Growth 2012 Annual Report Table of Contents 2012 Financial Snapshot SIR-Spheres Microspheres are Transforming the Way Liver Cancer is Treated Delivering Hope A Record of Sustained Growth 2012 Highlights Regional Markets Update 2012 Key Figures Chairman’s Report Chief Executive Officer’s Report Key Management Personnel Corporate Governance Statement Financial Report 1 2 3 4 5 6 7 8 10 13 14 17 2012 Annual General Meeting The Annual General Meeting will be held at 10am on 23 October 2012 in Sydney, NSW, Australia. Sirtex’s global headquarters is in Sydney, Australia, with regional offices located in Singapore, Germany and the United States. The Company’s principal manufacturing facilities are located in Australia, Singapore and the United States. Sirtex Medical Limited 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 2012 Financial Snapshot Revenue from dose sales grew by 18 per cent to $83 million Profit before tax was up 54 per cent to $22 million Net profit after tax was up 49 per cent to $17 million Dose sales in the US market grew 32 per cent Dose sales in the Asia Pacific market grew 37 per cent Dose sales in Europe, Middle East & Africa (EMEA) grew by 4 per cent US sales revenue was $57 million, revenue in Asia Pacific was $4 million and revenue in EMEA was $22 million Cash from operating activities was $20 million with cash on hand at 30 June 2012 $49 million A fully franked final year dividend of 7 cents per share was paid to all shareholders on 21 October 2011 2012 Dose Sales Revenue $ Million Europe, Middle East & Africa 57 22 United States Asia Pacific 4 Sirtex 2012 AR 1 SIR-Spheres Microspheres are Transforming the Way Liver Cancer is Treated ® microspheres A targeted solution A major problem with current anti- cancer drugs is their lack of selectivity for tumour tissue alone. They often 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) that emits 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. 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. Growing acceptance among the medical community worldwide Over 20,000 people have been treated with SIR-Spheres microspheres around the world to date. SIR-Spheres microspheres are used every day by medical professionals in hospitals and liver cancer treatment centres throughout Europe, Australia, the United States and a growing number of Asian countries. SIR-Spheres microspheres have approval from the US Food & Drug Administration, the Australian Therapeutic Goods Administration and have CE mark approval for use in Europe. Constant innovation and investment guarantees better solutions 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 simpler and more accurate. A new type of imageable SIR-Spheres microspheres will be easily viewed by common scanning equipment. Sirtex 2012 AR 2 Delivering Hope Each year thousands of dedicated people work to help inspire hope and educate the wider community about effective new targeted treatments for liver cancer like Sirtex’s SIR-Spheres microspheres. Inspiration: Mother of three, Suzanne Lindley, from Texas in the USA, was treated with SIR-Spheres microspheres in 2004. She now devotes time to help bring a message of hope to other patients with liver cancer through education and awareness about new treatments. Every year an estimated 1.35 million people worldwide are diagnosed with liver cancer. The news for these people and their families is often devastating when they learn there are limited treatment options available. The experience inspired one young mother and liver cancer patient to start a worldwide patient advocacy group called YES! In 2003 Suzanne’s liver cancer had spread and she was told by her doctors that they had run out of treatment choices for her. Then one day a fellow patient told her about an emerging new treatment called SIR-Spheres microspheres. Suzanne was treated in 2004 with the targeted radiation therapy and responded positively. The experience got her thinking about how she could help the thousands of others who find themselves in the same position. Suzanne is now the public face of YES!, a volunteer organisation working to bring hope to the lives of liver cancer patients worldwide through a coordinated program of education, research, advocacy, publicity and direct support for liver cancer patients. YES! runs several high-profile events to make the wider public aware of the treatment issues faced by liver cancer patients and to develop awareness about treatments. One of the most popular events and initiatives is called ‘Hope in the Sand’. It involves people taking photos of the word ‘hope’ at locations around the world and shared with each other over social media. Suzanne believes hope is an important message all patients want to hear. ‘What used to be viewed as a death sentence can often now be treated as a chronic condition with a multidisciplinary treatment approach. A lot of patients don’t know they have options outside of chemotherapy, and a lot of them are not told,’ Suzanne said. Suzanne says that although there is no permanent cure for her cancer, she knows she is living fully despite of it. ‘I have been touched by others as their lives have touched mine and my understanding of hope has blossomed. Hope is the closest thing to a magic wand. Survivorship, for me, means reaching limits you thought beyond your capabilities. Bringing dreams to fruition and finding hope in the hopeless. Believing the improbable is possible’, she said. Sirtex 2012 AR 3 A Record of Sustained Growth 32 consecutive quarters of growth 630% growth of $1 invested in Sirtex since it listed in 2000 830% growth in the number of people who received SIR-Spheres microspheres from 2005 to 2012 Investment in clinical studies drives long-term growth 5 major clinical studies under way 20 clinical studies under way worldwide 2,400 study patients $13.5 million investment in clinical studies in 2012 2010 Start of the FOXFIRE clinical study in collaboration with the University of Oxford 2011 Launched a major new clinical study (Soramic) in collaboration with Bayer Schering Pharam AG Record dose sales in all geographic markets Commenced construction of new Asia Pacific regional facility in Singapore First shareholder dividend paid SIRveNIB study launched in Asia Significant increase in clinical support staff worldwide Moved Australian head office to accommodate growing requirements 2009 Record earnings and dose sales 2008 US manufacturing facility opened Finalised Singapore manufacturing facility Significant increase in sales and marketing staff in all markets Achieved record revenue and dose sales in all markets Second shareholder dividend paid Positive clinical study data reported at the American Society of Clinical Oncology 2007 Start of SIRFLOX international clinical study 2006 Positive clinical data reported at the American Society of Clinical Oncology 2005 Gilman Wong appointed Chief Executive Officer 2004 SIR-Spheres microspheres granted reimbursement in US Sirtex 2012 AR 4 4,977 X,XXX Asia Pacific Europe 4,171 3,658 2,581 United States 1,805 454 322 2,581 2,298 985 375 3,658 2,490 1,288 393 4,171 United States Europe Asia Pacific 2,969 1,603 405 4,977 2012 Highlights 5000 4000 3000 2000 1000 0 United States 2008 2009 2010 2011 2012 Another year of record growth Dose sales growth of 23 per cent worldwide. 32 consecutive quarters of growth. Strong dose sales growth in all geographic markets. Total revenue increased by 18.7 per cent. Clinical study recruitment up 61 per cent globally. Total clinical investment up 18 per cent. Staff numbers grew by 36 per cent across all functions. 2008 2009 2010 2011 Total Sales 2012 X.XXX United States Europe Asia Pacific 2012 Expanded internal capabilities across all functions to support future growth. Shareholders received third fully franked dividend of 7 cents. 6,141 Total Dose Sales United States 3,924 Asia Pacific 566 Europe, Middle East & Africa 1,661 Extensive collaboration and engagement with medical opinion leaders worldwide. Opened more than 70 new treatment sites worldwide and increased volume at current sites. Expanded collaboration with leading research institutions worldwide to advance new product pipeline and ensure long-term growth. Identified opportunities for efficiency and growth to advance business performance. New safety and efficacy SIR-Spheres microspheres data highlighted at international medical conferences. Initiated new 400-patient multi-centre clinical study in France (SARAH) to compare SIR-Spheres microspheres against standard chemotherapy. Retrospective 600-patient European clinical study data presented at international conference to reconfirm safety and efficacy. Sirtex 2012 AR 5 Europe Asia Pacific 5000 4000 3000 2000 1000 0 5000 4000 3000 2000 1000 0 5000 4000 3000 2000 1000 0 Regional Markets Update United States Europe, Middle East & Africa Asia Pacific Performance Performance Performance Revenue in the US grew 27 per cent to a record $57 million. Dose sales grew 32 per cent, driven by a combination of new treatment centres and an increase in volume at existing centres. Market Growth Initiatives We are focusing on existing centres with established SIR-Spheres microspheres programs, increasing awareness through education of referring physicians including medical, surgical and radiation oncologists. At the same time, we are educating the referring and treating physicians on the benefits of using SIRT earlier in the treatment paradigm versus complimentary and competing technologies. Revenue in Europe declined by 3 per cent to $22 million due to a weaker Euro. Dose sales grew 4 per cent to regain momentum in the second half, driven by growing awareness among referring medical opinion leaders. Market Growth Initiatives Our marketing focus in Europe is centred on medical meetings and key opinion leaders to leverage their experience with SIR-Spheres microspheres. Increased reimbursement levels are driven by the availability of additional clinical data generated among participating centres. We continue to apply substantial resources to ensure reimbursement in all markets. In addition to our focus on increasing awareness, we opened 50 new treating centres during the reporting period. We are also working to ensure SIR-Spheres microspheres are included in all formal European Union treatment guidelines. When opening new centres, we bring together the referring oncology community and their interventional radiology peers early in the process to establish a robust program and gain understanding of which patients will most likely benefit from SIRT. These efforts have resulted in a combination of more treating centres, and an increase in the average number of treatments per centre. We are dedicated to continual education of the oncology community and establishing SIR-Spheres microspheres as a viable option for patients with metastatic colorectal cancer. An active key opinion leader outreach program at major pan-European conferences drives additional interest among the medical referral community. Specific focus has been the development of health technology assessments which is expected to further stimulate reimbursement for SIR-Spheres microspheres in key markets. Despite the difficult economic conditions, Europe continued to invest in key personnel on a regional basis. Revenue in the Asia Pacific region grew 32 per cent to $4 million. Dose sales grew 37 per cent, driven by growing awareness and demand as our new regional office began formal marketing activities and our clinical studies opened new sites. Market Growth Initiatives The regional office in Singapore expanded with the appointment of several experienced oncology staff in sales and marketing and business support functions. We have adopted a direct sales business model in Hong Kong, Thailand and the Philippines, where we have appointed highly experienced oncology support staff. Closer management of local distributors in Taiwan, Korea and India combined with increased marketing activities also helped lift our profile and dose sales. We hosted the inaugural Asia Pacific Medical Oncologists Advisory Board meeting at the Asian Oncology Summit 2012. A key focus was developing a deeper understanding of the treatment algorithms at major institutions and referrals from medical oncologists. We opened 10 new treatment