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OVERVIEW
Nanosonics (ASX: NAN) has developed a
unique automated disinfection technology,
which is the first major innovation in high
level disinfection (HLD) for ultrasound probes
in more than 20 years. This proprietary
technology is now being introduced
around the world and has the opportunity
to become the new standard of care as it
safely and effectively addresses the issues
with traditional ultrasound probe disinfection
practices. Nanosonics is also investing
in research and development to address
significant unmet needs in the area of
infection prevention.
Nanosonics Annual Report 2018
B | Nanosonics Annual Report 2018
Section HeaderFor personal use only
CONTENTS
Overview and Our Mission
Financial Highlights
Chairman’s Letter
CEO’s Report
Regional Highlights
Environmental, social and
governance (ESG)
trophon® — the benchmark for
ultrasound probe HLD
Introducing trophon®2
The Board
The Executive Team
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
to the Members
Shareholder Information
Glossary
Corporate Directory and
Information for Investors
Contents
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.
01
02
04
06
10
16
18
19
20
22
24
52
53
85
86
92
94
96
1
For personal use only
Financial highlights
SALES ($M)
GROSS PROFIT ($M)
$67.5M
$60.7M
$60.7
million
$42.8M
$21.5M $22.2M
$45.3
million
$13.9M $15.3M
$50.2M
$45.3M
$32.2M
2 | Nanosonics Annual Report 2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Section Header/ Revenue ($m)/ Revenue ($m)For personal use only
FINANCIAL HIGHLIGHTS
2009-2018 RESULTS
2018
$’000
2017
$’000
2016
$’000
2015
$’000
2014
$’000
2013
$’000
2012
$’000
Operating revenue
60,698 ¹
67,507
42,796
22,214
21,492
14,899
12,301
Gross Profit
45,291
50,155
32,166
15,313
13,921
8,471
7,502
2011
$’000
2,247
1,266
2010
$’000
2009
$’000
763
479
309
188
Research and
Development expenses
EBITDA
EBIT
Operating profit/(loss)
before tax
Net income tax
benefit/(expense)
Operating profit/(loss)
after tax
Cash and
Cash equivalents
(9,882)
(9,486)
(7,297)
(4,902)
(4,103)
(3,167)
(3,135)
(3,627)
(2,369)
(3,435)
5,861
14,110
950
(4,732)
(1,845)
(5,366)
(4,982)
(11,963)
(8,187)
(9,529)
4,362
12,866
(359)
(5,795)
(2,820)
(6,410)
(5,896)
(12,973)
(8,958)
(9,948)
5,583
13,852
136
(5,465)
(2,636)
(5,735)
(5,310)
(11,921)
(8,173)
(8,754)
168
12,306 ²
(14)
5
31
(33)
631
707
—
—
5,751
26,158
122
(5,460)
(2,605)
(5,768)
(4,679)
(11,214)
(8,173)
(8,754)
69,433
62,989
48,841
45,724
21,233
24,064
29,310
12,356
21,144
13,881
1. Total sales of $60.7 million ($62.2 million in constant currency) were down 10% (7.8% in constant currency) on prior year. Sales of consumables and service were up 25%
(28% in constant currency) to $35.2 million ($36.0 million in constant currency) reflecting the increasing installed base, demonstrating strong growth in the annuity revenue
profile. Total sales reflect a transitionary reduction in capital revenue associated with the earlier than anticipated regulatory approval of trophon2 and subsequent run down
of trophon EPR inventory by distributors as well as some customers deferring purchase, pending launch of trophon2. Sales also reflect a broadening number of selling
models each with different revenue profiles, including Managed Equipment Service in the UK where a growing number of trophon units were placed with no upfront capital
revenue recognised. The resulting operating profit before tax was $5.6 million, compared with $13.9 million in the prior year.
2. Initial recognition of deferred tax asset. Refer to Note 3 of the financial statements.
PROFIT/(LOSS) BEFORE TAX ($M)
FREE CASH FLOW ($M)
$5.6million
$13.9M
$5.6M
$6.2
million
($2.6M)
($5.5M)
$0.1M
($3.1M)
($4.7M)
$1.9M
$15.1M
$6.2M
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
3
For personal use only Chairman’s letter
CHAIRMAN’S
LETTER
On behalf of Nanosonics’
Board of Directors I am
pleased to present our
2018 Annual Report.
4
4
4 | Nanosonics Annual Report 2018
Section HeaderFor personal use only
Chairman’s letter
This past year has been pleasing from
a number of points of view: seeing a
significant growth in the Company’s global
trophon install base, exciting progress in
terms of our R&D pipeline, and an increase
in shareholder value. Importantly, our next
generation trophon®2 device has achieved
regulatory approvals in key markets and
is currently gaining exceptional feedback
from both distributors and customers
worldwide.
The results for the year were very pleasing
with sales of $60.7 million and a pre-tax
profit of $5.6 million contributing to a further
increase in the cash balance to $69.4 million.
The indications point to an even stronger
2019 Financial Year.
Nanosonics has strategically positioned
itself for future growth with investment in
global sales and marketing. In parallel we
have achieved outstanding and proactive
customer engagement, which has helped to
direct our R&D program to focus on unmet
needs in the infection control arena.
The fundamentals for adoption of trophon
technology strengthened further during
the year with the publication of a number
of significant new studies and guidelines
supporting the need for high level
disinfection of ultrasound probes used in
both critical and semi-critical procedures.
The trophon technology is well positioned to
take advantage of the market need created
by these new publications as it addresses
the deficiencies of traditional disinfection
methods highlighted in them. I’m delighted
that trophon was also recognised for its
environmental excellence when Nanosonics
won the Environmental Solutions Award
at The Premier’s NSW Export Awards in
October 2017.
The most significant achievement of the
year was the completion of development
work on the next generation trophon. The
trophon2 device, which was released to
the market in the first quarter of the 2019
Financial Year, represents another milestone
in the Company’s history. Our all new
trophon2 system has been developed in
true partnership and consultation with our
distributors and customers, and has features
that should underpin our market leadership
well into the future.
Our board wishes to acknowledge the
tireless efforts of our entire team to bring
this technology forward and achieve FDA
approval earlier than anticipated, with a
submission second-to-none.
Consistent with our strategy of expanding
our trophon ecosystem, Nanosonics
successfully launched our new trophon
Companion Wipes range at the Association
for Professionals in Infection Control
Conference in the United States in June.
The market response was highly encouraging
and these new wipes will be sold in all of
our existing markets providing additional
“income per procedure” and continuing to
build value with our customers by providing
trusted products under the trophon and
Nanosonics branding.
Preparing for future growth was a key
theme for the Company over the past year,
with continued investment of $9.9 million
in innovative research and development,
enhancing our core technologies, as well
as progressing the development of potential
new infection prevention solutions.
Positive investment in resources and
infrastructure was undertaken to support
our growth objectives. The Nanosonics
team grew to over 225 people located in
Australia, the United States, Canada and
across Europe. This represents significant
growth in our team from 165 people this time
last year. We intend to further strengthen our
investment in key markets and competencies
throughout the coming year to position
ourselves to support new revenue streams.
We expect growth in the global trophon
installed base to continue to grow positively
from the 17,740 units at 30 June 2018
through a multi-channel approach. Capital
sales of trophon continue to represent the
main selling model for our direct business,
particularly in North America, but we
also saw strong growth in the Managed
Equipment Service (MES) and rental
offerings. The MES and rental sales model,
in appropriate markets, provides increased
profitability and, critically, lowers the barriers
for market adoption. By having an “all-
inclusive” consumable price the customer
has no need for a capital expense, but rather,
has a fully maintained product over its life
with the option to roll into a new machine,
thus retaining the customer in the trophon
ecosystem.
The North American installed base has now
grown to over 15,600 units, up from 12,400
at 30 June 2017. This figure represents
less than 40 percent of the estimated
40,000+ unit installed base potential of
North America. This indicates there is
significant opportunity in the market,
together with growth potential in the
number of cycles by way of expanding
applications such as surface probes.
As a consequence of our team’s
achievements, including new guidelines
and increased awareness, the market
dynamics are trending very positively
in the Europe/Middle East and Asia
Pacific regions.
Nanosonics has achieved leadership
in a key and significant sector of the
infection control market. The reality is
that the company has deep customer
engagement, unique domain knowledge,
and a strong cash balance to broaden
its activities across the wider infection
and microbial control markets. As your
company progresses it will carefully
consider activities that will target
growth in shareholder value.
At the very heart of Nanosonics’ success
is the outstanding global team to whom
we express both our deep thanks and
appreciation. Each member provides the
very DNA which enables us to continue
to strive for market leadership across a
variety of opportunities.
Our management team, led by our CEO
and President, Michael Kavanagh, strives
for excellence in everything it does and
is passionate about building a world
leading company. Importantly I want to
acknowledge my fellow Board members
for their tireless efforts and commitment.
Nanosonics today is internationally
recognised and respected, having
proven it can deliver disruptive and
inspired technologies to solve its
customers’ real-world problems.
Our vision for the future is being
supported by a program of active
investment in new products and
capabilities, providing excellent
opportunities in pursuing our mission
of Infection Prevention. For Life.
Mr Maurie Stang
Chairman
20 August 2018
5
For personal use only
CEO’s report
CEO’S REPORT
The 2018 financial year
has been a year of ongoing
achievement and success with
very solid progress across all
aspects of the Nanosonics
business as we continue to
execute on our long term
strategic growth agenda.
Every day
approximately
+55k
patients are protected
from the risk of cross
contamination because
their probe has been
trophoned
6 | Nanosonics Annual Report 2018
Section HeaderFor personal use only CEO’s report
GLOBAL INSTALLED BASE
17,740
The trophon installed base continued
to grow strongly throughout FY18.
Globally the installed base grew 25%
from 14,160 units at the end of
FY17 to 17,740 units by 30 June 2018.
17,740
14,160
10,130
6,250
3,960
2014
2015
2016
2017
2018
The goal of establishing trophon as
the standard of care for the high level
disinfection (HLD) of all semi-critical and
critical ultrasound probes progressed
positively. Growth of 25% in the global
installed base led to 17,740 units in use at
the end of June. Importantly, the market
fundamentals for ongoing adoption
continued to strengthen internationally
with the release of a number of important
guidelines, in particular across Europe.
Significant investments were made
in our direct operational capacity and
capability. The resulting expansion of our
direct operations and infrastructure in the
USA, Canada, UK and Germany will support
and drive ongoing growth and prepare for
the introduction of an expanded portfolio
of infection prevention products. Our
Research, Design and Development strategy
progressed in accordance with internal
milestones. Regulatory approvals were
granted towards the end of the financial year
in North America and Europe for our 2nd
generation trophon2 technology, which will
be commercially launched in the first quarter
of FY19. We also made pleasing progress
with the research and development of a
number of novel and innovative infection
prevention solutions.
Total sales of $60.7 million ($62.2 million
in constant currency) were down 10%
(7.8% in constant currency) on prior year.
Sales of consumables and service were
up 25% (28% in constant currency) to
$35.2 million ($36.0 million in constant
currency) reflecting the increasing installed
base, demonstrating strong growth in
the annuity revenue profile. Total sales
reflect a transitionary reduction in capital
revenue associated with the earlier than
anticipated regulatory approval of trophon2
and subsequent run down of trophon EPR
inventory by distributors as well as some
customers deferring purchase, pending
launch of trophon2. Sales also reflect a
broadening number of selling models each
with different revenue profiles, including
Managed Equipment Service in the UK
where a growing number of trophon units
were placed with no upfront capital revenue
recognised. The resulting operating profit
before tax was $5.6 million, compared with
$13.9 million in the prior year.
Nanosonics aims to become a globally
recognised leader in the development,
manufacture and commercialisation of
infection prevention solutions where our
products become the standard of care
in their respective fields. Our Corporate
Strategy is focussed on five core areas,
namely:
1. Customer Experience
Customer Experience is at the centre of
all we do. We work with our customers to
identify new opportunities, obtain input into
new product design, and ensure we provide
them with a convenient and consistent
experience with our product and brand.
2. Product Innovation
At Nanosonics we are committed to
being an innovator in the field of infection
prevention. 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 and
can become new standards of care.
3. Operational Excellence
Our Operational Excellence objectives
are focussed on ensuring we shape our
organisation in a way that is agile and
has scalable, compliant and performance
focussed processes.
4. People Engagement
Our People Engagement strategies are
centred on ensuring we continue to build
our organisational capabilities to deliver
on our growth strategies. We aim to attract
and retain the best people, ensuring they are
engaged and empowered to deliver on our
corporate objectives.
5. Value Creation
Our Value Creation objective is focussed
on creating ongoing sustainable shareholder
value through the delivery of long term
sustainable growth and returns.
The following provides an outline of some
of the key achievements in FY18 under
each of these growth drivers.
1. Customer Experience
trophon establishing itself as the new
benchmark and global standard of care
The trophon installed base continued to
grow strongly throughout FY18. Globally
the installed base grew 25% from 14,160
units at the end of FY17 to 17,740 units
by 30 June 2018.
This ongoing growth in the global installed
base reflects the positive experience
customers have with trophon which
delivers an automated, safe, versatile and
simple solution that fits seamlessly into their
clinical workflows. We expect FY19 will see
our trophon solution become even smarter
with the introduction of new features and
benefits in our new trophon2 device.
New guidelines and publications
supporting ongoing adoption and
global expansion
Throughout FY18, a number of important
new guidelines and studies were published
that have grown the international
requirements for HLD of all critical and semi-
critical ultrasound probes. Central to these
were guidelines from the European Society
of Radiology (ESR), the European Committee
for Medical Ultrasound Safety (ECMUS), a
combined guideline from the Royal Society
& College of Radiographers (SCoR) and the
British Medical Ultrasound Society (BMUS),
as well as new guidelines from DEGUM, the
German Society for Ultrasound in Medicine.
All of these guidelines stipulate HLD for
critical and semi-critical procedures, with a
preference for automated, validated systems
which trophon delivers.
7
/ Revenue ($m)For personal use only CEO’S report (continued)
In addition, a number of important
studies were published which not only
demonstrated and quantified the risk of
cross contamination, but also highlighted the
deficiencies in current practice that need to
be addressed.
A population-based study was published by
Health Protection Scotland in collaboration
with NHS National Services Scotland. The
study demonstrated a greater risk of positive
microbiological reports and antibiotic
prescriptions within 30 days for adults who
had undergone semi-invasive ultrasound
procedures when HLD was not used.
In the USA, the American Journal of
Infection Control (AJIC) published the
results of a national survey revealing
significant non-compliance with current
HLD guidelines for reprocessing critical
and semi-critical surface ultrasound probes.
These new international guidelines and
supporting studies further underpin the
ongoing adoption of trophon as the
new global standard of care.
Expansion into new international
markets
Geographical expansion is a core element
of our growth strategy. In FY18, a Business
Development Manager was appointed
to assess market opportunities for the
European, Middle East and Africa (EMEA)
region. Active projects are now underway
in Scandinavia, the Kingdom of Saudi
Arabia, Kuwait and Israel, with a number
of new distributors appointed and market
preparation activities currently underway.
In Japan, market development activities
progressed with engagements with
Key Opinion Leaders both in infection
prevention and ultrasound; presentations
at key National conferences; and importantly
the commencement of a local Japanese
study to deliver local data to support the
generation of local guidelines.
2. Product Innovation
trophon2 receives regulatory approvals
Regulatory clearances for the new flagship
trophon device, trophon2, were received
earlier than anticipated in the USA, Canada
and Europe. Commercial release is
planned for Q1 of FY19. trophon2 delivers
significant new benefits to customers,
reflecting considerable input from our global
community of customers, as well as input
from infection preventionists on current and
expected future trends and requirements
in HLD.
8 | Nanosonics Annual Report 2018
Investment in product expansion strategy
trophon2 manufacturing set up
Central to our growth strategy is the
successful introduction of an expanded
portfolio of new infection prevention
products that, like trophon, can become
new standards of care. Throughout FY18
the organisation continued to make strategic
investments in a number of new product
developments where we are targeting one
or more infection prevention solutions
to be brought to market by the end of
FY20, subject to regulatory approvals. The
organisation now has a significant research
and engineering capability with over 45
people across the disciplines of Mechanical,
Software, Electrical and System Engineering,
as well as Chemistry and Microbiology.
INVESTMENT IN R&D ($M)
9.5
9.9
7.3
4.9
4.1
3.1
2013
2014
2015
2016
2017
2018
Strengthening our IP position
Nanosonics recognises the importance of
its IP portfolio in maintaining its sustainable
competitive advantage and has an active
program to continue to protect the IP in our
technology. Our patent portfolio continued
to make strong progress in FY18 with
fifteen applications successfully passing
examination to proceed to allowance or
grant. Patents were allowed or granted in
the US, Europe, Canada, Australia and Japan
among others. Five provisional applications
for new inventions were filed. The Company
now has a total of 141 patents (up from
110 last year) and five design registrations.
Importantly, Nanosonics also enjoys IP
protection over subject matter related
to its ongoing consumables revenue out
to 2029.
3. Operational Excellence
Investment in direct operations
During FY18, we continued to invest in
our direct operations in North America, UK
and Germany, as well as provide ongoing
support for our distributor partners. Our
North American direct operation expanded
to 54 people with growth across our sales
force, clinical applications specialists,
service and logistics. Order fulfilment was
successfully brought in house where we now
fulfil customer orders direct from our facility
in Indianapolis. Likewise, in the UK service
and warehousing/logistics also expanded
to support the growing sales and installed
base. Investment in sales staff in our direct
operations in Germany also commenced in
anticipation of the launch of trophon2 and
new guidelines to be released in that market.
Building on the successful introduction of
LEAN principles into manufacturing, a totally
new manufacturing set up was designed
and implemented for the introduction of
trophon2. Through the introduction of LEAN
our manufacturing capacity has increased,
allowing for expected ongoing growth
in volumes.
Upgraded our Quality Management
System to meet new requirements
As a medical device company, our Quality
Management System (QMS) is paramount
to our ongoing success. During the year a
number of audits from regulatory authorities
were conducted and passed. In addition,
the organisation successfully upgraded its
QMS to meet the new requirements of ISO
13485: 2016 as well as new requirements
from The Medical Device Single Audit
Program (MDSAP).
Investments in our IT and ERP system to
support expanding operations and future
growth
With our operations growing both
geographically and operationally,
investments were made to upgrade our IT
and ERP systems to support the ongoing
scalability and integration of our global
operations moving forward.
4. People Engagement
Our highly skilled and dedicated team at
Nanosonics is what makes the company
successful. During the year we grew the
team by 36%. We now have over 225 team
members internationally who bring a diverse
range of skills and capabilities to develop
and deliver on our corporate objectives.
An active employee attraction, retention
and development program is in place to
ensure we continually grow our internal
capabilities to meet the growing demands
of the business.
5. Value Creation
The creation of sustainable shareholder
value is achieved from the successful
implementation of our strategic growth
agenda. Over the last five years, shareholder
value has grown at a cumulative annual rate
of 39%, with growth of 24% over the last
12 months.
For personal use only
CEO’S report (continued)
In Japan, results from the local clinical study
are expected by the second quarter. These
will be leveraged in discussions with the
relevant associations and authorities for
the development of local guidelines. The
regulatory submission for trophon2 is also
expected to be submitted and approved in
Japan by the end of the financial year.
The organisation will continue to invest in
our growth strategy where it is expected our
total operating expenses for the full year
will be approximately $53 million, including
approximately $13 million in R&D.
I would like to thank the entire Nanosonics
team and our distributor partners for their
relentless efforts and significant
achievements in FY18. I would also like
to recognise the support from all our
shareholders as they share in our vision of
establishing Nanosonics as a major global
leader in infection prevention.
Michael Kavanagh
CEO and President
20 August 2018
SHAREHOLDER RETURN (’000)
FY19 Outlook
$1,000
800
600
400
200
0
Our longer term growth strategy is
focussed on:
1. Continuing to grow the trophon installed
base in existing markets, ensuring all
healthcare facilities are aware of, and
understand, which of their procedures
are classified as semi-critical or critical
and the requirement to high level disinfect
all those probes (surface and intracavity).
4.00
3.00
2.00
1.00
0
2013
2014
2015
2016
2017
2018
Closing Share Price as at 30 June 2018
Market Capitalisation
The global installed base grew by 25%
to 17,740 units and this continued strong
growth provides a significant ongoing
annuity revenue stream from consumables.
Of significance in FY18 was the renegotiation
of our contract with GE Healthcare. The
new three year agreement, commencing
on 1 July 2019, provides GE Healthcare
Capital Reseller rights as part of Nanosonics’
global ultrasound OEM Program. The new
arrangements provide GE Healthcare’s
customers ongoing access to the state of
the art trophon through the GE Healthcare
ultrasound sales channel in North America.
As a result of the new agreement,
Nanosonics will gain a material increase in
both sales and margins on consumables in
North America as of and beyond July 2019.
Sales and earnings in FY18 were in line with
analyst expectations and reflect the growing
mix of selling models, some of which do not
recognise revenue for capital equipment
sales up front. This includes rental models
and our Managed Equipment Service
(MES) sales model in the UK. However the
longer term returns on these selling models
are attractive.
Sales revenue also reflects the fact that
earlier than anticipated regulatory approvals
were achieved for trophon2. As a result,
some customers delayed their purchase
to wait for availability of trophon2 and
distributor partners reduced their trophon
EPR inventory.
2. Expanding into new markets as the
fundamentals for adoption continue
to strengthen with the emergence of
new guidelines.
3. Continuing to execute on our product
expansion plans with the aim to release
at least one new product by the end of
FY20, subject to regulatory approval.
A core focus in FY19 will be the successful
introduction of our trophon2 technology
which was released in Q1 of FY19.
In North America we expect the
installed base to continue to grow with
similar numbers adopting trophon in FY19
as FY18. In addition to this we expect the
upgrade market to commence, especially
for existing units that are five years or older.
Over time this upgrade market is expected
to grow as the existing installed base of
trophon EPRs ages.
