the interests of transparency and
completeness of disclosure we have provided this information for each director (as required under
the Corporations Act) and all other Executive KMP.
Equity interests
as at 30 June 2017
Non-Executive Directors
Maurie Stang 4
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Other Executive KMP
Ron Weinberger 5
McGregor Grant
Gerard Putt 4
Steven Farrugia
Nanosonics
Limited ordinary
shares 1
Performance rights and options
over Nanosonics Limited
ordinary shares
Total intrinsic value
of NAN securities
as at year end ($) 2/3
22,679,701
128,301
503,940
66,000
19,600
–
–
–
–
–
57,606,441
325,885
1,280,008
167,640
49,784
1,018,540
1,247,149
5,218,133
220,013
595,000
189,270
–
267,191
250,062
203,165
78,671
1,066,254
1,942,973
834,862
13,904
1. Includes the number of Nanosonics shares held directly or indirectly and under the employee share plans.
2. The intrinsic value of Nanosonics shares calculated as at the closing share price of Nanosonics Limited on 30 June 2017 times the
number of shares.
3. The intrinsic value of performance rights and options calculated as at the closing share price of Nanosonics Limited on 30 June 2017
less the applicable exercise price times the number of and performance rights and options.
4. Includes shares held by a close family member.
5. Dr Weinberger was previously an Executive Director but retired from the Board on 4 November 2016. He was an Executive KMP
for the full year.
Equity interests as at the
date of this report
Non-Executive Directors
Maurie Stang 2
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Other Executive KMP
Ron Weinberger 3
McGregor Grant
Gerard Putt 2
Steven Farrugia
Nanosonics Limited
ordinary shares 1
Performance rights and options over
Nanosonics Limited ordinary shares
22,793,301
128,301
503,940
66,000
19,600
1,018,540
220,013
595,000
189,270
–
–
–
–
–
–
1,247,149
267,191
250,062
203,165
78,671
1. Includes the number of Nanosonics shares held directly or indirectly and under the employee share plans.
2. Includes shares held by a close family member.
3. Dr Weinberger was previously an Executive Director but retired from the Board on 4 November 2016. He is an Executive KMP
for the full year.
Refer to Section 4.5.2 regarding Securities Trading Restrictions.
46
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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
performance rights
and options
Sale of
shares
during the
year
Other net
changes
during the
year
Balance at
end of the year
Non-Executive
Directors
Maurie Stang 1
22,679,701
Richard England
David Fisher
Steven Sargent 2
Marie McDonald 3
Executive Director
128,301
503,940
–
–
–
–
–
–
–
Michael Kavanagh
220,479
798,061
–
–
–
–
–
–
Other Executive KMP
Ron Weinberger 4
McGregor Grant
Gerard Putt 1
Steven Farrugia 5
104,994
633,584
128,751
–
162,019
(47,000)
122,675
(161,259)
100,969
(41,000)
–
–
–
–
66,000
19,600
–
–
–
550
–
22,679,701
128,301
503,940
66,000
19,600
1,018,540
220,013
595,000
189,270
–
1. Includes shares held by a close family member.
2. Mr Sargent was appointed to the Board on 6 July 2016. Change in shares above represents his on-market purchase of shares
to the Company during the period.
3. Ms McDonald was appointed to the Board on 24 October 2016. Change in shares above represents her on-market purchase
of shares to the Company during the period.
4. Dr Weinberger was previously an Executive Director but retired from the Board on 4 November 2016. He is an Executive KMP
for the full year.
5. Dr Farrugia joined the Company on 5 September 2016 and currently holds no shares.
47
Financial reportDirectors’ 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
$530,400 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 2014, 2015 and 2016 are described
in section 4.4.2.
Notice periods
In order to terminate the employment arrangements, Mr Kavanagh 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:
• 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.
Change of control
In the event of a takeover or change in control of Nanosonics Limited, any unvested
performance rights and options 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 and options 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 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. At the Board’s
discretion, Nanosonics may seek reimbursement of amounts previously paid in
accordance with the Company’s Clawback Policy (see Section 4.7.1).
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.
48
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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 and Steven Farrugia: 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:
• 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.
Change of control
In the event of a takeover or change in control of Nanosonics Limited, any unvested
performance rights and options 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 and options 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. At the Board’s
discretion, Nanosonics may seek reimbursement of amounts previously paid in
accordance with the Company’s Clawback Policy (see Section 4.7.1).
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.
49
Financial reportDirectors’ report (continued) 7.0 Key Management Personnel transactions
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 2017 (2016: 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 2016 and 2017 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
Transactions
Maurie Stang
Gryphon Capital Pty Ltd
Director fees
Maurie Stang
Ramlist Pty Ltd
Rent of premises
Maurie Stang
Regional Healthcare
Group Pty Ltd
Products purchased, services received
and products sold
Richard England
Angleterre Nominees 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
Interest charged
Purchases of goods and services from Related Parties
Rent of premises and equipment from Related Parties
and make good payments
2017
$
2016
$
2,055,438
1,821,765
1,115
11,388
255,861
210,697
–
210,079
The above transactions exclude director fees which were disclosed in section 3.3.
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)
2017
$
2016
$
791,582
639,133
1,976
–
50
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) 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 did not provide any non-audit services during
the year. Its related practice firms outside of Australia provided non-audit services.
Details of amounts paid or payable to the auditor of the Group in relation to audit and non-audit
services are disclosed in note 9.5 to the financial statements.
51
Financial reportDirectors’ 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 94 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 in the CEO’s report and the Regional
highlights (on pages 6 to 14) and the Information on the directors, company secretaries and
the executive team (on pages 18 to 21), is made and signed in accordance with a resolution
of directors, pursuant to section 298 (2)(a) of the Corporations Act 2001, on 23 August 2017.
Richard England
Director, Sydney
24 August 2017
52
Nanosonics Annual Report 2017Financial reportDirectors’ report (continued) Contents of the financial statements
Contents of the
financial statements
For the year ended 30 June 2017
54
Auditor’s independence declaration
74
Consolidated 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
74
75
75
76
77
78
78
78
80
81
82
87
87
88
88
88
88
90
90
91
91
91
92
55
55
56
57
58
59
59
59
59
62
62
63
63
64
64
65
65
66
68
68
68
69
5. Financial assets and
financial liabilities
5.1 Cash and cash equivalents
5.2 Trade and other receivables
5.3 Derivative financial instruments
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
4.2 Employee benefits liabilities
4.3 Share-based payments
93
Directors’ declaration
94
Independent auditor’s report
to the members
53
Financial report
Auditor’s independence declaration
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
As auditor for the audit of Nanosonics Limited for the year ended 30 June 2017, 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
UHY Haines Norton
Chartered Accountants
Sydney
Date 24 August 2017
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
54
Nanosonics Annual Report 2017Financial report
Consolidated financial statements
Consolidated statement
of profit or loss and other
comprehensive income
For the year ended 30 June 2017
Continuing operations
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 before income tax
Notes
2.1
2017
$’000
67,507
(17,352)
50,155
(19,540)
(9,041)
(9,488)
2.3
780
12,866
1,063
(77)
986
13,852
Income tax benefit/(expense)
3.1
12,306
Net income after income tax expense attributable
to owners of the parent entity
Other comprehensive income
Items that may be classified subsequently to profit or loss
Exchange difference on foreign currency translation
Income tax on items of other comprehensive income
Total items that may be classified subsequently
to profit or loss
Total other comprehensive income
Total comprehensive income for the period
attributable to owners of the parent entity
Basic earnings per share
Diluted earnings per share
2.4 (a)
2.4 (b)
The notes on pages 59 to 92 form an integral part of these consolidated financial statements.
