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. Infection Prevention. For Life. 46 Nanosonics Limited | Annual Report 2023 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 47 Remuneration report 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 Infection Prevention. For Life. 48 Nanosonics Limited | Annual Report 2023 Remuneration report 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 $4.143 (based on the VWAP of Nanosonics’ shares for the 20 trading days from the release of the Company’s FY22 results). Tranche 2: (66.67% weighting) Performance Rights (PRs) with a nil exercise price. 49 Remuneration report 4 Remuneration Framework continued Allocation method The number of SARs or PRs granted is calculated as follows: Performance Period Exercise restriction period Gate Performance Conditions Number of SARs/PRs = TFR ($) 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%60 days 2023 $’000 2022 $’000 23,717 16,453 5,280 1,002 2,174 3,187 2,900 1,235 32,173 23,775 c) Liquidity risk The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are invested in short and medium term instruments which are tradeable in highly liquid markets. At the end of the reporting period, the Group held short-term deposits of $88,482,000 (2022: $72,750,000) that are expected to readily generate cash inflows, as well as cash at bank of $23,677,000 (2022: $21,762,000) that is readily available for managing liquidity risk. Maturities of financial liabilities The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Less than three months Three to 12 months Over one to five years Five years Total 2023 Trade and other payables Lease liabilities Derivative financial instruments Total financial liabilities 2022 Trade and other payables Lease liabilities Derivative financial instruments Total financial liabilities 10,842 795 321 11,958 9,582 783 492 10,857 — 2,374 782 3,156 — 2,049 1,796 3,845 — 8,087 774 8,861 — 9,542 543 10,085 — 80 — 80 — 101 — 101 10,842 11,336 1,877 24,055 9,582 12,475 2,831 24,888 Infection Prevention. For Life. 96 Nanosonics Limited | Annual Report 2023 Notes to the consolidated financial statements continued 9 Capital structure 9.1 Capital and reserves a) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Ordinary shares carry one vote per share and entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands, every ordinary shareholder present at a meeting in person or by proxy is entitled to vote and upon a poll each share is entitled to one vote. Ordinary shares have no par value, are fully paid and the Company does not have a limited amount of authorised capital. Movements in ordinary share capital: Balance 30 June 2021 Issue of shares under employee share plans – proceeds received Balance 30 June 2022 Issue of shares under employee share plans – proceeds received Balance 30 June 2023 b) Reserves Number of shares $’000 301,465,019 113,539 370,110 316 301,835,129 113,855 480,631 302,315,760 356 114,211 i) Share-based payments reserve The share-based payments reserve is used to recognise the fair value at grant date of performance rights and options issued as detailed in Note 4.3 less any payments made to meet the Company’s obligations through the acquisition of shares on market, together with income taxes on such payments. ii) Foreign currency translation reserve The foreign currency translation reserve records the exchange differences arising on translation of the financial statements of the foreign subsidiaries where the functional currency is different from the presentation currency of the reporting entity as detailed in Note 1.2 (e). iii) Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to underlying transactions that have not yet occurred. 9.2 Capital management The Board and management controls the capital of the Group to ensure that the Group can fund its operations and continue as a going concern. The Group’s capital includes ordinary share capital and financial liabilities supported by financial assets. There are no externally imposed capital requirements. The Board and management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and the risk in the market. These responses include the management of share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. 97 Notes to the consolidated financial statements continued 10. Other notes 10.1 Commitments Capital commitments As at 30 June 2023, the Group had commitments to purchase plant and equipment of $580,221 (2022: $1,867,000). These commitments are not recognised as liabilities as the relevant assets have not yet been received. 