sites in the Asia Pacific region and also undertook detailed strategic market entry evaluations for China and Japan. Reimbursement is a key focus and in April the Hong Kong Hospital Authority listed SIR-Spheres microspheres on the Medical Equipment & Device List. Sirtex 2012 AR 6 2012 Key Figures 6140.999817 5458.666504 4776.333191 4093.999878 3411.666565 2729.333252 2046.999939 1364.666626 682.333313 0.000000 20230.999512 17859.299561 422.998700 15487.599609 375.998845 13115.899658 328.998989 10744.199707 281.999133 8372.499756 234.999278 6000.799805 187.999422 3629.099854 1257.399902 140.999567 -1114.300049 93.999711 -3486.000000 46.999856 0.000000 422.999073 375.999176 328.999279 281.999382 234.999485 187.999588 140.999691 93.999794 46.999897 0.000000 Dose Sales Growth 6,141 4,977 4,171 Asia Pacific Europe, Middle East & Africa United States 82627.0 74364.3 66101.6 57838.9 3,658 49576.2 41313.5 33050.8 24788.1 16525.4 8262.7 0.0 2,581 2008 2009 2010 2011 2012 Operating Cash Flow $’000 423 SIRFLOX: 152 262 FOXFIRE: 72 32.699879 29.066559 25.433239 21.799919 18.166599 14.533279 10.899960 6.10 5.48 4.86 4.24 61 3.62 3.00 6 8 4 , 3 - 7.266640 0 4 1 , 0 2 108 1 3 2 , 0 2 6 8 2 , 5 1 3.633320 61 0.000000 2008 2009 2010 2011 2009 2010 2011 2012 Clinical Study Recruitment 423 SIRveNIB: 72 7 8 9 , 9 1 SORAMIC: 65 SARAH: 26 2012 OTHER: 36 SARAH: 26 OTHER: 36 SORAMIC: 65 262 SIRveNIB: 72 FOXFIRE: 72 SIRFLOX: 152 108 2009 2010 2011 2012 Asia Pacific Europe US Sales Revenue $’000 18229.0 16406.1 73547.984413 65,559 14583.2 64,333 70,290 8 5 6 3 , 82,627 1 7 1 4 , 7 7 9 4 , Asia Pacific Europe, Middle East & Africa Asia Pacific Europe US Profit After Tax $’000 9 5 5 5 6 , 3 3 3 4 6 , 65375.986145 12760.3 57203.987877 10937.4 38,125 49031.989609 , 8 0 9114.5 1 2 1 8 5 2 , United States 5 2 1 8 3 , 0 9 2 0 7 , Net Tangible Assets Total Equity 83.0 9 2 2 , 8 1 2 4 1 , 0 6 7 5 3 , 2 5 0 8 0 , 6 1 3 8 4 , 1 1 3 4 5 , 1 5 5 5 1 , 0 5 9 7 1 , 9 3 2 6 5 , 7 3 9 0 2 , 1 74.7 66.4 58.1 49.8 41.5 33.2 4 9 24.9 6 7 8 2 , 3 2 , 1 2 16.6 8.3 0.0 2008 2009 2010 2011 2009 2010 2011 s t e s s A e l b g n a T t e N i 4 9 6 , 1 2 y t i u q E l a t o T 9 0 2 , 1 9 2 2 , 8 1 0 8 0 , 6 1 3 8 4 , 1 1 3 0 1 , 7 1 2009 2010 5 5 1 , 0 5 2 6 5 , 7 3 9 2009 7 1 , 9 3 3 2010 4 5 , 1 5 7 2008 2008 8 2 Earnings Per Share , 3 2 Net Tangible Assets per Share 2011 Net Tangible Assets Per Share Cents 2008 2 2011 4 1 , 0 6 7 5 3 , 2 5 4 1 3 , 7 5 8 4 5 , 3 7 2011 2009 2010 2012 2008 2012 9 . 3 9 9 . 9 8 7291.6 40859.991341 5468.7 32687.993073 3645.8 24515.994804 1822.9 16343.996536 0.0 2009 2007 8171.998268 2008 0.000000 2010 2008 2011 2009 2012 2010 2011 Asia Pacific Earnings Per Share Cents Europe US 102.799622 1 7 1 , 4 8 5 6 , 3 1 8 5 , 2 91.377442 79.955261 68.533081 57.110901 8 0 1 , 2 45.688721 34.266541 22.844360 11.422180 2 . 2 0.000000 7 . 2 3 7 7 9 , 4 4 . 7 6 9 . 8 3 7 . 2 3 8 . 5 3 8 . 8 2 6 . 0 2 8 . 8 2 6 . 0 2 7 . 0 3 8 . 2 9 . 8 3 2 . 2 4 . 7 6 9 . 9 8 9 . 3 9 8 . 2 0 1 2008 2009 2010 2011 2012 2008 2007 2009 2008 2010 2009 2011 2010 2012 2011 2007 2008 2009 2010 2011 Share Price $ Prices at 30 June each year Cash on Hand $’000 Balance at 30 June each year 49447.0 44502.3 39557.6 34612.9 29668.2 24723.5 19778.8 14834.1 9889.4 3.35 4944.7 3.00 2008 0.0 2009 4.90 4.90 6.09 0 4 1 , 0 2 2 6 0 , 8 1 1 2 9 , 6 1 2 5 , 6 2 1 2 4 , 1 4 5 1 9 , 2 4 7 4 4 , 9 4 2010 2011 2012 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 Sirtex 2012 AR 7 Prices at 30 June each year 0 9 . 4 0 9 . 4 4 4 . 3 5 3 . 3 0 0 . 3 Chairman’s Report Overview of performance I am pleased to present the accomplishments of Sirtex in 2012. Through discipline and strong execution of our strategic business plans, Sirtex has again delivered another year of record revenues and dose sales, achieved solid financial performance and made excellent progress towards our long-term strategic growth objectives. Revenue increased 18 per cent to $82.6 million. Dose sales improved 23 per cent, with increases in all regions underpinning another successful year for Sirtex. Our strong sales performance was the main driver for a 54 per cent improvement in profit before income tax to $22.1 million, compared to $14.3 million the previous year. Net profit after tax and basic earnings per share improved 49 per cent to $17.1 million and 30.7 cents per share respectively. The business continues to focus on capital management, with cash from operations improving 30.7 per cent to approximately $20 million. This strong cash-generating ability enables Sirtex to invest in long-term strategies to build level one clinical data and the further evolution of SIR-Spheres microspheres. Despite these investments and the payment of a $3.9 million dividend (7 cent per share), the Company’s cash on hand1 increased $6.5 million to $49.4 million. Creating value through sustainable long-term growth Developing our internal capabilities in all areas of the business worldwide helped Sirtex achieve another year of sustained growth. Despite the ongoing economic uncertainty in Europe and the US, Sirtex continued its steady, unbroken and impressive path of rising dose sales and market expansion. The release this year of yet more independent clinical study data showing 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 amongst our customers in the international medical community. This growing body of positive clinical evidence supporting wider use of our core SIR-Spheres microspheres product helps ensure our position as a leader in liver cancer and microspheres technology. 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. Business remains in robust shape While the global economic environment provides a challenge for many Australian exporters, our rapidly increasing spread of customers around the world helps us overcome any slowdown in demand that may arise in individual countries. 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 continues to on increasing investment back into our business and preparing 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. Chairman Richard Hill Sirtex 2012 AR 8 1. Cash on hand includes both ‘Cash and Cash Equivalents’ plus ‘Other short-term deposits‘. I am very impressed by the progress made by our teams worldwide as we strive to become a global leader in the treatment of inoperable liver cancer. 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 patients with liver cancer and their families worldwide. Richard Hill Chairman 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 of our growth and the Sirtex growth story is really only just beginning. Board and management There were no changes to the Board of Directors or the executive management team during the year. The stability we enjoy among our workforce is an asset and a key element of our continued success. There has been good progress on the execution of our global growth strategy by the executive management team and the oversight role of the Board has been effective in supporting the achievement of corporate goals. The Board is committed to ensuring the management team has the necessary resources and expertise required to continue to grow the business globally. We have built a strong and dedicated team led by our Chief Executive Officer Gilman Wong. The executive team continues to successfully and consistently work together and their commitment is why our business is in the sound position we enjoy today. Sirtex’s remuneration and long-term incentive policies are a key part of the motivation and retention of our talented staff worldwide. These policies, together with details of the Company’s senior executive remuneration structure, are detailed in the Remuneration Report. Investment in our future We believe that Sirtex has the potential to grow significantly, particularly if the major clinical studies we have invested in provide a positive result. On this premise, our management team has conducted several detailed strategy meetings looking out at least eight years and have now developed what we term our 2020Vision. The 2020Vision strategy provides a focus on what needs to be done to develop the business to ensure we are in a strong position to take full advantage of the growth potential, and helps drive our investment decisions. We are continuing our investment in R&D. A majority of our R&D activity is focused on SIR-Sphere Evolution. We are also continuing to work on developing new technology, collaborating with groups all over the world. For the past decade, Sirtex has maintained its strategic focus on its innovative liver cancer treatment and we are now ideally equipped to transform our growing knowledge and expertise into other effective therapies. Optimistic outlook Our primary mission as a company is to help clinicians worldwide prolong the lives of patients suffering the terrible effects of liver cancer; this in turn will ensure our success as a business organisation. We are very optimistic about the medium to long-term outlook for our business. All of the fundamental trends and drivers of our business point in the right direction: a growing, ageing global population; increasingly affluent emerging markets combined with an undiminished need for better clinical outcomes and solutions to address a global disease that is currently not effectively treated. Sirtex 2012 AR 9 Chief Executive Officer’s Report Sirtex continues to offer a treatment option to an increasing number of patients with inoperable liver cancer and is delivering record results for our shareholders. A promising outlook ahead Sirtex enjoyed another successful year, with record dose sales and record revenue. The results detailed in this report show our business is firmly fixed in a steady growth trajectory that will carry through into the next decade. This promising outlook is a direct result of the successful implementation of the plans, investment and strategies put in place over the past few years. What sets Sirtex apart from other successful and profitable healthcare technology companies is the fact that even though we are a profitable successful business growing at healthy rates year-on-year, there is still significant growth potential ahead. Our global customer base is steadily expanding, a growing body of positive clinical data is fuelling product demand, our global manufacturing, sales and marketing capabilities are robust and a number of promising new therapeutic products are poised to move into the clinic. During the 2012 financial year we placed great emphasis on refining our plans and strategies looking out at least eight years in what we term our 2020Vision. 2020Vision aims to define where Sirtex could be in the year 2020 and enables us to develop and implement appropriate strategies and investment decisions to ensure Sirtex is well positioned to take full advantage of its growth potential. This report outlines the progress we made in 2012 towards securing sustainable long-term business success and why we believe the coming years hold great promise for our customers and shareholders. Another year of record financial performance In 2012, sales of SIR-Spheres microspheres continued to grow, with dose sales up 23 per cent to 6,141 doses. Over the past five years, dose sales have increased by an average of 24 per cent per annum, with doses sold nearly trebling since 2007. Total sales revenue for 2012 was $82.6 million, up 18 per cent. 