Sirtex Medical Limited
Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2016 2016 01 I SIRTEX Boston, United States Regional Head Office, Manufacturing Facility 11,931 DOSES SOLD 2016 The Americas 2016 HIGHLIGHTS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CONTENTS 03 2016 FINANCIAL SUMMARY 05 CHAIRMAN’S REPORT 07 CHIEF EXECUTIVE OFFICER’S REPORT 14 ENVIRONMENTAL, SOCIAL AND GOVERNANCE 17 BOARD OF DIRECTORS AND COMPANY SECRETARY 18 KEY MANAGEMENT PERSONNEL 20 FINANCIAL REPORT 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Bonn, Germany Regional Head Office Frankfurt, Germany Manufacturing Facility Europe, Middle East, Africa ANNUAL REPORT 2016 I 02 Asia Pacific Singapore Regional Head Office, Manufacturing Facility Sydney, Australia Corporate Head Office DOSE SALES REVENUE NET PROFIT AFTER TAX 11,931 +16.4% $232.5m +32.0% $53.6m +32.8% ABOUT SIRTEX Sirtex Medical Limited is an Australian- based global healthcare business working to improve outcomes for people with cancer. Our lead product is a targeted radiation therapy known as SIR-Spheres® Y-90 resin microspheres. It is available in more than 40 countries, within over 1,000 certified hospitals to treat patients with inoperable liver cancer. Our business revolves around helping medical professionals understand and use our product to improve clinical outcomes and the quality of life for people with liver cancer. At the same time, we work closely with government and private payers to ensure our patients receive the appropriate reimbursement for our product. We are challenging established practices and developing innovative new therapies that promise to improve the health and lives of many people suffering from cancer or other diseases. Our ongoing success is based on a commitment to serving our customers, professionalism, continuous improvement and innovation. 53582.0 48223.8 42865.6 37507.4 32149.2 26791.0 21432.8 16074.6 10716.4 5358.2 0.0 30 27 24 21 18 15 12 9 6 3 0 03 I SIRTEX 2016 FINANCIAL SUMMARY PROFIT AFTER TAX $’000 93.599560 OPERATING CASH FLOW $’000 EARNINGS PER SHARE CENTS 83.199608 72.799657 62.399706 51.999755 41.599804 31.199853 20.799902 0 8 0 , 6 1 9 7 4 , 1 1 3 0 1 , 7 1 0 7 2 , 8 1 8 6 8 , 3 2 2010 2011 2012 2013 2014 10.399951 5 4 3 , 0 4 0.000000 2015 2 8 5 , 3 5 2016 7 8 9 , 9 1 7 2 3 , 4 2 1 7 1 , 2 3 4 7 9 , 1 5 1 1 2 , 5 6 2012 2013 2014 2015 2016 7 . 0 3 8 . 2 3 5 . 2 4 4 . 1 7 7 . 3 9 2012 2013 2014 2015 2016 65449.0 58904.1 52359.2 45814.3 39269.4 32724.5 26179.6 19634.7 13089.8 6544.9 0.0 DIVIDENDS PER SHARE CENTS 106999.967387 SHARE PRICE $ (AT 30 JUNE) 29.05 CASH ON HAND $’000 (AT 30 JUNE) 96299.970649 85599.973910 74899.977171 64199.980432 53499.983694 42799.986955 32099.990216 21399.993477 10699.996739 0 2 0.000000 2015 0.00 0 1 2 1 4 1 2012 2013 2014 0 3 0 9 . 4 9 0 . 6 8 9 . 1 1 8 8 . 6 1 5 0 . 9 2 7 5 . 5 2 7 4 4 , 9 4 4 9 0 , 2 5 5 9 4 , 2 5 1 4 9 , 3 7 5 2 0 , 7 0 1 2016 2011 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 FIVE YEAR SUMMARY Dose sales (units) $’000 Sales revenue Net profit before tax Net profit after tax R&D investment* Clinical investment* Capital investment Total assets at 30 June Total equity at 30 June Net tangible assets at 30 June Earnings per share (cents) 2012 6,141 82,627 22,118 17,103 5,723 12,243 1,092 96,656 73,548 57,314 30.7 2013 7,299 96,774 24,507 18,270 6,615 15,872 3,685 117,766 87,684 59,762 32.8 2014 8,561 129,363 31,110 23,868 7,981 22,168 6,187 148,710 107,583 60,219 42.5 2015 10,252 176,088 52,768 40,345 8,641 20,473 1,692 201,476 144,636 76,609 71.4 2016 11,931 232,492 69,998 53,582 10,835 20,631 1,718 261,717 193,504 110,683 93.7 *Includes both capitalised and expensed items; clinical investment additionally excludes SIRFLOX amortisation expense ANNUAL REPORT 2016 I 04 DOSE SALES GROWTH UNITS 232491.982028 11,931 SALES REVENUE $’000 232,492 10605.333933 9279.667191 7954.000449 6628.333708 5302.666966 3977.000225 2651.333483 1325.666742 0.000000 10,252 8,561 209242.783825 185993.585622 162744.387420 7,299 139495.189217 6,141 116245.991014 92996.792811 69747.594608 46498.396406 23249.198203 0.000000 ASIA PACIFIC EUROPE, MIDDLE EAST & AFRICA THE AMERICAS 176,088 129,363 96,774 82,627 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 REGIONAL SPLIT OF SALES REVENUE 79.7% THE AMERICAS 16.7% EMEA 3.6% ASIA PACIFIC Sales revenue in The Americas up 35.4% on the prior period Sales revenue in EMEA up 20.0% on the prior period Sales revenue in APAC up 20.9% on the prior period (Up 18.9% on constant currency basis) (Up 13.2% on constant currency basis) (Up 16.7% on constant currency basis) 11,931 2016 Dose Sales THE AMERICAS 8,420 Up 19.0% on the prior period EUROPE, MIDDLE EAST & AFRICA 2,528 Up 11.2% on the prior period ASIA PACIFIC 983 Up 8.9% on the prior period 05 I SIRTEX CHAIRMAN’S REPORT FINANCIAL POSITION Sirtex ended the financial year in a very strong financial position with cash and cash equivalents of $107.0 million. The Company has no debt. The strength of Sirtex’s balance sheet provides the financial flexibility required to drive long term growth by purusing opportunities as they arise. DIVIDENDS The Board of Directors is committed to the payment of dividends to our shareholders. The Directors have approved a partially franked final dividend of 30.0 cents per share for the 2016 financial year, up 50.0 per cent over the prior period. This represents a dividend payout ratio of 32.0 per cent on reported earnings per share. The record date for the dividend is 28th September 2016 and the payment date is 19th October 2016. Inclusive of the 2016 financial year dividend payment to be made on 19th October 2016, Sirtex will have returned to shareholders a total of $52.9 million in dividends since 2011. DIRECTOR AND BOARD ACTIVITIES The Board works diligently to ensure the Sirtex global management team has the expertise, capability and resources to execute on their global growth initiatives both now and into the future. In September, the Board welcomed Dr Katherine Woodthorpe as an independent Non-Executive Director of the Company. Dr Woodthorpe has an outstanding track record of achievement across multiple industries, including the medical devices sector and is a valuable addition to the Board. Dr Woodthorpe serves as Chairperson of the Risk, Health and Safety Committee, and is a member of the Audit Committee and the Remuneration Committee. CORPORATE GOVERNANCE & REMUNERATION The Board is committed to achieving and demonstrating the highest standards of corporate governance. As such, Sirtex Medical Limited and its controlled entities (‘the Group’) have adopted a corporate governance framework and practices to ensure they meet the interests of shareholders. The Group complies with the Australian Securities Exchange Corporate Governance Principles and Recommendations 3rd Edition (the ‘ASX Principles‘). Our Corporate Governance Statement incorporates the disclosures required by the ASX Principles under the headings of the eight core principles. All of these practices, unless RICHARD HILL CHAIRMAN On behalf of the Sirtex Board and management, I take great pleasure in presenting the 2016 Annual Report. Our market execution strategies and investment into multiple, large scale clinical studies will continue to drive our growth now and into the future. Given the large global market available for SIR-Spheres® Y-90 resin microspheres, it is important that we continue to invest ahead of the curve to fully capitalise on this unique opportunity. The interventional oncology space is rapidly progressing towards being considered as a fourth pillar of cancer care, alongside long-standing surgical, radiotherapy and chemotherapy- based approaches. Sirtex remains a global leader in this dynamic, growing specialty. Throughout the year, we continued to expand our geographic footprint of treatment centres, received new regulatory clearances and added new country-specific reimbursement. We completed patient recruitment for our two remaining large clinical studies, SORAMIC and SIRveNIB, which is a major achievement. We continued to build awareness on our SIRFLOX data and now have the benefit of the study outcomes being published in a high impact scientific journal, which occurred in February. Additionally, we added new talent including at Board and senior management levels. We have not wavered from the commitment we made under our 2020Vision strategy to build long term, sustainable growth for our investors and other stakeholders. 2016 FINANCIAL PERFORMANCE Sirtex delivered another record year of sales and profits. The Company reported SIR- Spheres microspheres dose sales of 11,931, representing growth of 16.4 per cent over the prior corresponding period. The primary driver of the strong dose sales performance during the year was the Americas region, which delivered outstanding dose sales growth of 19.0 per cent over the prior corresponding period. Total product revenue was $232.5 million, up 32.0 per cent on the prior period. Earnings before interest, tax, depreciation and amortisation (EBITDA) was $74.3 million, up 39.6 per cent, profit before tax was up 32.7 per cent to $70.0 million and net profit after tax was $53.6 million, up 32.8 per cent on last year. This financial year, we recognised a full 12 months of SIRFLOX clinical study amortisation of $3.0 million. Cash from operations was $65.2 million, up 25.5 per cent on the previous year with net cash flow of $33.1 million recorded. 17292.0 15562.8 13833.6 12104.4 10375.2 8646.0 6916.8 5187.6 3458.4 1729.2 0.0 ANNUAL REPORT 2016 I 06 SHAREHOLDER DIVIDENDS DECLARED $’000 7 7 5 , 5 3 3 7 , 6 4 1 9 , 7 3 2 4 , 1 1 2 9 2 , 7 1 2012 2013 2014 2015 2016 “Sirtex ended the financial year in a very strong financial position with cash and cash equivalents of $107.0 million. The Company has no debt. Such a strong bal- ance sheet provides the finan- cial flexibility for the business to pursue opportunities as they arise to drive long term growth.” otherwise stated, were in place for the full reporting period. Sirtex’s Codes and Policies are a key element of our corporate responsibility and govern the way our Directors and employees work. During the year we updated our website to ensure that all Sirtex’s Corporate Governance policies and procedures are available to shareholders and other stakeholders in a single, easy-to-read format within the Investors section of our website. Additionally, we published our Anti-Bribery, Anti-Corruption Policy during the year, and updated our Diversity Policy. Following the release of Guidance Note 8 from the ASX relating to continuous disclosure obligations by listed entities, we also updated our Corporate Communications and Continuous Disclosure Policy to reflect a number of the updated recommendations proposed by the ASX. Sirtex’s remuneration levels, structure and processes are designed to reflect high ethical standards, the laws of the countries in which the executives are employed, and that all staff are treated fairly. During the year, we updated the remuneration pages within the Investors section of our website to include all charters, policies, procedures and rules that relate to Executive and Non- Executive remuneration at Sirtex. We actively encourage investors with any questions or comments regarding the Company’s remuneration structure and processes to contact us directly via the website. OUR PEOPLE With a global workforce of 279 talented individuals across 20 countries, it is not hard to imagine the knowledge, passion, innovation and expertise our employees bring to the organisation each day. The Board recognises and congratulates all staff members for their efforts in helping to shape Sirtex into a global leader in the emerging field of interventional oncology. Sirtex continues to benefit as an organisation with a diverse workforce. At the end of the 2016 financial year, women represented 47 per cent of the total number of employees globally. Sirtex continues to encourage diversity across the business in order to build on identifiable individual strengths within a professional development framework. This is a key focus of our Growing with Sirtex program. As a business, it is important to have a long term strategic focus like the 2020Vision. With such a clear and concise articulation of our long term goals and growth objectives under this strategy, we believe every employee understands his or her role and importance in helping us to realise this vision. A RESPONSIBLE CORPORATE CITIZEN Sirtex recognises the importance of corporate responsibility, and remains committed to conducting business ethically while contributing to the social, environmental and economic wellbeing in those locations in which we operate. We are committed to being a responsible member of the international business community, and acknowledge that our operational integrity and reputation are crucial to our success. The Company assists its employees to become active supporters of worthwhile causes and participate in community programs outside the workplace. During the year, Sirtex made charitable contributions of $0.4 million, representing 0.7 per cent of our FY16 net profit after tax. This is consistent with our global healthcare peers. OUTLOOK Sirtex remains a long term growth proposition by virtue of a significantly under-penetrated market for our innovative SIR-Spheres microspheres product and the growing clinical acceptance of our product for both primary and secondary cancers of the liver. These factors, coupled with continued geographic expansion and new government reimbursement, will continue to underpin our dose sales growth and profitability. It has never been a more exciting time to be at Sirtex. With recruitment now complete in all of our major clinical studies, we eagerly await the reporting of these results, which are anticipated to become progressively available over the next two years. RICHARD HILL CHAIRMAN 07 I SIRTEX CHIEF EXECUTIVE OFFICER’S REPORT NET PROFIT AFTER TAX +32.8% REVENUE GROWTH +32.0% DOSE SALES GROWTH +16.4% GILMAN WONG CEO Our mission is to improve the lives of the many people suffering from cancer or other diseases through the development of innovative new therapies. Our 2016 progress is testament to this foundation belief, which I would now like to outline in more detail. I am pleased to report another record year in dose sales and profits for Sirtex Medical. Our SIR-Spheres® Y-90 resin microspheres business continues to perform strongly. This was underpinned by the Americas, which delivered outstanding dose sales growth of 19.0 per cent and now represents 70.6 per cent of our global mix by volume and 79.7 per cent by revenue. Dose sales in EMEA grew 11.2 per cent. This was a pleasing result despite some timing issues associated with achieving new government reimbursement in several important jurisdictions and a generally tighter reimbursement environment in some existing markets. Dose sales in APAC grew 8.9 per cent, including a very strong performance in Australia, where dose sales grew close to 20 per cent. The field of interventional oncology is moving very rapidly. Our goal, and that of our interventional oncology peers, is to update the current cancer treatment medical paradigm of surgery, chemotherapy and radiotherapy to include a fourth pillar of interventional oncology. Innovative products such as SIR-Spheres microspheres that have robust clinical evidence of safety and benefit are at the leading edge of changes in the practice of cancer medicine. The journey is still in its early stages, with our 2016 dose sales implying approximately 2 per cent penetration of the addressable market for our product, which we estimate at 488,000 patients annually. CONTINUED STRONG PROGRESS In 2016 we saw global dose sales increase 16.4 per cent over the prior year. Revenue growth outpaced dose sales growth reflecting the translation effect of a weaker Australian dollar versus the US dollar and Euro over the period. Our net profit after tax rose 32.8 per cent to $53.6 million. Sirtex delivered a number of important milestones in the 2016 financial year: • Record dose sales of 11,931, up 16.4 per cent on 2015 • Record revenues of $232.5 million, up 32.0 per cent • Earnings before interest, tax, depreciation and amortisation (‘EBITDA’) growth of 39.6 per cent to $74.3 million • Earnings per share of 93.7 cents, up 31.3 per cent • Dividend per share of 30.0 cents, up 50.0 per cent on the previous year • Operating cash flow of $65.2 million, up 25.5 per cent • Publication of the SIRFLOX clinical results in the prestigious Journal of Clinical Oncology • Completion of patient recruitment in the SORAMIC clinical study • Completion of patient recruitment in the SIRveNIB clinical study • Completion of patient recruitment in the RESIRT pilot study • Reimbursement granted in the Netherlands and South Africa • Regulatory clearance in Canada • Appointment of a new CEO for the Americas region, effective 1st July 2016 ELEVATION INTO THE S&P / ASX 100 INDEX In December, Sirtex was included in the S&P / ASX 100 Index, which represents the ASX top 100 companies by float-adjusted market capitalisation, and accounts for approximately 74 per cent of the Australian equity market. Inclusion in this Index has led to significantly more enquiries from domestic and international institutional investors, and has broadened equity research on the Company, with several new analysts initiating research coverage in 2016. We look ANNUAL REPORT 2016 I 08 these studies, with around 1,100 patients in our first-line mCRC studies SIRFLOX, FOXFIRE and FOXFIRE Global and approximately 1,240 across our three HCC studies SARAH, SORAMIC and SIRveNIB. In March, the SORAMIC study completed recruitment, with 420 patients recruited into the palliative (SIR-Spheres microspheres) arm of the study. This study is comparing the combination of sorafenib (Nexavar®, Bayer HealthCare Pharmaceuticals, Germany) and SIR-Spheres microspheres compared to sorafenib alone in advanced HCC. This is the largest interventional oncology study ever undertaken with SIR-Spheres microspheres in combination with the only current standard of care in HCC. Study results are anticipated some time in calendar year 2018. In June, the SIRveNIB study completed recruitment. The SIRveNIB study is designed to examine the efficacy and safety of SIR-Spheres microspheres compared to sorafenib in a predominately Asian population suffering from advanced HCC. SIRveNIB is the largest Asia-Pacific study to directly compare SIR-Spheres microspheres and sorafenib, and indeed is the largest randomised study conducted on sorafenib in the region. The study recruited over 360 patients. Results of the SIRveNIB study are anticipated in the first half of calendar year 2017, along with the SARAH study. forward to further diversifying our share register and welcoming new investors to the Company over the coming years. SIRFLOX STUDY PUBLISHED In February, we were delighted to announce the publication of the SIRFLOX study in the prestigious peer-reviewed Journal of Clinical Oncology (JCO), the official journal of the American Society of Clinical Oncology (ASCO). SIRFLOX was published as a Rapid Communication. The scientific importance of the study was also highlighted by the JCO via its online early release alert to its more than 26,000 subscribers. Here it described the Rapid Communication as required reading, with the paper fast-tracked and considered practice-changing. The JCO is consistently rated in the top 1 per cent of all journals, as measured by impact factor. The interest this publication generated throughout the medical oncology community has been significant. SIRFLOX was the most read Original Report in the month of March according to the JCO. It was also the second most read Original Report for May, highlighting the enduring nature of the study publication. The education and awareness building continues each and every day. We were also pleased to see the SIRFLOX study included in the Best of JCO: 2016 Annual Meeting Edition. In June this year at the ASCO Annual Meeting in Chicago, Professor Volker Heinemann, European Principal Investigator on the SIRFLOX study, from the University of Munich, presented additional Depth of Response (DpR) data from the study. He presented the data again at the World Congress on Gastrointestinal Cancer (WCGIC) in Barcelona. DpR has recently been proposed as a measure of efficacy that predicts the long-term treatment outcome for metastatic colorectal cancer (mCRC). The authors concluded that addition of SIR-Spheres microspheres to standard chemotherapy significantly increased hepatic DpR and that Progression-Free Survival (PFS) was greatest in patients with a baseline tumour burden > 12 per cent, whereas the impact on the Complete Response (CR) rate was greater where tumour burden was < 12 per cent. PATIENT RECRUITMENT COMPLETED FOR ALL MAJOR CLINICAL STUDIES While completing large randomised controlled studies in the interventional oncology space can be challenging, our talented and motivated clinical team has ensured that all of our major clinical studies completed recruitment in a timely manner. This is a wonderful achievement. We committed approximately $60 million over five years to run six important clinical studies, across two important disease indications; mCRC and hepatocellular carcinoma, also known as primary liver cancer, or HCC. If the results are positive, all studies will generate the necessary Level 1 evidence required to elevate the use of SIR-Spheres microspheres from a last resort or salvage option to a first resort or first-line option for clinicians to consider. In total, approximately 2,340 patients have been recruited onto PROGRESS OF OUR LEAD CLINICAL PROGRAMS L A T C E R O L O C C I T A T S A T E M ) C R C m ( R E C N A C R A L U L L E C O T A P E H ) C C H ( A M O N C R A C I SIRFLOX 530 Patients FOXFIRE/ FOXFIRE GLOBAL 573 Patients SARAH 460 Patients ve SIR NIB 360 Patients SORAMIC 420 Patients Primary endpoint reported Completion of patient recruitment Estimate of primary endpoint available Completion of patient recruitment Estimate of primary endpoint available Completion of patient recruitment Estimate of primary endpoint available Completion of patient recruitment Estimate of primary endpoint available 2014 2015 2016 2017 2018 2019 09 I SIRTEX Sirtex at the 2016 American Society of Clinical Oncology (ASCO) Annual Meeting in Chicago. In addition, Sirtex continues to support a wide range of smaller studies, and I encourage investors to