ANNUAL
REPORT
2016
ANNUAL
REPORT
2018
ABN 80 129 643 492
LEADING MINDS
LEADING SCIENCE
Virtus Health is one of the most successful medical
collaborations of its kind in the world.
We combine the strength of clinical collaboration with
advanced scientific techniques to deliver the best
possible outcomes for our patients.
Contents
Chairman’s Statement 2
Chief Executive’s Overview 4
Board of Directors 14
Directors’ Report 16
Auditor’s Independence Declaration 47
Statement of Comprehensive Income 48
Statement of Financial Position 49
Statement of Changes in Equity 50
Statement of Cash Flows 51
Notes to the Financial Statements 52
Directors’ Declaration 101
Independent Auditor’s Report to the members of Virtus Health Limited 102
Shareholder Information 108
Glossary of Terms 111
Corporate Directory IBC
VIRTUS HEALTH “ Introducing Ivy: an innovative Artificial
Intelligence tool pioneered by Virtus
scientists to increase success rates in
IVF pregnancies.”
NETWORK OF CARE
FERTILITY SPECIALISTS
126
FRESH IVF CYCLES
18,496
SCIENTISTS
241
NURSE, COUNSELLOR AND
PATIENT SUPPORT
977
FERTILITY CLINICS
45
DAY HOSPITALS
7
1
ANNUAL REPORT 2018 “ FY18 resulted in Virtus
Health delivering a
consistent Australian
performance, continued
growth in diagnostic and
international activities
supported by effective
cost management.”
The results for the financial year ended
30 June 2018 reflect a challenging year in our core
Australian fertility operations and continued growth
from our international activities reaffirming the
strategic vision of Virtus Health.
FY18 resulted in Virtus Health delivering a
consistent Australian performance, continued
growth in diagnostic and international activities
supported by effective cost management despite
softening in the Australian Assisted Reproductive
Services (“ARS”) market in the second half.
Group revenue increased 2.2% to $262.1 million.
Revenue growth was impacted by market volume
weakness and price pressure in a competitive
Australian market where Virtus Australia revenue
declined by 0.5%. International revenue increased
by 17.6% assisted by a favourable foreign exchange
translation impact on our euro earnings, growth
in Singapore, the full year contribution of Aagaard
Fertility Clinic, Denmark and a three month
contribution from Complete Fertility Centre,
Southampton UK.
For the year ended 30 June 2018 the Directors are
pleased to announce a final dividend of 12.0 cents
per share fully franked and this results in a full
year dividend payout of 26.0 cents per share
fully franked; this is an increase on the prior year
reflecting increased earnings.
The Virtus International presence continues to grow
with targeted acquisitions in the UK and Denmark
consistent with our international growth strategy.
We continued to drive further improvement from
our international activities with EBITDA growing
30% to $9.2 million with Ireland continuing to deliver
solid results. In Singapore financial performance
continued to improve and we achieved a full year
positive EBITDA for the first time.
Virtus welcomed Complete Fertility (UK) and
Trianglen (Denmark) to the group and these
clinics are forecast to be earnings enhancing
in FY19. Each of these acquisitions provide
an important extension of our international
diversification strategy.
In the Australian eastern state markets
in which we operate there was an overall
market volume decrease of 0.7% for Assisted
Reproductive Services.
Underlying cycle volume in Virtus Australian clinics
decreased 3.4% and reflected the impact of low
cost fertility competitors in both the economically
challenged Queensland market and the Tasmanian
market where volume contracted by 7%.
Whilst the New South Wales and Victorian markets
both saw volumes decline slightly in FY18, Virtus
premium and low cost clinics outperformed
the market and our Sydney and Melbourne
metropolitan based IVFAustralia, Melbourne IVF
and “The Fertility Centre” (“TFC”) branded clinics
experienced an improvement in volumes and
growth in market share.
Management continues to develop the range of
services offered by several regionally positioned
clinics with recent changes made in the NSW
Hunter region and Tasmania.
The underlying demographic drivers of ARS remain
favourable in all markets with the key factors
stimulating volume growth being the impact of
GROUP
REVENUE
INCREASED
2.2% TO
$262.1m
NET PROFIT
AFTER TAX
INCREASED
9.4% TO
$30.8m
2
CHAIRMAN’SSTATEMENTVIRTUS HEALTH Management will also be focused on the integration
of our new international clinics and the delivery of
greater synergies across our six European clinics.
Changes to federal and territory legislation are
an important feature of the future landscape for
ARS across the world although they can be slow
in eventuating. In Australia the Federal Health
department continues its review of the Medicare
Benefits Schedule; to date there have been
no announcements regarding the ARS sector.
In Europe changes to donor services are expected
in Ireland and our European management team are
continually assessing the opportunities to expand
our donor services in our chosen territories.
Peter Turner, who joined the Board at our IPO in
2013 has indicated that he will not seek re-election
at the AGM in November and I would like to thank
Peter for his contribution and diligent service to the
company over the last five years.
Finally, I would like to thank all our staff, fertility
specialists and management teams who contribute
daily to the success of Virtus Health. Their flexibility
in a changing clinical and business environment is
essential to the continued success of Virtus Health.
Peter Macourt
Chairman
“ Virtus’
international
presence
continues
to grow with
targeted
acquisitions
in the UK and
Denmark
consistent
with our
international
growth
strategy.”
rising maternal age, the impact of underlying
medical conditions on fertility, and increasing
demand from same sex couples and single women
accessing donor sperm and ARS to start a family.
However, the Virtus Board also recognises that
the Australian ARS market continues to evolve
and we are focused on service delivery to support
patients across a range of social and economic
demographics, as well as meeting the full range of
clinical demands essential to the sustainability of
the Virtus business.
Our diagnostic revenue increased by over 3.6% in
FY18, largely driven by greater internal utilisation
of genetic testing and screening in reproductive
medicine. The strong improvement in financial
performance in a rapidly evolving diagnostic sector
is an important feature of our ARS service.
The day hospitals experienced a quiet year with
weakness in non-IVF revenue the major reason
for our relatively flat financial performance. As
our Maroubra site prepared to relocate its IVF
laboratory, clinic and day hospital to a new facility
at Alexandria the “wind down” impacted financial
performance in the last quarter. Alexandria is one
of two major relocations and facility upgrades
currently in progress; we will also be relocating our
Hobart facility in September and adding a small two
theatre day hospital capability to further develop
our Tasmanian business.
As shareholders will recall we made significant
changes to our Victorian operations last year
and we are pleased to report that, following
a period of reorganisation we have seen
significant improvements in clinical and financial
performance; credit for this improvement goes
to the Victorian senior management team and
all the employees who have embraced the need
for change.
In the Chief Executive’s review Sue Channon
provides further details on the evolution of the
group’s activities, research and development,
and our strategies to ensure the continued
development of Virtus Health. One particular
achievement is the development of the “Ivy”
artificial intelligence software and we believe
this will provide major improvements in clinical
performance as we progressively adopt the
technology in all Virtus laboratories.
The Board continues to work closely with
management to identify international opportunities
in the UK and Europe. The new financial year
provides Virtus with opportunities for continued
expansion, with full year contributions from
Complete Fertility and Trianglen, as well as the
business development opportunities that our
new facilities in Alexandria and Hobart provide.
3
ANNUAL REPORT 2018 “ We remain relevant to
the patients we treat and
the markets in which we
operate and expect the
disciplined evolution of
our three key pillars of
fertility, diagnostics and
day hospitals to deliver
continued growth.”
As the market-leading Assisted Reproductive
Services (“ARS”) provider in Australia and Ireland
and with a growing presence globally, we are proud
to offer our patients the highest levels of clinical
and scientific expertise in fertility treatments and
associated technologies.
Our market leading ARS offering continues
to develop through the introduction of new
technologies and added services, all designed
to improve outcomes for patients and reinforce
Virtus as the provider of choice for those seeking
to create the families they desire.
In line with our stated strategy for diversification,
our international presence expanded in FY18 with
two additional IVF clinics joining the Virtus group;
Complete Fertility in Southampton (UK) and
Trianglen in Copenhagen (Denmark). Both patient
centric fertility clinics providing a natural cultural fit
with Virtus. Our focus on diversification has also led
to expanded diagnostic and day hospital services.
It is this strategy that has sustained us through a
period of Australian ARS volume decline.
Our teams completed 18,496 fresh IVF cycles
in FY18, 35,286 ARS treatments and 32,749 day
hospital procedures across our network. The
expansion of our diagnostic services under the
brand “Virtus Diagnostics” saw us perform an
increasing number of general pathology and
specialised genetic testing episodes.
As one of the world’s most successful medical
collaborations, we now have 126 fertility specialists
(103 in Australia) increasing from 122 in June
FY17 supported by more than 1,300 professional
staff including scientists, nurses, researchers
and administrators, all with the ultimate goal of
providing the highest standards of clinical care and
patient outcomes. This year our leading minds,
80%
13%
7%
FY12
MULTIPLE
SOURCES OF
REVENUE
• Australian ARS
• Australian Diagnostic
• Day Hospitals
• International ARS
17%
8%
68%
7%
FY18
4
VIRTUS HEALTHCHIEFEXECUTIVE’SOVERVIEW AUSTRALIAN
EBITDA
$66.8m
INTERNATIONAL
EBITDA
$9.2m
leading science expertise was further strengthened
with the appointment of internationally renowned
reproductive biologist Professor David Gardner as
Virtus Health Director of Assisted Reproductive
Technology, Scientific Innovation and Research
to drive our organisation’s level of scientific
research capability for continued improvement
in patient outcomes.
During FY18 we have undertaken two significant
infrastructure development projects. The first an
investment in a new site for our patients with the
relocation of our IVFAustralia fertility clinic and
City East Specialist Day Hospital from Maroubra
to a new purpose-built facility in Alexandria; this
site will be commissioned on 24th August 2018.
The new Alexandria Specialist Day Hospital facility
features four operating theatres (an increase
from three operating theatres at the Maroubra
site); an IVFAustralia fertility clinic, embryology
and andrology laboratories including two transfer
rooms and three andrology collection rooms; Virtus
Diagnostics pathology collection centre; sessional
consulting rooms; pharmacy; ultrasound care; and
on-site café. This is by far the largest investment
that Virtus has made in a single site and will deliver
significantly advanced ARS and day hospital
services to the Eastern, Southern, Inner West and
Central Sydney communities.
Our second development is in Hobart, Tasmania
where we are relocating TasIVF from our current
site to a new purpose-built facility in the city centre.
This site, which is due to be commissioned in
early September, includes: TasIVF fertility clinic,
andrology laboratory and collection rooms, an
embryology laboratory including one transfer
room; sessional consulting rooms; and the new
Hobart Specialist Day Hospital, a two theatre multi-
purpose day hospital. For the first time Virtus will
provide day surgery facilities in Tasmania, an area
where we have previously outsourced this activity.
This investment increases the Virtus Day Hospital
portfolio to seven with an additional three operating
theatre suites.
We appointed a Group Procurement Manager in
November 2017 to continue our focus on removing
cost from the business. This activity has delivered
in excess of $1 million in annual savings to date.
Virtus Health’s core values, our Medical Leadership
capability, our commitment to clinical sovereignty,
our ‘leading minds, leading science’ philosophy and
our uncompromising commitment to quality health
outcomes and service, will ensure that we continue
to offer women and men aspiring to have a child
the best possible chance of creating the family
they desire.
Virtus Health Australia – Fertility
The Australian fertility market continued to evolve
with the ongoing expansion of low cost providers
in the sector. Within this challenging environment,
Virtus has maintained its strong and sustainable
competitive position as a market leader. This has
been achieved through our commitment to our
diversification and vertical integration strategy
as we continue to develop a service model that
provides care for patients across the whole ARS
value chain. Virtus offers consultation and advice,
simple diagnostic pathology, early stage assisted
reproductive services such as IUI and our simplified
low cost IVF service model, through to the more
complex IVF/ICSI and advanced sciences and
technologies including high-end genetic services.
Virtus is the only provider in Australia that delivers
the most comprehensive and complete level of
Assisted Reproductive Services for its patients
within the one organisation. This strategy has
sustained us through FY18 and further work
throughout FY19 to consolidate this position
will continue.
The Australian ARS markets in which Virtus
operates declined 0.7% to June 2018. The biggest
impact was felt in our Queensland and
Tasmanian markets.
Virtus cycle activity in Australia declined by
3.4% impacted by two key issues, the first
being the impact of low cost competitors in
Queensland which resulted in a decline of the
Virtus Queensland market share. However we
have seen an improvement in our Queensland
market share in the second half of FY18 over the
first half on the back of revised pricing and clinical
models. The second area of impact has been a
new competitor entering the Tasmanian market
for the first time leading to a reduction in market
share. In addition, the Tasmanian market for FY18
was very soft, down 7% to June 2018. Advanced
diagnostic services (PGD/PGS, Cytogenetics) are
now available to patients in Tasmania as well as a
multi service model of bulk bill, blended care model
and premium services. Virtus acquired a further
15% of TasIVF in FY18.
Our two largest markets of New South Wales and
Victoria continued to gain momentum with Virtus
New South Wales outperforming the market for
the second year in a row. Virtus New South Wales
has continued to focus on ensuring services
are aligned to the needs of patients in specific
local communities for example our Hunter and
Wollongong clinics now provide both premium and
low cost fertility services. These developments
together with the Alexandria development will all
create a platform for improved market penetration.
5
ANNUAL REPORT 2018 “ Our two largest markets of New South Wales and
Victoria continued to gain momentum with Virtus
New South Wales outperforming the market for
the second year in a row.”
Virtus Victoria’s market share also increased.
The cost out activities that have been the focus
for Victoria through FY17 and FY18 have delivered
significant benefits with an EBITDA margin
improvement achieved in the year. Virtus Victoria
has also relaunched a revised TFC model which is
delivering benefits in terms of market share and
volume growth.
We have continued with our strategy to have
our regional domestic clinics provide a full range
of fertility treatments at different price points.
We remain committed to operating both our
premium brand and our low cost fertility specialist
driven model to provide our patients with more
options and achieve our strategic ambition for
diversification. We remain heavily committed to
our integrated and diversified business model
as it provides the platform to participate in all
market segments.
Management has continued to work on delivering
a more streamlined approach to drive efficiencies
across the whole business including: the “One
Lab” approach; customer service standardisation;
procurement rationalisation; finance efficiencies
through a greater use of the business intelligence
tool; and reorganisation of the marketing team to
a group-wide structure.
The business has also focused on some of the
key risk issues of information security, business
continuity planning and cyber security and work
will continue on these activities through FY19.
On the political front there are no legislative or
proposed changes to IVF before Parliament or
currently under consideration by the Federal
Minister. The MBS review is progressing and the
IVF profession is participating in this discussion.
Virtus Health International
Our focus on driving the Virtus collaborative
model in carefully selected international markets
is achieving results, and we will continue to pursue
acquisition opportunities in the UK and Europe in
support of our strategic expansion objectives.
Two further acquisitions were completed in FY18 as
noted previously, bringing the Virtus international
portfolio to six clinics in the Northern Hemisphere
and one in Singapore. International revenue now
sits at 17% of total revenue.
On 23 February 2018 we completed the acquisition
of 90% of the ordinary share capital of Complete
Fertility Limited (“CFL”) based at the Princess Anne
Hospital Southampton for a cash free debt free
consideration of £5.3 million (AUD $9.6 million).
CFL performed 125 fresh IVF cycles in the year
ended 31 March 2018. These services are provided
from a well-appointed facility located within the
Princess Anne Hospital in Southampton.
Our second acquisition in FY18 was the Trianglen
Fertility Centre in Copenhagen, Denmark
which was added to the European portfolio
in June 2018 for a maximum consideration of
Kr198 million (AUD $42.0 million). The addition
of Trianglen brings our market share in Denmark
to approximately 15%. Trianglen performed
1,292 cycles resulting in egg retrieval and 366 frozen
embryo transfers in FY17. Both Complete Fertility
Clinic and Trianglen offer a full and comprehensive
range of fertility treatments and advanced
scientific technologies.
Our Irish clinics have maintained their position as
the leading provider in the Irish market. Our network
ensures Virtus Ireland is positioned appropriately
to support the growing demands of the community.
While the introduction of pre-implantation genetic
screening (PGS), an increase in numbers of frozen
embryo transfers (FETs) and a strong donor
program positively contributed to revenue lines
in Dublin, the FY18 full year position for all three
Irish clinics resulted in a 3% cycle deficit over the
prior year.
6
VIRTUS HEALTHCHIEFEXECUTIVE’SOVERVIEW One Lab: the Virtus Health scientific vision
“ Our goal is to
provide the
framework for a
standard Virtus
laboratory
methodology
across every
embryology lab.”
We are proud of our position as number one in fertility and strive to
uphold this title through the implementation of services that provide
the best in scientific methods, research, facilities, equipment and
most importantly, staff. Hence, it is our ambition to have all of our
laboratories performing at the highest possible standard, and to lead
the world in delivering the very best in patient outcomes through our
ART scientific research program.
In 2018 we launched our “One Lab” strategy under the leadership of Professor David Gardner as Group Director
of ART, Scientific Innovation and Research. Our goal is to provide the framework for a standard Virtus laboratory
methodology across every embryology lab. This framework will be developed over the next five years and is
designed to meet the highest international standard in embryology, enabling us to benchmark and improve upon
these results.