In Europe, we expect strong growth in
the UK to continue into FY19 and sales in
Germany to increase on the back of new
guidelines and the introduction of trophon2.
In France, new guidelines are expected from
the Ministry of Health in FY19. For the rest
of Europe and Middle East, the major focus
will be on market development with the
expectation of modest sales while guidelines
are developed.
“We expect FY19 will
see our trophon solution
become even smarter with
the introduction of the new
features and benefits of
the trophon2 device.
Michael Kavanagh
CEO and President
”
9
For personal use only
Regional highlights | North America
REGIONAL
HIGHLIGHTS
North America
NORTH AMERICA TROPHON INSTALLED BASE
15,620
15,620
12,400
8,700
Throughout FY18, trophon continued
to be adopted as the new standard
of care with the installed base
increasing by 26% — growing
from 12,400 units to approximately
15,620 units.
5,000
3,000
2014
2015
2016
2017
2018
Throughout FY18, trophon continued
to be adopted as the new standard of
care with the installed base increasing
by 26% — growing from 12,400 units
to 15,620 units. This represents 39%
of the estimated market potential.
The trophon device is now installed in
approximately 5,000 hospitals and clinics
including all of the top 50 US hospitals¹.
The growth in the installed base equates
to around 47,000 ultrasound probes being
trophoned every working day in the US.
More importantly this means 47,000
patients are protected from the risk of
potential cross contamination associated
with ultrasound procedures.
Fundamentals for ongoing
adoption of trophon continue
to strengthen
Regulations and guidelines requiring high
level disinfection (HLD) of semi-critical
ultrasound probes have existed for some
time in North America. Until now the main
focus has been on reprocessing intracavity
probes. However, there are a growing
number of surface ultrasound procedures,
such as ultrasound guided biopsies or
wound scanning, that are classified as
critical or semi-critical because the probe
can come into contact with broken skin,
mucous membranes, sterile tissue or the
vascular system. This means these surface
probes require HLD between patients.
An important survey was published in the
American Journal of Infection Control in
June 2018. The survey of infection
preventionists across the US revealed
significant non-compliance with guidelines
for reprocessing surface ultrasound probes.
The study concluded there is an urgent need
to review policies and ensure best practice
for patient safety. Initiatives are now in place
focusing on educating customers on the
survey results and potential risks of cross
infection for patients if surface probes are
not properly reprocessed.
ARTICLE IN PRESS
American Journal of Infection Control ■■ (2018) ■■-■■
Contents lists available at ScienceDirect
American Journal of Infection Control
American Journal of
Infection Control
j o u r n a l h o m e p a g e : w w w. a j i c j o u r n a l . o r g
Major Article
Ultrasound probe use and reprocessing: Results from a national
survey among U.S. infection preventionists
Ruth M. Carrico PhD, DNP, FSHEA, CIC *, Stephen Furmanek MS, MPH, Connor English BS, MPH
University of Louisville Global Health Program, Division of Infectious Diseases, University of Louisville School of Medicine, Louisville, KY
Key Words:
Disinfection
interventional ultrasound
reprocessing
probe
endocavitary
Doppler
ultrasound gel
Background: Improper infection prevention practice associated with ultrasound probe use has been linked
to increased infection risk, outbreaks, and death. Although guidelines for reprocessing and use of probes
exist, it is unclear how extensively these have been adopted in practice.
Methods: Infection preventionists from U.S. health care facilities were surveyed (N = 358). The anony-
mous survey had 31 multiple choice, sliding scale, and text response questions. The survey was developed
and deployed and the data were stored in the REDCap system.
Results: A high degree of noncompliance with U.S. guidelines was identified. Surface probes used in in-
vasive procedures were not high-level disinfected or sterilized 15% (intraoperative) to 78% (peripheral
line placements) of the time. Of invasive procedures, 5%-47% did not use sterile gel (same procedures,
respectively). Of the participants, 20% were aware of instances where an ultrasound probe was used but
was not correctly reprocessed. Extensive breaches of infection control guidelines were reported. The rapid
expansion in use of ultrasound has brought clinical benefit but may be exposing patients to preventable
infection risk.
Conclusions: Infection preventionists are well placed to act as major drivers of change based on their
expertise and experience in the management of infection risk across facilities and health systems. They,
along with clinicians responsible for probe use and reprocessing, should review practices relating to ul-
trasound in their facilities. Where practice does not comply with guidelines, policy and training should
be updated to ensure patient safety.
© 2018 The Author(s). Published by Elsevier Inc. on behalf of Association for Professionals in Infection
Control and Epidemiology, Inc. This is an open access article under the CC BY license (http://
creativecommons.org/licenses/by/4.0/).
In recent years, ultrasound procedures have seen a rapid expan-
sion throughout U.S. hospitals, outpatient ambulatory settings, and
medical offices. This expansion carries with it documented infec-
tion risks that have been recognized worldwide. In 2016, The Joint
Commission found that 74% of all immediate threats to life decla-
rations were related to improperly sterilized or high-level disinfected
* Address correspondence to Ruth M. Carrico, PhD, DNP, FSHEA, CIC, University
of Louisville Global Health Program, Division of Infectious Diseases, University of
Louisville School of Medicine, 501 E Broadway, Ste 140C, Louisville, KY 40202.
E-mail address: Ruth.carrico@louisville.edu (R.M. Carrico).
Funding/support: Nanosonics provided a grant to support researcher time (R.M.C.)
spent during survey development, deployment, analysis, and manuscript
development.
Conflicts of interest: None to report.
Author contributions: R.M.C. was responsible for design of the survey process,
initial survey design and validation, development of the manuscript, and primary
writing. C.E. was responsible for survey deployment and management of the survey
process. S.F. and C.E. were responsible for survey design, analysis of survey results,
critical review, and editing of the manuscript.
equipment.1 In 2017, the first study to investigate the risk of im-
proper reprocessing at an epidemiologic level was published.2 The
retrospective study, undertaken by a department of the NHS Health
Scotland, showed that patients undergoing a transvaginal scan were
41% more likely (hazard ratio [HR], 1.41) to have positive bacterial
cultures and 26% (HR, 1.26) more likely to be prescribed antibiot-
ics in the 30 days after ultrasound versus matched controls (P < .001).
Similarly, patients undergoing transrectal scans were 3.4 times (HR,
3.4) and 75% (HR, 1.75) more likely to have positive cultures and
be prescribed antibiotics, respectively. Compounding these find-
ings are recent studies demonstrating glutaraldehyde and ortho-
phthalaldehyde (OPA) are ineffective in inactivating human
papillomavirus (HPV).3,4 It has also been reported that >80% of probe
handles are contaminated with pathogens, including methicillin-
resistant Staphylococcus aureus, supporting the call for inclusion of
the handle in reprocessing along with the probe body.5,6
Patient deaths have also been reported as a result of ultra-
sound probe contamination. In 2012, a patient death because of
hepatitis B after an endocavitary examination with an improperly
0196-6553/© 2018 The Author(s). Published by Elsevier Inc. on behalf of Association for Professionals in Infection Control and Epidemiology, Inc. This is an open access
article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
https://doi.org/10.1016/j.ajic.2018.03.025
A survey of infection preventionists revealed significant
non-compliance with guidelines for reprocessing
surface ultrasound probes.
Growing ultrasound OEM
partnerships
Capital reseller agreements are now in
place with all major ultrasound companies
in North America, with sales through
this channel growing. In this model the
ultrasound companies are able to sell
the trophon capital equipment. Once the
unit is sold, Nanosonics is responsible
for installation, customer training and the
ongoing provision of consumables and
service. The majority of these companies
now include trophon in their trade displays
at major ultrasound meetings, demonstrating
to customers the importance of probe
decontamination and trophon as the
recommended standard of care.
During the year, Nanosonics announced
that it is entering into a new capital reseller
agreement with GE Healthcare which comes
into effect at the end of the current GE
Healthcare Distribution agreement. This
new three year agreement commences on 1
July 2019 and provides GE Healthcare with
capital reseller rights as part of Nanosonics’
global ultrasound OEM program.
New capital reseller
agreement with GE
Healthcare will deliver
a material increase in
sales and margin
from 1 July 2019.
The new arrangements provide GE
Healthcare customers with ongoing access
to the trophon through the GE Healthcare
ultrasound sales channel in North America.
Under the terms of the new agreement,
Nanosonics will gain a material increase in
both consumable sales and margin in North
America as of and beyond July 2019.
Positioning for scalable growth
Significant investments were made in the
region in FY18 with North America now
employing 54 people across sales, clinical
applications, service, finance and distribution
functions. This investment supports the
ongoing growth of trophon and sets up the
necessary infrastructure for the introduction
of new products, as well as the capability
to supply consumables to the North
American installed base from July 2019. A
new Regional President, Ken Shaw, was
appointed in the first half to lead our
growing North American operations.
A new central US service and support location began
operating in January 2018.
10 | Nanosonics Annual Report 2018
1. US News and World Report.
/ Revenue ($m)For personal use only
Regional highlights | North America
The North America Sales team.
Nanosonics’ booth at this year’s Association for Professionals in
Infection Control and Epidemiology (APIC) conference.
+47k
patients are protected
every working day
because their ultrasound
probes are trophoned
+15k
trophons in more
than 5,000 hospitals and
clinics in North America
50out of the top 50
US hospitals now
use trophon
11
For personal use only
Regional highlights | Europe
REGIONAL
HIGHLIGHTS
Europe
Favourable guideline changes over
the past few years have improved the
fundamentals for trophon adoption
in the UK market.
United Kingdom and Ireland
In December 2017, the British Medical
Ultrasound Society (BMUS), together with
the Society & College of Radiographers
in the UK, issued guidance requiring
appropriate disinfection or sterilisation of
ultrasound probes. The BMUS guidance
draws on best practice infection prevention
guidance for ultrasound probes previously
published by NHS Wales and Scotland,
as well as more recent guidance from the
Health Service Executive of Ireland and
the joint guidance from the Australasian
College of Infection Prevention and Control
and Australasian Society for Ultrasound
in Medicine. All of these highlight the
importance of high level disinfection (HLD)
of all semi-critical ultrasound probes.
All four regions in the UK now have guidance
recommending HLD of ultrasound probes
between patients. Importantly, the market
now recognises the need to high level
disinfect all semi-critical probes – not
only invasive probes – and trophon is well
established as the best automated HLD
solution in the UK.
The recommendations of the UK’s
guidelines were supported in November
2017 by the results of a population-based
Scottish study. The study showed there
is an increased risk of both infection and
antibiotic prescriptions following semi-
invasive ultrasound procedures. While there
have been numerous individual reports
of infection associated with improperly
reprocessed probes, this is the first study
to demonstrate the extent of the problem
at the broader population level. The study
concluded that re-using probes that have
not been properly reprocessed poses an
increased risk of infection. It recommended
that probes should be high level disinfected
in accordance with guidelines.
12 | Nanosonics Annual Report 2018
EMEA TROPHON INSTALLED BASE
730
trophon adoption grew 49%
in Europe/Middle East, driven
mainly by the MES business
model in the UK.
730
490
300
240
110
2014
2015
2016
2017
2018
As anticipated, the Managed Equipment
Service (MES) business model introduced
last year resulted in strong unit growth with
the installed base of MES units increasing
146% during the year. Under the MES
program, trophon capital equipment owned
by Nanosonics is placed in hospitals.
The facility pays an all-inclusive price for
consumables in return for the use of the fully
maintained capital equipment. Luminary
sites such as Kings College Hospital, London
adopted 40 units across nine departments
and NHS Fife Hospital in Scotland adopted
20 units.
To support market growth, the UK headcount
doubled in FY18 and the team moved its
operations to new facilities. During the year
the team focussed on educational activities
including presentations to regional infection
prevention society groups, study days and
numerous on-site product training sessions
which highlighted the importance of HLD.
All four regions in the
UK now have guidance
recommending HLD of
ultrasound probes
between patients.
trophon2 launch training at our distributor, Wassenburg
Medical, Dublin.
Activity outside the UK is mainly focussed
around strengthening the fundamentals
for adoption of trophon. Some of this is
happening organically with the growing
number of new guidelines recommending
HLD for ultrasound probe disinfection.
Nanosonics is also conducting education
and awareness initiatives and consulting
with key infection prevention societies
and authorities.
European guidelines are evolving rapidly to reflect
disinfection best practice.
For personal use only
Regional highlights | Europe
Germany
In Germany there was further good news
regarding guidelines. In April 2018, the
German Society of Ultrasound in Medicine
(DEGUM), published comprehensive
recommendations for infection prevention
in ultrasound and endoscopic ultrasound.
Published in the European Journal of
Ultrasound, the new guidelines require HLD
for all semi-critical ultrasound probes. They
are aligned with the growing number of
international guidelines, including the most
recent European guidelines issued by the
European Society of Radiology, European
Federation of Societies for Ultrasound
in Medicine and Biology, and the BMUS
mentioned above.
As well as requiring disinfectants to be
proven bactericidal, fungicidal and virucidal,
the DEGUM guidelines require virucidal
activity to meet the strict requirements of the
German Society for Virology — trophon has
been shown to meet all these requirements.
This is highly positive as Germany is an
important market that represents a large
opportunity for trophon.
Greater awareness of the importance
of ultrasound probe decontamination
was evident in March 2018 at the annual
national conference of the German Infection
Prevention Society (DGKH) in Berlin. A
Nanosonics’ symposium on the topic
of ultrasound probe decontamination
attracted an audience of over 450 infection
prevention healthcare practitioners to hear
from key opinion leaders in the field about
the latest advances and requirements for
probe decontamination.
Key luminary sites are now adopting trophon
and a highlight this year included the
University Hospital of Frankfurt, a recognised
European luminary hospital, installing 22
trophons across a range of departments.
As a result of the strengthening
fundamentals for trophon adoption,
Nanosonics’ German team grew its direct
sales force and service infrastructure to
prepare for market expansion.
Guidelines & Recommendations
DEGUM Recommendations on Infection Prevention in Ultrasound
and Endoscopic Ultrasound
DEGUM-Empfehlungen zur Hygiene in Sonografie und
Endosonografie
France
Emerging new guidelines are good news
for the French market. The European
Society of Radiology (ESR) guidelines,
published in November 2017, were well
accepted by radiologists in France. The
guidelines mandate HLD of all intracavity
and interventional probes with the
recommendation that this best practice is
incorporated into local guidelines.
Authors
Thomas Müller1, Heike Martiny2, Eberhard Merz3, Jens Döffert4, Matthias Wüstner5, Wolfgang Lessel6,
Hans Heynemann7, Thomas Enzmann8, Heiko Dudwiesus9, Dieter Nuernberg10, Christian Tesch11, Marc André Weber12,
Siegfried Krishnabhakdi13, Jörg Heil14, Alexander Wree15, Christian Jenssen16
Affiliations
1 Department of Internal Medicine I, Kreiskliniken
Reutlingen, Germany
2 Technical Hygiene, Charite, Berlin, Germany
3 Center for Ultrasound and prenatal Medicine, Center for
Ultrasound and Prenatal Medicine, Frankfurt, Germany
4 Anesthesia and Critical Care Medicine, Kreisklinikum
Calw-Nagold, Calw, Germany
5 Central Ultrasound Department, Bruederkrankenhaus,
Trier, Germany
6 Urologie, Praxis, Magdeburg, Germany
7 Urology, Universitatsklinikum Halle, Germany
8 Klinik für Urologie und Kinderurologie, Klinikum
Brandenburg, Germany
9 Langenfeld, Germany
10 Department of Gastroenterology, Brandenburg University
of Medicine Theodor Fontane, Neuruppin, Germany
11 Orthopedics and Trauma Surgery, Praxis, Hamburg,
Germany
12 Institute for Diagnostic and Interventional Radiology,
Universitätsmedizin Rostock, Germany
13 Department of Vascular Surgery, Klinikum Herford,
Germany
14 Department of Gynekology and Obstetrics, University
Hospital, Heidelberg, Germany
15 Internal Medicine III, Universitatsklinikum Aachen,
Germany
16 Klinik für Innere Medizin, Krankenhaus Märkisch Oderland
Strausberg/ Wriezen, Germany
Key words
ultrasound, infection, intervention, disinfection, endoscopic
ultrasound
received 12.09.2017
accepted 29.12.2017
Bibliography
DOI https://doi.org/10.1055/s-0044-102006
Published online: 2018
Ultraschall in Med
© Georg Thieme Verlag KG, Stuttgart · New York
ISSN 0172-4614
Correspondence
Dr. Thomas Müller
Med. Klinik I, Kreiskliniken Reutlingen, Steinenbergstrasse 31,
72764 Reutlingen, Germany
Tel.: ++ 49/71 21/20 00
mueller_tho@klin-rt.de
ABSTR AC T
Microbial contamination of ultrasound probes for percuta-
neous or endoscopic use is common. However, infectious
diseases caused by transmission of microorganisms by US pro-
cedures have rarely been reported. In Germany, legal regula-
tions address hygiene in ultrasound procedures. Based on these
regulations and the available literature, an expert panel of the
German Society of Ultrasound in Medicine (DEGUM) has formu-
lated sophisticated recommendations on hygienic measures in
percutaneous and endoscopic US, including US-guided inter-
ventions.
Z US A M M E N FA SS U N G
Mikrobielle Kontaminationen von Schallköpfen, kutan oder
endokavitär angewandt, sind häufig, tatsächliche Infektionen
nach Sonografien werden jedoch nur kasuistisch berichtet. In
Deutschland existieren rechtliche Vorschriften zur Schallkopf-
hygiene. Ein Expertengremium der DEGUM hat vor dem Hin-
tergrund der Vorschriften und der verfügbaren Literatur
differenzierte Empfehlungen zur Hygiene in der Sonografie
und der Endosonografie, einschließlich der ultraschallgestütz-
ten Interventionen, formuliert.
Müller T et al. DEGUM Recommendations on… Ultraschall in Med
The German Society of Ultrasound in Medicine
(DEGUM) published guidelines requiring HLD for
all semi-critical ultrasound probes.
Key luminary sites in
Germany are now
adopting trophon.
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i
s
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a
n
U
In addition, the French Urology Association
(Infectiology Committee of Association
Française d’Urologie) published a paper
reporting that only 22% of respondents
comply with current guidelines and
instructions. Survey findings led the
association to conclude that intermediate
level disinfection (the equivalent of HLD for
ultrasound probes) of endo-rectal probes
should “become the norm”. As a result of
the findings, the president of the French
infection control society was appointed by
the Ministry of Health to head a working
group tasked with drafting new guidelines
expected in FY19.
d
e
d
a
o
n
w
o
d
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e
m
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c
o
d
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o
s
r
e
p
.
y
n
o
s
h
T
s
a
w
e
s
u
r
o
f
t
i
l
l
l
Middle East
During the year, Nanosonics appointed
a Business Development Manager who
is dedicated to overseeing activities in
the rest of Europe and the Middle East.
Active expansion projects are now in place
for Scandinavia as well as a number of
countries in the Middle East. Distribution
agreements were signed for Lebanon and
Kuwait with sales expected to commence
in early FY19. Work is continuing to further
open up other markets in the Middle East,
with distributor negotiations in process for
Israel, Oman and Saudi Arabia.
%49trophon adoption grew
in FY2018
13
For personal use only
Regional highlights | Asia Pacific
REGIONAL
HIGHLIGHTS
Asia Pacific
ASIA PACIFIC TROPHON INSTALLED BASE
1,390
With market penetration in the
region approximately 70% and
growing, trophon is well established
as the standard of care for high level
disinfection of ultrasound probes in
Australia and New Zealand.
1,390
1,270
1,130
1,010
850
2014
2015
2016
2017
2018
Australia and New Zealand
With market penetration in the region
approximately 70% and growing,
trophon is well established as the
standard of care for high level
disinfection of ultrasound probes
in Australia and New Zealand.
This is due to these markets having relevant
disinfection guidelines in place and strong
fundamentals for adoption. This position
was further strengthened after last year’s
release of the joint guideline between the
Australian Society of Ultrasound in Medicine
(ASUM) and the Australasian College for
Infection Prevention and Control (ACIPC).
The guidelines emphasise the need to high
level disinfect all probes used in semi-critical
procedures (surface and intracavity).
In New Zealand, the new guidelines
resulted in increased sales outside
radiology departments and increased
use and sales of chemical indicators.
Marketing activities across Australia and
New Zealand are focussed on ensuring
all semi-critical ultrasound probes are
high level disinfected in accordance with
local guidelines, which will further drive
consumables revenue.
Japan
In Japan, pre-marketing programs
are progressing via engagement with
relevant key opinion leaders and
societies. A pivotal local clinical study,
which aims to provide local data on
microbial contamination on ultrasound
probes, is now underway. The data
aims to support the generation of
local Japanese guidelines.
New guidelines in Australia and New Zealand further
strengthened the fundamentals for trophon adoption.
14 | Nanosonics Annual Report 2018
Sue Rogers, Ultrasound Manager, Ascot Radiology.
trophon helps Ascot Radiology meet
guideline requirements for disinfecting
surface probes.
Ascot Radiology in Auckland started using
trophon to high level disinfect surface
ultrasound probes when the Australasian
Society for Ultrasound in Medicine (ASUM)
guidelines were updated to include a
recommendation to high level disinfect
surface probes. The transition away from low
level disinfection chemicals was an easy one.
“trophon is so quick and easy to use that it’s
just an easy addition to the end of the scan
and doesn’t add any time,” says Sue Rogers,
Ultrasound Manager, Ascot Radiology. “You
can pop the probe into the unit and walk
away to carry on with the next patient. It isn’t
operator dependent and is more consistent
than other methods.”
Ascot was the first site in New Zealand to
start using trophon. Since that installation
in 2009, the specialised radiology clinic has
purchased a further three units across its
other sites. “The consumables cost a lot
less than other methods so we are making
considerable savings by using trophon,” says
Sue. “For a busy practice it’s the easiest,
most time efficient method to comply with
disinfection policies in a consistent and
thorough way – which ultimately enhances
patient care and throughput in a very
professional manner.”