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 of $17.1 million was an improvement of 49 per cent. A truly global business In the US we had an outstanding year, with dose sales increasing by 32 per cent to 3,924 and $57 million in revenue. The result reflects the successful implementation of targeted strategies and investments made in expanding our US sales and marketing teams over the past two years. During 2012, we relocated the US regional head office into larger facilities in Boston to accommodate both current and future growth of the US business. The European region faced several challenges in the first half of the financial year. In response, our European team revised strategies and recovered in the second half of the financial year to achieve a sales growth of 4 per cent to 1,661 doses and $22 million in revenue. We are confident that our European business is well placed to deliver improved performance following a very economically challenging year. The team continues to expand to accommodate future expansion as demand for our product in Europe increases. Chief Executive Officer Mr Gilman Wong Sirtex 2012 AR 10 Our business in the Asia Pacific region had another excellent year, with sales up by 37 per cent to $4 million, with 556 doses sold. While this is a good result, we are working from a low base and are still in the very early stages of development in this fast-growing region. We expect this strong growth trend to continue in the Asia Pacific region, and will continue to invest in expanding the team with oncology and clinical support professionals over the next several years. Good progress was made in achieving reimbursement in Hong Kong, and we are working towards attaining this in other Asia Pacific markets. Overall, we expect dose sales growth to remain strong and consistent in all geographic markets in 2013. Clinical studies building evidence Globally, governments are placing increased focus on the spiralling costs of healthcare. Good clinical data is required to demonstrate the clinical value and long-term cost effectiveness of healthcare products. These are prime considerations for Sirtex when we are making investment decisions in clinical studies. Although the Company’s dose sales continue to grow year-on-year, additional clinical data is required from large randomised clinical studies in order to achieve a greater acceptance of SIR-Spheres microspheres by the international medical community. Accordingly, Sirtex is investing more than $60 million over a five-year period to build our global clinical support capability and support 20 studies under way around the world. Five of these are major international studies involving over 2,000 patients. The result of this strategy and investment is that patient enrolment in all of our major studies worldwide continued to accelerate, with recruitment rates improving 61 per cent this year. We expect the SIRFLOX randomised controlled study will complete patient recruitment early in calendar 2013, and the SIRveNIB clinical study is on track to complete patient recruitment during 2014. The clinical results of both these studies should be available approximately 18 to 24 months after completion of recruitment. Study Name Total patients % Recruitment at 30 June 2012 SIRFLOX FOXFIRE SORAMIC SIRveNIB SARAH 450 490 360 360 400 90% 24% 21% 35% 7% A core aim of our clinical investment is to provide the evidence that demonstrates SIR-Spheres microspheres can be an effective first line of treatment for inoperable liver cancer. The data published from several smaller studies gives us confidence that SIR-Spheres microspheres have the potential to change the way liver cancer is treated worldwide. In addition to the randomised clinical studies, there has been a growing body of clinical evidence and awareness among the medical community and patients about the potential benefits of SIR-Spheres microspheres. During calendar 2011 there were 138 peer-reviewed publications containing information about SIR-Spheres microspheres. In addition, doctors presented the results of two large studies on SIR-Spheres microspheres in the treatment of inoperable liver cancer. These studies were multi-centre retrospective analyses of patients, with 587 patients in one and 606 in the other. Both demonstrated prolonged survival benefit with the use of SIR-Spheres microspheres. We are confident our major studies will deliver on their recruitment milestones. Should the studies provide positive results, they will position us even more strongly for future growth. Strong customer focus drives our R&D Our investment in R&D is laying the foundations that will underpin our technology leadership position for many years to come. A significant part of our R&D efforts are focused on the SIR-Spheres Evolution Program which is being conducted in close consultation with customers worldwide. The program aims to provide clinicians with improved ways to simply, efficiently and accurately administer our product to meet individual patient requirements. This will make our product easier to use by a larger number of clinical specialists and facilitate wider market acceptance. The SIR-Spheres Evolution Program involves the development of a new patient treatment planning system to enable highly tailored, patient- specific therapy planning prior to the administration of SIR-Spheres microspheres. Clinical testing to validate the patient treatment planning system is now under way, with the ultimate goal being even better clinical outcomes. The program also involves developing new delivery apparatus to facilitate the administration of SIR-Spheres microspheres. During 2012 we completed laboratory testing and validated the underlying mechanism. We are now moving towards finalising the design. Our strong regulatory, clinical, medical, sales and marketing capabilities are proof that we know how to effectively commercialise new technology. It is imperative that we continually evaluate opportunities and ensure that Sirtex maintains its competitive advantage. To this end, we have made good progress on the next-generation SIR-Spheres microspheres product Sirtex 2012 AR 11 change in growth. This includes continued investments in our sales and marketing, clinical, clinical training, manufacturing capacity and logistics. I am confident that within our business we have a growing number of dedicated people with the skills to help us achieve our goals. On behalf of the Board, I would like to thank every employee for his or her continued efforts to ensure we deliver on our commitment to patients with liver cancer, the medical community and our shareholders. What is particularly gratifying is that each day the product we make and sell helps a growing number of dedicated medical professionals worldwide bring hope to those who need it most. Thank you for your continued support and confidence in our company. We look forward to further building on our achievements in 2013. Gilman Wong Chief Executive Officer and have a large pipeline of promising new technologies. Our important R&D work is being undertaken in collaboration with leading academic and research bodies worldwide. Specialists from a range of medical, software and engineering disciplines and backgrounds contribute to the program which seeks to identify, develop and commercialise new technologies that build on our current core expertise. Efficient operations and logistics We currently supply our SIR-Spheres microspheres product from our own manufacturing plants in the US and Singapore, as well as from the Australian Nuclear Science and Technology Organisation (ANSTO) in Sydney. Our in-house manufacturing process incorporates state-of-the-art robotic equipment, ensuring we achieve the very highest levels of quality control compliant with all the applicable regulatory requirements globally. The growth in dose sales coupled with the short half-life of our product provides us with some challenges in manufacturing and logistics that we have met and overcome. As dose sales continue to grow, we have taken steps to further improve operational efficiency and streamline our processes. We have worked with our suppliers, both material and logistics, to ensure we are in a position to satisfy the growing demand for SIR-Spheres microspheres in the years to come. As part of our 2020Vision strategy we are evaluating our requirements for additional capacity and enacting plans to make the necessary investments. Investment in people As we grow our business to meet the needs of our customers, we are continuing significant investment to build the capability of our workforce in all areas of Sirtex globally. Our priority is to attract and retain the best talent, and over the past year our staff numbers have increased 36 per cent to 144 full-time employees worldwide. In 2013 we plan to increase this number to over 185. It is an exciting time for the many new employees who have recently joined Sirtex. This year we developed a focused and comprehensive employee induction system aimed at helping all new employees to quickly absorb our standards and core values. The program gives new employees a good understanding of the needs of our customers and what it is like to be a patient receiving our product, thus ensuring a common focus. In a competitive global talent market, we enjoy a low staff turnover. This demonstrates the attractive working culture we have developed, and provides another competitive advantage for Sirtex. The talent, dedication and passion displayed by our staff is a major contributor to our success. We remain deeply committed to providing and maintaining a safe and healthy workplace for all employees, and are implementing a range of initiatives addressing quality of life and work balance. A confident future As we look ahead to 2013 and beyond, we expect continued sales growth across all regions due to the growing awareness of the effectiveness of SIR-Spheres microspheres. During the past several years we have implemented business strategies to develop the business, and these have seen Sirtex grow to be the profitable, robust business it is today. To address longer term growth, we have made significant investments in large-scale clinical studies. Positive results from these studies will position Sirtex to potentially become a leader in the treatment of inoperable liver cancer. Our 2020Vision strategy is aimed at ensuring that Sirtex is in a strong position to take advantage of a step- Sirtex 2012 AR 12 Other Key Management Personnel* Darren Smith – Chief Financial Officer and Company Secretary Experience and Expertise Mr Smith was appointed Company Secretary in July 2008 and Chief Financial Officer in February 2009. Mr Smith previously held CFO and senior executive finance and general management positions in a number of international, Australian listed and private companies. Mr Smith holds an MBA from the Australian Graduate School of Management (AGSM), The University of New South Wales, a Bachelor of Business from the University of Western Sydney, and he has been a member of CPA Australia for over 20 years. Responsibilities Mr Smith has overall responsibility for the Finance function of the group including IT and Human Resources. Dr Burwood Chew – CEO Asia Pacific Experience and Expertise Dr Chew joined Sirtex in January 2011 as Head of the Asia Pacific region. Dr Chew has extensive experience in oncology and for many years has held senior regional positions with Bayer Healthcare, Sanofi-Aventis, and with Wellcome (now GSK). Dr Chew is a medical graduate from the University of New South Wales. Responsibilities Dr Chew is based in our regional office in Singapore with responsibility for the development and execution of the strategic direction of Sales and Marketing in Australia, New Zealand and Asia Pacific. This large region comprises heterogeneous markets with direct sales, distributors and licensing partners. Michael Mangano – President US Experience and Expertise Mr Mangano joined Sirtex in January 2010, after 15 years of experience in the medical device industry with Boston Scientific where he had numerous management positions both within the US and internationally. Responsibilities Mr Mangano is based in our regional office in the greater Boston area and responsible for the development and execution of the strategic direction of Sales and Marketing in North, Central and Latin America. Nigel Lange – CEO Europe Experience and Expertise Mr Lange joined Sirtex US in 2002, then set up Sirtex operations in Europe. Before joining Sirtex, Mr Lange held senior roles at Nordion Inc (NYSE:NDZ) and has over 20 years of experience in the healthcare industry. Responsibilities Mr Lange is based in our regional office in Bonn, Germany, where he is responsible for the development and execution of the strategic direction of Sales and Marketing in Europe as well as the Middle East and Africa, a region which for Sirtex comprises a total of 20 countries with direct sales and distributor sales models. Dr David Cade – Global Medical Director Experience and Expertise Dr Cade joined Sirtex in 2003 and has served as the Chief Medical Officer since 2007. He previously held the positions of US Medical Director based in New York, USA, from 2005 to 2007, and European Medical Director based in Bonn, Germany, from 2003 to 2005. Dr Cade is a medical graduate of Monash University, and holds an MBA from the Melbourne Business School and the ESADE Business School in Barcelona, Spain. Prior to joining Sirtex, Dr Cade worked at Booz Allen Hamilton, a global management consultancy. Responsibilities Dr Cade has responsibility for all medical affairs of the group, and is based in the Sydney head office. Robert Hardie – Head of Global Operations Experience and Expertise Mr Hardie joined Sirtex in June 2006 and was appointed Global Head of Operations in October 2006. Mr Hardie previously held senior engineering and management positions in various industry sectors, and has a strong engineering, manufacturing, production planning and logistics background. Responsibilities Mr Hardie has overall responsibility for global operations including manufacturing, supply chain management and logistics. Mr Hardie is based in the Sydney head office. * Excluding Board of Directors. Please refer to the Director’s Report on page 18. Sirtex 2012 AR 13 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’ in its most recent version issued on 30 June 2010. 