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2023 ReportPeers and competitors of Nanosonics:
NanoVibronix, Inc.Infection
Prevention.
For Life.
Annual Report 2023
Nanosonics Limited | Annual Report 2023
Overview
Nanosonics (ASX:NAN) is an Australian infection prevention company that has
successfully developed and commercialised a unique automated disinfection solution,
trophon® technology, representing the first major innovation in high-level disinfection for
ultrasound probes in more than 20 years.
trophon technology 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.
Contents
Financial and operational review
CORIS®
The Board
trophon®2
AuditPro™
Financial highlights
Letter to shareholders
Overview and Mission
1
2
4
8
20 Our commitment to ESG
22
25
26
30
32
34
40
63
64
100 Directors’ declaration
101
106 Shareholder information
108 Glossary
109 Corporate directory
Remuneration report
Financial statements
The Executive Team
Directors’ report
Independent auditor’s report
Auditor’s independence declaration
1
Our mission
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.
The global leaders in infection prevention
With an installed base of
32,450 trophon units globally,
approximately 26 million patients
are protected every year from the risk of
ultrasound probe cross contamination.
Infection Prevention. For Life. 2
Nanosonics Limited | Annual Report 2023
Financial highlights
Revenue
Gross Profit
Operating Expenditure
$166.0m
38%
vs FY22
$130.6m
42%
vs FY22
$114.2m
26%
vs FY22
166.0
130.6
114.2
120.3
100.1
103.1
84.3
91.9
80.4
75.5
62.8
90.5
70.8
63.2
49.2
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
Profit Before Tax
Free Cash Flow
Cash And Cash Equivalents
$21.6m
1,250%
vs FY22
16.8
12.4
11.0
$19.8m
$112.2m
19%
vs FY22
21.6
20.9
19.8
112.2
91.8
96.0
94.5
72.2
1.6
2.6
5.9
(0.2)
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
2014-2023 results
3
“The 2023 financial year has been another year of significant
achievement. The trophon business continued to expand globally,
delivering excellent sales growth and profitability.”
Michael Kavanagh | CEO & President
$’0002023202220212020201920182017201620152014Revenue165,993120,320 103,079 100,054 84,324 60,698 67,507 42,796 22,214 21,492 Gross profit130,645 91,905 80,384 75,513 62,816 45,291 50,155 32,166 15,313 13,921 R&D expenses(29,514) (22,358) (17,194) (15,558) (11,375) (9,882) (9,486) (7,297) (4,902)(4,103)EBITDA26,7727,509 15,188 15,563 17,642 5,861 14,140 950 (4,732) (1,845)EBIT19,635 1,782 10,763 11,671 15,502 4,362 12,866 (359) (5,795) (2,820)Operating profit/(loss) before tax21,596 1,578 10,984 12,459 16,830 5,583 13,852 136 (5,465) (2,636)Net income tax benefit/(expense)(1,713) 2,164 (2,406) (2,322) (3,228) 168 12,306 (14) 5 31 Operating profit/(loss) after tax19,883 3,742 8,578 10,137 13,602 5,751 26,158 122 (5,460) (2,605)Cash and cash equivalents112,159 94,512 96,027 91,781 72,180 69,433 62,989 48,841 45,724 21,233 Infection Prevention. For Life. 4
Nanosonics Limited | Annual Report 2023
Letter to shareholders
The 2023 financial year has been another
year of significant achievement as the
organisation continued to grow the global
trophon business, serve its customers and
continue to invest in its strategy to expand
its participation in the multi-billion dollar
infection prevention market.
Letter to shareholders continued
The 2023 financial year saw the Company continue to focus
on meeting customer needs and make strong progress against
its strategic growth agenda. The core trophon business
continued to expand globally delivering excellent sales growth
and profitability.
Our commitment to ongoing investment in the drivers of future
growth through geographical expansion and Research and
Development also continued with the Company successfully
executing several key strategic priorities throughout the year.
Central to these was the successful evolution of our sales
model in our largest market, North America, to a largely direct
sales model with capital reseller agreements remaining in place
with ultrasound OEMs. FY23 was the first full year operating
under this model. Aligned with the Company’s ultimate goal
of operating through more direct sales channels, the Company
also established a direct operation in Ireland during the year.
Progress was also made with our geographical expansion
plans. In Japan, the Company continues its investment in
market development efforts to establish local high-level
disinfection guidelines for the reprocessing of ultrasound
transducers. A new infection control management bundle for
ultrasound probe reprocessing in Obstetrics and Gynaecology
was recently published by an advisory committee on
infection control in Obstetrics and Gynaecology. This was
recently presented at the Japanese Society of Infection
Prevention and Control (JSIPC).
In China, the necessary documentation for regulatory
approval to market and sell trophon2 is now under review
with the Chinese regulatory authorities.
Research and development continues to be a cornerstone
of the future growth of the Company. Through our R&D
investments, the Company has built depth in its capacity and
capabilities. Our next transformational product, CORIS®, is
being designed to address one of the most recognised unmet
needs in medical instrument reprocessing, endoscope cleaning.
It was recently presented at the North American national
infection prevention conference, APIC, with more presentations
at infection prevention conferences planned throughout FY24.
Recent consultation with the FDA through the STeP program,
gave us early notice that certain testing originally scheduled to
be conducted in Australia is now required to be completed in the
USA. The Company is taking the necessary preparatory steps
to conduct this testing which necessitates the set-up of a clinical
simulation laboratory in the USA, similar to the one established
at Nanosonics HQ in Sydney. In parallel, the in-use clinical trial
plans will go ahead in Australia as previously planned.
The required testing in the USA will impact the FDA de novo
submission date which will likely move into Q3 FY24. Given
that the FDA submission is the key priority, there will also be
an impact on the timing for commercialisation plans for other
markets including Australia and Europe, which will be clearer
once the FDA de novo submission is made.1
5
Growth momentum continued and the global total installed
base grew 9% for the year with 32,450 trophon units now in
operation around the world. Importantly, 32,450 trophon units
in operation means over 26 million patients are protected from
the risk of ultrasound probe cross-contamination annually.
The number of customers upgrading from the first generation
trophon EPR device to trophon2 is now growing significantly with
over 1,800 upgrade units placed in FY23, up 81% compared to
FY22. These upgrades bring significant benefits to customers in
terms of usability, traceability and digitisation compared to other
available solutions. Significantly, in addition to capital revenue
and the ongoing annuity revenue from consumables associated
with each upgrade, upgrades also represent an opportunity for
increased annuity revenue in the form of service revenue.
Throughout the year our manufacturing and logistics teams
continued to manage a challenging and complex supply
chain. There was an approximate three-fold increase in the
number of shipments to customers in North America from our
direct operations as a result of the transition to a largely direct
model. Continuity of supply was maintained across all regions
with all customers’ orders being delivered in full and on time.
Total revenue for the year grew 38% for the year to $166.0 million.
Capital revenue was up 44% to $54.2 million resulting from
increased new installed base and significant growth in upgrades
from our first-generation EPR device to trophon2. Consumable
and service revenue also grew strongly up 35% to $111.8 million
as ultrasound procedures returned to pre COVID-19 pandemic
levels coupled with the ongoing growth in the installed base.
Growth in revenue was primarily driven in North America which
saw a 41% growth to $150.4 million. This growth reflects the
benefits of the move to a largely direct operation in North America
which resulted in improved capital and consumable pricing, growth
in upgrades and growth in the number of trophon units under direct
service contracts. Having a direct interface with our customers
brings many benefits to not only serve better but to deepen our
understanding of their needs.
The operating environment in Europe was challenging throughout
the year. Total European revenue was up 8% to $8.1 million.
Asia Pacific total revenue grew 27% to $7.5 million.
Gross profit margin for the year was 78.7% compared with 76.4%
in FY22. Consistent with our commitment to invest for future
growth, operating expenses were $114.2 million up 26% versus
FY22. This includes $29.5 million associated with R&D.
Profit before tax for the year was $21.6 million up from
$1.6 million in FY22.
Excluding the investments in our long-term growth strategy,
in particular those associated with future product expansion,
the trophon business alone delivers significant earnings with
operating profit before tax of approximately $44.0 million and
return on equity of 22% 2. This return is inclusive of investments
being made in emerging markets for trophon that are not
currently contributing significantly to revenue today but have
the potential to do so in the future.
1. All research and new product development programs involve inherent risks and uncertainties which can impact commercialisation timelines.
2. Profit before tax and return on equity of the trophon business are based on an unaudited pro forma profit and loss statement, which reflects total Company results less operating
costs associated with new product development and commercialisation. Operating costs reflect unaudited management allocation estimates where resources are shared
between trophon and new product development and commercialisation. The pro forma profit and loss statement also includes income received from the Jobs Plus Program.
Infection Prevention. For Life. 6
Nanosonics Limited | Annual Report 2023
Letter to shareholders continued
Cash and cash equivalents were $112.2 million at 30 June 2023,
providing a strong foundation for continued investment in growth,
as well as potential M&A opportunities to further expand the
Company’s product portfolio. The Company has no debt and
continues to regularly review its capital management strategy.
On behalf of our Board and shareholders we take the opportunity
to recognise the outstanding efforts of the Nanosonics team who
display the Company’s values and commitment in not only achieving
our operational objectives, but successfully driving our strategic
aims to deliver value to our customers and our shareholders.
The values of Agility, Discipline and Will to Win have been on
full display throughout the year in all our operations worldwide.
Throughout the year we continued to expand our capacity
and capability with the total number of employees increasing
13% to 482, all united by the commitment to the Company
mission of improving the safety of patients, clinics, staff
and the environment.
Diversity and inclusion is recognised as a core value of the
organisation and an important driver of our growth. Our core
value of Collaboration means we do things together because
we value diversity of opinion, perspective, experience and
knowledge and are stronger when we work as a team.
The Nanosonics workforce now represents over 30 different
nationalities with 45% of employees being female. 40% of
senior leaders positions held in the organisation are also held
by females. Consistent with prior years our people focus was
recognised with a number of excellent results in the Company
engagement survey with 93% of employees believing in the
overall purpose of the organisation and 88% understanding
how their work contributes to the goals of the Company.
We were also pleased to see the Company’s expanding
ESG agenda outlined in the FY23 Sustainability Report.
We believe ESG as being strongly aligned with our Mission
and Purpose. It is not just related to our longer-term
sustainable growth, but rather it is fundamental to having a
sustainable business that adds value in the communities in
which we operate in the longer term. We continue to invest
in this area in a number of important ways. This year, we
undertook an exercise to measure our carbon footprint.
We look forward to doing further work and staying aligned
with our stakeholders’ expectations in this important area.
We also continued to engage, both internally and in the
communities in which we operate, through a range of
important initiatives such as internships, participation in the
National Youth Science Forum, initiatives associated with mental
health first aid, and NAIDOC week amongst others. Importantly,
we achieved a milestone in the IT area by achieving certification
against ISO 27001 and we look forward to seeing our resiliency
in the area of information security management continue to
mature. By innovating and manufacturing medical devices that
meet unmet needs in the infection prevention field, we contribute
to important public health outcomes in a way that would not
otherwise be available to communities. As we grow, so does
our impact in this regard.
During the reporting period, McGregor Grant, our longstanding
Chief Financial Officer & Company Secretary, announced he
would resign from the Company after 12 years in the role. As we
communicated previously, McGregor has been an integral part of
the Nanosonics Executive team playing a critical role in making
Nanosonics a leading global medical device business. He has
made a significant and lasting contribution to the success of
Nanosonics and together with the Board we thank him for his
valuable service and wish him well in the future.
We would 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. We were very pleased
to see this process continue with the announcement of the
appointment of Dr Tracey Batten who will join the board in
September 2023. Tracey’s combination of deep healthcare sector
experience clinical expertise, coupled with executive leadership
experience, will add tremendous value to the Board and Company.
The Board reflects diversity in a number of important and
complementary ways. It is pleasing that the percentage of
females on the Board is now 33% which contributes to the
diversity of perspectives on the Board. Our directors all 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 our business. Together with
the Company’s strong balance sheet, resilient business model,
transformational products and technologies and its leadership
team and people, the organisation is well positioned to continue
to create value for all our stakeholders – clinicians, patients,
employees, and shareholders.
