2020 Reports
Announcement of Full-Year Results
Appendix 4E
2020 Annual Report
PolyNovo Limited
ABN 96 083 866 862
26 August 2020
Snapshot 2020
Worldwide
NovoSorb BTM Revenue
2020 $19.06m
2019 $9.34m
104%
United States
NovoSorb BTM Revenue
2020 $15.57m
2019 $7.73m
102%
Australia & New Zealand
NovoSorb BTM Revenue
2020 $2.82m
2019 $1.57m
80%
Announcement of Full-Year Results
26 August 2020
FY20 saw the more than doubling of
NovoSorb BTM sales and we had a very
strong Q4. $19.1 million in FY20 versus
$9.3 million in FY19 (+104%).
PolyNovo Limited reported revenue
for year ended 30 June 2020 of
$22.229 million an increase of 54.6%
from FY19 $14.378 million.
The net loss after tax (excluding
share-based payments expense) of
$2.132 million for FY20 is an improvement
year-on-year of 31.1% over the prior
year’s $3.092 million.
The Group’s improved loss position included
staff expansion, capital works program
building the hernia factory, new market
entries and upgrading facilities.
The continued rise in NovoSorb BTM sales,
improvements in gross profit, manufacturing
efficiencies and sales force effectiveness
enabled PolyNovo to continue to invest
for growth.
Cash on hand at 30 June 2020 is
$11.6 million (FY19 $13.9M) and we
have an unused debt facility of $2m.
We have continued to invest in our sales
and marketing teams in all regions. The US
is our largest market and we have continued
the expansion of sales and marketing teams
in that market. We have also entered UK/
Ireland and Singapore/Malaysia as direct
markets in FY20 and expect to see the
results of that in FY21.
The impact of CoVid19 has had little
short-term impact on PolyNovo and we
continue to plan for significant revenue
and account growth. The year ahead
is still uncertain.
Total Revenue ($m)
0.1
3.5
0.2
2017
1.7
3.8
0.4
2018
9.3
4.0
1.0
2019
19.1
3.1
0.1
2020
Product Sales – BTM
BARDA Contract Revenue
Other
For FY21 we anticipated doubling our sales
revenues. NovoSorb BTM European markets
will expand further in FY21 through a mix
of distributor appointments and direct
market entries. Asian markets are also
anticipated to grow with new regulatory
approvals forecast in Q2 and Q3.
Our Australia/European burn trial and the US
Feasibility trial results have been published.
These trials have demonstrated the safety
and effectiveness of NovoSorb BTM in
the treatment of full thickness burns.
We have also seen the publication of
Professor John Greenwood et al treating
a 95% TBSA burn patient with NovoSorb
BTM and cultured composite skin grown
in NovoSorb foam substrate.
The BARDA funded pivotal trial is
progressing through its US FDA approval
process and we anticipate seeing an
increased clinical workload and recruitment
in late Q1 and Q2.
Phase 1 of the Hernia factory build is
complete and most of the manufacturing
equipment is in hand. The development
timeline has been impacted by CoVid19
with some machines being delayed in
shipment and with international travel
restrictions in place we have not been
able to get European engineers on site
to commission the new equipment.
Our in-house teams are working through
the commissioning process and we
anticipate filing our US FDA 510(K)
application around July 2021 with product
on sale before the end of CY2021.
Further details of the product pipeline
can be found in our Annual Report.
Further information
Paul Brennan
Managing Director
Mobile +61 427 662 317
David Williams
Chairman
Mobile: +61 414 383 593
Appendix 4E – Rule 4.3A
Preliminary Final report
PolyNovo Limited
ABN 96 083 866 862
1. Details of the reporting period and the previous corresponding period
Reporting Period:
Previous Corresponding Period:
Year ended 30 June 2020
Year ended 30 June 2019
2. Results for announcement to the market
2.1. Total revenue
2.2. Loss after tax
2.3. Loss after tax attributable to members
2.4. Dividends
2.5. Record date for dividend entitlement
2.6. Brief explanation of figures in 2.1 to 2.3:
Change from 2019
up
up
up
54.6%
31.5%
31.5%
to
to
to
2020
$22,228,501
($4,193,738)
($4,193,738)
No dividend paid or declared in either period
Not applicable
Refer to (i) the enclosed announcement by the Chairman
and Managing Director and (ii) the Chairman’s and
Managing Directors’ Report and separate Directors’ Report
contained in the enclosed 2020 Annual Report.
3. Net tangible assets
Net tangible asset backing per ordinary security
4. Consolidated Statements of Comprehensive Income, Financial Position,
Changes in Equity and Cash Flow are contained in the enclosed 2020
Annual Report.
5. Details of control gained or lost over entities during the period
6. Details of individual dividends and payment dates
7. Details of dividend reinvestment plans
8. Details of associates and joint venture entities
9. For foreign entities, which set of accounting standards is
9. This report is based on accounts which have been audited. The audit report,
which is unmodified is contained in the enclosed 2020 Annual Report.
Date: 26 August 2020
Jan Gielen
Company Secretary
30 June 2020
30 June 2019
$0.036
$0.039
Not applicable
Not applicable
Not applicable
Not applicable
International Financial
Reporting Standards
Our vision taking shape
Annual Report 2020
Improving outcomes.
Changing lives.
Contents
Global Expansion
Product Development
Our Performance
Chairman and MD Report
Directors’ Report
ESG Statement and Corporate Governance
Remuneration Report – Audited
Auditor’s Independence Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Information Required by ASX
Corporate Directory
2
4
5
6
8
19
20
28
29
30
31
32
33
69
70
76
77
“PolyNovo’s principal activity is the
development of innovative medical
devices for a number of applications,
utilising the patented bioabsorbable
polymer technology NovoSorb®.”
Paul Brennan
Managing Director
PolyNovo Limited ABN 96 083 866 862
Annual Report 2020 Vision
PolyNovo is prepared for an exciting future with expansion into new
markets and continued growth in NovoSorb BTM production within
our own facilities.
The talent within our team continues to grow ensuring we have
the resources to execute our strategy of bringing disruptive medical
devices to market. These devices are all focused on our mission:
Improving outcomes and changing people’s lives.
PolyNovo Limited 1
Annual Report 2020 Global Expansion
Strong sales performance and new market entries
PolyNovo continues to double revenue from NovoSorb BTM.
Sales force expansion continues with customer acquisition
and deeper account penetration the focus. European and
Asia new market entries are forecast for the year ahead.
Hernia factory, stage 1, complete and further R&D
resources being added.
PolyNovo has invested in
four key strategic areas
1. Sales team
Sales and Marketing resources have been
added to Australia, Singapore, USA and UK.
Recruitment is in progress for further head
office roles, an Irish sales team and further
US sales roles to service new territories.
FY20 has seen strong sales performances
in the USA, Australia, New Zealand and
Germany, Austria & Switzerland (DACH)
region. Our depth of resources has
improved significantly, and we have
weathered the CoVid-19 pandemic very
well. The maturity of our organisation
and the empowerment of local teams
has seen PolyNovo continue to deliver
on our plan to double NovoSorb BTM
revenue each year.
FY21 has a solid foundation for further
revenue growth through deeper
penetration of our existing markets and
the entry into new markets throughout
Europe and Asia. The Company has
shadowed the breakeven line throughout
FY20 however we have chosen to
reinvest in the expansion of the Sales
and Marketing teams to drive our market
penetration and realise the returns of
high margin sales revenue. Our research
and development programs are focused
on near term commercialisation devices
in Hernia, Breast, Sports Medicine and
Chronic wounds. FY21 will be focused
on completion of the commercial
manufacturing process of Syntrel, our
NovoSorb based hernia devices, whilst
concurrently developing new devices
with our enlarged Research &
Development team. Establishing multiple
revenue streams whilst sweating our
production assets will provide PolyNovo
with a strong and sustainable future.
Achievements
CE Mark Approval
FDA Breakthrough Device Granted
Singapore Regulatory Approval
First $2 million Month for Product Sales
ASX200 Achieved
UK First BTM Surgeries January 2020
Germany First BTM Surgeries January 2020
2 PolyNovo Limited
2. Research and development
The progress of the Syntrel hernia
devices has been very good. The
factory development program has been
significant, and we have managed the
CoVid-19 restrictions very well. Work
has already commenced on sports
medicine devices and we will see further
work on these in FY21. PolyNovo’s
breast product development continues
in parallel with the hernia program.
The manufacturing process will utilise
many of the same machines.
3. Organisational
talent building
We continue to invest in our team. In FY20
we added Quality Assurance, Production,
Engineering, Sales, Marketing, Clinical,
Regulatory, Finance, Human Resources
and Safety roles to the organisation.
The depth of talent within the business
continues to grow. This is enabling regions
to become more proactive, self-sufficient
and timely in their customer engagement.
CRM is fully integrated across all regions
and it is a central business tool and
communication vehicle that drives
our customer interactions.
4. Infrastructure/capital
With the majority of the capital program
now complete our Hernia factory will
go through its validation and approvals
process. This does not require a physical
inspection by regulatory authorities
however PolyNovo must complete a
comprehensive suite of testing and
documentation to meet the global
standards. Further production expansion
programs will follow bringing capacity
into the NovoSorb BTM line and the
ability to make other new devices in
the medium term.
Annual Report 2020
Australia
USA Market Penetration
The Australian sales performance was strong across a wide
range of clinical indications. FY20 saw our expanded sales
team covering all states and territories with NovoSorb BTM
used in chronic wounds, reconstructive surgeries, trauma and
burns. Now that we have a significant customer base the focus
of FY21 will be on deeper account penetration.
Production has been running two shifts since April 2020 and
our production yields are up, production waste reduced and
efficiency improvements have had a positive contribution to
gross profit. The new hernia factory development has been
intensive for many in the team and we are excited to be able
to utilise this facility in FY21.
Europe
PolyNovo entered the UK and Irish markets with a direct sales
organisation. We have expanded the team and have achieved
our first sales in the National Health System (NHS) in the UK.
FY21 holds great promise and we will continue to expand the
sales and marketing resources in response to rising sales and
customer demands.
DACH distribution via PolyMedics Innovations GmbH (PMI)
has been an outstanding success. We have good sales in all
three countries and see a solid growth in the number of
surgeries/applications.
Our strategy has been to establish these two regions as a
beachhead into Europe and we will now expand throughout
Europe and the Nordics with a mix of direct sales and
distribution partners.
New Zealand
PolyNovo has invested in improved warehousing and logistics
processes in New Zealand. This was beneficial in our ability to
service the White Island disaster. Our teams worked very closely
with the hospital teams and we are pleased that so many of the
patients benefited from NovoSorb BTM with some remarkable
outcomes. FY21 will see continued investment in our New
Zealand business as we anticipate launching Syntrel hernia
devices in New Zealand immediately after the USA market
and appointing a local sales representative
The USA will remain PolyNovo’s largest market for all our
medical devices. In the past year the expansion of both the
sales and marketing teams has bought significant benefits
through improved sales and self-reliance in the day to day
running of PolyNovo North America LLC. Management and
the team have demonstrated they can win new accounts
in a CoVid lockdown and continue to grow our revenues.
FY21 will see further growth in the sales organisation.
Our BARDA program saw the completion of the feasibility
burn trial and the filing of the pivotal trial integrated
development environment (IDE). The US FDA also granted
PolyNovo breakthrough technology status allowing us to
have more frequent and direct interaction with the FDA teams.
At this time we are awaiting final approval of the IDE.
FY21 will see further marketing activities preparing for the
launch of Syntrel hernia devices.
Asia
PolyNovo has entered Singapore and Malaysia with a direct
sales team supported by the Australian marketing group.
Four Hospitals in Singapore have evaluated NovoSorb BTM
with several others in progress. Our first sales were achieved
in July 2020.
Middle East
Our sales performance in the Middle East has been
disappointing. This is being addressed through distribution
partner review and expansion into additional countries in
the region. We have also appointed a dedicated business
development manager, based in England, to support our
EU and Middle East/ Africa partners.
South Africa
Ascendis Medical (distributor) have filed several public hospital
tenders with the outcomes of these expected in late Q1 of
FY21. PolyNovo is also assisting Ascendis with data required
by the private health insurance groups to achieve reimbursement
within the private market.
PolyNovo Limited 3
PolyNovo Limited 3
Annual Report 2020 Product Development
Strength through innovation
NovoSorb foam is used
to encourage in-growth
of new tissue to repair
and reinforce the hernia
area being repaired.
The NovoSorb foam will
resorb through hydrolysis.
NovoSorb film is fully
manufactured by
PolyNovo. The NovoSorb
film provides strength
to the device, has low
adhesion generation
properties and acts as
a reinforcement ‘wall’
whilst the reparative
tissue integrates into
the adjacent foam.
PolyNovo will have two
unique devices. One for
intra-peritoneal repair
and the other specifically
for the retro-rectus
muscle plane of repair.
The entire NovoSorb
Syntrel device will reabsorb
leaving behind a strong
repair without the lifelong
compromises and
discomfort of permanent
hernia repair meshes.
4 PolyNovo Limited
Annual Report 2020 Our Performance
NovoSorb BTM Sales
Total Revenue
103.9%
54.6%
Cash on Hand
-16.3%
$19.06m
2020
$9.35m
2019
$22.23m
2020
$14.38m
2019
$11.65m
2020
$13.92m
2019
Net Cashflow
Operating Activities
87.3%
Total Employees
Capital Expenditure
66.0%
36.0%
-$0.43m
2020
-$3.37m
2019
78 people
2020
47 people
2019
$8.87m
2020
$6.52m
2019
Operating Loss
Net Profit / (Loss) After Tax
(Excl. Share Based Payments)
(Excl. Share Based Payments)
-59.4%
-31.1%
-$1.13m
2020
-$2.78m
2019
-$2.13m
2020
-$3.09m
2019
PolyNovo Limited 5
Annual Report 2020 Chairman and MD Report
“Manufacturing improvements have seen
a reduction in waste, improved yields and
meaningful gains in gross profit whilst
reducing our environmental impact.“
Manufacturing improvements have seen
a reduction in waste, improved yields and
meaningful gains in gross profit whilst
reducing our environmental impact.
We have a strong forward inventory
position and sufficient capacity in our
supply chain to address any potential
CoVid-19 impacts or logistic challenges.
We announced the results of our CE
Burn trial and the US feasibility burn trial
in Q3. These trials showed NovoSorb
BTM to be very effective in treating
full thickness burns.
Professor John Greenwood also published
an outstanding paper on the treatment
of a patient with 95% TBSA burns. The
use of NovoSorb BTM followed by his
Cultured Composite Skin (grown in a
NovoSorb substrate) was both remarkable
and rewarding.
The factory build and fit out that will
enable us to commercially manufacture
NovoSorb based hernia and breast
devices has continued at pace with only
minor delays in the building and some
small delays in equipment delivery and
commissioning due to suppliers impacted
by CoVid-19 restrictions.
FY21 promises to be another strong
year of growth for PolyNovo in existing
markets and the opportunity for further
revenue contribution from new markets.
We will continue to reinvest in our teams
to ensure we can service these new
customer demands and expand our
research and development pipelines
bringing new products closer to
commercialisation.
Clinical trials in FY21
Our $15m USD BARDA funded US
pivotal trial will begin recruitment in circa
November, post US FDA approval of the
IDE. The number of patients, number of
sites and end points will be announced
once we have the IDE. PolyNovo is greatly
appreciative of BARDA’s continued support
and the extensive team of expert advisors
they make available.
The non-clinical toxicology and full
degradation study has been concluded.
The final report of this trial has been
submitted to the US FDA. This trial
provides PolyNovo with a wealth of data
to support our marketing programs and
the ultimate PMA submission post-
pivotal trial conclusion.
PolyNovo will begin a health economic and
clinical trial for diabetic foot ulcers and
venous leg ulcers to generate the data
required by US health insurance groups for
a reimbursement code. This process is not
a regulatory requirement however it will
generate supporting data for the use of
NovoSorb BTM in the treatment of these
wounds in an outpatient environment.
This is anticipated to be a two-year
program. Once reimbursement is achieved
PolyNovo will establish a chronic wound
sales team focused on outpatient facilities.
However, NovoSorb BTM already has
regulatory approval for use in all Chronic
wound applications.
Dear Shareholder,
FY19 saw tremendous growth in our
NovoSorb BTM and FY20 more than
doubled that again. In the past year we
have seen significant expansion of our
sales and marketing resources, digital
programs and new account acquisition.
In addition, PolyNovo achieved sales in
new markets of UK, Singapore and the
DACH region.
PolyNovo has strong sales in all our
direct markets and the DACH region.
The US makes our largest revenue
contribution. In FY20 we have seen
BTM used for a wide range of indications.
The continued expansion in elective,
trauma and reconstructive surgery
brings the benefit of more predictable
and consistent revenue streams. Burn
usage is still a significant portion of our
sales and the White Island volcano (NZ)
disaster did see a rise in our December
2019 sales.
The second half of the year was under
a ‘CoVid-19 cloud’ however we
continued to perform strongly winning
new accounts, accelerating sales and
ramping our production capacity. Our
supply and logistics team worked well
to find alternate routes to ensure air
freight processes happened as a ‘matter
of course’.
CoVid-19 has provided many challenges
but we had a strong second half and
closed June 2020 with a record sales
month in the US. Our digital programs
with webinars, video calls, online learning
systems and Customer Relationship
Management software development has
required our teams to be flexible and
rapid in responding to the sales and
marketing challenges. We are well
positioned to continue these programs.
We have worked diligently throughout
FY20 on our Enterprise Resource Planning
system and the advanced manufacturing
module, supply chain metrics and our
logistics systems. This has yielded
significant efficiencies and process
improvements that have a positive
impact on our ability to service urgent
customer demands and internal
stakeholders’ information needs.
6 PolyNovo Limited
Annual Report 2020
New Markets FY20
Since obtaining the CE Mark in
December 2019, PolyNovo has been
able to promote and sell NovoSorb BTM in
the UK and Ireland and the DACH region.
We added two sales representatives and
a marketer in England and our first sales
booked in July 2020. There are many
NHS accounts in evaluation, and we see
significant opportunity in the UK and
Ireland in FY21.
The DACH region is supported by our
distribution partner PMI. We attended
the DAV 38th Annual Meeting of the
German-speaking Working Group for
Burns Treatment) burns conference in
January 2020 and achieved our first sale
the day after. PMI have rapidly penetrated
many of the DACH burn and trauma units
and we now see several of their key
opinion leaders hosting webinars outlining
their NovoSorb BTM successes.
In Singapore and Malaysia, PolyNovo has
entered this market with a direct sales
approach. The first evaluation cases have
been completed with the surgeons very
pleased with the outcomes. We achieved
our first sale in July 2020 in Singapore.
New markets for FY21
PolyNovo will enter Taiwan, Korea,
Kuwait, UAE, Sweden, Norway, Finland,
Benelux, France, Italy and Greece this
financial year. Further markets may be
added. We will utilise a mix of direct
PolyNovo market entry and some via
distributor partnerships.
Hernia
Our Hernia devices will be marketed
under the Syntrel branding. These devices
are different to NovoSorb BTM. They are
constructed of a NovoSorb extruded film
that is ultrasonically welded to NovoSorb
foam. These Syntrel devices are fully
resorbable implanted medical devices.
Construction of the factory is complete.
The next six months will involve
commissioning equipment and validation
work in preparation for lab and non-
clinical testing. The US FDA 510(k)
application is anticipated to be filed in
July/August 2021 with the devices on
sale at the end of calendar year 2021.
As with all new product development,
there is some inherent risk to the
smooth progress of the program as we
have been delayed by some European
suppliers fulfilment due to CoVid-19
restrictions on their assembly and
commissioning support.
Breast
The breast products will utilise many
similar manufacturing techniques as the
hernia devices featuring both film and
foam expressions of the NovoSorb polymer.
FY21 will see parallel development and
refinement of manufacturing processes
for these devices.
Beta-Cell Diabetes
application
Beta-Cell (a non-related commercial
entity) have repeated several animal
studies with good outcomes. They are
currently refining the surgical procedure
for the injection of the islet/ beta cells
before entering human trials. PolyNovo is
supplying NovoSorb BTM in unique size
and configuration for the program.
New Product pipeline
PolyNovo is in the early stages of
developing products in the following
fields: Sports medicine, drug elution
polymer beads and anti-adhesion film
for surgical sites.
Summary
Achieved in FY20:
• Doubled our NovoSorb BTM revenues
• Increased gross margin by 7.6% on
product sales
• Achieved our CE Mark for Europe
• First sales in, Germany, Austria,
Switzerland and Canada and first
sales in July in England and Singapore
• Significant expansion of our sales
and marketing resources
• Completed stage 1 of the hernia
factory build
• Announced both CE and Feasibility
burn trial outcomes
• Concluded the two year, BARDA
funded, non-clinical toxicology and
degradation study
• Filed pivotal trial IDE with US FDA
• Obtained $15m USD BARDA funding
for the US pivotal burn trial.
