Sirtex Medical Limited
Annual Report 2011

Plain-text annual report

2011 Annual Report 2011Sirtex continues to transform and improve the way liver cancer is treated, helping bring hope and quality of life to thousands of patients and their families worldwide. 1 Financial Snapshot Annual General Meeting 2 How SIR-Spheres microspheres are helping to improve lives 4 Achievement Summary 6 Chairman’s Report 8 CEO’s Report 11 Corporate Governance 13 Financials The Annual General Meeting will be held at 10:00 am on 27 October 2011 at the Stamford Grand Hotel North Ryde, NSW Australia. Sirtex’s global headquarters are in Sydney, Australia, with three regional offices located in Singapore, Germany and the United States and principal manufacturing facilities in Australia, Singapore and the United States. Sirtex Medical Ltd ABN 35 078 166 122 ®SIR-Spheres is a Registered Trademark of Sirtex SIR-Spheres Pty Ltd ®Thermospheres is a Registered Trademark of Sirtex Thermospheres Pty Ltd Financial Snapshot 2011 Sales Revenue $ Million 5 Year Dose Sales Growth 3 4977 45 4424 22.2 3871 3318 2765 2212 1659 1106 553 0 7 7 9 4 , 1 7 1 4 , 8 5 6 3 , Asia Pacific Europe US 1 8 5 2 , 8 0 1 2 , Asia Pacific Europe US 1 7 1 , 4 8 5 6 , 3 Europe US Asia Pacific 1 8 5 , 2 8 0 1 , 2 9 2 3 , 1 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Highlights Dose sales of SIR-Spheres microspheres targeted radioactive liver cancer treatment were up 19 per cent worldwide. Dose sales in Europe were up 25 per cent, sales in the US were up 19 per cent and sales in Asia Pacific rose 3 per cent. Total sales revenue was up 9 per cent to $70.3 million. Revenue in Europe was $22.2 million, revenue in the US was $45.1 million and in the Asia Pacific region $3 million. Cash from operating activities was $15.3 million and cash on hand was $42.9 million at 30 June 2011. Profit before tax, excluding foreign exchange, was up 13 per cent to $20.5 million. Net profit after tax was down 29 per cent. Earnings per share (EPS) were 20.6 cents, up from 28.8 cents last year. Net tangible assets per share rose 4 per cent to 93.9 cents per share. Payment of a fully franked final year dividend of 7 cents per share on 14 October 2010 to shareholders. Sirtex 2011 Annual Report 1 1 Sirtex 2011 Annual Report How SIR-Spheres microspheres are helping to improve lives ® microspheres SIR-Spheres microspheres are an innovative means of treating advanced liver cancer. Why use tiny radioactive beads? A major disadvantage of anti-cancer drugs is their lack of selectivity for tumour tissue alone. They can cause severe side effects on normal healthy tissue and result in low cure rates. SIR-Spheres microspheres allow clinicians to target tumours with internal radiation without causing significant side effects to the normal cells around the tumour. The therapy is called Selective Internal Radiation Therapy (SIRT) and involves the delivery of millions of SIR-Spheres microspheres directly to the site of the liver tumours. What are they? SIR-Spheres microspheres are microscopic radioactive polymer spheres that contain yttrium-90 (Y-90) and emit pure beta radiation. Each biocompatible sphere measures approximately the size of four red blood cells or one-third the diameter of a strand of human hair. Together they can deliver 40 times more radiation to a tumour than conventional radiotherapy, which can damage healthy tissue. SIRT is usually a single procedure, although repeat treatments are possible. SIR-Spheres microspheres lodge in the small blood vessels of the cancer tumour, where they selectively destroy the tumour from inside over a short period of time. The anti-cancer effect is concentrated in the liver while sparing the surrounding healthy tissue. 2 Sirtex 2011 Annual Report In August 2010, grandfather Brian Brooks, 72, was told cancer in his colon had spread to his liver. His doctors told him it was unlikely he would live beyond 12 months. However Brian was put on the FOXFIRE clinical study which aims to show SIR-Spheres microspheres, when combined with chemotherapy, can give patients better medical outcomes than current treatments. “ Obviously there is always the risk that the cancer can come back but I am now in remission and that is something that the doctors did not believe was possible.” The study involves 490 patients at 24 hospitals across the United Kingdom and is funded in partnership with Cancer Research UK, the Bobby Moore Fund for Cancer Research and Sirtex. In 2011, Brian was treated with SIR- Spheres microspheres and his standard chemotherapy before his doctors told him his liver tumours had disappeared. Brian’s liver tumours shrank after two days, which meant doctors were then able to treat the cancer in his colon. He is now in remission. Growing acceptance worldwide Over 20,000 people have been treated with SIR-Spheres microspheres around the world. SIR-Spheres microspheres are used by medical professionals in more than 50 countries at 510 hospitals and treatment centres in the European Union, Australia, the United States and many Asian countries. SIR-Spheres microspheres are approved by the US Food & Drug Administration, the Australian Therapeutic Goods Administration and have CE mark approval for use in Europe. Evolution of SIR-Spheres microspheres Sirtex is working to develop new systems to help clinicians deliver SIR-Spheres microspheres with maximum therapeutic value. SIR-Spheres microspheres could be used to deliver chemotherapy and other drugs. A new patient treatment planning system and an improved delivery system will make the use of SIR-Spheres microspheres potentially less technical and more accurate. A new type of imageable SIR-Spheres microspheres will be easily viewed by common scanning equipment. Sirtex 2011 Annual Report 3 Achievement Summary Doses sold A total of 4,977 doses were sold through 510 hospitals worldwide in 2011. This number is less than one per cent of the total addressable global market. Global dose sales have grown by an average 18.7 per cent each year over the past five years. The largest gains have been in Europe where sales grew by an average of 37 per cent over the past five years. Growth in sales in the US has averaged 15 per cent. The Asia Pacific has seen an average growth of 4 per cent. Our investment this year in marketing and sales support teams in each region, combined with various initiatives to drive awareness and demand, will contribute to significant growth in coming years. Patients treated Over 20,000 people have been treated by SIR-Spheres microspheres over the past decade. This number does not include the large number of people participating in our multiple large and small clinical studies in partnership with other global leaders such as Bayer Pharmaceuticals and The University of Oxford in the UK. As two of our major clinical studies draw closer to full recruitment, we anticipate the growing global awareness and interest among the medical community will continue to increase the number of people who benefit from our product. Sales revenue Sales revenue over the past five years has grown at an average rate of 16 per cent to reach $70.3 million in 2011. Revenue in Europe has increased at an average rate of 32 per cent over the past five years while revenue in the US has grown an average of 12 per cent. We expect revenue to increase in all regions as we broaden our global footprint. New product enhancements together with our investment in clinical and marketing support staff will have a significant positive effect on future revenue. 2010 2009 2006 2007 2008 2005 Gilman Wong appointed Chief Executive Officer Positive clinical data reported at the American Society for Clinical Oncology Start of SIRFLOX international clinical study US manufacturing facility opened Positive clinical data presented to the American Society for Clinical Oncology Record earnings and dose sales New clinical study in collaboration with The Oxford University Record dose sales in all geographic markets Start of work on new Singapore manufacturing facility First shareholder dividend paid 2004 SIR-Spheres microspheres granted full reimbursement in US 4 4 Sirtex 2011 Annual Report Sirtex 2011 Annual Report Clinical Recruitment Accelerates Start Year FY06-FY09 FY10 FY11 Total Study Size SIRFLOX FOXFIRE SORAMIC SIRveNIB 2006 2010 2011 2011 89 55 6 107 251 39 12 53 45 12 53 450 490 360 360 Completion (%) at 30 June 2011 56% 9% 3% 15% 4 major clinical studies underway 9 new studies budgeted for 2012 13 clinical studies underway worldwide 510 hospitals have used SIR-Spheres microspheres 2,000 clinical study patients 4,977 doses sold in 2011 Total staff numbers up 28% Moved Australian head office to accommodate additional staff Finalised Singapore manufacturing facility Significant increase in sales and marketing staff in all markets 2011 New clinical study in collaboration with Bayer Pharmaceuticals SIRveNIB study launched in Asia Significant increase in clinical support staff worldwide Clinical study recruitment up 142% K e y i a c h e v e m e n t s i n 2 0 1 1 Achieved record revenue and dose sales in all markets Paid second consecutive shareholder dividend Declared third annual shareholder dividend payable in October 2011 R&D investment up 84% Sirtex 2011 Annual Report 5 Chairman’s Report 6 Sirtex 2011 Annual Report Financial performance Sustainable growth Record revenue of $70.3 million and a 19 per cent rise in dose sales underlined another successful year for Sirtex. The highlight this year was the opening of our third global manufacturing and distribution centre and the release of additional positive independent clinical data reconfirming the efficacy and safety of SIR-Spheres microspheres to treat patients at an early stage of liver cancer. The opening of our new Singapore facility, which also acts as a regional head office for our future Asia Pacific growth, was an important milestone in the ongoing and sustained development of Sirtex. Capital management At the end of the reporting period, cash on hand was $42.9 million compared with $41.4 million the previous year. Cash from operating activities was $15.3 million. Our confidence in our future performance saw the Board agree to return $3.9 million of this to shareholders via a fully franked dividend of seven cents for the second consecutive year. Profit before tax, excluding foreign exchange and the settlement of the legal proceedings determined last financial year, was up 13 per cent to $17.0 million compared to $15.0 million the previous year. Profit before tax, including foreign exchange and University of Western Australia (UWA) proceedings, was down 25 per cent to $14.4 million. Net profit after tax was $11.5 million. The results were positively impacted by $6.6 million (before tax) as a result of the company capitalising a percentage of the SIR-Spheres Evolution program and clinical trial costs associated with the four major trials mentioned above. These costs have previously been expensed as their successful completion was uncertain at the time. Laying the foundations for sustainable long-term growth is a phrase you will read throughout this report. It is the key strategic objective that guides much of our decision making across the company. Our commitment to focus on developing our internal capabilities in all areas of the business worldwide helped Sirtex achieve another year of sustained growth. Despite the ongoing global economic uncertainty in Europe and the US, Sirtex continued its steady unbroken and impressive path of rising dose sales and expansion. The release this year of yet more independent clinical data from a major six-year study in Europe showing very positive long-term survival rates was met with great enthusiasm by the international medical community. It reconfirmed Sirtex’s position as an emerging global leader in the treatment of liver cancer. These positive clinical results are creating excitement and interest with our customers in the international medical community. This growing body of positive clinical evidence supporting wider use of our core SIR-Spheres microspheres product, backed by a deep pipeline of promising future therapeutic solutions, helps ensure our position as a leader not only in liver cancer and microspheres technology but also a range of other therapies for the treatment of other cancers. Significant progress has been made towards enhancing the way clinicians use and administer our core product to ensure we retain our leadership position in a global market with few competitors. Sirtex sells a unique Australian-developed cancer therapy in over 50 countries through over 500 treatment centres. These sales are driven and supported by marketing, clinical, product manufacturing hubs and expert distribution teams in Asia, the US, Europe and Australia. Earnings Per Share Cents Earnings Per Share Net Tangible Assets per Share . 9 3 9 . 9 9 8 . 4 7 6 . 9 8 3 . 7 2 3 . 8 5 3 . 8 8 2 . 6 0 2 8 2 . 2 2 . 2007 2008 2009 2010 2011 Net Tangible Assets $’000 Net Tangible Assets Total Equity 2 4 1 , 0 6 7 5 3 , 2 5 3 4 5 , 1 5 5 5 1 , 0 5 9 7 1 , 9 3 2 6 5 , 7 3 7 8 2 , 3 2 4 9 6 , 1 2 4 6 7 , 1 2 1 9 9 , 9 1 2007 2008 2009 2010 2011 Share Price $ Prices at 30 June each year 0 9 . 4 0 9 . 4 4 4 . 3 5 3 . 3 0 0 . 3 2007 2008 2009 2010 2011 Global economic conditions While the global economic environment provides a challenge for many Australian exporters, our rapidly increasingly spread of customers around the world helps us overcome any slowdown in demand that may arise in individual countries. Despite the global economic uncertainties of the past year, our business remains in robust shape. We have a growing and talented team that remains firmly focused on delivering on our long-term global growth objectives. We expect significant growth in demand over the coming years, much of our focus during the past two years has been to increase investment back into our business and to prepare the foundations to deal with this anticipated growth. Our goal is to be able to quickly take full advantage of our global market leadership to create maximum long-term value for shareholders. These plans are progressing to schedule and as we continue to hire more skilled and talented people around the world, we can see we are building a truly great Australian medical technology company with a global focus. We take a long-term view to our growth prospects and the Sirtex growth story is really only just beginning. Board and management team There were no changes to the Board membership during the reporting period. The Board is committed to ensuring the management team has the necessary resources and expertise required to continue to grow the business globally. Board and management stability is one of our key assets. It is why we are able to effectively deal with the many challenges of operating a complex, fast growth medical technology business in multiple global medical markets. We are very fortunate to have a strong and dedicated team led by our Chief Executive Officer Gilman Wong. The team has successfully and consistently worked together for a number of years and their commitment has helped place our business in the sound position we enjoy today. Together with all of Sirtex’s support staff and customers, they continue to make excellent progress on the timely roll-out of our long-term global growth strategy. Our Asia Pacific management team has been renewed with the appointment of Dr Burwood Chew, an experienced former Bayer Schering executive. Based in Singapore, he is refocusing our drive into Asia where the incidence of liver cancer and demand for our product is expected to grow