read about all our current studies via our website. One such smaller study is our RESIRT kidney cancer pilot study. RESIRT completed patient recruitment in April, with 21 patients treated with progressively higher doses of SIR- Spheres microspheres. Initial results from the study are expected in the fourth quarter of calendar year 2016. NEW CEO OF THE AMERICAS We were delighted to appoint Mr Kevin Richardson to the role of CEO of the Americas, after Mr Michael Mangano elected to resign from the CEO position at the end of the 2016 financial year. We thank Mike for all his dedication and hard work over the last six years at Sirtex. Having been responsible for overall sales, market development, customer service and health economics at Sirtex in the US for the past six years, Kevin was an obvious and highly qualified choice for the role. Prior to joining Sirtex Medical, Kevin held Senior Director roles in sales and marketing at St. Jude Medical and was a Global Marketing Director at Boston Scientific. In November, our Chief Executive of Asia Pacific departed, with the Chief Executive of our EMEA region, Mr Nigel Lange assuming overall management responsibility for the region, in addition to EMEA. Prior to filling the position we wish to further develop our entry strategies into Japan and China, whereby a suitable candidate with an appropriate skill set will be appointed. There were no other key management personnel changes made during the year. DRIVING REIMBURSEMENT GLOBALLY Despite reimbursement in some markets taking longer than anticipated, we made excellent progress on our strategy to ensure as many patients as possible are treated with our product. Reimbursement is a key factor in the execution of this strategy. In January, we saw the Centers for Medicare and Medicaid Services (CMS) in the United States (US) increase the reimbursement available for SIR-Spheres microspheres by 2.8 per cent to marginally above our selling price, which supports our current pricing structures in that market. In March, we were granted government reimbursement in the Netherlands for patients with colorectal liver metastases who have failed or are intolerant to chemotherapy. This is a high priced market, and no volume-based limits have been imposed. In May, we received reimbursement coverage from a large South African private insurer, for treating all forms of inoperable liver cancers. This insurer has a greater than 50 per cent share of the private health insurance market, representing over 2.6 million covered lives. In Canada, existing reimbursement is available for radioembolisation treatments such as SIR-Spheres microspheres. In April, the UK National Institute for Health and Care Excellence (NICE) issued a new Medtech Innovation Briefing (MIB), stating that National Health Service (NHS) doctors and commissioners may consider SIR-Spheres microspheres as an alternative to standard drug or chemoembolization therapy in the treatment of patients with inoperable hepatocellular carcinoma (HCC). This should see additional HCC patients receiving SIR-Spheres microspheres in the UK market. OUTCOME FOCUSED OPERATIONS We continued to invest in our core capabilities throughout the year as they relate to sales and marketing, regulatory and quality assurance, medical and administration. Sales and marketing, our largest expenditure item, was up 21.9 per cent on the prior year to $79.3 million, or 34.1 per cent of sales. Our major focus was on expanding our sales and marketing infrastructure following the release of the SIRFLOX results in June 2015 at ASCO. This was a particular focus in the US, where we materially expanded our sales force to capitalise on the interest from medical oncologists following the release of the SIRFLOX clinical data, and interventional radiologists seeking to establish a SIR- Spheres microspheres practice within their hospital. Since the publication of the SIRFLOX results in the Journal of Clinical Oncology in February and the growth evident in the US ANNUAL REPORT 2016 I 10 INVESTMENT IN SALES & MARKETING $’000 6 9 8 , 7 2 7 8 1 , 4 3 6 9 1 , 9 4 1 8 0 , 5 6 8 3 3 , 9 7 2012 2013 2014 2015 2016 INVESTMENT IN CLINICAL STUDIES* $’000 3 4 2 , 2 1 2 7 8 , 5 1 8 6 1 , 2 2 3 7 4 , 0 2 1 3 6 , 0 2 2012 2013 2014 2015 2016 *Excluding SIRFLOX amortisation expense. INVESTMENT IN R&D $’000 3 2 7 , 5 5 1 6 , 6 1 8 9 , 7 1 4 6 , 8 5 3 8 , 0 1 2012 2013 2014 2015 2016 Sirtex’s new Frankfurt, Germany manufacturing facility. market, we are further investing into our sales and marketing infrastructure in this important region. As we increase our manufacturing capability, expand into new markets, complete and report our clinical studies and pursue new treatment indications, our regulatory and quality assurance function needs to keep pace with the increased demands posed by government regulators, customers and patients. Regulatory and quality assurance expenses were up 20.6 per cent to $3.9 million. We were pleased to receive regulatory approval in Canada during the period, which opens up an important new market for Sirtex in the coming years. In South America, we currently supply doses in Argentina and Brazil. These markets are still at an early stage of adoption, and have significant growth potential. Medical expenditure grew 36.4 per cent to $6.4 million during the year to support the many clinicians globally who use, or seek to use our innovative product. As the line of enquiry has accelerated following the SIRFLOX results, we have had to add capability to this important function, as ultimately it leads to more clinicians referring patients to SIR-Spheres microspheres. During the year we also launched the RESIN liver tumour patient registry in the US. This registry is aims to recruit over 500 patients per annum with both primary and secondary (metastatic) liver cancer. Sirtex now has a global team of 279 people across 20 countries, representing growth of approximately 13 per cent over the prior period. Reflecting our innovative, supportive and inclusive culture at Sirtex is our high retention rate, with approximately 33 per cent of our workforce having achieved five years’ service. We continue to experience relatively low staff turnover rates. MANUFACTURING AND SUPPLY CHAIN Sirtex has manufacturing capabilities in Singapore as well as Boston, USA and shortly in Frankfurt, Germany. These facilities are close to major transport hubs, allowing our product to be efficiently dispatched across the Americas, EMEA and Asia Pacific. Given the very short half-life of SIR-Spheres microspheres (64.1 hours), we have invested significant time and resources over the years to optimise the supply of this valuable asset, to over 1,000 treatment centres globally. Our success to date highlights our ability to meet the demands of a strongly growing market, while also maintaining and even expanding our gross margins. It is important to note that during the 2016 financial year, over 95 per cent of commercial doses sold reached the patient/hospital within a 30 minute window of the time stipulated. 79338.0 71404.2 63470.4 55536.6 47602.8 39669.0 31735.2 23801.4 15867.6 7933.8 0.0 22168.0 19951.2 17734.4 15517.6 13300.8 11084.0 8867.2 6650.4 4433.6 2216.8 0.0 10835.0 9751.5 8668.0 7584.5 6501.0 5417.5 4334.0 3250.5 2167.0 1083.5 0.0 1003.000000 891.555556 780.111111 668.666667 557.222222 445.777778 334.333333 222.888889 111.444444 0.000000 11 I SIRTEX GLOBAL TREATMENT CENTRES SIR-SPHERES MICROSPHERES 01 02 MERGERS & ACQUISITIONS RESEARCH & DEVELOPMENT 8 2 6 4 1 7 5 9 7 9 1 9 3 0 0 , 1 2012 2013 2014 2015 2016 03 Our Frankfurt facility has experienced some building work delays owing to design changes required by local government authorities. As a result, we were unable to supply commercial doses from this plant as planned during the latter part of the 2016 financial year. Once the requisite regulatory clearances have been achieved, we will commence commercial supply, which is anticipated during the first half of the 2017 financial year. The Frankfurt facility will supply the EMEA region, but as is the case for our manufacturing facilities in the US and Singapore, any one site can supply commercial doses across the globe in the event of an unforeseen manufacturing shut-down. INFORMATION TECHNOLOGY Our global technology team successfully completed the implementation of SAP, now our primary Enterprise Resource Planning (ERP) solution, which went live throughout the organisation during the year. I am pleased to report that the anticipated efficiency gains in managing our supply chain, administration, sales and customer management have materialised through the use of this new platform. Phase 2 of the implementation will involve integrating our three manufacturing sites in the US, Singapore and Germany. This will drive further efficiency gains for the organisation. During the year significant improvements in content for our public website were made, allowing for simple and transparent communication with investors, clinicians and patients. RESEARCH AND DEVELOPMENT Research and Development (R&D) at Sirtex remains a core pillar of our 2020Vision strategy. During the reporting period our R&D expenses were $8.7 million, up 50.4 per cent on the prior period, and represented 3.7 per cent of sales. Our investment in R&D is contingent on the delivery of meaningful pre-specified milestones, which ensures appropriate cost controls are in place. Our collaborations with The Australian National University, University of Sydney, Peter MacCallum Cancer Institute and National Cancer Centre of Singapore continues and we have made good progress during the year. During FY16 we had expected to be in a position to provide investors with an update on our new technologies, this will now occur prior to the end of the 2016 calendar year. 2020VISION STRATEGY The 2020Vision articulates our longer term strategies at Sirtex, with the principal goal of delivering on our growth objectives by focusing our efforts across three core pillars. The first pillar seeks to fully exploit the long term growth opportunity of our existing SIR-Spheres microspheres product. This is a multi-faceted strategy that encompasses growing the current ‘salvage’ market opportunity by investing in sales, marketing and reimbursement infrastructure to build awareness, increase adoption and expand reimbursement coverage by government and private payers. In parallel, the investment we have made into clinical studies will expand its use in existing primary and secondary liver cancer markets, notably mCRC and HCC, if the studies deliver positive findings. In total, we have penetrated just 2 per cent of the total addressable annual opportunity for SIR-Spheres microspheres, so there is much still to be done. We are also examining its use in other cancers outside the liver, such as the kidneys. We are very pleased with our progress under this pillar, with all of our major clinical studies completing recruitment during 2016. We now await the final results from these studies, which will progressively occur over the next two years. The second pillar is aimed at evolving the current SIR-Spheres microspheres platform and developing new technologies, which include developments in carbon cage nanoparticles, coated nanoparticles, radioprotector and other technologies. As mentioned, we continue to make progress across all programs and are moving closer to commencing clinical studies. The third pillar is focused on potential merger and acquisition activities. We continue to seek out opportunities for our business where we can leverage our key capabilities and infrastructure across new products, technologies or businesses to provide even higher levels of growth and returns for shareholders into the future. We will continue to update shareholders as we progress each of the three pillars under the 2020Vision. ANNUAL REPORT 2016 I 12 REGIONAL UPDATE REGION THE AMERICAS DOSE SALES REVENUE 8,420 up 19.0% $185.2M up 35.4% EUROPE, MIDDLE EAST, AFRICA 2,528 up 11.2% $38.9M up 20.0% ASIA PACIFIC 983 up 8.9% $8.4M up 20.9% SOLID REGIONAL GROWTH DELIVERED, DESPITE GLOBAL ECONOMIC HEADWINDS. Sirtex’s continued investment in the business, which has resulted in geographic expansion, treatment centre expansion, higher rates of clinical adoption, new regulatory clearances and expanded reimbursement, has seen the business deliver another solid overall performance this year. THE AMERICAS PERFORMANCE DOSE SALES: Up 19.0% to 8,420 REVENUE: Up 35.4% to $185.2 million (up 18.9% on constant currency basis) YEAR IN REVIEW The Americas achieved another year of strong dose sales and revenue growth. This was driven by the continued expansion in the number of centres certified to use SIR-Spheres microspheres, a focus on increasing the utilisation of our product within existing centres, the expansion of our sales force targeting both medical oncologists and interventional radiologists following the results of the SIRFLOX study, and finally a concerted focus on building awareness and increasing patient referrals amongst medical professionals. We have also expanded the infrastructure necessary to support continued growth in key areas such as reimbursement, customer service and marketing. At the end of the financial year, the number of hospitals certified in the use of SIR-Spheres microspheres across the region had grown by 14.4 per cent to 564 treatment sites. Several structural changes in our key US market were also beneficial. In November, The Centers for Medicare and Medicaid Services (CMS) increased the reimbursement of SIR-Spheres microspheres by 2.8 per cent for the 2016 calendar year, to slightly above our selling price. In December, the US government suspended the 2.3 per cent US Medical Device Excise Tax for two years, which represented a tax on our US product revenues. In addition, we achieved regulatory clearance for SIR-Spheres microspheres in Canada in the month of April. This allows Sirtex to supply our product as a Class III medical device for the treatment of patients with advanced inoperable liver cancer in the Canadian market. This market is expected to positively contribute to our dose sales mix in the 2017 financial year. The depreciation of the Australian dollar relative to the US dollar provided a material tailwind to our revenue growth, which significantly outpaced our dose sales growth, despite our US pricing remaining stable over the same period. As part of our strategy to build awareness and interest following from the SIRFLOX results, the Sirtex Americas team had a major presence at a number of important conferences throughout the year including the Clinical Interventional Oncology (CIO) meeting, the Society for Interventional Radiology (SIR) meeting, the World Congress on Interventional Oncology (WCIO), the American Society of Clinical Oncology – Gastrointestinal (ASCO-GI) meeting and the ASCO annual meeting. Such meetings provide the opportunity to directly engage with a large number of clinicians, and help to build consensus among Key Opinion Leaders. EUROPE, MIDDLE EAST, AFRICA PERFORMANCE DOSE SALES: Up 11.2% to 2,528 REVENUE: Up 20.0% to $38.9 million (up 13.2% on constant currency basis) YEAR IN REVIEW Across the EMEA region, we recorded double digit growth in our more established Western European markets of Germany, Belgium and the UK. However, growth in several jurisdictions was impacted by a general tightening in reimbursement, or the geopolitical situation, while anticipated new government reimbursement decisions were announced later in the year than originally anticipated. Revenue growth outpaced dose sales growth principally due to the positive impact of the Australian dollar depreciation against the Euro, coupled with a greater percentage of dose sales recorded in higher priced markets. At the end of the financial year, the number of hospitals certified in the use of SIR-Spheres microspheres across the region had grown by 5.2 per cent to 306 treatment sites. The EMEA sales and marketing team focused on a number of key priority areas over the year, including a continuation of educating and awareness building among clinicians following on from the SIRFLOX study results, expanding geographic coverage, building endorsement from key government bodies and obtaining new reimbursement. Our focus on reimbursement showed tangible benefits throughout the year, with new reimbursement achieved in a Our market position remains strong and highly defendable, but we must continue to invest in the business to remain ahead of the curve, and fully exploit the long term growth potential the interventional oncology market represents. This financial year will be punctuated with a number of clinical studies reporting scientific findings. Irrespective of what the results from these studies show, whether positive, indifferent or negative, it is important to recognise our core ‘salvage’ business will be largely unaffected by such study outcomes and will continue to show solid growth in 2017. In conclusion, 2017 is shaping up as a very exciting year for Sirtex, and we look forward to keeping you, our investors, abreast of our progress throughout the year as we continue to deliver on our long term growth plans. GILMAN E WONG CHIEF EXECUTIVE OFFICER 13 I SIRTEX number of countries. In March, we were granted government reimbursement in the Netherlands for patients with colorectal liver metastases who have failed or are intolerant to chemotherapy. In May, we received reimbursement coverage from a leading South African private insurer, for treating all forms of inoperable liver cancers. This insurer has a greater than 50 per cent share of the private health insurance market, representing over 2.6 million covered lives. In April, the UK National Institute for Health and Care Excellence (NICE) issued a new Medtech Innovation Briefing (MIB), stating that National Health Service (NHS) doctors and commissioners may consider SIR-Spheres microspheres as an alternative to standard drug or chemoembolization therapy in the treatment of patients with inoperable hepatocellular carcinoma (HCC). Over time, we believe such a comprehensive review of our product encompassed in the MIB will lead to additional HCC patients receiving SIR-Spheres microspheres. Throughout the year, our sales and marketing team focused on a number of key conferences including the European Neuroendocrine Tumour Society (ENETS), the Global Embolization Symposium & Technologies (GEST) meeting, and the 18th World Congress on Gastrointestinal Cancer (WCGIC). The EMEA team also worked alongside our US colleagues at the major global meetings, namely SIR, ASCO and ASCO-GI meeting. ASIA PACIFIC PERFORMANCE DOSE SALES: Up 8.9% to 983 REVENUE: Up 20.9% to $8.4 million (up 16.7% on constant currency basis) YEAR IN REVIEW Regional dose sales during the year reflected a very strong double digit growth contribution from our key Australian market, and good growth achieved by several key Asian countries including Taiwan and Singapore. However, Asian growth was impacted by supply disruptions in several Asian markets, including South Korea. We have since resumed supply into the South Korean market with a new distribution partner. At the end of the financial year, the number of hospitals certified in the use of SIR-Spheres microspheres across the region remained steady at 133 treatment sites. In September, Associate Professor Peter Gibbs presented an Australian mCRC patient registry analysis of SIR-Spheres microspheres use in first-line mCRC treatment at the Australasian Gastro-Intestinal Trial Group (AGITG) annual meeting. Although retrospective in nature, the analysis showed a statistically significant Overall Survival benefit of five months was observed in the SIR-Spheres plus chemotherapy arm versus the chemotherapy alone arm, despite no statistically significant difference in overall Progression-Free Survival (PFS) shown between the two arms. Excellent progress has been made in our market development strategy, following on from the SIRFLOX results, as we seek to build awareness and educate clinicians on the significance of the study across the region. We hosted a number of important workshops and masterclasses for clinicians and other medical professionals throughout the year, which were well received. Additional investment in our Australian sales and marketing team was made during the year, reflecting the solid growth delivered and continued progress achieved with the medical oncology referral community. Our sales and marketing team also attended a number of important scientific conferences during the year, including The Liver Transplant Symposium – Singapore, ESMO Asia conference – Singapore, The Liver Week – Korea, AGITG – Sydney and the major global meetings ASCO and ASCO-GI. We continue to explore our entry strategies for both China and Japan. Both markets are attractive, long term opportunities for the APAC region. China represents approximately 50 per cent of the annual incidence of HCC, while Japan is the second largest medical device market globally behind the US, with generally high pricing and a well-established government reimbursement environment upon regulatory clearance. LOOKING AHEAD Our long term strategies, as encompassed by the 2020Vision will help ensure Sirtex is positioned to achieve long term growth and build shareholder value. We have made progress under each of the pillars in 2016. Of particular note, we are especially proud to have completed recruitment in all our major clinical studies, and the continuation of our treatment centre roll out, globally. ENVIRONMENTAL, SOCIAL AND GOVERNANCE At Sirtex, we hold in high regard our Environmental, Social and Governance (ESG) responsibilities through open and transparent disclosure to our key stakeholders including customers, shareholders and the communities in which we operate. Our approach to ESG issues reflects the risks and opportunities inherent in the manner by which we conduct our business and our specific areas of focus. VALUING WORKPLACE HEALTH, SAFETY AND THE ENVIRONMENT Sirtex is committed to providing a safe and healthy working environment as set out in the Health, Safety and Environment Policy for all persons in the workplace, including employees, contractors and visitors, and to minimising our environmental footprint, regardless of the location. This is achieved by management and employees working together to identify, assess and suitably control hazards that may cause injury and/or illness and may adversely impact the environment. During