7
ANNUAL REPORT 2018 In early FY18 we expanded the European
management team to include the appointment
of a European Managing Director. This role has
delivered a greater ability to quickly integrate and
gain synergies within the acquired entities and
strengthened the Virtus leadership capabilities
in the Northern hemisphere. A market review has
allowed the European Managing Director to set
some key opportunities for growth in Ireland and
the appointment of a clinic director for the Sims
group, due to commence in August 2018, offers
an opportunity for the business to focus on its
strategic objectives for enhanced performance.
Virtus acquired a further 15% of the Irish business
through FY18.
The performance of our Singapore operation
continued to improve through the year delivering a
positive EBITDA of SG $363,000 (AUD $346,000)
compared to a prior year EBITDA loss of
SG $120,000 (AUD $111,000). The number of
contracted doctors within our Singapore entity
has increased to five in FY18 from 4 in FY17.
Our international partnerships have facilitated
positive flow-on effects including collaboration
on research and science, sharing best practice
treatment options for patients, attracting the best
fertility specialists and providing international
opportunities for career advancement for
staff. We are seeing the value of the Virtus
collaborative network in action with staff moving
across jurisdictions from Australia to Europe and
vice-versa.
Diagnostics
Virtus has continued to expand its position in
the Australian diagnostic market through Virtus
Diagnostics. Our ongoing investment in general
pathology and advanced genetics platforms has
delivered positive growth in referral volume and
financial performance in FY18.
Our focus over the past 3 years on growing
our footprint and testing capability has set
the framework to support ongoing growth and
synergistic benefits for Virtus.
Following the expansion and restructure of Virtus
Diagnostics in FY17, FY18 continued with a positive
performance which delivered revenue growth of
3.6% and EBITDA growth of 9.1% over the prior year.
Pathology requests have grown year on year by
4.5% incorporating over 600,000 test schedules
for the financial year, an 8.5% increase year on
year. Our commitment and continued focus
on delivering specialist diagnostic testing in
reproductive health and obstetrics whilst having
the capability and expertise to deliver general
pathology continues to enhance performance.
Genetic testing is fast becoming a science for
the future and the capabilities already developed
within Virtus Diagnostics positions the business
as a significant and high-quality player in this
field in Australia. Our laboratory capability in Pre-
Implantation Genetic screening (10% increase in
revenue on pcp) and Pre-Conception Genetics
on Next Generation Sequencing (79% increase in
revenue on pcp) is growing significantly, and Virtus
is becoming a prominent provider in the sector.
Further investment by Virtus Diagnostics in this
area is planned for FY19.
Patient service and
safety standards
The Virtus Board, risk committee and management
teams have continued to focus on the company’s
risk profile and service standards with a number
of key initiatives rolled out across FY18 in support
of our ambition to provide the highest level
of care and outcomes to our patients in the
safest environment.
As leaders in fertility, it is our goal to have all of our
laboratories performing at the highest possible
standard, and to lead the world in delivering the very
best in patient outcomes through our clinical and
scientific research programs. In 2018 we launched
our “One Lab” strategy under the leadership of
Professor David Gardner as Group Director of ART,
Scientific Innovation and Research at Virtus Health.
Our goal is to provide the framework for a standard
Virtus laboratory methodology across every
embryology lab. This framework will be designed
to meet the highest international standard in
embryology and enable us to benchmark and
improve upon patient outcomes.
DIAGNOSTIC
REVENUE
INCREASED
3.6%
INTERNATIONAL
REVENUE
INCREASED 17.6%
$44m
8
VIRTUS HEALTHCHIEFEXECUTIVE’SOVERVIEW New Fertility Clinics
UNITED
KINGDOM
DENMARK
Complete Fertility
Centre based in
Southampton
Trianglen Fertility
Clinic in
Copenhagen
Trianglen Fertility Clinic, Copenhagen
In June 2018, Trianglen Fertility Clinic in Copenhagen became our second clinic in Denmark.
Led by Kåre Rygaard, Medical Director and founder, the team of seven doctors, seven scientists and 21 nursing and
support specialists provide a highly regarded, full and comprehensive range of fertility treatments and advanced
scientific technologies. The clinic’s comprehensive patient service and leading success rates contribute to
Trianglen’s strong reputation in the Danish market.
Trianglen was established in 1993 and is one of the leading fertility clinics in Copenhagen, Denmark, performing
1,292 cycles resulting in egg retrieval and 366 frozen embryo transfers in FY17.
This partnership expands our network in Denmark with Trianglen and Aagaard now representing approximately
15% of the Danish fertility market.
Complete Fertility Centre, Southampton
Our entry into the English fertility market began in February 2018 with Complete Fertility Centre based in
Southampton joining Virtus Health.
Established in 2011, Complete Fertility is the leading fertility clinic on the south coast of Britain holding
approximately 50 per cent of the regional market share.
Complete Fertility offers a full and comprehensive range of fertility treatments and advanced scientific
technologies including time lapse imaging of embryos, a highly successful egg donation program and innovative
procedures including ovarian tissue cryopreservation.
Led by Professor Ying Cheong and Julia Paget, founding directors, the centre is recognised as one of the National
Training centres for Assisted Reproductive Services and hosts training programs for reproductive scientists
and clinicians.
Complete Fertility has established a professional patient-centric service which provides a natural cultural fit with
Virtus Health.
9
ANNUAL REPORT 2018 All of our facilities maintained their accreditation
status through the year with many achieving
commendations through the external quality
auditing process. To support both the internal audit
and compliance activities within the organisation,
we appointed in June FY18 a Group Risk and Quality
Manager to develop and oversee the strategic
risk management within the organisation. The
electronic platform “Riskman” continues to be
utilised by the organisation for the management
and reporting of both patient and employee
incidents as well as providing a platform for the
identification and profiling of the organisation’s risk
and ensuring appropriate management of that risk.
Virtus Health remains committed to the highest
quality health care and outcomes for the increasing
number of patients we care for every year. Our core
value, to ensure the needs of patients come first,
has guided our commitment to enhanced patient
service and safety in parallel with our investment
strategy into key technologies in support of
this goal.
In FY17, we introduced a standard global patient
satisfaction survey tool to measure our Net
Promoter Score (NPS) in order to enhance service
standards for all patients. This tool has continued
to be the method by which we measure our
performance against patient expectations on a
quarterly basis. Overall our NPS in FY18 was positive
with a score of +43.
Information technology
The Virtus Patient System (VPS) is now delivering
clinicians and staff across all Australian fertility
clinics with immediate access to patient
information, whilst providing opportunities for
improved communications between patients
and their clinical team across multiple platforms.
Work on this platform continues to enhance
performance and ensure we meet the needs of our
patients and key stakeholders.
The implementation of VPS enabled the launch
of the Virtus Patient App in FY17 which provides
patients with direct and secure access to their
treatment schedule. Work has continued through
FY18 to enhance the performance of the app and
to ensure its relevance to patients. This is the
world’s first integrated app to support patients’
undergoing IVF treatment. With the inclusion of
our patient forum, additional patient information
and support for newer mobile platforms, the Virtus
Patient App has continued to be accepted by
patients undergoing IVF treatment and with further
value enhancing additions to become available
during FY19 we expect that this will become the
future single online source of information for
patients complementing the clinical team care and
supporting patients during treatment cycles.
A comprehensive review of our current Information
and Communication Technology (“ICT”) operations
was completed during the year, this review adds
further confidence that our ICT strategy will
ultimately deliver our vision of creating exceptional
digitally-enabled experiences for Virtus Health
patients, families, clinicians and staff. Towards the
end of FY18, we began the process of recruiting
the position of Chief Information Officer (“CIO”)
to support development of our ICT strategy
and we are entering the final stages of this
recruitment activity.
Our Laboratory Information Management System
(“LIMS”) has continued to be deployed across
Virtus Diagnostic units, providing a standardised
platform for the delivery of secure electronic
results to both internal and external stakeholders,
whilst providing a consolidated view of activities
within Virtus Diagnostics.
The IT team have continued to integrate and
standardise our recent international acquisitions,
providing our expanding staff and doctor base
with access to our internal communication,
induction and training platforms whilst delivering
improved reliability through refreshed technologies
to support clinical teams in the delivery of
patient care.
Research
Research has continued to remain a key
focus for Virtus through FY18 with some very
exciting opportunities explored to support our
commitment to improving patient outcomes and
ensure we remain abreast of the most current
technology and treatment options. Our clinicians
and scientists have been pioneers in fertility care
for over 30 years and we continue to be a leader
in this advanced field of healthcare through our
ARS
TREATMENTS
35,286
DAY HOSPITAL
PROCEDURES
32,749
10
VIRTUS HEALTHCHIEFEXECUTIVE’SOVERVIEW “ With a greater use of technology and digital
platforms we will continue to improve our patient
experience and drive further efficiencies within
the business.”
scientific and clinical research activities with an
annual research and development investment of
approximately $2 million.
The Virtus Research Grant committee was first
established in FY17 and oversees the funds
available to support PhD students and researchers
for specific projects that meet the Virtus vision and
support our key strategic imperative and ambition
to be a leading global provider of ARS based
on clinical and scientific effectiveness and the
improvement of IVF outcomes.
Ivy Artificial Intelligence System
One of the most exciting projects this year has been
our investment into research to improve patient
outcomes by ensuring that the very best embryo
is selected to transfer. Virtus Health has been
working in conjunction with a software developer to
produce an exciting new Artificial Intelligence (“AI”)
tool known as ‘Ivy’. Ivy uses large amounts of data
captured from Embryoscope time-lapse imaging
and deep learning networks to teach itself how to
select the embryos that will most likely result in a
fetal heartbeat.
Early trials indicate that the success rates afforded
by this technology will enhance our present
capability, and Ivy will potentially bring significant
benefits to our patients in terms of outcomes and
our clinicians in assisting them select the best
embryo for transfer. The Australian laboratories,
Sims IVF Dublin, along with Complete Fertility in
Southampton and Aagaard Klinik in Denmark have
all contributed to the development of Ivy in what
has been Virtus Health’s first major international
collaboration. Virtus in partnership with the
software developer submitted and was successful
in achieving an Abstract for Oral presentation at
the American Society of Reproductive Medicine
2018 Scientific Congress that will be held in Denver,
Colorado, 6-10 October 2018. A multi-centre
randomised controlled trial validation of this
AI is ongoing.
Virtus has five staff members completing a PhD
and one completing their Masters as they work
alongside our scientists and clinicians on various
INTERNATIONAL
REVENUE NOW
SITS AT
17%
OF TOTAL
REVENUE
TRIANGLEN BRINGS
OUR MARKET SHARE
IN DENMARK TO
~15%
research programs. One of our staff members
completed their PhD in FY18 and a former staff
member is finishing their PhD studies in Adelaide
using Virtus New South Wales data.
The R&D Committees across Virtus continue to
oversee a range of in-house research projects
and desk top audits evaluating the success, safety
and efficacy of our programs. We are pleased to
note that our clinics are well within the national
benchmarks for safety and efficacy.
Fertility specialists
and employees
Virtus fertility specialists and scientists continue
to contribute to innovation and development
within the fertility profession in Australia
and internationally.
We continue to collaborate with universities
and public hospitals through the academic
appointments of our clinicians. This collaboration
between Virtus, academia and the public health
system ensures a solid training profile for new
specialists and provides strong support for
our succession program and ensures we are
able to attract and retain fertility specialists,
scientists, nurses, counsellors and administrative
professionals for the delivery of exceptional patient
care. Our fertility specialists have the ability to
create the practice they desire, combining private
practice with public appointments, research
and academic activities dependant on their
individual aspirations.
The average age of our fertility specialists is 52 and
has remained relatively stable over FY18 reflecting
the recruitment of new specialists to balance the
retirement of established specialists. Our medical
and scientific teams have assisted in the creation
of over 70,000 babies since our inception. All of our
fertility specialists are qualified obstetricians and
gynaecologists many of whom have subspecialty
training in infertility and have achieved the highest
possible level of qualification in this field, obtaining
a Certificate of Reproductive Endocrinology and
Infertility (“CREI”), and its worldwide equivalents.
As our workforce grows we have seen an increasing
need to provide a more coordinated approach
to the delivery of our strategic plan as it pertains
to people. As such we have appointed a strategic
human resource advisor to support Virtus
in the preparation for the future through the
development and implementation of a “people
plan” which will support management and staff in
the delivery of high quality health care services.
11
ANNUAL REPORT 2018
Ivy: artificial intelligence technology in IVF
“ Ivy has taught itself
to identify those
embryos with the
highest potential of
developing a fetal heart
and allocates them with
an ‘EmbryoScore’.”
Our scientists are pioneering an innovative technology using artificial
intelligence (“AI”) to predict the likelihood of a viable pregnancy prior
to transferring an embryo in a woman undergoing IVF.
Called Ivy, our artificial intelligence allows embryologists to identify the embryo with the best chance of achieving
a successful pregnancy as quickly as possible.
By performing a comprehensive three-dimensional assessment of the growth of embryos through all stages of
development and then relating this data to the corresponding pregnancy outcomes, Ivy has taught itself to identify
those embryos with the highest potential of developing a fetal heart and allocates them with an ‘EmbryoScore’.
The embryo with the highest score can then be selected and transferred, accelerating the chance of a healthy baby.
Testing of Ivy occurred from more than
8,300 embryo video outcomes in eight
Virtus laboratories across four countries.
Preclinical validation of the technology is
being conducted. With a patent application
lodged, we will further evaluate Ivy and its
EmbryoScore in a multicentre randomised
controlled trial across our Australian
and European laboratories, enabling its
rapid introduction to patient care. Aengus
Tran, Chief Data Scientist at Harrison-AI
and Dr Simon Cooke, Scientific Director
at IVFAustralia, led the development of
this technology.
12
VIRTUS HEALTH “ Globally Virtus
Health is
positioned to
benefit from
the ongoing
increase in
demand for
ARS and is
well placed for
future growth.”
Our “people plan” will provide a solid foundation
for ensuring Virtus is not only a healthcare provider
of choice but also an employer of choice; where
all staff are empowered to be the best they
can be and provide a service that exceeds our
patient’s expectations.
Through utilising the power of communication and
collaboration, it is our goal to create a more positive
workplace for our people. We believe that creating
a strong employee and doctor experience will drive
the delivery of extraordinary patient experiences.
An investment in our culture begins with our
collective commitment to more open, collaborative
and robust communication.
Throughout FY19 we plan to develop and execute
group-wide communication initiatives that will
unite our network, drive internal engagement and
support our people in the delivery of exceptional
patient care, all of which will ultimately lead to the
growth of patient advocacy and referral-based
business across our international markets.
Outlook
Infertility continues to affect 1 in 6 couples of
reproductive age worldwide; the social and
demographic factors contributing to this global
dynamic continue to drive demand for Assisted
Reproductive Services.
Virtus remains focused on our patients’ experience
and we will use our leading minds to drive
leading science and patient outcomes. We are
setting the scene to ensure that our service and
patient outcomes are accelerated through the
advancement of technologies and digital platforms
to drive efficiencies and continue to transform
the way we provide care and communicate with
our patients.
As noted above our journey through FY18 to meet
our goal to be a leading global provider of ARS
has seen Virtus continue to invest in scientific
and diagnostic systems, facilities, international
expansion and research to establish the platform
for further growth in FY19. Our two new day hospital
facilities, our “One Lab” strategy and our investment
in AI and other digital technologies and resources
all support our vision to ensure continuing evolution
of our services to suit the scientific and clinical
needs of our patients. It is this technically advanced
platform that is one of the key drivers to growth
and ensures we are able to diagnose and treat a
full range of reproductive and fertility issues thus
maintaining our competitive advantage.
We continue to evolve our approach and models to
ensure we remain relevant to the patients we treat
and the markets in which we operate, expanding
services across our network to meet all patient
demographics and expect the disciplined evolution
of our three key pillars of fertility, diagnostics and
day hospitals to deliver continued growth.
While it has been a challenging year for the ARS
sector, overall the market variability we have
experienced through FY18 was foreseen and
Virtus’ patient-centric approach to strategy has
proactively driven our diversified model reducing
dependence on any one segment of the market.
Our diversified model has provided a solid platform,
sustained us through a year where market growth
has been flat and provided the flexibility to deal with
the impact of market conditions as they arise.
Globally Virtus Health is well positioned to benefit
from the ongoing increase in demand for ARS
and is well placed for future growth. We have the
platforms available to care for all patients in any
market with any treatment preference in a way no
other organisation can. Our model has sustained
us in a soft Australian market through FY18 and will
continue to be the key point of difference for Virtus.
Finally, we trust this report gives you an
understanding of our achievements and a sense of
our focus and future which we believe to be solid
and with significant opportunity. I would like to
thank the Board of Virtus and our National Advisory
Committee who guide our strategy, the Virtus
Executive and management teams who assist in
executing our strategy and all of our doctors and
staff around the world for their support and ongoing
commitment to our patients, the organisation and
the work they do to ensure our future. We take
this opportunity to also thank the patients who
place their care in our hands. Thank you everyone
for your continued effort and commitment to our
vision and values.
Leading Minds, Leading Science
Sue Channon
Group CEO
13
ANNUAL REPORT 2018 Peter Macourt
Chairman
BCom.; ACA; GAICD
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); Director of
Prime Media Limited
Former directorships
(last 3 years):
None
Special responsibilities:
Member of the Audit
Committee and the
Nomination and Remuneration
Committee.