significantly in coming years. On behalf of the Board, I would like to thank Gilman Wong and the many other team members around the world for their contributions in a challenging but successful year. Gilman and his team have significantly increased our staff numbers this year and the Board welcomes all new employees to Sirtex. They are the key to our collective future success as we work to improve the quality of life for liver cancer patients. Outlook The outlook for our business is very positive and this is supported by our commitment to invest in clinical studies, people, research and development, marketing and sales growth initiatives. Together these initiatives are creating the foundation for a significant business that will continue to grow over the coming years. Our business is in a position of considerable strength. We have no debt, and a cohesive and talented management team with an exciting product that is in demand and enjoys a market leadership position around the world. All of us remain focused and determined to realise the full potential of our business and the important opportunity we have to bring hope and improved quality of life to thousands of liver cancer patients and their families. Richard Hill Chairman Sirtex 2011 Annual Report 7 93.900002 83.466668 73.033335 62.600001 52.166668 41.733334 31.300001 20.866667 10.433334 0.000000 53.457800 46.775575 40.093350 33.411125 26.728900 20.046675 13.364450 6.682225 0.000000 4.4 3.8 3.2 2.6 2.0 Chief Executive Officer’s Report Record revenue and earnings Clinical studies provide the evidence for expanded use This year, dose sales were up 19 per cent to 4,977 doses. Dose sales have grown at an average of 18.7 per cent over the past five years and delivered 28 consecutive quarters of positive sales growth over the past seven years. The total sales revenue for the year was $70.3 million, up 16 per cent over the previous year. Foreign exchange was again a key aspect of the result with over 95 per cent of our sales made in Europe and the US. Net Profit after tax (NPAT) of $11.5 million was down 29 per cent and earnings per share (EPS) of 20.6 cents were down 29 per cent. Performance and capital management Sirtex remains debt free and our cash reserves at the end of the year were $42.8 million. Our confidence in future growth saw the Board agree to return $3.9 million to investors with a fully franked dividend of 7 cents per share on 21 October 2011 to all shareholders registered at 5:00pm on 30 September 2011. This is the third consecutive year of dividend payments. As stated here and in many of our announcements, the creation of long- term value drives our day to day decision making across the business. Since we listed the business on the Australian Securities Exchange in 2000, our share price has appreciated steadily. While there are many short-term variables outside our control that impact share price, we believe we are still very much a start-up business at the early stages of our global expansion with just under one per cent of the current addressable global market. To support our long-term growth we continue to invest in clinical studies, sales and marketing, manufacturing, and research and development to ensure the business is in a sound position to be able to take advantage of significant longer term growth and expansion. Few investments demonstrate our long- term focus more than the $60 million dollars we have committed to supporting a range of major clinical studies around the world. We currently have 13 studies underway. Four of these are major international efforts that will involve the recruitment of nearly 2,000 patients and the support of thousands of dedicated medical professionals. An increase in clinical support staff numbers led to a rise of 142 per cent in recruitment rates across all our studies. All of our clinical programs are meeting their recruitment milestones and our clinical team believes SIRFLOX and SIRveNIB will complete recruitment within 15 and 20 months respectively. Together with the international medical community we are excitedly looking forward to the release of the formal results. Based on the data from several smaller studies, we believe SIR-Spheres microspheres will become a game changer in the way liver cancer is treated worldwide. We are focused on preparing for this change to take full advantage of the opportunity. Our clinical program is focused on gathering the data to show clinicians that SIR-Spheres microspheres can be used effectively to treat patients at an earlier stage of ther disease to achieve better results. During the reporting period we significantly increased investment in the four large international randomised controlled studies of SIR-Spheres microspheres in the therapy’s two main indications; metastatic colorectal cancer (mCRC) and primary hepatocellular carcinoma (HCC). The most advanced of these studies are the global SIRFLOX study in mCRC and the Asia Pacific SIRveNIB study in HCC. Our other major studies, SORAMIC in Europe and FOXFIRE in the UK are both recruiting well. Transforming thousands of lives worldwide Every week, around 100 people with liver cancer are treated by skilled medical professionals using our SIR-Spheres microspheres. They act in the knowledge that there is a growing body of independent clinical evidence that proves SIR-Spheres microspheres will help extend and improve the quality of life for their patients where other treatments like chemotherapy have proved ineffective. Dozens more people every week will also be treated as part of our large clinical studies program that is building the evidence to expand the use of our product and treat patients at an earlier stage of their disease. These numbers are less than one per cent of the addressable global market. The focus of all Sirtex employees is to prepare our business for the expected substantial increase in the numbers of people treated as the clinical evidence emerging from our global clinical program to support the use of SIR-Spheres microspheres in patients at an early stage of their disease becomes overwhelming and impossible to ignore. We believe the data from our studies should transform the way liver cancer is treated. Because we are still at an early stage of our business growth and continue to reinvest heavily in developing our infrastructure and capabilities, dose sales are the best key measure to track our business expansion and overall performance. 8 Sirtex 2011 Annual Report 4977 4424 3871 3318 2765 2212 1659 1106 553 0 70.290001 63.261001 56.232001 49.203001 42.174001 35.145000 28.116000 21.087000 14.058000 7.029000 0.000000 18229.0 16406.1 14583.2 12760.3 10937.4 9114.5 7291.6 5468.7 3645.8 1822.9 0.0 5 Year Dose Sales Growth Study Total patients % recruited at 30 June 2011 7 7 9 4 , 1 7 1 4 , 8 5 6 3 , SIRFLOX FOXFIRE SORAMIC SIRveNIB 450 490 360 360 56% 9% 3% 15% Europe US Asia Pacific 8 5 6 3 , Asia Pacific Europe US 1 8 5 2 , 8 0 1 2 , areas; Radioprotector, Nanoparticle Developments and Microsphere Technologies. The business extracts maximum leverage from its investment in these programs via extremely beneficial collaborations with high profile research institutions throughout the world. In each case we have increased the level of support as we get closer to first clinical testing of some of the developments. 1 7 1 4 , Manufacturing and quality control 2010 Sirtex now has manufacturing operations in Australia, Singapore and the United States. Construction of our new global manufacturing and distribution hub in Singapore has gone to plan and is now fully operational. These facilities give us a significant advantage and will allow us to meet the growing demand for our product. The new facility is an important part of our long-term strategy to grow our business globally. It is a global distribution base for our clinical and marketing teams embarking on closer engagement with our growing customer base in Asia. 9 5 5 , 5 6 3 3 3 , 4 6 5 2 1 , 8 3 During the reporting period we also reached agreement with Australian Radiopharmaceuticals and Industrials (ARI) based at the Australian Nuclear Science and Technology Organisation (ANSTO) in Sydney to continue contract manufacture of our product. These three plants provide adequate capacity to meet the growth in demand from our customer base. 2009 2010 2008 Our manufacturing processes are world class. We are committed to the very highest levels of quality control with a robust integrated global quality management system in place. We operate within a highly regulated industry and our quality assurance system complies with all the applicable regulatory requirements globally. Sirtex also holds all the necessary licences and approvals to enable us to market our current product in all of the geographic jurisdictions in which we operate. Sirtex 2011 Annual Report 9 Innovation powers growth 1 8 5 2 , , 8 0 1 2 We know growth is driven by innovation and in 2011 we invested over $5 million in research and development which is about seven per cent of total revenues for the year. 9 2 3 1 , 2007 The pipeline of products behind our core SIR-Spheres microspheres is significant and, while we can’t go into much detail 2006 2008 for various competitive reasons, we all are excited about the opportunities that will provide a range of solutions for clinicians seeking to improve the quality of life for their cancer patients. 2009 Based on the good results to date, we have accelerated our programs aimed at improving aspects of our core product. Asia Pacific The SIR-Spheres Evolution Program is US Europe focused on two areas to develop solutions that will help enable further market scalability and rapid growth. Our aim is to make our product more clinically effective and easier to use by a wider number of clinical specialists. 4 3 3 , 3 3 9 5 5 , 2 2 As more medical professionals worldwide begin to use our product, the simplification and reliability of our basic delivery system used to administer SIR- Spheres microspheres is a priority. 2006 2007 The second major focus of our investment is a new patient treatment planning system to enable a highly tailored, patient-specific therapy planning prior to the administration of SIR-Spheres microspheres. This new system combines several technologies developed with leading research universities in Australia and overseas. Clinical testing to validate this exciting new product begins this year. In addition to the SIR-Spheres Evolution Program, we continued to invest in the development of new technologies. The programs can be broadly categorised into the following three technology 2007 2008 2009 2010 2011 5 Year Sales Revenue $’000 Asia Pacific Europe US 0 9 2 , 0 7 9 5 5 , 5 6 3 3 3 , 4 6 5 2 1 , 8 3 4 3 3 , 3 3 2007 2008 2009 2010 2011 Profit after Tax $’000 9 2 2 , 8 1 0 8 0 , 6 1 3 8 4 , 1 1 6 6 5 1 , 9 0 2 1 , 2007 2008 2009 2010 2011 Despite the challenging market conditions across the European region, we are very confident growth will continue at current levels on the back of more good clinical data and our continued program of engagement with the thought leaders in the medical community. Their commitment is equalled by the passion and commitment of the many thousands of clinicians and medical professionals around the world working to improve the quality of life and medical outcomes of the growing number of people afflicted with liver cancer. Together we are making a positive impact and real difference to thousands of lives. 2012 outlook All of us at Sirtex are inspired by the possibilities our technology holds to potentially improve the quality of life for thousands of people with liver cancer. We feel a strong sense of commitment to them, together with our partners in the medical community. We know that by improving the way liver cancer is treated, we are also creating significant long-term value for all of our shareholders for many years to come. We have had the opportunity over the past few years to invest in developing our internal capabilities across all functions and regions. I am confident the plans we have developed will begin to reap significant returns for shareholders as we continue to improve the lives of many people around the world daily. Gilman Wong Chief Executive Officer Asia Pacific The Asia Pacific’s complex regulatory and cultural environment continues to provide a number of challenges to achieving the same type of growth that we have seen in other geographic markets. Dose sales in the Asia Pacific region, which includes Australia and New Zealand, were up four per cent to $3 million with 405 doses sold. Our new head of Asia Pacific operations, Dr Burwood Chew, is working with his team to leverage our progress to date, re-focusing our approach, and expanding sales, marketing and clinical support teams. We believe it will take another two years before growth in this region begins to equal the rates we enjoy in other geographic markets. Attracting and keeping the very best people Our priority is to attract and retain the best people and over the past year our staff numbers have grown 29 per cent to 106 full-time employees worldwide. It is very encouraging to see the high calibre of the people we have attracted. We have invested in a number of programs to ensure we maintain high standards of professional knowledge among all our employees and that we have robust process management systems in place and the capacity and capability to support the significant global growth ahead. The passion and commitment of our employees is the key to our long-term success. Growing global awareness and results United States US dose sales for the year increased by 19 per cent to 2,969 and $45.1 million in revenue. An additional 43 new US hospitals began using SIR- Spheres microspheres to treat liver cancer patients. This is largely due to our investment in more sales and marketing support staff. We launched new initiatives to drive market growth, we continue to focus on the referral community and the business has embarked on several new initiatives to ensure the potential benefits of our product are widely understood and known. Our new larger sales and marketing teams are actively working with referring oncologists and physicians to build awareness. A key focus of our new staff in the US is to grow the market further with continued outreach to the oncology community, campaigns to develop awareness about the benefits of our technology among medical professionals and consumers backed up by great service and assistance to patients and their families to navigate the US insurance system. Europe Dose sales across the European region grew 25 per cent to 1,603 and $22 million in revenue. Our efforts to improve customer service, referrals and the promotion of highly positive clinical data from several small European studies helped drive increased awareness and sales. Importantly, the UK’s National Institute for Health and Clinical Excellence (NICE) issued guidance that recommended the wider use of targeted radioactive treatments like SIR-Spheres microspheres for patients with liver cancer tumours resulting from colorectal cancer. More liver cancer patients across the UK will now benefit and Sirtex expects sales in the UK to grow following the decision. 