More annual reports from Peapack-Gladstone Financial Corporation:
2023 ReportFinancial Report 2017 Contents Corporate Directory Chairman’s Report Directors’ Report Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report Shareholder Information 2 3 4 13 15 16 17 18 19 46 47 52 2 P A R A G O N C A R E L I M I T E D Corporate Directory Directors Shane Tanner Mark Simari Non-Executive Chairman Managing Director Michael Newton Non-Executive Director Geoff Sam OAM Non-Executive Director Brett Cheong Michael Rice Executive Director Alternate Director to Mr Simari Company Secretary John Osborne Share Registry Link Market Services Limited Level 1, 333 Collins St Melbourne, VIC, 3000 Locked Bag A14 Sydney South, NSW, 1235 Telephone:1300 554 474 Facsimile: (02) 9287 303 Website: www.linkmarketservices.com.au Stock Exchange Listing Australian Stock Exchange Trading Code: PGC – Ordinary Shares Auditor RSM Australia Partners Level 21, 55 Collins Street Melbourne, Victoria 3000 Website: www.rsmi.com.au Bankers National Australia Bank Solicitors SOHO Lawyers Level 5, 124 Exhibition Street Melbourne Vic 3000 Paragon Care Limited ABN 76 064 551 426 Registered Office 11 Dalmore Drive Scoresby, VIC 3179 Telephone: 1300 369 559 Telephone: +61 3 8833 7800 Facsimile: +61 3 8833 7890 Principal Business Office 11 Dalmore Drive Scoresby, VIC 3179 Telephone: 1300 369 559 Telephone: +61 3 8833 7800 Facsimile: +61 3 8833 7890 www.paragoncare.com.au Chairman’s Report Introduction On behalf of the Board of Directors of Paragon Care Limited, I am pleased to present to you our 2017 Annual Report. 3 The Period in Review The financial year ended 30th June 2017 was another record year for the company. The financial results were again outstanding and these are detailed in the highlights below. Congratulations to all involved. The focus for the 2017 year was the consolidation of the three major acquisitions made during the 2016 financial year — Designs For Vision, Western Biomedical, and Meditron. In addition, the company continued to focus on organic growth of the core business, which included the development of our own designed and sourced new product, namely the Stralus Aged Care bed. In its first year of operation, this bed has exceeded all of our sales expectations and has been positively received by a number of Aged Care groups. During the 2018 year, Paragon Care will further develop its Stralus range by the introduction of a competitively priced and state-of-the-art hospital bed for the Australian market. Highlights for the year ended 30 June 2017 included: • Revenue up 25% to 117.2M • EBITDA of $17.1M, up 41% over the prior period and slightly ahead of market guidance. • Net Profit after tax of $10.2M up 36% over the prior year. • Earnings per share of 6.2 cents, up 11%. • The Company’s balance sheet remains sound with cash at year-end of $18.6M • Paragon Care’s share price increased 10% over the course of the financial year as investors continued to support the company strategy. • Fully franked dividends for the year of 3 cents, up 36% from last year’s full year dividend of 2.2 cents. Two modestly sized acquisitions were made in July 2016 — Midas, a Health IT business, and Electro Medical Group, which operates in the medical equipment servicing sector. Both have fitted very well into Paragon Care. Of considerable interest going forward is the Midas business. This is the company’s first investment into the fast-growing sector of Heath IT. Midas operates an interpretive reporting system that has outstanding applications and provides material efficiencies for both the Radiology and Cardiology sectors. Subject to performance over the next 2–3 years, the company plans to introduce Midas globally. On behalf of the Board, I would like to thank the employees, customers, suppliers and shareholders of Paragon Care for their continued support. The management team led by Managing Director Mark Simari continues to deliver outstanding results and we move into the 2018 year with great confidence. Shane Tanner Chairman 7 August 2017 Revenue $117.2M $93.4M $32.2M EBITDA Net Profit $17.1M $12.1M $3.7M $10.2M $7.5M $2.1M 14/15 15/16 16/17 14/15 15/16 16/17 14/15 15/16 16/17 FINANCIAL REPORT 2016 / 17 4 Directors’ Report Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Paragon Care Limited (“Company”) and the entities it controlled at the end of, or during, the year ended 30 June 2017. Directors The following persons were Directors of Paragon Care Limited during the whole of the financial year and up to the date of this report unless otherwise stated. Mr Shane Tanner Mr Mark Simari Mr Michael Newton Mr Brett Cheong Mr Geoff Sam (Appointed 3 June 2016) Mr Michael Rice (Alternate Director for Mr Mark Simari) Principal Activities The principal continuing activity of the Group is supply of durable medical equipment, medical devices and consumable medical product to the health and aged care markets throughout Australia and New Zealand. There were no significant changes in the nature of the activities of the Group that occurred during the year: Operating Results and Review of Operations for the Year Key financial highlights include: Revenue EBITDA Net Profit Net Debt 2016/17 $117.2 M $17.1 M $10.2 M $18.5 M 2015/16 $93.4 M $12.1 M $7.5 M $19.0 M The Group’s performance has significantly increased again in the 2016–17 financial year compared with 2015–16. Revenue increased by 25% to $117.2 million whilst net profit grew 36% from a profit of $7.5 million in 2016 to $10.2 million for 2017. PARAGON CARE LIMITED Directors’ Report Continued For the year ended 30 June 2017 Highlights for the year included: 5 Revenue increased by 25% to $117.2 million whilst net profit grew 36% from a profit of $7.5 million in 2016 to $10.2 million for 2017. • Revenues in excess of 117.2M and an EBITDA of $17.1M, a 41% increase from last year and illustrates the strategy of creating a healthcare platform for a vast range of products and servicing is successfully being implemented into the health care sector. • Successful consolidation of the Meditron and Designs for Vision acquisitions. Through these acquisitions, Paragon Care’s equipment devices and consumables platform range has been expanded into Urology and Ophthalmics. • Paragon Care continues to increase operations and presence in Western Australia through the Western Biomedical acquisition has facilitated the expansion into the region for the entire Paragon Care suite of products. • The organic growth of many parts of the existing product ranges has continued this year from a sales perspective on the back of increased penetration into the sector and new product development. • During the year Paragon Care has continued to grow and achieve its vision of offering its customers a broad platform of products and services designed to assist health professionals easily access high quality medical products, devices and consumables to deliver better and more affordable medical outcomes to their patients. • The continued expansion of hospital, aged care and allied health and medical facilities in Australia and the underlying strength of the health care sector provide strong growth markets in which Paragon Care’s products and services are sold. • Two modestly sized acquisitions were made in July 2016 — Midas, a Health IT business, and Electro Medical, which operates in the medical equipment servicing sector. Both have fitted very well into Paragon Care. Of considerable interest going forward is the Midas business. This is the company’s first investment into the fast- growing sector of Heath IT. Midas operates an interpretive reporting system that has outstanding applications and provides material efficiencies for both the Radiology and Cardiology sectors. Likely developments and expected results of operations The Company’s focus for the coming year will be to continue to implement its strategy to become one of Australia’s leading providers of medical equipment and consumable products to the health and aged care sector throughout Australia and New Zealand. Leveraging the diverse product portfolio, Paragon Care will continue to penetrate high growth markets driven by the ageing of the population and continuously rising consumer expectations and increasing government spending. The Company will continue to seek and attempt to secure suitable investments or businesses that are complimentary to its existing operations and further enhance its product and service offering to the health and aged care markets. Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this Annual Financial Report because the Directors believe it would be likely to result in unreasonable prejudice to the Group. Environmental Regulations The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Dividends Paid In keeping with Directors confidence of Paragon Care, the directors have recommended the payment of a fully franked final dividend of $3,135,342 (1.90 cents per fully paid ordinary share) to be paid on 6th of October 2017 in respect of the financial year ended 30 June 2017. The dividend will be paid to all shareholders on the register of members as at the Record Date of 8th of September 2017. This dividend has not been included as a liability in these financial statements. In April 2017, an interim dividend of 1.1 cents per share valuing $1,810,565 fully franked was paid. The record date was 10th March 2017 with the payment date of 6 April 2017. Combined with the interim dividend of 1.1 cents per fully paid ordinary share paid in April 2017 in respect of the half year ended 31 December 2016, the full year dividend for 2017 will be 3.0 cents per fully paid ordinary share, a 36% increase on the full year dividend of 2.2 cents per fully paid ordinary share for the 2016 financial year and represents a 48.6% payout of NPAT which is at the higher end of the 40% to 50% company dividend payment policy. Paragon Care paid a fully franked dividend of 2.20 cents per share with the value of $3,564,651 for the year ended 30 June 2016 on 6th April 2016 (0.80 cents per share) and 6th of October 2016 (1.40 cents per share). Dividend Reinvestment Plan Paragon Care operates a dividend reinvestment plan (DRP) that enables shareholders to elect to reinvest all, or up to a portion of, their dividends into additional shares in Paragon. The DRP has been available since the interim dividend payable on 31 March 2014. Shares will be issued at a discount of 2.5% to the volume weighted average market price of shares sold on the ASX over the 5 trading days immediately preceding the record date. FINANCIAL REPORT 2016 / 17 6 Directors’ Report Continued For the year ended 30 June 2017 Information on Directors The names of Directors in office at any time during or since the end of the financial year are: Mr Shane Tanner Mr Mark Simari Mr Michael Newton Mr Geoffrey Sam Mr Brett Cheong Mr Michael Rice (Alternate Director to Mr Simari) Directors have been in office since the start of the financial year to the date of this report (unless otherwise stated). Directors’ Qualifications, Experience, and Responsibilities Mr. Shane F. Tanner Non-Executive Chairman, Age 64 Qualifications FCPA, AGIA Experience Currently Chairman of Funtastic Limited and Chairman of Zenitas Healthcare Limited. Appointed as a Director on 21 December 2005 Responsibilities • Chairman of the Board • Chairman of the Nominations & Remuneration Committee, • Member of Investment Review Committee Mr. Mark A. Simari Managing Director, Age 48 Qualifications B.Acc, Dip FS Experience Director of Novita Healthcare Limited Appointed as a Director on 13 February 2007 and Managing Director on 15 April 2007 Responsibilities • Managing Director • Member of Investment Review Committee Mr. Michael C. Newton Non-Executive Director, Age 63 Qualifications B.App Sci., Grad Dip Bus Adm. Mr. Geoffrey J. Sam OAM Non-Executive Director, Age 63 Qualifications B. Commerce, M. Hospital Administration and M. Economics & Social Studies. FAICD Experience Managing Director of Symex Limited from 1999 to 2007and Chairman of The Power House Youth Leadership Foundation. Appointed as a Director on 25 June 2007 Experience • Non-Executive Director, CML Group Limited. • Co-founder, Director and former Executive Chairman, Healthecare Pty Ltd • Former National President of the Australian Private Hospital Association Responsibilities Appointed as a Director on 3 June 2016 • Chairman of the Audit & Risk Management Committee • Member of the Nominations & Remuneration Committee Responsibilities • Member of the Audit & Risk