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 Renumerate fairly and responsibly Sirtex Medical Limited corporate governance practices were in place throughout the year ended 30 June 2012 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, which includes, but is not limited to, the following policies and pronouncements: Board Charter Board Committees Audit and Remuneration Committee Charter Directors’ Code of Conduct Securities Trading Policy Continuous Disclosure Policy Risk Management Policy Corporate Code of Conduct Sirtex 2012 AR 14 Board Functions The Board’s prime responsibility is to oversee Sirtex’s business activities for the benefit of all 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 details 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 into 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 Limited 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 Position Non-Executive Chairman Non-Executive Deputy Chairman Grant Boyce Non-Executive Director The Board has procedures to permit Directors, in the furtherance 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 Term 8 Years 7 Years Grant Boyce 10 Years Gilman Wong 7 Years 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 12 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. Sirtex 2012 AR 15 The Audit Committee is also responsible for nomination of the external auditors and reviewing the adequacy of the scope and quality of the annual statutory audit and half-year statutory review. The Audit Committee’s 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 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 to provide and has provided to the Board a report assessing the efficiency and effectiveness of risk management and associated internal compliance and control procedures. Diversity The Company has implemented a diversity (Equal Employment Opportunity) policy. Whilst the Company recognises that promoting the role of women at all levels within the organisation, as well as facilitating other diversity initiatives, is important, the Company considers that because of a limited pool of appropriate candidates for many roles, it would be detrimental to the organisation to recruit on any other basis than merit. The Board and executive management continue to identify and monitor the general areas of risk including: At 30 June 2012, the percentage of females working within the organisation was as follows: Economic outlook All staff Female % Female 133 4 12 117 58 0 1 57 44% 0% 8% 49% Political policy regarding healthcare and reimbursement All roles Board Executives Other 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 health 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 Sirtex 2012 AR 16 Financial Report For the Year Ended 30 June 2012 Sirtex Medical Limited Consolidated Entity ABN 35 078 166 122 Table of Contents 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 18 30 31 32 35 36 37 38 39 67 68 Sirtex 2012 AR 17 The Directors of Sirtex Medical Limited present their report, together with the financial statements of the Group, for the year ended 30 June 2012. Directors The Directors of Sirtex Medical Limited 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 – Chairman (Non-Executive) BA, LLB (Sydney), LLM (London) Experience and Expertise Mr Hill was appointed 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 last 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 – Deputy Chairman (Non-Executive) 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 and North America. Directorships held in other listed entities during the last three years Nil Special Responsibilities Chairman of the Remuneration Committee and Member of the Audit Committee Interest in Shares and Options 5,000 ordinary shares in Sirtex Medical Limited Grant Boyce – Director (Non-Executive) 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 last 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 last three years Nil Interest in Shares and Options 182,188 Executive Performance Rights, nil interest in shares Sirtex 2012 AR 18 Directors’ 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 64,000 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 Held Attended Held Attended Held Attended Board of Directors Remuneration Committee Audit Committee R Hill (Chairman) Dr J Eady G Boyce G Wong 12 12 12 12 Principal activities 12 12 12 12 8 8 8 – 8 8 8 – 3 3 3 – 3 3 3 – Sirtex Medical Limited and its controlled entities (‘the 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, EMEA (Europe, Middle East & Africa) and the United States of America. Review of operations and financial results Revenue from the sale of goods for the year ended 30 June 2012 was $82,627,741, representing an increase of 18% from the previous year’s $70,285,924. Foreign currency fluctuations had a mixed impact on the business. The US dollar depreciated against the Australian dollar from 30 June 2011 to 30 June 2012 by 4%, resulting in higher volume growth than revenue growth, and the Euro declined by 9.3% during the period, resulting in revenue growth in EMEA remaining behind volume growth when converted into Australian dollars. Sales volumes, measured in dose sales, grew by 23% over last year, with all regional markets contributing to the growth. The key US market, representing approximately 64% of total dose sales, achieved growth of 32%, selling 3,924 doses. Dose sales in EMEA grew by 4%, selling 1,661 doses, and Asia Pacific achieved 37% growth with promising opportunities as the business continues to develop new markets within Asia Pacific. Gross margin increased marginally to 81% for the year ended 30 June 2012 compared to 80.8% for last financial year as a result of higher manufacturing volumes. Profit after tax for the year ended 30 June 2012 was $17,103,213, an increase of 49% (2011: $11,479,332). A significant part of the Group’s clinical activities is focused on five major post-marketing clinical trials. Consistent with last year, expenditure for these trials has been capitalised as they continue to satisfy the recognition criteria for internally generated intangible assets. Capitalised costs incurred for these trials as well as for two smaller development projects during the financial year ended 30 June 2012 represent a total of $8,544,713 compared to $6,631,261 for the previous financial year. Dividends An ordinary dividend of 7 cents per share was declared for the financial year ended 30 June 2011 and paid during the financial year ended 30 June 2012. Sirtex 2012 AR 19 Directors’ Report 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 those 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 Sirtex Medical Limited and its related entities comply with all environmental regulations in all jurisdictions in which it operates. 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 Vesting Exercise Price $ Number under Rights 22 February 2011 23 August 2011 30 June 2013 30 June 2014 nil nil 374,188 456,000 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 2012, there were no ordinary shares of Sirtex Medical Limited issued on the exercise of options. No share options have been issued during the year, and no share options are outstanding at 30 June 2012. 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 2012 2012 2011 2011 Ordinary Shares Performance Rights Ordinary Shares Performance Rights – 5,000 5,000 – – – – 182,188 – – 5,000 – – – – 90,188 Indemnification of officers and auditors During 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 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. Sirtex 2012 AR 20 Events after reporting date On 24 July 2012, the Directors decided to issue a new tranche of Executive Performance Rights. A total of 547,000 performance rights will be offered to Executives and senior managers of the Company, and a total of 140,000 performance rights will be offered to the Chief Executive Officer subject to shareholder approval. On the 3 August 2012, the Company announced plans to triple manufacturing capacity of SIR-Spheres microspheres in the United States. 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. 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. 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. A total of $117,000 has been paid as remuneration of the auditor of the parent entity and a total of $95,000 has been paid as remuneration of the auditors of subsidiaries for audit and review of financial reports for the year. Auditor’s independence declaration The auditor’s independence declaration for the year ended 30 June 2012 has been received and can be found on page 30 of the financial report and forms part of the Directors’ 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. Sirtex 2012 AR 21 Directors’ Report 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. 1. Remuneration Policies 1.1. Non-Executive Director Remuneration 1.1.1. Policy The Board’s policy for setting non-executive directors’ fees is to position them around the middle of the market practice for comparable non-executive director roles in companies listed on the Australian Securities Exchange (ASX). Non-executive director fees are expressed as inclusive of superannuation contributions. Retirement benefits other than those funded via superannuation contributions are not provided for non-executive directors. Options and other forms of equity are not provided to non-executive directors as part of their remuneration packages. The current policy for setting non-executive directors’ fees is consistent with ASX Listing Rule 10.17.2 which requires that any fees to be paid to non-executive directors be paid as a fixed sum. The aggregate fees limit is $625,000 and was approved by shareholders in October 2010. 