26,158
501
–
501
501
26,659
Cents
8.79
8.70
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
55
Financial report Consolidated financial statements
Consolidated statement
of financial position
As at 30 June 2017
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
Net deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Income taxes payable
Deferred revenue
Employee benefits liabilities
Provisions
Borrowings
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred revenue
Employee benefits liabilities
Provisions
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Notes
2017
$’000
2016
$’000
5.1
5.2
6.1
5.3
6.2
6.3
3.2
5.4
4.2
6.4
5.5
5.4
4.2
6.4
5.5
62,989
48,841
8,923
7,728
338
1,379
81,357
3,464
281
14,134
20
17,899
99,256
3,727
53
1,697
2,748
534
404
9,163
236
1,235
355
70
946
2,842
12,005
87,251
7,734
6,935
35
1,050
64,595
3,304
260
-
10
3,574
68,169
4,613
4
989
2,238
643
395
8,882
252
747
205
70
1,349
2,623
11,505
56,664
8.1(a)
112,713
11,760
(37,222)
87,251
112,698
7,346
(63,380)
56,664
The notes on pages 59 to 92 form an integral part of these consolidated financial statements.
56
56
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Consolidated financial statements
Consolidated statement
of changes in equity
For the year ended 30 June 2017
Contributed
equity
Note 8.1(a)
$’000
103,059
–
–
–
(28)
66
112,698
–
–
–
15
–
At 30 June 2015
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners
in their capacity as owners
Shares issued
Transaction costs
Share-based payments
At 30 June 2016
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners
in their capacity as owners
Share-based payments
Income tax on
share-based payments
At 30 June 2017
112,713
Option
premium on
convertible
note
Reserves
Share-based
payments
Foreign
currency
translation
Total
reserves
Accumulated
losses
Total
equity
$’000
376
–
–
–
–
–
–
–
–
–
–
–
–
$’000
4,709
–
–
–
–
–
2,398
7,107
–
–
–
2,139
1,774
$’000
$’000
$’000
$’000
34
–
205
205
4,743
(63,502)
44,676
–
205
205
122
122
205
122
327
–
–
–
–
–
2,398
–
–
–
9,225
(28)
2,464
239
7,346
(63,380)
56,664
501
501
–
501
501
26,158 26,158
–
501
26,158
26,659
–
–
2,139
1,774
–
2,154
–
1,774
11,020
740
11,760
(37,222)
87,251
9,601
(376)
The notes on pages 59 to 92 form an integral part of these consolidated financial statements.
57
57
Financial report
Consolidated financial statements
Consolidated statement
of cash flows
For the year ended 30 June 2017
Notes
2017
$’000
2016
$’000
Cash flows from operating activities
Receipts from customers
Receipts from government grants
Payments to suppliers and employees
Interest received
Income taxes refund received/(paid)
Net cash provided by 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
Repayments of borrowings
Interest paid on borrowings
Proceeds from exercise of options
Proceeds from borrowings
Share issue costs
Net cash (used in) 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)
67,816
–
(52,443)
1,005
10
16,388
(1,065)
(201)
21
(1,245)
(395)
(77)
15
–
–
(457)
14,686
48,841
(538)
62,989
41,243
120
(39,138)
1,004
(5)
3,224
(1,087)
(217)
23
(1,281)
(322)
(71)
66
2,048
(27)
1,694
3,637
45,724
(520)
48,841
The notes on pages 59 to 92 form an integral part of these consolidated financial statements.
58
58
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements
Notes to the financial
statements
For the year ended 30 June 2017
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 2017 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 in the CEO’s report and Regional highlights on pages 6 to 14 of this
Annual Report and in the Directors’ report on page 22.
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 (AASB) 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 24 August 2017.
(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
(i) 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.
(ii) 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.
59
59
Financial report
Notes to the financial statements (continued)
(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
• 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.
60
60
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
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
Deferred taxes
Note 4.2
Employee benefits liabilities
Note 4.3
Share-based payments
Note 6.4
Provisions
Note 7
Financial risk management
(g) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, taking into
account defined terms of payment and excluding taxes or duty. Amounts disclosed as revenue
are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the entity and specific criteria have been
met for each of the Group’s activities as described below. The amount of revenue is not
considered to be reliably measurable until all contingencies relating to the sale have been
resolved. The Group bases its estimates on historical results, taking into consideration the
type of customer, the type of transaction and the specifics of each arrangement.
Revenue is recognised for the major business activities as follows:
(i) Sale of goods
Revenue 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 is recognised when services have been provided to the customers
and where there are no continuing unfulfilled obligations. Revenue from service contracts is
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.
(h) 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.
61
61
Financial report Notes to the financial statements (continued)
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.
(i) 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 Chief Executive Officer & President (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.
(iii) Major customers
The Group has a number of customers to which it provides products and services.
The most significant customer accounts for 65.7% (2016: 55.2%) of external revenue.
The next most significant customer accounts for 3.3% of external revenue (2016: 8.0%).
(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
Europe
Asia Pacific
Total revenue
2017
$’000
2016
$’000
62,305
39,029
1,673
3,529
1,061
2,706
67,507
42,796
62
62
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
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
Europe
Asia Pacific
Total non-current assets
2017
$’000
273
103
17,523
17,899
2016
$’000
248
23
3,303
3,574
For the year ended 30 June 2017, revenue and non-current assets by geographical location has
been amended to include the category, Asia Pacific which includes revenue from customers
based in Australia, New Zealand, Japan, Singapore and Hong Kong. Accordingly, the comparative
information has been amended to reflect this change. Previously, sales to Singapore and Hong
Kong were included in Europe and other countries.
2.2 Individually significant items
The profit from ordinary activities before income tax includes:
Depreciation, amortisation and impairment
Rental expenses relating to operating leases
Bad debts provision
Inventories provision/write off
Loss on disposal of fixed assets
Net foreign exchange losses
2.3 Other income
2017
$’000
2016
$’000
1,274
1,322
882
12
611
3
1,032
895
9
195
4
541
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.
Realised gains/(losses) on foreign currency forward contracts and options
Unrealised gains on foreign currency forward contracts and options
Net gains on foreign currency forward contracts and options
Government grant
Other income
Total
2017
$’000
433
338
771
–
9
2016
$’000
(24)
35
11
120
2
780
133
63
63
Financial report Notes to the financial statements (continued)
Prior year government grant 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.
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.
2017
Cents
2016
Cents
(a) Basic earnings per share
Basic earnings attributable to the ordinary equity holders of the Company
8.79
0.04
(b) Diluted earnings per share
Diluted earnings attributable to the ordinary equity holders of the Company
8.70
0.04
(c) Earnings used in calculating earnings per share
Net earnings after income tax expense attributable to shareholders
26,158
122
(d) Weighted average number of shares used as the denominator
Numbers
Numbers
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
297,422,292 285,619,275
Adjustments for calculation of diluted earnings per share:
Performance rights and options unvested
3,294,862
3,972,299
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
300,717,154 289,591,574
2.5 Dividends
No dividends were proposed, declared or paid during the financial year and to the date
of this report (2016: Nil).
64
64
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
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.
The major components of income tax benefit/(expense) for the period are:
Consolidated statement of profit or loss
Current tax
Current tax expense for the period
Deferred tax
Recognition of deferred tax assets (net) including origination and reversal
of temporary differences
Effect of tax rate change
2017
$’000
2016
$’000
(8,487)
(3,331)
20,893
3,338
(35)
–
20,858
3,338
Adjustment relating to prior periods
(65)
Income tax benefit/(expense) reported in the statement of profit or loss
12,306
Consolidated statement of changes in equity
Aggregate current and deferred tax not recognised in net profit or loss
but directly debited or credited into equity
Current tax benefit on share-based payments
Deferred tax benefit on share-based payments
Tax benefit charged to equity
1,138
636
1,774
(21)
(14)
–
–
–
Following an assessment of the operations of the Group, it has been determined that it is
probable that taxable profits will be generated against which carried forward tax losses and
tax credits can be utilised. As a consequence, previously unrecognised deferred tax assets
in relation to the Australian entities were recognised as non-current assets as at 30 June
2017 amounting to $14,134,000, as detailed in note 3.2.