• Secured finance facilities totalling 9.3m
with National Australia Bank (NAB)
• Developed digital marketing programs
in response to CoVid-19 restrictions
and achieved sales growth and new
accounts throughout the second half
• Appointed two new non-executive
directors to the board
• Further upgraded the ERP system by
enabling an advanced manufacturing
module and established CRM in our
direct markets
• Granted 4 new patents for NovoSorb
technology
• Completed office refurbishment with
capacity for future growth
• Launched multi-region new website.
David Williams
Chairman
Paul Brennan
Managing Director
PolyNovo Limited 7
Annual Report 2020
Mr David Williams
B.Ec (Hons), M.Ec, FAICD
Non-executive Chairman
Dr Robyn Elliott
BSc (Hons) Chemistry,
PhD Inorganic Chemistry
Non-executive Director
Mr Williams was appointed as a Non-
executive Director on 28 February 2014
and Chairman on 13 March 2014.
Mr Williams is an experienced Director
and investment banker with a track
record in business development and
strategy, as well as in mergers and
acquisitions and capital raising.
He possesses 35 years’ experience
working with and advising ASX-listed
companies in the food, medical device
and pharmaceutical sectors.
Mr Williams is currently Chairman of
ASX listed Medical Developments
International Ltd (ASX: MVP), Chairman
of RMA Global Limited and is Managing
Director of corporate advisory firm
Kidder Williams Ltd.
Dr Elliott was appointed a Director of
PolyNovo on 28 October 2019. Dr Elliott
is currently Executive Director, Strategic
Fractionation Program Delivery at CSL
Behring, a global role that is responsible
for business value delivery from a billion
dollar capital expansion portfolio. Dr Elliott
previously held Strategic Expansion and
Quality Senior Director roles within CSL,
was the Managing Director at IDT
Australia and commenced her career at
DBL Faulding. Dr Elliott has a proven track
record in product development, clinical
trials, regulatory affairs, audits, quality
management, project management and
operational strategy. Her worldwide
experience in new facility delivery,
production scale up, strategy, regulatory
affairs and audit will be invaluable to
PolyNovo as the company scales its
operations globally.
Directors' Report
The Directors of PolyNovo Limited
(PolyNovo) present the Directors’ Report,
together with the Financial Report, of the
Company and its controlled entities (the
Group) for the year ended 30 June 2020
and the related Auditor’s Report.
Board of Directors and
Senior Management
The details of Directors and Senior
Management during the year and until
the date of this report are set out below.
Directors were in office for the entire
period unless otherwise stated.
8 PolyNovo Limited
Annual Report 2020
Ms Christine Emmanuel
BSc (Hons) Chemistry, MSc Enterprise,
FIPTA, MAICD
Non-executive Director
Ms Emmanuel was appointed a
Director of PolyNovo on 13 May 2020.
Ms Emmanuel is an accomplished patent
and trademark attorney, and a business
development professional with more than
30 years’ local and international
experience. Ms Emmanuel has a Bachelor
of Science with a major in Economics
(Hons: Chem) from Monash University,
Certificate in Intellectual Property Law
from Queen Mary College, University
of London, Masters of Enterprise from
Melbourne University. She is a member
of the Chartered Institute of Patent
Attorneys UK and has been on the Board
of the Institute of Patent and Trade Mark
Attorneys of Australia since 2010. She is
on Springboard Enterprises Life Sciences
Council, is a non-executive director on
the board of Medical Developments
International and is a member of the
Australian Institute of Company
Directors. Ms Emmanuel was most
recently Executive Manager of Business
Development and Commercial at the
CSIRO, having founded and led the
management of CSIRO’s IP portfolio for
over 10 years and managed the growth
of the CSIRO equity portfolio for the
last 5 years. Previously she was in-house
IP Counsel for Unilever in the UK and
practised as a patent and trademark
attorney for Wilson Gunn (UK) and
Davies Collison Cave and Griffith Hack
in Melbourne.
Mr Leon Hoare
GradDipBus, AssocDipAppSc(Ortho), GAICD
Mr Max Johnston
Non-executive Director
Non-executive Director
Mr Hoare was appointed a Director of
PolyNovo on 27 January 2016. He is the
Managing Director of Lohmann &
Rauscher, Australia & New Zealand (ANZ),
a private EU based medical device
company. Previously he was Managing
Director of Smith & Nephew ANZ (all
divisions) until the end of 2015, one
of Smith & Nephew’s largest global
subsidiaries outside the USA. He served
as President of Smith & Nephew’s
Asia-Pacific Advanced Wound
Management (AWM) businesses for
5 years and was a member of the Global
Executive Management for the AWM
Division. In his 24 years with Smith &
Nephew, he also held roles in marketing,
divisional and general management.
His career also included a senior role
at Bristol-Myers Squibb (in surgical
products), and as Vice Chair of Australia’s
peak medical device body, Medical
Technology Association of Australia.
He is currently a Non-executive Director
of Medical Developments International
Ltd (ASX: MVP).
Mr Johnston was appointed a Director of
PolyNovo on 13 May 2014. Mr Johnston
held the position of President and Chief
Executive Officer of Johnson & Johnson
Pacific, a division of the world’s largest
medical, pharmaceutical and consumer
healthcare company for 11 years. Prior to
joining Johnson & Johnson, Mr Johnston’s
career also included senior roles with
Diageo and Unilever in Europe.
Mr Johnston has also held several
prominent industry roles as a past
President of ACCORD Australasia Limited,
a former Vice Chairman of the Australian
Food and Grocery Council and a former
member of the board of ASMI.
Mr Johnston has had extensive overseas
experience during his career in leading
businesses in both Western and Central-
Eastern Europe and Africa as well as the
Asia-Pacific region. Mr Johnston is
currently a Non-executive Director of
Medical Developments International Ltd
(ASX;MVP), CannPal Limited (ASX:CP1),
BARD1 Life Sciences Ltd (ASX:BD1)
and was a former Non-executive Director
of Enero Group Limited (ASX: EGG),
Non-executive Chairman of Probiotec Ltd
(ASX: PBP) and Non-executive chairman
of AusCann Pty Ltd.
PolyNovo Limited 9
Annual Report 2020 Directors' Report continued
Dr David McQuillan
BSc (Hons) Biochemistry, PhD Biochemisty
Mr Philip Powell
B.Comm (Hons), ACA, F.Fin, MAICD
Mr Bruce Rathie
B.Comm, LLB, MBA, FAIM, FAICD, FGIA
Non-executive Director
Non-executive Director
Non-executive Director
Dr McQuillan was appointed a Director
of PolyNovo on 6 August 2012. He has
extensive technical, medical, scientific
and regulatory knowledge, as well as
merger and acquisition expertise.
Previously he was a Fogerty Fellow at the
NIH (Bethesda, MD), an NH&MRC Fellow
at the University of Melbourne, and
Associate Professor at Texas A&M
University (Houston, TX) where he
studied Tissue Engineering, Regenerative
Medicine, and Biochemistry of the
Extracellular Matrix. Dr McQuillan was
with LifeCell Inc/Kinetic Concepts Inc
(KCI) for 12 years, holding a number of
senior roles, including Vice President for
Research and Development at LifeCell
and Senior Vice President of Advanced
Research and Technology at KCI. He was
Chief Science Officer for TELA Bio, a
VC-funded development-stage
biotechnology company from 2013 to
2015. He is currently a Non-executive
Director for Cell Care Therapeutics Inc
(a privately held stem cell company
based in Monrovia, CA) and Non-
executive Director and Co-Founder of
ECM Technologies Inc (a privately held
biotechnology company based in
Houston, TX).
Mr Powell was appointed a Director
of PolyNovo on 13 May 2014 and was
Acting Managing Director from 15 July
2014 to 13 February 2015.
Mr Powell has many years’ experience
in investment banking specialising in
capital raisings, Initial Public Offerings
(IPOs), mergers and acquisitions and
other successful corporate finance
assignments across a diverse range of
sectors including utilities, IT, pharma,
financial services, food and agriculture.
He spent 10 years in senior financial roles
at OAMPS Ltd, a former ASX-listed
financial services group, and 10 years
in audit with Arthur Andersen & Co in
Melbourne, Sydney and Los Angeles.
Mr Powell is currently a Non-executive
Director of Medical Developments
International Ltd (ASX: MVP), BARD1
Life Sciences Ltd (ASX: BD1) and RMA
Global Ltd (ASX: RMY).
Mr Rathie is an experienced Company
Director with a finance and legal
background.
He practised as a partner in a large legal
firm and acted as Senior Corporate
Counsel to Bell Resources Limited in its
early years. He then studied for his MBA
in Geneva and embarked on his 15 year
investment banking career. When Head
of the Industrial Franchise Group at
Salomon Smith Barney he led Salomon’s
roles in the Federal Government’s
privatisation of Qantas, Commonwealth
Bank (CBA3) and Telstra (T1). He now has
over 19 years’ experience as a full time
professional Non-executive Director.
He is currently Chairman of Capricorn
Mutual Limited and a Non-executive
Director of Capricorn Society Limited,
Australian Meat Processors Limited and
Netlinkz Limited (ASX: NET). In the
medical device space, he is Chairman of
ASX listed 4DMedical Limited (ASX: 4DX)
and was previously Chairman of ASX
listed Anteo Diagnostics Limited and a
Director of Compumedics Limited and
USCOM Limited. He has been a Non-
executive Director of PolyNovo since
February 2010.
10 PolyNovo Limited
Annual Report 2020
Mr Ashok Srinivasan
(BEng (Mechanical), MSc (Industrial Eng)
Chief Operating Officer
Mr Srinivasan was appointed Chief
Operating Officer on 6 May 2019 and
left the Group on 20 December 2019.
Mr Paul Brennan
MBA, BSc (Nursing) RN RM
Managing Director
Mr Jan Gielen
CA, Bachelor Bus (Acc)
Chief Financial Officer
and Company Secretary
Mr Brennan was appointed Chief
Executive Officer (CEO) of PolyNovo Ltd
on 13 February 2015. He was
subsequently appointed Managing
Director on 23 April 2020. Mr Brennan
has extensive knowledge, exposure and
understanding of the health system
through his clinical background and
commercial exposure with various
multinational companies. He has co-
ordinated the marketing, global strategy
development, new product development
and regulatory processes for the
Asia-Pacific region for industry-leading
organisations in relation to medical
products and devices. Mr Brennan has an
intimate knowledge of the manufacturing
and production processes. Previously he
was Marketing Director Australia and
New Zealand and Sales Director New
Zealand for Smith & Nephew Healthcare
from 2008 to his commencement with
PolyNovo in February 2015. Mr Brennan
holds an MBA from Swinburne University,
a Bachelor of Science (Nursing) from
the University of New England in NSW,
Certificate in Midwifery Central Coast
Area Health Service NSW, and General
Nursing certificate from St Vincent’s
Hospital Darlinghurst NSW.
Mr Gielen joined PolyNovo on
12 December 2018. Mr Gielen holds a
Bachelor of Business (Accounting) degree
from Monash University, is a member of
the Institute of Chartered Accountants
and commenced his career with Pitcher
Partners. Since then Mr Gielen has held
senior finance roles for various businesses
across a range of industries such as
retail, ICT, logistics (3PL) & medical,
both locally and internationally. Mr Gielen
has extensive experience in CFO and
Finance Director roles for fast growing
PE and VC backed businesses and played
an important part in expanding these
businesses globally, both from a financial
and operational perspective. Mr Gielen
had a long involvement from inception
with ICIX, a leading SaaS platform
supporting global retailers and
manufacturers where he served as
Finance Director in Silicon Valley.
Mr Gielen’s most recent role was CFO
of CardioScan for 6 years, Australia’s
largest cardiac reporting provider, which
during his tenure expanded to HK,
Singapore & North America.
PolyNovo Limited 11
Annual Report 2020 Directors' Report continued
Review of Operations
Corporate and Organisational
structure
PolyNovo Limited, the ultimate parent
entity of the PolyNovo Group, is a public
company listed on the Australian Securities
Exchange. As at 30 June 2020, PolyNovo
Limited had six wholly owned subsidiaries:
PolyNovo Biomaterials Pty Limited,
NovoSkin Pty Ltd, NovoWound Pty Ltd,
PolyNovo NZ Ltd, PolyNovo UK Ltd, and
PolyNovo North America LLC (PNA LLC)
and PolyNovo Singapore Private Ltd. Three
subsidiary companies are Australian
proprietary companies whilst PNA LLC is
the trading and employment entity for our
US commercial operations and PolyNovo
UK Ltd will be both the employing and
sales entity for UK and Ireland. PolyNovo
NZ Ltd is the registered entity for the
New Zealand business.
Principal Activities and
Operations
PolyNovo’s principal activity is the
development of innovative medical
devices for a number of medical
applications, utilising the patented
bioabsorbable polymer technology
NovoSorb.
NovoSorb is a family of proprietary
medical grade polymers that can be
utilised to manufacture novel medical
devices designed to support tissue
repair and which then bio absorb in
a defined fashion in-situ to harmless
by-products. NovoSorb has significant
advantages over competitor
bioabsorbable polymers in terms of its
design flexibility and biocompatibility.
PolyNovo can manufacture NovoSorb
polymer devices with the ability to
elute drugs, antimicrobials as well as
be expressed in a variety of physical
formats including:
• Films
• Foam
• Coatings/sprays
• Fibres
• Plastic structures
• Biologic carrier
NovoSorb is currently covered by 56
patents all fully owned by PolyNovo.
PolyNovo has no royalty or licence
obligations to any other parties.
A summary of PolyNovo’s lead projects
is following below.
12 PolyNovo Limited
Annual Report 2020 NovoSorb BTM
NovoSorb Biodegradable Temporising
Matrix (BTM) is used in a fully debrided
clean surgical wound to physiologically
‘close the wound’. With the BTM scaffold
in place the dermal layer is regenerated
within the scaffold. Once fully integrated,
the outer layer is delaminated and the
wound closes through secondary
intention (smaller wounds) or through
application of a split skin graft. The BTM
is commercially sold in Australia, USA,
Canada (by exemption), New Zealand,
United Kingdom, Ireland, Germany,
Austria, Switzerland, Singapore, Malaysia,
South Africa, India, Saudi Arabia and Israel.
New markets in FY21 are expected to
be Sweden, Finland, Norway, France,
Benelux, Greece, Italy, Taiwan, Korea,
UAE and Kuwait.
Key attributes of the NovoSorb technology
include an unparalleled range of mechanical
properties and bio absorption times,
excellent biocompatibility and safety
profile and harmless degradants.
Publications and videos relating to
NovoSorb BTM applications can be found
on our website: www.polynovo.com.
NovoSorb BTM continues to feature in
major clinical conference presentations
around the world. Many new clinical
papers have been published in peer
review journals and the surgeon to
surgeon referral of the benefits of
NovoSorb BTM continues to accelerate.
NovoSorb BTM indication
for full thickness burns
NovoSorb BTM is an innovative treatment
for any loss of the dermis. NovoSorb BTM
is indicated for full thickness/ third degree
burns in markets outside of the USA.
Full thickness burns treatment for US FDA
regulatory ‘claim’ requires additional
clinical evidence generation (trials).
This pivotal trial is in progress and funded
by BARDA. Successful completion of this
trial will enable PolyNovo to file a PMA
claim for full thickness burn use and may
lead to BARDA acquiring a stockpile of
NovoSorb BTM for disaster management.
“NovoSorb BTM continues to feature in major
clinical conference presentations around the
world. Many new clinical papers have been
published in peer review journals and the
surgeon to surgeon referral of the benefits
of NovoSorb BTM continues to accelerate.“
USA Burns Trial – BARDA
Our Biomedical Advanced Research
and Development Authority (BARDA)
contract, funded by the U.S. Department
of Health and Human Services (Office
of the Assistant Secretary for
Preparedness and Response) commenced
on 28 September 2015. This feasibility
trial concluded in March 2020 and the
Company has announced the excellent
result of this trial on 21 April 2020.
PolyNovo completed the swine toxicology
study mapping the full degradation
pathway of the NovoSorb BTM during
FY20. The data generated in this study
will support our PMA application and add
to the body of evidence demonstrating
the mode of action of NovoSorb BTM.
The pivotal trial will be funded by BARDA
to US$15 million. PolyNovo will also
contribute to the trial through provision
of product, staff resources and
infrastructure support. We are awaiting
final approval of the investigational
device exemption (IDE) by the US FDA
and this will determine the final number
of patients, number of sites and end
points. These criteria define the timeline
and we will announce the details of this
as soon as we receive this approval.
Successful completion of the pivotal trial
will lead to a PMA application with the US
FDA and the use of our scaffold in full
thickness acute burns. The contract is a
cost-plus monthly reimbursement basis.
The finalised list of trial hospitals will be
published via an ASX announcement later
in the year.
Dr Marcus Wagstaff is acting as PolyNovo
Medical Director overseeing the clinical
conduct of PolyNovo trials and providing
valuable clinical support for our global
medical teams.
Regulatory approvals
for NovoSorb BTM in
FY20
CE Mark Certification
PolyNovo UK achieved first sales in July
2020 to 5 NHS’s. Several others are in
evaluation with strong customer interest
and advocacy.
Singapore and Malaysia
PolyNovo has achieved regulatory
approvals in Singapore and Malaysia
during FY20. A direct sales force has
also been appointed in Singapore and
completed several surgeries utilising
NovoSorb BTM.
Hernia Repair
PolyNovo completed the Stage 1 build
of the factory and this will allow us to
commercially manufacture Syntrel hernia
devices. Stage 2 and 3 relate to further
capacity increases and manufacturing
redundancy capacity. These will be stages
undertaken in FY21/22.
Current timelines anticipate filing a US
FDA 510(k) application in June/July
2021. This will allow an on-sale target
of late 2021. There remains some risk
in the timeline as we work through the
scale up from R&D to commercial
manufacturing transfer.
PolyNovo Limited 13
Annual Report 2020
Directors' Report continued
“PolyNovo has invested further into the upgrade
of our Enterprise Resource Planning (ERP)
system by enabling an advance manufacturing
module and a Client Relationship Management
(CRM) tool to actively manage the business
and customer needs across multiple countries.“
Strategic Overview and
Likely Developments
PolyNovo’s focus over the next twelve
months will be to:
• Continue to accelerate revenue from
NovoSorb BTM in the existing markets
and expand our geographic reach as
outlined
• Conduct validation and verification
processes for the hernia product
leading to the filing of US FDA 510(K)
• Commence recruitment for the US
pivotal burn trial by end of Calendar
Year 20
• Advance our sports medicine product
• We look forwards making commercial
grade prototypes of breast products
with our new manufacturing machines
and facility coming on stream in FY21.
• Further develop NovoSorb drug eluting
depot
• Support the BetaCell expansion of
NovoSorb BTM use as a dermal deposit
for Type 1 diabetes
• Begin recruitment for the US DFU/VLU
reimbursement trial
• Establish our first GPO/IDN agreements
in the US
• Continue the partnership with Skin
TE on their Cultured Skin Composite
utilising NovoSorb foam substrate
within a bioreactor
The expenditure program will be updated
at the half year results as we have tender
bidding in process for this program.
Currently we rent space and facilities
from Universal Biosensors to house our
film production. This will come back to
the Port Melbourne facility once Stage 2
is complete.
PolyNovo has invested further into the
upgrade of our Enterprise Resource
Planning (ERP) system by enabling an
advance manufacturing module and a
Client Relationship Management (CRM)
tool to actively manage the business and
customer needs across multiple countries.
The ERP system is also integrated into the
CRM program to provide live sales against
target and order dispatch reports to the
sales team. This complete integration is
bringing significant benefit to our teams
and the efficiencies of the business in
establishing new accounts and servicing
customer needs.
Paradigm eQMS system has also been
installed and this program is undergoing
validation processes. Once validation is
complete this will greatly improve the
electronic handling of the quality
related activities.
Significant Changes in
the State of Affairs
PolyNovo secured a $9.3m debt facility
during the period, secured over 1/320
Lorimer St, Port Melbourne, to fund
capital expenditure. Other than the above
and except as otherwise set out in this
report, the Directors are unaware of
any significant changes in the principal
activities of PolyNovo during the year
ended 30 June 2020.
Breast Device Developments
PolyNovo has been developing breast
products in partnership with Establishment
Labs (EL). The focus in the past year has
been on the breast ‘pocket’ device.
This device will aid in the placement,
orientation and reduce the risk of
capsular contraction.
PolyNovo sees good opportunities
in both reconstructive and aesthetic
market segments for these products.
NovoSorb Dermal Beta
Cell Implant
PolyNovo is collaborating with BetaCell
Technologies Pty Ltd, on a research
project exploring the potential of
integrated NovoSorb BTM to host
pancreatic islets in the skin. Betacell have
completed several swine studies with
good results. They are currently refining
the surgical procedure before determining
the timeline to human trials. PolyNovo
will manufacture unique shapes and sizes
of NovoSorb BTM for the application.
BetaCell, have funding supported by the
Juvenile Diabetes Research Foundation
(JDRF, US). BetaCell will manage the
trial program.
NovoSorb Drug Elution
Depot (pellet)
PolyNovo produced polymers with up
to 45% of the weight being a bound
drug. Our initial work is focused on low
temperature extrusion for optimal drug
stabilisation. Further development will
continue in the coming year with the aim
to develop a comprehensive technical
dossier in preparation of clinical trials.