the year, only a single Lost Time Injury (LTI) was recorded across our entire global workforce, which is testament to the focus the organisation devotes on workplace safety. WORKFORCE STATISTICS 47% Women represented in the Sirtex workforce 13% Growth in employee numbers in 2016 EMPLOYEE NUMBERS GLOBALLY OVER 5 YEARS We continue to comply with all relevant legislation, standards and other requirements to which our organisation subscribes. Our Economic, Environmental and Social Sustainability Report details Sirtex’s exposure to, and management of, risks associated with material exposure to these items. As Sirtex produces a radioactive medical product, the Company has been extremely diligent in the design of its production facilities, the equipment used and controls put in place so as to mitigate risks and comply with all relevant safety standards. Sirtex operations are not subject to significant environmental regulation under the law of any of the jurisdictions in which it operates. Sirtex offices strive to be energy efficient and environmentally friendly. Our global headquarters, situated in North Sydney, is in a building awarded a 5 Star Green Star rating, a 5 Star NABERS Energy Rating (Base Building) and a 3.5 NABERS Water Rating. The building in which Sirtex’s European headquarters is housed has been awarded the gold certificate of the German society of sustainable building. We actively encourage reporting and investigation of all safety and environmental incidents and hazardous conditions, so as to formulate plans for corrective action to prevent recurrence and improve our systems. World Safety Day 2016 was commemorated across all Sirtex sites globally during April. The focus of this UN-sponsored day was on workplace stress, which is acknowledged as a growing issue in many workplaces around the world. Several new healthy and safety initiatives were commenced during the year. We developed and implemented an internal Health, Safety and Environment audit program with the first audit taking place in May at our Wilmington facility outside of Boston. The program will continue to be Governance Social ESG PROFILE Environmental 4 4 1 8 7 1 3 1 2 6 4 2 9 7 2 2012 2013 2014 2015 2016 ANNUAL REPORT 2016 I 14 rolled out during the 2017 financial year and will see each factory and office site audited at least annually. Our Travelling for Business e-learning program was developed in recognition of the fact that Sirtex employees travel around the globe supporting our customers, patients and business. The major focus of the program is to ensure our staff know how to travel safely and securely. Sirtex pays careful consideration to the environmental impact of its acitvities. The business has undertaken a review of its processes for the use and disposal of chemicals across its sites to ensure that it is able to meet the requirements of the Globally Harmonised System for the Classification and Labelling of Chemicals, and disposal of its waste chemicals in an environmentally-responsible manner. To reduce the environmental impact of our packaging materials, we plan to introduce 100% recyclable carboard inserts to replace packing peanuts, allowing for a higher rate of recycling by our end customers. This is expected to commence in the 2017 financial year. OUR PEOPLE We are proud of the culture we have built and the values we hold as an organisation. We are strong believers in our people, and the expertise they bring to Sirtex Medical. We seek to develop a collegiate workplace, which actively fosters idea generation and innovation across all levels of the business. Our strong financial results delivered this year are testament to the continued dedication of our global workforce. During the year, the number of employees grew by 13 per cent to 279, with women representing 47 per cent of the Sirtex workforce. To manage the growth in Sirtex’s workforce effectively, our dedicated global team of human resources professionals continue to deploy our comprehensive People Strategy. This encompasses a broad program of engagement to identify and recruit talented individuals to the business, while ensuring alignment with our core vales and beliefs from the employee induction program. Our employee engagement programs continue to show great success. Growing with Sirtex is a series of integrated activity streams, which aim to methodically build a team of highly skilled and capable individuals, who will continue to develop with Sirtex, enabling the continued growth of the business and the delivery of our 2020Vision strategy. Our Onboarding, Professional Development Framework (PDF) 279.0 251.1 223.2 195.3 167.4 139.5 111.6 83.7 55.8 27.9 0.0 15 I SIRTEX Diverse workplace: An inclusive environment cultivates different knowledge, experiences, innovation and creative thinking. and Continuing Professional Development Programs (CPDP) have commenced their implementation phase. A further two activity streams will commence in the 2017 financial year. During the year, our employee base in the Americas expanded significantly. This reflected a concerted sales and marketing increase, following the presentation of our SIRFLOX data at ASCO in June. The Americas now consitutes 41 per cent of our total workforce. Our workforce operates across nine key functional areas of the business, with 48 per cent of our employees engaged within a sales and marketing function at Sirtex. A COMMITMENT TO DIVERSITY ‘Sirtex is committed to developing a culture of diversity and recognises the benefits that arise from embracing all available talent. We WORKFORCE DISTRIBUTION AND FUNCTION 33% 41%% 26% (cid:127) AMERICAS (cid:127) EMEA (cid:127) ASIA PACIFIC 79 3 12 15 279 133 25 41 34 (cid:127) SALES & MARKETING (cid:127) OPERATIONS (cid:127) ADMINISTRATION (cid:127) CLINICAL AFFAIRS (cid:127) REGULATORY AFFAIRS & QUALITY ASSURANCE (cid:127) MEDICAL (cid:127) MARKETING & MEDICAL COMMUNICATIONS (cid:127) RESEARCH & DEVELOPMENT (cid:127) TRAINING & DEVELOPMENT believe a diverse workforce is one of the keys to achieving long term business growth and sustainability. We have three key objectives relating to diversity. Specifically, we provide updated online training to all current and new staff on our Economic, Environmental and Social Sustainability Report and Diversity Policy. Secondly, we aim to include at least one female candidate in the short list of applicants for every management role. Our target is to increase female participation across all levels of management from 36 per cent to 40 per cent over three to five years. As at 30 June 2016, our female participation rate was 47 per cent up from 43 per cent in the 2015 financial year. In 2016 we launched the Leadership and Management Development Program. Part of this extensive program is to identify females who should participate in the program with a target of 40 per cent of the participating population being women. This is in addition to the Growing with Sirtex career development program introduced in 2015. Growing with Sirtex has been designed to foster a continuous cycle of planning, feedback and review to support and strengthen all employee performance and personal growth in line with Sirtex goals and its overall vision. Finally we continually seek to improve our approach to flexible working to make it more accessible and culturally acceptable for all employees. SIRTEX IN THE COMMUNITY We play an active role in the medical, scientific, patient and research communities whom we collaborate with worldwide. Sirtex is an active supporter of efforts to raise money, support and awareness for scientific and medical research innovation in the community. We support emerging and established researchers dedicated to developing advanced new interventional therapies. Our focus in this area is on translational research and the practical application of new technologies, innovation and insights. We continue to fund the Sirtex Professorial Chair at the Australian National University in Canberra. Sirtex has been a major sponsor of the New South Wales Premier’s Awards for Outstanding Cancer Research over a number of years, which recognises and celebrates excellence and innovation in cancer research. A CULTURE OF GIVING During the 2016 financial year, Sirtex made charitable donations of $0.4 million , equivalent to 0.7 per cent of profit after tax. This is consistent with our healthcare peers. 01 PATIENTS Improve access and awareness of our therapy Enhance the quality of life for liver cancer patients and their families 04 LOCAL Support community efforts where our staff work and live Support initiatives that contribute to our goal of making cancer a chronic disease OUR COMMUNITY SUPPORT IS FOCUSED ON FOUR AREAS 03 MEDICAL Improve the skills and knowledge of medical professionals who use our product Foster the next generation of medical specialists who will use our product 02 RESEARCH Enhance and expand the knowledge of researchers in microsphere and related technologies Expand knowledge of our technology platform to support the next generation of biomedical researchers Community support: We play an active role in the medical, scientific, patient and research communities with whom we collaborate worldwide. ANNUAL REPORT 2016 I 16 The Company assists its employees to become active supporters of worthwhile causes and participate in community programs outside the workplace. Sirtex is committed to supporting volunteer groups who help patients and their families around the world. One of our high-profile partnerships is our collaboration with the international group YES Beat Liver Tumors. YES advocates worldwide to increase funding for research and provides support and information for people with liver tumours. At our Americas National Sales Meeting in Kauai, Hawaii we raised in excess of US$37,000 for YES through a 5km fun run, which included a direct contribution from Sirtex Medical, Inc. In October our highly motivated ‘Sirtex DeLivers’ cycling team participated in the second year of The Ride to Conquer Cancer supporting the Chris O’Brien Lifehouse. Over two years, we have raised in excess of $85,000 for this wonderful cause. GOVERNANCE The Board is committed to achieving and demonstrating the highest standards of corporate governance. Sirtex’s key governance principles and practices are outlined in our Corporate Governance Statement for the 2016 financial year, which is available on our website at: http://www. sirtex.com/au/investors/company- overview/corporate-governance/ In addition, we have provided all of our Board and Committee charters, along with 12 separate Codes and Policies, to ensure stakeholders have complete visibility as it relates to our corporate responsibility, how we govern the way our Directors and employees operate, and how Sirtex seeks to build and maintain a strong reputation for integrity in our business practices. These are available at http://www.sirtex.com/au/ investors/company-overview/ NSW Premier’s Awards for Excellence in Cancer Research: Sirtex is a supporter of the NSW Premier’s Awards for Outstanding Cancer Research. Pictured here from left is Dr Steve Jones, Sirtex’s Global Head of R&D with the winner of the 2015 Excellence in Translational Cancer Research award Dr Geoffrey McCowage from the Sydney Children’s Hospitals Network. Ride to Conquer Cancer 2015: In October 2015 several staff from Sirtex in Sydney set off on a two-day 200 km ride to raise funds for the Chris O’Brien Lifehouse, a world-class not-for-profit integrated cancer treatment centre and hospital in Sydney. Pictured here are members of the team preparing to head off on their ride. 17 I SIRTEX BOARD OF DIRECTORS AND COMPANY SECRETARY Richard Hill Chairman (Non-Executive) BA, LLB (Sydney), LLM (London) Dr John Eady Deputy Chairman (Non-Executive) BSc (Hons), PhD, FTSE Dr Katherine Woodthorpe Director (Non-Executive) BSc (Hons), PhD, FAICD Experience and Expertise Mr Hill was appointed a Director in September 2004 and Chairman in August 2006. He previously held senior executive positions with HSBC Investment Bank in Hong Kong and New York and has extensive experience in international M&A and capital raising. He was a founding partner of Hill Young & Associates, a corporate advisory firm. He is also an attorney of the New York State Bar. Responsibilities Member of the Audit Committee, the Risk, Health and Safety Committee and the Remuneration Committee Years with Sirtex 12 years Experience and Expertise Dr Eady was appointed a Director in March 2005. He spent most of his career in a range of senior executive positions with CRA/Rio Tinto and Pacific Dunlop, in Australia and overseas. He has broad Board experience with start-up and established companies, and with government bodies. Dr Eady is a Fellow of the Academy of Technological Sciences and Engineering and consults extensively on business leadership and improvement. Responsibilities Chairman of the Remuneration Committee, member of the Audit Committee and the Risk, Health and Safety Committee Years with Sirtex 11 years Experience and Expertise Dr Woodthorpe was appointed a Director in September 2015. Dr Woodthorpe was the Chief Executive of AVCAL, the Australian Private Equity and Venture Capital Association for seven years. She has an outstanding track record of achievement across multiple industries, including within the medical devices sector and is a valuable addition to the Board. Responsibilities Chairperson of the Risk, Health and Safety Committee, member of the Audit Committee and the Remuneration Committee Years with Sirtex 9 months Grant Boyce Director (Non-Executive) CA, BCom Gilman Wong Executive Director and Chief Executive Officer Darren Smith Chief Financial Officer and Company Secretary Experience and Expertise Mr Boyce was appointed a Director in December 2002. He is a Chartered Accountant with his own practice and was previously a partner with Ernst and Young where he worked in their Perth and New York offices. During that time Mr Boyce worked advising multiple clients including ASX listed entities. He was a board member and Chairman of the West Australian Institute of Sport for over 10 years. Responsibilities Chairman of the Audit Committee, member of the Risk, Health and Safety Committee and the Remuneration Committee Years with Sirtex 14 years 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. Responsibilities Daily management decisions and implementation of the Company’s strategic plans. Years with Sirtex 11 years 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 AGSM, is a fellow of CPA Australia and an AICD member. Responsibilities Mr Smith has overall responsibility for the Finance function of the group including IT and Human Resources. Years with Sirtex 8 years KEY MANAGEMENT PERSONNEL ANNUAL REPORT 2016 I 18 Michael Mangano – Chief Executive Americas * 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. Years with Sirtex 6 years * Resigned effective 30th June 2016 Dr David N Cade – Chief Medical Officer 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 U.S. 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. He is a Graduate of the Australian Institute of Company Directors. Prior to joining Sirtex, Dr Cade worked at management consultancy Booz & Company. Responsibilities Dr Cade has responsibility for all medical affairs of the group, and is based in the Sydney head office. Years with Sirtex 13 years Nigel Lange – Chief Executive EMEA (acting Chief Executive APAC as of 5th November 2015) 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. Years with Sirtex 14 years Robert Hardie – Global Head of 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. Years with Sirtex 10 years 19 I SIRTEX This Page has been intentionally left blank FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 SIRTEX MEDICAL LIMITED CONSOLIDATED ENTITY ABN 35 078 166 122 ANNUAL REPORT 2016 I 20 CONTENTS 21 DIRECTORS’ REPORT 42 AUDITOR’S INDEPENDENCE DECLARATION 43 DIRECTORS’ DECLARATION 44 INDEPENDENT AUDITOR’S REPORT 47 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 49 STATEMENT OF CHANGES IN EQUITY 50 CONSOLIDATED STATEMENT OF CASH FLOWS 51 NOTES TO THE FINANCIAL STATEMENTS 81 ADDITIONAL STOCK EXCHANGE INFORMATION 82 COMPANY INFORMATION 21 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 The Directors of Sirtex Medical Ltd present their report, together with the financial statements of the consolidated entity, being Sirtex Medical Ltd and its controlled entities (‘the Group’) for the year ended 30 June 2016. DIRECTORS The Directors of Sirtex Medical Ltd during the financial year and until the date of this report are Mr R Hill, Dr J Eady, Mr G Boyce, Dr K Woodthorpe 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) Dr John Eady – Deputy Chairman (Non-Executive) BSc (Hons), PhD, FTSE Grant Boyce – Director (Non-Executive) CA, BCom Experience and Expertise Mr Hill was appointed a director in September 2004 and Chairman in August 2006. He previously held senior executive positions with HSBC Investment Bank in Hong Kong and New York and has extensive experience in international M&A and capital raising. He was a founding partner of Hill Young & Associates, a corporate advisory firm. He is also an attorney of the New York State Bar. Directorships held in other listed entities during the last three years Calliden Group Limited – Chairman (appointed April 2000, resigned December 2014) BlackWall Property Funds – Chairman (appointed July 2008) Special Responsibilities Member of the Audit Committee, the Health, Risk and Safety Committee and the Remuneration Committee Interest in Shares and Options 9,617 ordinary shares in Sirtex Medical Ltd Experience and Expertise Dr Eady was appointed a Director in March 2005. He spent most of his career in a range of senior executive positions with CRA/Rio Tinto and Pacific Dunlop, in Australia and overseas. He has broad Board experience with start-up and established companies, and with government bodies. Dr Eady is a Fellow of the Academy of Technological Sciences and Engineering and consults extensively on business leadership and improvement. 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 and the Health, Risk and Safety Committee Interest in Shares and Options 9,137 ordinary shares in Sirtex Medical Ltd Experience and Expertise Mr Boyce was appointed a director in December 2002. He is a Chartered Accountant with his own practice and was previously a partner with Ernst and Young where he worked in their Perth and New York offices. During that time Mr Boyce worked advising muliple clients including ASX listed entities. He was board member and Chairman of the West Australian Institute of Sport for over 10 years. 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 and the Health, Risk and Safety Committee Interest in Shares and Options 8,309 ordinary shares in Sirtex Medical Ltd DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 22 Dr Katherine Woodthorpe – Director (Non-Executive) BSc (Hons), PhD, FAICD Gilman Wong – Executive Director and Chief Executive Officer COMPANY SECRETARY Darren Smith – Company Secretary and Chief Financial Officer MBA, BBus, FCPA Experience and Expertise Dr Woodthorpe was appointed a director in September 2015. Dr Woodthorpe was the Chief Executive of AVCAL, the Australian Private Equity and Venture Capital Association for seven years. She has a deep knowledge of the private equity and the superannuation industry in the financial sector and a strong track record in a broad range of technology orientated industries including healthcare. Directorships held in other listed entities during the last three years Nil Special Responsibilities Chairman of the Health, Risk and Safety Committee and Member of the Remuneration Committee and the Audit Committee Interest in Shares and Options 651 ordinary shares in Sirtex Medical Ltd 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 various industries. 