Steve Sargent
Chairman
Michael Kavanagh
CEO & President
22 August 2023
7
Infection Prevention. For Life. 8
Nanosonics Limited | Annual Report 2023
Financial and operational review
Installed base
Growth momentum continued and total
global installed base grew 9% for the
year with 32,450 trophon units now in
operation around the world.
The pipeline for new installed base grew throughout
the year. However, due to a range of adverse market
conditions, new installed base growth declined
16% compared to prior corresponding period.
Many of the new pipeline generated during the year
are now forecasted for sale in FY24. Importantly,
32,450 trophon units in operation means over 26 million
patients are protected from the risk of ultrasound
probe cross-contamination annually.
North America
23,480
20,990
18,570
28,390
2,950
26,130
2,420
2,490
2,650
2,260
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
Cumulative installed base
New installed base
9%
in the last 12 months
15%
FY22 vs FY23
Europe and Middle East
2,010
1,820
1,510
1,120
880
390
310
190
240
150
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
Cumulative installed base
New installed base
10%
in the last 12 months
39%
FY22 vs FY23
Asia Pacific
1,480
1,610
1,760
1,900
2,050
130
150
140
150
90
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
Cumulative installed base
New installed base
8%
in the last 12 months
7%
FY22 vs FY23
Graphs are not to scale and therefore not comparable.
Global total installed base
(units)
New installed base (units)
29,850
26,750
32,450
3,190
3,030
3,100
2,790
2,600
23,720
20,930
FY19
FY20
FY21
FY22
FY23
FY19
FY20
FY21
FY22
FY23
Cumulative installed base
New installed base
9%
in last 12 months
16%
FY23 vs FY22
In North America, the total installed base increased by 2,260 units for
the year to 28,390 units, representing a 9% increase. The pipeline for
new installed base continued to grow throughout the year, however,
restrictions on certain hospital capital budgets delayed the dates of
purchase which are now forecasted for FY24. This was most pronounced
in H2 of FY23. These delays resulted in the growth in new installed base
for the year being down 15% compared to prior corresponding period.
With trophon represented in over 5,000 institutions, a large percentage of
the new installed base placed in FY23 were installed in new departments
within the same hospital. This demonstrates a growing standardisation
across all departments within a hospital for the use of trophon as their
standard of care for the high-level disinfection of ultrasound transducers.
In Europe and Middle East, the market challenges experienced in
the first half of the year relating to ongoing COVID-19 and budgetary
pressures experienced by the hospital systems continued into the
second half. While new installed base grew 38% in the second half
over the first half with 110 units installed in H2 of FY23, overall new
installed base was down 39% on prior year.
In Asia Pacific, new installed base grew 7% for the year, with 150 units
installed further consolidating the market leading position for trophon in
Australia and New Zealand.
Progress was also made with our geographical expansion plans. In Japan,
the Company continues its investment in market development efforts to
establish local high-level disinfection guidelines for the reprocessing of
ultrasound transducers. A new infection control management bundle1
for ultrasound probe reprocessing in Obstetrics and Gynaecology was
recently published by an advisory committee on infection control in
Obstetrics and Gynaecology. This was recently presented at the Japanese
Society of Infection Prevention and Control (JSIPC).
In China, the necessary documentation for regulatory approval
to market and sell trophon2 is now under review with the
Chinese regulatory authorities.
1. A bundle is a set of evidence-based practices that when performed collectively and reliably have been proven to improve patient outcomes. It is a structured way of improving
the processes of care for specific conditions or situations. https://usipbundle.jp
Financial and operational review continued
Upgrades
9
Global upgrades grew 81% compared with
prior corresponding period with 1,810
upgrade units installed.
Upgrades represent a significant growth opportunity with new
capital revenue, ongoing consumables annuity revenue, and also
new annuity revenue through the sale of technical service contracts.
Approximately 35% of the global installed base is seven years of
age or older.
Global
North America
Europe and Middle East
Asia Pacific
81%
vs FY22
1,810
1,000
430
58%
vs FY22
900%
vs FY22
1,390
880
120%
vs FY22
220
200
200
100
FY21
FY22
FY23
FY21
FY22
FY23
FY21
FY22
FY23
FY21
FY22
FY23
230
20
—
trophon2 upgrades in
North America continued
to grow strongly
throughout the year
with 1,390 upgrades
placed, up 58% over prior
corresponding period.
Upgrades for the year
were up 900% compared
to FY22 with 200 upgrades
installed. This growth
was largely driven by
upgrades installed under
the Management Equipment
Services sales model.
Upgrade installations for
the year grew 120% with
220 units installed.
Total units
New installed base
Upgrades
Global
North America
Europe and Middle East
Asia Pacific
8%
vs FY22
3%
vs FY22
18%
vs FY22
4,100
1,000
4,410
1,810
3,460
430
3,530
3,650
880
1,390
2,720
230
3,030
3,100
2,600
2,490
2,650
2,260
390
390
330
20
310
390
200
190
54%
vs FY22
350
200
240
100
370
220
150
140
150
FY21
FY22
FY23
FY21
FY22
FY23
FY21
FY22
FY23
FY21
FY22
FY23
Global total trophon2 units1
grew 8% on prior corresponding
period with 4,410 units placed
in the year.
Graphs are not to scale and therefore not comparable.
1. Total units comprises new installed base units and upgrades including UK MES units.
Infection Prevention. For Life. 10
Nanosonics Limited | Annual Report 2023
Financial and operational review continued
Global revenue
Total revenue for the year was $166.0 million, up 38% on the
prior corresponding period (30% in constant currency1).
The growth in revenue was attributable to:
− growth in total units;
− increased consumables volumes associated with growth in new installed base and
improved ultrasound procedure volumes;
− favourable pricing associated with the transition to the largely direct North American
sales model;
− increased service revenue; and
− favourable foreign exchange associated primarily with a relatively stronger USD.
Total revenue
$166.0m
38%
vs FY22
Total revenue ($m)
H1 H2
84.3
43.6
40.7
FY19
100.12
51.6
48.5
FY20
103.12
60.0
43.1
FY21
120.3
59.7
60.6
FY22
166.0
84.4
81.6
FY23
38%
vs FY22
30%
vs FY22 in CC 1
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. The average exchange rate used for the
Company’s major foreign currency (USD) for the year was 0.6731 (2022:0.7283).
2. FY20 and FY21 revenue impacted by COVID-19 pandemic and associated restrictions to the hospital systems and elective procedures.
Financial and operational review continued
Capital revenue
Capital revenue for the year was
$54.2 million, up 44% (35% in constant
currency) on the prior corresponding
period. This increase is a result of
4,410 units being sold during the year,
together with improved pricing under
the new North American sales model,
and favourable foreign exchange.
Consumables and service revenue
Consumables and service revenue
for the year was $111.8 million, up
35% (28% in constant currency) on the
prior corresponding period. This
growth was driven by new installed
base, consumables usage, growth in
service revenue, with favourable pricing
and foreign exchange.
Capital revenue ($m)
H1 H2
26.7
17.3
26.7
17.3
9.4
9.4
FY21
FY21
37.7
18.6
37.7
18.6
19.0
19.0
FY22
FY22
54.2
28.3
25.9
FY23
54.2
28.3
25.9
FY23
Consumables and service revenue ($m)
H1 H2
76.4
42.7
76.4
33.7
42.7
FY21
33.7
FY21
82.6
41.1
82.6
41.6
41.1
FY22
41.6
FY22
111.8
111.8
56.1
55.7
FY23
56.1
55.7
FY23
11
44%
vs FY22
35%
vs FY22
Graphs are not to scale and therefore not comparable.
Infection Prevention. For Life. 12
Nanosonics Limited | Annual Report 2023
Financial and operational review continued
North America revenue
Total revenue was $150.4 million, up 41% on the prior
corresponding period
Capital revenue for the year was $48.9 million up 46% on the prior corresponding period.
Consumables and service revenue was $101.4 million, up 38% on the prior
corresponding period.
These increases were attributable to growth in total units installed, increased
consumables associated with new installed base, increase in service revenue,
favourable pricing and foreign exchange.
Total revenue
$150.4m
41%
vs FY22
Europe and Middle East revenue
Total revenue was $8.1 million, up 8% on the prior corresponding
period with revenue in the second half up 25% versus the first half.
The market challenges experienced in the first half of the year, relating to ongoing impacts of COVID-19
and budgetary pressures experienced by the hospital systems, continued into the second half.
Total trophon units installed grew 18% on the prior corresponding period, however, this growth
was largely driven by upgrades installed under the Managed Equipment Services sales model
for which no capital revenue is received. As a result, capital revenue for the year was $1.9
million, down 10% on the prior corresponding period.
Revenue associated with consumables and service was $6.2 million, up 15% on the prior
corresponding period with consumables and service revenue growing 30% between the first
and second halves.
Asia Pacific revenue
Total revenue was $7.5 million, up 27% on the prior
corresponding period
Capital revenue for the year was $3.3 million, up 74% on the prior corresponding
period reflecting the strong growth in upgrades as well as ongoing growth in new
installed base.
Revenue associated with consumables and service for the year was $4.2 million,
up 5% on the prior corresponding period.
Total revenue
$8.1m
8%
vs FY22
Total revenue
$7.5m
27%
vs FY22
Financial and operational review continued
13
North America revenue
Total revenue ($m)
H1 H2
41%
vs FY22
76.5
39.4
76.5
37.1
FY19
39.4
90.2
46.5
43.7
FY20
32%
vs FY22 in CC1
150.4
106.9
76.3
89.2
90.2
52.3
36.9
FY21
46.5
52.5
54.4
89.2
74.1
FY22
FY23
52.3
37.1
FY19
43.7
FY20
36.9
FY21
Europe and Middle East revenue
Capital revenue ($m)
Consumables/service revenue ($m)
48.9
25.5
33.6
16.3
23.4
FY23
17.4
150.4
48.9
46%
76.3
vs FY22
25.5
35%
vs FY22 in CC1
67.9
67.9
38.2
38.2
29.7
73.3
36.3
37.0
23.4
FY21
FY22
74.1
29.7
101.4
50.7
38%
vs FY22
30%
vs FY22 in CC1
50.7
101.4
73.3
50.7
36.3
50.7
FY23
37.0
FY22
FY23
FY21
FY22
FY23
33.6
106.9
16.3
52.5
17.4
FY22
21.3
14.1
21.3
7.2
14.1
FY21
7.2
FY21
54.4
FY22
FY23
Total revenue ($m)
Capital revenue ($m)
Consumables/service revenue ($m)
H1 H2
8%
vs FY22
5.2
2.8
2.4
3.8
2.1
1.7
76.5
7.2
3.6
3.6
90.2
7.5
4.1
3.4
8.1
4.5
3.6
89.2
2.7
1.2
1.5
2.1
106.9
1.3
52.5
0.8
1.9
1.0
0.9
FY23
52.3
FY21
FY22
FY23
150.4
76.3
10%
vs FY22
74.1
5.4
2.8
2.6
4.5
67.9
2.4
38.2
2.1
6.2
73.3
3.5
36.3
2.7
FY21
FY22
FY23
29.7
37.0
101.4
50.7
15%
vs FY22
50.7
FY21
FY22
FY23
54.4
FY22
FY23
FY19
FY20
FY21
46.5
FY22
39.4
37.1
FY19
43.7
FY20
Asia Pacific revenue
Total revenue ($m)
H1 H2
27%
vs FY22
4.0
2.2
76.5
1.8
FY19
39.4
37.1
FY19
4.7
2.3
2.4
6.7
4.1
2.6
90.2
46.5
5.9
3.1
2.9
7.5
3.7
3.8
FY20
FY21
FY22
FY23
43.7
FY20
36.9
FY21
89.2
52.3
36.9
FY21
Capital revenue ($m)
Consumables/service revenue ($m)
150.4
76.3
74%
vs FY22
3.3
1.7
1.6
106.9
1.9
1.1
52.5
0.9
4.0
2.1
4.0
2.0
4.2
2.0
1.9
2.0
2.2
5%
vs FY22
FY22
FY23
FY21
FY22
FY23
2.7
2.0
0.7
FY21
54.4
74.1
FY22
FY23
Graphs are not to scale and therefore not comparable.