“…it’s just an easy addition
to the end of the scan and
doesn’t add any time.
”
For personal use only
Regional highlights | Asia Pacific
Regional highlights | Asia Pacific
Marketing activities across Australia and
New Zealand are focussed on ensuring
all semi-critical ultrasound probes are
high level disinfected in accordance with
local guidelines, which will further drive
consumables revenue.
70%
of all HLD systems in ANZ
are represented by trophon
15
For personal use only
Environmental, social and governance (ESG)
ESG
Environmental, social and governance
Nanosonics’ commitment
to environmental, social and
governance (ESG) factors is
embedded in the Company’s
culture and approach
to business.
The focus on these important
factors enables the Company
to continue delivering quality
products and services,
creating a foundation for
long‑term performance.
Environmental
Measuring the positive impact of trophon
Nanosonics’ trophon product design has a
number of environmental benefits. These
include more than 70% of the components
being recyclable, and the hydrogen peroxide
disinfectant used in the machine being
broken down into harmless, environmentally
friendly by-products: water and oxygen.
In addition to the environmental benefits of
its product, Nanosonics follows the General
Guidelines for Environmental Management
(ESOP004). It has identified environmental
risks and has put appropriate mitigations
in place to control those risks.
In October 2017 Nanosonics’ commitment
to the environment was recognised with
the Environmental Solutions Award in the
Premier’s NSW Export Awards. The award
recognises an organisation’s excellence
in the export of goods and services by
NSW business.
As using wipes for high level disinfection
(HLD) is not FDA-approved in the US, bulk
liquid chemicals are the only alternative for
clinics and healthcare facilities that do not
use trophon.
> Bulk liquid chemicals must be
disposed of every two to four weeks.
Each trophon prevents 372,000 litres
of these harmful chemicals being
dumped into the environment.
> Each trophon disinfection cycle saves
15.2 litres of additional sterile rinsing
water that is required if disinfection is
carried out using bulk liquid chemicals.
In the US, ultrasound probes are trophoned
approximately 47,000 times per day,
resulting in the saving of around
714,000 litres of water per day or
171 million litres of water per year.
Nanosonics wins the Environmental Solutions Award at the Premier’s NSW Export Awards.
16 | Nanosonics Annual Report 2018
For personal use only
Environmental, social and governance (ESG)
+
22m
disposable protective
gowns are saved from
disposal per year.
171m
litres of water are saved
per year.
372k
litres of chemicals
are prevented from
being dumped into the
environment.
Governance
The Board of Directors of Nanosonics is
committed to high standards of corporate
governance. The Board continues to
ensure that the business remains focussed
on corporate governance, as this area
evolves and the business grows in scale
and complexity. This is demonstrated by
Nanosonics’ efforts to consistently update
policies and practices, leading to the
introduction of the Company’s Anti-Bribery
and Anti-Corruption Policy and a revised
Whistleblower Policy.
Nanosonics considers that it complies
with most ASX Listing Rules and the ASX
Corporate Governance Principles and
Recommendations (3rd Edition). Where the
company does not comply, it explains why
these are not appropriate for Nanosonics’
business. 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
and recognised best practice.
> With bulk liquid chemical disinfection,
Diversity
additional personal protective equipment,
in the form of two extra gowns for
operators, is required. At 47,000 cycles
per day this means up to 94,000
disposable protective gowns per day
or more than 22 million gowns to be
disposed of per year.
The above figures relate to the North
American market only. The worldwide
positive impact of trophon is greater still
when further soaking disinfection and
wipe disposal is taken into account.
Social
Healthy working environment
The promotion of a positive and supportive
working culture is important to Nanosonics.
The Company recognises that its highly
specialised and highly skilled workforce
is critically important to its long term
sustainable performance. In August 2018,
Nanosonics will undertake its first global
employee input survey. The “Your Voice:
Make it Heard!” culture survey aims to track
the Company’s engagement with its people
in a tangible way. This reflects Nanosonics’
consistent effort to encourage expression,
equality and communication as part of an
enriched and diverse work culture. The result
of these efforts is evident in Nanosonics’ low
staff turnover rates, which were 2.36% for
the 2018 Financial Year.
Over 30 nationalities are represented
in the Nanosonics workforce. Gender
equality is also an important focus.
35% of permanent full time workforce
is female with 29% represented at senior
executive level. The Company will continue
to focus on growing and developing its
pipeline of female senior leaders through
its talent management, succession and
development initiatives.
Supporting education and research
Nanosonics supports education both
from an internal and external perspective.
Nanosonics regularly provides intern
placements for students from the University
of Sydney, University of New South Wales
and the University of Technology Sydney.
Placements have been made in a number
of departments, including Technology
Development and Commercialisation, Design
Development, Service and Finance.
Training and education
Nanosonics places emphasis on all
training, and in particular training on its
Quality Management System (QMS). This
reflects the Company’s holistic and planned
approach to investing in its people, as well
the importance it places on compliance
in the Company’s highly regulated
industry sector.
Giving back to the community
Nanosonics encourages and 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 remuneration.
17
For personal use only
The simply smarter solution
trophon® —
the benchmark for ultrasound probe HLD
With the ever‑increasing challenges
in the fight against the spread of
Healthcare Acquired Infections (HAIs),
trophon is setting a new benchmark in
ultrasound probe disinfection.
Every day, around the world, more
than 55,000 ultrasound probes
are trophoned. That’s over 55,000
patients protected from the risks of
cross contamination with trophon’s
powerful disinfection technology.
Studies have demonstrated that traditional
methods of disinfection, such as soaking in
chemicals, spraying or wiping, are inefficient,
environmentally unsound and ineffective.
Nanosonics’ trophon technology is clinically
proven to inactivate an extended range of
clinically infectious pathogens. Unlike other
decontamination methods, with trophon
there is no exposure to harmful chemistries.
This means while patients are protected from
ultrasound probe cross infection risk, clinic
staff and the environment are protected from
hazardous chemicals.
Smart Protection
Smart Flexibility
To reduce the risk of cross infection,
multiple global 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.
The fully enclosed system means trophon
can be placed at the point of care (POC)
where examinations are carried out.
This maximises 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. 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.
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.
Free radicals in the mist have superoxidative
properties enabling the disinfectant to
act quickly and destroy pathogens. The
mist particles are so small they can get
into the shadowed areas created by
crevices, grooves and imperfections
on the probe surface.
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.
18 | Nanosonics Annual Report 2018
For personal use only
Introducing trophon2
Introducing trophon®2
Smart Protection
Delivers protection for patients, staff and
the environment – reduces risk
Smart Flexibility
Streamlines set-up, can be customised to
clinic workflows and has extensive probe
compatibility – improves efficiency
Smart Functionality
Enhances user experience so you can
perform HLD simply, automatically, and
with confidence – increases compliance
Smart Traceability
AcuTrace™ simplifies the creation of
accurate digital records, all stored on
trophon2 – increases audit-readiness
Smart Integration
AcuTrace™ PLUS delivers the option
to seamlessly connect trophon2 to
your hospital information systems –
simplifies data access
19
For personal use only
The Board
THE BOARD
Richard England
FCA, MAICD |
NON‑EXECUTIVE DIRECTOR
Marie McDonald
BSc (Hons), LLB (Hons) |
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 Atlas Arteria Limited
(ASX ALX), formerly Macquarie Atlas
Roads Limited since June 2010, a
Director of Japara Healthcare Limited
(ASX:JHC) since April 2014 and a
Director and Chairman of QANTM
Intellectual Property Ltd (ASX:QIP)
from August 2016. Mr England was
appointed a Non-executive Director
of Bingo Industries Limited in March
2017. He was a Director and Chairman
of Ruralco Holdings Limited (ASX:RHL)
from 2002 to September 2016.
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.
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.
20 | Nanosonics Annual Report 2018
For personal use only
The Board
Maurie Stang
NON‑EXECUTIVE CHAIRMAN
Mr Stang has been Non-executive
Director and Chairman since March
2007 and a member of the Board
since November 2000. Mr Stang has
more than two decades of experience
building and managing companies
in the healthcare and biotechnology
industry in Australia and internationally.
His strong business development
and marketing skills have resulted
in the successful commercialisation
of intellectual property across global
markets. He is a Non-executive
Director of Vectus Biosystems and
has been Non-executive Chairman
of Aeris Environmental Ltd (ASX:AEI)
since 2002.
David Fisher
BSurSc (Hons), MAppFin,
PhD, FFin, GAICD |
NON‑EXECUTIVE DIRECTOR
Steven Sargent
BBus, FAICD, FTSE |
NON‑EXECUTIVE DIRECTOR
AND DEPUTY CHAIRMAN
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.
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.
21
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The Executive team
THE EXECUTIVE
TEAM
Steven Farrugia
BE, PhD |
CHIEF TECHNOLOGY OFFICER
Gerrard Putt
BSc GAICD |
CHIEF OPERATIONS OFFICER
Steven joined Nanosonics as Senior Vice
President, Design and Development in
September 2016 and was appointed to
the role of CTO in February 2018. He has
over 20 years' experience leading the
development of medical devices. Prior to
Nanosonics, Steven 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
a past Adjunct Professor of Engineering
at The University of Sydney. In addition
to Design and Development, Steven is
responsible for the Regulatory Affairs
function of the Company.
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.
Gerard is responsible for the Product
Supply, Service and Quality functions
at Nanosonics.
Ken Shaw
BSc, REGIONAL PRESIDENT FOR
THE UNITED STATES, CANADA
AND LATIN AMERICA
Ken joined Nanosonics in September
2017 as Regional President for the
United States, Canada and Latin
America. He has more than 20 years’
experience in the healthcare, medical
devices and consumer products
industries. Most recently Ken was the
President for Amoena GmbH and prior
to that he held general management
roles at BSN Medical, Medicom,
Energizer and Pfizer.
22 | Nanosonics Annual Report 2018
Section HeaderFor personal use only
The Executive team
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.
Leanne Bexendale
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.
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 Michael
Kavanagh, has joint responsibility for
investor relations. He has more than 22
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.
23
For personal use only
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 2018, 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; and
> Research, development and commercialisation of infection control and decontamination products and related technologies.
There have been no significant changes in the nature of these activities during the year.
Review of operations and financial results
Revenue from sales for the year amounted to $60,698,000 (2017: $67,507,000), a decrease of $6,809,000 or 10%, reflecting a reduction
in sales to GE Healthcare in North America mainly due to changes in GE’s inventory holding management and anticipation of the launch of
trophon2. Sales in North America decreased by $7,899,000 to $54,406,000. Sales in Europe increased by $1,310,000 or 78% to $2,983,000
compared with the previous year resulting from the increased trophon adoption in the UK under the Managed Equipment Service selling
model. Sales in Asia Pacific amounted to $3,309,000, a decrease of 6% or $220,000 compared with the previous year reflecting lower sales of
capital equipment partially offset by higher consumables sales.
Gross profit decreased by 10% to $45,291,000 compared with $50,155,000 in the prior period. Gross margin as a percentage of sales was
74.6% compared with 74.3% in previous year reflecting lower sales of capital equipment partially offset by higher consumables sales.
Selling, general and administration expenses (SG&A) were $32,689,000 (2017: $27,548,000) excluding foreign exchange losses which were
now reclassified in other gains/losses-net. The increase in SG&A of $5,141,000 (2017: 3,220,000) was mainly to support the increased sales
in North America and market expansion activities in Europe and other markets, expansion of internal operational capacity and capabilities to
support a growing global organisation and the transition of a distributor to a capital reseller from 1 July 2019.
Research and development expenses (R&D) for the year were $9,882,000, an increase of 2.6% compared with $9,486,000 in 2017. This
increase is consistent with the Company’s commitment to strategic investment in R&D targeted at design and development activities
associated with trophon2 which obtained regulatory approval in USA and Europe towards the end of the year, as well as investment in
research into novel solutions aimed at addressing unmet needs in the infection prevention field.
Other income for the period amounted to $93,000 (2017: $9,000).
Other gains, comprised mainly of net gain on foreign currency forward contracts and options, were $1,549,000 million compared with
a net loss of $264,000 in 2017.
Finance income amounting to $1,279,000 (2017: $1,063,000) relates to interest earned on cash investments.
Finance expense for the year of $58,000 related to interest on leases (2017: $77,000).
Income tax benefit for the period was $168,000 compared with $12,306,000 in 2017 which included the initial recognition of deferred tax
assets relating to the Australian entities. Based on an updated assessment of the operations of the Group for the year ended 30 June 2018,
it has been determined that taxable profits will continue to be generated by the Australian entities against which tax credits and deductible
temporary differences will be utilised. In addition, it has been determined that it is probable that taxable profits will be generated by the US
entity against which carried forward tax losses and deductible temporary differences will be utilised. As a result, previously unrecognised
deferred tax assets in relation to the US entity were recognised as a non-current asset. Further information on the income tax expense and
movements on net deferred tax assets are detailed in note 3.
The consolidated profit after tax amounted to $5,751,000 (2017: $26,158,000).
The Group ended the year with $69,433,000 (2017: $62,989,000) in cash and cash equivalents, an increase of $6,444,000. 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.
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 2018 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. Other risks besides those detailed below or in the financial
statements could also adversely affect Nanosonics’ business and operations, and the material business risks below should not be considered
an exhaustive list of potential risks that may affect Nanosonics.
24 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Significant
distribution
customer
The Group’s key distribution customer accounts for
approximately 49.3% of the Group’s revenue (see note
2.1 of the financial statements), the majority of which is in
United States, Nanosonics’ largest market. Nanosonics
is aware of the need to continue to closely manage its
key distribution customer including closely managing any
changes in its commercial and contractual relationship
with that distributor as the parties transition to a new
capital reseller agreement from 1 July 2019.
The Group has further strengthened its own direct operations
in North America and now 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.
The Group continues to invest in infrastructure in the North
American market to assist the business to scale.
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. New products are also likely to require a range
of regulatory approvals.
To manage these risks, the Company has a clearly defined
framework to support the processes covering product
ideation, development and subsequent commercialisation
and has made the development of additional technologies a
key strategic priority and investment.
Nanosonics also engages with a range of experts in relevant
fields to determine the focus of its R&D efforts.
Competition
Intellectual
Property
Supply chain
Regulation
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.
The Company relies heavily on its ability to maintain and
protect its intellectual property (IP) including registered
and unregistered IP.
Nanosonics recognises the potential risk of third party
infringement claims on its IP portfolio, the expiry of its IP,
the risk of being unable to register the underlying subject
matter or processes in any new products and the risk that
third parties may claim that our IP infringes their rights.
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 could make
substitution costly and time-consuming.
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 third party suppliers and failure to satisfy
regulatory requirements presents significant risks including
the Company’s ability to sell the products, and/or result in
an adverse event such as a product recall.
To address this risk, the Company has invested in R&D for
the second generation of trophon, trophon2, which was
released to the market in August 2018, and continues to
invest heavily in product diversification.
Nanosonics seeks appropriate patent and trade mark
protection and manages any specifically identified IP risks.
Along with internal personnel to manage IP opportunity and
risk, Nanosonics works closely with specialists and advisors
to continually manage its IP opportunities and risks.
Trophon, for example, is covered by 14 patent families.
Most are active through to 2025 and in many cases beyond
including patents relating to the consumables which go out to
2029. The Group has an active program to continue to protect
the IP in its technology.
Nanosonics ensures that its projects, products and related
activities include an appropriate assessment of any third
party IP profile against its own IP profile.
The Group regularly monitors its suppliers and their
performance, and seeks to enter into agreements where
appropriate to mitigate any supply risk. Inventories are
managed in sufficient quantities for continued product
supply in the short term.
The Group has a highly developed Quality Management
System to manage this risk.
Financial
The Group is exposed to foreign currency risk and credit
risk in light of the international nature of its operation.
These risks are managed through its internal financial risk
management policy. The Company seeks external advice as
appropriate. Further information is available in note 7 to the
financial statements.
Product liability
The Company recognises the risk that its products (or their
use) may cause damage to a third party given the nature
of the product and the industry the Company operates in.
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.
Personnel
Nanosonics recognises that providing a safe and rewarding
working environment is critical to its sustainability. Further,
the Company operates in a competitive market in relation to
attracting scientific and engineering talent.
The Company has programs in place both for WHS, and the
attraction and retention of talent.
Cyber security
Nanosonics recognises the emerging risk associated with
cyber security and the potential impact on the Company’s
operations.
Nanosonics has a cyber security strategy which it is
implementing with a view to safeguarding the business
against these risks.
25
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Directors’ report (continued)
DIRECTORS’ REPORT CONTINUED
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 15 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.
Dividends – Nanosonics Limited
The directors do not recommend the payment of a dividend for the financial year ended 30 June 2018. No dividends were proposed, declared
or paid during the financial year (2017: Nil).
The Board review the dividend policy regularly. The Company’s dividend policy in the future will depend upon the profitability and the financial
position and the capital allocation priorities 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 2018 that has significantly affected, or may significantly affect:
a. The Group’s operations in future financial years;
b. The results of those operations in future financial years; or
c. The Group’s state of affairs in future financial years.
Likely developments and expected results of operations
Comments on expected results of the operations of the Group are in the review of operations included in the CEO’s report and Regional
highlights on pages 6 to 15 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 Maurie Stang, David Fisher, Richard England, Michael Kavanagh, Steven Sargent
and Marie McDonald.
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 28.
During the year, McGregor Grant and Rob Waring were in office as Company Secretaries. On 19 July 2018 Mr Waring retired as company
secretary. McGregor Grant remains as sole Company Secretary.
Information on the directors, company secretary and the executive team is a part of the Directors’ report and can be found on pages 28 to 29
of the Annual Report.
Meetings of directors
The number of directors’ meetings, including meetings of the committees, held during the year ended 30 June 2018, and numbers of meetings
attended by each of the directors were as follows:
Meetings of committees
Full meetings of directors
Audit and Risk
Nomination
Remuneration 3 R&D and Innovation
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Michael Kavanagh
8
8
8
8
8
8
8
8
7
8
8
8
—
4
4
—
4
—
4 1
4
3
4 1
4
4 2
1
1
1
1
1
—
1
1
1
1
1
1 2
2
2
—
2
2
—
2
2
2 1
2
2
2 2
4
—
4
4
—
4
4 1
3 1
4
4
4 1
4
1. Attended in part or in full in ex-officio capacity.
2. Attended in part by invitation.
3. In addition to the 2 Remuneration Committee meetings held during the year, remuneration matters were considered at a number of Board meetings.
These remuneration matters included the proposed changes to the Company’s remuneration framework set out in section 4.8 of the Remuneration report.
26 | Nanosonics Annual Report 2018
For personal use only
Directors’ report (continued)
Share-based payments
Shares issued under the DESP and performance rights and options granted under the share-based compensation plans during the year
are detailed below.
Shares issued
During the year ended 30 June 2018 and to the date of this report, the Company issued a total of 1,612,124 (2017: 1,798,419) new ordinary
shares in Nanosonics Limited. These shares were issued pursuant to the exercise of performance rights under the share-based compensation
plans.
No amount was unpaid on any of the shares issued.
As at 30 June 2018, there were 299,345,079 (2017: 297,732,955) ordinary shares in Nanosonics Limited on issue. At the date of this report,
there were 299,345,079 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, 760,994 (2017: 583,258) unquoted performance rights and 840,978 (2017: 495,783) unquoted share options over
unissued ordinary shares in Nanosonics Limited. Further information on the grants is in Section 5 of the Remuneration report on pages 40 to 46
and in the Share-based payments note to the financial statements.
Shares under option
At the date of this report, there were 3,183,817 unissued ordinary shares of Nanosonics Limited under option as detailed below. As at 30 June
2018, there were 3,259,653 (2017: 3,522,522) 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
Omnibus Equity Plan
Employee Share Option Plan
Total shares under option at 30 June 2018
Performance Rights and Options lapsed
Omnibus Equity Plan
Total shares under option to the date of this report
Number of shares under option
2,293,411
966,542
3,259,953
(76,136)
3,183,817
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.
27
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED
Table of contents
Section Title
Description
1
2
3
4
5
6
7
Introduction
Describes the scope of the Remuneration report and the individuals whose remuneration
details are disclosed.
Remuneration governance
Describes the role of the Board and the Remuneration Committee and the use of remuneration
governance consultants when making remuneration decisions.
Non-executive Director
remuneration
Executive remuneration
Provides detail regarding the fees paid to Non-executive Directors including all required disclosures.
Outlines the Company’s remuneration strategy and principles applied to executive remuneration
decisions and the framework used to deliver it, including the performance and remuneration
linkages, and all required executive remuneration disclosures.
Employee Share Scheme
information
Provides detail regarding the Company’s employee equity plans including that information required
by the Corporations Act 2001 (Cth) (Corporations Act) and applicable accounting standards.
Employment agreements
Provides details regarding the contractual arrangements between the Company and the executives
whose remuneration details are disclosed.
Key Management
Personnel transactions
Provides details of loans and other transactions with Key Management Personnel and
their related parties.
1.0 Introduction
Nanosonics is a rapidly growing medical technology company with operations in numerous 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.
