Virtus Health Limited
ABN 80 129 643 492
Annual Report
for the year ended 30 June 2013
Notice of ANNuAl GeNerAl MeetiNG
The inaugural Annual General Meeting of
Virtus Health Limited will be held at 2.00pm
(Sydney time) on Wednesday, 6 November 2013
at Level 1, Rooms 5-6, Hilton Hotel, 488 George
Street, Sydney NSW 2000.
ii Virtus Health Annual Report 2013
Embryoscope: Leading time lapsed
digital imagery research of embryo
development in Australia
HIGHLIGHTS
Virtus Health Limited brings
together Australia’s leading
clinicians, scientists, researchers
and support staff to provide the
very best in fertility care and
related services.
We have developed one of the most
successful medical collaborations
in the world. With more than 80 of
the world’s leading fertility specialists
supported by 825 professional staff,
we are the largest network and
provider of fertility services in Australia.
Our combined expertise creates
a unique and powerful body of
knowledge which when combined
with the collegial team approach
of our specialists and scientists,
means we are able to find new and
advanced solutions for achieving
success for our patients.
LEAdING
MINdS
LEAdING
ScIENcE
82
FERTILITY
SpECIALISTS
172
SCIENTIFIC
STAFF
653
OTHER
STAFF
33
CLINICS
6
DAY
HOSpITALS
17
18
EMBROYOLOGY
CLINICS
ANDROLOGY
CLINICS
Virtus Health Annual Report 2013 1
cHAIRMAN’S
STATEMENT
I am pleased to present my first statement as
Chairman of Virtus Health since the ASX listing
in June this year. Virtus Health is the leading
provider of assisted reproductive services
(“ARS”) in Australia working with 82 fertility
specialists and employing over 800 people.
Our teams are committed to providing high
quality patient care in reproductive medicine
and in our day hospitals where we also provide
support and care to over 25,000 patients in a
wide range of surgical specialties.
I would like to welcome all our new shareholders who have
joined the group since June and trust that you will find
our first report as a listed company to be interesting and
informative.
As you will appreciate the commitment to undertake an
ASX listing is a significant event for any company and the
success of the listing to date is testimony to the hard work of
everybody directly involved in the listing process including
investment bankers, reporting accountants, corporate
lawyers and the senior management team. However, at the
heart of a successful listing there has to be a good quality
business and I believe that the staff, doctors, management
and previous shareholders have been diligent in their
delivery of high quality patient care and services which
is the foundation on which Virtus Health and its individual
operations, has built its business over three decades.
I am also pleased to confirm that our first reported results
for the financial year ending 30 June 2013 have slightly
exceeded our pro-forma forecasts provided in the Virtus
Health prospectus published in May. Further details of the
pro-forma consolidated results for the current and prior
year are provided on pages 5 to 7.
“
As we enter the new
financial year we
continue to look at
opportunities to develop
our geographic footprint
and this will likely include
some further organic
expansion and fertility
clinic and day hospital
acquisitions in Australia.
2 Virtus Health Annual Report 2013
With an ASX listing, there are new demands placed on the
people who work for Virtus Health, The management team
led by our Group chief Executive Officer, Sue channon
is responding to the new requirements of being a listed
company. However in spite of the time consumed by the
listing we have continued to invest in new facilities and have
added to our core healthcare competencies thus extending
the capability of Virtus to deliver high quality Assisted
Reproductive Services.
New facilities have opened in Waverley and Werribee in
Victoria and dee Why in New South Wales. Additionally we
have added three new locations for our increasingly popular
low cost model of care “The Fertility centre” (“TFc”) which
operate in conjunction with our full service clinics. I am also
pleased to advise that we are expanding TFc Springwood in
Queensland to meet increased patient interest in this service
following a very successful first full year of operation.
Our Queensland management team also completed a
relocation and expansion of our main Queensland Fertility
Group Brisbane cBd clinic. The $4.25 million investment was
completed at the end of the financial year and provides
a newly refurbished facility to support our Brisbane patients.
In our day hospital activities we acquired the remaining
fifty per cent shareholding of city East Specialist day
Hospital, Maroubra, NSW in August 2012 and at our city
West Specialist day Hospital joint venture in Westmead, NSW
we invested $2.2 million in a modernisation and expansion
program.
We will continue to develop the capability of our diagnostic
services which complement our ARS capability. New tests
added to our diagnostic test platforms include chlamydia
and natural killer cell testing; the latter test is a primary
example of an internally developed innovation which is
supporting ARS for a particular patient cohort.
As we enter the new financial year we continue to look at
opportunities to develop our geographic footprint and this
will likely include some further organic expansion and fertility
clinic and day hospital acquisitions in Australia.
We are also continuing to review several international
opportunities and the Board is working closely with
management on formulating appropriate business models
to utilise the considerable expertise Virtus Health has in the
provision of Assisted Reproductive Services.
I am also pleased to report that one of our senior Melbourne
IVF fertility specialists, Associate Professor John McBain, has
been recognised as an Officer (AO) in the Queen’s Birthday
Honours list for his distinguished service to reproductive
medicine as a gynaecologist, particularly in the area of
infertility, to medical education as an academic, and to
professional organisations. John continues to play an active
role in the strategic development of Virtus Health as well as
serving his patients.
Finally, as the newly appointed chairman of Virtus
Health, I would like to thank all of our staff, doctors and
management teams who have contributed to the success
of Virtus Health to date. In my early meetings with members
of the Virtus team I have been very impressed by the
commitment and intellectual capacity of our people in
a sector where advances in clinical practice will form an
important part of our continued growth and development.
We will continue to support the enhancement of our clinical
and scientific capability for improved patient outcomes.
peter Macourt
Chairman
Virtus Health Annual Report 2013 3
cHIEF EXEcuTIVE’S OPERATING
ANd FINANcIAL REVIEW
I am pleased to present the Operating and Financial
Review, the first review for Virtus as an ASX listed company.
Operations – overview
Virtus is an Australian healthcare services company
whose main activity is providing patients with Assisted
Reproductive Services (“ARS”), but which also derives
significant revenues from specialised diagnostics and day
hospitals. Virtus provides services to patients through a
network of 33 fertility clinics, 17 embryology laboratories,
18 andrology laboratories, 6 specialised diagnostic testing
laboratories and 6 day hospitals across New South Wales,
Victoria and Queensland.
ARS involve investigating, assessing and providing
treatment options for patients experiencing infertility.
These services are supported by specialised diagnostics
and day hospital services. The most common Assisted
Reproductive Service is a fresh stimulated IVF cycle
which involves administering a stimulating hormone to a
woman, collecting eggs, clinical fertilisation of those eggs
and observing their development in a laboratory before
transferring the embryos into the uterus.
Virtus generates income by providing the following
services to patients:
• Assisted Reproductive Services – Virtus receives income
for providing ARS to patients using technologies and
scientific methods aimed at achieving a clinical
pregnancy,
• specialised diagnostics – Virtus receives income for
providing specialised diagnostic tests used in the
diagnosis of infertility and the provision of ARS to its
patients. Virtus’ specialised diagnostic tests are also
used by a small number of other fertility clinics and
obstetricians in locations in which Virtus does not
operate, and
• day hospitals – Virtus receives income for patient
procedures conducted in its day hospitals. In
aggregate, procedures in relation to ARS are the
single largest medical specialty area performed in
Virtus’ day hospitals. Virtus also supports the delivery
of non-IVF procedures including the speciality areas
of endoscopy,gynaecology, dental, ophthalmic,
cosmetic, urology and plastic surgery.
Virtus’ patients receive partial reimbursement for services
provided by Virtus from the Australian commonwealth
Government through Medicare and private health
insurance (if insured).
4 Virtus Health Annual Report 2013
Operations – FY13
Virtus continued to expand its geographic footprint and
enhance its existing facilities; total capital expenditure
was $10,583,000.
New ARS facilities were opened in Waverley and
Werribee in Victoria and in dee Why in New South Wales.
Additionally Virtus added three new locations for the
increasingly popular low cost model of care “The Fertility
centre” (‘TFc’) clinics which operate in conjunction with
our full service clinics. The Virtus vision is to ensure that high
tech ARS are accessible to Australians where affordability
may be an issue. These services are provided under a strict
protocolised approach to patient care. New TFc clinics
were opened in dandenong, Victoria in November 2012,
in Liverpool, New South Wales in February 2013 and Virtus
recently converted a small consulting and monitoring
centre in Sunshine, Victoria into its fourth TFc. Virtus is
also expanding TFc Springwood in Queensland to meet
increased patient interest in this service following a very
successful first full year of operation.
Virtus completed a relocation and expansion of its
main Queensland Fertility Group Brisbane cBd clinic.
The $4,250,000 investment was completed at the end
of the financial year and provides a newly refurbished
facility to support Brisbane patients. Virtus also expanded
the capacity of its cytogenetic testing facility to meet
increased demand experienced in FY2013.
In day hospital activities Virtus acquired the remaining fifty
per cent shareholding of city East Specialist day Hospital,
Maroubra, NSW in August 2012 and at the city West
Specialist day Hospital joint venture in Westmead, NSW,
Virtus invested $2,200,000 in a modernisation and expansion
program to create enhanced facilities for day hospital
patients, more efficient operating facilities for specialists
and additional operating capacity.
Virtus has continued to develop the capability of its
diagnostic services which complement the ARS capability.
New tests added to the diagnostic testing platforms
include chlamydia and natural killer cell activation
testing; the latter test is a primary example of an internally
developed innovation which is supporting ARS for a
particular patient cohort.
Revenue
Virtus has achieved revenue growth of 13.0%. Virtus
achieved IVF cycle growth of 3.8% in New South Wales,
Queensland and Victoria compared to the equivalent
Assisted Reproductive Services (‘ARS’) market volume
growth of 1.2%. Virtus has seen strong growth in its
low cost “The Fertility centre” branded clinics and in
Our success is built upon the considerable
skill and expertise of our fertility specialists
and the employees who work in our clinics,
laboratories, day hospitals and offices.
“
14,342
NUMBER OF IVF CYCLES – FY13
specialist diagnostics, particularly in its cytogenetic and
pre-implantation genetic diagnosis testing activities.
diagnostic revenue growth has been 12.4%.
Partially offsetting these costs was a net gain on the
acquisition of an associate company of $5,670,000.
Results – Statutory
Key highlights extracted from the audited results are:
• Revenue increased by 13.0% to $186,581,000.
• EBITdA decreased by 10.8% to $43,429,000
(see reconciliation on page 23).
• Profit before income tax expense decreased to
$14,355,000 from $26,373,000.
• Segment EBITdA increased by 9.1% to $56,282,000 (see
Note 3 on page 56).
A significant feature in the decline of statutory profit
before tax was the incidence of costs associated with
the listing of Virtus shares on the ASX and the refinancing
of the consolidated entity’s bank facilities. Major non-
recurring costs included:
• IPO listing costs, $10,651,000;
• Share based payment costs, $6,827,000; and
• debt restructure costs, $11,600,000.
Results – pro-forma (unaudited)
On a pro-forma basis, EBITdA increased by 8.7% to
$56,100,000 and exceeded IPO prospectus pro-forma
EBITdA forecast for FY13 by $800,000. Statements of pro-
forma adjustments to the statutory income statement and
a pro-forma consolidated income statement are set out
on the following pages.
Virtus has prepared pro-forma results on a similar basis to
the pro-forma forecasts presented in the IPO prospectus
published in May 2013. The tables set out on the following
pages provide an overview of performance against
the prospectus forecast for FY13 and also a comparison
to FY12.
Virtus Health Annual Report 2013 5
cHIEF EXEcuTIVE’S OPERATING
ANd FINANcIAL REVIEW (continued)
pro-forma adjustments to the statutory income statement
The table below sets out the adjustment to the Statutory Results for 2012 and 2013 to primarily reflect the acquisitions
that Virtus Health Limited has made since 1 July 2011 as if they has occurred as at 1 July 2011 and the full year impact of
the operating and capital structure that is in place following completion of the IPO as if it was in place as at 1 July 2011.
In addition, certain other adjustments to eliminate non-recurring items have been made. These adjustments are
summarised below:
Statutory revenue
Interest received
Net gain on acquisition of city East Specialist day Hospital
Pro-forma impact of historical acquisitions
pro-forma revenue
Statutory NpAT
Pro-forma impact of historical acquisitions and other one-off costs
Net gain on acquisition of city East Specialist day Hospital
Share-based payments expense
Public company costs
IPO transaction costs
debt structure costs
Amortisation
Income tax effect
pro-forma NpAT
6 Virtus Health Annual Report 2013
CONSOLIDATED
30 June 2013
$m
30 June 2012
$m
192.9
(0.5)
(5.7)
0.6
187.3
10.1
1.1
(5.7)
6.8
(1.2)
10.7
11.6
0.8
(6.9)
27.3
165.1
(0.4)
–
6.9
171.6
19.7
3.6
–
0.3
(1.2)
–
3.5
2.3
(3.5)
24.7
pro-forma consolidated income statements: financial year ended 30 June 2013 compared to financial
year ended 30 June 2012 and the prospectus forecast for year ended 30 June 2013
The pro-forma consolidated income statement for the financial year ending 30 June 2013 has been prepared on the
same basis as the pro forma consolidated financial income statement for the twelve months ending 30 June 2012
published in the Virtus Health IPO prospectus issued in May 2013.
The table below sets out the pro forma consolidated income statement for the financial year ended 30 June 2013
compared to the pro-forma consolidated income statement for the financial year ended 30 June 2012 and the
prospectus forecast for the year ended 30 June 2013.
Total revenue
Labour costs
Provider fees
Facility and occupation costs
consumables and supplies
Other operating costs
Total expenses
EBITDA
depreciation
Amortisation
EBIT
Net interest expense
profit before tax
Income tax expense
NpAT
NpATA
EBITDA Margin
EBIT Margin
Summary key performance indicators
Number of IVF Cycles – Virtus
Average Total Revenue per IVF Cycle
* Prospectus cost allocations have been restated to match statutory accounts classifications.
CONSOLIDATED
30 June 2013
$m
30 June 2012
$m
187.3
(55.8)
(29.4)
(11.8)
(19.8)
(14.4)
171.6
(49.9)
(27.4)
(10.4)
(18.2)
(14.1)
(131.2)
(120.0)
56.1
(6.5)
(2.0)
47.6
(9.2)
38.4
51.6
(5.9)
(1.1)
44.6
(9.7)
34.9
(11.1)
(10.2)
27.3
28.0
30.0%
25.4%
24.7
25.4
30.1%
26.0%
pROSpECTUS
FORECAST*
30 June
2013
$m
184.5
(55.0)
(29.3)
(12.0)
(19.4)
(13.5)
(129.2)
55.3
(6.4)
(2.1)
46.8
(9.2)
37.6
(11.0)
26.6
27.3
30.0%
25.4%
Change
9.1%
(11.8)%
(7.3)%
(13.5)%
(8.8)%
(2.1)%
(9.3)%
8.7%
(10.2)%
(81.8)%
6.7%
5.2%
10.0%
(8.8)%
10.5%
10.2%
(0.1)%
(0.6)%
14,342
$13,060
13,816
$12,420
3.8%
5.2%
14,124
$13,034
Virtus Health Annual Report 2013 7
cHIEF EXEcuTIVE’S OPERATING
ANd FINANcIAL REVIEW (continued)
Financial position
Debt and Interest Expense
On 11 June 2013, Virtus completed the renegotiation
and drawdown of a new group bank facility agreement,
replacing the previous bank facility which was due to
mature in August 2013. The $150,000,000 three year facility
comprises:
• $100,000,000 non-amortising facility;
• $40,000,000 facility for general expenditure, working
capital and capital expenditure;
• $10,000,000 working capital facility; and
A further $5,000,000 working capital facility is available until
31 december 2013.
Margins payable by Virtus on the new facilities are
significantly lower than those incurred prior to the
renegotiation.
At 30 June 2013, total facilities drawn were $145,000,000 in
cash and $4.351,000 in guarantees. cash balances at the
end of June 2013 were $12,485,000.
Amortisation of Borrowing Costs
unamortised borrowing costs on expiring syndicated bank
facilities which were terminated in FY2013 of $5,061,000
were charged to the income statement. Amortisation
of borrowing cost expense for the next financial year is
expected to be $370,000
Taxation
The effective tax rate on operating earnings for FY13
was 29.6%
Dividend
No final dividend will be paid for the period following listing
on 11 June 2013, as indicated in the prospectus for the
listing of Virtus Health Limited ordinary shares on the ASX.
dividends of $74,599,000 were paid to shareholders of
Virtus prior to listing.
Business Development Strategy
Based on the long term trend of women in Australia
delaying the birth of children and the infertility rate among
Australian women aged over 30 continuing to increase as
a consequence of a range of social and demographic
factors, we expect that demand for assisted reproductive
services and the associated diagnostic testing and day
hospital procedures should continue to increase.
We will continue to invest in our network of fertility clinics
and also the clinical and scientific services offered to
patients to enable Virtus to meet the increased demand
from the Australian market. As we enter the new financial
year we continue to look at opportunities to develop our
geographic footprint and this will likely include some further
organic expansion and fertility clinic and day hospital
acquisitions in Australia.
Virtus will also seek opportunities to expand the range of
diagnostic test activities to support the ARS business and
in the day hospitals Virtus is focused on improved facility
utilisation and operational efficiencies.
Virtus is continuing to review several international markets
and the Board is working closely with management on
formulating appropriate business models to utilize the
considerable expertise Virtus has in the provision of ARS.
Research and Development
Virtus fertility specialists, scientists and nurses individually
and collectively engage in a wide range of research
activities which support the improvement of patient
outcomes. At the recent Fertility Society of Australia
Scientific meeting held in Sydney in September 2013,
Virtus personnel presented 38 research papers on a wide
range of infertility related subjects; our commitment to
scientific development is an essential part of our business
development strategy.
8 Virtus Health Annual Report 2013
Material Business Risks
Fertility Specialists and Employees
Virtus faces certain material business risks that could have
an effect on the financial prospects of Virtus and these
include:
Our success is built upon the considerable skill and
expertise of our fertility specialists and the employees who
work in our clinics, laboratories, day hospitals and offices.
I remain very conscious of the special group of 83 fertility
specialists, 825 individuals and a diverse range of specialist
providers in our day hospitals that make Virtus Health the
success it is today. It is this group of dedicated individuals
who are all responsible for our exceptional patient care
which is evident in our leading market position in the states
in which we operate and for the demonstrable satisfaction
that we see in our patients every day. As an organisation
we aspire to support all of our team in the ongoing
delivery of operational excellence and exceptional
patient care.
• change in commonwealth Government funding/
increasing patient out of pocket expenses
Patients receive partial reimbursement for Virtus’
services through commonwealth Government
programs, including the Medicare Benefit Schedule
and Extended Medicare Safety Net. If the level of
reimbursement provided by these programs for Virtus’
services were to change, Virtus’ patients may face
higher out-of-pocket expenses for ARS. This may cause
Virtus to experience reduced demand for its range of
services, potentially leading to a reduction in Virtus’
revenue and profitability.
• Availability of fertility specialists/variability of growth.
Virtus relies on maintaining its relationship with existing
fertility specialists, as well as contracting with and
building the practices for new fertility specialists to assist
in capturing market growth, increasing market share
and replacing any retiring fertility specialists. If Virtus
cannot successfully maintain its relationship with existing
fertility specialists or contract and grow IVF cycles for
new fertility specialists it may not be able to meet its
growth aspirations.
• Variation in patient demand.
The growth in patient demand and IVF cycles has
historically experienced variability over short-term
periods notwithstanding the long-term social and
demographic trends driving patient demand for ARS.
Variability in the historic growth in IVF cycles over short-
term periods has been attributable to changes in local
economic conditions, natural disasters and regulatory
changes. Whilst Virtus is diversified across regional
markets, Virtus’ revenue generation and profitability can
be positively and negatively affected in the short term
by variability in the growth in IVF cycles in the regional
markets in which it operates.
Virtus Health Annual Report 2013 9
BOARd OF
dIREcTORS
ANd cOMPANY SEcRETARY
peter Macourt
Bcom.; AcA; GAIcd
Chairman
Peter is a former director
and chief operating officer
of News Limited. While at
News Limited, he served
as a director of Premier
Media, Foxtel, Independent
Newspapers Limited and
a number of subsidiaries
and associated companies
of The News corporation
Limited.
Peter was appointed
chairman of SKY Network
Television Limited in August
2002, a position he still
holds.
Peter is a member of the
Audit and Risk committee
and the Nomination and
Remuneration committee.
Sue Channon
Registered Nurse div1;OR
Management certificate
Group CEO
Sue has held senior
management positions
in various Australian
healthcare organisations
for over 20 years. Before
her appointment to cEO
of Virtus in November
2010, Sue was cEO of IVF
Australia Pty Ltd.
Prior to joining Virtus, Sue
was State Manager for
NSW and AcT for Medical
Imaging Australia, the
National director of Nursing
for Mayne Group (now
part of Ramsay Health
care), cEO of Kareena
Private Hospital, cEO of
castlecrag and Mosman
Private Hospital and cEO
and director of Nursing for
castlecrag Private Hospital.
peter Turner
BSc.; MBA; MAIcd
Non-executive Director
Prior to joining Virtus, Peter
served as Executive director
and chief Operating
Officer of cSL Limited
and was the founding
President of cSL Behring
LLc. Peter is currently
a non-executive director of
NPS MedicineWise.
Peter is chairperson of
the Nomination and
Remuneration committee.
Dennis O’Neill
BSc. (Hons) Mech. Eng;
cPE (ret), FIEA; FAIcd; FAIM
Non-executive Director
dennis is the former cEO
and Managing director
of Evans deakin Industries
Ltd and united Group Ltd
and the former chairman
of decmil Group Ltd. In
March 2009, dennis was
appointed as chairman
and Advisory chairman of
Queensland Fertility Group
Pty Ltd. He is also Advisory
chairman to several
unlisted companies and is
the Steel Supplier Advocate
for the commonwealth
Government.
dennis is chairperson of the
Audit and Risk committee.
10 Virtus Health Annual Report 2013
Marcus Darville
MA; MBA
Non-executive Director
Lyndon Hale
MBBS; FRAcOG; cREI
Executive Director
Glenn powers
BSc. (Hons); cMA
CFO and Company Secretary
Lyndon has been the
Medical director of
Melbourne IVF Pty Ltd since
2008. He is also director
of Reproductive Surgery
at The Women’s Hospital,
and is on the board of the
Fertility Society of Australia.
Lyndon is highly regarded
for his knowledge and
proactive approach and
brings extensive experience
in assisted reproduction
treatments to the care of
his patients.
Glenn joined Virtus as cFO
and company Secretary in
August 2008. Prior to joining
Virtus, Glenn was cFO and
company Secretary of Tower
Software Limited.
Glenn has a broad range of
experience in private equity
backed businesses, working
in a range of engineering,
electronics, software and
service businesses. Glenn has
also been a director for both
main and AIM market listed
businesses in the uK. Glenn is
a chartered Management
Accountant.
Marcus has been a director
of Quadrant since 2006
and a director of Virtus
since February 2008. Prior to
joining Quadrant, Marcus
was the joint Head of
Private Equity at AMP and
an Investment Manager
at NatWest Ventures.
Marcus is also a member of
the Quadrant Investment
committee and has
acted as a director of
a number of Quadrant
investee companies.
Marcus currently serves on
the boards of Summerset,
iSentia (formerly Media
Monitors), Super Amart and
Barbeques Galore.
Marcus is a member of the
Audit and Risk committee
and the Nomination and
Remuneration committee.
Virtus Health Annual Report 2013 11
cORPORATE
GOVERNANcE
This corporate Governance Statement explains how the Board will oversee the management of Virtus Health Limited’s
(‘Virtus’) business. The Board is responsible for the overall corporate governance of Virtus. The Board monitors the
operational and financial position and performance of Virtus and oversees its business strategy, including approval of
the strategic goals of Virtus and considering and approving an annual business plan, including a budget. The Board
is committed to maximising performance, generating appropriate levels of shareholder value and financial return,
and sustaining the growth and success of Virtus. In conducting Virtus’ business with these objectives, the Board seeks
to ensure that Virtus is properly managed to protect and enhance shareholder interests, and that Virtus, its directors,
officers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has
created a framework for managing Virtus, including adopting relevant internal controls, risk management processes
and corporate governance policies and practices which it believes are appropriate for Virtus’ business and which are
designed to promote the responsible management and conduct of Virtus.
The ASX corporate Governance council has developed and released corporate governance recommendations
for Australian listed entities in order to promote investor confidence and to assist companies to meet stakeholder
expectations. The recommendations are not prescriptive, but guidelines. The following table is a summary of the ASX
corporate Governance Principles and Recommendations and Virtus’ compliance with these guidelines following
the Virtus’ listing on the ASX on 11 June 2013. Where there is non-compliance further explanation is provided in the
statements below the table.