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. The average exchange rate used for the
Company’s major foreign currency (USD) for the year was 0.6731 (2022:0.7283).
Infection Prevention. For Life. 14
Nanosonics Limited | Annual Report 2023
Financial and operational review continued
Other financial results
Gross profit
Gross profit margin for the year was 78.7% compared with 76.4% in the prior corresponding period, primarily driven by
favourable capital and consumables pricing in North America together with favourable foreign exchange. These benefits were
partially offset by higher freight costs associated with increased shipping volumes under the new largely direct sales model in
North America.
Global operating expenses
In line with the Company’s ongoing strategy to invest for growth, operating
expenses of $114.2 million for the year increased 26% compared to the prior
corresponding period.
The primary drivers for an increase in operating expenses included:
Increase in North American expenses as a result of the transition to a largely direct
sales model;
Increase in investment in new and emerging markets;
Ongoing investment in R&D supporting expansion of product portfolio;
Infrastructure expenditure associated with the new Corporate HQ, R&D and
Manufacturing facility; and
The unfavourable impact of foreign exchange on USD denominated expenses.
Operating expenses
$114.2m
26%
vs FY22
Total operating expenses (Global, $m)
H1 H2
49.2
27.7
21.5
FY19
63.2
32.5
30.7
FY20
70.8
37.7
33.0
FY21
90.5
47.8
42.7
FY22
114.2
59.7
54.5
FY23
26%
vs FY22
24%
vs FY22 in CC
Investing for growth – Operating expenses
The Company’s commitment to ongoing investment in the drivers of future growth through geographical expansion and research
and development continued with the Company successfully executing several key strategic priorities throughout the year.
Global operating expenses of $114.2 million, can be broadly broken into the following categories:
Market development comprising approximately 46% of our total operating expenses. These investments are associated with
continuing to drive ongoing growth in mature markets, such as the USA, ANZ and UK, where the majority of our current revenue
is derived, as well as investing in expanding our geographical presence in emerging trophon markets, such as Japan, China and
a number of European markets.
Research and development representing approximately 26% of operating expenses. These expenses support ongoing R&D in
the trophon franchise as well as new product categories like CORIS® in endoscopy reprocessing, as well as research activities in
broader infection prevention areas.
Operations, HQ and support, representing approximately 28% of operating expenses, is associated with the development of
scalable manufacturing capacity to support ongoing growth in global demand as well as setting up manufacturing operations
for new product introductions. These expenses also include our first full year in the new global headquarters which provides
capacity to support the ongoing growth.
Financial and operational review continued
15
Other income and profit before tax
21.6
Other income
Other income for the year was $1.3 million, up $0.8 million compared
with FY22. The increase in other income was mainly attributable to NSW
State Government funding associated with the Jobs Plus Program.
Profit before tax
Profit before tax for the year was $21.6 million compared with $1.6
million in FY22, resulting from strong growth in total revenue, higher
gross profit margin and improved operating leverage with total operating
expenses reducing as a percentage of total revenue to 68.8% compared
with 75.2% in FY22.
Profit before tax (Global, $m)
1,250%
vs FY22
16.8
12.4
11.0
FY19
FY20
FY21
FY22
FY23
1.6
Working capital
Free cash flow (Global, $m)
20.9
19.8
Free cash flow
Free cash flow for the year was $19.8 million compared with a net
outflow of $0.2 million in FY22.
5.9
2.6
FY19
FY20
FY21
(0.2)
FY22
FY23
Free cash flow
$19.8m
in last 12 months
Cash and cash equivalents (Global, $m)
Cash and cash equivalents
Cash and cash equivalents were $112.2 million at 30 June 2023,
providing a strong foundation for continued investment for growth,
as well as potential M&A opportunities to expand the Company’s
product portfolio. The Company has no debt and continues to
regularly review its capital management strategy.
112.2
91.8
96.0
94.5
72.2
FY19
FY20
FY21
FY22
FY23
Cash and cash equivalents
$112.2m
at 30 June 2023
During the year, the Company’s inventory increased $2.9 million to $25.5 million. The increase was driven by the need to carry more
‘safety’ inventory as a result of the transition to a largely direct selling model in North America and the primary use of sea freight to
manage freight cost. The Company continues to monitor freight and logistics challenges and plans to reduce inventory during FY24
as the broader supply chain complexities ease.
Total trade and other receivables increased 39% or $10.9 million to $38.8 million, with the increase in receivables associated with
higher sales attributed to the more direct business model in North America.
Graphs are not to scale and therefore not comparable.
Infection Prevention. For Life. 16
Nanosonics Limited | Annual Report 2023
Financial and operational review continued
Research and development
During the year the Company invested $29.5 million in R&D,
up 32% compared with the prior corresponding period.
Research and development continues to be a cornerstone of the future growth of the Company.
Through our R&D investments, the Company has built depth in its capacity and capabilities
with programs across chemistry, microbiology, biochemistry, physics, and core engineering
disciplines as well as medical and regulatory affairs. Indeed, the Company has built several
unique capabilities which provide strategic advantage in areas such as biofilm production and
testing in very small diameter lumens. These important investments position the Company well
to further expand its participation activities as a leading infection prevention company.
Investment in R&D
$29.5m
32%
vs FY22
Investment in R&D (Global, $m)
H1 H2
11.4
5.9
5.5
FY19
15.6
8.8
6.8
FY20
Five core areas of R&D focus
Compliance and
traceability
Digitally-enabled tools
to increase visibility and
control around infection
risk mitigation.
Environmental
decontamination
Novel technologies and
chemistries to reduce cross-
contamination risk coming
from high contact surfaces
and environment.
17.2
9.6
7.6
FY21
22.3
11.6
10.7
FY22
29.5
15.9
13.6
FY23
Instrument cleaning
High-level and
low-level disinfection
and sterilisation for
medical devices before
re-use with a patient.
Instrument
disinfection
High-level and
low-level disinfection and
sterilisation for medical
devices before re-use
with a patient.
Infection
Prevention.
For Life.
Storage solutions
Assurance that reprocessed devices are
not subsequently contaminated and are
always available for next use.
17
Key capabilities
CHEMISTRY
PHYSICS
BIOCHEMISTRY
MICROBIOLOGY
MEDICAL AFFAIRS
REGULATORY AFFAIRS
CLOUD SOLUTIONS
ENGINEERING
• Systems
• Mechanical
• Industrial design
• Electrical
• Software
Infection Prevention. For Life. BEYOND FY24
In addition to the targeted growth
in FY24, beyond FY24 Nanosonics
is targeting:
Continued expansion of the trophon
franchise across all regions, including
growth in installed base, upgrades,
and consumables/service.
Europe and Middle East and
Asia Pacific to become material
contributors to the global
trophon business.
Ongoing expansion of the product
portfolio with the global introduction
of the new CORIS® endoscope
reprocessing platform across multiple
markets and broader indications. In
addition, opportunities for strategic
acquisitions will continue to be
identified and assessed.
Ongoing investment in R&D,
infrastructure, people and capability
to continue driving the Company’s
global growth strategy with the aim of
establishing Nanosonics as a global
leader in infection prevention.
18
Nanosonics Limited | Annual Report 2023
Financial and operational review continued
Intellectual property
Nanosonics recognises the importance of its Intellectual Property (IP) portfolio
in maintaining its sustainable competitive advantage. During FY23 Nanosonics filed
patent applications establishing five new utility patent families and four new design
patent families. 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 including CORIS®. Nanosonics 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.
Cash reserves
Despite our investments in an expanded team, accelerated R&D and resources for
future growth, the Company has maintained a significant cash reserve. This cash
reserve provides a significant degree of stability and allows the Company to continue
to pursue its growth agenda. Our Board and management are actively engaged in
reviewing our priorities, identifying opportunities for investment and ensuring that
Nanosonics remains 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 cash reserves.
BUSINESS OUTLOOK — FY24
Nanosonics is well positioned to continue to grow the trophon business, introduce
the CORIS® technology as well as invest in its longer-term strategic growth agenda.
With a growing opportunity pipeline, it remains to be seen whether hospital
budgetary pressures will impact the timing of trophon purchases.
Recognising the uncertainties, the Company targets for FY24 include1:
Total revenue growth of 15-20%.
− Growing capital revenue with increased growth in both installed base and
upgrade volumes over FY23;
− Increasing consumables revenue aligned with growth in new installed base;
− Maintaining current pricing levels; and
− Increased service revenue.
Gross margin of between 75-77%.
− A change in sales mix compared with FY23, with an increase in the proportion
of capital revenue resulting from growth in the sales of both new installed base
and upgrade units, and an increase in service revenue; and
− Increased trophon product COGS, as the Company sells off higher cost
inventory due to a temporary increase in component costs associated with
units manufactured during FY23.
Operating expenses to grow between 17-22% including investments
in CORIS® commercialisation. Operating expenses include:
− Increases in investment to prepare for the commercialisation of CORIS®;
− Ongoing investment in R&D with overall R&D expenditure reducing as a
percentage of revenue in FY24;
− Ongoing investment in emerging markets for trophon, including Japan and
China; and
− Costs associated with implementation of a new ERP system with the majority
of the associated expenses expected to be incurred in FY24.
All guidance is subject to ongoing uncertainty in relation to hospital budgetary
pressures as well as broader economic and geopolitical conditions.
Recognising the increasing global focus on infection prevention and the
opportunities this presents for Nanosonics, the Company will also continue to
work on identifying M&A opportunities to further expand its product portfolio.
1. The FY24 outlook assumes a USD/AUD rate of 0.70.
19
Nanosonics is well positioned to
continue to grow the trophon business
as well as invest in its longer-term
strategic growth agenda.
Infection Prevention. For Life. Looking ahead to FY24 and beyond, I
am pleased to see additional and diverse
targets in this area this year including
around identifying climate change
risks, establishing a set of targets for
emissions reduction, redoubling in our
efforts to identify, assess and combat
any modern slavery risks, and the
implementation of our first Reconciliation
Action Plan.
Michael Kavanagh
CEO & President
20
Nanosonics Limited | Annual Report 2023
Our commitment to ESG
Dear Shareholders,
I am pleased to present the Company’s
FY23 Sustainability Report. As the CEO
of our company, I am proud to share the
significant progress we have made on
our sustainability journey for an emerging
ASX200 company. Our commitment to
responsible business practices has led
us to develop a robust and meaningful
sustainability agenda that aligns with our
core values and business objectives.
As explained in our Chairman/CEO’s
letter, we were also pleased to see the
Company’s expanding ESG agenda
outlined in the FY23 Sustainability
Report. We see Sustainability or ESG
as being strongly aligned with our
Mission and Purpose. It is not just related
to our longer-term sustainable growth,
but rather it is fundamental to having a
sustainable, commercial business that
adds value in the communities in which
we operate. In that way integrating
“sustainability” into all our business
practices is critically important for all
stakeholders including our customers.
We continue to invest in this area in a
number of important ways.
This year, we undertook an exercise to
measure our carbon footprint. We look
forward to evolving this activity to make
our contributions in this important
area as well as stay aligned with all
stakeholders’ expectations.
We also continued to engage, both
internally and in the communities in
which we operate, through a range of
important initiatives such as internships,
participation in the National Youth
Science Forum, initiatives associated
with mental health first aid, and NAIDOC
week amongst others.
It was also pleasing to see our Board
renewal process continue throughout the
year. This has resulted in the proportion
of female representation on the Board
increasing from 29% in FY22 to 33% in
FY23. The Company has announced
the appointment of a new director in
H1 FY24 which is anticipated to see the
proportion of female representation on
the Board increase further.
Importantly, we achieved a milestone
in the IT area by achieving certification
against ISO 27001 being an internationally
recognised information security standard
and we look forward to seeing our
resiliency in this area continue to mature.
Overall, by innovating and manufacturing
medical devices that meet unmet needs
in the infection prevention field, we
contribute to important public health
outcomes in a way that would not
otherwise be available to communities.
As we grow, so does our impact in this
regard. Sustainability is a core aspect of
the trophon technology design. The only
by-products after a disinfection cycle
are environmentally-friendly oxygen and
water. In many cases, use of the trophon
technology eliminates the requirement
for customers to use toxic chemistries
and large quantities of water.