Susan Channon
Chief Executive Officer
Registered Nurse Div1;
OR Management Certificate
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 IVFAustralia 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
(last 3 years):
None
Special responsibilities:
Member of the Risk Committee
14
BOARD OF DIRECTORSVIRTUS HEALTH Greg Couttas
Non-Executive Director
Lyndon Hale
Executive Director
Peter Turner
Non-Executive Director
Sonia Petering
Non-Executive Director
BCom.; FCA; MAICD
MBBS; FRACOG; CREI
BSc.; MBA; GAICD
LLB; BCom; FAICD
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 a board
member 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
(last 3 years):
None
Special responsibilities:
Member of the Risk Committee
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 Chairman of NPS
MedicineWise.
Other current directorships:
Bionomics Limited
Former directorships
(last 3 years):
Ashley Services Group Limited
Special responsibilities:
Chair of the Risk Committee
and a member of the
Nomination and Remuneration
Committee and member of
the Audit Committee.
Sonia is a corporate lawyer who
brings extensive experience
as a Director. She also served
as Chair of the Rural Finance
Corporation of Victoria and
a Non-Executive Director of
Victoria’s Transport Accident
Commission until July 2016.
Sonia is also a director of TAL,
Day-Ichi Life Australia Pty
Limited and Qantm IP Limited.
Other current directorships:
Qantm IP Limited
Former directorships
(last 3 years):
None
Special responsibilities:
Chair of the Nomination and
Remuneration Committee
and member of the Risk
Committee
Greg is a highly experienced
audit partner having spent 40
years with Deloitte including
28 years as partner. During his
formative years he worked in
audit across various sectors,
specialising in ASX100 clients.
Greg’s expertise includes
accounting, finance, auditing,
risk management, corporate
governance, capital markets
and due diligence. Additionally,
Greg held a number of
management roles at Deloitte
including being the Managing
Partner for NSW from 2005 to
2008, chairing the Audit and
Risk Committee for 11 years,
and was a member of the
Board of Partners for Deloitte
Australia from 2005 to 2016.
Other current directorships:
None
Former directorships
(last 3 years):
None
Special responsibilities:
Chair of the Audit Committee
15
ANNUAL REPORT 2018 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 at the end of, or during, the year ended 30 June 2018.
Directors
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:
Peter Macourt – Chairman
Susan Channon
Lyndon Hale
Peter Turner
Sonia Petering
Greg Couttas
Principal activities
During the financial year the principal continuing activities of the consolidated entity were the provision of healthcare services which
included fertility services, medical day procedure services and medical diagnostic services.
Dividends
Dividends paid during the financial year were as follows:
Interim ordinary dividend for the year ended 30 June 2018 of 14.0 cents (2017: 13.0 cents)
per fully paid ordinary share paid in April 2018
Final ordinary dividend for the year ended 30 June 2017 of 12.0 cents (2016: 15.0 cents)
per fully paid ordinary share paid in October 2017
Consolidated
2018
$’000
2017
$’000
11,255
10,450
9,646
20,901
12,057
22,507
A final dividend of 12.00 cents per share, fully franked, will be paid on 12 October 2018 to the shareholders on the register at
14 September 2018.
16
DIRECTORS’ REPORTVIRTUS HEALTH
Review of operations
The profit for the consolidated entity after providing for income tax and non-controlling interest amounted to $30,753,000
(30 June 2017: $28,103,000).
A reconciliation of Segment EBITDA to profit before tax for the year is as follows:
Segment EBITDA
Share-based payment expense
Other non-trading expenses
Fair value adjustment to put liabilities and contingent consideration
EBITDA (reported excluding impairment of goodwill)
Depreciation, amortisation and impairment expense
EBIT
Interest revenue
Interest expense
Interest on other financial liabilities – non-cash interest
Amortisation of bank facility fee
Consolidated
2018
$’000
76,018
(881)
(11,199)
1,089
65,027
(12,496)
52,531
136
(6,615)
(981)
(207)
2017
$’000
72,875
(440)
(11,447)
3,846
64,834
(14,035)
50,799
127
(6,684)
(1,202)
(207)
Profit before income tax from continuing activities
44,864
42,833
The consolidated entity continued to engage in its principal activities, the results of which are disclosed in the attached
financial statements.
Key features of the results are:
• Revenue increased by 2.2% to $262.1m;
• Group EBITDA increased by 0.3% to $65.0m;
• Segment EBITDA increased by 4.3% to $76.0m;
• Australian segment EBITDA increased by 1.6% to $66.8m;
•
• Net profit after tax (“NPAT”) attributable to equity holders increased by 9.4% to $30.8m.
International segment EBITDA increased by 29.5% $9.2m; and
NPAT for FY18 included the following non-recurring gains, non-recurring expenses and non-cash acquisition related items:
• Acquisition transaction costs of $1,031,000 (FY17: $773,000);
• Non-cash put interest expense of $981,000 (FY17: $1,202,000) related to put option liabilities to acquire non-controlling interests
and contingent consideration liabilities;
• Fair value gain of $1,089,000 (FY17: $3,846,000) on the put option liabilities relating to Sims and contingent consideration of the
Aagaard Fertilitetsklinik ApS acquisition.
17
ANNUAL REPORT 2018 Operating overview
Australia segment
There was an overall annual market volume decrease in the New South Wales, ACT, Queensland, Tasmania and Victoria markets of
0.7% for Assisted Reproductive Services (“ARS”). (Note: market volume reflects fresh and cancelled cycles). Volumes decreased by
7.5% in H2FY18 after strong first half growth of 6.1% although the first half growth and second half decline was largely confined to the
Queensland market.
Virtus fresh cycle activity in Australia decreased by 3.4% on a like for like basis, impacted by two main issues:
• the impact of low cost competition has contributed to market share losses in Queensland; and
• a combination of new competition and general market weakness has contributed to a volume decline in Tasmania.
Virtus market share (in New South Wales, ACT, Queensland, Tasmania and Victoria) decreased to 40.9% from 42.0% because of the
increased competition in Queensland. It should be noted however that the Virtus market share improved in the second half of FY18 as
the market settled in Queensland. Additionally, during FY18 Virtus volume growth in NSW and Victoria exceeded state market growth
due to improved performance in NSW full service and TFC activity in NSW and Victoria.
Specialist diagnostic revenue increased by 3.6% in FY18 compared to FY17 reflecting further increases in genetic testing utilisation.
Revenue growth in our PGD/PGS activity was 10.3% on pcp and this activity represents higher utilisation of this capability in our full
service clinics at 17.7% of fresh cycles (FY17:13.9%). The level of general endocrinology testing also increased slightly.
In day hospitals Virtus revenue stable. Improved demand for IVF procedures was offset by a decline in Non-IVF procedure revenue by
5.3% across all day hospitals. Non-IVF revenue accounts for 51.2% of total day hospital revenue.
Overall the Australian segment EBITDA increased by 1.6% to $66.8m as a consequence of cost reduction initiatives, strong
performance from Diagnostics, New South Wales and Victoria ARS which was partially offset by the Queensland and Tasmania IVF
volume weakness.
International
The company’s international activities continue to expand in line with our international growth strategy achieving a segment EBITDA
growth of 29.5% to $9.2m from $7.1m in the prior year.
Whilst Ireland delivered a steady result, EBITDA was €0.2m lower compared to prior year at €4.1m mostly resulting from a slightly
weaker H1.
The Danish clinic, Aagaard, acquired during FY17 delivered EBITDA of Krone 10.5m during FY18. Our recent acquisition of Trianglen
Fertility Clinic in June 2018 will further enhance our Danish presence and market share going forward (see note 43 for details).
Complete Fertility Clinic (UK), delivered EBITDA of £0.1m in the three months since acquisition.
Volumes in Singapore reflected continued improvement during FY18 and the business achieved an EBITDA of SG$350,000 compared
to a pcp EBITDA loss of SG$144,000 in FY17.
Capital expenditure
Total expenditure on tangible and intangible assets was $15.5m in FY18 (FY17; $9.8m). The largest investment relates to the
development of a greenfield site in Alexandria to which we will relocate and expand our existing day hospital services and IVFAustralia
fertility clinic from Maroubra; this facility will be completed and operational in late August 2018.
Acquisitions
On 1 April 2018, Virtus acquired 90% of Complete Fertility Limited (“CFL”), based in Southampton England for a consideration of
$9,641,000. On 28 June 2018, Virtus also acquired Fertilitesklinikken Trianglen Aps (“Trianglen”), based in Copenhagen Denmark for an
estimated consideration of $41,996,000.
Outlook
The long term trend of women over 30 delaying the birth of children remains a key factor in each of our geographic markets and
demand for ARS is expected to grow. In Australia the median age of the first time mother in 2015 increased slightly to 31.0 years
(2014: 30.9). Despite the softening of the market in H2 of FY18, market compound average growth rate (“CAGR”) for fresh cycles in the
eastern state markets over the last four years has been 2.0%.
18
DIRECTORS’ REPORT continuedVIRTUS HEALTH Virtus believes that demand for ARS will continue to be supported by a range of social and demographic drivers continued
improvements in success rates, the application of specialist diagnostic services (PGD, PGS) and the demand from same sex couples
and single females for donor services. This position is largely unchanged from previous years.
Although the Australian ARS market has become more competitive in the last two years with increased price competition a significant
factor, Virtus remains well positioned to deliver an integrated range of ARS, diagnostics, genetic screening and day hospital procedures
to a broad range of patients.
Debt and interest expense
At 30 June 2018, total facilities drawn were $181m in cash and $4.7m in guarantees. Cash balances at the end of June 2018 were
$21.7m. Net debt increased by $32.2m resulting from acquisitions during the year. The company continued to comply with the
financial covenants of its facility agreement.
Other financial liabilities ($24.1m)
The non-controlling interests of Sims Clinic Limited and TasIVF Pty Limited each hold a put option established at the time of
acquisition. Consequently in accordance with accounting standards the group is required to recognise liabilities for the estimated
consideration to acquire the non-controlling interests. The liabilities have been discounted at the date of acquisition and the
corresponding entry is included in the business combinations reserve. The unwinding of the inherent discounting within the liabilities
has resulted in a non-cash interest expense in FY18 of $0.9m (FY17: $1.1m). The first put options in relation to 15% of both these entities
were exercised during FY18 and resulted in consolidated payments of $10.2m.
At 30 June 2018 the carrying value of the put option liabilities was $12.2m (shown as a non-current other financial liability).
The remaining $11.9m of the balance of other non-current financial liabilities relates to contingent consideration and the non-current
portion of a vendor loan note in relation to the acquisition of Fertilitesklinikken Trianglen Aps (see note 43 for details).
Amortisation of borrowing costs
Amortisation of borrowing cost expense for FY18 was $207,000, (FY17: $207,000).
Taxation
The effective tax rate on operating earnings for FY18 was 28.7% (FY17: 29.9%). FY17 included a true up in respect of R&D tax
concession claims from the prior year increasing the effective income tax rate.
Earnings per share
Basic earnings per share increased by 9.3% to 38.26 cents per share (FY17: 35.00 cents per share). Diluted earnings per share
increased by 9.2% to 37.98 cents per share (FY17: 34.79 cents per share).
Dividend
A final dividend of 12.00 cents per share fully franked (2017:12.00 cents per share) will be paid on 12 October 2018 to shareholders on
the register at 14 September 2018.
Significant changes in the state of affairs
On 1 April 2018, Virtus acquired Complete Fertility Limited (“CFL”), based in Southampton England for a consideration of $9,641,000.
On the 28 June 2018, Virtus also acquired Fertilitesklinikken Trianglen Aps (“Trianglen”), based in Copenhagen Denmark for an
estimated consideration of $41,996,000. These acquisitions add to Virtus’ international growth strategy reaffirming its vision for
diversification and expansion of the Virtus model in carefully selected international markets. (refer to note 43 for details).
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Matters subsequent to the end of the financial year
No matter or circumstance has arisen since 30 June 2018 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.
19
ANNUAL REPORT 2018 Likely developments and expected results of operations
Based on the long term trend of women in Australia delaying the birth of children and the fertility 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 demand from the Australian market. Recognising that the dem ographic drivers influencing the
demand for fertility services are also prevalent internationally we will consider further investment in our international network of
fertility clinics.
Business sustainability risks
The consolidated entity is faced with certain material business risks that could have an effect on the financial prospects of the
consolidated entity. These include but not limited to:
Change in Commonwealth Government funding/increasing patient out of pocket expenses
Patients receive partial reimbursement for the consolidated entity’s services through Commonwealth Government programs,
including the Medicare Benefits Schedule (‘MBS’) and the Extended Medicare Safety Net (‘EMSN’). We anticipate that each of these
programs will be reviewed in the next twelve months.
If the level of reimbursement provided by these programs for the consolidated entity’s services were to change, the consolidated
entity’s patients may face higher out-of-pocket expenses for Assisted Reproductive Services. This may cause the consolidated
entity to experience reduced demand for its range of services, potentially leading to a reduction in the consolidated entity’s revenue
and profitability.
Availability of fertility specialists
The consolidated entity relies on maintaining its relationship with existing fertility specialists, as well as contracting with and growing
In-Vitro Fertilisation (‘IVF’) cycles for new fertility specialists to assist in capturing market growth, increasing market share and replacing
any retiring fertility specialists. If the consolidated entity cannot successfully maintain its relationship with existing fertility specialists or
contract and grow IVF cycles for new fertility specialists this may cause the consolidated entity to experience reduced demand for its
range of services, potentially leading to a reduction in the consolidated entity’s revenue and profitability.
Variability of growth
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 Assisted Reproductive Services. 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 and international markets, the consolidated entity’s 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 and
international markets in which it operates.
Increased competition
The consolidated entity may face increased competition from new IVF providers and this may cause the consolidated entity
to experience reduced demand for its range of services, potentially leading to a reduction in the consolidated entity’s revenue
and profitability.
(For further details refer to Corporate Governance Statement at www.virtushealth.com.au/corporategovernance).
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law.
20
DIRECTORS’ REPORT continuedVIRTUS HEALTH Information on directors
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Peter Macourt
Chairman
BCom.; ACA; GAICD
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.
Chairman of SKY Network Television Limited (since August 2002);
Director of Prime Media Limited
None
Member of the Audit Committee and the Nomination and Remuneration Committee.
18,485 ordinary shares held directly
None
Susan Channon
Chief Executive Officer
Registered Nurse Div1; OR Management Certificate
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.
None
None
Member of the Risk Committee
448,633 ordinary shares
116,050 options over ordinary shares
Greg Couttas
Non-Executive Director
B Com.; FCA; MAICD
Greg is a highly experienced audit partner having spent 40 years with Deloitte including
28 years as partner. During his formative years he worked in audit across various sectors,
specialising in ASX100 clients. Greg’s expertise includes accounting, finance, auditing, risk
management, corporate governance, capital markets and due diligence. Additionally, Greg
held a number of management roles at Deloitte including being the Managing Partner for
NSW from 2005 to 2008, chairing the Audit and Risk Committee for eleven years, and was a
member of the Board of Partners for Deloitte Australia from 2005 to 2016.
None
None
Chair of the Audit Committee
5,000 ordinary shares
None
21
ANNUAL REPORT 2018 Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Lyndon Hale
Executive Director
MBBS; FRACOG; CREI
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 a board member 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.
None
None
Member of the Risk Committee
823,694 ordinary shares
None
Peter Turner
Non-Executive Director
BSc.; MBA; GAICD
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 Chairman
of NPS MedicineWise.
Bionomics Limited
Ashley Services Group Limited
Chair of the Risk Committee and a member of the Nomination and Remuneration Committee
and member of the Audit Committee.
50,000 ordinary shares
None
Sonia Petering
Non-Executive Director
LLB; BComm; FAICD
Sonia is a corporate lawyer who brings extensive experience as a Director. She also served as
Chair of the Rural Finance Corporation of Victoria and a Non-Executive Director of Victoria’s
Transport Accident Commission until July 2016. Sonia is also a director of TAL, Day-Ichi Life
Australia Pty Limited and Qantm IP Limited.
Qantm IP Limited
None
Chair of the Nomination and Remuneration Committee and member of the Risk Committee
8,066 ordinary shares
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.
22
DIRECTORS’ REPORT continuedVIRTUS HEALTH 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 2018, and the number of meetings attended by each director were:
Peter Macourt – Chairman
Susan Channon
Greg Couttas
Lyndon Hale
Peter Turner
Sonia Petering
Peter Macourt – Chairman
Susan Channon
Greg Couttas
Lyndon Hale
Peter Turner
Sonia Petering
Full Board
Attended
9
9
8
9
9
9
Nomination and
Remuneration
Committee
Held
9
9
9
9
9
9
Attended
2
2
–
–
2
2
Audit Committee
Risk Committee
Attended
4
4
4
–
4
–
Held
4
4
4
–
4
–
Attended
–
3
–
3
3
3
Held
2
2
–
–
2
2
Held
–
3
–
3
3
3
Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee.
Remuneration report (audited)
The directors present the remuneration report, which outlines the key management personnel (‘KMP’) 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.
The remuneration report is set out under the following main headings:
A. Executive summary;
B. Role of the Nomination and Remuneration Committee;
C. Executive remuneration framework;
D. Link between remuneration and consolidated entity performance;
E. Executive services agreements;
F. Remuneration, share and option disclosures for FY2018;
G. Non-executive director remuneration; and
H. Fertility specialist performance rights incentives.
23
ANNUAL REPORT 2018 A. Executive summary
Remuneration framework update and key management personnel
There were no changes made to the remuneration framework in FY2018. The objective of our remuneration framework is to attract
and retain high calibre, talented Executives while ensuring that pay outcomes are aligned to building long term shareholder value.
The remuneration framework must also be fair to our shareholders.
