Santander Bank Polska Annual Report 2013

Plain-text annual report

AnnuAl RepoRt 2 013 Maria Christou, Senior Materials ScientistContentsHighlights 01Chairman’s Letter 02CEO’s Report 03Corporate and Social Responsibility 12Directors’ Report 13 Operating & Financial Review 15 Remuneration Report 18Auditor’s Independence Declaration 26Corporate Governance Statement 27Annual Financial Report 32Independent Audit Report to the Members 67Shareholder Information 69Intellectual Property Report 71Corporate Directory 72hIGhLIGhTS Developing dendrimer products for pharmaceutical, life science and other applications VIVAGEL® (SPL7013) Phase 2 prevention of recurrent BV infection clinical trial completed DRUG DELIVERY Signs cancer drug agreement with AstraZeneca Positiveresultssupportprogressioninto apivotalphase3clinicalprogramfor thepreventionofrecurrenceofbacterial vaginosis(BV)indication.Thereare noapprovedtherapiesforpreventing Phase 3 BV treatment clinical recurrentBV. trials completed ® showedexcellentsymptomatic ® inBV.Althoughtheresultsdid VivaGel reliefandconfirmedtheactivityof VivaGel notreachtheFDA’srequiredendpoint of2-3weekspostcessationofproduct tosupportatreatmentindication,they stronglysupporttheprogressionof thecommerciallymoresignificantBV preventionofrecurrenceindicationas wellassupportthealternativeclaim VivaGel® active ingredient shows strategiesbeingpursued. potential as novel treatment for viral conjunctivitis Pre-clinicalstudiesdemonstratedthe potentanti-viraleffectofSPL7013against importantstrainsofadenoviruswhich causemostcasesofviralconjunctivitis,a commoneyecomplaintforwhichthereis nocure. Dendrimer-enhanced version of docetaxel superior across multiple cancer types Inpre-clinicalstudiesthedendrimer- docetaxelformulationdemonstrated superioranti-cancereffectsacrossthe commoncancertypesofbreast,prostate, lungandovariantumours,comparedto ® Dendrimer-enhanced version of Taxotere (docetaxel)alone. Taxotere® demonstrates targeted tumour delivery Starpharma’sdocetaxelformulation resultedinlevelsofthecancerdrug docetaxelintumourtissuemorethan 40timesgreaterthanlevelsseenwith Taxotere andasignificantlyextended durationofaction. ® AGRochEmIcAL Globalpharmaceuticalcompany AstraZenecasignsagreementtoundertake studiesusingStarpharma’sproprietary Dendrimer formulation oncologydendrimermolecules. improves anticancer efficacy in lung metastasis model Dendrimer-basedformulationof doxorubicinwassubstantiallymore efficaciousthanthedrugaloneintreating secondarytumoursofbreastcancerin New patents strengthen and thelung. expand drug delivery platform AdditionalpatentsintheUSandChina provide“compositionofmatter”and otherbroadprotectionforStarpharma’s dendrimersindrugdeliveryapplications. makhteshim Agan agrochemical collaboration ® Starpharma’sPriostar dendrimer technologytobeappliedtonovel cropprotectionformulations acrossMakhteshimAgan’sextensive New formulations demonstrate further productportfolio. improvement in crop protection coRPoRATE Studiesofenhancedglyphosate reformulationsshowedimprovedrain- fastnessandefficacy. Receipt of first R&D tax incentive payment Starpharmareceived$5.4million undertheR&DTaxIncentiveProgram, relatingtoeligibleAustralianand overseasR&Dactivitiesfromthe2011/12 Starpharma named “company of financialyear. the Year” Starpharmawasawardedthetop honourattheJanssen2012Industry ExcellenceAwardsduringAusBiotech, Australia’sleadingbiotechnologyindustry conference. DRUG DELIVERY STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 20131 chAIRmAN’S LETTER DearShareholders, OnbehalfoftheboardofStarpharma,Iampleasedtopresentthe annualreportfor2012-13. Ithasbeenayearofprogresswithimportantachievementsmade acrosstheCompany’sproductportfolioincludinganumberofkey clinicalresearchoutcomes.TheCompanycontinuestooverseeabroad andmaturingproductportfolio,basedonourdendrimerplatform technology,andisapproachingcommercialisationonanumberoffronts. ® inBVandshowedtheproduct Withthreelate-stageclinicaltrialsdueforcompletion,theyearwasa ® .Theresultsfromthetwopivotalphase3 definingperiodforVivaGel ® clinicalstudies,assessingVivaGel foratreatmentindicationinbacterial vaginosis(BV),werebothsurprisinganddisappointinginnotachieving theprimaryefficacyendpointrequiredbytheFDA.However,theresults didconfirmtheefficacyofVivaGel providedexcellentsymptomaticreliefforsufferersofBV.TheCompany continuestoinvestigateapproachestotakeadvantageoftheseresults, whilstadvancingthelargercommercialopportunityofVivaGel preventiveforrecurrentBVfollowingthepositivephase2clinicaltrial results.TherecurrentBVmarketisanareaofhighunmetmedicalneed, isestimatedtobeworthmorethan$US1billionglobally,andrepresents ® anopportunityforVivaGel tobethefirst-in-classproduct.Starpharma isprogressingwiththepivotalphase3clinicaltrialprogramforthis indicationwithpriority. ® asa TheseeventsunderscoretheimportanceofStarpharma’sstrategyof aplatformtechnologythatsupportsadiverseandrobustportfolioof productsandacrossmultipleindustries. Starpharma’spartneredandinternalprogramsmadeimportantprogress duringtheyearwithdendrimerdevelopmentsofferinggreatpotential inapplicationsthatsupportanextgenerationofpharmaceuticalsand agrochemicals.TheCompanyshoweditsdendrimerformulationof leadoncologydrug,docetaxelishighlytargeted,haslowertoxicityand maybeemployedasmoreeffectivetherapiesacrossmultiplecommon cancers.Itwasalsopleasingtoaddanotherglobalpharmaceutical companyinAstraZeneca,andleadingcropprotectioncompany, MakhteshimAgan,toStarpharma’slistofpartners. Shareholderscanalsobeassuredexpenditureandcashcontinues tobeprudentlymanaged,whilecontinuingtoadvancethemultiple opportunities.Thenetcashburnof$9million,assistedbythereceiptof $5.4millionfromR&Dtaxincentives,ismodestgiventhenumerousand substantialactivitiescompletedintheyear.Starpharma’scashreserves remainstrongat$33.8millionattheendofthefinancialyear. Iwouldagainliketoexpressappreciationtoallshareholdersfortheir ongoingsupportandconfidence.Theuniformlypositiveoutlookfor Starpharmafromhealthcareanalystsisencouragingfortheyearahead. Finally,Iwouldliketothankfellowboardmembers,includingourCEO, DrJackieFairley,herexecutivemanagementteamandallStarpharma employees.BeingtheinauguralwinneroftheAustralianbiotechnology industry’sJanssen2012CompanyoftheYearawardisafitting recognitionofyourachievementsatStarpharma. Yourssincerely, AO PeterTBartels, StarpharmaChairman STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 2 cEo’S REPoRT Professor George Kinghorn, OBE, Clinical Director at NIHR Clinical Research Network, Department of Genitourinary Medicine, Royal Hallamshire and Sheffield Teaching Hospitals in the UK. “ As a clinician, I am very encouraged by the (phase 2 trial R-BV indication) data for 1% VivaGel®. In this group of women, almost all would have been expected to experience recurrent BV during the study. However, more than 80% of VivaGel® users remained BV free at 16 weeks. Given there are no other approved products for recurrent BV, I see this finding as highly promising – both for the management of women with this often difficult chronic condition and for recurrent BV sufferers. ” IampleasedtoprovidethisreportdetailingStarpharma’sactivities duringthe2012-13financialyear,andalsoourplansforthefuture. Ithasbeenayearofimportantprogressacrossthethreefocusareas ofourbusiness:VivaGel VivaGel® portfolio Bacterial vaginosis (BV) ® ,drugdeliveryandagrochemicals. ® AnumberofkeyclinicalmilestoneswerereachedacrosstheVivaGel portfolioduringtheyear,withthreelate-stageclinicaltrialscompleted inbacterialvaginosis(BV). Twophase3trialsreportedinNovemberconclusivelydemonstratedthe ® toproviderapidandlastingrelieffromthesymptoms abilityofVivaGel associatedwithBVfollowing7daysoftherapy.AlthoughtheFDArequired endpointofclinicalcureat2-3weekspostcessationoftreatmentwas notmet,investigationsareongoingtodeterminetheregulatoryapproval pathwayfortheproductforsymptomaticreliefofBV. ® attheEOT(endof Giventheclear-cutefficacyshownforVivaGel treatment)timepoint,theexcellentandsustainedsymptomaticrelief ® ,anditssuperioracceptabilityprofile, reportedbywomenusingVivaGel thecompanyisactivelyexploringalternativeclaimstrategiessuchas symptomaticrelief,andalsootherregulatoryjurisdictions.Dialogue continueswithclinicalexperts,regulatoryagenciesandpartners regardingthesestrategies.Basedoninitialfeedbackitseemslikelythat thereareanumberofmarketsoutsidetheUSAwhereexistingclinical datacouldsupportanapprovalandcommercialinterestinthatproduct concepthasbeenconfirmedbypotentialpartners. ® Thephase3studyresultsprovidedclearevidencethatuseofVivaGel wasassociatedwithresolutionofBVsymptomsandnormalizationof theabnormalvaginalmicrofloracharacteristicofBV.Apartfromthe potentialforclaimstrategiessuchassymptomaticreliefratherthan ® treatment,theseeffectsalsoclearlysupporttheuseofVivaGel asa chronictherapyforpreventionofrecurrentBV.Asubsequentphase 2studydemonstratedthatVivaGel recurrentBV(R-BV),anddelayedtimetofirstrecurrence.Morethan ® 80%ofwomenusingVivaGel remainedBV-freeattheendofthestudy, representingaclinicallysignificantreducedriskofexperiencingBVof upto56%comparedwithplacebo. ® didindeedreducetheriskof STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 3 Left: Jackie Fairley, CEO cEo’S REPoRT Patient experiences with VivaGel® (BV Phase 3 trial participants) “ I think it pretty much started to go away right when I started using it .” Bacterial vaginosis (BV) continued “ I thought it was effective because within the first day I noticed a change already. It was, like, gone almost overnight.” ThemarketvalueforpreventionofrecurrentBVisestimated atmorethanUS$1billiongloballyandnoalternativeapproved therapiesexisttomanagethisproblematiccondition.BVisthe mostcommonvaginalinfectionworldwide,and50-60%ofwomen withBVexperiencerecurrencewithin6months.BVisparticularly prevalentintheUS,whereitaffectsanestimatedone-thirdofthe adultfemalepopulation.Theconditioncausesunpleasantdischarge andmalodour,whichcanhaveasignificantsocialimpactformany women.Inaddition,BVisassociatedwithpelvicinflammatory disease,infertilityandmiscarriageandhasalsobeenassociated withincreasedriskoftransmissionandacquisitionofsexually transmittedinfections,includingHIV. Thedatacollectedacrossthethreetrialsclearlydemonstrate thehighpotentialofVivaGel managementofBVanditremainsthefocusofthecompanyto pursuetheR-BVmarketwithhighpriority,givenitshighly attractivecommercialfeatures. ® asanoveltherapyfortheongoing Time to the first case of R-BV in clinical patients 1% VivaGel® Placebo gel • 5 days Patient experiences with VivaGel® (BV Phase 3 trial participants) “ The next day I noticed a huge difference.” STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 4 Patient experiences with VivaGel® (BV Phase 3 trial participants)• 35 dayscEo’S REPoRT “ I have rated this product a five (out of five) as this is a major breakthrough in the condom market, and for world health...” The VivaGel®-coated Condom ® -coatedcondomproductiscurrentlyunderregulatory TheVivaGel reviewaheadofmarketlaunchwithpartnersAnsellandOkamoto. Arangeofpre-launchactivitieshaveoccurredintheyearwithour partners,includingconsumerresearch,productpositioning,package design,andmanufacturingvalidation. ® -condomcoatingproducthasbeenlicensedtoAnsell TheVivaGel andOkamoto,providingStarpharmawithaccesstotheUS$1.1billion globalbrandedcondommarketwiththeseleadingcondomcompanies. BothAnsellandOkamotoholdstrongmarketpositionsintheir respectivemarketsandtheirsuccesshasbeenfoundedonastrong focusoninnovation.Consumerresearchconfirmsstronginterestin acondomthatcaninactivateSTIs. “ Ansell has partnered with Starpharma to validate a process of coating an Ansell condom with unique VivaGel®. This ground breaking technology has been shown in lab trials to deactivate many viruses that cause STI’s. The dendrimer technology perfected by Starpharma over many years is supported by millions of dollars of clinical trials, and Ansell is fortunate enough to be the partner to help bring the resulting condom product to market. Regulatory review processes are already underway for this product with plans to commercialise this world- leading condom technology in the near future.” Ansellisrankednumbertwogloballyforcondomsales,marketing ® brand. leadingbrandsincludingLifestyles IthasaleadingmarketpositionintherapidlyexpandingAsiaPacific andSouthAmericanmarketsandinAustraliawitharound70% marketshare. ® andtheSKYN ® ,ZERO OkamotoisJapan’sleadingmarketerofcondomswithover60%share oftheJapanesecondommarket–thesecondlargestglobalcondom marketestimatedtobeintheorderofUS$500million. Other VivaGel® Applications DuringtheyearStarpharmaalsoidentifiedtheactiveinVivaGel –SPL7013–ashavingpotentialasanoveltherapeuticforviral conjunctivitis,acommoneyecomplaintforwhichthereisnocure andwithanestimatedmarketof$US700million. ® Inpre-clinicalstudiesSPL7013hasdemonstratedthepotentanti-viral effectagainstimportantstrainsofadenovirus,whichcausemostcases ofviralconjunctivitis.WorkisalreadyunderwaytodevelopanSPL7013- containingocularformulationtosupportactivitiesandongoingdialogue withpotentialcommercialpartners. Currenttreatmentsforviralconjunctivitisarefocusedonsymptom relief,andthepatientcanremaininfectiousandsymptomaticforseveral weeks.Currently,curativetreatmentsexistonlyforconjunctivitiswitha bacterialcause. Theappealoftheopportunityisenhancedbytheadvancedstageof ® ,withtheexistingbodyofdata developmentofSPL7013inVivaGel reducingdevelopmentcostsandexpeditingtimelines,thusimproving theattractivenessforcommercialpartners. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 5 Consumer opinion of the VivaGel®-coated condom from recent market researchPeter Carroll, President and General Manager – Sexual Wellness Global Business Unit, Ansell Limited cEo’S REPoRT Drug Delivery Portfolio Starpharmamadefurtherimportantadvancesacrossitsdrugdelivery programduringtheperiodwiththeresultsunderliningthehigh potentialofdendrimerapplicationsindrugdelivery–acrossaspectrum ofdiseaseareas,includingoncologywhereStarpharma’sownprograms arefocused. Additionaldrugdeliverypatentswithbroadclaimswereobtainedin thekeyUSandChinesemarkets,includingcommerciallyattractive “compositionofmatter”protection.Thesepatentshavesignificantly broadenedandexpandedStarpharma’sintellectualpropertyportfolio indrugdeliverytechnology. Dendrimer-Docetaxel program Pre-clinicalstudiescompletedduringtheperiodcontinuedtoexpand thearrayofimportantperformancegainsattributedtoadendrimer versionoftheanti-cancerdrug,docetaxel,Starpharma’sinternallead drugdeliverycandidatethattheCompanyisprogressingtohumantrials laterin2013. InOctober,theCompanyreleasedfindingswhichshowedmajor improvementintheabilityofitsdendrimer-docetaxelproducttotarget tumourscomparedwithdocetaxelalone.Treatmentwiththedendrimer- docetaxelformulationresultedinlevelsofthecancerdrugdetectedin ® ,themarketed cancertissuearound40timesgreaterthanforTaxotere docetaxelformulation.TheimprovedtumourtargetingofStarpharma’s dendrimer-docetaxelnanoparticleaddstoalistofotherknown performanceadvantages.Theseincludeimprovedefficacyinabreast cancermodel,extendedhalf-lifeofthedrugandimprovingthedrug’s solubilityallowingtheremovaloftoxicexcipients. InDecember,Starpharmareleasedfurtherresultsofefficacyinanimal studieswhichdemonstratedthatinadditiontotheearlierbreastcancer results,thedendrimer-enhancedversionofdocetaxelsignificantly outperformedtheleadingdrugTaxotere includingovarian,lungandprostate. ® inarangeofimportantcancers ® andgeneratedsalesinexcessofUS$3billionin Docetaxelisaleadingchemotherapydrugusedtotreatawiderange ofcancersincludingbreast,lungandprostate.ItismarketedbySanofi AventisasTaxotere ® 2010.Sanofi’spatentsrelatingtoTaxotere havelapsedinmanymarkets, enablingthedevelopmentofthisimproveddendrimer-docetaxelproduct. Starpharma’simprovedformulationisthesubjectofnewpatentsfiled offeringcoverageofitsproprietyversionofthisimportantdrugtothe year2032. Partnered pharmaceutical programs Starpharma’spartnereddrug-deliveryprogramcontinuestorunin parallelwiththeinternalprogram,andincludesagrowingnumber ofleadingpharmaceuticalcompaniesincludingGSKandLilly. InSeptember,anothermajorpharmaceuticalcompanywasaddedto thislistwithAstraZenecasigninganagreementallowingittotest certainproprietyoncologymoleculesbasedonStarpharma’s dendrimertechnology. Starpharmanowhaspartneredwitharoundhalfofthetoptenglobal pharmaceuticalcompanies,withourpartnersapplyingdendrimers asameanstoimprovedeliveryofsmallmoleculeandprotein-based pharmaceuticals.Thesearrangementsandresultsaresubjectto confidentialityprovisions,buttherelationshipsareprogressingpositively. Docetaxel is a leading chemotherapy drug used to treat a wide range of cancers including breast, lung and prostate. It is marketed by Sanofi Aventis as Taxotere® and generated sales in excess of US$3 billion in 2010. STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 20136cEo’S REPoRT Other Drug Delivery Programs Starpharmaisalsoexaminingadditionalwaysinwhichdendrimerscan beusedtoimprovethetargeteddeliveryofdrugs–usingdendrimers asstructurestowhichantibodies(actingastargetingagents)are attachedalongwithexistingsmallmoleculecytotoxic(cell-killing)drugs toproduceapowerfultherapyagainstcancers.Theseantibodydrug conjugatesrepresentaveryactiveandexcitingareaofcancertherapy. InMarch,additionalpositiveresultswereannouncedofastudy examiningadendrimerformulationoftheanti-cancerdrugdoxorubicin anditsabilitytocombatthesecondarytumoursofbreastcancerinthe lungs.Inthisstudythedendrimer-doxorubicindeliveredviatheairways showedsubstantiallygreatereffectinpreventingsecondarytumoursin thelungthandrugaloneviathestandardrouteofadministration.This widensthepossibilitiesonhowcancertreatmentsmaybedelivered tothelungs,historicallyachallengingareatotreat,andopensupan interestingopportunityforthepotentialuseofdendrimersforthe deliveryviathelung. STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 20137Dr Sammi Tsegay, Research ScientistcEo’S REPoRT Agrochemicals and crop protectionInternal and partnered agrochemical programs completed during the period continued to underscore the commercial potential of Starpharma’s Priostar® dendrimer applications in this field. A number of new partnership agreements were signed during the year including a major new partner welcomed in March, with Makhteshim Agan signing an agreement that will see Priostar® dendrimer technology applied to novel crop protection formulations across its extensive product portfolio.Makhteshim Agan is the world’s leading manufacturer and distributor of branded off-patent crop and non-crop protection products, with global sales last year of US$2.83 billion. Makhteshim Agan serves farmers in 120 countries and operates in Australia as Farmoz. This agreement is a major development for the agrochemical program, in terms of the scope of application of the Company’s Priostar® dendrimer technology and the potential addressable market for dendrimer-based products. Starpharma now has partnerships with around half of the top 10 global agrochemical companies. Starpharma’s internal agrochemical program includes a number of generic actives including an enhanced reformulation of the best-selling herbicide glyphosate – more commonly known as Roundup®- which STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 20138has annual sales in excess of US$5 billion. In October, the Company announced the results of internal studies showing improved efficacy and rain-fastness from a dendrimer-glyphosate formulation. The dendrimer-glyphosate formulation demonstrated a substantial improvement in rain-fastness compared to Roundup® alone.Priostar dendrimers have also shown potential to underpin novel crop protection products and applications via a number of improvements including:• Improved herbicidal activity; • Solubility enhancement for more concentrated formulations to reduce transport costs and harmful solvent residues; and• Modification of soil penetration properties. Many crop protection products contain high levels – up to 70% – of hydrocarbon solvents. Typically growers and regulators prefer formulations without these solvents, which are toxic to handle, highly flammable and expensive to transport and leave a residue when sprayed on crops. A reduction in these solvents would be welcome from social, environmental and economic perspectives, and regulators are increasingly working with agrochemical companies to address these issues.cEo’S REPoRT Starpharma now has partnerships with around half of the top 10 global agrochemical companies. STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 20139cEo’S REPoRT Dr Pauline Stanislawski, Senior Research ScientistSTARPHARMA HOLDINGS LIMITED ANNUAL REPORT 201310cEo’S REPoRT Overview of financial result Thekeymetricofnetcashoutflowsfromoperationswas$9.8million fortheyearended30June2013.Thisresultincludesthe$5.4million R&DtaxincentiverefundreceivedbyStarpharmaintheMarchquarter. Cashreservesat30June2013were$33.8million. Starpharmareportedanetlossaftertaxof$5.2million,areductionfrom theprioryearfrom$13.7millionsignificantlyduetotheadditionalR&D taxincentiverefundrecognisedintheyear. Financial Summary Year Ended 30 June 2013 $m 2012 $m 0.8 - 1.6 2.4 (6.7) (5.2) (10.0) 0.9 33.8 0.9 0.2 1.8 2.9 (16.6) (13.7) (9.9) 33.7 42.8 Royalty,customerandlicencerevenue Grantincome Interestrevenue Totalrevenue&income Expenditure Netlossaftertax Netoperatingandinvestingcashoutflows Netproceedsfromissueofshares Cashandcashequivalentsattheendofyear outlook ® topivotalphase3trialsforthepreventionofrecurrent ThisisanexcitingtimeforStarpharma.TheCompanyisplanningtosoon takeitsdendrimer-docetaxelproductintotheclinic.TheCompanyisalso progressingVivaGel BVindication,thelargestpotentialmarketforBV.Regulatoryreviewsfor ® -coatedcondomareunderwaywithmanypre-launchactivities theVivaGel complete.Starpharmawillalsocontinuetoexpandtheextensivepartnered programs,whichincludemanyofthetop10globalpharmaceuticaland agrochemicalcompanies.Theseandotherdevelopmentsareexpectedto supportincreasingshareholdervalueinthefuture. Chief Executive Officer JackieFairley STARPHARMA HOLDINGS LIMITED ANNUAL REPORT 201311coRPoRATE AND SocIAL RESPoNSIBILITY Starpharma is a world leader in the development of dendrimer products for pharmaceutical, life science and other applications, and aims to create value through the commercialisation of its proprietary products. In striving for this objective, Starpharma acknowledges its role within society and believes its success will deliver long term positive benefits to all stakeholders. Starpharma’s corporate governance principles and code of conduct set the framework for how the company, management and employees are expected to conduct themselves: always ethically and responsibly. Our PeopleThe employees of Starpharma are critical for achieving business success. To ensure Starpharma remains a safe, healthy, and attractive workplace for our employees, Starpharma has established workplace policies and practices. Policies assist to ensure employees have engaging and satisfying roles and receive periodic assessments and feedback on performance. Policies provide for ongoing training and career development, and are intended to ensure a balanced work and home life. Starpharma’s Code of Conduct reflects the core values of the company and sets out standards of behaviour in matters including equal employment opportunity and best practice in recruitment. Starpharma also has a Health and Wellbeing policy to support employees in maintaining or adopting healthy lifestyles, recognising that employee physical and mental health has a positive impact on the individuals and culture of the organisation.Employees are rewarded for their performance, dedication, and contribution to the results of Starpharma. Employees are recruited into and retained in positions based on merit. A balance of skills, expertise and opinion, as well as diversity are viewed as important cultural elements within the collegiate team environment. The Board has adopted a Diversity Policy to provide a framework for Starpharma to achieve a number of diversity objectives, with an initial focus on gender. Employee equity participation schemes are used to provide the opportunity for all staff