More annual reports from Nanosonics:
2023 ReportPeers and competitors of Nanosonics:
ShockWave MedicalI N F E C T I O N
P R E V E N T I O N .
F O R L I F E .
A N N U A L R E P O R T
2 0 2 1
N A NOSONICS LIMITED | ANNUAL REPORT 2021
O U R
M I S S I O N .
We improve the safety of patients,
clinics, their staff and the environment by
transforming the way infection prevention
practices are understood and conducted,
and introducing innovative technologies
that deliver improved standards of care.
NANOSONICS (ASX:NAN) is an
Australian infection prevention
company that has successfully
developed and commercialised
a unique automated disinfection
technology, trophon®, representing
the first major innovation in high level
disinfection for ultrasound probes in
more than 20 years.
trophon is fast becoming the global
standard of care for ultrasound
probe disinfection. We will continue
to drive trophon adoption through
our ability to transform the way
infection prevention practices are
understood and conducted in existing
markets and through continued
geographical expansion.
Our commitment to innovation
is reflected in our investment in
research and product development
as we look to expand our product
portfolio and bring new infection
prevention products to market.
In June 2021, we released our
first discrete data, traceability and
compliance management system,
Nanosonics AuditProTM, which
integrates infection prevention
decision-making, track and trace,
and compliance into a single
digital solution.
Infection Prevention. For Life
1
CONTENTS.Overview and MissionFinancial highlights 2Chairman’s letter 4CEO’s report 6Our Commitment to ESG22trophon®224AuditPro26The Board28The Executive Team30Financial report32Directors’ report 32Remuneration Report 38Financial statements58Auditor’s independence declaration59Directors’ declaration 96Independent auditor’s report to the members97Other Information102Shareholder information 102Glossary104Corporate directory and information for investors105 2
F I N A N C I A L
H I G H L I G H T S .
$103.1
100.1
84.3
67.5
60.7
$80.4
75.5
62.8
50.2
45.3
15.1
20.9
$5.9
6.2
2.6
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
SALES ( $ M )
GROSS PROFIT ( $ M )
FREE CASH FLOW ( $ M )
$96.0
91.8
$70.8
63.2
49.2
42.6
37.0
13.9
16.8
$11.0
63.0
12.4
69.4
72.2
5.6
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
OPERATING EXPENSES ( $ M )
PROFIT/( LOSS ) BEFORE TA X ( $ M )
CASH AND CASH EQUIVALENTS ( $ M )
NANOSONICS LIMITED | ANNUAL REPORT 2021 3
Total revenue for the year was $103.1
million, up 3% compared with the prior
corresponding period. In constant currency,
total revenue was up 12% compared with
the prior corresponding period.
M I C H A E L K A V A N A G H | C E O
2012-2021 RESULTS$’0002021202020192018201720162015201420132012Operating revenue 103,079 100,054 84,324 60,698 67,507 42,796 22,214 21,492 14,899 12,301 Gross Profit 80,384 75,513 62,816 45,291 50,155 32,166 15,313 13,921 8,471 7,502 R&D expenses(17,194) (15,558) (11,375) (9,882) (9,486) (7,297) (4,902) (4,103) (3,167) (3,135)EBITDA 15,188 15,563 17,642 5,861 14,140 950 (4,732) (1,845) (5,366) (4,982)EBIT 10,763 11,671 15,502 4,362 12,866 (359) (5,795) (2,820) (6,410) (5,896)Operating profit/(loss) before tax 10,984 12,459 16,830 5,583 13,852 136 (5,465) (2,636) (5,735) (5,310)Net income tax benefit/(expense) (2,406) (2,322) (3,228) 168 12,306 (14) 5 31 (33) 631 Operating profit/(loss) after tax 8,578 10,137 13,602 5,751 26,158 122 (5,460) (2,605) (5,768) (4,679)Cash and cash equivalents 96,027 91,781 72,180 69,433 62,989 48,841 45,724 21,233 24,064 29,310 Infection Prevention. For Life 4
C H A I R M A N ’ S
L E T T E R .
The 2021 financial year has been unprecedented, both in terms of its challenges and
achievements. Globally, countries are aspiring to move into a more ‘normal’ phase, while
they recognise that unchecked pathogens, such as SARS-CoV-2, can and will continue to
have an ongoing impact locally and globally. The Nanosonics team has safely navigated
through this period.
We have continually met the needs of
our customers, adapting to new and
innovative ways to conduct our business
whilst maintaining our focus on having a
positive environmental impact across all
our activities. In parallel, multiple initiatives
continue to be driven across each region.
On behalf of our Board and shareholders
I take the opportunity to recognise the
outstanding efforts of the Nanosonics team
under Michael’s leadership, who display the
Company’s values and commitment in not
only meeting and exceeding our operational
objectives, but so successfully driving our
strategic aims, particularly in the arena of
our technology portfolio expansion. The
values of Agility, Discipline and Will to Win
have been on full display throughout the
year in all our operations worldwide.
The partnership with our customers has
been a real feature of the period and
demonstrates that adversity can always be
navigated with a true spirit of collaboration.
It is very pleasing to see that Nanosonics
continues to deliver on the growth of
its installed base of trophon® and the
associated ecosystem, particularly in the
second half of the year, whilst responding
to the significant impact of COVID-19 in
creating unprecedented headwinds. This
clearly demonstrates the strength and
resilience of Nanosonics’ business model,
its solid relationship with GE and other
global OEMs, together with the inherent
value of its infection prevention products
and services.
Our investment in R&D continues to grow.
Nanosonics has made a clear commitment
to expand the trophon franchise in new
and existing markets. At the same time, we
have expanded proactively across our other
areas of interest within infection prevention.
On 28 June 2021 our release of Nanosonics
AuditPro™ extends our activities into digital
health and was achieved during a period
of rolling lockdowns across many of our
Australian and U.S. operations.
The expanded technology group is now
focused in four areas: core R&D, sustaining
engineering, external technology evaluation
and Nanosonics Investments. Our mission
of ‘Infection Prevention. For Life’ is being
underwritten by our investment in our
technology teams, which are second to
none, as we maintain a profitable, growing
and innovative business.
Your Company delivered a strong financial
performance despite the many challenges
that needed to be addressed in every
dimension of the business. Customer
access restrictions resulting from
lockdowns are now trending in a positive
direction, notwithstanding the ongoing
impact of the Delta variant.
During the year, sales increased 3% to
$103.1 million. Importantly, sales in the
second half of the year were up 39%
compared with the first half as market
conditions improved. The Company
returned another positive profit before tax
outcome of $11.0 million in the context of
a significant growth in investment in our
strategic growth agenda. The Company’s
global trophon installed base continued
to grow in all markets, up 13% to 26,750,
including approximately 23,480 units in
North America installed across over 5,000
facilities, where it is clearly established as
standard of care.
Despite our record investments in an
expanded team, accelerated R&D and
resources for future growth, the Company
continues to increase its cash reserves.
These cash reserves serve the Company
in a number of ways.
NANOSONICS LIMITED | ANNUAL REPORT 2021 5
First and most
importantly, I wish to
take this opportunity
to recognise the
outstanding efforts
of the Nanosonics
team who continue
to embody the
Company’s Values
in delivering on the
Company’s strategic
growth agenda for
our customers and
shareholders.
M A U R I E S TA N G
C H A I R M A N
I N F E C T I O N
P R E V E N T I O N .
F O R L I F E .
$103.1M
REVENUE
$80.4M
GROSS PROFIT
They provide a significant degree of
stability and allow the Company to
continue to pursue its strategic growth
agenda in uncertain times. Our Board
and management are actively engaged
in reviewing our priorities, identifying
opportunities for investment and ensuring
that Nanosonics is on track to deliver
improved social and healthcare outcomes.
This remains entirely consistent with
building shareholder value through the best
use of the Company’s free cash flow and
capital reserves.
I would again like to recognise the
outstanding stewardship and commitment
of our Board. Over a number of years the
Company has gone through a process of
Board renewal. With each new director
joining, the business has benefited from an
injection of valuable expertise and industry
insight. The Board reflects diversity in a
number of important and complementary
ways. Our Directors bring a mix of skills
and perspectives that strongly support
our growth and governance objectives,
and through the Board sub-Committees
add real value to every dimension of
our business.
Nanosonics’ Sustainability Report contains
an extensive amount of information on
the environmental, social and governance
practises that are core to the Company’s
mission, future success and represents
the Company’s DNA. I trust shareholders
will see that the Report showcases our
approach to caring for our employees,
customers, suppliers, and critically, our
investment in social responsibility and the
environment. I am always particularly proud
to see the strong diversity results across
the Company and recognise the value and
creativity that support our innovative and
forward looking business.
The business has an active program of
community contributions and initiatives
which were adopted by the Board
during the past year to formalise and
expand the Company’s commitment to
society, internationally.
Your Company is strongly positioned
to continue its growth agenda and
product expansion, and to develop as an
emerging leader in infection prevention
technologies and services. The team’s
outstanding success in navigating these
‘black swan’ events demonstrate the
character, depth and breadth of your
Company’s capabilities.
We have all now seen, in the most
demonstrable way, the negative impact
that unchecked pathogens can have in
virtually every field of human endeavour.
We at Nanosonics believe that we have
a significant contribution to make in
partnership with our customers, regulators
and our industry to deliver a safer and
more efficient health care system to the
benefit of all.
We believe our expanded investments in
the future such as CORIS, together with our
strong financial position and outstanding
team, provide the opportunity for
continuing growth now and into the future.
M A U R I E S TA N G
Chairman
24 August 2021
Infection Prevention. For Life 6
C E O ’ S R E P O R T.
M I C H A E L K A V A N A G H
C E O A N D P R E S I D E N T
I start my report by acknowledging all the infection
preventionists and frontline workers globally for their tireless
efforts in managing the COVID-19 pandemic. I would also like
to acknowledge each Nanosonics employee around the world
for their resilience, flexibility, dedication and customer focus
during what has been an unprecedented year.
This resulted in many significant
achievements and progress across key
aspects of our strategy throughout the year.
Overall, the year can be viewed in two
distinct periods. The first half, in particular
the first quarter, when the impact of
COVID-19 was the greatest. During this
period, market restrictions impacted
ultrasound procedure volumes, hospital
access and consequently new installed
base growth. Then, a significant recovery
in the second half, as market conditions
improved with total revenue growing
39% over first half, including an 84%
growth in capital revenue and a 27%
growth in consumables and service
revenue and importantly, a 20% growth
in new installed base, with strong growth
momentum trending toward pre-COVID-19
levels. Investment in our growth strategies
also increased in the second half.
As an infection prevention company,
we are acutely aware of the risks of
cross-contamination and the devastation
infections can cause as clearly evidenced
through the impacts of COVID-19. Now
more than ever infection prevention is of
paramount importance not just within the
medical community but the community at
large, highlighting the importance of our
mission to improve the safety of patients,
clinics, their staff and the environment by
transforming the way infection prevention
practices are understood and conducted
and introducing innovative technologies
that deliver improved standards of care.
Up to 22 million patients per year are
protected from the risk of ultrasound probe
cross-contamination by our trophon®
technology. This number increases every
day as our installed base grows. In addition,
we continue to invest in research and
development programs with the aim of
bringing new innovations to market that
deliver improved standards of care in
infection prevention.
Despite the impacts of COVID-19
throughout FY21, our growth strategy
has not changed, and the organisation
successfully adapted to the real global
challenges associated with COVID-19.
Significant recovery
in FY21 H2 over H1
to strong pre-COVID
growth momentum
levels.
M I C H A E L K A V A N A G H
C E O A N D P R E S I D E N T
UP TO 2 2 MILLION
PATIENTS PER YE AR
ARE PROTECTED
FROM THE RISK
OF ULTR ASOUND
PROBE CROSS -
CONTAMINATION
BY OUR TROPHON ®
TECHNOLOGY.
NANOSONICS LIMITED | ANNUAL REPORT 2021 7
G R O W T H I N H 2 V S H 1
TOTAL REVENUE
39%
CAPITAL REVENUE
84%
INSTALLED BASE
20%
O U R S T R AT E G I C P R I O R I T I E S
There are four key strategic priorities the organisation is focused on:
The first is our work to establish our trophon technology as standard of care for ultrasound reprocessing. This includes active sales
in countries where the fundamentals for adoption of trophon are strong through mandates and guidelines for high level disinfection, as well
as supporting the establishment of national guidelines in those countries where guidelines are emerging. What is very encouraging is that
more and more countries are releasing guidelines as awareness grows about the risk of cross-contamination through ultrasound probes.
T R O P H O N A S S TA N D A R D O F C A R E
Support establishment
of national guidelines.
Provide awareness and
education to highlight risks
of cross-contamination for
all semi-critical transducers.
Ensure customers have
a positive experience with
all aspects of the product
and brand.
E X P A N D G E O G R A P H I C F O O T P R I N T
Expand operations across
Asia Pacific and EMEA with
trophon plus new products.
P R O D U C T E X P A N S I O N
Expand portfolio of infection
prevention solutions
to address unmet needs.
Leverage technology
platforms for potential
expanded indications.
Strategic acquisitions in the
infection prevention space.
I N V E S T T O G R O W
Maintain strong financial
position to support growth.
Deliver operational efficiencies,
scale and leverage.
Infection Prevention. For Life 8
C E O ’ S R E P O R T. C O N T I N U E D .
