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2023 ReportPeers and competitors of Nanosonics:
IntegerInfection Prevention. For Life.
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9
SOCIETY
LEADERSHIP
EXPANSION
2019
ANNUAL
REPORT
NAN0056 Nansonics UPDATED Annual Report Covers _FINAL.indd 3
26/8/19 4:19 pm
01 Overview and Mission
02 Financial highlights
04 Chairman’s letter
06 CEO’s report
12 Regional highlights
17
Environment, Social
and Governance (ESG)
trophon®2
24
26 The Board
28 The Executive Team
30 Directors’ report
56
Auditor’s independence
declaration
Financial statements
57
93 Directors’ declaration
94
Independent auditor’s
report to the members
100 Shareholder information
102 Glossary
104 Corporate directory and
information for investors
Nanosonics (ASX: NAN) has developed a unique
automated disinfection technology, which is the
first major innovation in high level disinfection
for ultrasound probes in more than 20 years.
This proprietary technology is being successfully
introduced around the world, transforming the
way infection prevention practices are understood
and applied within the healthcare environment and
is becoming the new standard of care as it safely
and effectively addresses the issues involved with
traditional ultrasound probe disinfection practices.
The strategic growth agenda for Nanosonics
includes expanding the adoption of trophon® in
those markets where trophon is already represented,
expanding global presence and expanding the
product portfolio through significant investment in
research and development to bring new infection
prevention products to market.
OverviewContents 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
Our MissionNanosonics Annual Report 2019 Continued strong growth
and strategic expansion
$’000
Revenue
Gross profit
2019
2018
2017
2016
2015
2014
2013
2012
84,324
60,698
67,507
42,796
22,214
21,492
14,899
12,301
2011
2,247
62,816
45,291
50,155
32,166
15,313
13,921
8,471
7,502
1,266
2010
763
479
Research and development expenses
(11,375)
(9,882)
(9,486)
(7,297)
(4,902)
(4,103)
(3,167)
(3,135)
(3,627)
(2,369)
EBITDA
EBIT
17,642
5,861
14,110
950
(4,732)
(1,845)
(5,366)
(4,982)
(11,963)
(8,187)
15,502
4,362
12,866
(359)
(5,795)
(2,820)
(6,410)
(5,896)
(12,973)
(8,958)
Operating profit/(loss) before tax
16,830
5,583
13,852
136
(5,465)
(2,636)
(5,735)
(5,310)
(11,921)
(8,173)
Net income tax (expense)/benefit
(3,228)
168
12,306
(14)
5
31
(33)
631
707
—
Operating profit/(loss) after tax
13,602
5,751
26,158
122
(5,460)
(2,605)
(5,768)
(4,679)
(11,214)
(8,173)
Cash and cash equivalents
72,180
69,433 62,989
48,841
45,724
21,233
24,064
29,310
12,356
21,144
$84.3m
67.5
60.7
42.8
22.2
32.1
15.3
$62.8m
50.2
45.3
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
REVENUE ($M)
GROSS PROFIT ($M)
$72.2m
69.4
63.0
48.8
45.7
2015
2016
2017
2018
2019
$16.8m
13.9
2017
0.1
2016
5.6
2018
2019
2015
(5.5)
PBT ($M)
$2.6m1
15.1
6.2
2017
2018
2019
1.9
2016
2015
(4.7)
FREE CASH FLOW ($M)
CASH AND
CASH EQUIVALENTS
1. Cash flow for the year was impacted by an increase in trade and other receivables of $11,087,000 due to aligning payment terms with a key distributor with our standard payment terms and the
timing of sales and payments by that distributor, and an increase in inventory of $5,082,000 associated with the launch of trophon2.
02
Financial highlights Nanosonics Annual Report 2019
03
It is my pleasure to report on Nanosonics’
robust progress across its business,
technical and corporate objectives. Today
your company is truly global in both its
capabilities and horizons with over 286 team
members and activities across Asia Pacific,
the Americas, Europe and the Middle East.
The past year has seen significant and
successful investment in our Research and
Development (R&D) programs, management,
manufacturing and an ever growing
engagement with customers and trade
partners across the globe. The launch of our
next generation trophon®2 and growth of our
installed base reflects the strong focus on our
core business, whilst our world leading R&D
team develop new solutions for our future
growth and expansion.
During the year, sales increased strongly
by 39% to $84.3 million. Whilst the investment
in growth continues, Nanosonics’ operating
profit before tax of $16.8 million has meant
that the Company’s platform from which
future investments in growth can be made,
has also continued to strengthen. Importantly,
these strong results, as well as the positive
sentiment regarding the Company’s future,
are reflected in the significant shareholder
value that has been generated throughout
the year. Our capital management is regularly
reviewed and considering the significant global
healthcare challenges associated with infection
prevention and the resulting opportunities for
the development and introduction of innovative
solutions, investment in the long-term strategic
growth agenda of the Company is considered
the best use of the Company’s free cash flow
and capital reserves at this time.
It is pleasing to see that trophon2, the next
generation trophon technology, has been
launched successfully in key global markets
for Nanosonics and feedback from our
customers has been very positive.
Closer to home, I was also proud to see
trophon2 win a prestigious Good Design
Award Gold Accolade in July 2019 in recognition
of its outstanding design and innovation.
For the second consecutive year, Nanosonics
also won an award at The Premier’s NSW
Export Awards, taking out the Health and
Biotechnology category award in October
2018. In August 2019, Nanosonics’ innovation
program was recognised as being amongst the
most innovative in Australia and New Zealand,
ranking seventh in the Australian Financial
Review Boss, Most Innovative Companies
Health Industry List.
04
Chairman’s letter The Company recognises the importance
and value of diversity on the Board, and has
appointed an external recruitment agency
to undertake a process with the aim of
appointing an additional Director with relevant
industry and technical experience during FY20.
The fundamentals for adoption have
continued to strengthen with a number of
new studies and guidelines supporting the
need for high level disinfection of ultrasound
probes used in both critical and semi-critical
procedures. We expect this to underpin future
growth in the trophon category, and that this
will be supported by the introduction of new
products to build the Nanosonics portfolio of
segment leading technologies in the infection
control space.
Finally, I would like to thank our outstanding
global team led by our CEO, Michael Kavanagh,
who continue to deliver for our shareholders.
Your Company is at an important stage
of its strategic growth agenda where it is
continuing to invest in global expansion and
the development of innovative solutions for
a world market demanding innovation to
solve many intractable problems. After another
successful year delivering on our promise of
‘Infection Prevention. For Life’, I look forward
to working with the Board, management
and wider team on continuing to execute our
strategic agenda to deliver long-term growth in
shareholder value and an ongoing contribution
to advancing healthcare delivery.
Mr Maurie Stang
Chairman
27 August 2019
The Company continues to make a positive
impact on healthcare delivery for the global
communities in which it operates. This combines
not only the impact of the trophon ecosystem
but also our support for new and improved
guidelines and standards. trophon is a global
solution for reducing cross-contamination
between patients and reducing the spread
of Healthcare Associated Infections (HAIs).
HAIs remain a widespread and largely
preventable occurrence that have an enormous
impact, not only on patients and their families,
but on our hospitals and care facilities resources
and the communities in which they operate.
HAIs are the most frequently occurring
adverse event in healthcare worldwide
with a prevalence of 7.6% amongst
hospitalised patients in high-income countries 1.
In Australia, a recent study has shown
hospital HAI prevalence rates range from
5.7% to 17.0%, with a median of 9.2% 2.
Nanosonics’ trophon technology has a
presence of more than 20,000 globally
installed devices, resulting in approximately
70,000 cycles every day – with each cycle
contributing to mitigating against the
spread of potentially fatal HAIs.
Nanosonics recognises the importance of
its commitment to its Environmental, Social
and Governance (ESG) principles and this is
reflected in the depth of the disclosures in
this year’s ESG report.
The ESG-related activities that Nanosonics
reports against demonstrate that Nanosonics
is a Company that drives great shareholder
value by doing good in the communities in
which it operates, and for all the stakeholders
it represents.
We recognise and appreciate the “social
licence” that supports our growth as an
emerging global leader in infection control.
Our processes are environmentally
conscious and our products represent
significant environmental benefits over any
available alternatives. We have several active
programs of giving to a variety of causes
and our staff are supported to participate
in volunteer programs in the Australian
community. Finally, we respect the need
for governance and accountability and these
are built into the very fabric of our activities.
Research and development is a core focus
for Nanosonics and its current innovation
program and investment is without
precedent in the Company’s history.
We invested $11.4 million during the year
on innovative research and development,
enhancing our core technologies, as well as
progressing the development of new platforms
which potentially address large scale new
opportunities. We continue to enhance our
trophon ecosystem of products and services
in new and innovative ways, including through
intelligent data management solutions
designed to help our customers improve
the way they meet their own increasingly
demanding compliance obligations.
The Nanosonics team continues to grow,
and its expertise strengthen. We are now
a team of 286 located in Australia, the United
States, Canada, Europe, and Japan, representing
an increase of 61 people during the year.
Whilst the Company continues to grow
rapidly, the culture remains strong, healthy
and entrepreneurial.
I am pleased to welcome four new executives
to the management team who will guide
the Company on its next phase of growth,
including Regional Presidents in Asia Pacific
and Europe/Middle East to drive further
growth in those regions.
I would like to recognise the outstanding
work and commitment of our Board who
have applied themselves to every dimension
of your company’s strategic growth. FY19
also saw the addition of a new Director,
and I was very pleased to announce recently
the appointment of Mr Geoff Wilson to
the Nanosonics Board. Geoff brings with
him considerable finance, audit and risk
management experience, as well as current
and deep experience in important Asia Pacific
markets where Nanosonics operates.
On behalf of the Board, management and
shareholders, I also thank our longstanding
Director and contributor to the Board,
Mr Richard England, who will step down
effective 31 August 2019. We thank Richard for
his significant contribution to the Nanosonics
story, and I wish to acknowledge the valuable
guidance and insight he has provided in
his capacity as Chair of the Audit & Risk
Committee for a number of years, during
which the Company experienced both
high growth and radical change.
References
1. Currie K, et al. Understanding the patient experience of health care–associated infection: A qualitative systematic review. Am J Infect Control. 2018;46(8):936-42
2. Russo PL, et al. The prevalence of healthcare associated infections among adult inpatients at nineteen large Australian acute-care public hopsitals: a point prevalence survey.
Antimicrob Resist Infect Control. 2019(8)
05
Nanosonics Annual Report 2019 20,930
17,740
14,160
10,130
6,250
2015
2016
2017
2018
2019
GLOBAL INSTALLED BASE
The trophon installed base continued
to grow strongly throughout FY19.
Globally the installed base grew 18%
from 17,740 units at the end of FY18
to 20,930 units by 30 June 2019.
06
I am very pleased to report that throughout
the 2019 financial year, Nanosonics has
continued to go from strength to strength
delivering excellent growth in our core trophon
business while making significant investments
in our long-term strategy of establishing the
organisation as a globally recognised leader in
infection prevention.
There were significant achievements across
all aspects of our business, including strong
growth in the trophon installed base, up 18%
to 20,930 units. This means that more than
70,000 patients every day or approximately
18 million patients every year are protected
from the risk of cross-contamination because
their probe has been decontaminated
using trophon.
During the year, the second generation
trophon2 was also successfully launched
and was the recipient of the Gold Award
at the Australian Good Design Awards.
Geographically, Nanosonics expanded into
a number of new markets, including the Nordics,
Spain, Portugal, Switzerland and Israel. Market
development efforts in Japan continued with
the establishment of a Nanosonics entity in
Japan, the publication of the first pivotal study
in Japan demonstrating probe contamination,
and the recent signing of an agreement with
GE Healthcare Japan, as well as the recent
Japanese regulatory approval of trophon2.
Importantly, large investments in our
product expansion strategy were made with
key milestones met throughout the year
towards the targeted introduction of the next
significant new product for the end of FY20,
subject to regulatory approval.
CEO’s report The following provides an outline of some of the key highlights
during FY19 relating to each of these core areas.
1. Customer Experience
2. Product Innovation
Investments in our people, organisational
design and capability were also an important
feature of FY19. Four new executives were
appointed to the Executive team, including
Regional Presidents for Asia Pacific and
recently Europe, as well as strengthening our
marketing and operational capabilities with
the addition of a new Chief Marketing Officer,
Chief Strategy Officer and Chief Operating
Officer. Our total number of employees grew
to 286. This investment in our organisational
capability and capacity underpins the long-term
strategic growth agenda for the organisation.
Total sales for the year were $84.3 million,
up 39% on prior corresponding period. These
sales reflect capital revenue of $32.8 million
which was up 28% on prior corresponding
period and revenue associated with
consumables and service of $51.5 million which
was up 47% on prior corresponding period,
reflecting the continuing strong growth in the
installed base which supports the important
annuity revenue profile of the business.
Significant investments in our growth strategy
were made throughout the year resulting in
a 15.5% growth in total operating expenses
to $49.2 million, including $11.4 million in
Research and Development (R&D).
Operating profit before tax grew by over 200%
on the prior year to $16.8 million and the cash
balance as at June 30 2019 was $72.2 million.
This underpins planned ongoing investment
in the growth of the business associated with
product and geographical expansion, together
with infrastructure investment, to further
expand our capability and capacity.
Nanosonics is working towards becoming
a globally recognised leader in the
research, development, manufacture and
commercialisation of infection prevention
solutions. Our strategic growth agenda
is focused on five core areas, namely:
Our Customer Experience objective is focused
on establishing our offerings as new standards
of care globally and providing customers with
a convenient and consistent experience with
our products and brand.
Strong growth in the trophon installed base
During FY19, the trophon installed base
grew 18% to 20,930 which is a growth of
over 10,000 units in the last three years alone.
This growth is expected to continue with
strengthening international fundamentals
for adoption, growing awareness and an
acceptance of the risk of cross-contamination
with ultrasound probes. In North America
alone, the trophon installed base has grown
to 18,570 and can be found in all luminary
healthcare institutions. The ongoing growth
in the installed base is supported through
numerous educational initiatives supported
or run by Nanosonics.
Market expansion
During the year Nanosonics expanded its
international distribution agreement with
GE Healthcare to cover the Nordics, Spain
and Portugal. New distribution agreements
were also entered into in Switzerland, Israel
and Kuwait.
Market development efforts in Japan continued
with the establishment of a Nanosonics
entity in Japan, the publication of the first
pivotal study in Japan demonstrating probe
contamination, and the recent signing of
an agreement with GE Healthcare Japan,
as well as the recent Japanese regulatory
approval of trophon2.
The appointment of new Regional Presidents
for Europe and Asia Pacific strengthens the
ongoing expansion aspirations in each of
these regions.
1. Customer Experience
New French guidelines
2. Product Innovation
3. Operational Excellence
4. People Engagement
5. Value Creation
In Quarter 4 of FY19, the French Ministry
of Health released anticipated guidelines
supporting the requirement of high
level disinfection.
More than 70,000 patients every day
or approximately 18 million patients
every year are protected from the risk
of cross-contamination.
Our Product Innovation objective relates
to being an innovator in the field of infection
prevention through the identification of unmet
customer needs, resulting in the development
and commercialisation of customer centric
solutions that can become new standards
of care.
Launch of trophon2
Our new trophon2 technology was successfully
introduced into manufacturing and launched
in North America, Europe and Australia. This
new innovation brings a range of new market
leading benefits to customers across safety,
efficacy, traceability and simplicity.
Investment in R&D
Product expansion is a core element of our
strategic growth agenda and during FY19
our investment in R&D grew to $11.4 million.
The Research, Design and Development team
grew across a range of engineering and science
disciplines. Nanosonics aims to bring to market
an expanded product portfolio internationally
and intends to continue its investment in R&D
to build a pipeline of new potential product
opportunities. It is anticipated that the first new
non-trophon related product will be brought
to market by the end of FY20, subject to
regulatory approval.
Strengthening our IP position
Nanosonics recognises the importance of
its IP portfolio in maintaining its sustainable
competitive advantage. Our patent portfolio
continued to make strong progress in FY19
with 12 applications successfully passing
examination to proceed to allowance or grant.
Patents were granted in the US, Europe
(United Kingdom, Germany and France),
Canada and Australia, among others. The
portfolio has continued to expand with four
PCT (international) applications and four
provisional applications for new inventions
being filed. Importantly, Nanosonics also
enjoys IP protection over subject matter
related to its ongoing consumables revenue
out to 2029, and has an active program
of IP development and filings which will
continue to ensure our technology is
protected into the future.
07
Nanosonics Annual Report 2019 3. Operational Excellence
4. People Engagement
Our Operational Excellence objectives focus
on structuring, resourcing and operating
our organisation in a way that is disciplined
but agile through scalable, compliant and
performance-focused processes.
Our People Engagement objective focuses
on attracting and retaining the best people,
ensuring they are engaged and empowered
to work towards the attainment of our mission
and corporate objectives.
The Nanosonics team grew with the
addition of 61 new employees. Nanosonics
benefits from a diverse workforce that
brings a range of experience, skill and
capability to the organisation.
During FY19 we conducted our first employee
engagement survey – ‘Our Voice’ – which
measured two important employee
engagement and cultural assessment
parameters, namely:
• Passion and Engagement
measuring organisational commitment/
job satisfaction and intention to stay
• Progress
measuring understanding of, and alignment
with, organisation objectives as well as
employee attitudes towards change,
innovation and job satisfaction
Result
Overall the organisation scored highly
for both Passion and Engagement
and Progress, resulting in scores
greater than 10% higher than
industry average.
30 nationalities are represented
across the organisation and over
30% of senior management roles
are held by women.
Nanosonics also runs intern programs
across many key universities and with
many partners. These programs run across
a number of functional areas and disciplines,
in particular engineering and science.
Importantly, four new executives joined
the Nanosonics leadership team, including
Regional Presidents for both Asia Pacific
and Europe/Middle East, a Chief Marketing
Officer and a Chief Operating Officer.
Each of the new executives is continuing
to reshape their respective areas of
responsibilities to deliver on our short-term
objectives as well as setting the foundations
for the next phase of our growth.
Investments in our global
operational infrastructure
During the year, the organisation continued to
invest in its operational capacity and capability
through the structured implementation of
a new IT infrastructure, an upgrade of our
ERP system to manage our geographical
expansion, as well as growth in our regional
sales and service organisation. New disciplines
were also introduced into the organisation,
including clinical trial design and management,
expansion of our microbiology laboratories
and capabilities, as well as Lean Manufacturing
and New Product Introduction (NPI).
08
CEO’s report 5. Value Creation
SHAREHOLDER RETURN
Market Capitalisation ($ million)
$2,000
$1,500
$1,000
$500
0
Specifically in FY20 our focus will be on:
• Continuing to grow the installed base
in North America with expectations that
FY20 adoption will be similar to FY19.
• Increasing our sales infrastructure across
Europe to drive increasing growth in trophon
adoption as fundamentals of adoption
have strengthened in particular across the
United Kingdom, Germany and France.
Share Price
6.00
5.00
4.00
• Continued market education and
development in Japan to establish
local guidelines to strengthen local
fundamentals for adoption.
• Driving upgrades/replacements of
3.00
older trophon® EPR units to trophon2.
• Launching the first new product by the
end of FY20 (subject to regulatory approval)
• Continued investment in R&D to support
our ongoing product expansion aspirations.
• Continuing to build our people, infrastructure,
capability and capacity to support our strategic
growth agenda.
2.00
1.00
0
June
2007
June
2008
June
2009
June
2010
June
2011
June
2012
June
2013
June
2014
June
2015
June
2016
June
2017
June
2018
June
2019
Closing Share Price
Market Capitalisation
Our Value Creation objective is focused on creating sustainable shareholder value through
the delivery of long-term sustainable growth and returns. Positive returns are generated
through the successful implementation of our growth strategies as they pertain to growing
the Installed Base which delivers an ongoing stream of annuity revenue, geographical expansion
and investment in product expansion. Significant achievements across all these growth drivers
were delivered in FY19.
Over the last five years shareholder value has grown at a Cumulative Annual Growth Rate
of 48%. In the last 12 months Nanosonics was one of the top performers in the ASX 200
with a market capitalisation growth of over 70%.
FY20 outlook
In FY20 the company is focused on three core areas:
1. Establishing trophon as standard of care
Through ongoing customer education, establishing the trophon technology as the
standard of care for the high level disinfection of all semi-critical ultrasound probes
in those markets where trophon is currently represented.
2. Geographic expansion
Expanding and investing into new markets and driving awareness about the importance
of high level disinfection of ultrasound probes, strengthening the fundamentals for
adoption through the support of the development of new guidelines.
It is expected that our active ongoing
investment in growth will result in FY20
operating expenses of approximately
$67 million, including approximately
$15 million, in R&D.
Importantly in July 2019, our distribution
agreement with GE Healthcare in the USA
changed to a Capital Reseller model. This
change will result in a material increase in
both sales and margin from consumables in
North America, the full impact of which will
come into effect from the second half FY20.
I would like to thank the Nanosonics
team and our distribution partners for their
considerable efforts throughout the year
plus their belief in our mission to improve
the safety of patients, clinics, their staff and
the environment by transforming the way
infection prevention practices are understood
and conducted. Because of them over
70,000 patients each day or approximately
18 million patients every year are protected
from the risk of cross-contamination because
the ultrasound probe used on them was high
level disinfected using trophon. Through
their efforts this number increases daily.
I would also like to thank our shareholders
for their ongoing support and belief in the
Nanosonics’ vision of becoming a globally
recognised leader in infection prevention.
3. Product expansion
Developing and commercialising new products focusing on unmet needs in infection
prevention.
Michael Kavanagh
CEO and President
09
Nanosonics Annual Report 2019 Expanding
global presence
Geographical expansion is key to the Company’s
strategic growth agenda. Nanosonics distributes
its products in 21 countries, either through direct
operations or via distributor partners.
Norway
Partnership in place
with GE Healthcare
United Kingdom
Nanosonics direct operation in place
and growing. England, Scotland, Wales
and Northern Ireland have guidelines
Ireland
Distribution partner in place with
local guidelines for high level
disinfection established
Spain
Partnership in place
with GE Healthcare
Portugal
Partnership in place
with GE Healthcare
France
Nanosonics partnership with
GE Healthcare with supporting
local direct operations.
New guideline for high level
disinfection announced in Q4 FY19
Germany
Nanosonics direct operations
in place and growing with new
guidelines recently introduced.
Key luminary sites now adopting
Mexico
Distributor partnership
in place and marketing
activities underway
North America
Nanosonics direct operation with
over 62 employees. GE Healthcare
also a distributor and Capital
Reseller agreements in place with
all major ultrasound companies.
trophon becoming standard of
care with 18,570 units across
>5,000 hospitals and clinics
10
Denmark
Partnership in place
with GE Healthcare
Sweden
Partnership in place
with GE Healthcare
Finland
Partnership in place
with GE Healthcare
South Korea
Japan
Regulatory approval in place.
Exploring distributor partnership
for market entry
Clinical studies underway as part of
market development and Nanosonics
Japan K.K. established.
Distribution agreement with
GE Healthcare Japan established
China
Market assessment study underway
Kuwait
Distributor partnership
in place and marketing
activities underway
Saudi Arabia
Exploring
distributor
partnership for
market entry
Qatar
Distributor partnership
in place and marketing
activities underway
Hong Kong
Distributor partnership
in place and marketing
activities underway
Israel
Distributor partnership
in place and marketing
activities underway
Singapore
Distributor partnership
in place and marketing
activities underway
Australia and New Zealand
Distributor partnerships in
place. Achieved approximately
75% market penetration
11
Nanosonics Annual Report 2019 North America
Following the successful trophon2 launch
in Q1 FY19, our device continued its strong
growth during FY19, growing from 15,620 units
to 18,570 units. This represents 46% of the
estimated market potential of 40,000 units 1.
The trophon device is now installed in over
5,000 hospitals and clinics, including the top
100 US hospitals.
In North America, every day more than
57,000 patients are protected from the risk of
cross-contamination by trophon technology,
a number that is increasing daily.
Fundamentals for ongoing adoption
of trophon continue to strengthen
Regulations and guidelines requiring high
level disinfection of semi-critical ultrasound
probes have existed for some time in
North America. However, as identified in an
important National Survey conducted in 2018,
there is a widespread lack of understanding
and awareness of what procedures confer
semi-critical status on an ultrasound probe
in particular procedures where surface vs
endocavitary probes are used. If a surface
probe can come into contact with broken
skin, mucous membranes, sterile tissue or the
vascular system, then that probe is considered
as semi-critical or critical. This means these
surface probes require a minimum of high level
disinfection between patients. Examples of
common procedures that fall into this category
include ultrasound-guided biopsies and
wound scans.
A national survey on this topic was published in
the American Journal of Infection Control during
2018.2 The survey of infection preventionists
across the US revealed significant variation
in practice for surface ultrasound probe
reprocessing. The majority of respondents were
from hospital settings, with 96% reporting high
level disinfection for endocavitary ultrasound
probes, while only 59% were performing
high level disinfection for biopsies, 39% for
injections and 33% for central line placements.
The study concluded there is an urgent need
to review policies and ensure best practice for
patient safety.
Driven by these survey results and observations
in their own practice, a group of infection
prevention experts identified a range of
knowledge gaps in this emerging area.3 The
group brought together clinical evidence and
federal guidelines into a set of practical tools
to help facilities review and standardise their
ultrasound probe reprocessing practices.
Teamwork: Helping to spread the trophon message at APIC were: (Front row) Lia Moshkanbaryans, Lynn Mollenauer, Donna Fiorentino, Hope Hurd, Gina Cummings,
Keith Korby and Mitch Hansen. (Back row) Jon Burdach, Tim Benkovic, Kevin Markham, Ken Shaw, Michael Kavanagh, and Chris Proctor.