PolyNovo is likely to license this
technology to a pharmaceutical partner
once we have established robust
evidence to support the mode of action
and stability of drug elution rates.
Capital investment
PolyNovo has completed the majority
of our capital program with completion
of Stage 1 being the construction of the
hernia factory and purchase of production
equipment. There are additional pieces
of equipment to acquire in Q1 of FY21.
Stage 2 of the hernia factory is the fitout.
14 PolyNovo Limited
Annual Report 2020
Significant Events After
the Balance Date
The Directors are not aware of any other
matters or circumstances since the end
of the financial year other than those
described above, nor otherwise dealt with
in this report, which have significantly
affected, or may significantly affect, the
operations of the Group, the results of
those operations or the state of affairs
of the Group in subsequent financial years.
The Group continues to monitor the
impact of the pandemic (CoVid-19)
and the response from governments
in controlling outbreaks. The Group
continues to take steps to mitigate an
impact of the pandemic by increasing
stock levels locally in all markets to avoid
any potential supply chain impediments
and focusing on digital sales and
marketing campaigns.
Announcements released by the
Company after the balance date include:
• 10 July 2020 – Pivotal Trial
Protocol Update
• 10 July 2020 – Trading Update
• 14 July 2020 – BARDA Funding
for Pivotal Trial
Financial Results
PolyNovo Limited reported revenue
for the year ended 30 June 2020 of
$22,228,501 an increase of $7,850,576
from the prior year’s $14,377,925.
The net loss after tax (NLAT) of
$4,193,738 for FY20 was an increase
of $1,003,845 from the prior year’s
$3,189,893. The NLAT included
share-based payments expense of
$2,061,772 (2019: $97,041).
A number of factors contributed to the
result as follows:
• Revenue from the sale of commercial
products for FY20 increased by 104%
to $19,064,982 from the prior year’s
$9,348,226
• Revenue from BARDA for FY20
decreased by 23% to $3,091,140
from the prior year’s $4,000,994.
This decrease is reflective of the lower
activity in the transition from feasibility
to pivotal trial. Revenue is expected
to increase in FY21 once the Pivotal
trial commences following US FDA
protocol approval.
• Employee related expenses (increased
by 76% to $15,073,365. This increase
is due to share-based payments
expense provided to key management
personnel and headcount increases
to drive growth primarily within
marketing, sales, production, quality
and human resources.
• Included in revenue is interest income for
FY20 of $35,311 which is $298,792
lower than prior year’s $334,103 due
to a decrease in cash on hand.
• Depreciation and amortisation
increased by $527,575 attributable to
12 months depreciation of the acquired
320 Lorimer Street building and leased
assets recognised under AASB 16
following transition as at 1 July 2019.
• Corporate, administrative and overhead
expenses increased by 58% to
$6,271,861 reflecting the increased
growth and activity in the business.
R&D Tax Incentives
During the 2020 financial year, the
Company received a 43.5% refundable
tax offset of $694,182 (cash) in relation
to the FY19 R&D tax incentive scheme.
PolyNovo will submit an application
in relation to FY20. However, as the
Company has exceeded the $20 million
R&D cash tax threshold being the
maximum revenue allowable for the
claiming of a cash refund, a deduction
is recognised against taxable income.
PolyNovo Limited 15
Annual Report 2020
Companies such as PolyNovo are
dependent on the success of their
research projects and their ability to
attract funding to support these activities.
Investment in research and development
projects cannot be assessed on the same
fundamentals as other trading enterprises
and access to capital and funding for the
Group and its projects going forward
cannot be guaranteed. Investment in
companies specialising in research
projects, such as PolyNovo, should be
regarded as highly speculative. PolyNovo
strongly recommends that professional
investment advice be sought prior to
individuals making such investments.
Forward-looking
Statements
Certain statements in this Annual Report
contain forward-looking statements
regarding the Company’s business and
the therapeutic and commercial potential
of its technologies and products in
development. Any statement describing
the Company’s goals, expectations,
intentions or beliefs is a forward-looking
statement and should be considered an
at-risk statement. Such statements are
subject to certain risks and uncertainties,
particularly those risks or uncertainties
inherent in the process of discovering,
developing and commercialising drugs
and medical devices that can be proven
to be safe and effective for use in
humans, and in the endeavour of building
a business around such products and
services. PolyNovo undertakes no
obligation to publicly update any forward-
looking statement, whether as a result
of new information, future events, or
otherwise. Actual results could differ
materially from those discussed in this
Annual Report. As a result readers of
this report are cautioned not to rely
on forward-looking statements.
Directors' Report continued
During the 2020 financial year, the
Company has recognised a FY19 R&D
tax incentive income of $36,956 (cash)
which relates to a successful overseas
application granted in the year.
Directors or Company Secretary in
successfully defending civil or criminal
proceedings in relation to the Company.
No monetary restriction was placed on
this indemnity.
The Company has insured its Directors,
Company Secretary and Executive
Officers for the period under review.
Under the Company’s Directors’ and
Officers’ Liability Insurance Policy, the
Company shall not release to any third
party or otherwise publish details of the
nature of the liabilities insured by the
policy or the amount of the premium.
Accordingly, the Company relies on
section 300(9) of the Corporations Act
2001 to exempt it from the requirement
to disclose the nature of the liability
insured against and the premium
amount of the relevant policy.
Indemnification
of Auditors
To the extent permitted by law, the
Company has agreed to indemnify its
auditors, Ernst & Young Australia, as part
of the terms of its engagement agreement
against claims by third parties arising from
the audit (for an unspecified amount).
No payment has been made to indemnify
Ernst & Young Australia during or since
the financial year.
Inherent Risks
of Investment in
Biotechnology
Companies
There are many inherent risks associated
with the development of pharmaceutical
and medical products to a marketable
stage. The clinical trial process is designed
to assess the safety and efficacy of a
drug or medical device prior to
commercialisation and a significant
proportion of drugs and medical devices
fail one or both of these criteria. Other
risks include uncertainty of patent
protection and proprietary rights,
whether patent applications and issued
patents will offer adequate protection
to enable product development, the
obtaining of necessary regulatory
authority approvals and difficulties caused
by the rapid advancements in technology.
Closing share price
30 June 2016
30 June 2017
30 June 2018
30 June 2019
30 June 2020
$0.28
$0.21
$0.54
$1.54
$2.54
A high of $3.15 was reached on
2 February 2020.
Loss Per Share
In Australian dollars $
Basic loss per share – cents
Cents
(0.63)
Diluted loss per share – cents
(0.63)
As the Group made a loss for the year
ended 30 June 2020, potential ordinary
shares, being options or performance
rights to acquire ordinary shares, are
considered non-dilutive and therefore
not included in the diluted earnings
per share calculation.
Dividends
No amounts have been recommended
by the Directors to be paid by way of
dividend during the current financial year.
No cash dividends have been paid or
declared by PolyNovo since the beginning
of the financial year.
Indemnification and
Insurance of Directors
and Officers
During the year ended 30 June 2020,
the Company indemnified its Directors,
Company Secretary and Executive
Officers in respect of any acts or
omissions giving rise to a liability to
another person (other than the Company
or a related party) unless the liability
arose out of conduct involving a lack
of good faith. In addition, the Company
indemnified the Directors and the
Company Secretary against any liability
incurred by them in their capacity as
16 PolyNovo Limited
Annual Report 2020
Board and Committee Meetings
Details of the number of meetings of the Board of Directors and Board committees, and Directors’ attendance at those meetings,
during the year under review are set out in the table below.
Full Board
Audit and Risk
Committee
Remuneration
Committee
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
Meetings
attended
Meetings
eligible to
attend
12
2
1
12
7
2
12
12
12
12
12
12
12
7
2
12
12
12
12
12
12
-
-
-
-
2
-
2
2
-
-
-
-
-
2
-
2
2
-
1
-
-
1
-
-
-
-
-
1
-
-
1
-
-
-
-
-
Directors
Total number
of meetings held
Role
Mr David Williams
Non-Executive Director
Dr Robyn Elliott
Non-Executive Director
Ms Christine Emmanuel
Non-Executive Director
Mr Leon Hoare**
Non-Executive Director
Mr Max Johnston
Non-Executive Director
Dr David McQuillan
Non-Executive Director
Mr Philip Powell*
Non-Executive Director
Mr Bruce Rathie
Mr Paul Brennan
Non-Executive Director
Executive Director
* Mr Philip Powell is Chair of the Audit Committee.
** Mr Leon Hoare is Chair of the Remuneration Committee.
Directors’ Shareholdings and Declared Interests
At 30 June 2020, the Directors of PolyNovo collectively hold 35,795,334 shares in the Company.
As at the date of this report the interests of the Directors in the Company’s shares are:
Name Directors
Mr David Williams
Dr Robyn Elliott
Ms Christine Emmanuel
Mr Leon Hoare
Mr Max Johnston
Dr David McQuillan
Mr Philip Powell
Mr Bruce Rathie
Mr Paul Brennan
Total
Shares held directly
Shares held indirectly
-
-
-
-
-
608,313
-
-
5,315,872
5,924,185
18,000,000
-
-
1,280,220
1,533,612
-
1,266,667
3,605,555
4,185,095
29,871,149
As at 30 June 2020 and as at the date of this report, no Director has an interest in any contract or proposed contract with PolyNovo
other than disclosed below or in the Groups 2020 Annual Report. Further details of the equity interests of Directors can be found in
the Remuneration Report.
PolyNovo Limited 17
Annual Report 2020
Directors' Report continued
Auditor
Ernst & Young (EY) continues in office
in accordance with section 327b(2)
of the Corporations Act 2001.
$
Tax compliance services
172,537
Corporate secretarial services
36,156
Total
208,693
Non-audit Services
During the year ended 30 June 2020, the
amount received, or due and receivable for
non-audit services provided by PolyNovo’s
auditor Ernst & Young were as shown
below. The directors are satisfied that the
provision of non-audit services is
compatible with the general standard of
independence for auditors imposed by the
Corporations Act 2001. The nature and
scope of each type of non-audit service
provided means that auditor independence
was not compromised.
Auditor’s Independence
Declaration
The auditor has provided a written
declaration that no professional
engagement for the Group has been
carried out during the financial year
that would impair Ernst & Young’s
independence as auditor. The declaration
is set out on page 30.
18 PolyNovo Limited
Annual Report 2020 ESG Statement and Corporate Governance
PolyNovo brings disruptive, innovative and
regenerative medical device products to
market that improve the clinical, functional
and cosmetic outcomes for our patients.
Our products offer significant health
economic benefits to patients, surgeons
and health systems. To date, no NovoSorb
BTM treated area of our patients have
had to undergo scar revision surgery. This
reduces the social, economic, physiological
and emotional demands of our patients
allowing them to recover to their best
possible lives. It is also encumbered upon
us to realise our social and ecological
responsibilities. At this early stage of our
commercial development we cannot afford
to invest in all endeavours however we
strive to improve on all aspects of our
business year on year.
Our People
PolyNovo provides a safe, functional
and aesthetically pleasing environment
for all of our staff. Our offices in Port
Melbourne and San Diego have considered
ergonomics, lighting, airflow and provision
of creative spaces and well-equipped
meeting rooms. We utilise LED lighting
to ensure we minimise energy use but
also provide excellent illumination for
all work functions.
All staff have an appraisal and
development program to ensure we
continue to develop our skill base, improve
the productivity of the business and give
our staff the opportunity of personal
growth. Training is achieved through
conference attendance, specific targeted
educational programs and mentorship
from colleagues and managers.
Our Environment
PolyNovo runs a cleanroom production
facility for the manufacture of implantable
medical devices. These facilities consume
significant energy resources. PolyNovo
offsets this by sourcing power through our
provider, Red Energy, who are committed
to renewable energy sourcing from solar,
wind and Snowy hydro. Other measures
to reduce energy and waste are:
• LED lighting on a mix of timers and
central shutdown switches
• Ability to shut down air conditioning
when not required by encapsulating
work in progress device elements
within sealed foiled storage pouches
• A dedicated waste reduction program
focused on high yield and full
consumption of input ingredients
• Recycling of paper and cardboard waste
• Redundant chemical disposal via
ToxFree, an accredited environmental
waste recycling/disposal group
• Sourcing raw materials in the smallest
minimum order quality to meet
production forecast, thereby minimising
waste of expired input materials. This
can cost more per kilo in the initial
purchase however we save in waste,
disposal and environmental impact
• Using airfreight finished goods to global
markets as our product is light weight
and carbon output from shipping would
be more significant
• Minimising international travel to
essential travel that drives significant
business opportunities. This also
reduces the impact on staff wellbeing.
Video conferencing maintains
interaction and reduces travel.
• Utilising e-storage of files wherever
possible and use electronic signature
when legally possible to reduce printing
and storage
• Have introduced a sophisticated ERP,
CRM and eQMS system to reduce
paper use and waste
• PolyNovo uses little water in the
production of our products
• Have a no smoking policy at our
offices and external receptacles
for cigarette butts (if people do
smoke) to reduce these plastic items
contaminating our waterways
Our Community
PolyNovo supports various social programs
through sponsorships, advertising
placement, staff and volunteer time.
We are members of industry associations
focused on developing the Biotech and
medical device community and the
talent pool this industry sector nurtures.
We support medical professionals in
their associations via sponsorships and
educational programs.
We are particularly pleased to support
Angel Faces www.angelfaces.com. This
group supports young women who have
suffered significant burns to build social
confidence, social networks and
rehabilitate through peer-to-peer support.
Our staff also attend and support local
burn camps for children, actively
dedicating their time in the support
the children and their families.
PolyNovo also provides free NovoSorb
BTM for charity and reconstructive
surgery cases around the world, enabling
access to the best clinical outcomes.
Modern Slavery
PolyNovo only sources raw materials
from reputable accredited suppliers. We
regularly review our suppliers to ascertain
they maintain full and current accreditation
to international quality standards.
Overview
The Board of PolyNovo is responsible for
the corporate governance of the Group
and guides and monitors the business on
behalf of its shareholders. The Board has
strived to reach a balance between industry
best practice and appropriate policies for
PolyNovo in terms of its size, stage of
development and role in the biotechnology
industry. PolyNovo performed a review of
its Board policies and governance practices
with reference to the eight Principles of
Good Corporate Governance (Principles)
and the Best Practice Recommendations
(Recommendations) established by the
ASX Corporate Governance Council. The
Recommendations are not mandatory and
cannot, in themselves, prevent corporate
failure or poor corporate decision-
making. They are intended to provide a
reference point for companies regarding
their corporate governance structures
and practices.
The Directors have considered each of
the core Principles and Recommendations
applicable for the year ended 30 June
2020. There are instances where the Group
would not benefit from compliance with the
Recommendations, and in some instances
the Group has not had the resources to
comply. The Recommendations that were
not adopted are discussed in the Corporate
Governance Statement located on the
Company’s website.
PolyNovo’s Corporate Governance
Statement, which summarises the
Group’s corporate governance practices
and incorporates the disclosures required
by the ASX Principles, can be viewed
on the Company’s website at
www.polynovo.com/company
PolyNovo Limited 19
Annual Report 2020 Remuneration Report – Audited
The Directors of PolyNovo present the Remuneration Report prepared in accordance with section 300A of the Corporations Act 2001
for the Company and its controlled entities (the Group) for the year ended 30 June 2020. This Remuneration Report is audited.
Variable pay arrangements to key management personnel are subject to the governance and approval of the Remuneration Committee
and no variable pay has been made this period.
This Remuneration Report forms part of the Directors’ Report and includes details of the Group’s remuneration strategy and arrangements
for the 2020 financial year.
Mr Paul Brennan received a discretionary bonus of $75,000 inclusive of superannuation relating to the financial year 2019.
This report outlines the compensation arrangements for the key management personnel of PolyNovo and explains how these
arrangements are linked to Company performance.
Key Management Personnel
Key management personnel are those persons who are responsible for planning, directing and controlling the activities of the Group.
The Board has determined that the key management personnel of the Group are the Non-executive Directors and Senior Managers
(Executives) of PolyNovo, whose details are set out below. The following are Key Management Personnel during the period unless
otherwise stated.
Non-executive Directors
• Mr David Williams – Non-executive Chairman (appointed as Non-executive Director on 28 February 2014 and Non-executive
Chairman on 13 March 2014)
• Dr Robyn Elliott – Non-executive Director (appointed 28 October 2019)
• Ms Christine Emmanuel – Non-executive Director (appointed 13 May 2020)
• Mr Leon Hoare – Non-executive Director (appointed 27 January 2016)
• Mr Max Johnston – Non-executive Director (appointed 13 May 2014)
• Dr David McQuillan – Non-executive Director (appointed 6 August 2012)
• Mr Philip Powell – Non-executive Director (appointed 13 May 2014)
• Mr Bruce Rathie – Non-executive Director (appointed 18 February 2010)
Managing Director and Senior Managers
• Mr Paul Brennan – Managing Director (appointed 13 February 2015)
• Mr Jan Gielen – Chief Financial Officer/Company Secretary (appointed 12 December 2018)
• Mr Ashok Srinivasan – Chief Operating Officer (appointed 6 May 2019, resigned 20 December 2019)
Remuneration Strategy
PolyNovo has designed its compensation policies to ensure significant linkage between rewards and specific achievements that are
intended to improve shareholder wealth. In assessing the link between Group performance and compensation policy, it must be recognised
that biotechnology companies generally do not make a profit until a drug or device is licensed or commercialised, either of which takes
a number of years.
Furthermore, the biotechnology sector as a whole is highly volatile, significantly driven by market sentiment and inherently high risk.
Therefore, the direct correlation of compensation policy and key financial performance measures such as total shareholder return (TSR),
net earnings per share or Company earnings, in the view of the Board, are inappropriate. As an alternative, key milestones are a more
meaningful measure of performance to correlate levels of compensation. These milestones are discrete achievements that can be used
to evaluate PolyNovo’s progress towards commercialising its various projects.
PolyNovo’s annual expenditure has predominantly been driven by research and development activities. The Group has not made a profit
and therefore no dividends have been declared, nor has there been a return of capital. The Group’s performance is based on its key
milestones and with more of the Group’s activities slanted towards the commercialisation stage, additional milestones in relation
to the achievement of product sales and production targets will be added to the traditional clinical trials and licensing deals milestones.
Such milestones are directly linked to performance conditions set within the short-term incentives that form a significant proportion
of Senior Management compensation. The Board continues to review the Group’s compensation policy to ensure competitive and
appropriate rewards that endeavour to result in greater shareholder wealth.
PolyNovo’s compensation policy for key management personnel is designed to provide competitive and appropriate rewards that
are transparent and fully aligned to shareholder interests. In accordance with corporate governance best practice, the Company
has a compensation policy for Non-executive Directors and a separate policy for the Managing Director and Senior Managers.
20 PolyNovo Limited
Annual Report 2020 Non-executive Director Remuneration
The compensation of Non-executive Directors is based on market practice, Directors’ duties and the level of Director accountability.
The compensation policy is designed to attract and retain competent and suitably qualified Non-executive Directors and aims to
align Directors’ interests with the interests of shareholders. Non-executive Directors are paid a set fee plus statutory superannuation,
where appropriate, and are reimbursed for out-of-pocket expenses. In addition, as medium-and long-term incentives, Non-executive
Directors may be invited to participate in the PolyNovo Employee Share Option Plan. Non-executive Directors are encouraged to own
shares in PolyNovo.
Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is approved by shareholders. This limit
has been set at $600,000.
Total Non-executive Directors’ fees (including superannuation but excluding share-based payments and consulting fees) for the year
ended 30 June 2020 were $466,174. The Directors’ fees are considered within the average range for similar sized companies in the
biotechnology industry and are reviewed periodically.
Executive Remuneration
PolyNovo’s compensation policy for its senior managers is determined by the Board and Remuneration Committee and is designed
to link performance and retention strategies to ensure that:
• the balance between fixed and variable (performance) components for each position is appropriate in light of internal and
external factors;
• the objectives set for each person will result in sustainable beneficial outcomes for PolyNovo;
• all variable (performance) components are appropriately linked to measurable personal, business unit or Company outcomes; and
• total compensation (the sum of fixed and variable components) for each Senior Manager is fair, reasonable and market competitive.
Generally, there are three components of Senior Management compensation, as follows:
1. Fixed annual compensation comprising salary and benefits, superannuation and non-monetary benefits.
2. Medium-and long-term incentives, through participation in the PolyNovo Employee Share Option Plan (the Plan) with share price
thresholds to be achieved.
3. Short-term incentives, through a bonus scheme dependent upon performance against objectives and targets which are linked
to PolyNovo’s overall corporate strategy.
Fixed Annual Compensation
Senior Managers are offered a market competitive base salary, which reflects their competencies, job description as well as the size
of the Group. Base salaries are reviewed against market data for comparable positions. Adjustments to base salary are made based
on significant role responsibility changes, pay relativities to market and relative performance in the role.
Medium and Long Term Incentives
PolyNovo’s medium and long term incentive policy for Senior Managers encourages high-quality performance and long-term
retention. Carefully designed and performance linked equity incentive plans are widely recognised as an effective way of providing
performance incentives. Long term incentive plans are measured over 3 years.