The third component of our growth
strategy is product expansion where
we continue to grow our R&D investment,
building our internal capabilities and
expanding our R&D programs. In
addition, we have implemented a
separate business development function
to identify and assess potential strategic
acquisitions and investments in infection
prevention opportunities.
Finally, to enable the first three priorities,
our fourth focus is investing to grow.
It is recognised that there is significant
opportunity for growth in trophon as
well as expanding our product portfolio
from internal R&D efforts along with
potential acquisitions. At this stage of the
organisation’s journey it is imperative that
we continue to invest in these opportunities,
maintaining a strong financial position to
enable such investments.
The second aspect of our strategy is to
expand our geographical footprint.
The focus for expansion is primarily
across the European and Middle East
region where we are now represented in
22 countries. In addition, in Asia Pacific
there is a focus on expansion activities
in Japan, where we have built a solid
foundation and infrastructure as we work
with relevant specialists and societies for
the implementation of local guidelines.
We have also made progress in China
where we are finalising the registration
of a wholly owned foreign enterprise
(纳安诺医疗设备（上海）有限公司)
and are now preparing for regulatory
submission to approve trophon®2 for
commercialisation in that market.
E X PA N D I N G G L O B A L P R E S E N C E
CA N A DA
USA
ME XICO
SWED EN
N ORWAY
FINL A ND
ESTONIA
UNITED KING D OM
IR EL A ND
G ERM A NY
FR A NCE
D ENM A R K
NE THER L A NDS
BELG IUM
AUSTRIA
SWIT ZER L A ND
SPA IN
ITA LY
PORTUG A L
LEBA N ON
ISR A EL
KUWA IT
Q ATA R
UNITED A R A B
EMIR ATES
NANOSONICS LIMITED | ANNUAL REPORT 2021 9
I N S TA L L E D B A S E
Despite the impacts of COVID-19, the
global installed base increased 13% to
26,750 units, an increase of 3,030 units for
the year, with all regions performing well.
Importantly, the second half of the year saw
a significant recovery in new installed base
adoption as market conditions improved,
with 1,650 new units installed, growing 20%
compared with the first half.
CUMUL ATIVE
INSTALLED
BASE
13%
VS. FY20
NEW
INSTALLED
BASE
20%
H2 FY21 VS. H1 FY21
26,750
23,720
1,570
1,650
1,380
1,220
20,930
17,740
14,160
FY17
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
GLOBAL INSTALLED BASE
INSTALLED BASE GROWTH ( BY HALF)
RUS SIA
JA PA N
H ONG KONG
SING A POR E
AUSTR A LIA
NE W ZE A L A ND
AVAILABLE IN
30
COUNTRIES
WORLDWIDE
Infection Prevention. For Life 10
C E O ’ S R E P O R T. C O N T I N U E D .
NORTH
AMERICA
In North America, the installed base
increased 12% or 2,490 units for the year
with 23,480 units now installed across
over 5,000 institutions. A significant
recovery was experienced in H2 as market
conditions improved, with new installed
base growing by 1,360 units, up 28%
compared with the prior corresponding
period and up 20% vs H1.
Importantly, the estimated Total
Addressable Market for trophon units in
North America has been revised up from
40,000 units to 60,000 1 units, taking into
account the growth in ultrasound over the
last eight years in the U.S., which further
increases the opportunity for trophon
as we continue expanding our North
American operations.
EUROPE AND
MIDDLE EAST
In the Europe and Middle East region,
despite COVID-19 related restrictions
prevailing for the full year, the installed base
grew 35% or 390 units for the year, with
1,510 units now installed across the region.
This growth reflects the strengthening
fundamentals for adoption of trophon
across the region as our geographical
footprint expands, guidelines supporting
automated high-level disinfection continue
to emerge, and our infrastructure
investments continue to increase.
Both halves of the year demonstrated
significant growth over prior corresponding
periods with H1 up 54% compared
with the prior corresponding period and
H2 up 73% compared with the prior
corresponding period.
ASIA
PACIFIC
In Asia Pacific the installed base grew 9% or
150 units for the year with 1,760 units now
installed in the region. The majority of the
growth was experienced in ANZ as Japan
was effectively in lockdown for the majority
of the year. The number of new units
installed in H2 was up 100% compared
with both the prior corresponding period
and the first half, demonstrating the strong
recovery in ANZ.
TOTAL INSTALLED BASE
NEW INSTALLED BASE ( BY HALF)
12%
VS. FY20
28%
H2 VS. PCP
20%
H2 VS. H1
23,480
20,990
18,570
1,360
1,360
1,060
1,130
15,620
12,400
FY17
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
35%
VS. FY20
54%
H1 VS. PCP
73%
H2 VS. PCP
1,510
1,120
130
110
200
190
880
730
490
FY17
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
9%
VS. FY20
100%
H2 VS. PCP
100%
H2 VS. H1
1,760
1,610
1,390
1,480
1,270
100
80
50
50
FY17
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
1. Nanosonics analysis based on updated ultrasound information commissioned by Nanosonics and an estimated trophon to ultrasound attachment rate. The North America
market has been the focus of the TAM analysis undertaken. Similar data is not readily available for the Asia Pacific and EMEA regions. However, the Company’s expectation is
that the ultrasound market will have also grown in those two regions in the years since the Company last analysed the TAM in those markets.
NANOSONICS LIMITED | ANNUAL REPORT 2021 11
F I N A N C I A L R E S U LT S
TOTAL RE VENUE
Total revenue for the year was $103.1 million, up 3% compared with the prior corresponding period. In constant currency, total revenue
was up 12% compared with the prior corresponding period. Importantly, H2 saw a significant recovery with market conditions improving,
resulting in a total revenue of $60 million, up 39% over H1. In constant currency terms, H2 revenue was up 50% compared with H1.
REVENUE GLOBAL ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
100.1
103.1
84.3
60.7
111.6
3%
VS.
FY20
12%
VS.
FY20
FY18
FY19
FY20
FY21
FY21
REVENUE GLOBAL HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
48.6
51.6
43.1
60.0
39%
16%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
67.0
44.6
50%
30%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
H1
H2
H1
H2
FY20
FY21
H1
H2
FY21
CAPITAL RE VENUE
Despite a 13% increase in new installed base, capital revenue for the year was down 11% to $26.7 million (down 8% in constant currency).
This reduction was primarily associated with a reduction in the number of units sold to GE Healthcare in the first half of FY21. This was due
to a decrease in installed base growth as a result of COVID-19, particularly in Q4 of FY20 and Q1 of FY21 and the corresponding impact
on GE’s inventory levels. Importantly, capital revenue increased 84% in H2 over H1 as market conditions improved, installed base growth
recovered and GE resumed normal capital purchasing patterns.
CAPITAL REVENUE GLOBAL ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
32.8
30.0
26.7
25.6
11%
VS.
FY20
FY18
FY19
FY20
FY21
8%
VS.
FY20
27.5
FY21
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year
sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.
Infection Prevention. For Life 12
C E O ’ S R E P O R T. C O N T I N U E D .
CAPITAL REVENUE GLOBAL HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
14.4
15.6
17.3
9.4
H2 FY21
VS. H1 FY21
9.4
84%
11%
H2 FY21
VS. PCP
18.1
92%
16%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
H1
H2
H1
H2
FY20
FY21
H1
H2
FY21
CONSUMABLES AND SERVICE RE VENUE
Revenue from consumables and service increased 9% to $76.4 million (up 20% in constant currency). First half consumables sales
were reduced due to the impacts of COVID-19 on ultrasound procedure volumes. However, the second half saw a positive trend
towards pre-COVID-19 procedure levels, with revenue from consumables and service up 27% (39% in constant currency) in H2 over H1.
Importantly, towards the end of FY21 all indications were that ultrasound procedure volumes were approaching pre-COVID-19 levels across
most markets.
CONSUMABLES AND SERVICE REVENUE GLOBAL ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
70.1
76.4
51.5
35.1
9%
VS.
FY20
84.1
20%
VS.
FY20
FY18
FY19
FY20
FY21
FY21
CONSUMABLES AND SERVICE REVENUE GLOBAL HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
34.1
36.0
33.7
42.7
27%
19%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
49.0
35.1
39%
36%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
H1
H2
H1
H2
FY20
FY21
H1
H2
FY21
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year
sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.
NANOSONICS LIMITED | ANNUAL REPORT 2021 13
R E G I O N A L F I N A N C I A L P E R F O R M A N C E
NORTH AMERICA
Total revenue for the year of $89.2 million was down 1% compared with the prior corresponding period (up 8% in constant currency).
This reduction in revenue was primarily associated with a significant reduction in capital revenue in H1 of FY21 compared with H2 of FY20
of 49%. This reduction was primarily associated with the impacts of COVID-19 on new installed base growth in Q4 of FY20, resulting in GE
Healthcare’s capital inventory being higher than anticipated at the end of FY20.
As market conditions improved in the second half of the year, total revenue improved significantly up 42% over H1. Capital revenue in H2
increased 96% over H1 as new installed base grew and GE Healthcare resumed purchasing capital equipment.
Consumables & Service revenue increased 8% for the year. In H2, as ultrasound procedure volumes trended back to pre-COVID-19 levels,
so did the recovery of the consumables and service revenue, increasing 29% in H2 over H1.
REGIONAL REVENUE NORTH AMERICA ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
90.1
89.2
76.5
54.4
1%
VS.
FY20
FY18
FY19
FY20
FY21
8%
VS.
FY20
97.4
FY21
REGIONAL REVENUE NORTH AMERICA HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
43.7
46.5
36.9
52.3
42%
12%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
H1
H2
H1
H2
FY20
FY21
54%
27%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
59.1
38.3
H1
H2
FY21
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.Infection Prevention. For Life 14
C E O ’ S R E P O R T. C O N T I N U E D .
NORTH AMERICA – REVENUE BY PRODUCT
CAPITAL REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
31.0
27.5
24.1
21.3
22%
VS.
FY20
FY18
FY19
FY20
FY21
96%
–
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
13.5
14.1
14.1
7.2
H1
H2
H1
H2
FY20
FY21
CONSUMABLES /SERVICE REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
62.7
67.9
45.6
30.4
8%
VS.
FY20
30.3
32.4
29.7
38.2
29%
18%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
ULTRASOUND PROCEDURES
THERE ARE OVER 150
PROCEDURES 1 THAT
USE ULTRASOUND
PROBES THAT RISK
CONTACT WITH
MUCOUS MEMBRANES,
NON-INTACT SKIN AND/
OR STERILE TISSUE.
ENDOCAVITARY
Abdominal Duplex Vascular
(complete and limited,
transvaginal)
Pregnancy scans
Chorionic Villus Sampling
Transrectal scan
Transrectal prostate biopsy
UG 2 BIOPSY
Biopsy of liver
Biopsy of pancreas
Biopsy of pleural fluid
Biopsy of pulmonary lesions
Biopsy of salivary gland
Biopsy of sclerosing
mesenteritis
INTR AOPER ATIVE
NERVE BLOCKS
WOUNDS
Intraoperative neurosurgical
procedures
Intraoperative UG tracer
injection
UG implantation of iodine
seeds
UG percutaneous renal
transplant biopsy
UG transthoracic punctures
UG cervical nerve root block
UG burn patient assessment
UG ankle block
UG femoral nerve block
UG ophthalmic regional
anesthesia
UG percutaneous peripheral
nerve stimulation
UG Focused Assessment
with Sonography in Trauma
(FAST)
UG focused diagnostic
echocardiography (e.g.,
cardiac resuscitation in
presence of trauma)
1. Nanosonics analysis, SDMS guidelines, market reports.
2. Ultrasound guided.
NANOSONICS LIMITED | ANNUAL REPORT 2021 15
EUROPE AND MIDDLE E AST
Despite severe COVID-19 restrictions being imposed throughout Europe and Middle East for the full year, total revenue in the region
was up 38% to $7.2 million (43% in constant currency). This is a positive indication of the growing opportunity in the region as the
fundamentals for adoption of trophon continue to strengthen with new guidelines continuing to emerge. The company continued to invest
in the region’s infrastructure and market expansion activities throughout the year.
Both halves of the year delivered strong growth over prior corresponding periods with H1 up 50% and H2 up 29% compared with the
prior corresponding period.
Total capital revenue for the year was up 91% to $2.7 million. Importantly, as the majority of units were placed in the U.K. (the largest
market in the region) are under the managed equipment service model where no capital revenue is recognised, this increase in capital
revenue reflects the growth in the markets outside of the U.K.
Consumable and service revenue increased 18% compared with the prior corresponding period. As in North America, an increase in
consumables revenue was achieved in H2 over H1 as ultrasound procedure volumes continued to trend back towards pre-COVID-19 levels.
ULTRASOUND PROBE DISINFECTION
GUIDELINES ACROSS EUROPE
N E T H E R L A N D S
S W E D E N
S C O T L A N D
E N G L A N D
U K
HLD
I R E L A N D
E U
W A L E S
D E N M A R K
G E R M A N Y
B E L G I U M
F R A N C E
I TA LY
S W I T Z E R L A N D
REGIONAL REVENUE EUROPE AND MIDDLE EAST ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
7.2
5.2
38%
VS.
FY20
3.8
3.0
FY18
FY19
FY20
FY21
43%
VS.
FY20
7.4
FY21
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.Infection Prevention. For Life 16
C E O ’ S R E P O R T. C O N T I N U E D .