1.1 Scope
This Remuneration report sets out, in accordance with the relevant Corporations Act and accounting standard requirements, the remuneration
arrangements in place for KMP of Nanosonics during the financial year ended 30 June 2018 (2018 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 2018 Financial Year
Non-executive Directors
Maurie Stang
Chairman; Chairman, Nomination Committee; Member, Remuneration
Committee; Member, R&D and Innovation Committee
Steven Sargent
Deputy Chairman; Chairman, Remuneration Committee; Member, R&D
and Innovation Committee; Member, Nomination Committee
Appointed Deputy Chair on 5 October 2017
Richard England
Director; Chairman, Audit and Risk Committee; Member, Remuneration
Comamittee; Member, Nomination Committee
David Fisher
Director; Chairman, R&D and Innovation Committee; Member, Audit and
Risk Committee; Member, Nomination Committee
Marie McDonald
Director; Member, Audit and Risk Committee; Member, Remuneration
Committee; Member, Nomination Committee
Executive Director
Michael Kavanagh Chief Executive Officer & President (CEO&P) and Managing Director
Member, R&D and Innovation Committee
28 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
Name
Position (at year end) 1
Change in 2018 Financial Year
Executive KMP
McGregor Grant
Chief Financial Officer (CFO) and Company Secretary
Gerard Putt
Chief Operations Officer
Steven Farrugia
Chief Technology Officer
Dr Farrugia held the position of SVP Design
& Development up to 20 February 2018. As at
this date, Dr Farrugia was appointed to Chief
Technology Officer
Ron Weinberger
President, Technology Development/Commercialisation
Ceased employment from 20 February 2018
1. Position held for full year, unless otherwise stated.
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 2018 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; and
> Determine and approve equity awards in accordance with policy and shareholder approvals, including testing of vesting and termination provisions.
The Remuneration Committee’s role and its interaction with the Board, internal and external advisors, is illustrated below.
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.
The Board
Reviews, applies judgement and, as appropriate, approves the Remuneration Committee’s recommendations.
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
2.2 Use of remuneration consultants
As appropriate, the Board and Remuneration Committee obtain and consider advice directly from external advisors, who are independent
of management.
Under engagement and communication protocols adopted by Nanosonics, advice and market data was provided directly to the
Remuneration Committee (which consists entirely of Non-Executive Directors) as follows:
> Laurie Wood, Remuneration Consultant, HRascent Pty Ltd (HRascent), provided ‘Remuneration Recommendations’ as defined by the
Corporations Act which were received after 30 June 2018. The fees relating to this ‘Remuneration Recommendation’ amounted to
$13,600. No other services were provided by HRascent.
> The Remuneration Committee engaged the services of other remuneration consultants to assist with the review of the executive remuneration
framework, benchmarked KMP salaries and the provision of comparable market data. No ‘Remuneration Recommendations’ as defined
by the Corporations Act were made during the 2018 financial year.
29
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
3.0 Non‑executive Director remuneration
3.1 Non-executive Director remuneration philosophy
Principle
Comment
Fees are set by reference to
key considerations
Fees for Non-executive Directors are based on the nature of the Directors’ work and their
responsibilities, taking into account the nature and complexity of the Company and the skills and
experience of the Director. In determining the level of fees, survey data on comparable companies is
considered. Non-executive Directors’ fees are recommended by the Remuneration Committee and
determined by the Board. Shareholders approve the aggregate amount available for the remuneration
of Non-executive Directors.
Remuneration is structured to
preserve independence whilst
creating alignment
To preserve independence and impartiality, Non-executive Directors are not entitled to any form of
incentive payments and the level of their fees is not set with reference to measures of the Company’s
performance.
Aggregate Board Fees are
approved by shareholders.
The total amount of fees paid to Non-executive Directors in the year ended 30 June 2018 is within the
aggregate 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 cash,
superannuation contributions or charitable donations.
3.2 Non-executive Director fees and other benefits
Elements
Details
Board fees per annum
Post-employment benefits
Superannuation
Other benefits
Equity instruments
Other fees/benefits
Board Chairman fee
Board Non-executive Director fee
Board Committee Chairman fee
$170,000
$85,000
$15,000
Superannuation contributions are included in the Board fees and are made at a rate of 9.5% of base
fee (up to the Government’s prescribed maximum contributions limit) which satisfies the Company’s
statutory superannuation contributions.
Non-executive Directors do not receive any performance related remuneration, options or
performance shares.
Non-executive Directors are reimbursed for out-of-pocket expenses that are directly related to
Nanosonics’ business.
3.3 Non-executive Director total remuneration
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Fees Superannuation
($)
($)
155,251
155,251
91,324
91,324
91,324
91,324
91,324
90,236
77,626
53,598
506,849
481,733
14,749
14,749
8,676
8,676
8,676
8,676
8,676
8,572
7,374
5,092
48,151
45,765
Total
($)
170,000
170,000
100,000
100,000
100,000
100,000
100,000
98,808
85,000
58,690
555,000
527,498
Maurie Stang
Richard England
David Fisher
Steven Sargent 1
Marie McDonald 2
Total
1. Mr Sargent was appointed as a Non-executive Director on 6 July 2016.
2. Ms McDonald was appointed as a Non-executive Director on 24 October 2016.
30 | Nanosonics Annual Report 2018
For personal use only
Directors’ 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 external
(relative Total Shareholder Return (TSR))
outperformance measures.
Remuneration for each component will be delivered as:
Base Salary plus any fixed elements
related to local markets, including
superannuation or equivalents.
Part cash and part equity. The equity
component is deferred for 1 year and
remains ‘at risk’ until vesting.
Equity is held subject to performance and
service for 3 years from grant date. The
equity is ‘at risk’ until vesting.
Strategic intent and market positioning
TFR will generally be positioned
at the median (+/-) compared
to relevant market based
data considering expertise
and performance in the role.
Performance incentive is directed to
achieving demanding growth targets.
TFR + STI is intended to be positioned
competitively when compared to
groups of similar companies.
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 competitively when compared to relevant market based comparisons.
The Executive remuneration framework is currently under review, and certain changes are proposed to be made for incentives awarded
after 1 July 2018 as set out in note 4.8 below.
31
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
4.2 Remuneration mix and timing of receipt
4.2.1 Remuneration mix
Position
CEO and President
Other Executive KMP
TFR (Cash)
STI (Cash and Equity)
LTI (Equity)
100%
100%
50% of Base Salary
60% of Base Salary
30% of Base Salary
30% of Base Salary
4.2.2 Remuneration – timing of receipt of the benefit (excluding CEO)
The three complementary components of executive KMP remuneration are ‘earned’ over multiple time ranges. This is illustrated in the
following chart.
Year 2
Year 3
Year 4
Year 5
Year 1
Year 1
TFR
STI cash opportunity
STI equity deferral
Year 2
Year 3
LTI
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.
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, 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.
32 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
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 and President and other executive KMP are approved by the Remuneration Committee and
the Board.
Performance target
The key performance objectives of Nanosonics are currently directed to achieving sales and Profit Before Tax (PBT)
targets 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.
The actual STI awards for executive KMP in respect of the 2018 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; and
> 50% of STI delivered as Nanosonics Performance Rights.
Of the performance rights awarded to the CEO&P, 50% are deferred for one year and 50% are deferred for two years.
In the case of other executive KMP, the Performance rights are deferred for one year.
The equity component will be determined based on the volume weighted average price of Nanosonics’ shares during
the five days prior to and including the date of the announcement of the Company’s 2018 full year results and the five
days following the announcement of those results.
As the STI amount awarded as equity has already been earned, there are no further performance requirements
attached to the Performance Rights. However, they are subject to service conditions until the vesting date.
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 executive’s 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.
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 2017 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.
Timing
LTI allocation
Grants are made each year after shareholder approval to issue securities to Directors has been obtained at the
relevant AGM.
The size of individual LTI grants for the 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 at the grant date, as follows:
Performance Rights allocated = LTI $ value / Binominal Approximation Option Pricing value.
Options allocated = LTI $ value / Black Scholes value.
33
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
Performance hurdles Equity grants to the executive KMP are subject to Performance Conditions as summarised below.
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, 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 2017, 2016, and 2015 Long Term Incentive Schemes is set out below.
LTIS year
2017
2016
2015
TSR-1
TSR-2
50%
25%
50%
50%
25%
50%
EPS
—
50%
—
Total
100%
100%
100%
Details of the each of the components of the Performance Conditions associated with the 2017, 2016 and 2015 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 2017, 2016, and 2015, two TSR
Comparator Groups were used, TRS-1 and TSR-2. Details of the TSR Comparator Groups are set out in Section 4.5.3.
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 to Vest
Below the 50th percentile
0%
50th to 75th percentile
At the 75th Percentile
30% to 100% (pro-rata)
100%
Straight line interpolation will apply to the incremental results.
The TSR Measurement periods for the 2017, 2016 and 2015 Long Term Incentive Schemes are summarised below.
LTIS year
Measurement Period
2017
2016
2015
24 August 2017 to the date of the release of Nanosonics’ FY20 financial statements
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
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.
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.
34 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
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.
2018
2017
2016
2015
2014
2013
60,698
5,583
5,751
1.87
1.92
3.16
67,507
13,852
26,158
4.66
8.79
2.54
85th/78th 3
42,796
136
122
0.05
0.04
2.19
91st
22,214
(5,465)
(5,460)
nm 1
(2.03)
1.70
nm 1
21,492
(2,636)
(2,605)
nm 1
(0.99)
0.79
nm 1
14,899
(5,735)
(5,768)
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.
3. The measurement period for the 2013 LTIS tranche 3 and 4 awarded to Mr Kavanagh as part of his appointment as CEO&P was from 8 November 2013 to 24
August 2017 which resulted in a relative TSR percentile ranking of 85th. The measurement period for the other Executive KMP for the 2014 LTIS was from 27
January 2015 to 24 August 2017 which resulted in a relative TSR percentile ranking of 78th.
Further explanation of details on Nanosonics’ performance for the 2018 Financial Year is provided in the CEO’s report and the Regional
highlights on pages 6 to 15 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.
The average STI payout to executive KMP as of 30 June 2018 for the 2018 Financial Year was 90.88% and details of the award to each
Executive KMP STI against sales revenue and profit/(loss) before tax
$’000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
(10,000)
14,899
21,492
22,214
67,507
60,698
42,796
STI
%
100%
80%
60%
40%
20%
0%
2013
2014
2015
2016
2017
2018
Sales revenue
Profit/(loss) before tax
Average executive KMP STI %
executive KMP are set out in the table below.
Executive KMP
Position
Maximum STI STI awarded
as a % of
potential 2
% of 2018
Base salary 1
Cash STI
award in
2018($) 3
Deferred
equity STI
award ($) 3
%
Forfeited
Michael Kavanagh
CEO/President, Managing Director
50%
91.00%
105,655
105,655
9.00%
Ron Weinberger 4
President, Technology
Development/Commercialisation
McGregor Grant
CFO/Company Secretary
Gerard Putt
Chief Operations Officer
Steven Farrugia
Chief Technology Officer
30%
30%
30%
30%
—
92.50%
87.50%
92.50%
—
42,574
31,452
35,200
—
100.00%
42,574
31,452
35,200
7.50%
12.50%
7.50%
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 determined by the Board on 30 July 2018 after the financial results for the 2018 Financial Year were known and performance reviews were
completed and approved by the Board.
3. The equivalent number of Performance Rights or Options to be awarded in the following year will be determined as set out in Section 4.4.1.
4. Dr Weinberger’s employment ceased on 20 February 2018 and his STI entitlement was forfeited in full on that date. The average STI payout rate to executive
KMP excluded Dr Weinberger.
35
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
The annual STI awarded to each executive KMP was based on the achievement of Board-agreed financial objectives as well as specific
individual objectives. The Board determined the actual STI payments in respect of the 2018 Financial Year. These 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 year. Details of the key achievements of the business are outlined in the CEO’s report and the Regional highlights on pages 6 to 15
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. The mix of each of these companies in respect of the
2017, 2016 and 2015 Long Term Incentive Schemes is summarised in Section 4.4.2 and the specific details of each of these components are
discussed below. The Board believes that the appropriate balance between these performance criteria represented a sound guide to medium
and long term performance at the time the hurdles were set. However, the Board proposes to introduce changes to the LTI scheme in the future
as set out in Section 4.8 below.
Relative Total Shareholder Return
The comparator groups of companies that have been used in in respect of the 2017, 2016 and 2015 Long Term Incentive Schemes are
summarised below.
2017 LTIS Comparator Group 1 (TSR-1)
ANN
API
AXP
CAJ
CGS
COH
EHE
ELX
GMV
HSO
Ansell Limited
Australian Pharmaceutical
Industries Limited
AirXpanders, Inc.
Capitol Health Limited
CogState Limited
Cochlear Limited
Estia Health Limited
Ellex Medical Lasers Limited
G Medical Holdings
Innovations Limited
Healthscope Limited
2017 LTIS Comparator Group 2 (TSR-2)
ACX
APT
APX
ALU
API
CL1
EHE
GBT
HSN
IPD
Aconex Limited
Afterpay Touch Group Limited
Appen Limited
Altium Limited
Australian Pharmaceutical
Industries Limited
Class Limited
Estia Health Limited
GBST Holdings Limited
Hansen Technologies Limited
Impedimed Limited
2016 LTIS Comparator Group 1 (TSR-1)
ACG
AHZ
ALT
AMT
ANN
AXP
AZV
CLV
CMP
COH
CYC
DXB
AtCor Medical Holdings Limited
Admedus Limited
Analytica Limited
Allegra Orthopaedics Limited
Ansell Limited
AirXpanders, Inc.
Azure Healthcare Limited
Clover Corporation Limited
Compumedics Limited
Cochlear Limited
Cyclopharm Limited
Dimerix Limited
2016 LTIS Comparator Group 2 (TSR-2)
ACX
ALU
API
CL1
CSV
EHE
FPH
Aconex Limited
Altium Limited
Australian Pharmaceutical
Industries Limited
Class Limited
CSG Limited
Estia Health Limited
Fisher & Paykel Healthcare
Corp Limited
36 | Nanosonics Annual Report 2018
IDX
IPD
JHC
LHC
NVC
ONE
ONT
OSP
PGC
PME
Integral Diagnostics Limited
ImpediMed Limited
Japara Healthcare Limited
LifeHealthcare Group Limited
National Veterinary Care Limited
Oneview Healthcare plc
1300SMILES Limited
Osprey Medical Inc.
Paragon Care Limited
Pro Medicus Limited
PSQ
PRY
REG
RHC
RVA
SIG
SHL
SOM
VRT
Pacific Smiles Group Limited
Primary Health Care Limited
Regis Healthcare Limited
Ramsay Health Care Limited
REVA Medical, Inc.
Sigma Healthcare Limited
Sonic Healthcare Limited
SomnoMed Limited
Virtus Health Limited
Infomedia Limited
IRESS Limited
iSentia Group Limited
Japara Healthcare Limited
IFM
IRE
ISD
JHC
MYX Mayne Pharma Group Limited
MSB Mesoblast Limited
MVF
MYO MYOB Group Limited
NTC
NXT
Netcomm Wireless Limited
Nextdc Limited
Monash IVF Group Limited
ELX
FPH
Ellex Medical Lasers Limited
Fisher & Paykel Healthcare
Corporation
GI Dynamics, Inc.
IM Medical Limited
ImpediMed Limited
ITL Limited
LBT Innovations Limited
Mach7 Technologies Limited
GID
IMI
IPD
ITD
LBT
M7T
MGZ Medigard Limited
MLA
OIL
OSP
Medical Australia Limited
Optiscan Imaging Limited
Osprey Medical Inc.
Primary Health Care Limited
Regis Healthcare Limited
Sigma Pharmaceuticals Limited
Sirtex Medical Limited
Starpharma Holdings Limited
Technology One Limited
Virtus Health Limited
PRY
REG
SIG
SRX
SPL
TNE
VRT
WTC Wisetech Global Limited
XRO
Xero Limited
Resonance Health Limited
ResMed Inc.
Respiri Limited
REVA Medical, Inc.
SDI Limited
SomnoMed Limited
RHT
RMD
RSH
RVA
SDI
SOM
TSXV:SV Simavita Limited
UBI
UCM
UNS
Universal Biosensors Inc.
Uscom Limited
Unilife Corporation
GBST Holdings Limited
Hansen Technologies Limited
Impedimed Limited
Infomedia Limited
IRESS Limited
iSentia Group Limited
Japara Healthcare Limited
GBT
HSN
IPD
IFM
IRE
ISD
JHC
MYX Mayne Pharma Group Limited
MSB Mesoblast Limited
MVF
Monash IVF Group Limited
MYO MYOB Group Limited
NTC
NXT
REG
SIG
SPL
TNE
VRT
WTC Wisetech Global Limited
Netcomm Wireless Limited
Nextdc Limited
Regis Healthcare Limited
Sigma Pharmaceuticals Limited
Starpharma Holdings Limited
Technology One Limited
Virtus Health Limited
For personal use only Directors’ report (continued)
2015 LTIS Comparator Group 1 (TSR-1)
3DM
ACG
AHZ
ALT
AMT
ANN
AXP
AZV
CLV
CMP
COH
CYC
3D Medical Limited
AtCor Medical Holdings Limited
Admedus Limited
Analytica Ltd.
Allegra Orthopaedics Limited
Ansell Ltd.
AirXpanders, Inc.
Azure Healthcare Limited
Clover Corporation Limited
Compumedics Ltd.
Cochlear Ltd.
Cyclopharm Limited
2015 LTIS Comparator Group 2 (TSR-2)
ELX
FPH
Ellex Medical Lasers Limited
Fisher & Paykel
Healthcare Corporation
GI Dynamics, Inc.
IM Medical Ltd.
ImpediMed Limited
iSonea Limited
ITL Ltd.
LBT Innovations Limited
GID
IMI
IPD
ISN
ITD
LBT
MCT Metalicity Limited
MGZ Medigard Limited
MLA
Medical Australia Limited
Optiscan Imaging Ltd.
Osprey Medical Inc.
Resonance Health Ltd.
ResMed Inc.
REVA Medical, Inc.
Sun Biomedical Limited
SDI Limited
SomnoMed Limited
OIL
OSP
RHT
RMD
RVA
SBN
SDI
SOM
TSXV:SV Simavita Limited
UBI
UCM
UNS
Universal Biosensors Inc.
Uscom Limited
Unilife Corporation
CIP
ABP
ACR
ALU
ARF
AJA
VLW
API
Centuria Industrial REIT
(formerly 360 Capital Industrial Fund)
Abacus Property Group
Acrux Limited
Altium Limited
Arena REIT
Astro Japan Property Group
Villa World Limited
Australian Pharmaceutical
Industries Limited
Aveo Group
Bionomics Limited
BT Investment Management Limited
BWP Trust
Capitol Health Limited
Cedar Woods Properties Limited
Charter Hall Group
Charter Hall Retail REIT
Cover-More Group Limited
AOG
BNO
BTT
BWP
CAJ
CWP
CHC
CQR
CVO
CMW Cromwell Property Group
CSV
ECX
EQT
EHE
FPH
CSG Limited
Eclipx Group Limited
EQT Holdings Limited
Estia Health Limited
Fisher & Paykel Healthcare
Corporation Limited
FXL
FET
GTY
GBT
GDI
GHC
GMA
GMF
GXL
GOZ
HSN
HFA
HIL
HPI
IMF
IPD
IDR
IFM
INA
IRE
ISD
Flexigroup Limited
Folkestone Education Trust
Gateway Lifestyle Group
GBST Holdings Limited
GDI Property Group Limited
Generation Healthcare REIT
Genworth Mortgage Insurance
Australia Limited
Growthpoint Metro Office Fund
(formerly GPT Metro Office
Fund Units)
Greencross Limited
Growthpoint Properties
Australia Limited
Hansen Technologies Limited
HFA Holdings Limited
Hills Limited
Hotel Property Investments Limited
IMF Bentham Limited
Impedimed Limited
Industria REIT Fund
Infomedia Limited
Ingenia Communities Group
IRESS Limited
iSentia Group Limited
Japara Healthcare Limited
Monash IVF Group Limited
JHC
MYX Mayne Pharma Group Limited
MSB Mesoblast Limited
MVF
MOC Mortgage Choice Limited
MYO MYOB Group Limited
National Storage REIT
NSR
Nextdc Limited
NXT
NIB Holdings Limited
NHF
OzForex Group Limited
OFX
Pacific Current Group Limited
PAC
Platinum Asset Management Limited
PTM
Reckon Limited
RKN
Regis Healthcare Limited
REG
Shopping Centres Australasia
SCP
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
SPL
SDF
TNE
UXC
VRT
SMX
SIG
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.
Earnings Per Share
The total number of performance rights and options granted in the 2016 LTIS year was 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 2017 and 2018 is as follows.
Year
2018
2017
Vesting outcome of 2014 LTIS
Pre-tax EPS
1.87 cents
4.66 cents
The performance conditions associated with the 2014 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 2014 LTIS was required to be at or above
the 75% percentile and revenue was required to be at or above $49.5 million in 2017. Following the release of the Company’s 2017 financial
statements Nanosonics’ relative TSR ranking was determined to be in the 85th percentile in respect of the hurdle set for the CEO&P and in the
78th percentile for the other Executive KMP and for the year ended 30 June 2017 Nanosonics’ sales were $67.5 million. Accordingly, 100% of
the performance rights granted under the 2014 LTIS vested during the 2018 Financial Year.
37
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
4.6 Executive remuneration
4.6.1 Executive remuneration table – audited statutory disclosure (accounting cost to Nanosonics)
Fixed Remuneration
Variable Remuneration
Short-term
Long-term
Total
Short-term
Salary
and fees
Super-
annuation
Other
long term
benefits
Michael
Kavanagh 1
Ron
Weinberger 2/6
McGregor
Grant
Gerard Putt
Steven
Farrugia 3
Total
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
469,285
465,743
208,982
286,142
306,277
311,492
241,393
231,224
253,691
192,697
1,479,628
1,487,298
20,049
19,616
15,037
19,616
20,049
19,616
20,049
19,616
20,049
16,583
95,232
95,047
64,704
54,084
7,646
34,254
66,520
30,744
61,153
28,664
23,216
16,484
554,038
539,443
231,665
340,012
392,845
361,852
322,595
279,504
296,955
225,764
Equity
Compen-
sation
Options and
performance
rights 5,6
449,008
446,663
138,051
178,125
150,636
150,636
124,992
122,889
87,270
31,777
Total
565,113
558,624
138,051
219,434
196,661
194,418
160,936
158,230
125,323
64,830
Cash
bonus 2,4
116,105
111,961
—
41,309
46,026
43,782
35,945
35,341
38,054
33,053
Proportion
of Total
Remun-
eration
Termination
Benefits
Performance
Related
%
Total
—
—
1,119,151
1,098,067
238,000
—
—
—
—
—
—
—
607,716
559,446
589,507
556,270
483,531
437,734
422,278
290,594
50%
51%
23%
39%
33%
35%
33%
36%
30%
22%
37%
41%
223,238
164,230
1,798,098
1,746,575
236,129
265,446
949,956
930,090
1,186,085
1,195,536
238,000
—
3,222,184
2,942,111
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. These performance rights vested in 2017 and 2018, respectively.