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 160,000 ordinary shares in Sirtex Medical Ltd 233,930 Executive Performance Rights 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 is a Fellow of CPA Australia and a member of AICD. Interest in Shares and Options 30,000 ordinary shares in Sirtex Medical Ltd 56,010 Executive Performance Rights 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: Board of Directors Remuneration Committee Audit Committee Risk, Health and Safety Committee Held Attended Held Attended Held Attended Held Attended R Hill (Chairman) Dr J Eady G Boyce Dr K Woodthorpe G Wong 13 13 13 10 13 12 13 12 10 13 6 6 6 5 - 6 6 6 5 - 8 8 8 6 - 7 8 8 6 - 2 2 2 2 - 1 2 2 2 - 23 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 PRINCIPAL ACTIVITIES Sirtex Medical Ltd and its controlled entities (‘Group’) form a medical device group whose primary objective is to manufacture and to distribute effective liver cancer treatments utilising small particle technology to approved markets in Asia-Pacific, Europe, Middle East and Africa, and North and South America. REVIEW OF OPERATIONS AND FINANCIAL RESULTS The Group’s main product SIR-Spheres microspheres is a targeted radioactive treatment for liver cancer. The treatment is called Selective Internal Radiation Therapy (SIRT) and consists of a minimally invasive surgical procedure performed by an interventional radiologist. The SIR-Spheres microspheres lodge in the small blood vessels of the tumour where they destroy it from the inside over a short period while sparing the surrounding healthy tissue. During the year, the Group sold 11,931 doses worldwide representing approximately 2 per cent of the addressable market. Dose sales for the year increased by 16.4 per cent over the previous financial year. The Americas (North and Latin America) market with 8,420 doses achieved growth of 19.0 per cent, the Europe, Middle East and Africa (EMEA) market with 2,528 doses achieved growth of 11.2 per cent, and Asia Pacific (APAC) recorded 983 dose sales, representing growth of 8.9 per cent. The number of treatment centres certified to use SIR-Spheres microspheres now exceeds 1,000 globally. Sales revenue reached $232,491,500 for the financial year ended 30 June 2016, an increase of 32.0 per cent over last financial year ($176,087,520). The higher sales revenue growth compared to volume growth was driven by positive foreign currency fluctuations as the Australian dollar depreciated against the US dollar and Euro during the year. Profit before tax has increased 32.7 per cent to $69,998,039 for the year ended 30 June 2016 (2015: $52,768,232), and profit after tax has increased by 32.8 per cent to $53,582,392 (2015: $40,344,738). Earnings per share for the year ended 30 June 2016 have increased to $0.937 (2015: $0.714). During the year, a fully franked dividend of $0.20 (2015: $0.14) per share has been paid in respect of the previous financial year. Net assets for the Group increased by 33.8 per cent to $193,503,996 (2015: $144,635,697), mainly due to the investment of $19,196,227 (2015: $21,462,126) in intangible assets and an increase in cash and short-term deposits of $33,084,007 (2015: $21,446,091). A significant part of the Group’s clinical activities is focused on major post-marketing clinical studies. Consistent with last year, expenses for these studies have been capitalised as they continue to satisfy the recognition criteria of AASB 138 Intangible Assets. Additions to capitalised costs incurred for these trials as well as for two smaller development projects during the financial year ended 30 June 2016 represent a total of $15,085,427 compared to $17,800,798 for the previous financial year. One of the major clinical trials was completed during the prior financial year. An amortisation expense of $3,007,416 (2015: $250,618) relating to the SIRFLOX trial has been recognised in the Consolidated Statement of Profit and Loss for the year. DIVIDENDS An ordinary dividend of 20 cents per share was declared for the financial year ended 30 June 2015 and paid during the financial year ended 30 June 2016 (2015: 14 cents). SIGNIFICANT CHANGES IN STATE OF AFFAIRS During the financial year there were no significant changes in the state of affairs of the Group other than that referred to in the financial statements or notes thereto. LIKELY DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES The Group’s strategy focuses on promoting and developing SIR-Spheres microspheres to become a worldwide standard of care for patients with primary and secondary forms of liver cancer, representing a market estimated at over 488,000 patients per year. The Group’s 2016 financial year dose sales imply that approximately 2 per cent of this annual market has been penetrated. In order to achieve this goal, the Group continues to expand its sales and marketing, regulatory and medical function. In total, 48 per cent of the Group’s workforce is engaged in a sales and marketing role, to help build the awareness and use of SIR-Spheres microspheres by the global medical community. Major randomised clinical studies are required to provide the necessary Level 1 evidence of benefit, which has been a considerable focus for the Group’s clinical operations team. During the financial year ended 30 June 2016, the Group released a high impact scientific publication from one of its five studies. During the year, the Group completed patient recruitment of a further two major clinical studies. As a result, the at the end of the financial year the Group had completed patient recruitment across all five of its major clinical studies. Additionally, Sirtex completed recruitment in a pilot clinical study examining the effects of SIR-Spheres microspheres in kidney cancer patients; the first time a human clinical study has been conducted for this disease with our product. To prepare for future demand for SIR-Spheres microspheres following the release of the results, the Group has continued to expand its manufacturing capabilities. An additional manufacturing facility in Frankfurt, Germany is anticipated to commence manufacturing commercial doses during the first half of the 2017 financial year. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 24 The Group has been successful in gaining regulatory clearances for SIR-Spheres microspheres in key global markets. They include North America, Argentina, Brazil, the European Union, Israel and various Middle East and African markets, Australia, New Zealand, Singapore, Hong Kong, Taiwan and various other Asian markets. During the year, the Group received regulatory clearance in Canada. Sirtex is working towards gaining regulatory clearances in other major markets such as Japan and China for its SIR-Spheres microspheres product to continue its geographic growth. The Group was also successful in expanding government and private sector reimbursement for SIR-Spheres microspheres during the financial year, with reimbursement granted in the Netherlands and South Africa. Expanded reimbursement coverage helps ensure as many patients as possible who suffer from liver cancer can receive SIR-Spheres microspheres. During the financial year, the Group invested an additional $4,108,913, included in intangible asset work-in-progress, in its integrated software application in order to bring greater efficiencies to our collection, storage and use of business information to empower our manufacturing, clinical and marketing teams, streamline our administrative procedures and further improve our competitiveness. In addition, significant investments have been made in human resources, with a further increase in staff numbers by 13% from 246 at the end of last financial year to 279 at the end of this financial year. ENVIRONMENTAL REGULATIONS The Group is not subject to significant environmental regulation under the law of any of the jurisdictions the Group is operating in. UNISSUED SHARES Executive Performance rights on issue at year end As at 30 June 2016, the unissued shares of Sirtex Medical Ltd under Executive Performance Rights are as follows: Grant date 26 November 2013 23 September 2014 1 September 2015 27 October 2015 4 February 2016 Date of Vesting 30 June 2016 30 June 2017 30 June 2018 30 June 2018 30 June 2018 Exercise Price $ nil nil nil nil nil Number under Rights 443,000 281,320 96,244 45,930 61,900 Rights 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 as remuneration, refer to the Remuneration Report. Directors’ rights on issue at year end As at 30 June 2016, there were no unissued shares of Sirtex Medical Ltd under Non-Executive Directors Rights. Share options on issue at year end or exercised during the year During the year ended 30 June 2016, there were no ordinary shares of Sirtex Medical Ltd issued on the exercise of options. No share options have been issued during the year, and no share options are outstanding at 30 June 2016. 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, as at 30 June 2016 is as follows: R Hill Dr J Eady G Boyce Dr K Woodthorpe G Wong 2016 Ordinary Shares 2016 Rights 2015 Ordinary Shares 9,617 9,137 8,309 651 - - - - 1,974 6,234 5,987 - 2015 Rights 2,959 1,850 1,480 - 160,000 233,930 100,000 328,000 25 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company Secretary and all executive officers of the Company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. EVENTS AFTER REPORTING DATE On 20 July 2016, a total of 443,000 Executive Performance Rights issued on 26 November 2013 vested, having exceeded the performance target. As at the date of this report, a total of 443,000 of these performance rights have been exercised and issued as ordinary shares of Sirtex Medical Ltd. Since the end of the year, the Directors have declared a partially franked dividend of 30 cents per share to be paid on 19 October 2016 (2015: 20 cents per share). The record date for the dividend is 28 September 2016. 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 to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. NON-AUDIT SERVICES During the year, Grant Thornton, the Company’s auditors, performed certain other services in addition to their statutory audit duties. 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. • Details of the amounts paid to the auditors of the Company, Grant Thornton, and its related practices for audit and non-audit services provided during the year are set out in Note 29 to the Financial Statements. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration for the year ended 30 June 2016 has been received and can be found on page 42 of the financial report and forms part of the Directors’ report. ROUNDING OFF OF AMOUNTS Sirtex Medical Ltd is the type of Company referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000, or in certain cases, to the nearest dollar. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 26 LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE Dear Shareholder, I am pleased to present the remuneration report for the financial year ended 30 June 2016, outlining the nature and amount of remuneration for Sirtex’s Non-Executive Directors (‘NEDs’) and other Key Management Personnel (‘KMP’), as defined under section 300A of the Corporations Act, 2001 and its associated regulations. During the past year, our remuneration policies and procedures have evolved further, as Sirtex continued to build foundations for future growth and worked to make an even bigger contribution to patient health outcomes. The aim is to have remuneration policies that enable us to recruit and retain the calibre of executives needed to realise the Company’s potential, reflecting market practice and shareholder views. In order to facilitate transparency and input, the Company has also up-graded its website creating a specific remuneration governance section. It has been designed to make it easier for external stakeholders to review our policies and procedures and provide feedback on the published material and on remuneration or governance generally. Policies and procedures have been revisited in order to assess their effectiveness and in the context of suggestions raised by shareholders and Proxy Advisors. We also sought formal assessment and input from our independent Remuneration Consultant, the Godfrey Remuneration Group. Our current total remuneration (TRP) structure for senior executives, which comprises a fixed component and at-risk components customized to reflect regional practice, has proven to be effective, as has our targeted P75 (75th percentile of market practice) TRP positioning. With the P75 target (met where 100% of the at-risk components are awarded) we have been able to recruit quality KMP. The at-risk components are encouraging focus, providing rewards for effort and ensuring that executive TRP reflects shareholder experience. As preferred by shareholders, the Long-Term Incentive (LTI) component of our executive TRP is core to the remuneration packages. It has grown while the STI component remains largely unchanged, and has been the focus of much of our recent research and review. So as to ensure that our move from an ‘absolute total shareholder return’ (TSR) measure to an ‘indexed TSR’ measure (i-TSR, also called ‘market adjusted TSR’), as foreshadowed in last year’s Report, does not mean that executives can benefit from LTI awards even if shareholder gains were negative, modifications have been made to the enabling documents to ensure that its intent is clear. For example, Rights will not vest if Sirtex TSR is negative, even if it outperforms the ASX300. In effect, elements of the absolute TSR measure remain as a hurdle to vesting. The choice of the ASX300 as the comparator index group was also revisited and, as noted in the Company Remuneration web section, was considered appropriate as it includes a wide range of industries and a balance between smaller groups (e.g. ASX 100) that could be influenced excessively by very large companies with fairly steady share prices, and much bigger groups which would include many small and volatile companies. It is our view that the ASX 300 accurately reflects general stock-market sentiment and performance. Another suggestion made by shareholders was that 4 year LTI performance periods could replace the current 3 year periods. The Godfrey Remuneration Group was asked to investigate this option and found that of the wide range of companies studied “only around 14% have periods longer than 4 years, and 9% have tranches less than 3 years”. Godfrey’s view is that an important reason behind the 3 year preference is its fit with business planning and implementation cycles, and this is certainly relevant for Sirtex. For this reason the Company has opted at this time to retain the 3 year performance period. Fee structures for non-executive directors also continue to be reviewed in the context of Board renewal. As disclosed at last year’s AGM, the NED’s salary sacrifice Rights Plan has been modified to extend the disposal restrictions from the sooner of 7 years after granting or ceasing to be a director, to 15 years or ceasing to be a director. These Rights vest immediately. The Company believes that it is imperative that its remuneration policies for all KMP match market practice, encourage desired behaviour and are aligned with a culture of care and professionalism. Accordingly, Sirtex strives to have remuneration structures and levels that are data-driven, transparent and benefit from widespread input. As Chair of the Remuneration Committee, I would like to thank shareholders for their support and helpful comments made during the financial year ended 30 June 2016. I hope that you will continue to support us by voting to adopt this remuneration report at the upcoming Annual General Meeting. Regards, Dr John Eady Chair of the Remuneration Committee 27 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Remuneration Report (audited) CONTENT: The Remuneration Report, which forms part of the Directors’ Report, provides information about the remuneration of the directors of Sirtex Medical Ltd (Sirtex) and other KMP, for the year ended 30 June 2016. It is set out under the following headings: 1. Persons covered by this report 2. Principles used to determine the nature and amount of remuneration 3. Service agreements 4. Performance outcomes and impact on shareholder wealth for the financial year ended 30 June 2016 5. Details of remuneration 6. Additional information 1. PERSONS COVERED BY THIS REPORT This report covers remuneration arrangements and outcomes for the following KMP: Non-executive Directors • Mr Richard Hill, Independent Non-Executive Chairman • Dr John Eady, Independent Non-Executive Director and Deputy Chairman – Chair of Remuneration Committee • Mr Grant Boyce, Independent Non-Executive Director – Chair of the Audit Committee • Dr Katherine Woodthorpe, Independent Non-Executive Director – Chair of the Risk, Health and Safety Committee (appointed 22 September 2015) Executives • Mr Gilman Wong, Managing Director & CEO • Mr Darren Smith, CFO and Company Secretary • Mr Michael Mangano, President Americas (resigned 30 June 2016) • Mr Nigel Lange, Chief Executive EMEA, acting Chief Executive Asia Pacific (as of 5 November 2015) • Dr Burwood Chew, Chief Executive Asia Pacific (departed 5 November 2015) • Mr Robert Hardie, Global Head of Operations • Dr David Cade, Chief Medical Officer Unless otherwise stated, the KMP held their positions throughout the financial year ended 30 June 2016. 2. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION 2.1 Remuneration Governance Framework In order to base its decisions on broadly-based information and views, the Group seeks input from a wide range of sources: • • • • • Other experts and professionals such as tax advisors and lawyers; and • Remuneration Committee members; External remuneration consultants (ERCs); Stakeholder groups and shareholders; Remuneration Committee peers within Australia; Individual KMP to understand roles and complexities. Care is taken to ensure that interaction with and between these sources regarding Remuneration Committee business is independent, not improperly influenced by personal interests and reflects the current Sirtex circumstances. 2.2 Executive KMP Remuneration Policy and Procedure The Executive KMP Remuneration Policy and Procedure applies to executives defined as: • Managing Director – accountable to the Board for the Group’s performance and long term planning; and • Top Strata Direct Reports to the Managing Director – roles that are business unit, functional, or expertise heads. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 28 The policies and procedures outline the Company’s intentions regarding executive remuneration, as well as how remuneration is intended to be structured, benchmarked and adjusted in response to changes in the circumstances of the Group, and in line with good governance. Broadly the policy states that for executive KMP: • Total remuneration (TRP) comprises Fixed Remuneration and at-risk STI and LTI components so that executive reward reflects performance and shareholder experience. The components when put together, are structured so as to achieve a TRP positioned at P75 of the market for equivalent roles in each region, if demanding performance hurdles are achieved. P75 remuneration is the total targeted remuneration (TTR). Internal relativities should be considered to recognise Sirtex’s particular organisation design, using ‘strata’ to map the relationships between roles. Appropriate amounts and ratios of the various components are based on extensive and objective market data and regional practice. Internal relativities and any special circumstances are considered so as to: – Recognise Sirtex’s organisational design, and the use of ‘strata’ to define role complexities and map relationships, – Manage TTR within a range so as to allow for individual differences such as the calibre of incumbents and the competency with which they fulfil roles. Termination benefits will be in line with local regulations, and in Australia limited to the default amount allowed for under the Corporations Act. • • • • Sirtex policy aims to link executive remuneration to Company performance, with an emphasis on longer-term strategies and the experience of shareholders. The intent is for executive remuneration to be higher when longer term issues are being addressed effectively and the Group is doing well. Policy Area Relationship to Company Performance Fixed Remuneration At-risk components (STI and LTI) As fixed remuneration is based on market practice and data shows that levels increase as market capitalisation increases, amounts reflect Company performance through the impact on share price and resulting market capitalisation. The at-risk components are linked to business levers that drive strategic initiatives or indicators that reflect shareholder experience. STI payments depend on the influence an individual executive has on Group performance. They are based on key performance indicators (KPIs), each having defined targets. While many influencing factors are quantitative, some are more subjective, aimed at assessing personal effectiveness in the context of prevailing circumstances. The STI KPIs are designed generally to drive focus on internal factors, such as dose sales, that can be considered as leading indicators for the external measures used for LTI awards. LTI awards are based on direct measures of Group performance, as reflected in share price growth and the growth in earnings per share. 29 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 2.3 Executive Short-term Incentives STI Plan - Process • The Short-term Incentive Plan (STI) is an important part of the remuneration offered to Executives as it: – Encourages focus on factors that are considered critical over the coming year to meet the Company’s purpose and implement its strategies, and • • – Shares Company success with the Executives who contribute through their efforts. STI amounts awarded depend on thresholds being exceeded and in accordance with pro-rata scales to stretch levels. The ability to receive P75 TRP depends on meeting defined and demanding targets. The responsibility for the ongoing administration of the STI plan rests with the Board. It determines the applicable targets annually and has discretion to vary the Plan Rules or terminate the STI Plan in relation to future periods, but may not reduce earned awards (being amounts already approved by the Board and payable for a completed measurement period) without the consent of the Participant. The Clawback policy applies to STI awards. • 2.4 Executive Short-term Incentive (STI) Plan – Detail Aspect Plan Rules, Offers and Comments Measurement Period From 1 July to the following 30 June. Award Opportunities Key Performance Indicators (KPIs) Determined each year, and for the financial year ended 30 June 2016 the MD/CEO had a target STI award opportunity equal to 50% of Fixed Remuneration. The other executives who are KMPs had a target award opportunity equal to 35% of Fixed Remuneration. The CEO’s focusing measures were ‘Normalised Group EBITDA’ (40% weighting), ‘doses sold’ (40% weighting) and ‘leadership effectiveness’ (20% weighting). Those for the other executive KMP were based on two measurement groups, ‘Normalised Group EBITDA’ (50% weighting) and influencing factors specific to their roles (50% weighting). ‘Normalised Group EBITDA’ is defined as Group earnings before interest, tax, depreciation and amortisation, excluding exchange rate fluctuations, clinical studies, and Research & Development expenditure. It is a major KPI for all executive KMP as teamwork across the Group and a ‘one Company’ culture is considered critical for ongoing success. Role-specific influencing indicators included such factors as dose sales, expense control, delivery performance, cost-of-goods sold, audit compliance and to cover project-style work, progress against milestones. Weightings are applied to the KPIs selected to reflect the relative importance of each KPI. These measures were judged by the Board as key levers for Group success. The Board limits the number applicable to any one executive so as to encourage focus on those business levers deemed most important to that role. In the case of qualitative factors, such as leadership development, actual performance is judged by the Board based on a range of inputs, one of which is information from the MD/CEO in relation to his Direct Reports. The award hurdle and scale used in relation to the ‘Normalised Group EBITDA’ KPIs is: STI Performance Reward Scale Performance Level 95%, <105% 105% >105%, <110% ≥110% Percentage of Target STI Payable Nil 25% Pro-rata 100% Pro-rata 110% DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 30 Aspect Plan Rules, Offers and Comments Cessation of Employment During a Measurement Period In the event of cessation of employment due to dismissal for cause, all entitlements in relation to the Measurement Period are forfeited. In the event of cessation of employment due to resignation, all entitlements in relation to the Measurement Period are forfeited, unless otherwise determined by the Board. In the event of cessation of employment for other reasons: (a) The STI award opportunity for the Measurement Period will be reduced pro-rata to reflect the portion of the Measurement Period worked, and (b) Performance and STI awards will be determined following the end of the Measurement Period in the normal way although the Board, may accelerate the determination and payment of STI awards in special circumstances. 