“We see sustainability as a key consideration for our
business, and one that is fully aligned with our Values
and Mission. We are fortunate that our unique healthcare
solutions are in many respects neatly aligned with
sustainability principles, which means we achieve positive
sustainability outcomes whilst addressing our customers’
important infection control needs.”
Michael Kavanagh | CEO
FOR MORE INFORMATION
See Nanosonics’ 2023
Sustainability Report available at
www.nanosonics.com/investor-
centre/reports-and-presentations/
21
ESG at a glance
Governance
Launched
Supplier Code
of Conduct
Articulated Nanosonic’s
contribution to the
United Nations
Sustainable
Development Goals
Strengthened
IT, privacy and
cyber security
protections
and achieved ISO
27001 accreditation
Environment
55% of
total waste
diverted to
recycling globally
Progress made against
our commitment
to working towards
Australian Packaging
Covenant Organisation
2025 target
GHG
emissions initiative
undertaken to improve measurements
of scope 1, 2 and 3 emissions. Results
compared favourably to benchmark
People & Culture
93% of
employees
strongly believe in the
purpose of Nanosonics
Females
make up 45%
of the global workforce,
40% of senior leaders and
41% of STEM-related positions
Substantially
achieved
our diversity objectives and
substantially all of our
inclusion objectives
Communities
$37,822
raised through various
charitable initiatives
19 students
participated in internship
programs across
several departments
Widened the range
of community activities with more
to follow through the establishment
of the Community Engagement
Committee
Infection Prevention. For Life.
22
Nanosonics Limited | Annual Report 2023
“I’ve been at RIH for eight years now. In that time,
we’ve transitioned from reprocessing our probes
with a chemical soak to implementing trophon
technology – first with the trophon EPR device,
and now with the trophon2. I love that we’ve been
able to eliminate open chemicals! With a closed,
automated system, I can hit the button, walk away
and come back at the end of the cycle knowing
it’s clean and ready for the next patient.”
Lynn Stebner | Section Head – Ultrasound,
Royal Inland Hospital | Interior Health
23
Protection by
design
Risk recognition grows worldwide
The past year has seen a renewed focus on infection prevention in the United States,
following the publication of new reports on treatment-resistant infections. A report on
antimicrobial resistance released by the Centers for Disease Control and Prevention (CDC)
found that drug-resistant pathogens caused a 15% increase in healthcare-associated
infections and a similar increase in patient deaths in 20201. The CDC has also called for
improved infection control practices to combat rising rates of Candida auris. C. auris
spreads rapidly in healthcare settings through contact with contaminated surfaces or
medical devices, causing serious infections. Rates of treatment-resistant C. auris infections
increased three-fold from 2020 to 20212 and The World Health Organization has ranked C.
auris in its critical priority group of fungi that pose the greatest concern for global public
health3. The increased focus on infection prevention and control means more facilities are
looking for effective, scalable infection prevention solutions.
In the United States, there is growing recognition of the complexities of reprocessing
ultrasound devices used in percutaneous procedures. Recent publications have
highlighted the infection prevention challenges in this broad area of medicine, where there
are more than 140 needle-guided procedures that regularly employ ultrasound imaging4.
Each of these procedures carries a different level of risk of contact between the ultrasound
probe and the sterile needle or non-intact skin. Guidelines vary in their recommendations
for reprocessing the ultrasound probes used in these procedures, highlighting the need
for clinicians to be familiar with the Spaulding classification and be able to apply the
appropriate level of disinfection.
Guidelines and standards continue to reinforce the importance of automated reprocessing
technologies over manual methods, following the legal requirement in Germany for
reprocessing of semi-critical devices to be validated5. In the past year, the French Society
for Hospital Hygiene, SF2H, published new guidance stating that automated disinfection
technologies are preferred over manual processes6. This joins similar preferences in
guidelines from healthcare authorities in Europe, the United Kingdom, the United States,
Australia and New Zealand.
trophon – unrivalled HLD efficacy
The body of evidence demonstrating trophon technology efficacy continues to set the
standard in automated high-level disinfection (HLD). As the only automated technology with
both FDA classification and CE-Mark registration, the trophon technology represents the
global standard of care.
The trophon device delivers effective HLD by generating a ‘sonically-activated’ hydrogen
peroxide (H2O2) mist which penetrate, even shadowed areas formed by crevices, grooves
and imperfections on the probe surface.
1. Centers for Disease Control and Prevention, 2022. COVID-19 U.S. Impact on Antimicrobial Resistance: Special Report.
2. Lyman, M et al. Worsening Spread of Candida auris in the United States, 2019 to 2021. Ann Intern Med 2023; 146:489495.
3. World Health Organization, 2022. WHO Fungal Priority Pathogens List.
4. Waldowski L, Spencer M, Edmiston C, Paro S. Ultrasound in Percutaneous Procedures: One Size Does Not Fit All
for Reprocessing. Available at: https://www.infectioncontroltoday.com/view/ultrasound-percutaneous-procedures-
one-size-does-not-fit-all-reprocessing
5. AGMP, BfArM, RKI. Validation of the final disinfection of semi-critical medical devices using wipe disinfection.
Available at https://www.rki.de/DE/Content/Infekt/Krankenhaushygiene/Aufb_MedProd/Validierung-Desinf-semikrit-
MedProd.html.
6. French Society for Hospital Hygiene (SF2H), 2022. Guide de bonnes pratiques de traitement des dispositifs
medicaux reutilisables.
Infection Prevention. For Life.
24
Nanosonics Limited | Annual Report 2023
The 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).
Industry-leading trophon probe
compatibility program
Nanosonics is continuing the
collaboration with all major and
several specialised ultrasound probe
manufacturers to ensure that their
probes are tested, approved, and
endorsed for use with trophon devices.
In the past year, the compatibility
list grew to over 1,300 ultrasound
probes across 26 Original Equipment
Manufacturers (OEM). These
numbers position Nanosonics as the
industry leader in scientifically proven
probe compatibility.
The rigorous trophon Probe
Compatibility Program ensures that
each probe is exposed to thousands of
trophon cycles, then functionally tested
and approved by OEMs before listing in
the trophon compatibility database.
Wireless ultrasound probes are
becoming increasingly popular. While
wireless ultrasound probes are less
likely to be used in procedures requiring
HLD, it is nevertheless important that
our customers have the option to ensure
wireless probes can be appropriately
reprocessed. The innovative trophon
Wireless Ultrasound Probe Holder
enables wireless probes to be effectively
disinfected using the trophon device,
offering the first and only automated
HLD solution for this probe category
on the market.
Consistent protection for
every patient
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.
Designed with the user and their
workflow needs in mind, trophon2
devices guide the user through the
required steps of preparing, disinfecting,
storing and tracing probes throughout
the reprocessing workflow. The trophon2
device offers an integrated point of care
workflow that automates the disinfection
and traceability process that provides
‘hands-off’ time between procedures to
focus on other elements of patient care.
The trophon portfolio offers a series of
consumable and accessory products
to provide a total ultrasound probe
reprocessing solution. These include
cleaning and drying wipes to prepare
the probe before the HLD process,
specialised clean probe covers to
provide effective probe storage between
patient use, and connectivity solutions
and services to facilitate automated
disinfection record management.
Sustainable and safe-to-use HLD
The trophon technology achieves
effective HLD without damaging the
sensitive probe or exposing patients,
staff and the environment to dangerous
chemicals – the ‘sonically-activated’
hydrogen peroxide (H2O2) mist is
broken down by the trophon device to
environmentally friendly oxygen and
water after each HLD cycle.
As an enclosed system, the trophon
device can be safely placed in
the examination room next to the
ultrasound console, further maximising
patient throughput and clinical
workflow efficiencies.
“We were previously using soaking methods for the high-level
disinfection (HLD) of our ultrasound probes – sometimes 20
reprocessing cycles each day. We had heard about trophon
devices several years back, but at the time didn’t have enough
information for a direct comparison to current practices, and
we weren’t sure if it would be cost-effective. When we met
with the Nanosonics’ team and worked through the benefits
of trophon technology for HLD, we realised there are other
benefits just as important as cost savings that our team would
see. We decided to do a trial with the trophon2 device at the
Hys Centre, before then launching to other facilities.”
Carrie Lafond | MRT(NM), MBA, | Site Manager, Hys Medical Centre
2525
Standardising ultrasound
infection prevention practices
Delivering a new standard in ultrasound infection control management
trophon technology revolutionised high-level disinfection around the world. Now facilities can take the next step by combining
the Nanosonics AuditPro system with trophon2 for complete end-to-end automated digital ultrasound probe compliance and
traceability to safeguard patients, staff and facilities.
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.
Legacy methods to capture the required information are manual, time-consuming and risk human error. Digitisation of health
systems is driving adoption of automation to improve accuracy and efficiency, benefitting clinical workflows and enabling quick and
confident retrieval of records to support positive audit outcomes.
Digital automation driving standardisation
Nanosonics AuditPro equips facilities to efficiently monitor ultrasound infection prevention practices, driving increased compliance to
Standard Operating Procedures (SOP) to better protect patients, staff and organisations for every ultrasound procedure.
The digital system provides end-to-end automated data traceability and efficient infection control compliance management for
ultrasound probe infection prevention. Facilities can optionally implement built-in education as part of the clinical workflow, where
each procedure is qualified against the Spaulding classification to standardise the infection prevention decision across multiple
operators, departments and facility sites every time. Powered by trophon AcuTrace® technology, facilities can, for the first time, have
complete data visibility across patients, probes, clinical procedures and reprocessing records, and replace cumbersome paper
logbooks with an efficient digital equivalent.
Product detail
AuditPro intelligently links reprocessing workflow data from trophon2 with probe and patient procedure identifiers in real-time
to deliver:
A searchable digital logbook; and
Infection control dashboards, with insights to guide decision-making.
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. AS/NZS 4187:2014 Cleaning, disinfecting and sterilizing reusable medical and surgical instruments and equipment, and maintenance of associated environments in health
care facilities.
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 2021. Guidelines for Professional Ultrasound Practice.
Infection Prevention. For Life. 26
Nanosonics Limited | Annual Report 2023
CORIS®
Transforming
the cleaning of
flexible endoscopes
Our Next Instrument Reprocessing Product Platform
Endoscope reprocessing – an established global practice
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 a significant and growing
number of endoscopy procedures performed – for example, over 22 million gastro-intestinal (GI) endoscopy procedures were
completed in the US in 2015 1.
Endoscopes require cleaning and disinfection (reprocessing) after every use, and many countries have strong standards and well-
established fundamentals to support appropriate reprocessing.
Large variety of endoscopes...
COLONOSCOPY GASTROSCOPY DUODENOSCOPY ENTEROSCOPY
ENDOSCOPIC
ULTRASOUND
BRONCHOSCOPY
UROLOGY
E.N.T.
GYNAECOLOGY
1. Peery, A. F. et al. Burden and Cost of Gastrointestinal, Liver, Pancreatic Diseases in the United States: Update 2018, Gastroenterology 156, 254 -272.e11 (2019).
27
CORIS® continued
...with strong fundamentals and standards for reprocessing
Public Health
Agency of Canada
Irish Health
ServiceExecutive
ANSI/AAMI ST91:2021
Society of Gastroenterology
Nurses & Associates
(SGNA)
British Society of Gastroenterology
UK Department of Health
Steering group for Flexible
Endoscope Cleaning &
Disinfection (SFERD)
French National
Guidelines
German Society
of Hospital Hygiene
Global Standards/Guidelines
World Gastroenterology
Organisation (WGO)
ISO15883-4
Japan
Gastroenterological
Endoscopy Society
State Administration
for Market
Regulation and
Standardisation
Administration (SAC)
Gastroenterological
Society of Australia (GESA)
Australian/New
Zealand Standards
AS/NZS 4187:2014
Manual cleaning is the current gold standard – successful reprocessing relies on manual brushing and flushing to ensure that
debris, residues and biofilms are lifted from all parts of the endoscope, both external and internal, so that disinfecting agents can
be effective.
“Meticulous cleaning must precede any sterilization or high-
level disinfection of these instruments…Failure to perform
good cleaning can result in sterilization or disinfection failure,
and outbreaks of infection can occur.”