Short Term Incentives
PolyNovo’s short term incentive policy for Senior Managers encourages high-quality performance in achieving key performance indicators
during the current financial year. Bonus schemes are widely recognised as an effective way of providing performance incentives.
Short term incentives are based on the Company exceeding budgeted total group revenue by at least ten percent (10%). The maximum
incentive is twenty percent (20%) of salary.
Mr Paul Brennan received a bonus of$75,000 inclusive of superannuation during the financial year 2020 in relation to services performed
in the financial year 2019.
Service Contracts
Managing Director (MD)
Mr Paul Brennan was appointed CEO of PolyNovo Limited on 23 February 2015. He was subsequently appointed MD on 23 April 2020.
Effective 1 October 2019, his employment contract was updated to align with executive positions in other similar companies to improve
retention and to reward performance in line with Company strategy.
PolyNovo Limited 21
Annual Report 2020 Remuneration Report – Audited continued
The key terms of his contract are as follows:
• a salary of $388,127 per annum;
• superannuation of 9.50%;
• a short term annual performance bonus of up to 20% of salary inclusive of superannuation, dependent upon the Company’s
performance against key targets;
• a long term incentive plan in the form of equity interest. Details of the options package and the fair value of options and other
compensation are included in the ‘MD Performance Incentives’ section of the Remuneration Report and in Tables A, B, C and
D below;
• no fixed employment term; and
• the Group may terminate the employment contract by providing three months’ notice or payment in lieu of notice. In the event
of resignation, a notice period of three months is required.
Company Secretary and Chief Financial Officer (CFO)
Mr Jan Gielen was appointed CFO and Company Secretary on 12 December 2018.
Effective 1 October 2019, his employment contract was updated to align with executive positions in other similar companies to improve
retention and to reward performance in line with Company strategy.
The terms of his contract are as follows:
• a salary of $200,000 per annum;
• superannuation of 9.50%;
• a long term incentive plan in the form of equity interest. Details of the options package and the fair value of options and other
compensation are included in the ‘CFO Performance Incentives’ section of the Remuneration Report and in Tables A, B, C and D below;
• no fixed employment term; and
• the Group may terminate the employment contract by providing three months’ notice or payment in lieu of notice. In the event
of resignation, a notice period of three months is required.
Chief Operating Officer (COO)
On 20 December 2019, Mr Ashok Srinivasan resigned as COO.
MD Performance Incentives
The performance evaluation of the MD is conducted by the Board.
On 1 October 2019, PolyNovo granted shares up to the value of $10 million dollars in three equal tranches to the Managing Director,
Mr Paul Brennan. Details of the three equal tranches are set out below.
The vesting hurdles for the shares is aligned to PolyNovo’s market capitalisation reaching and maintaining at all times, $2 billion dollars
for a minimum period of three consecutive months in the relevant financial year. This is equivalent to PolyNovo’s share price trading
at all times above $3.03 for a continuous three-month period.
22 PolyNovo Limited
Annual Report 2020 Once vested, the shares can be allotted in three tranches as follows:
• Tranche 1: 1,100,110 shares, vest over 2 years;
• Tranche 2: 1,100,110 shares, vest over 2 years; and
• Tranche 3: 1,100,110 shares, vest over 3 years.
Any unvested shares will be cancelled at expiry on 30 June 2023 or on the date of termination or cessation of employment.
Once vested, fifty percent (50%) of the shares will be in escrow for twelve months and the remaining fifty percent (50%)
for twenty-four months.
The fair value of the shares relating to the incentive scheme was $4,891,089. The expense relating to the incentive scheme shares
during the financial year was $1,633,713.
CFO Performance Incentives
The performance evaluation of the Chief Financial Officer is conducted by the Board.
On 6 March 2019, PolyNovo issued an options package comprising three tranches totalling 1,000,000 options to the CFO, Mr Jan Gielen.
Details of the three tranches are set out below.
The vesting hurdle for the options is linked to Mr Gielen’s length of employment and the PolyNovo volume weighted average market
price. The vesting hurdles are as follows:
• First hurdle – 12 months of employment with the Company; and
• Second hurdle – a share price of 90 cents must be sustained over a period of at least 90 consecutive calendar days.
Once vested, the options can be exercised in three tranches as follows:
• Tranche 1: 300,000 options – not to be exercised before 31 December 2020 and not later than 30 June 2021;
• Tranche 2: 300,000 options – not to be exercised before 31 December 2021 and not later than 30 June 2022; and
• Tranche 3: 400,000 options – not to be exercised before 31 December 2022 and not later than 30 June 2023.
The options whether they have vested or not will be cancelled on the date of termination or cessation of employment.
The exercise price is $0.60 per option tranche.
All shares issued under the incentive scheme are escrowed for a period of 12 months from date of issue. Sixty percent (60%) of the
shares issued on the exercise of options are restricted shares subject to rule 9 of the Employee Option Plan for a period of 12 months
from the date of issue.
The fair value of the options relating to the incentive scheme shares was $321,700. The expense relating to the incentive scheme shares
during the financial year was $264,787 (2019: $56,913). The fair value of the option expense was fully incurred as at 30 June 2020.
PolyNovo Limited 23
Annual Report 2020 Remuneration Report – Audited continued
Remuneration of Key Management Personnel
Details of the remuneration for key management personnel for the years ended 30 June 2020 and 30 June 2019 are set out
in Table A below.
Short term
Post
employ-
ment
Leave
allow-
ances1
Cash
salary &
fees
$
Cash
bonus
$
Consu-
ling fees2
$
Superan-
nuation
$
Annual and
long
service
$
Termin-
ation
benefits3
$
Share-
based
payments
Options and
perfor-
mance
rights
$
%
perfor-
mance
based
Total
$
Table A
Non-Executive Directors
Mr David Williams
2020
84,133
(Chairman/Non-executive
Director)
Dr Robyn Elliott
(Non-executive Director)
Ms Christine Emmanuel
(Non-executive Director)
Mr Leon Hoare
(Non-executive Director)
Mr Max Johnston
(Non-executive Director)
Dr David McQuillan
(Non-executive Director)
Mr Philip Powell
(Non-executive Director)
Mr Bruce Rathie
(Non-executive Director)
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
81,850
42,651
–
8,523
–
59,030
51,850
59,030
51,850
59,463
52,500
59,030
51,850
59,030
51,850
Subtotal compensation for
Non-Executive Directors
2020 430,889
2019
341,750
Key management personnel
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,490
69,912
–
–
–
–
7,993
7,776
4,052
–
810
–
5,608
4,926
5,608
4,926
–
–
5,608
4,926
5,608
4,926
24,490
35,285
69,912
27,480
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
92,126
89,626
46,703
–
9,333
–
64,637
56,776
64,637
56,776
83,953
122,412
64,637
56,776
64,637
56,776
– 490,663
– 439,142
2020
359,589
68,493
40,668
31,524
– 1,633,713 2,133,987
Mr Paul Brennan
(MD)
Mr Jan Gielen
Mr Ashok Srinivasan
(COO)
Mr Greg Lewis
(CFO/Company Secretary)
Subtotal compensation
for other key management
personnel
Total compensation
for all key management
personnel
–
–
–
–
–
–
–
–
–
2019
264,840
2020
195,662
2020
2019
2020
2019
69,231
26,862
–
83,144
–
–
–
–
–
–
–
25,160
25,871
18,588
13,135
9,655
6,577
2,552
–
8,275
2,272
–
7,259
6,334
–
–
–
–
315,871
264,787
492,172
56,913
176,470
–
–
–
79,549
31,686
–
(2,827)
93,910
–
–
–
–
3,741
2020
624,482
68,493
65,833
44,659
3,741 1,898,500 2,705,708
2019
476,473
–
44,626
42,752
–
54,086
617,937
2020 1,055,370
68,493
24,490
101,118
44,659
3,741 1,898,500 3,196,371
2019
818,223
–
69,912
72,106
42,752
54,086 1,057,079
(CFO/Company Secretary)
2019
101,627
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80%
–
54%
32%
–
–
–
3%
73%
9%
62%
5%
1. Leave allowances: annual and long service: Reflects the employees’ entitlement for the 2020 financial year.
2. Mr David McQuillan: consulting fees: Services provided in relation to product development for the hernia project. The consulting fees are excluded from
the aggregate Directors’ fee pool limit.
3. Mr Srinivasan: Annual leave paid on on termination of employment.
24 PolyNovo Limited
Annual Report 2020 Options Granted as Part of Remuneration
During the year ended 30 June 2020, 3,300,330 share options (2019: 1,000,000) were granted, no options were cancelled (2019: nil),
and no options were forfeited (2019: 1,000,000). These options were issued pursuant to the PolyNovo Employee Share Option Plan.
Details of the share-based payment component included in total remuneration in Table B are set out below.
Table B
2020
financial year
Mr Paul Brennan
Grant date
Grant
number
Average
fair value
per option
at grant
date
$
Fair value
of options
granted
during the
year
$
Value of
options
forfeited
lapsed
during the
year
$
Value of
options
exercised
during the
year
$
Number of
shares
issued
upon
exercise
Value of
shares
received
upon
exercise of
options
$
Fair value
of options
included in
remun-
eration
during the
year
$
%
compen-
sation
consisting
of options
during the
year
Value of
options
yet to be
exercised
$
Shares
Shares
Shares
Sub-total
Mr Jan Gielen
Options
Options
Options
Sub-total
Total
1-Oct-19 1,100,110 $0.51400 1,696,369
1-Oct-19 1,100,110 $0.49300 1,627,063
1-Oct-19 1,100,110 $0.47500 1,567,657
3,300,330
– 4,891,089
6-Mar-19
300,000 $0.23600
6-Mar-19
300,000 $0.31100
6-Mar-19 400,000 $0.39400
1,000,000
4,300,330
–
– 4,891,089
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,696,369 634,396
– 1,627,063 608,477
– 1,567,657 390,840
– 4,891,089 1,633,713
–
–
–
–
70,800
51,920
93,300
76,565
157,600
136,302
321,700
264,787
– 5,212,789 1,898,500
30%
29%
18%
11%
16%
28%
Options and shares granted in year ended 30 June 2020
The fair value of share options granted during the year, as included in Table B, was determined using a Monte Carlo simulation based
pricing model due to it analysing options where the exercise condition is dependent on outcomes associated with factors other than or
in addition to, the share price. The fair value of the options included in remuneration during the year was $1,633,713. This represents
80% allocation to the year ended 30 June 2020 as the options have not yet vested.
Options granted in year ended 30 June 2019
The fair value of options granted during the year, as included in Table B, was determined using a Monte Carlo simulation based pricing
model due to it analysing options where the exercise condition is dependent on outcomes associated with factors other than or in
addition to, the share price. The fair value of options included in remuneration during the year was $56,913. This represents 32%
allocation to the year ended 30 June 2019 as the options have not yet vested.
Options expiry dates
Participant
Mr Paul Brennan
• Tranche 1
• Tranche 2
• Tranche 3
Date
30 June 2023
30 June 2023
30 June 2023
Other terms of the share options include:
• Vesting hurdles – the Company market capitalisation reaching and maintaining $2 billion for a minimum period of three
consecutive months in the relevant financial year. This is equivalent to the Company’s share price trading at all times above
$3.03 for a continuous three-month period.
• Allocation – if market capitalisation is not achieved in the relevant financial year, the share options are available in the following year.
• Escrow period – once vested, fifty percent (50%) of the share options will be in escrow for a period of 12 months and the remaining
fifty percent (50%) will be in escrow for a period of 24 months.
PolyNovo Limited 25
Annual Report 2020
Remuneration Report – Audited continued
Participant
Mr Jan Gielen
Tranche 1
Tranche 2
Tranche 3
Date
30 June 2021
30 June 2022
30 June 2023
Other terms of the share options include:
• Vesting hurdles – 12 months of employment with the Company and a share price of 90 cents must be sustained over a period
of at least 90 consecutive calendar days.
• Exercise price – $0.60 per option tranche.
• Escrow period – 12 months from date of issue with sixty percent (60%) of the shares issued on the exercise of options are restricted
shares subject to rule 9 of the Employee Option Plan for a period of 12 months from the date of issue.
Key Management Personnel Disclosures
Movements in shares of the Company
The movement during the reporting period in the number of shares in the Company held either directly or indirectly by each of the
key management personnel, including their related parties, is set out in the table below:
Balance at 1
July 20193
Granted as
compen-
sation
On exercise
of options
Net change
other1,2
Balance at
30 June
2020
Balance at
end of year
– directly
held
Balance at
end of year
– indirectly
held
Table C
Directors
Mr David Williams
16,600,000
Dr Robyn Elliott
Ms Christine Emmanuel
Mr Leon Hoare
Mr Max Johnston
Dr David McQuillan
Mr Philip Powell
Mr Bruce Rathie
–
–
1,280,220
1,511,112
1,000,000
1,266,667
3,555,555
Other key management personnel
Mr Paul Brennan
10,100,967
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,400,000 18,000,000
– 18,000,000
–
–
–
–
–
1,280,000
22,500
1,533,612
–
–
–
–
–
–
1,280,000
1,533,112
(391,687)
608,313
608,313
–
–
1,266,667
50,000
3,605,555
–
–
1,266,667
3,605,555
(600,000) 9,500,967
5,315,872
4,185,095
1. ‘Net Change Other’ reflects shares privately acquired or disposed during the period.
2. Disposal of shares by Mr Paul Brennan occurred during the period before he was appointed Managing Director.
3. Opening balance has been revised to exclude shares held by closely related parties where there is no control or significant influence by the KMP.
26 PolyNovo Limited
Annual Report 2020 Options and performance rights of key management personnel
The option and share holdings of key management personnel for the year ended 30 June 2020 are set out in the following table.
Balance at
1 July
2019
Granted
as
compen-
sation
Options
exercised
Net
change
other
Balance at
30 June
2020
Total
vested at
end of
year
Total
exercis-
able at
end of
year
Total not
exercis-
able at
end of
year
Total
vested
during
year
Table D
Directors
Mr Paul Brennan
– 3,300,330
Other key management personnel
Mr Jan Gielen
1,000,000
–
Total
1,000,000 3,300,330
–
–
–
– 3,300,330
–
– 3,300,330
–
– 1,000,000 1,000,000
– 4,300,330 1,000,000
1,000,000
4,300,330
Loans to Key Management Personnel
No loans have been made to Directors of PolyNovo or to any other key management personnel, including their personally related entities.
Other Key Management Personnel Transactions
David McQuillan and Associates LLC, an entity associated with Dr David McQuillan was contracted to provide hernia consulting
services, this contract ended in October 2019.
No other transactions between the Group and any of the Directors of PolyNovo or any other key management personnel have
been identified.
This Directors’ Report, incorporating the Corporate Governance Statement and Remuneration Report, has been signed in accordance
with a Resolution of the Directors made on 26 August 2020.
Mr David Williams
Chairman
26 August 2020
PolyNovo Limited 27
Annual Report 2020 Auditor’s Independence Declaration
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Audit or’s independence declarat ion t o t he Direct ors of PolyNovo
Limit ed
As lead auditor for the audit of the financial repor t of PolyNovo Limited for the financial year ended 30 June
2020, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit ; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of PolyNovo Limited and the entities it controlled during the financial year.
Ernst & Young
Joanne Lonergan
Partner
26 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
28 PolyNovo Limited
Annual Report 2020 Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Revenue from contracts with customers
Other income
Research and development tax benefit
Interest income
Other income
Total revenue
Changes in inventories of finished goods and work in progress
Operating Leases
Employee-related expenses
Research and development expenses
Depreciation and amortisation expense
Corporate, administrative and overhead expenses
Lease liability interest expenses
Finance costs
Net loss for the period before tax
Income tax expense
Net loss for the period after tax
Other comprehensive income
Loss on translation of foreign operation
Total comprehensive income/(loss) for the period
Loss for the period is attributable to:
Owners of the parent
Total comprehensive loss for the period attributable to:
Owners of the parent
Loss attributable to members of the parent
Loss per share
Basic loss per share – cents
Diluted loss per share – cents
Notes
30 June 2020
$
30 June 20191
$
4(a)
22,156,123
13,349,220
4(f)
4(b)
36,956
35,311
111
694,602
334,103
–
22,228,501
14,377,925
(1,703,521)
(1,294,146)
–
(193,597)
4(c)
(15,073,365)
(8,549,240)
4(d)
4(e)
16
17
(2,352,698)
(3,248,426)
(837,175)
(309,600)
(6,271,861)
(3,972,809)
(98,977)
(18,000)
–
–
(4,127,096)
(3,189,893)
5
(66,642)
–
(4,193,738)
(3,189,893)
18(b)
(152,132)
(216,639)
(4,345,870)
(3,406,532)
(4,193,738)
(4,193,738)
(3,189,893)
(3,189,893)
(4,345,870)
(4,345,870)
(3,406,532)
(3,406,532)
7
7
(0.63) cents
(0.48) cents
(0.63) cents
(0.48) cents
1. The Group has initially applied AASB 16 using the modified retrospective approach. Under this approach, comparative information is not restated
and the cumulative effect of initially applying AASB 16 is recognised in retained earnings (refer to note 16).
The accompanying notes form part of these financial statements.
PolyNovo Limited 29
Annual Report 2020 Consolidated Statement of Financial Position
As at 30 June 2020
Current assets
Cash and cash equivalents
Inventories
Receivables and contract assets
Prepayments
Other financial assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Right of use asset
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Lease liability
Interest-bearing loans and borrowings
Income tax payable
Deferred tax liability
Provisions
Total current liabilities
Non-current liabilities
Provisions
Lease liability
Interest-bearing loans and borrowings
Deferred rent liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Parent interests
Total equity
Notes
30 June 2020
$
30 June 20191
$
8
9
10
11
24
12
13
16
11
14
16
17
5
5
15(a)
15(b)
16
17
11,647,701
13,920,695
1,217,042
3,921,519
2,441,740
50,000
1,215,450
4,405,047
310,321
50,000
19,278,002
19,901,513
13,890,380
1,900,168
2,646,521
141,870
6,008,219
2,148,016
–
170,767
18,578,939
8,327,002
37,856,941
28,228,515
3,171,995
323,876
5,304,372
54,729
10,837
608,722
1,751,829
–
–
–
–
312,172
9,474,531
2,064,001
166,834
2,420,058
1,983,494
–
4,570,386
47,738
–
–
17,297
65,035
14,044,917
2,129,036
23,812,024
26,099,479
18(a)
18(b)
18(c)
139,070,502
139,070,502
(4,602,269)
(6,511,909)
(110,656,209)
(106,459,114)
23,812,024
23,812,024
26,099,479
26,099,479
1. The Group has initially applied AASB 16 using the modified retrospective approach. Under this approach, comparative information is not restated
and the cumulative effect of initially applying AASB 16 is recognised in retained earnings (refer to note 16).
The accompanying notes form part of these financial statements.
30 PolyNovo Limited
Annual Report 2020 Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
Contributed
Equity
$
Other
Reserves
$
Acquisition
of Non-
Controlling
Interest
Reserves
$
Retained
Earnings
$
Owners of
the Parent
$
Total
$
As at 30 June 2018
138,120,502
2,901,645
(9,293,956) (103,269,221) 28,458,970
28,458,970
Loss for the period
–
Issue of shares on exercise of options
950,000
–
–
Translation of foreign operations
Share based payments
–
–
(216,639)
97,041
–
–
–
–
(3,189,893)
(3,189,893)
(3,189,893)
–
–
–
950,000
950,000
(216,639)
(216,639)
97,041
97,041
As at 30 June 2019
139,070,502
2,782,047
(9,293,956) (106,459,114) 26,099,479
26,099,479
Adjustment related to
new accounting standards
Adjusted balance
as at 1 July 20191
Loss for the period
Translation of foreign operations
Share based payments
–
–
–
(3,357)
(3,357)
(3,357)
139,070,502
2,782,047
(9,293,956) (106,462,471) 26,096,122 26,096,122
–
–
–
–
(152,132)
2,061,772
–
–
–
(4,193,738)
(4,193,738)
(4,193,738)
–
–
(152,132)
(152,132)
2,061,772
2,061,772
As at 30 June 2020
139,070,502
4,691,687
(9,293,956) (110,656,209) 23,812,024
23,812,024
1 The Group has initially applied AASB 16 using the modified retrospective approach. Under this approach, comparative information is not restated
and the cumulative effect of initially applying AASB 16 is recognised in retained earnings (refer to note 16).
The accompanying notes form part of these financial statements.