Management Committee • Chairman of the Investment Review Committee PARAGON CARE LIMITED Directors’ Report Continued For the year ended 30 June 2017 Mr. Brett A. Cheong Executive Director, Age 58 Mr. Michael G. Rice Alternate Director, Age 41 7 Experience Experience Founder and Managing Director of Axishealth May 2002 – June 2009 and with over 30 years experience in the durable medical equipment industry. Founder and Managing Director of GM Medical — April 2002–June 2011, Over 20 years experience in the healthcare sector. Appointed as a Director on 2 July 2009 Appointed as an Alternate Director to Mr Simari on 11 June 2015 Responsibilities Marketing Manager Responsibilities Chief Operating Officer Mr. John M. Osborne Company Secretary, Age 68 Qualifications BSc, FRMIT (Management), Grad Dip Corp Gov.,AGIA Mr. Stephen J. Munday Chief Financial Officer and Company Secretary, Aged 53 Qualifications MBA, B Bus, FCIS, CA Experience Experience Over 30 years of senior financial, administrative, commercial and company secretarial experience with ASX listed companies. Appointed as Company Secretary on 13 March 2013. Over thirty years business experience in Australia and North America including CFO and company secretarial positions in listed companies over the time. He has also been responsible for various management functions including marketing, business development, supply management, commercial management, financial management and change management. Appointed as Company Secretary on 17 December 2015 and resigned 30 June 2017. Meetings of Directors The number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June 2017, and the number of meetings attended by each Director were: Directors’ Meetings Audit & Risk Management Committee Nominations & Remuneration Committee Investment Review Committee Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended 12 12 12 12 12 12 12 12 12 11 10 11 1 - 2 - 2 - 1 - 2 - 1 - 3 - 3 - - - 3 - 3 - - - 1 1 - - 1 - 1 1 - - 1 - Mr S F Tanner Mr M A Simari Mr M C Newton Mr B A Cheong Mr G J Sam Mr M.G. Rice (Alternate director) FINANCIAL REPORT 2016 / 17 8 Directors’ Report Continued For the year ended 30 June 2017 Director Shareholdings Directors S F Tanner M A Simari M C Newton B A Cheong G J Sam OAM Balance 1 July 2016 610,000 1,707,611 307,699 2,642,640 585,526 Shares acquired Shares disposed Other changes 113,500 8,167 67,849 - 129,851 - 711,000 - - - - - Balance 30 June 2017 723,500 1,004,778 375,548 2,642,640 715,377 - - - - - - - 134,058 38,239 Other key management personnel M.G. Rice S J Munday 134,058 38,239 - - Remuneration Report This remuneration report sets out remuneration information for Paragon Care’s Non-Executive Directors, Executive Directors, and other key management personnel. Directors and key management personnel disclosed in this report Non-Executive and Executive Directors (see page 6) Non-Executive Directors’ remuneration reflects the additional responsibilities each Director may take on from time to time. There are no termination benefits for Non-Executive Directors. Directors’ Fees The current Director’s fees were last reviewed with effect from 1 July 2015. The following fees have applied: S F Tanner M C Newton G J Sam OAM M A Simari B A Cheong Base Fees Chairman Other Non-Executive Directors 30 June 2016 30 June 2017 $120,000 $50,000 $120,000 $50,000 Other key management personnel M G Rice S J Munday Chief Financial Officer (until 30 June 2017) L Kocovic Chief Financial Officer (July 2017 onwards) Remuneration governance The remuneration committee is a committee of the Board. It is primarily responsible for making recommendations to the Board on: • The over-arching Executive remuneration framework • Remuneration levels of Executive Directors and other key management Executive Pay The objective of the Group’s Executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns Executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to market practice for delivery of reward. The Board ensures that Executive reward satisfies the following key criteria for good reward governance practices: • Competitiveness and reasonableness • Acceptability to shareholders • Performance linkage / alignment of Executive compensation personnel, and • Non-Executive Directors fees • Transparency • Capital management Their objective is to ensure that remuneration policies and structures are fair, competitive and aligned with the long term interests of the Company. The Corporate Governance Statement provides further information on the role of this committee. Principles used to determine the nature and amount of remuneration Non-Executive Directors The Board’s policy is to remunerate Non-Executive Directors at market rates for comparable companies for time, commitment and responsibilities. Detail of the remuneration of each Non-Executive Director is shown below. The Chairman in consultation with independent advisors determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders in a General Meeting, and is currently $250,000 per annum. Fees for Non-Executive Directors are not linked to the performance of the Company. However, to align Directors’ interests with shareholder interests, the Directors are encouraged to hold shares in the Company. The Group has structured an Executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. The remuneration committee is responsible for determining and reviewing compensation arrangements. The remuneration committee assess the appropriateness of the nature and amount of emoluments of company Executives on a periodic basis by reference to relevant employment market conditions and capacity to pay with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive team. Remuneration packages are set at levels that attract and retain Executives capable of managing the Company’s operations. Remuneration and other terms of employment for the Managing Director and Executives have been formalised in service agreements. Agreements are structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the Executives’ discretion. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. PARAGON CARE LIMITED Directors’ Report Continued For the year ended 30 June 2017 Details of remuneration and service agreements Service Agreements 9 On appointment to the Board, all Non-Executive Directors enter into a service agreement with the company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation, relevant to the office of Director. Remuneration and other terms of employment for Executive Directors and other senior executives and key management are also formalised in service agreements. Company share performance shareholder wealth and Director Executive remuneration In considering Non-Executive Director and executive remuneration the Directors take into consideration the Company’s share performance and shareholder wealth creation. During the financial year the Company’s share price traded between a low of 69.0¢ and a high of 91.0¢. As at 30 June 2017 the, Company’s share price (ASX: PGC) was 77.0¢ per share. PGC Share Performance Year Ended Price High ¢ Price Low ¢ Price 30 June ¢ Earnings ¢ per share Dividends ¢ Dividends ¢ (Interim) Net Asset $ million 30 June 2012 30 June 2013 30 June 2014 30 June 2015 30 June 2016 30 June 2017 43.5 19.5 19.5 (0.2) Nil Nil 6.45 43.5 17.0 30.5 1.7 Nil Nil 48.5 22.5 26.0 2.0 1.0 0.5 59.0 25.0 59.0 3.2 1.35 0.6 72.9 54.0 70.0 5.6 2.2 0.8 91.0 69.0 77.0 6.2 3.0 1.1 10.37 18.20 20.58 72.26 82.69 Major provisions of the agreements as at 30 June 2017 relating to remuneration are set out below: Name Term of Agreement Base Salary Including Superannuation Termination Benefit Non-Executive Directors Mr S F Tanner Non-Executive Chairman Mr M C Newton Non-Executive Director Mr G J Sam Non-Executive Director Executive Directors Mr M A Simari Executive Director / CEO Mr B A Cheong Executive Director / Marketing Manager Mr M G Rice Alternate Director / Chief Operating Officer Other Key Management Personnel Mr L Kocovic Chief Financial Officer Mr S J Munday Chief Financial Officer (Appointed June 2015, resigned 6 June 2017) No fixed term $120,000 No termination benefit No fixed term No fixed term $50,000 $50,000 No termination benefit No termination benefit No fixed term $438,000 No termination benefit No fixed term $160,000 (consultancy package) No termination benefit No fixed term $262,800 No termination benefit No fixed term $300,000 No termination benefit No fixed term $290,000 No termination benefit FINANCIAL REPORT 2016 / 17 10 Directors’ Report Continued For the year ended 30 June 2017 Emoluments of Directors, Executive officers and other Executives of the Company: 2017 Name Short-Term Employee Benefits Post Employment Benefits Long-Term Benefits Share-Based Payments Cash Salary and Fees Cash Bonus Non-Monetary Benefits Super- annuation Long Service Leave Options Non-Executive Directors Mr S F Tanner Mr M C Newton Mr G J Sam Executive Directors Mr M A Simari Mr B A Cheong Other Key Management Personnel Mr M G Rice Mr S J Munday Mr L Kocovic Total 2016 Name $ 120,000 13,103 47,096 408,000 160,000 240,000 255,000 9,519 1,252,717 $ - - - - - - - - - $ - - - $ - 34,500 4,474 27,207 30,000 - - 25,842 - - 22,800 35,000 865 53,049 127,639 $ - - - - - - - - $ - - - - - - - - Short-Term Employee Benefits Post Employment Benefits Long-Term Benefits Share-Based Payments Cash Salary and Fees Cash Bonus Non-Monetary Benefits Super- annuation Long Service Leave Options Non-Executive Directors Mr S F Tanner Mr M C Newton Mr G J Sam Executive Directors Mr M A Simari Mr B A Cheong Mr M G Rice Other Key Management Personnel Mr S J Munday Total $ 104,348 7,752 3,623 338,824 150,000 220,000 230,000 1,054,547 $ - - - - - - - - $ - - - $ 34,333 344 19,437 15,000 - - 27,447 20,900 - 46,885 35,000 105,557 $ - - - - - - - - $ - - - - - - - - Total $ 120,000 47,603 51,570 465,207 160,000 288,642 290,000 10,384 1,433,406 Total $ 104,348 42,084 3,967 373,262 150,000 268,347 265,000 1,207,008 The elements of emoluments have been determined on the basis of the cost to the Company. Except as detailed in the Remuneration Report or below, no Director has received or become entitled to receive, during or since the financial period, a benefit because of a contract made by the Company or a related body corporate with a Director, a firm of which a Director is a member or an entity in which a Director has a substantial financial interest. This statement excludes a benefit included in the aggregate amount of emoluments received or due and receivable by Directors and shown in the Remuneration Report, prepared in accordance with the Corporations regulations, or the fixed salary of a full time employee of the Company. PARAGON CARE LIMITED Directors’ Report Continued For the year ended 30 June 2017 Directors’ Interests As at the date of this report the interests of the Directors held either directly or through entities they control, in the securities of the Company are as follows: 11 Directors S F Tanner M A Simari M C Newton B A Cheong G J Sam OAM Other key management personnel M.G. Rice S J Munday Fully paid ordinary shares (PGC) 723,500 1,004,778 375,548 2,642,640 715,377 134,058 38,239 The Directors of the Company are encouraged to hold shares in the Company and are permitted to trade in the Company’s securities consistent with the Company’s securities trading policy (refer Corporate Governance Report). All Directors sign an agreement with the Company in which they undertake to advise the Company whenever they or a related party trades in the Company’s securities. It is the Company’s policy that Directors and Executives of the Company are required to seek the prior written approval of the Board before entering into hedging arrangements in respect to their holdings of company equity instruments. The Executive or Director must provide full details of any such hedging arrangements for consideration by the Board. The Board will consider each approach for approval on its merits, taking into account the size of the holding, the level of exposure, the repayment requirements and the impact any adverse market conditions may have on the capital structure of the Company. Indemnification and Insurance of Directors and Officers During the financial year the Company has paid premiums to insure all the Directors and Officers against liabilities for costs and expenses incurred by them in defending any claims arising out of their conduct while acting in the capacity of Director of the Company to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Directors