10.2 Related party transactions a. Transactions with related parties Note 10.3 provides the information about the Group’s structure, including the details of the subsidiaries and the parent entity. i) Directors and Key Management Personnel compensation Director fees Short-term employee benefits Long-term benefits Post-employment benefits Share-based payments Total Directors and Key Management Personnel compensation 2023 $ 2022 $ 734,309 824,432 2,816,760 2,472,577 304,130 187,037 265,847 183,408 2,178,151 1,235,599 6,220,387 4,981,863 Detailed remuneration disclosures are provided in the remuneration report on pages 40 to 61. ii) Transactions with other related parties Certain Directors or their personally-related entities (Related Parties) hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. Director fees for Maurie Stang were paid through his personally-related management entity up until 18 November 2022, when he retired as a Director of Nanosonics Limited. Maurie Stang is related to Regional Healthcare Group Pty Ltd and following his retirement as a Director of Nanosonics Limited, this entity ceased to be a related party from 18 November 2022. The transactions with Regional Healthcare Group Pty Ltd during the year up until 18 November 2022 comprised sale of products and services of $2,331,620 (30 June 2022: $3,959,462) and purchase of goods and services of $61,338 (30 June 2022: $1,784). The above transactions exclude Director fees paid through personally related management entities. iii) Outstanding balances arising from sales/purchases of goods and services As at 30 June 2023, the total balance of trade receivables with Regional Healthcare Group Pty Ltd is $5,940 (30 June 2022: $1,137,540). There were no other amounts due from or to other Related Parties. There were no provisions for impaired receivables in relation to any outstanding balances from Related Parties (30 June 2022: Nil) and no expense has been recognised during the period in respect of impaired receivables due from Related Parties. iv) Loans to Directors and Key Management Personnel During the year and to the date of this report, the Group made no loans to Directors and Key Management Personnel and none were outstanding as at 30 June 2023 (2022: Nil). v) Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. Infection Prevention. For Life. 98 Nanosonics Limited | Annual Report 2023 Notes to the consolidated financial statements continued 10. Other notes continued 10.3 Controlled entities The consolidated financial statements of the Group include: Name of controlled entity Principal activities Nanosonics Europe GmbH Saban Ventures Pty Limited Nanosonics, Inc. Nanosonics Europe Limited Nanosonics UK Limited Nanosonics Canada, Inc. Nanosonics Japan KK Nanosonics (Shanghai) Co. Ltd Provision of sales and customer support services to Nanosonics Europe Limited in Europe Owner of the registered intellectual property of the Group Sales and distribution of Nanosonics’ products and provision of sales and customer support services to Nanosonics Limited in the USA Sales and distribution of Nanosonics’ products in Europe Provision of sales and customer support services in Europe Sales and distribution of Nanosonics’ products and services in Canada Sales and distribution of Nanosonics’ products and services in Japan Sales and distribution of Nanosonics’ products and services in China Nanosonics Investments Pty Ltd Strategic investments Nanosonics Employee Equity Trust Management of Nanosonics employee share plan Country of incorporation Class of shares Equity holdings 2023 2022 Germany Ordinary 100% 100% Australia Ordinary 100% 100% USA Ordinary 100% 100% UK UK Ordinary 100% 100% Ordinary 100% 100% Canada Ordinary 100% 100% Japan Ordinary 100% 100% China Ordinary 100% 100% Australia Australia Ordinary 100% 100% — 100% 100% 10.4 Parent entity information As at and throughout the financial year ended 30 June 2023, the parent entity of the Group is Nanosonics Limited which is based and listed in Australia. The individual financial statements for the parent entity show the following aggregate amounts: i) Summary financial information Statement of financial position Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Share capital Share-based payments reserve Hedging reserve (net of tax) Retained earnings Total equity Profit for the year Total comprehensive income 2023 $’000 2022 $’000 197,783 221,112 17,606 28,467 114,211 29,096 (10) 49,348 192,645 19,475 20,966 174,577 199,866 21,208 34,020 113,855 23,170 (1,053) 29,874 165,846 8,706 7,126 99 Notes to the consolidated financial statements continued 10. Other notes continued ii) Guarantees entered into by the parent entity For the year ended 30 June 2023, the parent entity provided assurances to its controlled entities, Nanosonics Europe GmbH, Nanosonics Europe Limited and Nanosonics UK Limited that the intercompany debts will not be required to be repaid until such time as the controlled entities have sufficient funds available. No other guarantees were provided during the period. iii) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2023 (2022: Nil). iv) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2023, the parent entity had commitments to purchase plant and equipment of $512,000 (2022: $1,860,000). These commitments are not recognised as liabilities as the relevant assets have not yet been received. v) Accounting policies The accounting policies of the parent entity are consistent with the Group except for Investment in controlled entities which is carried in the parent company financial statements at the lower of cost or recoverable amount. 