10 Sirtex 2011 Annual Report Corporate Governance Statement The Board of Directors of Sirtex Medical Limited is responsible for the corporate governance of the Group and guides and monitors the business and affairs of Sirtex Medical Limited on behalf of its shareholders. Sirtex Medical Limited is committed to ensuring that its policies and practices reflect good corporate governance. In developing these policies and practices, the Board has taken into account the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations’. The Council, however, states that these recommendations are not prescriptive; they are guidelines. If a company decides not to adopt a specific recommendation it has the flexibility not to do so providing it explains the reason for not adopting the recommendation. The Company has structured its Corporate Governance Statement with reference to the Corporate Governance Council’s principles and recommendations, which are as follows: Principle 1 Lay solid foundation for management and oversight Principle 2 Structure the Board to add value Principle 3 Promote ethical and responsible decision making Principle 4 Safeguard integrity in financial reporting Principle 5 Make timely and balanced disclosure Principle 6 Respect the rights of shareholders Principle 7 Recognise and manage risk Principle 8 Remunerate fairly and responsibly Sirtex Medical Limited corporate governance practices were in place throughout the year ended 30 June 2010 and, with the exception of the recommendation regarding the establishment of a Nomination Committee, were compliant in all material respects with the Council’s recommendations. The reason for not establishing this committee is explained below at the end of the section headed Board functions. For further information on corporate governance policies adopted by Sirtex Medical Limited, refer to the company website: www.sirtex.com Board functions The Board’s prime responsibility is to oversee Sirtex’s business activities for the benefit of all of its shareholders. The Board’s responsibilities are detailed on the Company’s website in the ‘Corporate Governance’ web pages. The Board also recognises that the Company has other corporate and community responsibilities. The Board has delegated certain responsibilities for the management of operations and administration of the Company to the CEO and the executive management. The Chief Executive Officer is accountable to the Board for all delegated authority to executive management. The responsibilities of management are detailed on the Company’s website in the ‘Corporate Governance’ web pages. The Board recognises that at all times it retains full responsibility for guiding and monitoring the Company. In discharging this stewardship the Board makes use of sub-committees. Specialist committees are able to focus on a particular responsibility and provide informed feedback to the Board. To this end the board has established the following committees: > Remuneration > Audit The roles and responsibilities of these committees are discussed later in this statement. Further detail can be found on the Company’s website in the ‘Corporate Governance’ web pages. As previously mentioned, the Board does not have a Nomination Committee (recommendation 2.4). The charter of the Nomination Committee has been incorporated into the Board Charter. The Sirtex Board believes that as it is not large (four directors), a formal Nomination Committee would not provide any marked efficiencies or enhancements. The charter of the Nomination Committee has been included in the board charter and as such the Board considers all matters that would be relevant regarding Board appointments. For further information refer to the Company’s website in the ‘Corporate Governance’ web pages. Structure of the Board The skill, experience and expertise relevant to the position of Director, held by each Director in office at the date of this report, are included in the Directors’ Report under the section headed Directors. All three Non-Executive Directors of Sirtex Medical Ltd are considered to be independent with reference to the Company’s independence criteria as contained on the Company’s website in the ‘Corporate Governance’ web pages. These independent Directors are: Name Richard Hill John Eady Grant Boyce Position Non-Executive Chairman Non-Executive Deputy Chairman Non-Executive Director The Board has procedures to permit Directors, in the execution of their duties, to seek independent professional advice at the Company’s expense. For further information refer to the Company’s website in the ‘Corporate Governance’ web pages. The term in office of each Director at the date of this report is as follows: Name Richard Hill John Eady Grant Boyce Gilman Wong Term 7 years 6 years 9 years 6 years Sirtex 2011 Annual Report 11 CEO and CFO Certification The Chief Executive Officer and Chief Financial Officer have provided a written certification to the Board 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 the relevant accounting standards and; > The above statement is founded on a sound system of risk management and internal controls are operating efficiently and effectively in all material respects Performance Policies and procedures in place with respect to monitoring the performance of the Directors and Senior Executives are set out in the Directors’ Report under the section headed ‘Remuneration Report’. The performance evaluation process has been completed for all Directors and Senior Executives within the last twelve months, in line with Company policy. Remuneration Committee The Remuneration Committee operates under a charter approved by the Board. The charter can be viewed on the company website. It augments the work of the Board through the development and monitoring of the Company’s remuneration policies and processes and through the provision of feedback to the Board and recommendations for action. The Committee reviews the remuneration of the Non-Executive Directors, Executive Directors and key Executives by reference to independent data, external professional advice and the requirements to retain high-quality management. Refer to the Directors’ Report for details of performance evaluation, remuneration policy and the value of remuneration (both monetary and non-monetary) paid to each Director and Key Executive during the year. There is no scheme to provide retirement benefits, other than superannuation, for Non-Executive Directors. The members of the Remuneration Committee are all independent Non-Executive Directors. During the year the members were John Eady (Chairman), Richard Hill and Grant Boyce. Details of the number of meetings held during the year and the number of meetings attended by each member during the year are contained in the Directors’ Report. Audit Committee The Audit committee operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Group. This includes ensuring that there are internal controls to deal with both effectiveness and efficiency of significant business processes, safeguarding of assets, the maintenance of proper accounting records and the reliability of the financial information as well as non-financial considerations. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and the ethical standards for the management of the consolidated entity to the Audit Committee. The Audit Committee also provides the Board with additional assurances regarding the reliability of the financial information for inclusion in the financial report. All members of the Audit Committee are independent Non-Executive Directors. The members of the audit committee during the year were Grant Boyce (Chairman), Richard Hill and John Eady. The qualifications of the members of the Audit Committee are contained in the Directors’ Report. In addition the Directors’ Report sets out the number of meetings attended by each member. The Audit Committee is also responsible for nomination of the external auditors and for reviewing the adequacy of the scope and quality of the annual statutory audit and half-year statutory review. The Audit Committees charter can be found on the Company’s website in the ‘Corporate Governance’ web pages. Risk Management The Board determines the Company’s risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. The Board has delegated monitoring risk management performance to the Audit Committee and its operation has been delegated to Sirtex’s Executive Management. Employees are required to be conversant with the Company’s risk management policies, standard operational procedures associated with risk management and their employment, and to actively participate in risk management matters. The Board and Executive Management continue to identify and monitor the general areas of risk including: > Economic outlook > Political policy regarding healthcare and reimbursement > Competitor products / research and development programs > Market demand and prices, including supplies > Legal proceedings commenced against the company (if any) > Environmental regulations > Ethical issues including those relating to pharmaceutical research and development > Other government regulation including those specifically relating to the biotechnology and heath industries > Occupational health and safety and equal opportunity laws > Information technology To this end, comprehensive practices are in place that are directed towards achieving the following objectives: > Effective and efficient use of the Company’s resources > Compliance with applicable laws and regulations > Preparation of reliable published financial information The Board oversees an annual assessment of the effectiveness of risk management and internal compliance and control. The responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management. Annually, management is required and has provided to the Board a report assessing the efficiency and effectiveness of risk management and associated internal compliance and control procedures. 12 Sirtex 2011 Annual Report Financial Report For The Year Ended 30 June 2011 Sirtex Medical Ltd Consolidated Entity ABN 35 078 166 122 Directors’ Report Auditor’s Independence Declaration Directors’ Declaration Independent Auditor’s Report Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Additional Stock Exchange Information Company Information 14 22 23 24 27 28 29 30 31 59 60 13 2011Directors’ Report Directors’ Report The Directors of Sirtex Medical Ltd present their report, together with the financial statements of the Group for the year ended 30 June 2011. Directors The Directors of Sirtex Medical Ltd during the financial year and until the date of this report are Mr R Hill, Dr J Eady, Mr G Boyce, and Mr G Wong. Details of the Directors, including their skills, experience, and expertise, are set out below. Richard Hill – Non-executive Director, Chairman BA, LLB (Sydney), LLM (London) Experience and Expertise Mr Hill was appointed a director in September 2004 and Chairman in August 2006. He previously held senior executive positions with HSBC Investment Bank in Hong Kong and New York and has extensive experience in international M&A and capital raising. He was a founding partner of Hill Young & Associates, a corporate advisory firm. He is also an attorney of the New York State Bar. Directorships held in other listed entities during the past three years Calliden Group Limited – Chairman Biota Holdings Limited BlackWall Property Funds – Chairman Special Responsibilities Member of the Audit Committee and the Remuneration Committee Interest in Shares and Options Nil Dr John Eady – Non-executive Director, Deputy Chairman BSc (Hons), PhD, FTSE Experience and Expertise Dr Eady was appointed director in March 2005. He spent most of his career with CRA Limited in a range of senior executive positions. He has broad Board experience including that with the Australian Federal Government’s Industry, Research and Development Board. Dr Eady is a Fellow of the Academy of Technological Sciences and Engineering, and consults extensively on business improvement in Asia & North America. Directorships held in other listed entities during the past three years Nil Special Responsibilities Chairman of the Remuneration Committee and Member of the Audit Committee Interest in Shares and Options Nil Grant Boyce – Non-executive Director CA, BCom Experience and Expertise Mr Boyce was appointed director in December 2002. He is a Chartered Accountant and the founder of Montrose Partners, a West Australian firm of chartered accountants. He was a partner with Ernst & Young and worked in their Perth and New York offices. He has also served previously as Company Secretary for Sirtex. Directorships held in other listed entities during the past three years Nil Special Responsibilities Chairman of the Audit Committee and Member of the Remuneration Committee Interest in Shares and Options 5,000 ordinary shares in Sirtex Medical Limited Gilman Wong – Executive Director and Chief Executive Officer Experience and Expertise Mr Wong was appointed Chief Executive Officer in May 2005 and director in June 2005. Mr Wong previously held CEO and senior executive positions in the commercial and industry sector including 10 years with Email Limited. He has a strong planning and sales and marketing background. Directorships held in other listed entities during the past three years Nil Interest in Shares and Options 90,188 Executive Performance Rights, nil interest in shares 14 Sirtex 2011 Annual Report Company Secretary Darren Smith – Company Secretary and Chief Financial Officer MBA, BBus, CPA Experience and Expertise Mr Smith was appointed Company Secretary in July 2008 and Chief Financial Officer in February 2009 (previously interim CFO). Mr Smith previously held CFO and senior executive finance and general management positions in a number of international, Australian listed and private companies. He has significant experience in a range of commercial environments including FMCG, services and manufacturing industries. Interest in Shares and Options 31,000 Executive Performance Rights, nil interest in shares Directors’ meetings The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are: Directors R Hill (Chairman) Dr J Eady G Boyce G Wong Held 11 11 11 11 Board of Directors Remuneration Committee Audit Committee Attended Held Attended Held Attended 10 11 11 11 5 5 5 – 5 5 5 – 5 5 5 – 5 5 5 – Principal activities Sirtex Medical Ltd and its controlled entities (‘Group’) form a biotechnology and medical device group whose primary objective is to manufacture and to distribute effective liver cancer treatments utilising small particle technology to approved markets in Asia-Pacific, Europe and the United States of America. Review of operations and financial results Revenue from the sale of goods for the year ended 30 June 2011 was $70,286,000, representing an increase of 9% from the previous year’s $64,333,000. The increase was negatively impacted by the strengthening of the Australian dollar against the US dollar and the Euro during the financial year. From 30 June 2010 to 30 June 2011, the Australian dollar appreciated by 26% against the US dollar and by 6% against the Euro, resulting in revenue growth in the US and in Europe remaining behind volume growth, when converted into Australian dollars. Sales volumes, measured in dose sales, grew by 19% over last year, with all regional markets contributing to the growth. The key market, the US, representing approximately 60% of total dose sales, achieved growth of 19.2%, selling 2,969 doses. Europe had another outstanding year with 24.5% growth selling 1,603 doses. Asia Pacific achieved 3.1% growth with promising opportunities as the business continues to develop new markets within Asia Pacific. Gross margin declined to 80.8% for the year ended 30 June 2011 compared to 83.2% for last financial year. This is mostly due to a significant price increase for the manufacturing of doses from our external contract manufacturer. Profit after tax for the year ended 30 