12
Regional highlights TROPHON INSTALLED BASE
18,570
15,620
12,400
8,700
5,000
2015
2016
2017
2018
2019
During FY19, trophon continued to be
adopted as the new standard of care
with the installed base increasing by 19% –
growing from 15,620 units to 18,570 units.
This represents 46% of the estimated
market potential of 40,000 units.1
Four tools were developed to help ultrasound
users and infection prevention professionals
address this need across all departments using
ultrasound in their facilities. The Ultrasound
Infection Prevention Toolkit was launched
in 2018, and is available for download online.
The tools are editable to help users meet
their local and facility requirements in line
with existing evidence-based guidelines
and standards in the US.
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.
Partnerships with ultrasound
OEMs continue to grow successfully
Capital reseller agreements are now in
place with all major ultrasound companies
in North America, with sales through this
channel growing at double digit rates.
In this model the ultrasound manufacturers
are able to sell the trophon capital equipment.
Once the unit is sold, Nanosonics is responsible
for in-service (setup) of the unit, 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 the trophon
solution as the recommended standard of care.
New GE agreement starts FY20
A new three-year capital reseller agreement
with GE Healthcare commenced on 1 July 2019,
providing GE Healthcare with capital reseller
rights as part of Nanosonics’ global ultrasound
OEM program. This change will result in
a material increase in both sales and margin
from consumables, the full impact of which
will be realised from second half FY20.
Positioning for scalable growth
We continue to make significant investments
in North America in terms of staff, service
and distribution functions. During the year,
we expanded our Indianapolis facility by 50%
which provides the necessary infrastructure
to support the ongoing growth that is
being experienced.
Our North American team now numbers 62
across sales, clinical applications, marketing,
service and operations. Plans are in place to
continue to expand this team throughout
FY20 to drive and support our ongoing growth.
Independent expert: Associate Professor
Ruth Carrico was one of two experts who were
on hand to explain the Ultrasound Infection
Prevention Toolkit at APIC 2019.
References
1.
2. Carrico, R. M., et al. (2018). “Ultrasound probe use and reprocessing: Results from a national survey among U.S. infection preventionists.” Am J Infect Control 46(8): 913-920. 3.
Internal estimate based on historic regional estimates of the installed base of ultrasound consoles and those associated with procedures where high level disinfection may be required.
Ultrasound Infection Prevention Toolkit (2018). Available at: https://www.ultrasoundinfectionprevention.org/
13
Nanosonics Annual Report 2019 Europe and the Middle East
MES business model
The Managed Equipment Service (MES)
business model introduced two years ago
continues to support ongoing growth for
the installed base which increased by 30%
during FY19. 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. Every hospital trust in Wales
now has a trophon installed base due to the
MES program and the numbers continue to
expand across Scotland and England.
Infrastructure expansion
During the year Nanosonics moved to a larger
facility to support the growing local business.
In addition, the number of local employees
continued to grow, and further resource
expansion is planned for FY20.
France
Following the successful launch of trophon2
during FY19, updated reprocessing guidelines
for the appropriate disinfection of endocavitary
ultrasound probes were issued in March 2019
by the French Ministry of Health.
The recommendations were developed by
a multidisciplinary group of experts, led by
the President of the SF2H (French Society
of Hospital Hygiene) and are presented as
a nine-part compendium which is available
on the Ministry’s website.
In contrast to prior Ministry of Health
statements, the recommendations now
require that endocavitary ultrasound probes
undergo intermediate level disinfection even
if a sheath is used. The term “intermediate
level disinfection” in France is functionally
equivalent to high level disinfection in other
parts of the world and refers to processes
that are bactericidal, mycobactericidal,
virucidal and fungicidal.
Nanosonics has a distribution agreement
with GE Healthcare in France and as result
of these new guidelines, a number of joint
education initiatives have commenced which
are expected to be a driver for trophon
growth throughout FY20.
Throughout FY19 the fundamentals for
adoption of trophon strengthened through
increasing awareness of the importance of
high level disinfection of ultrasound probes,
the introduction of new guidance from the
French Ministry of Health, an expanded
European presence through new distribution
agreements with GE Healthcare for the Nordics
and Spain and Portugal, plus new distributor
partnerships in Switzerland, Israel and Kuwait.
The timing of these growth drivers primarily
came into effect in the second half FY19.
A Regional President for EMEA has been
appointed and will commence in September
2019 and plans are in place to expand our
direct operations, in particular in the UK and
Germany, to leverage the strengthening
fundamentals, growing sales pipeline and
managing through what is a complex
capital sales process.
United Kingdom
Increased educational awareness and
disinfection guidelines continue to boost
trophon adoption in the United Kingdom.
New guidance placing increasing
importance on high level disinfection
The BMUS and Society and College of
Radiographers have issued guidance
requiring appropriate disinfection or
sterilisation of ultrasound probes which
draws on best practice infection prevention
guidance for ultrasound probes 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 guidelines highlight the importance
of high level disinfection for all semi-critical
ultrasound probes between patients to reduce
the risk of cross-contamination. Importantly,
healthcare facilities are now seeing the need
to high level disinfect all semi-critical probes,
including surface probes, as awareness grows
on what ultrasound procedures confer semi-
critical status on probes.
Nanosonics Study Day in the United Kingdom with expert speakers: (left to right) Wayne Spencer,
Authorising Engineer Decontamination, Spencer Nickson Ltd; Karren Staniforth, Clinical Scientist, Infection
Prevention and Control, Nottingham University Hospitals; Claire Jones-Manning; Bryn Tudor-Owen,
Nanosonics. Country Manager, UK and Ireland; Dr Peter Cantin, Consultant Sonographer, University
Hospitals Plymouth NHS Trust; and Liz Collins, Clinical Lead Infection Prevention, University Hospitals
of Leicester NHS Trust.
14
Regional highlights TROPHON INSTALLED BASE
880
730
490
300
240
2015
2016
2017
2018
2019
trophon adoption grew 25% in Europe/
Middle East, driven mainly by the Managed
Equipment Services business model in
the United Kingdom and direct sales.
Germany
The trophon2 was successfully launched in
Germany during FY19. trophon2 introduced
a number of new capabilities to meet some
specific German market requirements, such
as the ability to provide detailed reports on
all process parameters for each individual cycle.
The key luminary site, University Hospital
Frankfurt, upgraded all their trophon EPR
devices to trophon2. One of the largest hospitals
in Europe, the Charité Universitätsmedizin
in Berlin, has also commenced adoption.
The sales process in Germany can be
lengthy, involving a trial period first followed
by appointment of an internal hospital project
manager and committee recommendation
before the budgeting process begins.
Throughout FY19 a number of successful
hospital trials took place, resulting in trophon
being now in budget approval process.
The pipeline grew and continues to grow
through this process. To support the sales
process and leverage increasing awareness of
the importance of bactericidal, mycobactericidal,
fungicidal and virucidal disinfection, which is
functionally equivalent to high level disinfection,
the German team was expanded in FY19, and
plans are in place for further expansion across
sales and service throughout FY20.
As part of the access strategy to the
important market of private practitioners
in Germany, Nanosonics has signed
a distributor agreement with Co-Med.
Co-Med is Germany´s largest association
of dealers specialised in selling and servicing
medical devices and medical technology
with over 50 partners across Germany.
New European markets
A new agreement was established with
GE Healthcare for distribution in two Nordic
countries, Denmark and Finland, and the
Iberian peninsula of Spain and Portugal.
A new distribution agreement was also
entered into for Switzerland.
Middle East
Distribution agreements are now active
for Lebanon, Israel and Kuwait.
15
Nanosonics Annual Report 2019 Asia Pacific
TROPHON INSTALLED BASE
1,480
1,390
1,270
1,130
1,010
2015
2016
2017
2018
2019
The Asia Pacific installed base is mainly
associated with Australia/New Zealand
where the market penetration is
approximately 75% and growing.
Market expansion in Asia Pacific is becoming a greater priority as part of the strategic growth agenda for the organisation. To support this,
a Regional President for Asia Pacific has been appointed. During the year, in addition to growing the trophon business in the already highly
penetrated Australia/New Zealand market, important market development milestones were achieved in Japan and a market assessment
study for China has commenced.
No data or regulations exist about residual
bacterial contamination of transvaginal
ultrasound probes in Japan and currently
gynaecologists use probe covers and simple
dry paper towel cleaning with or without
low level disinfection.
The study outcomes were presented at the
Japanese Society of Obstetrics and Gynecology
(JSOG) in Nagoya during April 2019 and have
been submitted for publication in the Journal
of Medical Ultrasonics.
China
In late FY19, a Chinese market assessment
commenced with visits to large hospitals,
the Chinese Centre for Disease Control and
regulatory authorities. Based on preliminary
assessment, it is believed a significant
opportunity for trophon may exist in China
and the next stages of the market entry
strategy will be conducted throughout FY20.
Australia/New Zealand
trophon is already the standard of care in
Australia with an estimated market penetration
of 75%. Sales continue to be driven by the
previous release of a joint guideline between
the Australian Society of Ultrasound in
Medicine (ASUM) and the Australasian College
for Infection Prevention and Control (ACIPC).
This guideline emphasises the need to high
level disinfect all probes used in semi-critical
procedures (surface and intracavity).
Japan
Market development efforts in Japan continued
with the establishment of a Nanosonics
Japanese entity, the publication of the first
pivotal study in Japan demonstrating probe
contamination, and the recent signing of an
agreement with GE Healthcare Japan, as well
as the recent Japanese regulatory approval
of trophon2.
Importantly, the Japanese clinical study has
demonstrated significant ultrasound probe
contamination. The study investigated the
level of bacterial contamination on transvaginal
ultrasound probes following standard probe
cleaning. Of the contamined probes, over 50%
were found to harbour potentially pathogenic
bacteria, including methicillin resistant
Staphylococcus aureus (MRSA).
Big impression: trophon is now available for
sale in Japan and was recently exhibited at a
conference.
16
Regional highlights Our commitment to ESG
Nanosonics’ 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 innovating technologies
that deliver improved standards of care.
Nanosonics recognises that to achieve this goal we must seek
simultaneously to understand and minimise our environmental
impacts; meet our social responsibilities to our employees,
customers and the broader community; and maintain high
standards of corporate governance.
This year, as the Company has continued to grow, we have
further developed our framework for ESG disclosure. We
have undertaken our first materiality analysis to identify the
environmental, social and governance topics which are most
material for the Company and its key stakeholders. These will
inform our business strategy and new product development
priorities as well as guiding the content of this ESG report.
Our work has been guided by the leading frameworks for ESG
disclosure which have been developed over the past decade.
Nanosonics is proud to offer technology that protects
over 70,000 patients every day from the risk of a healthcare
associated infection from ultrasound procedures, reducing
the burden on the healthcare system in the communities
in which we operate. Further, the adoption of Nanosonics’
technology means healthcare staff at thousands of customer
sites are no longer exposed to the toxic chemicals previously
used for ultrasound probe reprocessing. As our geographic
footprint extends in North America, Europe, the Middle East
and Asia Pacific, we are extending these benefits to more and
more patients and healthcare staff.
Michael Kavanagh
CEO and President
17
Environmental, Social and Governance (ESG)Nanosonics Annual Report 2019 Corporate governance and ESG
The Board is committed to ensuring that its
policies and practices reflect good corporate
governance consistent with the Australian
Securities Exchange (ASX) Listing Rules and
the ASX Corporate Governance Principles
and Recommendations.
The Corporate Governance Statement sets
out Nanosonics’ key corporate governance
principles and practices, and the extent
to which the Company has followed the
recommendations set by the ASX Corporate
Governance Council during the 2018/19
reporting period.
The Board and the Executive Team have
responsibility for ensuring that ESG is
integrated across the Company’s operations,
and that ESG reporting is balanced, fair and
accurate. The Board is supported in this by the
Audit & Risk Committee and its three other
committees: the Nomination Committee, the
Remuneration & People Committee, and the
R&D and Innovation Committee.
Nanosonics’ corporate governance
framework is elaborated in its policies:
• Code of Conduct and Ethics
• Securities Trading Policy
• Clawback Policy
• Anti-Bribery and Anti-Corruption Policy
• Speak Up Policy
• Environmental Policy
• Privacy Policy
• Diversity Policy
• Continuous Disclosure and Shareholder
Communications Policy
• Share Ownership Policy
Nanosonics’ approach to strong corporate
governance includes adherence to all applicable
local and international laws, regulations
and standards.
Stakeholder engagement
Nanosonics’ key stakeholders are those groups,
organisations or individuals who are potentially
significantly affected by the Company’s
operations, products or services; or whose actions
can reasonably be expected to affect the ability
of the Company to implement its strategies
or achieve its objectives. Nanosonics seeks to
engage effectively with key stakeholders on topics
relevant to them so as to understand and respond
to their needs and concerns, and to inform them
about Nanosonics’ products and services.
Nanosonics has identified its key stakeholders
and areas of interest. These are set out in the
table below.
Key stakeholders
identified by Nanosonics
Customers, including
distributors, resellers and
ultrasound probe manufacturers
Suppliers
Selected key ESG areas of interest for Nanosonics’ stakeholders
• Public health and infection prevention
• Price
• Product safety
• Ease of use
• Fit within and streamline the clinical workflow
• Legal compliance
• Ethical business practices
Investors/shareholders
• Financial performance (revenue and profitability)
Employees
Government and
regulatory authorities
• Competitors in the market
• Nanosonics’ pipeline of new products
• FDA and other regulatory approvals
• ESG issues and risk management
• Gender equality
• Diversity
• Training and education
• Safe and rewarding workplace
• Product efficacy, safety and quality
• WHS compliance
• Ethical marketing
• Tax strategy
Healthcare professionals and patients
in hospitals in medical centres
• Reduction in healthcare associated infection through infection prevention technology
• Ethical marketing
• WHS compliance
• Pipeline of new products solving unmet needs in infection prevention
Community and key opinion leaders
• Infection prevention
• Ethical marketing
• WHS compliance
• Pipeline of new products solving unmet needs in infection prevention
18
Environmental, Social and Governance (ESG) Materiality assessment
Potential material topics identified by Nanosonics
In accordance with recognised frameworks
for ESG reporting, Nanosonics has undertaken
a comprehensive materiality assessment
based on indicative responses provided by
management on behalf of the Company’s
stakeholders. The intention is that in the
near term, representatives of the Company’s
stakeholder groups will also provide responses.
The process was guided by an external
consultant and comprised the following steps:
• Setting the context considering industry,
• Addressing an unmet need in patient care
• Business ethics
• Business strategy, including strategic partnerships/relationships
• Collaboration/partnerships
• Competitiveness in the market
• Compliance with laws, including modern slavery and conflict minerals
• Contributions to the community
• Consultation with customers on product development
• Consultation with infection control peak bodies
environmental, social and regulatory trends
• Customer education
• Analysis of annual, sustainability and
• Diversity, equal opportunity and non-discrimination
other relevant reports from benchmark
companies, and the assessment
frameworks of ESG rating agencies
• Identification of topics that have already
been identified by Nanosonics through
recent reports, briefings, presentations
and other mechanisms
• Consideration of ESG topics listed
in GRI and SASB standards
The following list of potential material topics
was compiled through this process. Topics
were assessed according to their importance
to Nanosonics’ key stakeholders and their
impact on the Company, economy, society
and the environment.
This ESG report focuses on the priority topics
that have been identified.
• Economic value generated and distributed (as described by GRI)
• Enhancing customer experience
• Ensuring traceability
• Entering new markets
• Ethical marketing
• Fair trading and competition
• Labour, environmental and social practices in the supply chain
• Political contributions
• Product safety and quality
• Regulation and relationships with regulatory bodies
• Talent recruitment and retention
• Tax strategy
• Training and education
• Work, health and safety
19
Nanosonics Annual Report 2019 Providing access to new technologies
for infection prevention and better
patient care
Nanosonics has developed a novel high level
disinfection technology, trophon, to address
the critical and unmet needs of the many and
increasing number of patients who undergo
ultrasound procedures every day.
Ultrasound diagnosis technology continues to
grow as an important medical diagnostic and
therapeutic procedure throughout the world.
For example, ultrasound is used routinely
in obstetrics and gynaecology, radiology,
cardiology, critical care and the operating
theatre, along with many other specialty
areas of care.
Healthcare associated infections (HAIs) are
a significant healthcare issue worldwide and
are considered the most frequent adverse
event in healthcare.1 HAIs cause significant
patient morbidity and mortality and are
a large burden upon the healthcare system,
the economy and broader society.
As reusable medical devices, ultrasound probes
present a potential source of cross-infection
in hospitals and medical practices where
pathogenic organisms can be spread from
one patient to another. Studies have linked
the increased use of ultrasound procedures
to an increased incidence of cross-infection.2
Risk of cross-contamination
with ultrasound probes is
well established:
• 0.9-9% of barrier sheaths and
condoms leak 3
• A meta-analysis has shown that
12.9% of tranducers are contaminated
with pathogenic bacteria following
routine disinfection 4
• HPV, a known cause of cervical cancer,
has been found on up to 7.5% of
transvaginal ultrasound transducers
following routine disinfection 5
• A fatal case of Hepatitis B and
non-fatal case of Hepatitis C
have been attributed to improper
ultrasound transducer disinfection 6,7
• Ultrasound transducer handles
are not routinely disinfected and
can harbour harmful pathogens,
including MRSA 8
• Six-year population-level study
demonstrates increased risk
of infection and antibiotic
prescriptions following semi-critical
ultrasound procedures 2
Pathogenic bacteria, viruses and fungi
can survive on the surface of ultrasound
probes for extended periods if the probes
are not cleaned and disinfected effectively.
If ultrasound probes are not correctly
disinfected, there is a risk of transmission
of potentially harmful infectious agents
such as multi-drug resistant bacteria, blood
borne viruses (e.g. hep B, HIV) or sexually
transmitted infections such as chlamydia,
gonorrhoea or human papillomavirus.
Higher risk ultrasound procedures such
as those where the ultrasound may
contact broken skin, mucous membranes
or sterile tissue require a minimum of high
level disinfection. The sensitive electronics
in ultrasound probes mean they cannot
generally undergo sterilisation in a steam
autoclave and thus must be addressed
though low temperature methods such
as high level disinfection. Many high level
disinfection processes involve the use of
potentially hazardous chemicals which
can pose a health risk to patients and
staff through direct contact or inhalation.
References
1. Currie, K., et al. (2018). "Understanding the patient experience of health care–associated infection: A qualitative systematic review." American Journal of Infection Control 46(8): 936-942. 2. Scott
D, Fletcher E, Kane H, et al. Risk of infection following semi-invasive ultrasound procedures in Scotland, 2010 to 2016: A retrospective cohort study using linked national datasets. Ultrasound.
2018;26(3):10. 3. Vickery K, Gorgis VZ, Burdach J, et al. Evaluation of an automated high-level disinfection technology for ultrasound transducers. J Infect Public Health. 2014;7(2):153-60. 4. Leroy S.
Infectious risk of endovaginal and transrectal ultrasonography: systematic review and meta-analysis. J Hosp Infect. 2013;83(2):99-106. 5. Ma ST, Yeung AC, Chan PK, et al. Transvaginal ultrasound
probe contamination by the human papillomavirus in the emergency department. Emerg Med J. 2013;30(6):472-5. 6. Ferhi K, Roupret M, Mozer P, et al. Hepatitis C transmission after prostate
biopsy. Case Rep Urol. 2013;2013:797248. 7. Medicines and Healthcare products Regulatory Agency (MHRA). Medical Device Alert. Reusable transoesophageal echocardiography, transvaginal and
transrectal ultrasound probes (transducers) Document: MDA/2012/037. 2012. 8. Ngu A, McNally G, Patel D, et al. Reducing Transmission Risk Through High-Level Disinfection of Transvaginal
Ultrasound Transducer Handles. Infect Control Hosp Epidemiol. 2015;36(5):1-4.
20
Environmental, Social and Governance (ESG) Nanosonics’ patented trophon technology
provides a new and effective way to achieve
high level disinfection of ultrasound probes
which does not damage the sensitive probe
surface, nor expose patients, staff or the
environment to dangerous chemicals.
It works by generating a sonically activated,
supercharged hydrogen peroxide (H2O2)
mist within the chamber. The probe is held
in the chamber where the mist accesses all
surfaces of the probe and its handle, killing
bacteria, mycobacteria, viruses and fungi.
Additionally, trophon has been demonstrated
to inactivate forming Clostridium difficile
spores in laboratory tests and has also been
demonstrated to be effective in inactivating
the cancer-causing human papillomavirus.
The trophon reprocessing standard contributes
to the efficient workflow of the hospital or
medical centre through a fast seven-minute
cycle. Digital traceability RFID technology
(AcuTrace™) captures and records operator,
probe and cycle data to meet customer
compliance requirements.
Nanosonics produces a range of accessories
and consumable products across the
reprocessing cycle. These include companion
wipes facilitating the cleaning of organic
material, microbial load, gel and other soils
on the surface of probes before the high level
disinfection process delivered by the trophon
device, probe covers and connectivity solutions
and services to allow customers to manage
their reprocessing records.
Nanosonics’ strategy for geographic
expansion of access to its technology
To meet the increasing global demand
for access to Nanosonics’ technology, the
Company is actively expanding the geographic
footprint of its trophon sales and marketing
activities globally through direct and
distributor channels.
Nanosonics is the market leader in a number
of critical and influential global markets,
setting the standard of care in Australia/New
Zealand and North America. The Company’s
global footprint also spans Europe, Asia Pacific
including Japan, and the Middle East.
It has an active R&D program, including the
further evolution of the trophon2 technology
and the development of new products for
infection prevention in the clinical setting.
Nanosonics has a dedicated team of clinical and
microbiology specialists focused on ongoing
research contributing to increasing knowledge,
understanding and education in fields relevant
to infection prevention for existing and
new technologies.
Research and development expenditure
continued to increase year on year to
$11.4 million in FY19; an increase of 15%
over the previous year (2018: $9.9 million).
Innovation to deliver improved
standards of patient care
Ensuring product safety, quality
and reliability
Innovation is at the core of Nanosonics’
business strategy and day-to-day operations.
The cutting edge technology used in trophon
has disrupted the disinfection market and was
the first major innovation in ultrasound probe
high level disinfection for more than 20 years.
Nanosonics consults closely with customers
in the development of new products and
the further development of existing product
lines, responding to the needs of patients
and healthcare providers.
Nanosonics protects it unique technology
through coverage 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. It has an
active program to continue to protect the IP
in its technology.
Nanosonics has a large research and
development team based in Australia with
activities across mechanical, electrical, systems
and software engineering, microbiology
and chemistry.
Nanosonics is vigilant about the safety of
its products from the R&D phase through to
their use in the care of patients, and the final
disposal of products and recycling of parts.
Patients and staff are protected throughout
the probe disinfection process. The trophon
delivers nebulised hydrogen peroxide within
a sealed chamber. The hydrogen peroxide is
supplied and added to the chamber in a sealed
cartridge and is ultimately broken down into
harmless water and oxygen following the
disinfection process.
Nanosonics conducts extensive laboratory
testing to validate the effectiveness of its
products. The trophon technology goes beyond
the minimum subset of microorganisms
mandated by the regulatory authorities
to have efficacy against a broad range of
infectious pathogens.
Nanosonics’ ISO 13485 compliant Quality
Management System is vitally important to
its continuing success in the production of
advanced high level disinfection technology.
TROPHON IS PROVEN EFFECTIVE AGAINST A WIDE RANGE OF MICROORGANISMS
Vegetative bacteria
Carbapenem-resistant
Escherichia coli
Enterococcus hirae
Methicillin-resistant
Staphylococcus aureus
Neisseria gonorrhoeae
Pseudomonas aeruginosa
Staphylococcus aureus
Vancomycin-resistant
Enterococcus
Mycobacteria
Mycobacterium terrae
Mycobacterium avium
Bacterial endospores
Bacillus cereus
Bacillus subtilis subsp. spizizenii
Geobacillus stearothermophilus
Fungi
Candida albicans
Aspergillus (niger)
Viruses
Adenovirus
Hepatitis C virus surrogate
(Bovine viral diarrhea virus)
Human hepatitis B virus surrogate
(Duck hepatitis B virus)
Human immunodeficiency virus
Human papillomavirus
(HPV16 and HPV18)
Poliovirus
Chlamydia
Chlamydia trachomatis
21
Nanosonics Annual Report 2019 In the past year Nanosonics’ workforce
increased by 27% to 286 employees globally
to meet the needs of the growing business.
286
employees globally
205
62
19
Other
North
America
Australia
Total
LOCATION/NUMBER OF
EMPLOYEES (30 JUNE 2019)
Nanosonics’
workforce increased
27%
women represented
36%
30% in senior
management positions
(2018: 29%)
17% at Board level
(2018: 17%)
22
Engaging our people in an inclusive, safe
and healthy workplace
This year the Company completed its first
employee engagement survey, “Your Voice:
Make it Heard”. The completion rate was
84.9% (industry average being 72%) and
it contained a number of important insights
as well as confirming a high level of employee
satisfaction and engagement.
Nanosonics’ Diversity Policy encourages
diversity at all levels of the organisation
as a means of facilitating an appropriate mix
of skills and talent to conduct its business.
It believes that the pursuit of diversity in
the workplace increases its ability to attract,
retain and develop the best talent available,
creates an engaged workforce, delivers the
highest quality services to its customers,
enhances individual work-life balance,
encourages personal achievement, improves
co-operation and assists in the optimisation
of organisational performance.
Subject to the size and operations of
the Company, the Board is committed to
setting appropriate measurable objectives
for the long-term goal of improving gender
representation across all levels of
the organisation.
During the year, the Company made progress
against its FY19 diversity objectives relating
to hiring (appointing a dedicated talent
acquisition manager who applied defined
selection criteria for all roles in line with the
Company’s anti-discrimination principles),
training (two female senior executives were
provided financial support and workplace
flexibility), career advancement (female senior
manager attended mentoring program to
assisting career development) and the work
environment (bullying and harassment training
for all staff) which were set.