1.1.2. Individual Remuneration of Non-Executive Directors The following table outlines the remuneration paid to each non-executive director: Name Role(s) Year Board Fees R Hill Chairman of the Board Deputy Chair & Chair of Remuneration Committee Non-Executive Director & Chair of Audit Committee Dr J Eady G Boyce Total 2012 2011 2012 2011 2012 2011 2012 2011 $ 145,250 140,000 64,840 39,398 72,625 70,000 282,715 249,398 Committee Fees $ Super- annuation $ Other Benefits $ – – 5,188 5,000 10,375 10,000 15,563 15,000 – – 25,922 48,102 – – 25,922 48,102 – – – – – – – – Equity Total $ – – – – – – – – $ 145,250 140,000 95,950 92,500 83,000 80,000 324,200 312,500 1.2. Executive Remuneration (Other Key Management Personnel) 1.2.1. Policy The Board’s policy for setting executive remuneration is to determine the midpoints for Base Packages (the annual company cost of salary, superannuation contributions, other benefits and fringe benefits tax) around the middle of market practice for comparable executive roles in companies operating in the country in which the executive is located. For executives located in Australia these companies are ASX listed companies of similar size to Sirtex Medical Limited (the Company) and as far as possible have operational characteristics similar to the Company. For each executive role a range from 80% to 120% of the Base Package policy level is used to recognise the competence of the individual in fulfilling the role. It is intended that a competent incumbent fulfilling the role to the extent of expectations would receive a Base Package close to the midpoint (100%) level, and that higher positioning would be reserved for outstanding individuals. Any individual who has a Base Package outside the 80% to 120% range is noted and managed as an exception with a view to bringing the Base Package within the range over time. The selection of this policy for Base Packages aims to ensure that fixed remuneration for executives is consistent with market practice yet Company fixed costs are controlled at reasonable levels. In addition to Base Packages, executives participate in short-term incentive (STI) plans and a long-term incentive (LTI) plan, which are considered ‘at-risk’ remuneration. Base Package combined with the target levels of STI and LTI aim to bring the Total Remuneration Packages (TRPs) up to around the 75th percentile of relevant market practice. The 75th percentile is the level at which 75% of the market TRPs fall below the Company’s target TRP and 25% fall above the Company’s target TRP. The addition of the STI and LTI aims to ensure that the TRPs have a strong focus on performance and incentives are appropriately balanced between short and long-term objectives. The target level of performance aims to be challenging but achievable. A stretch level of opportunity is attached to the LTI. Its purpose is to encourage executives to strive for outstanding performance and if achieved will allow them to realise TRPs in the upper quartile of market practice. Sirtex 2012 AR 22 The foregoing policy aims to enable the Company to attract, retain and motivate the calibre of executives required for the Company to achieve its challenging business plans. The remuneration profiles that result from this approach are as shown in the 2012 year table below but have been adjusted to increase the performance focus for the 2013 year as shown below. Remuneration element Managing Director Direct Reports Remuneration Profiles expressed as % of base packages – 2012 Base package STI – target LTI TRP Target (%) Stretch (%) Target (%) Stretch (%) 100 30 45 175 100 30 90 220 100 25 25 150 100 25 50 175 Remuneration element Managing Director Direct Reports Remuneration Profiles expressed as % of base packages – 2013 Base package STI – target LTI TRP Target (%) Stretch (%) Target (%) Stretch (%) 100 30 45 175 100 30 135 265 100 25 25 150 100 25 75 200 The following table indicates the extent to which the executive remuneration policy is related to Company performance: Policy Area Relationship to Company Performance Base Package Base Package is linked to Company performance via benchmarking which takes market capitalisation (largely linked to share price) into consideration. Incentives The incentive policy is linked to Company performance and is used to focus executive performance on those behaviours that are expected to lead to good or outstanding Company performance. The key performance indicators (KPIs) and hurdles selected to measure performance for the purposes of incentives are linked directly to Company performance or indirectly to outcomes that are expected to contribute to Company performance. The policy also seeks to ensure that an appropriate mix of STI and LTI are offered to each role according to the impact that the role may have upon the short and long-term performance of the Company. Internal perspectives of Company performance tend to be related to revenue, profit, growth in intrinsic value, achievement of milestones or business unit outcomes. Internal performance indicators tend to be the focus of short-term incentives under the policy. External perspectives of performance tend to focus on market value, share price or TSR which may or may not be related to the Company’s actual performance as these indicators tend to be highly influenced by external factors. External performance indicators tend to be the focus of long-term incentives under the policy. Orienting target incentives to achieve TRPs that fall between P50 and P75 of the market helps retain the calibre of executives needed and encourages a culture of performance more strongly than would a policy targeted around a lower positioning. Sirtex 2012 AR 23 Directors’ Report 1.2.2. Individual Remuneration of Executives The following table outlines the individual remuneration of executives for the years ending 2011 and 2012 from the perspective of the accounting standards and the Corporations Act. It should be noted that while this approach is compulsory, it arguably does not provide a clear view of the actual remuneration package offered to an individual in a given year. For example the disclosed LTI amount is an amortised accounting charge usually encompassing a portion of grants for a number of years rather than the target LTI offered as remuneration for the 2012 financial year. Name Year Salary Super- annuation Other benefits Short-term benefits Base package % of TRP $ Bonus % of TRP $ Long-term benefits Share-based payments % of TRP $ Total Remuneration Package $ G Wong D Smith R Hardie Dr D Cade M Mangano N Lange M van den Berg (1) D Turner (2) Dr B Chew Total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 $ $ 483,202 464,801 330,775 284,801 324,925 249,801 250,225 241,201 337,242 319,680 364,715 314,150 – 375,129 – 371,287 307,787 152,870 49,048 15,199 15,775 15,199 15,775 15,199 15,775 15,199 – 6,430 – – – – 532,250 480,000 346,550 300,000 340,700 265,000 266,000 256,400 $ – – – – – – – – – – – – 3,876 – 24,757 32,758 365,875 352,438 85,493 – – 130,391 450,208 444,541 – – 381,559 100 – 371,287 28,791 19,262 336,578 172,132 68 110,000 55,000 85 14 141,608 27,946 10 74 84 77 89 77 89 73 87 80 94 – 90 78 67 70,000 48,000 55,000 25,000 40,000 25,000 84,310 44,697 62,241 20,627 – – – 33,748 43,090 76,150 15 13 12 8 12 9 17 11 11 4 – – – 8 49,598 9,606 46,231 8,428 39,398 8,149 51,370 10,226 51,370 10,226 – – – 8,614 10 29 51,370 10,226 2,398,870 100,250 139,051 2,638,171 67,226 182,411 3,023,357 2,773,720 75 464,641 88 328,222 13 430,946 93,421 10 18 5 11 3 10 3 11 3 10 3 9 2 – – – 2 12 4 12 3 783,858 562,946 466,148 357,606 441,931 298,428 345,398 289,549 501,566 407,361 563,818 475,394 – 381,559 – 413,649 431,038 258,508 3,533,758 3,445,000 (1) 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. (2) D Turner ceased to be part of key management personnel for the year ended 30 June 2012. Sirtex 2012 AR 24 2. Performance-Related Remuneration The STI is designed to encourage outstanding performance under two equal broad headings, being overall Company performance as measured by Company earnings before interest, tax, depreciation and amortisation, excluding FX, Clinical and R&D expenditure (normalised EBITDA) and individual contributions. The selection of Company EBITA was designed to encourage team work and a one-company approach by all members of the top executive team. STI awards for the Company performance component are nil for less than 95% of budget, 12.5% the target award opportunity for 95% of budget, 50% of the target award opportunity of achieving budget and pro-rata between 95% and 100% of budget. Up to 55% of the target award opportunity may be earned for exceeding budget by 10% but a corresponding reduction in the individual component occurs so as to maintain the maximum STI award opportunity. A range of factors e.g. leadership, expense control, contribution margin and progress against milestones, are used to assess individual performance, and are factors, judged by the Board as most likely to contribute to Company success. Actual performance is judged by the Board after receiving input from the Managing Director in relation to his Direct Reports. The LTI plan operates on the basis of annual grants of Performance Rights (when a parcel of Performance Rights vests it is paid as to $1,000 in cash and the remaining value is paid in Sirtex shares purchased on market). Vesting of the Performance Rights is subject to Sirtex’s total shareholder return (TSR) over a measurement period commencing at the beginning of the financial year of the grant and ending three years later. TSR is the cumulative gain over a period for shareholders from growth in the share price and dividends, assuming that dividends are reinvested into the Company’s shares. TSR was chosen because it reflects Company performance from the perspective of shareholders. While other measures of performance have merit, the Board at the time preferred to limit the measures used to one so as to simplify the operation of the LTI plan. Absolute TSR using the scale in table 2.1 is used to assess performance. Sirtex’s TSR will be calculated either by an independent third party or by the Company with the calculations checked by the Company’s auditor. In selecting the 15%, 20% and 30% as the threshold, target and stretch levels of TSR respectively, it was noted that 12% is the accepted long-term average return received by shareholders from investing in stocks on major stock exchanges around the world. It was also recognised that investors in Sirtex would be seeking returns in excess of the long-term average. Absolute TSR was seen as more relevant to Sirtex and less complex to administer than relative TSR which is increasingly being criticised by various stakeholders. The approach to calculation of the Company’s TSR was selected to ensure accuracy. The LTI plan has been in operation since the 2010–11 year and two grants of Performance Rights have been made. Performance level , Threshold Threshold Target Stretch TSR over measurement period % of rights to vest ,52.09% ie 15% CAGR* 52.09% ie 15% CAGR* .52.09% & ,72.8% 72.8% ie 20% CAGR* .72.8% & ,119.7% >119.7% ie 30% CAGR* – 25% Pro-rata 50% Pro-rata 100% *CAGR = compound annual growth rate No equity instruments were provided to Key Management Personnel (KMP) during the financial year ended 30 June 2012 that did not have performance-related vesting conditions. Sirtex 2012 AR 25 Directors’ Report 3. Equity No options were granted to or held by KMP during the financial year ended 30 June 2012. 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: 2012 KMP G Wong D Smith R Hardie Total 2011 KMP G Wong D Smith R Hardie Grant Details Exercised Vested Forfeited Date No. Value No. 23 August 2011 92,000 206,062 23 August 2011 33,000 73,913 23 August 2011 33,000 73,913 Dr D Cade 23 August 2011 24,000 53,755 M Mangano 23 August 2011 33,000 73,913 N Lange 23 August 2011 33,000 73,913 Dr B Chew 23 August 2011 33,000 73,913 281,000 629,382 Grant Details Exercised 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. – – – – – – – – – Vested $ – – – – – – – $ – – – – – – – – – No. – – – – – – – Forfeited No. – – – – – – – – – $ – – – – – – – $ – – – – – – – – – – – – – – – – – – – – – – – – – The value of the performance rights issued during the year ended 30 June 2012 has been determined using a Monte Carlo simulation model, using the following input parameter: Issue date Exercise price Duration of performance rights Underlying share price Expected share price volatility Expected dividend Risk-free interest rate 23 August 2011 $nil 3 years $4.90 50% $0.07 per share 5.21% Sirtex 2012 AR 26 The performance condition for vesting is Total Shareholder Return (TSR), measured over a period of three years. The number of rights vested is determined as follows: Issue date TSR (% per annum compound) 23 August 2011 Vesting (%) Less than 15% 15% – 20% 20% – 30% More than 30% 0% 25% 50% 100% 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 23 August 2011 Sirtex Medical Limited 1:1 Ordinary shares in Sirtex Medical Limited From vesting date to 30 June 2018 Exercise price Value per right at grant date Amount paid/ payable by recipient $ nil $ 2.24 $ nil 4. Company Performance The following tables present information required under the Corporations Act: Date Revenue Profit after tax Share price Change in share price Dividends 30 June 2007 30 June 2008 30 June 2009 30 June 2010 30 June 2011 30 June 2012 $M 33.3 38.1 65.6 64.3 70.3 82.6 $M (1.6) (1.2) 18.2 16.1 11.5 17.1 $ 3.44 3.00 3.35 4.90 4.90 6.09 $ (0.44) 0.35 1.55 – 1.19 $ – – 0.07 0.07 0.07 Short-term change in shareholder value over 1 year (SP