The Board has determined that the KMP, as defined by AASB 124 ‘Related Party Disclosures’ are as follows:
Non-Executive Directors
Peter Macourt – Chairman, non executive director
Peter Turner – Non executive director
Greg Couttas – Non executive director
Sonia Petering – Non executive director
A profile of each director is provided in the Directors’ Report.
Executive KMP
Sue Channon – Managing Director and Chief Executive Officer
Glenn Powers – Chief Financial Officer
Lyndon Hale – Executive Director and Medical Director, Victoria
Jade Phelan – Managing Director, Victoria,
Nadia Stankovic – Managing Director, New South Wales
Steve Zappia – Managing Director, Queensland and Virtus Health Diagnostics
Richard Banks – Managing Director, Europe (appointed August 2017)
Anthony Walsh – Executive Chairman, Ireland
Peter Illingworth – Medical Director, New South Wales
David Molloy – Medical Director, Queensland
William Watkins – Medical Director, Tasmania
For the year ended 30 June 2018 the KMP base salaries show an increase of 7.4% on FY2017 which reflects the inclusion of the
European Managing Director; the underlying movement would have shown a decrease reflecting reductions in the vacation leave
accrual for certain individuals in FY2018 compared to FY2017. None of the KMPs received an increase in fixed remuneration in FY2018.
The short term incentives (“STI”) achieved in FY2018 are set out in Section D.
The long term incentives (“LTI”) achieved in FY2018 are set out in Section D. The performance hurdles tested in FY2018 of the LTIs
granted in November 2014 and November 2015 were not achieved and accordingly 122,263 performance rights lapsed during the
financial year.
Total KMP remuneration for FY18 increased by $812,705 (28.7%). Of the increase, $335,512 relates to appointment of the European
Managing Director, $295,960 relates to improved STI performance and $279,430 relates to increases in share based payments
expense. After adjusting for non-cash share based payment accruals, cash remuneration payable to KMPs increased by 3.5%, primarily
due to the addition of European Managing Director Richard Banks to the KMP.
24
DIRECTORS’ REPORT continuedVIRTUS HEALTH B. Role of the Nomination and Remuneration Committee
The Board of Directors (“the Board”) maintains a combined Nomination and Remuneration Committee (the ‘Committee’).
The members of the Committee are: Sonia Petering (Chairman), Peter Macourt and Peter Turner. Details of the qualifications and
experience of the members of the Committee are provided in the ‘Information on directors’ section of the directors’ report.
The Committee assists and advises the Board on remuneration policies and practices for the Board, the CEO, the CFO, senior
executives and other key management personnel whose activities, individually or collectively, affect the financial soundness of
the consolidated entity. The responsibilities of the Committee are encapsulated in the Nomination and Remuneration Committee
Charter which may be found on the Investor Centre page of the Virtus Health website.
The number of Committee meetings held and attended by each member is disclosed in the ‘Meetings of directors’ section of the
directors’ report.
Use of remuneration consultants
When considered necessary, the Committee may obtain external advice from independent consultants in determining the
consolidated entity’s remuneration practices including remuneration levels, independent benchmarking data and information
regarding best practice, trends and regulatory developments. The Committee and Board consider this input, along with several other
factors when making decisions regarding remuneration.
The Committee has engaged the human resource consulting firm, Mercer, to provide recommendations on the following matters
for FY2019:
• Short and long term incentive arrangements for KMPs; and
• CEO and CFO remuneration benchmarking.
In FY2018 the Committee elected not to increase remuneration for KMPs and non-executive directors due to the financial
performance in FY2017.
The Chairman of the Committee is also satisfied that the recommendation relating to non-executive director fees, including the fees
for the Chairman, has not been subject to any undue influence by the Chairman or other independent directors.
Remuneration framework review for FY2019
The Board continually monitors the effectiveness of the remuneration framework in terms of alignment with shareholder interests and
market practice.
The external advice on the STI plan recommended that the calculation of an STI bonus pool derived from EPS growth averaged over
a three year period does not align to the executive performance period of one year and consideration should be given to aligning the
funding calculation and the individual assessment period.
The Committee decided to replace the current STI program with an annual individual target based scheme. The payment of STIs
remains linked to the achievement of positive EPS growth; this will be the gateway for the payment of incentives, hence the STI
remains linked to the performance of the Company and alignment is maintained with shareholder interests.
Key features of the STI arrangements are as follows:
• the maximum potential aggregate size of the STIs for the KMPs is $850,000. The pool size has been increased in FY2019 to include
the European Managing Director and the Tasmanian Managing Director who also holds responsibilities for certain Australian
business development projects; and
• a minimum of 60% of individual incentives will be payable on the achievement of individual financial KPIs and the balance of the STI
will be payable on the achievement of individual KPIs established by the Nomination and Remuneration Committee.
Increase in state or territory EBIT over prior year;
The financial KPIs include:
•
•
• Reductions in OPEX against budget expenditure.
Increase in NPAT over prior year (applicable to CEO and CFO); and
25
ANNUAL REPORT 2018 C. Executive remuneration framework
Remuneration philosophy and principles
The objective of the consolidated entity’s executive remuneration framework is to ensure that 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 market best practice. The Board seeks to ensure 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; and
• transparency.
The executive remuneration and reward framework has four components:
• base pay and non-monetary benefits;
• STIs;
• LTIs; and
• other remuneration such as superannuation and long service leave.
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. The key objective of the remuneration framework is the alignment
to shareholder interests and this is achieved by ensuring that:
• profit is a major component of plan design;
• the framework focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering
constant or increasing return on equity as well as focusing the executive on key non-financial drivers of value;
• the remuneration framework attracts and retains high calibre executives;
• the framework rewards capability and experience;
• the framework reflects competitive reward for contribution to growth in shareholder wealth; and
• the framework provides a clear structure for earning rewards.
Fixed remuneration
Fixed remuneration comprises base salary, superannuation and other short term benefits such as annual leave and long service leave.
Fixed remuneration is targeted to be similar to the median of the market for positions and roles in ASX listed companies of a similar
size. The Nomination and Remuneration Committee will consider variations to the remuneration benchmark where market demand or
superior performance may be factors which could influence remuneration.
26
DIRECTORS’ REPORT continuedVIRTUS HEALTH Short term incentive plan – STI
The 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 (‘KPIs’) being
achieved. Financial and non-financial KPIs are reviewed and amended annually by the Nomination and Remuneration Committee
to ensure STI payments are aligned with the short term objectives of the business. STIs are not made available to the group’s
Medical Directors.
The STI KPIs, which are set by the Nomination and Remuneration Committee and the CEO, will normally include:
• NPAT KPI for CEO and CFO;
• Cost reduction targets;
• EBIT margin improvement targets;
• Segment EBIT KPI for senior state and territory management; and
•
Individual objectives for all STI participants which may be non-financial in nature. Such objectives could include KPIs related to:
– Risk management;
– Net promoter score;
– Corporate governance objectives; and
– Other individual personal goals
The STI plan provides for cash settlement where successful performance against KPIs has been achieved. Performance is assessed by
the immediate manager of the STI participant and for KMPs the cash settlements are approved by the Nomination and Remuneration
Committee after completion of the annual group audit. Hence, STI cash settlements are normally paid to recipients in the month
following the announcement of the group’s financial results.
The KPI structure for FY2019, established by the Nomination and Remuneration Committee, is as follows:
• Applicable to Sue Channon and Glenn Powers – 40% of STI relates to the achievement of Net Profit after Tax (‘NPAT’) attributable
to the company’s shareholders, 20% of STI relates to the achievement of consolidated Australian EBIT and 40% of the STI relates
to individual management objectives set by the Board.
• Applicable to Simon Barker, Jade Phelan, Steve Zappia and Nadia Stankovic – 15% of STI relates to the achievement of consolidated
Australian EBIT; 45% of STI relates to the achievement of relevant State EBIT; and 40% of STI relates to the achievement of
individual management objectives.
• Applicable to Richard Banks – 60% of STI relates to the achievement of consolidated European EBIT; 15% of STI relates
to the achievement of European return on capital employed; and 25% of STI relates to the achievement of individual
management objectives.
EBIT and NPAT targets include individual interpolation schedules for national and territory percentage growth which normally provides
for payment of bonus as follows:
• For achievement of 5% growth, 50% of relevant STI component is payable;
• For achievement of 10% growth, 100% of relevant STI component is payable; and
• For achievement of growth between 50% and 100%, straight line interpolation of the relevant STI component is payable.
The Remuneration Committee may apply variations to these targets after consideration of local market conditions which may result in
higher or lower profit growth expectations.
27
ANNUAL REPORT 2018 Long term incentive plans – LTI
The company has adopted an option plan (‘Plan’) to assist in the reward, motivation and retention of personnel including executive
directors, eligible employees and fertility specialists (see Section H). 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 LTI plan provides Virtus executives with grants of performance rights that vest
over three year performance periods. Performance rights are granted annually and vested performance rights convert into shares.
Holders of unvested performance rights do not receive dividends until rights have vested and converted into shares.
Generally, vesting conditions attaching to grants of options or performance rights made to senior executives will relate to the
performance of the consolidated entity over the prior performance period of three years, as well as continued employment. Options
or performance rights may also be granted to other employees from time to time subject to consideration by the Board. There is no
ability for the company to provide any cash equivalent on exercise.
In the event of a future change of control the Board has the discretion to allow for vesting of options or performance rights and in the
event of failure to meet vesting hurdles or objectives there is no facility to allow retesting of vesting conditions.
Eligibility to participate in the Plan and the number of options or performance rights offered to each individual participant is
determined by the Board. Currently there are four executive performance grants in operation as follows:
1. Senior executives – FY2015 grant
On 10 November 2014, performance rights were granted to the following members of the executive management team:
Sue Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Anthony Walsh
The performance rights vest subject to the following performance hurdles:
• Relative TSR and earnings per share (‘EPS’) growth. Each hurdle applies to 50% of the grant. TSR is measured on the company’s
TSR relative to a peer group of companies in both the S&P ASX 200 Index and the S&P ASX 200 Healthcare Index (weighted
50% each) over the three year performance period. 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.
Performance Hurdle
Percentile less than
Percentile at
Percentile range
Relative TSR
S&P ASX 200
50
50
50-75
TSR Base share price
% CAGR less than
% CAGR at
% CAGR range
$7.88
3 Year EPS CAGR
7.5%
7.5%
7.5%-10%
Relative TSR
S&P ASX 200 Health
50
50
50-75
$7.88
Rights Vesting %
Notes
0%
12.5%
12.5-25%
0%
25%
25-50%
For each hurdle
Progressive pro-rata
vesting for the range for
each hurdle
Progressive pro-rata
vesting for the range
Calculations of the company’s TSR and EPS were determined at the end of the three year vesting period by the Board with verification
of relative TSR performed by an external party.
The annual AASB 2 ‘Share-Based Payments’ accounting charge of this scheme is $14,031. The TSR performance hurdle tested on
15 September 2017 (three years after the grant of performance rights) and the EPS performance hurdle, tested on 30 June 2017 were
not achieved. This grant has now lapsed.
28
DIRECTORS’ REPORT continuedVIRTUS HEALTH 2. Senior executives – FY2016 grant
On 10 November 2015, performance rights were granted to the following members of the executive management team:
Sue Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Anthony Walsh
The performance rights vest subject to the following performance hurdles:
• Relative TSR and average annual return on equity attributable to shareholders (‘ROE’). Each hurdle applies to 50% of the
grant. TSR is measured on the company’s TSR relative to a peer group of companies in both the S&P ASX 200 Index and the
S&P ASX 200 Healthcare Index (weighted 50% each) over the three year performance period. 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.
Performance Hurdle
Percentile less than
Percentile at
Percentile range
Relative TSR
S&P ASX 200
50
50
50-75
TSR Base share price
% ROE less than
% ROE at
% ROE range
$5.13
3 Year average ROE
15.0%
15.0%
15.0-17.5%
Relative TSR
S&P ASX 200 Health
50
50
50-75
$5.13
Rights Vesting %
Notes
0%
12.5%
12.5-25%
0%
25%
25-50%
For each hurdle
Progressive pro-rata
vesting for the range for
each hurdle
Progressive pro-rata
vesting for the range
Calculations of the company’s TSR and ROE will be determined at the end of the three year vesting period by the Board with
verification performed by an external party.
As at 30 June 2018, it is expected that the TSR performance hurdle, to be tested on 15 September 2018 is unlikely to be achieved.
The ROE performance hurdle, tested on 30 June 2018 was not achieved. The annual AASB 2 accounting charge of this scheme is
currently $85,248 and the maximum potential earnings dilution to existing shareholders is 0.11%.
29
ANNUAL REPORT 2018 3. Senior executives – FY2017 grant
On 10 November 2016, performance rights were granted to the following members of the executive management team:
Sue Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Anthony Walsh
The performance rights vest subject to the following performance hurdles:
• Relative TSR and average annual return on equity attributable to shareholders (‘ROE’). TSR is measured on the company’s
TSR relative to a peer group of companies in both the S&P ASX 200 Index and the S&P ASX 200 Healthcare Index (weighted
50% each) over the three year performance period. 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.
Performance Hurdle
Percentile less than
Percentile at
Percentile range
Relative TSR
S&P ASX 200
50
50
50-75
TSR Base share price
% ROE less than
% ROE at
% ROE range
$8.05
3 Year average ROE
15.0%
15.0%
15.0-17.5%
Relative TSR
S&P ASX 200 Health
50
50
50-75
$8.05
Rights Vesting %
Notes
0%
12.5%
12.5-25%
0%
25%
25-50%
For each hurdle
Progressive pro-rata
vesting for the range for
each hurdle
Progressive pro-rata
vesting for the range
Calculations of the company’s TSR and ROE will be determined at the end of the three year vesting period by the Board with
verification performed by an external party. The annual AASB 2 accounting charge of this scheme is currently $55,274 and the
maximum earnings dilution to existing shareholders is 0.12%.
30
DIRECTORS’ REPORT continuedVIRTUS HEALTH 4. Senior executives – FY2018 grant
On 10 November 2017, performance rights were granted to the following members of the executive management team:
Sue Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Jade Phelan
The performance rights vest subject to the following performance hurdles:
• Relative TSR and average annual return on equity attributable to shareholders (‘ROE’). TSR is measured on the company’s
TSR relative to a peer group of companies in both the S&P ASX 200 Index and the S&P ASX 200 Healthcare Index (weighted
50% each) over the three year performance period. 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.
Performance Hurdle
Percentile less than
Percentile at
Percentile range
Relative TSR
S&P ASX 200
50
50
50-75
TSR Base share price
% ROE less than
% ROE at
% ROE range
$5.58
3 Year average ROE
15.0%
15.0%
15.0-17.5%
Relative TSR
S&P ASX 200 Health
50
50
50-75
$5.58
Rights Vesting %
Notes
0%
12.5%
12.5-25%
0%
25%
25-50%
For each hurdle
Progressive pro-rata
vesting for the range for
each hurdle
Progressive pro-rata
vesting for the range
Calculations of the company’s TSR and ROE will be determined at the end of the three year vesting period by the Board with
verification performed by an external party. The annual AASB 2 accounting charge of this scheme is currently $68,548 and the
maximum earnings dilution to existing shareholders is 0.17%.
Other remuneration
KMPs who are Australian employees receive superannuation contributions, in accordance with statutory provisions, and long service
leave benefits in accordance with the Australian state where they are employed.
31
ANNUAL REPORT 2018 D. Link between remuneration and consolidated entity performance
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 per share targets being met. Assuming that all performance conditions are met the
proportion of remuneration linked to performance and the fixed proportion is as follows:
Name
Non-Executive Directors:
P Macourt
P Turner
S Petering
G Couttas
Executive Directors:
S Channon
L Hale
Other Key Management Personnel:
G Powers
J Phelan
N Stankovic
S Zappia
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
Fixed remuneration
2018
2017
At risk – STI
2018
2017
At risk – LTI
2018
2017
100%
100%
100%
100%
48%
100%
48%
58%
58%
58%
88%
100%
100%
100%
–
100%
100%
100%
100%
48%
100%
48%
77%
58%
58%
–
71%
100%
100%
–
–
–
–
–
24%
–
24%
18%
18%
18%
9%
–
–
–
–
–
–
–
–
24%
–
24%
23%
18%
18%
–
–
–
–
–
–
–
–
–
28%
–
28%
24%
24%
24%
3%
–
–
–
100%
–
–
–
–
28%
–
28%
–
24%
24%
–
29%
–
–
–
The proportion of the cash bonus paid/payable or forfeited is as follows:
Name
Executive Directors:
S Channon
Other Key Management Personnel:
G Powers
J Phelan
S Zappia
N Stankovic
R Banks
Cash bonus paid/payable
2017
2018
Cash bonus forfeited
2018
2017
51%
79%
51%
23%
–
40%
–
49%
100%
–
100%
–
–
–
21%
49%
77%
100%
60%
100%
–
100%
100%
–
32
DIRECTORS’ REPORT continuedVIRTUS HEALTH Accordingly the actual proportion of remuneration linked to performance and the fixed proportion in FY2018 is as follows:
Fixed remuneration
2018
2017
At risk – STI
2018
2017
At risk – LTI
2018
2017
Name
Executive Directors:
S Channon
L Hale
Other Key Management Personnel:
G Powers
J Phelan
N Stankovic
S Zappia
R Banks
A Walsh
P Illingworth
D Molloy
70%
100%
65%
84%
89%
85%
88%
84%
100%
100%
96%
100%
96%
77%
97%
94%
–
94%
100%
100%
18%
–
25%
13%
–
6%
9%
–
–
–
–
–
–
23%
–
–
–
–
–
–
12%
–
10%
3%
11%
9%
3%
16%
–
–
The earnings of the consolidated entity that are considered to affect total shareholders return (‘TSR’) for the five years to
30 June 2018 are summarised below:
Revenue
EBITDA
EBIT
Profit after income tax
NPAT attributable to Virtus shareholders
Share price at financial year end ($)
Total dividends paid (cents per share)
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2018
$’000
262,061
65,027
52,531
32,009
30,753
2018
5.75
26.00
38.26
37.98
2017
$’000
256,518
64,834
50,799
30,004
28,103
2017
5.38
28.00
35.00
34.79
2016
$’000
261,210
68,916
57,736
34,865
32,918
2016
6.87
28.00
41.18
40.79
2015
$’000
234,142
61,355
51,361
30,441
29,434
2015
5.37
27.00
36.86
36.54
4%
–
4%
–
3%
6%
–
6%
–
–
2014
$’000
201,249
59,404
51,212
30,957
30,885
2014
8.16
12.00
38.80
38.48
Remuneration outcomes for FY2018
The following is a summary of the key KMP remuneration outcomes for FY2018:
Total KMP remuneration for FY18 increased by $812,705, (28.7%). Of the increase, $335,512 relates to the recruitment of the European
Managing Director, $295,960 relates to improved STI performance and $279,430 relates to increases in share based payments.