As at 30 June 2019, women represented 36%
(2018: 35%) of Nanosonics’ workforce, 30%
in senior management positions (2018: 29%)
and 17% at Board level (2018: 17%). Nanosonics
defines senior management for this purpose as
those who directly report to the CEO and those
positions that report to the CEO’s direct reports.
There have been 10 Internships/Graduate
roles during the reporting period; four female
and six male.
There are 30 nationalities represented across
the organisation.
Nanosonics supports its employees to
further develop their professional capabilities
in order to extend their roles in the Company.
To date there are four female staff undertaking
professional leadership development or higher
level tertiary education in management.
Nanosonics is an equal opportunity employer
and remunerates women and men equally.
Gender pay equality is achieved through
a formal process of salary benchmarking
all roles according to the role and the industry.
Management is held accountable for ensuring
pay equity outcomes from the formal
remuneration review process.
The Company has a WHS Committee which
oversees the Company’s WHS safety metrics
and goals. In FY19, 100% of staff received
relevant WHS training, which included
laboratory safety training, chemical awareness
training, and education and support focused
on active prevention strategies to prevent
repetitive strain injuries and musculoskeletal
disorders. There were 12 minor incidents
reported in the period (all of which were
closed) and no time was lost due to any
workplace injury.
The Company’s diversity objective for FY20 are as follows:
• The pay for a specific job type and level will be the same regardless of gender or cultural
background taking relevant experience and skills into consideration
• Target 30% women at Board level and improve the current 30% for senior management
• Integrate diversity principles into the Company’s recruitment framework by
incorporating a diversity statement on all job advertisements globally and ensuring
training for all hiring managers on diversity awareness, recognising unconscious bias,
inclusive job description writing and best practice recruitment activities
• Seek to ensure the Company has a balanced selection of final round candidates, taking
into account the principles of diversity (as described in the Company’s Diversity Policy),
for all Board and senior management roles, and seek to ensure there is diversity in the
selection panel for each
• Target that 50% of all interns who are offered positions with the Company from the
Nanosonics University Program are women
• Continue to implement programs that prepare selected high potential females to take on
senior roles within the business both in operational and specialist support areas
Environmental, Social and Governance Ensuring a culture of ethical behaviour
Anti-competitive behaviour
Nanosonics’ response to climate change
Nanosonics’ Code of Conduct and Ethics
sets out the obligations placed on all of its
directors, executives, employees, advisors,
contractors and consultants. They are
expected to act with integrity and objectivity
and to maintain the highest possible ethical
standards in the Company’s interactions with
its stakeholders and the environment in which
the Company operates.
Nanosonics does not tolerate any form of
harassment or discrimination against personnel,
customers, suppliers or other third parties.
Bribery and corruption
Like all industry participants, Nanosonics’
activities could potentially expose the Company
and staff to the risk of bribery and corruption.
Nanosonics conducts business in an ethical and
honest way and considers the risk to be low.
Nanosonics’ Anti-bribery and Anti-corruption
Policy applies “zero tolerance” to acts of bribery
and corruption by Nanosonics staff and third
party representatives. There were no reports
of bribery and corruption notified in 2018/19.
Speak Up policy
Staff who raise a concern about possible
bribery and corruption, fraudulent, illegal or
other behaviour by other Nanosonics staff,
that is contrary to the Company’s policies, may
raise their concern through line management.
Where this is not suitable, they may contact
a Speak Up Investigation Officer or access the
Nanosonics Speak Up Portal. All concerns will be
investigated while protecting the complainant
from personal or financial disadvantage. During
the year, there were no concerns reported in
accordance with the policy.
Privacy and data security
Nanosonics is committed to protecting
the privacy of personal and third party
information and complies with the Privacy
Act 1988 and other applicable legislation in
all countries where it operates. It follows
a Privacy Policy covering the collection,
storage and use of personal information
concerning individuals and formal contractual
arrangements with third parties.
There have been no breaches of this policy
reported in 2018/19.
Political contributions
Nanosonics makes no political contributions.
Nanosonics acts fairly and honestly when
competing in the market. It complies with the
anti-competitive behaviour provisions of the
Australia Competition and Consumer Act and
other applicable legislation in all countries
where it operates. In particular it maintains
high standards regarding the quality of the
information it provides about its products
and their use through advertising and
product labelling.
Our supply chain
Nanosonics’ trophon technology is
assembled and tested ready for market
at its site in Lane Cove West, Sydney. The
component structural and electronic parts
and accessories are sourced from local and
international suppliers.
The hydrogen peroxide responsible for the
trophon disinfection process is safely contained
in cartridges which fit inside the trophon
chamber ready for use.
Nanosonics recognises the growing pressure
from stakeholders and regulators to extend its
watch on its social and environmental impacts
to take account of its supply chain.
The Australian Modern Slavery Act 2018
became effective on 1 January 2019 requiring
businesses, including Nanosonics, to report
annually on their efforts to identify and
address any slavery risks in their operations
and supply chains. Nanosonics’ first report
will be due by the end of 2020 and work
has commenced to identify how risks of
modern slavery practices may be present in
its operations and supply chains.
Protecting the environment
Nanosonics is committed to minimising
its impact on the environment at all stages
throughout the life cycle of its products.
This is elaborated on in its Environment,
Health, Safety and Sustainability Policy.
Nanosonics is responsible for a very low level
of natural resource consumption, including
energy and water in the production and use
of its products. It has minimal impact on the
environment through emissions or the disposal
of waste. Nanosonics leases accommodation at
Lane Cove which includes supply of electricity
through renewable sources and water and
these are not metered separately.
Nanosonics ensures minimum environmental
impact during operation of the trophon.
Hydrogen peroxide used is broken down
following the disinfection process to
water and oxygen. Extensive leak testing
is undertaken to ensure safety of the
environment as well as patients and staff.
The science of climate change is unequivocal
and recent reports of the Intergovernmental
Panel on Climate Change have emphasised
the imperative to limit the further increase
in the global average surface temperature to
below 2.0°C, preferably below 1.5°C. This is
being incorporated into international practice
through the Paris Agreement on Climate
Change to which Australia is a signatory.
Nanosonics does not belong to one of the
industry sectors identified as facing the highest
climate change risks. Nevertheless it recognises
that there are transition risks such as regulatory,
supply chain, and transportation risks which
may impact future operations. It continues to
be mindful of emerging government policies
and advances in scientific understanding which
may indicate emerging climate change risks
or opportunities for Nanosonics. Whilst its
operations make only a very small contribution
to greenhouse gas emissions, Nanosonics
utilises energy from solar panels on the
roof of its Lane Cove premises.
Contributions to the community
As a good corporate citizen, Nanosonics seeks
to make contributions to the communities
in which it operates which go beyond its
specific contributions to patient care and
the economic value distributed through
payments to employees, shareholders,
government and suppliers.
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. It also supports
workplace giving via a Corporate Citizen
Program which enables employees to select
a charity and have donations automatically
deducted from their remuneration.
Financial performance
The Company’s strong financial performance,
reported elsewhere in this Annual Report,
provides an indication of the direct economic
value generated for the communities in which
the Company operates. Economic value is
also distributed through its operating costs,
employee wages and benefits and payments
to the government (i.e. taxes).
23
Nanosonics Annual Report 2019 trophon® – the
reprocessing standard
for ultrasound probe
high level disinfection
Ultrasound imaging is one of the most widely used and rapidly
growing global diagnostic tools. With the ever-increasing challenges
in the fight against the spread of Healthcare Associated Infections
(HAIs), trophon is the global standard in ultrasound probe high level
disinfection and reprocessing.
More than 70,000 patients a day are now protected from the
risks of cross-contamination with trophon’s powerful automated
disinfection technology.
Why high level disinfection is important
To reduce the risk of cross-infection, many
global guidelines, standards and Ministry of
Health directives now recommend the high
level disinfection of ultrasound probes used
in semi-critical procedures. This includes both
intracavitary (internal examination) procedures
and surface ultrasound procedures (external
examination) involving non-intact skin.
Studies have demonstrated that traditional
methods of disinfection, such as soaking in
chemicals, spraying or wiping, are inefficient,
environmentally unsound and ineffective.
Nanosonics’ trophon technology is clinically
proven to inactivate an extended range
of clinically infectious pathogens, including
multi-drug resistant bacteria, blood borne
viruses (Hep B, HIV) or sexually transmitted
infections such as chlamydia, gonorrhoea
or human papillomavirus.
Unlike other reprocessing 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 and toxic chemicals.
trophon: safe and easy to use
Point of care ultrasound has become a
cornerstone in the diagnosis and treatment
of patients in the emergency department,
intensive care and obstetrics and gynaecology
in both hospitals and private clinics.
This significantly broadens the scope for
trophon usage and is a major benefit that we
are leveraging as we look to drive increased
penetration and expansion across markets.
The fully enclosed system means trophon
can be placed at the point of care where
examinations are carried out. This maximises
patient throughput and cost effectiveness.
Together, with its range of consumables
and accessories, trophon is ideally positioned
to meet high level disinfection requirements
at the point of care.
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. These fine
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 a high level disinfection system that is
validated for use on their ultrasound probes is an
important consideration for healthcare providers.
Nanosonics works collaboratively with probe
manufacturers to carry out extensive probe
compatibility testing. More than 1,000 surface
and intracavity ultrasound probes from all major
and many specialist probe manufacturers are
approved for use with trophon.
24
Reduces risk
Delivers protection for patients, without
exposing staff and the environment to
toxic and dangerous chemicals.
Improves clinical workflow efficiency
Streamlines set-up, can be customised to
clinic workflows and has extensive probe
compatibility with more than 1,000 probes
approved for use with trophon.
Increases compliance
Enhances and simplifies user experience,
delivering automated high level
disinfection at the press of a button.
Increases audit-readiness
Digital traceability RFID technology
(AcuTrace™) records operator, probe and
cycle data to capture and demonstrate
user compliance.
Data connectivity
AcuTrace™ PLUS activation allows
trophon2 to integrate into a hospital
IT system.
trophon®2 trophon from a customer perspective
trophon now has thousands of customers around the world in North America, Europe, the Middle East and
Asia Pacific. This is having a fundamental and positive impact on healthcare facilities as trophon is helping
to reduce cross-contamination risks while seamlessly improving workflows to deliver the best standard of
care. Here are some of the trophon benefits experienced by our customers.
Lisa Antsy, Manager of Medical
Reprocessing at Grand River Hospital
in Ontario, Canada.
“We chose the trophon system because
it stood out from the rest. We like
the efficacy of the product and the
fact that it’s proven to kill high-risk,
cancer-causing HPV.”
Claire Jones-Manning,
Decontamination Lead, University
Hospitals of Leicester NHS Trust
which is one of biggest and busiest NHS
Trusts in the country, with 15,000 staff
serving one million residents.
“When I started as the Decontamination
Lead for the University Hospital of
Leicester NHS Trust, staff were using a
wipe system to clean the transvaginal
probes. This system cannot be
validated as an effective cleaning and
decontamination system. As this is a
manual process that relies on human
factors, we were not happy to validate
the probe had been cleaned effectively.
trophon gives me the assurance of
decontamination as you have both the
print out and the Chemical Indicator.
trophon is simple to use and for the clinic,
it’s given us standardisation. The seven-
minute disinfection cycle is not a problem
as this releases time to care for patients
in a busy clinic. Also this has given visual
reassurance to all patients as they can
see the machine in the clinics and see
the staff removing the probe before use.
We have written trophon use into our
decontamination policy as best practice
and we are looking at other areas of
ultrasound probe use to ensure they are
providing a safe, validated standard of
decontamination to all their probes.”
University Hospital
Frankfurt is the largest hospital in the
German state of Hesse and has 32 clinics
and 20 research institutes. It has more
than 4,500 employees who treat around
270,000 patients each year. The hospital
has a number of trophon2 devices across
various clinics and departments.
The Deputy Head of Purchasing at the
University Hospital Frankfurt
is Mr Axel Kudraschow.
“My wish was very clear: to use a safe,
automated, validated disinfection process,
which can be used directly at the place of
use and enables the user of ultrasound
probes to always be able to use a safely
disinfected ultrasound probe with short
process times.
Of course, the topic of patient safety
is essential for the users, meaning to
ensure the maximum protection of
patients through perfect hygiene within
a reprocessing process. This is especially
important for ultrasound probes, which
can always come into contact with the
skin, even in sensitive areas. The subject
of patient safety was and is the driving
force alongside all other benefits.
Furthermore, the safe documentation
of the ultrasound probe disinfection was
an important requirement for us, because
everything that happens in medicine
must be well described. trophon offers
a good solution for demonstrating that
the probes have been disinfected with
high efficiency. Another important aspect
was the ability to process ultrasound
probes from all major manufacturers
with this device.”
Sylvia Ford, MS, RN, CIC Infection
Prevention Nurse 2 at The University of
Kansas Health System (TUKHS), USA.
“The ability to provide high level
disinfection that is able to kill HPV at the
point-of-care is absolutely phenomenal.
It’s a huge time saver and supports safe
device reprocessing.”
Raleigh White,
CRA, RT(R), MA, Director of Imaging
Services at Hutchinson Regional
Medical Center in Kansas, USA
During Raleigh White’s 25-year career,
he’s had several Joint Commission
surveyors observe the hospital’s
trophon high level disinfection processes
and he’s been told repeatedly that
trophon high level disinfection is the
“gold standard” for maintaining patient
and user safety by reducing the risks of
cross-contamination between patients
and reducing the spread of Healthcare
Acquired Infections (HAIs).
“Everyone found the new trophon2
systems easy to operate and required
very little training because the units
are so intuitive.”
Steven Tucker, MD,
FACOG, President and Medical
Director of Advanced Menstrual Care
Center in Townson, Maryland, USA
“In the private office setting, it’s important
for me to be able to provide high-quality
ultrasound capabilities to my patients.
This, coupled with my commitment to
quality and safety, necessitates that
I use trophon2, as it is the only option
there is for complete patient safety
and full compliance. I no longer needed
to be concerned about unknowingly
contributing to the transmission of
cross-infections.”
25
Nanosonics Annual Report 2019 Board
Steven Sargent
BBus, FAICD, FTSE
Non-Executive Director, Deputy
Chairman and Lead Independent
Director
Mr Sargent joined the Nanosonics Board
in July 2016. He had a 22-year career
with General Electric and has extensive
global experience across a range of
industries, including financial services
and healthcare. He was Vice President
and Officer of GE, a member of GE’s
Corporate Executive Council and CEO
of GE Australia NZ. Mr Sargent is
currently a Director of Origin Energy,
Chairman of OFX Group, a Director of
the Great Barrier Reef Foundation and
Chairman of The Origin Foundation.
Previously, Mr Sargent was a Director
of Veda Group, a Director of Bond
University and a Director of the
Business Council of Australia.
David Fisher
BRurSc (Hons), MAppFin,
PhD, FFin, GAICD
Non-Executive Director
Dr Fisher has been a member of
the Board since July 2001. Dr Fisher
is a founding partner of Brandon
Capital Partners, a leading Australian
venture capital provider. He has more
than 35 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.
Marie McDonald
BSc (Hons), LLB (Hons)
Non-Executive Director
Ms McDonald joined the Nanosonics
Board in October 2016, bringing
with her a strong background in
corporate and commercial law, having
practised for many years as a partner
at Ashurst. Ms McDonald was Chair
of the Corporations Committee of
the Business Law Section of the
Law Council of Australia (2012 to
2013) and was a member of the
Australian Takeovers Panel from 2001
to 2010. Ms McDonald is currently
a Non-executive Director of CSL
Limited, Nufarm Limited and the
Walter and Eliza Hall Institute of
Medical Research.
26
Richard England
FCA, MAICD
Non-Execuive 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 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 and
Atlas Arteria (ASX: ALX), formerly
Macquarie Atlas Roads Limited,
from June 2010 to November 2018.
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
26 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. In the
last three years Mr Kavanagh has
held no other directorships.
Geoff Wilson
Maurie Stang
ACID, BCom, ICCA, CPA, US CPA
Non-Executive Chairman
Non-Executive Director
Mr Wilson joined the Board in July
2019. He has a breadth of local and
international executive leadership
and director experience together
spanning more than 37 years,
including many years with KPMG
in Australia, Hong Kong and the
USA. He has a strong background in
finance, audit and risk management,
as well as in Asia Pacific markets.
Mr Wilson is currently a Director of
TOLL Holdings Limited, HSBC Bank
Australia Limited, Future Generation
Global Investment Company Limited,
ipSCAPE, and Sydney Symphony
Limited. He is also an Ambassador
for the Australian Indigenous
Education Foundation.
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.
Nanosonics Annual Report 2019
2727
Executive Team
McGregor Grant
BEc, CA, GAICD
David Morris
Leanne Baxendale
Steven Farrugia
Michael Kavanagh
BBus, BAppSc, GAICD
BCom, MAHRI
BE, PhD
Chief Financial Officer
and Company Secretary
Chief Strategy Officer and
Regional President Asia Pacific
Head of People and Culture
Chief Technology Officer
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
23 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.
David was a member of the
Cochlear executive team for
more than 14 years where he
held a number of executive
positions, including Senior
Vice President of Strategy
and Business Development,
Global President for the
Cochlear Bone Anchored
Solutions Business based in
Sweden and Chief Strategy
Officer. Most recently, David
was Chief Executive Officer
and Managing Director for
Monash IVF Group Limited.
28
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. Leanne
combines her energetic
approach and business
acumen with her passion for
people and culture to help
drive commercial outcomes.
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 21 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 an 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.
BSc, MBA (Advanced)
CEO, President and
Managing Director
Michael joined Nanosonics as
CEO and President effective
October 2013. He was a
Non-executive Director of
the Board from July 2012
to October 2013. Michael
has more than 26 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.
Rod Lopez
Ronan Wright
MBA, BEng (Hons), GAICD
Chief Operating Officer
Regional President Europe /
Middle East / Africa (EMEA)
Ronan will join Nanosonics on
9 September 2019 and has more than
20 years’ experience in the infection
prevention market. Previously he
worked with Wassenburg, a global
leader in endoscopy reprocessing.
Most recently he was the Vice President
of Global Sales and a Board member.
Prior to that, Ronan was the Managing
Director of Wassenburg Ireland and
Business Unit Director at Wassenburg
Medical B.V.
Rod is an international operations
executive with over 20 years of
experience, having held critical roles
in companies such as Cochlear and
GM Holden. During his 13-year tenure
at Cochlear, Rod held transformative
roles such as Global Head of
Manufacturing and Chair of the
Operational Excellence Strategy
Group. At GM Holden, Rod held senior
management roles such as Launch/
Operations Manager of Holden’s
$400m HFV6 engine plant, and
Global Customer Liaison Manager.
Rod is also an award-winning
academic with continuing Adjunct
Faculty appointments for over
12 years with MGSM, AGSM and
the University of Sydney
Business School.
Ken Shaw
BSc Finance
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.
Renee Salaberry
MBA, GAICD
Chief Marketing Officer
Renee joined Nanosonics in January
2019. She is a highly experienced
international marketer having launched
and developed brands for major global
clients including Pfizer, Nestle, and
GE Healthcare. Renee has held senior
executive roles including Executive
Vice President and Worldwide Strategy
Director for one of the world’s largest
advertising agencies, Leo Burnett
based in Chicago, and as Worldwide
Chief Strategy Officer for the Publicis
Healthcare Communications Group
based in Paris. Renee was Strategic
Planning Director for Saatchi & Saatchi
Health, APAC. She has held marketing
and finance roles for Merck, Sharp &
Dohme and the Commonwealth Bank.
Most recently, Renee was Head of
Marketing for Abbott Nutrition, ANZ.
Nanosonics Annual Report 2019
29
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 2019, 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® 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 for the year amounted to $84,324,000 (2018: $60,698,000),
an increase of $23,626,000 or 39%. North American revenue increased
by $22,105,000 or 41% to $76,511,000, reflecting a 29% increase
in capital revenue and a 50% increase in consumables and service
revenue. Revenue in Europe and Middle East increased by $819,000
or 27% to $3,802,000, with capital revenue increasing by 21% and
consumables and service revenue increasing by 30%. Revenue in
Asia Pacific amounted to $4,011,000, an increase of 21% or $702,000
compared with the previous year, with capital revenue increasing by
29% and consumables and service increasing by 20%.
Gross profit increased by 39% to $62,816,000 compared with
$45,291,000 in the prior period. Gross margin as a percentage of sales
was 74.5% compared with 74.6% in the previous year.
Selling, general and administration expenses (SG&A) were $37,805,000
(2018: $32,689,000). The increase in SG&A of $5,116,000 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 including the hiring of new executives
to support a growing global organisation, and the transition of a
distributor to a new agreement from 1 July 2019.
Research and Development expenses (R&D) for the year were
$11,375,000, an increase of over 15% compared with $9,882,000
in 2018. This increase is in-line with the Company’s commitment to
strategic investment in R&D targeted at design and development
activities associated with a novel solution aimed at addressing
unmet needs in the infection prevention field, as well as the ongoing
development of the trophon technology.
Other income for the period amounted to $24,000 (2018: $93,000).
Other gains amounted to $1,842,000 (2018: $1,549,000) and comprised
mainly of net gain in foreign currency.
Finance income amounted to $1,571,000 (2018: $1,279,000) which
related to interest earned on cash and cash equivalents. Finance
expense for the year of $243,000 related to interest on leases and
the financing component on cash received in advance on customer
contracts, Finance expense in 2018 amounted to $58,000 and related
interest on leases.
Income tax expense for the period was $3,228,000 and compares with
an income tax benefit of $168,000 in 2018. Following an assessment of
the Group’s Canadian and UK operations, it has been determined that
taxable profits will be generated by the Canadian and UK subsidiaries
against which carried forward tax losses and deductible temporary
differences will be realised. Accordingly, previously unrecognised
deferred tax assets in relation to the Canadian and UK entities
were recognised as a non-current asset to the extent of available
future taxable profits in the near term. 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 $13,602,000
(2018: $5,751,000).
The Group ended the year with $72,180,000 (2018: $69,433,000) in
cash and cash equivalents, an increase of $2,747,000. The cash and cash
equivalents balance provides a strong balance sheet for the Company to
continue executing on its growth strategies.
Cash flow for the year was impacted by an increase in trade and other
receivables of $11,087,000 due to aligning payment terms with a key
distributor with our standard payment terms and the timing of sales
and payments by that distributor, and an increase in inventory of
$5,082,000 associated with the launch of trophon2.
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 16 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 2019 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.
30
Directors’ report
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Significant
distribution
customer
Research and
Development and
commercialisation
Competition
Intellectual Property
The Group’s key distribution customer accounts for
approximately 54% of the Group’s revenue (see note 2.2 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 agreement
which came into effect from 1 July 2019.
Nanosonics currently has a platform technology, trophon,
and recognises the need to expand its product portfolio
by creating new products. Development and subsequent
commercialisation of any new product requires a significant
amount of investment (time, money and resource
commitment) and is necessarily uncertain. New products
are also likely to require a range of regulatory approvals.
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
impact the rate of adoption of trophon, cause trophon to
lose existing market share, or 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 litigation for
alleged infringement by Nanosonics, the need to prosecute
third party infringers of Nanosonics’ IP, the expiry of
Nanosonics’ registered IP, and the risk of being unable to
register the underlying subject matter or processes in any
new products.
Supply chain
Regulation
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, and those
regulations differ throughout the countries in which the
Company operates and also change. 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
potentially compromising the Company’s ability to sell
products, and/or result in an adverse event such as a
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, as well as
research and development with a view to diversifying its
product portfolio.
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, as well as customers, to determine the focus of its R&D
efforts.
To address this risk, the Company has invested in R&D for the
second generation of trophon, trophon2, which was released
to the market during the period, and continues to invest
heavily in product diversification. The trophon2 is now sold in
a number of key markets, and regulatory approvals continue
to be obtained in new markets.
Nanosonics seeks appropriate patent, design and trade
mark protection and manages any identified IP risks. Along
with internal personnel to manage IP opportunity and risk,
Nanosonics works closely with specialists and advisors
internationally to monitor and manage its IP opportunities
and risks.
The 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 do
not expire until 2029. The Group has an active program to
continue to protect the IP in its technology, as well as develop
other barriers to entry.
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 worldwide Quality
Management System to manage this risk, and invests in
highly qualified personnel. Nanosonics monitors the changing
regulatory landscape in the countries in which it operates,
and ensures that its operations adjust to any changes which
apply to it.
31
Nanosonics Annual Report 2019 Directors’ report
Risk
Financial
Product liability
Personnel
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
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 8 to the
financial statements.
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.
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 and retaining key talent, including scientific
and engineering talent.
The Company has programs in place both for WHS and the
attraction and retention of talent.
Cyber security and IT Nanosonics recognises the increasing risk associated with
cyber security and the potential impact on the Company’s
operations. A cyber security incident could lead to a breach
of privacy, loss and/or corruption of commercially sensitive
data, and/or a disruption of critical business processes.
This may adversely impact customers and the Company’s
business activities.
The Company also recognises the need to ensure
operations can continue in the event of a disaster
impacting its critical IT systems.
Nanosonics has a cyber security strategy and disaster
recovery plan which it continues to implement with a view to
safeguarding the business against these risks.
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 16 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 2019. No dividends were proposed, declared or paid
during the financial year (2018: Nil).
The Board reviews 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 2019 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 16 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. Further
information is set out in the Environmental, Social and Governance disclosures on pages 17 to 23 to this Annual Report.
Directors and Company Secretary
During the year, the Board of Nanosonics Limited comprised Maurie Stang, David Fisher, Richard England, Michael Kavanagh, Steven Sargent and
Marie McDonald. Geoff Wilson joined the Board as an independent Non-executive Director on 17 July 2019. During the year and to the date of this
report, McGregor Grant is the Company Secretary. Mr Rob Waring was a Co-Company Secretary until 19 July 2018.