REGIONAL REVENUE EUROPE AND MIDDLE EAST HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
3.6
3.6
3.6
3.8
2.8
2.4
29%
50%
H2 FY21
VS. PCP
H1 FY21
VS. PCP
34%
53%
H2 FY21
VS. PCP
H1 FY21
VS. PCP
H1
H2
H1
H2
FY20
FY21
H1
H2
FY21
EUROPE AND MIDDLE EAST – REVENUE BY PRODUCT
CAPITAL REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
2.7
91%
VS.
FY20
0.9
1.1
1.4
FY18
FY19
FY20
FY21
1.5
1.2
0.9
0.5
H1
H2
H1
H2
FY20
FY21
20%
33%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
CONSUMABLES /SERVICE REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
4.5
3.8
2.7
2.1
18%
VS.
FY20
1.9
1.9
2.1
2.4
14%
26%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
ASIA PACIFIC
Total revenue in the Asia Pacific region was up 42% to $6.7 million. The majority of the growth was recorded in ANZ as the installed base
continued to grow by 9% and trophon upgrades commenced.
Total capital revenue for the year was up 143% to $2.7 million and was up 36% excluding revenue from upgrades. Consumables and
service revenue increased 12% compared with the prior corresponding period with H2 revenue up 11% over H1 as the installed base
grew and ultrasound procedure volumes returned to pre-COVID-19 levels.
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.NANOSONICS LIMITED | ANNUAL REPORT 2021 17
REGIONAL REVENUE ASIA PACIFIC ANNUAL GROWTH ( $ M )
CONSTANT CURRENCY1
6.7
4.0
3.3
4.7
42%
VS.
FY20
FY18
FY19
FY20
FY21
43%
VS.
FY20
6.7
FY21
REGIONAL REVENUE ASIA PACIFIC HALF ON HALF GROWTH ( $ M )
CONSTANT CURRENCY1
4.1
2.3
2.3
2.6
H1
H2
H1
H2
FY20
FY21
58%
78%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
4.1
2.7
H1
H2
FY21
53%
75%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
ASIA PACIFIC – REVENUE BY PRODUCT
CAPITAL REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
2.7
1.1
0.8
0.6
FY18
FY19
FY20
FY21
VS.
FY20
143%
36% VS. FY20
(EX. UPGRADES)
2.0
186%
H2 FY21
VS. H1 FY21
0.5
0.6
0.7
H1
H2
H1
H2
FY20
FY21
CONSUMABLES /SERVICE REVENUE ANNUAL GROWTH ( $ M )
HALF ON HALF GROWTH
4.0
3.6
3.2
2.7
12%
VS.
FY20
1.9
1.7
1.9
2.1
11%
24%
H2 FY21
VS. H1 FY21
H2 FY21
VS. PCP
FY18
FY19
FY20
FY21
H1
H2
H1
H2
FY20
FY21
1. Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current year sales of entities that use currencies other than Australian dollars at the average rates that were applicable in the prior year.Infection Prevention. For Life 18
C E O ’ S R E P O R T. C O N T I N U E D .
O T H E R F I N A N C I A L
R E S U LT S
The Company continued to increase
its investments in its strategic growth
agenda throughout the year, reflecting the
significant growth opportunity for trophon
globally as well as major opportunities for
growth in the broader infection prevention
market through product expansion.
Operating expenses for the year
increased 12% to $70.8 million. In
particular, expenditure increased in H2,
up 15% compared with H1 as market
conditions improved. Operating expenses
in Q4 represented 29% of the total
year as the Company returned to its
intended investment run rate for the year.
Profit before tax for the year was
$11.0 million. Of the $11.0 million,
$10.8 million was achieved in the second
half as revenue grew 39% in H2 over H1.
Total free cash flow for the year was
$5.9 million, with H2 free cash flow
of $8.3 million offsetting net cash
outflow of $2.4 million in the first half.
Cash and cash equivalents increased
5% to $96 million. The Company has no
debt and reviews its capital management
strategy regularly. In light of an increasing
global focus on infection prevention and the
opportunities this presents for Nanosonics,
investment in the broader strategic growth
agenda of the Company is planned to
continue actively and the capital reserves
of the Company provide strong support
for this.
OPERATING EXPENDITURE ( $ M )
PROFIT BEFORE TA X ( $ M )
Q4: The company returned to its
intended investment run rate.
63.2
70.8
20.3
13.9
16.8
12.4
11.0
5.6
49.2
42.6
37.0
FY17
FY18
FY19
FY20
FY21
FY17
FY18
FY19
FY20
FY21
FREE CASH FLOW ( $ M )
CASH AND CASH EQUIVALENTS ( $ M )
20.9
15.1
6.2
2.6
91.8
87.9
96.0
69.4
72.2
FY 5.9
63.0
8.3
FY17
FY18
FY19
FY20
H1
H2
FY17
FY18
FY19
FY20
H1
H2
FY21
FY21
(2.4)
NANOSONICS LIMITED | ANNUAL REPORT 2021 P E O P L E A N D C U LT U R E
We recognise the tremendous value that our people provide to the Company.
Throughout the year we continued to expand our capacity and capability with the
total number of employees increasing 9% to 339.
Diversity and inclusion is recognised as an important driver of our growth and a core
aspect of the Nanosonics culture. The Nanosonics workforce now represents around
29 different nationalities with 41% of employees being female. 38% of senior
management positions in the organisation are also held by females.
Our people focus was recognised with exceptional results in the Company’s Employee
Engagement survey where 94% of our employees strongly agree with the Company
purpose, and importantly, with 93% of our employees knowing how their work
contributes to the goals of the company.
OUR CORE VALUES
COLLABORATION
We do things together because we value diversity of opinion,
perspective and knowledge and are stronger when we work
as a team.
INNOVATION
We innovate because we want to continuously make things
better, adding value to our customers, our operations and
our business.
DISCIPLINE
We do the right thing because we are ethical, compliant
and are clear about our responsibility and accountability for
delivering on our commitments.
AGILITY
We are effective because we not only embrace, but drive
change; we are continuously learning and can adapt quickly.
WILL TO WIN
We do things with a sense of urgency, anticipating market
and customers’ needs, because we always strive to be
the best with a will to win.
19
EMPLOYEES
339
9% INCREASE ON FY20
FEMALE WORKFORCE 1
41%
WOMEN IN STEM
42%
FEMALE
~29
NATIONALITIES
We recognise the tremendous value that
our people provide to the Company.
1. Inclusive of all employees as at 30 June 2021.
Infection Prevention. For Life 20
C E O ’ S R E P O R T. C O N T I N U E D .
L A U N C H O F N A N O S O N I C S
A U D I T P R O ™
In June 2021, Nanosonics AuditPro™
was launched at the Association for
Professionals in Infection Control (APIC)
conference in the United States, with
plans for launch into other key markets
throughout FY22.
AuditPro is the result of a number of years
of research and development and opens
up a significant opportunity to market a
unique solution that integrates infection
prevention decision-making, track and
trace, and compliance into a single digital
solution. AuditPro delivers real-time access
to a broad range of compliance and
traceability data for customers, which is an
important aspect of infection prevention
to ensure medical instruments have been
appropriately disinfected in accordance
with relevant standards.
The new AuditPro digital solution comprises
of a mobile scanning device coupled
with a subscription to a browser-based
application for users. The first application
focuses on ultrasound procedures, with
the new handheld device designed to be
coupled with every ultrasound console at
point of care. With approximately 271,000
ultrasound units in the U.S. alone1, AuditPro
represents a significant new opportunity for
Nanosonics. Being a platform technology,
AuditPro presents the opportunity to grow
beyond ultrasound and be applied to other
medical instruments.
While AuditPro is a discrete new product
platform, its application for ultrasound
and connectivity with trophon®2 further
enhances the trophon2 value proposition
as well as competitive advantage. This
further supports the leading position and
ongoing adoption of trophon2 as well as the
potential to support upgrades from trophon
EPR to trophon2. In addition, through its
education platform to guide clinicians on
which ultrasound procedures require high
level disinfection of the probe, there is the
potential that this could lead to increased
usage of trophon devices.
R E S E A R C H A N D
D E V E L O P M E N T 5
During the year, Nanosonics continued to
invest in its product expansion strategy.
R&D investment increased 11%
to $17.2 million directed across
multiple projects.
Nanosonics’ R&D interests span five key
areas of infection prevention:
– Instrument cleaning;
– Instrument disinfection;
– Environmental decontamination;
– Digital solutions for traceability
and compliance; and
– Storage solutions.
NE W PRODUCT PL ATFORM
– NANOSONICS CORIS ®,
TR ANSFORMING THE CLE ANING
OF FLE XIBLE ENDOSCOPES
The R&D team achieved a number of
important milestones across a number
of projects with a focus on our new
technology platform which is directed at
addressing one of the most significant
issues in instrument reprocessing today –
flexible endoscope cleaning. Indeed, more
healthcare-associated outbreaks have been
linked to contaminated endoscopes than
any other medical device 2,3.
Reusable flexible endoscopes are highly
sophisticated medical devices designed
to enable advanced diagnostic and
therapeutic interventions to diagnose and
treat cancers and other life-threatening
conditions. They incorporate advanced
technology that gives physicians a
sophisticated level of control in carrying out
complex, minimally-invasive procedures
and navigating challenging anatomical
situations to deliver the highest level of
patient care.
There are many different types of flexible
endoscopes, including colonoscopes,
gastroscopes, duodenoscopes,
bronchoscopes, urological scopes
and ENT* scopes, in addition to other
specialty scopes.
The potential to address the challenges
of contaminated endoscopes represents
a significant opportunity for Nanosonics,
with over 60 million flexible endoscopy
procedures being conducted across the
United States and the largest five markets
in Europe alone every year and growing at
6% per annum 4.
The cleaning stage of the reprocessing
process is a critical step and has significant
implications for the outcomes of the
subsequent high level disinfection stage of
the process. Challenges associated with
manual cleaning, combined with reports of
persistent contamination from biofilm despite
routine cleaning, represents a significant
unmet need which has been recognised by
regulators and customers. This technical
challenge has existed for many years and
is a complex one to address.
The Nanosonics R&D team have
focused on these significant technical
challenges with the aim of developing a
novel automated technology designed to
revolutionise the cleaning process of flexible
endoscopes. The new CORIS platform
technology, like trophon, will comprise both
capital equipment and consumables with
the expectation that the system will benefit
from intellectual property protection.
In testing to date, this new automated
platform technology has demonstrated the
potential to deliver significant superiority
in cleaning efficacy over the requirements
of the current standards. In addition,
testing demonstrates superior efficacy over
manual cleaning against difficult biofilm
contamination, including in the smallest
channels of an endoscope.
Work continues to progress positively with
the product development, including the
integration of a number of enhancements
to the new platform. This work will be
followed by external clinical assessment
to support the regulatory submission.
Nanosonics continues to engage with
the U.S. FDA to determine the necessary
requirements to support a successful
regulatory submission. The timing for
commercial launch previously indicated
is being revised and will be determined in
due course dependent on the necessary
technical, regulatory and operational
milestones being met with the Company
currently targeting the first commercial
launch to occur in calendar 2023. Updates
will be provided as material new information
becomes available. The Company remains
confident, both in the ongoing progress of
the development project and importantly in
the overall commercial opportunity for this
transformational technology platform, which
it believes has the potential to become a new
standard of care for endoscope cleaning.
1. Nanosonics analysis of U.S. ultrasound market based on third party data.
2. Guideline for Disinfection and Sterilization in Healthcare Facilities, U.S. CDC, Update: May 2019.
3. Top 10 Health Technology Hazards for 2018, ECRI Institute, 2018.
4. Frost & Sullivan, Endoscope Reprocessing Systems and Software Solutions Market Assessment (US, W. Europe, Australia), 2018.
5. All research and new product development programs involve inherent risks and uncertainties which can impact commercialisation timelines.
* Refers to ear, nose, throat, larynx, and sinuses.
NANOSONICS LIMITED | ANNUAL REPORT 2021 21
During the year, Nanosonics continued to
invest in its product expansion strategy. R&D
investment increased 11% to $17.2 million
directed across multiple projects.
INTELLECTUAL PROPERT Y
Nanosonics recognises the importance
of its Intellectual Property (IP) portfolio in
maintaining its sustainable competitive
advantage. During FY21, Nanosonics
filed an additional seven new provisional
patent applications representing new
innovations. The subject matter protected
by Nanosonics’ IP portfolio helps protect
trophon (capital equipment, consumables
and accessories), new products (AuditPro
and ecosystem products), as well as
new product developments planned for
commercialisation. Nanosonics now has
a dedicated IP function that manages its
active program of IP development and third
party analysis to support the Company’s
strategic growth agenda.
INVESTMENT IN R & D ( $ M )
17.2
15.6
11.4
9.5
9.9
FY17
FY18
FY19
FY20
FY21
B U S I N E S S O U T L O O K –
F Y 2 2
The second half of FY21 reflected a
significant recovery as market conditions
improved. This recovery demonstrates the
strength of the underlying fundamentals
of the business. Despite the inherent
risks and uncertainties associated with
COVID-19, in particular those emerging with
different strains of the virus, Nanosonics
remains optimistic that the improved market
conditions will continue as vaccination
numbers increase across all major markets.