and Officers Indemnity The Company has entered into an Indemnity Deed with each of the Directors which will indemnify them against liability incurred to a third party (not being the Company or any related company) where the liability does not arise out of the conduct involving a lack of good faith. The Indemnity Deed will continue to apply for a period of 10 years after a Director ceases to hold office. There is also a Directors’ Access and Insurance Deed with each of the Directors pursuant to which a Director can request access to copies of documents provided to the Director whilst serving the Company for a period of 10 years after the Director ceases to hold office. There will be certain restrictions on the Directors’ entitlement to access under the deed. Proceedings on Behalf of Company No person has applied for leave of the Court under section 237 of the Corporations Act 2001 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 any part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the court. The Company was not a party to any such proceedings during the year under section 237 of the Corporations Act 2001. Corporate Governance Statement In accordance with ASX Listing Rule 4.10.3, the Company’s 2016 Corporate Governance Statement can be found on its website at www.paragoncare.com.au/statement-of-corporate-governance FINANCIAL REPORT 2016 / 17 12 Directors’ Report Continued For the year ended 30 June 2017 Auditor RSM Australia Partners was appointed Company auditor on 27 November 2009 and will continue in office in accordance with section 327 of the Corporations Act 2001. Non-Audit Services The Company may decide to engage the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. The Board of Directors has considered the position and is satisfied that the provision of the non-audit services listed below is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. During the year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the parent entity, its related practices and non-related audit firms: Audit Services Audit and review of financial reports and other audit work under the Corporations Act 2001 122,830 79,010 2017 $ 2016 $ Non Audit Services Taxation Services Other Services 36,075 - 24,108 - Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 13. Signed in accordance with a resolution of the Directors: Shane Tanner Chairman 7 August 2017 PARAGON CARE LIMITED Auditor’s Independence Declaration 13 FINANCIAL REPORT 2016 / 17 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Paragon Care Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS P A RANSOM Partner Melbourne, Victoria Dated: 7 August 2017 14 Financial Statements PARAGON CARE LIMITED Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2017 Revenue from continuing operations Revenue Cost of sales Gross profit Other income Operating costs Corporate costs Finance costs Selling and distribution Employee and consultants costs (incl. Directors fees and remuneration) Profit/(loss) before tax Income tax expense Profit/(loss) from continuing operations Other comprehensive income Items that may be reclassified to Profit or Loss Gain (Loss) on cash flow hedges and currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the period attributable to: Owners of the parent Total comprehensive income for the year attributable to: Owners of the parent Earnings per share Basic (cents per share) Diluted (cents per share) 15 Note 3 4 2017 $ 2016 $ 117,192,924 93,383,052 (71,124,867) (56,924,483) 46,068,057 36,458,569 364,325 36,872 (7,786,665) (6,414,255) (321,121) (444,538) (1,792,897) (1,504,972) (1,302,144) (1,094,469) (20,995,757) (17,168,084) 14,233,798 9,869,123 7 (4,059,037) (2,338,600) 10,174,761 7,530,523 131,822 131,822 (550,603) (550,603) 10,306,583 6,979,920 10,174,761 7,530,523 10,306,583 6,979,920 22 22 6.2 6.2 5.6 5.6 FINANCIAL REPORT 2016 / 17 16 Consolidated Statement of Financial Position As at 30 June 2017 Note 2017 $ 2016 $ Assets Current assets Cash and cash equivalents Inventories Trade and other receivables Other financial assets Total current assets Non-Current Assets Plant and equipment Deferred tax assets Other receivables Intangibles Total non-current assets Total Assets Liabilities Current liabilities Trade and other payables Vendor conditional payables Interest bearing liability Other financial liabilities Provision for Income Tax Provisions Total current liabilities Non-current liabilities Other Payables Trade and other payables Interest bearing liability Provisions Total non-current liabilities Total Liabilities Net Assets Equity Contributed equity Reserves 8 9 10 11 12 7 13 14 28b 15 11 16 14 28a 15 16 17 18 Retained earnings (Accumulated losses) Total Equity The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes which form an integral part of these financial statements 18,555,941 19,116,930 21,742,075 22,615,886 20,777,567 19,400,652 - - 61,075,583 61,133,468 3,405,391 2,221,240 931,176 2,982,624 2,331,507 302,979 98,419,272 81,038,905 104,977,079 86,656,015 166,052,663 147,789,483 25,534,489 22,664,613 9,583,817 800,000 8,498,825 7,562,765 161,123 555,736 322,063 568,431 1,949,707 1,823,933 46,283,697 33,741,805 643,134 416,797 7,282,362 9,852,454 28,568,954 30,591,710 583,720 416,483 37,078,170 41,277,444 83,361,867 75,019,249 82,690,795 72,770,234 74,347,530 70,636,055 (154,724) 8,497,989 (286,547) 2,420,726 82,690,795 72,770,234 PARAGON CARE LIMITED Consolidated Statement of Changes in Equity For the year ended 30 June 2017 17 Balance at 1 July 2015 Profit / (loss) for the year Gain / (loss) on cash flow hedge Gain / (loss) on currency translation Total comprehensive income for the year Share Capital $ 23,611,121 - - - - Issue of share capital net of transaction costs 47,024,934 Dividend issued in the year Balance at 30 June 2016 Balance at 1 July 2016 Profit / (loss) for the year Gain / (loss) on cash flow hedge Gain / (loss) on currency translation Total comprehensive income for the year Dividend issued in the year Balance at 30 June 2017 Issue of share capital net of transaction costs 3,711,475 $ - - - 38,871 38,871 - - Currency Translation Reserve Currency Hedge Reserve Retained Earnings (Accumulated Losses) Total Equity $ $ $ 264,056 (3,291,595) 20,583,582 - 7,530,523 (589,473) - - - (589,473) 7,530,523 - - - (1,818,200) 7,530,523 (589,473) 38,871 6,979,920 47,024,934 (1,818,200) 72,770,234 - - - - - - 70,636,055 38,871 (325,417) 2,420,726 70,636,055 38,871 (325,417) 2,420,726 72,770,234 - - 11,157 11,157 - - - 10,174,761 10,174,761 120,665 - - - 120,665 11,157 120,665 10,174,761 10,306,583 - - - 3,711,475 (4,097,496) (4,097,496) 74,347,530 50,028 (204,752) 8,497,989 82,690,795 The above Consolidated Statement of Changes of Equity should be read in conjunction with the accompanying notes which form an integral part of these financial statements FINANCIAL REPORT 2016 / 17 18 Consolidated Statement of Cash Flows For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest and other items of similar nature paid Interest received Income taxes paid Note 2017 $ 2016 $ 117,291,989 87,307,784 (99,403,618) (74,724,846) (1,792,897) (1,504,972) 50,753 85,126 (4,156,847) (3,403,871) Net cash provided by / (used in) operating activities 8(b) 11,989,380 7,759,221 Cash flows from investing activities Payment for purchase of business, net of cash acquired Proceeds from sale of plant and equipment Payment for plant and equipment Payment for Intangible Assets Loan Advancement Payment for development of website Net cash provided by / (used in) investing activities Cash flows from financing activities (Repayment) / Proceeds from borrowings Proceeds from issues of securities Dividends paid Other - share issue costs Net cash provided by / (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (2,853,347) (55,213,428) - 195,720 (1,052,505) (1,548,447) (3,523,340) (500,000) - - - (675,594) (7,929,192) (57,241,749) (1,086,696) 27,113,505 - 42,136,144 (3,522,941) (1,606,088) (11,540) (2,799,949) (4,621,177) 64,843,612 (560,989) 15,361,083 19,116,930 3,755,847 Cash and cash equivalents at the end of the financial period 8(a) 18,555,941 19,116,930 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes which form an integral part of these financial statements. PARAGON CARE LIMITED 19 Notes to and Forming Part of the Financial Statements For the year ended 30 June 2017 NOTE 1 Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Paragon Care Limited and its subsidiaries. (a) Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Paragon Care Limited is a for-profit entity for the purpose of preparing the financial statements. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. These financial statements have been prepared under the historical costs convention modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (b) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by the Company at the end of the reporting period. A controlled entity is any entity over which Company has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Control will generally exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are also considered. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 20 to the financial statements. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the Equity section of the consolidated Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. (c) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources, and assessing performance of the operating segments has, been identified as the Board of Directors. (d) Foreign Currency Translation The consolidated financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency. Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the Statement of Profit or Loss and Other Comprehensive Income, except where deferred in equity as a qualifying cash flow or net investment hedge. (e) Revenue Recognition Sale of goods The group manufactures and sells a range of goods to the wholesale and end user market. Sales of goods are recognised when a group entity has delivered product and there is no unfulfilled obligation that could affect the customer’s acceptance of the product. Delivery does not occur until the products have been shipped to the customer, the risks of obsolescence and loss have been transferred, the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the group has objective evidence that all criteria for acceptance have been satisfied. Amounts disclosed as revenue are net of returns, trade allowances, duties and tax paid. No element of financing is deemed present as the sales are made with a credit term of between 30 and 60 days which is consistent with market practice. Service Revenue from service is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised under the percentage of completion method, based on the actual service provided as a percentage of the total services to be provided. Interest revenue is recognised on an accrual basis taking into account the interest rates applicable to the financial assets. Dividend revenue from investments is recognised when the Group’s right to receive payment has been established. (f) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantively enacted, as at the end of the reporting period. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. FINANCIAL REPORT 2016 / 17 20 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (f) Income Tax (continued) Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax consolidation Paragon Care Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. Each entity in the Group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. Current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. The Group notified the Australian Taxation Office that it had formed an income tax consolidated group to apply from 1 July 2008. The tax consolidated group has entered a tax funding arrangement whereby each company in the Group contributes to the income tax payable by the Group in proportion to their contribution to the Group’s taxable income. Differences between the amounts of net tax assets and liabilities derecognised and the net amounts recognised pursuant to the funding arrangement are recognised as either a contribution by, or distribution to the head entity. (g) Leases Leases of plant and equipment where the Group as lessee has substantially all the risks and benefits of ownership are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.Assets acquired under finance leases are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (h) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted for as at the acquisition date, which is the date that control over the acquiree is obtained by the parent entity. At this date, the parent shall recognise, in the consolidated accounts, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings are taken to the Statement of Profit or Loss and Other Comprehensive Income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured each reporting period to fair value through the Statement of Profit or Loss and Other Comprehensive Income unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the Statement of Profit or Loss and Other Comprehensive Income. (i) Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, PARAGON CARE LIMITED 21 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (i) Impairment of Assets (Continued) Classification and subsequent measurement to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the Statement of Profit or Loss and Other Comprehensive Income. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. (j) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short term borrowings in current liabilities on the balance sheet. (k) Trade Receivables Trade receivables are recognised when the risks and rewards of ownership or provision of services of the underlying sales transactions have passed to customers. This event usually occurs on delivery of product or provision of services to customers. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement 30 days after the end of the month in which the invoice was raised. The collection of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. An allowance for doubtful debts is raised when the Directors consider it is probable that the debt is impaired and that it will not be collected. (l) Inventories Inventories are measured at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are comprised of direct material and direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. (m) Financial Instruments Recognition and initial measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the group becomes a party to the contractual provisions of the instruments. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Those financial instruments entered into by the group are classified and measured as set out below. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. Trade receivables, being generally on 30 day terms, are recognised and carried at original invoice amount less provision for any uncollectible debts. An estimate for impaired debtors is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. (ii) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Due to their short term nature trade and other payables are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. Hedge accounting The group designates certain derivatives as either: (i) Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (ii) Hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction the relationship between hedging instruments and hedged items, as well as the Group’s risk management objective and strategy for undertaking various hedge transactions is documented. Assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items, are also documented. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the Statement of Profit or Loss and Other Comprehensive Income, together with any changes in the fair value of hedged assets or liabilities that are attributable to the hedged risk. (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred to a hedge reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Profit or Loss and Other Comprehensive Income. Amounts accumulated in the hedge reserve in equity are transferred to the Statement of Profit or Loss and Other Comprehensive Income in the periods when the hedged item will affect profit or loss. Derecognition Fair value estimation Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed is recognised in profit or loss. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Unless otherwise disclosed in the notes to the financial statements, the carrying amount of the Group’s financial instruments approximates their fair value. FINANCIAL REPORT 2016 / 17 22 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (n) Property, Plant and Equipment Each class of property, plant and equipment is stated at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the historical cost basis. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on either a straight-line or diminishing value basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Furniture, Fittings Equipment Motor Vehicles 10–33% 14–25% The carrying amount of the investment includes goodwill relating to the associate. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired. Profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the relation to the Group’s investment in the associate. When the reporting dates of the Group and the associate are different, the associate prepares, for the Group’s use, financial statements as of the same date as the financial statements of the Group with adjustments being made for the effects of significant transactions or events that occur between that date and the date of the investor’s financial statements. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group discontinues recognising its share of further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate. When the associate subsequently makes profits, the Group will resume the recognition of its share of those profits once its share of the profits equals the share of the losses not recognised. (p) Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Software development Software development costs are capitalised only when incurred. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the Statement of Profit or Loss and Other Comprehensive Income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. (o) Investments in Associates Associate companies are companies in which the Group has significant influence through holding, directly or indirectly, between 20% and 50% of the voting power of the Company. Investments in associates are accounted for in the financial statements by applying the equity method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the Associate Company. In addition the Group’s share of the profit or loss of the Associate Company is included in the Group’s profit or loss. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the software, generally about three years. Initial TGA registration costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the product, generally 2–3 years. (q) Trade and other Payables Trade and other payables represent liabilities for goods and services provided to the group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (r) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (s) Employee Benefits Wages and salaries and annual leave (v) Earnings per share Basic earnings per share 23 Basic earnings per share is determined by dividing the operating profit after income tax attributable to the Group by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of options outstanding during the year. (w) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. When the Group applies an accounting policy retrospectively, makes a retrospective restatement or reclassifies items in its financial statements, a statement of financial position as at the beginning of the earliest comparative period will be disclosed. (x) New Accounting Standards for Application in Future Periods At the date of this financial report the following standards and interpretations, which may impact the entity in the period of initial application, have been issued but are not yet effective. Liabilities in respect of wages and salaries and annual leave are recognised, and are measured as the amount unpaid at the reporting date at current pay rates in respect of employees’ service up to that date. Long service leave A liability for long service leave is recognised, and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wages and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national corporate bond rates with terms of maturity that match, as closely as possible, the estimated future cash outflows. Superannuation The Company contributed to multi-employer industry funds which provide retirement, disability and death benefits for employees. The Company is under no legal obligation to make up any shortfall in any of these funds. Share Based Payments Share-based compensation benefits may be provided directly by the issue of ordinary shares or options to employees. The fair value of options granted is recognised as an employee benefits expenses with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted. The fair value of ASX listed ordinary shares or options is measured by the last sale price of the relevant ordinary shares or options on the ASX on or immediately prior to the date of issue. The fair value of unlisted options at grant date is determined using the Black-Scholes model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the arrangement. An expense is taken up over the period during which the employees become entitled to the option. (t) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (u) 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. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, for example, as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. FINANCIAL REPORT 2016 / 17 24 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (x) New Accounting Standards for Application in Future Periods (Continued) Reference Title Summary Impact Application Date AASB 15 Revenue from Contracts with Customers This Standard establishes principles (including disclosure requirements) for reporting useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. No material impact envisaged. 1 January 2018 AASB 2014–5 Amendments to Australian Accounting Standards arising from AASB 15 Consequential amendments arising from the issuance of AASB 15. No material impact envisaged. 1 January 2018 AASB 9 Financial Instruments This Standard supersedes both AASB 9 (December 2010) and AASB 9 (December 2009) when applied. It introduces a “fair value through other comprehensive income” category for debt instruments, contains requirements for impairment of financial assets, etc. No material impact envisaged. 1 January 2018 AASB 2014–7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) Consequential amendments arising from the issuance of AASB 9. No material impact envisaged. 1 January 2018 AASB 16 Leases The standard replaces AASB17 “Leases” and for lessees will eliminate the classification of operating leases and finance leases 1 January 2019 Given the number of operating leases the group has on hand with its properties, there will be a material impact on the statement of financial position. The operating leases will no longer be off the balance sheet and will instead be recognised on the balance sheet. A right of use asset and lease liability will be recognised, initially measured at present value of unavoidable future lease payments. The impact on gross assets and gross liabilities is estimated to be approximately $5.25 million. There will be no material impact on a net basis. Further, there will be no material impact on the statement of comprehensive income although instead of a rental expense, depreciation on right of use assets and interest on lease liabilities will be recognised. 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share- based Payment Transactions Consequential amendments arising from the issuance of International Financial Reporting Standard “Classification and Measurement of Share-based Payment Transactions” by the International Accounting Standards Board (June 2016) No material impact envisaged. 1 January 2018 PARAGON CARE LIMITED 25 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 2 Critical accounting estimates and judgements The Group makes certain estimates and assumptions concerning the future, which, by definition will seldom represent actual results. The estimates and assumptions that have a significant inherent risk in respect of estimates based on future events, which could have a material impact on the assets and liabilities in the next financial years, are discussed below: Impairment of Goodwill The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. With respect to cash flow projections for the Group’s businesses based in Australia, revenue growth rates of between 5% and 9% have been factored into valuation models for the next five years. This is on the basis of management’s expectation of increased government expenditure in both the acute and aged care market sectors, much of which has already been publicly announced, and their belief in the Group’s continued ability to capture a significant share of this expenditure. The rates used incorporate allowance for inflation. Pre-tax discount rates of 11.5% have been used in all models. No impairment has been recognised in respect of goodwill at the end of the reporting period. Business combinations Business combinations are initially accounted for on a provisional basis as the consolidated entity has twelve months from acquisition date to finalise acquisition accounting. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities reported. Further, the conditional payments owing to the vendors is based on the performance of the acquired entity which is measured by the EBITDA growth over a one to two year period. The estimation of the likely conditional payment was based on the consideration of all available information at the reporting date. Provision for stock obsolescence The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. Provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position. FINANCIAL REPORT 2016 / 17 26 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 3 Revenue Revenue Sale of Goods Sundry Income Interest Total Sundry Income Total Revenue NOTE 4 Other Income Write back of vendor earnout payable (i) Other income (i) During the year ending 30 June 2017 the conditional payments on the earn outs for Western Biomedical and Designs for Vision have been finalised with the respective vendors. The amounts agreed to be paid to the respective vendors was different to the contingent consideration estimated in the final acquisition accounting. The impact was a reduction to the vendor earnout payable resulting in a write back of $268,637. Refer Note 28. NOTE 5 Expenses Profit before income tax expense includes the following specific expenses: Depreciation: Plant and equipment Amortisation: Website development costs Amortisation: TGA Costs Amortisation: R&D Costs Amortisation: Software development costs Employee Benefits expense NOTE 6 Auditors’ Remuneration During the year the auditor of the Group earned the following remuneration: Audit and review of financial reports Tax consulting services Other consulting services Total remuneration 2017 $ 2016 $ 117,142,171 93,297,925 50,753 50,753 85,126 85,126 117,192,924 93,383,052 2017 $ 268,637 95,688 364,325 2016 $ - 36,782 36,782 2017 $ 804,533 24,858 - 14,831 288,485 2016 $ 621,498 21,900 9,697 1,262 107,242 19,172,825 15,512,285 20,305,532 16,273,885 2017 $ 122,830 36,075 - 2016 $ 79,010 24,108 - 158,905 103,118 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 7 Income Tax (a) Income tax expense / (benefit) Current tax Deferred tax Adjustments for current tax of prior periods (b) Deferred income tax (revenue) / expense included in income tax expense comprises: Decrease / (increase) in deferred tax assets (Decrease) / increase in deferred tax liability 27 2017 $ 2016 $ 3,600,449 621,835 (163,247) 4,059,037 2,550,142 (211,627) 85 2,338,600 110,267 (1,497,227) - - 110,267 (1,497,227) (c) The prima facie tax payable on profit before income tax is reconciled to the income tax expense as follows; Prima facie income tax payable on profit before income tax at 30% 4,270,140 2,960,737 Add tax effect of: • Entertainment expenses Less tax effect of: • Non-assessable income • (Overprovision) / Underprovision of income tax in prior year • Recognition of tax losses not previously brought to account Income tax expense / (benefit) attributable to profit (d) Deferred tax assets The balance comprises: • Provisions / accruals • Provision for employee entitlements • Prepayments • Foreign exchange gains / losses • Other assets • Share issue costs • Fixed Assets • Carry forward tax losses 32,736 10,583 (80,592) (163,247) - 4,059,037 - 85 (632,805) 2,338,600 42,520 813,824 (243) (37,477) 755,391 273,399 (3,834) 377,660 48,466 744,570 (11,322) 83,536 29,462 839,985 (1,719) 598,529 Balance after set off of deferred tax assets and (liabilities) 2,221,240 2,331,507 Deferred tax asset not recognised comprise: Unrecognised tax losses Timing differences - - - - - - The amount of deferred tax assets which may be realised in the future is dependant on the assumption that no adverse change will occur in income tax legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. FINANCIAL REPORT 2016 / 17 28 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 8 Statement of Cash Flows (a) Cash at bank and on hand (b) Reconciliation of operating profit (loss) after income tax to net cash used in operating activities Operating profit after income tax Non-cash items Depreciation and amortisation Writeback of provision for vendor earnout Foreign exchange differences (Profit)/loss on disposal of assets Change in operating assets and liabilities (Increase)/ decrease in trade and other receivables (Increase)/ decrease in inventory Increase /(decrease) in provisions Increase /(decrease) in accounts payable and other payables Increase/(decrease) in current tax provision and deferred taxes Net cash inflows from operating activities (c) Non-cash financing and investing activities Other Non-cash share issues In financial year ended 30 June 2017 707,214 shares as part consideration for the acquisition of Meditron at a price of $0.7050 per share. 2,709,046 shares as part consideration for the acquisition of Midas Software at a price of $0.7100 per share. 902,784 shares as part consideration for the acquisition of Electro Medical Group at a price of $0.8400 per share. In financial year ended 30 June 2016 835,749 shares as consideration for services provided in the capital raising activities at a price of $0.5300 per share. 1,886,792 shares as part consideration for the acquisition of Meditron at a price of $0.5300 per share. 7,547,170 shares as part consideration for the acquisition of Designs for Vision at a price of $0.5300 per share. 2017 $ 2016 $ 18,555,941 19,116,930 10,174,761 7,530,523 1,132,707 (268,637) 11,157 - 761,600 - 46,964 - 54,130 (6,027,013) (655,856) 27,234 1,611,694 (526,441) 47,013 6,991,846 (97,810) (1,065,272) 11,989,380 7,759,221 (d) Financing Facilities Refer Note 19 (c) NOTE 9 Inventories Current Raw materials Work in progress Finished goods 2017 $ 292,236 45,810 2016 $ 379,871 124,075 21,404,029 22,111,939 21,742,075 22,615,886 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 10 Trade and Other Receivables Current Trade and other receivables GST receivable Other receivables (a) Impaired trade receivables As at 30 June 2017 current trade receivables of the Group with a nominal value of $nil (2016: $nil) were impaired: The ageing of these receivables is as follows: Up to 3 months 4 to 6 months Over 6 months Movements in the provision for impairment of receivables are as follows: At 1 July Change for the year Amounts written off as uncollectable As at 30 June (b) Past due but not impaired As at 30 June 2017, trade receivables of $ 7,314,840 (2016: $3,554,868) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Up to 3 months 3 to 6 months Total overdue (c) Other receivables These amounts generally arise from transactions outside the usual operating activities of the group. (d) Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. 29 2017 $ 2016 $ 19,485,685 17,746,683 433,866 858,016 416,092 1,237,877 20,777,567 19,400,652 - - - - - - - - - - - - - - - - 6,919,786 395,054 7,314,840 2,813,248 741,620 3,554,868 FINANCIAL REPORT 2016 / 17 30 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 11 Derivative Financial Instruments 2017 2016 Current assets Foreign exchange forward contracts—Cash flow hedges Current liabilities Foreign exchange forward contracts—Cash flow hedges Foreign exchange forward contracts—Cash flow hedges Companies within the group import materials from the United States, Europe and Asia. In order to protect against exchange rate movements, the group has entered into forward exchange contracts to purchase US dollars and Euro. These contracts are hedging highly probable forecasted purchases for the ensuing financial year. The contracts are timed to mature when payments for major shipments are scheduled to be made. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income. When the cash flows occur, the group adjusts the initial measurement of the component recognised in the balance sheet by removing the related amount from other comprehensive income. NOTE 12 Plant and Equipment Non-Current Assets Furniture, Fittings and Equipment—at cost Less accumulated depreciation Motor Vehicles—at cost Less accumulated depreciation Total Plant and Equipment Movement in carrying amount during the year: Beginning of year WDV Additions at cost Acquisition through business combinations Disposals Depreciation End of year WDV (a) Leased assets Non-current assets includes the following amounts where the group is a lessee under a finance lease: Leasehold equipment Cost Less accumulated depreciation Written down value $ - - $ - - 161,123 161,123 322,063 322,063 2017 $ 2016 $ 6,315,345 5,042,256 (3,352,819) (2,493,045) 1,094,810 (651,945) 3,405,391 859,608 (426,195) 2,982,624 2,982,624 1,187,658 156,022 (112,635) (808,278) 1,193,537 1,548,333 1,057,973 (195,720) (621,498) 3,405,391 2,982,624 1,116,953 1,083,981 (292,650) 824,303 (406,785) 677,196 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 13 Intangible Assets Website development costs TGA Costs (with business acquisition) R&D Projects (Under construction) Software development costs Goodwill Website development costs Beginning of year Additions at cost Amortisation End of year The website development costs are amortised over two years. TGA Costs (with business acquisition) Beginning of year Additions—PM Medical Amortisation End of year R&D Projects (Under construction) Beginning of year Additions at cost Amortisation End of year Software development costs Beginning of year Additions Acquisition through business combinations Amortisation End of year Goodwill Beginning of year Additions Finalisation of Acquisition Accounting Adjustment (Refer Note 28b) End of year Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. Goodwill is attributable to the profitability of the business acquired. Impairment testing is undertaken by assessing the cash generated from the businesses and estimating the value of the businesses using cash flow projections. Refer note 2 for further details. 31 2017 $ 11,090 - 1,072,141 4,221,076 2016 $ 35,948 - 308,344 777,813 93,114,965 79,916,800 98,419,272 81,038,905 35,948 - (24,858) 11,090 - - - - 308,344 778,628 (14,831) 1,072,141 777,813 2,779,518 952,230 (288,485) 4,221,076 7,258 50,590 (21,900) 35,948 9,697 - (9,697) - 60,587 249,019 (1,262) 308,344 308,486 576,569 - (107,242) 777,813 79,916,800 12,036,331 1,161,834 18,599,684 61,317,116 - 93,114,965 79,916,800 FINANCIAL REPORT 2016 / 17 32 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 14 Trade and Other Payables Current Trade creditors Other creditors Deferred revenue Accrued expenses Non-Current Other Creditors NOTE 15 Borrowings Current Secured Trade Finance Facility Bank Loans Lease Liabilities Unsecured Loan (b) Total Current Borrowings Non-Current Secured Bank Loans Lease Liabilities Total Non-Current Borrowings (a) Secured liabilities and assets pledged as security The total secured liabilities (current and non-current) are as follows: Trade Finance Facility Bank Loans Lease Liabilities 2017 $ 2016 $ 18,529,369 17,139,990 3,562,154 2,144,595 1,298,371 2,664,000 1,894,914 965,709 25,534,489 22,664,613 643,134 643,134 416,797 416,797 2017 $ 2016 $ 6,263,812 2,000,000 235,013 5,379,208 1,000,000 233,556 8,498,825 6,612,765 - 950,000 8,498,825 7,562,765 28,000,000 30,000,000 568,954 591,710 28,568,954 30,591,710 28,568,954 30,591,710 6,263,812 5,379,208 30,000,000 31,000,000 803,967 825,267 37,067,779 37,204,475 The bank has a first registered company charge over all assets and undertakings including uncalled capital of the consolidated entity. Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. The company has entered into a trade finance facility agreement with National Australia Bank to facilitate the importation of goods into Australia from overseas. Individual import transactions are financed for a period not exceeding 180 days after the arrival of goods in Australia. This facility has been extended as part of the company’s overall banking arrangements with Westpac and is therefore covered by the charge. Unlike the Bank loans this revolving trade finance facility does not have a reducing principle balance and is continuously utilised to provide a source of working capital more closely matching the inventory life cycle of imported products. PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 (b) Loan The parent entity borrowed $2,225,000 from a private investor in June 2012. The loan is in two tranches. The company repaid $1,275,000 during the year through the issue of 2,260,178 shares @ $0.53 and the payment of $77,106. The balance of $950,000 was due for repayment on 1 July 2016. Interest, at 9.5% per annum, is payable quarterly in arrears. The Loan was repaid in July 2016. 33 NOTE 16 Provisions Current Employee entitlements Non-Current Employee entitlements NOTE 17 Contributed Equity Fully paid ordinary shares (a) Ordinary shares 2017 $ 2016 $ 1,949,707 1,949,707 1,823,933 1,823,933 583,720 583,720 416,483 416,483 2017 $ 2016 $ 74,347,530 70,636,055 The Company has unlimited authorised capital with no par value. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Movements in ordinary share capital in the Company over the past two years were as follows: Date 30-Jun-15 Balance Number of Shares $ 67,558,422 23,611,121 18-Sep-15 Issue of shares pursuant to the company’s dividend re-investment plan price of $0.6460 per share 128,237 82,841 6-Oct-15 Issue of shares pursuant to the company’s rights issue of 1 new share for each 5 shares held at a price of $0.5300 per share 13,512,044 7,161,383 6-Oct-15 Placement to sophisticated and professional investors at issue price of $0.5300 per share. 65,990,114 34,974,760 6-Oct-15 Placement as part loan repayment of an outstanding loan at a price of $0.5300 per share 2,260,178 1,197,894 6-Oct-15 Placement as consideration for services provided in the capital raising activities at a price of $0.5300 per share 835,749 442,947 8-Oct-15 Issue of shares as part consideration for the acquisition of Meditron at a price of $0.5300 per share 1,886,792 1,000,000 9-Oct-15 Issue of shares as part consideration for the acquisition of Designs for Vision at a price of $0.5300 per share 7,547,170 4,000,000 6-Apr-16 Issue of shares pursuant to the company’s dividend re-investment plan price of $0.5990 per share 215,812 129,271 30-Jun-16 Accumulated share issue costs incurred during 2016 (net of tax) - (1,964,164) 30-Jun-16 Closing Balance 159,934,518 70,636,055 18-Jul-16 25-Jul-16 Issue of shares as part consideration for the Meditron acqusition earn-out at a price of $0.7050 per share 707,214 500,000 Issue of shares as part consideration for the Midas Software Solutions acquisition at a price of $0.7100 per share 2,709,046 1,904,459 6-Oct-16 Issue of shares pursuant to the company’s dividend re-investment plan price of $0.8350 per share 7-Oct-16 Issue of shares as part consideration for the EMG acquisition at a price of $0.8400 per share 6-Apr-17 Issue of shares pursuant to the company’s dividend re-investment plan price of $0.7900 per share 30-Jun-17 Accumulated share issue costs incurred during 2017 (net of tax) 30-Jun-17 Closing Balance 343,802 902,784 420,645 - 275,042 740,554 299,499 (8,079) 165,018,009 74,347,530 FINANCIAL REPORT 2016 / 17 34 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 17 Contributed Equity (Continued) (b) Capital Management When managing capital, the directors’ objective is to ensure the Company continues as a going concern as well as to maintain optimal returns to shareholders. The directors also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. The directors are constantly monitoring the Company’s capital requirements and capital structure to take advantage of favourable opportunities for raising capital. The directors have no current plans to issue further shares or options on the market unless they conclude a further business acquisition. The directors monitor capital through the gearing ratio (net debt divided by total capital). The target for the Group’s gearing ratio is below 30%. The gearing ratios for the years ending 30 June 2017 and 2016 were as follows: Total Borrowings Less Cash and Cash Equivalents Net Debt Total Equity Total Capital Gearing Ratio The Group is not subject to any externally imposed capital requirements. NOTE 18 Reserves Currency hedge reserve Currency translation reserve Movements in currency hedge reserve were as follows: Beginning of year Revaluation End of year Movements in currency translation reserve were as follows: Beginning of year Revaluation End of year NOTE 19 Financial Risk Management 2017 $ 2016 $ 37,067,779 38,154,475 (18,555,941) (19,116,930) 18,511,838 19,037,545 82,690,795 72,770,234 101,202,633 91,807,779 18% 21% 2017 $ (204,752) 50,028 (154,724) 2016 $ (325,418) 38,871 (286,547) (325,418) 120,666 (204,752) 264,056 (589,474) (325,418) 38,871 11,157 50,028 - 38,871 38,871 The Group’s activities expose it to a variety of financial risk: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Derivative financial instruments are used by the Group to hedge exposure to exchange rate risk associated with foreign currency transactions. Derivatives are used exclusively for hedging purposes, ie not as trading or other speculative instruments. (a) Market Risk (i) Forward exchange risk The Group enters into forward exchange contracts to buy and sell specified amounts of foreign currencies in the future at stipulated rates. The objective in entering into the forward exchange contracts is to protect the economic entity against unfavourable exchange rate movements for the purchases undertaken in foreign currencies. The Group’s risk management policy is to hedge between 40% and 100% of anticiptated cash flows (purchase of inventory) in Euro / US Dollars for the subsequent 12 months. The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows: Forward exchange contracts • Buy foreign currency (cash flow hedges) USD Euro 2017 $ 2016 $ 8,579,418 7,142,562 5,021,848 3,765,732 15,721,980 8,787,580 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 19 Financial Risk Management (Continued) (ii) Interest Rate Risk The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations with the floating interest rate. The Company’s policy is not to actively manage interest cost. At 30 June 2017 $6,263,812 (2016: $5,379,208) of the Company’s debt is at a variable rate of interest. The financial instruments exposed to interest rate risk are as follows: 35 Financial Assets Cash and cash equivalents (interest bearing) Financial Liabilities Interest bearing liabilities — variable rate (current) Interest bearing liabilities — fixed rate (current) Interest bearing liabilities — variable rate (non-current) Interest bearing liabilities — fixed rate (non-current) 2017 $ 2016 $ 18,555,941 19,116,930 (6,263,812) (5,379,208) (2,235,013) (2,183,557) - - (28,568,954) (30,591,710) (37,067,779) (38,154,475) (b) Credit Risk Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of “A” are accepted. For customers, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The compliance with credit limits by customers is regularly monitored by line management. The Group has no significant exposure to any individual debtor of the Group and the credit risk is low for the majority of the balance. Receivables balances are monitored on an ongoing basis and given the low risk profile of customers the Group’s exposure to bad debts is insignificant. The Group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments. (c) Liquidity Risk Prudent liquidity management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Forecasted cash flows are used to calculate the forecasted liquidity position and to maintain suitable liquidity levels. Financing Arrangements The Group had access to the following borrowing facilities at the end of the reporting period: Floating Rate Expiring within one year Total Facility Undrawn Amount Expiring beyond one year Total Facility Undrawn Amount Fixed Rate Expiring within one year Total Facility Undrawn Amount Expiring beyond one year Total Facility Undrawn Amount Total Total Facility Undrawn Amount 2017 2016 $ - - $ - - 8,000,000 1,736,188 8,000,000 2,620,607 - - - - 60,053,967 33,825,266 29,250,000 2,000,000 68,053,967 41,825,266 30,986,188 4,620,607 FINANCIAL REPORT 2016 / 17 36 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 19 Financial Risk Management (Continued) Maturities of financial liabilities The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the undiscounted cashflows. On 30 May 2017 National Australia Bank granted Paragon Care Ltd credit approval to increase their lending agreement facility to $50,000,000.00 to support organic growth and the company’s acquistion strategy. Contractual maturities of financial liabilities Weighted average interest rate 2017 Non-derivatives Non-interest bearing Variable rate Fixed rate Total 2016 Non-derivatives Non-interest bearing Variable rate Fixed rate Total % - 3.1 3.6 3.5 - 4.1 4.6 4.5 Less than 6 Months $ 35,118,306 6,263,812 1,124,333 42,506,452 6 to 12 Months Between 1 and 2 Years Between 2 and 5 Years $ - - 1,110,680 1,110,680 $ 7,282,362 - 2,235,013 9,517,375 $ - - 26,333,941 26,333,941 Total contractual cash flows $ 42,400,668 6,263,812 30,803,967 79,468,447 23,602,307 5,379,208 1,564,881 30,546,396 - - 9,852,454 - - - 33,454,761 5,379,208 618,675 618,675 233,556 30,358,154 32,775,267 10,086,010 30,358,154 71,609,235 (d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (i) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); (ii) inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices) (level 2); and (iii) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Group’s assets and liabilities measured and recognised at fair value at 30 June 2017 and 30 June 2016. At 30 June 2017 Assets Forward foreign exchange contracts Total assets Liabilities Forward foreign exchange contracts Total liabilities At 30 June 2016 Assets Forward foreign exchange contracts Total assets Liabilities Forward foreign exchange contracts Total liabilities Level 1 Level 2 Level 3 Total $ - - - - $ - - 161,123 161,123 $ - - - - $ - - 161,123 161,123 Level 1 Level 2 Level 3 Total $ - - - - $ - - 322,063 322,063 $ - - - - $ - - 322,063 322,063 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 20 Related Party Disclosure Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 37 (a) Subsidiaries Parent Entity Paragon Care Limited Subsidiaries Paragon Care Group Pty Ltd GM Medical Pty Ltd 1 Paragon Medical Ltd # 1 Meditron Pty Ltd 1 Western Biomedical Pty Ltd 1 Designs For Vision Holding Pty Ltd 1 Designs For Vision (Aust) Pty Ltd 4 Designs For Vision Pty Ltd 5 Electro Medical Group Pty Ltd 1 MIDAS Software Solutions Pty Ltd 1 Paragon Medical Pty Ltd Scanmedics Pty Ltd 2 Axishealth Pty Ltd * 2 Rapini Pty Ltd * 2 Paragon Healthcare Pty Ltd 2 Iona Medical Products Pty Ltd * 2 Volker Australia Pty Ltd * 3 L.R. Instruments Pty Ltd * 2 Richards Medical Pty Ltd * 2 Unikits Pty Ltd *2 Ownership 30 June 2017 Ownership 30 June 2016 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% N/A N/A 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% All entities are incorporated in Australia except for Paragon Medical Ltd which is incorporated in New Zealand. * Dormant company # Incorporated in New Zealand ¹ Subsidiary of Paragon Care Group Pty Ltd ² Subsidiary of Paragon Medical Pty Ltd ³ Subsidiary of Iona Medical Products Pty Ltd 4 Subsidiary of Designs For Vision Holding Pty Ltd 5 Subsidiary of Designs For Vision (Aust) Pty Ltd (b) Ultimate Parent Paragon Care Limited is a public company listed on ASX and details of major shareholders are shown in Shareholder Information. (c) Transactions with related parties. Employees and Contractors Contributions to superannuation funds on behalf of employees are disclosed in the Remuneration Report in the Directors’ Report. (d) Loan to related parties. The parent entity has provided intercompany loans to its subsidiaries for working capital purposes. The intercompany loans are repayable to the parent entity at call and no interest is payable. Details of the loans are shown below. Loans to / (from): Paragon Care Group Pty Ltd Designs For Vision (Aust) Pty Ltd Meditron Pty Ltd Western Biomedical Pty Ltd 2017 $ 2016 $ 52,093,172 52,529,337 1,166,231 350,233 1,100 - - - 53,259,403 52,529,337 FINANCIAL REPORT 2016 / 17 38 P A R A G O N C A R E L I M I T E D Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 NOTE 21 Key Management Personnel Disclosures (a) Details