33
ANNUAL REPORT 2018
STI Outcomes for FY2018
The Board applied its pooled STI plan for all qualifying KMPs in FY2018. Participants in the STI plan receive a share of the STI pool
based on the performance of the Australian and European segments respectively and their own individual territory or functional
responsibility (Europe, New South Wales, Victoria, Queensland, Tasmania or Diagnostics). Key features of the STI pool arrangements
as applied in FY18 are as follows:
• the potential maximum aggregate size of the STI pool for the KMPs (including the Tasmanian Managing Director who was not
designated as a KMP during FY 2018) was $771,200. The pool did not include Richard Banks in FY2018 as he joined the group during
the year
• the actual size of the pool was determined with reference to the annual increase in earnings per share of Virtus Health Limited
as follows:
– 1% EPS growth on prior year will generate a pool equal to 10% of the maximum aggregate ($77,120);
– 10% EPS growth on prior year will generate a pool equal to 100% of the maximum aggregate ($771,200); and
– pool size between 1% and 10% EPS growth will be determined by straight line interpolation.
A minimum of 60% of this pool will be payable on the achievement of individual financial KPIs and the balance of this pool will be
payable on the achievement of individual KPIs established by the Nomination and Remuneration Committee.
The financial KPIs include:
•
•
Increase in territory EBIT over prior year.
Increase in NPAT over prior year (applicable to CEO and CFO); and
In FY2018 in accordance with the previously approved STI plan, the STI pool was calculated as an average of the pools earned for
the two years ending 30 June 2018. The value of the pool earned in FY2017 was nil and the value of the pool earned in FY2018 was
$715,674, hence the maximum value of the pool payable for FY2018 was $357,837.
Based on the achievements of the consolidated entity this year the Committee determined that as a consequence of the increase in
EPS of 9.28% (based on the increase in EPS of 9.28%), and considering other KPIs, executives have achieved the following percentages
of their overall STI targets:
Susan Channon – 51%;
Glenn Powers – 79%;
Jade Phelan – 51%;
Steve Zappia – 23%;
Nadia Stankovic – 0%;
Richard Banks – 40%; and
Anthony Walsh – no STI as he is incentivised by way of his minority shareholder interest in the business of Sims Clinic.
LTI outcomes for FY2018
In FY2018 the following performance hurdles were tested in respect of the performance rights grant dated 10 November 2015 and
10 November 2014:
• Performance rights grant dated 10 November 2015:
from a potential total of 50% of the performance rights available, 0% of available rights vested in respect of average ROE over the
three year performance period; accordingly 75,288 of the performance options granted on 10 November 2015 did not vest and
have lapsed; and
• Performance rights grant dated 10 November 2014:
from a potential total of 50% of the performance rights available, 0% of available rights vested in respect of relative TSR over the
three year performance period; accordingly 46,974 of the performance options granted on 10 November 2014 did not vest and
have lapsed.
34
DIRECTORS’ REPORT continuedVIRTUS HEALTH E. Executive 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:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Lyndon Hale
Executive Director and Medical Director, Victoria
11 June 2013
No fixed end date
The Executive may terminate the fertility specialist contract by giving a minimum of 6 months’
notice or maximum of 12 months’ notice in writing. The company may terminate by giving
12 months’ notice in writing. Upon the termination of the fertility specialist contract, the fertility
specialist 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.
Susan Channon
Chief Executive Officer
11 June 2013
No fixed end date
The Executive may terminate the employment contract by giving 3 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.
Glenn Powers
Chief Financial Officer and Company Secretary
11 June 2013
No fixed end date
The Executive may terminate the employment contract by giving 3 months’ notice in writing.
The company may terminate by giving 6 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.
35
ANNUAL REPORT 2018 Other Key Management Personnel
Jade Phelan, Steve Zappia, Nadia Stankovic, Richard Banks and Anthony Walsh are employed under individual executive services
agreements; these agreements include provisions for:
• total compensation including a base salary, superannuation contribution and incentive arrangements;
• variable notice and termination provisions of up to six months;
•
• restraint provisions; and
• confidentiality provisions.
leave entitlements, as a minimum, as per the National Employment Standard (applicable to Australia based employees);
The company’s remaining Australian state Medical Directors, Peter Illingworth, David Molloy and William Watkins are contracted
under fertility specialist agreements. The individual may terminate their fertility specialist contract by giving a minimum of six months’
notice or maximum of twelve months’ notice in writing. The company may terminate by giving 12 months’ notice in writing and upon
the termination of the fertility specialist contract the fertility specialist 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.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
36
DIRECTORS’ REPORT continuedVIRTUS HEALTH F. Remuneration, share and option disclosures for FY2018
Amounts of remuneration – accruals basis
Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The first two
tables are calculated in accordance with Australian accounting standard AASB 2 on an accruals basis and therefore take account of
movements in leave accruals and provisions:
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
Salary, leave
and fees
$
Bonus
$
Non-
monetary
and
termination
$
Super-
annuation $
Long
Service
Leave
$
Equity-
settled
$
2018
Non-Executive
Directors:
P Macourt
P Turner
S Petering
G Couttas
Executive Directors:
S Channon
L Hale
Other Key Management
Personnel:
G Powers
N Stankovic
J Phelan
S Zappia
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
133,562
92,104
86,986
86,986
–
–
–
–
475,203
161,697
132,865
–
344,594
250,092
252,426
264,126
279,308
42,638
189,428
119,554
–
2,778,704
146,677
–
44,193
19,896
31,265
–
–
–
–
374,896
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,688
8,750
8,264
8,264
20,049
6,962
20,049
24,320
27,583
26,210
15,921
–
–
11,358
–
190,418
Total
$
146,250
100,854
95,250
95,250
–
–
–
–
–
–
–
–
9,329
–
84,495
–
721,941
168,659
15,546
(21,541)
477
3,742
–
–
–
–
–
7,553
60,429
30,909
8,668
30,340
9,018
7,910
22,023
–
41,203
294,995
587,295
283,780
333,347
344,314
335,512
50,548
211,451
130,912
41,203
3,646,566
37
ANNUAL REPORT 2018 Short-term benefits
Post-
employment
benefits
Salary, leave
and fees
$
Bonus
$
Non-
monetary
$
Super-
annuation
$
Long-term
benefits
Share-based
payments
Long
Service
Leave
$
Equity-
settled
$
2017
Non-Executive
Directors:
P Macourt
D O’Neill
P Turner
S Petering
G Couttas
Executive Directors:
S Channon
L Hale
Other Key Management
Personnel:
G Powers
N Stankovic
A Othen
J Phelan
S Zappia
A Walsh
P Illingworth
D Molloy
133,562
38,550
102,968
84,703
57,332
475,834
179,400
341,833
256,980
146,869
142,951
265,850
40,036
188,612
119,554
2,575,035
–
–
–
–
–
–
–
–
–
–
47,671
–
–
–
–
47,671
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,688
3,662
9,782
8,047
5,446
29,545
8,680
30,632
23,990
13,724
17,624
24,060
–
–
11,358
199,237
Total
$
146,250
42,212
112,750
92,750
62,778
–
–
–
–
–
–
–
–
–
–
12,820
–
21,829
–
540,028
188,080
14,874
4,624
(37,133)
162
1,006
–
–
–
(3,647)
15,040
7,748
(39,407)
–
7,677
2,678
–
–
15,565
402,379
293,342
84,053
208,408
298,593
42,714
188,612
130,912
2,833,861
Greg Couttas joined the Board in October 2016 so the total benefit in FY2017 does not represent a full year of fees. Similarly, Dennis
O’Neill retired from the Board in November 2016 so the total benefit in FY2017 does not represent a full year of fees.
Jade Phelan joined the group in December 2016 so the total benefit in FY2017 does not represent a full year salary. Richard Banks
joined the group in August 2017 so the total benefit in FY2018 does not represent a full year salary. William Watkins did not receive any
remuneration in his capacity as a key management person for the financial year ended 30 June 2017.
The value of share-based payments and the long term employee leave represents the accounting charge or accrual and not the
cash benefit received by the KMP. Long term leave benefits are the long service leave accruals calculated in accordance with state
entitlements. The value of share-based payments during the financial year also includes options which lapsed during the year.
The bonus represents the accrual in respect of a KMP’s performance in the financial year and this is normally paid in the month
following the publication of the consolidated entity’s financial statements.
38
DIRECTORS’ REPORT continuedVIRTUS HEALTH The next two tables show the actual cash payments made to KMPs in the relevant financial years:
2018
Non-Executive Directors:
P Macourt
P Turner
S Petering
G Couttas
Executive Directors:
S Channon
L Hale
Other Key Management Personnel:
G Powers
N Stankovic
J Phelan
S Zappia
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
2017
Non-Executive Directors:
P Macourt
D O’Neill
P Turner
S Petering
G Couttas
Executive Directors:
S Channon
L Hale
Other Key Management Personnel:
G Powers
A Othen
N Stankovic
J Phelan
S Zappia
A Walsh
P Illingworth
D Molloy
Salary,
leave
and fees
$
133,562
92,104
86,986
86,986
503,051
161,697
351,251
256,000
256,000
259,963
279,308
42,638
189,428
119,554
–
2,818,529
Salary,
leave and
fees
$
133,562
38,551
102,968
84,703
57,332
Bonus
$
Super-
annuation
$
Total
$
146,250
100,854
95,250
95,250
12,688
8,750
8,264
8,264
20,049
6,962
523,100
168,659
20,049
24,320
27,914
24,320
15,921
–
–
11,358
–
188,858
371,300
280,320
331,585
284,283
295,229
42,638
189,428
130,912
–
3,055,058
–
–
–
–
–
–
–
–
47,671
–
–
–
–
–
–
47,671
Bonus
$
Super-
annuation
$
–
–
–
–
–
12,688
3,662
9,782
8,047
5,447
Total
$
146,250
42,213
112,750
92,750
62,778
493,245
179,401
57,420
–
35,000
8,680
585,665
188,081
340,447
149,425
252,522
139,052
254,973
40,036
188,612
130,912
2,585,742
45,975
–
34,952
–
27,128
–
–
–
165,475
35,000
14,482
27,310
13,095
26,637
–
–
11,358
199,831
421,423
163,907
314,784
152,148
308,738
40,036
188,612
130,912
2,951,048
39
ANNUAL REPORT 2018 Additional disclosures relating to key management personnel:
Shareholding
The number of ordinary shares in the company 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:
Peter Macourt
Susan Channon
Sonia Petering
Greg Couttas
Lyndon Hale
Peter Turner
Glenn Powers
Peter Illingworth
David Molloy
Balance
at the start
of the year
18,485
448,633
5,966
3,748
823,694
50,000
114,150
354,020
364,207
2,182,903
Received
as part of
remuneration
–
–
–
–
–
–
–
–
–
–
Disposals/
other
–
–
–
–
–
–
–
(30,000)
–
(30,000)
Balance
at the end
of the year
18,485
448,633
8,066
5,000
823,694
50,000
114,150
324,020
364,207
2,156,255
Additions
–
–
2,100
1,252
–
–
–
–
–
3,352
Option holding
The number of options and performance rights over ordinary shares in the company 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:
Options over ordinary shares
Susan Channon
Glenn Powers
Jade Phelan
Nadia Stankovic
Steve Zappia
Richard Banks
Anthony Walsh
Peter Illingworth
William Watkins
Balance at
the start of
the year
Granted
Exercised/
cancelled
Expired/
forfeited/
other
Balance
at the end
of the year
116,050
82,373
–
41,497
41,816
–
15,304
–
–
297,040
56,247
39,925
20,095
20,095
20,095
20,908
–
17,921
28,674
223,960
–
–
–
–
–
–
–
–
–
–
(47,649)
(33,821)
–
(17,064)
(17,292)
–
(6,437)
–
–
(122,263)
124,648
88,477
20,095
44,528
44,619
20,908
8,867
17,921
28,674
398,737
40
DIRECTORS’ REPORT continuedVIRTUS HEALTH 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 2018.
Options or performance rights
The terms and conditions of each grant 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
10 November 2014
10 November 2015
10 November 2016
10 November 2017
Vesting date and exercisable date
10 November 2017
10 November 2018
10 November 2019
10 November 2020
Expiry date
10 November 2024
10 November 2025
10 November 2026
10 November 2027
Exercise
price
$0.00
$0.00
$0.00
$0.00
Fair value
per option at
grant date
$6.90
$4.41
$4.52
$3.79
Options or performance rights 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 C of this report for details of the KMP LTI arrangements.
The number of options or performance rights over ordinary shares granted to and vested by directors and other key management
personnel as part of compensation during the years ended 30 June 2018 and 30 June 2017 are set out below:
Name
Susan Channon
Glenn Powers
Jade Phelan
Nadia Stankovic
Steve Zappia
Richard Banks
Anthony Walsh
Peter Illingworth
William Watkins
Number of
options granted
during the year
2018
Number of
options granted
during the year
2017
Number of
options vested
during the year
2018
Number of
options vested
during the year
2017
56,247
39,925
20,095
20,095
20,095
20,908
–
17,921
28,674
38,989
27,675
–
13,929
13,929
–
4,969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fair values of options and performance rights over ordinary shares granted, exercised and lapsed for directors and other key
management personnel as part of compensation during the year ended 30 June 2018 are set out below:
Name
Susan Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Richard Banks
Anthony Walsh
Peter Illingworth
William Watkins
Fair value of
options granted
during the year
$
213,176
151,316
76,160
76,160
79,241
–
71,505
114,409
Net market
value of options
exercised
during the year
$
–
–
–
–
–
–
–
–
Number of
options lapsed
during the year
47,649
33,821
17,064
17,292
–
6,437
–
–
Note: Of the options lapsing 46,974 were granted on 10 November 2014 and 75,288 were granted on 10 November 2015.
41
ANNUAL REPORT 2018 G. Non-executive director remuneration
Overview of non-executive director remuneration
In accordance with best practice corporate governance, the structure of non-executive directors’ and executive remunerations
are different. 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 approved by the shareholders. Aggregate annual
directors’ fees paid to directors for the financial year ended 30 June 2018 were $437,604. Details of the fees payable to each director
are set out in section F of this report. The maximum authorised amount payable including superannuation to all non-executive
directors for their services approved by the shareholders is currently $600,000 per annum.
Non-executive director fees comprise a base director fee and an additional payment to reflect a director’s involvement in Board
committees as follows:
• Chairman of Audit Committee receives an additional fee of $15,000;
• Chairman of Risk Committee receives an additional fee of $15,000;
• Chairman of Nomination and Remuneration Committee receives an additional fee of $10,000;
• Member of Audit or Risk Committee receives an additional fee of $7,500 per committee; and
• Member of Nomination and Remuneration Committee receives an additional fee of $5,000.
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.
H. Fertility specialist performance rights incentives
Grants of performance rights – fertility specialists
During FY2018 the Committee in consultation with the Board and the Australian Medical Directors conducted a review of the equity
incentive arrangements for the fertility specialists focusing on the following areas:
• Vesting of grants made before September 2016;
•
initial grants made to new fertility specialists;
• standard performance grants; and
• high performance grants.
Performance rights are 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 established in one of the financial years ending after June 2008 up to June 2017.
All incentive schemes are administered in accordance with the plan rules established in the Virtus Health Limited Specialist Option
Plan approved by the Board in June 2013.
Grants made before 1 September 2016
Vesting is dependent on achievement of performance and share price hurdles. Upon the satisfaction of the vesting conditions and
any other conditions to exercise, each performance right will be exercisable into a variable number of shares based on the terms of
issue of the performance rights. The number of shares to be issued will be calculated by multiplying the applicable component of the
offer value of the grant by the amount of the increase in the share price between the share price at vesting compared to the price at
grant all divided by the share price at vesting.
At 30 June 2018 the potential number of unvested performance rights subject to these arrangements is estimated to be 129,717.