2.5 Executive Long-term Incentive (LTI) Plan - Process • The Long-term Incentive Plan (LTI) is a key part of the at-risk component of the remuneration offered to Executives and aims to: – Build a sense of ownership and encourage a longer term view, and – Share Company success with the executives who contributed through their efforts. LTIs offer the greater proportion of at-risk reward with the number of LTI grants awarded to each Executive customised to reflect regional practice. Vesting depends on thresholds being exceeded and in accordance with pro-rata scales to stretch levels. As is the case with STIs, the ability to receive P75 TRP depends on meeting defined and demanding targets. The responsibility for the ongoing administration of the LTI plan rests with the Board. It determines annually the LTI proportions of TRP, the measures to be used and applicable vesting scales. It has discretion to vary the Plan Rules or terminate the LTI Plan in relation to future periods, but may not reduce granted awards (being grants already approved by the Board and available for vesting at the completion of the measurement period) without the consent of the Participant. The Clawback policy applies to LTI awards. Non-Executive Directors are excluded from participation. • • • • • 2.6 Executive Long-term Incentive (LTI) Plan – Detail Aspect Plan Rules, Offers and Comments Measurement Period Award Opportunities The measurement period for the 2016 offers is the three financial years from 1 July 2015 to 30 June 2018. Performance Rights were offered under the Executive Performance Rights (EPR) Plan during the financial year in accordance with the Group’s policies and Plan rules. The target LTI value used to calculate grants was equal to 100% of Fixed Remuneration for the MD/ CEO, and between 90% and 35% of Fixed Remuneration for other executive KMP (depending on region), calculated by applying the following formula: Number of Performance Rights = Fixed Remuneration x Target LTI% ÷ Right Value The Right Value was the volume weighted average share price for the 10 days up to and including 30 June 2015, less assumed dividends over the Measurement Period. 31 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 Aspect Vesting Scales Plan Rules, Offers and Comments Specific performance conditions must be satisfied for Rights to vest. The performance conditions specified as part of the most recent offers comprise two tranches, with 50% of Rights being subject to an Indexed Total Shareholder Return (i-TSR) vesting measure, and 50% being subject to an EPS Growth vesting measure. With regard to the i-TSR measure, offer documents make it clear that the Board would use its discretion and these Rights would not vest if Sirtex TSR is negative, even if it outperforms the ASX300. Percentages of grants to vest are to be determined in accordance with the following scales: Indexed TSR Threshold Recognition TSR Growth Rate Vesting Scale Performance Number of Rights to Vest 100% of ASX300 TSR and greater than 10% 0% Above market average but not reaching target P75 Target 200% of ASX300 TSR Further Reward Surpassing target EPS Vesting Scale Earnings per Share Performance Threshold Recognition EPS compound growth of 10% 0% Above threshold but not reaching target P75 Target EPS compound growth of 20% Further Reward Surpassing target 1% for each 1% above market average (pro- rata) 100% of Target grants (66.7% of Plan grants) 0.5% for each 1% above target up to 1.5 times entitlement Number of Rights to Vest 10% for each 1% above threshold (pro-rata) 100% of Target Rights (66.7% of Plan Rights) 5% for each 1% above target up to 1.5 times entitlement i-TSR is the cumulative gain for shareholders over a three year period, from growth in the share price and dividends, assuming that dividends are reinvested into the Group’s shares, compared to that of the Australian stock-market’s ASX300 index. i-TSR has replaced absolute TSR so that gains rewarded are due to Company performance rather than general stock-market movement, but with an implied absolute TSR threshold hurdle. The selection of two times the average ASX300 growth as the P75 target is based on past performance data that showed that an ASX300 Company performing at the P75 level over recent years outperformed the market average by a factor of about two. Sirtex must match this P75 performance if executive TRP is to match the targeted P75 level. EPS growth remained as the most appropriate second measure. This measure is intended to give a different perspective on Group performance. Earnings-per-share growth is a method of tracking the ability of the Group to grow profit on a per-share basis. Increasing earnings per share indicates increasing returns on the funds provided by shareholders. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 32 Aspect Plan Rules, Offers and Comments Exercise of Vested Incentive Rights Dealing Restrictions on Shares Cessation of Employment Change of Control of the Company (Compulsory Acquisition) On vesting, a Performance Right confers an entitlement for the Participant to exercise the Performance Right to the value of an ordinary share (Share) in the Holding Company. On exercise, the EPR Plan Trust (Trustee) subscribes for Shares or acquires Shares on market on behalf of the Participant. Care is taken to manage the tax impact of the EPR Plan on Participants. For overseas Participants, this may involve having a portion of Shares sold to account for withholding tax and/or other amounts payable in respect of the vested Performance Rights. The Trustee holds Shares that it has subscribed for, or acquired on behalf of a Participant, until the Participant directs the Trustee to transfer the Shares to the Participant or sell the Shares and remit the proceeds to the Participant. No amount is payable by Participants to exercise their vested Executive Performance Rights. Shares acquired when vested grants are exercised will be subject to the restrictions set out in the Group’s share trading policy, the insider trading provisions of the Corporations Act or any other additional dealing restrictions included in the offer of the Incentive Rights. In the event of cessation of employment other than due to Special Circumstances, all unvested Performance Rights are forfeited unless otherwise determined by the Board. In the event of cessation of employment due to Special Circumstances, unless otherwise determined by the Board, the number of unvested Performance Rights that will be retained by the Employee will be based on a pro-rata calculation. All other unvested Rights granted in prior years will not lapse, and will continue and, if they become vested at some later time, will be able to be exercised in accordance with their terms. In the event of a compulsory acquisition of Shares following a takeover bid or a scheme of arrangement, vested Performance Rights may be exercised and unvested Performance Rights may be exercised by the Participant in the same proportion as the Share price (assessed via 10 day VWAP) has increased since the beginning of the Measurement Period. 2.7 Non-Executive Director’s Remuneration Policies and Procedures • Total NED Remuneration will be managed within the aggregate fee limit (AFL) or fee pool approved by shareholders of the Company. • NED remuneration practice is governed by formal Board policies whereby NED TRP comprises: – Board fees (inclusive of any superannuation, and any applicable fringe benefits tax (FBT)); – Salary-sacrificed equity grants; and – Committee fees. Levels are to be based on market data and reviewed annually, with fees plus the amount salary sacrificed targeting P75 practice for companies similar to Sirtex. – Board fees are set by reference to the P50 of market practice; and – P75 positioning is reached by salary-sacrificing the gap into equity grants. It is recognised that it is not appropriate to • provide performance-based incentives to NEDs. • • The Board retains discretion and may alter the proportion of NED remuneration salary sacrificed in order to meet prevailing circumstances. Termination benefits are not paid to NEDs. 33 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 2.8 Salary Sacrificed Equity Grants – Non-executive (NED) Director Rights Plan – Detail Aspect Purpose Plan Process Plan Rules, Offers and Comments The NED Rights Plan constitutes part of a market-competitive main-board package and aims to align the interests of NEDs further and directly with shareholders. The Plan helps address the preference of many shareholders for NEDs to have significant shareholdings in the Group, without breaching the insider trading provisions of the Corporations Act. The disposal restrictions incorporated in the Plan supports this aim. Rights offered to NEDs are not subject to performance conditions or any vesting condition. They vest immediately but cannot be exercised until three months after granting. At that time the shares are transferred to each NED, but with a CHESS holding lock. Disposal restrictions stipulate that, except by force of law, exercised shares may not be dealt with until the earlier of ceasing to be a NED of the Group or the elapsing of fifteen years from the grant date. Extreme care has been taken to distinguish the NED Rights Plan from the Executive Rights Plan in order to ensure no conflicts of interest can arise. Only the average weighted share price used to calculate the number of Rights awarded to a NED is in common. It is intended that NED Rights will be satisfied via on-market purchase of Sirtex Shares, rather than by new issues of Shares. Measurement Period The Measurement Period is one year from grant. Grant Value Treatment $50,000 for the Board Chair, $31,250 for the Deputy Chair, and $25,000 for the other NEDs. Grants of Rights were made to NEDs during financial year ended 30 June 2016 with the intended value of the grants being as follows (pro-rated for part of the year where applicable): • • • Grants of NED Rights were calculated by applying the following formula: Number of NED Rights = Salary sacrifice amount ÷ Right Value The Right value was the volume weighted average share price of shares traded in the 10 days up to and including 30th June 2015. NEDs will be entitled to receive all dividends. Without the approval of the Board, Rights may not be transferred, mortgaged, charged or otherwise dealt with or encumbered. 3. SERVICE AGREEMENTS On appointment to the Board, all non-executive directors enter into a service agreement with the Group in the form of a letter of appointment. Upon termination of a director’s appointment, the director will be paid his or her director’s fees on a pro-rata basis, to the extent that they are unpaid, up to the date of termination. Unless determined otherwise by the Board, the director will also receive all vested shares held on the date of termination. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 34 Remuneration and other terms of employment for the executive KMP are also formalised in service agreements. The major provisions of the agreements are set out below. Generally, most contracts with executives may be terminated early by either party with six months’ notice, subject to termination payments as detailed below. Period of Notice Name Mr G Wong Mr D Smith Mr M Mangano** Mr N Lange Dr B Chew** Mr R Hardie Dr D Cade Duration of Contract From Company From KMP Termination Payments No fixed term No fixed term No fixed term No fixed term No fixed term No fixed term No fixed term 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 Up to 12 months* Up to 12 months* Up to 12 months* Up to 12 months* 6 months Up to 12 months* Up to 12 months* *Under the Corporations Act the Termination Benefit Limit is 12 months average salary (last 3 years) unless shareholder approval is obtained. ** Ceased employment during the year. 4. PERFORMANCE OUTCOMES AND IMPACT ON SHAREHOLDER WEALTH FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 4.1 Group Performance The following outlines the performance of the Group over the 2016 financial year and the previous four financial years: Date Revenue Profit after Tax Share Price Change in Share Price Dividends Short-term change in Shareholder Value over 1 year (SP increase + dividends) Long-term change in Shareholder Value over 3 years (SP increase + dividends) 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 $m 82.6 96.7 129.4 176.1 232.5 $m 17.1 18.3 23.9 40.3 53.6 $ 6.09 11.98 16.88 29.05 25.57 $ 1.19 5.89 4.90 12.17 (3.48) $ 0.07 0.10 0.12 0.14 0.20 $ 1.26 5.99 5.02 12.31 % 25.71 98.36 41.90 72.93 (3.28) (11.3) $ 2.95 7.32 12.27 23.32 14.05 % 88.06 149.39 250.41 382.92 117.30 The table shows strong Group performance in particular over the last 3 and 5 years in terms of TSR. The Board believes that this level of performance reflects the quality and commitment of its staff and the leadership given, all being enabled by fair and appropriate remunerations structures and packages. The following table gives an indication of Group performance against the LTI measures: Date 12 month EPS 12 month EPS growth 3 year EPS 12 month TSR 3 year TSR EPS TSR 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 $ 0.307 0.328 0.425 0.714 0.937 % 49.0 6.8 29.6 68.0 31.2 % (6.1) 13.9 106.3 132.6 185.6 % 25.7 98.4 41.9 72.9 (11.3) % 88.1 149.4 250.4 382.9 117.3 35 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 4.2 Links between Performance and Reward 4.2.1 Short-term incentive The actual STI to be paid in relation to the 2016 financial year were accrued in the 30 June 2016 accounts. The links between performance and reward is summarised below. STI Links Name Position Objectives Mr G Wong Managing Director & CEO Stratum 2 Direct Report to MD/ CEO Mr D Smith Mr M Mangano Mr N Lange Dr B Chew Mr R Hardie Dr D Cade Normalised Group EBITDA (40% weighting) Dose sold (40% weighting) Leadership effectiveness (20% weighting) Normalised Group EBITDA (50% weighting) KPIs and other Influencing Factors (50% weighting) Percentage of Max STI to be paid 69.2% Average 81.7% Measurement Earnings were measured via Normalised Group EBITDA, dose sales by comparison to budget/ plans, and individual effectiveness by NED assessment on defined achievements and capabilities. Achievement of the earnings objective was as measured for the MD/CEO. KPI and other influencing factors were assessed against qualitative and quantitative objectives set at the beginning of the year in relation to each role, with some Board discretion to take into account relevant circumstances. In this way awards aligned with each individual’s contribution to the Group during the year, as assessed by the Board. Contribution to success The MD/CEO role has primary responsibility for Group earnings (EBITDA) and was asked to focus on increasing dose sales and long- term leadership development as key factors for success at the CEO level in FY16. These executives shared the EBITDA objective with the MD/ CEO to encourage teamwork and the one- company culture. KPIs and other influencing factors for the Regional Heads included regional sales growth, expense control, debtor management and contribution margin. Factors for the other KMPs included where relevant, audit compliance, DIFOT, cost of goods sold, marketing objectives, proctor development, clinical trial recruitment and the achievement of project milestones. Each factor was identified and selected as being a key lever for each role, in order to drive group success for FY16. In relation to the 2015 financial year, the average STI paid was 90% of the available amount, reflecting the very strong financial performance of the Group during that year. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 36 4.2.2 Long-term incentive The LTI, being dependent on i-TSR and EPS growth, is strongly related to external indicators of Group performance. The following table outlines the extent that the LTIs vested in relation to the completion of the 2015 financial year and those that were granted during the 2013 financial year: Name Mr G Wong Mr D Smith Mr M Mangano Mr N Lange Dr B Chew Mr R Hardie Dr D Cade Total Target LTI Value (at grant) $ 350,000 125,000 125,000 125,000 125,000 125,000 90,000 2013 Grant Number 140,000 50,000 50,000 50,000 50,000 50,000 36,000 1,065,000 426,000 TSR Achieved % of Grant Vested 74.1% 74.1% 74.1% 74.1% 74.1% 74.1% 74.1% 74.1% 100% 100% 100% 100% 100% 100% 100% 100% Number Vested 140,000 50,000 50,000 50,000 50,000 50,000 36,000 426,000 5. DETAILS OF REMUNERATION 5.1 Executive Remuneration The following table outlines the remuneration received or receivable by executives of the Group for the 2016 and 2015 financial years, in accordance with the statutory requirements for disclosure and accounting standards: Year Salary Other Benefits Short-term Incentive (STI)** Short-term Employee Benefits Retirement Benefits/ Super- annuation Termination Benefits Equity-settled Long-term Incentive (LTI) Total Target Remuner- ation Change in Accrued Leave $ $ % of TRP $ % of TRP $ Name Mr G Wong Mr D Smith 2016 2015 2016 2015 875,695 800,217 452,763 413,467 – – – – Mr M Mangano* 2016 599,242 70,280 Mr N Lange Dr B Chew* Mr R Hardie Dr D Cade Total 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 511,213 54,504 582,480 39,038 532,750 36,454 476,027 16,158 450,321 38,826 419,335 390,717 444,751 390,717 – – – – 314,514 409,500 133,854 139,940 209,735 177,186 133,782 97,799 – 138,918 124,563 132,580 122,638 136,160 16 23 17 20 21 20 14 12 – 18 17 19 16 20 15 1,190,209 1,209,717 586,617 553,407 879,257 742,903 755,301 667,003 492,185 628,065 543,898 523,297 567,389 526,877 5,014,854 3,850,293 125,476 1,039,086 3,489,402 129,784 1,232,083 20 4,851,268 $ 33,305 18,783 31,337 18,783 23,944 12,922 – – – – 31,165 18,783 30,249 18,783 150,000 88,054 % of TRP $ $ $ 742,690 519,662 174,027 138,514 108,090 138,514 228,526 138,514 108,090 138,514 169,476 138,514 172,770 126,183 1,703,669 1,338,415 38 30 22 19 11 15 23 17 18 18 23 20 23 19 25 21 1,966,204 1,748,162 791,981 710,704 85,343 43,637 27,029 (3,550) 1,011,291 (79,842) 894,339 983,827 805,517 600,275 766,579 744,539 680,594 770,408 671,843 6,868,525 6,267,223 39,554 (19,340) (1,066) (27,802) 5,040 31,174 (18,285) 23,577 (6,339) 40,139 58,990 $ – – – – – – – – – – – – – – – – 61 69 74 78 87 83 77 83 82 82 73 77 73 78 73 77 * Ceased employment during the year. ** STI figures included in the table represent STI’s received or receivable for the financial years presented. 37 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 The following table outlines the LTIs granted to executive KMP during the financial year ended 30 June 2016. The LTIs will vest over three years. Name Grant date Mr G Wong 27-Oct-2015 Mr D Smith 01-Sep-2015 Mr N Lange 01-Sep-2015 Mr R Hardie 01-Sep-2015 Dr D Cade 01-Sep-2015 Total Value per option at grant date 21.32 20.37 20.37 20.37 20.37 Value of options at grant date 979,228 224,274 409,641 208,793 219,996 2,041,932 Number granted 45,930 11,010 20,110 10,250 10,800 98,100 Number vested Exercise price $ First exercise date – – – – – – 1-Jul-18 1-Jul-18 1-Jul-18 1-Jul-18 1-Jul-18 – – – – – – Last exercise date 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-22 5.2 Changes in Securities Held – Executives The following table outlines the changes in the number of Performance Rights held by executives over the financial year: Name Rights held at 1 July 2015 Granted during year Excercised Rights Held at 30 June 2016 Vested & Exercisable Value at Grant Value at Grant Value at Grant Value at Grant Number $ Number $ Number $ Number $ Number Value at Grant $ Mr G Wong Mr D Smith 328,000 1,571,570 45,930 979,228 140,000 350,000 233,930 2,200,798 115,000 532,450 95,000 415,120 11,010 224,274 50,000 125,000 56,010 514,394 28,000 129,640 Mr M Mangano* 95,000 415,120 – – 50,000 125,000 45,000 290,120 95,000 415,120 20,110 409,641 50,000 125,000 65,110 699,761 161,000 557,656 – – 116,000 267,536 45,000 290,120 95,000 415,120 10,250 208,793 50,000 125,000 81,000 380,120 10,800 219,996 36,000 90,000 55,250 55,800 498,913 510,116 28,000 28,000 28,000 28,000 28,000 129,640 129,640 129,640 129,640 129,640 950,000 4,169,826 98,100 2,041,932 492,000 1,207,536 556,100 5,004,222 283,000 1,310,290 Mr N Lange Dr B Chew* Mr R Hardie Dr D Cade Total * Ceased employment during the year. No rights were forfeited during the financial year. The following table outlines the changes in the number of Shares held by executives over the financial year: Name Mr G Wong Mr D Smith Mr M Mangano* Mr N Lange Dr B Chew* Mr R Hardie Dr D Cade Total Balance at beginning of year 100,000 33,000 – – – – – 133,000 Granted as remuneration Issued on exercise of Rights Disposals (79,965) (52,965) (49,965) (49,965) (65,942) (49,965) (35,965) Balance at end of year 160,000 30,000 – – 49,974 – – 139,965 49,965 49,965 49,965 115,916 49,965 35,965 491,706 (384,732) 239,974 – – – – – – – – * Ceased employment during the year. Conditions attached to Performance Rights issued during the year are included in note 22 in the Financial Report. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 38 5.3 Non-Executive Director Remuneration The following table outlines the remuneration received by non-executive directors of the Group during the 2016 and 2015 financial years, in accordance with the statutory requirements for disclosure and accounting standards: Board Fees $ Committee Fees $ Super- annuation $ Other Benefits $ Name Mr R Hill Dr J Eady Mr G Boyce Dr K Woodthorpe Total Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 220,000 210,000 103,036 96,595 110,000 105,000 74,321 – 507,357 411,595 – – 20,000 10,000 20,000 10,000 10,869 – 50,869 20,000 Equity* Total $ $ 69,382 289,382 58,494 268,494 43,384 200,884 36,570 34,691 29,256 25,591 – 177,820 164,691 144,256 110,781 – – – 34,464 34,655 – – – – – – – – – – – – 34,464 34,655 – – 173,048 765,738 124,320 590,570 *pro-rated from date of grant until 30 June 2016. 