June 2011 was $11,479,332 compared to last year’s $16,079,891. Two factors contributed to the decline in profit after tax, the negative impact from a stronger AUD against USD and EUR, and the receipt of $5.6m from the settlement of the UWA / Dr Gray case during the financial year ended 30 June 2010. During the year ended 30 June 2011, the set up of the new manufacturing site in Singapore was completed, and the first commercial doses at the new site were manufactured in July 2011. A significant part of the Group’s clinical activities is focused on four major post-marketing clinical trials. In prior years, expenses for these trials have been expensed to profit and loss. As these trials now satisfy the recognition criteria for internally generated intangible assets, costs incurred for these trials as well as for two smaller development projects have been capitalised during the financial year ended 30 June 2011, for a total amount of $6,631,261. Dividends An ordinary dividend of 7 cents per share was declared for the financial year ended 30 June 2010 and paid during the financial year ended 30 June 2011. An ordinary dividend of 7 cents per share has been declared for the financial year ended 30 June 2011, with record date 30 September 2011 and payment date 21 October 2011. Sirtex 2011 Annual Report 15 Directors’ Report Significant changes in state of affairs During the financial year there were no significant changes in the state of affairs of the Consolidated Entity other than that referred to in the financial statements or notes thereto. Future developments, prospects and business strategies Disclosure of information regarding likely developments in the operations of the Consolidated Entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Consolidated Entity. Accordingly, this information has not been disclosed in this report. Environmental regulations The operations are not subject to significant environmental regulation under the law of the Commonwealth or State. Unissued Shares Performance rights on issue at year end or exercised during the year At the date of this report, the unissued shares of Sirtex Medical Limited under Executive Performance Rights are as follows: Grant date Date of Expiry Exercise Price $ Number under Rights 22 February 2011 30 June 2013 nil 374,188 Right holders do not have any rights to participate in any issue of shares or other interests in the Company or any other entity. For further details on rights issued to Directors and Executives as remuneration, refer to the Remuneration Report. Share options on issue at year end or exercised during the year During the year ended 30 June 2011, there were no ordinary shares of Sirtex Medical Ltd issued on the exercise of options. No share options have been issued during the year, and no share options are outstanding at 30 June 2011. Directors’ interests The relevant interest of each Director in the share capital of the Company, as notified by the Directors to the ASX in accordance with Section 205G(1) of the Corporations Act 2001, at the date of this Report is as follows: R Hill Dr J Eady G Boyce G Wong 2011 2011 2010 2010 Ordinary Shares Performance Rights Ordinary Shares Performance Rights – – 5,000 – – – – 90,188 – – 5,000 – – – – – Indemnification of officers and auditors During or since the financial year, the Company has paid premiums to insure each of the Directors of the Group against liabilities incurred by them arising out of their conduct while acting in the capacity of director, subject to certain terms and conditions. The insurance policy prohibits disclosure of the value of the premium. During or since the financial year, the Company has also agreed to continue to indemnify the Directors of the Group against certain liabilities incurred by them arising out of their conduct while acting in the capacity of director, subject to certain terms and conditions, and to the applicable requirements of the Corporations Act. Events after reporting date A final fully franked dividend of 7 cents per ordinary shares has been declared for the year ended 30 June 2011. No other matter or circumstance has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 16 Sirtex 2011 Annual Report Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year except for those mentioned in Note 24. Non-audit services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that their services disclosed below did not compromise the external auditor’s independence for the following reasons: • all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and • the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of ethics for Professional Accountants set out by the Accounting Profession Ethical Standards Board. The auditors have not provided any non-audit services to Sirtex Medical Limited other than a review of the valuation of the performance rights granted as remuneration. A total of $117,000 has been paid as remuneration of the auditor of the parent entity and a total of $59,000 has been paid as remuneration of the auditors of subsidiaries for audit and review of financial reports during the year. Auditor’s independence declaration The auditor’s independence declaration for the year ended 30 June 2011 has been received and can be found on page 22 of the financial report and forms part of the Director’s Report. Rounding off of amounts The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and Directors’ report have been rounded to the nearest thousand dollars, unless otherwise indicated. Remuneration report This report details the Company’s approach to remuneration and steps that it has taken to ensure that the structure and levels of remuneration meet strict governance standards and are appropriate to facilitate its future growth. Remuneration policy The Board’s policy for determining the nature and amount of remuneration for board members and other key management staff of the Consolidated Entity is as follows: • The remuneration policy, including setting the terms and conditions for non-executive directors, the executive director, other key management and staff is developed by the Remuneration Committee after reviewing extensive market data and seeking professional advice from independent external consultants. It is approved by the Board prior to implementation. • All staff receive a base salary (where the level is based on factors such as role and experience), superannuation and are eligible for fringe benefits. Senior staff may receive performance incentives. The Remuneration Committee comprises the three non-executive directors but invites executives and remuneration and industry experts to provide input or attend meetings as necessary. The Committee recommends payments to the non-executive directors, CEO and other key management staff and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought. Board policy is to remunerate all staff at market rates for comparable companies for time, commitment and responsibilities. The objective is to attract the highest calibre of key management executives and reward them for performance that results in long-term growth in stakeholder value. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. The performance of the CEO and non-executive directors is measured at least annually against criteria that are determined by the Board. These criteria detail expectations and reflect short and long-term goals and shareholder and other stakeholder interests. The performance of other key management staff is measured against criteria agreed at least annually, directly with the CEO or through him for his direct reports. These criteria reflect current strategic initiatives and goals. The Board strives to recruit the most appropriately qualified staff for all positions within the Company, including directors. Accordingly, the Company employs a diverse mix of staff, both in terms of gender and background. Sirtex 2011 Annual Report 17 Directors’ Report Performance based remuneration During the year the Remuneration Committee and the Board have worked to implement the recommendations arising from the audit conducted by the independent remuneration consultant (Godfrey Remuneration Group Pty Ltd). In addition to a market-based pay, the remuneration packages for the CEO and other key staff include two important performance based components, one focussing on short-term incentives (STIs) and the other on long-term incentives (LTIs). The STIs are designed to support annual business plans and targets and reflect agreed key performance indicators (KPIs), with the intention to reward these executives for excellent performance and facilitate goal congruence with that of the business. The KPIs are specifically tailored to the accountabilities of each key executive. They cover areas the Board believes hold greater potential for group expansion and profit. The target set for each KPI is based on budgeted figures for the group and respective industry standards. Performance in relation to the KPIs is monitored monthly by the Board and assessed in the context of external environment and other factors, with bonuses being awarded depending on how well targets have been achieved in the particular situation. The LTIs aim to align the interest of the employees more closely with those of the shareholders. They consist of Executive Performance Rights which convert into ordinary shares if certain vesting criteria are met. The number granted reflects salary and seniority within the group. Vesting conditions are based on absolute total shareholder return so that staff will benefit in line with returns to shareholders from long-term capital growth in the price of the Company’s shares and annual dividends. The number of rights vested and converted into ordinary shares depends on how well target annual compound total shareholder return growth rates are met. These targets are set by the board to reflect shareholder expectations and include threshold growth rates below which no rights vest. The Board may, however, exercise its discretion in relation to approving incentives and can modify the committee’s recommendation within the terms of the plans. Relationship between Remuneration Policy and Company Performance The remuneration policy is designed to align director and other staff objectives with those of shareholders and other stakeholders. The following table shows the gross revenue, profits and dividends for the past five years for the listed entity, as well as the share price at the end of the respective financial years. Analysis of the actual figures shows a significant increase in revenue over the five- year period. The Board is of the opinion that these results can be attributed, in part, to the Company’s remuneration policy and is pleased to see the overall upwards trend in shareholder wealth over the past five years. Revenue Profit after tax Share price at year end Dividends paid 2007 $ 33.3m (1.6m) 3.44 – 2008 $ 38.1m (1.2m) 3.00 – 2009 $ 65.6m 18.2m 3.35 – 2010 $ 64.3m 16.1m 4.90 0.07 2011 $ 70.3m 11.5m 4.90 0.07 Employment details of Members of Key Management Personnel The following table provides employment details of persons who were, during the financial year, members of key management personnel of the Group. Name of Key Management Personnel Position held at 30 June 2011 Contract duration Contract termination by Company Participation in Performance Rights Plan G Wong D Smith R Hardie Dr D Cade D Turner M Mangano N Lange Dr B Chew* Chief Executive Officer Chief Financial Officer Head of Operations Chief Medical Officer No fixed term No fixed term No fixed term No fixed term Head of Global Marketing No fixed term Head of US Region Head of Europe Region No fixed term No fixed term Head of Asia Pacific Region No fixed term 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months Yes Yes Yes Yes Yes Yes Yes Yes * Dr M van den Berg, Head of Asia Pacific Region, left the Company on 8 November 2011. Dr B Chew was appointed new Head of Asia Pacific Region on 1 January 2011. 18 Sirtex 2011 Annual Report Key management personnel remuneration details The following table provides the remuneration details of key management personnel of the Group: Short-term Post-employment Equity based payments Salary & fees $ Non- monetary $ Super- annuation $ Other Benefits $ Bonus $ Other Long Term $ Rights $ Total $ Performance related % Non-executive directors R Hill Dr J Eady G Boyce Subtotal 2011 2010 2011 2010 2011 2010 2011 2010 140,000 119,600 44,398 62,495 80,000 62,400 264,398 244,495 – – – – – – – – Other key management personnel G Wong D Smith R Hardie Dr D Cade D Turner M Mangano(1) N Lange 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 464,801 401,539 284,801 245,539 249,801 184,269 241,201 213,393 371,287 367,755 55,000 93,600 48,000 33,800 25,000 25,835 25,000 11,397 33,748 18,388 319,680 44,697 173,287 143,729 32,758 16,069 314,150 302,704 20,627 130,391 24,069 134,944 – – – – – – – – – – – – – – – – – – – – 48,102 5,625 – – 48,102 5,625 15,199 14,461 15,199 14,461 15,199 14,461 15,199 14,461 – – – – – – M van den Berg(2) 2011 2010 375,129 212,349 – 5,670 – – 6,430 14,461 Dr B Chew(3) 2011 2010 152,870 – 76,150 – 19,262 – – – Subtotal Total 2011 2,773,720 328,222 182,411 2010 2,100,835 356,488 151,013 67,226 72,305 2011 3,038,118 328,222 182,411 115,328 77,930 2010 2,345,330 356,488 151,013 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 27,946 – 9,606 – 8,428 – 8,149 – 8,614 – 10,226 – 10,226 – – – 10,226 – 93,421 – 93,421 – – – – – – – – – – – – – – – – – – – – – – – – – – – 140,000 119,600 92,500 68,120 80,000 62,400 312,500 250,120 562,946 509,600 357,606 293,800 298,428 224,565 289,549 239,251 413,649 386,143 407,361 333,085 475,394 461,717 381,559 232,480 258,508 – – 3,445,000 – 2,680,641 – 3,757,500 – 2,930,761 – – – – – – – – 15 18 16 12 11 12 11 5 10 5 13 43 6 5 – 2 33 – 12 13 11 12 (1) M Mangano became an employee of the Group on 1 January 2010. (2) M van den Berg ceased to be an employee of the Group on 11 November 2010. The salary paid to him during the year ended 30 June 2011 included a termination payment of $200,350 and long-service leave of $18,368. (3) Dr B Chew became an employee of the Group on 1 January 2011. Sirtex 2011 Annual Report 19 Directors’ Report Performance rights granted as remuneration Performance rights that were granted over issued shares during or since the end of the financial year by the Company to directors and other key management personnel as part of their remuneration are as follows: Grant Details Exercised Vested Forfeited KMP G Wong D Smith R Hardie Date No. Value No. 22 February 2011 90,188 187,546 22 February 2011 31,000 64,465 22 February 2011 27,200 56,562 Dr D Cade 22 February 2011 26,300 54,691 D Turner 22 February 2011 27,800 57,810 M Mangano 22 February 2011 33,000 68,624 N Lange 22 February 2011 33,000 68,624 Dr B Chew 22 February 2011 33,000 68,624 Total 301,488 626,946 – – – – – – – – – $ – – – – – – – – – No. – – – – – – – – – $ – – – – – – – – – No. – – – – – – – – – $ – – – – – – – – – The value of the performance rights has been determined using a Monte Carlo simulation model, using the following input parameter: Exercise price Duration of performance rights Underlying share price Expected share price volatility Expected dividend Risk-free interest rate $nil 3 years $4.90 50% $0.07 per share 4.25% The performance condition for vesting is Total Shareholder Return (TSR), measured over a period of three years from 1 July 2010 to 30 June 2013. The number of rights vested is determined as follows: TSR (% per annum compound) Vesting (%) Less than 15% 15% – 20% 20% – 30% More than 30% 0% 25% 50% 100% 20 