42
DIRECTORS’ REPORT continuedVIRTUS HEALTH Grants made after 1 September 2016
The Committee reviewed the performance right grant and vesting conditions of all fertility specialist incentive arrangements in
September 2016 and made three significant changes to the schemes effective for all grants made with effect from 1 September 2016:
• the requirement for the share price at vesting to be greater than the share price at grant was removed;
• The number of performance rights granted to a fertility specialist is derived using the average closing share price for the previous
15 business days immediately following the announcement of the Company’s results to the ASX for the financial periods ending
31 December and 30 June and accordingly the number of performance rights granted will be fixed at grant; and
• Amendments were made to the high performance scheme including the removal of the requirement for the company’s
ordinary share price at exercise to be higher than the base price set at the time of incentive commencement and the number of
performance rights to be fixed at grant.
Grants of rights are made twice a year as follows:
• March grants for new fertility specialists contracting in the 6 month period ending 31 December; and
• September grants for standard and high performance rights in relation to KPI achievement in the 12 month period ending 30 June
and new fertility specialists contracting in the 6 month period ending 30 June.
Key of the grants are as follows:
• For new fertility specialists who join the consolidated entity, performance rights will generally vest equally in three tranches
on the third, fourth and fifth anniversary of the grant of the performance rights, 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 the consolidated entity; and
• For existing fertility specialists, performance rights are awarded for incremental increases in practice cycles of 50, up to a limit
of 200 cycles and rights will generally vest equally in three tranches on the third, fourth and fifth anniversary of the grant of the
performance rights, 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 performance rights were awarded.
High performance options – fertility specialists
The Board recognises those fertility specialists that achieve a high level of fresh cycles over a defined period acknowledging the value
they generate for shareholders. The High Performer Share Incentive Scheme (“HPSIS”) rewards fertility specialists who consistently
delivered more than 400 cycles per annum for a consecutive three year period. For FY2017 the hurdle was adjusted to 300 cycles per
annum. There have been four issues of HPSIS details of which are as follows:
• the first incentive period commenced on 1 January 2014 and ended on 31 December 2016; no fertility specialists met the
performance criteria and this grant has now lapsed;
• the second incentive period commenced on 1 January 2015 and ended on 31 December 2017; no fertility specialists met the share
price hurdle and this grant has now lapsed;
• the third incentive period commenced on 1 July 2016 and runs for a four year period ending 30 June 2020 with the first year being
the qualifying period. There is no share price hurdle applicable to this grant; and
• the fourth incentive period commenced on 1 July 2017 and runs for a four year period ending 30 June 2021 with the first year being
the qualifying period. There is no share price hurdle applicable to this grant.
The key performance features of the third and fourth issues of HPSIS are as follows:
• a specialist can only participate in one HPSIS grant at any point in time; and
• award values converting into VRT ordinary shares are as follows:
– $80,000 of performance rights for > 299 average cycles per annum over 4 year period; or
– $100,000 of performance rights for > 324 average cycles per annum over 4 year period; or
– $120,000 of performance rights for > 349 average cycles per annum over 4 year period; or
– $140,000 of performance rights for > 374 average cycles per annum over 4 year period; or
– $160,000 of performance rights for > 399 average cycles per annum over 4 year period; or
– $180,000 of performance rights for > 424 average cycles etc.
In FY17, 11 fertility specialists qualified for the third issue of HPSIS. In FY18, 2 fertility specialists qualified for the fourth issue of HPSIS.
43
ANNUAL REPORT 2018 Vesting conditions
Performance rights 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 service and
the individual performance of the participant in the Plan.
The Board has the discretion to set the value, terms and conditions on which it will offer performance rights under the Plan, including
the vesting conditions and different terms and conditions which apply to different participants in the Plan Participants will not be
required to pay any money to be granted performance rights under the Plan.
Review of fertility specialist schemes – key outcomes.
The Nominations and Remuneration Committee in conjunction with the Board and the Medical Directors is proposing the following
fertility specialist incentive structure to be applicable for FY19:
•
• performance right grants to specialists will be maintained in accordance with current scheme arrangements up to the achievement
initial right grants to new specialists will remain unchanged;
of 200 cycles per annum;
• the high performance scheme will be replaced by a loyalty option scheme with effect from FY19; and
• all existing grants run out in accordance with existing arrangements.
Loyalty option scheme – fertility specialists
The existing high performance incentives provide an incentive to only a small number of specialists and does not recognise the
contribution made by many established specialists who provide a consistent service to patients. The Nomination and Remuneration
Committee, in conjunction with the Virtus Australian Medical Directors wished to recognise the continued contribution of the top
quartile of specialists on an annual basis whilst at the same time maintaining the same cost to the company. The revised loyalty option
scheme also recognises that individual specialist practice activity does vary periodically and also by territory.
The key features of the revised loyalty option scheme are as follows:
• value of award is variable and dependent on individual number of personal cycles adjusted for a loading ratio to recognise a higher
award for specialists making a higher contribution to the business.
• award per loaded cycle for FY19 is $50, hence awards would be as follows:
– 200 cycles, = 200 *1.0 * $50 = $10,000 worth of shares;
– 250 cycles, = 250 *1.1 * $50 = $13,750 worth of shares;
– 300 cycles, = 300 *1.2 * $50 = $18,000 worth of shares;
– 350 cycles, = 350 *1.3 * $50 = $22,750 worth of shares;
– 400 cycles, = 400 *1.4 * $50 = $28,000 worth of shares;
• Loading ratios per cycle:
– >399 cycles, 1.4
– >349 cycles, 1.3
– >299 cycles, 1.2
– >249 cycles, 1.1
– >199 cycles, 1.0
• Annual Qualifying hurdle is 200 cycles;
• Annual vesting, no wait period, no escrow;
• Other considerations;
– annual loyalty award replaces all standard performance awards for improvement above 200 cycles; and
– awards would be payable in shares; conversion from award value would be at the Virtus share price on the 15th business day
following the group’s annual result announcement (normally mid-September);
– annual pool value for FY19 is capped at $500,000 (assessed annually by Remuneration Committee); this cost is consistent with
the cost of the scheme it replaces.
This concludes the remuneration report which has been audited.
44
DIRECTORS’ REPORT continuedVIRTUS HEALTH Shares under option
Unissued ordinary shares of Virtus Health Limited under option at the date of this report are as follows:
Grant date
21 January 2014*
03 October 2014*
13 May 2015*
13 May 2015*
13 May 2015*
13 May 2015*
11 November 2015*
21 August 2015*
28 October 2015*
16 December 2015*
21 September 2016*
21 September 2016*
11 November 2016
21 June 2017*
24 October 2017
24 October 2017*
24 October 2017*
24 October 2017*
22 November 2017*
22 November 2017*
Expiry date
21 January 2024
03 October 2024
13 May 2025
13 May 2025
13 May 2025
13 May 2025
11 November 2025
21 August 2025
28 October 2025
16 December 2025
21 September 2026
21 September 2026
11 November 2026
21 June 2027
24 October 2027
24 October 2027
24 October 2027
24 October 2027
22 November 2027
22 November 2027
Exercise or
base price
$6.40
$8.57
$7.16
$7.53
$7.94
$7.94
$0.00
$5.67
$5.01
$6.17
$8.05
$8.05
$0.00
$5.35
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Number
under option
or shares to
be issued
29,448
71,029
2,757
912
794
343
87,763
7,434
11,491
5,509
8,616
4,332
99,491
3,129
171,199
72,580
116,128
43,548
229,391
136,508
1,102,402
* The consolidated entity grants performance rights to fertility specialists as a dollar value; for the purpose of calculating the estimated number of shares under option,
estimates of the share price at the time of vesting are forecast to facilitate an estimate of the number of shares to be issued at vesting.
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.
Shares issued on the exercise of options
During the financial year 1,444 ordinary shares were issued on the exercise of options. No share options were cancelled during the
financial year. There were no shares of Virtus Health Limited issued on the exercise of options from 1 July 2018 up to and including the
date of this report.
Indemnity and insurance of officers
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 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. It is a condition of the insurance contract that its limits of
indemnity, the nature of the liability indemnified, and the amount of the premium, not be disclosed.
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.
45
ANNUAL REPORT 2018
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 38 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 38 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
• 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 partners of PricewaterhouseCoopers
There are no officers of the company who are former partners of PricewaterhouseCoopers.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by
the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in
accordance with that Corporations Instrument 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 follows this report.
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
signature
Peter Macourt
Chairman
21 August 2018
Sydney
46
DIRECTORS’ REPORT continuedVIRTUS HEALTH
Auditor’s Independence Declaration
As lead auditor for the audit of Virtus Health Limited for the year ended 30 June 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
(b)
no contraventions of the auditor independence requirements of the Corporations Act
2001 in relation to the audit; and
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 period
Mark Dow
Partner
PricewaterhouseCoopers
Sydney
21 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW
2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
47
AUDITOR’S INDEPENDENCE DECLARATIONANNUAL REPORT 2018
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
Impairment of goodwill
Occupancy expense
Advertising and marketing
Practice equipment expenses
Professional and consulting fees
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Net change in the fair value of cash flow hedges taken to equity, net of tax
Foreign currency translation
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit for the year is attributable to:
Non-controlling interest
Owners of Virtus Health Limited
Total comprehensive income for the year is attributable to:
Non-controlling interest
Owners of Virtus Health Limited
Basic earnings per share
Diluted earnings per share
Consolidated
2018
$’000
262,061
570
1,844
(71,717)
(89,044)
(12,496)
–
(17,694)
(4,427)
(2,213)
(2,562)
(11,655)
(7,803)
2017
$’000
256,518
483
4,849
(71,204)
(86,594)
(12,165)
(1,870)
(16,227)
(4,343)
(2,227)
(2,518)
(13,776)
(8,093)
44,864
42,833
(12,855)
(12,829)
32,009
30,004
306
2,833
3,139
554
425
979
35,148
30,983
1,256
30,753
1,901
28,103
32,009
30,004
1,040
34,108
1,972
29,011
35,148
30,983
Cents
38.26
37.98
Cents
35.00
34.79
Note
4
5
6
7
7
7
8
31
32
50
50
The above statement of comprehensive income should be read in conjunction with the accompanying notes
48
STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 30 June 2018VIRTUS HEALTH
Note
Consolidated
2018
$’000
2017
$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
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
Derivative financial instruments
Income tax
Provisions
Other financial liabilities
Other
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax
Provisions
Other financial liabilities
Other payables
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Equity attributable to the owners of Virtus Health Limited
Non-controlling interest
Total equity
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
The above statement of financial position should be read in conjunction with the accompanying notes
21,713
12,491
752
3,035
37,991
1,489
34,477
465,436
5,468
517
507,387
27,337
12,341
758
2,434
42,870
1,489
28,989
411,483
4,551
531
447,043
545,378
489,913
24,468
420
4,337
4,169
397
14,779
48,570
180,773
107
866
6,415
23,757
1,340
213,258
261,828
20,925
527
378
3,768
14,044
8,169
47,811
153,564
437
585
6,063
11,755
1,327
173,731
221,542
283,550
268,371
242,251
2,837
27,979
273,067
10,483
242,001
(11,416)
18,127
248,712
19,659
283,550
268,371
49
STATEMENT OF FINANCIAL POSITIONas at 30 June 2018ANNUAL REPORT 2018 Consolidated
Balance at 1 July 2016
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 30)
Payment of partly paid shares
Dividends payable by subsidiaries to
non-controlling interests
Share-based payments
Dividends paid (note 34)
Issued
capital
$’000
238,829
–
–
–
2,504
668
–
–
–
Reserves
$’000
(12,764)
–
908
908
–
–
–
440
–
Retained
profits
$’000
Non-
controlling
interest
$’000
Total equity
$’000
12,531
28,103
–
28,103
–
–
–
–
(22,507)
19,448
1,901
71
1,972
–
–
(1,761)
–
–
258,044
30,004
979
30,983
2,504
668
(1,761)
440
(22,507)
Balance at 30 June 2017
242,001
(11,416)
18,127
19,659
268,371
Consolidated
Balance at 1 July 2017
Profit after income tax expense for the year
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Non-controlling interest on acquisition of subsidiary
Dividends payable by subsidiaries to non-controlling
interests
Put option exercise
Settlement of partly paid shares
Share-based payments
Dividends paid (note 34)
Issued
capital
$’000
242,001
–
–
–
Reserves
$’000
(11,416)
–
3,355
3,355
Retained
profits
$’000
Non-
controlling
interest
$’000
Total equity
$’000
18,127
30,753
–
30,753
19,659
1,256
(216)
1,040
268,371
32,009
3,139
35,148
–
–
–
250
–
–
–
–
1,013
1,013
–
10,017
–
881
–
–
–
–
–
(20,901)
(1,212)
(10,017)
–
–
–
(1,212)
–
250
881
(20,901)
Balance at 30 June 2018
242,251
2,837
27,979
10,483
283,550
The above statement of changes in equity should be read in conjunction with the accompanying notes
50
STATEMENT OF CHANGES IN EQUITYfor the year ended 30 June 2018VIRTUS HEALTH Notes
Consolidated
2018
$’000
2017
$’000
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
Payment of acquisition of non-controlling interest
Final payment for prior period’s business acquisition
Payments for acquisition of subsidiaries and businesses, net of cash acquired
Payments for property, plant and equipment and intangibles
Payment of security deposits
Proceeds from disposal of property, plant and equipment
Proceeds from release of security deposits
Interest received
Associate distributions received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from partly paid shares
Proceeds from issue of shares
Payment of dividends
Dividend paid to non-controlling interest in subsidiaries
Repayment of borrowings
Proceeds from borrowings
Payment for finance lease facility
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
48
43
43
30
30
260,757
(191,637)
69,120
2,502
(6,615)
(10,040)
54,967
(10,220)
(4,152)
(36,402)
(15,500)
–
–
14
136
875
(65,249)
250
–
(20,901)
(2,112)
(6,000)
33,000
–
4,237
(6,045)
27,337
421
255,569
(202,363)
53,206
2,761
(6,560)
(10,701)
38,706
–
(826)
(9,965)
(9,849)
(196)
26
–
127
500
(20,183)
668
2,504
(22,507)
–
–
6,000
(22)
(13,357)
5,166
22,215
(44)
Cash and cash equivalents at the end of the financial year
9
21,713
27,337
The above statement of cash flows should be read in conjunction with the accompanying notes
51
STATEMENT OF CASH FLOWSfor the year ended 30 June 2018ANNUAL REPORT 2018 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 or amended Accounting Standards and
Interpretations adopted
The consolidated entity has adopted all of the new or amended
Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are
mandatory for the current reporting period.
The adoption of these Accounting Standards and Interpretations
did not have any significant impact on the financial performance
or position of the consolidated entity.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been
early adopted.
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 and the Corporations Act 2001. Virtus Heath Limited
is a for-profit entity for the purpose of preparing the financial
statements. The consolidated financial statements of the Virtus
Health Limited group also comply with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
At 30 June 2018 the consolidated entity’s current liabilities
exceeded its current assets by $10,579,000 (June 2017:
$4,941,000). The current liabilities include unearned income of
$14,779,000 as well as employee leave liabilities of $10,010,000.
Whilst, the leave liabilities are required to be disclosed as a
current liability, a large portion of this liability is expected not to
be settled within 12 months. The consolidated entity also has
unused and available debt facilities of $24,509,000 that do not
expire until September 2019 and a cash balance of $21,713,000
as at 30 June 2018.
The Directors continually monitor the group’s working capital
position, including forecast working capital requirements
and have ensured that there are appropriate refinancing
strategies and adequate committed funding facilities in place to
accommodate financial obligations as and when they fall due.
The financial report therefore has been prepared on a going
concern basis.
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 42.
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 2018 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 control. The consolidated entity controls an entity
when the consolidated entity is exposed to, or has rights to,
variable returns from its involvement with the entity and has
the ability to affect those returns through its power to direct the
activities of the entity. 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.
The acquisition of subsidiaries and businesses are accounted
for using the acquisition method of accounting. 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.
Non-controlling interest in the results and equity of subsidiaries
are shown separately in the statement of comprehensive
income, statement of financial position and statement of
changes in equity of the consolidated entity. Losses incurred
by the consolidated entity are attributed to the non-controlling
interest in full, even if that results in a deficit balance.
52
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 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 presented 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.
Foreign currency translation
The financial statements are presented in Australian
dollars, which is Virtus Health Limited’s functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian
dollars using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation
at financial year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into
Australian dollars using the exchange rates at the reporting date.
The revenues and expenses of foreign operations are translated
into Australian dollars using the average exchange rates, which
approximate the rates at the dates of the transactions, for the
period. All resulting foreign exchange differences are recognised
in other comprehensive income through the foreign currency
translation reserve in equity.
The foreign currency translation reserve is recognised in profit or
loss when the foreign operation or net investment is disposed of.
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 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 the 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 be applied 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 interests in subsidiaries, associates or 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.
The carrying amount of recognised and unrecognised deferred
tax assets are reviewed at 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.
53
ANNUAL REPORT 2018 Note 1. Significant accounting policies
(continued)
Income tax (continued)
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 entities which intend
to settle simultaneously.
Virtus Health Limited (the ‘head entity’) and its wholly-owned
Australian subsidiaries have formed an income tax consolidated
group under the tax consolidation regime. The head entity
and each subsidiary 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 each subsidiary in the tax
consolidated group.
Assets or liabilities arising under tax funding agreements 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.
Current and non-current classification
Assets and liabilities are presented in the statement of financial
position based on current and non-current classification.
An asset is classified as current when: it is either expected to be
realised or intended to be sold or consumed in the consolidated
entity’s normal operating cycle; it is held primarily for the purpose
of trading; it is expected to be realised within 12 months after the
reporting period; or the asset is cash or cash equivalent unless
restricted from being exchanged or used to settle a liability for
at least 12 months after the reporting period. All other assets are
classified as non-current.