2. Dr Weinberger’s employment ended on 20 February 2018 and the remuneration only includes amounts up until that date. Dr Weinberger’s FY18 STI incentive was
forfeited in full on 20 February 2018.
3. Dr Farrugia joined the Company on 5 September 2016.
4. The cash bonus is for the performance during the respective financial year based on the criteria set out in Section 4.4.1. 2018 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.
5. 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.
6. FY18 includes $45,012 in respect of LTI awards made to Dr. Weinberger pro rata to his service since the grant date. The vesting of these awards are subject to
the original performance conditions being satisfied and Board discretion.
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
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
Termination
payment 2
Actual
remuneration
received
during year
Future at risk
remuneration received
during year
Michael Kavanagh 1
Ron Weinberger 2
McGregor Grant
Gerard Putt
Steven Farrugia 3
Total
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Fixed
remuneration 4
530,400
520,000
224,019
338,916
351,767
344,830
276,589
267,878
294,311
212,280
Incentives 5
111,961
112,923
41,309
45,338
43,782
46,888
35,341
38,333
33,053
—
Past at-risk
remuneration
received
Value of
Performance
Rights 6/7
—
—
1,942,399
2,448,375
2,584,760
3,081,298
322,845
—
—
—
—
—
—
288,761
497,408
215,890
376,745
179,672
310,080
—
—
876,934
881,662
611,439
768,463
491,602
616,291
327,364
212,280
STI
(deferred
as equity) 8
127,892
113,047
46,181
45,387
48,945
46,940
39,509
38,375
36,949
—
LTI
(Equity)
granted 2/8
397,868
332,044
16,926
105,943
98,569
110,111
78,459
87,623
78,803
89,797
670,624
725,517
1,677,086
1,683,904
265,446
243,482
322,845
—
2,626,722
3,632,608
4,892,099
5,559,994
299,475
243,749
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 Weinberger’s employment ended on 20 February 2018. Actual termination payment received included accrued annual leave and long service leave entitlements.
The future at risk LTI granted to Dr Weinberger during the period was reduced by $86,793 for the fair value of the performance rights and options that were forfeited
on 20 February 2018.
3. Dr Farrugia joined the Company on 5 September 2016. No “sign on bonus” was paid.
38 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
4. Includes base salary, superannuation, and other cash benefits received during the year (excludes annual leave and long service leave accrual).
5. STI received as cash in respect of the previous Financial Year.
6. Intrinsic value at vesting date of performance rights and options issued in previous periods that vested during the year.
7. Includes 2017 deferred STI and 2014 LTIS which vested at 100% following the achievement of the performance hurdles.
8. 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 misstatement 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, 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 out 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.
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.
4.8 Changes to remuneration framework for the Financial Year commencing 1 July 2018 (2019 Financial Year)
The Board has undertaken an extensive review of the current remuneration framework with a view to drive performance and strengthen the
alignment between management and shareholder objectives.
As a result of this review, the Board has identified opportunities to improve the structure and improve alignment between remuneration strategy,
company performance and shareholder returns. An integrated package of proposed changes are being proposed for the 2019 Financial Year.
These proposed changes and the rationale for them are summarised below:
Proposed change
Rationale for proposed change
For STI – Introduce
4 clear, common
corporate
objectives and up
to 4 individual KPIs
Drive alignment by requiring all employees to share 4 common corporate objectives, which may be weighted
differently depending on the relevance of each corporate objective to the individual’s role. These KPIs are financial or
operational in nature.
Each employee will also have 4 individual KPIs which will be financial, operational, cultural or customer centred.
This approach is intended to drive deep alignment to the key performance measures and cultural requirements of the
Company.
39
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
For STI – Introduce
opportunity
to reward for
outperformance
Introduce an opportunity to reward executives for overachievement against corporate and personal objectives to
encourage outperformance and ensure alignment with shareholder objectives. The Company is proposing to introduce
opportunities for reward in relation to each of the 4 corporate objectives as follows: a ‘Threshold’ of 90%, where if not
achieved, individuals will not receive any benefit at all; a ‘Target’, where, if achieved, individuals will receive 100%; and
‘Over Achievement’ or stretch targets where, if achieved, individuals will receive up to 120%.
Each participant in the STI program will also have an opportunity to outperform against their individual KPIs, to a
maximum of 125%, if the participant has overachieved on all of their individual KPIs.
Where both the Company and each participant overachieves on both the corporate objectives and individual KPIs,
the participant may be entitled to receive up to a maximum of 150% of the STI benefit (i.e. 120% x 125%). Where
overachievement occurs, the Board considers that the STI program will be self-funding and that any additional cost to
the business will be more than offset by the tangible benefits derived from overachieving the targets set.
For STI – Shares
will be held for an
additional one-year
lock-up period.
As described in Section 4.4.1, 50% of any STI award is deferred over the two years for the CEO&P and one year for all
other recipients.
To encourage share ownership and to align shareholder and employee experience, it is proposed that 50% of STI will
continue to be deferred as performance rights which will vest after one year. However, the resulting shares must then
be held as restricted shares for a further year to align shareholder and employee experience (i.e. all recipients of STI,
including the CEO&P, will wait 2 years to receive the deferred portion of their STI).
For LTI – Use of
an accretive Profit
Before Tax gate and
an absolute TSR
hurdle
Nanosonics does not have many similar companies with which it can directly compare its performance. As a result
the Board now considers that relative TSR is not the most effective measure of company performance and does not
provide employees with a clear line of sight. Absolute TSR, with an appropriate PBT gate, are performance measures
that are considered to be company specific and more relevant. They also offer direct line of sight for employees and
alignment with shareholders’ objectives. By adopting an Absolute TSR hurdle, the Company aims to deliver positive
shareholder returns regardless of market dynamics, consistent with shareholder expectations.
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), and the Deferred Employee Share Plan (DESP)
are being phased out and replaced by the NOEP. Details of securities issued during the 2018 Financial Year and the number of outstanding
securities as at the date of this report are set out below.
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, 1,336,761 options and 1,344,252 performance
rights have been issued to the Plan. 1,152,573 options and 1,064,702
performance rights remain outstanding as at the date of this report of which
21,779 performance rights are exercisable.
The purpose of the plan is to 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 1,104,858 unrestricted
shares held in trust for employees. No new shares were issued under the plan.
Nanosonics Employee
Share Option Plan (ESOP)
Performance Rights
No new options were granted under the ESOP. As at the date of this report,
966,542 performance rights remain outstanding.
40 | Nanosonics Annual Report 2018
For personal use only Directors’ 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 2018 of the performance rights and options granted as remuneration to each
Executive KMP are set out below:
Performance Rights
Options
Number
vested
during
the year
%
vested
during
the year
Number
vested
to date
Number
lapsed/
forfeited
during
the year
%
lapsed/
forfeited
Balance
at year
end
Number
granted
Number
lapsed/
forfeited
during
the year
%
lapsed/
forfeited
Balance
at year
end
Total
Intrinsic
value of PR
and options
at year end
($)
KMP Description
Grant
Date
Vesting
Date
Exercise
Price
$
Expiry
Date
Number
granted
2017 LTIS Tranche 1
3 Nov 17
31 Aug 20
31 Aug 23
— 12,867
2017 LTIS Tranche 2
3 Nov 17
31 Aug 20
31 Aug 23
— 12,866
2017 LTIS Tranche 1
3 Nov 17
31 Aug 20
31 Aug 23
2017 LTIS Tranche 2
3 Nov 17
31 Aug 20
31 Aug 23
2.38
2.38
—
—
2017 Deferred STI
3 Nov 17
31 Aug 18
31 Aug 21
— 45,513
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
— 10,535
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
— 10,534
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
— 21,069
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
2.85
2.85
2.85
—
—
—
h
g
a
n
a
v
a
K
l
e
a
h
c
M
i
—
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
—
—
—
—
—
—
—
—
—
—
—
2016 Deferred STI
05 Jan 17
01 Sep 17
01 Sep 20
— 36,823
36,823
100% 36,823
2015 LTIS Tranche 1
04 Jan 16
31 Aug 18 31 Aug 21 3
— 103,441
2015 LTIS Tranche 2
04 Jan 16
31 Aug 18 31 Aug 21 3
— 103,441
—
—
0%
0%
—
—
2013 LTIS Tranche 3
08 Nov 13
31 Aug 17
30 Sep 17
— 375,000 375,000
100% 375,000
2013 LTIS Tranche 4
08 Nov 13
31 Aug 17
30 Sep 17
— 375,000 375,000
100% 375,000
0% 12,867
0% 12,866
—
—
0%
0%
— 170,212
— 170,212
0% 45,513
0% 10,535
0% 10,534
0% 21,069
—
—
—
—
0%
0%
0%
0%
— 52,827
— 52,826
— 105,653
—
0% 103,441
0% 103,441
0%
0%
—
—
—
—
—
—
—
0%
0%
—
—
40,660
40,657
0% 170,212
132,765
0% 170,212
132,765
— 143,821
0%
0%
0%
0%
—
—
—
0% 52,827
0% 52,826
0% 105,653
33,291
33,287
66,578
16,376
16,376
32,752
0%
0%
0%
0%
0%
—
—
— 326,874
— 326,874
—
—
—
—
0% 551,730 1,343,076
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
1,107,089 786,823
71% 786,823
— 0% 320,266 551,730
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
— 4,106
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
— 4,105
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
2.38
2.38
—
—
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
16,793
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
— 3,361
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
— 3,361
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
— 6,723
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
2.85
2.85
2.85
—
—
—
2
r
e
g
r
e
b
n
e
W
n
o
R
i
—
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
— 3,436
— 3,435
—
—
—
—
—
—
84%
84%
0%
0%
670
670
—
—
0%
0%
—
—
— 54,312
45,449
84% 8,863
— 54,311
45,448
84% 8,863
0% 16,793
— 1,680
50% 1,681
— 1,680
50% 1,681
— 3,362
50% 3,361
—
—
—
—
—
—
—
—
0%
0%
0%
0%
—
—
—
—
—
—
—
— 16,855
8,427
50% 8,428
— 16,854
8,427
50% 8,427
— 33,710
16,855
50% 16,855
2,117
2,117
6,913
6,913
53,066
5,312
5,312
10,621
2,613
2,612
5,225
—
2016 Deferred STI
05 Jan 17
01 Sep 17
01 Sep 20
— 14,784
14,784
100% 14,784
2015 LTIS Tranche 1
04 Jan 16
31 Aug 18 31 Aug 21 3
— 35,496
2015 LTIS Tranche 2
04 Jan 16
31 Aug 18 31 Aug 21 3
— 35,496
—
—
0%
0%
—
—
2014 LTIS Tranche 1
11 Mar 15
31 Aug 17
30 Sep 17
— 50,276
50,276
100% 50,276
2014 LTIS Tranche 2
11 Mar 15
31 Aug 17
30 Sep 17
— 50,275
50,275
100% 50,275
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
—
— 112,167
— 112,167
—
—
—
—
Total
224,776 115,335
51% 115,335
13,593
6% 95,848 176,042 124,606
71% 51,436
327,156
41
0%
0%
0%
0%
—
0% 35,496
0% 35,496
0%
0%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
Performance Rights
Options
Number
vested
during
the year
%
vested
during
the year
Number
vested
to date
Number
lapsed/
forfeited
during
the year
%
lapsed/
forfeited
Balance
at year
end
Number
granted
Number
lapsed/
forfeited
during
the year
%
lapsed/
forfeited
Balance
at year
end
Total
Intrinsic
value of PR
and options
at year end
($)
KMP Description
Grant
Date
Vesting
Date
Exercise
Price
$
Expiry
Date
Number
granted
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
— 8,363
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
— 8,363
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
2.38
2.38
—
—
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
— 17,798
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
— 2,568
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
— 2,567
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
— 5,135
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
2.85
2.85
2.85
—
—
t
n
a
r
G
r
o
g
e
r
G
c
M
—
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
—
—
—
—
—
—
—
—
—
—
—
2016 Deferred STI
05 Jan 17
01 Sep 17
01 Sep 20
— 15,290
15,290
100% 15,290
2015 LTIS Tranche 1
04 Jan 16
31 Aug 18 31 Aug 21 3
— 36,154
2015 LTIS Tranche 2
04 Jan 16
31 Aug 18 31 Aug 21 3
— 36,154
—
—
0%
0%
—
—
2014 LTIS Tranche 1
11 Mar 15
31 Aug 17
30 Sep 17
— 36,041
36,041
100% 36,041
2014 LTIS Tranche 2
11 Mar 15
31 Aug 17
30 Sep 17
— 36,041
36,041
100% 36,041
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
— 8,631
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
— 8,630
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
2.38
2.38
—
—
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
— 14,367
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
— 2,043
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
— 2,043
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
— 4,087
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
2.85
2.85
2.85
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
—
—
—
—
—
—
—
—
—
—
—
2016 Deferred STI
05 Jan 17
01 Sep 17
01 Sep 20
— 12,500
12,500
100% 12,500
2015 LTIS Tranche 1
04 Jan 16
31 Aug 18 31 Aug 21 3
— 29,632
2015 LTIS Tranche 2
04 Jan 16
31 Aug 18 31 Aug 21 3
— 29,633
—
—
0%
0%
—
—
2014 LTIS Tranche 1
11 Mar 15
31 Aug 17
30 Sep 17
— 29,739
29,739
100% 29,739
2014 LTIS Tranche 2
11 Mar 15
31 Aug 17
30 Sep 17
— 29,739
29,739
100% 29,739
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0% 8,363
0% 8,363
—
—
0%
0%
— 41,488
— 41,488
0% 17,798
0% 2,568
0% 2,567
0% 5,135
—
—
—
—
0%
0%
0%
0%
— 20,028
— 20,028
— 40,056
—
0% 36,154
0% 36,154
0%
0%
—
—
0% 8,631
0% 8,630
—
—
0%
0%
— 28,544
— 28,543
0% 14,367
0% 2,043
0% 2,043
0% 4,087
—
—
—
—
0%
0%
0%
0%
— 15,937
— 15,937
— 31,875
—
0% 29,632
0% 29,633
0%
0%
—
—
—
—
—
—
—
—
—
—
—
—
Total
204,474
87,372
43% 87,372
— 0% 117,102 163,088
Total
171,044
71,978
42% 71,978
— 0% 99,066 120,836
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
— 6,686
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
— 6,686
2017 LTIS Tranche 1
09 Feb 18
31 Aug 20
31 Aug 23
2017 LTIS Tranche 2
09 Feb 18
31 Aug 20
31 Aug 23
2.38
2.38
—
—
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
— 13,436
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
— 1,369
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
— 1,368
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
— 2,737
2016 LTIS Tranche 1
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 2
05 Jan 17
31 Aug 19
31 Aug 22
2016 LTIS Tranche 3
05 Jan 17
31 Aug 19
31 Aug 22
2.85
2.85
2.85
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Total
32,282
— 0%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0% 6,686
0% 6,686
—
—
0%
0%
— 33,169
— 33,168
0% 13,436
0% 1,369
0% 1,368
0% 2,737
—
—
—
—
0%
0%
0%
— 18,299
— 18,299
— 36,599
— 0% 32,282 139,534
t
t
u
P
d
r
a
r
e
G
i
a
g
u
r
r
a
F
n
e
v
e
t
S
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0%
0%
— 26,427
— 26,427
0% 41,488
32,361
0% 41,488
32,361
0%
0%
0%
0%
— 56,242
—
—
8,115
8,112
— 16,227
0% 20,028
0% 20,028
6,209
6,209
0% 40,056
12,417
0%
0%
0%
0%
0%
—
—
— 114,247
— 114,247
—
—
—
—
0% 163,088
459,598
0%
0%
— 27,274
— 27,271
0% 28,544
22,264
0% 28,543
22,264
0%
0%
0%
0%
— 45,400
—
—
6,456
6,456
— 12,915
0% 15,937
0% 15,937
0% 31,875
—
4,940
4,940
9,881
—
— 93,637
— 93,640
—
—
—
—
0% 120,836
377,339
0%
0%
— 21,128
— 21,128
0% 33,169
25,872
0% 33,168
25,871
— 42,458
—
—
—
4,326
4,323
8,649
5,673
5,673
0% 18,299
0% 18,299
0% 36,599
11,346
0% 139,534
176,445
0%
0%
0%
0%
0%
0%
0%
0%
0%
1. The performance conditions associated with the 2014 LTIS were fully met. Accordingly, these performance rights vested on 31 August 2017.
2. Dr Weinberger’s employment ceased on 20 February 2018. The Board exercised its discretion to ensure that the unvested proportion of Dr Weinberger’s
performance rights and options (pro rated based on time served) did not lapse when his employment ceased. The Board will consider and determine, on the
relevant Vesting Date of the awards, whether to exercise its discretion, under the rules of the relevant plans, to allow each award to vest on a pro rata basis
(based on the portion of the vesting period that Dr Weinberger was employed by the Company) subject to the terms of the award, including the performance
hurdles, and any other relevant matters.
3. Expiry date changed from 30 August 2018 to 31 August 2021 following the shareholders' approval at the 2017 Annual General Meeting on 3 November 2017.
42 | Nanosonics Annual Report 2018
For personal use only
Directors’ report (continued)
Other than as specified above in relation to Dr Weinberger, there were no other performance rights or options forfeited or lapsed during the
period. No share-based payments were settled in cash.
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:
Number of shares
Amount paid per share ($)
Total amount paid ($)
Intrinsic value 1 ($)
Michael Kavanagh
Ron Weinberger
McGregor Grant
Gerard Putt
Steven Farrugia
Total
786,823
115,335
87,372
71,978
—
1,061,508
—
—
—
—
—
—
—
—
—
—
—
—
1,942,399
288,761
215,890
179,672
—
2,626,722
1. The intrinsic value of the shares is calculated as the market price of the shares of the of the Company on the ASX as at close of trading on the date the options
were exercised and the shares were issued after deducting the price paid to exercise the option; or the 5-day volume weighted average price of the shares on the
vesting date of zero-priced performance rights.
There are no amounts unpaid on the shares issued as a result of the exercise of the options in the current financial year or in prior years. There
were no options exercised during the year.
5.2.3 Analysis of movement in performance rights and options
The movement in number and value during the financial year of performance rights and options over ordinary shares of Nanosonics Limited
held by KMP is detailed below. No performance rights or options as at 30 June 2018 have vested or are exercisable.
Balance at start
of the year
Granted in year
Exercised in year
Forfeited in year
Balance at end
of the year
Number Value ($) 1
Number Value ($) 1 1
Number Value ($) 2
Number Value ($) 2 Number 3 Value ($) 1
Performance rights
Michael Kavanagh
1,035,843 1,075,680
71,246
181,931
786,823 1,942,399
—
— 320,266
559,114
Ron Weinberger 3
199,772
326,384
McGregor Grant
169,950
277,109
Gerard Putt
138,141
226,961
Steven Farrugia
5,474
15,136
25,004
34,524
31,628
26,808
61,371
115,335
288,761
13,593
39,012
95,848
51,436
79,888
71,442
61,687
87,372
215,890
71,978
179,672
—
—
—
—
—
— 117,102
199,392
—
—
97,791
168,715
32,282
76,823
Total
Options
1,549,180 1,921,269
189,210
456,319 1,061,508 2,626,722
13,593
39,012
663,289 1,055,480
Michael Kavanagh
211,306
215,532
340,424
343,828
Ron Weinberger
McGregor Grant
Gerard Putt
Steven Farrugia
67,419
80,112
65,024
73,197
68,767
108,623
81,714
65,024
74,661
82,976
57,087
66,337
88,528
67,625
46,526
54,065
Total
497,058
505,699
655,447
600,572
—
—
—
—
—
—
—
—
— 551,730
559,360
— 124,606
45,214
51,436
48,831
—
—
—
—
—
—
— 163,088
149,340
— 122,111
111,550
— 139,534
128,726
— 124,606
45,214 1,027,899
997,807
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. Balance at end of year includes the ending balance for Dr Weinberger on his cessation of employment on 20 February 2018.
5.2.4 Variation of Terms of 2015 LTIS
At the 2017 Annual General Meeting held on 3 November 2017, the Company's shareholders approved a change to the terms of the 2015 LTIS,
which provided for vesting on 31 August 2018, by removing the "deemed" exercise provisions and extending the expiry date for exercise
of vested Performance Rights from 30 September 2018 to 31 August 2021. All other terms and conditions of 2015 LTIS remained the same.
The share price at the date of variation was $2.81 per share. The variation did not impact the fair value of the performance rights.