Sirtex 2011 Annual Report Description of performance rights granted as remuneration Details of the performance rights granted as remuneration to Directors and other key management personnel are as follows: Grant Date Issuer Entitlement on exercise Dates exercisable 22 February 2011 Sirtex Medical Limited 1:1 Ordinary shares in From vesting date Sirtex Medical Limited to 30 June 2017 Exercise price Value per right at grant date Amount paid/ payable by recipient $ nil $ 2.08 $ nil The Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors Gilman Wong Director 25 August 2011 Sirtex 2011 Annual Report 21 Auditors’ Independence Declaration 22 Sirtex 2011 Annual Report Directors’ Declaration The Directors of the Company declare that: 1. the financial statements and notes, as set out on pages 27 to 58, are in accordance with the Corporations Act 2001 and a. comply with Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS), and b. give a true and fair view of the financial position as at 30 June 2011 and of the performance for the year ended on that date of the Company and consolidated group 2. the Chief Executive Officer and Chief Financial Officer have each declared, as required by section 295A of the Corporations Act 2001, that: a. the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001 b. the financial statements and notes for the financial year comply with Accounting Standards, and c. the financial statements and notes for the financial year give a true and fair view 3. in the Directors’ opinion, there are reasonable grounds to believe that the companies will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Gilman Wong Director Sydney, 25 August 2011 Sirtex 2011 Annual Report 23 Independent Auditor’s Report 24 Sirtex 2011 Annual Report Independent Auditor’s Report Sirtex 2011 Annual Report 25 Independent Auditor’s Report 26 Sirtex 2011 Annual Report Statement of Comprehensive Income Directors’ Report for the year ended 30 June 2011 Revenue from the sales of goods Cost of sales Gross profit Other revenue Marketing expenses Research expenses Regulatory expenses Quality assurance expenses Clinical trial expenses Administration expenses Other expenses Profit before income tax Income tax expense Profit for the year Other comprehensive income Foreign currency translation (net of tax) of foreign operations Total comprehensive income for the year attributable to members of the parent entity Earnings Per Share – Basic (earnings per share) – Diluted (earnings per share) Dividends per share Consolidated 2011 $’000 70,286 (13,543) 56,743 2,668 (22,338) (6,101) (446) (616) (4,421) (7,389) (3,750) 14,350 (2,871) 11,479 2010 $’000 64,333 (10,826) 53,507 7,756 (21,770) (3,062) (244) (384) (8,867) (6,330) (1,503) 19,103 (3,023) 16,080 908 162 12,387 Cents 20.6 20.4 7.0 16,242 Cents 28.8 28.8 7.0 Note 2(a) 2(b) 4 18 18 19 The financial statements should be read in conjunction with the accompanying notes. Sirtex 2011 Annual Report 27 Statement of Financial Position Directors’ Report as at 30 June 2011 Consolidated Current Assets Cash and cash equivalents Trade and other receivables Inventories Financial assets Other current assets Current tax assets Total – Current Assets Non-current Assets Property, plant and equipment Intangible assets Deferred tax assets Total – Non-current Assets Total Assets Liabilities Current Liabilities Trade and other payables Current tax liabilities Short-term provisions Total – Current Liabilities Non-current Liabilities Long-term provisions Deferred tax liabilities Total – Non-current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings Total – Equity Note 5(a) 6 7 8 9 10(a) 11 12 10(b) 13 14(a) 15(a) 15(b) 14(b) 16 17 2011 $’000 42,915 14,149 1,025 430 741 312 59,572 6,808 7,785 2,476 17,069 76,641 8,583 – 5,084 13,667 360 2,472 2,832 16,499 60,142 23,521 81 36,540 60,142 2010 $’000 41,421 15,209 957 379 470 172 58,608 4,331 1,388 2,333 8,052 66,660 8,869 3,517 2,268 14,654 255 208 463 15,117 51,543 23,521 (943) 28,965 51,543 The financial statements should be read in conjunction with the accompanying notes. 28 Sirtex 2011 Annual Report Statement of Changes in Equity Directors’ Report for the year ended 30 June 2011 Ordinary Shares $’000 Option Reserve $’000 FC Translation Reserve $’000 Retained Profits $’000 Consolidated Entity Balance at 1 July 2009 Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of parent entity Dividends paid or provided for 23,521 – – – – Balance at 30 June 2010 23,521 Share rights reserve Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of parent entity Dividends paid or provided for – – – – – Balance at 30 June 2011 23,521 – – – – – – 115 – – 115 – 115 (1,105) 162 – 162 – (943) – 909 – 909 – (34) 16,789 – 16,080 16,080 (3,904) 28,965 – – 11,479 11,479 (3,904) 36,540 The financial statements should be read in conjunction with the accompanying notes. Total $’000 39,205 162 16,080 16,242 (3,904) 51,543 115 909 11,479 12,503 (3,904) 60,142 Sirtex 2011 Annual Report 29 Statement of Cash Flows Directors’ Report for the year ended 30 June 2011 Note Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Receipts from government grants Receipts from license fees Recovery of legal fees Interest received Interest paid Net income tax paid Net cash provided by operating activities 5(b) Cash Flows From Investing Activities Purchase of plant and equipment Internally generated intangible assets Net cash used in investing activities Cash Flows From Financing Activities Repayment of short-term borrowings Payment of dividends Net cash (used in) / provided by financing activities Net increase in cash held Cash and cash equivalents at the beginning of financial year Cash and cash equivalents at the end of financial year 5(a) Consolidated 2011 $’000 69,043 (52,191) 56 178 2,575 1,981 – (6,356) 15,286 (3,377) (6,631) (10,008) – (3,784) (3,784) 1,494 41,421 42,915 2010 $’000 64,064 (47,714) 171 183 3,000 1,468 (1) (940) 20,231 (1,384) – (1,384) (65) (3,882) (3,947) 14,900 26,521 41,421 The financial statements should be read in conjunction with the accompanying notes. 30 Sirtex 2011 Annual Report Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 Note 1: Statement of Significant Accounting Policies (c) Goods and services tax (GST) The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Report includes the consolidated financial statements and notes of Sirtex Medical Ltd and controlled entities. Compliance with Australian Accounting Standards ensures that the financial report of Sirtex Medical Ltd complies with International Financial Reporting Standards (IFRS) in their entirety. Material accounting policies adopted in the preparation of this financial report are presented below and have been consistently applied unless otherwise stated. The financial statements were authorised for issue by the Directors on 25 August 2011. This financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (a) Principles of consolidation A controlled entity is any entity Sirtex Medical Ltd has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 26 to the financial statements. All controlled entities have a June financial year-end. As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. Where controlled entities have entered or left the consolidated group during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased. All inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report. (b) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. All revenue is stated net of the amount of GST. Revenue from the sale of goods is recognised upon the delivery of goods to customers, since this is the date of significant transfers of risks and reward of ownership of goods and cessation of an involvement in those goods. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (d) Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at amortised fair value and are credited to income over the expected useful life of the asset on a straight-line basis. (e) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (f) Intangibles Intellectual property The fair value of intellectual property contributed by an outside equity interest holder to Sirtex Medical Ltd, has been capitalised and recorded at fair value at the time of the contribution. The asset will be amortised on a straight-line basis over a period of 20 years. Research and development In prior years, development costs have been expensed as incurred as the Group had not been able to meet the recognition criteria outlined below. The impact of the accounting policy in the current financial year has been to capitalise development costs of $6,631,261 in the statement of financial position as an intangible asset, and accordingly the profit before tax for the year has been improved by $6,631,261. Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised if, and only if all of the following is demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or for sale • the intention to complete the intangible asset and use or sell it • the ability to use or sell the intangible asset • the intangible asset will generate future economic benefits Sirtex 2011 Annual Report 31 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 Note 1: Statement Of Significant Accounting Policies (continued) The depreciation and amortisation rates used for each class of asset are: (f) Intangibles (continued) • adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset are available • the expenditure attributable to the intangible asset during its development can be reliably measured Buildings and Leasehold improvements 5% – 10% Plant & Equipment Intellectual Property 10% – 33.33% 5% Internally generated intangible assets 5% – 15% Assets work in progress 0% (i) Impairment of non-financial assets Following the initial recognition of the development expenditure, the cost model is applied requiring the assets to be carried at cost less accumulated impairment losses. Current capitalised development costs are to be amortised over 7 years. The Consolidated Entity uses its judgment in continually assessing whether development expenditure meet the recognition criteria of an intangible asset. At 30 June 2011, the assessment of all development activities resulted in the recognition of certain development expenditure as an internally generated intangible asset. The carrying value of an intangible asset arising from development costs is tested for impairment annually when the asset is not yet available for use or more frequently when an indicator of impairment arises during the reporting period. (g) Plant and equipment All assets acquired, including plant and equipment and intangibles other than goodwill, are initially recorded at their cost of acquisition, being fair value of the consideration provided plus incidental costs directly attributable to the acquisition and depreciation or amortisation as outlined below. The cost of plant and equipment constructed by the Group includes the cost of material and direct labour, an appropriate proportion of fixed and variable overheads and capitalised interest. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All items of plant and equipment are carried at the lower of cost less accumulated depreciation, amortisation and impairment losses and their recoverable amount. (h) Depreciation and amortisation Items of plant and equipment, including leasehold assets, are depreciated or amortised on a straight line basis so as to write off the net cost of each asset over its expected useful life. Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. Depreciation and amortisation rates are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future financial periods only. At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed annually for intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (j) Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term (k) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Costs are assigned on the basis of weighted average costs. (l) Employee benefits Wages, salaries and annual leave Liabilities for employee benefits for wages, salaries and annual leave expected to settle within 12 months of the year end represent present obligations resulting from employees’ services provided up to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the Consolidated Entity expects to pay as at reporting date including related on costs, such as workers’ compensation insurance and payroll tax. Employee benefits expected to be settled beyond 12 months are carried at the present value of the estimated future cash flows. 32 32 Sirtex 2011 Annual Report Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 Long service leave The provision for employee benefits to long service leave represents the present value of estimated future cash outflows to be made by the employer resulting from employees’ services provided up to reporting date. The provision is calculated using expected future increases in remuneration rates, including related costs, and expected settlement dates based on turnover history, and is discounted using the rates attaching to national government securities at reporting date, which most closely match the terms of maturity of the related liabilities. Superannuation plans The Consolidated Entity contributes to various employee superannuation plans. Contributions are charged against expense as they are made. Share-based payments The Consolidated Entity provides benefits to certain employees in the form of share-based payment transactions, whereby employees render services in exchange for rights over shares (equity-settled transactions). For this purpose, the Consolidated Entity set up an Executive Performance Rights Plan in February 2011. The cost of these equity-settled transactions is measured by reference to the fair value at the date at which they are granted. The fair value of the rights is determined using a Monte Carlo simulation model. The cost of the equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the vesting conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award. Further information can be found in Note 21 to the financial statements. (m) Receivables Trade debtor terms vary from market to market depending on the economic factors relevant to the individual market. The Consolidated Entity has actual trading terms ranging up to 120 debtor days. The collectability of debts is assessed at reporting date and allowance made for any doubtful accounts. The allowance for doubtful debts is specific with reference to the profile of debtors in the Consolidated Entity’s sales and marketing regions. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Consolidated Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Sirtex Medical Ltd and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the Group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The Group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2004. The tax consolidated group has entered a tax sharing agreement whereby each Company in the G roup contributes to the income tax payable in proportion to their contribution to the net profit before tax of the consolidated group. (o) Accounts payable Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Company or Consolidated Entity. (p) Borrowings Bank loans are carried in the statement of financial position sheet at amortised costs. Interest expense is recognised on an accruals basis. (q) Comparative figures Where required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (n) Income tax (r) Earnings per share The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the reporting date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members of the parent entity for the financial period, after excluding any costs of servicing equity (other than ordinary shares) by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue. Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares of the Company adjusted for any bonus issue. Sirtex 2011 Annual Report 33 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 Note 1: Statement Of Significant Accounting Policies (continued) (s) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the statement of comprehensive income in the period incurred. (t) Financial instruments Financial instruments are initially measured at fair value on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Foreign currency options entered into to hedge highly probable forecast transactions are accounted for as a derivative. Changes in the fair value of derivatives are recorded in the Statement of Comprehensive Income, together with any changes in the fair value of hedged assets or liabilities that are attributable to the hedged risk. At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. Impairment losses are recognised in the Statement of Comprehensive Income. Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. (u) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term instruments with original maturity of three months or less. Restricted cash assets are shown within other current financial assets. (v) Key estimates Impairment The Group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where impairment exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Impairment of trade receivables is based on best estimates of amounts that will not be collected from debtors for doses sold. For the year ended 30 June 2011, a total of $455,000 (2010: $169,000) of trade receivables has been estimated as being impaired. Impairment of internally generated intangible assets is based on management’s assessment as to whether the clinical trials and development projects meet the recognition criteria as set out in AASB 138. For the year ended 30 June 2011, these activities satisfy these criteria, and as a result, no impairment has been recognised. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to their fair value of the equity instruments at the date at which they are granted. The fair value is determined with a Monte Carlo simulation model using the assumptions detailed in Note 21. Long service leave provision The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Lease make good provision A provision is made for the present value of anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with closure of the premises. The calculation of this provision requires assumptions such as application of closure dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the expenses or asset, if applicable, and provision. Carbon tax As the Group will not fall within the Top 500 Australian Polluters as defined in the policy framework for the Carbon Scheme by the Commonwealth Government, the impact of the Carbon Scheme on operating costs and on the valuation of assets of the Group is not expected to be significant. (w) Foreign currency transactions and balances All foreign currency transactions are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate at that date. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income. 34 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: • assets and liabilities are translated at year-end exchange rates prevailing at that reporting date • income and expenses are translated at average exchange rates for the period, and • retained earnings are translated at the exchange rate prevailing at the date of the transaction Exchange differences arising on translation of foreign operations are transferred directly to the foreign currency translation reserve in the statement of comprehensive income. These differences are recognised in the statement of comprehensive income in the period in which the operation is disposed. (x) Segment reporting The Group has identified its operating segments based on internal reports that are reviewed and used by the Board of directors in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of regional markets which have different structures and performance assessment criteria. Operating segments are therefore determined on the same basis. The three regional markets currently serviced by the Group are Asia Pacific, North America and Europe. As the Group manufactures and distributes only one product, identical for each of the three regional markets, no further segmentation across products or services is made. (y) Adoption of new and revised accounting standards During the current year the Group adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. The IASB has issued improvements to IFRS 2010 (2010 Improvements) which was issued in Australia as AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvement Project. Most of these amendments become effective in annual periods beginning on or after 1 July 2010 or 1 January 2011. The 2010 improvements amend certain provisions of AASB 3, clarify presentation of the reconciliation of each of the components of other comprehensive income and clarify certain disclosure requirements for financial instruments. The 2010 improvements did not have a material impact on the Group’s financial statements. New accounting standards for application in future periods The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group follows: AASB 9: Financial Instruments and AASB 2009–11: Amendments to Australian Accounting Standards arising from AASB 9 (applicable for annual reporting periods commencing on or after 1 January 2013) These standards amend the classification and measurement of financial assets. The Group has not yet determined the potential impact on the financial statements. AASB 124 Related Party Disclosures and AASB 2009-12: Amendments to Australian Accounting Standards arising from AASB 124 (applicable for annual reporting periods commencing on or after 31 December 2011) These standards amend the definition of a related party. The Group has not yet determined the potential impact on the financial statements. AASB 1054 Australian Additional Disclosures: (applicable for annual reporting periods commencing on or after 30 June 2012) This Standard sets out the Australian-specific disclosures for entities that have adopted Australian Accounting Standards. This Standard contains disclosure requirements that are additional to IFRSs. AASB 2010-4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134, Interpretation 13] (applicable for annual reporting periods commencing on or after 31 December 2011) These amendments clarify disclosure principles for financial instruments, statement of changes in equity, and for significant events and transactions. The Group has not yet determined the potential impact on the financial statements. AASB 2010-05: Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods commencing on or after 31 December 2011) These amendments have no major impact on the requirements of the amended pronouncements. AASB 2010-6: Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (AASB 1 & AASB 7) (applicable for annual reporting periods commencing on or after 30 June 2012) The Amendments will introduce more extensive and onerous quantitative and qualitative disclosure requirements for de-recognition of financial assets. AASB 2010-7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010): [AASB 1, 3,4,5,7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2,5,10,12,19 & 127] (applies to periods beginning on or after 1 January 2013): This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the issuance of AASB 9: Sirtex 2011 Annual Report 35 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 Note 1: Statement of Significant Accounting Policies (continued) (y) Adoption of new and revised accounting standards (continued) Financial Instruments in December 2010. Accordingly, these amendments will only apply when the Group adopts AASB 9. As noted above, the Group has not yet determined any potential impact on the financial statements from adopting AASB 9. AASB 2011-4: Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements: The amending pronouncements makes changes to AASB 124 Related Party Disclosures that remove all the individual key management personnel (KMP) disclosures contained in Aus paragraphs 29.1 to 29.9.3. Effective for the first annual reporting period commencing on or after 1 July 2012. Early adoption is not permitted. The Group does not anticipate the early adoption of any of the above Australian Accounting Standards. 36 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 2. Revenue and Other Income (a) Revenue from the sale of goods (b) Other revenue from ordinary activities Grant income Licensing income Interest income from financial institutions Interest income from legal settlement Legal settlement Dr Gray/UWA Other 3. Profit for the Year Profit from ordinary activities before income tax includes the following expense items: Cost of sales Legal fees UWA Bad and doubtful debts Employee benefits expense Superannuation contributions Other employee benefits expenses Depreciation and amortisation of Plant and equipment Intangible assets Operating lease expenses Minimum lease payments Foreign exchange losses Realised foreign exchange losses Unrealised foreign exchange losses Consolidated 2011 $’000 2010 $’000 70,286 64,333 56 178 2,390 – – 44 2,668 171 183 1,651 813 4,762 176 7,756 Consolidated 2011 $’000 2010 $’000 13,584 – 286 329 19,117 690 285 571 1,704 960 10,826 409 – 253 14,458 490 298 308 535 953 Sirtex 2011 Annual Report 37 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 4. Income Tax Expense (a) The components of tax expense comprise: Current tax Deferred tax Over-provision in respect of prior years Consolidated 2011 $’000 2010 $’000 1,541 1,923 (593) 2,871 4,360 (117) (1,220) 3,023 (b) The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows Net profit before tax Prima facie tax payable on profit from ordinary activities before income tax at 30% 14,350 4,305 19,103 5,731 Add/(less): Tax effect of – Non deductible amortisation – Non-deductible expenses – Non-assessable income – Over provision in respect of prior years Effect of higher tax rates on overseas income Effect of Foreign Currency translation of tax balances Eliminations for the tax consolidated group Income tax attributable to entity The applicable weighted average effective tax rates are as follows 54 357 (1,742) (535) 421 (3) 14 2,871 20% 54 408 (1,469) (1,809) 146 8 (48) 3,022 16% The increase in the weighted average effective consolidated tax rate for 2011 is predominantly a result of the legal fees recovery in the previous year. Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantially enacted on 21 October 2002. This legislation, which includes both mandatory and elective elements, is applicable to the Company. The Directors elected for those entities within the Consolidated Entity that are wholly- owned Australian resident entities to be taxed as single entity from 1 July 2004. The implementation of the tax consolidation system was notified to the Australian Tax Office. The head entity within the tax-consolidated group for the purposes of the tax consolidation system is Sirtex Medical Limited. 38 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 5. Cash and Cash Equivalents (a) Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash at bank and on hand Short-term deposits with financial institutions The effective interest rate on short-term deposits was 6.27% (2010: 5.98%). These deposits have an average maturity of 55 days. (b) Reconciliation of cash flow from operations with profit after income tax Profit after income tax Non-cash flows in profit: Depreciation and amortisation Decrease in current tax assets Decrease/ (increase) in deferred assets Share rights reserve Net foreign exchange differences Changes in net assets and liabilities (Increase)/ decrease in assets Trade receivables Other receivables Inventories Other current assets Increase/ (decrease) in liabilities Payables Current tax liabilities Short-term provisions Other current liabilities Long-term provisions Deferred tax liabilities Consolidated 2011 $’000 2010 $’000 4,915 38,000 42,915 3,421 38,000 41,421 11,479 16,080 954 (284) (143) 115 969 (1,289) 2,349 (69) (322) (875) (3,373) 2,816 589 106 2,264 779 288 831 – 183 21 (2,793) 442 (37) 3,754 1,407 662 (675) 69 (780) Net cash flow from operating activities 15,286 20,231 Sirtex 2011 Annual Report 39 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 6. Trade and Other Receivables (a) Trade receivables Trade receivables Provision for impairment (b) Other receivables GST receivables Other receivables Consolidated 2011 $’000 2010 $’000 13,271 (455) 12,816 476 857 1,333 14,149 11,697 (169) 11,528 684 2,997 3,681 15,209 Receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the other expenses item (refer note 3). Movement in the provision for impairment of receivables is as follows: 30 June 2011 Trade receivables 30 June 2010 Trade receivables Opening balance $’000 Change for the year $’000 Amounts written off $’000 Closing balance $’000 (169) (286) (395) 226 – – (455) (169) An amount of $455,000 was considered impaired as at 30 June 2011 (2010: $169,000). Trade receivables past due but not impaired Less than 30 days overdue 30-60 days overdue More than 60 days overdue Total No other receivables are past due. Credit risk Consolidated 2011 $’000 2,884 1,113 1,265 5,262 2010 $’000 1,938 886 1,079 3,903 The Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties other than those receivables specifically provided for and shown above. The class of assets described as Trade and other Receivables is considered to be the main source of credit risk related to the Group. No collaterals have been received from any of the trade debtors in form of a financial guarantee. 