RECOMMENDATION
COMpLIANCE
YES/NO
1.1
1.2
1.3
2.1
2.2
2.3
2.4
2.5
2.6
companies should establish the functions reserved to the Board and those delegated to senior executives and
disclose those functions.
companies should disclose the process for evaluating the performance of senior executives.
companies should provide the information indicated in the Guide to reporting on Principle 1. (Lay solid foundations
for management and oversight).
A majority of the Board should be independent directors.
The chair should be an independent director.
The roles of chair and chief Executive Officer should not be exercised by the same individual.
The Board should establish a nomination committee.
companies should disclose the process for evaluating the performance of the Board, its committees and individual
directors.
companies should provide the information indicated in the Guide to reporting on Principle 2. (Structure the Board to
add value).
3.1
companies should establish a code of conduct and disclose the code or a summary of the code as to:
• the practices necessary to maintain confidence in the company’s integrity;
• the practices necessary to take into account their legal obligations and the reasonable expectations of their
stakeholders; and
• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The
policy should include requirements for the Board to establish measurable objectives for achieving gender diversity for
the Board to assess annually both the objectives and progress in achieving them.
companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the
Board in accordance with the diversity policy and progress towards achieving them.
companies should disclose in each annual report the proportion of women employees in the whole organisation,
women in senior executive positions and women on the Board.
companies should provide the information indicated in the Guide to reporting on Principle 3. (Promote ethical and
responsible decision-making).
3.2
3.3
3.4
3.5
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
12 Virtus Health Annual Report 2013
RECOMMENDATION
COMpLIANCE
YES/NO
4.1
4.2
4.3
4.4
5.1
5.2
6.1
6.2
7.1
7.2
7.3
7.4
8.1
8.2
8.3
8.4
The Board should establish an audit committee.
The audit committee should be structured so that it:
• consists of only non-executive directors:
• consists of a majority of independent directors;
•
is chaired by an independent chair, who is not chair of the Board; and
• has at least three members.
The audit committee should have a formal charter.
companies should provide the information indicated in the Guide to reporting on Principle 4. (Safeguard integrity in
financial reporting).
companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure
requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies
or a summary of those policies.
companies should provide the information indicated in the Guide to reporting on Principle 5. (Make timely and
balanced disclosure).
companies should design a communication policy for promoting effective communication with shareholders and
encouraging their participation at general meetings and disclose their policy or a summary of that policy.
companies should provide the information indicated in the Guide to reporting on Principle 6. (Respect the rights of
shareholders).
companies should establish policies for the oversight and management of material business risks and disclose a
summary of those policies.
The Board should require management to design and implement the risk management and internal control system
to manage the company’s material business risks and report to it on whether those risks are being managed
effectively. The Board should disclose that management has reported to it as to the effectiveness of the company’s
management of its material business risks.
The Board should disclose whether it has received assurance from the chief Executive Officer and the chief Financial
Officer that the declaration provided in accordance with Section 295A of the corporations Act is founded on a
sound system of risk management and internal control and that the system is operating effectively in all material
respects in relation to reporting risks.
companies should provide the information indicated in the Guide to reporting on Principle 7. (Recognise and
manage risk)
The Board should establish a remuneration committee.
The remuneration committee should be structured so that it:
• consists of a majority of independent directors;
•
is chaired by an independent chair; and
• has at least three members.
companies should clearly distinguish the structure of non-executive directors’ remuneration from that of directors and
senior executives.
companies should provide the information indicated in the Guide to reporting on Principle 8. (Remunerate fairly and
responsibly).
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
The main policies and practices adopted by Virtus are summarised below. In addition, governance elements are also
contained in the constitution. details of Virtus’ key policies and practices and the charters for the Board and each of its
committees are available at www.virtushealth.com.au.
Virtus Health Annual Report 2013 13
The Board considers that each of Peter Macourt
(chairman), Peter Turner and dennis O’Neill are free from
any business or any other relationship that could materially
interfere with, or reasonably be perceived to interfere with,
the independent exercise of the director’s judgement and
are each able to fulfill the role of an independent director
for the purposes of the ASX Recommendations.
Susan channon, Marcus darville and Lyndon Hale are
currently considered by the Board not to be independent.
Susan channon is currently the chief Executive Officer
(‘cEO’). Marcus darville is a director of Quadrant
Private Equity who up until listing on 11 June 2013, were
significant shareholders in Virtus. The Quadrant funds
sold their entire shareholding at Listing. Lyndon Hale is a
Fertility Specialist who is contracted by Virtus to provide
Assisted Reproductive Services, and is also entitled to
participate in the option plans described in Section d of
the Remuneration report.
Accordingly, the Board does not consist of a majority
of independent directors. The Board acknowledges the
ASX Recommendation that a majority of the Board should
be independent non-executive directors. Although Marcus
darville is not currently considered to be independent,
his knowledge of the business as chairman prior to listing
is considered to be a positive asset to Virtus in the initial
post listing period. The Board believes that each of the
non-executive directors brings objective and independent
judgment to the Board’s deliberations and that each of
the non-executive directors makes invaluable contributions
to Virtus through their deep understanding of Virtus’
business. The Board has the objective that it will include
a majority of independent directors by November 2014.
Non-executive director remuneration is set in accordance
with the constitution and the ASX listing rules.
under the constitution, the directors decide the total
amount paid to each director as remuneration for their
services as a director to Virtus. However, under the listing
rules of ASX (‘ASX Listing Rules’), the total amount paid
to all non-executive directors for their services must not
exceed in aggregate in any financial year the amount
fixed by Virtus’ general meeting. For further details refer
to Section A ‘Principles used to determine the nature and
amount of remuneration’, of the Remuneration report,
contained in the directors’ report,
1.1 Board of Directors
The Board of directors is comprised of the chief Executive
Officer, the chairman, one executive director and three
non-executive directors.
detailed biographies of the Board members are provided
in the ‘Information on directors’ section of the directors’
report.
The Board considers an independent director to be
a non-executive director who is not a member of
Virtus’ management and who is free of any business
or other relationship that could materially interfere
with or reasonably be perceived to interfere with the
independent exercise of their judgment. The Board will
consider the materiality of any given relationship on a
case by case basis and has adopted guidelines to assist in
this regard. The Board reviews the independence of each
director in light of interests disclosed to the Board from
time to time.
Virtus’ board charter sets out guidelines and thresholds
of materiality for the purpose of determining
independence of directors in accordance with the
ASX Recommendations, and has adopted a definition
of independence that is based on that set out in the
ASX Recommendations.
The Board considers thresholds of materiality for the
purpose of determining ‘independence’ on a case-
by-case basis, having regard to both quantitative
and qualitative principles. Without limiting the Board’s
discretion in this regard, the Board has adopted the
following guidelines:
• the Board will determine the appropriate base to
apply (for example, revenue, equity or expenses), in
the context of each situation; in general, the Board will
consider an affiliation with a business which accounts
for less than 5% of the relevant base to be immaterial for
the purpose of determining independence. However,
where this threshold is exceeded, the materiality
of the particular circumstance with respect to the
independence of the particular director should be
reviewed by the Board; and
• overriding the quantitative assessment is the qualitative
assessment. Specifically, the Board will consider
whether there are any factors or considerations which
may mean that the directors’ interests, business or
relationship could, or could be reasonably perceived
to, materially interfere with the directors’ ability to act in
the best interests of Virtus.
14 Virtus Health Annual Report 2013
CORPORATE GOVERNANCE (continued) 1.2 Board Charter
The Board has adopted a written charter to provide a
framework for the effective operation of the Board, which
sets out:
• the roles and responsibilities of the Board including
to provide overall strategic guidance for Virtus and
effective oversight of management, oversight of Virtus’
financial and capital management, the promotion
and facilitation of effective communication with
shareholders, oversight of policies between Virtus and
other stakeholders, ethical and responsible decision
making along with compliance and risk management;
• the role and responsibilities of the chairman and
company secretary;
• the delegations of authority of the Board to both
committees of the Board and the cEO and other
management of Virtus;
• the membership of the Board, including in relation to
the Board’s composition and size and the process of
selection and re-election of directors, independence of
directors and conduct of individual directors; and
f. ensuring that the senior executives supply the Board with
information that will help the Board discharge its duties.
• Shareholders
a. promoting effective communication with
shareholders, including convening shareholders’
meetings, listening and responding to shareholders
views of management and of Virtus;
b. facilitating the effective exercise of shareholders’
rights; and
c. reporting to shareholders and compliance with
relevant regulatory requirements.
• Other stakeholders
a. establishing and monitoring policies governing Virtus’
relationship with other Stakeholders and the broader
community; and
b. establishing and maintaining environmental,
employment and occupational, health and
safety policies and other regulatory and statutory
requirements.
• board process, including how the Board meets.
• Ethics and responsible decision-making
The Board is responsible for the following:
• Strategy
a. overseeing the development of Virtus’ corporate
strategy through constructive engagement with
senior executives;
a. actively promoting ethical and responsible decision-
making;
b. establishing and maintaining a code of conduct to
guide its directors and management in the practices
necessary to maintain confidence in Virtus’ integrity;
c. the system of accountability for unethical practices;
b. reviewing and approving strategic plans and
and
performance objectives of Virtus consistent with the
corporate strategy, and reviewing the assumptions
and rationale underlying the strategic plans and
performance objectives; and
d. establishing and maintaining a diversity policy to
outline Virtus’ commitment to diversity and inclusion
in the workplace and set out a framework to achieve
Virtus’ diversity goals.
c. monitoring implementation of the strategy plans.
• Oversight of management
a. the appointment and if appropriate, removal of the
chief Executive Officer (‘cEO’), the chief Financial
Officer (‘cFO’) and the company Secretary;
b. approving succession plans for key individuals;
c. monitoring senior executives’ performance and
implementation of strategy against measurable
and qualitative indicators, encouraging enhanced
effectiveness and ensuring that appropriate
resources are available;
d. approving senior executive remuneration policies
and practices;
e. providing advice and counsel to management; and
• Oversight of financial and capital management
a. ensuring the integrity of Virtus’ financial reporting;
b. reviewing and approving annual and half-yearly
financial reports, having regard to, among other
things, the information the directors know about
Virtus;
c. monitoring financial results on an ongoing basis;
d. establishing and overseeing Virtus’ accounting and
financial management systems;
e. considering removal or replacement of the external
auditor;
f. reviewing, approving and monitoring the progress
of major capital expenditure, capital management,
major acquisitions and divestitures and material
commitments;
Virtus Health Annual Report 2013 15
g. approving decisions affecting the capital of Virtus,
including capital structure or restructure and major
financing arrangements; and
• the appointment, remuneration, independence and
competence of Virtus’ external auditors;
• the performance of the external audit function and
h. determining the dividend policy of Virtus and
review of their audit;
determining the details for payment of dividends.
• the effectiveness of Virtus’ system of risk management
• Compliance and risk management
a. establishing and overseeing Virtus’ control and
accountability systems and reviewing reporting
under those systems;
b. establishing, overseeing and regularly reviewing
a system for identifying, assessing, monitoring and
managing material risk throughout Virtus, and
informing investors of material changes to Virtus’
risk profile;
c. establishing, overseeing and regularly reviewing
systems of internal compliance, risk management
and control, and systems of legal compliance that
govern the operations of Virtus, and monitoring that
they are operating effectively; and
d. establishing, overseeing and regularly reviewing
written policies, codes and procedures governing
compliance and risk oversight and management.
The Board has delegated to the cEO the authority to
manage the day to day affairs of Virtus and the authority
to control the affairs of Virtus in relation to all matters
other than those responsibilities reserved to itself in its
charter. The Board may impose further specific limits on
cEO delegations. These delegations of authority will
be maintained by the company Secretary and will be
reviewed by the Board as appropriate from time to time.
The cEO has authority to sub-delegate to the senior
management team.
1.3 Board committees
The Board may from time to time establish appropriate
committees to assist in the discharge of its responsibilities.
Standing committees established by the Board will
adopt charters setting out the authority, responsibility,
membership and operation of the committee.
The Board has established the Audit and Risk committee
and the Nomination and Remuneration committee.
Audit and Risk Committee
The role of the Audit and Risk committee is to assist the
Board in carrying out its accounting, auditing and financial
reporting responsibilities including oversight of:
• the integrity of Virtus’ external financial reporting and
financial statements;
16 Virtus Health Annual Report 2013
and internal controls; and
• Virtus’ systems and procedures for compliance with
applicable legal regulatory requirements.
The Audit and Risk committee is chaired by dennis O’Neill,
an independent non-executive director; Peter Macourt
and Marcus darville are also members of the Audit and
Risk committee. The external auditors, cEO and cFO
are invited to Audit and Risk committee meetings at the
discretion of the Audit and Risk committee.
Nomination and Remuneration Committee
The role of the Nomination and Remuneration committee
is to assist and advise the Board on the following
nomination related matters:
• director selection and appointment practices;
• director performance evaluation processes and criteria;
• Board composition; and
• succession planning for the Board and senior
executives, to ensure that the Board is of a size and
composition conducive to making appropriate
decisions, with the benefit of a variety of perspectives
and skills and in the best interests of Virtus as a whole.
The Nomination and Remuneration committee also
assists and advises the Board on remuneration policies
and practices for the Board, the cEO, the cFO, senior
executives and other persons whose activities, individually
or collectively, affect the financial soundness of Virtus as
follows:
a. The committee is responsible for developing, reviewing
and making recommendations to the Board on:
i. the ongoing appropriateness and relevance of the
remuneration framework for the chairperson and the
non-executive directors;
ii. Virtus’ policy on remuneration for the cEO and
senior executives, any changes to the policy and
the implementation of the policy (including any
shareholder approvals required);
iii. the total remuneration packages for the cEO and
senior executives (including base pay, incentive
payments, equity based awards, superannuation
and other retirement rights, employment contracts),
any changes to remuneration packages and
recommending proposed awards after performance
evaluation procedures;
CORPORATE GOVERNANCE (continued) iv. Virtus’ recruitment, retention and termination policies
for the cEO and senior executives and any changes
to those policies;
v. incentive schemes, if appropriate, for the cEO and
senior executives; and
vi. equity based plans, if appropriate, for the cEO, senior
executives and other employees.
c. any engagement of a remuneration consultant
is approved by the Board or the committee
and the remuneration consultant must report its
recommendation directly to either or both of the
members of the Board (other than an executive
director) or members of this committee;
d. the committee and the Board are satisfied with
b. The committee is also responsible for monitoring and
providing input to the Board regarding:
i. legislative, regulatory or market developments likely
to have a significant impact on Virtus and legislative
compliance in employment issues;
ii. the remuneration trends across Virtus, including
A. the trends in base pay for senior management
relative to that of all Virtus employees; and
B. remuneration by gender; and
iii. major changes to employee benefits structures in
Virtus.
Incentive schemes and equity based remuneration
For any incentive schemes or equity based plans which
are adopted, the committee is responsible for:
a. reviewing their terms (including any performance
the arrangements put in place to ensure that any
remuneration recommendation made by the
remuneration consultant is made free from undue
influence from any member of the key management
personnel to whom the recommendation relates; and
e. the committee will provide the Board with information
sufficient to ensure that the Board makes an
informed decision in relation to the committee’s
recommendations.
The Nomination and Remuneration committee is chaired
by Peter Turner, an independent non-executive director;
Peter Macourt and Marcus darville are also members of
the Nomination and Remuneration committee.
Other committees may be established by the Board as
and when required to consider other matters of special
importance.
hurdles);
1.4 Advisory Committee
b. overseeing their administration (including compliance
with applicable laws that restrict participants from
hedging the economic risk of their security holdings);
c. considering whether shareholder approval is required or
desirable for the schemes or plans and for any changes
to them; and
d. ensuring that payments and awards of equity are made
in accordance with their terms and any shareholder
approval.
Structure of remuneration
In fulfilling these responsibilities, the committee will ensure
that:
a. a clear distinction is maintained between the structure
of non-executive directors’ remuneration and that of
executive directors and senior executives;
b. a proportion of executive directors’ and senior
executives’ remuneration is structured in a manner
designed to link rewards to corporate and individual
performance (reflecting short and long-term
performance objectives appropriate to Virtus
circumstances and goals);
A National Advisory committee has also been established
to drive the strategic direction of Virtus as it relates
to clinical, scientific and operational governance.
Specifically the National Advisory committee’s role will
include matters referred to it by the Board, including:
• providing a forum for sharing any doctor and
management concerns or issues with Virtus
management;
• providing a forum for agreeing and communicating
doctor and management recommendations to the
Board on certain matters, either as requested by
the Board or at the request of the National Advisory
committee;
• considering and providing input into Virtus’ strategy,
plans and budgets and monitoring performance
against them;
• considering and providing input into the recruitment
and succession planning opportunities for new fertility
specialists;
• ensuring compliance with legal and regulatory
requirements and ensuring that ethical standards of
Virtus are maintained;
• ensuring adequate risk management processes exist
within Virtus and are complied with; and
Virtus Health Annual Report 2013 17
• ensuring that corporate governance initiatives and
policy guidelines, as issued by the Board and key
managers, are implemented and providing feedback
for consideration by the Board.
The National Advisory committee will comprise a member
of the Board who is a fertility specialist, the cEO, the
cFO, and key managers (currently the State Managing
and Medical directors respectively of New South Wales,
Victoria and Queensland) and up to one fertility specialist
shareholder from New South Wales, Queensland and
Victoria.
1.5 Diversity policy
Virtus has adopted a diversity policy which sets out Virtus’
commitment to diversity and inclusion in the workplace.
The diversity policy provides a framework to achieve
Virtus’ diversity goals and commitment to creating a
diverse work environment where everyone is treated fairly
and with respect and where everyone feels responsible
for the reputation and performance of Virtus. The Board
will oversee the implementation of the diversity policy and
assess progress in achieving its objectives.
The Board and management believe that Virtus’
commitment to this policy contributes to achieving Virtus’
corporate objectives and embeds the importance and
value of diversity within the culture of Virtus.
Virtus acknowledge that its employees and patients share
a diverse range of backgrounds and religious beliefs and
practices and Virtus supports tolerance of difference in the
workplace. Virtus aim is to provide opportunities that allow
individuals to reach their full potential irrespective of an
individual’s ethnic or cultural background or gender.
Virtus aims to develop and promote a workforce based on
inclusion where individuals are respected, supported and
provided with appropriate opportunities.
At 30 June 2013, the proportion of female employees
within the consolidated entity was 88%, the Board
considers this level of gender diversity to be representative
of the sector in which the consolidated entity operates.
14% of senior leadership positions (the National Advisory
committee) are held by females and 17% of Virtus’
directors are female. The Board has agreed to a target of
at least 25% of female board members by November 2014.
1.6 Continuous disclosure policy
Virtus is required to comply with the continuous disclosure
requirements of the ASX Listing Rules and the corporations
Act. Subject to the exceptions contained in the ASX
Listing Rules, Virtus will be required to disclose to ASX
any information concerning Virtus which is not generally
available and which a reasonable person would expect to
have a material effect on the price or value of the Shares.
Virtus is committed to observing its disclosure obligations
under ASX Listing Rules and the corporations Act.
Virtus has adopted a disclosure Policy which establishes
procedures which are aimed at ensuring that directors
and management are aware of and fulfil their obligations
in relation to the timely disclosure of material price
sensitive information. under the disclosure Policy, the
Board will be responsible for managing Virtus’ compliance
with its continuous disclosure obligations.
The company Secretary has been nominated as the
individual responsible for communications with the
ASX. Presentations to analysts on aspects of the Virtus’
operations are released to the ASX and posted on
its website.
The disclosure Policy includes policies on Shareholder
communication as follows:
• Communication of information
Virtus will post on its website relevant announcements
made to the market and related information after
they have been released to the ASX following receipt
of confirmation from the ASX. Material price sensitive
information will be posted as soon as reasonably
practicable after its release to the ASX. Information
may also be provided from time to time to the media
on behalf of Virtus but not before disclosure to the ASX,
even on an embargo basis.
• Analysts and institutional investors
Virtus may conduct briefings for analysts and
institutional investors from time to time to discuss matters
concerning Virtus. Only the cEO and cFO or approved
representatives of Virtus are authorised to speak with
analysts and institutional investors.
Before each reporting period, the cEO and cFO will
formulate guidelines for briefings for that period. Virtus’
policy at these briefings is that:
a. Virtus will not comment on price sensitive issues not
already disclosed to the market; and
b. any questions raised in relation to price sensitive
issues not already disclosed to the market will not
be answered or will be taken on notice.
18 Virtus Health Annual Report 2013
CORPORATE GOVERNANCE (continued) If a question is taken on notice and the answer would
involve the release of price sensitive information,
the information must be released through the ASX
before responding. At or after briefings, the cEO must
consider the matters discussed at the briefings to
ascertain whether any price sensitive information was
inadvertently disclosed.
• Analyst reports
If requested, Virtus may review analyst reports. Virtus’
policy is that it will only review these reports to clarify
historical information and correct factual inaccuracies
if this can be achieved using information that has been
disclosed to the market generally.
No comment or feedback will be provided on financial
forecasts, including profit forecasts prepared by the
analyst, or on conclusions or recommendations set
out in the report. Virtus will communicate this policy
whenever asked to review an analyst report.
• Inadvertent disclosure or mistaken non-disclosure
If price sensitive information is inadvertently disclosed or
a director or employee becomes aware of information
which should be disclosed, the cEO must immediately
be contacted so that appropriate action can be taken
including, if required, announcing the information
through the ASX and then posting it on Virtus’ website.
• Media relations and public statements
Media relations and communications are the
responsibility of Virtus’ media relations team. On major
matters, the cEO is generally the spokesperson, and on
financial matters, the cFO or the cEO may generally
speak. Other officers or senior employees may be
authorised by the Board or the cEO to speak to the
media on particular issues or matters. Any inquiry that
refers to market share, financials or any matter which
the recipient considers may be price sensitive must be
referred to the company Secretary. No information is to
be given to the media on matters which are of general
public interest or which may be price sensitive without
the approval of the cEO. The guidelines outlined above
are subject to any directions given by the Board, either
generally or in a particular instance.
• Virtus’ website
Virtus’ website contains information about
Virtus including shareholder communications,
announcements made to the market and related
information. Investor information is posted in a
separate section on the website from other material
about Virtus. Relevant press releases, Virtus’ financial
announcements and financial data and Virtus’ charters
and policies are also available on the Virtus’ website.
The website also provides information for shareholders
to direct enquiries to Virtus.
• Use of electronic communication and other technology
Shareholders will receive information electronically as
it is posted on Virtus’ website, although shareholders
will still have the option of receiving a hard copy of the
Annual Report free of charge, the website provides
information about how to make this election. Virtus will
communicate by post with shareholders who have not
elected to receive information electronically. Virtus may
consider the use of other reliable technologies as they
become widely available.
• General meetings
General meetings are used to communicate
with shareholders and allow an opportunity for
informed shareholder participation. Shareholders are
encouraged to attend or, if unable to attend, to vote
on the motions proposed by appointing a proxy or using
any other means included in the notice of meeting.
Virtus conducts its general meetings in accordance
with Virtus’ constitution, the corporations Act and the
ASX Listing Rules.
• Notices of meetings
Virtus seek to ensure that the form, content and delivery
of notices of general meetings will comply with Virtus’
constitution, the corporations Act and ASX Listing Rules.
Notices of meeting and accompanying explanatory
notes aim to clearly, concisely and accurately set out
the nature of the business to be considered at the
meeting. Virtus will place notices of general meetings
and accompanying explanatory material on Virtus’
website.
• Reports to shareholders
• Auditor to attend AGM
Virtus produces half yearly and yearly financial
reports and an annual report in accordance with the
corporations Act, the ASX Listing Rules and applicable
accounting standards. It seeks to give balanced
and understandable information about Virtus and its
proposals in its reports to shareholders.
The external auditor will attend the annual general
meeting and be available to answer questions about
the conduct of the audit and the preparation and
content of the auditor’s report.
Virtus Health Annual Report 2013 19
• Shareholder privacy
Virtus recognises that privacy is important and will
not disclose registered shareholder details unless
required by law. Shareholder details will only be used in
accordance with applicable privacy laws.
1.7 Securities trading policy
Virtus has adopted a written policy for dealing in
securities which is intended to explain the prohibited
type of conduct in relation to dealings in securities under
the corporations Act and to establish a best practice
procedure in relation to directors’, officers’, employees’,
contractors’ (including fertility specialists’) and their
families and associates’ dealings in shares in Virtus.
The securities trading policy sets out the restrictions
that apply to dealing with shares including “prohibited
periods”, during which certain persons are generally not
permitted to deal with shares along with a procedure
under which certain persons are required to submit prior
notification and obtain written confirmation prior to
dealing in shares outside the “prohibited periods”.