Rutala, W. A., Weber, D. J. & Healthcare Infection Control Practices Advisory Committee. Guideline for Disinfection and Sterilization in Healthcare Facilities, 2008.
https://www.cdc.gov/infectioncontrol/pdf/guidelines/disinfection-guidelines-H.pdf (2019)
Adverse event reports relating to endoscope reprocessing continue to climb, with manual cleaning a root cause
Endoscope contamination adverse events are on the rise
Reusable endoscopes have been associated with infections and reprocessing failures across all endoscope types, with GI
endoscopes and bronchoscopes being associated with far more outbreaks of infections than any other reusable medical or surgical
device in healthcare 1, 2. A study of over 15,000 adverse event reports involving endoscope contamination showed an increase in
events across all endoscope types, and also showed gastroscopes as having the largest increase in adverse events versus all other
studied types, including duodenoscopes 3.
The link between inadequate cleaning and subsequent contamination is well documented in the literature with over 200+ articles
published over the last decade involving contamination, cleaning failure or infections relating to endoscopes.
1. Rutala, W. A. & Weber, D. J. Reprocessing semicritical items: Outbreaksand current issues. Am J Infect Control 47, A79–A89 (2019).
2. Grein, J. D. & Murthy, R. K. New Developments in the Prevention ofGastrointestinal Scope-Related Infections. Infect Dis Clin N Am 32, 899–913 (2018).
3. Data extracted from: Muscarella 2022. Contamination of FlexibleEndoscopes and Associated Infections: A Comprehensive Review and Analysis of FDA Adverse Event
Reports web article https://www.lfm-hcs.com/2022/01/contamination-of-flexible-endoscopes-and-associated-infections/ (2022).
Infection Prevention. For Life. 28
Nanosonics Limited | Annual Report 2023
CORIS® continued
Manual cleaning is complex and problematic
CORIS® - The new gold standard in endoscope cleaning
Manual cleaning of endoscopes is a highly complex process
– endoscope manufacturer’s Instructions for Use (IFU) can
contain around 100-300 reprocessing steps, it requires a
large amount of technical skill and concentration which can
be challenging 1, training and accreditation is time consuming,
and it is rated as the most challenging aspect of endoscope
reprocessing 1. Endoscopy reprocessing staff experience
discomfort and pain from leaning over sinks, scrubbing
endoscopes, and standing for long hours 1.
Manual cleaning isn’t performed consistently – a 2021
evidence-based review documented serious issues in the
reprocessing of endoscopes, including insufficient manual
cleaning (reported in 50% of the studies) and the complete
neglect of channel brushing (reported in 17% of the studies) 2,
and a prospective observational study from 2010 showed that
less than half of endoscopes had all components
brushed correctly 3.
Critically, manual cleaning cannot be used for air/water and
auxiliary channels which are typically very narrow (e.g. 1-2.5mm
in diameter) and very long (>3.6m in length).
The CORIS® device represents the new standard of care for
the cleaning of reusable endoscopes. The CORIS® technology
uses a patented mode of action with the proprietary CORIS
QUANTUM® cleaning agent to deliver a solution superior to
manual cleaning that is capable of cleaning all endoscope
channels, including the smallest that are currently too small
to clean by manual brushing. The CORIS® device is also an
automated solution that minimises the manual intervention
required by operators that leads to workplace injuries and
controls the cleaning process to ensure repeatable and
traceable real-world results.
CORIS® technology far surpasses cleaning benchmarks
recognised by regulators, and cleaning efficacy has been
shown to far surpass manual cleaning. For example, Cyclic
Build-up Biofilm (CBB) is a very challenging biofilm that involves
repeated contamination and fixing of bacteria with strong
glutaraldehyde disinfectant 4. CORIS® technology has been
shown to be significantly more effective at removing CBB from
suction-biopsy and air-water channels compared to manual
cleaning conducted in strict accordance with the scope
manufacturer’s Instructions for Use 5.
1. Sivek, A.D. et al. Healthcare worker feedback on duodenoscope reprocessing workflow and ergonomics. Am J Infect Control 50, 1038-1048 (2022).
2. Madurereia, R.A. da S & Oliviera, A.C. de. Endoscopic processing: what are the gaps in clinical practice? Rev. Eletr. Enferm 66550, 1-13 (2021).
3. Ofstead, C.L., Welzler, H.P., Snyder, A.K. & Horton, R.A. Endoscope reprocessing methods. Gastroenterol Nurs 33, 304-311 (2010.)
4. Zhong W, Alfa M, Zelenitsky S, Howie R, Simulation of cyclic reprocessing build up on reused medical devices. Comput Biol Med. 2009 Jun;39(6): 568-77.
5. Data on file.
29
CORIS® continued
CORIS® represents a significant global opportunity
The potential to address the challenges of contaminated endoscopes represents a significant opportunity for Nanosonics in a
market with over 60 million flexible endoscopy procedures per annum being conducted across major Western markets, including
the United States, Canada, Australia and key European markets. These markets are growing over 6% every year, driven by factors
such as the aging population, increasing incidence of colorectal cancer and various national-level screening programs1. Similar to
trophon (which comprises a range of business models), the CORIS® platform will include capital equipment together with an annuity
revenue stream associated with consumables used for every cleaning cycle.
Studies have shown that the cost of the full manual cleaning stage for a single flexible endoscope today can be between
US$11 – $37.12. The CORIS® device aims to automate a significant proportion of the current manual cleaning process, including
complex channel cleaning and deliver a new standard of care for endoscope cleaning. The CORIS® device is being designed as a
global solution ultimately to be used across all channelled flexible endoscope types.
An established and growing market
>60m procedures growing at 6% annually#
Expensive and ineffective
current standard of care
Example: Total cost to
manually clean a single GI
endoscope#
$37
Total cost
range
per clean
US$11-37
$11
CORIS® aims to automate a
significant proportion of the
current manual cleaning,
including complex channel
cleaning, and deliver significantly
superior outcomes compared to
what can be achieved today.
# References on file; available upon request.
18.1
Upper GI
20.1
Colonoscopy
GI
45.2
4.6
0.4
1.6
0.4
5.6
Sigmoidoscopy
Enteroscopy
ERCP
EUS
Bronchoscopy
5.2
Urology
3.6
1.0
ENT
Gynaecology
Non-
GI
15.3
+
m
0
6
E
M
U
L
O
V
Y
P
O
C
S
O
D
N
E
E
R
U
D
E
C
E
O
M
R
U
P
L
O
V
I
C
L
P
A
O
U
C
N
S
N
O
D
A
N
E
E
R
U
D
E
C
O
R
P
M A J O R G R O W TH D RI V ER S
Aging population
Increasing incidence of colorectal cancer
Various national-level screening programs
A N N UA L
Procedure
Volume (m)
Growth
Rate
U.S.A.
33.7
+5.4%
0
.
3
2
5
-
U
E
Germany
U.K
France
Spain/Italy
Canada
Australia
7.5
4.8
5.5
5.2
1.7
2.1
+7.3%
+5.8%
+7.0%
+6.7%
+5.4%
+6.7%
CORIS® – readying for submission
Regulatory requirements vary across the world. For the United States, Nanosonics CORIS® technology has been accepted into the
FDA Safer Technologies Program (STeP) – products accepted into this program are reasonably expected to significantly improve the
safety of currently available treatments. SteP provides support into a de novo regulatory pathway that allows this novel technology to
potentially establish a new benchmark and create an entirely new category for endoscope cleaning. Nanosonics is also progressing
plans for regulatory approvals in Europe and Australia.
Regulatory approval and market acceptance requires clinical data – preliminary efficacy data has now been publicly released at
the June 2023 American Association for Professionals in Infection Control and Epidemiology (APIC) conference1, and a schedule
of conference presentations over FY24 is planned as more data becomes available. Central to regulatory approval is the CORIS®
device In-Use Clinical study – planning is well advanced for a start in an Australian 1,000 bed tertiary teaching hospital, with a view
to support the FDA de novo submission during FY243.
1. References on file; available on request.
2. Ofstead, C.L., Quick, M.R., Eiland, J.E. and Adams, S.J., 2017. A glimpse at the true cost of reprocessing endoscopes. International Association of Healthcare Central
Service Material Management.
3. All reasearch and new product development programs involve inherent risks and uncertainties which can impact commercialisation timelines.
Infection Prevention. For Life.
30
Nanosonics Limited | Annual Report 2023
The Board
1
2
3
Steven Sargent
BBus, FAICD, FTSE
Geoff Wilson
AICD, BCom, ICCA, CPA, US CPA
Lisa McIntyre
BSc (Hons), PhD
Non-executive Director
and Chairman
Mr Sargent joined the Nanosonics Board
in July 2016 and was appointed Chairman
in July 2022, having previously been
Deputy Chairman and Lead Independent
Director. 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 (ASX:ORG),
Ramsay Healthcare Limited (ASX:RHK)
and a Director of the Great Barrier Reef
Foundation and Chairman of the Origin
Foundation. Previously, Mr Sargent was
a Director of OFX Limited (ASX:OFX),
a Director of Veda Group, a Director of
Bond University, and a Director of the
Business Council of Australia.
Non-executive Director
Non-executive Director
Mr Wilson joined the Board in July 2019.
He has a breadth of local and international
executive leadership and director
experience together spanning more than
37 years, including many years with KPMG
in Australia, Hong Kong and the USA.
He has a strong background in finance,
audit and risk management, as well as
in the Asia Pacific markets. Mr Wilson
is currently a Director of TOLL Holdings
Limited, HSBC Bank Australia Limited,
Future Generation Global Investment
Company Limited (ASX:FGG), ipSCAPE,
and Sydney Symphony Limited. He is
also an Ambassador for the Australian
Indigenous Education Foundation.
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 US
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. She
is currently a Non-executive Director of
Fisher & Paykel Healthcare Corporation
Limited, HCF Group, HCF Life, HCF
Foundation, and Studiosity Pty Ltd.
1
2
3
31
4
5
6
Michael Kavanagh
BSc, MBA (Advanced)
Marie McDonald
BSc (Hons), LLB (Hons)
David Fisher
BRurSc (Hons), MAppFin, PhD,
FFin, GAICD
CEO & President and
Managing Director
Mr Kavanagh joined Nanosonics as CEO
and President effective October 2013.
He was a Non-executive Director of the
Board from July 2012 to October 2013.
Mr Kavanagh has more than 29 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.
Non-executive Director
Non-executive Director
Ms McDonald joined the Nanosonics
Board in October 2016, bringing
with her a strong background in
corporate and commercial law, having
practiced 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 (ASX:CSL), Nufarm Limited
(ASX:NUF), and the Walter and Eliza Hall
Institute of Medical Research.
Dr Fisher has been a member of the
Board since July 2001. He is a founding
partner of Brandon Capital Partners,
a leading Australian venture capital
provider. Dr Fisher 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.
4
5
6
Infection Prevention. For Life. 32
Nanosonics Limited | Annual Report 2023
The Executive Team
Michael Kavanagh
BSc, MBA (Advanced)
CEO & President and
Managing Director
Michael joined Nanosonics as CEO and
President effective October 2013. He was
a Non-executive Director of the Board
from July 2012 to October 2013. Michael
has more than 29 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.
McGregor Grant
BEc, CA, GAICD, FGIA, FCIS
Steven Farrugia
BE, PhD
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 25
years’ 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.
Chief Technology Officer
Steven joined Nanosonics as Senior Vice
President, Design and Development, in
September 2016 and was appointed to
the role of CTO in February 2018. He has
over 30 years’ experience leading the
development of medical devices, and is
the investor of almost 300 granted and
pending patents. Prior to Nanosonics,
Steven held a range of senior executive
roles with ResMed. Steven has served
as an Adjunct Professor of Engineering
at the University of Sydney and actively
participated in various advisory
committees dedicated to advancing
biomedical engineering, STEM education
and manufacturing in Australia.