40 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 7. Inventories Raw materials – at cost 8. Other Financial Assets Other current financial assets Security deposits paid 9. Other Current Assets Prepayments 10. Tax Assets (a) Current tax assets Current tax assets (b) Deferred tax assets Tax losses revenue Timing differences attributable to: Fixed assets Employee provisions Unrealised foreign exchange losses Other* * Other comprises patent costs, trade debtors, and miscellaneous The overall movement in the deferred tax account is as follows: Opening balance (Charge)/credit to the statement of comprehensive income (Charge)/credit to equity Closing Balance Consolidated 2011 $’000 2010 $’000 1,025 1,025 957 957 Consolidated 2011 $’000 2010 $’000 430 430 379 379 Consolidated 2011 $’000 2010 $’000 741 741 470 470 Consolidated 2011 $’000 2010 $’000 312 172 711 63 482 337 883 2,476 2,333 391 (248) 2,476 – 15 458 47 1,813 2,333 3,164 (653) (178) 2,333 Sirtex 2011 Annual Report 41 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 11. Property, Plant and Equipment Buildings and leasehold improvements At cost Accumulated depreciation Net carrying amount Plant and equipment At cost Accumulated depreciation Net carrying amount Assets work in progress At cost Accumulated depreciation Net carrying amount Total Property, Plant and Equipment At cost Accumulated depreciation Net carrying amount Movements in carrying amounts Buildings and leasehold improvements Carrying amount at beginning Additions Depreciation expense Carrying amount at end Plant and equipment Carrying amount at beginning Additions Disposals Depreciation expense Carrying amount at end Assets work in progress Carrying amount at beginning Additions Disposals Carrying amount at end Total Property, Plant and Equipment Carrying amount at beginning Additions Disposals Depreciation expense Carrying amount at end 42 Sirtex 2011 Annual Report Consolidated 2011 $’000 2010 $’000 932 (159) 773 7,956 (1,921) 6,035 – – – 8,888 (2,080) 6,808 1,033 – (260) 773 2,406 4,254 (195) (430) 6,035 892 – (892) – 4,331 4,254 (1,087) (690) 6,808 1,175 (142) 1,033 3,931 (1,507) 2,424 892 – 892 5,980 (1,649) 4,331 1,147 – (114) 1,033 2,361 436 (10) (381) 2,406 4 892 (4) 892 3,512 1,328 (14) (495) 4,331 Notes to the Financial Statements for the year ended 30 June 2011 12. Intangible Assets Software At cost Accumulated amortisation Net carrying amount Internally generated intangibles At cost Accumulated amortisation Net carrying amount Intellectual property At cost Accumulated amortisation Net carrying amount Total intangible assets At cost Accumulated amortisation Net carrying amount Movements in carrying amounts Software Carrying amount at beginning Additions Amortisation expense Carrying amount at end Internally generated intangibles Carrying amount at beginning Amortisation expense Carrying amount at end Intellectual property Carrying amount at beginning Amortisation expense Carrying amount at end Total intangible assets Carrying amount at beginning Additions Amortisation expense Carrying amount at end Consolidated 2011 $’000 2010 $’000 532 (430) 102 6,631 – 6,631 3,607 (2,555) 1,052 10,770 (2,985) 7,785 156 51 (105) 102 – 6,631 6,631 1,232 (180) 1,052 1,388 6,682 (285) 7,785 479 (323) 156 – – – 3,606 (2,374) 1,232 4,085 (2,697) 1,388 204 70 (118) 156 – – – 1,412 (180) 1,232 1,616 70 (298) 1,388 Sirtex 2011 Annual Report 43 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 12. Intangible Assets (continued) Recognition of internally generated intangible assets During the year, the consolidated group undertook certain clinical and R&D activities which have been classified as internally generated intangible assets, in accordance with AASB 138 Intangible Assets. These activities include four major Phase IV post-marketing clinical trials and two development projects aiming at improving the use of Sir-Spheres. The activities now satisfy all tests as set out in AASB 138, in particular the technical feasibility of technical completion and the availability of sufficient financial resources for the completion. Expenditure for these activities in prior periods has been expensed through profit and loss, as successful completion of these activities was less certain. In accordance with AASB 138, these expenses have not been reclassified as internally generated intangible assets, and only expenditure incurred in the current period is recognised as internally generated intangible asset. Completion for these activities is anticipated for the financial year ending 30 June 2015. Amortisation expense will be recognised from the date of completion of these activities and calculated over the estimated useful life of the assets which has been assessed at seven years. The carrying value of the intangible assets arising from development costs has been tested for impairment as the asset is not yet available for use. The cash generating unit was determined to be the cash flows of the Group. On this basis, no impairment has been recognised based on value-in-use calculations covering a detailed one-year forecast, followed by an extrapolation of expected cash flows for the next four years assuming no growth rates and a discount rate of 12%. 13. Trade and Other Payables Trade payables Other accruals and payables 14. Current Tax Liabilities (a) Current tax liabilities Current tax liability (b) Deferred tax liabilities Timing differences attributable to: Capitalisation of development expenditure Fixed assets Other The overall movement in the deferred tax account is as follows: Opening balance Charge/(credit) to the statement of comprehensive income Charge/(credit) to equity Closing balance 44 Sirtex 2011 Annual Report Consolidated 2011 $’000 2010 $’000 6,111 2,472 8,583 6,986 1,883 8,869 Consolidated 2011 $’000 2010 $’000 – – 3,517 3,517 1,989 439 44 2,472 208 2,315 (51) 2,472 – 175 33 208 989 (781) – 208 Notes to the Financial Statements for the year ended 30 June 2011 15. Provisions and Accruals (a) Short-term provisions Miscellaneous accruals and provisions (b) Long-term provisions Accruals for long service leave The overall movement in the long-term provision account is as follows: Opening balance Additional provisions for the year Amounts used during the year Closing balance The overall movement in the short-term provision account is as follows: Opening balance Additional provisions for the year Amounts used during the year Closing balance Consolidated 2011 $’000 2010 $’000 5,084 5,084 2,268 2,268 360 360 255 105 – 360 2,268 7,311 (4,495) 5,084 255 255 185 76 (6) 255 1,605 1,909 (427) 3,087 Sirtex 2011 Annual Report 45 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 16. Issued Capital Current Issued capital Share issue cost Number of shares issued Fully paid ordinary shares Balance at beginning of the year Balance at end of the year Consolidated 2011 $’000 2010 $’000 24,779 (1,258) 23,521 24,779 (1,258) 23,521 55,768,136 55,768,136 2011 2010 No (000) $’000 No.(000) $’000 55,768 55,768 23,521 23,521 55,768 55,768 23,521 23,521 Fully paid ordinary shares carry one vote per share and carry the right to dividends. On winding up, ordinary shares participate in dividends and the proceeds, in proportion to the number of shares held. The Company does not have a limited number of authorised capital and issued shares do not have a par value. Share options At reporting date, there were no share options outstanding, and no share option plan was in place. Share rights At reporting date, there is an Executive Performance Rights Plan in place. Refer to note 21 for further details. Capital management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the group can fund its operations and continue as a going concern. Management effectively manages the Group’s capital by assessing the group’s financial risk and adjusting its capital structure in response to changes in these risks and in the market. The responses include the management of debt levels, distributions to shareholders, and share issues. The Company has no debt as at 30 June 2011. 17. Reserves Share Rights Reserve Foreign Currency Translation Reserve Consolidated 2011 $’000 2010 $’000 115 (34) 81 – (943) (943) The Executive Performance Rights Plan gives rise to a share rights reserve. The translation of foreign controlled subsidiaries into the functional currency of the Group gives rise to a foreign currency translation reserve. 46 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 Consolidated 2011 $’000 2010 $’000 18. Earnings Per Share (a) Basic earnings per share Profit from continuing operations attributable to equity holders Weighted average number of shares used in the calculation of basic earnings per share 11,479,000 16,080,000 55,768,136 55,768,136 Add to number of shares used in the calculation of diluted earnings per share: Effect of potential conversion to ordinary shares under the Executive Performance Rights Plan (refer to note 21 for further details) (b) Diluted earnings per share Profit from continuing operations attributable to equity holders Weighted average number of shares used in the calculation of diluted earnings per share 19. Dividends Distributions paid Declared fully franked ordinary dividend of 7 (2010: 7) cents per share franked at the tax rate of 30% Balance of franking credit amount at year end adjusted for franking credits arising from payment of provision for income tax 374,188 – 11,479,000 16,080,000 56,142,324 55,768,136 Consolidated 2011 $’000 2010 $’000 3,904 3,904 10,802 8,407 Sirtex 2011 Annual Report 47 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 20. Operating Segments Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of regional markets which have different structures and performance assessment criteria. Operating segments are therefore determined on the same basis. The three regional markets currently serviced by the group are Asia Pacific, North America and Europe. As the Group manufactures and distributes only one product, identical for each of the three regional markets, no further segmentation across products or services is made. Basis of accounting for purposes of reporting by operating segments Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. Inter-segment transactions An internally determined transfer price is set for all inter-entity sales. This price is re-set annually and is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation for the Group’s financial statements. Inter-segment loans payable and receivable are initially recognised at the consideration received net of transaction costs. If inter-segment loans are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that received the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. Segment liabilities Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. Unallocated items Unallocated revenue comprises income from legal settlement UWA and other income. Segment performance External sales Inter-segment Other Total 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 Asia Pacific North America Europe Total of all segments Eliminations Unallocated Consolidated 2,980 45,072 22,235 2,848 40,012 21,473 60,416 4,264 – 48,826 5,526 – 2,668 – – 2,993 – – 66,064 49,336 22,235 137,635 (64,681) – 54,667 45,538 21,473 121,678 (54,352) 4,762 72,954 72,088 48 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 Segment net profit after tax Total 2011 $’000 11,805 1,825 720 14,350 – 14,350 (2,871) 11,479 2010 $’000 16,837 1,345 759 18,941 162 19,103 (3,023) 16,080 Assets Liabilities 2011 $’000 133,758 15,024 6,454 155,236 (78,595) 76,641 2010 $’000 126,525 16,548 6,311 149,384 (82,724) 66,660 2011 $’000 67,710 6,714 4,674 79,098 (62,599) 16,499 2010 $’000 74,167 18,617 4,974 97,758 (82,641) 15,117 Asia Pacific North America Europe 2011 $’000 – 4,037 6,682 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 – 1,095 – 134 298 – 159 – 300 – – 192 – 308 – – 58 – 81 3 – 41 – 53 – Asia Pacific North America Europe Total of all segments Eliminations Profit before income tax expense Income tax expense Profit after income tax expense Segment assets and liabilities Asia Pacific North America Europe Total of all segments Eliminations Consolidated Other segment information Acquisition of segment assets – Land and buildings – Plant and equipment – Intangible assets Depreciation and amortisation of segment assets 303 282 – Plant and equipment – Intangibles Major customers The Group has a number of customers to whom it provides products. No single external customer represents more than 10% of total revenue. Sirtex 2011 Annual Report 49 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 21. Share Based Payments On 22 February 2011, a total of 374,188 executive performance rights were granted to executives under the Executive Performance Rights Plan, to take up performance rights which may convert into ordinary shares, for nil consideration. The performance rights are exercisable on or following 30 June 2013. The performance rights hold no voting or dividend rights, and are not transferable. Performance rights granted to key management personnel are as follows: Grant Date 22 February 2011 Number 374,188 A total of 90,188 rights were granted to the Chief Executive Officer, and a total of 284,000 rights to other executives of the Group. The performance rights vest on 30 June 2013, and the extent to which vesting occurs depends on the achievement of performance conditions. The Board has determined that there will be only one performance condition, namely Total Shareholder Return (TSR) calculated over a three- year period from 1 July 2010 to 30 June 2013 (the Measurement period), where TSR includes capital growth and dividends as follows: TSR (% pa compounded) Vesting (%) less than 15% 15% 20% 30% and more 0% 25% 50% 100% A summary of the movements of all performance rights issued is as follows: Grant Date Expiry Date Exercise Price Balance at start of year Granted during the year Exercised during the year Forfeited during the year Balance at end of year Vested and exercisable Vested and unexercisable 22 Feb 2011 30 Jun 2013 0 0 374,188 0 0 374,188 0 0 The weighted fair value of the performance rights has been calculated at $2.08. The price was calculated by using a Monte Carlo simulation model applying the following inputs: Exercise price Performance rights life Underlying share price Expected share price volatility Expected dividend Risk-free interest rate $ – 3 years $4.90 50% $0.07 per share 4.25% Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is the best indicator of future volatility, which may not eventuate. Included in the statement of comprehensive income is $115,487 of performance rights plan expense, and relates in full to equity-settled share-based payment transactions. 50 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 22. Key Management Personnel Refer to the Remuneration Report contained in the Report of the Directors for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2011 and 30 June 2010. The totals of remuneration paid to key management personnel of the Consolidated Entity during the year are as follows: Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payment Consolidated 2011 $’000 3,348,401 115,328 – 200,350 93,421 2010 $’000 2,777,831 77,930 – 75,000 – 3,757,500 2,930,761 Key management personnel shareholdings The number of fully paid ordinary shares in Sirtex Medical Ltd held by each key management personnel of the Group during the financial year is as follows: 30 June 2011 G Boyce D Smith 30 June 2010 G Boyce D Smith Granted as Balance at beginning remuneration Issued on exercise of options Other changes Balance at end 5,000 15,000 5,000 – – – – – – – – – – (15,000) 5,000 – – 15,000 5,000 15,000 Key management personnel options holdings There were no options holdings during the financial year with any of the key management personnel. Key management personnel rights holdings The number of performance rights which may convert into ordinary shares of Sirtex Medical Limited held by each key management personnel of the Group during the financial year is as follows: Balance at beginning Granted as of the year remuneration Issued on exercise of options Other changes Balance at end of the year 30 June 2011 G Wong D Smith R Hardie D Cade D Turner M Mangano N Lange B Chew Total – – – – – – – – – 90,188 31,000 27,200 26,300 27,800 33,000 33,000 33,000 301,488 – – – – – – – – – – – – – – – – – – 90,188 31,000 27,200 26,300 27,800 33,000 33,000 33,000 301,488 Sirtex 2011 Annual Report 51 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 23. Parent Entity Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Reserves Share rights reserve Total reserves Financial performance Profit for the year Other comprehensive income Total comprehensive income Financial guarantees Consolidated 2011 $’000 2010 $’000 43,544 12,505 56,049 44,183 135 44,318 49,527 2,117 51,644 38,912 81 38,993 23,521 (11,836) 11,685 23,521 (10,870) 12,651 46 46 2,937 – 2,937 – – 5,942 – 5,942 No guarantees have been provided to its wholly-owned subsidiaries by the parent entity. Contingent liabilities The parent entity does not have any contingent liability as at 30 June 2011. Contractual commitments The parent entity has an operating lease commitment for the office lease in Sydney. Refer to note 25 for further details. 