As at the date of this report, Nanosonics Limited has the following committees of the Board: Audit and Risk, Remuneration and People, Nomination, and
R&D and Innovation. Details of members of the committees of the Board during the year are included and on page 36 in the Remuneration report.
Information on the Directors, Company Secretary and the executive team is a part of the Directors’ report and can be found on page 36 in the
Annual Report.
32
Directors’ report
Meetings of Directors
The number of Directors’ meetings, including meetings of the committees, held during the year ended 30 June 2019, 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
& People
R&D and
Innovation 2
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
10
10
10
10
10
10
10
10
10
10
10
10
4
4
4
4
4
4
4 1
4
4
4 1
4
4 1
2
2
2
2
2
2
2
2
2
2
2
2 1
5
5
5
5
5
5
5
5
5 1
5
5
5 1
3
3
3
3
3
3
3
2 1
3
3
2 1
3
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Michael Kavanagh
1. Attended in part or in full in ex-officio capacity.
2. In addition to the R&D and Innovation Committee meeting held during the year, R&D matters were considered on a regular basis at Board meetings.
Share-based payments
Shares issued 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 2019 and to the date of this report, the Company issued a total of 622,200 (2018: 1,612,124) 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 2019, there were 299,967,279 (2018: 299,345,079) ordinary shares in Nanosonics Limited on issue. At the date of this report, there were
299,967,279 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, 498,134 (2018: 760,994) unquoted performance rights and 1,392,296 (2018: 840,978) unquoted share options over unissued
ordinary shares in Nanosonics Limited. Further information on the grants is in share-based payments note 4.3 to the financial statements.
Shares under option
At the date of this report, there were 4,003,629 unissued ordinary shares of Nanosonics Limited under option as detailed below. As at 30 June 2019,
there were 4,003,629 (2018: 3,259,953) 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 2019 and to the date of this report
Number of shares under option
3,618,841
384,788
4,003,629
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.
33
Nanosonics Annual Report 2019 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 10.5 to the
financial statements.
Officers of the Company who are former audit partners of
Ernst & Young
There are no officers of the Company who are former audit partners of
Ernst & Young.
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
Remuneration
The Remuneration Report forms part of this Director’ Report.
The Directors’ report, which includes the review of operations in
the CEO’s report and the Regional highlights (on pages 6 to 16), the
Information on the Board and the Executive Team (on pages 26 to
29) and the Remuneration Report (on pages 35 to 54), is made on 27
August 2019 and signed in accordance with a resolution of Directors,
pursuant to section 298(2) of the Corporations Act.
Richard England
Director, Sydney
27 August 2019
Directors’ report
Indemnifying officers or auditor
During the financial year, the Company paid insurance premiums to
insure the Directors and secretary and KMP of the Company and its
controlled entities.
The liabilities insured are legal costs that may be incurred in defending
civil or criminal proceedings that may be brought against the officers
in their capacity as officers of entities in the Group, and any other
payments arising from liabilities incurred by the officers in connection
with such proceedings. This does not include such liabilities that arise
from conduct involving a wilful breach of duty by the officers or the
improper use by the officers of their positions or of information to gain
advantage for themselves or someone else or to cause detriment to the
Company. It is not possible to apportion the premium between amounts
relating to the insurance against legal costs and those relating to other
liabilities.
The Directors have not included in this report the amount of the
premium paid in respect of the insurance policy, as such disclosure is
prohibited under the terms of the contract.
To the extent permitted by law, the Company has agreed to indemnify
its auditors, Ernst & Young, as part of the terms of its audit engagement
agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst &
Young during or since the financial year.
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.
Rounding
The amounts contained in this report and in the financial report have
been rounded to the nearest thousand dollars ($’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.
34
Remuneration report – audited
Letter from the Chair of the Remuneration & People Committee
Dear Shareholders,
On behalf of the Remuneration & People Committee and the Board,
I am pleased to present the Remuneration Report for the year ended 30
June 2019.
The 2019 Financial Year was another successful year for the Company.
Record sales and operating income before tax were achieved, and
significant progress was made in the development of new products.
Over the course of the year, this progress was reflected in the
Company’s share price which has increased by 78% during FY19 –
a reflection of our team’s progress against its strategic agenda.
During the year the Company implemented a simpler remuneration
framework aimed at providing a clear line of sight between Company
performance and remuneration outcomes, as well as driving deep
alignment between the interests of employees and shareholders. The
Remuneration & People Committee will regularly review the Company’s
remuneration framework to assure its fitness for purpose in a constantly
changing business context. With that in mind, we expect to see further
refinements to encourage alignment with shareholder experience during
the 2020 Financial Year, including the introduction of new Employee
Share Purchase Plans. The Company has introduced a policy requiring
a minimum level of share ownership by Non-executive Directors and
Executive Key Management Personnel to further ensure full alignment
with our shareholders.
In the second half of the year, the executive capability of the business
has been enhanced by the appointment of four new Executives,
including Regional Presidents in Asia Pacific and Europe/Middle East.
All four individuals have deep experience in the medical device industry.
The executive remuneration outcomes are detailed in Section 4 of this Report
and show that the overall achievement of FY19 Short-Term Incentive was at
80.3%, reflecting a solid performance against the Company and Individual
Performance Objectives that were set by the Board.
During the year, the Remuneration & People Committee engaged
a consultant, Laurie Wood at HR Ascent Pty Ltd, to provide
benchmarking data to assist the Committee review the remuneration
of the Non-executive Directors, which has remained unchanged since
1 July 2016. Three peer groups were considered, being healthcare sector
companies, all industries (excluding finance and resources) with a
similar market cap, and the ASX 200 (excluding finance and resources).
As a result of this review, and taking into consideration the increased
workload of the Board, the Board considered it appropriate to increase
annual base fees to $100,000, with the Chairman’s fee increased
to $225,000, and the Deputy Chairman’s fee increased to $135,000.
Adjustments were also made to increase the Committee Chair fees
to $20,000, as well as introduce a fee for Committee membership
of $10,000 for each member. Overall, I believe these increases are
appropriate, reflective of the market and are commensurate with the
continued growth and increasing complexity of the business. Further,
the total amount of fees paid to Non-executive Directors is within the
aggregate amount approved at a general meeting of the Company on
4 November 2016 of $1,000,000 a year.
In addition, HR Ascent Pty Ltd conducted a benchmarking in relation
to the CEO & President’s remuneration. Following this review, the
Board approved an increase of the CEO & President’s base salary from
$620,000 p.a inclusive of superannuation to $700,000 p.a. plus statutory
superannuation.
The business has a strong and positive culture. The Board believes
this is a function of a number of factors, including the high quality of
the Company’s leaders, as well as the balanced and fair approach to
remuneration. This was reflected in the results of Nanosonics Global
Engagement Survey which was conducted for the first time in August
2018 where the Company scored 16% above industry average in
relation to “believing in Company mission”. On behalf of the Committee,
I look forward to seeing more positive results when the survey is
conducted again in August 2019.
Steve Sargent
Chairman, Remuneration & People Committee
Contents
The Remuneration Report for the year ended 30 June 2019 (2019 Financial Year or FY19) forms part of the Directors’ Report. Except as otherwise
noted, it has been prepared in accordance with the Corporations Act 2001 (Cth) (the Act) and in compliance with AASB124 Related Party Disclosures,
and audited as required by section 308(3C) of the Act.
The report is divided into the following Sections:
1 People covered by this report
2 Remuneration philosophy and link to business strategy
3 Executive remuneration framework and overview of incentive plans
4 Executive remuneration outcomes
5 Statutory disclosures
6 Executive service agreements
7 Remuneration governance
8 Non-executive Director remuneration
9 Key Management Personnel transactions
35
Nanosonics Annual Report 2019 Remuneration report – audited
1.0 PEOPLE COVERED BY THIS REPORT
This report covers Key Management Personnel (KMP) which are defined as those who have the authority and responsibility for planning, directing
and controlling the activities of Nanosonics. During the year the definition of KMP was reviewed and it was determined that the individuals identified
in the table below were considered to be the KMP of the Company.
Name
Position 1
Non-executive Directors
Change in 2019 Financial Year
Maurie Stang
Steven Sargent
Richard England
David Fisher
Marie McDonald
Executive Director
Michael Kavanagh
Executive KMP
Chairman; Chairman, Nomination Committee;
Member, Remuneration & People Committee;
Member, R&D and Innovation Committee
Deputy Chairman; Lead Independent Director;
Chairman, Remuneration & People Committee;
Member, R&D and Innovation Committee;
Member, Nomination Committee
Director; Chairman, Audit and Risk Committee;
Member, Remuneration & People Committee;
Member, Nomination Committee
Director; Chairman, R&D and Innovation Committee;
Member, Audit and Risk Committee; Member,
Nomination Committee
Director; Member, Audit and Risk Committee;
Member, Remuneration & People Committee;
Member, Nomination Committee
Chief Executive Officer & President (CEO&P) and
Managing Director;
Member, R&D and Innovation Committee
McGregor Grant
Chief Financial Officer (CFO) and Company Secretary
Steven Farrugia
Chief Technology Officer
David Morris
Chief Strategy Officer and Regional President, APAC
Appointed Chief Strategy Officer and Regional President,
APAC on 4 February 2019
Rod Lopez
Chief Operating Officer
Appointed Chief Operating Officer on 4 March 2019
Gerard Putt
Chief Operations Officer
Ceased being a KMP from 4 March 2019
Ken Shaw
Regional President, North America
It was determined that Mr Shaw was a KMP effective
from 1 July 2018
1. Position held for full year and to the date of the Directors’ Report, unless otherwise stated.
2.0 REMUNERATION PHILOSOPHY AND LINK TO BUSINESS STRATEGY
Nanosonics is a high growth medical technology company with operations in nine countries. Nanosonics’ executive remuneration strategy is designed
to attract, retain and motivate a highly qualified and experienced group of executives.
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 believes that Nanosonics’ remuneration strategy is to provide ‘fair and appropriate’ remuneration based on a risk and reward framework
that supports its business strategy in the short and long-term. A detailed explanation of the Company’s executive remuneration framework is
provided in section 3.
36
Remuneration report – audited
3.0 EXECUTIVE REMUNERATION FRAMEWORK AND OVERVIEW OF INCENTIVE PLANS
3.1 Executive remuneration framework
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 remuneration
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
Total Shareholder Return
outperformance measures.
Base salary plus any fixed elements
related to local markets, including
superannuation or equivalents.
TFR will generally be positioned at the
median compared to relevant market
based data taking into consideration
expertise and performance in the roles.
Delivery
Part cash and part equity. The equity
component is deferred for 1 year
and remains ‘at risk’ until vesting.
The resulting equity is held as restricted
shares for a further year.
Strategic intent and marketing positioning
Performance incentives are directed to
achieving demanding growth targets.
TFR + STI is intended to be positioned
competitively when compared to
groups of similar companies.
Equity is held subject to
performance and service
over a 3 year measurement period.
The equity is ‘at risk’ until vesting.
LTI is intended to align executive
KMP with the Company’s
long-term growth strategy and
shareholders’ interests.
Total remuneration is intended to be positioned competitively when compared to relevant market and internal relativities
3.2 Target remuneration mix
The remuneration mix for each executive KMP is weighted to provide an appropriate balance between fixed and at-risk performance-based
remuneration to ensure focus on short, medium and longer term performance. The Board considers that this approach aligns Executive KMP
remuneration with shareholders’ interests and expectations.
CEO&P Remuneration Mix 1
Total ($'000)
Minimum
Target
Outperfomance
100%
48%
43%
12%
12%
28%
16%
16%
25%
Other Executive KMP Remuneration Mix (Average) 1
Minimum
Target
Outperfomance
100%
64%
59%
9% 9% 18%
12% 12%
17%
TFR
Cash STI
Deferred STI
LTI
1. Based on FY19 remuneration details.
620
1,280
1,430
402
629
685
37
Nanosonics Annual Report 2019 Remuneration report – audited
3.3 Remuneration – timing of receipt of the benefit
The three complementary components of executive KMP remuneration are ‘earned’ over multiple time ranges, as illustrated below.
2018
2019
2020
2021
2022
TFR
STI cash
STI equity deferral
LTI
TFR
STI cash
2018
2019
2020
STI equity deferral
Holding lock
LTI
TFR
STI cash
STI equity deferral
Holding lock
LTI
Fixed
At risk
Each year, fixed remuneration and benefits are paid monthly. A Short-Term Incentive is awarded annually based on the achievement of annual
performance targets with 50% of any STI earned paid up-front in cash and 50% paid as performance rights which are deferred for one year (except
for the CEO’s 2018 performance rights of which 50% were deferred for one year and the other 50% were deferred for two years). Effective from
the 2019 STI, the resulting shares must then be held as restricted shares for a further year (prior to 2019, the resulting shares were not subject to
any restrictions). Each year, an equity Long-Term Incentive is awarded to executive KMP which vests after a three-year measurement period, if the
specified conditions are satisfied.
3.4 Fixed Remuneration
Total Fixed Remuneration (TFR) comprises base salary and superannuation. In addition to base salary, executives may receive benefits in line with
local practice, such as health insurance and a car allowance.
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 & People Committee and the CEO&P.
3.5 Short-Term Incentive
Purpose
Performance
conditions/measures
To reward executives for the achievement against annual performance objectives set by the Board at the beginning
of the performance period.
The STI is dependent on meeting Company and Individual Performance Objectives as shown below.
Company
Performance Objectives
X
Individual
Performance Objectives
4 weighted Objectives
reviewed and set
by the Board annually
Did not achieve
Payout
Achieved some
Threshold
Target
Maximum
50%
100%
120%
Achieved most
Over achieved some
91%-110%
Over achieved most
110%-125%
Payout
0%
1%-50%
51%-90%
X Target
STI % X Base
salary = STI
Min 0%
Max 150%
The Board has a general right to exercise discretion in relation to the satisfaction of the performance conditions.
Opportunity
CEO&P target opportunity is 50% of base salary with a maximum opportunity of 75% of base salary for
outperformance. Other Executive KMP target opportunity is 30% of base salary with a maximum opportunity of 45%
of base salary for outperformance.
38
Remuneration report – audited
Delivery
The STI is delivered as follows:
– 50% of STI paid in cash; and
– 50% of STI awarded as performance rights.
After one year, the performance rights vest and are automatically exercised and then held in a holding lock as
restricted shares for a further year.
Allocation method
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 2019 full year results and the five
days following the announcement of those results.
Dividends
Performance rights do not carry any dividend or voting rights prior to exercise.
Service condition
Because 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.
3.6 Long-Term Incentive
Purpose
Opportunity
To align a significant portion of executives’ overall remuneration opportunity with shareholder value over the longer
term and provide a stimulus for the retention of executives within the Company.
CEO&P maximum opportunity is 60% of base salary.
Other Executive KMP maximum opportunity is 30% of base salary.
Timing and delivery
Grants are made each year after shareholder approval to issue securities to Directors has been obtained at the
relevant AGM.
Allocation method
Performance conditions/
measures
The LTI is delivered in the form of performance rights and options. A minimum of 20% of the LTI opportunity must be
taken as performance rights and a minimum of 20% of the LTI opportunity must be taken as options. Each executive
is able to elect the take the remaining 60% of the LTI opportunity as either performance rights or options.
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 commencement of
the performance period using the volume weighted average price (VWAP) of Nanosonics shares for a month from
and including the date of the announcement of the Company’s full year results, as follows:
– Performance Rights allocated = LTI $ value / Black Scholes value; and
– Options allocated = LTI $ value / Binominal Approximation Option Pricing value.
Equity grants to the Executive KMP are subject to performance conditions.
Each year the Board considers the most appropriate performance measure to use in order to align executives’
incentives with shareholders’ expectations, taking into account the changing circumstances of the Company. For the
2018 LTI, the Board formed the view that share price growth will be primarily influenced by the continued expansion
of the Company’s installed base, successful geographical expansion into new markets and its ability to develop and
launch new products in the infection prevention market. Accordingly, an Absolute Compound Annual Growth Rate of
Total Shareholder Return (Absolute CAGR TSR) hurdle was used with targets set by the Board, with an appropriate
profit before tax gate (PBT Gate) as set out in section 3.6.1.
The Absolute CAGR TSR for the 2018 LTI will be calculated based on the VWAP of the shares in the Company a
month from and including the date of the release of the Company’s 30 June 2018 results compared to the VWAP of
the shares in the Company in the month from (and including) the date of the announcement of the Company’s FY21
full year results.
A summary of the components of the performance measures associated with the 2018, 2017, and 2016 LTI awards is
set out below.
LTI year
Absolute CAGR TSR
TSR-1
TSR-2
Performance measure
2018
2017
2016
100%
—
—
—
50%
25%
—
50%
25%
EPS
—
—
50%
Total
100%
100%
100%
Further detail of the each of the performance measures is provided in sections 3.6.1 to 3.6.4.
Equity grants are tested against the performance measures set. If the performance hurdles are not met at the vesting
date, performance rights and options lapse.
The Board has a general right to exercise discretion in relation to the satisfaction of the performance conditions.
39
Nanosonics Annual Report 2019 Remuneration report – audited
Performance
measurement period
The performance measurement periods for the 2018, 2017 and 2016 Long-Term Incentive awards are summarised below.
LTI year Measurement Period
2018
20 August 2018 to the date of the release of Nanosonics’ FY21 financial statements.
2017
24 August 2017 to the date of the release of Nanosonics’ FY20 financial statements.
2016
17 August 2016 to the date of the release of Nanosonics’ FY19 financial statements.
Dividends
Performance rights and options do not carry any dividend or voting rights prior to exercise.
Service condition
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 the grant
to the respective vesting date of each grant.
3.6.1 Absolute CAGR Total Shareholder Return
For the 2018 LTIS the Board has set a PBT Gate. An assessment will be made at the end of the measurement period and if the average PBT of the
Company for the three financial years of the measurement period is greater than the PBT of the Company in the financial year ending 30 June 2018,
the gate will open. If the PBT Gate does not open, the performance condition will be deemed to have not been met, regardless of the Company’s
performance against the Absolute CAGR TSR set out below.
The purpose of the PBT Gate (calculated based on an average PBT over the three year measurement period) is to ensure that there is a baseline
requirement to generate PBT over the measurement period, which takes into account additional investment in research and development and new
product launch activity in a given year of the measurement period.
Vesting of performance rights and options, subject to the Absolute CAGR TSR performance measure, is in the proportions summarised below.
Absolute CAGR TSR of the Company
Proportion of performance rights and options to vest
Does not reach 10%
Reaches 10% but does not reach 20%
Reaches or exceeds 20%
Straight line interpolation applies to the incremental results.
3.6.2 Relative Total Shareholder Return hurdle (TSR-1 and TSR-2)
0%
50% to 100%
100%
For each of the 2017 and 2016 LTI awards, Two Relative Total Shareholder Return measures have been used (TSR-1 and TSR-2). The performance
rights and options granted that are subject to the TSR-1 and TSR-2 hurdles will vest subject to Nanosonics’ relative TSR performance against the
companies within the relevant TSR Comparator Groups over the performance measurement period. Details of the TSR Comparator Groups are set out
in Section 3.6.4.
Vesting of performance rights and options, subject to Relative TSR Performance measure, is in the proportions summarised below.
TSR vs Comparator Groups 1 and 2
Proportion of performance rights and options to vest
Below the 50th percentile
50th to 75th percentile
At the 75th Percentile
Straight line interpolation applies to the incremental results.
3.6.3 Earnings Per Share hurdle (EPS)
0%
30% to 100% (pro-rata)
100%
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
(Pre-tax EPS), as pre-determined by the Board. For the 2016 LTI, the relevant year for determining achievement of the Pre-tax 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
Below 75% of target Pre-tax EPS
75% to 100% of target Pre-tax EPS
Above 100% of target Pre-tax EPS
Straight line interpolation applies to the incremental results.
40
Proportion of performance rights and options to vest
0%
75% to 100% (pro-rata)
100%
Remuneration report – audited
3.6.4 Relative Total Shareholder Return Comparator Groups
The Comparator Groups of companies that have been used in respect of the 2017 and 2016 LTI awards are summarised below.
2017 LTI
2017 Comparator Group 1 (TSR-1)
ANN
Ansell Limited
API
AXP
CAJ
CGS
COH
EHE
ELX
Australian Pharmaceutical Industries Limited
AirXpanders, Inc.
Capitol Health Limited
CogState Limited
Cochlear Limited
Estia Health Limited
Ellex Medical Lasers Limited
GMV
G Medical Innovations Holdings Limited
IDX
IPD
JHC
LHC
NVC
ONE
ONT
OSP
PGC
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
PSQ
PRY
REG
RHC
RVA
SIG
SHL
Pacific Smiles Group Limited
Primary Health Care Limited
Regis Healthcare Limited
Ramsay Health Care Limited
REVA Medical, Inc.
Sigma Healthcare Limited
Sonic Healthcare Limited
SOM
SomnoMed Limited
VRT
Virtus Health Limited
HSO
Healthscope Limited
PME
Pro Medicus Limited
2017 LTI Comparator Group 2 (TSR-2)
Aconex Limited
Afterpay Touch Group Limited
Appen Limited
Altium Limited
IFM
IRE
ISD
JHC
Infomedia Limited
IRESS Limited
iSentia Group Limited
Japara Healthcare Limited
Australian Pharmaceutical Industries Limited
MYX Mayne Pharma Group Limited
MSB Mesoblast Limited
MVF Monash IVF Group Limited
PRY
REG
SIG
SRX
SPL
TNE
VRT
Primary Health Care Limited
Regis Healthcare Limited
Sigma Pharmaceuticals Limited
Sirtex Medical Limited
Starpharma Holdings Limited
Technology One Limited
Virtus Health Limited
MYO MYOB Group Limited
WTC Wisetech Global Limited
NTC
NXT
ELX
FPH
GID
IMI
IPD
ITD
LBT
Netcomm Wireless Limited
XRO
Xero Limited
Nextdc Limited
Ellex Medical Lasers Limited
RHT
Resonance Health Limited
Fisher & Paykel Healthcare Corporation
RMD
ResMed Inc.
GI Dynamics, Inc.
IM Medical Limited
ImpediMed Limited
ITL Health Group Limited
LBT Innovations Limited
RSH
RVA
SDI
Respiri Limited
REVA Medical, Inc.
SDI Limited
SOM
SomnoMed Limited
TSX:SV Simavita Limited
M7T Mach7 Technologies Limited
UBI
Universal Biosensors Inc.
MGZ Medigard Limited
MLA Medical Australia Limited
UCM
Uscom Limited
UNS
Unilife Corporation
Class Limited
Estia Health Limited
GBST Holdings Limited
Hansen Technologies Limited
Impedimed Limited
2016 LTI
2016 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 LTI Comparator Group 2 (TSR-2)
ACX
APT
APX
ALU
API
CL1
EHE
GBT
HSN
IPD
ACX
ALU
API
CL1
CSV
EHE
FPH
GBT
HSN
Aconex Limited
Altium Limited
Australian Pharmaceutical Industries Limited
Class Limited
CSG Limited
OIL
OSP
IPD
IFM
IRE
ISD
JHC
Optiscan Imaging Limited
Osprey Medical Inc.
Impedimed Limited
Infomedia Limited
IRESS Limited
iSentia Group Limited
Japara Healthcare Limited
NTC
NXT
REG
SIG
SPL
TNE
VRT
Netcomm Wireless Limited
Nextdc Limited
Regis Healthcare Limited
Sigma Pharmaceuticals Limited
Starpharma Holdings Limited
Technology One Limited
Virtus Health Limited
Estia Health Limited
MYX Mayne Pharma Group Limited
Fisher & Paykel HealthcareCorp Limited
MSB Mesoblast Limited
GBST Holdings Limited
MVF Monash IVF Group Limited
WTC Wisetech Global Limited
Hansen Technologies Limited
MYO MYOB Group Limited
41
Nanosonics Annual Report 2019 Remuneration report – audited
4.0 EXECUTIVE REMUNERATION OUTCOMES
4.1 Relationship between Nanosonics’ performance and Executive KMP remuneration
Nanosonics’ remuneration framework is explained in section 3.1 and is aimed at rewarding executive KMP to achieve sustainable growth of the
business and creation of shareholder value in the short, medium and long-term. The table below summarises the financial performance of the
Company for FY15 – FY19 which is compared with short-term and long-term remuneration outcomes.
Five-year performance history
2019
2018
2017
2016
2015
Earnings and cash flows
Revenue ($’000)
Profit/(loss) before tax ($’000)
Net profit/(loss) after tax ($’000)
Pre-tax basic earnings (loss) (Pre-tax EPS) (cents)
Basic earnings (loss) per share (EPS) (cents)
Free cash flow ($’000)
Returns
Share price as at 30 June ($)
Relative TSR percentile ranking
3-year Absolute CAGR TSR % 7
STI award outcomes
84,324
16,830
13,602
5.61
4.54
2,625
60,698
5,583
5,751
1.87
1.92
6,196
67,507
13,852
26,158
4.66
8.79
15,143
5.62
3.16
2.54
tbd 1,2
94th/95th 3
85th/78th 4
36.9
23.0
47.6
42,796
136
122
0.05
0.04
1,943
2.19
91st 5
54.0
22,214
(5,465)
(5,460)
(2.03)
(2.03)
(4,732)
1.70
n/a 6
49.4
Executive KMP outcome (% of $ target)
80.3
63.1
87.4
98.3
100.0
LTI outcomes
LTI vesting %
LTI forfeit %
1. To be determined.
tbd
tbd
100.0
—
100.0
—
100.0
—
— 8
100.0 8
2. Relates to the 2016 LTI, the vesting of which will be finally determined following the release of the FY19 financial results. Refer to Section 4.5 for additional information.
3. Relates to the 2015 LTI. Nanosonics was ranked in the 94th percentile of Comparator Group 1 and the 95th percentile of Comparator Group 2.
4. Relates to the 2013 LTI. Nanosonics was ranked in the 85th percentile in respect of the award made to the CEO&P and in the 78th percentile in respect of the award made
to Other Executive KMP.