to share in the business success of the company and to assist in aligning the objectives of employees with those of shareholders.Occupational health and safety is considered every employee’s responsibility, and a safe working culture is promoted and encouraged. There is an active committee structure to eliminate, reduce or mitigate risks associated with Starpharma’s activities. Occupational Health & Safety Committee members represent all sections of the workplace including management and employees.Our PartnersStarpharma has established important business and scientific partnerships with leading global companies, international medical research organisations and key governmental and non-governmental departments and institutions. These relationships offer critical analysis of research concepts from world experts in their field and provide the pathway for products to enter the market and change daily lives.The CommunityThe very nature of Starpharma products affords the opportunity of changing lives for the better. Through innovative research and development, Starpharma is creating products for needs which are currently unmet, either within the public health, medical, life sciences or other markets. All of Starpharma’s pharmaceutical products and clinical research activities comply with strict regulatory and ethical approval processes. These include the FDA in the United States and other regulatory bodies as applicable.The EnvironmentThe broad application of Starpharma’s dendrimer research extends into projects that may assist the environment. Research in the field of agrochemicals may improve existing products and reduce the negative impact of current practices on the environment. More effective chemical formulations for agrochemicals could reduce the frequency of application and potentially improve the environmental profile of such products. In conducting its research and operations Starpharma has documented procedures and processes in place to ensure that all waste products (albeit relatively minor in volume) are disposed of strictly in accordance with relevant environment regulations. Dr David Owen, VP ResearchSTARPHARMA HOLDINGS LIMITED ANNUAL REPORT 201312DIRECTORS’ REPORT Your directors have pleasure in presenting this report on the consolidated entity (referred to hereafter as the group) consisting of Starpharma Directors Holdings Limited and the entities it controlled at the end of, or during, the year ended 30 June 2013. The following persons were directors of Starpharma Holdings Limited (“the company”) during the whole of the financial year and up to the date of this report: P T Bartels (Chairman) R A Hazleton J K Fairley (Chief Executive Officer) P R Turvey P J Jenkins (Deputy Chairman) Z Peach Information on Directors R Dobinson was a director from the beginning of the financial year until his resignation on 28 November 2012. Peter T Bartels, AO Jacinth (Jackie) K Fairley , FAISM, FRSA Independent non‐executive director Chairman Member of remuneration & nomination committee Member of audit & risk committee Independent non‐executive director and Chairman for ten years. Mr Bartels has considerable experience in the pharmaceutical industry; while working for Abbott Laboratories he was responsible for the introduction of a wide range of industrial, agricultural, veterinary and human pharmaceuticals into the Australian market. He was a director of Drug Houses of Australia and was managing director of DHA Pharmaceuticals. He has been a major player in corporate Australia, having held the positions of CEO and Managing Director of both Coles Myer Ltd and Fosters Brewing Company Ltd. He is a past Chairman of the Australian Sports Commission, the Australian Institute of Sport, the Commonwealth Heads of Government Committee for Sport and the Royal Women's and Royal Children's Hospitals. Peter is presently Chair of the Dean's external Advisory Council, for the Faculty of Medicine, Dentistry and Health Sciences at The University of Melbourne. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None 332,930 ordinary shares in Starpharma Holdings Limited Executive director Chief Executive Officer BSc, BVSc (Hons), MBA Dr Fairley was appointed Chief Executive Officer of Starpharma on 1 July 2006 after serving in the role of Chief Operating Officer from July 2005. As CEO and a Director of the Board, Jackie's responsibilities include involvement in setting strategic direction, oversight of operations and financing activities for the group. She also plays an active role in driving key commercial negotiations and development programs and corporate activity. Jackie has more than 20 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Hospira). Former CEO of Cerylid Biosciences, Jackie also spent 5 years as a Vice President for Faulding’s injectable division and 5 years with CSL in various executive roles. She holds first class honours degrees in Science and Veterinary Science, and has an MBA from the Melbourne Business School (MBS) where she was the recipient of the Clemenger Medal. In 2010, Jackie was appointed to the board of directors of MBS. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None 1,824,197 ordinary shares in Starpharma Holdings Limited 960,000 employee performance rights Peter J Jenkins Richard A Hazleton MB, BS (Melb), FRACP Independent Non‐executive director Deputy Chairman Chairman of remuneration & nomination committee Consultant physician and gastroenterologist. Holds clinical and research positions with the Alfred Hospital and has held clinical research positions with the Baker Medical Research Centre. Former judge of the Australian Technology Awards. Executive Director of AusBio Ltd, an unlisted public biotechnology company. Other current directorships of listed entities: Nil Former directorships of listed entities in last 3 years: None 1,537,462 ordinary shares in Starpharma Holdings Limited BSChE, MSChE, HonDrEngr, HonDrCommSci Independent Non‐executive director Member of audit & risk committee Independent non‐executive director since 1 December 2006. Former chairman of US‐based global corporation Dow Corning. Joined Dow Corning in 1965 and held numerous positions in engineering, manufacturing and finance, both in the US and Europe, before becoming Chief Executive Officer of the company in 1993, and Chairman of the Board of Directors and CEO in 1994. Retired from Dow Corning in 2001. Chairman of Dendritic Nanotechnologies Inc (DNT) from 2004 until Starpharma’s acquisition of the company in October 2006. Has served on the Boards of the American Chemistry Council and the Chemical Bank and Trust Company (Midland, MI, USA) as well as several non‐profit social service agencies in Michigan and Belgium. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None 157,616 ordinary shares in Starpharma Holdings Limited STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 13 13 Zita Peach BSc Independent Non‐executive director Member of remuneration & nomination committee Peter R Turvey BA/LLB, MAICD Independent Non‐executive director Chairman of audit & risk committee Ms Peach has more than 20 years of commercial experience in the pharmaceutical industry, particularly in marketing and business development, working for major industry players such as CSL Limited and Merck Sharp & Dohme (MSD), the Australian subsidiary of Merck Inc. She is currently the Managing Director and Executive Vice President, South Asia Pacific for Fresenius Kabi Australia, a leader in infusion therapy and clinical nutrition. Until recently Ms Peach was Vice President/Director, Business Development R&D for CSL, a position she held for ten years. Ms Peach is a Non‐Executive Director of the ASX‐listed Vision Eye Institute Limited. Other current directorships of listed entities: Vision Eye Institute Limited Former directorships of listed entities in last 3 years: None 3,000 ordinary shares in Starpharma Holdings Limited Ross Dobinson B Bus (Acc) Independent Non‐executive director until 28 November 2012 Merchant banker with a background in investment banking and stockbroking. Has acted as corporate director for two leading stockbrokers, and was an executive director of the NAB’s corporate advisory subsidiary. Later headed the Corporate Advisory Division of Dresdner Australia Ltd. Managing Director of TSL Group Ltd, a corporate advisory company specialising in establishing and advising life sciences companies. Also a director of a number of unlisted companies. Other current directorships of listed entities: Executive Chairman of Acrux Ltd since 1 July 2012, previously non‐executive director (director since 2000; Chairman since 31 January 2006) Former directorships of listed entities in last 3 years: Executive Chairman of Hexima Limited (delisted 17 June 2011) since 21 July 2010 Nil ordinary shares in Starpharma Holdings Limited Mr Turvey is the former Executive Vice President Licensing and Company Secretary of global specialty biopharmaceutical company CSL Limited having retired in 2011. He is currently a Principal of Foursight Associates Pty Ltd and a director of the industry organisation AusBiotech Limited. After completing an Arts/Law degree at the Australian National University, he joined Biotechnology Australia, then Australia's largest biotechnology company, as Manager of Intellectual Property and Company Secretary. He joined CSL in 1992 as its first in‐house Corporate Counsel and was appointed Company Secretary in 1998. He played a key role in the transformation of CSL from a government owned enterprise, through ASX listing in 1994, to a global plasma and biopharmaceutical company. He also had responsibility for the protection and licensing of CSL's intellectual property and for risk management within CSL, which included management of the internal audit function, reporting to the Audit & Risk Management Committee of the Board as well as being the Chairman of the Corporate Risk Management Committee. Other current directorships of listed entities: Allied Healthcare Group Former directorships of listed entities in last 3 years: None 47,000 ordinary shares in Starpharma Holdings Limited Company Secretary The Company Secretary is Mr Ben Rogers. He was a member of Starpharma’s start‐up/IPO management team and has been Company Secretary since February 1998, with responsibilities that included the role of Chief Financial Officer until 31 December 2008. Mr Rogers has extensive experience in finance, corporate governance and HR management with CSIRO research laboratories and Co‐ operative Research Centres. 14 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 14 OPERATING & FINANCIAL REVIEW Principal Activities The principal activities of the group consist of research, development and commercialisation of dendrimer products for pharmaceutical, life‐science and other applications. Activities within the group are directed towards the development of precisely defined nano‐scale materials, with a particular focus on the development of its topical for the treatment and prevention of vaginal microbicide VivaGel bacterial vaginosis, as a condom coating and for prevention of genital herpes and HIV, and the application of dendrimers to drug delivery and other life science applications. More broadly, through partners the group is exploring dendrimer opportunities in materials science with applications in areas such as cosmetics, agrochemicals, and Result coatings. ® The financial report for the financial years ended 30 June 2013 and 30 June 2012, and the results herein, have been prepared in accordance with Australian Accounting Standards. The consolidated loss after income tax attributable to ordinary owners for the financial year ended 30 June 2013 was $5,229,000 (2012: $13,658,000). The net operating and investing cash outflows for the year were $9,951,000 (2012: $9,903,000), with a cash balance Dividends and distributions at 30 June 2013 of $33,840,000 (June 2012: $42,812,000). No dividends were paid or declared during the period and no dividends are recommended in respect to the financial year ended 30 Review of Operations June 2013 (2012: Nil). ®  Key highlights for the year include:          ® ® condom as a novel for prevention of Completion of 3 late‐stage clinical trials for VivaGel Bacterial Vaginosis (BV) therapy (one Phase 2 and two Phase 3); Positive Phase 2 trial results for VivaGel recurrent BV (R‐BV) supporting its progression into Phase 3; Completion of a number of key activities for the VivaGel coating in collaboration with partners Okamoto and Ansell to facilitate launch following requisite approvals; Key development advances in Starpharma’s dendrimer‐docetaxel nanoparticle formulation in preparation for human trials; Progress with key partnerships in drug delivery, including a new agreement signed with AstraZeneca for oncology; Established new agrochemicals partnerships with crop protection companies for dendrimer applications within their crop protection portfolio; Identification of potential for SPL7013, the active in VivaGel novel treatment for viral conjunctivitis; Dendrimer nanoparticles showed efficacy in a lung metastasis model; Approval by AusIndustry for certain overseas R&D activities to be eligible under the R&D tax incentive scheme; and Starpharma was awarded the AusBiotech’s 2012 Australian Company of the Year at the Janssen 2012 Industry Excellence Awards. as a ® ® ® ) for the treatment of There were two key clinical results in the year: In November 2012, Starpharma announced the results of its two phase 3 studies of 1% SPL7013 Gel (VivaGel bacterial vaginosis (BV). Both studies showed that VivaGel statistically significant Clinical Cure and resolution of patient‐ reported symptoms of BV at the End of Treatment visit (EOT, 2‐5 days post treatment). However, the primary endpoint of Clinical Cure 2‐3 weeks after the cessation of treatment (Test of Cure, TOC visit) was not met. A new drug application (NDA) for VivaGel treatment of BV was not filed with the FDA at that time due to the lack of statistical significance at TOC, although other claim strategies (e.g. symptomatic relief) and other regulatory jurisdictions are being explored. ® for the achieved ® ® ® and time to In April 2013, Starpharma announced the positive results of its exploratory Phase 2 study of VivaGel for the prevention of recurrent bacterial vaginosis (R‐BV). The results showed a reduced overall risk of R‐BV during the study in patients using 1% VivaGel first recurrence was delayed compared with placebo. The results to inhibit BV recurrence, as was demonstrated the ability of VivaGel suggested by results of earlier clinical trials, and they provide strong for support for the advancement to Phase 3 clinical trials of VivaGel the prevention of R‐BV. The Phase 2 study also showed high levels of . In this user satisfaction, in line with earlier clinical trials of VivaGel study 79% of users of 1% VivaGel satisfied or extremely satisfied with the product’s effectiveness and overall satisfaction. Planning and feasibility is now underway for conduct of the Phase 3 clinical program. were either satisfied, very ® ® ® A number of important developments also occurred within the drug delivery and agrochemical programs during the year. New top‐tier partners including Astra Zeneca and Makhteshim Agan signed up with Starpharma, while internal studies demonstrated an expanding array of high potential applications for dendrimers in drug delivery, and additional key patents were granted in US and China. The collaboration with Astra Zeneca gives that company rights to test certain proprietary Starpharma oncology compounds based on Starpharma’s dendrimer technology. Makhteshim Agan, a leading manufacturer and distributor worldwide of crop‐protection solutions, will assess Starpharma’s Priostar dendrimers for potential application in novel crop protection formulations across its extensive product portfolio. ® In the Company’s internal drug delivery program, animal studies have continued to expand the array of important performance gains attributed to a dendrimer version of the anti‐cancer drug docetaxel, the company’s lead drug delivery candidate which will advance to Matter subsequent to the end of the financial year first human trials later in 2013. No matters or circumstances have arisen since 30 June 2013 that have significantly affected, or may significantly affect: (a) the consolidated entity’s operations in future financial years, or (b) the results of those operations in future financial years, or Business strategy, future developments and prospects (c) the consolidated entity’s state of affairs in future financial years. ® The Company aims to create value for shareholders through the commercial exploitation of proprietary products based on its dendrimer technology in pharmaceutical, life science and other applications. The Company’s key focus is to advance and broaden its product development pipeline for VivaGel agrochemicals. It is intended to achieve this by continuing to utilise a combination of internally funded and partnered projects across the portfolio. The Company commercialises its development pipeline with corporate partners via licensing agreements at various stages in a product’s development lifecycle; depending on the product, a partner’s relative strength of product and market expertise, comparison of current and future potential returns, and the risks involved in advancing the product to the next value inflection point or milestone. , drug delivery and Starpharma remains well positioned to create value in the medium term, due to its deep expertise, strong intellectual property portfolio, diverse development portfolio, a culture and ability to innovate and adapt its technology platform to product opportunities, proven risk management practices, and a solid cash position. The Company will continue using its cash resources to invest in selected research and Legal development activities to achieve its objectives. At the date of the Directors’ Report there are no significant legal issues. 15 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 15 Review of Financials Material Business Risks Income statement Revenue from continuing operations Other income Research and development expenses Administration expenses Finance costs Loss attributable to members Income statement 2013 $’000 2,429 5 (3,505) (4,149) (9) (5,229) Year Ended 30 June 2012 $’000 2,744 160 (12,088) (4,466) (8) (13,658) The reported loss after tax of $5,229,000 is after fully expensing all research and development expenditure and patenting costs in the current year. A contra research and development expense of $8,704,000 has been recorded for research and development activities eligible under the Australian Government’s R&D Tax Incentive program. Of the total, $4,071,000 related to 2012 expenditure not previously booked due to the uncertainty of its eligibility. Subsequent to the 2012 results, Starpharma received an advance finding from AusIndustry that covers certain overseas activities over a 3 year period from 1 July 2011. ® Research and development expenses include the costs of the clinical program, particularly in relation to treatment and VivaGel prevention of bacterial vaginosis (BV), and the internal drug delivery and agrochemical programs. Total revenue and other income for the year was $2,434,000, a reduction of $470,000 from the previous year, on lower interest revenue earned on cash deposits and grant income from the US National Institutes of Health. Revenue consists predominately of royalty, licensing and research revenue from commercial partners of $840,000 (2012: $881,000) and interest income on cash invested in Balance sheet deposits of $1,569,000 (2012: $1,819,000). At 30 June 2013 the Group’s cash position was $33,840,000 (June 2012: $42,812,000). Trade and other receivables of $5,492,000 (June 2012: $2,053,000) includes $4,632,000 receivable from the Statement of cash flows Australian Government under the R&D Tax Incentive program. ® The net operating and investing cash outflows for the year were $9,951,000 (2012: $9,903,000) included costs associated with the , drug delivery and agrochemical programs. Company’s VivaGel During the financial year $5,395,000 was received from R&D tax incentives associated with eligible expenditure and activities from the prior financial year. Net cash inflows from financing activities of $828,000 included Earnings per share $878,000 on the issue of shares from the exercise of share options. Basic loss per share Diluted loss per share 2013 ($0.02) ($0.02) 2012 ($0.05) ($0.05) The group operates in the biotechnology and pharmaceutical sectors and is in the development phase. Any investment in the biotechnology industry is considered high‐risk. The group is subject to normal business risks, including but not limited to interest rate movements, labour conditions, government policies, securities market conditions, exchange rate fluctuations and a range of other factors which are outside the control of the Board and management. More specific material risks of the sector and the group include, but  are not limited to:         Scientific, technical & clinical – product development requires a high level of scientific rigour, which the outcomes cannot be known beforehand. Activities are experimental in nature so the risk of failure or delay is material. Key development activities, including clinical trials and product manufacture, are undertaken by specialist contract organisations; and there are risks in managing the quality and timelines of these activities. Regulatory – products and their testing, may not be approved by, or be delayed by regulatory bodies (eg. US Food and Drug Administration) whose approvals are necessary before products can be sold in market. Financial ‐ the group currently, and since inception, does not receive sufficient income to cover operating expenses. Although the current cash reserves are sound, there is no certainty that additional capital funding may not be required in the future, and no assurance can be given that such funding will be available, if required. Intellectual property (IP) – commercial success requires the ability to develop, obtain and maintain commercially valuable patents, trade secrets and confidential information. Gaining and maintaining the IP across multiple countries; and preventing the infringement of the group’s exclusive rights involves management of complex legal, scientific and factual issues. The Company must also operate without infringing upon the IP of others. Commercialisation – the Company relies, and intends to rely, upon corporate partners to market, and in some cases finalise development of its products, on its behalf. There are risks in establishing and maintaining these relationships, and with the manner in which partners execute on these collaborative agreements. Product acceptance & competiveness – a developed product may not be considered by key opinion leaders (eg. doctors), reimbursement authorities (eg. PBA‐listing) or the end customer to be an effective alternative to products already on market, or new superior future products may be preferred. Product liability – a claim or product recall would significantly impact the Company. Insurance, at an acceptable cost, may not be available or be adequate to cover liability claims if a marketed product is found to be unsafe. Key personnel – the Company’s success and achievements against timelines depend on key members of its highly qualified, specialised and experienced management and scientific teams. The ability to retain and attract such personnel is important. Grant and R&D incentives – the Company may undertake R&D activities under competitive grants and be part‐funded by other incentive programs (eg R&D tax credits). There is no certainty that grants or incentive programs will continue to be available to the Company, and changes in government policy may reduce their applicability. In accordance with good business practice in the pharmaceutical industry the company’s management actively and routinely employs a variety of risk management strategies. These are broadly described in the Corporate Governance Statement (section 7.1. Risk assessment and management). 