Assuming the positive market recovery
trends continue, the Company anticipates
a return to double-digit growth in total
revenue in FY22, driven by a ongoing
increase in installed base globally and
increased usage of consumables across
all regions as ultrasound procedures return
to pre-COVID-19 levels. In addition, it is
anticipated that a growth in upgrades from
trophon EPR to trophon2 will occur in
FY22. Taking into account the anticipated
increase in capital from new installed base
growth and upgrades, the mix between
capital revenue and consumables will
likely change, which will result in a lower
gross profit margin compared with
FY21. However, it is anticipated that the
Company’s gross profit margin will remain
above 75%.
Nanosonics’ infrastructure, people,
capability and cash balance provide a
strong foundation for the future. With
growing opportunities for the trophon
franchise, as well as further opportunities
in the broader infection prevention market,
the Company maintains its commitment
to continue to invest in its long-term
strategic growth agenda with an emphasis
on continuing investment growth in our
regional operations and R&D. Operating
expenses for the fourth quarter of FY21
were $20.3 million as the business returned
to its intended investment run rate.
It is expected that there will be growth in
this run rate into FY22, with total operating
expenses for the year expected to be
approximately $90 million.
B E Y O N D F Y 2 2
Nanosonics’ forward-looking growth
agenda remains very much intact, with
significant opportunities for growth of the
trophon franchise as well as significant
opportunities from the planned expanded
product portfolio. Beyond FY22,
Nanosonics is targeting:
– Continued growth in the trophon installed
base and associated ecosystem across
all regions;
– Growth in upgrades of trophon EPR
to trophon2;
– Japan to become an important
contributor to global installed base
growth as well as further expansion
into Asia Pacific, including China;
– New source of revenue opportunity
associated with the global launch of
AuditPro as well as further new
product launches;
– Ongoing expansion of the product
portfolio through internal product
development and opportunities for
strategic acquisitions and product
licensing across key vectors of
infection; and
– Ongoing investment in R&D,
infrastructure, people and capability
to continue to drive the Company’s
global growth strategy with the aim of
establishing Nanosonics as a global
leader in infection prevention.
M I C H A E L K A V A N A G H
CEO and President
24 August 2021
Infection Prevention. For Life 22
O U R C O M M I T M E N T
T O E S G .
Financial Year 2021 was the first full year that the world has
lived with the financial, operational and community impacts
of the current pandemic.
It is an honour to be at the helm of an
emerging leader in the infection control
market at a time when the need for infection
control practices has never been greater.
We acknowledge and thank all our
customers on the front line, in particular
the infection prevention community, for
their tireless efforts in the management
of the pandemic over the last 12 months.
Our business continued to progress its
mission to improve the safety of patients,
clinics their staff and the environment.
Every day our trophon technology protects
over 88,000 patients from the risk of cross
contamination. Ensuring the safety and
well-being of our staff throughout the year
was of paramount importance and I thank
them for their relentless efforts as they
continued to support all our customers
and stakeholders.
In that context, I am pleased to introduce
this year’s Sustainability Report. This is the
second year in which we have published
an extensive, standalone report from the
Annual Report detailing the Company’s
ESG performance. We take pride in our
commitment to ESG at Nanosonics, helping
to deliver on our mission and contributing to
a safer and better environment for patients,
clinics and their staff around the world.
We have arranged this year’s report
into four key sections: governance,
environment, people & culture, and
communities. We believe that this structure
allows us to best communicate our
contributions to each aspect of ESG.
Our focus in this year’s report has been to
align with international reporting standards
including the Task Force on Climate-Related
Financial Disclosures (TCFD) and better
quantifying our performance for year-on-
year comparison and target-setting.
I am thrilled to see the Company continue
to expand the way it reports on important
ESG topics. Of course, this reporting is
only possible when the Company also
“walks the talk” in this area. FY21 is another
year where the Company’s growth in
other business, product and commercial
areas is matched by its evolution in ESG
spheres. There are many examples that
spring to mind. These include examples
from the way that the Company engages
with environmental issues, its social
responsibilities (internal and external), and
maintaining our high standards of corporate
governance throughout the operation. The
specific areas are illustrated throughout
this report, and reflect our commitment to
a wide variety of ESG activities throughout
our business as we continue to execute
on our important global mission: Infection
Prevention. For Life.
MICHAEL KAVANAGH
Chief Executive Officer and President
“The principles of ESG
are connected to,
and embedded in, all
aspects of our business.
Importantly, it manifests
in the care delivered to
patients, and the objectives
of our R&D across our
areas of interest in infection
prevention. Fundamentally,
it informs the way we care
about the environment,
people and embracing
the true principles of
governance. These
continue to be the drivers
of our success today, and
into the future.
MAURIE STANG | CHAIRMAN
2 0 2 1
S U S TA I N A B I L I T Y
R E P O R T.
N A N O S O N I C S
L I M I T E D
FOR MORE INFORMATION
See Nanosonics’ 2021 Sustainability
Report available at https://www.
nanosonics.com/investor-centre/reports-
and-presentations/
NANOSONICS LIMITED | ANNUAL REPORT 2021
23
DE VELOPED
SUSTAINABLE
SUPPLY CHAIN
INITIATIVE
TO MAP SUPPLY CHAIN
CHAR ACTERISTICS.
INTRODUCED
EXECUTIVE
RISK MANAGEMENT
COMMIT TEE,
OVERSEEING RISK AND
ESG ISSUES.
STRENGTHENED
IT, PRIVACY AND
CYBER SECURIT Y
PROTECTIONS
IN ALIGNMENT WITH
THE GDPR
EXPANDED
SCOPE OF CLIMATE
ASSESSMENT,
COVERING KE Y ARE AS OF OUR
GLOBAL OPER ATIONS AS WE MOVE
TOWARDS TCFD COMPLIANCE
~80%
OF TOTAL WASTE DIVERTED
TO RECYCLING AND WATE R SAV INGS
FROM APPROXIM ATE LY
22 MILLION TROPHON
CYCLES ANNUALLY ACROSS THE
GLOBAL INSTALLED BASE
AT LE AST
3.1 TONNES
OF E ND - OF- LIFE PRODUCTS
AND S E RVICE PARTS
RES PONS IBLY RECYCLE D
IN ACCORDANCE WITH WEEE
AND OTHER REQUIREMENTS
94%
OF EMPLOYEES
STRONGLY BE LIE V E
IN THE PURPOS E OF
NANOSONICS
FEMALES MAKE UP
41%
OF THE GLOBAL
WORKFORCE , 3 8 % OF
S E NIOR M AN AGE ME NT AND
42 % OF STE M - RE L ATE D
POS ITIONS
ACHIE VED
100%
OF F Y21 DIV E RS IT Y
AND INCLUS ION
OB JECTIV ES
14
STUDENTS
PARTICIPATED IN INTE RNS HIP
PROGR AM S ACROS S
SE VER AL DEPARTMENTS
$43,805
R AISED THROUGH
VARIOUS CHARITABLE
INITIATIVES
CONTINUED TO
STRENGTHEN
PATIENT HEALTH
AND SAFET Y
WITH THE INTRODUCTION
OF NANOSONICS AUDITPRO TM
GOVERNANCEENVIRONMENTPEOPLE & CULTURECOMMUNITIESInfection Prevention. For Life
24
P R O T E C T I O N B Y D E S I G N
TROPHON REPRODUCIBLE
AND SAFE OUTCOMES
trophon technology continues to represent
a transformation in HLD for ultrasound
probes. This patented novel technology
works by generating a sonically-activated
hydrogen peroxide (H202) mist able to
access all surfaces of the probe and
handle suspended within the closed
trophon chamber, including crevices and
tiny imperfections. Sensors monitor critical
parameters, including temperature, mist
volume and flow rates with sophisticated
software controls monitoring the process
throughout the cycle, ensuring that effective
disinfection is delivered with every cycle.
Most importantly, trophon effectively
delivers HLD to all surfaces of the probe
and handle without damaging the sensitive
probe or exposing patients, staff and the
environment to dangerous chemicals, as
the only by-products of every trophon
cycle are oxygen and water.
TROPHON IS THE ONLY
ULTR ASOUND HLD TECHNOLOGY
TO DEMONSTR ATE EFFICACY
ON PATIENT-USED PROBES
ACCORDING TO ITS L ABELED
CYCLE TIME .
R I S K R E C O G N I T I O N G R O W S W O R L D W I D E
This year has seen a growing trend toward
the need for validated high-level disinfection
(HLD) of medical devices. There is also
growing acceptance of the risks of cross-
contamination associated with ultrasound
probes and that manual solutions, including
wipes, do not reliably eliminate this risk for
semi-critical devices. Ultrasound use in
both the medical diagnostic and treatment
setting broadened this year with its
recognition as a vital tool in the fight
against SARS CoV-2.
There are over 150 procedures1 that
use ultrasound probes that risk contact
with mucous membranes, non-intact
skin and/or sterile tissue. Ultrasound is
routinely used in obstetrics, gynaecology,
radiology, cardiology, critical care, and the
operating theatre. This past year has seen it
on the ICU ward supporting the critical care
of COVID patients. Facilities in the United
States adopted trophon® as a supplement
to manual wiping for non-critical probes
used to scan COVID patients and persons
under investigation 4,5. Implicit in the
adoption of trophon as an extra precaution
is the recognition of trophon technology as
a recognised, reliable solution that provides
healthcare workers with confidence in
managing infection risk. At a minimum,
HLD should be used when indicated by
the Spaulding classification, and trophon as
an automated solution, provides assurance
that critical parameters (i.e. contact time,
dosage, temperature) are met for every
cycle to achieve disinfection efficacy on all
surfaces of the probe, supporting infection
prevention practices.
“Automated HLD continues to
be recognised as best practice
worldwide for semi-critical probes,
and critical probes that cannot
be sterilised, reducing the risk of
cross-contamination between
patients, and allowing facilities to
standardise best practice infection
prevention for their patients.”
1. Nanosonics analysis, SDMS guidelines, market reports.
German federal requirements mandate on-
site validation for reprocessing semi-critical
devices. In November 2020, The Robert
Koch Institute (RKI), the German public
health institute, published a statement
determining that they were unable to
identify any standard or guidelines that
demonstrated the validation of wipes
as a final disinfection step for semi-
critical devices 2. The Dusseldorf health
authority responded with a statement
that wipes are no longer acceptable for
semi-critical device disinfection 3. This
represents a fundamental shift in both
the recognition of risk and in re-affirming
the need for validated and reproducible
reprocessing solutions – a key benefit of
trophon technology.
TROPHON ® – UNRIVALLED
HLD EFFICACY
The body of evidence demonstrating
trophon technology efficacy continues
to set the standard in automated HLD.
As the only automated technology with
both FDA classification and CE-Mark
registration, trophon continues to represent
the gold standard. trophon technology has
demonstrated microbial efficacy against
the widest range of clinically relevant
pathogens, including bacterial endospores,
mycobacteria, fungi, vegetative bacteria
and virus. This efficacy spectrum includes
multi-drug resistant bacteria, blood borne
viruses (Hepatitis B, HIV) and sexually
transmitted infections such as chlamydia,
gonorrhoea and human papillomavirus
(HPV). While trophon has not been tested
directly against SARS CoV-2, coronaviruses,
including SARS CoV-2, fall into the category
of enveloped viruses, where trophon has
been proven to be highly effective.
This year has seen a strengthening of
Nanosonics’ continued relationships with
all ultrasound equipment manufacturers.
Our probe compatibility program
continues to set the standard with more
than 1,000 probes tested, approved,
endorsed and recommended for use
with trophon technology, by all major
and many specialised ultrasound
equipment manufacturers.
NANOSONICS LIMITED | ANNUAL REPORT 2021 25
APPROXIMATELY 88,000 PATIENTS
EVERY DAY ARE PROTECTED FROM
THE RISK OF ULTRASOUND PROBE
CROSS-CONTAMINATION BY TROPHON
TECHNOLOGY. THIS EQUATES UP TO
22 MILLION PATIENTS EVERY YEAR.
TROPHON – EFFICIENT
WORKFLOW INTEGRATION AND
DEMONSTRATED COMPLIANCE
trophon technology seamlessly integrates
infection prevention practice into the clinical
workflow. Designed with the user and their
workflow needs in mind, trophon guides
the user through the required steps of
cleaning, loading and capturing critical HLD
cycle compliance information in a process
that requires minimal hands-on time for the
user. Once the user presses the cycle start
button, trophon disinfects the probe while
the user completes other critical workflow
tasks including room turnover and patient
documentation. trophon digitally captures
critical compliance information through
AcuTrace® RFID technology as part of the
trophon workflow. As a closed system,
trophon can be placed in the examination
room next to the ultrasound, further
maximising patient throughput and clinical
workflow efficiencies.
To add further efficiencies, trophon offers
a range of complementary consumable
products and accessories to further
support effective disinfection. These
include companion cleaning and drying
wipes to clean the probe before the
HLD process, specialised probe bags to
provide effective probe storage between
patients, and connectivity solutions and
services to facilitate automated disinfection
record management.
REFERENCES
2. RKI 2020. Aufbereitung von Medizinprodukten.
Zur Frage der Validierbarkeit der abschließenden
Desinfektion von semikritischen Medizinprodukten
mittels Wischtüchern
3. Bezirksregierung Dusseldorf 2020. Desinfektion
von semikritischen Medizinprodukten mittels
Wischtuchern. Fachliche Einschatzung des RKI
4. Wessner, C. E., et al. (2020). “A Sonographer’s
Step-by-Step Approach for Preventing Transmission
of COVID-19.” Journal of Diagnostic Medical
Sonography.