65
65
Financial report Notes to the financial statements (continued)
The reconciliation of income tax expense to prima facie tax payable is as follows:
Operating profit from ordinary activities
The prima facie income tax expense applicable to the operating
profit is calculated at Australian tax rate of 30% (2016: 30%)
Tax effect of amounts in calculating taxable income
Other deductible items
Research and development expense
Other non-deductible items
Other temporary differences
Effect of tax rate in foreign jurisdictions
Current tax expense
Recognition and utilisation of deferred tax assets in Australia
Derecognition of deferred tax assets in foreign jurisdictions
Utilisation of unrecognised deferred tax assets in foreign jurisdictions
Effect of tax rate change
Deferred tax benefit
Adjustment relating to prior periods
Income tax benefit/(expense)
3.2 Deferred taxes
2017
$’000
13,852
2016
$’000
136
(4,156)
(41)
423
257
(2,846)
(2,189)
(645)
(927)
(336)
(723)
(315)
(320)
(8,487)
(3,331)
20,552
(666)
1,007
(35)
6,673
(3,335)
–
–
20,858
3,338
(65)
12,306
(21)
(14)
Deferred income tax is provided 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.
An assessment of the operations resulted in the recognition of the deferred tax assets
on losses, non-refundable R&D tax credits and temporary differences relating to the Australian
tax consolidated group as it has been determined that it is probable that taxable profits
will be generated against which these can be utilised.
Deferred tax asset and liabilities, if recognised, are classified as non-current assets and liabilities.
66
66
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report
Notes to the financial statements (continued)
As of 30 June 2017, the net deferred tax assets recognised in the statement of financial
position comprises:
Deferred tax assets
Non-refundable R&D tax credits
Tax losses
Share-based payments
Employee benefits liabilities
Patent costs
Provisions for warranties and make good
Provision for impairment
Share issue costs
Deferred revenue
Inventory provision
Deferred rent
Unrealised foreign exchange losses
Others
Total deferred tax assets
Deferred tax liabilities
Accrued interest and other income
Derivative financial instruments
Prepayments
Property, plant and equipment
Total deferred tax liabilities
Net deferred tax assets
2017
$’000
8,092
2,277
1,401
695
593
184
11
120
172
217
79
283
236
14,360
(104)
(101)
(7)
(14)
(226)
14,134
The Group offsets tax assets and liabilities only if it has legally enforceable right to set
off current tax assets and current tax liabilities and the deferred tax assets and deferred
tax liabilities relate to income taxes levied by the same tax authority.
As at 30 June 2017, the Group has unrecognised deferred tax assets in relation
to its subsidiaries. Unrecognised deferred tax assets include:
Estimated tax losses carried forward (a)
Non-refundable R&D tax credits (b)
2017
$’000
3,439
–
2016
$’000
18,077
–
3,439
18,077
(a) Estimated unrecognised tax losses carried forward:
Unrecognised tax losses brought forward at the beginning of the period
57,489
56,423
Adjustment in respect of unrecognised tax losses carried forward
relating to prior period1
Carried forward tax losses utilised
Tax losses for the period related to non-Australian entities
Recognition of deferred tax assets on Australian tax losses
Estimated unrecognised tax losses carried forward at the end of the period
Potential tax benefit at 30.5% effective tax rate (30 June 2016: 31.4%)
(15,664)
(26,011)
3,059
(7,589)
11,284
3,439
(354)
(7,392)
8,812
–
57,489
18,077
67
67
Financial report Notes to the financial statements (continued)
(b) Estimated unrecognised non-refundable R&D tax credits:
Non-refundable R&D tax credits brought forward at the beginning
of the period
Adjustment in respect of non-refundable R&D tax credits carried
forward relating to prior periods1
Credits that arose during the period
Credits that were utilised during the period
Recognition of deferred tax assets on R&D tax credits
Estimated unrecognised non-refundable R&D tax credits
at the end of the period
2017
$’000
2016
$’000
–
3,841
11,097
9,488
(53)
7,297
–
(11,085)
(20,585)
–
–
–
1. At 30 June 2016 it was anticipated that the Company would utilise the available R&D tax credits to offset its Australian current
tax expense in relation to the year ended 30 June 2016. Subsequently, it was determined that the Company would first utilise
carried forward tax losses instead of R&D tax credits.
The probability of recovery of unrecognised tax losses in relation to the subsidiaries
is reviewed on an on-going basis.
4. Employee benefits
4.1 Staffing costs
Staffing costs included in the profit and loss statement consist of:
Salaries and wages
Termination benefits
Superannuation and social security contribution
Workers compensation costs
Other employee benefits and staffing costs
Share-based payments
The above staffing costs have been broken down into:
Cost of sales
Selling and general expenses
Administration expenses
Research and development expenses
Total staffing costs
4.2 Employee benefits liabilities
2017
$’000
2016
$’000
18,311
15,581
226
132
1,772
1,515
121
4,112
2,139
129
3,282
2,398
26,681
23,037
4,122
2,939
12,486
11,608
4,388
5,685
3,874
4,616
26,681
23,037
(i) Wages, salaries and annual leave
Liabilities for employee benefits, including wages, salaries and non-monetary benefits,
and accumulated annual and other leave, represent present obligations resulting from employees’
services provided to the reporting date. Employee benefits have been measured at the amounts
expected to be paid when the liabilities are settled and are recognised in the provision for
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.
68
68
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
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.
Short-term and long-term classification of benefits
Benefits that are expected to be settled wholly within 12 months after the end of the annual reporting
period in which the employees render the related service are classified as short-term employee
benefits. Short-term employee benefits are accounted for on an undiscounted basis in the period
in which the service is rendered. Long-term employee benefits are benefits that are not expected
to be wholly settled within 12 months, are discounted allowing for expected salary levels in the future
period. Cash bonuses are classified as short-term employee benefits while annual leave and long
service leave are long-term employee benefits.
Employee benefits liabilities as at the reporting date:
2017
Current Non-current
Provision of annual leave
Provision for long service leave
Provision for bonuses
$’000
1,182
302
1,264
$’000
Total
$’000
–
1,182
355
657
2016
Current
Non-current
$’000
956
272
$’000
–
205
Total
$’000
956
477
–
1,264
1,010
–
1,010
Total employee benefit liabilities
2,748
355
3,103
2,238
205
2,443
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-based compensation plans
On 4 November 2016, the Nanosonics Omnibus Equity Plan (NOEP) was adopted following approval
by shareholders. The Omnibus Plan allows the Board to issue a range of incentive awards with the
purpose of providing competitive, performance-based remuneration in alignment with the interests
of shareholders. The NOEP is intended to replace existing plans and will operate in accordance with
the terms of the Nanosonics Omnibus Equity Plan Trust Deed, under which the trustee may subscribe
for, or acquire, deliver, allocate or hold, shares for the benefit of the participant. Participants will be
able to access the relevant taxation concessions available under the Income Tax Assessment Act
1997 (ITAA 1997).
Under the NOEP Plan, eligible employees (including Executive Directors, casual employees and
certain contractors) may be offered shares in Nanosonics Limited (share awards), performance share
awards, options or rights.
69
69
Financial report Notes to the financial statements (continued)
Participation in the NOEP is at the Board’s discretion and no individual has a contractual right
to participate in it or to receive any guaranteed benefits.
The Company also has existing share option plans and share plans which were phased out during the
period or in the process of being phased out and replaced by the NOEP.
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 on 8 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.
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. As part of the phasing out of the ESOP, no new share options
were issued under the ESOP during the financial year (2016: 1,446,710 share options issued).
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 (2016: Nil issued) and there were no options outstanding under the GSOP
at the end of the year. Accordingly, the GSOP is now phased out.
Employee share plans
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
by shareholders on 8 November 2013.
The DESP allows invited eligible employees, including directors, to receive Nanosonics shares as a bonus
or incentive or as remuneration sacrifice and, subject to certain conditions, not to pay tax for up to 10 years
on the benefit in accordance with enabling tax legislation.