16 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 16 Health and Safety Meetings of Directors The board, CEO and senior management team of the group are committed to providing and maintaining a safe and healthy working environment for the company’s employees and anyone entering its premises or with connection to the company’s business operations. Employees are encouraged to actively participate in the management of environmental and Occupational Health and Safety (OH&S) issues. The company has adopted an OH&S Policy and has an established OH&S Committee structure as part of its overall approach to workplace safety. The OH&S committee provides a forum for management and employees to consult on health and safety matters. The primary role of the committee is to coordinate the development and implementation of OH&S policy and procedures, to consider any work related safety matters or incidents, and to ensure compliance with relevant legislation and guidelines. The committee includes representatives of management, and employees from each operational area generally in proportion to the number of people working in the area and the perceived safety risks associated with Environment and Regulation working in that area. The OH&S committee meets on a monthly basis. The group is subject to environmental regulations and other licences in respect of its research and development facilities. There are adequate systems in place to ensure compliance with relevant Federal, State and Local environmental regulations and the Directors are not aware of any breach of applicable environmental regulations by the group. There were no significant changes in laws or regulations during the 2013 financial year or since the end of the year affecting the business activities of the group, and the directors are not aware of any such changes in the near future. The number of meetings of the company’s board of directors and of each committee held during the year ended 30 June 2013, and the numbers of meetings attended by each director were: Remuneration & nomination committee Directors Board Audit & risk committee P T Bartels P J Jenkins J K Fairley R A Hazleton Z Peach P R Turvey R Dobinson 8 of 8 8 of 8 8 of 8 5 of 8 6 of 8 7 of 8 3 of 4 3 of 3 N/A N/A 3 of 3 N/A 3 of 3 N/A 3 of 3 3 of 3 N/A N/A 3 of 3 N/A N/A The table above illustrates the number of meetings attended compared with the number of meetings held during the period that the director held office or was a member of the committee. N/A denotes that the director is not a member of the relevant committee. 17 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 17 REMUNERATION REPORT The Remuneration report sets out remuneration information for non‐executive directors, executive directors and other key management personnel of Starpharma Holdings Limited group Directors and key management personnel disclosed of companies. Non‐executive and executive directors – see pages 13 to 14 above Other key management personnel N J Baade C P Barrett D J Owen J R Paull B P Rogers M L McColl Role of the remuneration committee Chief Financial Officer VP, Business Development VP, Research VP, Development and Regulatory Affairs Company Secretary VP, Business Development (until 18 January 2013) The remuneration and nomination committee, consisting of three independent non‐executive directors, advises the board on remuneration policies and practices generally, and makes specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non‐executive directors. The objective of the company’s remuneration policy is to ensure appropriate and competitive reward for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders. Non‐executive director remuneration policy Fees and payments to non‐executive directors reflect the demands which are made on, and the responsibilities of, the directors. The Chairman’s fees are determined independently from the fees of non‐ executive directors based on comparative roles in the external market. Non‐executive directors do not receive bonuses, share options or other forms of equity securities, or any performance‐related remuneration or retirement allowances. Directors’ fees Non‐executive directors’ fees are reviewed annually by the remuneration and nomination committee, taking into account comparable data from the biotechnology sector. Non‐executive directors’ fees were last increased with effect from 1 January 2010. Fees and payments are determined within an aggregate non‐ executive directors’ fee pool limit, which is periodically recommended for approval by shareholders. The aggregate amount currently stands at $450,000 which was approved by shareholders on 15 November 2006. This amount (or some part of it) is to be divided among the non‐executive directors as determined by the board. The aggregate amount paid to non‐executive directors for the year ended 30 June 2013 was $385,000 (2012: $362,097). Superannuation contributions required under the Australian superannuation guarantee legislation continue to be made and are deducted from the directors’ overall fee entitlements. Directors’ Fees 2013 Chair Other non‐executive directors 120,000 60,000 Executive remuneration policy and framework Remuneration packages are set at levels that are intended to attract and retain high calibre executives capable of managing the group’s operations.  The executive pay and reward framework comprises:  base pay and benefits, including superannuation;  short term performance incentives; and long term incentives through participation in the Starpharma employee equity plans. The combination of these comprises an executive's total remuneration. Relationship between executive reward and company financial performance The company’s remuneration policy aligns executive reward with the interests of shareholders. The primary focus is on sustained growth in shareholder value through achievement of research, development, regulatory and commercial milestones, and therefore performance goals are not necessarily linked to financial performance measures typical of companies operating in other market segments. Remuneration is set based on key performance indicators (KPIs) typical of a biotechnology company in Starpharma’s lifecycle, which may include (but are not limited to) successful negotiations of commercial contracts, achieving key research, development and regulatory milestones, and ensuring the availability of adequate capital to achieve stated objectives. Improvement in the rating of the company against peer biotechnology companies may also be taken into consideration in determining the performance of the executive team, and can be assessed on a qualitative basis by reviewing external sources such as biotechnology publications and non‐ commissioned research reports. Other factors taken into account in determining remuneration packages include a demonstrated record of performance, internal and external relativities, and the company’s ability to pay. Base pay and benefits Executives receive their base pay and benefits structured as a Total Fixed Remuneration (TFR) package which may be delivered as a combination of cash and prescribed non‐financial benefits at the executives’ discretion. Short‐term performance incentives With the exception of the CEO, executive service agreements do not include pre‐determined bonus or equity allocations, but cash incentives (bonuses) may be awarded at the end of the performance review cycle for specific contributions, or upon achievement of significant company milestones at the discretion of the board. Following a performance evaluation, the amount of possible bonus payable to each executive is determined by the remuneration and nomination committee, taking into account factors including the accountabilities of the role and impact on the company. There are no guaranteed base pay increases in any executives’ contracts. Long‐term incentives Long‐term incentives for executives and employees to deliver long‐ term shareholder returns are provided by a combination of equity  plans that may include:   an Employee Performance Rights Plan; an Employee Share Plan ($1,000 Plan); and an Employee Share Option Plan. Participation in these plans is at the board’s discretion and no individual has a contractual right to participate in a plan or to receive any guaranteed benefits. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 18 18 Starpharma Employee Performance Rights Plan Performance review and development      The introduction of the Starpharma Employee Performance Rights Plan (ASX code SPLAK) was approved by the board in 2010 and subsequently approved by shareholders at the 2011 annual general meeting. The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. The Plan allows for the issue of performance rights (being rights to receive fully paid ordinary shares subject to continued employment with the company and the satisfaction of certain performance  hurdles over a specified period). The key points of the Plan are:  All executives and staff and certain contractors may be invited to apply for Rights under the scheme. One Right once vested is equivalent to one fully paid ordinary share. Rights and the resultant shares are granted for no consideration.   Appropriate vesting conditions can be applied to each allocation. The standard vesting condition in the plan rules is continued employment for two years unless otherwise determined by the Board. At the end of the vesting period a further disposal restriction (Holding Lock) may be applied to restrict disposal of the resulting shares. The standard Holding Lock in the plan rules is one year after vesting unless otherwise determined by the Board. Rights will lapse on cessation of employment before the vesting date, except for good leaver and change of control provisions at the board’s discretion. In the event of a change of control of the company the board has the discretion to determine whether Rights will vest and become exercisable. In making its decision, the board must consider: (i) the portion of the Vesting Period elapsed; and (ii) the extent to which the Performance Conditions (if any) have been met. In the event of cessation due to death, illness, permanent disability, redundancy or any other circumstance approved by the board unvested Rights will lapse, unless the board determines otherwise having regard to: (i) the portion of the Vesting Period elapsed; and (ii) the extent to which the Performance Conditions (if any) have been met. The Holding Lock on the resulting shares will be automatically removed on cessation of employment. Starpharma Employee Share Plan ($1,000 Plan) All executives and staff, excluding directors, are eligible to participate in the Starpharma Employee Share Plan ($1,000 Plan). The objective of the $1,000 Plan is to assist in the reward, retention and motivation of employees of the company. An annual allocation of up to $1,000 of shares may be granted and taxed on a concessional basis. Shares are granted under the $1,000 Plan for no consideration and are escrowed for 3 years while participants are employed by the company. Starpharma Employee Share Option Plan Options may be granted under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) which was approved by shareholders at the 2007 annual general meeting. All executives and staff are eligible to participate in the Plan. The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. Options are granted under the Plan for no consideration. The exercise price of options granted under the Plan must be not less than the market price at the time the decision is made to invite a participant to apply for options. The exercise price is usually calculated on the basis of 15% above market price. Market price is calculated as the volume‐weighted average price (VWAP) of the shares in the 15 days preceding the approval to grant the options. Executives and all other staff participate in a formal two stage performance review and development process consisting of an objectives planning and development session at the commencement of the annual cycle and a performance and salary review towards the end of the cycle. The objective of the salary review is to ensure that all employees are appropriately remunerated for their contribution to the company, that remuneration is competitive within the relevant industry sector, and that increases in employees’ skills and responsibilities are recognised. During the year an evaluation of all executives and other staff took place in accordance with this process. Trading in company securities The trading of shares issued to participants under any of the company’s employee equity plans is governed by the company’s securities trading policy. Executives are prohibited from entering into any hedging arrangements over unvested securities. Further information regarding the company’s securities trading policy is set out in Section 3.2 of the Corporate Governance Statement. Use of remuneration consultants If remuneration consultants are to be engaged to provide Corporations Act 2001 remuneration recommendations as defined in section 9B of the , they are to be engaged by, and report directly to, the remuneration & nomination committee. No remuneration consultants have been engaged to provide such remuneration services during the financial year. Voting and comments made at the company’s 2012 Annual General Meeting (AGM) Of the votes cast on the company’s remuneration report for the 2012 financial year, 97% were in favour of the resolution. The company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Performance of Starpharma Holdings Limited The executive team of Starpharma achieved important milestones directly related to their key performance indicators in the year.  These included:  ®      ® ‐condom ; Completion of 3 late‐stage clinical trials for VivaGel Completion of key pre‐launch activities for the VivaGel coating in collaboration with partners Okamoto and Ansell; Advanced development activities in the dendrimer‐docetaxel nanoparticle formulation; Progress partnerships in drug delivery, including a new agreement signed with AstraZeneca for oncology; Established four new agrochemicals partnerships with major crop protection companies for dendrimer applications within their crop protection portfolio; Demonstration of adenoviral activity in SPL7013 and patent filing on findings; and Approval by AusIndustry of submission for certain overseas R&D activities to be eligible under the R&D tax incentive scheme, resulting in the $5.4 million receipt of R&D tax incentives. These key links between key management personnel performance and remuneration and Starpharma Holdings Limited’s long term performance are evident in the appreciation in share price, with a compounded annual return over the past five years of 30%. 19 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 19 Details of remuneration The following tables show details of the remuneration received by the directors and the key management personnel of the group for the current and previous financial year. 2013 Post‐ employment Long‐term benefits Share‐based payments Short‐term benefits Non‐executive directors Name Cash salary & fees $ P T Bartels 1 R Dobinson P J Jenkins R A Hazleton Z Peach Executive directors P R Turvey 120,000 25,000 55,046 60,000 55,046 50,034 # Cash bonus $ – – – – – – Non‐monetary benefits $ Superannuation $ Long service leave $ – – – – – – – – 4,954 – 4,954 9,966 – – – – – – Other Key Management Personnel (group) J K Fairley 150,000 368,213 40,608 21,286 27,824 B P Rogers J R Paull C P Barrett N J Baade D J Owen Totals M L McColl 2 117,680 185,280 206,158 183,067 186,140 128,852 10,399 35,000 30,000 30,000 32,500 – 5,021 13,356 – 13,698 311 259 24,917 25,000 16,470 24,970 24,970 9,608 6,203 8,982 13,944 13,475 9,680 (516) # Shares $ – – – – – – – 999 999 999 999 999 999 Performance # Rights $ – – – – – – 325,844 44,526 55,657 55,657 55,657 55,657 Total $ 120,000 25,000 60,000 60,000 60,000 60,000 933,775 209,745 324,274 323,228 321,866 310,257 128,871 (10,331) 2,937,016 2 1 287,899 1,740,516 Resigned 28 November 2012. Resigned 18 January 2013. # All performance related remuneration, including cash bonuses, shares, and performance rights granted are determined to be an ‘at risk’ component of total remuneration. There were no retirement benefits paid in the current or prior year. 2012 Post‐ employment Long‐term benefits Share‐based payments Short‐term benefits 167,095 582,667 73,253 79,592 5,994 Non‐executive directors Name Cash salary & fees $ P T Bartels R Dobinson P J Jenkins R A Hazleton 1 Z Peach 2 Executive directors P R Turvey 120,000 60,000 55,046 60,000 41,284 – # Cash bonus $ – – – – – – Non‐monetary benefits $ Superannuation $ Long service leave $ – – – – – – – – 4,954 – 3,716 17,097 – – – – – – Other Key Management Personnel (group) J K Fairley 150,000 341,454 40,720 18,764 15,732 B P Rogers J R Paull C P Barrett N J Baade D J Owen Totals M L McColl 1 89,496 176,847 196,652 173,596 174,422 192,303 10,399 30,000 25,000 25,000 25,000 25,000 5,108 11,640 – 13,561 339 – 49,712 24,995 17,699 24,500 24,954 17,307 6,772 8,462 8,388 7,658 1,023 248 1,681,100 290,399 71,368 203,698 48,283 # Performance # Shares $ – – – – – – – 1,000 1,000 1,000 1,000 1,000 1,000 6,000 Rights $ – – – – – – 128,540 23,008 28,760 28,760 28,760 28,760 28,760 295,348 Total $ 120,000 60,000 60,000 60,000 45,000 17,097 695,210 185,495 281,704 277,499 274,075 255,498 264,618 2,596,196 2 Appointed 1 October 2011. Appointed 19 March 2012. # All performance related remuneration, including cash bonuses, shares, and performance rights granted are determined to be an ‘at risk’ component of total remuneration. There were no retirement benefits paid in the current or prior year. 20 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 20 C P Barrett VP – Business Development – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $226,188, to be reviewed annually by the remuneration and nomination committee. – Subject to termination at any time by: (i) the Executive giving to the company not less than two months written notice; or (ii) the company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be four months. – The Executive’s employment may be terminated by the company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. N J Baade Chief Financial Officer – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $221,237, to be reviewed annually by the remuneration and nomination committee. – Fringe benefits consist of on‐site car parking. – Subject to termination at any time by: (i) the Executive giving to the company not less than two months written notice; or (ii) the company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be four months. – The Executive’s employment may be terminated by the company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. D J Owen VP – Research – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $217,507, to be reviewed annually by the remuneration and nomination committee. – Subject to termination at any time by: (i) the Executive giving to the company not less than three months written notice; or (ii) the company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be three months. – The Executive’s employment may be terminated by the company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. Service Agreements Remuneration and other terms of employment for the CEO and the executives are formalised in service agreements which include a formal position description and set out duties, rights and responsibilities, and entitlements on termination. Each of these agreements provides that the executive may receive performance‐ related cash bonuses, and other benefits including participation, when eligible, in the Starpharma Holdings Employee Equity Plans. Other major provisions of the agreements relating to remuneration are set out below. J K Fairley Chief Executive Officer – No fixed term of agreement – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $425,000, to be reviewed annually by the remuneration and nomination committee. – A cash bonus up to $200,000 for the year to 30 June 2013 allocated proportionately on the achievement of predetermined objectives. – Fringe benefits consist of on‐site car parking. – Subject to termination at any time by: (i) the Executive giving to the company twelve months’ notice in writing; or (ii) the company giving to the Executive six months’ notice in writing. If the company gives notice in accordance with this clause, the Executive will be entitled to a termination payment upon the expiration of the notice period, of an amount equal to 6 months’ total remuneration. – The Executive’s employment may be terminated by the company at any time without notice if the Executive: (i) is guilty of serious misconduct; (ii) becomes unable to pay the Executive’s debts as they become due; or (iii) is found guilty by a court of a criminal offence. B P Rogers Company Secretary – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $142,426 part‐time, to be reviewed annually by the remuneration and nomination committee. – Fringe benefits consist of on‐site car parking. – Payment of termination benefit on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. J R Paull VP – Development and Regulatory Affairs – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2013 of $223,917, to be reviewed annually by the remuneration and nomination committee. – Fringe benefits consist of on‐site car parking. – Subject to termination at any time by: (i) the Executive giving to the company not less than three months written notice; or (ii) the company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be six months. – The Executive’s employment may be terminated by the company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. 