A liability is classified as current when: it is either expected to
be settled in the consolidated entity’s normal operating cycle;
it is held primarily for the purpose of trading; it is due to be
settled within 12 months after the reporting period; or there is no
unconditional right to defer the settlement of the liability for at
least 12 months after the reporting period. All other liabilities are
classified as non-current.
Deferred tax assets and liabilities are always classified
as non-current.
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 donor gametes held to provide donor
fertility treatments and 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.
54
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Cash flow hedges
Cash flow hedges are used to cover the consolidated entity’s
exposure to variability in cash flows that is attributable to a
particular risk associated with a recognised asset or liability
or a firm commitment which could affect profit or loss. 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, the 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, the 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
associate. Goodwill relating to the associate is included in the
carrying amount of the investment and is neither amortised
nor individually tested for impairment. 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.
The consolidated entity discontinues the use of the equity
method upon the loss of significant influence over the associate
and recognises any retained investment at its fair value. Any
difference between the associate’s carrying amount, fair value
of the retained investment and proceeds from disposal is
recognised in profit or loss.
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.
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 Shorter of the useful and the
Furniture and fittings
Office equipment
Medical equipment
expected life of the lease
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 the 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.
55
ANNUAL REPORT 2018 Note 1. Significant accounting policies
(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 amortisation 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 3 to 5 years.
Brand names
Brand names are amortised on a straight-line basis over
the period of their expected benefit, being their finite life of
10 – 15 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 of disposal 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, t he 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.
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.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and long service leave where there is
no unconditional right to defer settlement of the liability are
recognised in current liabilities in respect of employees’ services
up to the reporting date and are measured at the amounts
expected to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected
to be settled within 12 months of the reporting date are 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 high quality corporate bonds with terms to maturity and
currency that match, as closely as possible, the estimated future
cash outflows.
56
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 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 share-based compensation benefits are provided
to employees and fertility specialists.
Equity-settled transactions are awards of shares, options or
performance rights over shares, that are provided to employees
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
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 recipient to receive payment.
The fair value excludes the impact of any service or non-market
performing 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 or employee, the failure to satisfy the
condition is treated as a cancellation. If the condition is not within
the control of the consolidated entity or employee 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.
Fair value measurement
When an asset or liability, financial or non-financial, is measured
at fair value for recognition or disclosure purposes, the fair value
is based on the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date; and assumes
that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market
participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-
financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate
in the circumstances and for which sufficient data are available
to measure fair value, are used, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified,
into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements.
Classifications are reviewed at each reporting date and transfers
between levels are determined based on a reassessment
of the lowest level of input that is significant to the fair
value measurement.
For recurring and non-recurring fair value measurements,
external valuers may be used when internal expertise is either
not available or when the valuation is deemed to be significant.
External valuers are selected based on market knowledge and
reputation. Where there is a significant change in fair value of
an asset or liability from one period to another, an analysis is
undertaken, which includes a verification of the major inputs
applied in the latest valuation and a comparison, where
applicable, with external sources of data.
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.
Dividends
Dividends are recognised when declared during the financial year.
57
ANNUAL REPORT 2018 Note 1. Significant accounting policies
(continued)
Business combinations
The acquisition method of accounting is used to account for
business combinations regardless of whether equity instruments
or other assets are acquired.
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.
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.
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.
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 ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191,
issued by the Australian Securities and Investments Commission,
relating to ‘rounding-off’. Amounts in this report have been
rounded off in accordance with that Corporations Instrument
to the nearest thousand dollars, or in certain cases, the
nearest dollar.
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 the 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.
58
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 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 entities for the
annual reporting period ended 30 June 2018. The consolidated
entity’s assessment of the impact of these new or amended
Accounting Standards and Interpretations, most relevant to the
consolidated entity, is set out below.
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning
on or after 1 January 2018. The standard replaces all previous
versions of IFRS 9 and completes the project to replace IAS 39
‘Financial Instruments: Recognition and Measurement’. AASB
9 introduces new classification and measurement models for
financial assets. A financial asset shall be measured at amortised
cost, if it is held within a business model whose objective is to
hold assets in order to collect contractual cash flows, which
arise on specified dates and are solely principal and interest.
All other financial instrument assets are to be classified and
measured at fair value through profit or loss unless the entity
makes an irrevocable election on initial recognition to present
gains and losses on equity instruments (that are not held-for-
trading) in other comprehensive income (‘OCI’). For financial
liabilities, the standard requires the portion of the change in fair
value that relates to the entity’s own credit risk to be presented
in OCI (unless it would create an accounting mismatch). New
simpler hedge accounting requirements are intended to more
closely align the accounting treatment with the risk management
activities of the entity. New impairment requirements will use an
‘expected credit loss’ (‘ECL’) model to recognise an allowance.
Impairment will be measured under a 12-month ECL method
unless the credit risk on a financial instrument has increased
significantly since initial recognition in which case the lifetime
ECL method is adopted. The standard introduces additional
new disclosures.
The consolidated entity has assessed the effects of applying the
new standard on the consolidated entity’s financial statements
and does not expect the new standard to have a material impact
on transition. This new standard will first be adopted for the
financial year ending 30 June 2019.
AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers, which
replaces AASB 118 which covers contracts for goods and services
and AASB 111 which covers construction contracts, addresses
the recognition of revenue. The standard is applicable for annual
reporting periods beginning on or after 1 January 2018.
The new standard is based on the principle that revenue is
recognised when control of a good or service transfers to a
customer – so the notion of control replaces the existing notion
of risks and rewards.
The standard permits a modified retrospective approach for the
adoption. Under this approach entities will recognise transitional
adjustments in retained earnings on the date of initial application
(e.g. 1 July 2018),( i.e. without restating the comparative period).
They will only need to apply the new rules to contracts that are
not completed as of the date of initial application.
The consolidated entity has assessed the effects of applying the
new standard on the consolidated entity’s financial statements
and does not expect the new standard to have a material impact
on transition. This new standard will first be adopted for the
financial year ending 30 June 2019.
AASB 16 Leases
In February 2016 the AASB issued AASB 16, ‘Leases’, which
replaces the current guidance in AASB 117 ‘Leases’. The standard
is applicable for annual reporting periods beginning on or after
1 January 2019, with earlier application permitted if AASB 15,
‘Revenue from Contracts with Customers’, is also applied.
The standard requires lessees to bring all leases on balance
sheet as the distinction between operating and finance leases
has been eliminated. Under the new standard, an asset (the right
to use the leased item) and a financial liability to pay rentals are
recognised. The only exceptions are in respect of short term
leases and leases of low value assets. Lessor accounting remains
largely unchanged.
The standard will affect primarily the accounting for the
consolidated entities operating leases. As at reporting date,
the consolidated entity’s non-cancellable operating lease
commitments are $71,210,000, see note 40. The present value
of the consolidated entity’s operating lease payments as defined
under the new standard will be recognised as lease liabilities on
the balance sheet and included in net debt. There are a number
of differences between the two standards.
The Segment EBITDA, as disclosed in note 3 will increase as the
operating lease cost is charged against EBITDA under AASB 117
whilst under AASB 16 the charge will be included in depreciation
and interest expense which are excluded from EBITDA (although
included in overall earnings). Operating cash flows will increase
under AASB 16 as the element of cash paid under leases
attributable to the repayment of principal will be included in
financing cash flows. The overall increase/decrease in cash and
cash equivalents will however remain the same.
59
ANNUAL REPORT 2018 Note 1. Significant accounting policies
(continued)
New Accounting Standards and Interpretations not
yet mandatory or early adopted (continued)
AASB 16 Leases (continued)
The consolidated entity had previously conducted reviews of
the impact of AASB 16 and performed some detailed work on a
sample of its material leases. Significant progress has been made
in the last six months where the consolidated entity has:
•
Identified the population of leases for evaluation and classified
its population into different types of lease arrangements.
The majority of the consolidated entity’s current operating
lease commitments relate to property leases;
• Assessed its current policies, controls, processes and systems
and identified where we can leverage our existing processes
and have now implemented a contract management system
for lease data and a lease software to electronically manage
the lease portfolio and perform lease calculations as required
by the new lease standard; and
• Reached an advanced stage of on boarding all of its leases
onto the lease software and reviewing preliminary output.
The standard must be implemented retrospectively, either
with a complete restatement of comparatives under the full
retrospective approach or with the cumulative financial impact
of application of the new standard recognised as at 1 July 2019
under a modified retrospective approach. Initial indications
are that the consolidated entity will apply the full retrospective
approach however, a final decision is yet to be made. It is too
early to properly quantify the overall impacts on the results and
financial position for the 2019 and 2020 financial years and
work will continue during 2019 to assess the full impacts on the
consolidated entity. The consolidated entity will not adopt the
new standard before its normal application date of 1 July 2019.
AASB 16 is expected to be the most significant of the new
accounting standards for the consolidated entity in terms
of impact on the financial statements and on its systems
and processes.
Other amending accounting standards issued are not
considered to have a significant impact on the financial
statements of the consolidated entity as their amendments
provide either clarification of existing accounting treatment or
editorial amendments.
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 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 option-pricing 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.
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 impairment of 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 that may lead
to impairment. If an impairment trigger exists, the recoverable
amount of the asset is determined. This involves fair value less
costs of disposal 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.
The determination of the liability relating to put options and
contingent consideration linked to business combinations
requires estimations to be made of the future profitability of the
acquired entity and the discount rates used.
60
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 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 board of directors and senior management are identified as the chief operating decision makers in
assessing performance and in determining the allocation of resources. The consolidated entity currently has six operating segments
being New South Wales, Queensland, Victoria, Tasmania, Australian Diagnostics and International. The consolidated entity has
determined that the disclosure of two segments, being an Australian aggregated healthcare services segment and an International
healthcare services segment is most appropriate. Disclosure of an aggregated segment for Australia is considered 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 corporate costs, depreciation, amortisation, goodwill impairment,
interest, share-based payments and other items which are determined to be outside of the control of the respective segments.
Consolidated – 2018
Revenue
Sales to external customers
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Share based payment expense
Corporate costs
Foreign exchange (loss)
Transaction costs
Fair value adjustments to put liabilities and
contingent consideration
Depreciation and amortisation expense
Interest revenue
Interest expense
Interest on other financial liability – non-cash interest
Amortisation of bank facility fee
Profit before income tax expense
Income tax expense
Profit after income tax expense
Total assets includes:
Investments in associates
Acquisition of non-current assets
Healthcare
Services
Australia
$’000
Healthcare
Services
International
$’000
Intersegment
eliminations/
unallocated
$’000
215,969
1,747
123
217,839
66,822
44,209
–
–
44,209
9,196
–
–
13
13
–
1,489
14,675
–
53,824
–
–
Total
$’000
260,178
1,747
136
262,061
76,018
(881)
(10,104)
(64)
(1,031)
1,089
(12,496)
136
(6,615)
(981)
(207)
44,864
(12,855)
32,009
1,489
68,499
61
ANNUAL REPORT 2018 Note 3. Operating segments (continued)
Consolidated – 2017
Revenue
Sales to external customers
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Share based payment expense
Corporate costs
Foreign exchange (loss)
Transaction costs
Fair value adjustments to put liabilities and
contingent consideration
Depreciation and amortisation expense
Impairment of goodwill
Interest revenue
Interest expense
Interest on other financial liability – non-cash interest
Amortisation of bank facility fee
Profit before income tax expense
Income tax expense
Profit after income tax expense
Total assets includes:
Investments in associates
Acquisition of non-current assets
Healthcare
Services
Australia
$’000
Healthcare
Services
International
$’000
Intersegment
eliminations/
unallocated
$’000
217,054
1,757
123
218,934
65,776
37,580
–
–
37,580
7,099
–
–
4
4
–
1,489
9,210
–
15,797
–
–
Total
$’000
254,634
1,757
127
256,518
72,875
(440)
(10,557)
(117)
(773)
3,846
(12,165)
(1,870)
127
(6,684)
(1,202)
(207)
42,833
(12,829)
30,004
1,489
25,007
62
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 4. Revenue
Sales revenue
Rendering of services
Other revenue
Interest
Rent
Revenue
Consolidated
2018
$’000
2017
$’000
260,178
254,634
136
1,747
1,883
262,061
127
1,757
1,884
256,518
Note 5. Share of profits of associates accounted for using the equity method
Share of profits – associates
Note 6. Other income
Fair value gain on put liabilities
Fair value gain on contingent consideration
Other income
Other income
Consolidated
2018
$’000
570
2017
$’000
483
Consolidated
2018
$’000
891
198
755
1,844
2017
$’000
3,317
529
1,003
4,849
63
ANNUAL REPORT 2018 Consolidated
2018
$’000
2017
$’000
3,025
409
2,439
2,879
8,752
2,167
1,577
3,744
12,496
3,236
366
2,450
2,914
8,966
1,696
1,503
3,199
12,165
–
1,870
6,615
981
207
7,803
6,684
1,202
207
8,093
13,677
12,422
5,885
5,836
2,000
2,918
625
256
881
416
24
440
Note 7. Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Leasehold improvements
Furniture and fittings
Office equipment
Medical equipment
Total depreciation
Amortisation
Software
Brand names
Total amortisation
Total depreciation and amortisation
Impairment
Impairment of goodwill
Finance costs
Interest and finance charges paid/payable
Interest on other financial liability – non-cash interest
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
64
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 8. 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:
Decrease/(increase) in deferred tax assets (note 16)
Decrease in deferred tax liabilities (note 26)
Deferred tax – origination and reversal of temporary differences
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:
Impairment of goodwill
Share-based payments
Research and development
Fair value gain on Put Liabilities and Contingent Consideration
Acquisition transaction costs
Tax losses (recognised)/not recognised
Other
Difference in overseas tax rates
Adjustment recognised for prior periods
Income tax expense
Amounts charged directly to equity
Deferred tax assets (note 16)
Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 17%
Consolidated
2018
$’000
13,933
(1,072)
(6)
12,855
(1,048)
(24)
(1,072)
2017
$’000
10,795
1,556
478
12,829
1,649
(93)
1,556
44,864
42,833
13,459
12,850
–
256
–
(327)
295
(311)
444
13,816
(955)
(6)
12,855
561
132
(173)
(1,154)
179
282
466
13,143
(792)
478
12,829
Consolidated
2018
$’000
2017
$’000
131
238
1,106
188
3,778
642
The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses relate to
Singapore and can be utilised in the future.
65
ANNUAL REPORT 2018 Note 9. Current assets – cash and cash equivalents
Cash at bank and on hand
Note 10. Current assets – trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Other receivables
Consolidated
2018
$’000
21,713
2017
$’000
27,337
Consolidated
2018
$’000
11,994
(1,470)
10,524
1,967
12,491
2017
$’000
12,260
(1,944)
10,316
2,025
12,341
Impairment of receivables
The consolidated entity has recognised an expense of $746,000 (2017: $424,000) in profit or loss in respect of impairment of
receivables for the year ended 30 June 2018.
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 $1,765,000 (2017: $2,792,000).
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provisions recognised
Additions through business combinations
Receivables written off during the year as uncollectable
Unused amounts reversed
Closing balance
Consolidated
2018
$’000
295
1,175
1,470
2017
$’000
847
1,097
1,944
Consolidated
2018
$’000
1,944
803
–
(1,220)
(57)
1,470
2017
$’000
1,816
779
28
(324)
(355)
1,944
66
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $1,909,000 as at 30 June 2018
($2,021,000 as at 30 June 2017).
The consolidated entity did not consider the credit risk to be material 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.
Note 11. Current assets – inventories
Stock on hand – at cost
Note 12. Current assets – other
Prepayments
Consolidated
2018
$’000
1,909
2017
$’000
2,021
Consolidated
2018
$’000
752
2017
$’000
758
Consolidated
2018
$’000
3,035
2017
$’000
2,434
Note 13. Non-current assets – investments accounted for using the equity method
Investment in associates
Refer to note 45 for further information on interests in associates.