43
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
5.3 Fair value of share-based compensation
The following factors and assumptions were used in determining the fair value on grant date of performance rights and options granted to
directors and KMP under ESOP which were unexpired on 30 June 2018, including those granted during the period:
Compensation
Plan
Description
Vesting
Conditions
Exercise
price ($)
Vesting
Grant date
date Expiry date
Performance Rights
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
NOEP
NOEP
NOEP
ESOP
ESOP
2017 LTIS
Tranche 1
– CEO
2017 LTIS
Tranche 2
– CEO
2017 LTIS
Tranche 1
– Others
2017 LTIS
Tranche 2
– Others
2017 Deferred
STI – CEO
2017 Deferred
STI – Others
2016 LTIS
Tranche 1
2016 LTIS
Tranche 2
2016 LTIS
Tranche 3
2016
Deferred
STI
2015 LTIS
Tranche 1
2015 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
— 3 Nov 17
31 Aug 20
31 Aug 23
2.81
— 3 Nov 17
31 Aug 20
31 Aug 23
2.81
— 9 Feb 18
31 Aug 20
31 Aug 23
2.67
— 9 Feb 18
31 Aug 20
31 Aug 23
2.67
Service
— 3 Nov 17
31 Aug 18
31 Aug 21
2.81
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
— 11 Jan 18
31 Aug 18
31 Aug 21
2.75
— 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
Service
— 5 Jan 17
1 Sep 17
1 Sep 20
3.07
Relative TSR
performance
and service
Relative TSR
performance
and service
— 4 Jan 16
31 Aug 18 31 Aug 21 1
1.67
— 4 Jan 16
31 Aug 18 31 Aug 21 1
1.67
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Black-
Scholes
Black-
Scholes
Monte
Carlo
Monte
Carlo
Black-
Scholes
Black-
Scholes
Monte
Carlo
Monte
Carlo
35.00%
0% 1.90%
2.16
35.00%
0% 1.90%
2.04
34.00%
0% 2.10%
1.95
34.00%
0% 2.10%
1.75
31.00%
0% 1.70%
2.81
30.00%
0% 1.70%
2.75
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%
3.07
37.50%
0% 2.00%
1.46
37.50%
0% 2.00%
1.06
1. Expiry date has been varied from 30 September 2018 to 31 August 2021 following the shareholders' approval at the 2017 Annual General Meeting on
3 November 2017. Refer to section 5.2.4 for further information.
44 | Nanosonics Annual Report 2018
For personal use only Directors’ report (continued)
Compensation
Plan
Description
Vesting
Conditions
Exercise
price ($)
Vesting
Grant date
date Expiry date
Estimated
share price
at grant
date ($)
Valuation
model
Expected
price
volatility
of the
company’s
shares
Expected
dividend
yield
Risk-free
interest
rate
Assessed
fair value
at grant
date ($)
Options
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
2017 LTIS
Tranche 1
– CEO
2017 LTIS
Tranche 2
– CEO
2017 LTIS
Tranche 1
– Others
2017 LTIS
Tranche 2
– Others
2016 LTIS
Tranche 1
2016 LTIS
Tranche 2
2016 LTIS
Tranche 3
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
2.38
3 Nov 17
31 Aug 20
31 Aug 23
2.81
2.38
3 Nov 17
31 Aug 20
31 Aug 23
2.81
2.38
9 Feb 18
31 Aug 20
31 Aug 23
2.67
2.38
9 Feb 18
31 Aug 20
31 Aug 23
2.67
2.85
5 Jan 17
31 Aug 19
31 Aug 22
3.07
2.85
5 Jan 17
31 Aug 19
31 Aug 22
3.07
2.85
5 Jan 17
31 Aug 19
31 Aug 22
3.07
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Black-
Scholes
35.00%
0% 2.10%
1.00
35.00%
0% 2.10%
1.02
35.00%
0% 2.30%
0.84
35.00%
0% 2.30%
0.79
35.80%
0% 2.00%
1.00
35.80%
0% 2.00%
0.98
35.80%
0% 2.00%
1.05
5.4 KMP equity interests
In accordance with the Corporations Act (section 205G (1)), Nanosonics is required to notify the interests (shares and rights to shares) of
directors to the ASX. In the interests of transparency and completeness of disclosure this information has been provided for each director
(as required under the Corporations Act) and all other Executive KMP.
Equity interests as at 30 June 2018
Non-Executive Directors
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Other Executive KMP
McGregor Grant
Gerard Putt
Steven Farrugia
Nanosonics Limited
ordinary shares 1
Performance rights
and options over
Nanosonics Limited
ordinary shares
Total Intrinsic Value
of NAN securities
as at year end ($) 2/3
20,320,157 4
13,000
503,940
107,000
19,600
—
—
—
—
—
64,211,696
41,080
1,592,450
338,120
61,936
1,328,363
871,996
5,540,703
587,372
79,248 4
—
280,190
219,902
171,816
2,315,694
627,762
176,445
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 2018 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 2018 less the applicable exercise
price times the number of and performance rights and options.
4. Includes shares held by a close family member.
45
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED CONTINUED
Equity interests as at the date of this report
Performance rights and options
Nanosonics Limited ordinary shares 1 over Nanosonics Limited ordinary shares
Non-Executive Directors
Maurie Stang 2
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Other Executive KMP
McGregor Grant
Gerard Putt 2
Steven Farrugia
20,320,157
13,000
503,940
107,000
19,600
1,328,363
587,372
79,248
—
—
—
—
—
—
871,996
280,190
219,902
171,816
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.
Refer to Section 4.5.2 regarding Securities Trading Restrictions.
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.
Received
during the year
on the exercise
of performance
rights and options
On-market
purchase of
shares during
the year
Balance at start
of the year
Sale of shares
during the year
Balance at
end of the year 2
Non-Executive Directors
Maurie Stang1
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
22,679,701
128,301
503,940
66,000
19,600
—
—
—
—
—
Michael Kavanagh
1,018,540
786,823
Other Executive KMP
Ron Weinberger 2
McGregor Grant
Gerard Putt 1
Steven Farrugia
220,013
595,000
189,270
—
115,335
87,372
71,978
—
—
—
—
41,000
—
—
—
—
—
—
(2,359,544)
(115,301)
—
—
—
20,320,157
13,000
503,940
107,000
19,600
477,000
1,328,363
(251,471)
(95,000)
(182,000)
—
83,877
587,372
79,248
—
1. Includes shares held by a close family member.
2. Balance at end of the year includes balance for Dr. Weinberger on his cessation of employment on 20 February 2018.
46 | Nanosonics Annual Report 2018
For personal use only
Directors’ report (continued)
6.0 Employment agreements
6.1 CEO and President
The following sets out the key terms of the employment agreement for the CEO and President, Michael Kavanagh.
Length of contract
Ongoing employment contract until notice is given by either party.
Fixed Remuneration
$530,400 p.a., inclusive of superannuation and reviewed annually. Increased to $620,000 p.a. inclusive of
superannuation effective 1 July 2018.
Short-term Incentive
50% of Base Salary.
Long-term Incentive
60% of Base Salary. LTI arrangements in respect of 2015, 2016 and 2017 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.
Resignation
On resignation, unless the Board determines otherwise:
> All unvested STI or LTI benefits are forfeited and a prorated portion of the unvested STI are paid to the period
up to the date of termination.
> 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 LTI benefits are forfeited and a prorated portion of the unvested STI are paid to the period up
to the date of termination.
> 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 will vest
on a pro-rata basis based on the most current financial reports available at the time a change of control occurs,
unless otherwise determined by the Board. The pro-rata period will be calculated from the grant date to the
change of control date. Performance Rights that vest following a change of control will not generally be subject to
restrictions on dealings.
Termination for serious
misconduct
Nanosonics may immediately terminate employment at any time in the case of serious misconduct, and Mr
Kavanagh will be only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by Nanosonics in the event of serious misconduct all unvested STI or LTI benefits
will be forfeited. The treatment of any vested but unexercised STI or LTI benefits will be at the discretion of the
Board.
Statutory entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
Post-employment
restraints
Mr Kavanagh will be restrained for a period of up to 24 months after termination of his employment by either party
from being engaged in any of the following activities:
> Engaging with clients of Nanosonics with a view to obtaining the custom of those clients in a business that is the
same as or similar to Nanosonics’ business.
> Interfering with the relationship between Nanosonics, its customers, employees, agents, contractors or
suppliers.
> Inducing or assisting in the inducement of any employee, agent or contractor of Nanosonics to leave their
employment or terminate their contract.
> Carrying-on or becoming in any way involved in any trade or business that is in competition with Nanosonics.
47
For personal use only
Directors’ report (continued)
REMUNERATION REPORT – AUDITED 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:
> 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 will vest
on a pro-rata basis based on the most current financial reports available at the time a change of control occurs,
unless otherwise determined by the Board. The pro-rata period will be calculated from the grant date to the
change of control date. Performance Rights that vest following a change of control will not generally be subject to
restrictions on dealings.
Termination for serious
misconduct
Nanosonics may immediately terminate employment at any time in the case of serious misconduct, and the
Executive KMP will only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by Nanosonics in the event of serious misconduct, all unvested STI or LTI
benefits will be forfeited. The treatment of any vested but unexercised STI or LTI benefits will be at the discretion of
the Board.
Statutory entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
Post-employment
restraints
All Executive KMP will be restrained for a period of up to 24 months after termination of their employment by either
party from being engaged in any of the following activities:
> Engaging with clients of Nanosonics with a view to obtaining the custom of those clients in a business that is the
same as or similar to Nanosonics’ business.
> Interfering with the relationship between Nanosonics, its customers, employees, agents, contractors or
suppliers.
> Inducing or assisting in the inducement of any employee, agent or contractor of Nanosonics to leave their
employment or terminate their contract.
> Carrying-on or becoming in any way involved in any trade or business that is in competition with Nanosonics.
48 | Nanosonics Annual Report 2018
For personal use only Directors’ 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 2018 (2017: 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
2017 and 2018 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.
The following transactions occurred with entities controlled by Related Parties:
Related Party
Related entity
Transactions
Maurie Stang
Gryphon Capital Pty Ltd
Director fees; reimbursement of costs incurred on behalf of Nanosonics
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 below transactions exclude director fees which are disclosed in section 3.3.
2018
$
2017
$
2,409,140
2,055,438
—
2,715
10,520
1,115
9,285
—
2017
$
791,582
1,976
Sale of products and services to Related Parties
Interest charged
Purchases of goods and services from Related Parties
Reimbursement of costs incurred on behalf of Nanosonics
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)
Indemnifying officers or auditor
2018
$
643,725
—
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 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.
49
For personal use only
Directors’ report (continued)
DIRECTORS’ REPORT CONTINUED
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 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 as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making
capacity for the Company, acting as an advocate of the Company or jointly sharing risks and rewards.
During the year, the auditor of the Group, Ernst & Young provided certain other services in addition to its statutory duties. These activities
were conducted in accordance with the Company’s Auditor Independence Policy, and in the Company’s view did not compromise their
independence.
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.
Officers of the Company who are former audit partners of Ernst & Young or UHY Haines Norton
There are no officers of the Company who are former audit partners of either Ernst & Young or UHY Haines Norton.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is included on page 94 of this report.
Auditor
The previous auditor, UHY Haines Norton, resigned effective from the conclusion of the AGM meeting on 3 November 2017. Ernst & Young was
appointed auditor effective from 3 November 2017 and continues in office as auditor in accordance with section 327 of the Corporations Act.
Corporate Governance
The Company’s Corporate Governance Statement and the 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 15) and the Information on
the directors, company secretaries and the executive team (on pages 20 to 23), is made on 20 August 2018 and signed in accordance with a
resolution of directors, pursuant to section 298(2) of the Corporations Act.
Richard England
Director, Sydney
20 August 2018
50 | Nanosonics Annual Report 2018
For personal use only Financial statements
FINANCIAL STATEMENTS
Auditor’s independence declaration
Consolidated Financial statements
52
53
Consolidated statement of profit or loss and other comprehensive income 53
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 Sales revenue
2.3 Individually significant items
2.4 Other income
2.5 Other gains/losses – net
2.6 Earnings per share
2.7 Dividends
3
Income taxes
3.1 Income tax expense
3.2 Deferred taxes
4 Employee benefits
4.1 Staffing costs
4.2 Employee benefits liabilities
4.3 Share-based payments
5 Financial assets and financial liabilities
5.1 Cash and cash equivalents
5.2 Trade and other receivables
5.3 Derivative financial instruments
5.4 Trade and other payables
5.5 Borrowings
6 Operating assets and liabilities
6.1 Inventories
6.2 Property, plant and equipment
6.3 Intangible assets
6.4 Provisions
7 Financial risk management
8 Capital structure
8.1 Capital and reserves
8.2 Capital management
9 Other notes
9.1 Commitments
9.2 Related party transactions
9.3 Controlled entities
9.4 Parent entity information
9.5 Remuneration of auditors
9.6 Changes in accounting policies
9.7 New standards and interpretations not yet adopted
9.8 Events occurring after the reporting period
Directors’ declaration
Independent auditor’s report to the members
54
55
56
57
57
57
57
58
58
59
59
59
60
60
60
60
60
62
63
63
64
64
68
68
69
70
70
71
71
71
72
73
74
75
80
80
80
80
80
81
82
82
83
83
83
84
85
86
51
For personal use only
Auditor’s independence declaration
AUDITOR’S INDEPENDENCE DECLARATION
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Nanosonics
Limited
As lead auditor for the audit of Nanosonics Limited for the financial year ended 30 June 2018, I declare
to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor 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 financial year.
Ernst & Young
Gamini Martinus
Partner
20 August 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
52 | Nanosonics Annual Report 2018
For personal use only
Financial statements (continued)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2018
Continuing operations
Sales revenue
Cost of sales
Gross profit
Selling and general expenses
Administration expenses
Research and development expenses
Other income
Other gains/(losses) – net
Results from operating activities
Finance income-interest
Finance expense-borrowing costs
Net finance income
Operating income before income tax
Income tax benefit
Net income after income tax benefit attributable to owners of the parent entity
Other comprehensive (loss)/income
Items that may be classified subsequently to profit or loss
Exchange difference on foreign currency translation
Effective portion of changes in fair value of cash flow hedges
Income tax on items of other comprehensive income
Total other comprehensive (loss)/income
Total comprehensive income for the period attributable to owners of the parent entity
Notes
2.2
2.4
2.5
3.1
2018
$’000
2017
$’000
60,698
(15,407)
45,291
(22,955)
(9,734)
(9,882)
93
1,549
4,362
1,279
(58)
1,221
5,583
168
5,751
(974)
(129)
38
(1,065)
4,686
67,507
(17,352)
50,155
(19,540)
(8,008)
(9,486)
9
(264)
12,866
1,063
(77)
986
13,852
12,306
26,158
501
—
—
501
26,659
Earnings per share information:
Basic earnings per share
Diluted earnings per share
Cents
Cents
2.6(iii)
2.6(iii)
1.92
1.91
8.79
8.70
The notes on pages 57 to 84 form an integral part of these consolidated financial statements.
53
For personal use only
Financial statements (continued)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2018
Notes
2018
$’000
2017
$’000
5.1
5.2
6.1
5.3
6.2
6.3
3.2
5.4
4.2
6.4
5.5
5.3
5.4
4.2
6.4
5.5
69,433
8,613
8,936
158
1,370
88,510
5,268
563
14,808
32
20,671
109,181
4,371
46
2,932
3,006
505
424
684
11,968
195
1,678
440
75
522
2,910
14,878
94,303
62,989
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
8.1(a)
112,713
13,061
(31,471)
94,303
112,713
11,760
(37,222)
87,251
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 benefit liabilities
Provisions
Borrowings
Derivative financial instruments
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred revenue
Employee benefit liabilities
Provisions
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
The notes on pages 57 to 84 form an integral part of these consolidated financial statements.
54 | Nanosonics Annual Report 2018
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Financial statements (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2018
Contributed Share-based
payments
equity
Reserves
Foreign
currency
translation
Hedging
Total Accumulated
losses
reserves
Note 8.1(a)
$’000
$’000
$’000
$’000
$’000
$’000
Total
equity
$’000
At 30 June 2016
112,698
7,107
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
—
—
—
15
—
—
—
—
2,139
1,774
At 30 June 2017
112,713
11,020
Profit for the period
Other comprehensive (loss)/income
Income tax on items of other
comprehensive (loss)/income
Total comprehensive (loss)/income
Transactions with owners
in their capacity as owners
Share-based payments
On-market share purchase
Income tax on share-based payments
—
—
—
—
—
—
—
—
—
—
—
2,187
(99)
278
239
—
501
501
—
—
740
—
(974)
—
(974)
—
—
—
—
—
—
—
—
—
—
—
38
(91)
—
—
—
7,346
(63,380)
56,664
—
501
501
26,158
—
26,158
26,158
501
26,659
2,139
1,774
—
—
2,154
1,774
11,760
(37,222)
87,251
—
5,751
—
—
38
(1,065)
5,751
2,187
(99)
278
—
—
—
5,751
(1,103)
38
4,686
2,187
(99)
278
(129)
(1,103)
At 30 June 2018
112,713
13,386
(234)
(91)
13,061
(31,471)
94,303
The notes on pages 57 to 84 form an integral part of these consolidated financial statements.
55
For personal use only
Financial statements (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2018
Notes
2018
$’000
2017
$’000
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes (paid)/refund received
Net cash provided by operating activities
5.1(ii)
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 flows from financing activities
Repayments of borrowings
Interest paid on borrowings
Proceeds from exercise of options
Purchase of shares on exercise of performance rights
Net cash (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of year
5.1(i)
The notes on pages 57 to 84 form an integral part of these consolidated financial statements.
63,618
(55,685)
1,224
(148)
9,009
(2,314)
(507)
8
(2,813)
(404)
(58)
—
(99)
(561)
5,635
62,989
809
69,433
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
56 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS
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 2018, 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 on pages 6 to 9, the Regional highlights on
pages 10 to 15 of this Annual Report and in the Directors’ report on page 24.
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 20 August 2018.
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.
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. Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
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 AASB/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.
57
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 General accounting policies (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 6.1
Inventories
Note 6.4 Provisions
Note 7
Financial risk management
g) 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 consolidated statement of financial position.
Cash flows are presented on a gross basis. The GST/VAT components of cash flows arising from investing or financing activities which are
recoverable from, or payable to, the taxation authority are presented as operating cash flows.
h) 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, the consolidated profit is the total reportable profit 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 49.3%
(2017: 65.7%) of external revenue. The next most significant customer accounts for 4.6% of external revenue (2017: 3.3%).
iv) Geographical information
Geographically, the Group operates globally. 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
The analysis of non-current assets by geopraphical location is detailed below.
North America
Europe
Asia Pacific
Total non-current assets
58 | Nanosonics Annual Report 2018
2018
$’000
54,406
2,983
3,309
60,698
2018
$’000
2,733
518
17,420
20,671
2017
$’000
62,305
1,673
3,529
67,507
2017
$’000
273
103
17,523
17,899
For personal use only
Notes to the financial statements (continued)
2. Performance for the year (continued)
2.2 Sales revenue
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.
ii) Rendering 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 contract period.
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.
The accounting policy for foreign exchange gains arising from hedges of forecast sales transactions is set out in Note 5.3.
Sales revenue for the period includes:
Sale of goods before hedging
Foreign exchange gains on hedged sales
Revenue from sale of goods
Rendering of services
Total sales revenue
2.3 Individually significant items
The profit from ordinary activities before income tax includes:
Depreciation, amortisation and impairment
Rental expenses relating to operating leases
Inventories provision/write off
2.4 Other income
2018
$’000
55,856
49
55,905
4,793
60,698
2018
$’000
1,499
996
592
2017
$’000
64,691
-
64,691
2,816
67,507
2017
$’000
1,274
882
611
Other income is recognised when the amount can be reliably measured, it is possible that future economic benefits will flow to the entity and
there are no continuing unfulfilled obligations.
Other income
Total other income
2018
$’000
93
93
Net gains on derivative financial instruments were previously disclosed under other income. These are now classified under Other gains/
losses – net for improved comparability of information. Refer to Note 2.5.
2017
$’000
9
9
59
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. Performance for the year (continued)
2.5 Other gains/losses – net
Foreign exchange gain/loss is recognised in accordance with the accounting policy at Note 1.2(e). Gain or loss on derivative financial
instruments is recognised in accordance with the accounting policy at Note 5.3.
Realised gain on derivative financial instruments
Unrealised (loss)/gain on derivative financial instruments
Net foreign exchange gain/(loss)
Net gain/(loss) on foreign currency forward contracts and options
Gain/(loss) on disposal of fixed assets
Total other gains/(losses)-net
2018
$’000
187
(397)
1,757
1,547
2
1,549
2017
$’000
433
338
(1,032)
(261)
(3)
(264)
During the period, gains/losses arising from foreign exchange rate changes, derivative financial instruments, and disposal of fixed assets were
reclassified to other gains/losses-net in the statement of profit or loss to provide improved comparability of information. Previously, foreign
exchange gains were included in other income and foreign exchange losses were included in operating expenses.
2.6 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.
iii) Earnings per share information
a) Basic earnings per share
Basic earnings attributable to the ordinary equity holders of the company
b) Diluted earnings per share
Diluted earnings attributable to the ordinary equity holders of the company
c) Earnings used in calculating earnings per share
Net earnings after income tax expense attributable to shareholders
2018
Cents
1.92
1.91
$’000
5,751
2017
Cents
8.79
8.70
$’000
26,158
Number of Shares Number of Shares
d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share
298,974,730
297,422,292
Adjustments for calculation of diluted earnings per share:
Performance rights and options unvested
Weighted average number of ordinary shares and potential ordinary shares used
as the denominator in calculating diluted earnings per share
2,728,009
3,294,862
301,702,739
300,717,154
2.7 Dividends
No dividends were proposed, declared or paid during the financial year and to the date of this report (2017: Nil).
3. Income taxes
Nanosonics Limited and its wholly-owned Australian resident entity, Saban Ventures Pty Limited, are part of a tax consolidated group. As a consequence,
all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Nanosonics Limited.
3.1 Income tax expense
The income tax expense or benefit for the period is the tax payable on or the 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.
60 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
3. Income taxes (continued)
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 (expense)/benefit for the period are:
Tax expense recognised in 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
Adjustment relating to prior periods
Income tax benefit reported in the statement of profit or loss
Tax expense relating to items in other comprehensive (loss)/ income
Deferred tax benefit recognised directly in other comprehensive
(loss)/income relating to derivative financial instruments
Tax expense relating to items in equity
Current tax benefit on share-based payments
Deferred tax (expense)/benefit on share-based payments
Tax benefit charged to equity
2018
$’000
2017
$’000
(5,582)
(8,487)
5,834
252
(84)
168
38
508
(230)
278
20,858
12,371
(65)
12,306
—
1,138
636
1,774
The Group first recorded previously unrecognised deferred tax assets in relation to the Australian entities in 2017 based on its assessment of
operations. Based on an updated assessment of the operations of the Group for the year ended 30 June 2018, it has been determined that
taxable profits will continue to be generated by the Australian entities against which its tax credits and deductible temporary differences will
be utilised. In addition, it has been determined that it is probable that taxable profits will be generated by the US subsidiary against which
carried forward tax losses and deductible temporary differences will be utilised. As a result, previously unrecognised deferred tax assets for
the US entity were recognised in 2018. Accordingly, the net deferred tax assets of the Group as at 30 June 2018 amounted to $14,808,000
(2017: 14,134,000) as detailed in note 3.2.