5. Relates to the 2012 LTI.
6. Not applicable.
7. 3-Year CAGR TSR shown for the 5 year performance period was calculated using the 30 June closing share price.
8. Relates to the 2012 LTI which was based on a revenue and a profit hurdle and did not vest.
42
Remuneration report – audited
4.2 Executive KMP remuneration received in FY19 – unaudited
The figures in this table are different to the statutory disclosures in section 5, which are prepared in accordance with the accounting standards and
therefore include the accounting value for all unvested deferred STI and LTI awards expensed in the year. The table below is provided voluntarily and
represents the value to the Executive KMP of cash paid and vested equity awards (intrinsic value) received during the year.
Termination
payment
Actual remuneration
received during the year
Fixed
remuneration 1
Deferred
STI Vested 3
Executive KMP
LTI Vested 4
Cash STI 2
Michael Kavanagh
McGregor Grant
Steven Farrugia
David Morris
Rod Lopez
Ken Shaw 5
Gerard Putt 6
Ron Weinberger 7
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
620,000
530,400
385,000
351,767
362,632
294,311
175,266
—
123,050
—
116,105
111,961
46,026
43,782
38,054
33,053
—
—
—
—
474,095
42,818
—
199,428
276,589
—
224,019
2,339,471
1,677,086
—
35,945
35,341
—
41,309
278,948
265,446
160,206
98,524
62,649
38,676
47,295
—
—
—
—
—
—
—
44,939
33,445
—
41,556
315,089
212,201
728,224
1,843,875
254,524
177,214
—
—
—
—
—
—
—
—
185,375
146,227
—
247,205
1,168,123
2,414,520
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
322,845
—
322,845
1,624,535
2,584,760
748,199
611,439
447,981
327,364
175,266
—
123,050
—
516,913
—
465,687
491,602
—
876,934
4,101,631
4,892,098
1.
Includes base salary, superannuation/pension and other cash and non-monetary benefits received during the year (excludes annual leave and long service leave accrual).
2. STI received as cash in respect of the previous financial year.
3. Deferred STI vested in FY19 was from the FY17 STI award (FY18 was from the FY16 STI award). The vested value is calculated as the number of vested securities multiplied by the
closing share price of Nanosonics ordinary shares on the day of vesting, or if exercised during the period, the 5-day VWAP on the date of exercise.
4. LTI vested represents the value of LTI awards from previous periods that vested wholly or partially during the year. The vested value calculated as the number of vested securities
multiplied by the closing share price of Nanosonics ordinary shares on the day of vesting. If the securities that vested during the year were also exercised, the value is based on share
price on the date of exercise.
5. Mr Shaw became a KMP from 1 July 2019.
6. Mr Putt ceased being a KMP from 4 March 2019 and his remuneration includes amounts received to this date.
7. Dr Weinberger’s employment ended on 20 February 2018 and his remuneration included amounts received to that date. Dr. Weinberger’s FY18 STI incentive was forfeited in full on
20 February 2018.
43
Nanosonics Annual Report 2019 Remuneration report – audited
4.3 FY19 STI outcomes
As explained in Section 3.5, Nanosonics’ STI is designed to reward executives for the achievement against annual performance objectives set by
the Board at the beginning of the performance period and the payment of an STI is dependent on meeting Company and Individual Performance
Objectives. The payout to each executive KMP for the 2019 Financial Year is summarised in the table below.
Target STI
(100%)
$
Company
Performance
Objectives
%
Individual
Performance
Objective
%
299,735
109,341
102,630
49,500
34,583
129,088
55,440
780,317
100.0
95.0
95.0
100.0
100.0
82.5
82.5
85
85
85
85
85
85
85
85
Executive KMP
Michael Kavanagh
McGregor Grant
Steven Farrugia
David Morris 1
Rod Lopez 2
Ken Shaw
Gerard Putt 3
Total
1. Mr Morris joined Nanosonics on 4 February 2019. His target STI is pro-rated from this date.
2. Mr Lopez joined Nanosonics on 4 March 2019. His target STI is pro-rated from this date.
3. Mr Putt ceased being a KMP from 4 March 2019. His target STI is pro-rated up until this date.
%
85.00
80.75
80.75
85.00
85.00
70.13
70.13
STI Achievement
$
Cash
$
Equity
portion
deferred
$
Forfeited
%
254,775
127,387
127,388
88,293
82,874
42,075
29,396
90,529
38,880
44,146
41,437
21,038
14,698
45,265
19,440
44,147
41,437
21,037
14,698
45,264
19,440
15.00
19.25
19.25
15.00
15.00
29.87
29.87
19.67
80.33
626,821
313,411
313,410
The 4 Company Performance Objectives that were set by the Board for the 2019 Financial Year are financial and operational in nature and designed to
strengthen alignment between management and shareholder objectives. Details and the weighting of the Company Performance Objectives, which
are shared by all employees who participate in the STI program, are summarised below.
– Profit before tax (40% weighting): Requires the Company to achieve a profit before tax, above a threshold;
– Installed base (20% weighting): Requires the Company to achieve an increase in the total installed base of trophon® units, above a threshold;
– Product expansion (20% weighting): Requires the Company to achieve certain clearly defined milestones in relation to the development of new
products; and
– Customer experience and culture (20% weighting): Requires the Company to achieve certain objective metrics and complete defined activities that
impact customer experience and culture.
Having regard to the achievement and weighting of each of these Objectives, and taking into consideration the overall performance of the Company
during the 2019 Financial Year as summarised in the CEO’s report and the Regional highlights on pages 6 to 16 of this Annual Report, the Board has
assessed the overall achievement of the 2019 Company Objectives at 85%.
In addition to the Company Performance Objectives, each KMP is required to achieve Individual Performance Objectives that are set by the Board.
The Individual Performance Objectives are aimed at achieving specific outcomes across a range of areas in areas including profitability, operational
effectiveness, risk and compliance management, innovation and new product development, and people and culture.
Mr Kavanagh’s individual performance was assessed by the Board having regard to the Company Performance Objectives and the following Individual
Performance Objectives:
– Company strategy and risk management;
– Product expansion;
–
Investor relations; and
– People, organisation, culture.
4.4 2015 LTI outcome
The performance conditions associated with the 2015 LTI included 2 TSR hurdles that were associated with 2 Comparator Groups, TSR-1 and TSR-2.
To achieve 100% vesting, Nanosonics’ TSR performance relative to the selected groups of comparator companies was required to be at or above the
75th percentile. Following the release of the Company’s 2018 financial statements, Nanosonics’ relative TSR ranking was determined to be in the 94th
percentile in respect of TSR-1 and in the 95th percentile in respect of TSR-2. Accordingly, 100% of the performance rights granted under the 2015 LTI
vested during the 2019 Financial Year.
44
Remuneration report – audited
4.5 2016 LTI outcome
The performance conditions associated with the 2016 LTI included 2 TSR hurdles that were associated with 2 Comparator Groups, TSR-1 and TSR-2,
and a Pre-tax EPS hurdle.
To achieve 100% vesting of the 2 TSR hurdles, Nanosonics’ TSR performance relative to the selected groups of comparator companies is required
to be at or above the 75th percentile. As at 12 August 2019, Nanosonics’ relative TSR ranking was estimated to be over the 75th percentile in respect
of both TSR-1 and TSR-2 and therefore would result in 100% vesting. A final calculation will be conducted at the end of the measurement period in
respect of the TSR-1 and TSR-2 hurdles.
In relation to the Pre-tax EPS hurdle, the Company did not meet the threshold which the Board had set at 6.75 cents per share (which would result
in 75% vesting of the performance rights and options associated with the Pre-tax EPS hurdle). However, the Board is conscious that although the
Pre-tax EPS hurdle was set in 2016, it subsequently expanded research and development activities beyond those contemplated to support the core
trophon® business. Since that time, the Company has applied significant additional investment associated with the research and development of new
products. Accordingly, the Board has reviewed the outcome, and after notionally adjusting for the additional research and development expenditure,
the Board considers it likely that the Pre-tax EPS hurdle would have been met at the threshold. In view of this, the Board has decided to exercise its
discretion to treat the threshold as satisfied, but has adopted a conservative position to allow 50% of the performance rights and options associated
with the Pre-tax EPS hurdle to vest, rather than the threshold of 75%.
5.0 STATUTORY DISCLOSURES
5.1 Executive KMP statutory remuneration received – audited (A-IFRS) ($, except where otherwise indicated)
Fixed Remuneration
Variable Remuneration
Totals
Short-term
Long-
term
Post-
employment
Total Short-term
Long-term
(Equity Compensation) 1
Total
At risk
Equity
based
Salary
and fees
Other 2
Accrued
leave
benefits
Super-
annuation/
pension
contribution 3
Cash STI 4
Deferred
STI
LTI
Termination
Payment
Total
Remu-
neration
20,531
20,049
672,578
127,387
108,500
255,419
491,306
543,692
116,105
112,798
336,210
565,113
— 1,163,884
— 1,108,805
KMP
Michael
Kavanagh
McGregor
Grant
Steven
Farrugia 5
David
Morris 6
Rod
Lopez 7
Ken
Shaw 8
Gerard
Putt 9
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Ron
Weinberger 10
2019
2018
Total
2019
2018
578,719
469,285
342,544
306,277
319,905
253,691
165,001
—
115,278
—
—
—
—
—
—
—
—
—
—
—
73,328
54,358
45,624
41,399
32,059
23,067
12,587
—
8,901
—
—
161,026
241,393
—
208,982
—
—
—
—
—
—
20,793
30,908
—
7,646
20,531
408,699
20,049
367,725
20,531
20,049
372,495
296,807
44,146
46,026
41,437
38,054
37,741
50,191
33,150
35,084
76,747
158,634
104,353
200,570
68,260
142,847
52,186
125,324
10,266
187,854
21,038
9,014
56,642
86,694
—
—
—
—
—
—
7,772
131,951
14,698
6,296
34,587
55,581
—
—
—
—
—
—
—
—
—
—
—
—
14,629
196,448
20,049
292,350
19,440
35,945
17,810
40,953
38,464
84,039
75,714
160,937
—
—
—
—
—
—
—
—
—
—
—
—
—
567,333
568,295
515,342
422,279
274,548
—
187,532
—
659,223
—
272,162
453,287
—
430,294
28,216
31,838
15,585
505,933
45,265
39,579
68,446
153,290
—
—
15,037
231,665
—
—
—
—
—
30,420
107,631
138,051
238,000
607,716
2,112,767
28,216
225,130
109,845
2,475,958
313,411
252,090
598,565
1,164,066
— 3,640,024
1,479,628
—
157,378
95,233
1,732,239
236,130
269,446
684,419
1,189,995
238,000
3,160,234
1. The amount disclosed is the amount of the fair value of the performance rights and options recognised as an expense in each reporting period. The ability to exercise the
performance rights and options is subject to vesting conditions.
2. Other short-term benefits include non-monetary benefit relating to health insurance premium contribution and cash benefit relating to health fund contribution for the US based KMP.
3. Post-employment benefits include superannuation contributions for Australian based KMP and IRA Retirement Plan contributions for US based KMP.
4. Cash STI is for the performance during the respective financial year. 2019 Amounts represent the Cash STI opportunity accrued related to the financial year based on the achievement
of the Company Performance Objectives and Individual Performance Objectives. The actual Cash STI award is disclosed in section 4.3
5. Dr Farrugia received a special award of 23,747 performance rights during the year in addition to the 2018 Deferred STI and 2018 LTI. This special award is subject to a 3 year vesting
period and is included in the LTI amount.
6. Mr. Morris joined Nanosonics on 4 February 2019. He received a sign on incentive of 60,837 performance rights subject to a 3 year vesting period and this is included in the LTI amount.
7. Mr Lopez joined Nanosonics on 4 March 2019. He received a sign on incentive of 35,621 performance rights subject to a 3 year vesting period and this is included in the LTI amount.
8. Mr Shaw became a KMP from 1 July 2019.
9. Mr Putt ceased being a KMP from 4 March 2019 and his remuneration includes amounts to this date.
10. Dr Weinberger’s employment ended on 20 February 2018 and his remuneration includes amounts to that date. Dr. Weinberger’s FY18 STI incentive was forfeited in full on
20 February 2018.
45
%
42
51
28
35
26
30
18
—
21
—
23
—
28
36
—
23
32
38
%
31
40
20
27
20
21
24
—
22
—
16
—
21
28
—
23
23
30
Nanosonics Annual Report 2019 Remuneration report – audited
5.2 Employee Share Scheme grants to KMP
5.2.1 Analysis of share-based payments granted as remuneration
Details of the performance rights and options granted as remuneration to each Executive KMP, including the fair values of each of the grant, the
vesting profiles as at 30 June 2019, and any vested and exercisable performance rights and options are set out below.
Grant
Date
Vesting
Date Expiry Date
Fair
Value
$
Exercise
Price
$
Number
granted
Number
vested
during
the year
%
vested
during
the year
Number
exercised
during the
year
Balance
at year
end
Vested
and
Exercis-
able
Fair
Value
$
Number
granted
Fair
Value
$
Balance
at year
end
Performance Rights
Options
Total Intrinsic
value of PR
and options
at year end
($)
Vested
and
Exercis-
able
KMP Description
2018 LTIS
2018 LTIS
2018 Deferred STI
Tranche 1
2018 Deferred STI
Tranche 2
9 Nov 18
30 Sep 21
30 Sep 24
1.235
20,900
25,812
9 Nov 18
30 Sep 21
30 Sep 24 0.803
3.442
9 Nov 18
31 Aug 19
31 Aug 22
3.210
16,502
52,971
9 Nov 18
31 Aug 20
31 Aug 23
3.210
16,501
52,968
2017 LTIS Tranche 1
3 Nov 17
31 Aug 20
31 Aug 23
2.160
12,867
27,793
2017 LTIS Tranche 2
3 Nov 17
31 Aug 20
31 Aug 23
2.040
12,866
26,247
2017 LTIS Tranche 1
3 Nov 17
31 Aug 20
31 Aug 23
1.000
2.380
2017 LTIS Tranche 2
3 Nov 17
31 Aug 20
31 Aug 23
1.020
2.380
—
—
—
—
—
0
0
0
0
0
— 20,900
— 16,502
— 16,501
— 12,867
— 12,866
—
—
—
—
—
2017 Deferred STI
3 Nov 17
31 Aug 18
31 Aug 21
2.810
45,513
127,891
45,513
100
— 45,513
45,513
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
2.750
17,798
48,945
17,798
100
— 17,798
17,798
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22
2.590
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22
2.330
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
3.070
—
—
—
10,535
27,286
10,534
24,544
21,069
64,682
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22
1.000
2.850
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22 0.980
2.850
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
1.050
2.850
—
—
—
—
—
—
—
—
—
—
—
—
2015 LTIS Tranche 1 1
4 Jan 16
31 Aug 18
31 Aug 21
1.460
2015 LTIS Tranche 2 1
4 Jan 16
31 Aug 18
31 Aug 21
1.060
—
—
103,441
151,024
103,441
103,441
109,647
103,441
374,169 690,865
252,395
4 Feb 19
30 Sep 21
30 Sep 24
1.410
6,354
8,959
4 Feb 19
30 Sep 21
30 Sep 24 0.863
3.442
—
Total
2018 LTIS
2018 LTIS
2018 Deferred STI
22 Nov 18
31 Aug 19
31 Aug 22
2.970
13,083
38,857
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23
1.950
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23
1.750
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23 0.840
2.380
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23 0.790
2.380
8,363
16,308
8,363
14,635
—
—
—
—
—
—
0
0
0
100
100
67
0
0
0
0
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22 2.590
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22
2.330
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
3.070
—
—
—
2,568
2,567
6,651
5,981
5,135
15,764
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22 1.000
2.850
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22 0.980
2.850
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
1.050
2.850
—
—
—
—
—
—
—
—
—
2015 LTIS Tranche 1 1
4 Jan 16
31 Aug 18
31 Aug 21
1.460
2015 LTIS Tranche 2 1
4 Jan 16
31 Aug 18
31 Aug 21
1.060
Total
—
—
36,154
52,785
36,154
36,154
38,323
36,154
136,539 247,208
90,106
2019 Special 2
28 May 19 04 Mar 22
04 Mar 25
4.410
—
23,747
104,724
—
2018 LTIS
2018 LTIS
4 Feb 19
30 Sep 21
30 Sep 24
1.41
11,836
16,689
4 Feb 19
30 Sep 21
30 Sep 24
0.86
3.442
—
2018 Deferred STI
22 Nov 18
31 Aug 19
31 Aug 22
2.97
10,817
32,126
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23
1.95
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23
1.75
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23
0.84
2.380
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23
0.79
2.380
6,686
13,037
6,686
11,701
—
—
—
—
—
—
0
0
0
100
100
66
0
0
0
0
0
— 10,535
— 10,534
— 21,069
—
—
—
— 103,441
103,441
— 103,441
103,441
— 6,354
— 13,083
— 8,363
— 8,363
—
—
—
—
— 2,568
—
—
2,567
5,135
—
—
—
— 36,154
36,154
— 36,154
36,154
— 23,747
— 11,836
— 10,817
— 6,686
— 6,686
—
—
—
—
—
h
g
a
n
a
v
a
K
l
e
a
h
c
i
M
t
n
a
r
G
r
o
g
e
r
G
c
M
i
a
g
u
r
r
a
F
n
e
v
e
t
S
286,885
230,369 286,885
—
—
—
—
—
—
—
—
170,212
170,212
170,212
170,212
173,616
170,212
52,827
52,827
52,827
52,826
51,769
52,826
105,653
110,936
105,653
—
—
—
—
—
—
—
—
—
—
117,458
624,836
92,741
92,736
72,313
72,307
551,487
551,487
255,783
59,207
59,201
118,408
146,331
146,328
292,659
581,338
581,338
87,211
75,263
87,211
—
189,946
35,709
41,488
34,850
41,488
41,488
32,776
41,488
20,028
20,028
20,028
20,028
19,627
20,028
40,056
42,059
40,056
73,526
47,000
47,000
134,421
134,421
100,025
14,432
14,427
28,859
55,478
55,478
110,955
203,185
203,185
—
—
—
—
—
133,458
66,518
60,922
52,576
60,922
—
132,688
33,169
27,862
33,169
33,168
26,203
33,168
18,299
18,299
18,299
18,299
17,933
18,299
36,599
38,429
36,599
60,792
37,575
37,575
107,468
107,464
75,510
7,694
7,688
15,382
50,688
50,688
101,379
992,567
—
—
—
—
—
—
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
2.75
13,436
36,949
13,436
100
— 13,436
13,436
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22
2.59
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22
2.33
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
3.07
—
—
—
1,369
1,368
3,546
3,187
2,737
8,403
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22
1.00
2.850
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22
0.98
2.850
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
1.05
2.850
—
—
—
—
—
—
—
—
—
—
—
—
0
0
0
—
1,369
— 1,368
—
2,737
—
—
—
Total
46
78,682 230,362
13,436
17
— 78,682
13,436 200,456 181,302 200,456
— 374,169 252,395 838,615 789,729 838,615
— 4,415,958
— 136,539
90,106 250,299 224,603 250,299
— 1,448,047
Remuneration report – audited
KMP Description
Grant
Date
Vesting
Date Expiry Date
Fair
Value
$
Exercise
Price
$
Number
granted
Performance Rights
Options
Number
vested
during
the year
%
vested
during
the year
Number
exercised
during the
year
Balance
at year
end
Vested
and
Exercis-
able
Fair
Value
$
Number
granted
Fair
Value
$
Balance
at year
end
Total Intrinsic
value of PR
and options
at year end
($)
Vested
and
Exercis-
able
3 2019 Special 3
28 May 19 04 Feb 22
04 Feb 25
4.410
4 Feb 19
30 Sep 21
30 Sep 24
1.41
—
—
60,837
268,291
5,910
8,333
4 Feb 19
30 Sep 21
30 Sep 24
0.86
3.442
—
4 2019 Special 4
28 May 19 04 Mar 22
04 Mar 25
4.410
4 Feb 19
30 Sep 21
30 Sep 24
1.41
66,747 276,624
—
—
35,621
157,089
5,015
7,071
4 Feb 19
30 Sep 21
30 Sep 24
0.86
3.442
—
4 Feb 19
30 Sep 21
30 Sep 24
1.410
—
7,412
10,451
4 Feb 19
30 Sep 21
30 Sep 24 0.863
3.442
—
40,636 164,160
2018 Deferred STI
22 Nov 18
31 Aug 19
31 Aug 22
2.970
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23
1.950
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23
1.750
—
—
—
11,337
33,671
4,761
9,284
4,760
8,330
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23 0.840
2.380
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23 0.790
2.380
—
—
28,270
61,736
4 Feb 19
30 Sep 21
30 Sep 24
1.410
—
9,213
12,990
4 Feb 19
30 Sep 21
30 Sep 24 0.863
3.442
—
2018 Deferred STI
22 Nov 18
31 Aug 19
31 Aug 22
2.970
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23
1.950
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23
1.750
—
—
—
10,218
30,347
8,631
16,830
8,630
15,103
2017 LTIS Tranche 1
9 Feb 18
31 Aug 20
31 Aug 23 0.840
2.380
2017 LTIS Tranche 2
9 Feb 18
31 Aug 20
31 Aug 23 0.790
2.380
—
—
2018 LTIS
2018 LTIS
Total
2018 LTIS
2018 LTIS
Total
2018 LTIS
2018 LTIS
Total
2018 LTIS
2018 LTIS
s
i
r
r
o
M
d
v
a
D
i
z
e
p
o
L
d
o
R
5
w
a
h
S
n
e
K
6
t
t
u
P
d
r
a
r
e
G
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2017 Deferred STI
11 Jan 18
31 Aug 18
31 Aug 21
2.750
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22 2.590
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22
2.330
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
3.070
—
—
—
—
2016 LTIS Tranche 1
5 Jan 17
31 Aug 19
31 Aug 22 1.000
2.850
2016 LTIS Tranche 2
5 Jan 17
31 Aug 19
31 Aug 22 0.980
2.850
2016 LTIS Tranche 3
5 Jan 17
31 Aug 19
31 Aug 22
1.050
2.850
14,367
39,509
14,367
100
14,367
0
0
0
— 2,043
— 2,043
— 4,087
2,043
2,043
5,292
4,760
4,087
12,547
—
—
—
—
—
—
—
—
—
2015 LTIS Tranche 1 1
4 Jan 16
31 Aug 18
31 Aug 21
1.460
2015 LTIS Tranche 2 1
4 Jan 16
31 Aug 18
31 Aug 21
1.060
—
—
29,632
43,263
29,632
29,633
31,411
29,633
100
100
29,632
29,633
—
—
—
—
—
—
81,116
70,003
81,116
81,116
70,003
81,116
— 60,837
—
5,910
— 66,747
— 35,621
—
5,015
—
—
—
—
68,835
59,405
68,835
— 40,636
— 68,835
59,405 68,835
—
—
101,742
87,803
101,742
—
7,412
— 11,337
—
4,761
— 4,760
—
—
—
—
62,975
52,899
62,975
62,974
49,749
62,974
— 28,270
— 227,691
190,451
227,691
—
—
47,421
40,924
47,421
—
9,213
— 10,218
—
8,631
— 8,630
—
—
—
—
—
—
—
—
—
— 28,544
23,977
28,544
— 28,543
22,549
28,543
—
—
—
—
—
—
15,937
15,937
15,937
15,937
15,618
15,937
31,875
33,469
31,875
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
341,904
33,214
176,671
551,789
200,190
28,184
149,923
378,297
41,655
221,594
63,714
26,757
26,751
204,039
204,036
788,546
51,777
103,283
57,425
48,506
48,501
92,483
92,479
—
11,482
11,482
22,969
44,145
44,145
88,294
—
—
Total
118,497
212,052
73,632
62
73,632 44,865
— 168,257
152,474 168,257
—
716,971
1. The performance conditions associated with the 2015 LTIS were fully met. Accordingly, these performance rights vested on 31 August 2018. The expiry date on the 2015 LTI changed
from 30 August 2018 to 31 August 2021 following shareholder’s approval at the Annual General Meeting held on 3 November 2017.
2. Dr Farrugia received a special award of 23,747 performance rights during the year.
3. Mr Morris joined Nanosonics on 4 February 2019. He received a sign on incentive 60,837 performance rights, subject to a 3 year vesting period.
4. Mr Lopez joined Nanosonics on 4 March 2019. He received a sign on incentive reported under 2019 Special of 35,621 performance rights, subject to a 3 year vesting period.
5. Mr Shaw became a KMP from 1 July 2019. The performance rights and options granted included the 2017 LTI which was granted to him prior to this date.
6. Mr Putt ceased being a KMP from 4 March 2019. Accordingly, details of the performance rights and options granted are reported to 4 March 2019.
No performance rights or options vest if the conditions are not satisfied, hence the minimum value is nil. The maximum value of the grants to be
expensed has been determined as the fair value of the awards at grant date (as disclosed above).
The factors and assumptions used in determining the fair value on grant date of performance rights and options granted to Directors and KMP which
were unexpired on 30 June 2019, including those granted during the period are disclosed in note 4.3(iv) to the Financial Statements.
There were no performance rights or options forfeited or lapsed during the period. There were no options vested and exercised during the period.
There were no vested and exercisable options at year end. No share-based payments were settled in cash.
47
Nanosonics Annual Report 2019
Remuneration report – audited
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 ($)
Intrinsic value 1 ($)
Gerard Putt
Total
73,632
73,632
—
—
—
—
230,314
230,314
1. The intrinsic value of the shares is calculated as the 5-day volume weighted average price of the shares on the ASX on the day of exercise of performance rights and options less
amount paid per share if there is an exercise price.
There are no amounts unpaid on the shares issued as a result of the exercise of options in the current financial year or in prior years. There were no
options exercised during the year.