21 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 21 Share‐based compensation Options Options are granted under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) (“the Plan”) which was approved by shareholders at the 2007 annual general meeting. All employees of the group are eligible to participate in the plan. Options are granted under the plan for no consideration and when exercised, enable the holder to subscribe for one fully paid ordinary share of the company to be allotted not more than ten business days after exercise, at the exercise price. The vesting period is 1 to 2 years from the date of grant, and the exercise period is 2 to 3 years from the end of the vesting period. There were no options granted in the current or prior year. The terms and conditions of each grant of options affecting remuneration of each director of the company and the key management personnel of the group in this or future reporting periods are as follows: Date exercise‐ able Grant date Expiry date Exercise price Value per option at grant date % vested 29 June 2009 29 June 2011 28 June 2014 $0.37 $0.23 100% Number of shares issued on exercise of options during the year Intrinsic value1 $ 2013 – 100,000 125,000 – – 100,000 2013 – 116,190 52,400 – – 120,190 2012 – – – 75,000 – – 2012 – – – 72,750 – – Name J K Fairley B P Rogers J R Paull C P Barrett N J Baade D J Owen 1 The intrinsic value of each option exercised has been determined as opening share price on the date of allotment of shares less the option exercise price. The amount paid per ordinary share by the key management personnel of the group on the exercise of options were as follows: Share allotment date on exercise of options Amount paid per share Options granted under the Plan carry no dividend or voting rights. The weighted average remaining contractual life of share options outstanding at the end of the year was 1.00 years (2012: 1.54 years). Fair value of options granted 11 July 2012; 13 August 2012 19 June 2013 $0.29 $0.37 There were no options granted in the current or prior year. For earlier years, the fair value at grant date was independently determined using a Black‐Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Shares issued to directors and key management personnel on the exercise of options Details of ordinary shares issued to the key management personnel of the group on the exercise of options in the current and prior year were: No amounts are unpaid on any shares issued on the exercise of options. Share options granted to directors and key management personnel Details of options over unissued ordinary shares of Starpharma Holdings Limited provided as remuneration to any of the directors or the key management personnel of the group with greatest authority as part of their remuneration were as follows: No options have been granted to directors or key management personnel in the current or prior year, or since the end of the year. No options vested or expired (unexercised) in the current or prior year, or since the end of the year. No options lapsed during the year as a result of performance milestones not being met. 22 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 22 Shares and Performance Rights to directors and key management personnel Details of ordinary shares and performance rights over unissued ordinary shares of Starpharma Holdings Limited provided as remuneration to any of the directors or the key management personnel of the group with greatest authority as part of their remuneration were as follows: Number of direct shares granted during the year# 2013 – 809 809 809 809 809 809 2013 960,000 40,000 50,000 50,000 50,000 50,000 50,000 2012 – 851 851 851 851 851 851 Name 1 J K Fairley B P Rogers J R Paull C P Barrett N J Baade D J Owen 2 M L McColl 1 Number of performance rights granted during the year Number of shares issued on the vesting of performance rights during the year Number of performance rights lapsed during the year 2013 125,000 64,000 80,000 80,000 80,000 80,000 80,000 2012 375,000 32,000 40,000 40,000 40,000 40,000 40,000 2013 250,000 2012 – – – – – 90,000 – – – – – – – 2012 – – – – – – – 2 The value of rights that lapsed in the year were $52,500. Resigned 18 January 2013. The value performance rights that lapsed in the year were $121,100. # Excludes shares issued on the vesting of performance rights. The value at vesting date of performance rights that vested during 2013 was $864,940 (2012: Nil). No other shares were issued on the vesting of performance rights in the current or prior year provided as remuneration to any of the directors or the key management personnel of the group. The terms and conditions of the grant of performance rights to any of the directors or the key management personnel of the group in the current year were as follows: Holding Lock Expiry date Number of Rights Performance Measure Value per right at Grant date Vesting Date 13 September 2012 19 September 2014 19 September 2015 30 November 2012 30 September 2013 30 September 2014 30 November 2012 30 September 2013 30 September 2014 30 November 2012 30 September 2013 30 September 2014 290,000 100,000 100,000 200,000 Achievement of KPIs Share Price ≥ $1.86 Share Price ≥ $2.09 Achievement of KPIs 30 November 2012 30 November 2014 30 November 2015 50,000 Continued Employment 30 November 2012 30 November 2014 30 November 2015 30 November 2012 30 November 2014 30 November 2015 50,000 100,000 Index TSR Index TSR +10% 30 November 2012 30 November 2015 30 November 2016 80,000 Continued Employment 30 November 2012 30 November 2015 30 November 2016 30 November 2012 30 November 2015 30 November 2016 80,000 200,000 Index TSR Index TSR +10% grant date % vested $1.55 $0.19 $0.12 $1.10 $1.10 $0.72 $0.70 $1.10 $0.77 $0.76 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Principles used to determine the nature and amount of remuneration and the relationship between remuneration and company performance are set out in the Executive remuneration policy and framework section of this report. 23 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 23 Details of remuneration: cash bonuses, shares, performance rights and options For each cash bonus and grant of equity included in the tables on pages 20 to 24, the percentage of the available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and individual performance objectives is set out below. The options vest over the specified periods providing vesting criteria are met. No options or rights will vest if the conditions are not satisfied, hence the minimum value of the options and rights yet to vest is nil. The maximum value of the options and rights yet to vest has been determined as the amount of the grant date fair value of the options and rights that is yet to be expensed. Cash bonus Shares Grant date value of shares granted during 20132 Grant date value of rights granted during 20132 3 Paid Forfeited Year granted Vested Forfeited Performance rights Financial years in which rights may vest Remuneration consisting of shares & rights4 Name % % J K Fairley 100% 1 – 1 – 1 – 1 – 1 – 1 – B P Rogers J R Paull C P Barrett N J Baade D J Owen M L 5 McColl 1 – – – – – – – $ – $ 714,970 999 58,900 999 73,625 999 73,625 999 73,625 999 73,625 999 73,625 % – – – 33% – – 100% – – 100% – – 100% – – 100% – – 100% – – 100% 2013 2013 2013 2012 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 % – – – 66% – – – – – – – – – – – – – – – 100% 100% – 30/06/2016 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 30/06/2015 30/06/2014 30/06/2013 % 35% 22% 18% 18% 18% 18% (7%) The bonuses paid are at the absolute discretion of the board based on an individual’s performance within the year. There is no unpaid Share‐ component of the bonuses awarded. based Payments 2 The value at grant date calculated in accordance with AASB 2 of shares and performance rights granted during the year as part of remuneration. 3 The maximum value of options and performance rights is determined at grant date and is amortised over the applicable vesting period. The amount which will be included in a given key management personnel’s remuneration for a given year is consistent with this amortisation amount. No options or performance rights will vest if the conditions are not satisfied, hence the minimum value yet to vest is nil. 4 The percentage of the value of remuneration consisting of equity, based on the market value of shares at grant date, and the fair value of options and performance rights expensed during the current year. 5 Resigned 18 January 2013. ‐ End of remuneration report ‐ 24 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 24 Shares under option Unissued ordinary shares of Starpharma Holdings Limited under option at the date of this report are as follows: Grant date Expiry date Issue price of shares Number under options 29 June 2009 28 June 2014 $0.37 585,000 No option holder has any right under the options to participate in any other issue of the company or group. Shares issued on the exercise of options The following ordinary shares of Starpharma Holdings Limited were issued during the year and up to the date of this report on the exercise of options. No amounts are unpaid on any of the shares. Issue price of shares (Option exercise price) Number of shares issued Date options granted 21 August 2007 1 January 2009 Shares under rights 29 June 2009 $0.43 $0.29 $0.37 1,684,809 300,000 209,000 Unissued ordinary shares of Starpharma Holdings Limited under the Employee Performance Rights Plan at the date of this report are as follows: Grant date Vesting date Holding Lock date Number of rights granted Balance of rights at date of report 25 November 2011 25 November 2013 25 November 2014 467,500 410,000 13 September 2012 19 September 2014 19 September 2015 672,400 600,900 30 November 2012 30 September 2013 30 September 2014 400,000 400,000 30 November 2012 30 November 2014 30 November 2015 200,000 200,000 30 November 2012 30 November 2015 30 November 2016 360,000 360,000 Rights and the resultant shares are granted for no consideration. Shares issued on the vesting of rights The following ordinary shares of Starpharma Holdings Limited were issued during the year to the date of this report on the vesting of performance rights granted under the Employee Performance Rights Plan. No amounts are unpaid on any of the shares. Issue price of shares (Exercise price of right) conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Audit & non audit services The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non‐audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with the advice received from the audit and risk committee is satisfied that the provision of Corporations Act 2001 the non‐audit services is compatible with the general standard of independence for auditors imposed by the . The directors are satisfied that the provision of non‐audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the  following reasons: Corporations Act 2001 for the  all non‐audit services have been reviewed by the audit and risk committee to ensure they do not impact the impartiality and objectivity of the auditor; none of the services undermine the general principles relating to Professional Accountants auditor independence as set out in APES 110 Code of Ethics for . During the year the following fees were paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non‐related audit firms. 2013 Assurance Services $ Audit or review of financial reports of the Corporations Act 2001 entity or any entity in the group under the 87,600 2012 $ 85,000 No other assurance services, taxation or advisory services have been provided by the auditor in either the current or prior year. Auditors’ Independence Declaration Corporations Act 2001 A copy of the auditors’ independence declaration as required under section 307C of the Rounding of amounts is set out on page 26. The company is of a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor Date rights granted 2 September 2010 10 November 2011 Insurance of officers Number of shares issued Corporations Act 2001 PricewaterhouseCoopers continues in office in accordance with section 327 of the . $ ‐ $ ‐ 717,800 125,000 This report is made in accordance with a resolution of the Directors. During the financial year, Starpharma Holdings Limited arranged to insure the directors and executive officers of the company and related bodies corporate. The terms of the policy prohibit disclosure of the amount of the premium paid. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from AO Peter T Bartels, Director Melbourne, 26 August 2013 25 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 25 AUDITOR’S INDEPENDENCE DECLARATION 26 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 26 CORPORATE GOVERNANCE STATEMENT Starpharma Holdings Limited (“the company”) and the board are committed to achieving and demonstrating the highest standards of corporate governance. The board guides and monitors the company’s activities on behalf of the shareholders. In developing policies and setting standards the board considers the Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations (2nd Edition with 2010 Amendments) (“the CGC Recommendations”). Principle 1: Lay solid foundations for management and oversight The Corporate Governance Statement set out below describes the company’s current corporate governance principles and practices which the board considers to comply with the CGC Recommendations. All of these practices, unless otherwise stated, were in place for the entire year. This corporate governance statement is available on the company’s website. The company and its controlled entities together are referred to as the group in this statement. The relationship between the board and senior management is critical to the group’s long term success. The directors are responsible to the shareholders for the performance of the group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the group is properly managed. The responsibilities of the board are described in the board charter, which is set out under Principle 2 below. Principle 2: Structure the board to add value The board operates in accordance with the broad principles of the charter set out below. 2.1 Board charter The charter of the board of Starpharma Holdings Limited, matters reserved for the board and matters delegated to the CEO are set 2.1.1 Board Composition out below. Day to day management of the group’s affairs and the implementation of the corporate strategy and policy initiatives are delegated by the board to the Chief Executive Officer (“CEO”). These delegations are reviewed on an annual basis. A performance assessment for senior executives was last conducted in April 2013. The process for these assessments is described in the Remuneration Report under the heading “Performance Review and Development” on page 19 of this report. (c) Financial Items – approving the company's credit policy; – reviewing and approving the annual budget and financial plans including available resources and major capital expenditure initiatives; – seeking credit in excess of $50,000; – giving any guarantee or letter of credit or any security over the – The board is to be composed of both executive and non‐executive company's assets; directors with a majority of non‐executive directors. – In recognition of the importance of independent views and the board’s role in supervising the activities of management the Chairman must be an independent non‐executive director, the majority of the board must be independent of management and all directors are required to bring independent judgement to bear in their board decision making. – The Chairman is elected by the full board and meets regularly with the CEO. – The board may decide to appoint one of the non‐executive directors as Deputy Chairman. – The company is to maintain a mix of directors on the board from different genders, age groups and cultural and professional backgrounds who have complementary skills and experience. – The board is to establish measurable board gender diversity objectives and assess annually the objectives and the progress in achieving them. The board is to undertake an annual board performance review and consider the composition, structure, and role of the board and individual responsibilities of directors. – The minimum number of directors is three and the maximum is fifteen unless the company passes a resolution varying that number. – There is no requirement for a director to hold shares in 2.1.2 Functions Reserved for the board the company. The company has established matters reserved for the board. These are: (a) Strategic Issues – approving the company's corporate strategy; – overseeing and monitoring organisational performance and the achievement of the group’s strategic goals and objectives; – approving any major transaction not included in the budget or outside the ordinary course of the business; – determining the structure of the company and the definition of the business; (b) Shareholding Items – issuing shares, options or performance rights; – granting special rights to shares; – determining the amount of a dividend; (d) Expenditure Items – approval of the annual and half‐year financial reports; – approving expenditure exceeding $100,000, unless reimbursable by an external funding body in which case the limit is $250,000; – approving divestments of assets exceeding $50,000; (e) Audit – approving appointment or removal of external auditors; – considering any external audit reports; (f) Board and Senior Management – establishing corporate governance policies; – appointment, performance assessment and, if necessary, removal of the CEO; – determining remuneration of the CEO; – ratifying the appointment and, if necessary, the removal of 2.1.3 Other Board Responsibilities senior executives; – enhancing and protecting the reputation of the group; – overseeing the operation of the group, including its systems for control, accountability, and risk management; – monitoring financial performance; – liaison with the company’s auditors; – ensuring there are effective management processes in place and approving major corporate initiatives; and – reporting to shareholders. 2.2 Board members Details of the members of the board, their experience, qualifications, term of office and independent status are set out in the directors’ report under the heading “Information on Directors”. There are five non‐executive directors, all of whom are deemed independent under the principles set out below, and one executive director at the date of signing the directors’ report. The board seeks to ensure that: – at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the group and directors with an external or fresh perspective; and – the size of the board is conducive to effective discussion and efficient decision‐making. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 27 27 2.3 Directors’ independence 2.6 Commitment The company has adopted specific principles for assessing the independence of directors: To be deemed independent, a director must be a non‐executive and: – not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; – within the last three years, not have been employed in an executive capacity by the company, or been a director after ceasing to hold any such employment; – within the last three years, not have been a principal of a material professional adviser or a material consultant to the company, or an employee materially associated with the service provided; – not be a material supplier or customer of the company, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; – must have no material contractual relationship with the company other than as a director; and – be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company. Materiality for the purposes of applying these criteria is determined on both quantitative and qualitative bases. An amount of 5% of the individual director’s net worth is considered material, and in addition a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the director’s performance. A substantial shareholder for the purposes of applying these criteria is a person Corporations Act 2001 with a substantial shareholding as defined in section 9 of the . Under these criteria the board has determined that all non‐executive directors were independent at the date of this report. 2.4 Term of office The company’s Constitution specifies that all non‐executive directors must retire from office no later than the third annual general meeting following their last election, and that one third of non‐executive directors (or if their number is not a multiple of three then the number nearest to one third) retire at every annual general meeting and be eligible for re‐election. It is anticipated that non‐executive directors would generally hold office for up to ten years, and shall serve a maximum of fifteen years from date of first election by shareholders. The board, on its initiative and on an exceptional basis, may exercise discretion to extend this maximum term where it considers that such an extension would benefit the company. 2.5 Chairman and Chief Executive Officer (CEO) The current Chairman Mr Peter Bartels is an independent non‐ executive director appointed in 2003. The CEO Dr Jackie Fairley was appointed as a director and CEO on 1 July 2006. The Chairman is responsible for leading the board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating board discussions and managing the board’s relationship with the company’s senior executives. The board has established the functions delegated to the CEO. The CEO is responsible for implementing company strategies and policies, and for the day to day business operations of the group in accordance with the strategic objectives of the group as approved by the board from time to time. The board held eight meetings during the year. Meetings are usually held at the company’s corporate offices and laboratory facility in the Baker IDI Building, 75 Commercial Road, Melbourne, Australia. The number of meetings of the board and of each board committee held during the year ended 30 June 2013, and the number of meetings attended by each director is disclosed in the Directors’ Report. The commitments of non‐executive directors are considered by the remuneration and nomination committee prior to their appointment to the board and are reviewed each year as part of the annual performance assessment. Prior to appointment or being submitted for re‐election each non‐executive director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the company. 2.7 Conflict of interests Directors are expected to avoid any action, position or interest that may result in a conflict with an interest of the company. A director who has a material personal interest in a matter that relates to the affairs of the company must give notice of such interest and is precluded from participating in discussions or decision making on such dealings. 2.8 Independent professional advice Directors and board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the company’s expense. Prior approval of the Chairman is required, but this approval will not be unreasonably withheld. 2.9 Performance assessment The board undertakes an annual self‐assessment of its performance. Each director is asked to consider matters such as composition, structure and role of the board, and performance of individual directors. The Chairman then meets individually with each director to discuss the assessment. During the year an assessment of the board and its committees was conducted in accordance with these procedures. The CEO’s performance is assessed taking into account attainment of predetermined targets or goals based on various financial and other measurable indicators related to the company. The CEO meets with the remuneration and nomination committee annually to discuss attainment of key performance indicators of both the CEO and the senior management team. 2.10 Board committees The board has established two committees to assist in the execution of its duties and to allow detailed consideration of complex issues. The committee structure and membership is reviewed on an annual basis. Board committees are chaired by an independent director other than the Chairman of the board. Where applicable matters determined by committees are submitted to the full board as recommendations for board decisions. 2.11 Remuneration and nomination committee The company has established a remuneration and nomination committee composed of three independent non‐executive directors. At the date of this report the committee consisted of the following: Dr P J Jenkins (Chairman) Mr P T Bartels Ms Z Peach The board policy is for these separate roles of Chairman and CEO to be undertaken by separate people. Details of these directors’ attendance at committee meetings are set out in the directors’ report on page 17. The charter of the remuneration and nomination committee is to: – conduct annual reviews of board membership having regard to present and future needs of the company and make recommendations on board composition and appointments; – conduct an annual review of and conclude on the independence of each director; – propose candidates for board vacancies; – oversee board succession including the succession of the Chairman; – oversee the annual assessment of board performance; – advise the board on remuneration and incentive policies and practices generally; and STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 28 28 – make specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non‐executive directors. When the need for a new director is identified or an existing director is required to stand for re‐election, the committee reviews the range of skills, experience and expertise on the board, identifies its needs and prepares a short‐list of candidates with appropriate skills and Principle 3: Promote ethical and responsible decision making 3.1 Code of conduct The directors are committed to the principles underpinning best practice in corporate governance, with a commitment to the highest standards of legislative compliance and financial and ethical behaviour. The company has established a code of conduct reflecting the core values of the company and setting out the standards of ethical behaviour expected of directors, officers and employees in all dealings and relationships including with shareholders, contractors, customers and suppliers, and with the company. Areas covered include employment practices, equal opportunity, harassment and bullying, conflicts of interest, use of company assets and disclosure of confidential information. The code of conduct is available in the Corporate Governance section of the company’s website. 