5.4 Changes in Securities Held – Non-executive Directors The following table outlines the changes in the number of NED Rights held by non-executive directors over the financial year: Name Rights held at 1 July 2015 Granted during year Forfeited Exercised Rights Held at 30 June 2016 Value at Grant Value at Grant Value at Grant Value at Grant Number $ Number $ Number $ Number $ Number Mr R Hill Dr J Eady Mr G Boyce 2,959 1,850 55,333 34,595 1,480 27,676 Dr K Woodthorpe – – 1,684 1,053 842 651 66,198 41,393 33,099 25,591 Total 6,289 117,604 4,230 166,281 – – – – – – – – – – 4,643 2,903 121,531 75,988 2,322 60,775 651 25,591 10,519 283,885 – – – – – The following table outlines the changes in the number of Shares held by Non-Executive Directors over the financial year: Value at Grant $ – – – – – Name Mr R Hill Dr J Eady Mr G Boyce Dr K Woodthorpe Total Balance at beginning of year 1,974 6,234 5,987 – 14,195 Purchased 3,000 – – – 3,000 Issued on exercise of Rights* 4,643 2,903 2,322 651 10,519 Disposals Balance at end of year – – – – – 9,617 9,137 8,309 651 27,714 *Dealing restrictions apply with shares held in trust until the earlier of ceasing to be a non-executive director of the Group or the lapsing of fifteen years from the grant date. 39 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 5.5 Future KMP Payments The following table outlines amounts of LTI for executives that have been granted but which have not yet vested or been paid: Name Grant date Total value Value expensed in 2015 Value expensed in 2016 % of grant % of grant Mr G Wong Mr D Smith Mr M Mangano* Mr N Lange Dr B Chew* Mr R Hardie Dr D Cade 28-Aug-12 26-Nov-13 23-Sep-14 27-Oct-15 28-Aug-12 26-Nov-13 23-Sep-14 01-Sep-15 28-Aug-12 26-Nov-13 23-Sep-14 28-Aug-12 26-Nov-13 23-Sep-14 01-Sep-15 28-Aug-12 26-Nov-13 23-Sep-14 28-Aug-12 26-Nov-13 23-Sep-14 01-Sep-15 28-Aug-12 26-Nov-13 23-Sep-14 01-Sep-15 $ 350,000 532,450 689,120 979,228 125,000 129,640 160,480 224,274 125,000 129,640 160,480 125,000 129,640 160,480 409,641 125,000 129,640 160,480 125,000 129,640 160,480 208,793 90,000 129,640 160,480 219,996 123,311 205,004 191,347 – 44,040 49,914 44,560 – 44,040 49,914 44,560 44,040 49,914 44,560 – 44,040 49,914 44,560 44,040 49,914 44,560 – 31,708 49,914 44,560 – 35 39 28 – 35 39 28 – 35 39 28 35 39 28 – 35 39 28 35 39 28 – 35 39 28 – – 205,566 249,227 287,897 – 50,051 58,039 65,937 – 50,051 58,039 – 50,051 58,039 120,436 – 50,051 58,039 – 50,051 58,039 61,386 – 50,051 58,039 64,680 – 39 36 29 – 39 36 29 – 39 36 – 39 36 29 – 39 36 – 39 36 29 – 39 36 29 Total 6,069,222 1,338,414 1,703,669 * Ceased employment during the year. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 40 The following table outlines amounts for equities for non-executive directors that have been granted but which have not yet vested. Name Mr R Hill Dr J Eady Mr G Boyce Dr K Woodthorpe Total Grant date 24-Sep-13 22-Jul-14 23-Nov-15 24-Sep-13 22-Jul-14 23-Nov-15 24-Sep-13 22-Jul-14 23-Nov-15 24-Sep-13 22-Jul-14 23-Nov-15 6. ADDITIONAL INFORMATION Total value $ Value expensed in 2015 % of grant Value expensed in 2016 % of grant 27,241 55,333 66,198 17,029 34,595 41,393 13,621 27,676 33,099 – – 25,591 341,776 6,344 52,150 – 3,966 32,605 – 3,172 26,084 – – – – 124,321 23 94 – 23 94 – 23 94 – – – – – 3,183 66,198 – 1,990 41,393 – 1,592 33,099 – – 25,591 173,046 – 6 100 – 6 100 – 6 100 – – 100 6.1 Loans to Key Management Personnel At 30 June 2016, $1,255,046 (2015: $9,222) was payable to key management personnel. At 30 June 2016, $1,493 (2015: $12,702) was receivable from key management personnel. The payable relates to deferred remuneration which is fully secured with a corporate asset and recognised net in the financial statements (2015: withholdings tax on the performance rights granted to Key Management Personnel and expense reimbursements). The payable is long-term in nature and will be paid over a period of 10 years. The receivable relates to expense reimbursement. The Group does not have an allowance account for receivables relating to outstanding loans and has not recognised any expense for impaired receivables during the reporting period. There were no individuals with loans above $100,000 during the financial year. 6.2 Transactions with Key Management Personnel There have been no other transactions with Key Management Personnel or their related entities other than those disclosed in this report. 6.3 External Remuneration Consultant Advice During the year KMP remuneration recommendations and data were received from the Board-approved, external remuneration consultant. Godfrey Remuneration Group Pty Limited The Board also received other independent remuneration-related advice during the year. Godfrey Remuneration Group Pty Limited Assistance drafting new and up-dating existing remuneration policies and documents; Upgrade to the Remuneration Portal; Review of Remuneration Committee operations. $102,400 $20,000 So as to ensure that KMP remuneration recommendations were free from undue influence from the KMP to whom they relate, the Company has policies and procedures governing engagement with external remuneration consultants. The key aspects include: (a) 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 that the consultant is independent of KMP. 41 I SIRTEX DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 (b) As required by law, KMP remuneration recommendations are only received by non-executive directors, mainly the Chair of the Remuneration Committee. (c) The policy seeks to ensure that the Board controls any contact by management of Board-approved remuneration consultants 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. It 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 consultants to the effect that their advice was provided free from undue influence from the KMP to whom the recommendations related. End of audited remuneration report. Gilman Wong Director 24 August 2016 AUDITOR’S INDEPENDENCE DECLARATION ANNUAL REPORT 2016 I 42                                                                   43 I SIRTEX DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. the financial statements and notes, as set out on pages 47 to 80, are in accordance with the Corporations Act 2001 and (a) comply with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001, which, as stated in accounting policy Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and give a true and fair view of the financial position as at 30 June 2016 and of the performance for the year ended on that date of the Company and Consolidated Group. (b) 2. the Chief Executive Officer and Chief Financial Officer have each declared, as required by section 295A of the Corporations Act 2001, that: (a) the financial records of the company for the financial year have been properly maintained in accordance with 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. (b) (c) in the directors’ opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 3. This declaration is made in accordance with a resolution of the Board of Directors. Gilman Wong Director Sydney, 24 August 2016 INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2016 I 44                                                                    45 I SIRTEX INDEPENDENT AUDITOR’S REPORT                                           INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2016 I 46                      47 I SIRTEX CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Revenue from the sale of goods Cost of sales Gross profit Other revenue Other income Marketing expenses Research expenses Regulatory expenses Quality assurance expenses Clinical trial expenses Medical expenses Administration expenses Other expenses Profit before income tax Income tax expense Profit for the year Items that may be reclassified subsequently to profit or loss 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 The financial statements should be read in conjunction with the accompanying notes. 2016 $'000 232,492 (35,287) 197,205 2,229 2,099 (79,338) (8,717) (1,626) (2,232) (10,672) (6,356) (20,915) (1,679) 69,998 (16,416) 53,582 Consolidated 2015 $'000 176,088 (27,700) 148,388 1,889 2,124 (65,081) (5,797) (1,388) (1,810) (5,649) (4,660) (15,248) - 52,768 (12,423) 40,345 464 1,193 54,046 41,538 Cents 93.7 92.2 20.0 Cents 71.4 69.7 14.0 Note 2 (a) 2 (b) 2 (c) 4 19 19 20 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ANNUAL REPORT 2016 I 48 AS AT 30 JUNE 2016 Assets Current Assets Cash and cash equivalents Other short-term deposits Trade and other receivables Inventories Other financial assets Other current 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 2016 $'000 Consolidated 2015 $'000 5 6 7 8 9 10 12 13 11(b) 14 15(a) 16(a) 16(b) 15(b) 17 18 21,025 86,000 42,272 1,918 1,687 4,212 157,114 13,987 82,821 7,795 104,603 261,717 28,090 7,239 7,009 42,338 1,153 24,722 25,875 68,213 193,504 32,684 6,656 154,164 193,504 21,941 52,000 35,000 1,836 1,213 3,210 115,200 13,164 68,027 5,085 86,276 201,476 24,290 4,746 6,666 35,702 1,104 20,034 21,138 56,840 144,636 27,021 5,615 112,000 144,636 The financial statements should be read in conjunction with the accompanying notes. 49 I SIRTEX STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Share Rights Reserve $'000 Foreign Currency Translation Reserve $'000 Retained Earnings $'000 Ordinary Shares $'000 Total $'000 107,583 1,193 40,345 347 1,193 - 79,569 - 40,345 1,193 40,345 41,538 - - - - - - 1,540 464 - - - - (7,914) (7,914) - 1,271 (92) 2,250 (7,914) (4,485) 112,000 144,636 - 53,582 - 464 53,582 464 53,582 54,046 - - - - - - - - - 14 - - - - (11,432) (11,418) - - 3,777 - (294) 2,771 (11,432) (5,178) 2,004 154,164 193,504 Consolidated Entity Balance at 30 June 2014 Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of the parent entity Ordinary shares issued Deferred tax on performance rights Purchase of Non-Executive Directors' shares on market Contribution to performance reserve Dividends paid or provided for Total transactions with owners Balance at 30 June 2015 Foreign currency translation reserve Profit attributable to members of parent entity Total comprehensive income for the year attributable to the members of the parent entity Ordinary shares issued Rights forfeited Deferred tax on performance rights Exercise of Non-Executive Directors’ rights Purchase of Non-Executive Directors' shares on market Contribution to performance reserve Dividends paid or provided for Total transactions with owners Balance at 30 June 2016 24,893 2,774 - - - 949 1,271 (92) - - 2,128 27,021 - - - 1,839 - 3,777 341 (294) - - 5,663 32,684 - - - (949) - - 2,250 - 1,301 4,075 - - - (1,839) (14) - (341) - 2,771 - 577 4,652 The financial statements should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Net income tax paid Net cash provided by operating activities Cash flows from investing activities Investment in other short-term deposits Proceeds from plant and equipment Purchase of plant and equipment Intangible assets Net cash used by investing activities Cash flows from financing activities Payment of dividends Net cash used by financing activities Net increase/(decrease) in cash held Cash and cash equivalents at beginning of financial year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at end of financial year Note 5 (b) 5 (a) The financial statements should be read in conjunction with the accompanying notes. ANNUAL REPORT 2016 I 50 2016 $'000 225,153 (153,992) 2,184 (8,134) 65,211 (34,000) 137 (1,718) (19,196) (54,777) (11,432) (11,432) (998) 21,941 82 21,025 Consolidated 2015 $'000 168,926 (116,339) 1,815 (2,428) 51,974 (22,000) 201 (1,692) (21,123) (44,614) (7,914) (7,914) (554) 22,495 - 21,941 51 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 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 (AASB) and the Corporations Act 2001. The report includes the consolidated financial statements and notes of Sirtex Medical Ltd and controlled entities. Sirtex Medical Ltd is a for-profit entity for the purpose of preparing the financial statements. Compliance with Australian Accounting Standards ensures that the financial report of the Group 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. Sirtex Medical Ltd is the Group’s Ultimate Parent Company. Sirtex Medical Ltd is a Public Company incorporated and domiciled in Australia. The consolidated financial statements were approved and authorised for issue by the directors on 24 August 2016. 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) Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2016. The Parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. (b) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. All revenue is stated net of the amount of GST. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer. Due to different legislative and market environments in the regions where the Group is operating, the date of transfer of risks and rewards is different by region. In the US, this date is on the delivery of goods to the customer, and in all other regions this date is the treatment day of the patient which usually occurs one to two days after the delivery day. Interest revenue is recognised on an accrual basis using the effective interest method. (c) Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. (d) 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 relevant revenue authorities. 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 relevant revenue authorities is included as a current asset or liability in the Consolidated Statement of Financial Position. Cash flows are presented in the Consolidated 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. (e) 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. (f) Plant and equipment All assets acquired are initially recorded at their cost of acquisition, being fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Depreciation and amortisation is recognised in accordance with (h) 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. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 52 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (i) Impairment of plant and equipment and intangible (CONTINUED) (g) Intangibles Intellectual property The fair value of intellectual property contributed by an equity interest holder to Sirtex Medical Ltd, has been capitalised and recorded at fair value at the time of the contribution. Amortisation is recognised in accordance with (h) below. Internally generated intangible assets Expenditure on the research phase of projects are recognised as an expense as incurred. Development costs and certain clinical trial costs have been capitalised to the extent they satisfy the recognition criteria for internally generated intangible assets. 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. Amortisation is recognised in accordance with (h) below. The Group 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. (h) Depreciation and amortisation Items of plant and equipment, including leasehold assets, and intangible 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. Plant and equipment and intangible assets other than capitalised development costs are depreciated from the date of acquisition. Capitalised development costs are amortised from the date they are 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. The depreciation and amortisation rates used for each class of asset are: Plant and Equipment Buildings and Leasehold improvements 5% – 10% Plant & Equipment Assets work in progress Intangible Assets Intellectual Property Internally Generated Intangible Assets 12.5% Software Assets work in progress 33.3% 0% 10% – 33.33% 0% 5% – 12.5% assets For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash- generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. ( j) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term, highly liquid instruments with original maturity of three months or less. Restricted cash assets are shown within other current financial assets. (k) 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 Consolidated Statement of Profit or Loss and Other Comprehensive Income, together with any changes in the fair value of hedged assets or liabilities that are attributable to the hedged risk. 53 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 Consolidated Statement of Profit or Loss and Other 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. (l) Employee benefits Wages, salaries and annual leave Liabilities for employee benefits for wages, salaries and annual leave expected to settle wholly within 12 months of the year end represent present obligations resulting from employees’ services provided up to reporting date, calculated as undiscounted amounts based on remuneration wage and salary rates that the Group 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. 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 high quality corporate bonds at reporting date, which most closely match the terms of maturity of the related liabilities. Post-employment benefit plans The Group contributes to various employee superannuation plans. The Group has no legal or constructive obligations to pay contributions in addition to its fixed contributions. Contributions are recongised as an in the period that relevant employee services are rendered. Share-based payments The Group 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 Group 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 and the binomial option valuation models. 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. All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to the share rights reserve. The expense is allocated over the vesting period, based on the best available estimate of the number of share rights expected to vest. Upon exercise of performance rights, the proceeds received net of any directly attributable transaction costs are allocated to share capital. Further information can be found in Note 22 to the financial statements. Deferred compensation benefits The Group provides deferred compensation benefits to certain employees. The net deferred compensation liability (asset) is recognised taking into account the present value of the liability and the fair value of the corporate assets securing the liability. Any gain or loss in recognised in profit or loss. (m) 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. (n) Provisions, contingent liabilities and contingent assets 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 of economic resources will be required and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at reporting date. Provisions are discounted to their present value, where the time value of money is material. No liability is recognised if an outflow of economic resources as a result of a present obligation is not probable. Such situations are disclosed as contingent liabilities, unless the outflow of resources is remote in which case no liability is recognised. (o) 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 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 54 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) currently serviced by the Group are Asia Pacific, The Americas, and Europe, Middle East and Africa (EMEA). 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. (p) Equity, reserves and dividend payments Share capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital, net of any related income tax benefits. Equity also includes the Foreign currency translation reserve which comprises foreign currency translation differences arising on the translation of financial statements of the Group’s foreign entities into AUD. Retained earnings include all current and prior period retained profits. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved prior to the reporting date. All transactions with owners of the parent entity are recorded separately within equity. (q) 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 profit or loss and other comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Sirtex Medical Ltd and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2004. The tax consolidated group has entered a tax sharing agreement whereby each Company in the Group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the Consolidated Group. R&D tax credits arising from the recognition of eligible R&D expenditure under the Federal Government’s R&D Tax Incentive Scheme are offset against any income tax payable. (r) 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 Consolidated Statement of Profit or Loss. 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 Consolidated Statement of Profit or Loss and Other Comprehensive Income. 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 Consolidated Statement of Profit or Loss and Other Comprehensive Income. These differences are recognised in the statement of profit or loss and other comprehensive income in the period in which the operation is disposed. (s) Comparative figures When required by accounting standards, comparative figures have been adjusted to conform to changes in the presentation for the current financial year. (t) Key estimates Impairment The Group assesses impairment at each reporting date by 55 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 (v) Adoption of new and revised accounting standards A number of new and revised standards and an interpretation became effective for the first time to annual periods beginning on or after 1 July 2015. Information on these new standards is presented below. AASB 2014-1 Amendments to Australian Accounting Standards (Part E: Financial Instruments) Part E of AASB 2014-1 makes amendments to Australian Accounting Standards to reflect the AASB’s decision to defer the mandatory application date of AASB 9 Financial Instruments to annual reporting periods beginning on or after 1 January 2018. Part E also makes amendments to numerous Australian Accounting Standards as a consequence of the introduction of Chapter 6 Hedge Accounting into AASB 9 and to amend reduced disclosure requirements for AASB 7 Financial Instruments: Disclosures and AASB 101 Presentation of Financial Statements. The adoption of these amendments has not had a material impact on the Group as they are largely of the nature of clarification of existing requirements. AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASBs project to remove Australian guidance on materiality from Australian Accounting Standards. The adoption of these amendments has not had a material impact on the Group as they are largely of the nature of clarification of existing requirements. (w) New Accounting Standards for Application in Future Periods The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group follows: AASB 9 Financial Instruments (applicable for annual reporting periods beginning on or after 1 January 2018): The standard introduces new requirements for the classification and measurement of financial assets and liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 assessment of internally generated intangible assets is performed in accordance with AASB 136 Impairment of Assets. For the year ended 30 June 2016, no impairment has been recognised for the clinical trials and development projects which meet the recognition criteria for internally generated intangible assets. Research and development tax incentive The Group estimates the research and development tax incentive by reference to the percentage of research and development expenditure that contributed to the prior year research and development tax incentive with consideration to any changes in research and development activities or legislation during the year. 