5. Sheth, S., et al. (2020). “Guidelines for Ultrasound
in the Radiology Department During the COVID-19
Pandemic.” Ultrasound Q 36(3): 200-205.
The trophon® family includes trophon® EPR and
trophon®2 which share the same core technology
of 'sonically activated' hydrogen peroxide.
Infection Prevention. For Life 26
NANOSONICS AUDITPRO™ – STANDARDISING ULTRASOUND
INFECTION PREVENTION PRACTICES TO MEET ACCREDITATION
REQUIREMENTS AND DELIVER BEST PRACTICE PATIENT CARE.
Traceability that links infection control cycle to the patient is
required to meet best practice standards.
Many national infection control standards
and guidelines across the world require
facilities to collect reprocessing cycle
information, medical device identifiers,
procedure information and patient details
to demonstrate that semi-critical and
critical devices have been appropriately
high-level disinfected between patients.1-8
The tracking and traceability of this
information allows a facility to demonstrate
compliance to these standards and in
the event of an outbreak or infection
prevention breach, a reliable traceability
system becomes instrumental for a
facility in investigating, identifying and
notifying patients.
EVERY DATA POINT, ON
EVERY PROBE, FOR EVERY
PROCEDURE AND EVERY
PATIENT.
trophon AcuTrace® RFID technology
digitally captures the clinical workflow – the
introduction of AuditPro now seamlessly
links this workflow information through to
the procedure and the patient, representing
a new level of traceability for the first time.
AuditPro provides facilities with the
opportunity to improve and standardise
ultrasound infection prevention and
control compliance across all ultrasound
procedures, supporting the management of
organisational and facility risk and delivering
best practice patient care.
A WORKFLOW COMPLIANCE
SOLUTION THAT EDUCATES THE
USER WITH EVERY CYCLE
AuditPro comprises a mobile scanning
device (MSD) for ultrasound users to
integrate infection control decision-making
and practice as part of the clinical workflow.
This is coupled with sophisticated
software to support compliance across
the organisation. The MSD uniquely sits
with the ultrasound console at point of
care. With built-in education as part of the
workflow, users qualify every procedure
against the Spaulding classification for
probe disinfection, thereby standardising
the infection prevention decision every time.
“100% COMPLIANCE,
100% OF THE TIME” –
STANDARDISED BEST
PRACTICE ACROSS
THE FACILITY
AuditPro software combines
ultrasound patient procedures
and probe disinfection information,
including HLD records from the
trophon®2 device, and interrogates
the data captured through the
clinical workflow to create non-
compliance notifications and intuitive
information-rich dashboards to not
only deliver standardisation across
the organisation, but to mitigate
risk to patients and healthcare
facilities by equipping users, infection
preventionists, and quality managers
with tools and information to drive
better compliance.
AUDITPRO
ULTRASOUND
1:1
271K 9
Designed to sit alongside the ultrasound
console to track all types of procedures
ULTRASOUND
INSTALLED BASE
U.S.
REFERENCES
1. AAMI ST58:2013 Chemical sterilization and high-level disinfection in health care facilities.
2. Association of periOperative Registered Nurses (AORN). High-Level Disinfection. AORN Guidelines for
perioperative practice. Online: AORN, Inc; 2018
3. Canadian Standards Association (CSA) (2018). CAN/CSA-Z314-18 Canadian medical device reprocessing.
4. ASNZS 4187:2014 Cleaning, disinfecting and sterilizing reusable medical and surgical instruments and equipment,
and maintenance of associated environments in health care facilities.
NANOSONICS LIMITED | ANNUAL REPORT 2021 27
We looked to implement Nanosonics AuditPro to
automate the linking of reprocessing of ultrasound
probes to patient procedures. However, by far the most
beneficial part has been the workflow education built
into the system… the system guides [our users] to make
the right decision, it challenges how we can learn from it
and this grows the hospital as a whole to help us in our
aim of 100% compliance, 100% of the time. This ensures
we are a high reliability organisation making sure our
patients are always protected.
L I N D S AY T U R N E R
RT( R ) , ( M ) , RDMS ( A B ) ( OB / GYN ) , RV T,
LE AD SONOGR APHER , IMAGING
SERVICES HUTCHISON REGION A L
MEDICA L CENTER .
5. Kommission für Krankenhaushygiene und Infektionsprävention (KRINKO) 2012. Anforderungen an die Hygiene bei der
Aufbereitung von Medizinprodukten. Bundesgesundheitsblatt – Gesundheitsforschung – Gesundheitsschutz: 66
6. Health Service Executive (HSE) Quality Improvement Division (2017). HSE Guidance for Decontamination of Semi-critical
Ultrasound Probes; Semi-invasive and Noninvasive Ultrasound Probes. Document: QPSD-GL-028-1.
7. European Society of Radiology (ESR) 2017. Infection prevention and control in ultrasound – best practice
recommendations from the European Society of Radiology Ultrasound Working Group.
8. Society and College of Radiographers and British Medical Ultrasound Society 2020. Guidelines for Professional
Ultrasound Practice.
9. Nanosonics analysis based on updated ultrasound information commissioned by Nanosonics and an estimated trophon
to ultrasound attachment rate. The North America market has been the focus of the TAM analysis undertaken.
Infection Prevention. For Life 28
T H E B O A R D .
MAURIE STANG
STE VEN SARGENT
Bus, FAICD, FTSE
MICHAEL K AVANAGH
BSc, MBA (Advanced)
MARIE MCDONALD
BSc (Hons), LLB (Hons)
Non-executive
Chairman
Mr Stang has been Non-executive
Director and Chairman since March
2007 and a member of the Board
since November 2000. Mr Stang has
more than two decades of experience
building and managing companies in
the healthcare and biotechnology
industry in Australia and internationally.
His strong business development
and marketing skills have resulted
in the successful commercialisation
of intellectual property across global
markets. He is a Non-executive
Director of Vectus Biosystems
and has been Non-executive
Chairman of Aeris Environmental Ltd
(ASX:AEI) since 2002.
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.
CEO, President and
Managing Director
Non-executive 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.
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.
NANOSONICS LIMITED | ANNUAL REPORT 2021 29
LISA MCINT YRE
BSc (Hons), PhD
DAVID FISHER
BRurSc (Hons), MAppFin,
PhD, FFin, GAICD
GEOFF WILSON
ACID, BCom, ICCA, CPA,
US CPA
Non-executive Director
Non-executive Director
Non-executive Director
Dr McIntyre joined the Nanosonics
Board in November 2019. Her
executive background is in strategy,
particularly in the areas of medical
technology and healthcare, with many
years as a partner at L.E.K. Consulting
in the U.S. and Australia, where she
led the Asia Pacific Health practice.
Dr McIntyre was a Director of the
Garvan Institute of Medical Research
for 12 years and is a Senate Fellow
of the University of Sydney and on
the advisory committee of the NSW
Generations Fund. She is currently
a Non-executive Director of HCF
Group, Insurance for NSW (icare)
and Studiosity Pty Ltd.
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 has not held any
directorships of other listed companies
in the last three years.
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.
Infection Prevention. For Life 30
T H E E X E C U T I V E T E A M .
MICHAEL K AVANAGH
BSc, MBA (Advanced)
STE VEN FARRUGIA
BE, PhD
CEO, President and
Managing Director
Chief Technology Officer
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.
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 25 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 close to 300
granted and pending patents
and an active proponent
of STEM education. He
has been a past Adjunct
Professor of Engineering
at the University of Sydney
and is currently a member of
the Biomedical Engineering,
Industry Advisory Committee
at the University of
Sydney and a member of
the Graduate School of
Biomedical Engineering,
Industry Advisory Committee
at the University of
New South Wales.
MCGREGOR GR ANT
BEc, CA, GAICD,
FGIA, FCIS
Chief Financial Officer
and Company Secretary
McGregor joined Nanosonics
in April 2011. He is
responsible for the overall
financial management of
the Company and also
serves as the Company
Secretary. McGregor 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.
RENEE SAL ABERRY
MBA, GAICD
ROD LOPE Z
MBA, BEng (Hons),
GAICD
Chief Marketing Officer
Chief Operating Officer
Renee joined Nanosonics in
January 2019. She is a highly
experienced international
marketer, having 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 and Head of Marketing
for Abbott Nutrition, ANZ.
She has held marketing
and finance roles for Merck,
Sharp & Dohme and the
Commonwealth Bank.
Rod joined Nanosonics
in April 2019. He 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 roles such as Global
Head of Manufacturing and
Chair of the Operational
Excellence Strategy Group.
At GM Holden, Rod held
senior management
roles across operations
and global customer
support. Rod is also an
award-winning academic
with continuing Adjunct
Faculty appointments since
2006, with MGSM, AGSM
and the University of Sydney
Business School.
NANOSONICS LIMITED | ANNUAL REPORT 2021 31
JODI SAMPSON
MBA(Exec), CPHR
Chief People and
Culture Officer
Jodi joined Nanosonics
in April 2020. Jodi is
an experienced human
resources professional
who has contributed
to strategy, culture and
business transformation at an
executive level in the finance,
telco and IT industries. Most
recently, Jodi was Head
of Human Resources with
the Eclipx Group. She has
also led international human
resource functions as HR
Director for Samsung and
Head of Human Resources,
Asia Pacific at Orange
Business Services.
RONAN WRIGHT
BSc, Bus BSc, Bus
Management, BEng
Regional President for
Europe, Middle East
and Africa
Ronan joined Nanosonics
in September 2019 and is
responsible for Nanosonics’
continued expansion across
Europe and the Middle
East. He has more than 20
years’ experience in infection
prevention through senior
sales, management and
business development roles
with Advanced Sterilization
Products and Wassenburg
Medical, a global leader in
endoscope reprocessing.
Most recently, Ronan was
the Vice President of Global
Sales and a Board member
at Wassenburg Medical,
where he had also served as
Managing Director for Ireland
and Director of Business
Development for EMEA.
KEN SHAW
BSc Finance
DAVID MORRIS
BBus, BAppSc, GAICD
Regional President for the
United States, Canada and
Latin America
Chief Strategy Officer
and Regional President
Asia Pacific
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.
David joined Nanosonics
in February 2019. David
has more than 25 years
of executive leadership,
international business
development, and strategy
experience. David was
Chief Executive Officer
and Managing Director at
the Monash IVF Group,
and prior to that he was
an Executive at Cochlear
Limited, where he was
the Chief Strategy Officer,
and the President of Bone
Anchored Solutions. Prior
to joining Cochlear Limited
David worked at Accenture
in their Strategy practice.
Infection Prevention. For Life 32
D I R E C T O R S ’ R E P O RT
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 2021,
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 $103,079,000 (2020:
$100,054,000), an increase of $3,025,000 or 3%. North American
revenue decreased by $912,000 or 1% to $89,229,000 reflecting
a 22% reduction in capital revenue offset by an 8% increase in
consumables and service revenue. Revenue in Europe and Middle
East increased by $1,955,000 or 38% to $7,157,000 with capital
revenue increasing by 91% and consumables and service revenue
increasing by 18%. Revenue in Asia Pacific increased $1,982,000
or 42% to $6,693,000, with capital revenue increasing by 143%
and consumables and service revenue increasing by 12%.
Gross profit increased by 6% to $80,384,000 compared with
$75,513,000 in the prior period. Gross margin as a percentage of
sales was 78.0% compared with 75.5% in the previous year.
Selling and general expenses (S&G) were $37,562,000, (2020:
$34,659,000). The increase in S&G of $2,903,000 was mainly to
support continued growth in North America, as well as significant
investment in operational infrastructure for market expansion
activities in Europe and Japan. Administration expenses were
$16,003,000 (2020: $12,965,000), an increase of $3,038,000
relating to investments in back office support and increased
compliance and risk management activities of a global business.
Research and development expenses (R&D) for the year were
$17,194,000, (2020: $15,558,000), an increase of 11%. This
increase of $1,636,000 was a result of the Company’s continued
investment in its product expansion strategy.
Other income for the year amounted to $156,000 (2020: $10,000).
Other net gains of $982,000 comprised mainly of net gain in foreign
currency changes and derivative financial instruments, compared
with a net loss of $670,000 in 2020.
Finance income amounted to $559,000 (2020: $1,132,000) which
related to interest earned on cash investments. Finance expense
for the year of $338,000 related mainly to interest on leases and
the financing component on cash received in advance on customer
contracts (2020: $344,000).
Income tax expense for the year was $2,406,000 compared with
income tax expense of $2,322,000 in 2020. 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 $8,578,000
(2020: $10,137,000).
The Group ended the year with $96,027,000 (2020: $91,781,000)
in cash and cash equivalents, an increase of $4,246,000. The cash
and cash equivalents balance provides a strong balance sheet for
the Company to continue executing on its growth strategies.
Further information on the operations of the Group and its business
strategies and prospects are included in the CEO’s report on pages
6 to 21 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 2021 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. Accordingly,
the material business risks below should not be considered an
exhaustive list of potential risks that may affect Nanosonics.
Risk
COVID-19
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Sales
There is a risk that direct access to hospitals
and other healthcare facilities may be
impacted by further waves of COVID-19
infection rates in key markets, which may
extend the timeline for adoption of trophon by
some customers.
There is also a risk that there may be a
reduction in hospital procedures requiring
ultrasound (for example, as part of ‘further
waves’ of COVID-19) which may impact
demand for consumables.