5.2.3 Analysis of movement in performance rights and options
The movement in number and value during the financial year of performance rights and options over ordinary shares of Nanosonics Limited held by
KMP is detailed below.
Balance at
start of the year
Granted in the year
Exercised in the year
Forfeited in the year
Balance at
end of the year
Number
Value ($) 1
Number
Value ($) 1
Number
Value ($) 2
Number
Value ($) 2
Number
Value ($) 1
Performance
rights
Michael Kavanagh
320,266
559,114
53,903
131,751
McGregor Grant
117,102
199,392
19,437
47,816
Steven Farrugia
32,282
76,823
46,400
153,539
David Morris
Rod Lopez
Ken Shaw 3
—
—
—
—
66,747
276,624
40,636
164,160
9,521
17,614
18,749
Gerard Putt 4
99,066
168,715
19,431
44,122
43,337
—
—
—
—
—
—
—
—
—
—
—
—
73,632
230,314
Total
Options
578,237
1,021,658
265,303
861,349
73,632
230,314
Michael Kavanagh
551,730
559,360
286,885
230,369
McGregor Grant
163,088
149,340
87,211
75,263
Steven Farrugia
139,534
128,726
60,922
52,576
David Morris
Rod Lopez
—
—
—
—
81,116
70,003
68,835
59,405
Ken Shaw 3
125,949
102,648
101,742
87,803
Gerard Putt 4
120,836
111,550
47,421
40,924
Total
1,101,137
1,051,624
734,132
616,343
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
374,169
690,865
136,539
247,208
78,682
230,362
66,747
276,624
40,636
164,160
28,270
61,736
44,865
97,869
— 769,908 1,768,824
—
—
—
—
—
—
—
838,615
789,729
250,299
224,603
200,456
181,302
81,116
70,003
68,835
59,405
227,691
190,451
168,257
152,474
— 1,835,269 1,667,967
1. The value of the performance rights and options granted in the year is the fair value of the performance rights and options calculated at grant date and derived by applying the
valuation methodology prescribed under IFRS-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 the performance rights exercised is based on the 5-day volume weighted average price of the shares on the ASX on the date of exercise.
3. Mr. Ken Shaw became a KMP from 1 July 2019. The performance rights and options balance at the start of the year relates to the 2017 LTI which was granted to him prior to this date.
4. Mr. Putt ceased being a KMP from 4 March 2019. Accordingly, details of the performance rights and options granted, exercised and forfeited are reported to 4 March 2019.
48
Remuneration report – audited
5.3 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 2019 and
to the date of this report
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
Non-executive Directors
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Geoff Wilson 5
Executive Director
Michael Kavanagh
Other Executive KMP
McGregor Grant
Steven Farrugia
David Morris
Rod Lopez
Ken Shaw
19,006,517 4
13,000
413,940
107,000
19,600
—
—
—
—
—
—
—
106,816,626
73,060
2,326,343
601,340
110,152
—
1,018,363
1,212,784
7,203,794
587,372
—
—
—
—
386,838
279,138
147,863
109,471
255,961
3,772,842
411,664
346,627
223,565
252,187
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 the closing share price of Nanosonics shares on 30 June 2019 multiplied by the number of shares held.
3. The intrinsic value of performance rights and options calculated as the closing share price of Nanosonics shares on 30 June 2019 less the applicable exercise price multiplied by the
number of performance rights and options.
4. Includes shares held by a close family member.
5. Mr Wilson joined the Board as a Non-executive Director effective 17 July 2019. He does not have an equity interest prior to his appointment and to the date of this report.
5.4 KMP share movement
The numbers of shares in the Company held during the financial year by KMP, including their personally-related parties, are set out below.
Balance at start
of the year
Received during the year on
the exercise of perfor-
mance rights and options
Sale of shares
during the year
Balance at end
of the year 2
Non-executive Directors
Maurie Stang 1
Richard England
David Fisher
Steven Sargent
Marie McDonald
Executive Director
Michael Kavanagh
Other Executive KMP
McGregor Grant
Steven Farrugia
David Morris
Rod Lopez
Ken Shaw
Gerard Putt 1/2
20,320,157
13,000
503,940
107,000
19,600
—
1,328,363
587,372
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,313,640)
19,006,517
—
(90,000)
—
—
13,000
413,940
107,000
19,600
(310,000)
1,018,363
—
—
—
—
—
587,372
—
—
—
—
79,248
73,632
(71,978)
80,902
1.
Includes shares held by a close family member.
2. Mr Putt ceased being a KMP on 4 March 2019. Movements in Mr Putt’s shareholding and the balance of shares held are reported to this date.
49
Nanosonics Annual Report 2019
Remuneration report – audited
6.0 EXECUTIVE SERVICE AGREEMENTS
6.1 CEO and President
The following sets out the key terms and conditions of employment for the CEO and President, Michael Kavanagh.
Length of contract
Ongoing employment contract until notice is given by either party.
Fixed Remuneration
$620,000 p.a., inclusive of superannuation and reviewed annually, increased to $700,000 p.a. plus superannuation of
$21,003 effective 1 July 2019.
Short-Term Incentive
50% of base salary with a maximum opportunity of 75% of base salary for outperformance.
Long-Term Incentive
60% of base salary.
Notice periods
In order to terminate the employment arrangements, Mr Kavanagh is required to provide Nanosonics with 9 months’
written notice. Nanosonics must provide Mr Kavanagh with 9 months written notice.
Resignation
On resignation, unless the Board determines otherwise:
– All unvested STI or LTI benefits are forfeited and a prorated portion of the unvested STI are paid to the period up to the
date of termination; and
– All vested but unexercised STI or LTI benefits are forfeited (immediately or after 30 days subject to the terms of the
award) following cessation of employment.
Termination with
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 with 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; and
– All vested but unexercised STI or LTI benefits are forfeited (immediately or after 30 days subject to the terms of the
award) following cessation of employment.
Change of control
In the event of a takeover or change in control of Nanosonics Limited, the Board may, in its discretion, determine that any
performance rights or options that have not vested will vest on a date determined by the Board.
Termination for
serious misconduct
Nanosonics may immediately terminate employment at any time in the case of serious misconduct, and Mr Kavanagh 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 event.
Post-employment
restraints
Mr Kavanagh will be restrained for a period of up to 24 months after termination of his employment by either party from
being engaged in any of the following activities:
– Engaging with clients of Nanosonics with a view to obtaining the custom of those clients in a business that is the same
as or similar to Nanosonics’ business;
– Interfering with the relationship between Nanosonics, its customers, employees, agents, contractors or suppliers;
– Inducing or assisting in the inducement of any employee, agent or contractor of Nanosonics to leave their employment or
terminate their contract; or
– Carrying-on or becoming in any way involved in any trade or business that is in competition with Nanosonics.
Clawback
Mr Kavanagh’s remuneration is subject to the Company’s Clawback Policy as set out in section 7.3.
50
Remuneration report – audited
6.2 Other Executive KMP
The following sets out details of the key terms and conditions of the Other Executive KMP’s employment. 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:
– David Morris: 6 months.
– McGregor Grant: 4 months.
– Steven Farrugia, Rod Lopez and Ken Shaw: 3 months.
Resignation
On resignation, unless the Board determines otherwise:
– All unvested STI or LTI benefits are forfeited; and
– All vested but unexercised STI or LTI benefits are forfeited (immediately or after 30 days subject to the terms of the
award) following cessation of employment.
Termination with
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 with notice by Nanosonics, unless the Board determines otherwise:
– All unvested STI or LTI benefits are forfeited; and
– All vested but unexercised STI or LTI benefits are forfeited (immediately or after 30 days subject to the terms of the
award) following cessation of employment.
Change of control
In the event of a takeover or change in control of Nanosonics Limited, the Board may, in its discretion, determine that any
performance rights or options that have not vested will vest on a date determined by the Board.
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.
Statutory
entitlements
Post-employment
restraints
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.
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
With the exception of Mr Shaw, who is employed by Nanosonics Inc under a contract of employment drafted for
US-based executive employees, 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. Mr Shaw has an equivalent term with a period of 24 months;
– 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. Mr Shaw has an equivalent term for a period of 1 year; or
– Carrying-on or becoming in any way involved in any trade or business that is in competition with Nanosonics. Mr Shaw
has an equivalent term for a period of 1 year.
Clawback
Other Executive KMP remuneration is subject to the Company’s Clawback Policy as set out in section 7.3.
51
Nanosonics Annual Report 2019 Remuneration report – audited
7.0 REMUNERATION GOVERNANCE
This section describes the role of the Board, the Remuneration & People Committee, and the use of remuneration consultants when making
remuneration decisions.
7.1 Role of the Board and the Remuneration & People Committee
The Board is responsible for Nanosonics’ remuneration strategy and policy. Consistent with this responsibility, the Board has established a
Remuneration & People Committee which comprises a majority of independent Non-executive Directors (including its Chair). The members of the
Remuneration & People Committee during the 2019 Financial Year are shown in section 1.
The role and responsibilities of the Remuneration & People Committee are set out in its Charter, which was last revised and approved by the Board in
November 2018. In summary, the Remuneration & People Committee’s role is to:
– Review and recommend to the Board for approval 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 recommend to the Board for approval Nanosonics’ incentive schemes, including amounts, terms and offer processes and procedures; and
– Determine and recommend to the Board for approval equity awards in accordance with policy and shareholder approvals, including testing of
vesting and termination provisions. The Remuneration & People Committee’s role and its interaction with the Board, internal and external advisors,
is illustrated below.
Reviews, applies judgement and, as appropriate, approves the Remuneration & People Committee’s recommendations.
The Board
The Remuneration & People Committee
The Remuneration & People Committee operates under the delegated authority of the Board.
The Remuneration & People 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
Further information on the Remuneration & People Committee’s role, responsibilities and membership is contained in the Corporate Governance
Statement. The Remuneration & People Committee Charter and the Corporate Governance Statement can be viewed in the Corporate Governance
section of Nanosonics’ website at www.nanosonics.com.au
7.2 Use of remuneration consultants
As appropriate, the Board and Remuneration & People Committee obtain and consider advice directly from external advisors, who are independent of
management.
Under engagement and following communication protocols adopted by Nanosonics, the Remuneration & People Committee engaged Laurie Wood at
HR Ascent Pty Ltd, to provide benchmarking data to assist in the review of Non-executive Director and CEO&P remuneration.
No ‘Remuneration Recommendations’ as defined by the Corporations Act were made for the 2019 financial year.
7.3 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.au under Investor Centre, Corporate Governance.
7.4 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 performance rights or options. No schemes may be entered into by an
individual or their associates that specifically protects the unvested value of shares, performance rights or options.
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.
52
Remuneration report – audited
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.au under Investor Centre, Corporate Governance.
7.5 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.
7.6 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.
7.7 Conditions of LTI grants
The conditions under which LTI awards (performance rights and options) are granted are approved by the Board in accordance with the relevant
scheme rules as summarised in section 5.
7.8 Minimum shareholding requirement for KMP
In July 2019, the Company introduced a requirement for Non-executive Directors and Executive Key Management Personnel to build and maintain
a minimum level of share ownership in the Company. The minimum share ownership is an equity holding equivalent to the previous year’s base
salary/fees and is expected to be met within 4 years of commencement or appointment.
8.0 NON-EXECUTIVE DIRECTOR REMUNERATION
8.1 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. External consultants may be used to source
the relevant data and commentary. Non-executive Directors’ fees are recommended by the Remuneration & People
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
Aggregate Board
Fees are approved
by shareholders.
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.
The total amount of fees paid to Non-executive Directors in the year ended 30 June 2019 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.
8.2 Non-executive Director fees and other benefits
Elements
Details
Board fees per annum 1 Chairman fee
Deputy Chairman fee
Non-executive Director fee
Committee chair fee
Committee member fee
$225,000
$135,000
$100,000
$20,000
$10,000
Superannuation
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.
Equity instruments
Non-executive Directors do not receive any performance-related remuneration, options or performance shares.
Other fees/benefits
Non-executive Directors are reimbursed for out-of-pocket expenses that are directly related to Nanosonics’ business.
1. Following a review of Director fees, the Board fees were implemented effective from 1 July 2019. Previously, the Board Chairman’s fee was $170,000; the Non-executive Director
fee was $85,000 and a Committee chair fee was $15,000. The Deputy Chairman fee was previously not differentiated and there was no separate Committee member fee.
The Chairman does not receive separate Committee member fees.
53
Nanosonics Annual Report 2019 Remuneration report – audited
8.3 Non-executive Director total remuneration
Maurie Stang
Richard England
David Fisher
Steven Sargent
Marie McDonald
Total
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Fees
($)
Superannuation
($)
Total
($)
155,251
155,251
91,324
91,324
91,324
91,324
91,324
91,324
77,626
77,626
506,849
506,849
14,749
14,749
8,676
8,676
8,676
8,676
8,676
8,676
7,374
7,374
48,151
48,151
170,000
170,000
100,000
100,000
100,000
100,000
100,000
100,000
85,000
85,000
555,000
555,000
9.0 KEY MANAGEMENT PERSONNEL TRANSACTIONS
9.1 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 2019 (2018: Nil).
9.2 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 2018
and 2019 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 8.3.
Sale of products and services to Related Parties
Purchases of goods and services from Related Parties
Reimbursement of costs incurred on behalf on Nanosonics
2019
$
2018
$
2,772,811
2,409,140
1,865
8,659
2,715
10,520
54
Financial statements
For the year ended 30 June 2019
Content of the financial statements
Auditor’s independence declaration
Consolidated financial statements
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
1 General accounting policies
Reporting entity
1.1
1.2 Basis of preparation
2 Performance for the year
Segment and revenue information
Individually significant items
2.1 Revenue
2.2
2.3
2.4 Other gains - net
2.5 Earnings per share
2.6 Dividends
3
Income taxes
Income tax expense
3.1
3.2 Deferred taxes
4 Employee benefits
Staffing costs
4.1
4.2 Employee benefits liabilities
4.3 Share-based payments
5 Assets and liabilities related to contracts with customers
5.1
Contract balances
6 Financial assets and financial liabilities
Cash and cash equivalents
6.1
6.2 Trade and other receivables
6.3 Derivative financial instruments
6.4 Trade and other payables
6.5 Borrowings
7 Operating assets and liabilities
Inventories
7.1
7.2 Property, plant and equipment
7.3
7.4 Provisions
Intangible assets
8 Financial risk management
9 Capital structure
9.1
Capital and reserves
9.2 Capital management
10 Other notes
10.1 Commitments
10.2 Related party transactions
10.3 Controlled entities
10.4 Parent entity information
10.5 Remuneration of auditors
10.6 New Standards and Interpretations not yet adopted
10.7 Events occurring after the balance date
Directors’ declaration
Independent auditor’s report to the members
56
57
58
59
60
61
61
61
64
64
64
66
66
66
66
67
67
68
70
70
70
71
75
75
75
75
76
77
78
78
79
79
79
80
81
82
87
87
88
88
88
88
89
90
91
91
92
93
94
55
Nanosonics Annual Report 2019
Auditor’s independence declaration
56
Consolidated statement of profit or loss and other comprehensive income
For the year ended 30 June 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and general expenses
Administration expenses
Research and development expenses
Other income
Other gains – net
Results from operating activities
Finance income – interest
Finance expense
Net finance income
Operating profit before income tax
Income tax (expense)/benefit
Net profit after income tax expense attributable to owners of the parent entity
Other comprehensive loss
Items that may be reclassified 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 (loss)/income
Total other comprehensive loss
Total comprehensive income for the year attributable to owners of the parent entity
Earnings per share information:
Basic earnings per share
Diluted earnings per share
The notes on pages 61 to 92 form an integral part of these consolidated financial statements.
Notes
2.2
2.4
3.1
2.5(a)
2.5(b)
2019
$’000
84,324
(21,508)
62,816
(27,089)
(10,716)
(11,375)
24
1,842
15,502
1,571
(243)
1,328
16,830
(3,228)
13,602
(1,224)
64
(19)
(1,179)
12,423
Cents
4.54
4.49
2018
$’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
Cents
1.92
1.91
57
Nanosonics Annual Report 2019
Consolidated statement of financial position
As at 30 June 2019
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Cost to obtain customer contracts
Income taxes receivable
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
Derivative financial instruments
Cost to obtain customer contracts
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Income taxes payable
Contract liabilities
Employee benefits liabilities
Provisions
Borrowings
Derivative financial instruments
Total current liabilities
Non-current liabilities
Trade and other payables
Contract liabilities
Employee benefits liabilities
Provisions
Borrowings
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
The notes on pages 61 to 92 form an integral part of these consolidated financial statements
58
Notes
2019
$’000
2018
$’000
6.1
6.2
7.1
6.3
5.1
7.2
7.3
3.2
6.3
5.1
6.4
5.1
4.2
7.4
6.5
6.3
6.4
5.1
4.2
7.4
6.5
6.3
9.1(a)
72,180
19,700
14,018
189
280
143
2,102
108,612
6,729
799
12,893
37
237
214
20,909
129,521
7,004
82
4,012
3,453
678
445
287
15,961
121
2,532
513
75
76
160
3,477
19,438
110,083
112,713
14,820
(17,450)
110,083
69,433
8,613
8,936
158
—
6
1,364
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
112,713
13,061
(31,471)
94,303
Consolidated statement of changes in equity
For the year ended 30 June 2019
Contributed Share-based
payments
Equity
Reserves
Foreign
currency
translation
Hedging
Total Accumulated
losses
reserves
Total
equity
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Note 9.1 (a)
At 30 June 2017
Profit for the period
Other comprehensive loss
Income tax on item of other comprehensive loss
Total comprehensive income
112,713
11,020
—
—
—
—
—
—
—
—
Transaction with owners in their capacity as owners
Share-based payments
On-market share purchase
Income tax on share-based payments
—
—
—
2,187
(99)
278
740
—
(974)
—
(974)
—
—
—
—
—
(129)
38
(91)
—
—
—
11,760
(37,222)
87,251
—
(1,103)
38
5,751
—
—
5,751
(1,103)
38
(1,065)
5,751
4,686
2,187
(99)
278
—
—
—
2,187
(99)
278
At 30 June 2018
112,713
13,386
(234)
(91)
13,061
(31,471)
94,303
At 1 July 2018
Change in accounting policy 1
112,713
13,386
—
—
At 1 July 2018 restated
112,713
13,386
Profit for the period
Other comprehensive (loss)/income
Income tax on item of other comprehensive income
Total comprehensive income
—
—
—
—
—
—
—
—
(234)
—
(234)
—
(1,224)
—
(1,224)
Transaction with owners in their capacity as owners
Share-based payments
Income tax on share-based payments
—
—
1,616
1,322
—
—
(91)
—
(91)
—
64
(19)
45
—
—
13,061
(31,471)
94,303
—
419
419
13,061
(31,052)
94,722
—
13,602
13,602
(1,160)
(19)
—
—
(1,160)
(19)
(1,179)
13,602
12,423
1,616
1,322
—
—
1,616
1,322
At 30 June 2019
112,713
16,324
(1,458)
(46)
14,820
(17,450)
110,083
1. Refer to note 1.2(i) for further information regarding changes in accounting policies.
The notes on pages 61 to 92 form an integral part of these consolidated financial statements.
59
Nanosonics Annual Report 2019
Consolidated statement of cash flows
For the year ended 30 June 2019
Operating activities
Receipts from customers (inclusive of GST/VAT)
Payments to suppliers and employees (inclusive of GST/VAT)
Interest received
Income taxes paid
Net cash provided by operating activities
6.1(ii)
Notes
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
Financing activities
Repayment of borrowings
Interest paid
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
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
6.1(i)
The notes on pages 61 to 92 form an integral part of these consolidated financial statements.
2019
$’000
75,611
(72,201)
1,555
(139)
4,826
(1,684)
(551)
34
(2,201)
(425)
(36)
—
(461)
2,164
69,433
583
72,180
2018
$’000
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
60
Notes to the consolidated 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 listed public
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 2019, comprise the Company and its subsidiaries
(together referred to as Nanosonics, the Group or the Consolidated
Entity).
Nanosonics Limited is a for-profit entity for the purpose of preparing
the financial statements. A description of the nature of the Group’s
operations and its principal activities is included in the review of
operations in the CEO’s report and Regional highlights on pages 6 to 16
of this Annual Report and in the Directors’ Report on page 30.
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 27 August 2019.
b. Basis of measurement
The consolidated financial statements have been prepared on a
historical cost basis except for financial assets and financial liabilities
including derivative instruments which are measured at fair value.
c. Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of the
subsidiaries are included in the financial statements from the date the
control commences until the date that control ceases. Information on
subsidiaries is contained in note 10.3 to the financial statements.
Transactions eliminated on consolidation
In preparing the consolidated financial statements, all inter-company
balances and transactions between entities in the Group, including any
unrealised profits or losses, have been eliminated in full.
d. Functional and presentation currency
The consolidated financial statements are presented in Australian
dollars (AUD), which is Nanosonics Limited’s functional and
presentation currency.
e. Foreign currency
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.
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 or loss statement are translated
at average exchange rates; 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 judgements and estimates
The preparation of financial statements in conformity with AASB/
IFRS requires management to exercise judgement and make estimates
and assumptions that affect the application of the Group’s accounting
policies and the reported amounts of assets, liabilities, revenues and
expenses. Actual results may differ from these estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected.
The key estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of certain assets
and liabilities are included in the following notes:
– note 3.2 Deferred taxes
– note 4.2 Employee benefits liabilities
– note 4.3 Share-based payments
– note 5.1 Contract balances
– note 7.1
Inventories
– note 7.4 Provisions
– note 8
Financial risk management
61
Nanosonics Annual Report 2019 Notes to the consolidated financial statements
1 GENERAL ACCOUNTING POLICIES (continued)
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 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 thousand dollars ($’000), unless otherwise stated.
i.
Changes in significant accounting policies
The group has adopted the new accounting standards AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments utilising
the modified retrospective method with initial application from 1 July 2018. The cumulative effect of adopting the standards has been recorded as an
adjustment to the opening balance of retained earnings as set out below. Therefore, the comparative information was not restated and continues to
be reported under the previous accounting standards.
AASB 15 Revenue from Contracts with Customers
Opening balance adjustment as at 1 July 2018
Decrease in contract liabilities
Increase in costs to obtain customer contracts
Decrease in net deferred tax assets
Increase in retained earnings as at 1 July 2018
i, ii
iii
1 July 2018
$’000
256
301
(138)
419
The following tables summarise the impact of adopting AASB 15 Revenue from Contracts with Customers on the Group’s statement of financial
position as at 30 June 2019 and its statement of profit or loss and other comprehensive income for the year then ended for each of the line
items affected.
Impact on the consolidated statement of financial position
As at 30 June 2019
Assets
Costs to obtain customer contracts
Net deferred tax assets
Others
Total assets
Liabilities
Contract liabilities
Others
Total liabilities
Net assets
Equity
Accumulated losses
Others
Total equity
62
Notes
As reported
$’000
Adjustments
$’000
Amounts
under previous
revenue standard
$’000
iii
i, ii
494
12,893
116,134
129,521
6,544
12,894
19,438
110,083
(17,450)
127,533
110,083
(494)
189
—
(305)
212
—
212
—
13,082
116,134
129,216
6,756
12,894
19,650
(517)
109,566
(517)
—
(517)
(17,967)
127,533
109,566
Notes to the consolidated financial statements
1 GENERAL ACCOUNTING POLICIES (continued)
Impact on the consolidated statement of profit or loss and other comprehensive income
For the period ended 30 June 2019
Continuing operations
Revenue
Selling and general expenses
Finance expense
Income tax expense
Others
Total comprehensive income
Notes
As reported
$’000
Adjustments
$’000
Amounts without
adoption of AASB 15
$’000
i, ii
iii
ii
84,324
(27,089)
(243)
(3,228)
(41,341)
12,423
(158)
(191)
203
48
—
(98)
84,166
(27,280)
(40)
(3,180)
(41,341)
12,325
i) Under AASB 15, the recognition of revenue on multi-element service contracts occurs upon the fulfilment of distinct performance obligations
within service contracts. Certain performance obligations within existing service contracts are recognised at a point in time under AASB 15. These
were previously not differentiated and recognised over the contract period. The impact of the change results in an adjustment to service revenue
and contract liabilities.
ii) Some customers purchase service contracts up-front or enter into multi-period service contracts resulting in the Group holding the payment
for periods greater than 12 months in advance of revenue recognition. Under AASB 15, timing between upfront consideration received and the
fulfilment of services gives rise to a financing component. The impact of the change results in an adjustment to service revenue, finance costs
and contract liabilities. The Group has elected to use the practical expedient related to the existence of significant financing components under
the new standard.
iii) Under AASB 15, incremental contract costs of sales commissions will be amortised over the contract period. These were previously expensed in
the period they are paid or become payable. The impact of the change results in the capitalisation of costs to obtain customer contracts, and a
decrease in selling and general expenses.
The accounting policy for revenue recognition is set out in note 2.1.
AASB 9 Financial Instruments
The standard replaces all previous versions of AASB 9 and 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. AASB 9 has changed the assumptions for the Group’s accounting for impairment losses
for financial assets by replacing the incurred loss approach with a forward-looking expected credit loss (ECL) approach.
Except for derivative financial instruments, the group initially recognises a financial asset, including trade receivables, at fair value and subsequently
measures these at amortised cost using the effective interest rate. The Group’s receivables are held to collect contractual cash flows and the cash
flows represent solely payments of principal and interest. The accounting policy for derivative financial instruments is set out in note 6.3.
The Group assessed the ECL related to each category of receivables. The adoption of AASB 9 has no significant impact to the Group and no adjustments
were required in relation to AASB 9. The accounting for the Group’s financial liabilities remains largely the same as it was under AASB 139.