PolyNovo Limited 31
Annual Report 2020 Consolidated Cash Flow Statement
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Receipts from BARDA reimbursements
Receipts of research and development income tax credit
Receipts from royalty revenue
Payment of interest on lease liabilities
Payments to suppliers and employees
Net cash outflows from operating activities
Cash flows from investing activities
Interest received
Payments for purchase of property, plant and equipment
Transferred to cash and cash equivalents
Net cash outflows used in investing activities
Cash flows from financing activities
Net cash flows from financing activities
Payment of principal on lease liabilities
Proceeds from debt loan facility
Proceeds from the exercise of options
Cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Notes
30 June 2020
$
30 June 20191
$
18,419,968
3,385,242
694,182
245
(98,977)
7,768,050
4,323,872
794,256
245
–
(22,827,983)
(16,256,156)
8
(427,323)
(3,369,733)
24,759
581,566
(8,869,219)
(6,520,204)
–
19,000,000
(8,844,460)
13,061,362
(260,584)
7,287,866
–
7,027,282
–
–
950,000
950,000
(2,244,501)
10,641,629
13,920,695
3,147,081
Effects of exchange rate changes on cash and cash equivalent
Cash and cash equivalents at end of period
(28,493)
131,985
8
11,647,701
13,920,695
1. The Group has initially applied AASB 16 using the modified retrospective approach. Under this approach, comparative information is not restated}
and the cumulative effect of initially applying AASB 16 is recognised in retained earnings (refer to note 16).
The accompanying notes form part of these financial statements.
32 PolyNovo Limited
Annual Report 2020 Notes to the Financial Statements
For the year ended 30 June 2020
1. Corporate Information
The Financial Report of PolyNovo Limited (the Company) and its controlled entities (the Group) for the year ended 30 June 2020
was authorised for issue in accordance with a resolution of the Directors on 26 August 2020.
PolyNovo Limited, a for-profit entity, is a Company incorporated in Australia, whose shares are publicly traded on ASX Limited
(ASX code: PNV). The Company operates predominantly in the medical device and healthcare industry and has operations in Australia,
New Zealand, United Kingdom and the USA.
2. Summary of Significant Accounting Policies
(a) Basis of preparation
The Financial Report is a general-purpose Financial Report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, applicable Accounting Standards and other mandatory professional reporting requirements.
The Financial Report has been prepared on a historical cost basis. The Financial Report is presented in Australian dollars.
The financial statements have been prepared in compliance with Legislative Instrument 2016/191 ‘ASIC Corporations (Rounding
in Financial/Directors’ Reports)’ and rounded to the nearest dollar.
The financial statements of the Group have been prepared on a going concern basis. The Group’s operations are subject to major risks
due primarily to the nature of the research, development and commercialisation to be undertaken. These risks may materially impact
the financial performance and position of the Group, including the value of recorded assets and the future value of its shares, options
and performance rights. The financial statements take no account of the consequences, if any, of the effects of unsuccessful research,
development and commercialisation of the Group’s projects. The Group considered the impact of COVID-19 pandemic in making their
going concern assessment assuming how the business, research and development activities might be affected as well as the Group's
ability to meet its debts and obligations during such environment taking into account all available information about the future. The
Group has taken steps to mitigate any impact of the pandemic by increasing production capacity and output, increasing stock levels
locally in all markets and focusing on digital sales and marketing campaigns.
(b) Statement of compliance
The Financial Report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The Group has adopted all applicable new and amended Australian Accounting Standards and AASB Interpretations that apply as of
1 July 2019. Those Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
effective, have not been adopted. Details of the new and amended Standards adopted, along with a summary of the new and amended
Standards that are not yet effective, are set out below.
(c) Changes in accounting policy, disclosures, standards and interpretations
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of
contingent liabilities.
In preparing the consolidated financial statements, the significant estimates, judgements and assumptions made by management in
applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the most
recent consolidated financial statements. As at 30 June 2020, there were no new judgments, estimates or assumptions other than
those mentioned in the notes to the financial statements (refer to (v) below).
As at 30 June 2020, there were no new judgements, estimates or assumptions other than those mentioned in the notes to the
financial statements (refer to Note 2).
The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2019.
• AASB 23 Uncertainty Over Income Tax Treatment (AASB 23)
• AASB 16 Leases (AASB 16)
PolyNovo Limited 33
Annual Report 2020 2. Summary of Significant Accounting Policies continued
(c) Changes in accounting policy, disclosures, standards and interpretations continued
AASB 23 Uncertainty Over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of
the recognition and measurement criteria in AASB 112 Income Taxes. The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
The Group has assessed whether the Interpretation had an impact on its consolidated financial statements. Upon adoption of the
Interpretation, the Group considered whether it had any uncertain tax positions with no impact on the consolidated financial statements
of the Group.
AASB 16 Leases
The Group adopted AASB 16 Leases using the modified retrospective approach from 1 July 2019. The impact that this initial application
of AASB 16 has on the consolidated financial statements, is described below.
AASB 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition
exemptions for short-term leases and leases of low-value items. AASB 16 replaces existing leases guidance, including AASB 117
Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases – Incentives
and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
Leases in which the Group is a lessee
The Group will recognise new assets and liabilities for its operating leases of its office premises and office equipment. The nature
of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets
and interest expense on lease liabilities.
The Group also applied the available practical expedients wherein it:
• Applied the practical expedient not reassess whether a contract is, or contains, a lease at 1 July 2019
• Relied on its assessment of whether leases are onerous immediately before the date of initial application
• For lease payments the Group applies the practical expedient wherein it does not separate non-lease components from lease
components, and instead accounts for each lease component and any associated non-lease components as a single lease component
• Applied the short-term leases exemptions to leases with lease term that ends within 12 months or less
• Applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value.
Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis
over the lease term.
Summary of new accounting policies
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any
re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group
is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are
depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject
to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments
to be made over the lease term.
34 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily determinable. The lease payments include fixed payments (including in-substance
fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate and amounts expected
to be paid under residual value guarantees. Lease payments on short-term leases and leases of low-value assets are recognised as an
expense on a straight-line basis over the lease term.
The adoption of AASB 16 required the Group to make several judgements, estimate and assumptions, these included:
• The estimated lease term – The term of each lease was based on the non-cancellable lease unless management was ‘reasonably
certain’ to exercise options to extend the lease.
• The discount rate used to determine the lease liability –The Group used an incremental borrowing rate of 3.9% for Australian based
lease arrangements and 3.9% for US based lease arrangements at the lease commencement date as the interest rate implicit in
the leases are not readily determinable. As the Group had no observable debt and no specific interest rates in existing lease contracts
in place as at 1 July 2019, market information was used.
• Interest payments on lease liabilities have been recorded in cash flows from operating activities within the Statement of Cash Flows.
Transition
The application date of AASB 16 for the Group is 1 July 2019. Using the modified retrospective approach the right-of-use assets
for operating leases was recognized based on the carrying amount as if the standard had always been applied, apart from the use
of incremental borrowing rate at the date of initial application. Therefore, the cumulative effect of adopting AASB16 is recognized
as an adjustment to the opening balance of retained earnings at 1 July 2019, with no restatement of comparative information.
The Group applies the following transition practical expedients:
• Applied the practical expedient not to reassess whether a contract is, or contains a lease;
• A single discount rate to a portfolio of leases with reasonable similar characteristics;
• Applied a short-term lease exemption to leases with leases term that ends within 12 months at the date of initial application;
• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of the initial application.
The transitional impact upon initial adoption of AASB 16 as at 1 July 2019 is:
• Inclusion of right of use asset of $2.5m;
• Inclusion of a lease liability of $2.5m;
• Decrease in retained earnings by $0.004m.
The weighted average borrowing rate used upon adoption of AASB 16 Leases was 3.6%.
The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019, as follows:
Lease commitments reconciliation
Minimum lease payments contracted for as at 30 June 2019
Payments in optional extension periods not recognised as at 30 June 2019
Less: short term leases not recognised as a liability
Gross lease commitments as at 1 July 2019
Weighted average incremental borrowing rate at 1 July 2019
Lease liabilities at 1 July 2019 as a result of initial application of AASB 16
$
3,005,377
–
(23,074)
2,982,303
3.6%
2,516,582
Current lease liabilities of $323,876 and non-current lease liabilities of $2,420,058 are shown in The Statement of Financial Position.
The total cash outflow for leases in the Consolidated Cash Flow Statement for the year ended 30 June 2020 was $260,584 shown as
payment of principle and $98,977 as payment of interest on lease liabilities
Previously, the Group recognised an operating lease expense on a straight-line basis over the term of the lease, and recognised assets
and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
Leases in which the Group is a lessee
The Group did not enter into any arrangements as at transition date where it was considered as lessor.
PolyNovo Limited 35
Annual Report 2020 2. Summary of Significant Accounting Policies continued
(d) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2020. The Group
controls an investee if and only if the Group has:
• power over the investee (that is, rights that give it the ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over an investee, including:
• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and
• the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate a change in one or more of the three
elements of control. Consolidation of a subsidiary commences when the Group obtains control over the subsidiary and ceases when
the Group loses control of the subsidiary. The assets, liabilities, income and expenses of a subsidiary acquired or disposed of during
the year are included in the Statement of Comprehensive Income from the date the Group gains control until the date the Group ceases
to control the subsidiary.
Items of profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the
parent Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group
loses control over a subsidiary, it:
• de-recognises the assets (including goodwill) and liabilities of the subsidiary;
• de-recognises the carrying amount of any non-controlling interests;
• de-recognises the cumulative translation differences recorded in equity;
• recognises the fair value of the consideration received;
• recognises the fair value of any investment retained;
• recognises any surplus or deficit in profit or loss; and
• reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate,
as would be required if the Group had directly disposed of the related assets or liabilities.
(e) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of
the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree.
For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or
at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included
in administrative expenses.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value
and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
36 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (f) Revenue from Contracts with Customers
The Group is in the business of designing, manufacturing and selling biomedical devices. Revenue from contracts with customers
is recognised when performance obligations pursuant to that contract are satisfied by the Group.
The Group has identified the following main categories of revenue:
Commercial product sales
The group revenue primarily consists of the sale of its NovoSorb BTM product. Revenue is recorded when the customer takes possession
of the product. All contracts with customers are standardised and satisfy the criteria of transaction approval, identification of each
party’s rights, payment terms, commercial substance, and probable collection based on the customer’s ability and intention to pay.
Revenue is recognised at a point in time when control over the product transfers to the customer, which is assessed to be at the time
of receipt of goods by the customer.
Distribution sales
The group sells its BTM product in certain overseas territories via a distributor model. The sales are made direct to a distributor being
the customer of PolyNovo Limited, with the distributor permitted to resell the BTM product to an end user. The group has assessed
these arrangements to consider that control passes to the distributor at the point the distributor takes possession of the product.
The group consider themselves to be acting as principal in the sale of goods to distributors and recognise revenue on a gross basis.
All contracts with distributors are standardised, and satisfy the criteria of transaction approval, identification of each party’s rights,
payment terms, commercial substance, and probable collection based on the customer’s ability and intention to pay. Revenue is recognised
at a point in time when control over the product transfers to the distributor as the customer, which is assessed to be at the time of
receipt of goods by the distributor.
BARDA revenue
The BARDA arrangement requires the group to provide to BARDA a solution for severe thermal burns, with the performance obligation
as defined in the terms of the arrangement being to perform research and development for specific clinical and trial tasks to support
the product development of Biodegradable Temporal Matrix (BTM) for severe thermal burns. Judgement has been applied to consider
that the license of intellectual property and research and development activities are not distinct. Revenue is recognised over time based
on input measures of specified costs, with the performance obligations being achieved through delivery to BARDA of the contracted
clinical studies and trial tasks to support the development of the BTM product for severe thermal burns.
BARDA is considered a customer in accordance with AASB 15 as the nature of services performed by PolyNovo are considered part
of the group’s licence of intellectual property and normal research and development operating activities and in exchange, consideration
is to be paid as the group progresses with its research and development of a mass scalable severe thermal burns product.
Licence revenue
The Group entered into a fixed term licence arrangement with a customer to provide use of specific intellectual property owned by
the group to permit certain research and development activity to be performed by the customer with the objective to develop
new commercial products. The arrangement’s performance condition is satisfied on delivery of the licence, with no further requirements
to enhance the intellectual property. The revenue recognised reflects the consideration to which the Group expects to be entitled to
for transfer of the licence, and is recognised on a point in time basis, based on control of the licence being transferred and there being
no further ongoing obligations required over the licence term.
The Group is entitled to further revenue from the delivery of the licence upon the customer’s achievement of certain milestones.
However, given there is uncertainty as to whether these milestones will be achieved, revenue is currently constrained and will be
recognised when uncertainty is resolved.
Contract balances contract asset
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs
by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is
recognised for the earned consideration that is conditional. As at 30 June 2020, the Group has disclosed in Note 4(a) contract assets.
The Group did not recognise any contract liabilities as at 30 June 2020 (30 June 2019: Nil).
Trade receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is required
before payment of the consideration is due).
PolyNovo Limited 37
Annual Report 2020 2. Summary of Significant Accounting Policies continued
(g) Intangible Assets
Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in
a business combination is its fair value as at the date of acquisition. The intangible assets carried by the Group, being intellectual property
assets had an initial indefinite useful life on acquisition. In the prior period, and following the first commercial sales of NovoSorb BTM,
amortisation was recognised across the finite life of the intangible assets. See Note 13 for further detail.
Internally generated intangible assets are not capitalised, excluding capitalised development costs, and expenditure is recognised
in the Statement of Comprehensive Income (profit or loss) in the year in which the expenditure is incurred.
(h) Impairment of intangible and other assets
Intangible assets that have an indefinite useful life are not subject to amortisation. They are tested annually for impairment or more
frequently if events or changes in circumstances indicate that they might be impaired. Other assets including definite lived intangible
assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Group conducts an annual impairment assessment review of asset values, which is used as a source of information to assess for
any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions,
are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable
amount is calculated which is based on – higher of its fair value less cost of disposal and its ‘value-in-use’. Value-in-use is calculated
by discounting, the estimated future cash flows derived from use of the asset, using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
(i) Share-based payments
The Group provides benefits to employees in the form of share-based payment transactions, whereby employees render services
in exchange for shares or rights over shares.
The PolyNovo Employee Share Option Plan was in place for the year ended 30 June 2020. Information relating to this Plan is set out
in Note 6 and in the Remuneration Report section of the Directors’ Report.
The cost of share-based payments under the terms of the Share Option Plan is measured by reference to the fair value of options at
the date at which they are granted. The fair value of options granted is determined by using the Monte Carlo simulation model or the
binomial option valuation model. The assumptions and models used for estimating fair value for share-based payment transactions
are disclosed in the Remuneration Report, and/or Note 6. All option and performance right arrangements are settled in equity.
The fair value of options is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured
at grant date and recognised over the vesting period. The employee benefit expense recognised each period takes into account the
most recent estimate of the number of options that are expected to vest.
(j) Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value
assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the
underlying assets.
(k) Right of use assets
The Group recognises right of use assets at the commencement of a lease. Right of use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for any remeasurement liabilities. The cost of right of use assets
includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right of use assets are depreciated on a straight-line basis over the shorter
of the lease term and the estimated useful life of the assets, as follows:
Property
Office equipment
Manufacturing Equipment
4 to 10 years
4 to 5 years
3 years
38 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (l) Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on
a straight-line basis over the estimated useful life of the asset as follows:
Property
Office equipment
Laboratory plant and equipment
Leasehold improvements
25 years
3 to 10 years
3 to 13.33 years
3 to 10 years
The Group has reassessed the useful life of Property from 40 to 25 years effective 1 July 2019. The useful life revision is accounted
for prospectively in accordance with AASB 108.
(m) Plant and equipment impairment
Impairment
The carrying values of plant and equipment are reviewed for impairment at each reporting date, when events or changes in circumstances
indicate that the carrying value may be impaired. An asset is impaired when its carrying value exceeds its estimated recoverable amount.
In this instance, the asset is written down to its recoverable amount and the impairment loss recognised in the Statement of
Comprehensive Income.
For impairment testing purposes, the recoverable amount of an asset is estimated as the higher of its fair value less cost of disposal
and its ‘value-in-use’. Value-in-use is calculated by discounting, the estimated future cash flows derived from use of the asset,
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Disposal
Plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use
of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the item) is recognised in the Statement of Comprehensive Income.
(n) Research and development costs
Research and development costs are expensed as incurred. An intangible asset arising from development expenditure on an individual
project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will
be available-for-use or sale. No development expenditure has been capitalised.
(o) Cash and cash equivalents
Cash at bank and short-term deposits are stated at nominal value. Cash at bank and short-term deposits are amounts with a maturity
of three months or less. If greater than three months, these amounts are recognised within ‘other financial assets’.
(p) Employee leave benefits
Liabilities for wages, salaries and annual leave expected to be settled within 12 months of the reporting date and pro-rata long service
leave for employees with over seven years of service, are recognised in current liabilities. Wages, salaries, annual leave and long service
leave are measured at the amounts expected to be paid when the liabilities are settled.
Liabilities for pro-rata long service leave for employees with less than seven years of service are recognised in non-current liabilities
and are measured as the present value of the expected future payments to be made.
(q) Interest income
Interest income is recognised when the Group has the right to receive the interest payment using the effective interest rate method.
(r) Inventory
Inventory is measured at cost for raw materials and packaging materials. A standard cost has been derived for finished goods and
semi-finished goods. The standard cost includes an allocation of materials, direct labour and manufacturing overheads. The value
of finished goods and semi-finished goods may include an allocation of manufacturing variances incurred during the period if it is
determined that the relevant production remains in inventory at balance date.
(s) Government grants
Government grants are recognised at their fair value when the grant is received and all attaching conditions have been complied with.
Research and development income tax revenue is recognised when there is reasonable assurance of receipt.
PolyNovo Limited 39
Annual Report 2020 2. Summary of Significant Accounting Policies continued
(t) Trade and other payables
Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to
the end of the financial year that are unpaid. The amounts are unsecured and are normally settled on 30-day terms. Due to the short-term
nature of these payables amortised cost equates to fair value.
(u) Income tax
Deferred income tax is provided on all temporary differences at balance date, calculated as the difference between the tax cost base
of assets and liabilities and their carrying amounts for financial reporting purposes.
Income tax expense of $66,642 has been recognised for the New Zealand trading subsidiary after absorbing all carried forward tax losses.
Deferred income tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences can be utilised. The same criteria apply for recognition of tax assets
relating to unused tax losses.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) effective at balance date.
Income taxes relating to items recognised directly in equity are recognised in Other Comprehensive Income (equity) and not in the
Statement of Comprehensive Income (profit and loss).
(v) Significant accounting, estimates and assumptions
Deferred taxes
The deferred tax liability (DTL) arising from the carrying value of PolyNovo’s intangible assets is offset by deferred tax assets (DTAs)
recognised for unused tax losses, where the continuity of ownership test is satisfied. Significant management judgement is required
to determine whether these are probable of realisation and the amount of the DTA that can be used to offset the impact of the DTL.
Judgment is also required in assessing whether any deferred tax assets can be recorded for unbooked tax losses and other timing
differences. Further details on deferred taxes are disclosed in Note 5.
Share-based payments
Estimating fair value for share-based payment transactions requires selection of the most appropriate valuation model, which in
turn is dependent on the terms and conditions of the share-based payment granted. Determination of the most appropriate inputs
to the valuation model, including the expected life of the share option, volatility and dividend yield, is also required. The models
and related assumptions used for estimating the fair value of share-based payment transactions are disclosed in Note 6 and in the
Remuneration Report.
Impairment of intangibles
Impairment exists when the carrying value of an asset exceeds its recoverable amount. PolyNovo considers indicators of impairment
and if an indicator exists, will determine the recoverable amount of the intangible asset. An estimate is provided on the useful life of
the current intangible asset based on the existing patent period. The assessment for the current period is further explained in Note 13.
Expected Credit Loss
Estimating the expected credit loss (ECL) for trade receivables and contract assets requires selection of an appropriate method and
significant judgement to determine the amount. The method applied categorises trade receivables and contract assets into various
customer segments, then to determine the ECL amount, an assessment of the correlation between historical observed default rates
and forecast economic conditions is applied. Further details on expected credit loss are disclosed in Note 10.
(w) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of GST except:
• where the GST incurred on purchase of goods and services is not recoverable from the taxation authority, in which case the GST
is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
• receivables and payables, which are stated with the amount of GST (if any) included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
Statement of Financial Position. Cash flows are included in the Cash Flow Statement on a gross basis (that is, including GST) and the
GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation
authority are classified as operating cash flows. Commitments and contingencies are disclosed exclusive of the amount of GST
recoverable from, or payable to, the taxation authority.
40 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (x) Earnings per share (EPS)
Basic EPS is calculated as the net profit/(loss) attributable to shareholders, adjusted to exclude costs of servicing equity (other than
dividends), divided by the weighted average number of ordinary shares.
Diluted EPS is calculated as the net profit/(loss) attributable to members, adjusted for:
• the costs of servicing equity (other than dividends);
• the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as
expenses; and
• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary
shares. The resultant net profit/(loss) is divided by the weighted average number of ordinary shares and dilutive potential ordinary shares.
(y) Contributed equity
Ordinary shares are classified as equity and recognised at the fair value of the consideration received by the Company. Any transaction
costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
(z) Foreign currency translation
The functional currency of each of the entities in the Group must reflect the primary economic environment in which the entity operates.
Accordingly, the relevant functional currencies are Australian dollars for Australian entities and US dollars for the US entity. Foreign
currency items are translated to Australian currency on the following basis.
• Transactions are converted at exchange rates approximating those in effect at the date of the transaction.