Matthew Lipscombe
MBA, BSc, BE
Chief Marketing Officer
Jodi Sampson
MBA (Exec), CPHR
Chief People and
Culture Officer
Matthew joined Nanosonics in April
2022. He has over 20 years of experience
in strategic marketing and product
management in medical device, high
technology and consulting fields across
the full product development cycle. Prior
to Nanosonics, Matthew held a range of
strategic executive roles, including Global
Director of Portfolio Strategy & Planning at
Cochlear, R&D management at ResMed
and Founder-CEO of an enterprise
SaaS startup.
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.
Ken Shaw
BSc Finance
Regional President for
North America
Ken joined Nanosonics in September
2017 as Regional President for the United
States, Canada and Latin America. He
has more than 25 years’ experience in
the healthcare, medical devices and
consumer products industries, with a
specific focus on infection prevention
products. Most recently, Ken was the
President for Amoena GmbH and prior to
that he held senior management roles at
Essity, Medicom, Energizer and Pfizer.
33
David Morris
Bus, BAppSc, GAICD
Rod Lopez
MBA, BEng (Hons), GAICD
Matthew Carbines
LLB, BCom
Chief Strategy Officer and
Regional President Asia Pacific
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.
Chief Operating Officer
General Counsel
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 global customer liaison. Rod
is a member of the NSW Innovation and
Productivity Council and also an award-
winning academic with continuing Adjunct
Faculty appointments for over 15 years
with MGSM, AGSM and the University of
Sydney Business School.
Matt joined Nanosonics in August 2017
and was appointed to the Executive Team
in October 2021. Matt is responsible for
all legal matters across the Nanosonics
Group and supports the Company
Secretary on corporate governance
matters. Prior to joining Nanosonics,
Matt held a variety of senior legal roles
in Australia and abroad, with a focus on
technology and healthcare. Immediately
prior to joining Nanosonics, Matt served
as General Counsel for an international
software business based in London. Matt
is a member of the Australian Institute of
Company Directors, and the Governance
Institute of Australia.
Ronan Wright
BSc, Bus Management, BEng
Regional President for
Europe and Middle East
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.
Sunny Pillai
MBA, BEng(Hons)
Chief Information Officer
Sunny joined Nanosonics as CIO in November 2022. He has
more than 25 years’ experience in Information Technology in
diverse sectors such as medical device, telco and insurance,
with a specific focus on Digital Transformation and Data
Engineering platforms. Prior to Nanosonics, Sunny held
senior management roles with Resmed, including Head of
Finance Systems and Senior Director of Product Innovation.
Infection Prevention. For Life.
34
Nanosonics Limited | Annual Report 2023
Directors’ report
Your Directors submit their report together with the Consolidated Financial Report of Nanosonics Limited and its subsidiaries (the
Group or Nanosonics), for the year ended 30 June 2023, 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
A review of operations and financial position of the Group and its business strategies and prospects is set out in the Financial and
Operational Review on pages 8 to19 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 2023 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
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Foreign
exchange
The Group is exposed to foreign currency risk
particularly USD/AUD exchange rates and credit risk
in light of the international nature of its operations.
Restrictions
on hospital
budgets
Nanosonics recognises that financial pressures
caused by the macroeconomic environment can
impact the availability of hospital capital budgets
in a financial year. This may impact the timing of
customers’ purchases of the Group’s products and
services in all markets, and/or result in a delay in a
patient undergoing a given procedure.
Research &
development
and
commercial-
isation
Nanosonics currently has a platform technology,
trophon, and plans to launch a second platform
technology, CORIS®. The Company 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 and significant investment in the
relevant commercial launch plans.
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. In addition, the Company has growth
plans in a range of different markets which should
reduce the dependency on the US market over time.
To address this risk, Nanosonics employs a range
of sales models and techniques to ensure that the
customers’ needs and the financial pressures they
face are considered. Further, the Group has an
active program to manage its operating expenses
and ensure the appropriate balance is maintained
between investing for longer-term outcomes as well
as profitability.
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. Nanosonics also
engages with its customers and a range of experts in
relevant fields to determine the focus of its R&D efforts.
In addition, Nanosonics also benefits from a strong
balance sheet which may be useful in executing on
potential M&A opportunities. The Company also actively
explores partnerships with third parties to explore their
product offerings using Nanosonics’ sales channels.
Directors’ report
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
35
Competition –
trophon
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 trophon2, cause trophon2 to lose market
share, or render trophon2 obsolete.
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.
Supply
chain
Regulation
The Group is highly aware of managing risks in the
supply chain, particularly its dependence on critical
suppliers for the supply of key materials which carries
the risk of delay and disruption. Certain materials
are available from sole suppliers and regulatory
requirements could make substitution costly and
time-consuming.
The Group operates in a highly regulated industry.
Medical devices are subject to strict regulations
of various regulatory bodies where the products
are sold. 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.
To address this risk, the Company has invested in
R&D for the second generation of trophon, trophon2,
and continues to invest in the trophon product
roadmap for further iterations of trophon. trophon2
is now sold in many key markets, and regulatory
approvals continue to be obtained in new markets.
Further, the Company actively upgrades its first
generation trophon EPR fleet to trophon2 units at
the appropriate time which helps to retain its existing
installed base of trophon units in key markets. For
those markets where competition exists, upgrade sales
continue to grow strongly. The Company also invests
in its relationships with ultrasound OEMs, including its
probe compatibility program, and considering product
development opportunities.
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 have a significant period
remaining in their term, including patents relating to
the consumables which do not expire until 2031.
Additional patents have been filed in respect of
trophon2, AuditPro™ and the new CORIS® platform.
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 Company has managed the disruptions that have
impacted its global supply chain for its main products
arising from COVID-19 and this risk continues to be
actively managed.
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.
Infection Prevention. For Life.
36
Nanosonics Limited | Annual Report 2023
Directors’ report
Risk
Description and potential consequences
Strategies used by Nanosonics to mitigate the risk
Product
liability
Personnel
Cyber
security
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 regulatory, and engineering talent. There is
also a risk that increased competition for talent may
impact talent retention.
During the year the Company has transitioned the
majority of its personnel globally from work from
home arrangements to a hybrid working approach.
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.
The Company has programs in place for WHS, and
the attraction, recruitment and retention of talent.
The Company has global headquarters in Macquarie
Park which is expected to support its growing
Australia based team to work more effectively for the
foreseeable future. The Company’s WHS and people
policies have been updated to address COVID-19
related matters, including supporting mental health,
work from home and return to work arrangements.
The Company is also enhancing its programs for
attracting, recruiting and retaining talent in the
current environment.
Nanosonics obtained the ISO27001 accreditation in
2022. The organisation has continued to strengthen its
security posture via additional measures and controls.
We have invested in new leadership capability with a
CIO appointment and Cyber Security specialists to
support Nanosonics through this journey.
Significant changes in the state of affairs
In the opinion of the Directors, other than the matters described above and in the Financial and Operational Review on pages 8 to 19
of this Annual 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 2023. No dividends were proposed,
declared, or paid during the financial year (2022: 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 2023, the Company issued 41,540 shares at $4.02 per share for a total of $166,991 under the Global Employee
Share Plan (GESP).
No other matters or circumstances have arisen since 30 June 2023 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; and
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 included in the Financial and Operational
Review on pages 8 to 19 of this Annual Report.
Further information on likely developments in the operations of the Group and the expected results of operations have not been
included in this Annual Report because the Directors believe it would be likely to result in unreasonable prejudice to the Group.
37
Directors’ report
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 Steven Sargent, Geoff Wilson, David
Fisher, Marie McDonald, Lisa McIntyre, and Michael Kavanagh.
Mr Maurie Stang stepped down as Chairman on 1 July 2022 and assumed the role of Deputy Chairman. He subsequently retired
from the Board at the AGM on 18 November 2022. Mr Sargent was elected by the Board as Independent Chairman and assumed
this position on 1 July 2022.
During the year, McGregor Grant has been the Company Secretary. On 12 May 2023, the Company announced Mr Grant’s
resignation. He will continue as Company Secretary until 31 August 2023.
Mr Matthew Carbines, General Counsel was appointed as a Company Secretary effective 12 May 2023.
Information on the Directors, Company Secretary and the executive team is a part of the Directors’ report and can be found on
pages 30 to 33 of the Annual Report.
As at the date of this report, Nanosonics Limited has the following committees of the Board: Audit and Risk, Nomination,
Remuneration, People and Culture, and R&D and Innovation. The Board establishes ad hoc committees focused on specific topics
as required. Details of members of the committees of the Board are included below and on page 44 of the Remuneration Report.
Meetings of Directors
The number of Directors’ meetings, including meetings of the Committees, held during the year ended 30 June 2023, and numbers
of meetings attended by each of the Directors were as follows:
Full meetings
of Directors 1
Audit and Risk
Nomination
Remuneration,
People and Culture
R&D and
Innovation 2
Held 3 Attended Held 3 Attended
Held 3 Attended Held 3 Attended
Held 3 Attended
7
15
15
15
15
15
15
7
15
15
15
15
15
15
2
4
4
4
4
4
4
2 4
4
4
4
4
4
4 4
0
1
1
1
1
1
1
0
1
1
1
1
1
1 4
2
5
5
5
5
5
5
2
5
5
5 4
5
4 4
5 4
0
3
3
3
3
3
3
0
3
2 4
3
3 4
3
3
Maurie Stang
Steven Sargent
Geoff Wilson
David Fisher
Marie McDonald
Lisa McIntyre
Michael Kavanagh
1. A number of additional Board meetings were held during the year to address discrete issues.
2. In addition to the R&D and Innovation Committee meeting held during the year, R&D matters were considered on a regular basis at Board meetings.
3. Indicates the number of meetings held which the Director is eligible to attend.
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 2023, the Company issued a total of 480,631 (2022: 370,110) new ordinary shares in Nanosonics
Limited of which 89,939 shares were issued under the Global Employee Share Plan at an average price of $3.96 per share and
390,692 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 2023, there were 302,315,760 (2022: 301,835,129) ordinary shares in Nanosonics Limited on issue. At the date of
this report, there were 302,357,300 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.
Infection Prevention. For Life.
38
Nanosonics Limited | Annual Report 2023
Directors’ report
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, 1,841,699 (2022: 818,639) unquoted rights with nil exercise price and 1,140,725 unquoted
share appreciation rights (2022: 843,496 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. Section 7.3 of the
Remuneration Report provides the details of grants received by Key Management Personnel.
Shares under option
At the date of this report, there were 6,969,313 unissued ordinary shares of Nanosonics Limited under option under the Nanosonics
Omnibus Equity Plan. As at 30 June 2023, there were 6,970,133 (2022: 5,792,730) 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 2023
Performance rights and options lapsed
Total shares under option to the date of this report
Number of shares under option
6,970,133
(820)
6,969,313
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.
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.
39
Directors’ report
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; and
b. None of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants as they did not involve reviewing or auditing the auditor’s own work, acting in a management or
decision making capacity for the Company, acting as an advocate of the Company or jointly sharing risks and rewards.
During the year, the auditor of the Group, Ernst & Young, provided certain other services in addition to its statutory duties. These
activities were conducted in accordance with the Company’s Auditor Independence Policy, and in the Company’s view did not
compromise their independence.
Details of amounts paid or payable to the auditor of the Group in relation to audit and non-audit services are disclosed in
Note 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 63
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 Financial and Operational Review (on pages 8 to 19), the Information on the Board and the Executive
Team (on pages 30 to 33), and the Remuneration Report (on pages 40 to 61), is made on 22 August 2023 and signed in accordance
with a resolution of Directors, pursuant to section 298(2) of the Corporations Act.
Geoff Wilson
Director, Sydney
22 August 2023
Infection Prevention. For Life. 40
Nanosonics Limited | Annual Report 2023
Remuneration report
Letter from the Chair of the Remuneration, People and Culture Committee
On behalf of the Board of Directors, I am pleased to present the remuneration report for the year ended 30 June 2023.
Nanosonics in FY23
The 2023 financial year has been another year of significant achievement. The Company reported a 38% increase in total revenue to
$166.0 million resulting from the ongoing growth in new installed base, favourable pricing outcomes, increased trophon®2 upgrade
sales and ongoing growth in consumables and service and favourable foreign exchange.
This was a pleasing result particularly in the context of the demonstrated profitability of the trophon business driven by the successful
evolution of our sales model in our key market of North America.