increase + dividends) Long-term (cumulative) 3 years’ change in shareholder value $ % $ % (0.44) (13) 0.35 1.62 0.07 1.26 12 48 1 26 1.53 2.04 2.95 44 68 88 It should be noted that there are more sophisticated measures of Company performance than those shown above. One of these is called TSR Alpha™. It seeks to assess company performance while taking into account an estimate of the returns that share price movements have indicated that investors in a broad range of companies expected, given the risks involved in investing in a particular company. This is intended to remove whole-of-market movements from the assessment and highlight changes to the intrinsic value of the enterprise as measured via TSR Alpha™. It is being used by companies seeking to gain a clearer understanding of performance from the perspective of shareholders, given the market circumstances that prevailed over the measurement period. If TSR Alpha™ is zero, shareholders’ expectations are likely to have been satisfied; if TSR Alpha™ is negative, shareholders’ expectations have not been met; and if TSR Alpha™ is positive, shareholders’ expectations have been exceeded. Analysis undertaken by The KBA Consulting Group indicates that Sirtex’s TSR Alpha™ over the 3 and 5 years up to the end of June 2012 have been 18.5% and 17.5%, respectively. These levels indicate that shareholders’ expectations have been exceeded. It should also be noted that these levels of TSR Alpha™ would have placed Sirtex’s performance around the 75th percentile of the top 500 ASX listed companies. The LTI is the main component of executive remuneration that is intended to be strongly related to external indicators of Company performance. As the first grant of Performance Rights was in February 2011, with a measurement period of three years ending at the end of June 2013, a full year remains before the first performance measurement period is completed and the first grant of Performance Rights may vest. Sirtex 2012 AR 27 5. Contract Details The following table outlines contract details applicable to current executive KMP incumbents: Name Position held at 30 June 2012 G Wong D Smith R Hardie Dr D Cade M Mangano N Lange Dr B Chew Chief Executive Officer Chief Financial Officer Global Head of Operations Chief Medical Officer President US CEO Europe Region CEO Asia Pacific 6. Strike Comments Responses Duration of contract No fixed term No fixed term No fixed term No fixed term No fixed term No fixed term No fixed term Period of notice Termination Payments From Company From KMP 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months – – – – – 6 months – At the 2011 AGM, more than 25% of votes cast on the Remuneration Report resolution were against, which constituted what has become known as a ‘strike’ under the Corporations Act. The Board invited shareholders to provide comments on the Company’s KMP remuneration policies and practices and has given careful consideration to those comments. As a result, some adjustments to executive KMP remuneration going forward have been made. Up-to-date, independent advice will be sought on non-executive director remuneration before any changes are made to non-executive director remuneration structure. In relation to executive KMP remuneration, the Board has decided to make some changes that will affect the short and long-term incentive plans for the 2012–13 year and to have the market competitiveness of executive remuneration packages independently reviewed. This is planned for late in the 2012 calendar year. A letter was sent to all shareholders in August 2012 outlining in detail the changes to be made to the STI and LTI plans in response to comments by shareholders. Copies of this letter may be obtained from the Company Secretary. 7. External Remuneration Consultant Advice During the year KMP remuneration recommendations were received from external remuneration consultants. The consultants and the amount payable for the information and work that led to their recommendations are listed below: Consultant Remuneration Payable for the Advice Godfrey Remuneration Group Pty Limited $1,680 The consultant also provided other advice during the year and the kinds of advice and remuneration payable for such advice is summarised below: Consultant Kind of Advice Remuneration Payable for the Advice Godfrey Remuneration Group Pty Limited Advice to the Remuneration Committee on market movements in executive remuneration in various overseas countries/regions and assistance in responding to comments on the Remuneration Report. $6,800 Sirtex 2012 AR 28 Directors’ Report So as to ensure that KMP remuneration recommendations were free from undue influence from the KMP to whom they relate, the Company established policies and procedures governing engagements with external remuneration consultants. The key aspects include: • KMP remuneration recommendations may only be received from consultants who have been approved by the Board. This is a legal requirement. Before such approval is given and before each engagement, the Board ensures the consultant is independent of KMP. • As required by law, KMP remuneration recommendations are only received by non-executive directors, mainly the Chair of the Remuneration Committee. • The Company has also established a policy covering engagement of external remuneration consultants. This policy seeks to ensure that the Board controls any engagement by management of Board-approved remuneration consultants to provide advice other than KMP remuneration recommendations and any interactions between management and external remuneration consultants when undertaking work leading to KMP remuneration recommendations. The Board is satisfied that the KMP remuneration recommendations received were free from undue influence from KMP to whom the recommendations related. The reasons the Board is so satisfied include that it is confident that the policy for engaging external remuneration consultants is being adhered to and is operating as intended, the Board has been closely involved in all dealings with the external remuneration consultants and each KMP remuneration recommendation received during the year was accompanied by a legal declaration from the consultant to the effect that their advice was provided free from undue influence from the KMP to whom the recommendations related. The Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors. Gilman Wong Director 29 August 2012 Sirtex 2012 AR 29 Auditor’s Independence Declaration Sirtex 2012 AR 30 Directors’ Declaration The Directors of the Company declare that: 1. the financial statements and notes, as set out on pages 35 to 66, 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 2012 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. b. c. the financial records of the Company for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001 the financial statements and notes for the financial year comply with Accounting Standards, and 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, 29 August 2012 Sirtex 2012 AR 31 Independent Auditor’s Report Sirtex 2012 AR 32 Independent Auditor’s Report Sirtex 2012 AR 33 Independent Auditor’s Report Sirtex 2012 AR 34 Statement of Comprehensive Income Directors’ Report for the year ended 30 June 2012 Revenue from the sale 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 Note 2(a) 2(b) 4 19 19 20 Consolidated 2012 $’000 82,627 (15,669) 66,958 3,948 (27,896) (6,590) (535) (1,042) (4,137) (8,545) (43) 22,118 (5,015) 17,103 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 (429) 908 16,674 12,387 Cents Cents 30.7 30.2 7.0 20.6 20.4 7.0 The financial statements should be read in conjunction with the accompanying notes. Sirtex 2012 AR 35 Statement of Financial Position Directors’ Report as at 30 June 2012 Consolidated Current Assets Cash and cash equivalents Other short-term deposits under 1 year 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 6 7 8 9 10 11(a) 12 13 11(b) 14 15(a) 16(a) 16(b) 15(b) 17 18 2012 $’000 13,447 36,000 18,160 889 457 1,648 30 70,631 6,633 16,082 3,310 26,025 96,656 8,753 1,144 6,594 16,490 760 5,858 6,618 23,108 73,548 23,521 287 49,740 73,548 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 The financial statements should be read in conjunction with the accompanying notes. Sirtex 2012 AR 36 Statement of Changes in Equity Directors’ Report for the year ended 30 June 2012 Consolidated Entity Balance at 1 July 2010 Ordinary Shares $’000 23,521 Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of parent entity Share rights reserve Dividends paid or provided for Balance at 30 June 2011 Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of parent entity Share rights reserve Dividends paid or provided for Balance at 30 June 2012 – – – – – 23,521 – – – – – 23,521 Foreign Currency Translation Reserve $’000 Option Reserve $’000 Retained Profits $’000 – – – – 115 – 115 – – – 635 – 750 (943) 909 – 28,965 – 11,479 909 11,479 – – (34) (429) – – (3,904) 36,540 – 17,104 (429) 17,104 – – (463) – (3,904) 49,740 Total $’000 51,543 909 11,479 12,388 115 (3,904) 60,142 (429) 17,104 16,675 635 (3,904) 73,548 The financial statements should be read in conjunction with the accompanying notes. Sirtex 2012 AR 37 Statement of Cash Flows Directors’ Report for the year ended 30 June 2012 Note 5(b) Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Receipts from government grants Receipts from licence fees Recovery of legal fees Interest received Net income tax paid Net cash provided by operating activities Cash Flows From Investing Activities Investment in other short-term deposits Purchase of plant and equipment Internally generated intangible assets Net cash used in investing activities Cash Flows From Financing Activities Payment of dividends Net cash used in financing activities Net (decrease)/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 2012 $’000 79,815 (58,732) – – 500 1,993 (3,589) 19,987 (36,000) (1,092) (8,545) (45,637) (3,818) (3,818) (29,468) 42,915 13,447 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 The financial statements should be read in conjunction with the accompanying notes. Sirtex 2012 AR 38 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2012 Note 1: Statement of Significant Accounting Policies (b) Revenue recognition 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 Limited and controlled entities. Compliance with Australian Accounting Standards ensures that the financial report of Sirtex Medical Limited 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 28 August 2012. 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 Limited has the power to control the financial and operating policies 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. 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. (c) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the 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 Limited 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. Sirtex 2012 AR 39 Note 1: Statement of Significant Accounting Policies (continued) The depreciation and amortisation rates used for each class of asset are: (f) Intangibles (continued) Research and development Development costs have been capitalised to the extent they satisfy the recognition criteria for internally generated intangible assets. Therefore, development expenditure for a total of $8,544,713 has been recognised as an intangible asset for the financial year ended 30 June 2012. Following the initial recognition of the capitalised 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. 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. 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 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. Sirtex 2012 AR 40 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 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 has an Executive Performance Rights Plan in place. 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 22 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. (n) Income tax 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. 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 Limited 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 Group 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. (r) Earnings per share 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 2012 AR 41 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2012 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 2012, 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 22. 