Sales
Measures are in place for digital communication and engagement
with customers. Nanosonics continues to provide on-site support
for installation of new trophon devices while taking the necessary
safety precautions.
The Company has introduced selling models aimed at reducing
the up-front capital outlay required to purchase trophon.
NANOSONICS LIMITED | ANNUAL REPORT 2021 33
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
COVID-19
continued
People
The Company has transitioned many of
its personnel globally to work from home
arrangements. There remains a risk that the
COVID-19 pandemic and/or government
measures to contain it could further impact
the Group’s employees.
Further, there is a risk that it will be more
difficult to hire talent internationally and
locally whilst mobility restrictions are in place.
Increased competition for local talent may
also impact talent retention.
Operations and supply chain
There is a risk of COVID-19 related disruption
to Nanosonics’ operations, including its global
supply chain.
Significant
distribution
customer
The Group’s key distribution customer
accounts for approximately 60% of the
Group’s revenue (see note 2.2 of the financial
statements), the majority of which is in the
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.
Research &
development and
commercialisation
Competition
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). Further, all research and new
product development programs involve
inherent risks and uncertainties which
can impact commercialisation timelines.
New products are also likely to require a range
of regulatory approvals.
The potential for increased competition
exposes Nanosonics to the risk of losing
existing and new 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 market share, or
render trophon obsolete.
People
The Company’s Work Health & Safety and people policies have
been updated to address COVID-19 related matters, including
supporting mental health, work from home and return to work
arrangements. Physical distancing measures and sanitiser
stations were also introduced, together with widespread
education on the importance of good hand hygiene.
The Company is also enhancing its programs in place for attracting,
recruiting and retaining talent in the current environment.
The Group’s priority remains taking care of its people and
protecting its strong relationships with customers and suppliers.
This risk is monitored closely in all markets.
Operations and supply chain
The supply chain is being closely managed and is currently well
positioned to meet customer demand, having increased inventory
of raw materials and finished goods for capital equipment and
consumables.
No major disruption has occurred to the Company’s global supply
chain for its main products arising from COVID-19 and this risk is
actively managed.
The Group continues to strengthen its own direct operations in
North America and now has significant direct sales operations
in place which can be scaled further. The Group has appointed
other distributors and resellers in the USA (many of whom are
ultrasound OEMs) and its other key markets.
Whilst revenue from the Group’s key distribution customer
amounts to approximately 60% of the Group’s revenue, a
large proportion of this flows from the sale of consumables by
the distribution customer to the Group’s installed base. That
proportion of the Group’s revenue could continue to be generated
by Nanosonics independently of the key distribution customer.
The Group continues to invest in infrastructure in the North
American market to assist the business to scale, as well as research
& development with a view to diversifying its product portfolio.
Importantly, the business continues to grow in other key regions
(Asia Pacific, Europe and Middle East).
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 supported with an appropriate level of investment. In late
FY21, the Company launched a new digital traceability product,
Nanosonics AuditPro™.
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, trophon®2, and continues
to invest in the trophon product roadmap. The trophon2 is
now sold in many key markets, and regulatory approvals
continue to be obtained in new markets. The Company also
invests in its relationships with ultrasound OEMs, including its
probe compatibility program, as well as considering product
development opportunities.
Infection Prevention. For Life 34
D I R E C T O R S ’ R E P O RT
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Intellectual
Property
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.
Nanosonics seeks appropriate patent, design and trademark
protection and manages any identified IP risks. Nanosonics also
recognises the significant value in unregistered IP. Along with
internal personnel to manage IP opportunity and risk, Nanosonics
works closely with specialists and advisors internationally to
monitor and manage its IP portfolio, 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. Additional patents have been filed in respect of trophon2.
Further, the Company’s new digital product, AuditPro, is the
subject of a patent filing.
The Group has a dedicated IP function and an active program to
continue to protect the IP in its technology having regard to its
commercial strategy as well as defensive purposes, as well as
maintain 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 to
ensure continued product supply in the short term.
The Group has a highly developed worldwide Quality
Management System to manage this risk and invests in suitably
qualified personnel to oversee the implementation of that system.
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. The business is also
subject to annual regulatory audits from key regulators.
The management of these risks is guided by the Group’s internal
financial risk management policy. The Company seeks external
advice, as appropriate. Further information is available in Note 8
to the financial statements.
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. There is also a risk of COVID-19
related disruption to Nanosonics’ global
supply chain.
The Group operates in a highly regulated
industry. Medical devices are subject to
strict regulations of various regulatory bodies
where the products are sold. Regulatory
bodies perform regular audits of Nanosonics’
manufacturing sites, as well as its third-party
suppliers, and failure to satisfy regulatory
requirements presents significant risks, including
potentially compromising the Company’s ability
to sell products, and/or result in an adverse
event such as a product recall.
The Group is exposed to foreign currency
risk and credit risk in light of the international
nature of its operations.
Supply chain
Regulation
Financial
Product liability
Personnel
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 operates a compliant Quality Management System
across all aspects of the design, manufacture and release of
products to market. The Group also has product liability insurance
in place.
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, recruiting and retaining key talent,
including scientific, medical device regulations,
and engineering talent.
The Company has programs in place both for Workplace,
Health and Safety (WHS), and the attraction, recruitment and
retention of talent.
NANOSONICS LIMITED | ANNUAL REPORT 2021 D I R E C T O R S ’ R E P O RT C O N T I N U E D
35
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Nanosonics is taking steps to enhance its cyber-security strategy
and disaster recovery plans with a view to safeguarding the
business against these risks.
Cyber security
Nanosonics recognises the risks 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 of 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 and cause
significant reputational damage.
The Company also recognises the need to
ensure operations can continue in the event
of a disaster impacting its critical IT systems.
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 on
pages 6 to 21 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 2021. No dividends were proposed,
declared or paid during the financial year (2020: 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
On 18 August 2021, the Company issued 37,201 shares at $4.51 per share for a total of $167,777 under the Global Employee Share Plan
(GESP).
No other matters or circumstances have arisen since 30 June 2021 that have significantly affected, or may significantly affect:
a. The Group’s operations in future financial years;
b. The results of those operations in future financial years; or
c. The Group’s state of affairs in future financial years.
Likely developments and expected results of operations
Comments on expected results of the operations of the Group and business outlook are in the ‘review of operations’ included in the CEO’s
report on pages 6 to 21 of this Annual Report.
The inherent uncertainties and ongoing risks associated with the COVID-19 pandemic make accurate forecasting challenging, in particular
the uncertainties associated with hospital access, emergence of further waves, and associated lockdowns.
Further information on likely developments in the operations of the Group and the expected results of operations have not been included in
this Annual Report because the Directors believe it would be likely to result in unreasonable prejudice to the Group.
Environmental regulation
The Group is subject to statutory environmental regulations. The Board believes that the Group has adequate processes in place to manage
its environmental regulatory obligations and is not aware of any breach of those environmental regulations as they apply to the Group.
Directors and company secretary
During the year and to the date of this report, the Board of Nanosonics Limited comprised Maurie Stang, Steven Sargent, Geoff Wilson,
David Fisher, Marie McDonald, Lisa McIntyre, and Michael Kavanagh.
During the year and to the date of this report, McGregor Grant is the sole Company Secretary.
Information on the Directors, Company Secretary and the executive team is a part of the Directors’ report and can be found on pages
28 to 31 of the Annual Report.
As at the date of this report, Nanosonics Limited has the following committees of the Board: Audit and Risk, Remuneration, People and
Culture Committee, Nomination, and R&D and Innovation. Details of members of the committees of the Board during the year are included
below and on page 40 of the Remuneration Report.
Infection Prevention. For Life 36
D I R E C T O R S ’ R E P O RT C O N T I N U E D
Meetings of Directors
The number of Directors’ meetings, including meetings of the committees, held during the year ended 30 June 2021, 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 and Culture
R&D and
Innovation 1
Held 2 Attended
Held 2 Attended
Held 2 Attended
Held 2 Attended
Held 2 Attended
Maurie Stang
Steven Sargent
Geoff Wilson
David Fisher
Marie McDonald
Lisa McIntrye
Michael Kavanagh
12
12
12
12
12
12
12
11 3
12
12
12
12
12
12
5
5
5
5
5
5
5
5 4
5 4
5
5
5
5
5 4
1
1
1
1
1
1
1
1
1
1
1
1
1
1 4
4
4
4
4
4
4
4
4
4
4
4 4
4
4 4
4 4
4
4
4
4
4
4
4
4
4
4 4
4
4 4
4
4
1. 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.
2. Indicates the number of meetings held which the Director is eligible to attend.
3. The Board meeting not attended by Mr Stang covered transactions with organisations of which Mr Stang is a related party.
4. Attended in part or full in ex-officio capacity
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 2021, the Company issued a total of 861,449 (2020: 636,291) new ordinary shares in Nanosonics Limited
of which 69,302 shares were issued under the Global Employee Share Plan at an average price of $5.23 per share and 792,147 were
issued pursuant to the exercise of performance rights and options under the share-based compensation plans. No amount was unpaid on
any of the shares issued.
As at 30 June 2021, there were 301,465,019 (2020: 300,603,570) ordinary shares in Nanosonics Limited on issue. At the date of this
report, there were 301,502,220 shares on issue. Further information on issued shares is provided in the Share-based payments Note 4.3
and Capital and reserves Note 9.1 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, 771,787 (2020: 256,931) unquoted performance rights and 920,633 unquoted share appreciation rights
(2020: 922,444 unquoted share options) over unissued ordinary shares in Nanosonics Limited. Further information on the grants is provided
in Share-based payments Note 4.3 to the financial statements.
Shares under option
At the date of this report, there were 4,821,596 unissued ordinary shares of Nanosonics Limited under option under the Nanosonics
Omnibus Equity Plan. As at 30 June 2021, there were 4,825,225 (2020: 4,116,344) unissued ordinary shares of Nanosonics Limited under
option. Further information on the options is provided in the Share-based payments Note 4.3 to the financial statements.
Share-based compensation plan
Total shares under option at 30 June 2021
Performance rights and options lapsed
Total shares under option to the date of this report
Number of shares under option
4,825,225
(3,629)
4,821,596
The options entitle the holder to participate in a share issue of the Company provided the options are exercised on or after their vesting date
and prior to their expiry date. No option holder has any right under the options to participate in any other share issue of the Company or any
other entity.
NANOSONICS LIMITED | ANNUAL REPORT 2021
37
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 59 of
this report.
Auditor
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. The Corporate Governance Statement and
Corporate Governance policies can be found on the Company’s
website at http://www.nanosonics.com/Investor-Centre/
Corporate-Governance.
Remuneration Report
The Remuneration Report forms part of the Directors’ Report.
This report, which includes the review of operations in the CEO’s
report (on pages 6 to 21), the Information on the Board and the
Executive Team (on pages 28 to 31) and the Remuneration Report
(on pages 38 to 57), is made on 24 August 2021 and signed in
accordance with a resolution of directors, pursuant to section
298(2) of the Corporations Act.
G E O F F W I L S O N
Director, Sydney
24 August 2021
D I R E C T O R S ’ R E P O RT C O N T I N U E D
Indemnifying officers or auditor
During the financial year, the Company paid insurance premiums to
insure the Directors and Secretary and Key Management Personnel
of the Company and its controlled entities.
The liabilities insured are legal costs that may be incurred in
defending civil or criminal proceedings that may be brought against
the officers in their capacity as officers of entities in the Group, and
any other payments arising from liabilities incurred by the officers
in connection with such proceedings. This does not include such
liabilities that arise from conduct involving a wilful breach of duty by
the officers or the improper use by the officers of their positions or
of information to gain advantage for themselves or someone else or
to cause detriment to the Company. It is not possible to apportion
the premium between amounts relating to the insurance against
legal costs and those relating to other liabilities.
The Directors have not included in this report the amount of the
premium paid in respect of the insurance policy, as such disclosure
is prohibited under the terms of the contract.
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 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 $1,000 (where rounding is
applicable) and where noted ($’000) under the option available to
the Company under ASIC Instrument 2016/191. The Company is
an entity to which that Instrument applies.
Non-audit services
The Company may decide to employ the auditor on assignments
additional to their statutory audit duties where the auditor’s
expertise and experience with the Company and/or the Group
are important.
The Board of Directors has considered the position and, in
accordance with advice received from the Audit and Risk
Committee, is satisfied that the provision of the non-audit services
by the auditor 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.
Infection Prevention. For Life 38
R E M U N E R AT I O N R E P O RT
L E T T E R F R O M T H E C H A I R O F T H E R E M U N E R AT I O N ,
P E O P L E A N D C U LT U R E C O M M I T T E E
Dear Shareholders,
On behalf of the Remuneration, People and Culture
Committee (RPC) and the Board, I am pleased to
present the Remuneration Report for the year ended
30 June 2021 (FY21).
Nanosonics in FY21
Acknowledging the COVID-19 related challenges throughout
the year, in particular during the first half, the Nanosonics
team adapted well, focusing on customer support and
progressing its growth agenda. For the total year, revenue
grew 3% (11% in constant currency). Importantly in the
second half, the team grew revenue 39% over the first half
as market conditions improved. The total global installed
base for the year grew 13% and as hospital access
improved in the second half, new installed base growth
was up 20% over the first half. The team also managed to
progress the R&D program with the launch of an important
new digital innovation, Nanosonics AuditPro™, while
progressing a number of other product expansion projects.