10.5 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Auditor’s Remuneration Fees to Ernst & Young (Australia) Audit services Fees for auditing the statutory financial report of the parent covering the group Fees for auditing the statutory financial reports of the controlled entities based in the UK Total audit services Non-audit services Tax compliance (Australia) Tax compliance (Overseas) Other services Total non-audit services Total fee for services provided 2023 2022 408,418 56,190 464,608 90,978 2,762 — 93,740 558,348 368,000 44,084 412,084 116,000 — — 116,000 528,084 10.6 New standards and interpretations not yet adopted The Company has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 10.7 Events occurring after the balance date 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 that have arisen since 30 June 2023 that have significantly affected, or may significantly affect: a) The Group’s operations in the current of future financial years; b) The results of those operations in the current of future financial years; or c) The Group’s state of affairs in the current or future financial years. Infection Prevention. For Life. 100 Nanosonics Limited | Annual Report 2023 Directors’ declaration For the year ended 30 June 2023 1. In the Directors’ opinion: a) The financial statements and notes set out on pages 62 to 99 are in accordance with the Corporations Act 2001, including: i. Complying with the Accounting Standards and the Corporations Regulations 2001; ii. Giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2023 and of its performance for the financial year ended on that date; and b) The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1.2; and c) There are reasonable grounds to believe that the Company and its subsidiaries will be able to pay their debts as and when they become due and payable. 2. The Directors have been given the declarations by the Managing Director and CEO and the Chief Financial Officer required by section 295A of the Corporations Act 2001. 3. This declaration is made in accordance with a resolution of Directors. Geoff Wilson Director Sydney, 22 August 2023 Independent Auditor’s Report to the members of Nanosonics Limited 101 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor’s report to the members of Nanosonics Limited Report on the audit of the financial report Opinion We have audited the financial report of Nanosonics Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2023 and of its consolidated financial performance for the year ended on that date; and b. Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Infection Prevention. For Life. 102 Nanosonics Limited | Annual Report 2023 Independent Auditor’s Report to the members of Nanosonics Limited Revenue from Customer Contracts Why significant How our audit addressed the key audit matter As at 30 June 2023, revenue from the sale of goods and services during the year totalled $165,993k as disclosed in Note 2 of the financial report. Revenue from the sale of goods is recognised when the Group has delivered the goods to customers and revenue from the sale of services is recognised as the service is provided. The Group’s revenue contracts often include several performance obligations. The matter was considered a Key Audit Matter due to the level of judgement required to determine whether the criteria for revenue recognition has been met in accordance with the requirements of AASB 15 Revenue from Contract with Customers, and the period in which the revenue is recognised. Our audit procedures included the following: ► Assessed the appropriateness of the Group’s revenue recognition accounting policies in accordance with the requirements of Australian Accounting Standards. ► Assessed the operating effectiveness of relevant controls relating to the recognition of revenue from the sale of goods and services. ► Selected a sample of cash receipts and agreed the transactions to remittance advice and/or bank statement. ► Selected a sample of sale of goods and services transactions and tested whether the sale was recognised in the correct period. ► Selected a sample of service revenue contract liabilities and vouched the sale to the respective contract and/or invoice. We also recalculated the contract liability recorded. ► Used data analytical procedures to corroborate expected correlations between revenue, contract liability, accounts receivable and cash. ► Assessed the adequacy of the disclosures relating to revenue included in the Notes to the financial report. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2023 annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Independent Auditor’s Report to the members of Nanosonics Limited 103 Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Infection Prevention. For Life. 104 Nanosonics Limited | Annual Report 2023 Independent Auditor’s Report to the members of Nanosonics Limited ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 42 to 61 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Nanosonics Limited for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Independent Auditor’s Report to the members of Nanosonics Limited 105 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Vida Virgo Partner Sydney 22 August 2023 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Infection Prevention. For Life. 106 Nanosonics Limited | Annual Report 2023 Shareholder Information The shareholder information set out below was applicable as at 18 August 2023. A. Equity security holders Twenty largest holders of quoted equity securities Ordinary shares HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Pty Limited BNP Paribas Noms Pty Ltd UBS Nominees Pty Ltd National Nominees Limited Mr Maurie Stang 1 Mr Bernard Stang 1 Mr Steve Kritzler Australian Foundation Investment Company Limited BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Dr Harry Hirschowitz First Samuel Ltd Mirrabooka Investments Limited Colonial First State Inv Ltd <2349414 Hofbauer A/C> BNP Paribas Noms (NZ) LTD BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd Invia Custodian Pty Limited Netwealth Investments Limited Total top 20 holders Total all other holders Total shares on issue 1. Excludes indirect holdings and shares held by close family member. Unquoted equity securities Rights and options on issue Rights at nil exercise price under NOEP to take up unissued ordinary shares Share appreciations rights under NOEP to take up unissued ordinary shares Options under NOEP to take up unissued ordinary shares Total performance rights and options on issue 1. There are 188 unique holders with some holding two or three types of unquoted securities. Number of quoted shares held Percentage 61,767,191 44,181,499 38,356,423 19,483,665 11,561,555 8,604,841 8,129,534 6,842,564 6,489,737 5,853,333 4,535,691 4,227,938 2,139,090 1,483,891 1,335,007 1,200,000 1,048,517 999,603 950,000 906,627 20.43% 14.61% 12.69% 6.44% 3.82% 2.85% 2.69% 2.26% 2.15% 1.94% 1.50% 1.40% 0.71% 0.49% 0.44% 0.40% 0.35% 0.33% 0.31% 0.29% 230,096,706 72,260,594 76.10% 23.90% 302,357,300 100.00% Number of rights and options over ordinary shares Number of holders 1 2,919,987 2,949,692 1,099,634 6,969,313 188 44 12 188 107 Shareholder Information continued B. Distribution of equity securities Analysis of numbers of ordinary shares and rights and options by size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Holders Quoted ordinary shares Unquoted rights and options Units Percentage Holders Units Percentage Holders 3,609,728 12,904,477 9,615,406 24,659,031 1% 4% 3% 8% 251,568,658 84% 8,502 5,022 1,287 987 100 37,008 83,459 55,444 1,146,301 5,647,101 1% 1% 1% 16% 81% 96 35 8 36 13 302,357,300 100% 15,898 6,969,313 100% 188 A total of 99,746 units were held by 1,444 holders of less than a marketable parcel of 100 ordinary shares at $4.71 per share (being the closing market price on 18 August 2023). C. Substantial holders Substantial holders in the Company are shown below Selector Funds Management Limited 1 Mr Maurie Stang 1,2 Yarra Capital Management Group 1 Mr Bernard Stang 1,2 Pinnacle Investment Management Group Limited 3 1. Shares held as at 30 June 2023. 2. Includes indirect holdings but excludes shares held by family member. 3. Based on Notice of initial substantial holder dated 14 March 2023. Number of ordinary shares Percentage 22,167,173 18,971,517 16,686,713 16,333,493 15,552,871 7.3% 6.3% 5.5% 5.4% 5.2% D. Voting rights The voting rights attaching to each class of equity securities are set out below: a) Ordinary shares All ordinary shares carry one vote per share without restrictions. Every member present in person or by proxy shall have one vote for each share. b) Rights and options Rights and options have no voting rights. E. Restricted securities and voluntary escrow As at the date of this report, Nanosonics Limited has no restricted securities on offer. F. On market share purchase or buy backs The Company did not carry out any on market purchase or buy-backs of shares during the year. Infection Prevention. For Life. 108 Nanosonics Limited | Annual Report 2023 Glossary AASB Australian Accounting Standards Board AcuTrace ® RFID technology that digitally captures the clinical workflow AGM APES Annual General Meeting Accounting Professional and Ethical Standard ASEAN Association of Southeast Asian Nations ASIC ASX AUD Australian Securities and Investments Commission Australian Securities Exchange Limited Australian dollar AuditPro ™ Digital workflow compliance management system for tracking various instruments used in medical procedures ANZ APIC CAD CAGR CDC CEO Australia and New Zealand Association for Professionals in Infection Control Canadian dollar Compounded Annual Growth Rate Center for Disease Control Chief Executive Officer CEO&P Chief Executive Officer and President CFO CIO COO