52 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 24. Contingent Assets and Contingent Liabilities Contingent assets As previously reported, Sirtex Medical Limited (Sirtex) is a party to proceedings in the Federal Court of Australia issued by the University of Western Australia (UWA Proceedings). Dr Bruce Gray (a former Director and a substantial shareholder of Sirtex) is also a party to the UWA Proceedings. Sirtex was successful in the UWA Proceedings against UWA and Dr Gray. Sirtex incurred in excess of $5.5 million in legal costs and expenses in relation to the UWA Proceedings and related matters. In respect of those costs, Sirtex has recovered $3,250,000 from UWA and $2,575,185.83 from Dr Gray. These amounts have been paid by UWA and Dr Gray and the UWA Proceedings have been concluded. These amounts, less an amount of $250,000 attributable to legal expenses, have been included as other revenue in the financial year ended 30 June 2010. Sirtex has the benefit of a further costs order in respect of its costs incurred in pursuing its recovery against Dr Gray. The total amount of those costs is in excess of $400,000. Sirtex expects to recover a substantial proportion of those costs. Sirtex expects that any recovery in this regard will not be made until the second half of financial year 2012. As a result of the uncertainty regarding recovery of these costs, no revenue has been recorded in relation to these costs as of 30 June 2011. 25. Commitments Operating leases The Consolidated Entity leases offices in Sydney, Singapore, Germany and in the United States, with no option to purchase the leased assets at the expiry of the leased assets. Duration and remaining periods for the office leases are as follows: Location Sydney Singapore Germany US Lease term Remaining lease period 60 months 60 months 60 months 52 months 50 months 31 months Lease expired Month to month The Consolidated Entity also leases various items of plant and equipment in Germany with lease terms from 36 to 48 months, and remaining periods of 15 to 33 months. Non-cancellable operating leases Not longer than 1 year Longer than 1 year and not longer than 5 years Research commitments Consolidated 2011 $’000 897 2,716 3,613 2010 $’000 197 222 419 The Consolidated Entity has entered into various research and development agreements with Universities and other external research institutions for ongoing research and clinical trials. Under these agreements, the consolidated entity is committed to providing funds over future periods, payable within one year, of $1,664,000 (2010: $1,837,000). Clinical Trial commitments The Consolidated Entity has entered into various clinical study agreements with Clinical Research Organisations (CRO) and specialist service providers for the management of clinical studies, and with a range of major hospitals for the recruitment of patients into these trials. Under these agreements, the consolidated entity is committed to providing funds over future periods, payable within one year, of $5,941,000. The amount of all outstanding contractual commitments as at 30 June 2011 is $16,196,310. Sirtex 2011 Annual Report 53 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 26. Controlled Entities Name of entity Country of incorporation Parent entity Sirtex Medical Limited Controlled entities Sirtex Medical Products Pty Ltd Sirtex Global Pty Ltd Sirtex Technology Pty Ltd Sirtex Sir-Spheres Pty Ltd Sirtex Thermospheres Pty Ltd Sirtex Medical Holdings Inc Sirtex Medical Inc Sirtex Wilmington LLC Sirtex Medical Europe GmbH Sirtex Singapore Holding Pte Ltd Sirtex Medical Singapore Pte Ltd Sirtex Global Singapore Pte Ltd Sirtex Singapore Manufacturing Pte Ltd Australia Australia Australia Australia Australia Australia USA USA USA Germany Singapore Singapore Singapore Singapore Ownership interest 2011 % 2010 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Sirtex Singapore Holding Pte Ltd was incorporated on 23 April 2010, and holds 100% interest in Sirtex Medical Singapore Pte Ltd, Sirtex Global Singapore Pte Ltd and Sirtex Singapore Manufacturing Pte Ltd. Sirtex Medical Ltd and all its Australian-controlled entities are included in the tax-consolidated group and is head entity for tax consolidation. 27. Related Party Transactions (a) Equity interests in related parties Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 26. (b) Transactions with key management personnel and related entities. At 30 June 2011, $Nil (2010: $Nil) was payable to Directors, key management personnel and director related entities. At 30 June 2011, $Nil (2010: $Nil) was receivable from key management personnel and director related entities. (c) Transactions with the wholly-owned group The ultimate parent entity in the wholly-owned group is Sirtex Medical Limited. During the financial year, Sirtex Medical Limited received licence fees from entities in the wholly-owned group of $5,454,145 (2010: $6,367,303). (d) Outstanding balances arising from transactions with the wholly-owned group The following balances are outstanding at the reporting date in relation to transactions with the wholly-owned group: Current receivables from subsidiaries: $14,347,564 (2010: $5,841,958) Loans receivable from subsidiaries: $3,120,212 (2010: $1,334,620) 28. Events After Reporting Sheet Date A final dividend of 7 cents per ordinary share has been declared for the year ended 30 June 2011. No other matter or circumstance has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 54 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 29. Remuneration of Auditors During the year, the following were paid or were payable for services provided by the auditor of the parent entity, its related party practices and non-related audit firms: Remuneration of the auditor of the parent entity for audit and review of financial reports Other non-audit services Remuneration of other auditors of subsidiaries for audit and review of financial reports Consolidated 2011 $’000 2010 $’000 117 – 59 91 – 46 The auditor of Sirtex Medical Ltd and its Australian subsidiaries is Grant Thornton Audit Pty Ltd. The auditor of the German subsidiary is Grant Thornton GmbH. The auditor of the US entities is Grant Thornton LLP. The auditor of the Singapore entities is Foo Kon Ton Grant Thornton LLP. 30. Financial Risk Management The Audit Committee has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The Audit Committee monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to counter party credit risk, currency risk, and interest rate risk. The Group’s activities expose it to a variety of financial risks, including but not limited to, market risk (currency risk and interest rate risk), credit risk and liquidity risk. The overall risk management strategy seeks to measure and to mitigate these risks, in using different methods measure the different types of risk, and in using derivate instruments to minimise certain risk exposures. The Group’s financial instruments consist mainly of deposits with banks, short-term investments, account receivable and payable, and loans to and from subsidiaries. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial instruments, are as follows: Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets* Financial Liabilities Trade and other payables Borrowings Consolidated 2011 $’000 2010 $’000 42,915 14,149 430 57,494 8,583 – 8,583 41,421 15,209 379 57,009 8,869 – 8,869 * Other financial assets comprise security deposits. The carrying amounts of financial assets and financial liabilities recorded in the financial statements represent their respective net fair values, determined in accordance with the accounting policies disclosed in note 1 to the financial statements. Sirtex 2011 Annual Report 55 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 30. Financial Risk Management (continued) Financial risk exposures and management The main risks the Group is exposed to through its financial instruments are interest rate risk, foreign exchange risk, liquidity risk and credit risk as follows: (a) Interest rate risk The Group’s exposure to interest rate risk relates to its cash and short-term deposits. The interest rate as at 30 June 2011 on cash was 4.35% (2010: 4.25%) and on short-term deposits 6.27% (2010: 5.98%). All other financial assets and liabilities are non-interest bearing. Sensitivity analysis The sensitivity analysis is based on an expected overall volatility of interest rates using market data and forecasts. A change in interest rate of 2% on cash and short-term deposits would result in a change in profit as follows: Change in profit: Increase in interest rate by 2% Decrease in interest rate by 2% (b) Credit risk Consolidated 2011 $’000 2010 $’000 772 (772) 746 (746) Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other securities where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group measures credit risk on a fair value basis. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amounts of financial assets recorded in the financial statements, net of any provision for impairment, represent the Group’s maximum exposure to credit risk without taking into account any collateral or other security obtained. (c) Liquidity risk Liquidity risk management requires maintaining sufficient cash and cash equivalents, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are invested in term deposits with short- term maturities. As of 30 June 2011, the Group had only non-interest bearing financial liabilities with less than 1 year maturity (refer note 13). (d) Foreign exchange risk The Group is exposed to foreign exchange risk resulting in fluctuations in the fair value and in future cash flows of its financial instruments due to a movement in foreign exchange rates of currencies other than the Group’s measurement currency. It is the Group’s policy that hedging, as a percentage of net foreign exchange rate exposure, be maintained within the limits of the foreign exchange risk management policy. The Group has open currency options at reporting date relating to highly probable forecast transactions. These options give the Group the right to purchase foreign currencies at a specified exchange rate if the actual exchange rate at expiry date of the options is higher than the specified rate. 56 Sirtex 2011 Annual Report Notes to the Financial Statements for the year ended 30 June 2011 Sensitivity analysis The sensitivity analysis is based on an expected overall volatility of the relevant currencies, using management’s assessment of reasonable fluctuations taking into account movements over the last six months and forecasts for the next 12 months. A change in foreign exchange rates of 15% would result in a change in profit as follows: Change in profit: Increase of AUD to USD by 15% Decrease of AUD to USD by 15% Increase of AUD to EUR by 15% Decrease of AUD to EUR by 15% Consolidated 2011 $’000 2010 $’000 (6,761) 6,761 (3,335) 3,335 (6,002) 6,002 (3,221) 3,221 The following table shows the foreign currency risk on the financial assets and liabilities of the Group’s operations, denominated in currencies other than the functional currency of the operations. The foreign currency risk in the books of the parent entity is considered immaterial and is therefore not shown. 2011 Group entity (functional currency) North American entities (USD) European entity (EUR) Singapore entities (SGD) Balance sheet exposure 2010 Group entity (functional currency) North American entities (USD) European entity (EUR) Singapore entities (SGD) Balance sheet exposure Foreign currency call/put options Net financial assets / (liabilities) USD ’000 EUR ’000 SGD ’000 AUD ’000 6,816 – – 6,816 5,437 – – 5,437 – 3,166 – 3,166 – 2,556 – 2,556 – – (155) (155) – – 311 311 6,816 4,275 (117) 10,974 6,379 3,662 261 10,302 The Group has no currency option open at reporting date. As at 30 June 2010, the Group had European style call/ put options open relating to highly probable forecast transactions and recognised financial assets and financial liabilities. These options consist of two components: 1. The right to buy specified amounts of AUD against foreign currencies in the future at specified exchange rates. 2. The obligation to buy specified amounts of AUD against foreign currencies in the future at specified exchange rates if the AUD falls below a specified rate. Sirtex 2011 Annual Report 57 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2011 30. Financial Risk Management (continued) The following table summarises the notional amounts and terms of these options. Call Options (Sell USD/Buy AUD) Settlement – less than 6 months Put Options (Sell USD/Buy AUD) Settlement – less than 6 months Notional Amounts Average Exchange Rate 2011 USD ’000 2010 USD ’000 2011 2010 – – 3,000 n/a 0.89 3,000 n/a 0.89 58 Sirtex 2011 Annual Report Additional Stock Exchange Information Directors’ Report as at 16 August 2011 Number of shareholders 55,768,136 fully paid ordinary shares are held by 2,913 individual shareholders. All issued ordinary shares carry one vote per share, however, partly paid shares do not carry the rights to dividends. Distribution of shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Substantial shareholders Ordinary shareholders JP MORGAN NOMINEES AUSTRALIA DR BRUCE GRAY COGENT NOMINEES PTY LIMITED Twenty largest shareholders Ordinary shareholders Ordinary Shares Holders 784,952 3,041,162 1,612,545 3,787,436 46,542,041 55,768,136 1,343 1,195 206 145 24 2,913 Fully Paid Number Percentage 21,461,455 10,424,604 2,887,764 34,773,823 38.483 18.693 5.178 62.354 Fully Paid Number Percentage JP MORGAN NOMINEES AUSTRALIA LIMITED ACN 132 442 114 PTY LIMITED COGENT NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD NATIONAL NOMINEES LIMITED EQUITY TRUSTEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR ERIK ADRIAANSE SANDHURST TRUSTEES LTD SCJ PTY LTD HOUSE OF MAISTER FINANCIAL SERVICES LIMITED CITY AND WESTMINSTER LIMITED RUSSELL BEDFORD HOUSE PACIFIC SECURITIES INC BANNABY INVESTMENTS PTY LTD UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD TILL NO 54 PTY LIMITED ATTUNGA NOMINEES PTY LTD ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD MR KEITH KERRIDGE 21,461,455 10,234,604 2,887,764 2,780,383 2,463,726 2,059,148 1,249,179 760,024 500,000 318,855 300,000 284,491 250,000 250,000 210,000 205,550 190,000 135,385 107,166 100,000 46,747,730 38.483 18.352 5.178 4.986 4.418 3.692 2.240 1.363 0.897 0.572 0.538 0.510 0.448 0.448 0.377 0.369 0.341 0.243 0.192 0.179 83.826 Sirtex 2011 Annual Report 59 Company Information Directors’ Report for the year ended 30 June 2011 Registered office Level 33, 101 Miller Street North Sydney NSW 2060 Tel: +61-2-9940-8400 Principal places of business Australian office Level 33, 101 Miller Street North Sydney NSW 2060 Tel: +61-2-9940-8400 United States office 2-4, 16 Upton Drive Wilmington MA 01887 Tel: +1-978- 694-9099 European office Walter-Flex-Strasse 2 Bonn Germany 53113 Tel: +49-228-1840-730 Singapore office Level 1, 50 Science Park Road Singapore Science Park II Singapore 117406 Tel: +65-6308-8370 Company Secretary Mr Darren Smith Stock exchange listing Australian Stock Exchange Limited ASX code SRX Share registrar Boardroom Pty Ltd Level 7, 207 Kent Street Sydney NSW 2000 Australia Tel: 61-2-9290-9600 Auditors Grant Thornton Audit Pty Ltd Level 17, 383 Kent Street Sydney NSW 2000 Australia Annual General Meeting The Annual General Meeting will be held at 10.00am Thursday 27 October 2011 at the Stamford Grand Hotel North Ryde, NSW Australia 60 Sirtex 2011 Annual Report 

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