3.2 Trading in company securities The dealing in company securities by directors, executives and employees is only permitted (subject also to complying with  applicable laws) during the following periods (trading windows): the period starting 24 hours after the release of Starpharma’s  annual results and ending on 31 December; the period starting 24 hours after the release of the Starpharma’s half‐year results and ending on 30 June; and such other period as determined by the Chairman or a Committee of the board.  Notwithstanding the existence of these trading windows, the company may notify Employees not to buy, sell or otherwise deal in securities of the company during all or part of any trading window. The other periods of the year are considered black‐out periods (or closed periods) during which time Employees must not deal in securities of the company unless there are exceptional circumstances and prior written permission from the “approving officer” (Board, Chairman, CEO or Company Secretary, as appropriate) is given. An Employee who wishes to enter into a margin loan in relation to securities of the company must obtain written permission from the “approving officer” prior to entering into the margin loan. Except with prior written permission from the “approving officer”, Employees may not enter into any transaction which would have the effect of hedging or otherwise transferring to any other person the risk of any fluctuation in the value of: (a) securities in the company which are subject to a restriction on disposal under an employee share or incentive plan; or (b) options or performance rights (or any unvested securities in the company underlying them). The Securities Trading Policy approved by the Board of Directors and released to the ASX on 16 December 2010, and is effective from that date. The Securities Trading Policy is discussed with each new employee as part of their induction training, and is available in the Corporate Governance section of the company’s website. 3.3 Diversity policy The company is committed to workplace diversity, and the board values the level of diversity already present within the organisation, believing that continuing to promote diversity is in the best interests of the company, its employees and its shareholders. In June 2011 the board approved a Diversity Policy which operates alongside the Code of Conduct and Anti‐Discrimination, Bullying and Harassment policies, providing a framework for Starpharma to achieve a number of diversity objectives. The Diversity Policy is available in the Corporate Governance section of the company’s website. Independent of external corporate governance initiatives the company has embraced a culture of inclusion and equal opportunity experience. Where necessary, advice is sought from independent search consultants. The remuneration and nomination committee’s terms of reference include responsibility for reviewing any transaction between the organisation and the directors, or any interests associated with the directors, to ensure the structure and Act 2001 the terms of the transaction are in compliance with the Corporations and are appropriately disclosed. across diversity areas recognised as potentially impacting upon equality in the workplace ‐ gender, national origin, culture, language, sexual orientation, disability and age. Board and Management believe that a culture of diversity has helped the company to tap a deeper pool of talent and has enhanced the collective skillset, contributing to the strong performance of the business. In accordance with the Diversity Policy the board has established measurable objectives for achieving gender diversity and has conducted an assessment of the objectives and progress in achieving them. An excellent gender balance already exists across the company and therefore the initial focus has been on the career development of women rather than on increasing representation of female employees. Objectives set by the board for the 2012‐2013 financial year, and progress against these objectives are set out below: Objective: Continue to measure and track diversity of gender, age and country of origin, and continue to promote a corporate culture that embraces diversity within the company and more widely within the biotech sector. Progress towards objective: The company’s HR policies and processes were reviewed during the 2011‐2012 financial year to ensure they are inclusive in nature and consistent with the aims of the Diversity Policy. Systems have been established to track and report diversity statistics including gender, country of origin and age. More than half (54%) of current employees are female, compared with 58% in July 2012 and 53% July 2011. The table below sets out the proportion of female employees in the whole organisation, in senior executive positions and on the board, at July 2013. Whole organisation Senior Executive 39 21 54% 8 3 38% Board 6 2 33% Total Female % female Objective: Identify higher potential female employees for further career development opportunities and continue to seek professional development opportunities and initiatives. Continue to encourage and provide opportunities for female networking and role models. Progress towards objective: Four female middle managers (24% of total female employees) attended at least one management training course during the year, and one female staff member has been promoted into a middle management role. The company supported all female staff participating in an industry initiative “Connecting Women in Biotechnology” run by the BioMelbourne Network industry group, and including presentations by industry role models, during the 2012/2013 financial year. Objective: Family friendliness – (i) Maintain initiatives to smooth transitions before, during and after parental leave, and to retain employees after they have taken parental leave; (ii) Introduce a formal policy reflecting the company’s established practices in relation to parental leave. Progress towards objective: Where possible, the company provides flexible working hours and part time arrangements, and staff are encouraged to approach management to discuss their particular needs before and after parental leave. A Parental Leave policy was developed and introduced during the year. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 29 29 Principle 4: Safeguard integrity in financial reporting 4.1 Audit and risk committee The company has established an audit and risk committee comprising three independent non‐executive directors. At the date of this report the committee consisted of the following: Mr P R Turvey (Chairman) Mr PT Bartels Mr R A Hazleton Details of these directors’ qualifications and attendance at committee meetings are set out in the directors’ report pages 13 to 17. The audit and risk committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industry in which the group operates. The committee meets at least twice a year, and has direct access to the company’s auditors. The charter of this committee is to: – review and report to the board on the annual report, the half‐year financial report and all other financial information published by the company or released to the market; – assist the board in reviewing the effectiveness of the organisation’s internal control environment covering: > effectiveness and efficiency of operations, > reliability of financial reporting, and > compliance with applicable laws and regulations. – oversee the effective operation of the risk management framework by: > ensuring the effective implementation of the risk management policy and program, > defining risk threshold levels for referral to the board, > ensuring that an effective system of internal compliance and control is in place, > ensuring staff charged with risk management responsibilities have appropriate authority to carry out their functions and have appropriate access to the audit and risk committee, and > ensuring the allocation of sufficient resources for the effective management of risk – recommend to the board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance; – consider the independence and competence of the external auditor on an ongoing basis; – review and monitor related party transactions and assess their propriety; – assist the board in the development and monitoring of statutory compliance and ethics programs; – provide assurance to the board that it is receiving adequate, up to date and reliable information; – report to the board on matters relevant to the committee’s role and responsibilities. In fulfilling its responsibilities, the audit and risk committee: – receives regular reports from management and the external auditors; – reviews the processes the CEO and CFO have in place to support their certifications to the board; – reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved; – meets separately with the external auditors at least twice a year without the presence of management; – provides the external auditors with a clear line of direct communication at any time to either the Chairman of the committee or the Chairman of the board. The audit and risk committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. 4.2 External auditors The company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually. The current auditors are PricewaterhouseCoopers who have been the external auditors of the company since it commenced operations. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every five years, and the current audit engagement partner assumed responsibility for the conduct of the audit in 2010. An analysis of fees paid to the external auditors, including a break‐down of fees for non‐audit services, is provided in note 18 to the financial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the audit and risk committee. The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Principle 5 and 6: Make timely and balanced disclosures and respect the rights of shareholders 5.1. Continuous disclosure and shareholder communication The company has developed a continuous disclosure and shareholder communication policy to ensure compliance with the ASX Listing Rules and to facilitate effective communication with shareholders. A copy of this policy is available on the company’s website. The board has appointed the Company Secretary as the person responsible for disclosure of information to the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements of the ASX Listing Rules and overseeing and co‐ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. Procedures have been Principle 7: Recognise and manage risk 7.1. Risk assessment and management The board, through the audit and risk committee, is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The company operates in a challenging and dynamic environment, and risk management is viewed as integral to realising new opportunities as well as identifying issues that may have an adverse effect on the company’s existing operations and its sustainability. The company is committed to a proactive approach towards risk management throughout its entire business operations. The board aims to ensure that effective risk management practices become embedded in the company culture and in the way activities are carried out at all levels in the company. The board and Management recognise the importance that risk management plays in ensuring the business is able to fully established for reviewing whether there is any price sensitive information that should be disclosed to the market, or whether any price sensitive information may have been inadvertently disclosed. All ASX announcements are posted on the company’s website as soon as practicable after release to the ASX. The website also has an option for shareholders to register their email address for direct email updates on company matters. All ASX announcements are also posted on the OTCQX website (www.otcqx.com) in order to provide timely disclosure to US investors trading in the company’s Level One ADRs (OTCQX:SPHRY). capitalise on the opportunities available to it as well as mitigating potential loss. Health and Safety are considered to be of paramount importance and are the focus of significant risk management activities within the company. Other risk areas that are addressed include business continuity and disaster recovery, reputation, intellectual property, product development and clinical trials. Adherence to the Code of Conduct is required at all times and the board actively promotes a culture of quality and integrity. The board has required management to design and implement a risk management and internal control system to manage the group’s material business risks. The risk management policy, a summary of which is available on the company website, sets out policies for the oversight of material business risks, and describes the responsibilities and authorities of the board, the audit and risk 30 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 30 committee, the CEO, CFO, Company Secretary, and the senior management team. The CEO and the CFO have made the following certifications to the board for the year ended 30 June 2013: The CEO, CFO and Company Secretary are responsible to the board through the audit and risk committee for the overall implementation of the risk management program. During the financial year management has reported to the board as to the effectiveness of the group’s management of its material risks. 7.2. Corporate reporting The company prepares audited financial statements for each year ending 30 June, and reviewed financial statements for each half year period ending 31 December. In accordance with ASX Listing Requirements the annual financial statements are lodged with the ASX by 31 August, and half year statements are lodged with the ASX by 28 February each year. Principle 8: Remunerate fairly and responsibly – that the company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and group and are in accordance with relevant accounting standards; and – that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board and that the company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects in relation to financial reporting risks. The company has established a remuneration and nomination committee consisting of three independent non‐executive directors. Details regarding composition, meetings and charter are set out in section 2.11 of this Corporate Governance Statement. and relevant executive. Further information on directors’ and executives’ remuneration, including principles used to determine remuneration, is set out in the Remuneration Report on pages 18 to 24. Each member of the senior executive team has signed a formal employment contract covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. Each contract refers to a specific formal position description which is reviewed by the committee as necessary in consultation with the CEO The company’s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under equity‐based remuneration schemes is contained in the Securities Dealing Policy which is available in the Corporate Governance section of the company’s website. 31 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 31 ANNUAL FINANCIAL REPORT Contents Financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent audit report to the members 33 34 35 36 37 38 66 67 These financial statements are the consolidated financial statements for the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. The financial statements are presented in the Australian currency. A description of the nature of the group’s operations and its principal activities is included in the CEO’s Report on pages 3 to 11 and in the operating and financial review in the directors’ report on pages 15 to 17, which are not part of this financial report. Starpharma Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Starpharma Holdings Limited Baker IDI Building, 75 Commercial Road Melbourne, Victoria, 3004, Australia The financial statements were authorised for issue by the directors on 26 August 2013. The directors have the power to amend and reissue the financial report. Through the use of the internet, Starpharma ensures that corporate reporting is timely and complete. All recent press releases, financial reports and other information are available on the website: www.starpharma.com. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 32 32 Consolidated income statement For the year ended 30 June 2013 Revenue from continuing operations Other income Administration expense Research and development expense Loss before income tax Finance costs Income tax expense Loss from continuing operations attributable to members of Starpharma Holdings Limited Loss per share for loss from continuing operations attributable to the ordinary equity holders of the company Basic loss per share Diluted loss per share 2013 $'000 2,429 5 (4,149) (3,505) (9) (5,229) ‐ (5,229) $ ($0.02) ($0.02) Consolidated 2012 $'000 2,744 160 (4,466) (12,088) (8) (13,658) ‐ (13,658) $ ($0.05) ($0.05) Notes 5 5 6 6 7 24 24 The above consolidated income statement should be read in conjunction with the accompanying notes. 33 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 33 Consolidated statement of comprehensive income For the year ended 30 June 2013 Loss for the year Notes Other comprehensive income (loss) Items that may be reclassified to profit or loss Other comprehensive income (loss) Foreign exchange differences on translation of foreign operations 15 Total comprehensive income (loss) for the year attributable to members of Starpharma Holdings Limited 2013 $'000 (5,229) 713 713 (4,516) Consolidated 2012 $'000 (13,658) 421 421 (13,237) The above statement of consolidated comprehensive income should be read in conjunction with the accompanying notes. 34 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 34 Consolidated balance sheet As at 30 June 2013 Current Assets Notes Cash and cash equivalents Trade and other receivables Total current assets Non‐current assets Property, plant and equipment Intangible assets Total non‐current assets Total assets Current Liabilities Trade and other payables Borrowings Provisions (employee entitlements) Deferred income Total current liabilities Non‐current liabilities Borrowings Provisions (employee entitlements) Total non‐current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 8 9 10 11 12 13 13 14 15 16 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 2013 $'000 33,840 5,492 39,332 411 8,807 9,218 48,550 1,696 25 627 111 2,459 75 48 123 2,582 45,968 140,081 3,502 (97,615) 45,968 Consolidated 2012 $'000 42,812 2,053 44,865 414 8,989 9,403 54,268 4,492 40 506 397 5,435 100 82 182 5,617 48,651 139,171 1,866 (92,386) 48,651 35 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 35 Consolidated statement of changes in equity For the year ended 30 June 2013 Balance at 1 July 2012 Loss for the year Other comprehensive income Foreign exchange differences on translation of Total comprehensive income (loss) for the foreign operations year Transactions with owners, recorded directly in equity Contributions of equity, net of transaction costs Employee share plans Total transactions with owners Employee performance rights plan Balance at 30 June 2013 For the year ended 30 June 2012 Balance at 1 July 2011 Loss for the year Other comprehensive income Foreign exchange differences on translation of Total comprehensive income (loss) for the foreign operations year Transactions with owners, recorded directly in equity Contributions of equity, net of transaction costs Employee share plans Total transactions with owners Employee performance rights plan Balance at 30 June 2012 15 14 14 15 Notes 15 14 14 15 Contributed capital $'000 139,171 ‐ ‐ ‐ 878 32 ‐ 910 $'000 1,866 ‐ 713 713 ‐ ‐ 923 923 Reserves Accumulated losses $'000 (92,386) (5,229) Consolidated Total equity $'000 48,651 (5,229) ‐ 713 (5,229) (4,516) ‐ ‐ ‐ ‐ 878 32 923 1,833 140,081 3,502 (97,615) 45,968 Notes Contributed capital $'000 105,399 Reserves $'000 1,022 Accumulated losses $'000 (78,728) Consolidated Total equity $'000 27,693 ‐ ‐ ‐ 33,746 26 ‐ 33,772 ‐ (13,658) (13,658) 421 421 ‐ ‐ 423 423 ‐ 421 (13,658) (13,237) ‐ ‐ ‐ ‐ 33,746 26 423 34,195 139,171 1,866 (92,386) 48,651 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 36 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 36 Consolidated statement of cash flows For the year ended 30 June 2013 Cash flow from operating activities Notes Receipts from trade and other debtors (inclusive of GST) Grant income and R&D tax incentives (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Cash flow from investing activities Net cash outflows from operating activities 23 Payments for property, plant and equipment Cash flow from financing activities Net cash outflows from investing activities Proceeds from issue of shares Share issue transaction costs Lease repayments Net increase (decrease) in cash and cash equivalents held Net cash inflows from financing activities Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Effects of exchange rate changes on cash and cash equivalents 2013 $'000 423 5,453 (17,270) 1,609 (10) (9,795) (156) (156) 878 ‐ (50) 828 (9,123) 42,812 151 33,840 Consolidated 2012 $'000 1,141 405 (12,916) 1,608 (8) (9,770) (133) (133) 35,167 (1,422) (80) 33,665 23,762 18,918 132 42,812 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 37 37 Notes to the consolidated financial statements 30 June 2013 Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. Summary of significant accounting policies Financial risk management Critical accounting estimates and judgments Segment information Revenue and other income Expenses Income tax expense Current assets – Cash and cash equivalents Current assets – Trade and other receivables Non‐current assets – Property, plant and equipment Non‐current assets – Intangible assets Current liabilities – Trade and other payables Current and non‐current liabilities – Borrowings Contributed equity Reserves Accumulated losses Key management personnel disclosures Remuneration of auditors Contingencies Commitments Subsidiaries Events occurring after the balance sheet date Reconciliation of profit after income tax to net cash inflow from operating activities Earnings per share Share‐based payments Related party transactions 27. Parent entity financial information STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 38 38 39 44 45 45 46 46 46 48 49 50 51 52 52 53 54 55 55 58 58 58 59 59 60 60 60 64 65 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. (a) Basis of preparation Corporations Act 2001 These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards board . Starpharma Holdings Limited is a for‐ and the profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Starpharma Holdings Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the group None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2012 affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods. However, amendments made to AASB 101 Presentation of Financial Statements effective 1 July 2012 now require the statement of comprehensive income to show the items of comprehensive income grouped into those that are not permitted to be reclassified to profit or loss in a future period and those that may have to be reclassified if certain conditions are met. (iii) Early adoption of standards The group has elected to apply the following pronouncement to the  Amendments to Australian Accounting Standards annual reporting period beginning 1 July 2012: arising from Annual Improvements 2009—2011 Cycle AASB 2012‐5 Accounting Policies, This includes applying the revised pronouncement to the Changes in Accounting Estimates and Errors comparatives in accordance with AASB 108 . None of the items in the financial statements had to be restated as a result of applying this standard. However, the amendments removed the requirement to provide additional comparative information in all relevant notes where line items in the financial statements are affected as a result of a retrospective restatement (eg because of an error). Following the amendments, it is now sufficient if an entity includes a third balance sheet and explains the impact of the restatement on individual line items in the note that sets out the reasons for the restatement. There is no impact to the financial report in applying this amendment. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available‐for‐sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. (v) Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. (vi) Going Concern For the year ended 30 June 2013, the consolidated entity has incurred losses of $5,229,000 (2012: $13,658,000) and experienced net cash outflows of $9,795,000 from operations (2012: $9,770,000), as disclosed in the balance sheet and statement of cash flows, respectively. This is consistent with the consolidated entity’s strategic plans and the directors are satisfied regarding the availability of working capital for the period up to at least August 2014. Accordingly the directors have prepared the financial report on a going concern basis in the belief that the consolidated entity will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial report. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Starpharma Holdings Limited (“company” or “parent entity”) as at 30 June 2013 and the results of all subsidiaries for the year then ended. Starpharma Holdings Limited and its subsidiaries together are referred to in this financial report as the group or the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one‐half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de‐consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Starpharma Holdings Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year‐end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs. All other foreign exchange gains and losses are presented in the income statement on a net basis within other income or other expenses. (iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are  translated into the presentation currency as follows:  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and 39 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 39  all resulting exchange differences are recognised in other comprehensive income. deferred tax asset is recognised for unclaimed tax credits that are carried forward as deferred tax assets. (h) Leases On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign operation and translated at the closing rate. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Licence revenue is recognised in accordance with the underlying agreement. Upfront payments are brought to account as revenues unless there is a correlation to ongoing research and both components are viewed as one agreement, in which case the licence income is amortised over the anticipated period of the associated research program. Unamortised licence revenue is recognised on the balance sheet as deferred income. Interest revenue is recognised on a time proportion basis using the effective interest rate method. All revenue is stated net of the amount of Goods and Services Tax (GST). (f) Government Grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non‐current liabilities as deferred income and are credited to the income statement on a straight‐line basis over the expected lives of the related assets. (g) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in other comprehensive income or equity are also recognised directly in other comprehensive income or equity, respectively. Starpharma Holdings Limited and its wholly‐owned Australian controlled entities have not implemented the tax consolidation legislation. (i) Investment allowances and similar tax incentives Companies within the group may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure (eg investment allowances). The group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense. A Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases (note 20). Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property, or if lower the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in short‐term and long term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases (note 20). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight‐line basis over the period of the lease. Lease income from operating leases where the group is a lessor is recognised in income on a straight‐line basis over the lease term. (i) Impairment of assets Goodwill and intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). (j) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand, deposits held with financial institutions, and other short‐term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The amount of significant cash and cash equivalents not available for use is disclosed in note 8. (k) Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 to 60 days. They are presented as current assets unless collection is not expected for more than 12 months after reporting date. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short‐term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss within administration expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 40 40 (l) Investments and other financial assets Classification The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held‐to‐maturity investments and available‐for‐sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held‐to‐maturity, re‐evaluates this designation at each reporting period. (i) Loans and receivables Loans and receivables are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non‐current assets. Loans and receivables are included in trade and other receivables (note 9) in the balance sheet. (m) Property, Plant and Equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated using the straight‐line method to allocate their cost or revalued amounts, net of the residual values, over their estimated useful lives. The expected useful lives are 3 to 15 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1 (i)). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profit or loss. (n) Leasehold improvements The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the group between 1 to 2 years, whichever is shorter. (o) Intangible Assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash‐generating units for the purpose of impairment testing. The allocation is made to those cash‐generating units or groups of cash‐generating units that are expected to benefit from the business combination in which goodwill arose. (ii) Patents and licences Costs associated with patents are charged to profit or loss in the periods in which they are incurred. Licences and acquired patents with a finite useful life are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight‐line method to allocate the cost of licences and patents over the period of the expected benefit, which varies from 3 to 13 years. (iii) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the application of research findings or other knowledge to a plan or design for the production of new or substantially improved products or services) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility and adequate resources are available to complete development, generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight‐line basis over its useful life. To date no development costs have been capitalised. (p) Trade and other payables These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 to 45 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. (q) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (r) Provisions Provisions for legal claims, service claims and make good obligations are recognised when the group has a present legal or constructive obligation as a result of past events, it is more probable than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate for the expenditure required to settle the present obligation at the balance date. The discount rate used to determine the present value reflects current market assessment of the time, value of money, and the risks specific to liability. The increase of the provision due to the passage of time is recognised as interest expense. (s) Employee benefits (i) Short‐term obligations Liabilities for wages and salaries, including non‐monetary benefits, and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short‐ term employee benefit obligations are presented as payables. (ii) Other long‐term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related services is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted 41 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 41 using market yields at the end of the reporting period on government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlements for at least twelve months after the reporting date, regardless of when the actual settlements is expected to occur. (iii) Superannuation and Pension Benefits Group companies make the statutory superannuation guarantee contribution in respect of each employee to their nominated complying superannuation or pension fund. In certain circumstances pursuant to an employee’s employment contract the group companies may also be required to make additional superannuation or pension contributions and/or agree to make salary sacrifice superannuation or pension contributions in addition to the statutory guarantee contribution. The group’s legal or constructive obligation is limited to the above contributions. Contributions to the employees’ superannuation or pension plans are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (iv) Share‐based payments Share‐based compensation benefits are offered to the directors and employees via the Starpharma Holdings Limited Employee Share Option Plan (“SPLAM”), an Employee Share Plan ($1,000 Plan), and an Employee Performance Rights Plan. Information relating to these plans is set out in note 25 and in the remuneration report under the directors’ report. The fair value of options and performance rights granted 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 period during which the employees become unconditionally entitled to the options or rights. The fair value at grant date is determined using a Black‐Scholes or binomial model (or variant of, as appropriate) that takes into account any exercise price, the term, the vesting and performance criteria, the impact of dilution, the non‐tradeable nature of the option or share right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‐free interest rate for the term. The fair value excludes the impact of any non‐market vesting conditions (for example, profitability and sales growth targets). Non‐ market vesting conditions are included in assumptions about the number of options or share rights that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options or share rights that are expected to become exercisable. The employee benefit expense recognised in each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. Under the Employee Share Plan ($1,000 Plan) shares are issued to employees for no cash consideration and vest immediately on grant. On this date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity. (vi) Bonus payments The group recognises a liability and an expense for bonuses based on a formula that takes into consideration performance criteria that has been set. The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (vii) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares, performance rights or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration. (u) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. (v) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (w) Goods and Services Tax (“GST”) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (x) Rounding of amounts The company is of a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. (y) New accounting standards and interpretations Financial Instruments, AASB 2009‐11 Amendments to Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2013 reporting periods. The group’s assessment of the impact of these new standards and interpretations is set out below. (i) Australian Accounting Standards arising from AASB 9, AASB 2010‐7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB 2012‐6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures AASB 9 Financial Instruments (effective from 1 January 2015) AASB 9 measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early adoption. addresses the classification, There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or Financial loss and the group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 42 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 42 Instruments: Recognition and Measurement and have not been changed. The group has not yet decided when to adopt AASB 9. (ii) Arrangements AASB 10 Joint Disclosure of Interests in Other Entities Consolidated Financial Statements Separate Financial Statements , AASB 11 , AASB 12 Investments in Associates and Joint Ventures revised AASB 127 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments , AASB 2011‐7 , AASB 128 and AASB 2012‐10 , (effective 1 January 2013) In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures. , and . The core Consolidated and Separate Financial Statements AASB 10 replaces all of the guidance on control and consolidation in Consolidation – Special Purpose Entities AASB 127 Interpretation 12 principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. The group does not expect the new standard to have a significant impact on its composition. AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. AASB 11 will not have any impact on the amounts recognised in its financial statements. AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by the group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the group’s investments. Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The group will adopt the new standards from their operative date. They will therefore be applied in the financial statements for the annual reporting period ending 30 June 2014. They are not expected to have any impact on the group’s financial statements. Fair Value Measurement (iii) to Australian Accounting Standards arising from AASB 13 and AASB 2011‐8 AASB 13 Amendments (effective 1 January 2013) AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The group will adopt the new standard from its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. (iv) Amendments to Australian Accounting Standards Employee Benefits Revised AASB 119 and AASB 2011‐10 arising from AASB 119 (September 2011) In September 2011, the AASB released a revised standard on accounting for employee benefits. It requires the recognition of all re‐ measurements of defined benefit liabilities/assets immediately in other comprehensive income (removal of the so‐called ‘corridor’ method), the immediate recognition of all past service cost in profit or loss and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in profit or loss. The standard also introduces a number of additional disclosures for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The amendments will have to be implemented retrospectively. The Group will apply the new standard when it becomes operative, being from 1 July 2013. There is not expected to have any impact on the group’s financial statements. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (z) Parent entity financial information The financial information for the parent entity, Starpharma Holdings Limited, disclosed in note 27 has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Starpharma Holdings Limited. Dividends received from associates are recognised in the parent entity’s profit or loss when its right to receive the dividend is established. (ii) Share‐based payments The grant by the company of options and rights over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. 43 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 43 2. Financial risk management The group’s activities expose it to a variety of financial risks; including market risk, credit risk and liquidity risk. The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. The chief executive officer, chief financial officer and company secretary, under the guidance of the audit and risk committee and the board, have responsibility for the risk management program. Cash and cash equivalents Trade and other receivables Trade and other payables Group Sensitivity (a) Market risk (i) Foreign Exchange Risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The group operates internationally and is exposed to foreign exchange risk arising from currency exposures to major currencies including the US dollar. On the basis of the nature of these transactions, the group does not use derivative financial instruments to hedge such exposures, but maintains cash and deposits in both Australian and US dollars. The directors are regularly monitoring the potential impact of movements in foreign exchange exposure. The exposure to foreign currency risk at the reporting date using an US exchange rate of $0.9275 was as follows: Consolidated 2013 US $’000 2,976 99 299 2012 US $’000 3,059 10 3,969 The group is mainly exposed to US dollars. The following table details the group’s sensitivity to a 10% increase and decrease in the Australian dollar against the US dollar. A positive number indicates a favourable movement; that is an increase in profit or reduction in the loss. Consolidated Impact on profit / (loss) on a movement of the US Dollar: Australian dollar strengthens (increases) against the US Dollar by 10% Australian dollar weakens (decreases) against the US Dollar by 10% (ii) Cash Flow Interest Rate Risk 2013 $’000 (266) 325 The group hold interest bearing assets and therefore the income and operating cash flows are exposed to market interest rates. At the end of the reporting period, the group had the following at call deposits. Refer to note 8 for additional information. 2013 $’000 32,337 Term Deposits and deposits at call Group Sensitivity 2012 $’000 (131) 108 Consolidated 2012 $’000 41,357 At 30 June 2013, if interest rates had changed by 50 basis points either higher or lower from the year end rates with all other variables held constant, group profit for the year would have been $162,000 higher or lower (2012 ‐ change of 50 bps: $209,000 higher/lower) due to either higher or lower interest income from cash or cash equivalents. (b) Credit risk (c) Liquidity risk Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures from royalty and licensing agreements and product sales. Credit risk for cash and deposits with banks and financial institutions is managed by maximising deposits held under major Australian and US banks. Other than government funded research and development programs, third party receivables largely consist of research fees, royalty and licensing receivables from leading, multinational organisations. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The directors regularly monitor the cash position of the group, giving consideration to the level of expenditure and future capital commitments entered into. 44 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 44 (d) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available‐for‐sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over‐the‐counter derivatives and investments in unlisted subsidiaries) is determined using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar 3. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i) Amortisation of finite life intangible assets The group’s management determines the estimated life of the patents underlying the core technology of the business and calculates amortisation accordingly. The estimate is based on the period of expected benefit which currently stands at 3–13 years. This could change as a result of technical innovations or competitor actions in response to severe industry cycles. Management will increase amortisation charges when the useful lives are less than their previously estimated lives. The carrying value of intangible assets at 30 June 2013 is $8,807,000 (2012: $8,989,000). ii) Impairment of Goodwill The group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in notes 1(i) and 1(o). Impairment of goodwill is considered based on the fair value less cost to sell of the cash generating units over which the goodwill is allocated. Performing the assessment of fair value less costs to sell requires the use of assumptions. Refer to note 11 for details of these assumptions. iii) Income Taxes The group is subject to income taxes in Australia and the United States of America. There are transactions and calculations 4. Segment information instruments are used for long‐term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short‐term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments. undertaken during the ordinary course of business for which the ultimate tax determination may be uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. The group has not recognised deferred tax assets or liabilities, including carried forward losses due to the realisation of such benefits as uncertain. The utilisation of tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. iv) R&D Tax Incentives The group research and development activities are eligible under an Australian Government tax incentive for eligible expenditure from 1 July 2011. Management has assessed these activities and expenditure to determine which are likely to be eligible under the incentive scheme. For the period to 30 June 2013 the group has recorded a contra research and development expense of $8,704,000 (2012: $1,323,000). Of the 2013 total, $4,071,000 relates to 2012 expenditure not previously booked in 2012 due to the uncertainty of its eligibility. Subsequent to the 2012 results, Starpharma received an advance finding from AusIndustry that cover a 3 year period from 1 July 2011. (b) Critical accounting judgments in applying accounting policies i) Impairment of Assets The group follows the guidance of AASB 136 on determining when an investment is other‐than‐temporarily impaired. This determination requires significant judgment. In making these judgments, the group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health of the near‐term business outlook for the investee. This includes factors such as industry performance, changes in technology, operating and financing cash flow and recent transactions involving equity instruments. The group has determined that on the basis of internal reporting and monitoring to the Chief Executive Officer, who is the chief operating decision maker, the Group operates in one business segment, being the discovery, development and commercialisation of dendrimers for pharmaceutical, life science and other applications. There has been a change to the presentation of segment disclosures to better reflect the fact that the Group has only one operating segment. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 45 45 5. Revenue and other income Revenue and other income Royalty, customer & licence revenue Interest revenue Other revenue Total revenue Australian Government grants USA Government grants Total other income Total revenue and other income 2013 $’000 840 1,569 20 2,429 5 – 5 2,434 Consolidated 2012 $’000 881 1,819 44 2,744 5 155 160 2,904 Total revenue and other income for the year was $2,434,000, a reduction of $470,000 from the previous year, on lower interest revenue earned on cash deposits and grant income from the US National Institutes of Health. 