1.8 Code of conduct and ethical decision making
The Board recognises the need to observe the highest
standards of corporate practice and business conduct.
Accordingly, the Board has adopted a formal code
of conduct to be followed by the Board along with all
employees, officers, contractors, consultants and other
persons that act on behalf of Virtus and associates
of Virtus. Virtus’ code of conduct sets out the values,
commitments, ethical standards and policies of Virtus
and outlines the standards of conduct expected of
Virtus’ business and people in a range of circumstances.
In particular, the code requires awareness of, and
compliance with, Virtus’ operating policies and
procedures. The key aspects of this code are to:
• act with honesty and integrity in all dealings both
internally and externally;
• respect all people, their ideas and cultures and to
reflect this respect in all behaviours and actions;
The code of conduct sets out Virtus’ policies on various
matters including conflicts of interest, use of Virtus’
property, giving or accepting gifts (including money),
dealings with politicians and government officials,
confidentiality, privacy, fair dealings (in relation to
suppliers, competitors and clients), discrimination, bullying,
harassment, vilification, health and safety, compliance
with laws and regulations, responsibility to shareholders
and the financial community, insider trading obligations
and whistle-blower protections.
The code also sets out the consequences for a breach of
the code of conduct, including the possibility of legal or
disciplinary action.
1.9 Managing Business Risk
The risk management aspects of the Audit and Risk
committee’s activities are as follows:
a. preparing a risk profile which describes the material
risks facing Virtus including financial and non-financial
matters;
b. regularly reviewing and updating the risk profile;
c. ensuring that Virtus has an effective risk management
system;
d. assessing and ensuring that there are internal processes
for determining and managing key risk areas, such as:
i. non-compliance with laws, regulations, standards
and best practice guidelines including industrial
relations, occupational health and safety,
environmental and trade practices laws;
ii. important judgments and accounting estimates;
iii. business licence requirements;
iv. litigation and claims;
v. fraud and theft; and
vi. relevant business risks not dealt with by other Board
committees;
e. receiving reports concerning material and actual
incidents within the risk areas above and ensuring that
macro risks are reported to the Board at least annually;
• maintain a safe working environment to safeguard
the health and safety of employees, consultants,
contractors, customers, suppliers and other persons who
visit Virtus’ workplaces;
f. conducting investigations of breaches or potential
breaches of internal controls, and incidents within the
risk areas above, particularly in relation to accounts and
financial reporting;
• develop a culture of excellence and deliver quality
of service that meets the expectations of customers,
regulatory requirements and continuously improves;
and
• develop Virtus’ people to ensure that patients have
access to the best possible care and outcomes.
20 Virtus Health Annual Report 2013
g. evaluating the independence of external auditors;
h. examining and evaluating the effectiveness of the
internal control system with management and external
auditors and making improvements;
CORPORATE GOVERNANCE (continued) i. making publicly available a description of Virtus’ risk
management policy and internal compliance and
control system in the corporate governance section of
Virtus’ website;
j. encouraging voluntary reporting by employees to the
committee of breaches of internal controls and Virtus
policies, and incidents within the risk areas above;
k. assessing existing controls that management has in
place for unusual transactions or transactions with more
than an accepted level of risk; and
l. meeting periodically with key management, external
auditors and compliance staff to understand Virtus’
control environment.
The Board receives written assurances in the form of a
declaration from the cEO and cFO in accordance with
section 295A of the corporations Act stating that:
• the financial records of the company have been
properly maintained;
• the financial statements and notes comply in all
material respects with the accounting standards;
• the financial statements give a true and fair view, in all
material respects, of the company’s financial condition
and operating results, and
• the statements provided above are based on a
system of risk management and internal control which
operates effectively in all material respects to financial
reporting risk.
Additionally the cEO and cFO are responsible for the
identification, assessment, management and reporting
of material business risks to the Audit and Risk committee
and the Virtus Board.
Virtus Health Annual Report 2013 21
ANNuAL
REPORT
CONTENTS
directors’ Report
Auditor’s Independence declaration
consolidated Statement of comprehensive Income
consolidated Statement of Financial Position
consolidated Statement of changes in Equity
consolidated Statement of cash Flows
Notes to the Financial Statements
directors’ declaration
Independent Auditor’s Report
Additional Securities Exchange Information
23
39
41
42
43
44
45
96
97
99
corporate directory
inside back cover
22 Virtus Health Annual Report 2013
22 Virtus Health Annual Report 2013
dIREcTORS’ REPORT
The directors present their report, together with the
financial statements, on the consolidated entity (referred
to hereafter as the ‘consolidated entity’) consisting
of Virtus Health Limited (referred to hereafter as the
‘company’ or ‘parent entity’) and the entities it controlled
for the year ended 30 June 2013.
Directors
Review of operations
The profit for the consolidated entity after providing for
income tax amounted to $10,104,000 (30 June 2012:
$19,660,000).
A reconciliation of segment earnings before interest, tax,
depreciation and amortisation (“EBITdA”) to profit before
tax for the year is as follows:
The following persons were directors of Virtus Health
Limited during the whole of the financial year and up to
the date of this report, unless otherwise stated:
Segment EBITDA
Peter Macourt – chairman (appointed on 17 May 2013)
Share-based payment expense
2013
$’000
2012
$’000
56,282
51,587
(6,927)
(516)
Marcus darville – Former chairman
Susan channon
dennis O’Neill (appointed on 17 May 2013)
Initial Public Offering (‘IPO’) transaction costs
(10,651)
Net gain on acquisition of associate
5,670
–
–
Other non-trading expenses
(945)
(2,363)
Lyndon Hale (appointed on 17 May 2013)
EBITDA (reported)
43,429
48,708
Peter Turner (appointed on 17 May 2013)
Andrew Othen (resigned on 17 May 2013)
Frank Quinn (resigned on 17 May 2013)
John Esler (resigned on 17 May 2013)
John McBain (resigned on 17 May 2013)
John Moller (resigned on 17 May 2013)
Simon Pither (resigned on 17 May 2013)
Alternate directors:
Keith Harrison (resigned on 17 May 2013)
Manuela Toledo (resigned on 17 May 2013)
Michael chapman (resigned on 17 May 2013)
principal activities
during the financial year the principal continuing activities
of the consolidated entity were the provision of healthcare
services which include fertility services, medical day
procedure services and medical diagnostic services.
Dividends
dividends paid during the financial year were as follows:
depreciation and amortisation expense
(8,745)
(8,972)
EBIT
Interest revenue
Interest expense
Revaluation of interest rate swap
Amortisation of bank facility fee
profit before income tax from continuing
activities
34,684
39,736
452
433
(15,856)
(11,978)
136
(5,061)
(968)
(850)
14,355
26,373
The consolidated entity continued to engage in its
principal activities, the results of which are disclosed in
the attached financial statements.
For further information on operations, please refer to the
chief Executive’s Operating and Financial Review which
forms part of this directors’ report.
Significant changes in the state of affairs
Significant changes in the state of affairs of the
consolidated entity during the financial year were
as follows:
2013
$’000
28,765
45,834
74,599
Acquisition of Maroubra Day Surgery
On 7 August 2012, Virtus Health Limited, through its
wholly owned subsidiary IVF Australia Pty Ltd, acquired
the remaining 50% of the issued share of Maroubra day
Surgery Pty Ltd for a cash consideration of $8,103,000.
The acquisition was funded by a drawdown from the
consolidated entity’s capital expenditure facility and
existing cash.
2012
$’000
–
–
–
Interim ordinary dividend of 51.5 cents
per fully paid share paid in June 2013
Interim ordinary dividend of 82.0 cents
per fully paid ordinary share paid in
August 2012
No final dividend has been declared.
Virtus Health Annual Report 2013 23
Matters subsequent to the end of the financial year
No matter or circumstance has arisen since 30 June 2013
that has significantly affected, or may significantly affect
the consolidated entity’s operations, the results of those
operations, or the consolidated entity’s state of affairs in
future financial years.
Likely developments and expected results of
operations
Based on the long term trend of women in Australia
delaying the birth of children and the infertility rate among
Australian women aged over 30 continuing to increase
as a consequence of a range of social and economic
demographic factors, we expect that demand for assisted
reproductive services and the associated diagnostic testing
and day hospital procedures will continue to increase.
We will continue to invest in our network of fertility clinics
and also the clinical and scientific services offered to
patients to enable the consolidated entity to meet the
increased demand from the Australian market.
Environmental regulation
The consolidated entity is not subject to any
significant environmental regulation under Australian
commonwealth or State law.
Refinancing of the borrowing facility
On 16 August 2012, IVF Finance Pty Limited, a subsidiary of
Virtus Health Limited renegotiated the external borrowing
facility for a total of $225,000,000, with an initial expiry date
of 17 August 2013. The increase in the borrowings was
used to pay an ordinary dividend of $45,834,000 (82 cents
per ordinary share) on 17 August 2012 and a capital
return of $55,336,000 (99 cents per ordinary share) on
7 September 2012.
Listing on ASX and capital raising
On 26 February 2013, the company changed its name and
status from Virtus Health Pty Limited to Virtus Health Limited.
On 11 June 2013, IVF Finance Pty Limited drew down a
further $31,166,831 under a short-term bridging facility.
The funds were used to pay an ordinary dividend
of $28,765,000 (51.5 cents per ordinary share) on
12 June 2013.
On 11 June 2013, IVF Finance Pty Limited repaid the
remaining external borrowings of $212,500,000.
On 11 June 2013, IVF Finance Pty Limited, negotiated new
external borrowing facilities for a total of $155,000,000
of which $150,000,000 has an initial expiry date of
11 June 2016. At 30 June 2013, the company has drawn
$145,000,000 in loans and $4,351,000 in guarantees from
these facilities.
On 11 June 2013, the company listed on the Australian
Securities Exchange (ASX code: VRT).
contributed equity increased by $47,166,000 (from
$184,815,000 to $231,981,000) as the result of the issue
of shares and transaction costs, net of tax. details of
the movements in contributed equity are disclosed in
Note 28 of the financial statements.
The cash received from the issue of new share capital
was used to pay down existing debt obligations, fund the
option adjustment payment, pay the June 2013 interim
dividend and pay the IPO transaction costs.
There were no other significant changes in the state of
affairs of the consolidated entity during the financial year.
24 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) Information on directors
Name:
Title:
peter Macourt (appointed on 17 May 2013)
chairman
Qualifications:
Bcom.; AcA; GAIcd
Experience and expertise:
Peter is a former director and chief Operating Officer of News Limited. Whilst at News
Limited, he served as a director of Premier Media, Foxtel, Independent Newspapers Limited
and a number of subsidiaries and associated companies of The News corporation Limited.
Other current directorships: chairman of SKY Network Television Limited (since August 2002).
Former directorships
(in the last 3 years):
Special responsibilities:
None
Member of the Audit and Risk committee and the Nomination and Remuneration
committee.
Interests in shares:
18,485 ordinary shares
Interests in options:
None
Name:
Title:
Marcus Darville
Non-Executive director and Former chairman
Qualifications:
MA; MBA
Experience and expertise: Marcus has been a director of Quadrant since 2006 and a director of the company since
February 2008. Prior to joining Quadrant, Marcus was the joint Head of Private Equity at
AMP and an Investment Manager at NatWest Ventures. Marcus is also a member of the
Quadrant Investment committee and has acted as a director of a number of Quadrant
investee companies. Marcus currently serves on the boards of Summerset, iSentia (formerly
Media Monitors), Super Amart and Barbeques Galore.
Other current directorships: director of Quadrant Limited (since 2006).
Former directorships
(in the last 3 years):
Special responsibilities:
None
Member of the Audit and Risk committee and the Nomination and Remuneration
committee.
Interests in shares:
Interests in options:
None
None
Virtus Health Annual Report 2013 25
Name:
Title:
Susan Channon
chief Executive Officer
Qualifications:
Registered Nurse div1; OR Management certificate
Experience and expertise:
Susan (Sue) has held senior management positions in various Australian healthcare
organisations for over 20 years. Before her appointment to chief Executive Officer ('cEO')
of the company in November 2010, Sue was cEO of IVF Australia Pty Ltd. Prior to joining
the company, Sue was State Manager for NSW and AcT for Medical Imaging Australia, the
National director of Nursing for Mayne Group (now part of Ramsay Health care), cEO of
Kareena Private Hospital, cEO of castlecrag and Mosman Private Hospital and cEO and
director of Nursing for castlecrag Private Hospital.
Other current directorships: None
Former directorships
(in the last 3 years):
None
Special responsibilities:
None
Interests in shares:
354,881 ordinary shares (and 93,752 ordinary shares held by a close family member)
Interests in options:
262,500 options over ordinary shares
Name:
Title:
Dennis O’Neill (appointed on 17 May 2013)
Non-Executive director
Qualifications:
BSc. (Hons) Mech. Eng; cPE (ret), FIEA; FAIcd; FAIM
Experience and expertise:
dennis is the former chief Executive Officer and Managing director of Evans deakin
Industries Ltd and united Group Ltd and the former chairman of decmil Group Ltd. In
March 2009 dennis was appointed as chairman and Advisory chairman of Queensland
Fertility Group Pty Ltd. He is also Advisory chairman to several unlisted companies and is
the Steel Supplier Advocate for the commonwealth Government.
Other current directorships: None
Former directorships
(in the last 3 years):
None
Special responsibilities:
chair of the Audit and Risk committee
Interests in shares:
50,000 ordinary shares
Interests in options:
None
Name:
Title:
Lyndon Hale (appointed on 17 May 2013)
Executive director
Qualifications:
MBBS; FRAcOG; cREI
Experience and expertise:
Lyndon has been the Medical director of Melbourne IVF Pty Ltd since 2008. He is also director
of Reproductive Surgery at The Women’s Hospital, and is on the board of the Fertility Society
of Australia. Lyndon is highly regarded for his knowledge and proactive approach and
brings extensive experience in assisted reproduction treatments to the care of his patients.
Other current directorships: None
Former directorships
(in the last 3 years):
None
Special responsibilities:
None
Interests in shares:
823,694 ordinary shares
Interests in options:
None
26 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) Name:
Title:
peter Turner (appointed on 17 May 2013)
Non-Executive director
Qualifications:
BSc.; MBA; MAIcd
Experience and expertise:
Prior to joining the company, Peter served as Executive director and chief Operating
Officer of cSL Limited and was the founding President of cSL Behring LLc. Peter is currently
a non executive director of NPS MedicineWise.
Other current directorships: None
Former directorships
(in the last 3 years):
cSL Limited (Resigned October 2012)
Special responsibilities:
chair of the Nomination and Remuneration committee.
Interests in shares:
50,000 ordinary shares
Interests in options:
None
‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of
all other types of entities, unless otherwise stated.
‘Former directorships (in the last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only
and excludes directorships of all other types of entities, unless otherwise stated.
Company secretary
Glenn Powers joined Virtus as chief Financial Officer (‘cFO’) and company Secretary in August 2008. Prior to joining
Virtus, Glenn was cFO and company Secretary of Tower Software Limited. Glenn has a broad range of experience in
private equity backed businesses, working in a range of engineering, electronics, software and service businesses. Glenn
has also been a director for both main and AIM market listed businesses in the uK. Glenn is a chartered Management
Accountant (cMA).
Meetings of directors
The number of meetings of the company’s Board of directors (‘the Board’) and of each board committee held during
the year ended 30 June 2013, and the number of meetings attended by each director were:
Peter Macourt – chairman
Marcus darville
Susan channon
dennis O'Neill
Lyndon Hale
Peter Turner
Andrew Othen
Frank Quinn
John Esler
John McBain
John Moller
Simon Pither
FULL BOARD
NOMINATION AND
REMUNERATION COMMITTEE
AUDIT AND RISk COMMITTEE
Attended
Held
Attended
Held
Attended
Held
2
9
14
2
2
2
10
8
10
7
10
12
2
14
14
2
2
2
12
12
12
12
12
12
1
2
–
–
1
1
–
–
2
–
–
2
1
3
–
–
2
1
–
–
2
–
–
2
1
–
–
1
–
–
–
–
–
–
–
2
1
1
–
1
–
–
–
–
–
–
–
2
Held: represents the number of meetings held during the time the director held office or was a member of the relevant
committee.
Virtus Health Annual Report 2013 27
Remuneration report (audited)
The directors present the remuneration report, which
outlines the key management personnel remuneration
arrangements for the consolidated entity, in accordance
with the requirements of the corporations Act 2001 and its
Regulations.
The information provided in this Remuneration report, which
forms part of the directors’ report has been audited as
required by section 308(3c) of the Corporations Act 2001.
Alignment to shareholders’ interests; the framework:
• has economic profit as a core component of plan
design;
• focuses on sustained growth in shareholder wealth,
consisting of dividends and growth in share price, and
delivering constant or increasing return on assets as well
as focusing the executive on key non-financial drivers of
value; and
• attracts and retains high calibre executives.
The remuneration report is set out under the following main
headings:
Alignment to program participants’ interests; the
framework:
A Principles used to determine the nature and amount of
• rewards capability and experience;
remuneration
B details of remuneration
c Service agreements
d Share-based compensation
E Additional information
A. Principles used to determine the nature and amount
of remuneration
The objective of the consolidated entity’s executive
reward framework is to ensure reward for performance is
competitive and appropriate for the results delivered. The
framework aligns executive reward with the achievement
of strategic objectives and the creation of value for
shareholders, and conforms to the market best practice
for delivery of reward. The Board of directors (the ‘Board’)
ensures that executive reward satisfies the following key
criteria for good reward governance practices:
• competitiveness and reasonableness
• acceptability to shareholders
• performance linkage / alignment of executive
compensation
• transparency
The role of the Nomination and Remuneration committee is
to assist and advise the Board on the following nomination
related matters:
• director selection and appointment practices;
• director performance evaluation processes and criteria;
• Board composition; and
• succession planning for the Board and senior executives.
In consultation with external remuneration consultants (refer
to the section ‘use of remuneration consultants’ below), the
Nomination and Remuneration committee has structured
an executive remuneration framework that is market
competitive and complementary to the reward strategy of
the consolidated entity. Key objectives of the remuneration
framework are as follows:
28 Virtus Health Annual Report 2013
• reflects competitive reward for contribution to growth
in shareholder wealth; and
• provides a clear structure for earning rewards.
In accordance with best practice corporate governance,
the structure of non-executive directors’ and executive
remunerations are separate.
Non-executive directors remuneration
Fees and payments to non-executive directors reflect the
demands which are made on, and the responsibilities
of, the directors. Non-executive directors’ fees and
payments are reviewed annually by the Nomination
and Remuneration committee. The Nomination and
Remuneration committee may, from time to time, receive
advice from independent remuneration consultants to
ensure non-executive directors’ fees and payments are
appropriate and in line with the market. The chairman’s
fees are determined independently to the fees of other
non-executive directors based on comparative roles
in the external market. The chairman is not present at
any discussions relating to determination of his own
remuneration. Non-executive directors do not receive share
options or other incentives.
under the constitution, the directors decide the total
amount paid to each director as remuneration for their
services as a director to the company. However, under the
listing rules of the ASX (‘ASX Listing Rules’), the total amount
paid to all non-executive directors for their services must
not exceed in aggregate in any financial year the amount
agreed by the shareholders at the annual general meeting.
This amount has been fixed at $500,000 with effect from
17 May 2013. Annual directors’ fees currently agreed to
be paid by the company are $125,000 to the chairman,
Peter Macourt, and $75,000 to each of the other non-
executive directors. In addition, the chairman of the Audit
and Risk committee will be paid $15,000 annually and each
member of this committee, except Marcus darville, will be
paid $7,500 annually. The chairman of the Nomination and
DIRECTORS’ REPORT(continued) Remuneration committee will be paid $10,000 annually and
each member of this committee, except Marcus darville,
will be paid $5,000 annually. All directors’ fees include
superannuation at the superannuation guarantee rate for
the respective amounts.
Executive remuneration
The consolidated entity aims to reward executives with a
level and mix of remuneration based on their position and
responsibility, which is both fixed and variable.
The executive remuneration and reward framework has
four components:
• base pay and non-monetary benefits;
• short-term performance incentives;
• share-based payments; and
• other remuneration such as superannuation and long
service leave.
The combination of these comprises the executive’s total
remuneration.
Fixed remuneration, consisting of base salary,
superannuation and non-monetary benefits, are reviewed
annually by the Nomination and Remuneration committee,
based on individual and business unit performance,
the overall performance of the consolidated entity and
comparable market remunerations.
Executives may receive their fixed remuneration in the form
of cash or other fringe benefits (for example motor vehicle
benefits) where it does not create any additional costs to
the consolidated entity and provides additional value to
the executive.
Short-term incentives
The short-term incentives (‘STI’) program is designed to align
the targets of the business units with the targets of those
executives in charge of meeting those targets. STI payments
are granted to executives based on specific annual targets
and key performance indicators (‘KPI’s’) being achieved.
KPI’s include profit contribution, customer satisfaction,
leadership contribution and product management.
Based on the achievements of Virtus Health Limited, this
year the Nomination and Remuneration committee
determined that that executives had achieved the
following percentages of their targets:
• Susan channon – 37%
• Glenn Powers – 44%
• Andrew Othen – 74%
• John Moller – 50%
In making this assessment the Nomination and
Remuneration committee considered the following factors:
• EBITdA targets;
• Market growth; and
• Meeting budget expectations.
In addition to the above, the Nomination and
Remuneration committee awarded Susan channon and
Glenn Powers additional short-term incentives for their
efforts during the IPO process.
Long-term incentives
The long-term incentives (‘LTI’) include long service leave
and share-based payments. Share options are awarded
to executives at the end of a period of three years based
on the achievement of certain vesting conditions. These
include increase in shareholders value relative to the entire
market and the increase compared to the consolidated
entity’s direct competitors. The Nomination and
Remuneration committee reviewed the long-term equity-
linked performance incentives specifically for executives
during the year ended 30 June 2013.
Options will vest and become exercisable to the extent
that the applicable performance, service, or other vesting
conditions specified at the time of the grant are satisfied.
Vesting conditions may include conditions relating to
continuous employment or service, the individual performance
of the participant in the plans or the company’s performance.
The Board has the discretion to set the terms and conditions
on which it will offer options under the plans, including the
vesting conditions and different terms and conditions which
apply to different participants in a plan.
upon the satisfaction of the vesting conditions and any
other conditions to exercise, each option will convert to
a number of shares based on the terms of issue of the
options. Options granted to employees, including executive
directors, will typically convert on a one-for-one basis.
Participants may be required to pay an exercise price
to exercise the options which may be based on the
market price of shares at or around the time of the grant
of the options. The plans also include flexibility to allow
the company to grant options with no exercise price.
Participants will not need to pay any money to be granted
options under the plans.
Consolidated entity performance and link to remuneration
Remuneration for certain individuals is directly linked to
performance of the consolidated entity. A portion of
bonus and incentive payments are dependent on defined
earnings targets being met. The remaining portion of the
bonus and incentive payments are at the discretion of the
Nomination and Remuneration committee.
Virtus Health Annual Report 2013 29
Use of remuneration consultants
during the financial year ended 30 June 2013, the board of
the consolidated entity engaged Egan Associates Pty Ltd,
remuneration consultants, to review its existing remuneration
policies for key management personnel (executives and
non-executives) and performance incentives for fertility
specialists. The consultants also provided recommendations
on how to improve both the STI and LTI programs for the
Group chief Executive Officer (‘cEO’) and chief Financial
Officer (‘cFO’) respectively. Recommendations were
provided to the Nomination and Remuneration committee,
free from influence by members of the key management
personnel to whom the recommendations relate. Egan
Associates Pty Ltd were paid $35,962 for these services.
other employees from time to time subject to consideration
by the Board.
Susan channon and Glenn Powers were granted options
under the prospectus at the time of Listing. The key terms
and conditions attaching to that grant of options are set
out below. The Nomination and Remuneration committee
will determine the conditions attaching to any future grants
of options to senior executives or other employees.
The options granted to Susan channon and Glenn Powers
are in two tranches, with each tranche subject to two
separate vesting conditions which are both based on
external measures as follows:
• The hurdle for 50% of the options is based on a share
Other information about directors’ remuneration
directors may also be reimbursed for expenses reasonably
incurred in attending to the company’s affairs. Non-
executive directors may be paid such additional or special
remuneration as the directors decide is appropriate where
a director performs extra work or services which are not in
the capacity as a director of the company or a subsidiary.
There is no contractual redundancy benefit for directors,
other than statutory superannuation contributions.
Share option plan
The company has adopted a new option plan (‘Plan’) to
assist in the reward, motivation and retention of personnel
(including executive directors, eligible employees and
fertility specialists). The Plan is also designed to recognise
the abilities, efforts and contributions of participants
to Virtus’ performance and success and provide the
participants with an opportunity to acquire or increase their
ownership interest in the company.