The EESP enables eligible employees, including directors, to acquire up to $1,000 worth of Nanosonics
shares each year on a tax-exempt basis in accordance with enabling tax legislation. No shares were
granted under the EESP since it was established. Accordingly, the EESP has been phased out and
replaced by the NOEP.
(ii) Exercise of performance rights and options
Performance rights and options are granted under the plans for no consideration and carry no dividend
or voting rights. When exercisable, each performance right and option is convertible into one ordinary
share that ranks equally with any other share on issue in respect of dividends and voting rights.
The exercise prices of all performance rights and options issued to the date of this report were fixed
on the dates the performance rights and options were granted.
Performance rights and options granted under the NOEP or ESOP requires the holder to be an employee
of the Company at the time the performance rights and options are exercised, except that they may
be exercised, if vested, up to 30 days after voluntary termination of employment.
70
70
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(iii) Reconciliation of outstanding performance rights and options
The number and weighted average exercise price (WAEP) of performance rights and options
under the share option plans were as follows:
Number of
performance
rights and
options
NOEP
2017
ESOP
GSOP
All share-based
compensation plans
2017
2016
2017
2016
2017
2016
Number of
performance
rights and
options
Number of
performance
rights and
options
WAEP
($)
Number of
performance
rights and
options
Number of
performance
rights and
options
WAEP
($)
Number of
performance
rights and
options
Number of
performance
rights and
options
Number of
performance
rights and
options
WAEP
($)
WAEP
($)
WAEP
($)
Unexpired
performance
rights and
options
as at 1 July
Granted
during the year
Exercised
during the year
Forfeited
during the year
Unexpired
performance
rights and
options
as at 30 June
–
–
4,253,250
– 5,537,356
1,079,041
1.31
–
– 1,446,710
–
– (1,768,419)
–
(597,253)
(8,811)
–
(32,539)
– (2,133,563)
1,070,230
1.32
2,452,292
– 4,253,250
–
–
–
–
–
30,000
0.51
156,667
0.51
4,283,250 5,694,023
–
–
–
–
1,079,041 1,446,710
(30,000)
0.51
(126,667)
0.52 (1,798,419)
(723,920)
–
–
–
–
–
(41,350)
(2,133,563)
–
30,000
0.51
3,522,522 4,283,250
1,798,419 performance rights and options were exercised in 2017. The weighted average market share
price on the ASX based on the dates of the exercise was $3.07 (2016:$1.53). No performance rights
or options expired during the periods covered by the above table.
Performance rights and options outstanding at the end of the year have the following expiry dates
and exercise prices:
Shared-based
compensation
plan
Exercise
price
Assessed
fair value at
grant date
($) 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
0.5133
09-Nov-12
0.27
24-Nov-16
30,000
GSOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
08-Nov-13
08-Nov-13
08-Nov-13
08-Nov-13
03-Mar-14
03-Mar-14
11-Mar-15
11-Mar-15
0.68
30-Sep-16
442,409
0.85
30-Sep-16
442,409
0.71
30-Sep-17
375,000
0.85
30-Sep-17
375,000
0.63
30-Sep-16
249,110
0.80
30-Sep-16
249,119
1.36
30-Sep-17
365,500
1.71
30-Sep-17
365,485
11-Nov-15
1.58
01-Oct-16
387,942
04-Jan-16
04-Jan-16
05-Jan-17
05-Jan-17
05-Jan-17
1.46
30-Sep-18
500,631
1.06
30-Sep-18
500,645
2.59
31-Aug-22
2.33
31-Aug-22
3.07
31-Aug-22
2.85
05-Jan-17
1.00
31-Aug-22
2.85
05-Jan-17
0.98
31-Aug-22
2.85
05-Jan-17
1.05
31-Aug-22
–
05-Jan-17
3.07
01-Sep-20
–
–
–
–
–
–
–
87,921
87,904
175,844
123,946
123,944
247,893
231,589
–
–
–
–
–
–
–
–
–
–
–
–
(30,000)
(442,409)
(442,409)
–
–
(249,110)
(249,119)
–
–
(385,372)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9,988)
(9,964)
(2,570)
(5,008)
(5,009)
(1,169)
(1,168)
(2,337)
–
–
–
–
–
–
375,000
375,000
–
–
355,512
355,521
–
495,623
495,636
86,752
86,736
173,507
123,946
123,944
247,893
(4,137)
227,452
4,283,250
1,079,041
(1,798,419)
(41,350)
3,522,522
No performance rights or options are vested and exercisable at end of year.
71
71
Financial report Notes to the financial statements (continued)
(iv) Fair values
Fair values of performance rights and options granted
The assessed fair value on the date performance rights and options were granted was
independently determined using an appropriate valuation model that takes into account the
exercise price, the term of the performance right or 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 performance right or option.
The inputs used in the measurement of the fair values at the grant date are the following:
Compensation
plan
Description
Vesting
conditions
Granted during the year
Exercise
price
($)
Grant
date
Vesting
date
Expiry
date
Estimated
share price
at grant
date ($)
Valuation
model
Expected
price
volatility
of the
Company’s
shares
Expected
dividend
yield
Risk-free
interest
rate
Assessed
fair value
at grant
date
($)
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
2016 LTIS
Tranche 1
2016 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
2016 LTIS
Tranche 3
Pre-tax EPS
and service
2016 LTIS
Tranche 1
2016 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
2016 LTIS
Tranche 3
Pre-tax EPS
and service
– 5-Jan-17 31-Aug-19 31-Aug-22
3.07
– 5-Jan-17 31-Aug-19 31-Aug-22
3.07
– 5-Jan-17 31-Aug-19 31-Aug-22
3.07
2.85 5-Jan-17 31-Aug-19 31-Aug-22
3.07
2.85 5-Jan-17 31-Aug-19 31-Aug-22
3.07
2.85 5-Jan-17 31-Aug-19 31-Aug-22
3.07
2016
Deferred
STI
Service
– 5-Jan-17
1-Sep-17
1-Sep-20
3.07
Granted in prior periods and unexpired at report date:
– 4-Jan-16 31-Aug-18 30-Sep-18
1.67
– 4-Jan-16 31-Aug-18 30-Sep-18
1.67
Monte
Carlo
Monte
Carlo
Black-
Scholes
Monte
Carlo
Monte
Carlo
Black-
Scholes
Black-
Scholes
Monte
Carlo
Monte
Carlo
35.80%
0%
2.00%
2.59
35.80%
0%
2.00%
2.33
35.80%
0%
2.00%
3.07
35.80%
0%
2.00%
1.00
35.80%
0%
2.00%
0.98
35.80%
0%
2.00%
1.05
35.80%
0%
2.00%
3.07
37.50%
0%
2.00%
1.46
37.50%
0%
2.00%
1.06
– 11-Mar-15 31-Aug-17 30-Sep-17
1.72 Binomial
45.00%
0%
1.88%
1.36
– 11-Mar-15 31-Aug-17 30-Sep-17
1.72
– 8-Nov-13 31-Aug-17 30-Sep-17 0.85
Monte
Carlo
Monte
Carlo
45.00%
0%
1.88%
1.71
45.00%
0%
3.20%
0.71
– 8-Nov-13 31-Aug-17 30-Sep-17 0.85 Binomial
45.00%
0%
3.20%
0.85
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
2015 LTIS
Tranche 1
2015 LTIS
Tranche 2
2014 LTIS
Tranche 1
2014 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
FY17
Revenue
and service
2013 LTIS
Tranche 3
Relative TSR
performance
2013 LTIS
Tranche 4
FY17
Revenue
and service
Fair values 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.
72
72
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(v) Recognition of expenses
Recognition of expense of performance rights and options granted
The fair value of performance rights and options granted 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.