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 and binomial option valuation models 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. (u) Rounding of amounts The Parent Entity has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000, or in certain cases, the nearest dollar. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 56 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The main changes are: (a) Financial assets that are debt instruments will be classified based on i. ii. the objective of the entity’s business model for managing the financial assets; and the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income (instead of in profit or loss). Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: the change attributable to changes in credit risk are i. presented in other comprehensive income (OCI); and the remaining change is presented in profit or loss. ii. If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Otherwise, the following requirements have been carried forward unchanged from AASB 139 into AASB 9: classification and measurement of financial i. liabilities; and ii. de-recognition requirements for financial assets and liabilities. AASB 9 requirements regarding hedge accounting represent a substantial overhaul of hedge accounting that will enable entities to better reflect their risk management activities in the financial statements. Furthermore, AASB 9 introduces a new impairment model based on expected credit losses. This model makes use of more forward-looking information and applies to all financial instruments that are subject to impairment accounting. The entity is yet to undertake a detailed assessment of the impact of AASB 9. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019 AASB 15 Revenue from Contracts with Customers AASB 15: • replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations: • establishes a new revenue recognition model • changes the basis for deciding whether revenue is to be recognised over time or at a point in time • provides new and more detailed guidance on specific topics (e.g., multiple element arrangements, variable pricing, rights of return, warranties and licensing) • expands and improves disclosures about revenue The entity is yet to undertake a detailed assessment of the impact of AASB 15. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. AASB 16 Leases AASB 16: • replaces AASB 117 Leases and some lease-related Interpretations • requires all leases to be accounted for ‘on-balance-sheet’ by lessees, other than short-term and low value asset leases • provides new guidance on the application of the definition of lease and on sale and lease back accounting • requries new and different disclosures about leases The entity is yet to undertake a detailed assessment of the impact of AASB 16. However, based on the entity’s preliminary assessment, the likely impact on the first time adoption of the Standard for the year ending 30 June 2020 includes: • there will be a significant increase in the lease assets and financial liabilities recognised on the balance sheet • the reported equity will reduce as the carrying amount of lease assets will reduce more quickly than the carrying amount of lease liabilities • EBIT in the statement of profit or loss and other comprehensive income will be higher as the implicit interest in the lease payments for former off balance sheet leases will be presented as part of the fiannce costs rather than being included in operating expenses • operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. Interest can also be included within financing activities 57 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 income and the statement of financial position can be disaggregated • add requirements for how an entity should present subtotals in the statement(s) of profit and loss and other comprehensive income and the statement of financial position • clarify that entities have flexibility as to the order in which they present the notes, but also emphasise that understandability and comparability should be considered by an entity when deciding that order • remove potentially unhelpful guidance in IAS 1 for identifying a significant accounting policy. When these amendments are first adopted for the year ending 30 June 2017, there will be no material impact on the financial statements. 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AASB 1057 Application of Australian Accounting Standards In May 2015, the AASB decided to revise Australian Accounting Standards that incorporate IFRSs to minimise Australian-specific wording even further. The AASB noted that IFRSs do not contain application paragraphs that identify the entities and financial reports to which the Standards (and Interpretations) apply. As a result, the AASB decided to move the application paragraphs previously contained in each Australian Accounting Standard (or Interpretation), unchanged, into a new Standard AASB 1057 Application of Australian Accounting Standards. When this Standard is first adopted for the year ending 30 June 2017, there will be no impact on the financial statements. AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation The amendments to AASB 116 prohibit the use of a revenue- based depreciation method for property, plant and equipment. Additionally, the amendments provide guidance in the application of the diminishing balance method for property, plant and equipment. The amendments to AASB 138 present a rebuttable presumption that a revenue-based amortisation method for intangible assets is inappropriate. This rebuttable presumption can be overcome (i.e., a revenue-based amortisation method might be appropriate) only in two (2) limited circumstances: • The intangible asset is expressed as a measure of revenue, for example when the predominant limiting factor inherent in an intangible asset is the achievement of a revenue threshold (for instance, the right to operate a toll road could be based on a fixed total amount of revenue to be generated from cumulative tolls charged); or • When it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. When these amendments are first adopted for the year ending 30 June 2017, there will be no material impact on the transactions and balances recognised in the financial statements. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 The amendments: • clarify the materiality requirements in AASB 101, including an emphasis on the potentially detrimental effect of obscuring useful information with immaterial information • clarify that AASB 101’s specified line items in the statement(s) of profit or loss and other comprehensive NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 2. REVENUE AND OTHER INCOME (a) Revenue from the sale of goods (b) Other revenue Interest income from financial institutions (c) Other income Realised and unrealised foreign exchange gains Other 3. PROFIT FOR THE YEAR Profit before income tax includes the following: 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 Other expenses Provision for legal settlement ANNUAL REPORT 2016 I 58 Consolidated 2015 $'000 2016 $'000 232,492 176,088 2,229 2,229 1,900 199 2,099 1,889 1,889 1,881 243 2,124 Consolidated 2015 $'000 2016 $'000 35,287 27,700 2,367 66,941 2,164 4,403 2,593 1,389 1,268 51,839 1,919 460 2,406 - 59 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 4. INCOME TAX EXPENSE (a) The components of tax expense comprise: Current tax Deferred tax Under/(over) provision in respect of prior years (permanent and timing) (b) Prima facie tax on profit from ordinary actibities before income tax is reconciled to 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 – Over-provision in respect of prior years (permanent) Effect of lower tax rates on overseas income Effect of Foreign Currency translation of tax balances Recognition of tax losses not previously brought to account Eliminations for the tax consolidated group Income tax attributable to entity The applicable weighted average effect tax rates are as follows (c) Franking account Franking account balance Consolidated 2015 $'000 2016 $'000 14,671 1,923 (178) 16,416 69,998 20,999 54 3,411 (4,118) (307) (3,351) 476 (688) (60) 16,416 23.5% 8,587 3,424 412 12,423 52,768 15,830 54 360 (2,748) (317) (580) (94) (199) 117 12,423 23.5% 6,206 7,456 Legislation to allow Groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantially enacted on 21 October 2002. This legislation, which includes both mandatory and elective elements, is applicable to the Company. The directors elected for those entities within the consolidated entity that are wholly-owned Australian resident entities to be taxed as single entity from 1 July 2004. The implementation of the tax consolidation system was notified to the Australian Tax Office. The head entity within the tax-consolidated Group for the purposes of the tax consolidation system is Sirtex Medical Ltd. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 2.93% (2015: 3.7%). These deposits have an average maturity of 43 days as at 30 June 2016 (2015: 50 days). (b) Reconciliation of cash flow from operations with profit after income tax Profit after income tax Non-cash flows in profit: Depreciation and amortisation Share rights reserve Net foreign exchange differences Changes in net assets and liabilties (Increase)/decrease in assets Trade receivables Inventories Decrease in current tax assets Other current assets Deferred assets Increase/(decrease) in liabilities Payables Current tax liabilities Short-term provisions Long-term provisions Deferred tax liabilities Net cash flow from operating activities ANNUAL REPORT 2016 I 60 Consolidated 2015 $'000 2016 $'000 15,025 6,000 21,025 11,941 10,000 21,941 53,582 40,345 6,567 2,771 (449) (8,322) 39 - (1,360) (2,639) 3,650 2,483 321 130 8,438 65,211 2,379 2,250 22 (8,207) (158) 554 (1,123) (1,072) 9,633 6,017 (3,392) 230 4,496 51,974 61 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 6. OTHER SHORT-TERM DEPOSITS Other short-term deposits with financial institutions 2016 $'000 86,000 86,000 Consolidated 2015 $'000 52,000 52,000 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 2016 of these term deposits is 206 days (2015: 225 days). The effective interest rate on the deposits is 3.09% (2015: 3.42%). 7. TRADE AND OTHER RECEIVABLES (a) Trade receivables Trade receivables Provision for impairment (b) Other receivables GST receivables Other receivables Consolidated 2015 $'000 2016 $'000 40,152 (260) 39,892 1,256 1,124 2,380 42,272 33,306 (92) 33,214 717 1,069 1,786 35,000 Receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the other expenses item. Movement in the provision for impairment of receivables is as follows: 30 June 2016 Trade receivables 30 June 2015 Trade receivables Opening balance $'000 Change for the year $'000 Amounts written off $'000 Closing balance $'000 (92) (168) (318) 226 - - (260) (92) An amount of $260,000 was considered impaired as at 30 June 2016 (2015: $92,000). Trade receivables past due but not impaired Less than 30 days overdue 30 - 60 days overdue More than 60 days overdue 2016 $'000 7,644 4,544 3,218 15,406 Consolidated 2015 $'000 7,179 2,990 3,981 14,150 Collection history from previous year’s supports management’s view that receivables less than 180 days overdue are not considered impaired. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 62 7. TRADE AND OTHER RECEIVABLES (CONTINUED) 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. Collateral has been received from certain trade debtors with a history of slow payment in 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 Consolidated 2015 $'000 1,836 1,836 Consolidated 2015 $'000 1,213 1,213 Consolidated 2015 $'000 3,210 3,210 2016 $'000 1,918 1,918 2016 $'000 1,687 1,687 2016 $'000 4,212 4,212 63 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 11. TAX ASSETS (a) Current tax assets Current tax asset (b) Deferred tax assets Tax losses revenue Timing differences attributable to: Fixed Assets Employee provisions Unrealised foreign exchange losses Other* *Other includes the following major components: Executive Performance rights AMT credit (US) Non-amortised patent costs The movement in tax losses is as follows: Opening balance Credit to the statement of profit or loss and other comprehensive income Credit to equity Closing balance The movement in fixed assets is as follows: Opening balance Credit to the statement of profit or loss and other comprehensive income Closing balance The movement in employee provisions is as follows: Opening balance Credit to the statement of profit or loss and other comprehensive income (Debit) to equity Closing balance The movement in unrealised FX is as follows: Opening balance Credit/(debit) to the statement of profit or loss and other comprehensive income Closing balance The movement in other is as follows: Opening balance Credit to the statement of profit or loss and other comprehensive income Credit to equity Closing balance The overall movement in the deferred tax account is as follows: Opening balance Credit to the statement of profit or loss and other comprehensive income Credit to equity Closing balance 2016 $'000 - - 1,166 1,053 2,468 268 2,840 7,795 1,092 464 301 415 688 63 1,166 279 774 1,053 2,001 471 (4) 2,468 - 268 268 2,390 397 53 2,840 5,085 2,598 112 7,795 Consolidated 2015 $'000 - - 415 279 2,001 - 2,390 5,085 1,141 - 201 282 133 - 415 181 98 279 849 1,152 - 2,001 916 (916) - 1,785 605 - 2,390 4,013 1,072 - 5,085 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 Asset 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 Transfers Disposals Depreciation expense Carrying amount at end Asset work in progress Carrying amount at beginning Additions Disposals/Transfers Carrying amount at end Total property, plant and equipment Carrying amount at beginning Additions Disposals Depreciation expense Carrying amount at end ANNUAL REPORT 2016 I 64 Consolidated 2015 $'000 1,063 (472) 591 16,716 (6,335) 10,381 2,192 - 2,192 19,971 (6,807) 13,164 656 - (65) 591 6,097 777 5,562 (201) (1,854) 10,381 6,839 915 (5,562) 2,192 13,592 1,692 (201) (1,919) 13,164 2016 $'000 1,348 (567) 781 20,509 (9,558) 10,951 2,255 - 2,255 24,112 (10,125) 13,987 591 246 (56) 781 10,381 2,807 - (129) (2,108) 10,951 2,192 71 (8) 2,255 13,164 3,124 (137) (2,164) 13,987 65 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 Asset work in progress 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 Transfers Amortisation expense Carrying amount at end Internally generated intangibles Carrying amount at beginning Additions Amortisation expense Carrying amount at end Intellectual property Carrying amount at beginning Amortisation expense Carrying amount at end Asset work in progress Carrying amount at beginning Additions Transfers Carrying amount at end 2016 $'000 4,122 (1,723) 2,399 79,411 (3,258) 76,153 3,607 (3,456) 151 4,118 - 4,118 91,258 (8,437) 82,821 312 3,303 (1,216) 2,399 64,075 15,085 (3,007) 76,153 331 (180) 151 3,309 4,112 (3,303) 4,118 Consolidated 2015 $'000 818 (506) 312 64,326 (251) 64,075 3,607 (3,276) 331 3,309 - 3,309 72,060 (4,033) 68,027 3 338 (29) 312 46,525 17,801 (251) 64,075 511 (180) 331 325 3,322 (338) 3,309 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 13. INTANGIBLE ASSETS (C0NTINUED) Total intangible assets Carrying amount at beginning Additions Amortisation expense Carrying amount at end ANNUAL REPORT 2016 I 66 2016 $'000 68,027 19,197 (4,403) 82,821 Consolidated 2015 $'000 47,364 21,123 (460) 68,027 Recognition of internally generated intangible assets The Group undertakes clinical and development activities. These have been classified as internally generated intangible assets, in accordance with AASB 138 Intangible Assets. On 1 June 2015, one of the major Phase IV post-marketing clinical trials was completed. Amortisation expense of $3,007,411 was recognised during the year (2015: $250,618). At year end, the remaining useful life on the trial was 83 months. At year end, the Group had four major Phase IV post-marketing clincial trials and two development projects aimed at improving the use of SIR-Spheres microspheres that were not yet ready for use. The activities satisfy all tests as set out in AASB 138, in particular the technical feasibility of completion and the availability of sufficient financial resources for completion. Amortisation on the remaining four major Phase IV post-marketing clinical trials and two development projects will be recognised from the date of completion of these activities and calculated over the estimated useful life of these assets which has been assessed at 8 years. The carrying value of the four major Phase IV post-marketing clinical trials and the two development projects have been tested for impairment as the assets are not yet available for use. The cash-generating unit (‘CGU’) was determined at a Group level. The recoverable amount of the CGU is based on value-in-use calculations. Those calculations use five year cash flow projections estimated in the currencies in which they will be generated based on actual operating results and the next year’s budget. Cash flows beyond the five year forecast period are extrapolated using prudent terminal growth rates as follows: USD 2.1%, EUR 1.3%, GBP 2.0%, SGD 2.2% and AUD 3.1% per annum which is consistent with long-term economic growth rates. The pre-tax discount rate used is as follows: USD 16.9%, EUR 15.9%, GBP 15.8%, SGD 16.8% and AUD 19.0%. The key assumptions and the approach to determining the value-in-use in the current year are: Assumption Discount rate Sales volume growth rate Terminal value growth rate How determined Based on the weighted average cost of capital reflecting current market assessments of the time value of money and risks specific to the currency in which the cash will be generated. Based on five year cash flow projection taking into account historical growth rates and product lifecycle. Based on five year cash flow projection taking into account historical growth rates and product lifecycle. The recoverable amount of the CGU is in excess of the carrying amount and therefore no impairment charge was recognised. The excess of recoverable amount over carrying amount is such that a reasonably possible change in assumptions is unlikely to reduce the recoverable amount below the carrying amount. 14. TRADE AND OTHER PAYABLES Trade payables Other payables 2016 $'000 16,296 11,794 28,090 Consolidated 2015 $'000 13,638 10,652 24,290 67 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 movement in the capitalisation of development expenditure is as follows: Opening balance Debit/(credit) to the statement of profit or loss and other comprehensive income Closing balance The movement in the fixed assets is as follows: Opening balance Debit/(credit) to the statement of profit or loss and other comprehensive income Debit to equity Closing balance The movement in other is as follows: Opening balance (Credit)/debit to the statement of profit or loss and other comprehensive income Debit to equity Closing balance The overall movement in the deferred tax account is as follows: Opening balance Debit to the statement of profit or loss and other comprehensive income Debit to equity Closing balance 16. PROVISIONS AND ACCRUALS (a) Short-term Provisions and Accruals Provision for long service leave Provision for clinical studies Provision for legal settlement Miscellaneous provisions (b) Long-term Provisions Provision for long service leave Miscellaneous provisions 2016 $'000 7,239 7,239 22,846 945 931 24,722 19,222 3,624 22,846 724 220 1 945 88 833 10 931 20,034 4,677 11 24,722 2016 $'000 463 1,940 1,389 3,217 7,009 671 482 1,153 Consolidated 2015 $'000 4,746 4,746 19,222 724 88 20,034 13,957 5,265 19,222 624 100 - 724 958 (870) - 88 15,538 4,495 1 20,034 2015 $'000 385 3,180 - 3,101 6,666 521 583 1,104 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 16. PROVISIONS AND ACCRUALS (CONTINUED) The overall movement in the short-term provision for long service leave account is as follows: Opening balance Additional provision for the year Amounts used during the year Closing balance The overall movement in the short-term provision for clinical studies 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 for legal settlement account is as follows: Opening balance Additional provisions for the year Closing balance The overall movement in the short-term miscellaneous provision account is as follows: Opening balance Additional provisions for the year Amounts used during the year Closing balance The overall movement in the long-term for long service leave provision account is as follows: Opening balance Additional provisions for the year Amounts used during the year Closing balance The overall movement in the long-term miscellaneous provision account is as follows: Opening balance Additional provisions for the year Amounts used during the year Closing balance ANNUAL REPORT 2016 I 68 2016 $’000 2015 $’000 385 106 (28) 463 3,180 8,228 (9,468) 1,940 - 1,389 1,389 3,101 23,506 (23,390) 3,217 521 163 (13) 671 583 - (101) 482 196 192 (3) 385 6,665 12,649 (16,134) 3,180 - - - 3,197 4,750 (4,846) 3,101 574 (53) - 521 300 283 - 583 Provision for legal settlement is management’s best estimate of the liability at year end relating to a dispute that arose in the prior financial year. There is no contingent liability in the current year. 69 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 17. ISSUED CAPITAL Issued capital Share issue costs Purchase of Non-Executive Directors' share on market Deferred tax on performance rights 2016 $'000 28,616 (1,258) (386) 5,712 32,684 Consolidated 2015 $'000 26,436 (1,258) (92) 1,935 27,021 Number of shares issued 57,273,893 56,530,231 2016 2015 No (000) $'000 No (000) $'000 Fully paid ordinary shares Balance at beginning of the year Purchase of Non-Executive Directors' share on market Issued on exercise of performance rights Balance at end of the year 56,530 - 744 27,021 (294) 5,957 56,108 24,893 - 422 (92) 2,220 27,021 57,274 32,684 56,530 A total of 743,662 fully paid ordinary shares have been issued as a result of the exercise of performance rights at an average price of $30.74. The value of $5,957,694 booked to share capital represents the accounting expense previously recognised in relation to the performance rights and deferred tax on the performance rights exercised. 