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. 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 2012, a total of $100,712 (2011: $455,000) of trade receivables has been estimated as being impaired. Sirtex 2012 AR 42 Notes to the Financial Statements for the year ended 30 June 2012 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 10: Consolidated Financial Statements: Replacement of consolidation requirements in AASB 127 Consolidated and Separate Financial Statements (applicable for annual reporting periods ending on or after 31 December 2013) This amendment broadens the situations when an entity is considered to be controlled by another entity for the purpose of the preparation of consolidated financial statements. The Group has not yet determined the potential impact on the financial statements. AASB 12 Disclosure of Interests in Other Entities: Amendments to disclosure requirements in AASB 127, AASB 128, and AASB 131 (applicable for annual reporting periods ending on or after 31 December 2013) This amendment combines the disclosure requirements relating to an entity’s interests in subsidiaries, joint arrangements, associates, and structured entities. The Group has not yet determined the potential impact on the financial statements. AASB 13 Fair Value Measurement: (applicable for annual reporting periods ending on or after 31 December 2013) The Standard establishes a single source of guidance for determining the fair value of assets and liabilities and expands the disclosure requirements for all assets and liabilities carried at fair value. The Group has not yet determined the potential impact on the financial statements. AASB 2011-4: Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] (applicable for annual reporting periods ending on or after 31 December 2014) The Standard deletes individual key management personnel disclosure requirements for disclosing entities that are not companies. The Standard will not have an impact on the financial statements. AASB 2011-07: Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangement Standards (applicable for annual reporting periods ending on or after 31 December 2014) This Standard makes consequential amendments to various Australian Accounting Standards arising from the issuance of AASB 10, AASB 11, AASB 12, AASB 127, and AASB 128. AASB 2011-9: Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income (AASB 1) (applicable for annual reporting periods ending on or after 30 June 2013) The amendments will change the separation and classification of components of other comprehensive income between reclassification adjustments and those that will not be affected. The Group has not yet determined the potential impact on the financial statements. Sirtex 2012 AR 43 Notes to the Financial Statements Directors’ Report for the year ended 30 June 2012 Note 1: Statement of Significant Accounting Policies (continued) (y) Adoption of new and revised accounting standards (continued) AASB 119 Employee Benefits: (applicable for annual reporting periods ending on or after 31 December 2013). The main change introduced by this Standard is to revise the accounting for defined benefit plans. The Standard is unlikely to have an impact on the financial statements. AASB 2012-5: Amendments to Australian Accounting Standards arising from the Annual Improvements 2009-2011 cycle (applicable for annual reporting periods ending on or after 31 December 2013) These amendments are a consequence of the annual improvement process which provides a vehicle for making non- urgent but necessary amendments to Standards. The Standard will not have an impact on the financial statements. The Group does not anticipate the early adoption of any of the above Australian Accounting Standards. Sirtex 2012 AR 44 Notes to the Financial Statements for the year ended 30 June 2012 2. Revenue and Other Income (a) Revenue from the sale of goods (b) Other revenue from ordinary activities Grant income Licensing income Income from financial institutions Recovery of legal fees Other 3. Profit for the Year Profit from ordinary activities before income tax includes the following expense items: Cost of sales 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 (gains)/losses Unrealised foreign exchange (gains)/losses Consolidated 2012 $’000 2011 $’000 82,627 70,286 – – 2,317 500 1,131 3,948 56 178 2,390 – 44 2,668 Consolidated 2012 $’000 2011 $’000 15,669 13,584 574 22,781 1,169 253 810 (146) (595) 329 19,117 690 285 571 1,704 960 Sirtex 2012 AR 45 4. Income Tax Expense (a) The components of tax expense comprise: Current tax Deferred tax Overprovision in respect of prior years (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% Add/(less): Tax effect of – Non-deductible amortisation – Non-deductible expenses – Non-assessable income – Overprovision 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 (c) Franking Account Franking account balance Consolidated 2012 $’000 2011 $’000 3,079 2,552 (616) 5,015 1,541 1,923 (593) 2,871 22,118 6,635 14,350 4,305 54 275 (1,059) (616) (272) (2) – 5,015 22.7% 54 357 (1,742) (593) 479 (3) 14 2,871 20% 9,577 10,802 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 a 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. Sirtex 2012 AR 46 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 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 Short-term deposits are term deposits with maturity date of less than 90 days. The effective interest rate on short-term deposits was 5.86% (2011: 6.27%). These deposits have an average maturity of 67 days as at 30 June 2012. (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/(increase) in current tax assets (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 Net cash flows from operating activities Consolidated 2012 $’000 2011 $’000 3,447 10,000 13,447 4,915 38,000 42,915 17,103 11,479 1,422 425 (834) 635 (421) (2,498) (1,513) 137 (934) (853) 1,000 1,510 1,022 400 3,386 19,987 954 (284) (143) 115 969 (1,289) 2,349 (69) (322) (875) (3,373) 2,816 589 106 2,264 15,286 Sirtex 2012 AR 47 Notes to the Financial Statements for the year ended 30 June 2012 6. Other Short-Term Deposits Other short-term deposits with financial institutions Consolidated 2012 $’000 2011 $’000 36,000 36,000 – – Other short-term deposits are term deposits with maturity date of more than 90 days and less than 360 days. The average maturity as at 30 June 2012 of these term deposits is 242 days. The effective interest rate on the deposits is 5.54% (2011: n/a). 7. Trade and Other Receivables (a) Trade receivables Trade receivables Provision for impairment (b) Other receivables GST receivables Other receivables Consolidated 2012 $’000 2011 $’000 15,415 (101) 15,315 707 2,139 2,846 18,160 13,271 (455) 12,816 476 857 1,333 14,149 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. Movement in the provision for impairment of receivables is as follows: 30 June 2012 Trade receivables 30 June 2011 Trade receivables Opening balance $’000 Change for the year $’000 Amounts written off $’000 Closing balance $’000 (455) (354) (169) (286) – – (101) (455) An amount of $101,000 was considered impaired as at 30 June 2012 (2011: $455,000). Trade receivables past due but not impaired Less than 30 days overdue 30–60 days overdue More than 60 days overdue Total Consolidated 2012 $’000 3,571 1,288 1,269 6,128 2011 $’000 2,884 1,113 1,265 5,262 Collection history from previous years, and the fact that no trade receivable has ever been written off, support management’s view that receivables less than 180 days overdue are not considered impaired. Sirtex 2012 AR 48 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 Credit risk 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 the form of a financial guarantee. 8. Inventories Raw materials – at cost 9. OTHER FINANCIAL ASSETS Other current financial assets Security deposits paid 10. OTHER CURRENT ASSETS Prepayments 11. 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 of patent costs, trade debtors and miscellaneous The overall movement in the deferred tax account is as follows: Opening balance Credit to the statement of comprehensive income Credit/(charge) to equity Closing Balance Consolidated 2012 $’000 889 889 2011 $’000 1,025 1,025 Consolidated 2012 $’000 2011 $’000 457 457 430 430 Consolidated 2012 $’000 1,648 1,648 2011 $’000 741 741 Consolidated 2012 $’000 2011 $’000 30 643 87 583 892 1,105 3,310 2,476 643 191 3,310 312 711 63 482 337 883 2,476 2,333 391 (248) 2,476 Sirtex 2012 AR 49 Notes to the Financial Statements for the year ended 30 June 2012 12. 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 Sirtex 2012 AR 50 Consolidated 2012 $’000 2011 $’000 1,063 (336) 727 8,893 (2,987) 5,906 – – – 932 (159) 773 7,956 (1,921) 6,035 – – – 9,956 (3,323) 6,633 8,888 (2,080) 6,808 773 – (46) 727 6,035 1,012 (17) (1,123) 5,906 – – – – 6,808 1,012 (17) (1,169) 6,633 1,033 – (260) 773 2,406 4,254 (195) (430) 6,035 892 – (892) – 4,331 4,254 (1,087) (690) 6,808 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 13. 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 Additions 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 2012 $’000 2011 $’000 538 (504) 34 15,176 – 15,176 3,607 (2,735) 872 19,321 (3,239) 16,082 102 5 (73) 34 6,631 8,545 15,176 1,052 (180) 872 7,785 8,550 (253) 16,082 532 (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 Sirtex 2012 AR 51 Notes to the Financial Statements for the year ended 30 June 2012 13. 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 five major Phase IV post-marketing clinical trials and two development projects aiming at improving the use of SIR-Spheres microspheres. The activities 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. Completion for these activities is anticipated for 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%. Consolidated 2012 $’000 2011 $’000 5,258 3,494 8,753 6,111 2,472 8,583 Consolidated 2012 $’000 2011 $’000 1,114 1,114 – – 4,553 520 785 5,858 2,472 3,369 17 5,858 1,989 439 44 2,472 208 2,315 (51) 2,472 14. Trade and Other Payables Trade payables Other accruals and payables 15. 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 Sirtex 2012 AR 52 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 16. Provisions and Accruals (a) Short-term Provisions Miscellaneous accruals and provisions (including employee entitlements) (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 2012 $’000 2011 $’000 6,594 6,594 5,084 5,084 760 760 360 400 – 760 360 360 255 105 – 360 5,084 11,155 (9,645) 6,594 2,268 7,311 (4,495) 5,084 Sirtex 2012 AR 53 Notes to the Financial Statements for the year ended 30 June 2012 17. Issued Capital 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 2012 $’000 2011 $’000 24,779 (1,258) 23,521 55,768,136 24,779 (1,258) 23,521 55,768,136 2012 2011 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 22 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 2012. 18. Reserves Share Rights Reserve Foreign Currency Translation Reserve Consolidated 2012 $’000 2011 $’000 750 (463) 287 115 (34) 81 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. Sirtex 2012 AR 54 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 Consolidated 2012 $’000 2011 $’000 19. Earnings Per Share (a) Basic earnings per share Profit from continuing operations attributable to equity holders 17,103,000 11,479,000 Weighted average number of shares used in the calculation of basic earnings per share 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 22 for further details) (b) Diluted earnings per share 830,188 374,188 Profit from continuing operations attributable to equity holders 17,103,000 11,479,000 Weighted average number of shares used in the calculation of diluted earnings per share 56,598,324 56,142,324 20. Dividends Distributions paid Declared fully franked ordinary dividend of 7 cents (2011: 7 cents) per share franked at the tax rate of 30% (2011: 30%) Balance of franking credit amount at year end adjusted for franking credits arising from payment of provision for income tax Consolidated 2012 $’000 2011 $’000 3,904 3,904 9,577 10,802 Sirtex 2012 AR 55 Notes to the Financial Statements for the year ended 30 June 2012 21. 