63
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
2 PERFORMANCE FOR THE YEAR
2.1 Revenue
AASB 15 establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15, entities are required to exercise
more judgement in developing revenue recognition policies, taking into consideration all the relevant facts and circumstances when applying each
step of the model. The Group has revised its accounting policy in line with the requirements of AASB 15. A summary of the impact of the revised
accounting policy for the period ended 30 June 2019 is included in note 1.2(i).
Revenue from contracts with customers is recognised when the control of goods and services are transferred to the customer at an amount that
reflects the consideration to which the Group expects to be entitled in exchange for those goods and services.
Sale of goods
The Group’s sales of goods consist of the sale of capital equipment which includes the sale of trophon® and related accessories, and the sale of
consumables and spare parts. Revenue is recognised at a point in time when the Group has delivered goods to its customers, and it is probable that
consideration will be collected in exchange. Revenue is measured on the consideration expected to be received, net of trade rebates and discounts
paid. If the contract includes variable consideration, the variable consideration is estimated at contract inception and constrained until it is highly
probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur which is when the associated uncertainty
with the variable consideration is subsequently resolved. Some contracts for the sale of goods provide customers with volume rebates which give rise
to variable consideration.
The Group provides retrospective volume rebates to certain customers once certain contracted thresholds have been achieved. Rebates are offset
against amounts receivable from the customer. To estimate the variable consideration for the expected future rebates, the Group applies the most
likely amount method for contracts with a single-volume threshold and the expected value method for contracts with multi-tiered thresholds.
The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained
in the contract. The Group then applies the requirements on constraining estimates of variable consideration and recognises an offset against
trade and other receivables for the expected future rebates.
Service
The Group’s sale of services is recognised using a proportionate fair value method based on relative standalone selling prices or in certain
circumstances, using the residual method of distinct performance obligations within service contracts. Service contracts have separately identifiable
performance obligations that are either provided at a point in time or over time. Revenue from the sale of services is recognised when the distinct
performance obligation is fulfilled.
Financing component
The timing between upfront consideration received and the fulfilment of services gives rise to a financing component. Using the practical expedient in
AASB 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract
inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service
will be one year or less. Some customers purchase service contracts up-front or enter into multi-period service contracts resulting in the Group
holding the payment greater than 12 months in advance of revenue recognition. The transaction price for such contracts is discounted, using the rate
that would be reflected in a separate financing transaction between the Group and its customers at contract inception, to take into consideration the
significant financing component.
Interest income
Interest income is recognised on a time proportion basis using the effective interest method.
Foreign exchange
The accounting policy for foreign exchange gains arising from hedges of forecast sales transactions is set out in note 6.3.
2.2 Segment and revenue information
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 are the total reportable assets of the
operating segment.
Types of products and services
The principal products and services of the healthcare equipment segment are the manufacture and commercialisation of infection control and
decontamination products and related technologies.
64
Notes to the consolidated financial statements
2 PERFORMANCE FOR THE YEAR (continued)
Major customers
The group has a number of customers to which it provides products and services. The most significant customer accounts for approximately 54% of
external revenue (2018: 49.3%). The next most significant customer accounts for approximately 3.4% of external revenue (2018: 4.6%).
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:
For the year ended 30 June 2019
Capital revenue before hedging
Foreign exchange loss on hedged sales
Total capital revenue
Consumables and spare parts
Service
Total consumables and service revenue
Total revenue
At a point in time
Over time
For the year ended 30 June 2018
Capital revenue before hedging
Foreign exchange gain on hedged sales
Total capital revenue
Consumables and spare parts
Service
Total consumables and service revenue
Total revenue
At a point in time
Over time
North America
$’000
Europe and
Middle East
$’000
Asia Pacific
$’000
31,218
(261)
30,957
40,017
5,537
45,554
76,511
74,621
1,890
23,997
49
24,046
27,279
3,081
30,360
54,406
52,431
1,975
1,076
—
1,076
2,194
532
2,726
3,802
3,705
97
891
—
891
1,695
397
2,092
2,983
2,590
393
784
—
784
1,694
1,533
3,227
4,011
3,436
575
610
—
610
1,384
1,315
2,699
3,309
2,007
1,302
Total
$’000
33,078
(261)
32,817
43,905
7,602
51,507
84,324
81,762
2,562
25,498
49
25,547
30,358
4,793
35,151
60,698
57,028
3,670
For the purpose of this note, non-current assets consist of property, plant and equipment, intangible assets and other non-current assets excluding
net deferred tax asset and derivative financial instruments. Assets and capital expenditure are allocated based on where the assets are located.
The analysis of non-current assets by geographical location is detailed below:
North America
Europe and Middle East
Asia Pacific
Total
2019
$’000
1,032
1,464
5,283
7,779
2018
$’000
571
518
4,774
5,863
65
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
2 PERFORMANCE FOR THE YEAR (continued)
2.3 Individually significant items
The profit from ordinary activities before income tax includes the following expenses:
Depreciation, amortisation and impairment
Rental expenses relating to operating leases
Inventory provision
2.4 Other gains – net
2019
$’000
2,140
1,148
475
2018
$’000
1,499
996
592
Foreign exchange gains and losses are recognised in accordance with the accounting policy at note 1.2(e). Gains or losses on derivative financial
instruments are recognised in accordance with the accounting policy referred in note 6.3.
Realised gain on derivative financial instruments
Unrealised loss on derivative financial instruments
Net foreign exchange gain
Net gain on foreign currency
Gain on disposal of property, plant and equipment
Total other gains – net
2.5 Earnings per share
2019
$’000
109
(669)
2,388
1,828
14
1,842
2018
$’000
187
(397)
1,757
1,547
2
1,549
Basic earnings per share (EPS) is calculated by dividing the net profit 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.
Diluted EPS adjusts the figures used in the determination of Basic EPS to take into account the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been
outstanding assuming the conversion of all dilutive potential ordinary shares.
a) Basic earnings per share
Basic earnings attributable to the ordinary equity holders of the parent entity
b) Diluted earnings per share
Diluted earnings attributable to the ordinary equity holders of the parent entity
2019
Cents
4.54
4.49
2018
Cents
1.92
1.91
$’000
$’000
c) Net earnings used in calculating earnings per share
Net profits after income tax expense attributable to owners of the parent entity
13,602
5,751
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
299,767,940
298,974,730
Adjustments for calculation of diluted earnings per share
Performance rights and options
Weighted average number of ordinary shares and potential ordinary shares used
as the denominator in calculating diluted earnings per share
3,341,958
2,728,009
303,109,898
301,702,739
Number of shares Number of shares
2.6 Dividends
No dividends were proposed, declared or paid during the financial year and to the date of this report (2018: Nil).
66
Notes to the consolidated financial statements
3
INCOME TAXES
3.1
Income tax expense
The income tax expense or benefit for the period is the tax payable on or benefit attributable to the current period’s taxable income based on the
notional income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to
unused tax losses and adjustments in relation to prior periods. Current and any deferred tax utilised are recognised in the consolidated statement of
profit or loss except to the extent that they relate to items recognised directly in other comprehensive income or equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in
respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.
The major components of income tax expense for the period are:
Consolidated statement of profit or loss
Current income tax
Current income tax expense
Deferred income tax
2019
$’000
2018
$’000
(11,536)
(5,582)
Recognition and utilisation of deferred tax assets (net) including origination and reversal of temporary differences
8,079
5,834
Adjustment relating to prior periods
Income tax (expense)/benefit reported in the statement of profit or loss
Tax relating to item in other comprehensive loss
(3,457)
229
(3,228)
252
(84)
168
Deferred tax (expense)/benefit recognised directly in other comprehensive loss relating to derivative financial instruments
(19)
38
Tax benefit relating to items in equity
Current tax benefit on share-based payments
Deferred tax benefit/(expense) on share-based payments
Tax benefit charged to equity
113
1,209
1,322
508
(230)
278
The Group first recorded previously unrecognised deferred tax assets in relation to the Australian entities in 2017 and the US entity in 2018 based
on an assessment of its operations. Following a further assessment of the operations of the Group for the year ended 30 June 2019, it has been
determined that taxable profits will continue to be generated by the Australian and US entities against which tax credits and future deductible
temporary differences will be utilised.
Following an assessment of the groups Canadian and UK operations, it has been determined that it is probable that taxable profits will be generated
by the Canadian and UK subsidiaries against which carried forward tax losses and deductible temporary differences will be utilised. As a result,
previously unrecognised deferred tax assets for the Canadian and UK entities were recognised in 2019 to the extent of probable taxable profits.
The net deferred tax assets of the Group as at 30 June 2019 amounted to $12,893,000 (2018: $14,808,000) as detailed in note 3.2.
67
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
3
INCOME TAXES (continued)
The reconciliation of income tax expense to prima facie tax payable is as follows:
Operating profit before income tax from continuing operations
The prima facie income tax expense applicable to the operating profit
is calculated at the Australian tax rate of 30% (2018: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Research and development
Derecognition of deferred tax assets in foreign jurisdictions
Effect of tax rate in foreign jurisdictions
Decrease in income tax expense due to:
Other deductible expenses
Utilisation of R&D tax credit in Australia
Initial recognition and/or utilisation of deferred tax assets related to foreign subsidiaries
Utilisation of unrecognised deferred tax assets in foreign jurisdictions
Effect of tax rate in foreign jurisdictions
Adjustment relating to prior period
Income tax (expense)/benefit
3.2 Deferred taxes
2019
$’000
16,830
2018
$’000
5,583
(5,049)
(1,675)
(372)
(3,412)
—
—
354
4,710
203
—
109
229
(3,228)
(289)
(2,964)
(794)
(535)
2,038
1,981
2,437
53
—
(84)
168
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 judgement is required to determine the amount of deferred tax asset that can be recognised, based upon the likely timing
and level of future taxable profits together with future tax planning strategies. These are reviewed at each reporting date.
An assessment of the operations resulted in the recognition of the deferred tax assets on losses and temporary differences relating to the Australian
entity in 2017 and US entity in 2018 and the deferred tax asset on losses of the Canadian and UK entities in 2019 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.
68
Notes to the consolidated financial statements
3
INCOME TAXES (continued)
As at 30 June 2019, the net deferred tax asset recognised in the statement of financial position comprises:
Deferred tax assets
Non-refundable R&D tax credits
Tax losses in foreign subsidiary tax jurisdictions
Share-based payments
Employee benefits liabilities
Patent costs
Provisions for warranties and make good
Share issue costs
Contract liabilities
Inventory provision
Deferred rent
Derivative financial instruments
Future intercompany deductible expenses
Others
Total deferred tax assets
Deferred tax liabilities
Unrealised foreign exchange gains
Accrued interest and other income
Property, plant and equipment
Others
Total deferred tax liabilities
Net deferred tax asset
2019
$’000
4,019
1,139
2,624
975
564
226
2
1,639
235
59
19
1,769
526
13,796
(193)
(120)
(489)
(101)
(903)
12,893
2018
$’000
9,915
1,102
1,073
857
605
174
61
1,091
358
73
158
244
126
15,837
(893)
(117)
(12)
(7)
(1,029)
14,808
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 2019, the Group has unrecognised deferred tax assets in relation to its subsidiaries as follows:
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
Carried forward tax losses utilised
Tax losses for the period related to non-Australian entities
Recognition of deferred tax assets on US tax losses
Partial recognition of deferred tax assets on Canadian tax losses
Partial recognition of deferred tax assets on UK tax losses
Estimated unrecognised tax losses carried forward at the end of the period
Potential tax benefit at 20.4% effective tax rate (2018: 20.7%)
The probability of recovery of unrecognised tax losses in relation to the subsidiaries is reviewed on an on-going basis.
2019
$’000
7,846
212
(928)
—
—
(761)
(1,917)
4,452
909
2018
$’000
11,284
(679)
(2,237)
3,649
(4,171)
—
—
7,846
1,628
69
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
4 EMPLOYEE BENEFITS
4.1 Staffing costs
Staffing costs included in the profit or loss statement consist of:
Salaries and wages
Termination benefits
Superannuation, pension and social security contribution
Workers’ compensation
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
4.2 Employee benefits liabilities
i) Wages, salaries and annual leave
2019
$’000
26,299
329
2,760
172
1,056
1,154
3,774
1,616
2018
$’000
22,093
544
2,204
154
985
828
3,149
2,187
37,160
32,144
6,009
17,343
6,703
7,105
37,160
4,514
15,026
5,757
6,847
32,144
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 on corporate bonds at the reporting date 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.
70
Notes to the consolidated financial statements
4 EMPLOYEE BENEFITS (continued)
Employee benefits liabilities as at the reporting date:
Provision for annual leave
Provision for long service leave
Provision for bonuses
Total employee benefits liabilities
4.3 Share-based payments
2019
Current Non-current
$’000
$’000
1,818
162
1,473
3,453
—
513
—
513
Total
$’000
1,818
675
1,473
3,966
2018
Current Non-current
$’000
$’000
1,471
200
1,335
3,006
—
440
—
440
Total
$’000
1,471
640
1,335
3,446
Share-based compensation benefits are equity-settled transactions provided to employees via the Nanosonics share-based compensation plans.
i)
Share-based compensation plans
On 4 November 2016, the Nanosonics Omnibus Equity Plan (NOEP) was adopted following approval by shareholders. The Omnibus Plan allows
the Board to issue a range of incentive awards with the purpose of providing competitive, performance-based remuneration in alignment with the
interests of shareholders. The NOEP is intended to replace existing plans and will operate in accordance with the terms of the Nanosonics Omnibus
Equity Plan Trust Deed, under which the trustee may subscribe for, or acquire, deliver, allocate or hold, shares for the benefit of the participants.
Participants will be able to access the relevant taxation concessions available under the Income Tax Assessment Act 1997 (ITAA 1997).
Under the NOEP Plan, eligible employees (including Executive Directors, casual employees and certain contractors) may be offered shares in
Nanosonics Limited (Share Awards), Performance Share Awards, options or rights.
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 the Nanosonics Employee Share Option Plan (ESOP) which was established in 2007 and last approved by the shareholders on
8 November 2013. The ESOP is being phased out and replaced by the NOEP. No further offers will be made under the ESOP.
ii) Exercise of performance rights and options
Performance rights and options are granted under the NOEP 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 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 12 months from the last date of employment provided it is a Qualifying
Event (as defined in the NOEP plan rules to include death, serious injury/illness, retirement, retrenchment or as otherwise determined by the Board).
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
All Plans
2019
2018
2019
2018
2019
2018
Number
Number
Number
Number
of options WAEP
($)
and rights
of options WAEP
($)
and rights
of options WAEP
($)
and rights
of options WAEP
($)
and rights
Unexpired as at 1 July
2,293,411
Granted during the year
1,890,430
Exercised during the year
(179,178)
1.35
2.53
—
1,070,230
1,601,972
(201,843)
Forfeited during the year
(385,822)
1.30
(176,948)
Unexpired as at 30 June 3,618,841
2.04
2,293,411
1.32
1.25
—
1.77
1.35
966,542
—
(443,022)
(138,732)
384,788
Exercisable at 30 June
127,011
—
21,799
—
384,788
—
—
—
—
—
—
2,452,292
—
(1,461,033)
(24,717)
966,542
—
—
—
—
—
—
—
Number
Number
of options of options
and rights and rights
3,259,953
3,522,522
1,890,430
1,601,972
(622,200)
(1,662,876)
(524,554)
(201,665)
4,003,629
3,259,953
511,799
21,779
622,200 performance rights and options were exercised in 2019. The weighted average share price based on the dates of the exercise was $3.29
(2018: $2.49). No performance rights or options expired during the periods covered by the above table.
71
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
4 EMPLOYEE BENEFITS (continued)
Performance rights and options outstanding at the end of the year have the following expiry dates and exercise prices:
Exercise
price
($)
Assessed
fair value at
grant date
($)
Expiry
date
Number
at start of
the year
Number
granted
during
the year
Number
exercised
during
the year
Number
forfeited
during
the year
Number
at end of
the year
Number
vested and
exercisable at
end of year
Option
Plan
Description
NOEP
2019 Special Award
NOEP
2019 Special Award
Grant date
28 May 19
28 May 19
NOEP
2018 LTIS Tranche 1 – CEO
9 Nov 18
NOEP
2018 LTIS Trance 1 – Others
4 Feb 19
NOEP
2018 LTIS Tranche 2 – CEO
9 Nov 18
NOEP
2018 LTIS Tranche 2 – Others
4 Feb 19
NOEP
2018 Deferred STI – CEO
NOEP
2018 Deferred STI – CEO
9 Nov 18
9 Nov 18
NOEP
2018 Deferred STI – Others
22 Nov 18
NOEP
2017 LTIS Tranche 1 – CEO
NOEP
2017 LTIS Tranche 2 – CEO
3 Nov 17
3 Nov 17
NOEP
2017 LTIS Tranche 1 – Others
9 Feb 18
NOEP
2017 LTIS Tranche 2 – Others
9 Feb 18
NOEP
2017 LTIS Trance 1 – CEO
NOEP
2017 LTIS Tranche 2 – CEO
3 Nov 17
3 Nov 17
NOEP
2017 LTIS Tranche 1 – Others
9 Feb 18
NOEP
2017 LTIS Tranche 2 – Others
9 Feb 18
NOEP
2017 Deferred STI – CEO
3 Nov 17
NOEP
2017 Deferred STI – Others
11 Jan 18
NOEP
2016 Deferred STI
NOEP
2016 LTIS Tranche 1
NOEP
2016 LTIS Tranche 2
NOEP
2016 LTIS Tranche 3
NOEP
2016 LTIS Tranche 1
NOEP
2016 LTIS Tranche 2
NOEP
2016 LTIS Tranche 3
ESOP
2015 LTIS Tranche 1
ESOP
2015 LTIS Tranche 2
Total
5 Jan 17
5 Jan 17
5 Jan 17
5 Jan 17
5 Jan 17
5 Jan 17
5 Jan 17
4 Jan 16
4 Jan 16
—
—
3.44
3.44
—
—
—
—
—
—
—
—
—
2.38
2.38
2.38
2.38
—
—
—
2.85
2.85
2.85
—
—
—
—
—
4.41
4.41
0.80
0.86
1.24
1.41
3.21
3.21
2.97
2.16
2.04
1.95
1.75
1.00
1.02
4 Mar 25
04 Feb 25
30 Sep 24
30 Sep 24
30 Sep 24
30 Sep 24
31 Aug 22
31 Aug 23
31 Aug 22
31 Aug 23
31 Aug 23
—
—
—
—
—
—
—
—
—
12,867
12,866
31 Aug 23
204,104
31 Aug 23
204,089
31 Aug 23
170,212
31 Aug 23
170,212
0.84
31 Aug 23
204,830
0.79
2.81
2.75
3.07
1.00
31 Aug 23
204,827
31 Aug 21
45,513
31 Aug 21
249,347
1 Sep 20
21,779
31 Aug 22
115,519
0.98
31 Aug 22
115,517
31 Aug 22
231,038
31 Aug 22
82,676
31 Aug 22
82,662
31 Aug 22
165,353
1.05
2.59
2.33
3.07
1.46
1.06
59,368
60,837
286,885
1,105,411
20,900
120,047
16,502
16,501
203,979
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
59,368
60,837
286,885
(62,367)
1,043,044
—
20,900
(12,107)
107,940
—
—
16,502
16,501
(22,976)
181,003
—
—
12,867
12,866
— (48,319)
155,785
— (48,314)
—
—
—
—
— (38,654)
— (38,654)
—
—
(171,044)
(9,628)
(8,134)
(822)
155,775
170,212
170,212
166,176
166,173
45,513
68,675
12,823
—
—
—
—
—
—
(8,428)
107,091
(8,427)
107,090
(16,855)
(17,568)
(17,566)
(35,137)
214,183
65,108
65,096
130,216
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45,513
68,675
12,823
—
—
—
—
—
—
31 Aug 21 1
483,265
— (229,245)
(69,366)
184,654
184,654
31 Aug 21 1
483,277
—
(213,777)
(69,366)
200,134
200,134
3,259,953 1,890,430 (622,200)
(524,554)
4,003,629
511,799
1. 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 provide 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 August 2021.
All the terms and conditions of 2015 LTIS remained the same.
iv) Fair values
Fair values of performance rights and options granted
The assessed fair value on the date performance rights and options were granted was independently determined using an appropriate valuation
model that takes into account relevant inputs including the exercise price, the term of the performance right or option, the impact of dilution, the
share price at grant date, the 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.
72
Notes to the consolidated financial statements
4 EMPLOYEE BENEFITS (continued)
The inputs used in the measurement of the fair values at the grant date are the following:
Exercise
price
($)
Grant
date
Vesting
date
Estimated
share price
at grant
date
($)
Expiry
date
Expected
price
volatility
of the
Company’s
shares
%
Valuation
model
Expected
dividend
yield
%
Risk-free
interest
rate
%
Assessed
fair value
at grant
date
($)
— 28 May 19 4 Mar 22 4 Mar 25
4.41
Black-Scholes
37.76
0.00
— 28 May 19 4 Mar 22 4 Mar 25
4.41
Black-Scholes
37.76
0.00
1.12
1.12
4.41
4.41
3.44 9 Nov 18 30 Sep 21 30 Sep 24
3.21
Monte Carlo
41.09
0.00
2.19
0.80
3.44
4 Feb 19 30 Sep 21 30 Sep 24
3.46
Monte Carlo
40.09
0.00
1.74
0.86
— 9 Nov 18 30 Sep 21 30 Sep 24
3.21
Monte Carlo
37.34
0.00
2.19
1.24
— 4 Feb 19 30 Sep 21 30 Sep 24
3.46
Monte Carlo
37.63
0.00
1.74
1.41
— 22 Nov 18 31 Aug 19 31 Aug 22
2.97
Black-Scholes
36.67
0.00
2.19
2.97
— 9 Nov 18 31 Aug 20 31 Aug 23
3.21
Black-Scholes
36.67
0.00
2.19
3.21
— 22 Nov 18 31 Aug 19 31 Aug 22
2.97
Black-Scholes
37.34
0.00
2.14
2.97
Plan
Description
Vesting Conditions
Granted during the year:
NOEP
NOEP
2019 Special
Award
2019 Special
Award
Service
Service
Absolute CAGR
TSR performance
and service
Absolute CAGR
TSR performance
and service
Absolute CAGR
TSR performance
and service
Absolute CAGR
TSR performance
and service
NOEP
2018 LTIS
Tranche 1 – CEO
NOEP
2018 LTIS
Tranche 1 – Others
NOEP
2018 LTIS
Tranche 2 – CEO
NOEP
NOEP
NOEP
NOEP
2018 LTIS
Tranche 2 – Others
2018 Deferred
STI – CEO
2018 Deferred
STI – CEO
2018 Deferred
STI – Others
Service
Service
Service
Granted in prior periods and unexpired at report date:
NOEP
2017 LTIS
Tranche 1 – CEO
NOEP
2017 LTIS
Tranche 2 – CEO
NOEP
2017 LTIS
Tranche 1 – Others
NOEP
2017 LTIS
Tranche 2 – Others
NOEP
2017 LTIS
Tranche 1 – CEO
NOEP
2017 LTIS
Tranche 2 – CEO
NOEP
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
Monte Carlo
35.00
0.00
1.90
2.16
— 3 Nov 17 31 Aug 20 31 Aug 23
2.81
Monte Carlo
35.00
0.00
1.90
2.04
— 9 Feb 18 31 Aug 20 31 Aug 23
2.67
Monte Carlo
34.00
0.00
2.10
1.95
— 9 Feb 18 31 Aug 20 31 Aug 23
2.67
Monte Carlo
34.00
0.00
2.10
1.75
2.38
3 Nov 17 31 Aug 20 31 Aug 23
2.81
Monte Carlo
35.00
0.00
2.10
1.00
2.38
3 Nov 17 31 Aug 20 31 Aug 23
2.81
Monte Carlo
35.00
0.00
2.10
1.02
2.38
9 Feb 18 31 Aug 20 31 Aug 23
2.67
Monte Carlo
35.00
0.00
2.30
0.84
2.38
9 Feb 18 31 Aug 20 31 Aug 23
2.67
Monte Carlo
35.00
0.00
2.30
0.79
2017 Deferred
STI – CEO
2017 Deferred
STI – Others
Service
Service
— 3 Nov 17 31 Aug 18 31 Aug 21
2.81
Black-Scholes
31.00
0.00
1.70
2.81
— 11 Jan 18 31 Aug 18 31 Aug 21
2.75
Black-Scholes
30.00
0.00
1.70
2.75
73
NOEP
NOEP
NOEP
Nanosonics Annual Report 2019 Notes to the consolidated financial statements
4 EMPLOYEE BENEFITS (continued)
Exercise
price
($)
Grant
date
Vesting
date
Estimated
share price
at grant
date
($)
Expiry
date
Expected
price
volatility
of the
Company’s
shares
%
Valuation
model
Expected
dividend
yield
%
Risk-free
interest
rate
%
Assessed
fair value
at grant
date
($)
Plan
Description
Vesting Conditions
NOEP
2016 LTIS
Tranche 1
NOEP
NOEP
2016 LTIS
Tranche 2
2016 LTIS
Tranche 3
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
2.85
5 Jan 17 31 Aug 19 31 Aug 22
3.07
Monte Carlo
35.80
0.00
2.00
1.00
2.85
5 Jan 17 31 Aug 19 31 Aug 22
3.07
Monte Carlo
35.80
0.00
2.00
0.98
NOEP
2016 Deferred STI Service
— 5 Jan 17
1 Sep 17
1 Sep 20
2.85
5 Jan 17 31 Aug 19 31 Aug 22
3.07
3.07
Black-Scholes
Black-Scholes
35.80
35.80
0.00
0.00
2.00
2.00
1.05
3.07
NOEP
2016 LTIS
Tranche 1
NOEP
NOEP
2016 LTIS
Tranche 2
2016 LTIS
Tranche 3
ESOP
2015 LTIS
Tranche 1
ESOP
2015 LTIS
Tranche 2
Relative TSR
performance
and service
Relative TSR
performance
and service
Pre-tax EPS
and service
Relative TSR
performance
and service
Relative TSR
performance
and service
Fair values of shares granted
— 5 Jan 17 31 Aug 19 31 Aug 22
3.07
Monte Carlo
35.80
0.00
2.00
2.59
— 5 Jan 17 31 Aug 19 31 Aug 22
3.07
Monte Carlo
35.80
0.00
2.00
2.33
— 5 Jan 17 31 Aug 19 31 Aug 22
3.07
Black-Scholes
35.80
0.00
2.00
3.07
— 4 Jan 16 31 Aug 18 31 Aug 21
1.67
Monte Carlo
37.50
0.00
2.00
1.46
— 4 Jan 16 31 Aug 18 31 Aug 21
1.67
Monte Carlo
37.50
0.00
2.00
1.06
The issue price for shares granted is calculated as the 5-day volume 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.
v) Recognition of expenses
Recognition of expense of performance rights and options granted
The fair value of performance rights and options granted is recognised as an employee expense with a corresponding increase in equity, on a straight
line monthly basis over the vesting period in which the performance and/or service conditions are fulfilled after which the employees become
unconditionally entitled to them. The cumulative expense recognised for share-based payments at each reporting date until the vesting date reflects
the extent to which the vesting period has ended 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 1,616,000
(2018: $2,187,000).