• On consolidation, the assets and liabilities of the foreign operation are translated into Australian dollars at the rate of exchange
prevailing at the reporting date except for retained earnings which is translated at a historic rate of exchange pertaining to the
relevant financial year. The Statement of Comprehensive Income is translated at an average exchange rate over the financial year.
• The exchange difference arising on translation for consolidation are recognised in the balance sheet as a foreign currency translation
reserve. On disposal of a foreign operation, the reserve is reclassified to profit or loss.
(aa) Comparatives
Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.
(ab) Security deposits
Security deposits are recorded at amortised cost in the Statement of Financial Position.
(ac) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity.
Financial Assets
Classification and measurement
Except for certain trade receivables, the group initially measures a financial asset at its fair value. Financial assets are subsequently
measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI).
The classification is based on two criteria: The Group’s business model for managing the assets; and whether the instruments’
contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the SPPI criterion).
Impairment
The Group recognises an allowance for expected credit losses (ECLs). ECLs are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted
at an approximation to the asset’s original effective interest rate. For trade and other receivables, the Group has applied the standard’s
simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix
that is based on the Group’s historical credit loss experience, adjusted for forward looking factors specific to the debtors and the
economic environment.
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not
track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group uses a
provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings
of various customer segments that have similar loss patterns.
PolyNovo Limited 41
Annual Report 2020 2. Summary of Significant Accounting Policies continued
(ac) Financial Instruments continued
The provision matrix is initially based on the Group’s historical observed default rates. At every reporting date, the historical observed
default rates are updated and changes in the forward-looking estimates are analysed. Generally, trade receivables are written off if past
due for more than one year. The total expected credit loss is disclosed in note 10.
The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant
estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group has assessed
forecast economic conditions and impact of the pandemic (Covid-19) in all regions. This assessment is reflected in the application of
the provision matrix to calculate ECL’s. The Group’s historical credit loss experience and forecast of economic conditions may also not
be representative of customer’s actual default in the future.
Financial Liabilities
Classification and measurement
The Group’s financial liabilities are classified at fair value through loans and borrowings and payables as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable
transaction costs.
The Group’s financial liabilities include loans and borrowings.
For the purposes of subsequent measurement, after initial recognition, interest-bearing loans and borrowings are subsequently measured
at amortised cost using the EIR method. Amortised cost is calculated by taking into account any discount or premium on acquisition
and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and
loss. For more information, refer to Note 17.
3. Segment Information
Business Segment
PolyNovo has only one business segment being the development of the NovoSorb technology for use in a range of biodegradable
medical devices.
The chief operating decision-maker is the Managing Director of PolyNovo Limited.
The chief operating decision-maker reviews the results of the business on a single entity basis.
For financial results refer to the Statement of Comprehensive Income and Statement of Financial Position.
The chief operating decision maker monitors the operating results of the Group for the purpose of making decisions about resource
allocation in order to progress the commercialisation of the PolyNovo technology.
During the period, sales to BARDA in the United States of America, represented 14% of total sales revenue from contracts with customers.
Revenue from contracts with customers
Geographical areas
United States of America
Australia and New Zealand
Rest of World
Non-current assets
Geographical areas
United States of America
Australia and New Zealand
42 PolyNovo Limited
30 June 2020
$
30 June 2019
$
18,665,595
2,822,146
668,382
22,156,123
11,729,101
1,572,088
48,031
13,349,220
30 June 2020
$
30 June 2019
$
722,817
15,930,338
16,653,155
72,907
8,254,095
8,327,002
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 4. Revenues and Expenses
(a) Revenue from Contracts with Customers
Below is set out the disaggregation of group revenue from contracts with customers.
Commercial product sales
BARDA revenue
(b) Finance revenue
Term deposit interest
Bank account interest
Other
(c) Employee-related expenses
Wages and salaries (including sales commission)
Superannuation
Share-based payments expense (see Note 6)
Other
30 June 2020
$
30 June 2019
$
19,064,983
3,091,140
9,348,226
4,000,994
22,156,123
13,349,220
30 June 2020
$
30 June 2019
$
22,905
10,067
2,339
35,311
341,392
–
(7,289)
334,103
30 June 2020
$
30 June 2019
$
(10,522,502)
(6,494,587)
(532,366)
(2,061,772)
(1,956,725)
(355,097)
(97,041)
(1,602,515)
(15,073,365)
(8,549,240)
Included in other employee related expenses are directors’ fees of $466,174 (2019:$369,230) and payroll taxes of $502,851
(2019: $300,985).
(d) Depreciation and amortisation expense
Depreciation – property, plant and equipment
Depreciation – laboratory equipment
Depreciation – leasehold improvements
Depreciation – lease asset
Amortisation – intangible assets
Depreciation of property, plant and equipment is also included in the cost of inventory.
30 June 2020
$
30 June 2019
$
(121,973)
(46,955)
(76,798)
(343,601)
(247,848)
(837,175)
(61,752)
–
–
–
(247,848)
(309,600)
PolyNovo Limited 43
Annual Report 2020 4. Revenues and Expenses continued
(e) Corporate, administrative and overhead expenses
Insurances
Accounting and audit fees
Investor relations and share registry expenses
Consultants and contractors
Travel
Marketing costs
Communication expenses
Foreign exchange gain
Other
30 June 2020
$
(1,003,364)
30 June 2019
$
(613,934)
(476,386)
(459,685)
(559,962)
(365,531)
(203,618)
(300,520)
(1,320,545)
(1,321,801)
(801,401)
(191,002)
57,798
(1,517,314)
(828,463)
(82,251)
345,216
(601,907)
(6,271,861)
(3,972,809)
Included in other administrative expenses are software licences $165,243 (2019: $150,484), 3PL fees $279,258 (2019:
$114,019) and freight $357,158 (2019: $42,495).
(f) Research and development tax benefit
Research and development tax benefit income of $36,956 (2019: $694,602) was recognised as other income in the Statement
of Comprehensive Income. $36,956 (2019: $694,602) is receivable, as recognised in the Statement of Financial Position, as it
relates to last financial year.
5. Income Tax
(a) Income tax benefit/(income tax expense)
Current income tax
Current income tax charge
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax benefit/(income tax expense)
Income tax recognised directly in equity
Deferred tax expense
Reconciliation of income tax expense to prima facie tax payable
Net loss before income tax expense
Prima facie tax calculated at 27.5% (2019: 27.5%)
Tax effect of amounts which are not included in accounting loss:
Research and development
Non-assessable R&D income tax credit
Tax effect of amounts which are not deductible:
Share-based payments
Current year tax losses not brought to account/utilised in the period
Current year temporary differences not brought to account
Income tax benefit/(income tax expense)
44 PolyNovo Limited
30 June 2020
$
30 June 2019
$
(66,642)
–
(66,642)
–
–
–
–
–
4,127,096
(1,134,951)
3,189,893
(877,220)
399,879
(87,142)
567,057
(255,158)
343,386
(154,870)
(66,642)
439,116
(191,016)
26,686
(602,434)
778,965
(176,532)
–
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (b) Deferred tax assets and liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets/(liabilities)
Deferred tax balances reflects temporary differences attributable to:
Amounts recognised in profit and loss
Recognised tax losses
Recognised on temporary differences
Tax effect of new accounting standard changes
30 June 2020
$
30 June 2019
$
565,994
(565,994)
–
–
518,580
47,414
435,521
(435,521)
–
–
435,521
–
Amount recognised due to acquisition of PolyNovo (intangibles)
(565,994)
(435,521)
Net deferred tax assets/(liabilities)
Movement in temporary differences during the year:
Balance as of 1 July
Credit to profit and loss
Charged to equity
Net deferred tax assets/(liabilities) as 30 June
(c) Deferred tax assets not brought to account
–
–
–
–
–
–
–
–
–
–
30 June 2020
$
30 June 2019
$
Unrecognised, unconfirmed tax losses for which no deferred tax asset has been recognised
95,483,316
92,462,871
Deductible temporary differences – no deferred tax asset has been recognised
Potential tax benefit at 27.5%
563,162
641,934
96,046,478
93,104,805
26,412,781
25,603,821
General note for DTA/DTL
Deferred tax assets and liabilities are recognised for temporary differences at the rates expected to be applied when the assets are
recovered, or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for when the deferred
income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business
combination and that, at the time of the transaction, affects neither the accounting nor taxable profits.
Deferred tax assets are recognised for deductible temporary differences including AASB 16 changes, provision for employee entitlements,
other provisions and accrued expenses.
Deferred tax liabilities are recognised for taxable temporary differences including prepayments, differences in accounting and tax base
of intangible assets and depreciable assets, and the deferred recognition of income for tax purposes.
(d) Current tax liability
Provision for Income Tax
30 June 2020
$
30 June 2019
$
54,729
–
The availability of the tax losses in future periods is uncertain and will be dependent on the Group satisfying strict requirements with
respect to continuity of ownership and the same business test, imposed by income tax legislation. The recoupment of available tax
losses as at 30 June 2020 is contingent upon the following:
• the Group deriving future assessable income of a nature and of an amount sufficient to enable the benefit from the losses to be realised;
• the conditions for deductibility imposed by tax legislation continuing to be complied with; and
• there being no changes in tax legislation that would adversely affect the Group from realising the benefit from the losses.
PolyNovo Limited 45
Annual Report 2020
5. Income Tax continued
(d) Current tax liability continued
Given the Group’s history of recent losses (with the exceptions of the benefit noted in (d) below) the Group has not recognised a net
deferred tax asset with regard to unused tax losses, as it has not been determined that the Group will generate sufficient taxable profit
against which the unused tax losses can be utilised.
(e) Income tax benefit
The income tax benefit arises due to the recording of deferred tax assets that are available in the current year to offset against deferred
tax liabilities from temporary differences.
6. Share-based Payments
(a) Employee share-based payment plans
The Company provides benefits to employees and Non-executive Directors in the form of share-based payment transactions,
whereby employees and Non-executive Directors render services in exchange for shares or rights over shares.
The expense recognised in the Statement of Comprehensive Income for the years ended 30 June 2020 and 30 June 2019 were
$2,061,772 and $97,041 respectively.
(b) Share-based payments for the year ended 30 June 2020
During the 2020 financial year, 4,300,330 options were issued. Details of the share options granted pursuant to the terms of the
PolyNovo Employee Share Option Plan (ESOP) are as follows:
• On 13 August 2019, the Company granted employee share options to Sr VP Sales & Marketing (Americas), Mr Ed Graubart. He was
granted 1,000,000 options exercisable at $1.55. The options vest upon 12 months of employment with the Company and a share
price of $1.55 being sustained over a period of 90 consecutive calendar days. Once vested, the options can be exercised as follows:
• Tranche 1: not to be exercised before 13 August 2021 and not later than 13 August 2022.
• Tranche 2: not to be exercised before 13 August 2022 and not later than 13 August 2023.
• Tranche 3: not to be exercised before 13 August 2023 and not later than 13 August 2024.
• Tranche 4: not to be exercised before 13 August 2024 and not later than 13 August 2025.
If not exercised the options become void. The options package will expire on 13 August 2025. The expense relating to the options
package during the year was $163,272. Should Mr Graubart leave employment prior to the exercise date, the share options will be
forfeited and option expenses will be reversed.
• On 1 October 2019, the Company granted up to the value of $10 million dollars of employee shares to the Managing Director,
Mr Paul Brennan. He was granted 3,300,330 shares at $3.03. The shares vest upon the Company market capitalisation reaching
and maintaining at all times, $2 billion dollars for a minimum period of three consecutive months in the relevant financial year.
Once vested, the shares can be allocated as follows:
• Tranche 1: 1,100,110 shares, to vest over 2 years.
• Tranche 2: 1,100,110 shares, to vest over 2 years.
• Tranche 3: 1,100,110 shares, to vest over 3 years.
The shares package will expire on 30 June 2023. The expense in relation to the shares package during the year was $1,633,713.
Any unvested shares will be cancelled on the date of termination or cessation of Mr Brennan’s employment.
The expense relating to the incentive scheme shares recognised in the Statement of Comprehensive Income during the 2020 financial
year was $2,061,772.
46 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 Balance at
1 July
2019
Granted
as
compen-
sation
Options
exercised
2020
Net
change
other
(forfeited,
lapsed,
expired)
Balance at
30 June
2020
Total
vested at
end of
year
Total
exer-
cisable at
end of
year
Total not
exer-
cisable
at end
of year
Total
vested
during
year
Share-
based
pay-
ments
expense
$
Key management personnel
Mr Paul Brennan
– 3,300,330
Mr Jan Gielen
1,000,000
–
Other employees
– 1,000,000
–
–
–
– 3,300,330
–
– 3,300,330
–
1,633,713
– 1,000,000 1,000,000
– 1,000,000 1,000,000
264,787
– 1,000,000
–
– 1,000,000
163,272
Total
1,000,000 4,300,330
– 5,300,330 1,000,000
– 5,300,330 1,000,000 2,061,772
The fair value of options granted during 2020, as included in the above table, were determined using a Monte Carlo simulation-based
model. A Monte Carlo simulation-based model simulates the path of the share price according to a probability distribution assumption.
After a large number of simulations, the arithmetic average of the outcomes, discounted to the valuation date, is calculated to represent
the option value. This model can accommodate complex exercise conditions when the number of options exercised depends on some
function of the whole path followed by the share price.
Options issued during the period
Grant date
Number of
options
Exercise
Price Vesting hurdle
Risk-free
interest rate
Volatility
Expiry*
13 August 2019 1,000,000
$1.55 12 months service
T1 0.66%
47.04%
13-Aug-22
period and 3 months
share price exceeds
$1.55
T2 0.67%
T3 0.68%
T4 0.73%
57.03%
13-Aug-23
59.30%
13-Aug-24
61.59%
13-Aug-25
* Each tranche must be exercised by the expiry date and 13 August of the preceding year otherwise they become void.
Dividend
yield
Average
fair value
per option
–
–
–
–
$0.423
$0.588
$0.704
$0.720
Key valuation assumptions for the Employee Share Options:
Parameters
Assumptions
Valuation date Grant Date
Share price
Closing share price as at the valuation Date – Source: Bloomberg.
Expected life
Assumed Share Appreciation Rights will be exercised at the first opportunity i.e. as early as possible.
Risk-free
interest rate
The risk free interest rates are derived from the Australian Government Bonds as at Valuation Date. The terms to
maturity have been selected to align with the expected life of the options.
Dividend yield
The dividend yield is the rate of dividend expressed as a continually compounded percentage of the share price.
In determining an appropriate dividend yield, forecasted dividend information provided by the management of
Polynovo Limited has been relied upon.
Expected
volatility
A share’s volatility measure captures the charateristics of fluctuations in the share’s price.
The value of options is extremely sensitive to the volatility measure and as a result great care should be taken in
determining the appropriate volatility percentage. To accurately value options, a volatility measure should be selected
that is most likely to represent the future volatility of the shares during the life of the options: the implied volatility.
Accordingly, in determining the expected volatility, the historical market volatility has been taken into account.
Other
Other assumptions that have not been incorporated into our valuation model include:
(i) any change of control events and reorganisation of capital during the relevant performance periods or service periods.
(ii) any dilution effect from the issue of options noting that they will not likely have a material impact on the Polynovo
Limited security price.
PolyNovo Limited 47
Annual Report 2020
6. Share-based Payments continued
(b) Share-based payments for the year ended 30 June 2020 continued
Grant Date
Number
of shares
1 October 2019 3,300,330
Vesting Hurdle
Company market capitalisation
$2 billion for three consecutive months
Risk-free
interest rate
0.66%
Volatility
48.64%
Average fair
value per share
T1 $0.514
T2 $0.493
T3 $0.475
Parameters
Assumptions
Valuation date Grant Date
Share price
Closing share price as at the valuation Date – Source: Bloomberg.
Expected life
Assumed Share Appreciation Rights will be exercised at the first opportunity i.e. as early as possible.
Risk-free
interest rate
The risk free interest rates are derived from the Australian Government Bonds as at Valuation Date. The terms
to maturity have been selected to align with the expected life of the options.
Dividend yield
The dividend yield is the rate of dividend expressed as a continually compounded percentage of the share price.
Expected
volatility
In determining an appropriate dividend yield, forecasted dividend information provided by the management of
Polynovo Limited has been relied upon.
A share’s volatility measure captures the charateristics of fluctuations in the share’s price.
The value of options is extremely sensitive to the volatility measure and as a result great care should be taken in
determining the appropriate volatility percentage. To accurately value options, a volatility measure should be selected
that is most likely to represent the future volatility of the shares during the life of the options: the implied volatility.
Accordingly, in determining the expected volatility, the historical market volatility has been taken into account.
Retesting
Vesting Hurdle
Any shares that have not yet been allocated will be available for allocation at the next allocation date, subject to the
vesting hurdle being met. For unallocated shares to be allocate the vesting hurdle meeds to be met in the relevant
financial year.
Number of
Shares Allocated
The total number of shares available for allocation will be calculated by dividing the $10M granted by the issue price.
The issue price is the share price which equates to a $2 billion market capitalisation.
Other
Other assumptions that have not been incorporated into our valuation model include:
(i) any change of control events and reorganisation of capital during the relevant performance periods or service periods.
(ii) any dilution effect from the issue of options noting that they will not likely have a material impact on the Polynovo
Limited security price.
(c) Share-based payments for the year ended 30 June 2019
During the 2019 financial year, 1,000,000 options were issued and 3,000,000 were exercised. Details of the share options granted
pursuant to the terms of the PolyNovo Employee Share Option Plan (ESOP) are as follows:
• On 6 March 2019, the Company granted employee share options to Mr Jan Gielen. He was granted 1,000,000 options exercisable
at $0.60. The options vest upon 12 months of employment with the Company and a share price of $0.90 being sustained over a
period of 90 consecutive calendar days. Once vested, the options can be exercised as follows:
• Tranche 1: not to be exercised before 31 December 2020 and not later than 30 June 2021.
• Tranche 2: not to be exercised before 31 December 2021 and not later than 30 June 2022.
• Tranche 3: not to be exercised before 31 December 2022 and not later than 30 June 2023.
If not exercised the options become void. The options package will expire on 30 June 2023. The expense relating to the options package
during the year was $56,913. Should the CFO leave employment prior to the exercise date, the share options will be forfeited and
option expenses will be reversed.
The weighted average share price of the options exercised in the period was $0.32.
The expense relating to the incentive scheme shares recognised in the Statement of Comprehensive Income during the 2019 financial
year was $97,041.
48 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 Balance
at 1 July
2018
Granted
as
compen-
sation
Options
exercised
Net
change
other
(for-
feited,
lapsed,
expired)*
Balance at
30 June
2019
Total
vested at
end of
year
Total
exer-
cisable at
end of
year
Total not
exer-
cisable at
end of
year
Total
vested
during
year
Share-
based
pay-
ments
expense
$
2019
Directors
Mr Leon Hoare
1,000,000
– 1,000,000
–
–
Other key management personnel
Mr Jan Gielen
– 1,000,000
–
– 1,000,000
Mr Greg Lewis
1,000,000
–
– (1,000,000)
Other employees 2,000,000
– 2,000,000
–
–
–
Total
4,000,000 1,000,000 3,000,000 (1,000,000) 1,000,000
–
–
–
–
–
* The net change reflects share options forfeited in the period by the former CFO.
Options issued during the period
–
–
– 1,000,000
–
–
–
–
–
–
–
56,913
–
– (2,000,000)
40,128
– 1,000,000 (2,000,000)
97,041
Grant date
Number of
options
6 March 2019
1,000,000
Exercise
Price Vesting hurdle
$0.60 12 months service
period and 3 months
share price exceeds
$0.90
Risk-free
interest rate
T1 1.67%
T2 1.60%
T3 1.65%
Volatility
Expiry*
45.9%
30-Jun-21
54.8%
30-Jun-22
59.7%
30-Jun-23
Dividend
yield
Average
fair value
per option
–
–
–
$0.236
$0.311
$0.394
* Each tranche must be exercised by the expiry date and 31 December of the preceding year otherwise they become void.
7. Earnings Per Share (EPS)
Basic EPS amounts are calculated by dividing the net loss for the year by the weighted average number of ordinary shares outstanding
during the year.
Diluted EPS amounts are calculated by dividing the net loss for the year by the weighted average number of ordinary shares outstanding
during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Basic EPS:
30 June 2020
(0.63) cents per share
30 June 2019
(0.48) cents per share
Diluted EPS:
30 June 2020
(0.63) cents per share
30 June 2019
(0.48) cents per share
PolyNovo Limited 49
Annual Report 2020 7. Earnings Per Share (EPS) continued
30 June 2020
$
30 June 2019
$
The following reflects the income and share data used in the calculation of basic and diluted EPS:
Net loss used in calculating basic and diluted EPS attributable to equity holders of the parent entity
(4,193,738)
(3,189,893)
Weighted average number of ordinary shares on issue used in the calculation of basic EPS
661,088,044
659,663,386
Potential weighted average number of ordinary shares on issue plus all unexercised share options
used in the calculation of diluted EPS
663,088,044
660,663,386
At 30 June 2020 there existed share options that if vested, would result in the issue of additional ordinary shares over the period to
FY2023. In the current period, these potential ordinary shares are considered antidilutive as their conversion to ordinary shares would
reduce the loss per share. Accordingly, they have been excluded from the dilutive earnings per share calculation. There were no further
transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these
financial statements.