With product expansion a cornerstone of the Company’s strategic growth agenda, during the year the Company continued to
invest in R&D, increasing 32% to $29.5 million. This investment is directed across multiple areas including ultrasound reprocessing,
endoscopy reprocessing and cloud solutions platform.
The organisation also increased its capacity and capability with the total number of employees increasing by 13% to 482 employees.
We continued our focus on diversity, with the number of female Nanosonics’ employees increasing from 42% last year to 45%
globally and the senior leader female representation remaining consistent at 40%.
Nanosonics employees’ commitment to its ‘purpose’ remained strong, as illustrated by the outcomes in Nanosonics Global Employee
Engagement Survey, where 93% of the employees continued to believe in the overall purpose of Nanosonics and 88% of our
employees understood how their work contributes to the goals of the Company.
Remuneration and outcomes
No significant changes were made to the remuneration framework in FY23. However, the weighting of the financial metrics for STI
(PBT and total trophon units sold) was changed from 20%:40% to 30%:30% to reflect the importance of the profit metric.
Total Fixed Remuneration (TFR) is regularly reviewed for all Executive KMP to ensure it is sufficiently competitive and reflects position
scope and accountabilities. In FY23 the CEO&P’s base remuneration was increased by 6% and the base remuneration of the
remaining executive KMP was increased in the range of 3.5% to 5%. Both the STI and LTI opportunities as a percentage of TFR
remained the same.
Based on the performance of the business in FY23, the financial metric outcomes for the STI were:
– Profit Before Tax (PBT) of $21.6 million, an above stretch performance resulting in 150% achievement; and
– Total trophon units installed of 4,410, a below threshold performance, resulting in 0% achievement.
After assessing the CEO&P and the other Executive KMP’s performance against their remaining metrics, the overall STI outcomes,
inclusive of financial and non-financial metrics were:
– The CEO&P STI outcome was 60.0% of maximum (78.0% of target);
– The other Executive KMP STI outcomes ranges between 53.6% and 63.8% of maximum (71.0% to 83.0% of target); and
– The average for all other Executive KMP (inclusive of the CEO&P) was 60.1% of maximum (77.9% of target).
There were no downward Values rating modifers applied to the CEO&P or other Executive KMP in FY23.
The 2019 LTI award was subject to a PBT gate and the performance condition of an Absolute CAGR of TSR. As neither the PBT
gate nor the TSR performance condition was met, the 2019 LTI grant of Performance Rights and Options resulted in nil vesting.
NED fees remained unchanged in FY23.
Looking forward to FY24
After 12 years of service as Chief Financial Officer at Nanosonics, McGregor Grant is due to leave at the end of August 2023. We
thank him for his many years of service and contributions at Nanosonics and wish him the best for the future.
In FY23, the Board undertook a remuneration benchmarking and framework review by Guerdon Associates to ensure our
remuneration continues to be effective in motivating, retaining and attracting high calibre executives and NEDs, while aligning with
shareholder experience. The remuneration benchmarking exercise included a review of comparable ASX-listed companies based
on global operational and regularatory complexity, revenue, EBIDTA and market capitalisation. This resulted in an average increase
of 8% to base remuneration for all Executive KMP (other than the CEO&P) and an increase of 13.8% for the CEO&P, in order to be
more aligned with his median of the market. The increase for the CEO&P has simply brought his base remuneration to the median of
the peer group, and is considered overdue, having regard to both his seniority (more than nine years in the role) and performance.
41
Remuneration report
As a result of the review, the following changes will be made to the FY24 executive remuneration framework:
– Stretch performance will be introduced for non-financial STI measures (which previously could only pay out at target). This
increases the maximum opportunity for the CEO&P to 90% of TFR (FY23: 78% of TFR) and for the other Executive KMPs to
75% of TFR (FY23: 62.5%-66.25% of TFR);
– All of the LTI will be granted in the form of performance rights;
– For FY24, LTI will have two equally weighted performance measures, being a profit growth metric of the core business (which
takes into account all revenue and expenses directly related to the trophon business) and a relative TSR against the ASX Small
Ordinaries (101 to 300) excluding GICS Energy Sector, Financials Sector, Metals & Mining Industry and REITs; and
– Exercise period for performance rights granted under STI and LTI will be extended to 10 years from grant date.
These changes will further optimise the remuneration framework for the next phase of Nanosonics strategic plan, including the
growth of the trophon business and development and introduction of new products. In future years, and following the launch of
CORIS®, measures linked to successful commercialisation of CORIS® will be included in the remuneration framework.
Changes arising from the review are further described in this year’s Remuneration Report, and a detailed description of changes to
the executive LTI framework will be disclosed in the 2023 Notice of Annual General Meeting for shareholder approval of the CEO&P
equity grant.
The current NED fees were last increased in 2019, NAN is currently undertaking a process of Board renewal and wishes to ensure
that it can continue to attract high calibre directors. Accordingly, NED fees were considered in the FY23 remuneration and framework
review. The review indicated that the current NED fees were significantly below median and, as a result, the Board approved
an increase for NEDs from $100,000 to $120,000 and for the Chair from $225,000 to $270,000 (a 20% increase in each case).
As a result, these fees will be closer to, but still below, peer group median. Fees for Committee Chairs and members will also be
increased by 25%.
We value your feedback and will continue to regularly engage with and provide ongoing updates to our shareholders about our
remuneration policies and objectives.
On behalf of the Board, I invite you to review the full report and thank you for your ongoing support of Nanosonics.
Yours sincerely,
Marie McDonald
Chair, Remuneration, People and Culture Committee
22 August 2023
Infection Prevention. For Life. 42
Nanosonics Limited | Annual Report 2023
Remuneration report
The Remuneration Report for the year ended 30 June 2023 (2023 Financial Year or FY23) 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 points for your attention
2. Key Management Personnel
3. Remuneration link with Company performance and strategy
4. Remuneration Framework
5. Company performance and remuneration outcomes
6. Non-executive Director remuneration
7. Statutory tables and disclosures
8. Governance
1 Key points for your attention
FY23 Outcomes
Feature/issue/element
What you need to know
FY23 Remuneration
framework, total fixed
remuneration and
NED fees
There were minor changes to the remuneration framework and structure in FY23 from FY22. The
changes included a reweighting of the STI financial measures from 20%:40% between PBT and
installed base to 30%:30%. In addition, the new installed base performance measure in FY22
was expanded to total trophon units installed which includes trophon upgrades, an important
strategic driver of growth.
Total Fixed Remuneration (TFR) changes for the KMP in FY23 were:
– CEO&P: 6% increase to base remuneration; and
– Other Executive KMP: a range of 3.5% to 5% increase to base remuneration.
STI and LTI opportunities remained unchanged.
There were no changes to NED fees in FY23.
Refer
Section 4
STI outcomes
for FY23
LTI outcomes
for FY23
– The Stretch performance condition was exceeded for PBT, which resulted in 150%
Section 5.2
achievement.
– The Threshold performance condition was not met for Total trophon units, which resulted in
0% achievement.
– The 2019 LTI award was subject to a PBT gate and the performance condition of an Absolute
Section 5.3
CAGR of TSR.
– As neither the PBT gate nor the performance condition was met, the 2019 Long-term Incentive
(LTI) resulted in nil vesting of Performance Rights or Options.
Advisory vote on
remuneration report
at 2022 AGM and
executive variable
remuneration
framework review
Nanosonics received 96.6% support for the FY22 remuneration report.
A review of Nanosonics’ executive remuneration framework was undertaken in FY23. The
findings from the review indicated that a number of elements of the framework could be
improved. As such, amendments to the STI and LTI framework will be adopted in FY24. Further
information is provided below and comprehensive details of the changes will be disclosed in the
2023 Notice of Meeting for the CEO&P equity grant.
FY24 Changes
Feature/issue/element
What you need to know
STI Non-Financial
performance
measures
These changes will
drive and motivate
high performance
and reward both
performance and
behaviours.
In FY24, all STI performance measures, including non-financial measures, have a maximum
opportunity of 150% (in FY23 non-financial measures were limited to target only at 100%). This
change will ensure that our strategic priorities are treated with the same focus as current financial
targets, since these priorities drive future financial performance and, therefore, shareholder
return. Payment for above target non-financial performance will not exceed a fixed percentage of
above target performance of the PBT metric.
The values modifier will be extended to enable reward for positive contribution (a maximum
multiplier of up to 150%), as well as the existing downwards potential adjustment (from 100% to
zero) for negative contribution, based on the Company’s Values. It is expected that this modifier
would be infrequently used.
Refer
2024
Remuneration
Report (when
available)
43
Refer
2023 Notice
of Meeting
2023 Notice
of Meeting
Remuneration report
1 Key points for your attention continued
FY24 Changes continued
Feature/issue/element
What you need to know
LTI Payment Vehicle
This change simplifies
the reward structure
and aligns with market
practice.
LTI Performance
Measures: 50/50 rTSR
and PBT core business
CAGR
This change reflects
the equal importance
of Company financial
performance and
shareholder experience.
rTSR Peer Group
The change in
comparator group
reflects a peer
group that is more
closely aligned with
Nanosonics in terms
of Company size and
industries; and the
change in ranking
methodology to
percentile ranking is
aligned with market
practice.
The change to a core
business PBT growth
metric maintains a
focus on the Company’s
long term goals, which
rewarding for growth.
In FY24, Nanosonics will deliver all of its LTI in Performance Rights. Previously, two thirds
of LTI was delivered in Performance Rights (PR) and one third of LTI was delivered in Share
Appreciation Rights (SARs).
In FY24, Nanosonics’ LTI will be based on two equally weighted tranches contingent on
achievement of first, a Relative TSR measure against an appropriate ASX Index and, secondly, a
profit growth metric related to the core (trophon) business. The use of the same payment vehicle
(Performance Rights) makes equal weighting appropriate, previously it was one third for the TSR
measure (paid in SARs) and two thirds for UROE (paid in PRs). It also achieves an appropriate
balance between shareholder experience (rTSR) and Company performance (the profit growth
metric).
Each metric will be measured over three years.
For the 2023 LTI award, Nanosonics will measure TSR on a relative basis, rather than against an
absolute measure. This is considered more appropriate as the Company’s business has matured,
and its earnings stream has grown.
2023 Notice
of Meeting
Performance will be measured against an updated peer group, being the ASX Small Ordinaries
(101 to 300), excluding GICS Energy Sector, Financials Sector, Metals & Mining Industry and
REITs. For the 2022 LTI award, it was the ASX 300 Industrials Index. These updated peer
companies are more aligned to Nanosonics in terms of size and industry.
A positive TSR gate will continue to apply for the rTSR metric.
Full details of the framework will be disclosed in the Notice of Meeting for the 2023 AGM.
In FY24, Nanosonics is adjusting its LTI framework to replace UROE with a profit metric against its
core (trophon) business. For FY24, the metric will take into account all revenue and expenses directly
related to the trophon business.
2023 Notice
of Meeting
It will therefore include R&D related to the trophon product development roadmap (which is not
included in the UROE metric) and will exclude R&D related to products which have not yet been
commercially launched, such as CORIS ®. It is expected that after CORIS ® progresses through
successful commercial launch, revenue and expenses relating to it will be reflected in this metric
in future awards.
The underlying purpose of the existing UROE metric and the new core business profit metric are
similar, namely to ensure that executives are not disincentivised from investing in R&D (essential
to Nanosonics’ long term growth strategy). However, discipline in R&D expenditure will continue
to be monitored through the STI program which incentivises achievement of annual PBT goals,
which takes into account all R&D expenditure. Further, by increasing the weighting of the rTSR
metric in FY24, accountability for performance of aspects of the business excluded from profit
growth metric will be enhanced.
The core business PBT measure will be a CAGR over three years, rather than the current three year
average, as we wish to reward growth in profitability of the core (trophon) business.
Further details of the framework will be disclosed in the Notice of Meeting for the 2023 AGM.
Rights exercise period
In FY24, the exercise period on Performance Rights under the STI and LTI incentive plans will be
extended to 10 years from grant date.
2023 Notice
of Meeting
This change is aligned with market practice and will enable Executives to have an exercise
period long enough to cover a reasonable economic cycle and provide greater flexibility in
financial outcomes.