Total expenses arising from share-based payment transactions recognised during the period
as part of employee benefit expense were as follows:
Performance rights and options issued under ESOP
Performance rights and options issued under NOEP
Options issued under GSOP
2017
$’000
2016
$’000
1,549
2,394
590
–
–
4
2,139
2,398
Recognition of expense of shares granted
The assessed fair values of shares granted under the NOEP and 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 NOEP and 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 (2016: Nil)
Shares issued on the exercise of performance rights and options granted to employees
as part of their performance bonus or short term incentive under the ESOP were
issued to the DESP.
Following is a reconciliation of shares on issue under the DESP:
Employee shares on issue as at 1 July
Granted during the year
2017
2016
1,010,585
715,366
–
–
Issued on exercise of performance rights and options during the year
1,798,419
597,253
Withdrawn during the year
Employee shares on issue as at 30 June
(655,078)
(302,034)
2,153,926
1,010,585
73
73
Financial report Notes to the financial statements (continued)
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
2017
$’000
2016
$’000
13,781
16,591
2,526
750
46,682
31,500
62,989
48,841
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.
(ii) Reconciliation of profit after income tax to net cash inflow from operating activities
Operating profit after income tax
Adjustment for:
Depreciation, amortisation and impairment
Share-based payments expense
Borrowing costs
Loss on disposal of fixed assets
Effect of foreign exchange movements
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/(decrease) in employee benefit liabilities
Increase/(decrease) in provisions
(Increase)/decrease in net current tax assets/liabilities
(Increase)/decrease in net deferred tax assets
2017
$’000
26,158
1,274
2,139
77
3
1,095
(303)
(1,326)
(1,022)
(358)
(9)
(874)
1,261
677
(109)
65
(12,360)
2016
$’000
122
1,322
2,398
603
4
896
(35)
(4,075)
(965)
(416)
140
2,286
1,334
456
(855)
9
–
Net cash provided by operating activities
16,388
3,224
74
74
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(iii) Credit standby arrangements unused
Facility limits
Borrowing facilities
Guarantee facility
Facility available
Borrowing facilities
Guarantee facility
2017
$’000
2,115
475
766
14
2016
$’000
2,115
475
365
14
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
2017
$’000
2016
$’000
8,204
7,092
346
373
286
356
8,923
7,734
5.3 Derivative financial instruments
The Group uses derivative financial instruments (foreign currency forward contracts and
options) 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.
75
75
Financial report Notes to the financial statements (continued)
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 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 and options were valued using market
comparison technique (Level 2) and there were no transfers between levels during the year.
The fair values are based on third party independent valuation. Similar contracts are traded in an
active market and the independent valuation reflects the actual transactions in similar instruments.
As at 30 June 2017, the Group holds derivative financial instruments carried at fair value
of $338,000 (2016: $35,000).
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 payments 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.
76
76
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
The carrying amounts of trade and other payables are assumed to be the same
as their fair values, due to their short-term nature.
2017
2016
Current Non-current
$’000
$’000
Total
$’000
Current
$’000
Non-current
$’000
Total
$’000
1,405
28
2,294
–
1,405
2,586
–
2,586
236
264
10
252
262
–
2,294
2,017
–
2,017
3,727
236
3,963
4,613
252
4,865
Trade payables
Lease straight-lining liability
Other payables
Total trade and
other payables
5.5 Borrowings
Loans and borrowings 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
Current
Non-current
2017
$’000
2016
$’000
404
946
1,350
395
1,349
1,744
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:
2017
2016
Minimum
payments
$000
Present value
of payments
$000
Minimum
payments
$000
Present value
of payments
$000
Within one year
461
404
472
395
After one year but not more
than 5 years
Total minimum lease payments
Less future finance charges
Present value of minimum
lease payments
1,000
1,461
111
1,350
946
1,350
–
1,460
1,932
188
1,350
1,744
1,349
1,744
–
1,744
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.
77
77
Financial report Notes to the financial statements (continued)
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
2017
$’000
2016
$’000
4,721
2,608
334
2,673
7,728
832
3,495
6,935
Inventories recognised as an expense (cost of sales) during the year ended 30 June 2017
amounted to $15,891,000 (2016: $9,796,000).
Write-downs of inventories during the year ended 30 June 2017 amounted to $611,000
(2016: $195,000). 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 asset 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.
78
78
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(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 asset’s 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.
Total property, plant and equipment at net book value
Leasehold
improvements
$’000
Plant and
equipment
$’000
Capital work
in progress
$’000
Total
$’000
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
Impairment
Accumulated depreciation
Net book amount at 30 June 2016
Year ended 30 June 2017
Opening net book amount
Additions
Retirement and others
Impairment
Depreciation charge
Foreign currency translation effect (net)
Closing net book amount
at 30 June 2017
At 30 June 2017
Cost or fair value
Impairment
Accumulated depreciation
Net book amount at 30 June 2017
2,032
335
–
–
(378)
–
1,360
655
(105)
–
(785)
3
176
3,568
14
1,004
–
–
–
(3)
(105)
–
(1,163)
–
1,989
1,128
187
3,304
2,393
4,619
187
7,199
–
(404)
1,989
(9)
(3,482)
1,128
1,989
1,128
39
–
–
(384)
–
773
(25)
(36)
(675)
(8)
–
–
(9)
(3,886)
187
3,304
187
478
–
–
–
3,304
1,290
(25)
(36)
(1,059)
(2)
(10)
1,644
1,157
663
3,464
2,432
4,852
663
7,947
–
(45)
(788)
1,644
(3,650)
1,157
–
–
(45)
(4,438)
663
3,464
79
79
Financial report Notes to the financial statements (continued)
6.3 Intangible assets
(i) Research and development
Research and development expenditure is expensed as incurred except that costs incurred
on development projects, relating to the design and testing of new or improved products,
are recognised as intangible assets when it is probable that the project will, after considering
its commercial and technical feasibility, be completed and generate future economic benefits
and its costs can be measured reliably.
(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.
(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
and computer software 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 life 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 (2016: Nil).
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
Accumulated depreciation
Net book amount at 30 June 2016
Year ended 30 June 2017
Opening net book amount
Additions
Amortisation
Foreign currency translation effect (net)
Closing net book amount at 30 June 2017
At 30 June 2017
Cost or fair value
Accumulated depreciation
Net book amount at 30 June 2017
Development
costs
$’000
ERP system
and computer
software
$’000
–
–
–
–
–
201
(201)
–
–
–
–
–
–
201
(201)
–
207
217
(159)
(5)
260
1,267
(1,007)
260
260
201
(179)
(1)
281
1,464
(1,183)
281
Total
$’000
207
217
(159)
(5)
260
1,468
(1,208)
260
260
201
(179)
(1)
281
1,665
(1,384)
281
80
80
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
6.4 Provisions
(i) General
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 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.
(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:
2017
2016
Current Non-current
$’000
$’000
Provision for warranty
Make good provision
Total provisions
534
–
534
–
70
70
Total
$’000
534
70
604
Current
$’000
Non-current
$’000
643
–
643
–
70
70
(b) Movements in provisions
Provision for
warranty
$’000
Make good provision
$’000
Carrying amount at start of year
Additional provisions recognised
Amounts used during the year
Unused amount reversed during the year
Carrying amount at end of year
643
332
(200)
(241)
534
Total
$’000
643
70
713
Total
$’000
713
332
(200)
(241)
70
–
–
–
70
604
81
81
Financial report Notes to the financial statements (continued)
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.
(a) Market risk
Market risk is the risk that changes in market prices will affect the Group’s financial performance.
(i) Foreign currency 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 expenses are 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 net cash flows.
Exposure
The Group’s exposure to foreign currency risk in the consolidated balance sheet at the end of the
reporting period mainly comprised:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
2017
GBP
£’000
315
255
Euro
€’000
137
328
USD
$’000
11,109
4,208
(122)
(146)
(1,416)
USD
$’000
8,380
5,068
(597)
12,851
448
319
13,901
2016
GBP
£’000
255
256
(44)
467
Euro
€’000
98
145
(89)
154
Foreign currency forward contracts
and options to sell
10,186
–
–
2,232
–
–
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.