of Key Management Personnel Details of the Key Management Personnel remuneration and services agreements are provided in the Remuneration Report section of the Directors’ Report. The following table discloses the aggregate remuneration of the Key Management Personnel of the Group. Details by director and executive are shown in the Remuneration Report section of the Directors’ Report. Short term employee benefits Post employment benefits Others — long term benefits Share-based payments (b) Equity Holdings of Key Management Personnel Details of the Key Management Personnel holdings of ordinary shares in the Company is shown in the following table: 2017 $ 1,305,767 127,639 - - 2016 $ 1,101,431 105,577 - - 1,433,406 1,207,008 Directors S F Tanner M A Simari M C Newton B A Cheong G J Sam OAM Other key management personnel M G Rice S J Munday Directors S F Tanner M A Simari M C Newton B A Cheong G J Sam OAM Other key management personnel M G Rice S J Munday Balance 1 July 2016 610,000 1,707,611 307,699 2,642,640 585,526 134,058 38,239 Balance 1 July 2015 502,867 1,674,204 205,148 2,633,208 - 134,058 Shares Acquired 113,500 8,167 67,849 - 129,851 - - Shares Acquired 107,133 33,407 102,551 9,432 - - - 38,239 Shares Disposed - 711,000 - - - - - Other Changes Balance 30 June 2017 - - - - - - - 723,500 1,004,778 375,548 2,642,640 715,377 134,058 38,239 Shares Disposed Other Changes Balance 30 June 2016 - - - - - - - - - - - 585,526 610,000 1,707,611 307,699 2,642,640 585,526 - - 134,058 38,239 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 22 Earnings per share (a) Basic (loss) / Earnings per share (cents per share) (b) Diluted (loss) / Earnings per share (cents per share) (c) Reconciliation of earnings used in calculating earnings per share 39 2016 Cents 5.6 5.6 2017 Cents 6.2 6.2 Profit / (Loss) used in calculating basic earnings per share Profit / (Loss) used in calculating diluted earnings per share 10,174,761 10,174,761 7,530,523 7,530,523 164,137,722 135,026,163 164,137,722 135,026,163 2017 $ 2016 $ (2,514,743) (1,432,073) (2,514,743) (1,432,073) (2,618,225) 2,385,296 51,746,495 55,201,028 123,014 746,808 103,618 810,062 74,347,530 70,636,055 - - (23,344,379) (16,245,087) 51,003,151 54,390,967 (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share Note 23 Parent Entity Disclosures (a) Financial Information Profit for the Year Total Comprehensive Income Current Assets Total Assets Current Liabilties Total Liabilties Shareholders Equity Issued Capital Reserves Retained Earnings Total Equity b) Guarantees The Company and its controlled entities, as listed in note 20(a), are party to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and a directors’ report under Instrument 2016/785 issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Paragon Care Limited, they also represent the ‘Extended Closed Group’. The Consolidated Statement of Profit or Loss and Other Comprehensive Income on page 15 and Consolidated Statement of Financial Position on page 16 are the Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Statement of Financial Position of the ‘Closed Group’. The parent entity has also given unsecured guarantees in respect of: (i) Finance leases of subsidiaries amounting to $nil (2016 — $nil) c) Other Commitments The Company has no commitments to acquire property, plant and equipment. d) Contingent Liabilities The parent entity did not have any contingent liabilities as at 30 June 2017. FINANCIAL REPORT 2016 / 17 40 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 24 Contingent Liabilities Since the last annual reporting date, there have been no material changes of any contingent liabilities or contingent assets. The Group has bank guarantees outstanding totalling $717,166 (2016 $884,942) Note 25 Subsequent Events No subsequent events to report. Note 26 Commitments Lease Commitments The group leases various offices under non-cancellable operating leases expiring within one to eight years. The leases have various terms, escalation clauses and renewal rights. On renewal the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Note 27 Segment Reporting The consolidated entity operates within one operating segment only - Medical Equipment. The Medical Equipment segment supplies durable medical equipment and consumable medical product to hospitals, medical centres and aged care facilities in Australia predominantly. The consolidated entity does not have any other reporting segments. 2017 $ 2016 $ 1,645,983 5,123,994 857,251 7,627,228 1,807,172 5,340,820 1,966,342 9,114,334 PARAGON CARE LIMITED Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 28 Business Combinations (a) Summary of business combinations during the period: Purchase consideration Cash Conditional payment Shares Fair value and carrying value of net assets acquired Net Working Capital Plant and Equipment Identifiable Intangible - Software Employee Entitlements Deferred Tax Asset Goodwill on consolidation Reconciliation to cashflow Consideration of Purchase Conditional Payment Equity Funding Net Outflow of cash 41 Total $ 3,440,937 7,282,362 2,645,012 13,368,311 387,298 178,542 952,230 (265,842) 79,752 12,036,330 13,368,311 13,368,312 (7,282,362) (2,645,012) 3,440,937 MIDAS Software Solutions Electro Medical Group $ - 4,489,704 1,904,459 6,394,163 (30,000) 5,000 952,230 (66,093) 19,828 5,513,198 6,394,163 $ 3,440,937 2,792,658 740,553 6,974,148 417,298 173,542 - (199,749) 59,924 6,523,133 6,974,148 6,394,163 (4,489,704) (1,904,459) - 6,974,149 (2,792,658) (740,553) 3,440,937 FINANCIAL REPORT 2016 / 17 42 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 28 Business Combinations (Continued) MIDAS Software Solutions On the 25th July 2016 the Company acquired 100% of the shares in MIDAS Software Solutions Pty Ltd and the business and assets of Spintech Oceania Pty Ltd. Midas is a world first, fully customised interpretive reporting software platform for a wide range of diagnostic medical examinations. It produces a provisional report complete with key images, worksheets diagrams graphs and charts within a few seconds by interpreting the measurements and observations from study data. This innovative, cloud based web platform significantly boosts productivity in practice workflow and can connect with any system across any network globally. Purchase consideration Contingent Consideration (a) Ordinary Shares in PCG 2,709,046 @ $0.703 Fair value and carrying value of net assets acquired Net working capital Plant and equipment Identifiable Intangible - Software Employee Entitlements Deferred Tax Asset Goodwill on consolidation Reconciliation to cashflow Consideration of purchase Conditional Payment due August 2018 Equity Funding Net outflow of cash $ 4,489,704 1,904,459 6,394,163 (30,000) 5,000 952,230 (66,092) 19,828 5,513,197 6,394,163 6,394,163 (4,489,704) (1,904,459) - (a) The vendors are entitled to a payment of 4 times the EBITDA growth between FY16 and FY18. The payment is uncapped. The contingent consideration was estimated by calculating the present value of the future expected cash flows. The likely range is anticipated to be between $1 million and $5 million. Impact of acquisition on the results of the Group As the acquisition of MIDAS Pty Ltd occurred on 25 July 2016 the revenue and profit of the Group for the year ended 30 June 2017 reflects trading from 25 July 2016 to 30 June 2017 of the acquired business. AASB 3 Business Combinations requires disclosure of revenue and profit and loss of the acquired entity from date of acquisition, and disclosure of revenue and profit and loss of the consolidated entity for the current reporting period as though the acquisition date for all business combinations had been as of 1 July 2016. However, management has determined that this is impracticable after considering the various factors contained within the definitions contained within paragraph 5 (a) through to (c) (inclusive) of AASB108 Accounting Policies, Changes in Accounting Estimates and Errors to the pre- acquisition operating environment of each acquisition. PARAGON CARE LIMITED 43 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 28 Business Combinations (Continued) Electro Medical Group On 7th October the Company acquired 100% of the shares in Electro Medical Group Pty Ltd. Electro Medical Group specialises in providing reliable and high quality service support and technology management to the Medical, Scientific, Aged Care and Allied Health industry of Australia and New Zealand. EMG has established agreements in place with a number of major healthcare providers throughout the region. Purchase consideration Cash and Cash Equivalents Contingent Consideration (a) Ordinary Shares in PCG 902,784 @ $0.8203 Fair value and carrying value of net assets acquired Net working capital Plant and equipment Employee entitlements Deferred tax asset Goodwill on consolidation Reconciliation to cashflow Consideration of purchase Conditional payment Equity funding Net outflow of cash $ 3,440,937 2,792,658 740,553 6,974,148 417,297 173,542 (199,748) 59,924 6,523,133 6,974,148 6,974,148 (2,792,658) (740,553) 3,440,937 (a) The vendors are entitled to a payment of 3 times the EBITDA growth between FY16 and FY17. The payment is uncapped. The contingent consideration was estimated by calculating the present value of the future expected cash flows. The likely range is anticipated to be between $2 million and $3 million. Impact of acquisition on the results of the Group As the acquisition of Electro Medical Group Pty Ltd occurred on 7 October 2016 the revenue and profit of the Group for the year ended 30 June 2017 reflects trading from 7 October 2016 to 30 June 2017 of the acquired business. AASB 3 Business Combinations requires disclosure of revenue and profit and loss of the acquired entity from date of acquisition, and disclosure of revenue and profit and loss of the consolidated entity for the current reporting period as though the acquisition date for all business combinations had been as of 1 July 2016. However, management has determined that this is impracticable after considering the various factors contained within the definitions contained within paragraph 5 (a) through to (c) (inclusive) of AASB108 Accounting Policies, Changes in Accounting Estimates and Errors to the pre- acquisition operating environment of each acquisition. Provisional amounts As the acquisition has only recently occurred the numbers presented for Net working capital, Plant and equipment, Employee Entitlements, Deferred Tax Asset and Goodwill on consolidation, including the estimate of vendor earn-out are presented as provisional amounts pending the completion of the fair valuation of assets acquired and forecasting of earnings for Financial year 2017. FINANCIAL REPORT 2016 / 17 44 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 28 Business Combinations (Continued) (b) Prior Period Business Combination Provisional Amounts Finalised During the year ended 30 June 2017, the numbers presented for Net working capital, Plant and equipment, Employee Entitlements, Deferred Tax Asset and Goodwill on consolidation, including the estimate of vendor earn out presented as provisional amounts for the business combinations of Meditron Pty Ltd, Western Biomedical Pty Ltd and Designs For Vision Pty Ltd as at 30 June 2016 were finalised following completion of the fair valuation of assets acquired and forecasting of earnings for earn out purposes. In July the Purchase Consideration – contingent was paid to the vendor of Meditron in a combination of cash and shares. Rental equipment with a written down value of $348,575 was reclassified from Working Capital to Plant and Equipment. In September a review of the acquisition of Western Biomedical was completed. Inventory was reduced by $251,000 to reflect fair value at acquisition; Goodwill has been adjusted to reflect this. In September, negotiations around the assets acquired at acquisition were settled with the vendors of Designs For Vision repaying $436,000 of the Purchase Consideration – cash and the Working Capital acquired was reduced by $1,346,062 to reflect fair value at acquisition after completing a review inventory at acquisition; Goodwill has been adjusted to reflect this. The impact of the above is to increase goodwill by $1,161,834 (as disclosed in note 13). Purchase consideration Purchase Consideration - cash Purchase Consideration - contingent Purchase Consideration - shares Fair value and carrying value of net assets acquired Net Working Capital Plant and