6. Expenses Loss from continuing operations before income tax expense includes the following items: 1 R&D Tax Incentive (contra expense) Depreciation Amortisation Rental expense on operating leases Defined contribution superannuation expense 1 iv) Refer to Note 3 a) 7. Income tax expense for further information. (a) Income tax expense/(credit) Current Tax Deferred Tax Income tax expense is attributable to: Profit from continuing operations Profit from discontinued operations Aggregate income tax credit Deferred income tax credit (revenue) / expense included in income tax credit comprises: (Decrease) in deferred tax liabilities 2013 $’000 (8,704) 159 891 444 402 2013 $’000 – – – – – – – – Consolidated 2012 $’000 (1,323) 134 1,008 329 385 Consolidated 2012 $’000 – – – – – – – – 46 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 46 (b) Numerical reconciliation to income tax credit prima facie tax payable Loss from continuing operations before income tax Tax at the Australian tax rate of 30% (2012: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income Eligible expenses claimed under R&D tax incentive Amortisation of intangibles Share‐based payments Unearned income Sundry items Difference in overseas tax rates Previously unrecognised tax losses now recouped to reduce current tax expense Future income tax benefits not brought to account Income tax credit (c) Tax losses Unused tax losses for which no deferred tax asset has been recognised (as recovery is currently not probable) Potential tax benefit 2013 $’000 (5,229) (1,569) 477 170 287 (74) 202 26 (179) 660 – 65,680 19,704 Consolidated 2012 $’000 (13,658) (4,097) 485 206 134 (102) 91 24 57 3,202 – 73,290 21,987 Subsequent to the 30 June 2012 results, certain overseas R&D expenditure was determined to be eligible under the 45% refundable tax incentive program. Under the program, eligible R&D expenditure is then not deductable for income tax purposes. The decrease in tax losses in the 2013 financial year reflects this change. (d) Unrecognised temporary differences Temporary differences for which no deferred tax asset has been recognised as recoverability is not probable Unrecognised deferred tax relating to the temporary differences (e) Deferred tax liabilities Deferred tax liabilities comprises temporary differences attributable to: Intangibles Sundry items Total deferred tax liabilities Set‐off of deferred tax liabilities pursuant to set‐off provisions Net deferred tax liabilities Deferred tax liabilities expected to be settled within 12 months Deferred tax liabilities expected to be settled after more than 12 months 20,304 6,185 1,659 111 1,770 (1,770) – 111 1,659 1,770 5,001 1,420 1,710 120 1,830 (1,830) – 120 1,710 1,830 Deferred tax assets and deferred tax liabilities have been set off as there is a legally recognised right to set off current tax assets and liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority. Deferred tax assets mainly comprises of temporary differences attributable to tax losses. Potential future income tax benefits attributable to tax losses carried forward have not been brought to account at 30 June 2013 because the directors do not believe that it is appropriate to regard realisation of the future income tax benefit as probable. Similarly, future benefits attributable to net temporary differences have not been brought to account as the directors do not regard the realisation of such benefits as probable. Realisation of the benefit of tax losses would be subject to the group satisfying the conditions for deductibility imposed by tax legislation and no subsequent changes in tax legislation adversely affecting the group. The group is making an assessment as to the satisfaction of deductibility conditions at 30 June 2013 which it believes will be satisfied. 47 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 47 8. Current assets – Cash and cash equivalents Cash at bank and on hand Deposits at call Cash at bank and on hand Cash not available 2013 $’000 1,503 32,337 33,840 Consolidated 2012 $’000 1,455 41,357 42,812 The cash is bearing floating interest rates based on current Deposits at call bank rates. There is $458,000 of cash not available for use due to restrictions associated with a finance lease and credit card facility which is Interest rate risk guaranteed by term deposits (2012: $300,000). The terms and conditions of the deposits with the counterparties allow the group to withdraw funds on demand. 30 June 2013 Floating Interest rate With the exception of loans to controlled entities, current receivables are non‐interest bearing. Fixed interest maturing Financial Assets Notes $’000 1 year or less $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 More than 5 years $’000 Non‐ interest bearing $’000 Contractual cash flows Total $’000 Cash & deposits Receivables 8 9 Weighted average interest rate Financial Liabilities Payables Borrowings 12 13 Weighted average interest rate 2,427 30,004 – – 2,427 2.8% 30,004 4.0% – – – –% – – – –% – – – –% – – – –% – – – –% – 25 25 8.2% – 27 27 8.2% – 30 30 8.2% – 18 18 8.2% – – – 8.2% – – – –% – – – –% 1,409 33,840 5,492 5,492 6,901 –% 39,332 1,696 1,696 – 100 1,696 –% 1,796 N/A 5,492 5,492 1,696 100 1,796 48 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 48 30 June 2012 Floating Interest rate Fixed interest maturing Financial Assets Notes $’000 1 year or less $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 More than 5 years $’000 Non‐ interest bearing $’000 Total $’000 Contractual cash flows Cash & deposits Receivables 8 9 Weighted average interest rate Financial Liabilities Payables Borrowings 12 13 1,608 40,135 – – 1,608 2.7% 40,135 5.3% – – – –% – – – –% – – – –% – – – –% – – – –% – 40 40 9.0% – 25 25 8.2% – 27 27 8.2% – 30 30 8.2% – 18 18 8.2% Weighted average interest rate 9. Current assets – Trade and other receivables Trade and grant receivables Interest receivables Prepayments Other receivables – – – –% – – – –% 1,069 42,812 2,053 2,053 3,122 –% 44,865 4,492 4,492 – 140 4,492 –% 4,632 N/A 2,053 2,053 4,492 140 4,632 2013 $’000 4,869 354 178 91 5,492 Consolidated 2012 $’000 1,436 393 136 88 2,053 Trade and grant receivables Impaired receivables Trade and grant receivables primarily comprise of $4,632,000 of expenditure reimbursable under the Australian Government’s R&D tax incentive scheme. Other trade receivables are associated with research and development projects and are subject to normal terms Credit risk of settlement within 30 to 90 days. As at 30 June 2013, there were no trade and grant receivables that were past due (2012: nil). No receivables are considered impaired at 30 June 2013 (2012: nil) other than from subsidiaries within Other receivables the group. The group considers that there is no significant concentration of credit risk with respect to current receivables. Grant receivables are with government bodies and trade receivables are from large, well respected companies. Loans to controlled entities are assessed for recoverability and provisions are applied as considered appropriate. Other receivables comprise sundry debtors and GST claimable and are subject to normal terms of settlement within 30 to 90 days. 49 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 49 10. Non‐current assets – Property, plant and equipment Consolidated At 30 June 2011 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2012 Opening net book amount Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2012 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2013 Opening net book amount Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2013 Cost Accumulated depreciation and amortisation Net book amount Plant and Equipment $’000 Leasehold improvements $’000 Plant and Equipment under finance lease $’000 Total Plant and Equipment $’000 2,042 (1,872) 170 170 131 (12) (54) 235 2,138 (1,903) 235 235 152 (1) (88) 298 2,116 (1,818) 298 1,185 (1,147) 38 38 2 – (18) 22 1,187 (1,165) 22 22 5 – (22) 5 1,193 (1,188) 5 272 (200) 72 72 147 – (62) 157 419 (262) 157 157 – – (49) 108 419 (311) 108 3,499 (3,219) 280 280 280 (12) (134) 414 3,744 (3,330) 414 414 157 (1) (159) 411 3,728 (3,317) 411 50 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 50 11. Non‐current assets – Intangible assets Consolidated At 30 June 2011 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2012 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2012 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2013 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2013 Cost Accumulated depreciation and amortisation Net book amount (a) Impairment tests for goodwill Goodwill is tested annually for impairment based on the higher of fair value less costs to sell and value in use of the cash generating units over which the goodwill is allocated. The group has companies in both Australia and the United States – these are also determined to be the Cash Generating Units (CGUs) of the group. The directors have determined that the goodwill (which arose on the acquisition of the remaining share of the US business and intellectual property) should be allocated across these CGUs as the business combination gives rise to synergies within both Starpharma’s Australian and United States companies and their intellectual property. The recoverable amounts of the group’s CGUs have been determined based on estimation of their fair value less costs to sell. Patents & Licences $’000 Goodwill $’000 Total Intangibles $’000 14,854 (6,655) 8,199 8,199 337 (1,008) 7,528 15,417 (7,889) 7,528 7,528 564 (891) 7,201 16,507 (9,306) 7,201 1,387 – 1,387 1,387 74 – 1,461 1,461 – 1,461 1,461 145 – 1,606 1,606 – 1,606 16,241 (6,655) 9,586 9,586 411 (1,008) 8,989 16,878 (7,889) 8,989 8,989 709 (891) 8,807 18,113 (9,306) 8,807 (b) Key assumptions used for fair value less costs to sell estimation The market capitalisation of the Starpharma group is used to determine an approximation of the fair value less costs to sell of the two CGUs which make up the group. Given the excess of the market capitalisation of Starpharma Holdings Limited over the carrying value of total assets (including goodwill) at 30 June 2013, goodwill is not considered to be impaired at the end of the reporting period. (c) Impairment tests for finite life intangible assets Identifiable intangible assets with finite lives are carried at cost less accumulated amortisation and adjusted for any accumulated impairment loss. The directors have assessed these assets for indicators of impairment at 30 June 2013 and determined that there is no indication that the asset is impaired. 51 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 51 12. Current liabilities – Trade and other payables Trade payables and accruals Other payables Trade payables and accruals 2013 $’000 1,208 488 1,696 Consolidated 2012 $’000 4,156 336 4,492 The majority of trade payables are related to expenditure associated with the Group’s research and development programs. 13. Current and Non‐current liabilities – Borrowings Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. 2013 Floating Interest rate Fixed interest rate 1 year or less $’000 8.2% 25 1 year or less $’000 9.0% 40 –% – Floating Interest rate –% – Notes 20 Notes 20 Over 1–2 years $’000 Over 2–3 years $’000 Over 3–4 years $’000 Over 4–5 years $’000 Over 5 years $’000 8.2% 27 8.2% 30 8.2% 18 8.2% – –% – Total $’000 100 Fixed interest rate Over 1–2 years $’000 Over 2–3 years $’000 Over 3–4 years $’000 Over 4–5 years $’000 Over 5 year s $’000 8.2% 25 8.2% 27 8.2% 30 8.2% 18 –% – Total $’000 140 Lease Liabilities Weighted average interest rate 2012 Lease Liabilities Weighted average interest rate 52 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 52 14. Contributed equity (a) Share Capital Share Capital Ordinary shares – fully paid (b) Movements in ordinary share capital Consolidated Consolidated 2013 Shares 2012 Shares 2013 $’000 2012 $’000 283,814,948 140,081 280,802,451 139,171 Date Details Number of shares Issue Price 01 Jul 2011 14 Jul 2011 Proceeds on exercise of employee options 14 Jul 2011 Employee performance rights plan share issue 09 Aug 2011 Proceeds on exercise of employee options 24 Aug 2011 Proceeds on exercise of employee options 7 Sep 2011 Proceeds on exercise of employee options 21 Nov 2011 Share placement less transaction costs 30 Nov 2011 Proceeds on exercise of employee options 14 Dec 2011 Share placement less transaction costs 22 Dec 2011 Proceeds on exercise of employee options 24 Jan 2012 Employee share plan ($1,000) issue 24 Jan 2012 Proceeds on exercise of employee options 29 Feb 2012 Proceeds on exercise of employee options 14 Mar 2012 Proceeds on exercise of employee options 14 Mar 2012 Proceeds on exercise of options 247,743,578 40,000 13,000 140,000 10,000 80,000 29,767,442 10,000 2,791,305 40,000 22,126 75,000 10,000 10,000 20,000 16 Apr 2012 Proceeds on exercise of employee options Balance at 30 June 2012 30,000 280,802,451 $0.37 $ – $0.39 $0.37 $0.37 $1.08 $0.37 $1.08 $0.37 $1.18 $0.29 $0.37 $0.37 $0.29 $0.37 $’000 105,399 15 – 54 4 30 32,000 (1,372) 4 3,000 (50) 15 26 21 4 4 6 11 139,171 Date Details Number of shares Issue Price $’000 1 Jul 2012 280,802,451 139,171 11 Jul 2012 Proceeds on exercise of options 11 Jul 2012 Proceeds on exercise of employee options 16 Jul 2012 Proceeds on exercise of options 13 Aug 2012 Proceeds on exercise of employee options 23 Aug 2012 Proceeds on exercise of options 13 Sep 2012 Employee performance rights plan share issue 13 Sep 2012 Proceeds on exercise of employee options 5 Oct 2012 Employee performance rights plan share issue 18 Jan 2013 Employee share plan ($1,000) issue 260,660 150,000 477,290 150,000 946,859 717,800 10,000 125,000 25,888 19 Jun 2013 Balance at 30 June 2013 Proceeds on exercise of employee options 283,814,948 149,000 $0.43 $0.29 $0.43 $0.29 $0.43 $ – $0.37 $ – $1.24 $0.37 113 43 207 43 412 – 4 – 32 140,081 56 53 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 53 (c) Ordinary shares (f) Options As at 30 June 2013 there were 283,814,948 issued ordinary shares. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the company does not have a limited amount of authorised capital. There is no current on‐ market share buy‐back. (d) Employee Share Plan ($1,000 Plan) Information relating to the Employee Share Plan, including details of shares issued under the plan, is set out in note 25. (e) Employee Performance Rights Plan Information relating to the Employee Performance Rights Plan, including details of rights issued under the plan, is set out in note 25. 15. Reserves (a) Reserves Information relating to the Starpharma Holdings Limited Employee Share Option Plan and Individual option deeds, including details of options issued, exercised and expired during the financial year and options outstanding at the end of the financial year are set out in note 25. (g) Capital risk management The group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. Share‐based payments reserve Foreign currency translation reserve Asset revaluation reserve (b) Movement in reserves Share‐based payments reserve Balance at 1 July Share option expense Performance right expense Balance at 30 June Foreign currency translation reserve Balance at 1 July Currency translation differences arising during the year Balance at 30 June (c) Nature and purpose of reserves (i) Share‐based payments reserve 2013 $’000 4,188 (2,901) 2,215 3,502 2013 $’000 3,265 ‐ 923 4,188 (3,614) 713 (2,901) Consolidated 2012 $’000 3,265 (3,614) 2,215 1,866 Consolidated 2012 $’000 2,842 ‐ 423 3,265 (4,035) 421 (3,614) The share‐based payments reserve is used to recognise the fair value of options and performance rights granted. (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign subsidiary are taken to the foreign currency translation reserve, as described in Note 1(d). The reserve is recognised in income statement when the net investment is disposed of. (iii) Asset revaluation reserve The uplift in fair value of the identifiable net assets of DNT on the company’s acquisition of the remaining share in October 2006 was recognised in reserves. 54 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 54 16. Accumulated Losses Accumulated losses balance at 1 July Net loss for the year Accumulated losses balance at 30 June 17. Key management personnel disclosures (a) Key management personnel compensation Short‐term employee benefits Post‐employment benefits Other long term benefits Share‐based payments 2013 $’000 (92,386) (5,229) (97,615) 2013 $ 2,101,668 167,095 79,592 588,661 2,937,016 Consolidated 2012 $’000 (78,728) (13,658) (92,386) Consolidated 2012 $ 2,042,867 203,698 48,283 301,348 2,596,196 Detailed remuneration disclosures are provided in the remuneration report on pages 18 to 24. (b) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of (ii) Rights provided as remuneration and shares issued on vesting of such options such rights Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in the remuneration report. Details of rights provided as remuneration and shares issued on the vesting of such rights, together with terms and conditions of the rights, can be found in the remuneration report. Option holdings The numbers of options over ordinary shares in the company held during the financial year by each director of Starpharma Holdings Limited and other key management personnel of the group, including their personally related parties, are set out below. No non‐executive director held options in the current or prior year. 2013 Name Directors of Starpharma Holdings Limited Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes # during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested J K Fairley Other key management personnel of the group – B P Rogers J R Paull C P Barrett N J Baade D J Owen 1 M L McColl 1 200,000 125,000 125,000 125,000 225,000 – Resigned 18 January 2013 – – – – – – – – 100,000 125,000 – – 100,000 – – – – – – – – – – 100,000 100,000 – 125,000 125,000 125,000 – – 125,000 125,000 125,000 – – – – – – – – 55 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 55 2012 Name Directors of Starpharma Holdings Limited Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes # during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested J K Fairley Other key management personnel of the group – B P Rogers J R Paull C P Barrett N J Baade D J Owen 200,000 125,000 200,000 125,000 225,000 – – – – – – – – – – 75,000 – – – – – – – – – – – – 200,000 125,000 125,000 125,000 225,000 – 200,000 125,000 125,000 125,000 225,000 – – – – – – – – M L McColl # Performance rights holdings – Other Changes during the year relate to the expiry of options. The numbers of rights over ordinary shares in the company held during the financial year by each director of Starpharma Holdings Limited and other key management personnel of the group, including their personally related parties, are set out below. 2013 Except for J K Fairley, no other director held share rights in the current or prior year. J K Fairley was granted 960,000 performance rights to ordinary shares on approval by shareholders at the 2012 annual general meeting. Directors of Starpharma Holdings Limited Name Balance at the start of the year Granted during the year as compensation J K Fairley Other key management personnel of the group 375,000 960,000 Vested during the year Other changes # during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested 125,000 (250,000) 960,000 – 960,000 B P Rogers J R Paull C P Barrett N J Baade D J Owen 1 96,000 120,000 120,000 120,000 120,000 40,000 50,000 50,000 50,000 50,000 64,000 80,000 80,000 80,000 80,000 M L McColl 1 Resigned 18 January 2013 # Other Changes during the year relate to the forfeit of performance rights 120,000 50,000 80,000 2012 – – – – – (90,000) 72,000 90,000 90,000 90,000 90,000 – – – – – – – 72,000 90,000 90,000 90,000 90,000 – Directors of Starpharma Holdings Limited Name Balance at the start of the year Granted during the year as compensation J K Fairley Other key management personnel of the group – 375,000 B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl # Share holdings 64,000 80,000 80,000 80,000 80,000 80,000 32,000 40,000 40,000 40,000 40,000 40,000 Other Changes during the year relate to the forfeit of performance rights Vested during the year Other changes # during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested – – – – – – – – – – – – – – 375,000 – 375,000 96,000 120,000 120,000 120,000 120,000 120,000 – – – – – – 96,000 120,000 120,000 120,000 120,000 120,000 The numbers of ordinary shares in the company held during the financial year by each director of Starpharma Holdings Limited and other key management personnel of the group, including their personally related parties, are set out below. Key management personnel of the group, excluding directors, were eligible to participate in the Employee Share Plan ($1,000 Plan). Shares to the value of $1,000 where granted to Australian‐based permanent employees under the plan during the current and prior year. No director has entered into a material contract with the group in either the current or previous financial year and there were no material contracts involving directors’ interests subsisting at year end. 56 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 56 2013 Directors of Starpharma Holdings Limited Name Balance at the start of the year Granted during the year as compensation On exercise of share options during the year On vesting of performance rights during the year Other changes during the year Balance at the end of the year Ordinary Shares P T Bartels J K Fairley 1 R Dobinson P J Jenkins R A Hazleton Z Peach 232,930 1,649,197 – 1,487,462 142,616 2,000 P R Turvey Other key management personnel of the group 30,000 Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade D J Owen 2 M L McColl 1 2 Resigned 28 November 2012. Resigned 18 January 2013. 2012 44,640 15,022 78,459 121,585 53,459 2,041 – – – – – – – 809 809 809 809 809 809 – – – – – – – 100,000 125,000 – – 100,000 – – 125,000 – – – – – 64,000 80,000 80,000 80,000 80,000 80,000 100,000 50,000 – 50,000 15,000 1,000 17,000 – – – – (123,352) (82,500) 332,930 1,824,197 – 1,537,462 157,616 3,000 47,000 209,449 220,831 159,268 202,394 110,916 350 Directors of Starpharma Holdings Limited Name Balance at the start of the year Granted during the year as compensation On exercise of share options during the year On vesting of performance rights during the year Other changes during the year Balance at the end of the year Ordinary Shares P T Bartels J K Fairley R Dobinson P J Jenkins R A Hazleton 1 Z Peach 2 129,804 1,819,821 – 1,426,000 142,616 – P R Turvey Other key management personnel of the group – Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl 1 2 Appointed 1 October 2011. Appointed 19 March 2012. 41,455 12,608 2,608 132,608 52,608 1,190 – – – – – – – 851 851 851 851 851 851 – – – – – – – – – 75,000 – – – – – – – – – – – – – – – – 103,126 232,930 (170,624) 1,649,197 – – 61,462 1,487,462 – 142,616 2,000 30,000 2,000 30,000 2,334 1,563 – (11,874) – – 44,640 15,022 78,459 121,585 53,459 2,041 57 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 57 18. Remuneration of auditors The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the consolidated group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non‐audit services provided during the year are set out below. During the year the following fees were paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non‐related audit firms: (a) Statutory audit services Audit or review of financial reports of the entity or any entity in the consolidated entity PricewaterhouseCoopers Total remuneration for statutory audit services No other audit services were performed in the current or prior year. 19. Contingencies 2013 $ 87,600 87,600 Consolidated 2012 $ 85,000 85,000 The company has no contingent assets or liabilities at 30 June 2013 (2012: nil). 