Change in USD rate
Increase 10% (3%)
Decrease 5% (10%)
Change in GBP rate
Increase 9% (3%)
Decrease 3% (6%)
Change in EUR rate
Increase 6% (3%)
Decrease 3% (6%)
Impact on post-tax profit
Impact on other components
of equity
30 June 2017
$’000
30 June 2016
$’000
30 June 2017
$’000
30 June 2016
$’000
2,234
(1,344)
623
(1,830)
(1,216)
521
293
(86)
(1)
–
42
(76)
3
(5)
(344)
101
31
(14)
(310)
913
24
(52)
(3)
7
82
82
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
Impact on post-tax profit and on other components of equity is most sensitive to movements
in the Australian dollar/US dollar exchange rates 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 movement in other foreign currencies are not material.
Interest rate risk
(ii)
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.
The Group’s exposure to interest rate risk is noted below:
Fixed interest rate maturing in:
Floating
interest rate
$’000
1 year
or less
$’000
Over 1 to
5 years
$’000
More than
5 years
$’000
Non-interest
bearing
$’000
Total
$’000
Notes
Net financial assets (liabilities)
16,307
46,278
(946)
2017
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
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
5.1
5.2
5.3
5.4
5.5
5.1
5.2
5.3
5.4
5.5
–
–
–
–
–
–
946
946
–
–
–
–
–
–
1,349
1,349
16,307
46,682
–
–
–
–
16,307
46,682
0.37% 2.58%
–
404
404
–
–
–
–
4.92%
4.92%
–
–
–
–
–
–
–
–
–
–
– 62,989
8,923
8,923
338
338
9,261 72,250
–
–
3,963
3,963
–
1,350
3,963
5,313
–
–
5,298
66,937
Fixed interest rate maturing in:
Floating
interest rate
$’000
1 year or
less
$’000
Over 1 to
5 years
$’000
More than
5 years
$’000
Non-interest
bearing
$’000
Total
$’000
Notes
17,341
31,500
–
–
–
–
17,341
31,500
0.11%
3.03%
–
395
395
–
–
–
–
5.01%
4.92%
–
–
–
–
–
–
–
–
–
–
–
48,841
7,734
7,734
35
35
7,769
56,610
–
–
4,865
4,865
–
1,744
4,865
6,609
–
–
2,904
50,001
83
83
Net financial assets (liabilities)
17,341
31,105
(1,349)
Financial report Notes to the financial statements (continued)
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.
Impact on pre-tax
profit
Interest rates – increase by 25 basis points
Interest rates – decrease by 25 basis points
2017
$’000
140
(140)
2016
$’000
118
(118)
(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
Europe
Asia Pacific
2017
$’000
6,437
655
1,112
2016
$’000
5,617
553
922
8,204
7,092
Maximum exposure to credit risk for trade receivable by type of counterparty was as follows:
Distributors
End-user customers
2017
$’000
3,506
4,698
8,204
2016
$’000
3,457
3,635
7,092
As at 30 June 2017, GE Healthcare (worldwide) and Regional Healthcare Group, combined,
accounted for over 40% of the trade receivables (2016: GE Healthcare Group and Regional
Healthcare Group, combined, accounted for over 44% 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 may only invest surplus funds in deposits
and floating rate notes offered by any major bank approved by the Board.
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.
84
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Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
As a result, the Group believes that its accounts receivable credit risk exposure is mitigated
and it 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.
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
2017
$’000
2,207
3,022
2016
$’000
2,163
1,834
763
443
554
51
6,435
4,602
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 2017, trade receivables with a nominal value of $21,000 (2016: $9,000)
were considered impaired and fully provided for.
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
2017
$’000
2016
$’000
9
12
–
–
21
5
9
(5)
–
9
85
85
Financial report
Notes to the financial statements (continued)
Past due but not impaired
As at 30 June 2017, trade receivables of $1,255,000 (2016: $2,490,000) 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
2017
$’000
6,435
949
353
467
2016
$’000
4,602
829
793
868
8,204
7,092
(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 $46,682,000
(2016: $31,500,000) 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.
2017
Trade and other payables
Borrowings
Total financial liabilities
2016
Trade and other payables
Borrowings
Total financial liabilities
Less than
3 months
3 to 12
months
3,699
99
3,798
4,603
96
4,699
28
305
333
10
299
309
1 to 5
years
236
946
1,182
230
1,349
1,579
Over 5
years
–
–
–
Total
3,963
1,350
5,313
22
4,865
–
1,744
22
6,609
86
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Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
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 performance rights and 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.
Movements in ordinary share capital
Opening balance 1 July 2015
Number of shares
$’000
282,910,890
103,059
Exercise of performance rights and options – proceeds received
723,920
66
Shares issued on redemption of convertible notes
Less: Transaction costs arising on share issues
Balance 30 June 2016
12,299,726
9,601
295,934,536
112,726
–
(28)
295,934,536
112,698
Exercise of performance rights and options – proceeds received
1,798,419
15
Balance 30 June 2017
297,732,955
112,713
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 maturity date 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.
(b) Reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the grant date fair value of performance
rights and options 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.
87
87
Financial report Notes to the financial statements (continued)
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.
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:
2017
$’000
2016
$’000
Within one year
Later than one year but not later than five years
Later than five years
949
2,644
–
3,593
802
3,293
161
4,256
Capital commitments
As at 30 June 2017, the Group had commitments to purchase plant and equipment
of $1,434,000 (2016: $129,000). 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
2017
$
2016
$
481,733
278,538
1,752,744
1,493,037
305,042
245,606
–
–
930,090
1,101,549
Total directors and key management personnel compensation
3,469,609
3,118,730
Total compensation includes total remuneration for executive
and non-executive directors of the parent entity
1,305,556
2,109,317
Detailed remuneration disclosures are provided in the remuneration report on pages 26 to 50.
88
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Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(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
Related entity
Maurie Stang
Maurie Stang
Maurie Stang
Gryphon Capital Pty Ltd
Ramlist Pty Ltd
Regional Healthcare
Group Pty Ltd
Transactions
Director fees
Rent of premises
Products purchased, services
received and products sold
Richard England
Angleterre Nominees Pty Ltd
and Domkirke Pty Ltd
Director fees
Sale of products to Related Parties
Interest charged
Purchases of goods and services from Related Parties
Rent of premises and equipment from Related Parties
and make good payments
2017
$
2016
$
2,055,438
1,821,765
1,115
11,388
255,861
210,697
–
210,079
The above transactions exclude director fees which are disclosed in Non-executive
Directors remuneration in section 3.3 of the remuneration report on page 30.
(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)
2017
$
2016
$
791,582
639,133
1,976
–
There were no provisions for impaired receivables in relation to any outstanding balances
from Related Parties (2016: Nil) and no expense has been recognised 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
2017 (2016: 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.
89
89
Financial report Notes to the financial statements (continued)
9.3 Controlled entities
The consolidated financial statements of the Group include:
Name of
controlled
entity
Principal
activities
Country of
incorporation
Class
of shares
Equity Holdings
2017
2016
Nanosonics
Europe GmbH
Provision of sales and customer
support services in Germany
Germany
Ordinary
100% 100%
Saban Ventures
Pty Limited
Owner of the registered intellectual
property of the Group
Australia
Ordinary
100% 100%
Sales and distribution of Nanosonics’
products and provision of sales and
customer support services to
Nanosonics Limited in the USA
Nanosonics, Inc.
Nanosonics
Europe Limited
Sales and distribution of Nanosonics’
products in Europe
Nanosonics
UK Limited
Provision of sales and customer
support services in Europe
USA
Ordinary
100% 100%
UK
UK
Ordinary
100% 100%
Ordinary
100% 100%
Nanosonics
Canada, Inc.