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. External sales Inter-segment Other Total 2012 $’000 3,840 57,260 21,527 2011 $’000 2,980 45,072 22,235 2012 $’000 2011 $’000 2012 $’000 2011 $’000 89,446 60,416 3,085 2,668 5,264 130 4,264 – – 363 – – 2012 $’000 96,371 62,524 22,020 2011 $’000 66,064 49,336 22,235 180,915 137,635 (94,840) (64,681) 500 – 86,575 72,954 Segment performance Segment revenues Asia Pacific North America EMEA Total of all segments Eliminations Unallocated Consolidated Sirtex 2012 AR 56 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 Segment net profit after tax Asia Pacific North America EMEA 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 EMEA Total of all segments Eliminations Consolidated Other segment information Acquisition of segment assets – Land and buildings – Plant and equipment – Intangible assets Total 2012 $’000 20,589 865 664 22,118 – 22,118 (5,015) 17,103 2011 $’000 11,805 1,825 720 14,350 – 14,350 (2,871) 11,479 Assets Liabilities 2012 $’000 2011 $’000 109,923 133,758 17,799 8,378 15,024 6,454 136,100 155,236 (39,444) 96,656 (78,595) 76,641 2012 $’000 29,949 8,521 6,245 44,715 (21,607) 23,108 2011 $’000 67,710 6,714 4,674 79,098 (62,599) 16,499 Asia Pacific North America EMEA 2012 $’000 – 578 8,550 2011 $’000 – 4,037 6,682 303 282 2012 $’000 2011 $’000 2012 $’000 2011 $’000 – 461 – 342 – – 159 – 300 – – 48 – 50 4 – 58 – 81 3 Depreciation and amortisation of segment assets – Plant and equipment – Intangibles Major customers 778 249 The Group has a number of customers to whom it provides products. No single external customer represents more than 10% of total revenue. Sirtex 2012 AR 57 Notes to the Financial Statements for the year ended 30 June 2012 22. Share-Based Payments On 23 August 2011, a total of 456,000 performance rights were granted to executives and senior managers 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 2014. 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 23 August 2011 Number 374,188 456,000 A total of 92,000 rights were granted to the Chief Executive Officer, and a total of 364,000 rights to other executives and senior managers of the Group. The performance rights vest on 30 June 2014, 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 2011 to 30 June 2014 (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 un-exercisable 22 February 2011 30/06/2013 0 374,188 – 23 August 2011 30/06/2014 0 – 456,000 – – – – 374,188 456,000 – – – – The weighted fair value of the performance rights issued during the financial year ended 30 June 2012 has been calculated at $2.24 (2011: $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 5.21% 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 $635,191 of performance rights plan expense, and relates in full to equity-settled share-based payment transactions. Sirtex 2012 AR 58 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 23. 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 2012 and 30 June 2011. 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 Termination benefits Share-based payment 2012 $’000 3,300,839 126,173 – 430,946 3,857,958 2011 $’000 3,348,401 115,328 200,350 93,421 3,757,500 Key management personnel shareholdings The number of fully paid ordinary shares in Sirtex Medical Limited held by each key management personnel of the Group during the financial year is as follows: Balance at Granted as beginning remuneration Issued on exercise of options Other changes Balance at end 30 June 2012 J Eady G Boyce D Smith 30 June 2011 G Boyce D Smith – 5,000 – 5,000 15,000 – – – – – – – – – – 5,000 – – – (15,000) 5,000 5,000 – 5,000 – 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: KMP 30 June 2012 G Wong D Smith R Hardie D Cade M Mangano N Lange B Chew Total Balance at beginning Granted as of the year remuneration Issued on exercise of options Other changes Balance at end of the year 90,188 31,000 27,200 26,300 33,000 33,000 33,000 92,000 33,000 33,000 24,000 33,000 33,000 33,000 273,688 281,000 – – – – – – – – – – – – – – – – 182,188 64,000 60,200 50,300 66,000 66,000 66,000 554,688 Sirtex 2012 AR 59 Notes to the Financial Statements for the year ended 30 June 2012 Key management personnel rights holdings (continued) KMP 30 June 2011 G Wong D Smith R Hardie D Cade D Turner M Mangano N Lange B Chew Total 24. Parent Entity Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Reserves Retained earnings Reserves Share rights reserve Total reserves Financial performance Profit for the year Other comprehensive income Total comprehensive income Financial guarantees Balance at beginning Granted as of the year remuneration Issued on exercise of options Other changes Balance at end of the year – – – – – – – – – 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 2012 $’000 2011 $’000 56,964 12,705 69,669 4,637 931 5,568 23,521 290 40,290 64,231 290 290 56,030 – 56,030 43,544 12,505 56,049 44,183 135 44,318 23,521 – (11,836) 11,685 46 46 2,937 – 2,937 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 2012. Contractual commitments The parent entity has an operating lease commitment for the office lease in Sydney. Refer to note 25 for further details. Sirtex 2012 AR 60 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 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 62 months 40 months 38 months 19 months 54 months 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 No longer than 1 year Longer than 1 year and not longer than 5 years Consolidated 2012 $’000 1,071 2,454 3,525 2011 $’000 897 2,716 3,613 Research commitments 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 $683,000 (2011: $1,664,000). 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 $5,772,000. The amount of all outstanding contractual commitments as at 30 June 2012 is $10,538,000. Sirtex 2012 AR 61 Notes to the Financial Statements for the year ended 30 June 2012 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 Germany Holding GmbH 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 Germany Singapore Singapore Singapore Singapore Ownership interest 2012 % 2011 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 Sirtex Germany Holding GmbH was incorporated on 1 June 2012. The company holds 100% interest in Sirtex Medical Europe GmbH. 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 Manufacturing Singapore Pte Ltd. Sirtex Medical Limited 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 2012, $nil (2011: $nil) was payable to directors, key management personnel and director-related entities. At 30 June 2012, $nil (2011: $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 of $nil (2011: $5,454,145) and management fees of $49,770 (2011: $nil) from entities in the wholly owned group. (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: $ 3,766,515 (2011: $14,347,564) Loans receivable from subsidiaries: $ 4,434,093 (2011: $3,120,212) Sirtex 2012 AR 62 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 28. Events After Reporting Sheet Date On 24 July 2012, the Directors decided to issue a new tranche of Executive Performance Rights. A total of 547,000 performance rights will be allocated to executives and senior managers of the Company, and a total of 176,000 performance rights will be allocated to Directors subject to shareholder approval, including 150,000 performance rights for the Chief Executive Officer. On the 3 August 2012, the Company announced plans to triple manufacturing capacity of SIR-Spheres microspheres in the United States. 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. 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 2012 $’000 117 – 95 2011 $’000 117 – 59 The auditor of Sirtex Medical Limited 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 counterparty 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 to 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 Other short-term deposits Trade and other receivables Other financial assets* Financial Liabilities Trade and other payables Consolidated 2012 $’000 2011 $’000 13,447 36,000 18,160 457 68,064 8,753 8,753 42,915 – 14,149 430 57,494 8,583 8,583 * 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 2012 AR 63 Notes to the Financial Statements for the year ended 30 June 2012 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 2012 on cash was 3.05% (2011: 4.35%) and on short-term deposits 5.61% (2011: 6.27%). 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 rates 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 2012 $’000 2011 $’000 890 (890) 772 (772) 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 at 30 June 2012, the Group had only non-interest-bearing financial liabilities with less than 1 year maturity (refer Note 14). (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. Sirtex 2012 AR 64 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 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 2012 $’000 2011 $’000 (8,589) 8,589 (3,229) 3,229 (6,761) 6,761 (3,335) 3,335 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. 2012 Group entity (functional currency) North American entities (USD) European entities (EUR) Singapore entities (SGD) Balance sheet exposure 2011 Group entity (functional currency) North American entities (USD) European entities (EUR) Singapore entities (SGD) Balance sheet exposure Net financial assets/(liabilities) USD ’000 EUR ’000 SGD ’000 AUD ’000 8,050 – – 8,050 6,816 – – 6,816 – 4,212 – 4,212 – 3,166 – 3,166 – – (338) (338) – – (155) (155) 7,090 5,205 (261) 12,843 6,816 4,275 (117) 10,974 Foreign Currency Call/Put Options The Group has no currency option open at reporting date. As at 30 June 2012, 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 2012 AR 65 Notes to the Financial Statements for the year ended 30 June 2012 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 2012 USD ’000 2011 USD ’000 2012 2011 6,000 6,000 – – 0.99 n/a 0.95 n/a Sirtex 2012 AR 66 Directors’ Report Notes to the Financial Statements for the year ended 30 June 2012 Number of shareholders 55,768,136 fully paid ordinary shares are held by 3,234 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 NATIONAL NOMINEES PTY LIMITED RBC INVESTOR SERVICES NOMINEES PTY LTD PI POOLED A/C Twenty largest shareholders Ordinary shareholders JP MORGAN NOMINEES AUSTRALIA LIMITED ACN 132 442 114 PTY LIMITED NATIONAL NOMINEES LIMITED RBC INVESTOR SERVICES NOMINEES PTY LTD PI POOLED A/C CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 BNP PARIBAS NOMS PTY LTD SMP AACOUNTS DRP CITICORP NOMINEES PTY LTD COLONIAL FIRST STATE A/C BNP PARIBAS NOMS PTY LTD MASTER CUST A/C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR ERIK ADRIAANSE RBC INVESTOR SERVICES NOMINEES PTY LTD PIIC A/C SCJ PTY LTD SANDHURST TRUSTEES LTD HOUSE OF MAISTER FINANCIAL SERVICES LIMITED CITY AND WESTMINSTER LIMITED RUSSELL BEDFORD HOUSE PACIFIC SECURITIES INC UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD BANNABY INVESTMENTS PTY LTD UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD TILL NO 54 PTY LIMITED Ordinary Shares Holders 864,994 3,182,041 1,625,318 3,702,914 46,392,869 55,768,136 1,570 1,282 213 143 26 3,234 Fully Paid Number Percentage 19,923,346 10,090,604 4,496,255 3,276,447 37,786,652 35.725 18.094 8.062 5.875 67.756 Fully Paid Number Percentage 19,923,346 10,090,604 4,496,255 3,276,447 1,096,915 926,489 917,632 697,393 647,644 598,974 500,000 481,740 350,000 296,755 284,491 250,000 250,000 240,099 210,000 205,550 190,000 45,724,764 35.725 18.094 8.062 5.875 1.967 1.661 1.645 1.251 1.161 1.074 0.897 0.864 0.628 0.532 0.510 0.448 0.448 0.431 0.377 0.369 0.341 81.991 Sirtex 2012 AR 67 Directors’ Report Additional Stock Exchange Informationas at 15 August 2012 Company Information for the year ended 30 June 2012 Registered office Level 33, 101 Miller Street North Sydney NSW 2060 Tel: +61-2-9964-8400 Principal place of business are: Australian Office Level 33, 101 Miller Street North Sydney NSW 2060 Tel: +61-2-9964-8400 United States Office 300 Unicorn Park Drive Woburn MA 01801 USA Tel: +1-781-721-3200 European Office Walter-Flex-Strasse 2, 53113 Bonn 53, Germany 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 Sirtex 2012 AR 68 Directors’ Report