20. Commitments (a) Capital Commitments There is no capital expenditure contracted for, not recognised as liabilities at the reporting date (2012: nil). (b) Lease Commitments Operating leases Commitments for minimum lease payments in relation to cancellable operating leases are payable as follows: Not later than one year Later than one year and not later than five years Later than five years Representing cancellable operating leases The group leases laboratory and offices under a lease until 31 August 2015. Consolidated 2013 $’000 366 450 – 816 2012 $’000 349 71 – 420 58 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 58 Finance Leases The group leases plant and equipment under a finance leases expiring within four years. Commitments in relation to finance leases are payable as follows: Notes Not later than one year Later than one year and not later than five years Later than five years Minimum lease payments Future finance charges Recognised as a liability Representing finance lease liabilities: Current Non‐Current 13 13 2013 $’000 32 84 – 116 (16) 100 25 75 100 Consolidated 2012 $’000 50 116 – 166 (26) 140 40 100 140 The weighted average interest rate implicit in the lease is 8.2% (2012: 8.4%). (c) Expenditure Commitments (d) Termination Commitments The group has entered into various agreements for research, development and clinical services. These agreements have typical termination provisions to limit the commitment to the time and materials expended at termination, or up to an approved work order amount. 21. Subsidiaries The service contracts of key management personnel include benefits payable by the group on termination of the employee’s contract. Refer to the remuneration report for details of these commitments. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b). Equity Holding Name of entity Starpharma Pty Limited Angiostar Pty Limited Viralstar Pty Limited Dendritic Nanotechnologies Inc. 22. Events occurring after the balance sheet date Country of Incorporation Class of Shares Australia Australia Australia USA Ordinary Ordinary Ordinary Ordinary There are no significant events occurring since 30 June 2013 that have significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of the group. 2013 % 100.00% 100.00% 100.00% 100.00% 2012 % 100.00% 100.00% 100.00% 100.00% 59 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 59 23. Reconciliation of profit after income tax to net cash inflow from operating activities Operating loss after tax: Depreciation and amortisation Foreign exchange (gains) / losses Non‐cash employee benefits: share‐based payments Gain (loss) on sale of property, plant and equipment Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities: Decrease (increase) in receivables and other assets Increase (decrease) increase in trade creditors Increase in employee provisions Increase (decrease) in deferred income Net cash outflows from operating activities 24. Earnings per share Basic loss per share Diluted loss per share Net loss attributable to members of Starpharma Holdings Ltd used as the numerator in calculating diluted and basic earnings per share ($’000) Weighted average number of ordinary shares outstanding during the year used as the denominator in calculating diluted and basic earnings per share 2013 $’000 (5,229) 1,050 (151) 955 (1) (3,424) (2,796) 86 (285) (9,795) 2013 $ (0.02) (0.02) (5,229) 283,281,880 Consolidated 2012 $’000 (13,658) 1,142 (132) 448 (13) (989) 3,266 116 50 (9,770) Consolidated 2012 $ (0.05) (0.05) (13,658) 267,652,960 As at 30 June 2013 the company had on issue 635,000 (30 June 2012: 2,778,809) share options and 1,970,900 (30 June 2012: 1,550,300) performance rights that are not considered dilutive. Given the entity is currently loss making, the potential shares are anti‐dilutive and have therefore not been included in the diluted earnings per share calculation. The options and rights have not been included in the determination of basic earnings per share. The options and rights granted are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. 25. Share‐based payments Options (a) Employee Option Plan (b) Individual Option Deeds The establishment of the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) was approved by shareholders at the Annual General Meeting held on 17 November 2004 and re‐ approved on 14 November 2007. All full‐time or part‐time employees and directors of the company or associated companies are eligible to participate in the Plan. The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. Options are granted under the plan for no consideration. The vesting period is 1 to 2 years from date of grant, with the exercise period 2 to 3 years from the end of the vesting period. Options granted under the plan carry no dividend or voting rights. Each option is personal to the participant and is not transferable, transmissible, assignable or chargeable, except with the written consent of the remuneration and nomination committee. No options were granted in the current or prior year. The company infrequently issues options to key consultants of the company. The objective of the option issues is to assist in the reward, retention and motivation of consultants of the company. Options are granted for no consideration, usually in lieu of some proportion of cash compensation. Options are normally granted for a two to five year period, with various exercisable dates. Options granted carry no dividend or voting rights. Each option is personal to the participant and is not transferable, transmissible, assignable or chargeable, except with the written consent of the remuneration and nomination committee. (c) Options Attached to a Share Placement The company issued 7,567,119 unlisted options attached to a share placement in August 2007. The options have an exercise price of $0.4346 per option with an expiry date of 21 August 2012. Options granted carry no dividend or voting rights. The remaining balance of 1,684,809 options was exercised before the expiry date. 60 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 60 Set out below are summaries of options under the schemes: 2013 Grant Date Expiry Date Consolidated and parent entity Exercise Price Balance at start of the year Exercised during the year Forfeited during the year $ Number Number Number Expired during the year Number Balance at end of the year Exercisable at end of the year Number Number c 21 Aug 2007 a 1 Jan 2009 a 22 Aug 2012 28 Aug 2012 29 Jun 2009 28 Jun 2014 $0.43 1,684,809 1,684,809 $0.29 $0.37 300,000 794,000 300,000 159,000 Total 2,778,809 2,143,809 – – – – – – – – – – – – 635,000 635,000 635,000 635,000 Weighted average exercise price $0.40 $0.41 $ – $ – $0.37 $0.37 2012 Grant Date Expiry Date Consolidated and parent entity c 21 Aug 2007 a 31 Oct 2007 a 1 Jan 2009 b 1 Jan 2009 a 22 Aug 2012 7 Aug 2011 28 Aug 2012 28 Aug 2012 Exercise Price Balance at start of the year Exercised during the year Forfeited during the year $ Number Number Number Expired during the year Number Balance at end of the year Exercisable at end of the year Number Number $0.43 1,684,809 $0.50 $0.29 $0.29 30,000 395,000 20,000 – 30,000 95,000 20,000 – – – – – – – – – – – – 1,684,809 1,684,809 – – 300,000 300,000 – – 794,000 794,000 2,778,809 2,778,809 29 Jun 2009 28 Jun 2014 $0.37 1,114,000 320,000 Total 3,243,809 465,000 Weighted average exercise price $0.39 $0.36 $ – $ – $0.40 $0.40 a Options granted under the Employee Option Plan. b Options granted under individual option deeds. Options granted under a share placement. c No options were granted in the current or prior year. The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2013 was $1.44 (2012: $1.26). (d) Fair value of options granted There were no options granted in the current or prior year. The fair value at grant date of options granted in earlier years were independently determined using a Black‐Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected Shares The weighted average remaining contractual life of share options outstanding at the end of the period was 1.00 year (2012: 0.67 years). Where options are issued to employees of subsidiaries within the group, the subsidiaries compensate Starpharma Holdings Limited for the amount recognised as expense in relation to these options. dividend yield and the risk free rate for the term of the option. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Options are granted for no consideration, and have varying exercise and expiry dates. (a) Employee Share Plan ($1,000 Plan) (b) Fair value of shares granted All executives and staff, excluding directors, are eligible to participate in the Starpharma Employee Share Plan ($1,000 Plan). The objective of the $1,000 Plan is to assist in the reward, retention and motivation of employees of the group. An annual allocation of up to $1,000 of shares may be granted and taxed on a concessional basis. Shares are granted under the $1,000 Plan for no consideration and are escrowed for 3 years while participants are employed by the group. The weighted average assessed fair value at grant date of employee shares granted during the year ended 30 June 2013 was $1.235 (2012: $1.175 per share). The fair value at grant date is determined by the share price on the date of grant. Employee shares were granted for no consideration. 61 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 61 Information used in assessing the fair value of shares granted during the year ended 30 June 2013 is as follows: Share grant date 18 January 2013 Number of shares granted Share price at grant date Assessed fair value 25,888 $1.235 $1.235 Information used in assessing the fair value of shares granted during the year ended 30 June 2012 is as follows: Share grant date 24 January 2012 Number of shares granted Share price at grant date Assessed fair value Performance Rights 22,126 $1.175 $1.175 (a) Employee Performance Rights Plan (b) Fair value of performance rights granted In 2010 the board approved the introduction of the Starpharma Employee Performance Rights Plan, which was subsequently approved by shareholders at the 2011 annual general meeting. All executives and staff, including the CEO, are eligible to participate in the Plan. The Plan allows for the issue of performance rights (being rights to receive fully paid ordinary shares subject to continued employment with the company and the satisfaction of certain performance hurdles over a specified period). A further holding lock period may also be applied to restrict disposal after the vesting date. Performance rights are granted under the Plan for no consideration. The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. The weighted average assessed fair value at grant date of performance rights granted during the year ended 30 June 2013 was $1.08 per right (2012: $0.81). There were 1,682,400 performance rights granted in the current year (2012: 842,500). The estimated fair value at grant date is determined using either an option pricing or a binomial model that takes into account the exercise price, the performance measure, the term of the right, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information. Set out below are summaries of performance rights: 2013 Grant Date Vesting Date Holding Lock Date 2 Sep 2010 31 Aug 2012 31 Aug 2013 10 Nov 2011 30 Sep 2012 30 Sep 2013 25 Nov 2011 25 Nov 2013 25 Nov 2014 13 Sep 2012 30 Nov 2012 19 Sep 2014 19 Sep 2015 30 Sep 2013 30 Sep 2014 30 Nov 2012 30 Nov 2014 30 Nov 2015 30 Nov 2012 30 Nov 2015 30 Nov 2016 15 Jan 2013 15 Jan 2015 15 Jan 2016 Balance at start of the year Number 717,800 375,000 457,500 – – – – – Granted during the year Number – – – 672,400 400,000 200,000 360,000 50,000 Converted during the year Number 717,800 125,000 – – – – – – Forfeited during the year Number – 250,000 47,500 71,500 – – – 50,000 Balance at end of the year Number – – 410,000 600,900 400,000 200,000 360,000 – 1,550,300 1,682,400 842,800 419,000 1,970,900 Total 2012 Grant Date 2 Sep 2010 10 Nov 2011 25 Nov 2011 Total Vesting Date Holding Lock Date 31 Aug 2012 31 Aug 2013 30 Sep 2012 30 Sep 2013 25 Nov 2013 25 Nov 2014 Balance at start of the year Number 750,800 – – 750,800 Granted during the year Number – 375,000 467,500 842,500 Converted during the year Number – – – – Forfeited during the year Number 33,000 – 10,000 Balance at end of the year Number 717,800 375,000 457,500 43,000 1,550,300 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 62 62 Information used in assessing the fair value of performance rights granted during the year ended 30 June 2013 is as follows: 30 November 2012 Right grant date 13 September 2012 30 November 2012 30 November 2012 Number of rights granted 672,400 100,000 100,000 200,000 Vesting date 19 September 2014 30 September 2013 30 September 2013 30 September 2013 Disposal Restriction until 19 September 2015 30 September 2014 30 September 2014 30 September 2014 Performance Measure KPIs Share Price ≥ $1.86 Share Price ≥ $2.09 Expected price volatility of the company's shares Risk‐free interest rate Expected dividend yield Share price at grant date Assessed fair value 55% 2.8% ‐ $1.55 $1.55 50% 3.0% ‐ $1.16 $0.19 50% 3.0% ‐ $1.16 $0.12 KPIs 50% 3.0% ‐ $1.16 $1.10 Right grant date 30 November 2012 30 November 2012 30 November 2012 30 November 2012 Number of rights granted 50,000 50,000 100,000 80,000 Vesting date 30 November 2014 30 November 2014 30 November 2014 30 November 2015 Disposal Restriction until 30 November 2015 30 November 2015 30 November 2015 30 November 2016 Performance Measure Continued Employment Index TSR Index TSR+10% Continued Employment Expected price volatility of the company's shares Risk‐free interest rate Expected dividend yield Share price at grant date Assessed fair value Right grant date Number of rights granted Vesting date Disposal Restriction until Performance Measure Expected price volatility of the company's shares Risk‐free interest rate Expected dividend yield Share price at grant date Assessed fair value 55% 2.8% ‐ $1.16 $1.10 55% 2.8% ‐ $1.16 $0.72 55% 2.8% ‐ $1.16 $0.70 60% 2.7% ‐ $1.16 $1.10 30 November 2012 30 November 2012 15 January 2013 80,000 200,000 50,000 30 November 2015 30 November 2015 15 January 2015 30 November 2016 30 November 2016 15 January 2016 Index TSR Index TSR+10% 60% 2.7% ‐ $1.16 $0.77 60% 2.7% ‐ $1.16 $0.76 KPIs 50% 3.3% ‐ $1.17 $1.12 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 63 63 Information used in assessing the fair value of performance rights granted during the year ended 30 June 2012 is as follows: 10 November 2011 Right grant date 10 November 2011 10 November 2011 25 November 2011 Number of rights granted 125,000 125,000 125,000 467,500 Vesting date 30 September 2012 30 September 2012 30 September 2012 25 November 2013 Disposal Restriction until 30 September 2013 30 September 2013 30 September 2013 25 November 2014 Performance Measure Share Price ≥ $1.50 Share Price ≥ $2.00 Expected price volatility of the company's shares Risk‐free interest rate Expected dividend yield Share price at grant date Assessed fair value Expenses arising from share‐based payment transactions 50% 3.8% ‐ $1.08 $0.30 50% 3.8% ‐ $1.08 $0.12 KPIs 50% 3.8% ‐ $1.08 $0.96 KPIs 50% 3.3% ‐ $1.09 $1.09 Total expenses arising from share‐based payment transactions recognised during the period were as follows: Consolidated Employee shares issued Employee performance rights issued 26. Related party transactions (a) Parent entity and subsidiaries The parent entity of the group is Starpharma Holdings Limited. Interests in subsidiaries are set out in note 21. (b) Key management personnel Disclosures relating to key management personnel are set out in note 17. 2013 $’000 32 923 955 2012 $’000 26 423 449 (c) Transactions with related parties There are related party transactions within the group between the parent and subsidiaries. Transactions include funds advanced to/from entities and the associated interest charge; and management and services fees. All transactions were made on an arm’s length basis. STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 64 64 27. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Contributed equity Reserves Accumulated losses Loss for the year Total comprehensive income (b) Contingencies of the parent entity The parent entity has no contingent assets or liabilities at 30 June 2013 (2012: nil). 2013 $'000 32,684 49,821 725 725 140,081 3,678 (94,663) (10,088) (10,088) Parent 2012 $'000 41,232 58,836 832 1,485 139,171 2,755 (84,575) (10,548) (10,548) 65 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 65 Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 32 to 65 are in accordance with the Corporations Regulations 2001 Accounting Standards Corporations Act 2001 , including: (i) complying with (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the financial year and other mandatory professional reporting requirements; and , the ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Act 2001 The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations . This declaration is made in accordance with a resolution of the directors. AO Peter T Bartels, Director Melbourne, 26 August 2013 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 66 66 INDEPENDENT AUDIT REPORT TO THE MEMBERS STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 67 67 INDEPENDENT AUDIT REPORT TO THE MEMBERS STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 68 68 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 31 July 2013. A. Distribution of equity shareholders Supplementary information as required by ASX listing requirements. Analysis of numbers of equity security holders by size of holding 1 –1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,000 and over Total There were 281 holders of less than a marketable parcel of ordinary shares. B. Equity security holders Shares Options Class of equity security Performance rights 609 1,318 749 1,155 198 4,029 – – – 4 3 7 – – 5 25 1 31 The names of the twenty largest holders of quoted equity securities are listed below: Name Number held Ordinary shares Percentage of issued shares 1. 2. 3. 4. 5. 6. 7. 8. 9. HSBC Custody Nominees (Australia) Limited National Nominees Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited JP Morgan Nominees Australia Limited T & N Argyrides Investments P/L BNP Paribas Noms Pty Ltd Kenneth Nominees Pty Ltd Mr Peter Malcolm Colman 10. HSBC Custody Nominees (Australia) Limited 11. Citicorp Nominees Pty Limited 12. Applecross Secretarial Services Pty Ltd 13. JPS Distribution Pty Ltd 14. Dr Stuart Keith Roberts 15. UBS Wealth Management Australia Nominees Pty Ltd 16. Mr Kingsley Bryan Bartholomew 17. Commonwealth Scientific And Industrial Research Organisation 18. Mr Peter Murray Jackson 19. Ms Jacinth Fairley 20. Applecross Secretarial Services Pty Ltd 72,193,929 38,452,268 22,330,498 11,241,354 6,005,320 5,410,449 4,366,046 4,022,053 3,955,968 3,565,073 2,990,751 2,885,588 2,529,226 2,410,460 2,107,252 2,000,000 1,448,798 1,180,000 1,156,697 1,118,588 25.43 13.55 7.87 3.96 2.12 1.91 1.54 1.42 1.39 1.26 1.05 1.02 0.89 0.85 0.74 0.70 0.51 0.42 0.41 0.39 191,370,318 67.42 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 69 69 Name Options issued under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) Employee Performance Rights Total C. Substantial holders Unquoted equity securities over ordinary shares Number on issue Number of holders 585,000 1,970,900 2,555,900 7 31 Substantial shareholders as shown in substantial shareholder notices received by the company as at 31 July 2013: Name Acorn Capital Limited Allan Gray Australia Pty Ltd M&G Investment Funds The Dow Chemical Company D. Voting rights Ordinary shares Number held 36,614,463 35,194,434 34,174,302 14,406,827 The voting rights attached to each class of equity securities are set out below: (a) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and on a poll each share shall have one vote. (b) Options No voting rights. (c) Performance Rights No voting rights. 70 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 70 INTELLECTUAL PROPERTY REPORT The Starpharma patent portfolio currently has around 30 active patent families with over 110 granted patents and more than 60 patent applications pending. Priority Date & Key patents within the Starpharma portfolio as at 8 August 2013: Publication Number Title Patents Granted Applications Pending VivaGel Patent Portfolio ® Antiviral Dendrimers Anionic Or Cationic Dendrimer Antimicrobial Or Antiparasitic Compositions Agents For The Prevention & Treatment Of Sexually Transmitted Diseases‐I 15 June 1994 WO95/34595 14 September 1998 WO00/15240 30 March 2001 WO02/079299 Microbicidal Dendrimer Composition Delivery System Contraceptive Composition Method Of Treatment Or Prophylaxis Drug Delivery Patent Portfolio Of Bacterial Vaginosis 18 October 2005 WO2007/045009 22 March 2006 WO2007/106944 16 May 2011 WO2012/000891 Disulfide‐containing dendritic Sep 30, 1996 polymers Macromolecules Compounds Having Controlled Stoichiometry Modified Macromolecules Targeted Polylysine Dendrimer Therapeutic Agent Macromolecules Priostar Patent Portfolio Dendritic Polymers With Enhanced Amplification And Interior Functionality Dendritic Polymers With Enhanced Amplification And Interior Functionality 25 October 2005 WO2007/048190 10 August 2006 WO2007/082331 11 August 2006 WO2008/017125 6 June 2011 WO2012/167309 20 April 2005 WO2006/065266 21 December 2005 WO2006/115547 PEHAM Dendrimers for use in Agriculture 26 October 2009 WO2011/053605 Australia, Brazil, Canada, China, Europe, Hong Kong, Japan, Mexico, New Zealand, Singapore, South Korea, USA Australia, Canada, Europe, Japan, Mexico, New Zealand, Singapore, South Korea, USA Australia, Canada, China, Europe, Hong Kong, Japan, Mexico, New Zealand, Singapore, South Korea, USA Australia, Japan, New Zealand, Russian Federation, Australia, China, Japan, USA USA USA USA China, USA Argentina, Canada, China, India, Israel, Japan, Mexico, New Zealand, Singapore, South Korea, Taiwan, USA Australia, Canada, China, India, Israel, Mexico, New Zealand, Singapore, South Korea, Taiwan, USA China Brazil Argentina, Canada, China, Europe, Hong Kong, India, Malaysia, Mexico, South Korea, Taiwan, USA Canada, Europe, Australia, USA, International application Australia, Canada, Europe, USA Australia, Canada, China, Europe, India, Japan, USA Europe, India, Australia, International Application Brazil, Europe, Hong Kong, Argentina, Brazil, Europe, Hong Kong, Japan, Australia, Brazil, China, Europe, India, Japan, USA STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 71 71 Company name Solicitors CORPORATE DIRECTORY Norton Rose Fulbright RACV Tower, 485 Bourke Street Melbourne VIC 3000 Australia Stock exchange listing ASX Limited Level 45, North Tower, Rialto, 525 Collins Street, Melbourne VIC 3000 Australia ASX Code: SPL Starpharma’s American Depositary Receipts (ADRs) trade under the code SPHRY (CUSIP number 855563102). Each Starpharma ADR is equivalent to ten ordinary shares of Starpharma as traded on the ASX. The Bank of New York Mellon is the depositary bank. Starpharma’s ADRs are listed on OTCQX International (www.otcmarkets.com), a premium market tier in the U.S. for international exchange‐listed companies, operated by OTC Markets Group. Website address www.starpharma.com Starpharma Holdings Limited ABN 20 078 532 180 Directors Chairman Deputy Chairman Chief Executive Officer P T Bartels AO – P J Jenkins – J K Fairley – R A Hazleton Z Peach P R Turvey Company Secretary Ben Rogers Registered office Baker IDI Building 75 Commercial Road, Melbourne, Victoria 3004 Australia Telephone +61 3 8532 2700 Fax +61 3 9510 5955 Postal address GPO Box 6535 St Kilda Road Central VIC 8008 Australia Share register Computershare Investor Services Pty Limited 452 Johnston Street, Abbotsford VIC 3067 GPO Box 2975 Melbourne, VIC 3001 1300 850 505 (within Australia) +613 9415 4000 (outside Australia) www.computershare.com Auditor PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia 72 STARPHARMAHOLDINGSLIMITEDANNUALREPORT2013 72 Starpharma holdingS limited ABn 20 078 532 180 Baker IDI Building 75 Commercial Road, Melbourne VIC 3004 Australia telphone +61 3 8532 2700 Facsimile +61 3 9510 5955 www.starpharma.com

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