8. Cash and Cash Equivalents
Reconciliation of cash at the end of the year
Cash at bank(i)
Cash and cash equivalents are denominated in:
Australian dollars
US dollars
NZ dollars
Euros
30 June 2020
$
30 June 2019
$
11,647,701
13,920,695
6,260,340
5,291,876
93,112
2,373
10,464,990
3,233,959
221,746
–
11,647,701
13,920,695
(i) Cash at bank earns interest at floating rates based on daily bank deposit rates.
For the purpose of the Consolidated Cash Flow Statement cash and cash equivalents comprises cash at bank and investments
in short-term deposits as listed above.
Reconciliation of net loss after income tax to net cash flow from operating activities
Net Loss
Adjustments for non-cash items:
Depreciation and amortisation
Share-based payment expense
Finance cost
Interest
Unrealised foreign exchange rate differences
Change in assets and liabilities during the financial year:
(Increase)/decrease in prepayments (excluding manufacturing equipment)
(Increase)/decrease in trade receivables
(Increase)/decrease in inventory
(Increase)/decrease in other assets
Increase/(decrease) in payables
Increase/(decrease) in provisions
Increase/(decrease) in other liabilities
Net cash outflows from operating activities
50 PolyNovo Limited
30 June 2020
$
30 June 2019
$
(4,193,738)
(3,189,893)
837,175
2,061,772
18,000
(35,311)
152,132
(259,946)
(870,525)
(1,592)
28,897
691,033
97,041
–
(247,463)
(348,625)
(145,556)
(1,007,641)
(131,864)
(962,522)
1,030,247
1,567,567
415,646
389,919
54,925
253,265
(427,323)
(3,369,733)
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 9. Inventories
Inventories comprise of the following:
Finished goods
Provision for finished goods
Work in progress
Raw materials and other (at cost)
30 June 2020
$
30 June 2019
$
907,441
(87,041)
820,400
323,594
1,143,994
73,048
1,217,042
947,926
–
947,926
218,719
1,166,645
48,805
1,215,450
The total of inventory is held at lower of cost or net realisable value (NRV).
During the period, the Group has written off work in progress for a total of $191,724 as a result of product expiry dates and quality
issues in two batches.
10. Receivables and Contract Assets (Current)
Trade receivables
Contract assets
R&D tax concession
Interest receivable
GST recoverable
Sundry receivables
30 June 2020
$
30 June 2019
$
2,901,346
2,483,424
782,716
36,956
330
179,386
20,785
442,405
694,602
–
43,755
740,861
3,921,519
4,405,047
Trade receivables and contract assets relates to invoices to customers for sale of goods and PolyNovo’s BARDA project representing
invoiced and un-invoiced services for labour and sub-contractor expenses.
The changes in the balances of trade receivables and the information about the credit exposures are disclosed in Note 24(e).
Contract assets
Contract assets are initially recognised for revenue earned from the provision of research and development services as receipt of
consideration is conditional on the acceptance by the customer. Upon completion of the milestone and acceptance by the customer,
the amounts recognised as contract assets are reclassified to trade receivables.
As at 30 June 2020, the Group has contract assets of $782,716 (2019: $442,405). Amounts are invoiced in the month following
satisfaction of the performance obligation. There are no significant expected credit losses related to the contract assets.
The Group has an agreement with BARDA to provide research and development services which has been extended until August 2025
for the Pivotal Trial. BARDA has committed funding of $USD 15m for the Pivotal trial.
Expected credit loss
Based on the business failure rates by class of customers and Dun & Bradstreet credit score the Expected Credit Losses relating to trade
receivables and contract assets the Group has recognised $40,412 as at 30 June 2020 (2019: $27,076). No trade receivables or
contract assets were written off during the period.
PolyNovo Limited 51
Annual Report 2020 10. Receivables and Contract Assets (Current) continued
Contract assets continued
As described in note 2(c), the Group uses a provision matrix to measure its expected credit loss. The Group has considered the impact
of CoVid-19 in assessing the expected credit loss. Set out below is information about the credit risk exposure on the Group’s trade
receivables and contract assets using a provision matrix as at 30 June 2020:
Expected credit loss rate
Estimated total gross carrying
amount at default
Expected credit loss
Trade Receivables and Contract Assets
June
0-30 Days
$
0.3%
May
60-90 Days
$
Apr
60-90 Days
$
0.2%
0.0%
Mar+
90+ Days
$
44.6%
Total
$
3,140,721
8,789
508,746
1,070
6,463
–
68,544
30,553
3,724,474
40,412
Contract assets and trade receivables due in less than 30 days and other financial assets have an expected credit loss which are
not significant.
11. Other Assets
During the period the Group has prepaid for the purchase of property plant and equipment of $1,871,475 (2019: $310,321)
required for the new manufacturing facility.
Security deposit
Closing balance
30 June 2020
$
30 June 2019
$
141,870
141,870
170,767
170,767
The non-current security deposit relates predominantly to PolyNovo’s long-term lease of premises in Port Melbourne and San Diego.
12. Property, Plant and Equipment
Property
(i) Cost
Opening balance
Additions
Closing balance
(ii) Accumulated depreciation
Opening balance
Depreciation for the year
Closing balance
Net book value – property
30 June 2020
$
30 June 2019
$
4,894,863
443,459
5,338,322
–
4,894,863
4,894,863
–
(103,003)
(103,003)
–
–
–
5,235,319
4,894,863
During FY19, the group acquired a freehold property in Port Melbourne for total cost $4,894,863 inclusive of non-refundable
purchase taxes. Depreciation on the building commenced from 1 July 2019.
52 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020
Office equipment
(i) Cost
Opening balance
Additions
Disposals
Closing balance
(ii) Accumulated depreciation
Opening balance
Depreciation for the year
Closing balance
Net book value – office equipment
Laboratory plant and equipment
(i) Cost
Opening balance
Additions
Disposals
Closing balance
(ii) Accumulated depreciation
Opening balance
Depreciation for the year
Disposals
Closing balance
Net book value – laboratory plant and equipment
Leasehold improvements
(i) Cost
Opening balance
Additions
Closing balance
(ii) Accumulated depreciation
Opening balance
Depreciation for the year
Closing balance
Net book value – leasehold improvements
30 June 2020
$
30 June 2019
$
562,707
713,692
–
1,276,399
(388,255)
(120,473)
(508,728)
767,671
509,733
54,991
(2,017)
562,707
(328,203)
(60,052)
(388,255)
174,452
30 June 2020
$
30 June 2019
$
1,681,908
198,411
(9,298)
1,386,301
295,607
–
1,871,021
1,681,908
(1,183,473)
(1,101,441)
(127,511)
4,183
(82,032)
–
(1,306,801)
(1,183,473)
564,220
498,435
30 June 2020
$
30 June 2019
$
1,942,780
140,511
2,083,291
1,936,560
6,220
1,942,780
(1,561,610)
(1,263,284)
(46,223)
(1,607,833)
475,458
(298,326)
(1,561,610)
381,170
PolyNovo Limited 53
Annual Report 2020 12. Property, Plant and Equipment continued
Construction in Progress
(i) Cost
Opening balance
Additions
Closing balance
Net book value – construction in progress
Net book value – property, plant and equipment
30 June 2020
$
30 June 2019
$
59,299
6,788,413
6,847,712
6,847,712
–
59,299
59,299
59,299
13,890,380
6,008,219
13. Intangible Assets
Intangible assets, comprising intellectual property, were acquired through the business combination with PolyNovo Biomaterials Pty Ltd
on 17 December 2008. The acquired intangible assets were initially recognised at fair value.
Following the consistent commercial sales of NovoSorb BTM, amortisation of intangible assets commenced in FY2018 over the remaining
finite life through to March 2028 being the remaining patent life period over which economic benefits will be consumed. No indicators
of impairment related to the NovoSorb technology have been identified as at 30 June 2020.
Intangibles
(i) Cost
Opening balance
Additions
Closing balance
(ii) Accumulated amortisation
Opening balance
Amortisation for the year
Closing balance
Net book value
14. Trade and Other Payables
Trade creditors and payables
Other payables
Total trade and other payables
Trade payables are non-interest bearing and are normally settled on 30-day terms.
30 June 2020
$
30 June 2019
$
2,519,788
2,519,788
–
–
2,519,788
2,519,788
(371,772)
(247,848)
(619,620)
(123,924)
(247,848)
(371,772)
1,900,168
2,148,016
30 June 2020
$
30 June 2019
$
1,611,945
1,560,050
3,171,995
581,698
1,170,131
1,751,829
54 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 15. Provisions
(a) Current provisions
Annual leave
Long service leave
Total current provisions
(b) Non-current provisions
Long service leave
Make good
Total non-current provisions
30 June 2020
$
30 June 2019
$
530,973
77,749
608,722
91,834
75,000
166,834
245,739
66,433
312,172
47,738
–
47,738
16. Right of Use Assets
Group as a lessee
The Group has lease contracts for various items of property, office equipment and lease equipment used in its operations. Leases of
property generally have lease terms between 3 and 10 years, while office and manufacturing equipment generally have lease terms
between 3 and 5 years. Refer to note 2 (c) for more detail on the Groups adoption of AASB16.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
Reconciliation of carrying amounts
Transition adjustment at 1 July 2019
Additions (net)
Depreciation expense
As at 30 June 2020
Right-of-use assets
Office
Equipment
$
Manufacturing
Equipment
$
Total
$
16,395
(7,567)
8,828
22,374
21,012
(11,581)
31,804
2,499,923
490,199
(343,601)
2,646,521
Property
$
2,461,155
469,187
(324,453)
2,605,889
The following are the amounts recognised in profit or loss in addition to low value and short term leases of $3,044 per month:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Total amount recognised in profit or loss
2020
$
343,601
98,977
363,350
2019
$
–
–
–
The Group had total cash outflows for leases of $359,561 in 2020. The Group also had non-cash additions to right-of-use assets
and lease liabilities of $389,959 in 2020. There are no new leases to commence therefore the future cashflows of leases yet to
commence is Nil.
Group as Lessor
The Group has not entered into any leases as lessor.
PolyNovo Limited 55
Annual Report 2020 17. Financial Liabilities: interest bearing loans and borrowings
(a) Interest bearing facility details
The Group has secured two finance facilities during the current period with National Australia Bank (NAB). The facilities detailed below
are used to fund capital expenditure items.
Current interest-bearing
loans and borrowings
Non-current interest
bearing loans and
borrowings
Facility
Amount
$
Interest
rate
%
Repayment
Terms
Maturity
30 June
2020
$
30 June
2019
$
30 June
2020
$
30 June
2019
$
Financing Facilities
Trade finance*
6,000,000 BBSY +1.7 Interest only 30 April 2021 4,808,499
Equipment finance*
9,300,000
3.16
5 years P&I
Total
15,300,000
495,873
5,304,372
–
–
– 1,983,494
– 1,983,494
–
–
–
* Drawdown on the facilities commenced in late June 2020, therefore no interest has been paid nor has any interest expense been accrued.
Trade finance facility
The purpose of this facility is to fund deposits and progress payments for capital expenditure items.
The facility is an interest only facility and repayment of the facility is funded by drawing down on the equipment finance facility.
The facility has a limit of $6 million and was made available on the 22 May 2020. The facility limit reduces to $1m on 30 September 2020
and matures on 30 April 2021. The limit reduction to $1m on 30 September 2020 is tailored to meet capital expenditure requirements.
This facility is secured over the property at 1/320 Lorimer St, Port Melbourne VIC 3207.
Equipment finance facility
Purpose of this facility is to fund repayment of the trade finance facility used for purchasing capital expenditure items such as hernia
manufacturing equipment and construction of the cleanroom.
The facility has a limit of $9.3 million and was made available on the 22 May 2020.
Repayments are made over 5 years and comprise of principal and interest. The facility currently attracts an interest rate of 3.16% p.a.
The facility is secured over the property at 1/320 Lorimer St, Port Melbourne VIC 3207.
As required by NAB’s terms and conditions the parent entity PolyNovo Limited, has provided a cross-guarantee in conjunction with
wholly owned subsidiaries Novoskin Pty Ltd and Novowound Pty Ltd for the facilities. The aggregate amount payable by the cross-
guarantors is limited to $15,300,000 excluding interest and penalties.
56 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (b) Changes in liabilities arising from financing activities
1-Jul-19
$
Cash Flows
$
Foreign
Exchange
Movement
$
New
leases
$
Other
$
30-Jun-20
$
Current interest-bearing loans and borrowings
(excluding items listed below)
–
–
–
– 5,304,372
5,304,372
Current lease liabilities (Note 16)
236,663
(260,584)
(6,490)
99,748
254,539
323,876
Non-current interest-bearing loans and
borrowings (excluding items listed below)
–
Non-current lease liabilities (Note 16)
2,279,919
–
–
–
–
1,983,494
1,983,494
(46,455)
441,133
(254,539) 2,420,058
Total liabilities from financing activities
2,516,582
(260,584)
(52,945)
540,881
7,287,866 10,031,800
Other: represents the reclassification of lease liabilities from non-current to current.
Current interest-bearing loans and borrowings
(excluding items listed below)
Current lease liabilities (Note 16)
Non-current interest-bearing loans and
borrowings (excluding items listed below)
Non-current lease liabilities (Note 16)
Total liabilities from financing activities
1-Jul-18
$
Cash Flows
$
Foreign
Exchange
Movement
$
New
leases
$
Other
$
30-Jun-19
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
PolyNovo Limited 57
Annual Report 2020 18. Contributed Equity and Reserves
(a) Movement in contributed equity
Contributed equity at beginning of year
Exercise of options
Contributed equity at end of year
On issue at start of year
Exercise of options
On issue at end of year
(b) Reserves
Share-based payments reserve (i)
Foreign currency translation reserve (ii)
Acquisition of non-controlling interest reserve (iii)
Balance at end of period
(i) Share-based payments reserve
Balance at beginning of period
Share-based payments movement
Balance at end of period
30 June 2020
$
30 June 2019
$
130,070,502
138,120,502
–
950,000
139,070,502
139,070,502
Number of Shares
661,088,044
658,088,044
–
3,000,000
661,088,402
661,088,044
30 June 2020
$
30 June 2019
$
5,219,758
(528,071)
(9,293,956)
(4,602,269)
3,157,986
(375,939)
(9,293,956)
(6,511,909)
3,157,986
2,061,772
5,219,758
3,060,945
97,041
3,157,986
This reserve represents the nominal consideration paid for subscriber or employee options and the fair value of options and
performance rights.
(ii) Foreign currency translation reserve
Opening balance
Translation of foreign operations
Balance at end of period
(375,939)
(152,132)
(528,071)
(159,300)
(216,639)
(375,939)
This reserve represents on consolidation, the translation of the foreign operation into Australian dollars. The exchange difference
is recognised in the balance sheet as a reserve. Please refer to Note 2(y) for further information.
(iii) Acquisition of non-controlling interest reserve
Opening balance
Balance at end of year
(9,293,956)
(9,293,956)
(9,293,956)
(9,293,956)
This reserve represents the premium paid by PolyNovo Limited for the non-controlling interest in a previous period in subsidiary entities
PolyNovo Biomaterials Pty Ltd, NovoSkin Pty Ltd and NovoWound Pty Ltd.
58 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 (c) Accumulated losses
Accumulated losses at beginning of year
Net loss attributable to members of the parent
Adjustment relating to new accounting standards
Accumulated losses at end of financial year
30 June 2020
$
30 June 2019
$
(106,462,471)
(103,269,221)
(4,193,738)
(3,189,893)
–
(3,357)
(110,656,209)
(106,462,471)
19. Commitments and Contingencies
Manufacturing equipment commitments
The Group has entered into new contractual agreements with suppliers for the supply of manufacturing equipment.
The equipment will be received in FY21 and the remaining balance of $734,802 will be paid accordingly.
Contingencies
The Directors are not aware of any other contingent liabilities or contingent assets at 30 June 2020. There has been no change
in this assessment up to the date of this report.
20. Related Party Disclosures
Related party transactions are disclosed under key management personnel (Note 25).
21. Events After the Balance Sheet Date
The Directors are not aware of any other matters or circumstances since the end of the financial year other than those announced to the
ASX which have significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state
of affairs of the Group in subsequent financial years.
Post year end, further lockdown restrictions were imposed in Australia as a result of CoVid-19 and other countries around the globe are
starting to experience second waves of the virus.
The Group continues to monitor the impact of the pandemic (CoVid-19) and the response from governments in controlling outbreaks.
The Group continues to take steps to mitigate any impact of the pandemic by increasing stock levels locally in all markets to avoid any
potential supply chain impediments and focusing on digital sales and marketing campaigns.
Stage 2 of the factory build, which will be used to manufacture hernia and breast devices, will commence in the September 2020
quarter and is expected to be completed by March 2021.
PolyNovo Limited 59
Annual Report 2020 22. Auditor’s Remuneration
The auditor of PolyNovo Limited is Ernst & Young. The amounts received or due and receivable by Ernst & Young for audit and other
services were as follows:
Auditor's Remuneration
Fees to Ernst & Young (Australia)
Fees for auditing the statutory financial report of the parent covering the group
and auditing the statutory financial reports of any controlled entities
Fees for other services
– Tax compliance
Total fees to Ernst & Young (Australia)
Fees to other overseas member firm of Ernst & Young (Australia)
Fees for auditing the financial report of any controlled entities
Fees for other services
– Tax compliance
– Corporate secretariat support
Total fees to overseas member firms of Ernst & Young (Australia)
Total fees to Ernst & Young
30 June 2020
$
30 June 2019
$
171,401
145,577
22,000
193,401
12,500
157,077
10,395
–
150,537
36,156
197,089
390,489
106,830
–
106,830
264,907
The Directors are satisfied that the provision of non-audit services during the current period is compatible with the general standard
of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided
means that auditor’s independence was not compromised.
23. Parent Entity Information
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Retained earnings
Total reserves
Total shareholders’ equity
Loss of the parent entity
Total comprehensive loss of the parent entity
30 June 2020
$
30 June 2019
$
47,527,016
53,558,589
2,689,410
2,689,410
47,644,550
53,676,752
1,433,889
1,433,889
139,070,502
139,070,502
(87,456,861)
(84,021,405)
(744,462)
(2,806,234)
50,869,179
52,242,863
(3,435,457)
(3,435,457)
(491,215)
(491,215)
Details of lease contracts entered into by PolyNovo Limited are provided in Note 16.
In accordance with the terms and conditions of the NAB facility arrangements disclosed in note 17, the parent entity, PolyNovo Limited,
has provided a cross-guarantee in conjunction with wholly owned subsidiaries Novoskin Pty Ltd and Novowound Pty Ltd. The aggregate
amount payable by the cross-guarantors is limited to $15,300,000 excluding interest and penalties.
60 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 24. Financial Risk Management Objectives and Policies
(a) Financial instruments
The Group’s financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables and other
financial liabilities.
Cash and cash equivalents
Trade and other receivables
Other financial assets1
Trade and other payables
Lease liabilities
Trade finance facility
Equipment finance facility
30 June 2020
$
30 June 2019
$
11,647,701
3,921,519
50,000
3,171,995
2,743,934
4,808,499
2,479,367
13,920,695
4,405,047
50,000
1,751,829
–
–
–
1. At 30 June 2020 $50,000 is held in a term deposit maturing on 16 March 2021 at an interest rate of 1.31%
(b) Risk management policy
The Group has a formal risk management policy and framework. The Group’s approach to risk management involves identifying, assessing
and managing risk, including consideration of identified risks, in the context of the Group’s values, objectives and strategies. The Board
is responsible for overseeing the implementation of the risk management system and reviews and assesses the effectiveness of the
Group’s implementation of that system.
The Group seeks to ensure that its exposure to risks that are likely to impact its financial performance, continued growth and survival
are minimised in a cost-effective manner.
(c) Significant accounting policies
Details of the significant accounting policies and methodologies adopted in respect of each class of financial asset, financial liability
and equity instrument are disclosed in Note 2.
(d) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an
optimal capital structure so as to maximise shareholder value. In order to maintain an optimal capital structure, the Group may issue
new shares or reduce its capital, subject to the provisions of the Company’s Constitution and any relevant regulatory requirements.
The capital structure of the Group consists of debt and equity attributed to equity holders of the Group comprising contributed equity,
reserves and accumulated losses as disclosed in Note 18. The Board monitors the need to raise additional equity from the equity
markets based on its ongoing review of PolyNovo’s actual and forecast cash flows, which are provided by management.
PolyNovo Limited 61
Annual Report 2020 24. Financial Risk Management Objectives and Policies continued
(e) Financial risk management
The key financial risks the Group is exposed to through its operations are:
• interest rate risk;
• credit risk;
• liquidity risk; and
• foreign currency risk.
Interest rate risk
Interest rate risk arises when the value of a financial instrument fluctuates as a result of changes in market interest rates.