Infection Prevention. For Life. 44
Nanosonics Limited | Annual Report 2023
Remuneration report
2 Key Management Personnel
This report covers Key Management Personnel (KMP) who are defined as those who have the authority and responsibility for
planning, directing and controlling the activities of Nanosonics.
Name
Role
Non-executive
Steve Sargent
Chairman, Independent Director
Geoff Wilson
Independent Director
David Fisher 1
Independent Director
Marie McDonald
Independent Director
Lisa McIntyre 1
Independent Director
Committee membership
Appointed
Nomin-
ation
Audit
and Risk
RPC
R&D and
Innovation
6 Jul 2016
17 Jul 2019
30 Jul 2001
24 Oct 2016
13 Dec 2019
Maurie Stang 2
Deputy Chairman, Non-independent Director
14 Nov 2000
Executive
Michael Kavanagh Chief Executive Officer & President (CEO&P)
and Managing Director
McGregor Grant 3 Chief Financial Officer (CFO)
and Company Secretary
Steven Farrugia
Chief Technology Officer (CTO)
David Morris
Chief Strategy Officer (CSO)
and Regional President, APAC
Rod Lopez
Chief Operating Officer (COO)
= member,
= Chairman
21 Oct 2013
28 Apr 2011
5 Sep 2016
4 Feb 2019
4 Mar 2019
1. Lisa McIntyre was appointed as Chair of R&D Innovation Committee on 1 January 2023. On that date, Dr Fisher retired from the role of chair R&D
and Innovation Committee.
2. Maurie Stang retired from the Board on 18 November 2022.
3. McGregor Grant will be leaving the Company on 31 August 2023.
45
Remuneration report
3 Remuneration link with Company performance and strategy
3.1 Overview of Remuneration Framework
Nanosonics’ Remuneration Framework is designed to support the Company’s strategy and reward executives for
successful implementation.
The Remuneration Framework is designed 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 by investing to establish Nanosonics as a
globally recognised leader in infection prevention.
Executive KMP remuneration principles
An appropriate balance
of fixed and variable
components.
Attract, motivate
and retain executive talent.
Reward outcomes
to drive performance
and behaviours.
Shareholder
value creation through
equity alignment.
Total Remuneration
Fixed
Variable and at-risk
Total Fixed Remuneration (TFR)
Short-term Incentive (STI)
Long-term Incentive (LTI)
Fixed remuneration is based
on relevant market relativities,
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 in cash plus any fixed
elements related to local markets,
including superannuation or equivalents.
This may include fringe benefits and
relevant FBT.
TFR is determined with regard
for a range of factors including
relevant market-based data,
experience, responsibilities
and performance in the roles.
Delivery
Part cash and part equity. Equity as part
of the award facilitates share ownership
in Nanosonics and increases alignment of
executive interests with shareholders.
The equity component is deferred to
facilitate malus/clawback policies, and to
create shareholder alignment.
Strategic intent and marketing positioning
STI performance requirements are
focused on achieving annual objectives
that will underpin the growth strategy.
TFR and the STI opportunities
are benchmarked to ensure total
remuneration is positioned competitively
when outcomes are on-target.
Equity is held subject to
performance and service requirements.
The measurement period is three years
to create a long-term focus aligned
with the financial interests of the
Company shareholders.
LTI is designed to focus Executive
KMP on the longer-term strategy for
the business and vested LTI aligns their
interests with those of the Company
and its shareholders.
LTI opportunities are benchmarked to
ensure total remuneration is positioned
competitively when on-target
performance is met.
Total Remuneration is benchmarked to be competitively positioned and reward achievement
3.2 Assessment of behaviours against Nanosonics’ Core Values
Nanosonics believes 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 fully
considered in the assessment of individual performance. The Board conducts a formal behavioural assessment of the CEO&P
and each Executive KMP as part of their overall performance review and the incentive outcome may be negatively adjusted if the
behaviours and values exhibited do not meet expectations.
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Remuneration report
4 Remuneration Framework
4.1 Remuneration mix
The remuneration mix for each Executive KMP provides an appropriate balance between fixed and variable at-risk remuneration
to ensure focus on short, medium and longer-term performance. The Board considers this approach aligns Executive KMP
remuneration with shareholders’ interests and expectations. A significant portion of executive remuneration is paid in equity (48% for
the CEO&P and 37.5% for Other Executive KMP at Target achievement).
Executive remuneration is reviewed regularly by the Remuneration, People & Culture Committee (RPC) with reference to each
executive’s individual performance, experience and relevant comparable compensation in the market.
The following two figures show the CEO&P remuneration mix and the average remuneration mix for Other Executive KMP in FY23.
CEO&P Remuneration Opportunity Mix in Dollars
Minimum
Target
Stretch
100%
40%
28%
60% Performance based
12%
12%
36%
48% Equity based
11%
11%
72% Performance based
50%
61% Equity based
Other Disclosed Executive KMP Remuneration Opportunity Mix in Dollars (Average)
Minimum
Target
Stretch
100%
50%
38%
4.2 Remuneration cycle
50% Performance based
12.5%
12.5%
25%
37.5% Equity based
62% Performance based
12%
12%
38%
50% Equity based
TFR
Cash STI
Deferred STI
LTI
2023
2024
2025
2026
TFR
STI Metrics
Audit & STI assessment
50% awarded in cash
50% awarded in Service Rights (1 year vesting + 1 year exercise restriction)
LTI Metrics – one third of value in Share Appreciation Rights – iTSR metric
LTI Metrics – two thirds of value in Performance Rights – UROE metric
LTI Grants are 100% exercise restricted until end of fourth year
LTI gate check and
vesting assessments
4.3 Total Fixed Remuneration (TFR)
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 car allowance.
TFR for Executive KMP is benchmarked regularly for market competitiveness as described in 4.1 above. Adjustments to TFR may
be 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 RPC.
Total ($000)
$801
$2,002
$2,866
$435
$869
$1,150
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4 Remuneration Framework continued
4.4 FY23 Short-Term Incentive (STI)
The following table describes the key features of the STI for FY23. The FY23 STI outcomes are dependent on meeting group and
operational metrics for the year.
Purpose
To motivate and reward executives for the achievement of group and operational objectives approved by the
Board at the beginning of the financial year.
Opportunity
The STI opportunities for each of the Executive KMP are:
CEO&P
CFO
CTO
CSO/Regional Pres APAC
COO
% of TFR
Target
Maximum
60%
50%
50%
50%
50%
78%
65%
62.5%
66.25%
65%
Performance
measures
The Board-approved performance requirements for the Executive KMP for FY23 were as follows:
– Group Financial metrics:
> Profit Before Tax (PBT): PBT is a critical performance requirement aligned with the Company’s continued
growth strategy and can be influenced by the Executive KMP.
> Global Total trophon Units: This includes both new installed base and upgrade units each of which are critical
strategic growth drivers for the business.
Operational metrics: The FY23 Operational metrics for each Executive are aligned with the business priorities of
Innovation, Growth, Customer and Employee Engagement, and Business Optimisation. The weightings for each
Executive KMP were as follows:
Metric weighting allocation
Group financial metrics
Operational metrics
Executive KMP
Profit
before tax
Total trophon
units sold
Regional
financial
Operational
Total
weighting
CEO&P
CFO
CTO 1
CSO/Regional 2
Pres APAC
COO
30%
30%
20%
15%
30%
30%
30%
30%
15%
30%
40%
40%
50%
35%
40%
100%
100%
100%
100%
100%
35%
1. The Operational metrics of Dr. Farrugia have a higher weighting on product development and therefore the weighted group metrics were
50% (not 60%).
2. Mr. Morris, Chief Strategy Officer and Regional President, APAC, had a higher weighting attached to the achievement of Regional and
Operational metrics reflecting the role of Regional President, APAC.
Vesting
scale
The vesting scales for the financial and operational metrics are:
Achievement
Below threshold
Threshold
Target
Stretch
Vesting is on a pro rata linear basis between each level.
Vesting %
Financial metrics
Operational metrics
Nil
50%
100%
150%
N/A
N/A
100%
N/A
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4 Remuneration Framework continued
Calculation of
STI outcome
The STI outcome for the year is calculated as follows.
Total STI
award ($)
=
TFR ($)
(amount paid in
the financial year)
X
STI
opportunity
(% of TFR)
X
STI outcome %
(total of vested
percentage of each metric)
X
Values rating
modifier
(0% to 100%)
The Values rating is a downward modifier and is based on each executive’s 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 determining the final award. Downward modification is by exception and
subject to careful assessment by the Board – refer to section 5.2.
Payment
vehicle
The STI is delivered as:
– 50% paid in cash; and
– 50% granted as Service Rights (SRs) contingent on one-year service condition, and a one-year exercise
restriction period, i.e. two-year lockup.
Allocation
method
The number of SRs is calculated by dividing the award value by the Volume Weighted Average Price (VWAP) of
Nanosonics’ shares for the 20 trading days following release of the FY23 financial results.
Dividends
SRs do not carry any dividend or voting rights prior to exercise.
Termination
of employment
The Executive must be employed by the Company and not working a notice period at the time of payment to be
eligible for the cash component.
The Executive must be employed by the Company and not working out a notice period from the date of grant to
the vesting date to be eligible for vesting of the SRs.
Board
discretion
The Board retains discretion to modify STI assessment outcomes, or the form of settlement, if it deems it
appropriate, having regard to the circumstances that prevailed over the measurement period. The Board will
disclose the application of such discretion to Executive KMP STI awards, when applicable.
4.5 2022 Long-Term Incentive (LTI)
At the 2022 Annual General Meeting held on 18 November 2022, shareholders approved the CEO&P’s 2022 LTI grant. Details of the
2022 LTI grant, which equally apply to all Executive KMP are set out in the following table.
Purpose
To align a significant portion of Executives’ total remuneration opportunity with the drivers of shareholder value
creation over the longer term and to align Executive interests with those of shareholders.
Opportunity
The LTI opportunities for each of the Executive KMP are:
CEO&P
CFO
CTO
CSO
COO
% of TFR
Target
Maximum
90%
50%
50%
50%
50%
180%
100%
100%
100%
100%
Payment
vehicle
Equity grants to the Executive KMP were awarded as follows:
Tranche 1: (33.33% weighting) Share Appreciation Rights (SARs) which are cashless exercise options with a
notional exercise price of $4.143 (based on the VWAP of Nanosonics’ shares for the 20 trading days from the
release of the Company’s FY22 results).
Tranche 2: (66.67% weighting) Performance Rights (PRs) with a nil exercise price.
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4 Remuneration Framework continued
Allocation
method
The number of SARs or PRs granted is calculated as follows:
Performance
Period
Exercise
restriction
period
Gate
Performance
Conditions
Number of
SARs/PRs
=
TFR ($)
X
LTI
opportunity
% at Stretch
X
Tranche
weighting
÷
Value of
SAR/PR
The value of each SAR or PR is determined using a Black-Scholes model (prepared by an independent consultant),
ignoring vesting conditions (i.e. no discounting applies).
The performance periods for the SARs and the PRs are:
Tranche 1 SARs: From the announcement of the Company’s FY22 financial results to the announcement of the
Company’s FY25 financial results.
Tranche 2 PRs: From 1 July 2022 to 30 June 2025.
The SARs and the PRs are subject to an exercise restriction period of one year from the Vesting Date.
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 2022 LTI grant is:
SARs (iTSR): The Company’s TSR must be positive over the Performance Period.
PRs (UROE): No Gate applies.
The Performance Conditions for the 2022 LTI are:
SARs (iTSR): Vesting of the SARs is contingent on Nanosonics’ Total Shareholder Return (TSR) over the
Performance Period (being the change in Share Price, plus dividends declared assumed to be reinvested)
compared to the TSR of the ASX 300 Industrials Index after adding a premium of 3% CAGR at Target and 6%
CAGR at Stretch. This is a market condition reflecting a Nanosonics risk-adjusted return relative to the Index with
vesting on a linear basis as follows:
Outcome
NAN TSR performance
% vesting of grant
Stretch
Target
Threshold
Below
Index TSR% + 6.0% TSR CAGR
Index TSR% + 3.0% TSR CAGR
Index TSR%
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