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 authorised capital and issued shares do not have a par value. The purchase of Non-Executive Directors’ shares on market represent the Restricted Shares that are acquired by the trustee of the NEDs Plan trust in respect of the vested Rights. At the time the shares vest, they are subject to a CHESS holding lock and may not be dealt with until the earlier of ceasing to be a NED of the Group or the elapsing of fifteen years from the grant date. The Restricted Shares were acquired via on-market purchase of Sirtex Shares, rather than by new issues of Shares. 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 and a Non-Executive Director’s 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 2016. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 18. RESERVES Share Rights Reserve Foreign Currency Translation Reserve ANNUAL REPORT 2016 I 70 Consolidated 2015 $'000 4,075 1,540 5,615 2016 $'000 4,652 2,004 6,656 The Executive Performance Rights Plan and the Non-Executive Director’s Right Plan give 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. 19. EARNINGS PER SHARE (a) Basic earnings per share Profit from continuing operations attributable to equity holders Weighted average number of shares used in the calculation of basic earnings per share 53,581,892 57,197,572 40,345,232 56,511,106 Consolidated 2015 $ 2016 $ 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 and Non-Executive Directors' Rights Plans (refer to note 22 for further details) (b) Diluted earnings per share Profit from continuing operations attributable to equity holders Weighted average number of shares used in the calculation of diluted earnings per share 942,027 1,352,605 53,581,892 58,139,599 40,345,232 57,863,711 Consolidated 2015 $'000 2016 $'000 20. DIVIDENDS Distributions paid Declared fully franked ordinary dividend of 20 cents (2015: 14 cents) per share franked at the tax rate of 30% (2015: 30%) 11,432 7,914 Balance of franking credit amount at year end adjusted for franking credits arising from payment of provision for income tax 6,206 7,456 71 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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, Americas and Europe, Middle East and Africa (EMEA). 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. Segment revenues Asia Pacific Americas EMEA Total of all segments Interest - unallocated Eliminations Consolidated External Sales Inter-segment(s) Total 2016 $'000 8,361 185,204 38,927 2015 $'000 6,913 136,738 32,436 2016 $'000 163,751 13,819 - 2015 $'000 151,944 11,110 11,963 2016 $'000 172,112 199,023 38,927 410,062 2,229 (177,570) 234,721 2015 $'000 158,857 147,848 44,399 351,104 1,889 (175,016) 177,977 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 72 21. OPERATING SEGMENTS (CONTINUED) The total revenue represented for the Group’s operating segments reconcile to the key financial figures as presented in its financial statements as follows: Revenue from the sale of goods Other segment revenue From other segments Elimination of intersegment revenues Group revenues Segment net profit after tax Asia Pacific Americas 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 Americas EMEA Total of all segments Eliminations Consolidated Other segment information Acquisition of segment assets – Plant and equipment – Intangibles Depreciation and amortisation of segment assets – Plant and equipment – Intangibles 2016 $'000 232,492 2,229 177,570 (177,570) 234,721 2016 $'000 95,397 13,547 33,634 142,578 (72,580) 69,998 (16,416) 53,582 2015 $'000 176,088 1,889 175,016 (175,016) 177,977 2015 $'000 62,507 3,364 6,932 72,803 (20,035) 52,768 (12,423) 40,345 2016 $'000 Assets 2015 $'000 273,960 244,707 55,959 52,865 382,784 (121,067) 261,717 44,687 26,734 316,128 (114,652) 201,476 Liabilities 2015 $'000 100,128 30,083 17,421 147,632 (90,792) 56,840 2016 $'000 86,408 36,100 29,998 152,506 (84,293) 68,213 Asia Pacific Americas 2016 $'000 1,045 19,197 763 4,403 2015 $'000 553 21,123 1,003 460 2016 $'000 1,406 - 812 - 2015 $'000 2016 $'000 166 - 519 - 673 - 589 - EMEA 2015 $'000 973 - 397 - 73 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 21. OPERATING SEGMENTS (CONTINUED) Major customers The Group has a number of customers to whom it provides products. No single external customer represents more than 10% of total revenue. 22. SHARE-BASED PAYMENTS Executive Performance Rights During the financial year, a total of 204,074 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 following 30 June 2018. The performance rights hold no voting or dividend rights, and are not transferable. Performance rights granted to executives and senior management are as follows: Grant Date 22 February 2011 23 August 2011 28 August 2012 26 November 2013 23 September 2014 1 September 2015 27 October 2015 4 February 2016 Number 374,188 456,000 687,000 448,500 284,720 96,244 45,930 61,900 During the year, a total of 45,930 rights were granted to the Chief Executive Officer, and a total of 185,324 rights to other executives and senior managers of the Group. The performance rights vest after 30 June 2018, and the extent to which vesting occurs, depends on the achievement of performance conditions. The Board has determined that there will be two performance conditions with equal weight of 50% each, calculated over a three year period from 1 July 2015 to 30 June 2018 (the Measurement Period), namely Indexed Total Shareholder Return (i-TSR) and Earnings per Share (EPS). The percentage of rights vested will be determined as follows: TSR (% pa compounded) Vesting (%) 100% of ASX300 TSR and greater than 10% 0% Above market average but not reaching target 1% for each 1% above market average (pro-rata) 200% of ASX300 TSR Surpassing target 100% of Target grants (66.7% of Plan grants) 0.5% for each 1% above target up to 1.5 times entitlement EPS (% pa compounded) EPS compound growth of 10% Vesting (%) 0% Above threshold but not reaching target 10% for each 1% above threshold (pro-rata) EPS compound growth of 20% 100% of Target Rights (66.7% of Plan Rights) Surpassing target 5% for each 1% above target up to 1.5 times entitlement ANNUAL REPORT 2016 I 74 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 22. SHARE-BASED PAYMENTS (CONTINUED) A summary of the movements of all performance rights issued is as follows: Vesting 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 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Jun-17 30-Jun-18 30-Jun-18 30-Jun-18 - - - - - - - - 33,000 33,000 678,500 443,000 281,320 - - - - - - - - 96,244 45,930 61,900 33,000 33,000 678,500 - - - - - - - - - - - - - - - - - - - 443,000 443,000 281,320 96,244 45,930 61,900 - - - - Grant Date 22-Feb-11 23-Aug-11 28-Aug-12 26-Nov-13 23-Sep-14 01-Sep-15 27-Oct-15 04-Feb-16 The weighted fair value of the performance rights issued during the financial year ended 30 June 2016 has been calculated at $17.83 (2015: $9.44). The price was calculated by using a Monte Carlo simulation model and binomial option pricing model applying the following inputs: Exercise price Performance rights life Expected share price volatility Expected index volatility Distribution yield Correlation Risk-free interest rate Nil 3 years 30% 10% 1.05% 12.5% 2.04% 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. The underlying share price for the rights granted during the year was: 1 September 2015 27 October 2015 4 February 2016 Included in the statement of profit or loss and other comprehensive income is $2,771,860 (2015: $2,249,474) of performance rights plan expense, and relates in full to equity-settled share-based payment transactions. $33.29 $34.60 $36.04 Non-Executive Directors’ Rights On 23 November 2015, a total of 4,230 rights were granted to Non-Executive Directors under the Non-Executive Directors’ Rights Plan to take up rights which may convert into ordinary shares, for nil consideration. The rights will vest three months after grant provided that the Non-Executive Directors continue to be a Director at that time. There are no performance criteria attached to the vesting of the rights. Upon vesting of the rights and conversion into ordinary shares, the shares are transferred to each NED, but with a CHESS holding lock. Disposal restrictions stipulate that, except by force of law, exercised shares may not be dealt with until the earlier of ceasing to be a NED of the Group or the elapsing of fifteen years from the grant date. Rights granted to Non-Executive Directors are as follows: Grant Date 24-Sep-13 22-Jul-14 23-Nov-15 A summary of the movements of rights issued is as follows: Number 4,195 6,289 4,230 Grant Date Vesting Date Exercise Price 22-Jul-14 22-Jul-15 23-Nov-15 23-Feb-16 nil nil Balance at start of year 6,289 Granted during the year Exercised during the year Forfeited during the year Balance at end of year Vested and exercisable Vested and unexercisable - - 4,230 6,289 4,230 - - - - - - - - 75 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 23. KEY MANAGEMENT PERSONNEL Refer to the Remuneration Report 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 2016 and 30 June 2015. The totals of remuneration paid to key management personnel of the Group during the year are as follows: Short-term employee benefits Post-employment benefits Share-based payment 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 Total Equity Reserves Share rights reserve Total reserves Financial performance Profit for the year Total comprehensive income 2016 $ 5,547,004 184,463 1,876,717 7,608,184 2015 $ 5,180,394 122,709 1,462,735 6,765,838 2016 $'000 2015 $'000 127,962 30,428 158,390 27,976 1,243 29,219 32,684 (2,032) 98,519 129,171 874 874 43,626 43,626 93,831 17,377 111,208 16,564 584 17,148 26,122 1,614 66,324 94,060 1,613 1,613 7,086 7,086 Financial guarantees 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 2016 (2015: $nil). Contractual commitments The parent entity has an operating lease commitment for the office lease in Sydney. Refer to note 25 for further details. ANNUAL REPORT 2016 I 76 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 - North Sydney Sydney - St Leonards Singapore Bonn (GER) Frankfurt (GER) Boston (US) London (UK) Lease term 84 months 60 months 36 months 98 months 120 months 123 months 24 months Remaining lease period 49 months 55 months 26 months 67 months 86 months 67 months 14 months The consolidated entity also leases various items of plant and equipment in Germany and the United States with lease terms of up to 48 months, and remaining periods of 1 to 58 months. Non-cancellable operating leases Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Consolidated 2015 $'000 2,299 7,897 2,538 12,734 2016 $'000 3,299 10,623 1,865 15,787 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 $1,469,000 (2015: $920,000). The amount of all outstanding contractual commitments as at 30 June 2016 is $1,981,000 (2015: $920,000). 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 $9,358,000 (2015: $7,107,000). The amount of all outstanding contractual commitments as at 30 June 2016 is $17,574,000 (2015: $20,810,000). Capital commitments The consolidated entity has entered into various agreements for property, plant and equipment and intangible assets. Under these agreements, the consolidated entity is committed to providing funds over future periods within one year of $196,000 (2015: $419,000). The amount of all outstanding contractual commitments as at 30 June 2016 is $196,000 (2015: $839,000). 77 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 26. CONTROLLED ENTITIES Name of entity Parent entity Sirtex Medical Ltd Controlled entities Sirtex Medical Products Pty Ltd Sirtex Global Pty Ltd Sirtex Technology Pty Ltd Sirtex Sir-Spheres Pty Ltd Sirtex Thermosperes Pty td Sirtex Medical Holdings Inc Sirtex Medical Inc Sirtex Wilmington LLC Sirtex Germany Holding GmbH Sirtex Medical Europe GmbH Sirtex Technology Germany GmbH Sirtex Germany Manufacturing GmbH Sirtex Medical United Kingdom Ltd Sirtex Medical France S.A.R.L. Sirtex Medical MEA FZE Sirtex Singapore Holding Pte Ltd Sirtex Medical Singapore Pte Ltd Sirtex Global Singapore Pte Ltd Sirtex Singapore Manufacturing Pte Ltd Sirtex Technology Japan KK Country of incorporation Ownership interest 2016 % 2015 % Australia Australia Australia Australia Australia Australia USA USA USA Germany Germany Germany Germany United Kingdom France United Arab Emirates Singapore Singapore Singapore Singapore Japan 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 Sirtex Medical France S.A.R.L. was incorporated on 2 February 2016. Sirtex Medical Ltd and all its Australian-controlled entities are included in the tax-consolidated group. Sirtex Medical Ltd is the head entity in the tax consolidation group. These entities are taxed as a single entity. 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) Loans and transactions with key management personnel and related entities At 30 June 2016, $1,255,046 (2015: $9,222) was payable to directors, key management personnel and director related entities. At 30 June 2016, $1,493 (2015: $12,702) was receivable from directors, key management personnel and director related entities. The payable relates to deferred remuneration which is fully offset with a corporate asset and recognised net in the financial statements (2015: withholdings tax on the performance rights granted to Key Management Personnel and expense reimbursements). The receivable relates to expense reimbursement. (c) Transactions with the wholly-owned group The ultimate parent entity in the wholly-owned group is Sirtex Medical Ltd. During the financial year, Sirtex Medical Ltd paid management fees of $23,213 (2015: $144,228) to 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 payables from subsidiaries: $23,932,288 (2015: $12,169,332) Loans receivable from subsidiaries: $15,317,888 (2015: $14,885,016) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 78 28. EVENTS AFTER REPORTING DATE On 20 July 2016, a total of 443,000 Executive Performance Rights issued on 26 November 2013 fully vested, having achieved the performance target. As at the date of this report, a total of 443,000 of these performance rights have been exercised and issued as ordinary shares of Sirtex Medical Ltd. Since the end of the year, the Directors have declared a partially franked dividend of 30c per share to be paid on 19 October 2016 (2015: 20 cents per share). The record date for the dividend is 28 September 2016. 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 Agreed upon procedures performed for the parent entity Remuneration of the auditors of subsidiaries for audit and review of financial reports Consolidated 2015 $'000 140 34 143 2016 $'000 164 78 159 The auditor of Sirtex Medical Ltd and its Australian subsidiaries is Grant Thornton Audit Pty Ltd. The auditor of the German subsidiary is Warth & Klein Grant Thornton AG. The auditor of the US entities is Grant Thornton LLP. The auditor of the Singapore entities is Grant Thornton Advisory Pte Ltd. 30. FINANCIAL RISK MANAGEMENT The Audit Committee has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The Audit Committee monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to counter party credit risk, currency risk, and interest rate risk. The Group’s activities expose it to a variety of financial risks, including but not limited to, market risk (currency risk and interest rate risk), credit risk and liquidity risk. The overall risk management strategy seeks to measure and to mitigate these risks, in using different methods measure the different types of risk, and in using derivate instruments to minimise certain risk exposures. The Group’s financial instruments consist mainly of deposits with banks, short-term investments, account receivable and payable, and loans to and from subsidiaries. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial instruments, are as follows: Financial Assets Cash and cash equivalents Other short-term deposits Trade and other receivables Other financial assets * Financial Liabilities Trade and other payables * Other financial assets comprise security deposits Consolidated 2015 $'000 21,941 52,000 35,000 1,213 110,154 24,290 24,290 2016 $'000 21,025 86,000 42,272 1,687 150,984 28,090 28,090 79 I SIRTEX NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 30. FINANCIAL RISK MANAGEMENT (CONTINUED) 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. 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 2016 on cash was 0.45% (2015: 0.9%) and on short-term deposits 3.08% (2015: 3.46%). All other financial assets and liabilities are non-interest bearing. Sensitivity analysis The sensitivity analysis is based on an expected overall volatility of interest rates using market data and forecasts. A change in interest rate of 2% on cash and short-term deposits would result in changes in profit and equity as follows: Change in profit: Increase in interest rate by 2% Decrease in interest rate by 2% Change in equity: Increase in interest rate by 2% Decrease in interest rate by 2% Consolidated 2016 $'000 2015 $'000 1,926 (1,926) 1,926 (1,926) 1,331 (1,331) 1,331 (1,331) (b) Credit risk 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 2016, 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 does not have any currency hedging instruments open at reporting date. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 ANNUAL REPORT 2016 I 80 30. FINANCIAL RISK MANAGEMENT (CONTINUED) 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 6 months and forecasts for the next 12 months. A change in foreign exchange rates of 15% would result in changes in profit and equity 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% Change in equity: 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 2016 $'000 2015 $'000 (16,840) 16,840 (2,022) 2,022 (16,840) 16,840 (2,022) 2,022 (20,511) 20,511 (4,865) 4,865 (20,511) 20,511 (4,865) 4,865 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. 2016 Group entity (Functional currency) US Entities (USD) European Entities (EUR) UK Entities (GBP) Singapore Entities (SGD) Japanese Entities (JPY) Middle Eastern Entities (AED) Balance Sheet Exposure 2015 Group entity (Functional currency) US Entities (USD) European Entities (EUR) Singapore Entities (SGD) Japanese Entities (JPY) Balance Sheet Exposure USD 000 EUR 000 GBP 000 SGD 000 JPY 000 AED 000 AUD 000 19,096 7,463 (66) (467) 4,292 19,096 7,463 (66) (467) 4,292 25,718 11,143 (118) (465) 56 - 36,334 - - USD 000 EUR 000 GBP 000 SGD 000 JPY 000 AED 000 AUD 000 17,816 4,493 17,816 4,493 - 1,062 3,253 3,253 1,062 23,198 6,543 1,027 35 - 30,803 Foreign Currency Call/Put Options The Group has no currency option open at reporting date. 81 I SIRTEX ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 29 JULY 2016 Number of shareholders 57,641,152 fully paid ordinary shares are held by 13,952 individual shareholders. All issued ordinary shares carry one vote per share. Distribution of shareholders 1 1,001 5,001 - 1,000 - 5,000 - 10,000 10,001 - 100,000 100,001 and over Ordinary shares Holders 4,133,738 5,977,366 1,843,597 4,750,353 40,936,098 57,641,152 10,777 2,723 243 178 31 13,952 Non-marketable parcels - 148 shareholders held less than a marketable parcel of ordinary shares representing 801 ordinary shares. Substantial shareholders Ordinary shareholders Perpetual Investments Goldman Sachs Asset Mgt Twenty largest shareholders Ordinary shareholders J P Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited National Nominees Limited RBC Investor Services Australia Nominees Pty Limited (PI Pooled A/C) BNP Paribas Noms Pty Ltd (DRP) UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited (A/C 2) BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C) Australian Foundation Investment Company Limited BNP Paribas Nominees Pty Lts (Agency Lending Collateral) SCJ Pty Ltd (Jermyn Family Account) Bannaby Investments Pty Limited (Bannaby Super Fund A/C) Pacific Custodians Pty Limited (Sirtex Exec Share Tst) National Nominees Limited (N A/C) House of Maister Financial Services City and Westminster Limited Pacific Securities Inc Bannaby Investments Pty Ltd (Bannaby Super Fund A/C) RBC Investor Services Australia Nominees Pty Limited (PIIC A/C) Mr Stephen Craig Jermyn (Jermyn Family S/Fund A/C) AMP Life Limited Fully Paid Number Percentage 4,342,573 3,195,497 7.53 5.54 Fully Paid Number Percentage 11,449,711 6,589,842 6,240,710 4,711,375 2,563,277 1,327,191 1,248,749 913,255 775,729 460,000 440,000 400,000 400,000 333,824 309,635 284,491 250,000 250,000 210,000 207,109 200,000 199,700 19.86 11.43 10.83 8.17 4.45 2.30 2.17 1.58 1.35 0.80 0.76 0.69 0.69 0.58 0.54 0.49 0.43 0.43 0.36 0.36 0.35 0.35 39,764,598 68.97 ANNUAL REPORT 2016 I 82 COMPANY INFORMATION FOR THE YEAR ENDED 30 JUNE 2016 COMPANY SECRETARY Mr Darren Smith STOCK EXCHANGE LISTING Australian Stock Exchange Limited ASX code SRX SHARE REGISTRAR Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Tel: 1300-554-474 (in Australia) Tel: +61-1300-554-474 (international) AUDITORS Grant Thornton Audit Pty Ltd Level 17, 383 Kent Street Sydney NSW 2000 Australia REGISTERED OFFICE Level 33, 101 Miller Street North Sydney NSW 2060 Tel: +61-2-9964-8400 PRINCIPAL PLACES 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 Joseph-Schumpeter-Allee 33 53227 Bonn, Germany Tel: +49-228-1840-730 SINGAPORE OFFICE Level 1, 50 Science Park Road Singapore Science Park II Singapore 117406 Tel: +65-6308-8370 ANNUAL GENERAL MEETING The Annual General Meeting will be held at 10am on 25 October 2016 at The Sofitel Sydney Wentworth, 61-101 Phillip Street, Sydney NSW 2000 WWW.SIRTEX.COM SIR-Spheres® is a registered trademark of Sirtex SIR-Spheres Pty Ltd. 

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