The Plan contemplates the grant of options over shares.
There is no ability for the company to provide any cash
equivalent on exercise.
The company may offer additional incentive schemes
to executive directors, employees or fertility specialists
over time.
Eligibility
Eligibility to participate in the Plan and the number of
options offered to each individual participant will be
determined by the Board.
Grants of options – Senior executives and employees
It is expected that options may be granted to certain
senior executives of the company on an annual basis
as part of their annual remuneration review. Generally,
vesting conditions attaching to grants of options made
to senior executives will relate to the performance of
the company over the performance period as well as
continued employment. Options may also be granted to
30 Virtus Health Annual Report 2013
price hurdle which measures the growth in the
company’s share price over a three year performance
period. The number of options that vest will depend
on the share price growth (‘SPG’) of shares over
the performance period. The SPG is determined by
subtracting the share price at the beginning of the
performance period from the share price at the end of
the performance period, and dividing that figure by the
share price at the beginning of the performance period.
No options will vest at growth below 15%. 50% will vest at
15% growth and vesting thereafter will be determined on
a straight-line scale with 100% vesting at 50% growth.
• The hurdle for the remaining 50% of the options is based
on the company’s total shareholder return (‘TSR’) relative
to a peer group of companies in both the S&P ASX 300
Index and the S&P ASX 300 Healthcare Index (weighted
50% each) over the three year performance period. No
options will vest if the TSR performance is less than the
50th percentile. 50% of the options will vest at median
(i.e. the 50th percentile) TSR performance and vesting
thereafter will be determined on a straight-line scale
with 100% vesting if the TSR performance is greater than
or equal to the 75th percentile. TSR is a measure of the
return on investment in a company’s shares, including
dividends and all other returns to shareholders notionally
invested over the relevant performance period.
The performance hurdles for each tranche of options are
not interdependent, meaning that it is possible for one
tranche to vest while the other does not vest. In each
case, the performance hurdles will only be measured
once and there will be no retesting. Importantly, no value
will be received by Susan channon or Glenn Powers if
the performance hurdles are not met and the options do
not vest.
The vesting of the options is also subject to continued
service by the relevant executive over the relevant
performance period.
DIRECTORS’ REPORT(continued) Grants of options – fertility specialists
As has been the case pre-ASX listing, it is expected that
options will be granted on an annual basis to existing
fertility specialists who achieve a benchmark level of IVF
cycles above a base or adjusted base number of IVF
cycles completed in one of the financial years ending after
June 2008, up to June 2013. The initial benchmark level
for new fertility specialists is 50 IVF cycles and subsequent
benchmark levels are at each 50 cycle increment
thereafter.
A small number of fertility specialists have recently
commenced a contractual relationship with the company
and therefore have not been able to complete a number
of cycles over a previous 12 month period. To trigger a
grant of performance options, the initial benchmark level
for these specialists is 50 IVF cycles. Options will also be
granted at each 50 cycle increment thereafter.
In addition, consistent with the practice pre-Listing on the
ASX, it is expected that options will also be granted to
new fertility specialists upon commencing a contractual
relationship with the company post-Listing.
The key terms and conditions to these option grants are set
out below:
For existing fertility specialists, options will generally vest
equally in three tranches on the third, fourth and fifth
anniversary of the grant of the options, conditional upon
the fertility specialist performing a number of IVF cycles
in the immediately preceding year not less than 75% of
the relevant benchmark in the year pursuant to which the
options were awarded.
For fertility specialists who join the company post-Listing,
options will generally vest equally in three tranches on the
third, fourth and fifth anniversary of the grant of the options,
subject to:
• the fertility specialist achieving the relevant benchmark
(currently 50 IVF cycles) in a 12 month period during
the two years post commencement of the contractual
relationship with Virtus and concurrent grant of options;
and
• the fertility specialist then achieving a number of IVF
cycles in the year before the relevant vesting date that is
not less than 75% of the benchmark number.
In addition, an option may not be exercised unless it is
“in the money” (i.e. if the share price at the relevant time
is greater than the share price at the time of the option
grant).
Vesting Conditions
Options will vest and become exercisable to the extent
that the applicable performance, service, or other
Vesting conditions specified at the time of the grant
are satisfied. Vesting conditions may include conditions
relating to continuous employment or service, the
individual performance of the participant in the Plan or the
company’s performance.
The Board has the discretion to set the terms and conditions
on which it will offer options under the Plan, including the
Vesting conditions and different terms and conditions
which apply to different participants in the Plan.
upon the satisfaction of the Vesting conditions and any
other conditions to exercise, each option will convert to a
number of shares based on the terms of issue of the options.
Options granted to employees (including executive
directors) and fertility specialists will typically convert on a
one-for-one basis.
Participants may be required to pay an exercise price
to exercise the options which may be based on the
market price of shares at or around the time of the grant
of the options. The Plan also includes flexibility to allow
the company to grant options with no exercise price.
Participants will not need to pay any money to be granted
options under the Plans.
Ranking of shares
Shares issued upon exercise of options granted under the
Plan will rank equally with the other issued shares.
Voting and dividend rights
Options do not carry any voting or dividend rights. Shares
issued or transferred to participants on exercise of an option
carry the same rights and entitlements as other issued
shares, including dividend and voting rights.
Approval
Grants of options under the Plan to directors may be
subject to the approval of shareholders, to the extent
required under the ASX Listing Rules.
Issue or acquisition of shares
Shares allocated to participants in the Plan on the exercise
of options may be issued by Virtus or acquired on or off
market by the company or its nominee. The company may
appoint a trustee to acquire and hold shares on behalf of
participants or otherwise for the purposes of the Plan.
No transfer of options
Without the prior approval of the Board, options may not
be sold, transferred, encumbered or otherwise dealt with.
Further, participants cannot enter into any transaction,
scheme or arrangement which hedges or otherwise affects
the participant’s economic exposure to the options before
they vest.
Virtus Health Annual Report 2013 31
Lapse of options
Options will lapse if the applicable vesting conditions and any other conditions to exercise are not met during the
prescribed period or if they are not exercised before the applicable expiry date.
B Details of remuneration
Amounts of remuneration
details of the remuneration of the key management personnel of the consolidated entity are set out in the
following tables.
The key management personnel of the consolidated entity consisted of the directors of Virtus Health Limited and
the following persons:
• Keith Harrison – Alternate director (ceased 17 May 2013)
• Glenn Powers – Group chief Financial Officer and company Secretary
• Brendan Ayres – Managing director, New South Wales
• Steve Zappia – Managing director, Queensland
• Peter Illingworth – Medical director, New South Wales
• david Molloy – Medical director, Queensland
2013
Non-Executive Directors:
P Macourt
M darville**
d O'Neill****
P Turner
Executive Directors:
S channon
L Hale
J Moller***
A Othen*
Other key Management
personnel:
K Harrison*****
G Powers
B Ayres******
S Zappia******
P Illingworth
d Molloy
SHORT-TERM BENEFITS
pOST-
EMpLOYMENT
BENEFITS
LONG-TERM
BENEFITS
SHARE-BASED
pAYMENTS
Cash salary
and fees
$
Bonus
$
Non-
monetary
$
Super-
annuation
$
Long service
leave
$
Equity-
settled
$
41,127
47,500
86,880
25,427
397,711
75,000
302,711
275,588
202,045
282,678
47,636
17,996
166,885
78,220
–
–
–
–
94,385
–
58,917
59,451
12,000
74,007
–
–
–
–
2,047,404
298,760
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,702
–
620
2,288
–
–
–
–
–
–
–
–
Total
$
44,829
47,500
87,500
27,715
24,362
8,714
25,279
550,451
–
31,917
24,503
18,372
25,000
4,287
1,620
–
–
–
–
–
6,757
6,677
110,968
6,120
2,771
–
11,452
–
–
–
–
–
–
–
–
75,000
400,302
477,187
238,537
395,908
51,923
19,616
166,885
78,220
136,671
24,282
154,456
2,661,573
Includes Andrew Othen’s salary as a director (until 17 May 2013) and as a key management personnel (Managing director, Victoria).
Marcus darville’s fees are payable to Quadrant Private Equity Pty Limited.
Fees disclosed are for the period to resignation date as a director.
Includes consulting fees associated with the IPO.
Includes Keith Harrison’s salary as a key management personnel and alternate director to 17 May 2013.
*
**
***
****
*****
****** B. Ayres was designated as a key management personnel on 2 April 2013. S. Zappia was designated as a key management personnel on 20 May 2013.
In each case, salary is included from the date of appointment to 30 June 2013.
32 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) There was no remuneration for the following directors in the year or in the previous financial year:
• Frank Quinn
• John Esler
• John McBain
• Simon Pither
• Manuela Toledo
• Michael chapman
The following key management personnel received provider fees for IVF services delivered to patients: John McBain,
Manuela Toledo, Lyndon Hale, John Esler, david Molloy, Michael chapman, Frank Quinn and Peter Illingworth. details
are disclosed in Note 37 to the financial report.
2012
Executive Directors:
S channon
J Moller
A Othen
Other key Management
personnel:
L Hale
K Harrison
G Powers
P Illingworth
d Molloy
SHORT-TERM BENEFITS
pOST-
EMpLOYMENT
BENEFITS
LONG-TERM
BENEFITS
SHARE-BASED
pAYMENTS
Cash salary
and fees
$
365,751
226,519
266,997
75,000
212,104
259,350
160,680
75,816
Bonus
$
98,670
60,910
77,625
–
6,606
72,100
–
–
Non-
monetary
$
Super-
annuation
$
Long service
leave
$
–
67,200
–
–
–
–
–
–
38,018
26,123
25,000
–
18,868
26,042
–
–
52,164
3,676
2,829
–
18,659
16,882
–
–
Equity-
settled
$
24,382
40,038
19,246
–
–
21,903
–
–
Total
$
578,985
424,466
391,697
75,000
256,237
396,277
160,680
75,816
1,642,217
315,911
67,200
134,051
94,210
105,569
2,359,158
Virtus Health Annual Report 2013 33
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Non-Executive Directors:
P Macourt
M darville
d O'Neill
L Hale
P Turner
Executive Directors:
S channon
J Moller
A Othen
Other key Management
personnel:
K Harrison
G Powers
B Ayres
S Zappia
P Illingworth
d Molloy
FIXED REMUNERATION
AT RISk – STI
AT RISk – LTI
2013
2012
2013
2012
2013
2012
100%
100%
100%
100%
100%
78%
83%
65%
95%
78%
100%
100%
100%
100%
–%
–%
–%
100%
–%
79%
76%
75%
97%
76%
–%
–%
100%
100%
–%
–%
–%
–%
–%
17%
15%
12%
5%
19%
–%
–%
–%
–%
–%
–%
–%
–%
–%
17%
14%
20%
3%
18%
–%
–%
–%
–%
–%
–%
–%
–%
–%
5%
2%
23%
–%
3%
–%
–%
–%
–%
–%
–%
–%
–%
–%
4%
10%
5%
–%
6%
–%
–%
–%
–%
The proportion of the cash bonus paid/payable or forfeited is as follows:
CASH BONUS pAID pAYABLE
CASH BONUS FORFEITED
2013
2012
2013
2012
37%
50%
74%
100%
44%
87%
48%
100%
100%
100%
63%
50%
26%
–%
56%
13%
52%
–%
–%
–%
Executive Directors:
S channon
J Moller
A Othen
Other key Management
personnel:
K Harrison
G Powers
34 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) C Service agreements
Remuneration and other terms of employment for key management personnel are formalised in service agreements.
details of these agreements are as follows:
Name:
Title:
Susan Channon
chief Executive Officer
Agreement commenced:
11 June 2013
Term of agreement:
No fixed end date
details:
Executive may terminate the employment contract by giving three months’ notice
in writing. The company may terminate by giving 12 months’ notice in writing or
by making a payment in lieu of notice. In the event of serious misconduct or other
specific circumstances warranting summary dismissal, the company may terminate the
employment contract immediately by notice in writing and without payment in lieu of
notice.
upon the termination of the employment contract, the executive will be subject to a
restraint of trade period of 12 months. The company may elect to reduce the restraint of
trade period, or eliminate the period in its entirety. The enforceability of the restraint clause
is subject to all usual legal requirements.
Name:
Title:
Glenn powers
chief Financial Officer and company Secretary
Agreement commenced:
11 June 2013
Term of agreement:
No fixed end date
details:
Executive may terminate the employment contract by giving three months’ notice in
writing. The company may terminate by giving six months' notice in writing or by making a
payment in lieu of notice. In the event of serious misconduct or other specific circumstances
warranting summary dismissal, the company may terminate the employment contract
immediately by notice in writing and without payment in lieu of notice.
upon the termination of the employment contract, the executive will be subject to a
restraint of trade period of 12 months. The company may elect to reduce the restraint of
trade period, or eliminate the period in its entirety. The enforceability of the restraint clause
is subject to all usual legal requirements.
Other key managers
Each of the company’s state managing directors, Andrew Othen, Steve Zappia and Brendan Ayres are employed under
individual executive services agreements.
These establish:
• total compensation including a base salary, superannuation contribution and incentive arrangements;
• variable notice and termination provisions of up to three months;
• confidentiality provisions;
• leave entitlements, as a minimum, as per the National Employment Standard; and
• restraint provisions.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
Virtus Health Annual Report 2013 35
D Share-based compensation
Issue of shares
There were no shares issued to directors and other key management personnel as part of compensation during the year
ended 30 June 2013.
Options
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other
key management personnel in this financial year or future reporting years are as follows:
Grant date
17 August 2012
24 August 2012
7 October 2012
11 June 2013
Exercisable date
Expiry/
cancellation date
Exercise
price
At grant
date
17 August 2012
11 June 2013
24 August 2012
11 June 2013
7 October 2012
11 June 2013
11 June 2016
11 June 2018
$4.71
$5.17
$5.17
$5.68
$1.38
$0.79
$0.80
$1.26
Options do not carry any voting or dividend rights. Shares issued or transferred to participants on exercise of an option
carry the same rights and entitlements as other issued shares, including dividend and voting rights.
Refer to Section A of this remuneration report for details of the option plan.
The number of options over ordinary shares granted to and vested by directors and other key management personnel
as part of compensation during the year ended 30 June 2013 are set out below:
Name
Susan channon
John Moller
Andrew Othen
Glenn Powers
Peter Illingworth
NUMBER OF OpTIONS
GRANTED
DURING THE YEAR
NUMBER OF OpTIONS
VESTED DURING THE YEAR
2013
262,500
–
135,397
150,000
50,000
2012
–
–
–
–
–
2013
106,157
80,497
262,786
104,176
435,089
2012
5,000
80,497
–
104,175
28,491
Values of options over ordinary shares granted, exercised and lapsed for directors and other key management
personnel as part of compensation during the year ended 30 June 2013 are set out below:
Name
Susan channon
Andrew Othen*
John Moller
Michael chapman
Frank Quinn
Glenn Powers
Peter Illingworth**
Value of
options
granted during
the year
$
Value of
options
exercised/
cancelled
during the year
$
Value of
options lapsed
during the
year
$
Remuneration
consisting of
options for
the year
%
330,750
107,866
–
–
–
436,215
192,620
620,632
218,075
–
–
–
–
1,027,175
(42,833)
189,000
487,542
71,500
1,714,564
–
–
5
23
–
–
–
3
–
* The consolidated entity has agreed to issue 135,397 of options at a value of $193,618 as part of the IPO listing. Rights to these options were confirmed on 17 June 2013,
although the options cannot be formally granted until September 2013.
** The consolidated entity has agreed to issue 50,000 of options at a value of $71,500 as part of the IPO listing. Rights to these options were confirmed on 17 June 2013,
although the options cannot be formally granted until September 2013.
36 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) Value of options exercised during the year includes options cancelled during the year.
E Additional information
The revenue and earnings of the consolidated entity for the five years to 30 June 2013 are summarised below:
Revenue
EBITdA*
EBIT
Profit/(loss) after income tax
2013
$’000
2012
$’000
2011
$’000
2010
$’000
186,581
165,119
127,197
116,969
43,429
34,684
10,104
48,708
39,736
19,660
40,510
32,233
15,337
33,419
17,713
(1,644)
2009
$’000
68,328
21,621
18,372
2,772
* EBITdA 2013 is stated before deduction of initial public offering costs. EBITdA 2010 is stated before deduction of contingent equity consideration expense and
additional share issue expense relating to the acquisition of Queensland Fertility Group Pty Ltd.
The factors that are considered to affect total shareholders return (‘TSR’) are summarised below:
Share price at financial year end ($A)*
Total dividends declared (cents per share)
Basic earnings per share (cents per share)
diluted earnings per share (cents per share)
2013
6.45
133.50
17.78
16.78
2012
2011
2010
2009
–
–
36.73
34.22
–
–
–
–
–
–
–
–
–
–
–
–
* Share price is not applicable for the years 2009 to 2012 as the company was not a listed entity in these years.
This concludes the remuneration report, which has been audited.
Shares under option
unissued ordinary shares of Virtus Health Limited under option at the date of this report are as follows:
Grant date
11 June 2013
Expiry date
11 June 2018
Exercise price
$5.68
Number under option
412,500
No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of
the company or of any other body corporate.
The options issued on 11 June 2013 of 412,500 relate to the Virtus Health Limited Executive Option Plan which is the only
plan in place at 30 June 2013.
The consolidated entity has agreed to issue 450,000 options to fertility specialists and 174,082 options to management as
part of the IPO listing. Rights to these options were confirmed on 11 June 2013, although the options cannot be formally
granted until September 2013. For compliance with AASB 2 ‘Share-based Payment’ it is assumed that 11 June 2013 is the
grant date for these options and the share-based payment cost of $892,437 for these options has been included in the
statement of comprehensive income for the year ended 30 June 2013.
Shares issued on the exercise of options
Options were cancelled or exercised on net value as part of an aggregate transaction to establish an aggregate value
of shares and options at the time of the Initial Public Offering. Shares were not specifically issued against specific options
exercised. There were no shares of Virtus Health Limited issued on the exercise of options from 1 July 2013 and up to the
date of this report.
Virtus Health Annual Report 2013 37
Indemnity and insurance of officers
• none of the services undermine the general principles
relating to auditor independence as set out in APES 110
code of Ethics for Professional Accountants issued by
the Accounting Professional and Ethical Standards
Board, including reviewing or auditing the auditor’s
own work, acting in a management or decision-making
capacity for the company, acting as advocate for the
company or jointly sharing economic risks and rewards.
Officers of the company who are former audit
partners of pricewaterhouseCoopers
There are no officers of the company who are former audit
partners of Pricewaterhousecoopers.
Rounding of amounts
The company is of a kind referred to in class Order
98/100, issued by the Australian Securities and Investments
commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that
class Order to the nearest thousand dollars, or in certain
cases, the nearest dollar.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as
required under section 307c of the corporations Act 2001
is set out on the following page.
Auditor
Pricewaterhousecoopers continues in office in
accordance with section 327 of the Corporations
Act 2001.
This report is made in accordance with a resolution
of directors, pursuant to section 298(2)(a) of the
corporations Act 2001.
On behalf of the directors
peter Macourt
chairman
30 September 2013
Sydney
The company has indemnified the directors and
executives of the company for costs incurred, in their
capacity as a director or executive, for which they may
be held personally liable, except where there is a lack of
good faith.
during the financial year, the company paid a premium of
$72,250 in respect of a contract to insure the directors and
executives of the company against a liability to the extent
permitted by the corporations Act 2001.
Indemnity and insurance of auditor
The company has not, during or since the financial year,
indemnified or agreed to indemnify the auditor of the
company or any related entity against a liability incurred
by the auditor.
during the financial year, the company has not paid a
premium in respect of a contract to insure the auditor of
the company or any related entity.
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 to 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 part of those proceedings.
Non-audit services
details of the amounts paid or payable to the auditor
for non-audit services provided during the financial year
by the auditor are outlined in Note 34 to the financial
statements.
The directors are satisfied that the provision of non-
audit services during the financial year, by the auditor
(or by another person or firm on the auditor’s behalf), is
compatible with the general standard of independence
for auditors imposed by the corporations Act 2001.
The directors are of the opinion that the services as
disclosed in Note 34 to the financial statements do
not compromise the external auditor’s independence
requirements of the corporations Act 2001 for the
following reasons:
• all non-audit services have been reviewed and
approved to ensure that they do not impact the
integrity and objectivity of the auditor, and
38 Virtus Health Annual Report 2013
DIRECTORS’ REPORT(continued) AudITOR’S INdEPENdENcE
dEcLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Virtus Health Limited for the year ended 30 June 2013, I declare that to
the best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Virtus Health Limited and the entities it controlled during the year.
Eddie Wilkie
Partner
PricewaterhouseCoopers
Sydney
30 September 2013
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Virtus Health Annual Report 2013 39
FINANcIAL REPORT
Contents
Financial report
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
directors’ declaration
Independent auditor’s report to the members of Virtus Health Limited
page
41
42
43
44
45
96
97
General information
The financial report covers Virtus Health Limited as a consolidated entity
consisting of Virtus Health Limited and the entities it controlled. The financial
report is presented in Australian dollars, which is Virtus Health Limited’s
functional and presentation currency.
The financial report consists of the financial statements, notes to the financial
statements and the directors’ declaration.
Virtus Health Limited is a listed public company limited by shares,
incorporated and domiciled in Australia. Its registered office and principal
place of business is:
Level 3
176 Pacific Highway
Greenwich NSW 2065
A description of the nature of the consolidated entity’s operations and its
principal activities are included in the directors’ report, which is not part of
the financial report.
The financial report was authorised for issue, in accordance with a resolution
of directors, on 30 September 2013. The directors have the power to amend
and reissue the financial report.
40 Virtus Health Annual Report 2013
STATEMENT OF
cOMPREHENSIVE INcOME
For the year ended 30 June 2013
Revenue
Share of profits of associates accounted for using the equity method
Other income
Expenses
Fertility specialists, consumables and associated costs
Employee benefits expense
depreciation and amortisation expense
Occupancy expense
Advertising and marketing
Practice equipment expenses
Professional and consulting fees
Initial Public Offering transaction costs
Other expenses
Finance costs
profit before income tax expense
Income tax expense
profit after income tax expense for the year attributable to the owners of Virtus Health Limited
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners of Virtus Health Limited
Basic earnings per share
diluted earnings per share
CONSOLIDATED
2013
$’000
2012
$’000
186,581
165,119
282
5,992
1,436
369
(55,630)
(56,126)
(8,745)
(10,327)
(2,991)
(1,443)
(2,072)
(10,651)
(9,734)
(44,674)
(47,805)
(8,972)
(8,813)
(2,700)
(1,274)
(3,017)
–
(9,500)
(20,781)
(13,796)
14,355
(4,251)
26,373
(6,713)
10,104
19,660
–
–
10,104
19,660
Cents
17.78
16.78
Cents
36.73
34.22
Notes
4
5
6
8
8
9
30
46
46
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
Virtus Health Annual Report 2013 41
STATEMENT OF
FINANcIAL POSITION
As at 30 June 2013
Assets
Current assets
cash and cash equivalents
Trade and other receivables
Inventories
Income tax refund due
Other
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, plant and equipment
Intangibles
deferred tax
Other
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Income tax
Provisions
Other
Total current liabilities
Non-current liabilities
Borrowings
derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits/(accumulated losses)
Total equity
CONSOLIDATED
2013
$’000
2012
$’000
Notes
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
12,485
10,278
291
1,084
1,061
25,199
1,514
26,579
9,439
8,475
–
–
1,138
19,052
3,913
22,596
325,060
312,529
6,877
235
360,265
385,464
3,329
241
342,608
361,660
17,485
138
–
2,040
3,157
15,450
14,240
5,320
1,561
3,973
22,820
40,544
144,058
89,267
–
3,997
148,055
170,875
214,589
3,217
3,641
96,125
136,669
224,991
231,981
184,815
10,186
(27,578)
3,259
36,917
214,589
224,991
The above statement of financial position should be read in conjunction with the accompanying notes.
42 Virtus Health Annual Report 2013
STATEMENT OF
cHANGES IN EQuITY
For the year ended 30 June 2013
Issued
capital
$’000
Reserves
$’000
Retained
profits/
(accumulated
losses)
$’000
Consolidated
Balance at 1 July 2011
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
contributions of equity, net of transaction costs (Note 28)
Share-based payments
Balance at 30 June 2012
Consolidated
Balance at 1 July 2012
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
contributions of equity, net of transaction costs and option adjustment payments
(Note 28)
Share-based payments
capital return
dividends paid (Note 31)
Balance at 30 June 2013
183,309
2,743
–
–
–
1,506
–
184,815
–
–
–
–
516
3,259
184,815
3,259
–
–
–
102,502
–
(55,336)
–
–
–
–
–
6,927
–
–
231,981
10,186
Total
equity
$’000
203,309
19,660
–
17,257
19,660
–
19,660
19,660
–
–
1,506
516
36,917
224,991
36,917
10,104
–
224,991
10,104
–
10,104
10,104
–
–
–
(74,599)
(27,578)
102,502
6,927
(55,336)
(74,599)
214,589
The above statement of changes in equity should be read in conjunction with the accompanying notes.