The Group is exposed to interest rate risks in relation to its holdings in cash and cash equivalents and its trade finance and equipment
finance facilities. The objective of managing interest rate risk is to minimise the Group’s exposure to fluctuations in interest rates.
To manage this risk, the Group locks a portion of the Group’s cash and cash equivalents into term deposits. The required maturity
period of term deposits is determined based on the Group’s cash flow forecast with particular focus on the timing of cash requirements.
In addition, the Group considers the lower interest rate received on cash held in the Group’s operating account compared to placing
funds on term deposit. Account is also taken of the costs associated with early withdrawal of a term deposit should access to cash
and cash equivalents be required.
The Group’s exposure to interest rate risk and the interest rates (current at the end of each year) on the Group’s financial assets
and financial liabilities as at 30 June 2020, along with prior year comparatives, was as follows:
Weighted
average
effective
interest
rate
Floating
interest
rate
$
Fixed
interest
rate 0 to
90 days
$
Fixed
interest
rate 91 to
365 days
$
Fixed
interest
rate 1 to 5
years
$
Fixed
interest
rate over
5 years
$
Non-
interest
bearing
$
Total
$
2020
Financial assets
Cash and cash equivalents
0.27% 11,647,701
Other financial assets
Receivables
1.43%
–
–
–
Total financial assets
– 11,647,701
Financial liabilities
Trade and other payables
–
–
Trade Finance Facility
BBSY+1.7% 4,808,499
Equipment Finance Facility
3.16% 2,479,367
Total financial liabilities
– 7,287,866
–
–
–
–
–
–
–
–
–
50,000
–
50,000
–
–
–
–
–
–
–
–
–
–
–
–
–
– 11,647,701
–
50,000
– 3,921,519 3,921,519
– 3,921,519 15,619,220
– 3,171,995 3,171,995
–
– 4,808,499
– 2,479,367
– 3,171,995 10,459,861
62 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 Weighted
average
effective
interest
rate
Floating
interest
rate
$
Fixed
interest
rate 0 to
90 days
$
Fixed
interest
rate 91 to
365 days
$
Fixed
interest
rate 1 to 5
years
$
Fixed
interest
rate over
5 years
$
Non-
interest
bearing
$
Total
$
2019
Financial assets
Cash and cash equivalents
1.39% 13,920,695
Other financial assets
Receivables
2.64%
–
–
–
Total financial assets
– 13,920,695
Financial liabilities:
Trade and other payables
Total financial liabilities
–
–
–
–
–
–
–
–
–
–
–
50,000
–
50,000
–
–
–
–
–
–
–
–
–
–
– 13,920,695
–
50,000
– 3,680,081 3,680,081
– 3,680,081 17,650,776
–
–
1,751,829
1,751,829
1,751,829
1,751,829
There has been a change to the Group’s exposure to interest rate risk due to taking out trade finance and equipment finance facilities
and the fact that cash holdings are lower than at the previous year’s end. As noted above, cash is invested in term deposits of varying
maturity terms to maximise interest income as well as to meet the timing of operational cash flow requirements. All term deposits
are with the NAB, to ensure market interest rates are achieved without compromising the security of funds on deposit.
The analysis below details the impact on the Group’s loss after tax and equity if the interest rate associated with the closing balance
of financial assets was to fluctuate by the margins below, assuming all other variables had remained constant:
+ 0.5% (50 basis points)
- 0.5% (50 basis points)
Loss (higher)/
lower Equity
higher/(lower)
2020
$
Loss (higher)/
lower Equity
higher/(lower)
2019
$
58,239
(58,239)
139,707
(139,707)
The range of +0.5%/-0.5% as an assumption is based on current macro-market economic conditions in which the group holds
its cash and cash equivalent balances.
Credit risk
Credit risk arises when a counterparty defaults on its contractual obligations, resulting in a financial loss to the Group.
The Group is exposed to credit risk via its cash and cash equivalents and receivables. To reduce risk exposure in relation to its holdings
of cash and cash equivalents, they are placed on deposit with the Group’s main bankers, the National Australia Bank (S&P Rating AA/A-1+,
Moody’s rating Aa1/P-1). A change to the Group’s bankers requires Board approval.
In previous years the Group has had minimal trade and other receivables, with the majority of its cash being provided via
shareholder investment.
In 2020, the contract asset at 30 June 2020 includes $782,716 owing by BARDA, a US government agency as detailed in Note 10.
BARDA is contractually obliged to reimburse the Group for services provided and is considered to be a low credit risk customer.
PolyNovo Limited 63
Annual Report 2020 24. Financial Risk Management Objectives and Policies continued
(e) Financial risk management
In 2020, the trade receivables balance at 30 June 2020 includes $2,901,346 owing by customers. Trade receivables has grown
and this is expected to continue as commercial product sales to hospitals and distributors increase. The ageing analysis
of trade and other receivables is as follows.
2020
Trade and other receivables
3,306,739
507,676
6,463
63,356
3,884,234
0-30 days
$
30-60 days
$
60-90 days
$
90+ day
$
Total
$
2019
Trade and other receivables
2,452,198
323,983
66,079
143,219
2,985,479
The above total trade and other receivable amounts as at 30 June 2020 and 30 June 2019 do not include the R&D tax credit receivable
amounts of $36,956 and $694,602 respectively.
The Group considers the maximum credit risk from potential default of the counter party to be equal to the carrying amount of the
asset. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to credit loss is not significant.
Liquidity risk
Liquidity risk arises if the Group encounters difficulty in raising funds to meet its financial liabilities.
The Group is exposed to liquidity risk via its trade and other payables and its trade finance and equipment finance facilities.
Responsibility for managing liquidity risk rests with the Board, who regularly review liquidity risk by monitoring the undiscounted cash
flow forecasts and actual cash flows provided to them by management. This process is undertaken to ensure that the Group continues
to be able to meet its debts as and when they fall due. Contracts are not entered into unless the Board is satisfied that there is
sufficient cash flow to fund the additional commitment. The Board determines when reviewing the undiscounted cash flow forecasts
whether the Group needs to raise additional working capital from its existing shareholders, the equity capital markets or other available
external sources. The Board may also review the timing of internal programs if necessary to moderate cash requirements.
A maturity analysis of trade and other payables is set out below:
Year ended 30 June 2020
On
demand
$
Less than
3 months
$
3 to 12
months
$
1 to 5
years
$
> 5 years
$
Total
$
Interest-bearing loans and borrowings*
– 4,808,499
495,873
1,983,494
–
7,287,866
(excluding items below)
Lease Liabilties (Note 16)
Trade and other Payables
–
104,219
319,831
1,869,319
906,590
3,199,959
50,070
3,121,925
–
–
–
3,171,995
50,070
8,034,643
815,704
3,852,813
906,590 13,659,820
*$4,808,499 is the trade finance balance which is funded at maturity by drawing down on the equipment finance facility
Year ended 30 June 2019
Interest-bearing loans and borrowings
(excluding items below)
Lease Liabilties (Note 16)
Other Financial Liabilities
Trade and other Payables
On
demand
$
Less than
3 months
$
3 to 12
months
$
1 to 5
years
$
> 5 years
$
Total
$
–
–
–
–
–
–
–
–
409,186
1,342,643
409,186
1,342,643
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,751,829
1,751,829
64 PolyNovo Limited
Annual Report 2020Notes to the Financial Statements continuedFor the year ended 30 June 2020 Foreign currency risk
Foreign currency risk arises when foreign currency exchange rates fluctuate against the Australian dollar, resulting in a foreign currency
exchange loss or gain to the Group.
The Group is exposed to foreign currency risk via its cash and cash equivalents, trade receivables and trade payables as part of its
normal business.
The Group incurs foreign currency expenses predominantly in USD, NZD and EURO. To reduce foreign currency risk exposure, the Group
maintains an amount of cash and cash equivalents in USD, NZD and EURO. The Group receives payment from its overseas customers in
USD, NZD and EURO and pays US, NZD and EURO trade payables from its USD, EURO and NZD funds. GBP and SGD denominated payable
balances carry some foreign currency risk, however these payable balances are typically infrequent and low in value and are therefore
considered to expose the Group to minimal risk. At 30 June 2020 the Group had a EURO and GBP denominated prepaid balance of
$1,376,134 and $232,018 respectively, representing non-refundable deposits on R&D manufacturing equipment the Group will
receive in FY21. The Company has subsequently opened a EURO and GBP bank account to mitigate foreign currency exposure.
The holdings of cash and cash equivalents, trade receivables and trade payables analysed by nominated currency at 30 June 2020,
along with prior year comparatives, were as follows.
Denominated
in AUD
$
Denominated
in USD
$
Denominated
in NZD
$
Denominated
EURO
$
Denominated
In GBP
$
Denominated
In SGD
$
Total
$
2020
Financial assets
Cash and cash equivalents 6,260,340
5,291,876
Receivables
408,753
3,139,094
93,112
9,673
Total financial assets
6,669,093
8,430,970
102,785
2,373
335,321
337,694
–
27,582
27,582
11,647,701
1,096
3,921,519
1,096 15,569,220
Financial liabilities
Trade and other payables
1,969,251
1,135,066
Total financial liabilities
1,969,251
1,135,066
19,100
19,100
1,465
1,465
35,009
35,009
12,104
3,171,995
12,104
3,171,995
A hypothetical 10% strengthening in the exchange rate of the Australian dollar against the local currencies of the Parents' overseas
subsidiaries (as at 30 June 2020) with all other variables held constant would have the following effect on the loss and equity for the
2020 financial year for the Group:
Country
United States of America
United Kingdom
New Zealand
Singapore
Total
$
(61,782)
unfavourable
136,343
favourable
(22,443)
unfavourable
(21,357)
unfavourable
30,761
favourable
PolyNovo Limited 65
Annual Report 2020 Notes to the Financial Statements continued
For the year ended 30 June 2020
24. Financial Risk Management Objectives and Policies continued
A 10% strengthening in the exchange rate has been applied based on current market economic conditions.
2019
Financial assets
Denominated
in AUD
$
Denominated
in USD
$
Denominated
in NZD
$
Denominated
EURO
$
Denominated
In GBP
$
Total
$
Cash and cash equivalents
10,464,990
Receivables
964,175
3,233,959
2,759,895
Total financial assets
11,429,165
5,993,854
221,746
8,768
230,514
–
672,209
672,209
13,920,695
–
4,405,047
18,325,742
Financial liabilities
Trade and other payables
Total financial liabilities
668,452
668,452
1,040,821
1,040,821
27,436
27,436
–
–
15,120
15,120
1,751,829
1,751,829
A hypothetical 10% strengthening in the exchange rate of the Australian dollar against the US dollar (as at 30 June 2019) with all
other variables held constant would have a $65,950 unfavourable effect on the loss and equity for the 2019 financial year. A 10%
strengthening in the exchange rate has been applied based on current market economic conditions.
25. Key Management Personnel Disclosures
The key management personnel compensation disclosures required by the Corporations Act 2001 are provided in the Remuneration
Report in the Directors’ Report.
(a) Details of key management personnel
The key management personnel of the Group are those persons having the authority and responsibility for planning, directing and
controlling the activities of the Group, directly or indirectly, during the 2020 and 2019 financial years. Unless otherwise indicated
they were key management personnel during the whole of the financial years.
PolyNovo’s key management personnel are its Directors’ and members of the Senior Management team. Details of each Director
and Senior Executive, who are classified as key management personnel, are provided in the Remuneration Report.
(b) Compensation by category: key management personnel
30 June 2020
$
30 June 2019
$
1,148,354
101,118
44,659
1,898,500
3,741
888,135
72,106
42,752
54,086
–
3,196,372
1,057,079
Short term
Post-employment – superannuation
Leave allowances
Share-based payments
Termination benefits
66 PolyNovo Limited
Annual Report 2020 (c) Interests held by key management personnel
Share options held by key management personnel to purchase ordinary shares have the following expiry dates and exercise prices:
Issue date
2019
2019
2019
2019
2019
2019
Expiry date
Exercise price
2020 number
outstanding
2019 number
outstanding
30/06/21
30/06/22
30/06/23
1/10/22
1/10/22
1/10/22
$0.60
$0.60
$0.60
–
–
–
300,000
300,000
400,000
1,100,110
1,100,110
1,100,110
300,000
300,000
400,000
–
–
–
4,300,330
1,000,000
(d) Loans to key management personnel
No loans have been made to Directors of PolyNovo or to any other key management personnel, including their personally related entities.
(e) Other transactions with Directors
There were transactions with Directors during the year ended 30 June 2020 as follows:
• David McQuillan and Associates LLC, an entity associated with Dr David McQuillan, received payments in the amount of $24,490
(2019: $69,912). These payments were in respect to consulting services provided to PolyNovo North America LLC in relation to
advisory and consulting services for the hernia project.
No other transactions between the Group and any of the Directors of PolyNovo or any other key management personnel have been identified.
PolyNovo Limited 67
Annual Report 2020 Notes to the Financial Statements continued
For the year ended 30 June 2020
26. Controlled Entities
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy in Note 2:
Country of incorporation
Percentage owned
30 June 2020
%
30 June 2019
%
Company:
PolyNovo Limited
Subsidiaries of PolyNovo Limited:
PolyNovo North America LLC
PolyNovo Biomaterials Pty Ltd
NovoSkin Pty Ltd
NovoWound Pty Ltd
PolyNovo NZ Limited
PolyNovo Singapore Private Ltd
PolyNovo UK Limited
Australia
United States
Australia
Australia
Australia
New Zealand
Singapore
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
68 PolyNovo Limited
Annual Report 2020 Directors’ Declaration
For the year ended 30 June 2020
In accordance with a resolution of the Directors of PolyNovo Limited, I state that:
• In the opinion of the Directors:
• The Financial Report and the Remuneration Report included in the Directors’ Report, of the Company and of the Group are in accordance
with the Corporations Act 2001, including:
• giving a true and fair view of the Company and the Group’s financial position as at 30 June 2020 and of their performance for the
year ended on that date;
• complying with Australian Accounting Standards and Corporations Regulations 2001; and
• complying with International Financial Reporting Standards as issued by the International Accounting Standards Board.
• There are reasonable grounds to believe that the Company and the Group will be able to pay their debts as and when they become
due and payable.
• This declaration has been made after receiving the declarations required to be made to Directors in accordance with section 295A
of the Corporations Act 2001 for the financial period ended 30 June 2020.
On behalf of the Board,
Mr David Williams
Chairman
26 August 2020
PolyNovo Limited 69
Annual Report 2020 Independent Auditor’s Report
For the year ended 30 June 2020
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Audit or's Report t o t he Members of PolyNovo Limit ed
Report on t he Audit of t he Financial Report
Opinion
We have audited the financial report of PolyNovo Limited (the Company) and its subsidiaries (collectively
the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the
consolidated statement of comprehensive income, consolidated statement of changes in equit y and
consolidated statement of cash flows for the year then ended, notes to the financial statements, including
a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
giving a t rue and fair view of the consolidated financial position of the Group as at 30 June 2020
and of its consolidated financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(including Independence Standards) (t he Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other et hical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Mat t ers
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
70 PolyNovo Limited
Annual Report 2020 2
Recognit ion of revenue
Why significant
How our audit addressed t he key audit mat t er
The Group has recognised revenue from the sale of
commercial products and revenue from services
performed in respect of research and development.
For sales of commercial products, revenue is
recognised upon delivery of the product to the
customer. The Group sells to customers in various
territories. Commercial product sales have
significantly increased this financial year. Services
revenue is recognised as the services are delivered.
Notes 2, 3 and 4 of the financial statements outline
the Company’s accounting policies with respect to
revenue recognition and revenue disclosures.
Revenue recognition was considered a key audit
matter due to the increasing sales profile of the
Group.
Our audit procedures with respect to the Group’s revenue
recognition included:
► assessing new contracts with customers for ter ms and
conditions that could impact the timing of recognition
and measurement of revenue;
► assessing the operating effectiveness of the Group’s
controls by testing a sample of controls with respect
to the initiation and recording of commercial sales
transactions;
► assessing on a sample basis, whether revenue was
correctly recognised based on the products delivered
as at 30 June 2020 with reference to supporting
documentation including contracts, purchase orders
proof of delivery, cash receipts and credit notes;
► assessing the Group’s performance obligations under
the services contract to check that revenue is
recognised only for services provided during the year
and at the contracted rate;
► comparing subsequent cash receipts to balances
outstanding at year end on a sample basis; and
► assessing whether the Company’s revenue disclosures
as outlined in Notes 2, 3 and 4 are complete and meet
the requirements of Australian Accounting Standards.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PolyNovo Limited 71
Annual Report 2020 Independent Auditor’s Report continued
For the year ended 30 June 2020
3
Exist ence and valuat ion of invent ory
Why significant
How our audit addressed t he key audit mat t er
At 30 June 2020, the Group held inventory of $1.21
million which comprised raw materials, work in
progress and finished goods. The disclosure in respect
of inventor y is included in note 9,
Material inventories were held at a central warehouse
in Australia and by third-party logistics providers in
the United States of America (‘US’).
The cost of inventory is determined based on the
standard cost of production and, where applicable,
capitalisable manufacturing variances. The net
realisable value of the inventory is assessed at year
end considering inventory sales, forecast usage,
expiry dates of products and quality assessments.
The existence and valuation of inventory was
considered a key audit matter given the significance to
the group of inventory and the judgements required
in determining the valuation of inventory.
Our procedures with respect to existence and valuation of
inventory included:
► attending the inventor y counts that occurred,
reperforming the inventory counts and agreeing
count results into the year end inventor y listing. Due
to travel and social distancing restrictions resulting
from the COVID-19 pandemic, we could not physically
attend these inventor y counts. However, we
observed the inventory counts using video and other
technologies;
► assessing that the nature of costs included in
inventory, including allocations of labour and
manufacturing overheads, were consistent with the
requirements of Australian Accounting Standards;
► agreeing, on a sample basis, the amount of costs
capitalised in inventory to supporting documentation;
► assessing and recalculating the Group’s judgements
related to manufacturing variances; and
► assessing the inventory net realisable values with
reference to the ageing of inventory, expiry dates,
gross margins achieved, sales forecasts and outcomes
of quality assessments.
► Assessing the disclosures in respect of inventory in
the financial statements.
Account ing for share based payment arrangement s
Why significant
How our audit addressed t he key audit mat t er
During the year, the Group issued options to certain
employees, including the Managing Director, under
share based payment arrangements. The share based
payment arrangements included both market based
and non-market based vesting conditions. In
determining the value of the new arrangements, the
Group used the services of a third-par ty valuation
specialist.
The Group also has existing share based payment
arrangements with the Chief Financial Officer that are
being expensed over their vesting period.
The share based payments expense recorded for the
year ended 30 June 2020 is $2.06 million.
Our procedures with respect to share based payment
arrangements included:
► agreeing the terms of the share based payment
arrangements issued during the year to contracts;
► assessing, in conjunction with our valuation
specialists, the appropriateness of the valuation
methodology used by management’s specialist and
the key input assumptions such as volatility rates,
expected life and probability of achieving the market-
based performance conditions;
► assessing the Group’s judgements in relation to the
probability of achieving non-mar ket based vesting
conditions;
► recalculating the share based payments expense
recor ded in the Statement of Comprehensive Income
over the relevant vesting periods; and
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Annual Report 2020 4
► assessing the disclosures in Note 6 and the
Remuneration Report in relation to the share based
payment arrangements.
Details of these share based payment arrangements
are disclosed in Note 6 of the financial report and the
Remuneration Report with respect to the
arrangements with the Managing Director and Chief
Financial Officer.
There is judgement involved in determining the fair
value of share based payment arrangements and the
subsequent recording of the fair value as an expense
over the estimated vesting period. As a result, and
given the magnitude of the expense in the current
year, the audit of the share based payment
arrangements was considered a key audit matter.
Informat ion Ot her t han t he Financial Report and Audit or’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2020 Annual Report, but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection wit h 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.
Responsibilit ies of t he Direct ors for t he Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement , whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
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PolyNovo Limited 73
Annual Report 2020 Independent Auditor’s Report continued
For the year ended 30 June 2020
5
Audit or's Responsibilit ies for t he Audit of t he Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whet her due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance wit h the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to t he audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s abilit y to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, st ructure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit . We remain solely
responsible for our audit opinion.
We communicate wit h the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
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Annual Report 2020 6
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on t he Audit of t he Remunerat ion Report
Opinion on t he Remunerat ion Report
We have audited the Remuneration Report included in pages 20 to 27 of the directors' report for the year
ended 30 June 2020.
In our opinion, the Remuneration Report of PolyNovo Limited for the year ended 30 June 2020, complies
with section 300A of the Corporations Act 2001.
Responsibilit ies
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Joanne Lonergan
Partner
Melbourne
26 August 2020
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PolyNovo Limited 75
Annual Report 2020 Additional Information Required by ASX
For the year ended 30 June 2020
Additional information required by the Australian Securities Exchange is as follows:
Ordinary Shares
As at 14 August 2020 there were 661,088,044 ordinary shares on issue held by 20,708 shareholders. Each ordinary share carries
one vote per share.
Top 20 Shareholders as at 14 August 2020
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
MOGGS CREEK PTY LTD
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