Attraction of new talent to expand the capability of the
organisation was also a focus throughout the year, with the
total number of employees increasing 9% to 339 employees
while ensuring diversity was a cornerstone of the human
capital growth. 41% of Nanosonics employees globally
are female and importantly 38% of senior management
positions in the organisation are now held by females.
During the year the Company had no COVID-19 related
job losses, nor did the Company access any government
subsidies, such as JobKeeper in Australia, or similar
programs in markets such as Canada or the U.S.
Nanosonics’ culture remained strong during FY21,
illustrated by the outcomes of the Nanosonics Global
Employee Engagement Survey, where 97% of employees
participated in the survey and 94% of the employees are
highly engaged with the overall purpose of Nanosonics.
FY21 remuneration outcomes
Details of the performance of the team against their
metrics is detailed in Section 4 of this Remuneration
Report. The STI overall outcomes for the year reflected:
– An on-target (100%) performance for Profit Before Tax;
– Slightly below (92.7%) target performance on
Global Installed Base;
– Good progress on R&D activities;
– Good progress on geographic regional growth; and
– Good progress on commercial terms with our large
customers and partners.
Profit Before Tax (PBT) result exceeded the Stretch
hurdle set by the Board when agreeing the FY21
operating plan, which would have resulted in 150%
achievement of the PBT metric. Notwithstanding this solid
financial performance, having regard to the difficulties
and uncertainties experienced in forecasting revenue
and operating expenses, the Board agreed with the
CEO&P’s recommendation to apply discretion to reduce
the achievement of the PBT metric to be assessed at
Target or 100%.
In summary for FY21:
– The CEO’s STI outcome was 72.77% of maximum
(94.60% of target);
– Other Executive KMP STI outcomes range between
66.81% and 73.38% of maximum (90.20% to
95.40% of target);
– The aggregate STI outcome was 71.74% of maximum
(93.85% of target); and
– The 2017 LTI outcome was 100% of target due to the
performance conditions (TSR hurdles) being met,
100% of the Performance Rights and Options vested.
There were no downward Values rating modifiers
applied to the CEO&P or Executive KMP in FY21.
In FY20, following a comprehensive assessment
undertaken with external remuneration consultants,
Godfrey Remuneration Group (GRG), the Board
approved changes to the Executive Remuneration
Framework, in particular the design of the STI and LTI
Plans. These changes were introduced in FY21 and
we believe they strike an appropriate balance between
driving accountability for sustainable short-term results
and generating long-term growth and value creation
for shareholders. Following extensive engagement
with investors and proxy advisor organisations, these
changes were strongly supported by shareholders last
year. Full details are set out in section 3.3 and 3.4 of the
Remuneration Report.
The Company received some feedback and questions
on the LTI metrics. To ensure transparency, we have
reiterated our rationale here for adopting these metrics.
The FY21 LTI award introduced two new performance
metrics: an external, market-based metric – Relative TSR
(Index-TSR); and an internal, financial metric – Underlying
Return on Equity (UROE).
After careful consideration as to what would be the
most appropriate comparator group for the Index-TSR
metric, the Company adopted the ASX300 Industrials
Index, excluding financial services, mining and energy.
We received some feedback that a comparator group
of companies in a broadly defined Healthcare index
may be more appropriate. The Board did consider an
industry-based comparator group, however determined
that identifying a group of companies within the Health
Care industry that were similar enough to Nanosonics and
could be considered as a suitable ‘relative comparator’,
was not possible. In considering a Healthcare comparator
group in 2020, there was a total of 38 companies classified
as Health Care Equipment & Supplies Industry, with only
five being larger than Nanosonics (four significantly larger).
NANOSONICS LIMITED | ANNUAL REPORT 2021 R E M U N E R AT I O N R E P O RT C O N T I N U E D
39
This has largely remained the same in 2021, with only eight
companies larger than Nanosonics (seven significantly
larger). Of the companies analysed in 2020 that had a lower
market capitalisation, the closest had a market capitalisation
of $313 million, representing approximately one-sixth of
Nanosonics’ market capitalisation, and this dropped rapidly
to a $10 million market capitalisation for other companies
in this industry.
The Board and its advisors were therefore unable to
identify an appropriate bespoke list of suitable health care
companies to form an effective comparator group at the
time, and this remains the case in 2021 due to there not
being enough relative health care comparators available.
After considering the advice received, the Board
determined that due to Nanosonics’ position within the
ASX based on market capitalisation in 2020, the TSR
of the ASX300 Industrials Index was an appropriate
comparator group. The upcoming 2021 LTI award will
again feature this same comparator group and will be
disclosed in the 2021 Notice of Annual General Meeting.
Nanosonics also took independent advice regarding the
risk/return profile and adjusted the NAN beta to 1.35
(i.e. a 3.5% percentage premium vs. the Index for setting
the target and a 7% percentage premium at stretch).
The rationale for applying a third of the grant value to
the Index-TSR metric was due to the relative volatility of
Nanosonics’ stock price performance historically and
uncertainty regarding future TSR, given the current high
PE ratio which requires a significant stretch performance of
management to deliver inbuilt expectations, evident in the
existing share price. It is also important to note that there
is a positive TSR gate.
The second LTI metric, representing two thirds of the
award, is Underlying Return on Equity, which excludes
R&D expenses from the calculation. The rationale for
assigning two-thirds of the award to the UROE metric is to
encourage management to work towards driving long-term
sustainable value for shareholders in the ‘core business’,
noting the correlation between long-term ROE in excess
of the cost of equity has a strong correlation with strong
TSR outcomes for shareholders.
Nanosonics is very much in investment/growth phase and if
the R&D expenses were not excluded, a perverse incentive
could be created for management to reduce investment
in future developments/growth, to the detriment of
long-term growth and value creation for shareholders.
Furthermore, the structure of the STI scheme is designed
to capture the R&D expenses and therefore address the
disciplined management of R&D expenditure in the short
term because a significant portion of the award is tied to
the achievement of current year profit before tax (including
R&D expenditure). The Board believes this framework
provides the elegant balance of running the business well
for the short term while investing for the long term.
Prior to recommending this metric we engaged extensively
with a significant number of our large shareholders, by
whom it was well received. That support is evidenced
with the support of the Remuneration Report resolution
approval last year. These shareholders were unsupportive
of a typical ROE for LTI because they view Nanosonics
as a growth Company with significant investment
opportunities and they believed a traditional ROE metric
would disincentivise investment for the future. The
feedback we received confirmed we had the balance right
and the Board considers the calculation of ROE as the
measure that is best fit-for-purpose for the LTI award.
The STI Plan introduced discrete metrics with a focus
on the Company financial performance, being Profit
Before Tax and Global Installed Base growth which was
determined as the most important metric as a proxy for
current and future annuity revenue growth. The PBT metric
includes R&D expenses to ensure effective management of
the R&D expenditure and drive profitability for the year.
FY22 remuneration
Other Board approved changes to the FY21 Executive
Remuneration framework arising from the external
benchmarking review conducted by GRG will be
implemented in FY22. The changes include the second
phase of the increase in the target STI opportunity for
Executive KMP which was increased from 30% to 40%
in FY21 and will be increased to 50% in FY22. The
changes also include a remuneration review of Total Fixed
Remuneration (TFR) for the CEO&P and Executive KMP
which was postponed in FY20 due to the uncertain business
environment associated with COVID-19 and the impacts on
our customers and the broader community. That review has
resulted in an increase to the base remuneration of 4.5% for
the CEO&P and an average of 5.31% for Executive KMP.
The remuneration increase was considered appropriate by
the Board as the FY20 GRG benchmarking review indicated
that the TFR for the CEO&P and each Executive KMP was
low in comparison to the market median. The 4.6% increase
in the CEO&P’s TFR is well below the median (P50) when
compared to the comparator group.
There were no increases recommended for the
Non-Executive Directors’ (NED) Board fees for FY22, with
the last review and increase having occurred in FY19.
The focus for FY22 will be to continue to reward
performance to align the interests of employees and
shareholders, with a clear focus on attraction and retention
of key talent to deliver on the Company’s continued growth
and investment strategy.
On behalf of the Committee and the Board I would like
to thank shareholders for their ongoing belief in the
Company’s purpose and vision.
S T E V E S A R G E N T
Chairman, Remuneration, People and Culture Committee
24 August 2021
Infection Prevention. For Life 40
R E M U N E R AT I O N R E P O RT — A U D I T E D
The Remuneration Report for the year ended 30 June 2021 (2021 Financial Year or FY21) forms part of the Directors’ Report. It has been
prepared in accordance with the Corporations Act 2001 (Cth) (the Act), Corporations Regulation 2M.3.03, in compliance with AASB124
Related Party Disclosures, and audited as required by section 308(3C) of the Act. It also includes additional information and disclosures that
are intended to support a deeper understanding of remuneration governance and practices, where statutory requirements are not sufficient.
Report Structure
The report is divided into the following sections:
1 Key Management Personnel
2 Remuneration link with Company performance and strategy
3 Remuneration Framework
4 Company performance and remuneration outcomes
5 Governance
6 Non-executive Director remuneration
7 Statutory tables and disclosures
1 KEY MANAGEMENT PERSONNEL
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.
Name
Role
Committee membership
Appointed
Nomination
Audit
& Risk
RPC
R&D and
Innovation
Non-executive
Maurie Stang
Chairman, Non-independent Director
14 Nov 2000
Steve Sargent
Deputy Chairman, Lead Independent Director
6 Jul 2016
Geoff Wilson
Independent Director
David Fisher
Independent Director
Marie McDonald
Independent Director
Lisa McIntyre
Independent Director
Executive
Michael Kavanagh Chief Executive Officer & President (CEO&P)
and Managing Director
17 Jul 2019
30 Jul 2001
24 Oct 2016
13 Dec 2019
21 Oct 2013 1
McGregor Grant Chief Financial Officer (CFO) and Company Secretary 28 Apr 2011
Steven Farrugia
Chief Technology Officer
5 Sep 2016
David Morris
Chief Strategy Officer and Regional President, APAC
4 Feb 2019
Rod Lopez
Chief Operating Officer
4 Mar 2019
✓ = member C = Chair
1. Mr Kavanagh was appointed Director on 30 July 2012 and appointed CEO&P on 21 October 2013.
There were no changes to KMP during FY21 and to the date of this report.
✓
✓
✓
✓
✓
✓
✓
C
✓
✓
✓
✓
C
✓
✓
✓
✓
✓
C
✓
✓
NANOSONICS LIMITED | ANNUAL REPORT 2021
R E M U N E R AT I O N R E P O RT — A U D I T E D C O N T I N U E D
41
2 REMUNERATION LINK WITH COMPANY PERFORMANCE AND STRATEGY
2.1 OVERVIEW OF REMUNERATION FRAMEWORK
Nanosonics’ Remuneration Framework, outlined below, is designed to support the Company’s strategy and reward executives for
successful implementation. Additional information on the Nanosonics Remuneration Framework is provided in section 3.
The Remuneration Framework is intended to attract, motivate and retain talent to enable the Company to deliver on the growth strategy
of the core business and to develop and implement the long-term strategy through significant investments to establish Nanosonics as a
globally recognised leader in infection prevention.
EXECUTIVE KMP REMUNERATION OBJECTIVES
An appropriate balance
of fixed and variable
components.
Attract, motivate
and retain
executive talent.
The creation of reward
differentiation to drive
performance and behaviours.
Shareholder value
creation through equity
components.
Fixed
Variable
Total Remuneration
Total Fixed Remuneration (TFR)
Short-Term Incentive (STI)
Long-Term Incentive (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
shareholder value creation.
Base salary plus any fixed elements
related to local markets, including
superannuation or equivalents.
Delivery
Part cash and part equity. The delivery of
equity as part of the award facilitates Executive
KMP share ownership in the business
as encouraged by the Company’s Share
Ownership Policy. The equity component is
deferred to facilitate malus/clawback policies,
and to create a longer-term aspect to
the short-term incentive.
Strategic intent and marketing positioning
Equity is held subject to
performance and service tests.
The measurement period is three
years to create a long-term focus
aligned with the financial interests of
the Company shareholders.
TFR will generally be positioned at
the median compared to relevant
market-based data considering
expertise and performance in the roles.
Performance incentives are directed
to achieving demanding growth targets.
TFR + STI is intended to be positioned
competitively when compared to groups
of similar companies.
LTI is intended to align
Executive KMP with 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
2.2 ASSESSMENT OF BEHAVIOURS AGAINST NANOSONICS’ CORE VALUES
Nanosonics believes that the value created by desirable behaviours is inextricably linked to sustainable long-term value creation for
shareholders. Our values, desired behaviours and the relationship with our customers and the broader community are taken into
consideration when assessing individual performance which has implications on the modification of variable remuneration where
appropriate. The Board conducts a formal behavioural assessment of each Executive KMP as part of their overall performance review.
Infection Prevention. For Life 42
R E M U N E R AT I O N R E P O RT — A U D I T E D C O N T I N U E D
3 REMUNERATION FRAMEWORK
3.1 TARGET REMUNERATION MIX
The remuneration mix for each Executive KMP is weighted to provide an appropriate balance between fixed and variable 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. A portion of executive remuneration is paid in equity (48% for
the CEO&P and 37% for Other Executive KMP at Target achievement).