Virtus Health Annual Report 2013 43
STATEMENT OF
cASH FLOWS
For the year ended 30 June 2013
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers (inclusive of GST)
Other revenue
Interest and other finance costs paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payments for investments
Payments for acquisition of subsidiary and businesses, net of cash acquired
Payments for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Interest received
Associate distributions received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Payment of dividends
capital return to shareholders
Transaction costs incurred in relation to Initial Public Offering
Payment for cancellation of options
Proceeds from issue of partly paid shares
Proceeds from borrowings
Repayment of borrowings
Payment on termination of hedges
Payment for finance lease facility
Net cash used in financing activities
Net increase in cash and cash equivalents
cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
10
The above statement of cash flow should be read in conjunction with the accompanying notes.
44 Virtus Health Annual Report 2013
CONSOLIDATED
2013
$’000
2012
$’000
Notes
184,343
164,125
(128,950)
(112,370)
44
322
(15,597)
(12,314)
27,804
–
(7,290)
(10,616)
202
452
–
369
(12,813)
(10,200)
29,111
(91)
(4,035)
(8,521)
–
433
642
(17,252)
(11,572)
126,791
(74,599)
(55,336)
(16,946)
(23,537)
3,654
391,046
–
–
–
–
–
–
–
(355,171)
(14,481)
(3,081)
(327)
(7,506)
3,046
9,439
12,485
–
(582)
(15,063)
2,476
6,963
9,439
NOTES TO THE FINANcIAL
STATEMENTS
Note 1. Significant accounting policies
The principal accounting policies adopted in the
preparation of the financial statements are set out below.
These policies have been consistently applied to all the
years presented, unless otherwise stated.
New, revised or amending Accounting Standards and
Interpretations adopted
The consolidated entity has adopted all of the new,
revised or amending Accounting Standards and
Interpretations issued by the Australian Accounting
Standards Board (‘AASB’) that are mandatory for the
current reporting period.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been
early adopted.
Any significant impact on the accounting policies of
the consolidated entity from the adoption of these
Accounting Standards and Interpretations are disclosed
below. The adoption of these Accounting Standards
and Interpretations did not have any significant
impact on the financial performance or position of the
consolidated entity.
The following Accounting Standard is most relevant to the
consolidated entity:
AASB 2011-9 Amendments to Australian Accounting
Standards – Presentation of Items of Other Comprehensive
Income
The consolidated entity has applied AASB 2011-9
amendments from 1 July 2012. The amendments requires
grouping together of items within other comprehensive
income on the basis of whether they will eventually
be ‘recycled’ to the profit or loss (reclassification
adjustments). The change provides clarity about the
nature of items presented as other comprehensive income
and the related tax presentation. The amendments also
introduced the term ‘Statement of profit or loss and other
comprehensive income’ clarifying that there are two
discrete sections, the profit or loss section (or separate
statement of profit or loss) and other comprehensive
income section.
Basis of preparation
These general purpose financial statements have been
prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian
Accounting Standards Board (‘AASB’) and the
corporations Act 2001, as appropriate for for-profit
oriented entities. These financial statements also comply
with International Financial Reporting Standards as issued
by the International Accounting Standards Board (‘IASB’).
Historical cost convention
The financial statements have been prepared under the
historical cost convention, except for, where applicable,
the revaluation of available-for-sale financial assets,
financial assets and liabilities at fair value through profit
or loss, investment properties and derivative financial
instruments.
Critical accounting estimates
The preparation of the financial statements requires the
use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of
applying the consolidated entity’s accounting policies.
The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in
Note 2.
Parent entity information
In accordance with the corporations Act 2001, these
financial statements present the results of the consolidated
entity only. Supplementary information about the parent
entity is disclosed in Note 38.
principles of consolidation
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of Virtus Health
Limited (‘company’ or ‘parent entity’) as at 30 June
2013 and the results of all subsidiaries for the year then
ended. Virtus Health Limited and its subsidiaries together
are referred to in these financial statements as the
‘consolidated entity’.
Subsidiaries are all those entities over which the
consolidated entity has the power to govern the financial
and operating policies, generally accompanying
a shareholding of more than one-half of the voting
rights. The effects of potential exercisable voting rights
are considered when assessing whether control exists.
Subsidiaries are fully consolidated from the date on which
control is transferred to the consolidated entity. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains
on transactions between entities in the consolidated entity
are eliminated. unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency
with the policies adopted by the consolidated entity.
Virtus Health Annual Report 2013 45
Note 1. Significant accounting policies
(continued)
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. Refer to the ‘business
combinations’ accounting policy for further details.
A change in ownership interest, without the loss of control,
is accounted for as an equity transaction, where the
difference between the consideration transferred and
the book value of the share of the non-controlling interest
acquired is recognised directly in equity attributable to
the parent.
Where the consolidated entity loses control over a
subsidiary, it derecognises the assets including goodwill,
liabilities and non-controlling interest in the subsidiary
together with any cumulative translation differences
recognised in equity. The consolidated entity recognises
the fair value of the consideration received and the fair
value of any investment retained together with any gain
or loss in profit or loss.
Operating segments
Operating segments are identified using the
‘management approach’, where the information
presented is on the same basis as the internal reports
provided to the chief Operating decision Makers
(‘cOdM’). The cOdM is responsible for the allocation
of resources to operating segments and assessing their
performance.
Revenue recognition
Revenue is recognised when it is probable that the
economic benefit will flow to the consolidated entity
and the revenue can be reliably measured. Revenue is
measured at the fair value of the consideration received
or receivable.
Rendering of services
Revenue from the rendering of services is recognised
upon the delivery of the service to a patient or customer.
Revenue is recognised on completion of a medical
procedure, on supply of drugs, or on completion of an
analytical test. If payments received from patients exceed
the revenue recognised the difference is disclosed as
deferred revenue.
Deferred revenue
Fees for fertility treatment cycles paid in advance are
recognised as deferred revenue until the service has been
provided whereupon the fees are recognised as revenue
Interest
Interest revenue is recognised as interest accrues using the
effective interest method. This is a method of calculating
the amortised cost of a financial asset and allocating
the interest income over the relevant period using the
effective interest rate, which is the rate that exactly
discounts estimated future cash receipts through the
expected life of the financial asset to the net carrying
amount of the financial asset.
Rent
Rent revenue from sub-leases is recognised on a straight-
line basis over the lease term. Lease incentives granted
are recognised as part of the rental revenue. contingent
rentals are recognised as income in the period when
earned.
Other revenue
Other revenue is recognised when it is received or when
the right to receive payment is established.
Income tax
The income tax expense or benefit for the period is the
tax payable on that period’s taxable income based
on the applicable income tax rate for each jurisdiction,
adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses
and the adjustment recognised for prior periods, where
applicable.
deferred tax assets and liabilities are recognised for
temporary differences at the tax rates expected to apply
when the assets are recovered or liabilities are settled,
based on those tax rates that are enacted or substantively
enacted, except for:
• When the deferred income tax asset or liability
arises from the initial recognition of goodwill or an
asset or liability in a transaction that is not a business
combination and that, at the time of the transaction,
affects neither the accounting nor taxable profits; or
• When the taxable temporary difference is associated
with investments in subsidiaries, associates or interests
in joint ventures, and the timing of the reversal can
be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
deferred tax assets are recognised for deductible
temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available
to utilise those temporary differences and losses.
46 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) The carrying amount of recognised and unrecognised
deferred tax assets are reviewed each reporting date.
deferred tax assets recognised are reduced to the
extent that it is no longer probable that future taxable
profits will be available for the carrying amount to be
recovered. Previously unrecognised deferred tax assets
are recognised to the extent that it is probable that there
are future taxable profits available to recover the asset.
deferred tax assets and liabilities are offset only where
there is a legally enforceable right to offset current tax
assets against current tax liabilities and deferred tax
assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable
entity or different taxable entity’s which intend to settle
simultaneously.
Virtus Health Limited (the ‘head entity’) and its wholly-
owned Australian controlled entities have formed
an income tax consolidated group under the tax
consolidation regime. The head entity and the controlled
entities in the tax consolidated group continue to account
for their own current and deferred tax amounts. The tax
consolidated group has applied the ‘separate taxpayer
within group’ approach in determining the appropriate
amount of taxes to allocate to members of the tax
consolidated group.
In addition to its own current and deferred tax amounts,
the head entity also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused
tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group.
Assets or liabilities arising under tax funding arrangements
with the tax consolidated entities are recognised as
amounts receivable from or payable to other entities in
the tax consolidated group. The tax funding arrangement
ensures that the intercompany charge equals the
current tax liability or benefit of each tax consolidated
group member, resulting in neither a contribution by the
head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
Cash and cash equivalents
cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other short-
term, highly liquid investments with original maturities of
three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant
risk of changes in value.
Trade and other receivables
Trade receivables are initially recognised at fair value
and subsequently measured at amortised cost using
the effective interest method, less any provision for
impairment. Trade receivables are generally due for
settlement within 30 days.
collectability of trade receivables is reviewed on
an ongoing basis. debts which are known to be
uncollectable are written off by reducing the carrying
amount directly. A provision for impairment of trade
receivables is raised when there is objective evidence
that the consolidated entity will not be able to collect
all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or
financial reorganisation and default or delinquency in
payments (more than 60 days overdue) are considered
indicators that the trade receivable may be impaired.
The amount of the impairment allowance is the difference
between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the
original effective interest rate. cash flows relating to
short-term receivables are not discounted if the effect of
discounting is immaterial.
Other receivables are recognised at amortised cost, less
any provision for impairment.
Inventories
Stock on hand consists of medical supplies used in
the diagnostic fertility procedures performed in the
consolidated entity’s fertility clinics. Stock on hand is
stated at the lower of cost and net realisable value.
cost comprises purchase and delivery costs, net of
rebates and discounts received or receivable.
Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make
the sale.
Derivative financial instruments
derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date.
The accounting for subsequent changes in fair value
depends on whether the derivative is designated as
a hedging instrument, and if so, the nature of the item
being hedged.
derivatives are classified as current or non-current
depending on the expected period of realisation.
Virtus Health Annual Report 2013 47
Note 1. Significant accounting policies
(continued)
Cash flow hedges
cash flow hedges are used to cover the consolidated
entity’s exposure to variability in cash flows that is
attributable to particular risk associated with a recognised
asset or liability or a firm commitment which could affect
income or expenses. The effective portion of the gain or
loss on the hedging instrument is recognised directly in
equity, whilst the ineffective portion is recognised in profit
or loss. Amounts taken to equity are transferred out of
equity and included in the measurement of the hedged
transaction when the forecast transaction occurs.
cash flow hedges are tested for effectiveness on a
regular basis both retrospectively and prospectively to
ensure that each hedge is highly effective and continues
to be designated as a cash flow hedge. If the forecast
transaction is no longer expected to occur, amounts
recognised in equity are transferred to profit or loss.
If the hedging instrument is sold, terminated, expires,
exercised without replacement or rollover, or if the hedge
becomes ineffective and is no longer a designated
hedge, amounts previously recognised in equity remain
in equity until the forecast transaction occurs.
Associates
Associates are entities over which the consolidated entity
has significant influence but not control or joint control.
Investments in associates are accounted for using the
equity method. under the equity method, the share
of the profits or losses of the associate is recognised in
profit or loss and the share of the movements in equity is
recognised in other comprehensive income. Investments
in associates are carried in the statement of financial
position at cost plus post-acquisition changes in the
consolidated entity’s share of net assets of the associates.
dividends received or receivable from associates reduce
the carrying amount of the investment.
When the consolidated entity’s share of losses in an
associate equals or exceeds its interest in the associate,
including any unsecured long-term receivables, the
consolidated entity does not recognise further losses,
unless it has incurred obligations or made payments on
behalf of the associate.
property, plant and equipment
Property, plant and equipment is stated at historical cost
less accumulated depreciation and impairment. Historical
cost includes expenditure that is directly attributable to
the acquisition of the items.
48 Virtus Health Annual Report 2013
depreciation is calculated on a straight-line basis to
write off the net cost of each item of property, plant and
equipment over their expected useful lives as follows:
Leasehold improvements
Over the life of the lease
Furniture and fittings
Office equipment
Medical equipment
2 to 10 years
2 to 5 years
2 to 5 years
The residual values, useful lives and depreciation methods
are reviewed, and adjusted if appropriate, at each
reporting date.
Leasehold improvements and plant and equipment under
lease are depreciated over the unexpired period of the
lease or the estimated useful life of the assets, whichever is
shorter.
An item of property, plant and equipment is derecognised
upon disposal or when there is no future economic benefit
to the consolidated entity.
Leases
The determination of whether an arrangement is or
contains a lease is based on the substance of the
arrangement and requires an assessment of whether the
fulfilment of the arrangement is dependent on the use of
a specific asset or assets and the arrangement conveys a
right to use the asset.
A distinction is made between finance leases, which
effectively transfer from the lessor to the lessee
substantially all the risks and benefits incidental to
ownership of leased assets, and operating leases, under
which the lessor effectively retains substantially all such
risks and benefits.
Finance leases are capitalised. A lease asset and liability
are established at the fair value of the leased assets, or
if lower, the present value of minimum lease payments.
Lease payments are allocated between the principal
component of the lease liability and the finance costs, so
as to achieve a constant rate of interest on the remaining
balance of the liability.
Leased assets acquired under a finance lease are
depreciated over the asset’s useful life or over the shorter
of the asset’s useful life and the lease term if there is no
reasonable certainty that the consolidated entity will
obtain ownership at the end of the lease term.
Operating lease payments, net of any incentives received
from the lessor, are charged to profit or loss on a straight-
line basis over the term of the lease.
NOTES TO THE FINANCIAL STATEMENTS (continued) Intangible assets
Intangible assets acquired as part of a business
combination, other than goodwill, are initially measured
at their fair value at the date of the acquisition. Intangible
assets acquired separately are initially recognised at cost.
Indefinite life intangible assets are not amortised and are
subsequently measured at cost less any impairment. Finite
life intangible assets are subsequently measured at cost
less amortisation and any impairment. The gains or losses
recognised in profit or loss arising from the derecognition
of intangible assets are measured as the difference
between net disposal proceeds and the carrying amount
of the intangible asset. The method and useful lives of finite
life intangible assets are reviewed annually. changes in
the expected pattern of consumption or useful life are
accounted for prospectively by changing the amortisation
method or period.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill
is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that it might be impaired, and
is carried at cost less accumulated impairment losses.
Impairment losses on goodwill are taken to profit or loss
and are not subsequently reversed.
Software
Significant costs associated with software are deferred
and amortised on a straight-line basis over the period of
their expected benefit, being their finite life of between
1 and 5 years.
Brand names
Significant costs associated with brand names are
deferred and amortised on a straight-line basis over the
period of their expected benefit, being their finite life of
10 years.
Impairment of non-financial assets
Goodwill and other intangible assets that have an
indefinite useful life are not subject to amortisation and
are tested annually for impairment, or more frequently
if events or changes in circumstances indicate that
they might be impaired. Other non-financial assets are
reviewed 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 carrying amount exceeds its
recoverable amount.
Recoverable amount is the higher of an asset’s fair value
less costs to sell and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to
the asset using a pre-tax discount rate specific to the asset
or cash-generating unit to which the asset belongs. Assets
that do not have independent cash flows are grouped
together to form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services
provided to the consolidated entity prior to the end of the
financial year and which are unpaid. due to their short-
term nature they are measured at amortised cost and
are not discounted. The amounts are unsecured and are
usually paid within 30 days of recognition.
Borrowings
Loans and borrowings are initially recognised at the fair
value of the consideration received, net of transaction
costs. They are subsequently measured at amortised cost
using the effective interest method.
Where there is an unconditional right to defer settlement
of the liability for at least 12 months after the reporting
date, the loans or borrowings are classified as non-current.
Finance costs
Finance costs attributable to qualifying assets are
capitalised as part of the asset. All other finance costs
are expensed in the period in which they are incurred,
including:
• interest on short-term and long-term borrowings
• interest on finance leases
provisions
Provisions are recognised when the consolidated entity
has a present (legal or constructive) obligation as a result
of a past event, it is probable the consolidated entity
will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate
of the consideration required to settle the present
obligation at the reporting date, taking into account the
risks and uncertainties surrounding the obligation. If the
time value of money is material, provisions are discounted
using a current pre-tax rate specific to the liability. The
increase in the provision resulting from the passage of
-time is recognised as a finance cost.
Virtus Health Annual Report 2013 49
Note 1. Significant accounting policies
(continued)
Employee benefits
Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary
benefits, and annual leave expected to be settled
within 12 months of the reporting date are measured at
the amounts expected to be paid when the liabilities
are settled. The liability is classified as current as the
consolidated entity has no unconditional right to defer
settlement.
Long service leave
The liability for long service leave is recognised in current
and non-current liabilities, depending on the unconditional
right to defer settlement of the liability for at least 12 months
after the reporting date. The liability is measured as the
present value of expected future payments to be made
in respect of services provided by employees up to the
reporting date using the projected unit credit method.
consideration is given to expected future wage and salary
levels, experience of employee departures and periods of
service. Expected future payments are discounted using
market yields at the reporting date on national government
bonds with terms to maturity and currency that match, as
closely as possible, the estimated future cash outflows.
Defined contribution superannuation expense
contributions to defined contribution superannuation plans
are expensed in the period in which they are incurred.
Share-based payments
Equity-settled and cash-settled share-based compensation
benefits are provided to employees and fertility specialists.
Equity-settled transactions are awards of shares, or options
over shares, that are provided to employees and fertility
specialists in exchange for the rendering of services.
The cost of equity-settled transactions are measured
at fair value on grant date. Fair value is independently
determined using the Black-Scholes or other appropriate
option pricing models that take into account the exercise
price, the term of the option, the impact of dilution, the
share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together
with non-vesting conditions that do not determine whether
the consolidated entity receives the services that entitle
the employees or fertility specialists to receive payment.
No account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised
as an expense with a corresponding increase in equity
over the vesting period. The cumulative charge to profit
or loss is calculated based on the grant date fair value
of the award, the best estimate of the number of awards
that are likely to vest and the expired portion of the
vesting period. The amount recognised in profit or loss
for the period is the cumulative amount calculated at
each reporting date less amounts already recognised in
previous periods.
Market conditions are taken into consideration in
determining fair value. Therefore any awards subject to
market conditions are considered to vest irrespective
of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum
an expense is recognised as if the modification has
not been made. An additional expense is recognised,
over the remaining vesting period, for any modification
that increases the total fair value of the share-based
compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the
consolidated entity, employee or fertility specialist, the
failure to satisfy the condition is treated as a cancellation.
If the condition is not within the control of the consolidated
entity, employee or fertility specialist and is not satisfied
during the vesting period, any remaining expense for the
award is recognised over the remaining vesting period,
unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as
if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new
replacement award is substituted for the cancelled
award, the cancelled and new award is treated as if they
were a modification.
Profit sharing and bonus plans
The consolidated entity recognises a liability and an
expense for bonuses and profit sharing based on a
formula that takes into consideration the profit attributable
to the company’s shareholders after certain adjustments.
The consolidated entity recognises a provision where
contractually obliged or where there is a past practice
that has created a constructive obligation.
Issued capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the
proceeds.
50 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Dividends
dividends are recognised when declared during the
financial year and no longer at the discretion of the
company.
Business combinations
The acquisition method of accounting is used to account
for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-
date fair values of the assets transferred, equity
instruments issued or liabilities incurred by the acquirer to
former owners of the acquiree and the amount of any
non-controlling interest in the acquiree. For each business
combination, the non-controlling interest in the acquiree is
measured at either fair value or at the proportionate share
of the acquiree’s identifiable net assets. All acquisition
costs are expensed as incurred to profit or loss.
On the acquisition of a business, the consolidated entity
assesses the financial assets acquired and liabilities
assumed for appropriate classification and designation
in accordance with the contractual terms, economic
conditions, the consolidated entity’s operating or
accounting policies and other pertinent conditions in
existence at the acquisition-date.
Where the business combination is achieved in stages,
the consolidated entity remeasures its previously held
equity interest in the acquiree at the acquisition-date fair
value and the difference between the fair value and the
previous carrying amount is recognised in profit or loss.
contingent consideration to be transferred by the
acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of contingent
consideration classified as an asset or liability is recognised
in profit or loss. contingent consideration classified as
equity is not remeasured and its subsequent settlement is
accounted for within equity.
The difference between the acquisition-date fair value
of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of
the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the
pre-existing fair value is less than the fair value of the
identifiable net assets acquired, being a bargain purchase
to the acquirer, the difference is recognised as a gain
directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification
and measurement of the net assets acquired, the
non-controlling interest in the acquiree, if any, the
consideration transferred and the acquirer’s previously
held equity interest in the acquirer.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises
additional assets or liabilities during the measurement
period, based on new information obtained about the
facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier
of: (i) 12 months from the date of the acquisition; or
(ii) when the acquirer receives all the information possible
to determine fair value.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the
profit attributable to the owners of Virtus Health Limited,
excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted
for bonus elements in ordinary shares issued during the
financial year.
Diluted earnings per share
diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into
account the after income tax effect of interest and other
financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares
assumed to have been issued for no consideration in
relation to dilutive potential ordinary shares.
Goods and Services Tax (‘GST’) and other
similar taxes
Revenues, expenses and assets are recognised net of
the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case it is
recognised as part of the cost of the acquisition of the
asset or as part of the expense.
Receivables and payables are stated inclusive of the
amount of GST receivable or payable. The net amount
of GST recoverable from, or payable to, the tax authority
is included in other receivables or other payables in the
statement of financial position.
cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or
financing activities which are recoverable from, or
payable to the tax authority, are presented as operating
cash flows.
Virtus Health Annual Report 2013 51
Note 1. Significant accounting policies
(continued)
commitments and contingencies are disclosed net of the
amount of GST recoverable from, or payable to, the tax
authority.
Rounding of amounts
The company is of a kind referred to in class Order
98/100, issued by the Australian Securities and Investments
commission, relating to ‘rounding-off’. Amounts in this
report have been rounded off in accordance with that
class Order to the nearest thousand dollars, or in certain
cases, the nearest dollar.
New Accounting Standards and Interpretations not
yet mandatory or early adopted
Australian Accounting Standards and Interpretations
that have recently been issued or amended but are not
yet mandatory, have not been early adopted by the
consolidated entity for the annual reporting period ended
30 June 2013. The consolidated entity’s assessment of the
impact of these new or amended Accounting Standards
and Interpretations, most relevant to the consolidated
entity, are set out below.
AASB 9 Financial Instruments, 2009-11 Amendments to
Australian Accounting Standards arising from AASB 9, 2010-7
Amendments to Australian Accounting Standards arising from
AASB 9 and 2012-6 Amendments to Australian Accounting
Standards arising from AASB 9
This standard and its consequential amendments are
applicable to annual reporting periods beginning on
or after 1 January 2015 and completes phase I of the
IASB’s project to replace IAS 39 (being the international
equivalent to AASB 139 ‘Financial Instruments: Recognition
and Measurement’). This standard introduces new
classification and measurement models for financial assets,
using a single approach to determine whether a financial
asset is measured at amortised cost or fair value. The
accounting for financial liabilities continues to be classified
and measured in accordance with AASB 139, with one
exception, being that the portion of a change of fair value
relating to the entity’s own credit risk is to be presented
in other comprehensive income unless it would create
an accounting mismatch. The consolidated entity will
adopt this standard from 1 July 2015 but the impact of its
adoption is yet to be assessed by the consolidated entity.
AASB 10 Consolidated Financial Statements
This standard is applicable to annual reporting periods
beginning on or after 1 January 2013. The standard has
a new definition of ‘control’. control exists when the
reporting entity is exposed, or has the rights, to variable
52 Virtus Health Annual Report 2013
returns (e.g. dividends, remuneration, returns that are
not available to other interest holders including losses)
from its involvement with another entity and has the
ability to affect those returns through its ‘power’ over
that other entity. A reporting entity has power when it
has rights (e.g. voting rights, potential voting rights, rights
to appoint key management, decision making rights,
kick out rights) that give it the current ability to direct the
activities that significantly affect the investee’s returns
(e.g. operating policies, capital decisions, appointment
of key management). The consolidated entity will not
only have to consider its holdings and rights but also
the holdings and rights of other shareholders in order
to determine whether it has the necessary power for
consolidation purposes. The adoption of this standard
from 1 July 2013 is not expected to have an impact on
the consolidated entity.