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 the Australian tax rate of 30% (2017: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Derecognition of deferred tax assets in foreign jurisdictions
Effect of tax rate in foreign jurisdictions
Research and development expenses
Decrease in income tax expense due to:
Other deductible expenses
Utilisation and initial recognition of deferred tax assets in Australia
Utilisation and initial recognition of deferred tax assets related to the US subsidiary
Utilisation of R&D tax credits in Australia
Utilisation of unrecognised deferred tax assets in other foreign jurisdictions
Adjustment relating to prior periods
Income tax benefit
2018
$’000
5,583
2017
$’000
13,852
(1,675)
(4,156)
(289)
(794)
(535)
(2,964)
2,038
—
2,437
1,981
53
(84)
168
(645)
(666)
(371)
(2,846)
57
20,552
—
—
446
(65)
12,306
61
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3. Income taxes (continued)
3.2 Deferred taxes
Deferred income tax is calculated 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 credits only if it is probable that
future taxable amounts will be available to utilise these temporary difference, losses and credits, 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 in 2017 and the deferred tax asset on losses of the USA subsidiary in 2018 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.
As of 30 June 2018, the net deferred tax assets recognised in the statement of financial position comprises:
Deferred tax assets
Non-refundable R&D tax credits
Tax losses in Australia
Tax losses in USA
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
Derivative financial instruments
Others
Total deferred tax assets
Deferred tax liabilities
Accrued interest and other income
Derivative financial instruments
Prepayments
Property, plant and equipment
Unrealised foreign exchange gains
Total deferred tax liabilities
Net deferred tax assets
2018
$’000
9,915
—
1,102
1,073
857
605
174
14
61
1,091
358
73
—
158
356
2017
$’000
8,092
2,277
—
1,401
695
593
184
11
120
172
217
79
283
—
236
15,837
14,360
(117)
—
(7)
(12)
(893)
(1,029)
14,808
(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 2018, 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)
62 | Nanosonics Annual Report 2018
2018
$’000
1,628
—
1,628
2017
$’000
3,439
—
3,439
For personal use only
Notes to the financial statements (continued)
3. Income taxes (continued)
a) Estimated unrecognised tax losses carried forward:
Unrecognised tax losses brought forward at the beginning of the period
Adjustment in respect of unrecognised tax losses carried forward relating to prior periods 1
Carried forward tax losses utilised
Tax losses for the period related to non-Australian entities
Recognition of deferred tax assets on Australian tax losses
Recognition of deferred tax assets on USA tax losses
Estimated unrecognised tax losses carried forward at the end of the period
Potential tax benefit at 20.7% effective tax rate (2017: 30.5%)
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 periods 1
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
2018
$’000
2017
$’000
11,284
(679)
(2,237)
3,649
—
(4,171)
7,846
1,628
—
—
—
—
—
—
57,489
(15,664)
(26,011)
3,059
(7,589)
—
11,284
3,439
—
11,097
9,488
—
(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 resulting to an
adjustment for the year ended 30 June 2017.
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
Payroll tax
Insurance premiums
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
2018
$’000
22,093
544
2,204
154
985
828
3,149
2,187
32,144
4,514
15,026
5,757
6,847
32,144
2017
$’000
18,311
226
1,772
121
959
583
2,570
2,139
26,681
4,122
12,486
4,388
5,685
26,681
63
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4. Employee benefits (continued)
4.2 Employee benefits liabilities
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.
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
2018
Current Non-current
$’000
$’000
1,471
200
1,335
3,006
—
440
—
440
Total
$’000
1,471
640
1,335
3,446
2017
Current Non-current
$’000
$’000
1,182
302
1,264
2,748
—
355
—
355
Total
$’000
1,182
657
1,264
3,103
Provision for annual leave
Provision for long service leave
Provision for bonuses
Total employee benefit liabilities
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 NOEP 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, 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.
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 are in the process of being
phased out and replaced by the NOEP.
64 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
4. Employee benefits (continued)
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 (2017: nil
share options issued).
The GSOP, designed to provide incentive, recognition and reward for non-employees, usually consultants and contractors, who create
long-term value for the Company, was phased out in the year ended 30 June 2017.
Employee share plans
The Company’s employee share plan, being the Deferred Employee Share Plan (DESP) was 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.
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.
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:
NOEP
ESOP
2018
2017
2018
2017
GSOP
2017
All Plans
2018
2017
Number of performance
rights and options
Number
of options
and rights
WAEP
($)
Number
of options
and rights
WAEP
($)
Number
of options
and rights
WAEP
($)
Number
of options
and rights
WAEP
($)
Number
of options
and rights
WAEP
($)
Number
of options
and rights
Number
of options
and rights
Unexpired options
as at 1 July
1,070,230
1.32
—
— 2,452,292
— 4,253,250
Granted during the year
1,601,972
1.25
1,079,041
1.31
—
—
—
Exercised during the year
(201,843)
—
—
— (1,461,033)
— (1,768,419)
Forfeited during the year
(176,948)
1.77
(8,811)
—
(24,717)
— (32,539)
Unexpired options
as at 30 June
2,293,411
1.35
1,070,230
1.32
966,542
— 2,452,292
Exercisable at 30 June
21,779
—
—
—
—
—
—
—
—
—
—
—
—
30,000
0.51
3,522,522
4,283,250
—
— 1,601,972
1,079,041
(30,000)
0.51 (1,662,876)
(1,798,419)
—
—
—
— (201,665)
(41,350)
— 3,259,953
3,522,522
—
21,779
—
65
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4. Employee benefits (continued)
1,662,876 performance rights and options were exercised in 2018. The weighted average market share price on the ASX based on the dates of
the exercise was $2.49 (2017:$3.07). No performance rights or options expired during the periods covered by the above table.
Performance rights and options outstanding at the end of the year have the following expiry dates and exercise prices:
Option Plan
Exercise
price
Grant date
($)
Assessed
fair value at
grant date
($)
Expiry
date
Number
at start of
the year
Number
granted
during
the year
ESOP
ESOP
ESOP
ESOP
ESOP
ESOP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
Total
— 08 Nov 13
0.71
30 Sep 17
— 08 Nov 13
0.85
30 Sep 17
— 11 Mar 15
1.36
30 Sep 17
— 11 Mar 15
1.71
30 Sep 17
—
—
—
—
—
2.85
2.85
2.85
04 Jan 16
1.46
31 Aug 21
04 Jan 16
1.06
31 Aug 21
05 Jan 17
2.59
31 Aug 22
05 Jan 17
2.33
31 Aug 22
05 Jan 17
3.07
31 Aug 22
05 Jan 17
1.00
31 Aug 22
05 Jan 17
0.98
31 Aug 22
05 Jan 17
1.05
31 Aug 22
—
05 Jan 17
3.07
01 Sep 20
— 03 Nov 17
2.81
31 Aug 21
—
11 Jan 18
2.75
31 Aug 21
— 03 Nov 17
2.16
31 Aug 23
— 09 Feb 18
1.95
31 Aug 23
— 03 Nov 17
2.04
31 Aug 23
— 09 Feb 18
1.75
31 Aug 23
2.38
03 Nov 17
1.00
31 Aug 23
2.38
09 Feb 18
0.84
31 Aug 23
2.38
03 Nov 17
1.02
31 Aug 23
2.38
09 Feb 18
0.79
31 Aug 23
375,000
375,000
355,512
355,521
495,623
495,636
86,752
86,736
173,507
123,946
123,944
247,893
227,452
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45,513
261,577
12,867
214,094
12,866
214,077
170,212
250,279
170,212
250,275
Number
exercised
during
the year
(375,000)
(375,000)
(355,512)
(355,521)
—
—
—
—
—
—
—
—
(201,843)
—
—
—
—
—
—
—
—
—
—
Number
forfeited
during
the year
Number
at end of
the year
Number
vested and
exercisable at
end of year
—
—
—
—
(12,358)
(12,359)
(4,076)
(4,074)
(8,154)
(8,427)
(8,427)
(16,855)
(3,830)
—
—
—
—
—
483,265
483,277
82,676
82,662
165,353
115,519
115,517
231,038
21,779
45,513
(12,230)
249,347
—
12,867
(9,990)
204,104
—
(9,988)
—
(45,449)
—
(45,448)
12,866
204,089
170,212
204,830
170,212
204,827
—
—
—
—
—
—
—
—
—
—
—
—
21,779
—
—
—
—
—
—
—
—
—
—
3,522,522
1,601,972
(1,662,876)
(201,665)
3,259,953
21,779
iv) Variation of Terms of 2015 LTIS
At the 2017 Annual General Meeting held on 3 November 2017, the Company's shareholders approved a change to the terms of the 2015 LTIS,
which provided for vesting on 31 August 2018, by removing the "deemed" exercise provisions and extending the expiry date for exercise of
vested Performance Rights from 30 September 2018 to 31 August 2021. All other terms and conditions of 2015 LTIS remained the same.
v) 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.
66 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
4. Employee benefits (continued)
The inputs used in the measurement of the fair values at the grant date are the following:
Plan
Description
Granted during the year:
Vesting
Conditions
Exercise
price
($)
Grant
date
Vesting
date
Expiry
date
Estimated
share price
at grant
date
($)
Valuation
model
Expected
price
volatility
of the
company’s
shares
Expected
dividend
yield
Risk free
interest
rate
Assessed
fair value
at grant
date
($)
2017 LTIS
Tranche 1
– CEO
2017 LTIS
Tranche 2
– CEO
2017 LTIS
Tranche 1
– Others
2017 LTIS
Tranche 2
– Others
2017 LTIS
Tranche 1
– CEO
2017 LTIS
Tranche 2
– CEO
2017 LTIS
Tranche 1
– Others
2017 LTIS
Tranche 2
– Others
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
— 3 Nov 17
31 Aug 20
31 Aug 23
2.81
— 3 Nov 17
31 Aug 20
31 Aug 23
2.81
— 9 Feb 18
31 Aug 20
31 Aug 23
2.67
— 9 Feb 18
31 Aug 20
31 Aug 23
2.67
2.38
3 Nov 17
31 Aug 20
31 Aug 23
2.81
2.38
3 Nov 17
31 Aug 20
31 Aug 23
2.81
2.38
9 Feb 18
31 Aug 20
31 Aug 23
2.67
2.38
9 Feb 18
31 Aug 20
31 Aug 23
2.67
2017 Deferred
STI – CEO
Service
— 3 Nov 17
31 Aug 18
31 Aug 21
2.81
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
2017 Deferred
STI – Others
Relative TSR
performance
and service
— 11 Jan 18
31 Aug 18
31 Aug 21
2.75
Granted in prior periods and unexpired at report date:
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
2016
Deferred STI
Service
— 5 Jan 17
1 Sep 17
1 Sep 20
3.07
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
2015 LTIS
Tranche 1
2015 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
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
— 4 Jan 16
31 Aug 18
31 Aug 21
1.67
— 4 Jan 16
31 Aug 18
31 Aug 21
1.67
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
NOEP
ESOP
ESOP
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Black
Scholes
Black
Scholes
Monte
Carlo
Monte
Carlo
Black
Scholes
Black
Scholes
Monte
Carlo
Monte
Carlo
Black
Scholes
Monte
Carlo
Monte
Carlo
35.00%
0.00% 1.90%
2.16
35.00%
0.00% 1.90%
2.04
34.00%
0.00% 2.10%
1.95
34.00%
0.00% 2.10%
1.75
35.00%
0.00% 2.10%
1.00
35.00%
0.00% 2.10%
1.02
35.00%
0.00% 2.30%
0.84
35.00%
0.00% 2.30%
0.79
31.00%
0.00% 1.70%
2.81
30.00%
0.00% 1.70%
2.75
35.80%
0.00% 2.00%
2.59
35.80%
0.00% 2.00%
2.33
35.80%
0.00% 2.00%
3.07
35.80%
0.00% 2.00%
3.07
35.80%
0.00% 2.00%
1.00
35.80%
0.00% 2.00%
0.98
35.80%
0.00% 2.00%
1.05
37.50%
0.00% 2.00%
1.46
37.50%
0.00% 2.00%
1.06
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.
67
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4. Employee benefits (continued)
vi) 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
2,187,000 (2017: $2,139,000).
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 (2017: 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 Share Plan Trust.
Following is a reconciliation of shares on issue under the DESP Share Plan Trust:
Employee shares on issue as at 1 July
Issued on exercise of performance rights and options during the year
On market purchase of shares on exercise of performance rights during the year
Withdrawn during the year
Employee shares on issue as at 30 June
5. Financial assets and financial liabilities
5.1 Cash and cash equivalents
2018
2017
2,153,926
1,612,124
36,823
1,010,585
1,798,419
—
(2,696,424)
(655,078)
1,106,449
2,153,926
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
2018
$’000
13,812
2,130
53,491
69,433
2017
$’000
13,781
2,526
46,682
62,989
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.
68 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
5. Financial assets and financial liabilities (continued)
ii) Reconciliation of profit after income tax to net cash inflow from operating activities
Operating profit after income tax
Adjustment for:
Depreciation and amortisation
Share based payments expense
Borrowing costs
(Gain)/loss on disposal of fixed assets
(Gain)/loss of foreign exchange movements
Changes in assets and liabilities
(Increase)/decrease in 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
Net cash provided by operating activities
iii) Credit standby arrangements unused
Facility limits:
Borrowing facilities
Guarantee facility
Facility remaining available:
Borrowing facilities
Guarantee facility
2018
$’000
5,751
1,499
2,187
58
(2)
(1,892)
735
586
(1,963)
33
(10)
539
1,533
295
(24)
(8)
(308)
9,009
2018
$’000
2,115
475
1,170
14
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)
16,388
2017
$’000
2,115
475
766
14
The terms of the borrowing facility can be found in Note 5.5.
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, otherwise 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
2018
$’000
7,525
658
430
8,613
2017
$’000
8,204
346
373
8,923
69
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. Financial assets and financial liabilities (continued)
5.3 Derivative financial instruments
The Group uses derivative financial instruments (such as 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.
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.
> If the forward exchange contract no longer meets the criteria for hedge accounting, expires, terminated or exercised, then hedge accounting
is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs
or when cash flows arising from the transactions are received.
> For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the statement of profit or loss in the
same period the hedged transactions affect the profit or loss on the same line item as the hedged transactions.
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 2018, the Group holds derivative financial instrument current assets carried at fair value of $158,000 (2017: $338,000) and
derivative financial instrument current liabilities carried at fair value of $684,000 (2017: $nil). The fair value of the effective portion of the cash
flow hedges at 30 June 2018 amounted to $129,000 (2017: $nil). In the prior period, all foreign exchange contracts entered itno by the Group
do not satisfy the requirements for hedge accounting (economic hedges).
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.
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature.
2018
Current Non-current
$’000
$’000
1,836
48
2,487
4,371
—
195
—
195
Total
$’000
1,836
243
2,487
4,566
2017
Current Non-current
$’000
$’000
1,405
28
2,294
3,727
—
236
—
236
Total
$’000
1,405
264
2,294
3,963
Trade payables
Lease straight-lining liability
Other payables
Total trade and other payables
70 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
5. Financial assets and financial liabilities (continued)
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
2018
$’000
424
522
946
2017
$’000
404
946
1,350
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 liability at the end of the year is as follows:
2018
2017
Minimum
payments
$000
Present value
of payments
$000
Minimum
payments
$000
Present value
of payments
$000
Within one year
After one year but not more than 5 years
Total minimum lease payments
Less future finance charges
Present value of minimum lease payments
461
538
999
53
946
424
522
946
—
946
Finance lease liability at the beginning of the year
Interest charged
Repayment of borrowings
Interest paid
Finance lease liability at the end of year
461
1,000
1,461
111
1,350
2018
$’000
1,350
58
(404)
(58)
946
404
946
1,350
—
1,350
2017
$’000
1,745
77
(395)
(77)
1,350
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.
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
2018
$’000
3,861
386
4,689
8,936
2017
$’000
4,721
334
2,673
7,728
Inventories recognised as an expense (cost of sales) during the year ended 30 June 2018 amounted to $12,531,000 (2017: $15,891,000).
Management has performed an assessment of inventories held for the year ended 30 June 2018 including the impact of the introduction of the
second generation of trophon in the subsequent year and recognised write-downs during the year of $592,000 (2017: $611,000). The expense
has been included in selling and general expenses in the profit and loss statement.
71
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6. Operating assets and liabilities (continued)
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.
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
1,989
39
—
—
(384)
—
1,644
2,432
—
(788)
1,644
1,128
773
(25)
(36)
(675)
(8)
1,157
4,852
(45)
(3,650)
1,157
187
478
—
—
—
(2)
663
663
—
—
663
Total
$’000
3,304
1,290
(25)
(36)
(1,059)
(10)
3,464
7,947
(45)
(4,438)
3,464
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
Impairment
Accumulated depreciation
Net book amount at 30 June 2017
72 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
6. Operating assets and liabilities (continued)
Leasehold
improvements
$’000
Plant and
equipment
$’000
Capital work
in progress
$’000
Year ended 30 June 2018
Opening net book amount
Additions
Retirement and others
Transfers
Impairment
Depreciation charge
Foreign currency translation effect (net)
Closing net book amount at 30 June 2018
At 30 June 2018
Cost or fair value
Impairment
Accumulated depreciation
Net book amount at 30 June 2018
6.3 Intangible assets
i) Research and development
1,644
60
—
—
—
(404)
2
1,302
2,495
—
(1,193)
1,302
1,157
2,875
(6)
650
—
(870)
8
3,814
8,278
(45)
(4,419)
3,814
663
139
(650)
—
—
—
152
152
—
—
152
Total
$’000
3,464
3,074
(6)
—
—
(1,274)
10
5,268
10,925
(45)
(5,612)
5,268
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 recognised as intangible assets when it is probable that the patent or
trademark will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can
be measured reliably. Otherwise, these are expensed as incurred.
iii) ERP system and computer software
The expenditure incurred on the Company’s Enterprise Resource Planning (ERP) system and computer applications and the costs necessary
for the implementation of the systems 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 systems.
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 applications 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 (2017: Nil).
73
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6. Operating assets and liabilities (continued)
Total property, plant and equipment at net book value
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
Accumulated depreciation
Net book amount at 30 June 2017
Year ended 30 June 2018
Opening net book amount
Additions
Amortisation
Foreign currency translation effect (net)
Closing net book amount at 30 June 2018
At 30 June 2018
Cost or fair value
Accumulated depreciation
Net book amount at 30 June 2018
6.4 Provisions
i) General
Development
Costs
$’000
ERP and
Computer
Software
$’000
—
—
—
—
—
201
(201)
—
—
—
—
—
—
201
(201)
—
260
201
(179)
(1)
281
1,464
(1,183)
281
281
507
(225)
—
563
1,977
(1,414)
563
Total
$’000
260
201
(179)
(1)
281
1,665
(1,384)
281
281
507
(225)
—
563
2,178
(1,615)
563
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.
74 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
6. Operating assets and liabilities (continued)
a) Provisions as at the reporting date follows:
2018
2017
Current Non-current
$’000
$’000
Total
$’000
Current Non-current
$’000
$’000
Total
$’000
Provision for warranty
Make good provision
Total provisions
b) Movements in provisions
Carrying amount at start of year
Additional provision recognised
Amounts used during the year
Unused amount reversed during the year
Carrying amount at end of year
505
—
505
—
75
75
505
75
580
534
—
534
—
70
70
Provision for
warranty
$’000
Make good
provision
$’000
534
303
(255)
(77)
505
70
5
—
—
75
534
70
604
Total
$’000
604
308
(255)
(77)
580
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:
2018
2017
Cash and cash equivalents
Trade and other receivables
Trade and other payables
USD
$’000
6,951
4,098
(486)
10,563
GBP
£’000
603
450
(178)
875
Euro
€ ’000
242
360
(230)
372
CAD
$’000
1,043
335
(106)
USD
$’000
8,380
5,068
(597)
1,272
12,851
GBP
£’000
Euro
€ ’000
CAD
$’000
315
255
(122)
448
137
328
(146)
319
Foreign currency forward contracts
and options to buy/sell USD
9,789
—
—
—
10,186
—
—
67
6
(26)
47
—
75
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7. Financial risk management (continued)
Sensitivity
The following table demonstrates the sensitivity to a reasonable possible change in the USD, EUR, GBP and CAD against the AUD, with all
other variables held constant.
Impact on post-tax profit
Impact on other
components of equity
Change in USD rate
Increase 5% (10%)
Decrease 5% (5%)
Change in GBP rate
Increase 5% (9%)
Decrease 5% (3%)
Change in EUR rate
Increase 5% (6%)
Decrease 5% (3%)
Change in CAD rate
Increase 5%
Decrease 5%
2018
’000
1,410
(1,333)
336
(304)
90
(81)
131
(118)
2017
’000
2,234
(1,344)
293
(86)
(1)
—
27
(25)
2018
’000
(520)
470
(399)
361
(98)
88
(118)
107
2017
’000
(1,216)
521
(344)
101
31
(14)
(37)
35
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.
ii)
Interest rate risk
The Group’s main interest rate risk arises from the cash reserves in the operating bank accounts and short-term deposits, which expose the
Group to cash flow interest rate risk.