Chief Financial Officer Chief Information Officer Chief Operating Officer Company or Nanosonics Constant currency Nanosonics Limited ABN 11 095 076 896 Removes the impact of foreign exchange rate movements to facilitate comparability of operational performance. This is done by converting the current period sales of entities that use currencies other than Australian dollars at the rates that were applicable in the prior period CSO CTO Chief Security Officer Chief Technology Officer COVID-19 Coronavirus disease of 2019 Date of this report EBIT EBTDA EMEA EPS ERP ESG ESOP EUR FDA FY GBP GESP GRG Group GST H2O2 HIV HLD 22 August 2023 Earnings Before Interest and Tax Earnings Before Tax Depreciation and Amortisation Europe Middle East and Africa Earnings Per Share Enterprise Resource Planning Environmental, Social and Governance Employee Share Option Plan European Currency Food and Drug Administration Financial year, eg. FY2023 is the financial year ended 30 June 2023 Great Britain Pound Global Employee Share Plan Godfrey Remuneration Group Nanosonics Limited and its wholly owned subsidiary companies Goods and Services Tax Hydrogen Peroxide Human Immunodeficiency Virus High-Level Disinfection – involves the complete elimination of all microorganisms in or on an instrument, except for small numbers of bacterial spores IASB IB IFRS IP ITAA KMP LTI LTIS NAN NED NHS NOEP OEM PBT PCP PR International Accounting Standards Board Installed base International Financial Reporting Standards Intellectual Property Income Tax Assessment Act Key Management Personnel Long-Term Incentives Long-Term Incentive Scheme Nanosonics Limited (ASX Code) Non-Executive Director National Health System (UK) Nanosonics Omnibus Equity Plan Original Equipment Manufacturer Profit before tax Prior corresponding period Performance Rights Q1, 2, 3, or 4 Three-monthly periods beginning 1 July, 1 October, 1 January and 1 April respectively R&D Research and Development Reporting period Year to 30 June 2023 RKI ROE RPC rTSR The Robert Koch Institute Return on equity Remuneration & People Committee Percentile Rank of the Company’s Total Shareholder Return SARs Share Apprecitation Rights SARS CoV-2 Severe acute respiratory syndrome coronavirus 2 SG&A Selling, General and Administration STeP STI TFR trophon® trophon® EPR trophon®2 FDA Safer Technologies Program Short-Term Incentives Total Fixed Remuneration The brand representing Nanosonics’ range of infection control solutions designed specifically for healthcare settings The brand of Nanosonics’ first generation device specifically designed to disinfect intracavity and surface ultrasound probes The next generation trophon® device with an enhanced design and new functionality including AcuTrace TM for audit-ready digital record keeping and capabilities to seamlessly connect trophon®2 with hospital IT systems TSR UG UK Total Shareholder Return Ultrasound guided United Kingdom UROE Underlying Return on equity US USD VAT VWAP WAEP WHS WOFE United States of America United States dollar Value Added Tax Volume Weighted Average Price Weighted Average Exercise Price Work, Health and Safety Wholly Owned Foreign Enterprise Corporate directory and information for investors 109 Bankers Australia Australia and New Zealand Banking Group Limited HSBC Bank Australia Limited National Australia Bank Limited Commonwealth Bank of Australia Limited United Kingdom HSBC Bank PLC Germany HSBC Trinkaus & Burkhardt AG Deutsche Bank AG United States HSBC Bank USA NA PNC Financial Services Group, Inc. Japan MUFG Bank Ltd. China HSBC Bank (China) Shanghai Stock Exchange Listing Nanosonics Limited shares are listed on the Australian Securities Exchange ASX code: NAN Industry Group: Healthcare Equipment & Services 2023 Annual General meeting The 2023 AGM of Nanosonics Limited will be held at 11:00 am on 3 November 2023. Nanosonics Office Level 1 Building A, 7-11 Talavera Road, Macquarie Park, NSW, 2113, Australia. Website address www.nanosonics.com.au Nanosonics Limited ABN 11 095 076 896 incorporated 14 November 2000 Directors Steve Sargent David Fisher Marie McDonald Geoff Wilson Lisa McIntyre Michael Kavanagh Company Secretaries McGregor Grant Matthew Carbines Registered Office Level 1 Building A 7-11 Talavera Road, Macquarie Park NSW 2113 Australia Ph: +61 2 8063 1600 Share Register Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne, VIC 3001 Australia Ph: +61 3 9415 4088 Ph: 1300 555 159 (within Australia) www.computershare.com/au/contact Investor/Media Relations McGregor Grant – Company Secretary Matthew Carbines – Company Secretary Ph: +61 2 8063 1600 Email: info@nanosonics.com.au Auditor Ernst & Young 200 George Street Sydney NSW 2000 Australia Legal Advisors Baker & McKenzie Tower One – International Towers Sydney Level 46, 100 Barangaroo Avenue Sydney NSW 2000 Australia Spruson & Ferguson Pty Limited Level 21, 60 Margaret Street Sydney NSW 2000 Australia y e v a d n g s e d i Infection Prevention. For Life. 110 Nanosonics Limited | Annual Report 2023