Sales and distribution of Nanosonics’
products and services in Canada
Canada
Ordinary
100% 100%
9.4 Parent entity information
As at and throughout the financial year ended 30 June 2017, 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
Share-based payments reserve
Accumulated losses
Total equity
Profit for the year
Total comprehensive income
2017
$’000
2016
$’000
99,087
116,842
10,809
12,180
78,227
81,764
7,267
8,891
112,713
112,697
10,866
6,953
(18,918)
(46,776)
104,661
72,874
27,859
12,539
27,859
12,539
(b) Guarantees entered into by the parent entity
During the year ended 30 June 2017 and 2016, 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 period.
90
90
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Notes to the financial statements (continued)
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2017 or 30 June 2016.
(d) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2017, the parent entity had commitments to purchase plant and equipment
of $1,434,000 (2016: $129,000). 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 are 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
2017
$
2016
$
105,120
105,120
82,500
82,500
11,838
3,298
15,136
16,300
2,547
18,847
120,256
101,347
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 2017 and have not been applied in preparing
these consolidated financial statements. Of the new standards, 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
The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39
‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and
measurement models for financial assets. New hedge accounting requirements are intended to more
closely align the accounting treatment with the risk management activities of the entity. New impairment
requirements will use an ‘expected credit loss model to recognise an allowance. The Group is in the
process of assessing the impact of this standard but does not expect it to be material.
91
91
Financial report Notes to the financial statements (continued)
AASB 15 Revenue from contracts with customers, which becomes mandatory
for Nanosonics’ 2019 consolidated financial statements
The standard provides a single standard for revenue recognition. The core principle of the standard
is that an entity will recognise revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for these goods or services. The Group is in the process of assessing the impact of this standard
and it is impracticable at this stage to provide a reasonable estimate of such impact.
AASB 16 Leases, which becomes mandatory for Nanosonics 2020
consolidated financial statements
For lessee accounting, the standard eliminates the ‘operating lease’ and finance lease classification
required by AASB 117, Leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the
statement of financial position, measured as the present value of the unavoidable future lease payments
to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and
leases of low-value assets where an accounting policy choice exists whereby either a right-of-use asset
is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to
the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received,
initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs.
Straight-line operating lease expense recognition will be replaced with a depreciation charge for the
lease asset (included in operating expenses) and in interest expense on the recognised lease liability
(included in finance costs). For classification within the statement of cash flows, the lease payments
will be separated into both a principal (financing activities) and interest (either operating or financing
activities) components. For lessor accounting, standard does not substantially change how a lessor
accounts for leases. The Group’s operating leases with terms of more than 12 months relates to leases
of office facilities. As at 30 June 2017, the Group has non-cancellable operating lease commitments
of $3,593,000 (see note 9.1). The Group is in the process of assessing the impact of this standard but
has not yet determined to what extent these commitments will result in the recognition of an asset and
liability for future payments. The impact is not expected to be material.
9.8 Events occurring after the reporting period
No matters or circumstances have arisen since 30 June 2017 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.
92
92
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report
Directors’ declaration
Directors’
declaration
1.
In the opinion of the directors of Nanosonics:
(a) The consolidated financial statements and notes set out on pages 55 to 92
are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company and Consolidated Entity’s
financial position as at 30 June 2017 and of their performance for the
financial year ended on that date; and
(ii) complying with Accounting Standards, and
(b) there are reasonable grounds to believe that the Company will be able to pay
its debts as and when they become due and payable.
2.
The directors have been given the declarations by the Chief Executive Officer
& President and Chief Financial Officer required by section 295A of the
Corporations Act 2001.
3.
The consolidated financial statements comply with International Financial
Reporting Standards, as disclosed in note 1.2(a).
This declaration is made in accordance with a resolution of directors.
Richard England
Director, Sydney
24 August 2017
93
93
Financial report
Independent auditor’s report to the members
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 Audit of the Financial Report
Opinion
We have audited the financial report of Nanosonics Limited (the Company) and its subsidiaries
(together the Group), which comprises the consolidated statement of financial position as at 30 June
2017, 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,
and notes to the financial statements, including a summary of significant accounting policies, and the
directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
i.
ii.
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
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
94
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Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report
Independent auditor’s report to the members
Independent auditor’s
report to the members
Revenue recognition (occurrence, cut off and accuracy)
Areas of focus
How our audit addressed the area of focus
As per note 2.1 of the financial statements,
the revenue for the financial year ended
30 June 2017 was $67.5 million (2016:
$42.8 million).
focused on
We
because:
revenue
recognition
Revenue is an important measure
used to evaluate the performance
of the company;
Quantum of amounts
involved;
and
Revenue is generally recognised
when the risks and rewards of
the underlying
ownership of
products have been transferred to
the customer and tend not to have
multiple deliverable elements.
There is a risk that sales may be
materially misstated if recognized
before the risks and rewards of
ownership have been transferred.
Our audit procedures included, amongst others:
Assessing the appropriateness of the Company’s
revenue recognition accounting policy and its
compliance with
the Australian Accounting
Standards;
Where appropriate, we tested the operating
effectiveness of the internal controls over the
recording of revenue in the correct period;
We tested the accuracy of the revenue recorded
by checking that revenue was recognised based
on the transfer of the risks and rewards of
ownership of goods to the customer, or in the
accounting period
in which services were
rendered by agreeing a sample of revenue items
to contract and shipping documents, with specific
focus on transactions which occurred around the
year end date;
For sales transactions denominated in currencies
other than Australian dollars, we tested the
accuracy of the foreign exchange rate used for
revenue recognition;
We tested journal entries posted to revenue
accounts to identify any unusual or irregular
items, and assess their reasonableness; and
We assessed the quantitative and qualitative
disclosures made
in the financial report, by
comparing these disclosures to our understanding
of the matter.
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.
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95
Financial report
Independent auditor’s report to the members
Independent auditor’s
report to the members
Inventory (valuation)
Area of focus
As per note 6.1 to the financial statements
the inventory balance as at 30 June 2017
was $7.7 million (2016: $6.9 million).
We focused on this area because of:
involved
subjectivity
The
in
estimating the conversion costs
and allocation of overheads to
calculate the cost of the finished
goods. These costs are influenced
by assumptions concerning labour
and overhead
rates
based on normal production
capacity. The Group uses a
standard recovery rate; and
recovery
The impact of this item on the
gross profit margin.
Warranty provision
Area of focus
As per note 6.4 to the financial statement
the provision for warranty as at 30 June
2017 was $534,000 (2016: $643,000).
We focused on this area because:
inherent
The
uncertainty
associated with estimating device
rates, and
return and claim
associated future warranty claim
costs; and
The potential material amounts
involved.
How our audit addressed the area of focus
Our audit procedures included, amongst others:
We assessed the reasonability of the labour and
overhead recovery rates used by management by
comparing them against the historical trend and
by evaluating them based on our understanding
of the business;
On a sample basis, we tested raw material costs
by comparing them to supplier invoices;
We obtained an understanding of how variances
between the actual and standard costs were
recorded by the Group’s accounting system; and
We assessed the quantitative and qualitative
disclosures made
in the financial report, by
comparing these disclosures to our understanding
of the matter.
How our audit addressed the area of focus
Our audit procedures included, amongst others:
We held discussions with management to obtain
an understanding of the process followed to
calculate the provision for warranty balance as at
balance date with a focus on the assumptions and
inputs used by the management as part of this
calculation;
We assessed the appropriateness of the Group’s
methodology, evaluated and tested the basis for
the assumptions developed and used by
management
the
warranty provision;
the determination of
in
We checked the historical trend of actual
warranty costs incurred against the provision;
We performed sensitivity analysis and tested
sensitivity of the provision to various assumptions
such as failure rates, labour rate, etc. to evaluate
the judgement made by management; and
We assessed the quantitative and qualitative
in the financial report, by
disclosures made
comparing these disclosures to our understanding
of the matter.