AASB 11 Joint Arrangements
This standard is applicable to annual reporting periods
beginning on or after 1 January 2013. The standard defines
which entities qualify as joint ventures and removes the
option to account for joint ventures using proportional
consolidation. Joint ventures, where the parties to the
agreement have the rights to the net assets will use equity
accounting. Joint operations, where the parties to the
agreements have the rights to the assets and obligations
for the liabilities will account for the assets, liabilities,
revenues and expenses separately, in accordance with
the standards applicable to the particular assets, liabilities,
revenues and expenses. The adoption of this standard
from 1 July 2013 will not have a material impact on the
consolidated entity.
AASB 12 Disclosure of Interests in Other Entities
This standard is applicable to annual reporting periods
beginning on or after 1 January 2013. It contains the entire
disclosure requirement associated with other entities,
being subsidiaries, associates and joint ventures. The
disclosure requirements have been significantly enhanced
when compared to the disclosures previously located
in AASB 127 ‘consolidated and Separate Financial
Statements’, AASB 128 ‘Investments in Associates’, AASB
131 ‘Interests in Joint Ventures’ and Interpretation 112
‘consolidation – Special Purpose Entities’. The adoption
of this standard from 1 July 2013 will significantly increase
the amount of disclosures required to be given by the
consolidated entity such as significant judgements and
assumptions made in determining whether it has a
controlling or non-controlling interest in another entity and
the type of non-controlling interest and the nature and
risks involved.
NOTES TO THE FINANCIAL STATEMENTS (continued) AASB 13 Fair Value Measurement and AASB 2011-8
Amendments to Australian Accounting Standards arising from
AASB 13
This standard and its consequential amendments are
applicable to annual reporting periods beginning on
or after 1 January 2013. The standard provides a single
robust measurement framework, with clear measurement
objectives, for measuring fair value using the ‘exit price’
and it provides guidance on measuring fair value
when a market becomes less active. The ‘highest and
best use’ approach would be used to measure assets
whereas liabilities would be based on transfer value. As
the standard does not introduce any new requirements
for the use of fair value, its impact on adoption by the
consolidated entity from 1 July 2013 should be minimal,
although there will be increased disclosures where fair
value is used.
AASB 127 Separate Financial Statements (Revised)
AASB 128 Investments in Associates and Joint Ventures
(Reissued)
These standards are applicable to annual reporting
periods beginning on or after 1 January 2013. They have
been modified to remove specific guidance that is now
contained in AASB 10, AASB 11 and AASB 12. The adoption
of these revised standards from 1 July 2013 will not have a
material impact on the consolidated entity.
AASB 119 Employee Benefits (September 2011) and AASB
2011-10 Amendments to Australian Accounting Standards
arising from AASB 119 (September 2011)
This revised standard and its consequential amendments
are applicable to annual reporting periods beginning on
or after 1 January 2013. The amendments make changes
to the accounting for defined benefit plans and the
definition of short-term employee benefits, from ‘due to’
to ‘expected to’ be settled within 12 months. The latter
will require annual leave that is not expected to be wholly
settled within 12 months to be discounted allowing for
expected salary levels in the future period when the leave
is expected to be taken. The adoption of the revised
standard from 1 July 2013 is not expected to have a
significant impact on the consolidated entity.
AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management Personnel
Disclosure Requirement
These amendments are applicable to annual reporting
periods beginning on or after 1 July 2013, with early
adoption not permitted. They amend AASB 124 ‘Related
Party disclosures’ by removing the disclosure requirements
for individual key management personnel (‘KMP’).
The adoption of these amendments from 1 July 2013
will remove the duplication of information relating to
individual KMP in the notes to the financial statements and
the directors’ report. corporations and Related Legislation
Amendment Regulations 2013 and corporations and
Australian Securities and Investments commission
Amendment Regulation 2013 (No. 1) now specify the KMP
disclosure requirements to be included within the directors’
report for annual reporting periods beginning 1 July 2013.
AASB 2011-7 Amendments to Australian Accounting Standards
arising from the Consolidation and Joint Arrangements
Standards
The amendments are applicable to annual reporting
periods beginning on or after 1 January 2013. The
amendments make numerous consequential changes
to a range of Australian Accounting Standards and
Interpretations, following the issuance of AASB 10,
AASB 11, AASB 12 and revised AASB 127 and AASB 128.
The adoption of these amendments from 1 July 2013 will
not have a material impact on the consolidated entity.
AASB 2012-2 Amendments to Australian Accounting
Standards – Disclosures – Offsetting Financial Assets and
Financial Liabilities
The amendments are applicable to annual reporting
periods beginning on or after 1 January 2013. The
disclosure requirements of AASB 7 ‘Financial Instruments:
disclosures’ (and consequential amendments to
AASB 132 ‘Financial Instruments: Presentation’) have
been enhanced to provide users of financial statements
with information about netting arrangements, including
rights of set-off related to an entity’s financial instruments
and the effects of such rights on its statement of
financial position. The adoption of the amendments
from 1 July 2013 will increase the disclosures by the
consolidated entity.
AASB 2012-3 Amendments to Australian Accounting Standards
– Offsetting Financial Assets and Financial Liabilities
The amendments are applicable to annual reporting
periods beginning on or after 1 January 2014. The
amendments add application guidance to address
inconsistencies in the application of the offsetting
criteria in AASB 132 ‘Financial Instruments: Presentation’,
by clarifying the meaning of “currently has a legally
enforceable right of set-off”; and clarifies that some gross
settlement systems may be considered to be equivalent
to net settlement. The adoption of the amendments
from 1 July 2014 will not have a material impact on the
consolidated entity.
Virtus Health Annual Report 2013 53
Note 1. Significant accounting policies
(continued)
AASB 2012-5 Amendments to Australian Accounting Standards
arising from Annual Improvements 2009-2011 Cycle
The amendments are applicable to annual reporting
periods beginning on or after 1 January 2013. The
amendments affect five Australian Accounting Standards
as follows: confirmation that repeat application of AASB 1
(IFRS 1) ‘First-time Adoption of Australian Accounting
Standards’ is permitted; clarification of borrowing cost
exemption in AASB 1; clarification of the comparative
information requirements when an entity provides
an optional third column or is required to present a
third statement of financial position in accordance
with AASB 101 ‘Presentation of Financial Statements’;
clarification that servicing of equipment is covered
by AASB 116 ‘Property, Plant and Equipment’, if such
equipment is used for more than one period; clarification
that the tax effect of distributions to holders of equity
instruments and equity transaction costs in AASB 132
‘Financial Instruments: Presentation’ should be accounted
for in accordance with AASB 112 ‘Income Taxes’; and
clarification of the financial reporting requirements in
AASB 134 ‘Interim Financial Reporting’ and the disclosure
requirements of segment assets and liabilities. The
adoption of the amendments from 1 July 2013 will not
have a material impact on the consolidated entity.
AASB 2012-9 Amendment to AASB 1048 arising from the
Withdrawal of Australian Interpretation 1039
This amendment is applicable to annual reporting periods
beginning on or after 1 January 2013. The amendment
removes reference in AASB 1048 following the withdrawal
of Interpretation 1039. The adoption of this amendment
will not have a material impact on the consolidated entity.
AASB 2012-10 Amendments to Australian Accounting
Standards – Transition Guidance and Other Amendments
These amendments are applicable to annual reporting
periods beginning on or after 1 January 2013. They amend
AASB 10 and related standards for the transition guidance
relevant to the initial application of those standards.
The amendments clarify the circumstances in which
adjustments to an entity’s previous accounting for its
involvement with other entities are required and the timing
of such adjustments. The adoption of these amendments
will not have a material impact on the consolidated entity.
AASB 2013-3 Amendments to AASB 136 – Recoverable Amount
Disclosures for Non-Financial Assets
The amendments are applicable to annual reporting
periods beginning on or after 1 January 2014. The
disclosure requirements of AASB 136 ‘Impairment of Assets’
have been enhanced to require additional information
about the fair value measurement when the recoverable
amount of impaired assets is based on fair value less costs
to sell. Additionally, if measured using a present value
technique, the discount rate is required to be disclosed.
The adoption of the amendments from 1 July 2014 may
increase the disclosures by the consolidated entity.
Note 2. Critical accounting judgements, estimates
and assumptions
The preparation of the financial statements requires
management to make judgements, estimates and
assumptions that affect the reported amounts in the
financial statements. Management continually evaluates
its judgements and estimates in relation to assets, liabilities,
contingent liabilities, revenue and expenses. Management
bases its judgements, estimates and assumptions on
historical experience and on other various factors,
including expectations of future events, management
believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will
seldom equal the related actual results. The judgements,
estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of
assets and liabilities (refer to the respective notes) within
the next financial year are discussed below.
Share-based payment transactions
The consolidated entity measures the cost of equity-settled
transactions with employees by reference to the fair value
of the equity instruments at the date at which they are
granted. The fair value is determined by using the Binomial
or other appropriate models taking into account the terms
and conditions upon which the instruments were granted.
The accounting estimates and assumptions relating to
equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities
within the next annual reporting period but may impact
profit or loss and equity.
54 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 3. Operating segments
Identification of reportable operating segments
AASB 8 ‘Operating Segments’ requires operating segments
to be identified on the basis of internal reports about
components of the consolidated entity that are regularly
reviewed by the chief operating decision maker in order
to allocate resources to the segment and to assess its
performance. The consolidated entity currently has three
operating segments being New South Wales, Queensland
and Victoria. The consolidated entity has determined that
a disclosure of one aggregated segment, healthcare
services, is most appropriate due to the similar economic
characteristics faced by the operating segments and the
similar nature of the products and services being delivered
to a similar customer base.
Segment revenue
Sales between segments are carried out at arm’s length
and are eliminated on consolidation. The revenue
from external parties reported to the Board of directors
is measured in a manner consistent with that in the
statement of comprehensive income.
Revenue from external customers is derived from the
provision of healthcare services. A breakdown of revenue
and results is provided below:
Segment EBITDA
Segment performance is assessed on the basis of Segment
EBITdA. Segment EBITdA comprises expenses which are
incurred in the normal trading activity of the segments
and excludes the impact of depreciation, amortisation,
interest, share-based payments and other items which are
determined to be outside of the control of the respective
segments.
Provision for impairment of receivables
The provision for impairment of receivables assessment
requires a degree of estimation and judgement. The level
of provision is assessed by taking into account the recent
sales experience, the ageing of receivables, historical
collection rates and specific knowledge of the individual
debtors financial position.
Goodwill and other indefinite life intangible assets
The consolidated entity tests annually, or more frequently if
events or changes in circumstances indicate impairment,
whether goodwill and other indefinite life intangible assets
have suffered any impairment, in accordance with the
accounting policy stated in Note 1. The recoverable
amounts of cash-generating units have been determined
based on value-in-use calculations. These calculations
require the use of assumptions, including estimated
discount rates based on the current cost of capital and
growth rates of the estimated future cash flows.
Impairment of non-financial assets other than goodwill and
other indefinite life intangible assets
The consolidated entity assesses for impairment indicators,
relating to non-financial assets other than goodwill and
other indefinite life intangible assets, at each reporting
date by evaluating conditions specific to the consolidated
entity and to the particular asset. If an impairment trigger
exists, the recoverable amount of the asset is determined.
This involves fair value less costs to sell or value-in-use
calculations, which incorporate a number of key estimates
and assumptions.
Business combinations
As discussed in Note 1, business combinations are initially
accounted for on a provisional basis. The fair value
of assets acquired, liabilities and contingent liabilities
assumed are initially estimated by the consolidated entity
taking into consideration all available information at the
reporting date. Fair value adjustments on the finalisation
of the business combination accounting is retrospective,
where applicable, to the period the combination
occurred and may have an impact on the assets and
liabilities, depreciation and amortisation reported.
Virtus Health Annual Report 2013 55
Note 3. Operating segments (continued)
Operating segment information
Consolidated – 2013
Revenue
Sales to external customers
Intersegment sales
Total sales revenue
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Share-based payment expense
Initial Public Offering transaction costs
Net gain on acquisition of associate
Other non-trading expenses
depreciation and amortisation expenses
Interest revenue
Interest expense
Revaluation of interest rate swap
Amortisation of bank facility fee
profit before income tax expense
Income tax expense
profit after income tax expense
Assets
Segment assets
Unallocated assets:
deferred tax asset
cash and cash equivalents
Other receivables
Income tax refund due
Intangibles
Other
Total assets
Total assets includes:
Investments in associates
Acquisition of non-current assets
Liabilities
Segment liabilities
Unallocated liabilities:
Trade payables
Other payables
Employee provisions
current borrowings
Non-current borrowings
Total liabilities
56 Virtus Health Annual Report 2013
Healthcare
services
$’000
Intersegment
eliminations/
unallocated
$’000
Total
$’000
185,304
2,660
187,964
825
452
–
185,304
(2,660)
(2,660)
–
–
–
185,304
825
452
189,241
(2,660)
186,581
56,282
(6,927)
(10,651)
5,670
(945)
(8,745)
452
(15,856)
136
(5,061)
14,355
–
–
–
–
–
–
–
–
–
–
–
56,282
(6,927)
(10,651)
5,670
(945)
(8,745)
452
(15,856)
136
(5,061)
14,355
(4,251)
10,104
469,441
(94,041)
375,400
6,877
60
312
1,084
18
1,713
385,464
1,514
25,787
1,514
25,787
–
–
125,650
(100,533)
25,117
215
1,287
60
138
144,058
170,875
NOTES TO THE FINANCIAL STATEMENTS (continued) Consolidated – 2012
Revenue
Sales to external customers
Intersegment sales
Total sales revenue
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Share-based payment expense
Other non-trading expenses
depreciation and amortisation expenses
Interest revenue
Interest expense
Revaluation of interest rate swap
Amortisation of bank facility fee
profit before income tax expense
Income tax expense
profit after income tax expense
Assets
Segment assets
Unallocated assets:
deferred tax asset
cash and cash equivalents
Other receivables
Intangibles
Other
Total assets
Total assets includes:
Investments in associates
Acquisition of non-current assets
Liabilities
Segment liabilities
Unallocated liabilities:
Provision for income tax
Trade payables
Other payables
Employee provisions
current borrowings
Non-current borrowings
derivative financial instruments
Total liabilities
Healthcare
services
$’000
Intersegment
eliminations/
unallocated
$’000
Total
$’000
163,476
800
164,276
1,210
433
–
163,476
(800)
(800)
–
–
–
163,476
1,210
433
165,919
(800)
165,119
51,587
(516)
(2,363)
(8,972)
433
(11,978)
(968)
(850)
26,373
–
–
–
–
–
–
–
–
–
51,587
(516)
(2,363)
(8,972)
433
(11,978)
(968)
(850)
26,373
(6,713)
19,660
447,415
(91,217)
356,198
3,329
896
210
18
1,009
361,660
3,913
14,226
3,913
14,226
–
–
93,920
(71,076)
22,844
5,320
325
1,405
51
14,240
89,267
3,217
136,669
Virtus Health Annual Report 2013 57
Note 4. Revenue
Sales revenue
Rendering of services
Other revenue
Interest
Rent
Revenue
Note 5. Share of profits of associates accounted for using the equity method
Share of profit – associates
Note 6. Other income
Net gain on acquisition of associate
Trial grants
Other income
Other income
CONSOLIDATED
2013
$’000
2012
$’000
185,304
163,476
452
825
1,277
433
1,210
1,643
186,581
165,119
CONSOLIDATED
2013
$’000
282
2012
$’000
1,436
CONSOLIDATED
2013
$’000
5,670
–
322
5,992
2012
$’000
–
187
182
369
Note 7. Reconciliation of gain arising from acquisition of the additional 50% of associate
Reconciliation of gain arising from acquisition of the additional 50% of City East Specialist Day Hospital Pty Ltd
carrying value of 50% investment
Purchase price for 50% (Note 39)
Gain on acquisition of an associate (Note 6)
CONSOLIDATED
2013
$’000
2012
$’000
2,433
(8,103)
(5,670)
–
–
–
58 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Leasehold improvements
Plant and equipment
Furniture and fittings
Office equipment
Medical equipment
Total depreciation
Amortisation
Software
Brand names
Total amortisation
Total depreciation and amortisation
Finance costs
Interest and finance charges paid/payable
Interest rate swaps (net)
Amortisation of bank facility fees
Finance costs expensed
Rental expense relating to operating leases
Minimum lease payments
Superannuation expense
defined contribution superannuation expense
Research costs
Research costs
Share-based payments expense
Share-based payments expense – fertility specialists
Share-based payments expense – employee benefits
Total share-based payments expense
CONSOLIDATED
2013
$’000
2012
$’000
2,825
2,983
–
291
400
2,428
5,944
1,880
921
2,801
8,745
346
167
503
1,627
5,626
2,436
910
3,346
8,972
15,856
11,978
(136)
5,061
968
850
20,781
13,796
7,746
6,841
3,758
3,159
2,734
2,806
6,380
547
6,927
–
516
516
Virtus Health Annual Report 2013 59
Note 9. Income tax expense
Income tax expense
current tax
deferred tax – origination and reversal of temporary differences
Adjustment recognised for prior periods
Aggregate income tax expense
deferred tax included in income tax expense comprises:
Increase in deferred tax assets (Note 18)
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Share-based payments
Research and development
Gain on acquisition of associate
Other
Adjustment recognised for prior periods
Income tax expense
Amounts charged/(credited) directly to equity
deferred tax assets (Note 18)
Note 10. Current assets – cash and cash equivalents
cash at bank and on hand
CONSOLIDATED
2013
$’000
2012
$’000
6,112
(1,661)
(200)
4,251
9,772
(1,884)
(1,175)
6,713
(1,661)
(1,884)
14,355
4,307
2,078
(270)
(1,701)
37
4,451
(200)
4,251
26,373
7,912
134
(169)
–
11
7,888
(1,175)
6,713
(1,887)
–
CONSOLIDATED
2013
$’000
12,485
2012
$’000
9,439
60 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 11. Current assets – trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Other receivables
CONSOLIDATED
2013
$’000
8,162
(1,229)
6,933
3,345
10,278
2012
$’000
6,798
(752)
6,046
2,429
8,475
Impairment of receivables
The consolidated entity has recognised a loss of $477,000 (2012: $407,000) in profit or loss in respect of impairment of
receivables for the year ended 30 June 2013.
The ageing of the impaired receivables provided for above is as follows:
3 to 6 months overdue
Over 6 months overdue
The nominal value of the impaired receivables is $1,457,000 (2012: $900,000).
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provisions recognised
Receivables written off during the year as uncollectable
Closing balance
CONSOLIDATED
2013
$’000
382
847
1,229
2012
$’000
144
608
752
CONSOLIDATED
2013
$’000
752
477
–
1,229
2012
$’000
771
445
(464)
752
Past due but not impaired
customers with balances past due but without provision for impairment of receivables amount to $2,040,000 as at
30 June 2013 ($2,411,000 as at 30 June 2012).
The consolidated entity did not consider a credit risk on the aggregate balances after reviewing credit terms of
customers based on recent collection practices.
The ageing of the past due but not impaired receivables are as follows:
1 to 3 months overdue
No collateral is held in relation to the above receivables.
CONSOLIDATED
2013
$’000
2,040
2012
$’000
2,411
Virtus Health Annual Report 2013 61
Note 12. Current assets – inventories
Stock on hand – at cost
Note 13. Current assets – income tax refund due
Income tax refund due
Note 14. Current assets – other
Prepayments
Note 15. Non-current assets – investments accounted for using the equity method
Investment in associates
Refer to Note 41 for further information on investments in associates.
CONSOLIDATED
2013
$’000
291
2012
$’000
–
CONSOLIDATED
2013
$’000
1,084
2012
$’000
–
CONSOLIDATED
2013
$’000
1,061
2012
$’000
1,138
CONSOLIDATED
2013
$’000
1,514
2012
$’000
3,913
62 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 16. Non-current assets – property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
Office equipment – at cost
Less: Accumulated depreciation
Medical equipment – at cost
Less: Accumulated depreciation
CONSOLIDATED
2013
$’000
27,034
(10,456)
16,578
1,990
(1,990)
–
1,189
(621)
568
2,624
(1,895)
729
16,044
(7,340)
8,704
26,579
2012
$’000
21,621
(8,374)
13,247
1,990
(1,990)
–
1,173
(369)
804
2,373
(1,422)
951
12,295
(4,701)
7,594
22,596
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Consolidated
Balance at 1 July 2011
Additions
Additions through business combinations (Note 39)
disposals
depreciation expense
Balance at 30 June 2012
Additions
Additions through business combinations (Note 39)
disposals
depreciation expense
Balance at 30 June 2013
Leasehold
improvements
$’000
plant and
equipment
$’000
Furniture
and fittings
$’000
Office
equipment
$’000
Medical
equipment
$’000
13,996
2,196
38
–
346
–
–
–
199
772
–
–
743
799
8
(96)
4,875
3,856
498
(8)
Total
$’000
20,159
7,623
544
(104)
(2,983)
(346)
(167)
(503)
(1,627)
(5,626)
13,247
6,244
99
(187)
(2,825)
16,578
–
–
–
–
–
–
804
141
–
(86)
(291)
568
951
188
31
(41)
(400)
729
7,594
3,350
402
(214)
(2,428)
8,704
22,596
9,923
532
(528)
(5,944)
26,579
Property, plant and equipment secured under finance leases
Refer to Note 36 for further information on property, plant and equipment secured under finance leases.
Virtus Health Annual Report 2013 63
Note 17. Non-current assets – intangibles
Goodwill – at cost
Software – at cost
Less: Accumulated amortisation
Brand names – at cost
Less: Accumulated amortisation
CONSOLIDATED
2013
$’000
319,029
319,029
10,943
(9,950)
993
9,095
(4,057)
5,038
2012
$’000
304,357
304,357
9,972
(7,759)
2,213
9,095
(3,136)
5,959
325,060
312,529
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Consolidated
Balance at 1 July 2011
Additions
Additions through business combinations (Note 39)
Amortisation expense
Balance at 30 June 2012
Additions
Additions through business combinations (Note 39)
Amortisation expense
Balance at 30 June 2013
Goodwill
$’000
Software
$’000
Brand
names
$’000
Total
$’000
299,196
3,751
6,869
309,816
–
5,161
–
304,357
–
14,672
–
319,029
898
–
(2,436)
2,213
660
–
(1,880)
993
–
–
(910)
5,959
–
–
(921)
5,038
898
5,161
(3,346)
312,529
660
14,672
(2,801)
325,060
Impairment tests for goodwill
Goodwill is allocated to the group’s cash generating units (‘cGus’) identified according to operating segment:
New South Wales
Victoria
Queensland
64 Virtus Health Annual Report 2013
CONSOLIDATED
2013
$’000
114,881
124,904
79,244
2012
$’000
100,209
124,904
79,244
319,029
304,357
NOTES TO THE FINANCIAL STATEMENTS (continued)
The recoverable amount of a cGu is determined based on value in use calculations. These calculations use cash flow
projections based on financial budgets approved by management covering a one year period. cash flows beyond the
one year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the
long term average growth rate for the business.
key assumptions used for value in use calculations
Long term growth rate
New South Wales – 4% (2012: 3%)
Victoria – 4% (2012: 3%)
Queensland – 4% (2012: 3%)
Pre-tax discount rate
New South Wales – 12% (2012: 16%)
Victoria – 12% (2012: 16%)
Queensland – 12% (2012: 16%)
These assumptions have been used for the analysis of each cGu within the business segment. The equity rates of return
and therefore discount rates reflect specific risks relating to the relevant segments. In performing the value-in-use
calculations for each cGu, the consolidated entity has applied post tax discount rates to discount the forecast future
attributable post-tax cash flows. The equivalent pre-tax discount rates are disclosed above.
Impact of possible changes in assumptions
A reasonable possible change in assumptions would not cause the carrying amount of each cGu to exceed its
recoverable amount.
Note 18. Non-current assets – deferred tax
Deferred tax assets comprise temporary differences attributable to:
Amounts recognised in profit or loss:
Impairment of receivables
Property, plant and equipment
Employee benefits
Provision for lease make good
Accrued expenses
Financial derivatives
Intangible assets
Other
Amounts recognised in equity:
Transaction costs on share issue
deferred tax assets
deferred tax assets to be recovered within 12 months
deferred tax assets to be recovered after more than 12 months
CONSOLIDATED
2013
$’000
2012
$’000
349
(759)
2,177
795
660
–
(1,512)
3,280
4,990
1,887
6,877
2,692
4,185
6,877
226
(722)
1,837
703
591
965
(1,788)
1,517
3,329
–
3,329
817
2,512
3,329
Virtus Health Annual Report 2013 65
Note 18. Non-current assets – deferred tax (continued)
Movements:
Opening balance
credited to profit or loss (Note 9)
credited to equity
Additions through business combinations (Note 39)
Closing balance
Note 19. Non-current assets – other
Security deposits
Note 20. Current liabilities – trade and other payables
Trade payables
Other payables
Refer to Note 32 for further information on financial instruments.