Equipment Employee Entitlements Deferred Tax Asset Goodwill on consolidation Reconciliation to cashflow Consideration of Purchase Conditional Payment Equity Funding Net Outflow of cash Western Biomedical Meditron Designs for Vision $ $ 29,278,554 1,533,976 - 30,812,530 1,496,765 404,935 (226,698) 77,459 29,060,069 30,812,530 30,812,530 (1,533,976) - 29,278,554 6,189,164 800,000 1,000,000 7,989,164 2,774,216 524,605 (394,216) 118,265 4,966,294 7,989,164 7,989,164 (800,000) (1,000,000) 6,189,164 21,436,440 8,318,478 4,000,000 33,754,918 5,690,078 128,433 (737,401) 221,220 28,452,588 33,754,918 33,754,918 (8,318,478) (4,000,000) 21,436,440 During the year ending 30 June 2017 the conditional payments on the earn outs for Western Biomedical and Designs for Vision have been finalised with the respective vendors. The amounts agreed to be paid to the respective vendors was different to the contingent consideration estimated in the final acquisition accounting. WBM’s final earnout was $424,380 and DFV’s final earnout was $9,159,437. Total final earnout of the two entities is $9,583,817. The impact was a reduction to the vendor earnout payable, resulting in a write back of $268,637. Refer other income Note 4. Total $ 56,904,158 10,652,454 5,000,000 72,556,612 9,961,059 1,057,973 (1,358,315) 416,944 62,478,950 72,556,612 72,556,612 (10,652,454) (5,000,000) 56,904,158 PARAGON CARE LIMITED 45 Notes to and forming part of the Financial Statements Continued For the year ended 30 June 2017 Note 29 Deed of Cross Guarantee All entities of the consolidated entity, as listed in note 20(a), are party to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and directors’ report under Instrument 2016/785 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Paragon Care Limited, they also represent the ‘Extended Closed Group’. The Consolidated Statement of Profit or Loss and Other Comprehensive Income on page 15 and Consolidated Statement of Financial Position on page 16 are the Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Statement of Financial Position of the ‘Closed Group’. FINANCIAL REPORT 2016 / 17 46 Directors’ Declaration For the year ended 30 June 2017 In the Directors’ opinion: a) The financial statements and notes set out on pages 15 to 45 are in accordance with the Corporations Act 2001, including; (i) Complying with Accounting Standards, the Corporation Regulations 2001 and other mandatory professional requirements; and (ii) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and b) There are reasonable grounds to believe that Paragon Care Limited will be able to pay its debts as and when they become due and payable. The Directors have been given the declaration by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with the resolution of the Directors. Shane Tanner Chairman 7 August 2017 PARAGON CARE LIMITED 47 Auditor’s Report FINANCIAL REPORT 2016 / 17 48 Independent Audit Report For the year ended 30 June 2017 PARAGON CARE LIMITED Level 21, 55 Collins Street Melbourne VIC 3000 Level 21, 55 Collins Street Melbourne V INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PARAGON CARE LIMITED Opinion We have audited the financial report of Paragon Care Limited, which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) 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 (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 confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. 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 judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Independent Audit Report Continued For the year ended 30 June 2017 49 FINANCIAL REPORT 2016 / 17 Key Audit Matter How our audit addressed this matter Accounting for Business Combinations Refer to Note 28 in the financial statements During the year, the consolidated entity completed two acquisitions of Midas Software Solutions Pty Ltd (“Midas”) and Electro Medical Group Pty Ltd (“EMG”), as described in Note 28 of the consolidated financial statements. The consolidated entity has determined these acquisitions to be business combinations for which the purchase price of $13.368 million, includes contingent consideration of $7.282 million. The purchase price is allocated between acquired assets and liabilities (including identified intangible assets), at their respective fair values and goodwill of $12.036 million. The accounting for the business combinations was conducted on a final basis for Midas and provisional basis for EMG. This was considered a key audit matter as the accounting for the transaction is complex, and involves significant judgements in applying the accounting standards. This includes the recognition and valuation of consideration paid, including contingent consideration, the identification and valuation of intangible assets, and the determination of the fair value of the tangible assets acquired. Our procedures to assess the accounting treatment of the acquisition included: Obtaining the share purchase agreement and other associated documents, and ensuring that the transaction had been accounted for in compliance with AASB 3 Business Combinations. Testing the initial consideration to the signed purchase agreement and to bank statements and assessing the appropriateness of the fair value of the transaction including evaluating the recognition of the contingent consideration included in the purchase price to determine a final adjustment within the measurement period and assessing the forecasts used for determining the contingent consideration and comparing these against actual performance; Assessing the consolidated entity’s determination of the fair value of the remaining assets and liabilities, having regard to the completeness of assets and liabilities identified, and the reasonableness of any underlying assumptions in their respective valuations, including useful lives of the intangible and tangible assets acquired; and Reviewing the disclosures in Note 28 to the financial statements in order to assess compliance with the disclosure requirements of AASB 3. Impairment of Goodwill Refer to Note 13 in the financial statements The consolidated entity has goodwill of $93.114 million relating to its numerous acquisitions in recent years. This was considered a Key Audit Matter due to the materiality of the goodwill balance, and because the directors’ assessment of the ‘value in use’ of the cash generating unit (“CGU”) involves judgements about the future underlying cash flows of the business and the discount rates applied to it. For the year ended 30 June 2017 management have performed an impairment assessment over the goodwill balance by: Our audit procedures in relation to management’s impairment assessment involved the assistance of our Corporate Finance team where required, and included: Assessing management’s determination that the goodwill should be allocated to a single CGU based on the nature of the Group’s business and the manner in which results are monitored and reported; Assessing the valuation methodology used; Challenging the reasonableness of key assumptions, including the cash flow projections, exchange rates, discount rates, and sensitivities used; and 50 Independent Audit Report Continued For the year ended 30 June 2017 PARAGON CARE LIMITED Impairment of Goodwill (CONT.) Refer to Note 13 in the financial statements calculating the value in use for the CGU using a discounted cash flow model. This model used cash flows (revenues, expenses and capital expenditure) for the CGU for 5 years, with a terminal growth rate applied to the 5th year. The cash flows was then discounted to net present value using the Company’s weighted average cost of capital (WACC); and comparing the resulting value in use of the CGU to their respective book values. Management also performed a sensitivity analysis over the value in use calculations, by varying the assumptions used (growth rates, terminal growth rate and WACC) to assess the impact on the valuations. Management have concluded there is no impairment of the carrying value of Goodwill. Checking the mathematical accuracy of the cash flow model, and reconciling input data to supporting evidence, such as approved budgets and considering the reasonableness of these budgets. Inventory Valuation Refer to Note 9 in the financial statements The consolidated entity’s inventory balance, as disclosed in Note 9, consists primarily of finished goods of various medical equipment held for distribution. Inventory is valued at the lower of cost or net realisable value. The assessment of the net realisable value of inventory requires a significant degree of management judgment. It includes assumptions concerning the provision for obsolescence, as well as future market conditions based on changing customer needs and market trends. On the basis of the factors set out above, the valuation of inventory was considered to be a key audit matter. Our audit procedures in relation to the existence and valuation of inventory included: Evaluating management assumptions and estimates applied to the provision for obsolescence through analysis of historical sales levels by inventory product from the date the product was purchased in conjunction with assessing the quantity of products; Assessing the company’s application of its policy for determining the provision for obsolescence; Performing analytical procedures in respect of inventory holdings and inventory turnover; and Testing the sales prices of inventory to ensure inventory is not being sold at less than cost. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2017, but does not include the financial report and the 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. 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. Independent Audit Report Continued For the year ended 30 June 2017 51 FINANCIAL REPORT 2016 / 17 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related 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. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Paragon Care Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. 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. RSM AUSTRALIA PARTNERS P A Ransom Partner Melbourne, Victoria Dated: 7 August 2017 52 Shareholder Information PARAGON CARE LIMITED Shareholder Information For the year ended 30 June 2017 The shareholders information set out below was applicable as at 28 July 2017. (a) Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Number of Units 1–1,000 1,001–5,000 5,001–10,000 10,000–100,000 100,001 and over Total Holders PGC 721 997 546 1,131 141 3,536 There are 497 holders of less than a marketable parcel of ordinary shares (b) Equity Security Holders Twenty largest quoted equity security holders: Ordinary shares Ordinary Shares Name J P MORGAN NOMINEES AUSTRALIA LIMITED JMT INVESTMENT GROUP VIC PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED DAK DRAFTING SERVICES PTY LTD MIRRABOOKA INVESTMENTS LIMITED POSSE INVESTMENT HOLDINGS PTY LIMITED SHEMOZEL PTY LTD GRILLS INVESTMENTS PTY LTD BNP PARIBAS NOMINEES PTY LTD AMCIL LIMITED BRETT CHEONG & LYNN CHEONG LORA FALLS PTY LTD MR PETER JOHN DIAMOND & MRS DIANA ELIZABETH DIAMOND LIONEL RICHARDS NO 2 PTY LTD SPINTECH OCEANIA PTY LTD MOSTYN PTY LTD BRISPOT NOMINEES PTY LTD GUERILLA NOMINEES PTY LTD MR GREGORY STEPHEN VAWDREY & MRS CHERYL MARGARET VAWDREY Total Top 20 PGC Shareholders Balance of Register Grand Total 53 Units 23,692,733 9,662,006 9,383,903 7,896,620 4,500,000 4,000,000 4,000,000 3,773,585 3,773,585 3,351,428 2,956,500 2,642,640 2,594,006 1,900,000 1,371,622 1,306,447 1,230,000 1,205,216 1,161,291 1,000,000 91,401,582 73,616,427 165,018,009 % of Issued Shares 14.4 5.9 5.7 4.8 2.7 2.4 2.4 2.3 2.3 2.0 1.8 1.6 1.6 1.2 0.8 0.8 0.7 0.7 0.7 0.6 55.4% 44.6% 100.0% FINANCIAL REPORT 2016 / 17 54 Shareholder information Continued For the year ended 30 June 2017 (c) Voting Rights The voting rights attaching to each class of equity securities are set out below: i) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. d) Substantial Holders Name FIRST SAMUEL LIMITED JMT INVESTMENT GROUP VIC PTY LTD TOTAL SUBSTANTIAL SHAREHOLDERS Total PGC Shares (e) Corporate Governance Statement Units 12,702,333 9,662,006 22,364,339 165,018,009 % of Issued Ordinary Shares 7.7 5.9 13.6 In accordance with ASX Listing Rule 4.10.3, the Company’s 2017 Corporate Governance Statement can be found on its website at www.paragoncare.com.au/corporate-governance-statement/ PARAGON CARE LIMITED
Continue reading text version or see original annual report in PDF format above