CEO &P REMUNERATION MIX
MINIMUM
$722,000
TARGET
$1,805,000
STRETCH
$ 2,585,000
100%
40%
12%
12%
36%
60% PERFORMANCE BASED
48% EQUIT Y BASED
28%
11%
11%
50%
72% PERFORMANCE BASED
61% EQUIT Y BASED
TFR
Cash STI
Deferred STI
LTI
OTHER EXECUTIVE KMP REMUNERATION MIX
MINIMUM
$ 394,000
TARGET
$ 589,000
STRETCH
$ 994,000
100%
52%
40%
TFR
Cash STI
Deferred STI
LTI
3.2 TOTAL FIXED REMUNERATION (TFR)
12%
12%
26%
48% PERFORMANCE BASED
37% EQUIT Y BASED
10%
10%
40%
60% PERFORMANCE BASED
50% EQUIT Y BASED
TFR comprises base salary plus any fixed elements relating to local markets, including superannuation or equivalent. In addition to base
salary, executives may receive benefits in line with local practice, such as health insurance and a car allowance.
TFR for Executive KMP is benchmarked regularly for market competitiveness by reference to appropriate independent and externally
sourced comparable information. Adjustments are only made in response to individual performance, an increase in job responsibilities,
changing market conditions or promotion. Any adjustment to Executive KMP remuneration is approved by the Board, based on
recommendations by the CEO&P and the Remuneration, People and Culture Committee.
Target Total Remuneration is comprised of an appropriate mix of remuneration elements including TFR, short-term and long-term variable
components. The intended long-term market pay position is P62.5.
3.3 SHORT-TERM INCENTIVE (STI)
The FY21 STI structure was adjusted in FY20 in response to the Board identifying an opportunity to improve executive remuneration.
The changes included:
– Increased STI % opportunity and calculated on TFR based on the market review;
– Defined outcomes for each Group Financial metric at threshold, target and stretch;
– Calculation of the overall STI % outcome based on the sum of discrete metrics with stand-alone results (FY20 STI outcome was
determined by the achievement of Company Performance Objectives multiplied by Individual Performance Objectives);
– The introduction of a Values rating modifier to recognise the impact of an individual’s behaviour when not aligned with the Company’s
Core Values; and
– 50% of the STI payment to be delivered in Service Rights, subject to one-year service condition and one-year exercise restriction period,
i.e. two-year lockup.
NANOSONICS LIMITED | ANNUAL REPORT 2021 R E M U N E R AT I O N R E P O RT — A U D I T E D C O N T I N U E D
43
3.3 SHORT-TERM INCENTIVE (STI) continued
The FY21 STI is dependent on meeting Group Financial and Operational metrics, as detailed below:
Purpose
To motivate and reward executives for the achievement against annual weighted metrics which are approved by the
Board at the beginning of the financial year.
Performance
measures
The measure for metrics with stretch outcomes, for example Group Financial metrics, will be scaled according to outcome
levels with the reward calculated on a straight-line basis between each level. The three performance levels are:
Threshold: Represents a minimum level of outcome that would result in a reward;
Target: Represents the desired outcome that is considered challenging and reasonably achievable; and
Stretch: Represents the upper limit of outcomes that are inherently challenging.
The targets for the performance levels within each discrete metric is approved by the Board, taking into consideration
prior performance, market conditions and Board approved budgets. The CEO&P metrics for FY21 are:
– Group Financial metrics (60% weighting) with Threshold opportunity of 50%, Target opportunity of 100% and
Stretch opportunity up to a maximum of 150%:
· Profit Before Tax (PBT) (20% weighting): PBT is considered to be an appropriate metric aligned with the
Company’s growth. The 20% weighting was applied in recognition of the market uncertainties associated with
COVID-19 in FY21.
· Global Installed Base (40% weighting): Global Installed Base is considered to be an appropriate metric as it
aligns with shareholders’ long-term interests in driving profit. The 40% weighting was applied in recognition of the
strategic importance of growing the installed base in FY21.
– Operational metrics (40% weighting) with the maximum opportunity of 100%: Aligned with the business
priorities – Customer Experience, Product Innovation, Operational Excellence, People Engagement and Value
Creation and does not include a stretch opportunity.
The weightings indicated above apply to all Executive KMP with the exception of David Morris, Chief Strategy Officer
and Regional President, APAC, who had a higher weighting attached to the achievement of Operational metrics.
Opportunity
CEO&P: Target opportunity is 60% of TFR, with maximum of up to 78% of TFR for achievement of Stretch outcomes.
Calculation
Executive KMP: Target opportunity is 40% of TFR, with a maximum of up to 52% of TFR (or up to 54% for
Regional Presidents) for achievement of Stretch outcomes.
The overall STI outcome is calculated as demonstrated below, including the impact of the Values rating modifier.
The values rating is a downward modifier and is based on each executive’s individual behaviour in relation to living the
Company’s Core Values of Collaboration, Innovation, Discipline, Agility and Will to Win. The Values rating modifier is
applied to the total STI outcome % in recognition of the contribution of behaviour.
In determining the total STI award, the TFR used is calculated on the amount paid to the individual during the financial
year (1 July 2020 to 30 June 2021).
Total
STI award
($)
=
TFR ($)
(calculated on the
amount paid during
the financial year)
x
STI opportunity
(% of TFR)
x
STI outcome %
(includes total results
of each discrete metric,
including stretch outcomes,
where applicable)
x
Values rating
modifier
(0% to 100%)
Delivery
The STI is delivered as follows:
– 50% of STI paid in cash; and
– 50% of STI delivered as Service Rights subject to one-year service condition and one-year exercise restriction period
i.e. two-year lockup.
STI awards issued prior to the FY21 STI were delivered as Performance Rights subject to one-year service vesting
condition. After which these are automatically exercised into Shares and subject to a further one-year holding lock.
Allocation
method
The equity component will be determined based on the Volume Weighted Average Price (VWAP) of Nanosonics’ shares
during the 20 business days from the date of announcement following the release of the Company’s full year results.
Dividends
Rights do not carry any dividend or voting rights prior to exercise.
Termination of
employment
To be eligible to receive the cash component, the participants must be employed by the Company and not working a
notice period at the time the cash is paid.
To be eligible to receive the equity component, the participants must be employed by the Company and not working
out a notice period from the date of grant to the vesting date.
Board
discretion
The Board retains discretion to modify STI award assessment outcomes, or the form of settlement, if it deems it
appropriate in the circumstances that prevailed over the measurement period. The Board will disclose the application
of such discretion to Executive KMP STI awards, when applicable.
Infection Prevention. For Life 44
R E M U N E R AT I O N R E P O RT — A U D I T E D C O N T I N U E D
3.4 LONG-TERM INCENTIVE (LTI)
The LTI structure was adjusted in FY20 in response to the Board identifying an opportunity to improve executive remuneration and in
response to feedback through engagement with shareholders and proxy advisory firms. The changes included introducing two financial
measures: an external, market-based metric (Index-TSR) reflecting a Nanosonics specific risk adjusted return relative to return of an
index, and an internal, earnings-based metric Underlying Return on Equity (UROE) to support investment in growth. Further, the target LTI
opportunity for the CEO&P and Executive KMP was increased. Details of these metrics that are intended to drive the creation of value for
shareholders are provided below.
Index-TSR (iTSR) – 33.3% weighting
– The Board determined the ASX300 Industrials Index, excluding financial services, mining and energy, was an appropriate comparator
group due to Nanosonics’ position within the ASX based on market capitalisation in 2020. The Board did consider an industry-based
comparator group, however determined that identifying a group of companies within the Health Care industry that were similar enough
to Nanosonics and could be considered as a suitable ‘relative comparator’ was not possible. In considering a Healthcare comparator
group in 2020, there was a total of 38 companies classified as Health Care Equipment & Supplies Industry, with only five being larger
than Nanosonics (four significantly larger). Of the companies analysed in 2020 that had a lower market capitalisation, the closest had a
market capitalisation of $313 million, representing approximately one-sixth of Nanosonics’ market capitalisation, and this dropped rapidly
to a $10 million market capitalisation for other companies in this industry. The Board and its advisors were therefore unable to identify an
appropriate bespoke list of suitable health care companies to form an effective comparator group at the time.
– Nanosonics’ risk-return profile was considered within the ASX300 Industrials and independent advice confirmed that over a three-year
period the beta of Nanosonics’ shares is approximately 1.35. Accordingly, a premium of +3.5% was applied to increase the iTSR hurdle
at Target performance and a premium of +7.0% was applied for Stretch performance.
– The weighting of this measure reflects the volatility of Nanosonics’ historical performance and the future uncertainty, given the Company’s
high PE ratio.
– A positive TSR must be achieved before any securities associated with the iTSR metric will vest.
Underlying Return on Equity (UROE) – 66.6% weighting
– Nanosonics is very much in an investment/growth phase and invests a relatively high proportion of its total expenses in R&D activities that
are directed to driving long-term growth and value creation for shareholders. The decision to exclude R&D expenses from the ROE metric
was made to drive management actions towards both short-term results and long-term outcomes. The exclusion of R&D expenses
ensures that management is incentivised to drive the growth and profitability of the underlying business as well as investing in activities
that will drive Nanosonics’ long-term growth.
– R&D expenses are included in the Group Financial metric of the STI (PBT) which encourages management accountability of the R&D
expenditure to control profitability of the underlying business.
– The higher weighting on the UROE metric, excluding R&D expenses, is to encourage management to drive long-term sustainable value
for shareholders through investments in identified strategic growth priorities.
At the 2020 Annual General Meeting held on 24 November 2020, shareholders approved the 2020 LTI award for the CEO&P. The description
of the approved 2020 LTI award, which also applies to the Executive KMP, is set out below:
Purpose
To align a significant portion of executives’ overall remuneration opportunity with the indicators or drivers of shareholder
value creation over the longer term and to align executive interests with those of shareholders.
Opportunity
CEO&P: Target opportunity is 90% of TFR, with a maximum of up to 180% of TFR for achievement of Stretch outcomes.
Executive KMP: Target opportunity is 50% of TFR, with a maximum of up to 100% of TFR for achievement of
Stretch outcomes.
The maximum LTI opportunity for awards granted prior to the 2020 LTI was 60% of base salary for the CEO&P and
30% of base salary for Other Executive KMP.
Delivery
Equity grants to the Executive KMP will be awarded as follows:
– The iTSR component will be awarded as Share Appreciation Rights (SARs), which are cashless exercise options
Allocation
method
that have a notional exercise price of $6.0436 (determined based on the Volume Weighted Average Price (VWAP)
of Nanosonics’ shares during the 20 business days from the date of announcement following the release of the
Company’s FY20 full year results); and
– The UROE component will be awarded as Performance Rights with a nil exercise price.
The number of Share Appreciation Rights or Performance Rights granted is calculated as follows:
Number
of Rights
=
TFR ($)
x
LTI
opportunity
% at Stretch
x
Tranche
weighting
÷
Value
of Right
The value of each Share Appreciation Right or Performance Right is determined using a Black-Scholes model
(prepared by an independent consultant), ignoring vesting conditions (i.e. no discounting applies).
NANOSONICS LIMITED | ANNUAL REPORT 2021 R E M U N E R AT I O N R E P O RT — A U D I T E D C O N T I N U E D
45
3.4 LONG-TERM INCENTIVE (LTI) continued
Measurement
period
The measurement period for the Share Appreciation Rights and Performance Rights are:
– Share Appreciation Rights: From the announcement of the Company’s FY20 financial results to the announcement
of the Company’s FY23 financial results based on the 20-day VWAP of the Company’s shares following those dates.
– Performance Rights: From 1 July 2020 to 30 June 2023.
The performance measurement periods for the LTI plans issued prior to 2020 that have not yet vested are summarised below:
LTI year Measurement period
2019
2018
27 August 2019 to the date of the release of Nanosonics FY22 financial statements
20 August 2018 to the date of the release of Nanosonics FY21 financial statements
Exercise
restriction
period
The Rights will be subject to an exercise restriction period of one year after the Vesting Date and may only be exercised
after that date.
In the event that a taxing point arises during employment with the Company in relation to vested Rights, and the
Exercise Restriction or disposal restrictions have not elapsed, then those restrictions will cease to apply to 50% of the
taxable Rights.
LTI awards issued prior to the 2020 LTI do not have an exercise restriction period once vested.
Gate and
Performance
Conditions
Gate
A Gate is a condition that, if not fulfilled, will result in nil vesting of certain Rights, irrespective of performance in relation
to the Performance Conditions. The Gate for the 2020 LTI is as follows:
– For the Share Appreciation Rights (iTSR), the Gate is that the Company’s TSR must be positive over the
Measurement Period.
– For UROE Performance Rights, no Gate applies.
Performance Conditions
The Performance Conditions for the 2020 LTI are:
– For the Share Appreciation Rights (iTSR), the Performance Condition will be based on the Total Shareholder Return
(TSR) of the Company over the Measurement Period (equivalent to the change in Share Price, plus dividends
declared assumed to be reinvested), compared to the TSR of the ASX 300 Industrials Total Return Index (excluding
the energy and metal & mining industries) after adding a premium of 3.5% at Target and 7% at Stretch which was
determined by the Board in assessing the Company’s risk profile. Vesting will be determined based on delivery of
expectations which are inherently challenging according to the following scale:
Outcome
NAN TSR performance
% vesting of grant % of opportunity
Stretch
Target
Threshold
Below
Index TSR% + 7.0% TSR CAGR
Index TSR% + 3.5% TSR CAGR
Index TSR%
Continue reading text version or see original annual report in PDF format above