Note 21. Current liabilities – borrowings
Bank loans
Lease liability
CONSOLIDATED
2013
$’000
3,329
1,661
1,887
–
6,877
2012
$’000
1,426
1,884
–
19
3,329
CONSOLIDATED
2013
$’000
235
2012
$’000
241
CONSOLIDATED
2013
$’000
6,524
10,961
17,485
2012
$’000
5,765
9,685
15,450
CONSOLIDATED
2013
$’000
–
138
138
2012
$’000
14,000
240
14,240
Refer to Note 25 for further information on assets pledged as security and financing arrangements and Note 32 for
further information on financial instruments.
66 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 22. Current liabilities – income tax
Provision for income tax
Note 23. Current liabilities – provisions
Employee benefits
Amounts not expected to be settled within the next 12 months
CONSOLIDATED
2013
$’000
–
2012
$’000
5,320
CONSOLIDATED
2013
$’000
2,040
2012
$’000
1,561
The current provision for long service leave includes all unconditional entitlements where employees have completed
the required period of service and also those where employees are entitled to pro-rata payments in certain
circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional
right to defer settlement. However, based on past experience, the consolidated entity does not expect all employees to
take the full amount of accrued long service leave or require payment within the next 12 months.
The following amounts reflect leave that is not expected to be taken within the next 12 months:
Long service leave obligation expected to be settled after 12 months
Note 24. Current liabilities – other
deferred revenue
Note 25. Non-current liabilities – borrowings
Bank loans
Lease liability
Refer to Note 32 for further information on financial instruments.
CONSOLIDATED
2013
$’000
1,460
2012
$’000
1,117
CONSOLIDATED
2013
$’000
3,157
2012
$’000
3,973
CONSOLIDATED
2013
$’000
2012
$’000
143,879
88,943
179
324
144,058
89,267
Virtus Health Annual Report 2013 67
Note 25. Non-current liabilities – borrowings (continued)
Bank loans
Subsequent to 30 June 2013, IVF Finance Pty Limited, a subsidiary of Virtus Health Limited, entered into a cashflow hedge
locking in $50,000,000 of borrowings at BBSW + 2.915%. Bank loans consist of $145,000,000 (includes $5,000,000 working
capital) borrowed netted with capitalised borrowing costs of $1,121,000.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Bank loans
Lease liability
CONSOLIDATED
2013
$’000
2012
$’000
143,879
102,943
317
564
144,196
103,507
Assets pledged as security
The bank loans are secured by guarantees by all group companies and fixed and floating charges over the
consolidated entity’s assets.
The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial
position, revert to the lessor in the event of default.
The assets of city West Specialist day Hospital Pty Ltd and Obstetrics & Gynaecological Imaging Australia Pty Limited
(2012: city East Specialist day Hospital Pty Ltd, city West Specialist day Hospital Pty Ltd and Obstetrics & Gynaecological
Imaging Australia Pty Limited) are excluded from the assets pledged as security. However the shares representing the
50% interest are included in the charges over the consolidated entity.
The carrying amounts of assets pledged as security for current and non-current borrowings are:
CONSOLIDATED
2013
$’000
12,485
10,278
291
1,084
1,061
1,514
2012
$’000
9,439
8,475
–
–
1,138
3,913
26,579
22,596
6,031
6,877
235
8,172
3,329
241
66,435
57,303
cash and cash equivalents
Receivables
Inventories
Income tax refund due
Other current assets
Investments
Plant and equipment
Intangible assets (excluding goodwill)
deferred tax assets
Other financial assets
68 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Financing arrangements
unrestricted access was available at the reporting date to the following lines of credit:
Total facilities
Bank loans*
Working capital facilities*
used at the reporting date
Bank loans*
Working capital facilities*
unused at the reporting date
Bank loans*
Working capital facilities*
CONSOLIDATED
2013
$’000
2012
$’000
140,000
106,061
15,000
5,000
155,000
111,061
140,000
102,943
9,351
3,653
149,351
106,596
–
5,649
5,649
3,118
1,347
4,465
* credit facilities expire in June 2016 apart from $5,000,000 which expires on 31 december 2013.
The company and consolidated entity has complied with the financial covenants of its borrowing liabilities during the
financial year ended 30 June 2013 and 30 June 2012.
Working capital facilities utilised consist of $5,000,000 of borrowings plus $4,351,000 of bank guarantees.
As at 31 december 2013, working capital facilities will reduce from $15,000,000 to $10,000,000 and all working capital
facilities utilised in excess of that amount will be settled.
Note 26. Non-current liabilities – derivative financial instruments
Interest rate swap contracts – cash flow hedges
Refer to Note 32 for further information on financial instruments.
CONSOLIDATED
2013
$’000
–
2012
$’000
3,217
Virtus Health Annual Report 2013 69
Note 27. Non-current liabilities – provisions
Employee benefits
Lease make good
CONSOLIDATED
2013
$’000
1,349
2,648
3,997
2012
$’000
1,296
2,345
3,641
Lease make good
The provision represents the present value of the estimated costs to make good the premises leased by the
consolidated entity at the end of the respective lease terms. A provision has been recognised for the present value of
the estimated expenditure required to remove certain leasehold improvements. The provision will be utilised at the end
of the leases if they are not renewed. The estimated future cash outflow required to settle the obligation is discounted
at 3.82% (2012: 3.04%) per annum. These costs have been capitalised as part of the cost of leasehold improvements
and are amortised over the shorter of the term of the lease or the useful life of the assets.
Movements in provisions
Movements in each class of provision during the current financial year, other than employee benefits, are set out below:
Consolidated – 2013
carrying amount at the start of the year
Additional provisions recognised
Amounts used
change in provision from re-measurement
unwinding of discount
Carrying amount at the end of the year
Lease make good
$’000
2,345
582
(209)
(140)
70
2,648
70 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 28. Equity – issued capital
Ordinary shares – fully paid
79,536,601
53,644,738
231,981
184,815
CONSOLIDATED
CONSOLIDATED
2013
Shares
2012
Shares
2013
$’000
2012
$’000
Movements in ordinary share capital
Details
Balance
Shares issued – acquisition consideration
Shares issued – acquisition consideration
Balance
Subscription for new shares*
capital return
Shares issued – exercise of 2012 options
Shares issued – Initial Public Offering
call in arrears paid*
Shares issued as part of cancellation/exercise of options****
Option adjustment payment**
Share issue transaction costs (net of tax)
Balance***
Date
1 July 2011
28 July 2011
23 May 2012
30 June 2012
17 August 2012
7 September 2012
29 November 2012
11 June 2013
11 June 2013
11 June 2013
11 June 2013
11 June 2013
30 June 2013
No of shares
Issue price
$’000
53,324,938
212,315
107,485
53,644,738
2,250,000
–
2
22,322,396
–
1,319,465
–
–
79,536,601
$4.71
$4.71
$0.91
$0.99
$4.71
$5.68
$0.26
$5.68
–
–
183,309
1,000
506
184,815
2,036
(55,336)
–
126,791
1,618
7,494
(31,033)
(4,404)
231,981
Shares were issued at $4.71 per share and are partly paid. An additional payment of 25.73 cents per share was made against these partly paid shares on 11 June 2013.
*
** Option adjustment payments were paid to option holders in lieu of receiving shares, dividends and capital returns that were paid to ordinary shareholders prior to
the initial public offering. As at the date of payment, all options had fully vested and were convertible to shares.
*** All shares on issue are fully paid apart from 2,250,000 shares which are partly paid. The 2,250,000 shares were issued at $4.71 per share and are paid up to the extent
of $1.17 per share at 30 June 2013.
**** Options were cancelled or exercised on net value as part of an aggregate transaction to establish an aggregate value of shares and options at the time of the
Initial Public Offering. Shares were not specifically issued against specific options exercised.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and
the company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share shall have one vote.
Share buy-back
There is no current on-market share buy-back.
Capital risk management
The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern,
so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as
value adding relative to the current parent entity’s share price at the time of the investment.
Virtus Health Annual Report 2013 71
Note 29. Equity – reserves
Share-based payments reserve
Consolidated
Balance at 1 July 2011
Option expense
Balance at 30 June 2012
Option expense
Balance at 30 June 2013
CONSOLIDATED
2013
$’000
10,186
Share-based
payments
$’000
2,743
516
3,259
6,927
2012
$’000
3,259
Total
$’000
2,743
516
3,259
6,927
10,186
10,186
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their
remuneration, and fertility specialists as part of their performance incentives.
Note 30. Equity – retained profits/(accumulated losses)
Retained profits at the beginning of the financial year
Profit after income tax expense for the year
dividends paid (Note 31)
Retained profits/(accumulated losses) at the end of the financial year
CONSOLIDATED
2013
$’000
36,917
10,104
(74,599)
(27,578)
2012
$’000
17,257
19,660
–
36,917
72 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued)
Note 31. Equity – dividends
Dividends
Interim ordinary dividend of 51.5 cents per fully paid share paid in June 2013
Interim ordinary dividend of 82.0 cents per fully paid ordinary share paid in August 2012
No final dividend has been declared.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
CONSOLIDATED
2013
$’000
28,765
45,834
74,599
2012
$’000
–
–
–
CONSOLIDATED
2013
$’000
920
2012
$’000
32,079
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Note 32. Financial instruments
Financial risk management objectives
The consolidated entity’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The
consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses
derivative financial instruments such as interest rate swaps to hedge certain risk exposures. derivatives are exclusively
used for hedging purposes, i.e. not as trading or other speculative instruments. The consolidated entity uses different
methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of
interest rate, foreign exchange and other price risks, ageing analysis for credit risk.
Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of
directors (‘the Board’). These policies include identification and analysis of the risk exposure of the consolidated entity
and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the
consolidated entity. Finance reports to the Board on a monthly basis.
Market risk
Foreign currency risk
The consolidated entity is not exposed to any significant foreign currency risk.
Price risk
The consolidated entity is exposed to changes in commonwealth Government funding for the healthcare services the
consolidated entity provides which may impact patient out-of-pocket expenses and thus demand.
Interest rate risk
The consolidated entity’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates
expose the consolidated entity to interest rate risk. Borrowings issued at fixed rates expose the consolidated entity to fair
value interest rate risk. The policy is to maintain approximately 30% of borrowings at fixed rate using interest rate swaps to
achieve this when necessary.
Virtus Health Annual Report 2013 73
Note 32. Financial instruments (continued)
As at the reporting date, the consolidated entity had the following variable rate borrowings and interest rate swap
contracts outstanding:
Consolidated
Bank loans
Interest rate cap
Interest rate swaps (notional principal amount)
Net exposure to cash flow interest rate risk
2013
2012
Weighted
average
interest rate
%
Weighted
average
interest rate
%
Balance
$’000
4.93
143,879
–
–
–
–
143,879
8.10
7.86
6.36
Balance
$’000
102,943
(6,435)
(60,183)
36,325
Subsequent to the year end the consolidated entity entered into an interest rate swap contract hedging $50,000,000 of
its borrowings.
An analysis by remaining contractual maturities is shown in the ‘liquidity and interest rate risk management’ section below.
Consolidated – 2013
Bank loans
Consolidated – 2012
Bank loans
BASIS pOINTS INCREASE
BASIS pOINTS DECREASE
Basis points
change
Effect on profit
after tax
Effect on
equity
Basis points
change
Effect on profit
after tax
Effect on
equity
100
($1,007,300)
($1,007,300)
(100)
$1,007,300
$1,007,300
100
($721,601)
($721,601)
(100 )
$721,601
$721,601
Credit risk
credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
consolidated entity. The maximum exposure to credit risk at the reporting date to recognised financial assets is the
carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position
and notes to the financial statements. The consolidated entity does not hold any collateral.
Receivables balances and ageing analysis are monitored on an on-going basis. In order to minimise the consolidated
entity’s exposure to bad debts, processes are in place to send reminder notices, demands for repayment and ultimately
to refer to debt collection agencies.
Liquidity risk
Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and
cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and
payable.
The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by
continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
74 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Financing arrangements
unused borrowing facilities at the reporting date:
Bank loans
Working capital facilities
CONSOLIDATED
2013
$’000
–
5,649
5,649
2012
$’000
3,118
1,347
4,465
Remaining contractual maturities
The following tables detail the consolidated entity’s remaining contractual maturity for its financial instrument liabilities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest
date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows
disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the
statement of financial position.
Weighted
average
interest rate
%
1 year or less
$’000
Between
1 and 2 years
$’000
Between
2 and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
Consolidated – 2013
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing – variable rate
Bank loans
Lease liability
Total non-derivatives
Consolidated – 2012
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing – variable rate
Bank loans
Lease liability
Total non-derivatives
Derivatives
Interest rate swaps net settled
Total derivatives
–
–
4.93
8.15
–
–
8.10
8.15
–
6,524
10,961
7,148
138
24,771
–
–
7,148
217
7,365
–
–
151,776
–
151,776
5,765
9,685
–
–
22,320
104,354
285
166
38,055
104,520
–
–
3,217
3,217
–
–
–
188
188
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,524
10,961
166,072
355
183,912
5,765
9,685
126,674
639
142,763
3,217
3,217
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually
disclosed above.
Virtus Health Annual Report 2013 75
Note 32. Financial instruments (continued)
Fair value of financial instruments
The following tables detail the consolidated entity’s fair values of financial instruments categorised by the following levels:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
CONSOLIDATED 2012
Liabilities
derivative financial liabilities
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
–
–
3,217
3,217
–
–
Total
$’000
3,217
3,217
There were no transfers between levels during the financial year.
There were no derivative financial assets or liabilities as at 30 June 2013.
unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of
trade receivables and trade payables are assumed to approximate their fair values due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market
interest rate that is available for similar financial instruments.
Note 33. key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the
consolidated entity is set out below:
CONSOLIDATED
2013
$
2012
$
2,346,164
2,025,328
136,671
134,051
24,282
94,210
154,456
105,569
2,661,573
2,359,158
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
76 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Shareholding
The number of shares in the parent entity held during the financial year by each director and other members of key
management personnel of the consolidated entity, including their personally related parties, is set out below:
2013
Ordinary shares
Peter Macourt
Susan channon
dennis O'Neill
Lyndon Hale
Peter Turner
Frank Quinn*
John Esler*
John McBain*
John Moller
Keith Harrison*
Manuela Toledo*
Michael chapman*
Glenn Powers
david Molloy
Peter Illingworth
Balance at
the start of
the year
Received
as part of
remuneration
Additions
Disposals/
other
Balance at
the end of
the year
–
529,146
–
1,224,173
–
1,127,702
509,830
1,632,231
219,984
415,983
778,620
915,436
–
667,900
287,847
8,308,852
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,485
28,846
50,000
34,599
50,000
–
18,485
(109,359)
448,633
–
50,000
(435,078)
823,694
–
50,000
3,692
(1,131,394)
–
(509,830)
50,727
(1,682,958)
–
–
(219,984)
(415,983)
45,003
(823,623)
–
(915,436)
114,150
–
–
(267,272)
366,176
–
–
–
–
–
–
–
–
114,150
400,628
654,023
761,678
(6,510,917)
2,559,613
* disposals/other includes disposals and removal of shareholding from listing as no longer key management personnel at 30 June 2013.
2012
Ordinary shares
Susan channon
Lyndon Hale
Frank Quinn
John Esler
John McBain
John Moller
Keith Harrison
Manuela Toledo
Michael chapman
david Molloy
Peter Illingworth
Balance at
the start of
the year
Received
as part of
remuneration
Additions
Disposals/
other
Balance at
the end of
the year
529,146
1,224,173
1,127,702
509,830
1,632,231
219,984
415,983
778,620
915,436
667,900
287,847
8,308,852
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
529,146
1,224,173
1,127,702
509,830
1,632,231
219,984
415,983
778,620
915,436
667,900
287,847
8,308,852
Virtus Health Annual Report 2013 77
Note 33. key management personnel disclosures (continued)
Option holding
The number of options over ordinary shares in the parent entity held during the financial year by each director and
other members of key management personnel of the consolidated entity, including their personally related parties, is
set out below:
2013
Options over ordinary shares
Susan channon
Andrew Othen
John Moller
Michael chapman
Frank Quinn
Glenn Powers
Peter Illingworth
Balance at
the start of
the year
Granted
Exercised/
cancelled
Expired/
forfeited/
other
Balance at
the end of
the year
202,133
127,389
241,491
87,500
357,500
312,527
457,150
262,500
(202,133)
135,397
(262,786)
(241,491)
(87,500)
–
–
–
(341,166)
(16,334)
–
–
–
–
262,500
–
–
–
–
150,000
(312,527)
50,000
(507,150)
–
–
150,000
–
2013
No options on issue at 30 June 2013 are vested and exercisable.
1,785,690
597,897
(1,954,753)
(16,334)
412,500
Balance at
the start of
the year
Granted
Exercised/
cancelled
Expired/
forfeited/
other
Balance at
the end of
the year
202,133
127,389
241,491
87,500
357,500
312,527
457,150
1,785,690
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Vested and
exercisable
Vested and
unexercisable
95,976
160,994
87,500
107,500
208,351
83,888
744,209
–
–
–
–
–
–
–
202,133
127,389
241,491
87,500
357,500
312,527
457,150
1,785,690
Vested at
the end of
the year
95,976
160,994
87,500
107,500
208,351
83,888
744,209
2012
Options over ordinary shares
Susan channon
Andrew Othen
John Moller
Michael chapman
Frank Quinn
Glenn Powers
Peter Illingworth
2012
Options over ordinary shares
Susan channon
John Moller
Michael chapman
Frank Quinn
Glenn Powers
Peter Illingworth
Related party transactions
Related party transactions are set out in Note 37.
78 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 34. Remuneration of auditors
during the financial year the following fees were paid or payable for services provided by Pricewaterhousecoopers, the
auditor of the company:
Audit services – pricewaterhouseCoopers
Audit or review of the financial statements
Other services – pricewaterhouseCoopers
Tax compliance services
Advisory and tax fees for Initial Public Offering, refinancing and trade sale considerations
CONSOLIDATED
2013
$
2012
$
470,750
485,000
78,150
1,667,065
1,745,215
82,250
610,000
692,250
2,215,965
1,177,250
It is the consolidated entity’s policy to utilise appropriate accounting and consulting resource for other services which
may include tax advice and due diligence reporting on acquisitions, and it is the consolidated entity’s policy to seek
competitive tenders for such assignments as appropriate.
Note 35. Contingent liabilities
Claims
The consolidated entity is currently involved in litigations which may result in future liabilities and legal fees up to an
insurance excess of $100,000. The consolidated entity has disclaimed liability and is defending the actions. It is not
practical to estimate the potential effect of these claims but advice indicates that any liability that may arise in the
unlikely event that the claims are successful will not be significant and will be covered by the consolidated entity’s
insurance policies.
Guarantees
drawdowns of $4,351,000 in the form of financial guarantees have been made against the working capital facility.
Subject to the continued compliance with debt covenants, the bank facilities may be drawn at any time and have
an average maturity of 3 years (2012: 2 years).
Virtus Health Annual Report 2013 79
Note 36. Commitments
Capital commitments
committed at the reporting date but not recognised as liabilities, payable:
Property, plant and equipment
Lease commitments – operating
committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Lease commitments – finance
committed at the reporting date and recognised as liabilities, payable:
Within one year
One to five years
Total commitment
Less: Future finance charges
Net commitment recognised as liabilities
Representing:
Lease liability – current (Note 21)
Lease liability – non-current (Note 25)
CONSOLIDATED
2013
$’000
2012
$’000
358
236
7,599
17,902
7,922
33,423
5,559
12,761
1,600
19,920
138
217
355
(38)
317
138
179
317
285
354
639
(75)
564
240
324
564
Operating lease commitments includes contracted amounts for various offices and medical centres under non-
cancellable operating leases expiring within 2 to 8 years with, in some cases, options to extend. The leases have various
escalation clauses. On renewal, the terms of the leases are renegotiated. Excess office space is sub-let to third parties
also under non-cancellable operating leases. These leases have future minimum lease payments expected to be
received in relation to non-cancellable sub-leases of operating leases of $983,778 (2012: $126,547).
Finance lease commitments includes contracted amounts for various plant and equipment with a written down value of $nil
(30 June 2012: $564,000) under finance leases expiring within 1 to 4 years. under the terms of the leases, the consolidated
entity has the option to acquire the leased assets for predetermined residual values on the expiry of the leases.
Note 37. Related party transactions
Parent entity
Virtus Health Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 40.
Associates
Interests in associates are set out in Note 41.
Key management personnel
disclosures relating to key management personnel are set out in Note 33 and the remuneration report in the directors’
report.
80 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Transactions with related parties
The following transactions occurred with related parties:
Sale of goods and services:
Rental income
Other transactions:
Fees paid to related party for services to the Board of the ultimate Australian parent entity
Rental expense in respect of property at St George Private Hospital, Kogarahi
Rental expense in respect of property at 9 Scott Street, Toowoombaii
Rental expense in respect of property at 225 Wickham Terrace, Brisbaneiii
Provider feesiv
Share-based paymentsv
Quadrant Private Equity Pty Limitedvi
CONSOLIDATED
2013
$
2012
$
136,992
159,955
50,000
50,000
164,840
171,434
61,490
8,640
59,124
26,640
5,538,583
5,978,202
141,749
988,352
83,331
829,764
i. A director, Michael chapman, is a director and shareholder of Bridgemyth Pty Limited. IVF Australia Pty Limited renewed its contract with Bridgemyth Pty Limited
to rent property at St George Private Hospital, Kogarah from 1 July 2010. The contract is based on normal commercial terms and conditions.
ii. A director, John Esler, is a director and shareholder of dendeen Pty Limited. Queensland Fertility Group Pty Limited entered into a contract with dendeen Pty Limited
to rent property at 9 Scott Street, Toowoomba commencing 1 August 2007. The contract is based on normal commercial terms and conditions.
iii. A director, Keith Harrison is a director and shareholder of Keith Harrison Pty Limited. Queensland Fertility Group Pty Limited entered into a contract with Keith Harrison
Pty Limited to rent property at 225 Wickham Terrace, Brisbane commencing 1 September 2008. The contract is based on normal commercial terms and conditions.
iv. The following key management personnel received provider fees for IVF services delivered to patients: John McBain, Manuela Toledo, Lyndon Hale, John Esler,
david Molloy, Michael chapman, Frank Quinn and Peter Illingworth.
v. The following key management personnel received share-based payments: John McBain, Manuela Toledo, Lyndon Hale, John Esler, david Molloy, Michael
chapman, Frank Quinn and Peter Illingworth.
vi. Quadrant Private Equity Pty Limited, a related party through common directorship, incurred costs resulting from an aborted trade sale process which were
subsequently reimbursed by Virtus Health Limited.
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Current receivables:
Trade receivables from associate
Other receivables
Current payables:
Trade payables to associate
Other payables
distributions received in advance from associate
CONSOLIDATED
2013
$
2012
$
780,179
580,731
15,968
24,682
–
26,640
567,347
548,591
–
81,726
Loans to/from related parties
Virtus Health Limited is responsible for the consolidated entity’s strategy and raising equity capital. IVF Finance Pty Limited
is responsible for debt finance and making acquisitions on behalf of the consolidated entity. IVF Australia Pty Limited,
The Heptarchy Trust, Queensland Fertility Group Pty Limited and North Shore Specialist day Surgery Pty Limited employ
the medical and other staff including certain directors. The proceeds of any issue of shares by Virtus Health Limited are
passed to IVF Finance Pty Limited as an interest free loan. IVF Finance Pty Limited uses the funds for acquisitions and to
repay debt.
Terms and conditions
All transactions with related parties outside of the consolidated entity were made on normal commercial terms and
conditions and at market rates.
Virtus Health Annual Report 2013 81
Note 38. parent entity information
Set out below is the supplementary information about the parent entity.
Statement of comprehensive income
Profit/(loss) after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share-based payments reserve
Retained profits/(accumulated losses)
Total equity
CONSOLIDATED
2013
$’000
2012
$’000
125,387
125,387
(2,577)
(2,577)
3,632
824
264,167
192,618
1,568
1,684
13,256
13,256
262,483
179,362
231,981
184,815
6,640
23,862
2,891
(8,344)
262,483
179,362
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2012.
The parent entity is party to a deed of cross guarantee at 30 June 2013 along with certain subsidiaries it controls. details
of the deed are provided in Note 42.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2013 and 30 June 2012.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2013 and 30 June 2012.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in Note 1,
except for the following:
• Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Investments in associates are accounted for at cost, less any impairment, in the parent entity.
• dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an
indicator of an impairment of the investment.
82 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 39. Business combinations
Maroubra Day Surgery Pty Ltd (now known as City East Specialist Day Hospital Pty Ltd)
On 7 August 2012, Virtus Health Limited acquired the remaining 50% of the ordinary shares of Maroubra day Surgery
Pty Ltd (now known as city East Specialist day Hospital Pty Ltd) for the total consideration of $8,103,000. The goodwill of
$14,672,000 represents the assembled workforce and location of Maroubra day Surgery Pty Ltd. The acquired business
contributed revenues of $6,612,000 and profit before tax of $1,399,000 to the consolidated entity for the period from
7 August 2012 to 30 June 2013. If the acquisition occurred on 1 July 2012, the full year contributions would have been
revenues of $6,966,000 and profit before tax of $1,380,000. These amounts have been calculated using the consolidated
entity’s accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and
amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment
and intangible assets had applied from 1 July 2012, together with the consequential tax effects. The values identified
in relation to the acquisition of Maroubra day Surgery Pty Ltd are final as at 30 June 2013.
details of the acquisition are as follows:
cash and cash equivalents
Trade receivables
Inventories
Other current assets
Plant and equipment
Goodwill
Trade payables
Other provisions
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
cash paid to vendor
Amounts owed by associate
Fair value of initial 50% interest
cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
Less: cash and cash equivalents acquired
Less: fair value of initial 50% interest
Net cash used
Acquiree’s
carrying amount
$’000
Fair value
$’000
813
1,004
252
–
532
1,260
(587)
(310)
2,964
813
1,004
–
82
532
–
(587)
(310)
1,534
14,672
16,206
8,021
82
8,103
16,206
CONSOLIDATED
2013
$’000
2012
$’000
16,206
(813)
(8,103)
7,290
–
–
–
–
Virtus Health Annual Report 2013 83
Note 39. Business combinations (continued)
Queensland Fertility Group Gold Coast Pty Ltd and its subsidiary Gold Coast Obstetrics & Gynaecology Specialist Services Pty
Limited (comparative period)
On 29 July 2011, Virtus Health Limited, through its wholly-owned subsidiary Queensland Fertility Group Pty Ltd, acquired
100% of the ordinary shares of Queensland Fertility Group Gold coast Pty Ltd and its subsidiary Gold coast Obstetrics
& Gynaecology Specialist Services Pty Ltd (‘Fertility Gold coast’) for the total consideration transferred of $5,063,000.
The values identified in relation to the acquisition of Fertility Gold coast are final.
details of the acquisition are as follows:
Acquiree’s
carrying amount
$’000
Fair value
$’000
86
100
170
19
(104)
(49)
(54)
(57)
111
86
100
170
19
(104)
(49)
(54)
(57)
111
4,952
5,063
3,557
1,506
5,063
CONSOLIDATED
2013
$’000
–
–
–
2012
$’000
3,557
(86)
3,471
cash and cash equivalents
Trade receivables
Plant and equipment
deferred tax assets
Trade payables
Employee benefits
Other provisions
deferred revenue
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
cash paid to vendor
Fair value of equity instruments issued
cash used to acquire business, net of cash acquired:
cash paid to vendor
Less: cash and cash equivalents acquired
Net cash used
84 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Mackay Specialist Day Hospital Pty Limited (comparative period)
On 31 January 2012, Virtus Health Limited, through its wholly-owned subsidiary Queensland Fertility Group Pty Limited,
acquired 100% of the ordinary shares of Mackay Specialist day Hospital Pty Limited for the total consideration transferred
of $564,000. The values identified in relation to the acquisition of Mackay Specialist day Hospital Pty Limited are final.
details of the acquisition are as follows:
Plant and equipment
Other liabilities
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
cash paid to vendor
cash used to acquire business, net of cash acquired:
cash paid to vendor
Net cash used
Acquiree’s
carrying amount
$’000
Fair value
$’000
374
(19)
355
374
(19)
355
209
564
564
CONSOLIDATED
2013
$’000
2012
$’000
–
–
564
564
Virtus Health Annual Report 2013 85
Note 40. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in Note 1:
EqUITY HOLDING
Name of entity
IVF Finance Pty Limited
IVFA Sub-Holdings Pty Ltd
IVF Australia Pty Ltd
Melbourne IVF Holdings Pty Ltd
Melbourne I.V.F. Pty. Ltd.
The Heptarchy Trust
North Shore Specialist day Hospital Pty Ltd
Queensland Fertility Group Pty. Ltd.
IVF Australia Plan Management Pty Ltd
North Shore A.R.T. Pty. Ltd.
IVF Australia Participants Pty Ltd
IVF South Pty Limited
city West IVF Pty Ltd
Spring Hill Specialist day Hospital Pty Limited
The QFG day Theatres unit Trust
Hunter Fertility Pty. Limited
Hunter IVF Pty. Limited
Hunter Fertility unit Trust
Bremiera Pty Limited
Queensland Fertility Group Gold coast Pty Ltd
Gold coast Obstetrics & Gynaecology Specialist Services Pty Ltd
Mackay Specialist day Hospital Pty Limited
Maroubra day Surgery Trust
city East Specialist day Hospital Pty Ltd*
Virtus Health Singapore Pte Ltd
* Formerly known as Maroubra day Surgery Pty Ltd, name changed on 3 August 2012.
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
2013
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
2012
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
50.0
50.0
–
86 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 41. Investments in associates
Interests in associates are accounted for using the equity method of accounting. Information relating to associates is set
out below:
Associate
principal activities
city East Specialist day Hospital Pty Ltd*
Provision of medical services
Obstetrics & Gynaecological Imaging Australia Pty Limited
Provision of medical services
city West Specialist day Hospital Pty Ltd
Provision of medical services
CONSOLIDATED
pERCENTAGE INTEREST
2012
%
2013
%
–
50.0
50.0
50.0
50.0
50.0
* during the financial year the consolidated entity acquired the remaining 50% of city East Specialist day Hospital Pty Ltd, and is now consolidated. Refer to Note 39.
Information relating to the associates is set out below.
Share of assets and liabilities
current assets
Non-current assets
Total assets
current liabilities
Total liabilities
Net assets
Share of revenue, expenses and results
Revenue
Expenses
profit before income tax
CONSOLIDATED
2013
$’000
341
1,781
2,122
608
608
1,514
2,480
(2,198)
282
2012
$’000
2,562
2,543
5,105
1,192
1,192
3,913
6,335
(4,899)
1,436
Virtus Health Annual Report 2013 87
Note 42. Deed of cross guarantee
The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others:
• Virtus Health Limited
• IVF Finance Pty Limited
• IVFA Sub-Holdings Pty Ltd
• IVF Australia Pty Ltd
• Melbourne IVF Holdings Pty Ltd
• Queensland Fertility Group Pty. Ltd.
By entering into the deed on 25 June 2013, the wholly-owned entities have been relieved from the requirement to
prepare a financial report and directors’ report under class Order 98/1418 (as amended) issued by the Australian
Securities and Investments commission (‘ASIc’).
The above companies represent a ‘closed Group’ for the purposes of the class Order, and as there are no other parties to
the deed of cross Guarantee that are controlled by Virtus Health Limited, they also represent the ‘Extended closed Group’.
Set out below is a consolidated statement of comprehensive income and statement of financial position of the
‘closed Group’.
Statement of comprehensive income
Revenue
Share of profits of associates accounted for using the equity method
Trust distributions received
Other income
Fertility specialists, consumables and associated costs
Employee benefits expense
depreciation and amortisation expense
Occupancy expense
Advertising and marketing
Practice equipment expenses
Professional and consulting fees
Initial Public Offering transaction costs
Other expenses
Finance costs
profit before income tax expense
Income tax expense
profit after income tax expense
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
88 Virtus Health Annual Report 2013
2013
$’000
93,949
282
21,498
5,528
(31,002)
(28,587)
(4,686)
(4,628)
(1,936)
(635)
(1,472)
(10,651)
(4,626)
(20,635)
12,399
(3,682)
8,717
–
8,717
2012
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
NOTES TO THE FINANCIAL STATEMENTS (continued)
Equity – accumulated losses
Retained profits at the beginning of the financial year
Profit after income tax expense
dividends paid
Accumulated losses at the end of the financial year
Statement of financial position
Current assets
cash and cash equivalents
Trade and other receivables
Income tax refund due
Other
Non-current assets
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangibles
deferred tax
Other
Total assets
Current liabilities
Trade and other payables
Provisions
Other
Non-current liabilities
Borrowings
Provisions
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
2013
$’000
2012
$’000
54,671
8,717
(74,599)
(11,211)
–
–
–
–
2013
$’000
2012
$’000
6,877
36,441
1,084
420
44,822
1,514
126,639
13,521
198,973
6,723
235
347,605
392,427
12,011
1,188
2,268
15,467
143,879
2,125
146,004
161,471
230,956
231,981
10,186
(11,211)
230,956
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
comparatives are not disclosed as the consolidated entity only entered into the deed during the current financial year.
Virtus Health Annual Report 2013 89
Note 43. Events after the reporting period
No matter or circumstance has arisen since 30 June 2013 that has significantly affected, or may significantly affect the
consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future
financial years.
Note 44. Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
Adjustments for:
depreciation and amortisation
Net loss on disposal of non-current assets
Net fair value loss on other financial assets
Share of profit – associates
Share-based payments
Amortisation of bank facility fees
Interest on finance lease facility
Net gain on acquisition of associate
Interest income
doutbful debts expense
Other non-cash items
change in operating assets and liabilities:
decrease/(increase) in trade and other receivables
decrease/(increase) in inventories
Increase in deferred tax assets
Increase in trade and other payables
decrease in provision for income tax
Increase in other provisions
Increase/(decrease) in other operating liabilities
Net cash from operating activities
Note 45. Non-cash investing and financing activities
Shares issued in relation to business combinations
CONSOLIDATED
2013
$’000
2012
$’000
10,104
19,660
8,745
326
–
(282)
6,927
5,061
80
5,670
(452)
(477)
(27)
1,394
(291)
(3,548)
1,339
(6,404)
455
(816)
8,972
104
968
(1,436)
516
850
133
–
(433)
(455)
(34)
(867)
120
(1,885)
2,841
(1,602)
1,079
580
27,804
29,111
CONSOLIDATED
2013
$’000
–
2012
$’000
1,506
during the prior year the company issued $1,506,000 of new equity as part of the consideration payment for Queensland
Fertility Group Gold coast Pty Limited.
90 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Note 46. Earnings per share
Profit after income tax attributable to the owners of Virtus Health Limited
Add: interest savings on conversion of options
profit after income tax attributable to the owners of Virtus Health Limited used in calculating diluted
earnings per share
CONSOLIDATED
2013
$’000
10,104
529
2012
$’000
19,660
253
10,633
19,913
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
56,829,522
53,532,170
Adjustments for calculation of diluted earnings per share:
Options over ordinary shares
6,529,017
4,662,539
Weighted average number of ordinary shares used in calculating diluted earnings per share
63,358,539
58,194,709
Basic earnings per share
diluted earnings per share
Note 47. Share-based payments
Cents
17.78
16.78
Cents
36.73
34.22
Virtus Health Limited Executive Option Plan and Specialist Option Plan (‘Virtus Health Limited Share Option Plan’)
The Virtus Health Limited Share Option Plan was adopted by the Board on 11 June 2013. The Virtus Health Limited Share
Option Plan was established to reward, retain and motivate fertility specialists and senior executives. Participation
in the Virtus Health Limited Share Option Plan is at the Board’s discretion and no individual has a contracted right to
participate in the Virtus Health Limited Share Option Plan or to receive any guaranteed benefits. Further details are
provided in the remuneration report.
The Virtus Health Share Option Plan, IVF Australia Restructuring Share Option Plan and Melbourne IVF Restructuring Share
Option Plan were all terminated on 11 June 2013. details of these terminated plans are set out below.
Virtus Health Share Option Plan
The Virtus Health Share Option plan was adopted by the Board on 12 November 2008. The plan was established to
reward, retain and motivate doctors and senior employees through recognition of their abilities, performance and
contributions. This plan has now closed for further option grants. Participation in the plan is at the Board’s discretion and
no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.
Key features of the plan were as follows:
• Options are vested in equal instalments over a 2 to 4 year period, subject to performance conditions.
• Once issued, options remain exercisable for a period of 10 years. Options are granted under the plan at an exercise
price equal to market value at the time of grant. Options granted under the plan carry no dividend or voting rights.
No option holder has any right under the options to participate in any other share issue of the company or any
other entity.
• When exercisable, each option is convertible into one ordinary share.
Virtus Health Annual Report 2013 91
Note 47. Share-based payments (continued)
IVF Australia Restructuring Plan
The IVF Australia Restructuring Share Option plan was adopted by the Board on 10 April 2008. The plan was established
to reward, retain and motivate doctors and senior employees through recognition of their abilities, efforts and
contributions. The plan is now closed for further option grants. Participation in the plan is at the Board’s discretion
and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.
Key features of the plan were as follows:
• Options are vested in equal instalments over a 2 to 4 year period, subject to performance conditions.
• Once issued, options remain exercisable for a period of 10 years. Options are granted under the plan at a various
exercise prices as set out below. Options granted under the plan carry no dividend or voting rights. No option holder
has any right under the options to participate in any other share issue of the company or any other entity.
• When exercisable, each option is convertible into one ordinary share.
Melbourne IVF Restructuring Share Option Plan
The Melbourne IVF Restructuring Share Option plan was adopted by the Board on 13 November 2008. The plan was
established to reward, retain and motivate doctors and senior employees of Melbourne IVF Pty Limited through
recognition of their abilities, efforts and contributions. The plan is now closed for further option grants. under the plan,
participants are granted options under time based and performance based vesting conditions. Participation in the
plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any
guaranteed benefits.
Key features of the plan were as follows:
• Options are vested in equal instalments over a 3 year period, subject to performance conditions.
• Once issued, options remain exercisable for a period of 10 years. Options are granted under the plan for no
consideration. Options granted under the plan carry no dividend or voting rights. No option holder has any right
under the options to participate in any other share issue of the company or any other entity.
• When exercisable, each option is convertible into one ordinary share.
92 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Set out below are summaries of options granted under the various historical plans and current plan:
2013
Grant date
12/11/08
25/02/09
01/07/09
01/10/09
01/07/10
01/09/10
01/07/11
17/08/12
24/08/12
07/10/12
11/06/13
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
20/11/08
Expiry date
12/11/18*
25/02/19*
01/07/19*
01/10/19*
01/07/20*
01/09/20*
01/07/21*
17/08/22*
24/08/22*
07/10/22*
11/06/18
16/02/15**
01/01/16**
14/02/17**
01/01/18**
10/04/18**
10/04/18**
10/04/18**
20/11/18***
Exercise price
Balance at
the start
of the year
Granted
Exercised/
cancelled
Expired/
forfeited/other
Balance at
the end
of the year
$4.12
$4.12
$3.11
$3.11
$4.71
$4.71
$5.17
$4.71
$5.17
$5.17
$5.68
$1.64
$3.15
$3.15
$3.26
$2.98
$2.53
$0.01
$0.00
312,527
44,000
450,000
241,491
327,389
106,157
258,027
–
–
–
–
–
–
–
(312,527)
(44,000)
(450,000)
(241,491)
(327,389)
(106,157)
–
–
–
–
–
–
(200,000)
(58,027)
–
–
–
–
1,650,000
(1,650,000)
450,000
(450,000)
174,082
(174,082)
412,500
–
60,976
183,496
216,075
228,100
9,000
1,550,000
403,536
272,470
–
–
–
–
–
–
–
–
(60,976)
(183,496)
(216,075)
(228,100)
(9,000)
(1,550,000)
(403,536)
(272,470)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
412,500
–
–
–
–
–
–
–
–
4,663,244
2,686,582
(6,879,299)
(58,027)
412,500
Weighted average exercise price
$5.68
Virtus Health Share Option Plan.
IVF Australia Restructuring Plan.
*
**
*** Melbourne IVF Restructuring Share Option Plan.
The options issued on 11 June 2013 of 412,500 relate to the Virtus Health Limited Share Option Plan which is the only plan
in place at 30 June 2013.
The consolidated entity has agreed to issue 450,000 options to fertility specialists and 174,082 options to management as
part of the IPO listing. Rights to these options were confirmed on 11 June 2013, although the options cannot be formally
granted until September 2013. For compliance with AASB 2 ‘Share-based Payment’ it is assumed that 11 June 2013 is the
grant date for these options and the share-based payment cost of $892,437 for these options has been included in the
statement of comprehensive income for the year ended 30 June 2013.
Virtus Health Annual Report 2013 93
Granted
Exercised/
cancelled
Expired/
forfeited/other
Balance at
the start
of the year
312,527
44,000
450,000
241,491
327,389
106,157
–
–
–
–
–
–
–
258,027
60,976
183,496
216,075
228,100
9,000
1,550,000
403,536
272,470
–
–
–
–
–
–
–
–
4,405,217
258,027
Balance at
the end
of the year
312,527
44,000
450,000
241,491
327,389
106,157
258,027
60,976
183,496
216,075
228,100
9,000
1,550,000
403,536
272,470
4,663,244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Note 47. Share-based payments (continued)
2012
Grant date
Expiry date
Exercise price
12/11/08
25/02/09
01/07/09
01/10/09
01/07/10
01/09/10
01/07/11
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
20/11/08
12/11/18*
25/02/19*
01/07/19*
01/10/19*
01/07/20*
01/09/20*
01/07/21*
16/02/15**
01/01/16**
14/02/17**
01/01/18**
10/04/18**
10/04/18**
10/04/18**
20/11/18***
$4.12
$4.12
$3.11
$3.11
$4.71
$4.71
$5.17
$1.64
$3.15
$3.15
$3.26
$2.98
$2.53
$0.01
$0.00
Weighted average exercise price
$2.80
Virtus Health Share Option Plan.
IVF Australia Restructuring Plan.
*
**
*** Melbourne IVF Restructuring Share Option Plan.
94 Virtus Health Annual Report 2013
NOTES TO THE FINANCIAL STATEMENTS (continued) Set out below are the options exercisable at the end of the financial year:
Grant date
Expiry date
12/11/08
25/02/09
01/07/09
01/10/09
10/04/08
10/04/08
10/04/08
10/04/08
10/04/08
20/11/08
Total exercisable
12/11/18
25/02/19
01/07/19
01/10/19
16/02/15
01/01/16
14/02/17
01/01/18
10/04/18
20/11/18
2013
Number
2012
Number
–
–
–
–
–
–
–
–
–
–
–
208,351
27,333
152,667
160,993
60,976
183,496
216,075
228,100
6,660
272,470
1,517,121
The weighted average remaining contractual life of options outstanding at the end of the financial year was 4.95 years
(2012: 6.25 years).
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at
the grant date, are as follows:
Grant date
Expiry/cancellation
date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest rate
Fair value
at grant date
17/08/12
24/08/12
07/10/12
11/06/13
11/06/13
11/06/13
11/06/13
11/06/18
$4.71
$5.17
$5.17
$5.68
$4.71
$5.17
$5.17
$5.68
32.40%
32.40%
32.40%
30.50%
6.30%
6.30%
6.30%
4.60%
3.40%
3.20%
3.00%
3.40%
$1.38
$0.79
$0.80
$1.26
Share price at grant date: The share price at grant date was an internal valuation estimate as there was no public
market for the shares at these grant dates.
Expected volatility: Volatility has been determined from a comparison of peer group companies, as there was no public
market for the above shares at grant date.
Fair value at grant date: No market conditions have been factored into the measurement of fair value.
Virtus Health Annual Report 2013 95
dIREcTORS’
dEcLARATION
In the directors’ opinion:
• the attached financial statements and notes thereto comply with the corporations Act 2001, the Accounting
Standards, the corporations Regulations 2001 and other mandatory professional reporting requirements;
• the attached financial statements and notes thereto comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board as described in Note 1 to the financial statements;
• the attached financial statements and notes thereto give a true and fair view of the consolidated entity’s financial
position as at 30 June 2013 and of its performance for the financial year ended on that date;
• there are reasonable grounds to believe that the company will be able to pay its debts as and when they become
due and payable; and
• at the date of this declaration, there are reasonable grounds to believe that the members of the Extended closed
Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the
deed of cross guarantee described in Note 42 to the financial statements.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
peter Macourt
chairman
30 September 2013
Sydney
96 Virtus Health Annual Report 2013
INdEPENdENT
AudITOR’S REPORT
Independent auditor’s report to the members of Virtus Health
Limited
Report on the financial report
We have audited the accompanying financial report of Virtus Health Limited (the company), which
comprises the statement of financial position as at 30 June 2013, the statement of comprehensive
income, statement of changes in equity and statement of cash flows for the year ended on that date, a
summary of significant accounting policies, other explanatory notes and the directors’ declaration for
the Virtus Health Limited group (the consolidated entity). The consolidated entity comprises the
company and the entities it controlled at year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Virtus Health Annual Report 2013 97
Auditor’s opinion
In our opinion:
(a)
the financial report of Virtus Health Limited is in accordance with the Corporations Act 2001,
including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 28 to 37 of the directors’ report for the
year ended 30 June 2013. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of Virtus Health Limited for the year ended 30 June 2013,
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Eddie Wilkie
Partner
Sydney
30 September 2013
98 Virtus Health Annual Report 2013
Independent AudItor’s report
SHAREHOLdER
INFORMATION
The shareholder information set out below was applicable as at 23 August 2013.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Equity security holders
Number of holders
of ordinary shares
Number of holders
of options over
ordinary shares
630
1,015
264
252
76
2,237
35
–
–
–
–
2
2
–
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Ellerston capital
JcP Investment Partners
Platypus Asset Mgt
celeste Funds Mgt
Antares Equities
Invesco Australia
Bennelong Australian Equity Partners
Perpetual Investments
Arnhem Investment Mgt
Pictet Asset Mgt
Paradice Investment Mgt
Goldman Sachs Asset Mgt
Russell Investments
Private clients of uBS Wealth Mgt Australia
K2 Asset Mgt
McBain Family Trust
F&S Quinn Trust
Schroder Investment Mgt
FIL Investment Mgt Australia
Mr Lyndon G Hale
ORDINARY SHARES
Number held
% of total
shares issued
8,169,951
10.27
5,945,860
3,354,181
3,054,316
1,972,235
1,907,820
1,882,469
1,851,916
1,577,381
1,540,600
1,325,382
995,000
962,282
929,315
927,000
917,720
880,282
877,522
874,848
823,694
7.48
4.22
3.84
2.48
2.40
2.37
2.33
1.98
1.94
1.67
1.25
1.21
1.17
1.17
1.15
1.11
1.10
1.10
1.04
40,769,774
51.28
Unquoted equity securities
412,500 unlisted share options have been granted to 2 persons. Share options do not carry any voting rights.
Virtus Health Annual Report 2013 99
Substantial holders
Substantial holders in the company are set out below:
Ellerston capital
JcP Investment Partners
Voting rights
ORDINARY SHARES
Number held
8,169,951
5,945,860
% of total
shares issued
10.27
7.48
The voting rights attached to ordinary shares are set out below:
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share shall have one vote.
There are no other classes of equity securities.
100 Virtus Health Annual Report 2013
Shareholder InformatIon (continued) cORPORATE
dIREcTORY
Share register
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Phone: 1300 554 474
Auditor
pricewaterhouseCoopers
darling Park Tower 2
201 Sussex Street
Sydney NSW 1171
Directors
Peter Macourt – chairman
Marcus darville
Susan channon
dennis O’Neill
Lyndon Hale
Peter Turner
Company secretary
Glenn Powers
Notice of annual general
meeting
The annual general meeting of
Virtus Health Limited will be held at:
Level 1, Rooms 5 & 6
Hilton Sydney
488 George St
SYdNEY NSW 2000
Time: 2.00pm
date: Wednesday, 6 November 2013
Registered office
Level 3
176 Pacific Highway
Greenwich NSW 2065
Phone: (02) 9425 1722
Fax: (02) 9425 1633
principal place of business
Level 3
176 Pacific Highway
Greenwich NSW 2065
Bankers
Australia and New Zealand Banking
Group Limited
Level 15
20 Martin Place
Sydney NSW 2000
Westpac Banking Corporation
Level 3
275 Kent Street
Sydney NSW 2000
Commonwealth Bank of Australia
Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000
Siemens Financial Services Inc
170 Wood Avenue,
South Iselin
New Jersey 08830
National Australia Bank
Level 19, NAB House
255 George Street
Sydney NSW 2000
Stock exchange listing
Virtus Health Limited shares are listed
on the Australian Securities Exchange
(ASX code: VRT)
Website:
www.virtushealth.com.au
RifleMedia.com.au #RM-1233
Virtus Health Annual Report 2013