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
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96
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report
Independent auditor’s report to the members
Independent auditor’s
report to the members
Deferred taxes
Area of focus
to
As per note 3.2
financial
statements, the net deferred tax assets as
at 30 June 2017 were $14.1 million (2016:
nil).
the
We focused on this area because:
As deferred tax is recognised for
the first time, there is an increased
risk that the asset may not meet
the recognition criteria of the
Australian Accounting Standards;
and
Due to the inherent complexity
involved in the computation of
deferred tax, there is a risk of
error
tax
calculation.
the deferred
in
How our audit addressed the area of focus
Our audit procedures included, amongst others:
We held discussions with management to obtain
an understanding of the policy applied for the
recognition of deferred tax and their assessment
of profitability of the company in the near future;
We assessed whether
it appears reasonably
certain that sufficient profits will be available in
the future to recover the deferred tax assets; and
We checked the accuracy of input data and
evaluated formulas and assumption used for the
computation of deferred tax.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2017, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors 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 control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
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
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Passion beyond numbers
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97
Financial report
Independent auditor’s report to the members
Independent auditor’s
report to the members
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, designs and performs audit procedures responsive to those risks, and obtains
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a
going concern. If we concludes that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for the audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
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
98
98
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report
Independent auditor’s report to the members
Independent auditor’s
report to the members
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 26 to 50 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the Remuneration Report of Nanosonics Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance
with Australian Auditing Standards.
Mark Nicholaeff
Partner
Sydney
Date: 24 August 2017
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
99
99
Financial report
Shareholder information
Shareholder
information
A. Equity security holders
Twenty largest holders of quoted equity securities
Ordinary shares
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Mr Maurie Stang1
Mr Bernard Stang
UBS Nominees Pty Ltd
National Nominees Limited
Mr Steve Kritzler
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Asia Union Investments Pty Ltd
AET SFS Pty Ltd
Dr Harry Hirschowitz
Australian Shareholder Nominees Pty Ltd
Citicorp Nominees Pty Limited
Avanteos Investments Limited <2349414 Hofbauer A/C>
Bennelong Resources Pty Limited
Community Care Consulting Pty Ltd
Larinda Pty Ltd
Roan Industries Pty Limited
Total top 20 holders
Total all other holders
Total shares on issue
Number of quoted
shares held Percentage
47,872,862
36,819,026
23,211,082
22,599,701
18,836,556
12,678,197
10,357,308
8,489,737
8,137,797
3,958,400
3,100,000
2,152,589
2,010,000
1,518,597
1,365,009
1,200,000
1,200,000
920,000
800,000
595,332
16.08%
12.37%
7.80%
7.59%
6.33%
4.26%
3.48%
2.85%
2.73%
1.33%
1.04%
0.72%
0.67%
0.51%
0.46%
0.40%
0.40%
0.31%
0.27%
0.20%
207,822,193
69.80%
89,910,762
30.20%
297,732,955
100%
1. Includes indirect holdings of 116,368 shares but excludes shares held by close family members.
Unquoted equity securities
Performance rights and options on issue
Number of
options over
ordinary shares
Number of
holders1
Performance rights under ESOP to take up unissued ordinary shares
2,452,292
Performance rights and options under NOEP to take up unissued
ordinary shares
Total performance rights and options on issue
1,068,917
3,521,209
26
98
99
1. There are 25 common holders in ESOP and NOEP.
100
Nanosonics Annual Report 2017
Nanosonics Annual Report 2017Financial report Shareholder information
Shareholder
information
B. Distribution of equity securities
Analysis of number of ordinary shares and performance rights and options by size holding:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total Holders
Quoted ordinary
shares
Unquoted
performance
rights and
options
2,641
3,954
1,458
1,580
132
9,765
34
32
5
21
7
99
There were 441 holders of less than a marketable parcel of 205 ordinary shares.
C. Substantial holders
Substantial holders in the Company are shown below:
JCP Investment Partners
Mr Maurie Stang1
Mr Bernard Stang
Number of
ordinary shares
Percentage
25,005,980
22,599,701
18,836,556
8.40%
7.59%
6.33%
1. Includes indirect holdings of 116,368 shares but excludes shares held by close family members.
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) Performance rights and options
Performance rights and options have no voting rights.
E. On-market buy-back
There is no current on-market buy-back.
101
101
Financial report Directory
Corporate directory and information for investors
Corporate directory
and information
for investors
Nanosonics Limited ABN 11 095 076 896
incorporated 14 November 2000
WEBSITE
NANOSONICS.COM.AU
Investor/Media Relations
Bankers
Directors
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Michael Kavanagh
Company Secretaries
McGregor Grant
Robert Waring
Registered Office
14 Mars Road
Lane Cove NSW 2066 Australia
P +61 2 8063 1600
Share Register
Buchan Consulting
P +61 3 9866 4722
P 1300 557 010 (within Australia)
McGregor Grant
– Company Secretary
P +61 2 8063 1600
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
Computershare Investor Services Pty Ltd
GPO Box 2975
Melbourne VIC 3001 Australia
Shelston IP
Level 21, 60 Margaret Street
Sydney NSW 2000 Australia
P +61 3 9415 4088
P 1300 555 159 (within Australia)
au.computershare.com/au/contact
Baker & McKenzie
AMP Centre
Level 27, 50 Bridge Street
Sydney NSW 2000 Australia
102
Nanosonics Annual Report 2017
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.
Canada: HSBC Bank Canada
Stock Exchange Listing
Nanosonics Limited shares are listed
on the Australian Securities Exchange
ASX code: NAN
Industry Group
Healthcare Equipment & Services
2017 Nanosonics Limited
Annual General Meeting
WHEN 11.00am, 3rd November 2017
WHERE Brisbane Room, Sofitel Sydney
Wentworth 61-101 Phillip Street
Sydney NSW 2000
Directory
Glossary
Glossary
Deferred Employee Share Plan
NOEP
Nanosonics Omnibus Equity Plan
AASB
Australian Accounting Standards Board
AGM
ANZ
APIC
ASIC
ASUM
ASX
CDC
Annual General Meeting
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
CEO&P
Chief Executive Officer and President
CFO
DESP
DGKH
EESP
EPS
ERP
ERS
Chief Financial Officer
German Hospital Hygiene Society
Exempt Employee Share Plan
Earnings Per Share
Enterprise Resource Planning
European Radiology Society
ESOP
Employee Share Option Plan
FCF
FDA
Free Cash Flow
Food and Drug Administration
Fiscal Year
Year to 30 June
FY
Group
GSOP
GST
HAI
HLD
HPV
IAS
IASB
ICT
IDN
Financial year, eg. FY2017 is the financial year
ended 30 June 2017
Nanosonics Limited and its wholly owned subsidiaries
General Share Option Plan
Goods and Services Tax
Healthcare Acquired Infection
High Level Disinfection – involves the complete
elimination of all microorganisms in or on an instrument,
except for small numbers of bacterial spores
Human papillomavirus
International Accounting Standards
International Accounting Standards Board
Infection Control Today
Integrated Delivery Network
IFRS
IP
International Financial Reporting Standards
Intellectual Property
ISO 13485
Quality Management System for Medical Devices
– Requirements for Regulatory Purposes
JSUM
KMP
LLD
LTI
LTIS
NED
NHS
Japanese Society for Ultrasound in Medicine
Key management personnel
Low Level Disinfection
Long Term Incentives
Long Term Incentive Scheme
Non-executive Director
National Health System
OEM
PBT
POC
Original Equipment Manufacturer
Profit before tax
Point of Care
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
STI
TEC
TFR
trophon®
Year to 30 June 2017
Short Term Incentives
Total Employment Cost
Total Fixed 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
TSR
TTR
UK
USA
VAT
Total Shareholder Return
Total Target Remuneration
United Kingdom
United States of America
Value Added Tax
WAEP
Weighted Average Exercise Price
WFUMB
World Federation for Ultrasound in Medicine and Biology
103
Notes
Nanosonics Limited
14 Mars Road, Lane Cove
NSW 2066 Australia
T +61 2 8063 1600
E info@nanosonics.com.au
nanosonics.com.au
ABN 11 095 076 896