During the financial year there were no shares directly granted under the NOEP (2018: Nil).
vi) Summary of shares issued by the trustee
Shares issued on the exercise of performance rights and options granted to employees are initially held by the trustee of the NOEP or ESOP,
Sargon CT Pty Ltd.
Following is a reconciliation of shares held by the trustee of the NOEP and ESOP:
Employee shares on issue 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 at 30 June
74
2018
Number of shares Number of shares
2019
1,106,449
622,200
—
2,153,926
1,612,124
36,823
(907,216)
(2,696,424)
821,433
1,106,449
Notes to the consolidated financial statements
5 ASSETS AND LIABILITIES RELATED TO CONTRACTS WITH CUSTOMERS
5.1 Contract balances
The Group’s accounting policy relating to trade and other receivables is detailed in note 6.2.
Costs to obtain customer contracts include sales commissions paid to employees and are amortised over the customer contract period. Costs to obtain
customer contracts expected to be amortised within 12 months of the reporting period are classified as current.
Assets related to contracts with customers are as follows:
2019
Current Non-current
$’000
$’000
Trade and other receivables
Cost to obtain customer contracts
19,700
280
Total assets related to contracts with customers
19,980
—
214
214
Total
$’000
19,700
494
20,194
2018
Current Non-current
$’000
$’000
8,613
—
8,613
—
—
—
Total
$’000
8,613
—
8,613
Contract liabilities are the obligation to transfer goods and services to a customer for which the entity has received consideration (or an amount of
consideration is due) from the customer. Contract liabilities expected to be realised within 12 months of the reporting period are classified as current.
Liabilities related to contracts with customers are as follows:
2019
Current Non-current
$’000
$’000
Contract liabilities
4,012
Total liabilities related to contracts with customers 4,012
2,532
2,532
Total
$’000
6,544
6,544
2018
Current Non-current
$’000
$’000
2,932
2,932
1,678
1,678
Revenue recognised that was included in the contract liability balance at the beginning of the period
6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES
6.1 Cash and cash equivalents
2019
$’000
3,044
Total
$’000
4,610
4,610
2018
$’000
1,697
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and
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
2019
$’000
11,626
1,054
59,500
72,180
2018
$’000
13,812
2,130
53,491
69,433
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 8(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.
75
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
ii) Reconciliation of profit before income tax to net cash inflow from operating activities
Operating profit before income tax
Adjustment for:
Depreciation and amortisation
Share-based payments
Borrowing costs
Gain on disposal of property, plant and equipment
Income tax paid
Unrealised gain on foreign exchange movements
Changes in assets and liabilities
(Increase)/decrease in derivative financial instruments
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in prepayments and other current assets
(Increase)/decrease in other non-current assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in contract balances
Increase/(decrease) in employee benefit liabilities
Increase/(decrease) in provisions
Net cash provided by operating activities
iii) Credit standby arrangements unused
Facility limits:
Borrowing facilities
Guarantee facility
Facility remaining available:
Borrowing facilities
Guarantee facility
2019
$’000
16,830
2,140
1,616
36
(14)
(139)
(1,874)
(441)
(10,909)
(6,671)
(888)
(5)
2,538
1,955
478
174
4,826
2019
$’000
620
475
99
14
2018
$’000
5,583
1,499
2,187
58
(2)
(148)
(1,892)
735
586
(1,963)
33
(10)
539
1,533
295
(24)
9,009
2018
$’000
2,115
475
1,170
14
The terms of the borrowing facility are described in note 6.5
6.2 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
are measured at amortised cost using the effective interest rate method. 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.
76
Notes to the consolidated financial statements
6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
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 is provided in note 8.
Trade receivables net of allowance for impairment loss
GST/VAT receivables
Interest and other receivables
Total trade and other receivables
6.3 Derivative financial instruments
2019
$’000
18,620
658
422
19,700
2018
$’000
7,525
658
430
8,613
The Group uses derivative financial instruments (foreign currency contracts) to hedge its foreign currency risks. Such derivative financial instruments
are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The fair values of foreign 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 or 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 or 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 or loss statement.
– If the forward exchange contract no longer meets the criteria for hedge accounting, expires, is 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 valuations. Similar contracts are traded in an active
market and the independent valuations reflect the actual transactions in similar instruments.
2019
2018
Current Non-current
$’000
$’000
Total
$’000
Current Non-current
$’000
$’000
Total
$’000
Derivative financial assets as follows:
Derivative financial instruments
189
237
426
158
Derivative financial liabilities as follows:
Derivative financial instruments
287
160
447
684
—
—
158
684
77
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
6.4 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 12 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.
2019
Current Non-current
$’000
$’000
3,225
75
3,704
7,004
—
121
—
121
Total
$’000
3,225
196
3,704
7,125
2018
Current Non-current
$’000
$’000
1,836
48
2,487
4,371
—
195
—
195
Total
$’000
1,836
243
2,487
4,566
Trade payables
Lease straight-lining liabilities
Other payables
Total trade and other payables
6.5 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 12 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
Total borrowings
2019
$’000
2018
$’000
445
76
521
424
522
946
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 liabilities at the end of the year are as follows:
2019
2018
Minimum
payments
$000
Present value
of payments
$000
Minimum
payments
$000
Present value
of payments
$000
Within 1 year
After 1 year but not more than 5 years
Total minimum lease payments
Less future finance charges
Present value of minimum lease payments
461
77
538
(17)
521
445
76
521
—
521
Finance leases liability at 1 July
Interest charged
Repayment of borrowings
Interest paid
Finance leases liability at 30 June
461
538
999
(53)
946
2019
$’000
946
36
(425)
(36)
521
424
522
946
—
946
2018
$’000
1,350
58
(404)
(58)
946
The carrying value of the finance lease liability is considered to approximate its fair value because the interest payable on this borrowing is close to
current market rates.
78
Notes to the consolidated financial statements
7 OPERATING ASSETS AND LIABILITIES
7.1
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, selling, marketing and
distribution expenses.
Raw materials and stores
Work in progress
Finished goods
Total inventories
2019
$’000
7,763
168
6,087
14,018
2018
$’000
3,861
386
4,689
8,936
Inventories recognised as an expense (cost of sales) during the year ended 30 June 2019 amounted to $16,978,000 (2018: $12,531,000).
Management has performed an assessment of inventories held for the year ended 30 June 2019 including the impact of the introduction of the
second generation of trophon® in the current year and recognised write-downs during the year of $475,000 (2018: $592,000). The expense has been
included in selling and general expenses in the profit or loss statement.
7.2 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 or 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 for more than one period.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the profit or 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 as finance costs in the profit or 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 2 to 7 years.
The assets’ residual values, useful lives and depreciation methods are reviewed prospectively and adjusted, if appropriate, at least annually.
iv)
Impairment
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Non-financial assets, other than intangibles,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the assets’ carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets
(cash-generating units).
Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
79
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
7 OPERATING ASSETS AND LIABILITIES (continued)
Total property, plant and equipment at net book amount
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
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
Year ended 30 June 2019
Opening net book amount
Additions
Retirement and others
Transfers
Depreciation charge
Foreign currency translation effect (net)
Closing net book amount at 30 June 2019
At 30 June 2019
Cost or fair value
Impairment
Accumulated depreciation
Net book amount at 30 June 2019
7.3 Intangible assets
i) Research and development
1,644
60
—
—
(404)
2
1,302
2,495
—
(1,193)
1,302
1,302
295
—
—
(448)
1
1,150
2,791
—
(1,641)
1,150
1,157
2,875
(6)
650
(870)
8
3,814
8,278
(45)
(4,419)
3,814
3,814
2,404
(20)
157
(1,375)
10
4,990
10,829
(45)
(5,794)
4,990
663
139
—
(650)
—
—
152
152
—
—
152
152
589
—
(157)
—
5
589
589
—
—
589
Total
$’000
3,464
3,074
(6)
—
(1,274)
10
5,268
10,925
(45)
(5,612)
5,268
5,268
3,288
(20)
—
(1,823)
16
6,729
14,209
(45)
(7,435)
6,729
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 it commercial and technical feasibility, be completed and generate future economic benefits and its cost can be measured
reliably. Otherwise, these are expensed as incurred.
iii) ERP system and computer software
The expenditure incurred on the Group’s Enterprise Resource Planning (ERP) system and computer software and the costs necessary for the
implementation of the system are recognised as an intangible asset, to the extent Nanosonics controls future economic benefits as a result of the
costs incurred, and are stated at cost less accumulated amortisation. Costs include expenditure that is directly attributable to the development and
implementation of the system.
80
Notes to the consolidated financial statements
7 OPERATING ASSETS AND LIABILITIES (continued)
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 5 years and ERP system and computer
software 3 years.
Amortisation is recognised in the profit or loss statement from the date the asset is available for use unless their lives are indefinite. Intangible assets
with an indefinite useful life are tested annually for impairment.
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 (2018: Nil).
Total intangible assets at net book amount
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
Accumulated depreciation
Net book amount at 30 June 2018
Year ended 30 June 2019
Opening net book amount
Additions
Amortisation
Foreign currency translation effect (net)
Closing net book amount at 30 June 2019
At 30 June 2019
Cost or fair value
Accumulated depreciation
Net book amount at 30 June 2019
7.4 Provisions
i) General
Development
Costs
$’000
ERP and
Computer
Software
$’000
—
—
—
—
—
201
(201)
—
—
—
—
—
—
201
(201)
—
281
507
(225)
—
563
1,977
(1,414)
563
563
551
(317)
2
799
2,530
(1,731)
799
Total
$’000
281
507
(225)
—
563
2,178
(1,615)
563
563
551
(317)
2
799
2,731
(1,932)
799
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.
81
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
7 OPERATING ASSETS AND LIABILITIES (continued)
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 or loss statement over the life of the lease.
a. Provisions as at the reporting date
Provision for warranty
Make good provision
Total provisions
b. Movements in provisions
Carrying amount at the beginning of the year
Additional provisions recognised
Amounts used during the period
Carrying amount at end of the year
2019
2018
Current Non-current
$’000
$’000
Total
$’000
Current Non-current
$’000
$’000
678
—
678
—
75
75
678
75
753
505
—
505
—
75
75
Provision for
warranty
$’000
Make good
provision
$’000
505
325
(152)
678
75
—
—
75
Total
$’000
505
75
580
Total
$’000
580
325
(152)
753
The Group has recognised a provision for warranty consistent with the policy applied in prior periods. The Group has made assumptions in relation to
the values estimated to be required to settle the warranty obligation on all products under warranty at the balance date.
8 FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial 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 Group’s risk management framework. Responsibility for the development and implementation of
controls to address risks is assigned to the Audit and Risk Committee. The responsibility is supported by the development of standards, policies and
procedures for the management of these risks.
The financial risk management policies of the Group are consistent with prior periods. Management have identified that foreign currency risk and
credit risk on receivables are material to the Group.
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 a currency other than the Group’s functional currency) and the Group’s net investments in foreign subsidiaries. The
Group enters into foreign currency contracts to mitigate its foreign currency risk on its net cash flows.
82
Notes to the consolidated financial statements
8 FINANCIAL RISK MANAGEMENT (continued)
Exposure
The Group’s primary exposure to foreign currency risk in the consolidated balance sheet at the end on the reporting period mainly comprised:
2019
USD
$’000
2,095
12,977
(952)
GBP
£’000
2,260
283
(118)
EUR
€ ‘000
CAD
$’000
488
310
(203)
898
270
(166)
USD
$’000
6,951
4,098
(486)
14,120
2,425
595
1,002
10,563
2018
GBP
£’000
EUR
€ ‘000
603
450
(178)
875
242
360
(230)
372
CAD
$’000
1,043
335
(106)
1,272
19,420
—
—
—
9,789
—
—
—
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Foreign currency forward contracts
and options to buy/sell USD
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%
Decrease 5%
Change in GBP rate
Increase 5%
Decrease 5%
Change in EUR rate
Increase 5%
Decrease 5%
Change in CAD rate
Increase 5%
Decrease 5%
2019
’000
2,124
(2,222)
608
(550)
35
(32)
146
(132)
2018
’000
1,410
(1,333)
336
(304)
90
(81)
131
(118)
2019
’000
(606)
549
(638)
577
—
—
(151)
137
2018
’000
(520)
470
(399)
361
(98)
88
(118)
107
Post-tax profit and 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.
83
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
8 FINANCIAL RISK MANAGEMENT (continued)
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 summarized below:
Fixed interest rate maturing in:
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
2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
6.1
6.2
6.3
12,680
59,500
—
—
—
—
Total financial assets
12,680
59,500
Weighted average interest rate
0.13%
2.43%
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
Weighted average interest rate
6.4
6.5
6.3
—
—
—
—
—
Net financial assets/(liabilities)
12,680
59,055
(76)
4.92%
4.92%
—
—
—
—
—
76
—
76
Total
$’000
72,180
19,700
426
—
19,700
426
20,126
92,306
7,125
—
447
7,572
—
7,125
521
447
8,093
—
12,554
84,213
—
—
—
—
—
—
—
—
—
—
2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Total financial assets
Weighted average interest rate
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
Weighted average interest rate
Fixed interest rate maturing in:
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
15,942
53,491
6.1
6.2
6.3
6.4
6.5
6.3
—
—
15,942
0.22%
—
—
—
—
—
—
—
—
—
—
—
522
—
522
4.92%
(522)
—
—
—
—
—
—
—
—
—
—
—
—
8,613
158
8,771
4,566
—
684
5,250
—
3,521
Total
$’000
69,433
8,613
158
78,204
4,566
946
684
6,196
—
72,008
Net financial assets/(liabilities)
15,942
Sensitivity
The profit or 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 2019, 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 $124,000 (2018: $116,000). 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.
84
—
445
—
445
—
—
53,491
2.63%
—
424
—
424
4.92%
53,067
Notes to the consolidated financial statements
8 FINANCIAL RISK MANAGEMENT (continued)
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 6. 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 and Middle East
Asia Pacific
Maximum exposure to credit risk for trade receivable by type of counterparty was as follows:
Distributors
End-user customers
2019
$’000
16,616
551
1,453
18,620
2019
$’000
12,602
6,018
18,620
2018
$’000
5,739
976
810
7,525
2018
$’000
2,270
5,255
7,525
As at 30 June 2019, GE Healthcare (worldwide) accounted for over 65% of the trade receivables (2018: GE Healthcare Group accounted
for over 23% of the trade receivables).
Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities.
i) Risk management
Credit risk is managed on a group basis. The Group may only invest surplus funds in deposits and floating rate notes offered by any major bank
approved by the Board 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 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.
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 A-2 from Standard and Poor’s
Covered by credit insurance
Other customers:
4 or more years trading history with the Group
Less than 4 years of trading history with the Group
2019
$’000
9,539
3,853
944
64
14,400
2018
$’000
2,057
3,267
708
385
6,417
85
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
8 FINANCIAL RISK MANAGEMENT (continued)
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 based on expected losses from the time a loan is originated, based on the deterioration of credit risks since initial recognition. 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; or
– 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 or 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 2019, trade receivables with a nominal value of $29,000 (2018: $9,000) were considered impaired and fully provided for.
The movement in provision for impairment in respect of trade and other receivables during the year was as follows:
Balance at 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
Unused amount reversed
Balance at 30 June
Past due not impaired
2019
$’000
2018
$’000
9
22
—
(2)
29
21
—
(6)
(6)
9
As at 30 June 2019, trade receivables of $4,220,000 (2018: $1,108,000) 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
2019
$’000
14,400
2,843
695
682
18,620
2018
$’000
6,417
787
240
81
7,525
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 $59,500,000 (2018: $53,491,000) that are expected to readily generate cash
inflows for managing liquidity risk.
86
Notes to the consolidated financial statements
8 FINANCIAL RISK MANAGEMENT (continued)
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for financial liabilities.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the
impact of discounting is not significant.
Less than 3 months
$’000
3 to 12 months
$’000
1 to 5 years Over 5 years
$’000
$’000
Tota
$’000
2019
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
2018
Trade and other payables
Borrowings
Derivative financial instruments
Total financial liabilities
9 CAPITAL STRUCTURE
9.1 Capital and reserves
a) Contributed equity
6,929
109
125
7,163
4,323
104
288
4,715
75
336
162
573
48
320
396
764
121
76
160
357
195
522
—
717
—
—
—
—
—
—
—
—
7,125
521
447
8,093
4,566
946
684
6,196
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Ordinary shares carry one vote per share and entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of shares held. On a show of hands, every ordinary shareholder present at a meeting in person or by proxy is entitled to
vote and upon a poll each share is entitled to one vote. Ordinary shares have no par value, are fully paid and the Company does not have a limited
amount of authorised capital.
Movements in ordinary share capital:
Balance at 1 July 2017
Exercise of options and performance rights – proceeds received
Balance at 30 June 2018
Exercise of options and performance rights – proceeds received
Balance at 30 June 2019
b) Reserves
i)
Share-based payments reserve
Number of shares
297,732,955
1,612,124
299,345,079
622,200
$’000
112,713
—
112,713
—
299,967,279
112,713
The share-based payments reserve is used to recognise the fair value at grant date 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.
ii) 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).
iii) 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.
87
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
9 CAPITAL STRUCTURE (continued)
9.2 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 the risk 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.
10 OTHER NOTES
10.1 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 1 year
1 year or later and no later than 5 years
5 years or later
Capital commitments
2019
$’000
1,177
1,340
—
2,517
2018
$’000
1,066
2,099
—
3,165
As at 30 June 2019, the Group had commitments to purchase plant and equipment of $1,091,000 (2018: $399,000). These commitments are not
recognised as liabilities as the relevant assets have not yet been received.
10.2 Related party transactions
a) Transactions with related parties
Note 10.3 provides the information about the Group’s structure including the details of the subsidiaries and the parent entity.
i) Directors and Key Management Personnel compensation
Director fees
Short-term employee benefits
Long-term benefits
Post-employment benefits
Termination benefits
Share-based payments
2019
$
506,849
2,454,394
225,130
157,996
—
850,655
2018
$
506,849
1,715,758
157,378
143,384
238,000
953,865
Total Directors and Key Management Personnel compensation
4,195,024
3,715,234
Detailed remuneration disclosures are provided in the Remuneration Report on pages 35 to 54.
88
Notes to the consolidated financial statements
10 OTHER NOTES (continued)
ii) 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 Pty Ltd and Domkirke Pty Ltd
Director fees
Reimbursement of costs incurred on behalf of Nanosonics
Sale of products and services to Related Parties
Purchases of goods and services from Related Parties
Reimbursement of costs incurred on behalf on Nanosonics
2019
$
2018
$
2,772,811
2,409,140
1,865
8,659
2,715
10,520
The above transactions exclude Director fees which are disclosed in Non-executive Directors’ remuneration in section 8.3 of the Remuneration Report
on page 54.
iii) 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 Regional Healthcare Group Pty Ltd:
Current trade receivables (supply of goods and services)
2019
$
2018
$
909,619
643,725
There were no amounts due from or to other Related Parties. There were no provisions for impaired receivables in relation to any outstanding
balances from Related Parties (2018: Nil) and no expense has been recognised during the period in respect of impaired receivables due from
Related Parties.
iv) Loans to Directors and Key Management Personnel
During the year and to the date of this report, the Group made no loans to Directors and Key Management Personnel and none were outstanding as
at 30 June 2019 (2018 : Nil).
v) 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.
10.3 Controlled entities
The consolidated financial statements of the Group include:
Name of controlled entity
Principal activities
Country of
incorporation
Equity
Class of shares
2019
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%
Nanosonics Japan K.K.
Sales and distribution of Nanosonics’ products and services in Japan
Japan Ordinary
100%
—
On 11 January 2019 Nanosonics Japan K.K. was established as a wholly owned subsidiary of Nanosonics Limited, based in Japan.
89
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
10 OTHER NOTES (continued)
10.4 Parent entity information
As at and throughout the financial year ended 30 June 2019, 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:
i) 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 profit/(losses)
Total equity
Profit for the year
Total comprehensive income
2019
$’000
141,431
155,615
22,208
22,871
112,713
16,188
(46)
3,889
132,744
15,482
15,564
2018
$’000
113,943
131,359
16,149
17,186
112,713
13,232
(91)
(11,681)
114,173
7,236
7,145
ii) Guarantees entered into by the parent entity
For the year ended 30 June 2019 and 30 June 2018, 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.
iii) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2019 or 30 June 2018.
iv) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2019, the parent entity had commitments to purchase plant and equipment of $1,069,000 (2018: $399,000). These commitments are not
recognised as liabilities as the relevant assets have not yet been received.
v) Accounting policies
The accounting policies of the parent entity are consistent with the Group except for Investment in controlled entities which is carried in the parent
company financial statements at the lower of cost or recoverable amount.
90
Notes to the consolidated financial statements
10 OTHER NOTES (continued)
10.5 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:
Ernst & Young Australia
Audit and review of financial reports
Tax compliance services
Total remuneration of Ernst & Young Australia
Ernst & Young Global
Tax compliance services
Total remuneration of Ernst & Young Global
UHY Haines Norton
Audit and assurance service
Audit and review of financial reports
Total remuneration of UHY Haines Norton
Network firm of UHY Haines Norton
Audit and assurance service
Audit and review of financial reports
Tax compliance services
Total remuneration of network firms of UHY Haines Norton
2019
$
2018
$
303,360
86,500
389,860
23,537
23,537
—
—
—
—
—
244,475
49,300
293,775
109,064
109,064
9,485
9,485
23,074
6,567
29,641
Total auditors’ remuneration
413,397
441,965
10.6 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for financial years beginning on or after 1 January 2019 and
have not been applied in preparing these consolidated financial statements. Of the new standards, the following is expected to have an effect on the
consolidated financial statements of the Group:
AASB 16 Leases
For lessee accounting, the standard eliminates the operating lease and finance lease classification required by AASB 117, Leases. Subject to exemptions,
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 where 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 principal (financing activities) and interest (either
operating or financing activities) components. For lessor accounting, the standard does not substantially change how a lessor accounts for leases.
91
Nanosonics Annual Report 2019
Notes to the consolidated financial statements
10 OTHER NOTES (continued)
Transition to AASB 16
The Group plans to adopt AASB 16 modified retrospective method. The Group will elect to apply the standard to contracts that were previously
identified as leases applying AASB 117 and AASB Interpretation 4.
The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the
date of initial application, and lease contracts for which the underlying asset is of low value.
As at 30 June 2019, the Group has performed a detailed impact assessment of AASB 16. A summary of the expected opening balance adjustments as
at 1 July 2019 are included below.
Impact on the statement of financial position as at 1 July 2019:
Financial statement line item
Right of use asset
Accumulated depreciation - right of use asset
Right of use asset – net of accumulated depreciation
Deferred tax asset
Increase in assets
Lease liability
Trade and other payables 1
Increase in liabilities
Net decrease in equity
1. Reversal of Lease straight-lining liability in note 6.4.
Opening balance adjustment as at 1 July 2019
$ 000’
5,499
(3,488)
2,011
56
2,067
(2,413)
196
(2,217)
(150)
The impact of AASB 16 will be first presented for the half-year ending 31 December 2019. The cumulative effect of adopting the standard will be
recorded as an adjustment to the opening balance of accumulated profits/(losses).
10.7 Events occurring after the balance date
No matters or circumstances that have arisen since 30 June 2019 that have significantly affected, or may significantly affect:
a) the Group’s operations in the current of future financial years;
b) the results of those operations in the current of future financial years; or
c) the Group’s state of affairs in the current or future financial years.
92
Directors’ declaration
For the year ended 30 June 2019
1.
In the Directors’ opinion:
a) the financial statements and notes set out on pages 55 to 92 are in accordance with the Corporations Act 2001, including:
i. complying with the 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 2019 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 the 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, 27 August 2019
93
Nanosonics Annual Report 2019 Independent Auditors’ Report
to the members of Nanosonics Limited
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
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
94
Independent Auditors’ Report
to the members of Nanosonics Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
95
Nanosonics Annual Report 2019
Independent Auditors’ Report
to the members of Nanosonics Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
96
Independent Auditors’ Report
to the members of Nanosonics Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
97
Nanosonics Annual Report 2019 Independent Auditors’ Report
to the members of Nanosonics Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
98
Independent Auditors’ Report
to the members of Nanosonics Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
99
Nanosonics Annual Report 2019 Shareholder Information
The shareholder information set out below was applicable as at 14 August 2019.
A. Equity security holders
20 largest holders of quoted equity securities
Ordinary shares
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
UBS Nominees Pty Ltd
Mr Maurie Stang 1
National Nominees Limited
Mr Bernard Stang 1
Mr Steve Kritzler
Bnp Paribas Nominees Pty Ltd
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