The Group’s exposure to interest rate risk is noted below:
Floating
interest rate
$’000
Notes
1 year
or less
$’000
Over 1
to 5 years
$’000
More than Non-interest
bearing
$’000
5 years
$’000
Fixed interest rate maturing in:
Total
$’000
69,433
8,613
158
78,204
—
4,566
946
684
6,196
—
—
8,613
158
8,771
—
4,566
—
684
5,250
—
—
—
—
—
—
—
—
—
—
—
—
4.92%
53,067
4.92%
(522)
3,521
72,008
—
—
—
—
—
—
522
—
522
—
424
—
424
2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
5.1
5.2
5.3
15,942
53,491
—
—
—
—
Total financial assets
15,942
53,491
Weighted average interest rate
0.22%
2.63%
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
Weighted average interest rate
5.4
5.5
5.3
—
—
—
—
—
Net financial assets/(liabilities)
15,942
76 | Nanosonics Annual Report 2018
For personal use only
Notes to the financial statements (continued)
7. Financial risk management (continued)
Floating
interest rate
$’000
Notes
1 year
or less
$’000
Over 1
to 5 years
$’000
More than Non-interest
bearing
$’000
5 years
$’000
Fixed interest rate maturing in:
2017
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
5.1
5.2
5.3
16,307
46,682
—
—
—
—
Total financial assets
16,307
46,682
Weighted average interest rate
0.37%
2.58%
Financial liabilities
Trade and other payables
Borrowings
Total financial liabilities
Weighted average interest rate
5.4
5.5
—
—
—
—
Net financial assets/(liabilities)
16,307
—
404
404
4.92%
46,278
Total
$’000
62,989
8,923
338
72,250
—
3,963
1,350
5,313
—
—
—
—
—
—
946
946
4.92%
(946)
—
—
—
—
—
—
—
—
—
—
8,923
338
9,261
—
3,963
—
3,963
—
5,298
66,937
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. For the year ended 30 June 2018, it is estimated that a general increase of 25 basis points in interest rates would have increased the
Group’s profit after tax and equity by $116,000 (2017: $98,000). A decrease of 25 basis points in interest rates would have had the equal but
opposite effect on the Group’s profit after tax and equity.
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
Maximum exposure to credit risk for trade receivable by type of counterparty was as follows:
Distributors
End-user customers
2018
$’000
5,739
976
810
7,525
2018
$’000
2,270
5,255
7,525
2017
$’000
6,437
655
1,112
8,204
2017
$’000
3,506
4,698
8,204
As at 30 June 2018, GE Healthcare (worldwide) and Regional Healthcare Group Pty Ltd, combined, accounted for over 34% of the trade
receivables (2017: GE Healthcare and Regional Healthcare Group Pty Ltd, combined, accounted for over 40% 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.
77
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7. Financial risk management (continued)
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 and effective from 2018 with no more than 50% held at any one bank.
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 and from 2018 in Europe, outstanding customer receivables are
regularly monitored and are generally covered by credit insurance.
As a result, the Group believes that its accounts receivable credit risk exposure is mitigated and it has not experienced significant write-downs
in its accounts receivable balances.
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
2018
$’000
2,057
3,267
708
385
6,417
2017
$’000
2,207
3,022
763
443
6,435
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 2018, trade receivables with a nominal value of $9,000 (2017: $21,000) 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
78 | Nanosonics Annual Report 2018
2018
$’000
2017
$’000
21
—
(6)
(6)
9
9
12
—
—
21
For personal use only
Notes to the financial statements (continued)
7. Financial risk management (continued)
Past due but not impaired
As at 30 June 2018, trade receivables of $1,108,000 (2017: $1,769,000) 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
c) Liquidity risk
2018
$’000
6,417
787
240
81
7,525
2017
$’000
6,435
949
353
467
8,204
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 $53,491,000 2017: ($46,682,000) 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.
2018
Less than 3 months
3 to 12 months
1 to 5 years
Over 5 years
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
4,323
115
288
4,726
48
346
396
790
195
538
—
733
—
—
—
—
2017
Less than 3 months
3 to 12 months
1 to 5 years
Over 5 years
Trade and other payables
Borrowings
Total financial liabilities
3,699
115
3,814
28
346
374
236
1,000
1,236
—
—
—
Total
4,566
999
684
6,249
Total
3,963
1,461
5,424
79
For personal use only
Notes to the financial statements (continued)
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.
Notes
Number of shares
$’000
Opening balance 1 July 2016
Exercise of performance rights and options – proceeds received
Less: Transaction costs arising on share issues
Balance 30 June 2017
Exercise of performance rights and options – proceeds received
Less: Transaction costs arising on share issues
Balance 30 June 2018
b) Reserves
Share-based payments reserve
295,934,536
1,798,419
297,732,955
—
297,732,955
1,612,124
—
112,698
15
112,713
—
112,713
—
—
299,345,079
112,713
The share-based payments reserve is used to recognise the grant date fair value of performance rights and options issued, as detailed in
note 4.3, less any payments made to meet the company’s obligations through the acquisition of shares on market, together with income taxes
on such payments.
Foreign currency translation reserve
The foreign currency translation reserve records the exchange differences arising on translation of the financial statements of the foreign
subsidiaries where the functional currency is different from the presentation currency of the reporting entity as detailed in Note 1.2 (e)(ii).
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to
underlying transactions that have not yet occurred.
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:
Within one year
Later than one year but not later than five years
Later than five years
80 | Nanosonics Annual Report 2018
2018
$’000
1,066
2,099
—
3,165
2017
$’000
949
2,644
—
3,593
For personal use only
Notes to the financial statements (continued)
9. Other notes (continued)
Capital commitments
As at 30 June 2018, the Group had commitments to purchase plant and equipment of $399,000 (2017: $1,434,000). 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
2018
$
506,849
1,715,757
366,622
238,000
949,956
2017
$
481,733
1,752,744
305,042
—
930,090
Total directors and key management personnel compensation
3,777,184
3,469,609
Total compensation includes total remuneration for executive and
non-executive directors of the parent entity
1,258,164
1,305,556
Detailed remuneration disclosures are provided in the remuneration report on pages 28 to 50.
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
Gryphon Capital Pty Ltd
Transactions
Director fees
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
Reimbursement of costs incurred on behalf of Nanosonics
Sale of products to Related Parties
Interest charged
Purchases of goods and services from Related Parties
Reimbursement of costs incurred on behalf of Nanosonics
2018
$
2017
$
2,409,140
2,055,438
—
2,715
10,520
1,115
9,285
—
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.
a) 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)
2018
$
643,725
—
2017
$
791,582
1,976
There were no provisions for impaired receivables in relation to any outstanding balances from Related Parties (2017: Nil) and no expense
has been recognised during the period in respect of impaired receivables due from related parties.
b) 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 2018 (2017: Nil).
81
For personal use only
Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. Other notes (continued)
c) 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.
9.3 Controlled entities
The consolidated financial statements of the Group include:
Name of controlled entity
Principal activities
Country of
incorporation of shares
Class
Equity Holdings
2017
2018
Nanosonics Europe GmbH
Provision of sales and customer support services to
Nanosonics Limited in Germany
Germany
Ordinary
100%
100%
Saban Ventures Pty Limited
Owner of the registered intellectual property of the Group
Australia
Ordinary
100%
100%
Nanosonics, Inc.
Sales and distribution of Nanosonics’ products and
provision of sales and customer support services to
Nanosonics Limited in the USA
USA
Ordinary
100%
100%
Nanosonics Europe Limited
Sales and distribution of Nanosonics’ products in Europe
UK
Ordinary
100%
100%
Nanosonics UK Limited
Provision of sales and customer support services in Europe UK
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 2018, 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
Hedging reserve (net of tax)
Accumulated losses
Total equity
Profit for the year
Total comprehensive income
2018
$’000
2017
$’000
113,943
131,359
16,149
17,186
112,713
13,232
(91)
(11,681)
114,173
7,236
7,145
99,087
116,842
10,809
12,180
112,713
10,866
—
(18,918)
104,661
27,859
27,859
b) Guarantees entered into by the parent entity
For the periods ended 30 June 2018 and 2017, 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.
c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017.
d) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2018, the parent entity had commitments to purchase plant and equipment of $399,000 (2017: $1,434,000). These commitments
are not recognised as liabilities as the relevant assets have not yet been received.
e) Accounting policies
The accounting policies of the parent entity is consistent with the Group except for Investment in controlled entities which are carried in the
parent company financial statements at the lower of cost or recoverable amount.
82 | Nanosonics Annual Report 2018
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Notes to the financial statements (continued)
9. Other notes (continued)
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:
UHY Haines Norton
Audit and review of financial reports
Total remuneration of UHY Haines Norton
Network firms of UHY Haines Norton
Audit and review of financial reports
Tax compliance services
Total remuneration of network firms of UHY Haines Norton
Total auditors’ remuneration
Ernst & Young Australia
Audit and review of financial reports
Tax compliance and other services
Total auditors’ remuneration
2018
$
9,485
9,485
23,074
6,567
29,641
39,126
195,700
160,788
356,488
2017
$
105,120
105,120
11,838
3,298
15,136
120,256
—
—
—
UHY Haines Norton resigned as auditors at the conclusion of the Annual General Meeting on 3 November 2017. Ernst & Young was appointed
auditor of Nanosonics on 3 November 2017. All services provided by Ernst & Young to the Nanosonics Group have been disclosed from the
appointment date.
Prior to Ernst & Young being appointed auditors on 3 November 2017, they had provided tax compliance and other services to Nanosonics in
2018, which amounted to $48,370 (2017: $147,636).
9.6 Changes in accounting policies
There have been no changes to accounting standards impacting the financial results of Nanosonics in the current financial year. During the year,
the group adopted the amendments to AASB 107 Statement of Cash Flows, which resulted in additional disclosures as included in Note 5.5.
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 is effective for annual reporting periods beginning on or after 1 January 2018.
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 has performed an assessment of and concluded no material impact on
the adoption of the standard.
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Notes to the financial statements (continued)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. Other notes (continued)
AASB 15 Revenue from Contracts with Customers, which is effective for annual reporting periods beginning on or after 1 January 2018.
AASB 15 provides a single, principles-based five-step model to be applied to all sales contracts based on the transfer of control of goods
and services to customers. AASB 15 requires separation of distinct performance obligations. Revenue is recognised when the performance
obligations are satisfied and recognised at an amount that reflects the consideration the Group expects to be entitled to. The Group will apply
the new accounting standard utilising the modified retrospective method.
Areas of impact
The expected areas of impact on the Group’s accounting policy upon adoption of the new revenue standard are set out below:
> On the recognition of revenue for distinct performance obligations, the allocation of revenue to individual distinct performance obligations in
multi-element arrangements may change. Revenue is required to be allocated to distinct performance obligations using a proportionate fair
value method based on relative standalone selling prices or in certain circumstances, using the residual method;
> The timing of revenue recognition of the consideration for certain goods and services may change to align with the principal performance
obligations associated with the sale of goods or services provided;
> The timing between consideration received and transfer of services to the customer may require revenue to be recognised to reflect the price
that a customer would have paid for services provided when received;
> Incremental contract costs including commissions will be capitalised as contract fulfilment assets and released over the contract life.
The key areas of impact on the Group’s financial statements are set out below based on the assessment undertaken by the Group:
> Certain service contracts have separately identifiable performance obligations that are either provided at a point in time or over time. Under
the current accounting policy, these revenue from service contracts are recognised over the term of the contract. As a result of this change
in timing of revenue recognition, the deferred revenue as at 1 July 2018 would be reduced by $296,000 and the opening retained earnings
would increase by $296,000 (before tax).
> Certain service contracts have also been identified to include a financing component with some customers purchasing these contracts and
the Group holding the payment greater than 12 months in advance of revenue recognition. This financing component would increase the
deferred revenue at 1 July 2018 by $40,000 and reduce the opening retained earnings by $40,000 (before tax).
> The Group incurs incremental costs relating sales commissions which are currently expensed in the period they become paid or payable.
These now be amortised over the contract period under the new accounting standard and will result in the recognition of contract assets of
$301,000 for the year beginning 1 July 2018 and an increase in retained earnings of $301,000 (before tax).
A summary of the expected opening balance adjustments before tax as at 1 July 2018 are included below:
Financial statement line item
Opening balance adjustment before tax as at 1 July 2018
Contract assets
Deferred revenue
Retained earnings
Transition
$301,000 increase
$256,000 decrease
$557,000 increase
The impact of AASB 15 will first be presented for the half-year ending 31 December 2018. The Group will adopt the new accounting standard
utilising the modified retrospective method. The cumulative effect of adopting the standard will be recorded as an adjustment to the opening
balance of retained earnings.
AASB 16 Leases, which is effective for annual reporting periods beginning on or after 1 January 2019.
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 2018, the Group has non-cancellable operating lease commitments of $3,165,000 (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 2018 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.
84 | Nanosonics Annual Report 2018
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Directors’ declaration
DIRECTORS’ DECLARATION
For the year ended 30 June 2018
1. In the directors’ opinion:
a) the financial statements and notes set out on pages 51 to 84 are in accordance with the Corporations Act 2001, including:
i) complying with Accounting Standards and the Corporations Regulations 2001;
ii) giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2018 and of their performance for the
financial year ended on that date; and
b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1.2; and
c) there are reasonable grounds to believe that the Company and its subsidiaries will be able to pay their debts as and when they become
due and payable.
2. The directors have been given the declarations by the Managing Director and CEO and Chief Financial Officer required by section 295A of
the Corporations Act 2001.
3. This declaration is made in accordance with a resolution of directors.
Richard England
Director
Sydney
20 August 2018
85
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Independent auditor’s report to the members (continued)
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent Audit or's Report t o t he Members of Nanosonics Limit ed
Report on t he Audit of t he Financial Report
Opinion
We have audited the financial report of Nanosonics Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
2018, the consolidated statement of profit or loss and other comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended, notes
t o t he financial st at ements, including a summary of significant accounting policies, and the directors'
declaration.
In our opinion, the accompanying financial report of the Group is in accordance wit h t he Corporations Act
2001, including:
a)
giving a t rue and fair view of the consolidated financial position of the Group as at 30 June 2018
and of its consolidated financial performance for the year ended on that date; and
b)
complying wit h Aust ralian Account ing Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Aust ralian Auditing Standards. Our responsibilities under
t hose st andards are furt her described in t he Auditor’s Responsibilit ies for t he Audit of t he Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirement s of t he Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Et hics for Professional Account ant s (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
et hical responsibilities in accordance wit h t he Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Mat t ers
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion t hereon, but we do not provide a separat e
opinion on t hese mat ters. For each matt er below, our descript ion of how our audit addressed t he mat ter
is provided in t hat context .
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Independent auditor’s report to the members (continued)
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included t he performance of procedures designed t o respond t o our assessment of the risks of mat erial
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide t he basis for our audit opinion on t he accompanying
financial report .
Why significant
How our audit addressed t he key audit mat t er
1. Revenue recognit ion
As disclosed in not e 2.2 of the financial report,
revenue from sale of goods is recognised when
the significant risks and rewards of ownership
have been t ransferred t o t he dist ributor or end
cust omer.
The Group has a number of different revenue
st reams and channels t o market for its products.
Judgement is involved in determining whet her
t he criteria for revenue recognit ion have been
met and t hat revenue is recognised in t he
correct period. On this basis this was considered
a Key Audit Matter.
Our audit procedures included the following:
•
An assessment of t he appropriat eness of t he
Group’s revenue recognition account ing
policies relating t o t he requirement s of
Aust ralian Accounting Standard AASB 118
Revenue.
• We tested the key controls in place to ensure
product sales and service revenue was
appropriat ely recognised in accordance wit h
Group’s revenue recognition policy.
•
•
For a sample of transactions for product
sales and service revenues we agreed t he
t ransaction to evidence of t he sale and t hat it
was recorded in the correct period.
Specifically, we select ed a sample of
shipments pre and post year end and agreed
the detail to third party proof of delivery
document at ion t o ensure the sales were
recorded in the correct period.
• We assessed the disclosures relating to
revenue in the financial report.
2.
Invent ory obsolescence provision
As disclosed in not e 6.1 of the financial report,
the Group records an inventory obsolescence
provision for excess or obsolet e invent ory t o
ensure inventory is valued at the lower of cost
and net realisable value.
Our audit procedures included the following:
• We assessed whet her the met hodology to
calculat e t he provision met t he requirements
of Australian Accounting Standard AASB 102
Inventories.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Independent auditor’s report to the members (continued)
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
Judgment is required in calculat ing t he required
provision in relation t o matt ers such as forecast
sales and projected consumption of raw material
inventory related t o t rophon 1 part s, and t he
time period for which aged inventory is
det ermined no longer useable or saleable.
This mat ter has been considered a Key Audit
Matt er due t o t he level of judgement required to
est imat e t he provision.
3. Deferred t ax asset s
As disclosed in not e 3.2 of the financial report,
t he Group recorded a deferred t ax asset of
$14,808,000.
In assessing the recoverability of this deferred
t ax asset , judgements were made as t o t he
quantum and timing of future taxable income
and the extent to which carry forward income
t ax losses can be utilised.
This mat ter has been considered a Key Audit
Matt er due t o t he level of judgement required
est imat e t he fut ure t axable income.
• We assessed the key assumpt ions used to
forecast the projected consumption of
trophon 1 raw material inventory and the
est imat e of obsolet e invent ory.
• We agreed underlying data used in t he
obsolescence provision calculat ion t o
appropriat e source document at ion and
evaluated the data by comparing forecasts
and expected usage with hist orical data.
• We evaluated the adequacy of the
disclosures relating to the inventory
obsolescence provision, including t hose
made with respect t o judgements and
est imat es.
Our audit procedures included the following:
• We assessed whether the approach used by
the Group to determine the recoverability of
t ax losses met t he requirement s of
Aust ralian Accounting St andards.
• We assessed the basis for the Group’s future
t axable income forecast including
considering t he hist orical accuracy of
previous forecasts.
• We assessed, with the involvement of our tax
specialists, t he application of relevant tax
legislation to the usage of t ax losses.
• We evaluated the adequacy of the
disclosures relating t he deferred t ax asset ,
including t hose made with respect t o
judgements and est imates.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Independent auditor’s report to the members (continued)
Informat ion Ot her t han t he Financial Report and Audit or’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2018 Annual Report, but does not include the financial report and our
audit or’s report thereon.
Our opinion on t he financial report does not cover t he ot her information and accordingly we do not
express any form of assurance conclusion t hereon, wit h t he exception of t he Remuneration Report and
our related assurance opinion.
In connection wit h our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whet her the other informat ion is mat erially inconsist ent wit h t he financial report or
our knowledge obtained in the audit or ot herwise appears t o be materially misst at ed.
If, based on t he work we have performed, we conclude that there is a mat erial misst at ement of t his other
information, we are required to report t hat fact . We have not hing to report in t his regard.
Responsibilit ies of t he Direct or s for t he 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 Aust ralian Account ing St andards and t he Corporations Act 2001 and for
such internal cont rol as t he direct ors determine is necessary t o enable the preparat ion of the financial
report that gives a t rue and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing t he financial report , t he direct ors are responsible for assessing t he Group’s abilit y to
continue as a going concern, disclosing, as applicable, mat ters relating t o going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Independent auditor’s report to the members (continued)
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
Audit or 's Responsibilit ies for t he Audit of t he Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement , whet her due t o fraud or error, and t o issue an audit or’s report t hat includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee t hat an audit
conducted in accordance with t he Aust ralian Auditing St andards will always detect a material
misst at ement when it exist s. Misst at ements can arise from fraud or error and are considered mat erial if,
individually or in t he aggregate, they could reasonably be expected t o influence t he economic decisions of
users t aken on t he basis of t his financial report .
As part of an audit in accordance wit h the Aust ralian Audit ing Standards, we exercise professional
judgment and maint ain professional scepticism t hroughout the audit . We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to t hose risks, and obt ain 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 cont rol.
Obt ain an understanding of int ernal cont rol relevant to t he audit in order to design audit
procedures t hat are appropriat e in t he circumstances, but not for t he purpose of expressing an
opinion on t he effectiveness of t he Group’s int ernal cont rol.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
est imat es and relat ed disclosures made by t he directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on t he audit evidence obtained, whet her a material uncert aint y exists relat ed t o events or
condit ions t hat may cast significant doubt on t he Group’s abilit y t o continue as a going concern. If
we conclude t hat a mat erial uncertaint y exists, we are required to draw at tent ion in our audit or’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 act ivit ies wit hin t he Group t o express an opinion on t he financial report . We are
responsible for the direction, supervision and performance of the Group audit . We remain solely
responsible for our audit opinion.
We communicate wit h 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 .
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Independent auditor’s report to the members (continued)
We also provide t he direct ors wit h a statement that we have complied wit h relevant et hical requirements
regarding independence, and t o communicate with t hem all relationships and other mat ters that may
reasonably be t hought t o bear on our independence, and where applicable, related safeguards.
From t he mat ters communicated to t he direct ors, we det ermine t hose mat ters t hat were of most
significance in the audit of the financial report of t he current year and are t herefore t he key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about t he mat ter or when, in ext remely rare circumstances, we det ermine t hat a mat ter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expect ed to outweigh t he public int erest benefits of such communicat ion.
Report on t he Audit of t he Remunerat ion Report
Opinion on t he Remunerat ion Report
We have audited the Remuneration Report included in pages 28 to 50 of the directors' report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of Nanosonics Limited for the year ended 30 June 2018,
complies with section 300A of the Corporations Act 2001.
Responsibilit ies
The directors of t he Company are responsible for the preparat ion and present at ion of t he Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibilit y is t o express an
opinion on t he Remuneration Report , based on our audit conduct ed in accordance with Aust ralian
Audit ing Standards.
Ernst & Young
Gamini Mart inus
Partner
Sydney
20 August 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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shareholder information
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 7 August 2018.
A. Equity security holders
Twenty largest holders of quoted equity securities
Ordinary shares
Number of quoted shares held
Percentage
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Mr Maurie Stang 1
Citicorp Nominees Pty Limited
UBS Nominees Pty Ltd
Mr Bernard Stang 1
National Nominees Limited
Mr Steve Kritzler
BNP Paribas Nominees Pty Ltd
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