Consolidated
2018
$’000
1,489
2017
$’000
1,489
67
ANNUAL REPORT 2018 Note 14. Non-current assets – property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment under lease – 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
2018
$’000
48,220
(28,932)
19,288
1,990
(1,990)
–
3,510
(2,006)
1,504
17,581
(12,137)
5,444
30,695
(22,454)
8,241
34,477
2017
$’000
39,281
(25,811)
13,470
1,990
(1,990)
–
3,143
(1,607)
1,536
15,977
(10,212)
5,765
26,964
(18,746)
8,218
28,989
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Leasehold
improvements
$’000
13,944
2,844
Plant and
equipment
under lease
$’000
–
–
Furniture
and fittings
$’000
1,489
423
Office
equipment
$’000
5,865
1,939
Medical
equipment
$’000
9,022
2,179
–
–
(82)
(3,236)
13,470
8,534
254
55
(3,025)
19,288
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(366)
1,536
350
–
26
(409)
1,503
417
(9)
3
(2,450)
5,765
2,086
–
32
(2,439)
5,444
–
(17)
(52)
(2,914)
8,218
2,329
486
88
(2,879)
8,242
Total
$’000
30,320
7,385
417
(26)
(141)
(8,966)
28,989
13,299
740
201
(8,752)
34,477
Consolidated
Balance at 1 July 2016
Additions
Additions through business
combinations (note 43)
Disposals
Exchange differences
Depreciation expense
Balance at 30 June 2017
Additions
Additions through business
combinations (note 43)
Exchange differences
Depreciation expense
Balance at 30 June 2018
68
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 15. Non-current assets – intangibles
Goodwill – at cost
Less: Impairment
Software – at cost
Less: Accumulated amortisation
Brand names – at cost
Less: Accumulated amortisation
Consolidated
2018
$’000
453,437
–
453,437
22,053
(16,553)
5,500
17,504
(11,005)
6,499
465,436
2017
$’000
401,577
(1,870)
399,707
19,824
(14,387)
5,437
15,775
(9,436)
6,339
411,483
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 2016
Additions
Additions through business combinations (note 43)
Exchange differences
Impairment
Transfers in/(out)
Amortisation expense
Balance at 30 June 2017
Additions
Additions through business combinations (note 43)
Exchange differences
Amortisation expense
Balance at 30 June 2018
Goodwill
$’000
387,453
–
13,600
391
(1,870)
133
–
399,707
–
50,748
2,982
–
453,437
Software
$’000
4,673
2,464
–
(4)
–
–
(1,696)
5,437
2,201
–
29
(2,167)
5,500
Brand
names
$’000
6,874
–
1,140
(39)
–
(133)
(1,503)
6,339
–
1,511
226
(1,577)
6,499
Total
$’000
399,000
2,464
14,740
348
(1,870)
–
(3,199)
411,483
2,201
52,259
3,237
(3,744)
465,436
69
ANNUAL REPORT 2018 Note 15. Non-current assets – intangibles (continued)
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
Tasmania
Australian Diagnostics
International
Consolidated
2018
$’000
111,807
122,294
66,626
20,461
26,719
105,530
453,437
2017
$’000
111,807
122,294
66,626
20,461
26,719
51,800
399,707
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. The terminal growth rate does not exceed the long term average growth rate for
the business.
Key assumptions used for value in use calculations
Terminal growth rate:
New South Wales – 2.5% (2017: 2.5%)
Victoria – 2.5% (2017: 2.5%)
Queensland – 2.5% (2017: 2.5%)
Tasmania – 1.0% (2017: 1.0%)
International – 2.5% (2017: 2.5%)
Australian Diagnostics – 2.0% (2017: 2.0%)
Pre-tax discount rate
New South Wales – 12.0% (2017: 12.0%)
Victoria – 12.0% (2017: 12.0%)
Queensland – 12.0% (2017: 12.0%)
Tasmania – 14.0% (2017: 14.1%)
International – 10.3% (2017: 9.8%)
Australian Diagnostics – 12.0% (2017 12.0%)
Management believes that reasonable changes in key assumptions on which the recoverable amount of the cash generating units is
based will not cause the cash-generating unit’s carrying amounts to exceed their recoverable amount. The recoverable amounts of
the Tasmanian and Queensland cash-generating units are however sensitive to the annual projected growth rates and the discount
rates used and as disclosed in note 2, the directors have made judgements and estimates in respect of impairment testing of goodwill.
Queensland and Tasmania are price sensitive markets and have been impacted by new entrants and low cost providers. Management
believes that a review of pricing performed during the year and efforts to contain costs will help the businesses achieve their revenue
and growth targets for FY2019 and beyond.
Should these judgements and estimates not occur the goodwill carrying amount may become impaired. The key sensitivities for the
Tasmanian and Queensland cash generating units are as follows:
Tasmania:
(a) If forecast EBITDA that drives the terminal value decreases by more than 11.8% for the Tasmania division, goodwill would need to
be impaired, with all other assumptions remaining constant
(b) If the discount rate increases more than 1% for the Tasmania division, goodwill would need to be impaired, with all other
assumptions remaining constant
Queensland:
(a) If forecast EBITDA that drives the terminal value decreases by more than 5.5% for the Queensland division, goodwill would need to
be impaired, with all other assumptions remaining constant
(b) If the discount rate increases more than 1% for the Queensland division, goodwill would need to be impaired, with all other
assumptions remaining constant
70
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 16. 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
Tax losses
Intangible assets
Other
Amounts recognised in equity:
Other
Deferred tax assets
Amount expected to be recovered within 12 months
Amount expected to be recovered after more than 12 months
Movements:
Opening balance
Credited/(charged) to profit or loss (note 8)
Charged to equity (note 8)
Closing balance
Note 17. Non-current assets – other
Security deposits
Note 18. Current liabilities – trade and other payables
Trade payables
Other payables
Refer to note 35 for further information on financial risk management.
Consolidated
2018
$’000
2017
$’000
287
(169)
3,198
1,168
383
370
(347)
420
5,310
158
5,468
2,951
2,517
5,468
4,551
1,048
(131)
5,468
339
(474)
3,277
1,058
318
–
(605)
349
4,262
289
4,551
2,456
2,095
4,551
6,438
(1,649)
(238)
4,551
Consolidated
2018
$’000
517
2017
$’000
531
Consolidated
2018
$’000
10,341
14,127
24,468
2017
$’000
8,880
12,045
20,925
71
ANNUAL REPORT 2018
Note 19. Current liabilities – derivative financial instruments
Interest rate swap contracts – cash flow hedges
Refer to note 35 for further information on financial risk management.
Refer to note 36 for further information on fair value measurement.
Note 20. Current liabilities – income tax
Provision for income tax
Note 21. Current liabilities – provisions
Employee benefits – long service leave
Consolidated
2018
$’000
420
2017
$’000
527
Consolidated
2018
$’000
4,337
2017
$’000
378
Consolidated
2018
$’000
4,169
2017
$’000
3,768
Amounts not expected to be settled within the next 12 months
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 22. Current liabilities – other financial liabilities
Other financial liability
Loan note
Consolidated
2018
$’000
3,752
2017
$’000
3,391
Consolidated
2018
$’000
–
397
397
2017
$’000
14,044
–
14,044
The other financial liability represented the fair value of the put options held by the non-controlling interests in Sims Clinic Limited and
TAS IVF Pty Limited and the contingent consideration in relation to the acquisition of Aagaard Fertilitetsklinik ApS. These liabilities were
settled during the current year.
Loan note reflects the current portion of a loan owing to the vendors of Fertilitesklinikken Trianglen Aps (Refer to note 42 for details).
72
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH
Note 23. Current liabilities – other
Unearned income
Note 24. Non-current liabilities – borrowings
Bank loans (net of borrowing costs)
Refer to note 35 for further information on financial risk management.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Bank loans (net of borrowing costs)
Consolidated
2018
$’000
14,779
2017
$’000
8,169
Consolidated
2018
$’000
180,773
2017
$’000
153,564
Consolidated
2018
$’000
180,773
2017
$’000
153,564
Assets pledged as security
The bank loans are secured by guarantees by all Australian group companies and fixed and floating charges over the consolidated
entity’s assets. Guarantees are not provided by subsidiaries which are not based in Australia and there are no fixed or floating charges
over the assets of the international subsidiaries of the consolidated entity. However, the shares representing the ownership interest in
the international subsidiaries are included in the charges over the consolidated entity.
The carrying amounts of assets pledged as security for current and non-current borrowings are:
Cash and cash equivalents
Receivables
Inventories
Other current assets
Investments
Plant and equipment
Intangible assets (excluding goodwill)
Deferred tax assets
Other financial assets
Consolidated
2018
$’000
10,856
7,726
529
2,098
81,465
28,732
5,451
4,711
56
141,624
2017
$’000
16,838
8,511
585
1,990
40,780
23,676
6,264
4,286
58
102,988
73
ANNUAL REPORT 2018
Note 24. Non-current liabilities – borrowings (continued)
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Total facilities
Bank loans ( excluding capitalised borrowing costs)
Working capital facilities
Used at the reporting date
Bank loans ( excluding capitalised borrowing costs)
Working capital facilities
Unused at the reporting date
Bank loans ( excluding capitalised borrowing costs)
Working capital facilities
Consolidated
2018
$’000
2017
$’000
200,000
10,000
210,000
200,000
10,000
210,000
181,000
4,718
185,718
19,000
5,282
24,282
154,000
5,148
159,148
46,000
4,852
50,852
The consolidated entity has complied with the financial covenants of its borrowing liabilities during the financial year ended
30 June 2018 and 30 June 2017.
Working capital facilities utilised consist of $4,718,000 (2017: $5,148,000) of bank guarantees.
Total Credit facilities expire in September 2019.
Note 25. Non-current liabilities – derivative financial instruments
Interest rate swap contracts – cash flow hedges
Refer to note 35 for further information on financial risk management.
Refer to note 36 for further information on fair value measurement.
Consolidated
2018
$’000
107
2017
$’000
437
74
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 26. Non-current liabilities – deferred tax
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Impairment of receivables
Employee benefits
Provision for lease make good
Intangible assets
Other
Deferred tax liability
Amount expected to be settled within 12 months
Amount expected to be settled after more than 12 months
Movements:
Opening balance
Credited to profit or loss (note 8)
Additions through business combinations (note 43)
Closing balance
Note 27. Non-current liabilities – provisions
Employee benefits – long service leave
Lease make good
Consolidated
2018
$’000
2017
$’000
29
–
–
(34)
855
16
866
468
398
866
585
(24)
305
866
66
(57)
(11)
(56)
644
(1)
585
463
122
585
423
(93)
255
585
Consolidated
2018
$’000
1,454
4,961
6,415
2017
$’000
1,780
4,283
6,063
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.
Movements in provisions
Movements in each class of provision during the current financial year, other than employee benefits, are set out below:
Consolidated – 2018
Carrying amount at the start of the year
Additional provisions recognised
Additions through business combinations
Exchange differences
Unwinding of discount
Carrying amount at the end of the year
Lease
make good
$’000
4,283
328
252
45
53
4,961
75
ANNUAL REPORT 2018
Note 28. Non-current liabilities – Other financial liabilities
Other financial liabilities
Loan note
Consolidated
2018
$’000
20,975
2,782
23,757
2017
$’000
11,755
–
11,755
Refer to note 35 for other information on financial instruments.
The other financial liabilities represent the fair value of the consideration to acquire the non-controlling interests in Sims Clinic Limited
and Tas IVF Pty Limited on the assumption that the put options held by the non-controlling interests are exercised and also the fair
value of the contingent consideration arising from the acquisition of Fertilitesklinikkeb Trianglen Aps.
Loan note reflects the non-current portion of a loan owing to the vendors of Fertilitesklinikken Trianglen Aps (Refer to note 42
for details).
Note 29. Non-current liabilities – other payables
Other payables
Consolidated
2018
$’000
1,340
2017
$’000
1,327
76
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH
Note 30. Equity – issued capital
Ordinary shares – fully paid
Movements in ordinary share capital
Details
Balance
Balance
Settlement of partly paid shares
Settlement of partly paid shares
Share issued– exercise of options
Balance
Date
30 June 2017
30 June 2017
11 October 2017
17 April 2018
28 March 2018
30 June 2018
Consolidated
2018
Shares
80,389,938
2017
Shares
80,388,494
2018
$’000
242,251
2017
$’000
242,001
Shares
80,388,494
80,388,494
–
–
1,444
80,389,938
Issue price
$0.00
$0.00
$0.00
$’000
242,001
242,001
115
135
–
242,251
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.
All shares on issue are fully paid apart from 1,919,869 shares which are partly paid. The 1,919,869 shares were issued at $4.71 per share
and are unpaid up to the extent of $2.51 per share at 30 June 2018.
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.
Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total
borrowings less cash and cash equivalents.
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.
77
ANNUAL REPORT 2018 Note 31. Equity – reserves
Foreign currency translation reserve
Cash flow hedges reserve
Share-based payments reserve
Put option business combination reserve
Consolidated
2018
$’000
3,549
(372)
13,468
(13,808)
2,837
2017
$’000
501
(678)
12,586
(23,825)
(11,416)
Foreign currency translation reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to
Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations.
Cash flow hedges reserve
The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an
effective hedge.
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
other parties as part of their compensation for services.
Put option business combination reserve
The reserve is used to recognise the impact of the non-controlling interest put options relating to the Sims Clinic Limited and
Tas IVF Pty Limited acquisitions. The reduction is for the exercise of the first put option in relation to both these entities.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Foreign
currency
translation
reserve
$’000
147
–
354
–
501
–
3,048
–
–
3,549
Cash flow
hedges
reserve
$’000
(1,232)
554
–
–
Share-based
payments
reserve
$’000
12,146
–
–
440
(678)
306
–
–
–
(372)
12,586
–
–
882
–
13,468
Put option
business
combination
reserve
$’000
(23,825)
–
–
–
(23,825)
–
–
–
10,017
(13,808)
Total
$’000
(12,764)
554
354
440
(11,416)
306
3,048
882
10,017
2,837
Consolidated
Balance at 1 July 2016
Revaluation – net
Foreign currency translation
Option expense
Balance at 30 June 2017
Revaluation – net
Foreign currency translation
Option expense
Put option exercise
Balance at 30 June 2018
78
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 32. Equity – retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense for the year
Dividends paid (note 34)
Retained profits at the end of the financial year
Note 33. Equity – non-controlling interest
Issued capital
Reserves
Retained profits
Note 34. Equity – dividends
Dividends
Dividends paid during the financial year were as follows:
Interim ordinary dividend for the year ended 30 June 2018 of 14.0 cents (2017: 13.0 cents)
per fully paid ordinary share paid in April 2018
Final ordinary dividend for the year ended 30 June 2017 of 12.0 cents (2016: 15.0 cents)
per fully paid ordinary share paid in October 2017
Consolidated
2018
$’000
18,127
30,753
(20,901)
27,979
2017
$’000
12,531
28,103
(22,507)
18,127
Consolidated
2018
$’000
1,842
5,423
3,218
10,483
2017
$’000
1,842
14,642
3,175
19,659
Consolidated
2018
$’000
2017
$’000
11,255
10,450
9,646
20,901
12,057
22,507
A final dividend of 12.00 cents per share, fully franked, will be paid on 12 October 2018 to the shareholders on the register at
14 September 2018.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
Consolidated
2018
$’000
20,534
2017
$’000
16,880
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
79
ANNUAL REPORT 2018 Note 35. Financial risk management
Financial risk management objectives
The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk
and interest rate 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 forward foreign exchange contracts 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 and 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’s operating units. Finance
reports to the Board on a monthly basis.
Market risk
Foreign currency risk
The group operates internationally and is exposed to foreign currency risk from various currency exposures, primarily with respect to
the Euro, Singapore dollars and Danish Krone.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated
in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.
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.
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 swaps (notional principal amount)
Net exposure to cash flow interest rate risk
2018
Weighted
average
interest rate
%
3.85%
–
2017
Weighted
average
interest rate
%
3.67%
–
Balance
$’000
181,000
(50,000)
131,000
Balance
$’000
154,000
(50,000)
104,000
80
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH An analysis by remaining contractual maturities is shown in the ‘liquidity and interest rate risk management’ section below.
Consolidated – 2018
Bank loans
Consolidated – 2017
Bank loans
Basis points increase
Basis points decrease
Basis
points
change
100
Effect on
profit
after tax
$’000
(917)
Effect
on equity
$’000
(917)
Basis
points
change
(100)
Effect on
profit
after tax
$’000
917
Effect
on equity
$’000
917
Basis points increase
Basis points decrease
Basis
points
change
100
Effect on
profit
after tax
$’000
(728)
Effect
on equity
$’000
(728)
Basis
points
change
(100)
Effect on
profit
after tax
$’000
728
Effect
on equity
$’000
728
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 consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and
setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. 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.
Financing arrangements
Unused borrowing facilities at the reporting date:
Bank loans ( excluding capitalised borrowing costs)
Working capital facilities
Credit facilities expire in September 2019.
Consolidated
2018
$’000
19,227
5,282
24,509
2017
$’000
46,436
4,852
51,288
81
ANNUAL REPORT 2018
Note 35. Financial risk management (continued)
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.
Consolidated – 2018
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing – variable
Bank loans
Other financial liabilities
Loan note
Total non-derivatives
Derivatives
Derivative financial instruments
Total derivatives
Consolidated – 2017
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing – variable
Bank loans
Other financial liabilities
Total non-derivatives
Derivatives
Derivative financial instruments
Total derivatives
Weighted
average
interest
rate
%
–
–
4.28%
3.85%
4.00%
–
Weighted
average
interest
rate
%
–
–
4.05%
3.67%
–
Between
1 and less
than 2
years
$’000
–
–
182,848
–
898
183,746
107
107
Between
1 and less
than 2
years
$’000
–
–
6,035
–
6,035
350
350
1 year
or less
$’000
10,341
14,127
7,393
–
461
32,322
420
420
1 year
or less
$’000
8,880
12,045
6,035
14,206
41,166
527
527
Between
2 and 5
years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
–
–
–
20,516
2,106
22,622
–
–
–
–
–
–
–
–
–
–
10,341
14,127
190,241
20,516
3,465
238,690
527
527
Between
2 and 5
years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
–
–
155,509
12,738
168,247
87
87
–
–
–
–
–
–
–
8,880
12,045
167,579
26,944
215,448
964
964
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
82
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 36. Fair value measurement
Fair value hierarchy
The following tables detail the consolidated entity’s assets and liabilities, measured or disclosed at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable inputs for the asset or liability
Consolidated – 2018
Liabilities
Derivative financial liabilities
Other financial liabilities
Total liabilities
Consolidated – 2017
Liabilities
Derivative financial liabilities
Other financial liabilities
Total liabilities
Level 1
$’000
Level 2
$’000
–
–
–
527
–
527
Level 1
$’000
Level 2
$’000
–
–
–
964
–
964
Level 3
$’000
–
20,975
20,975
Level 3
$’000
–
25,799
25,799
Total
$’000
527
20,975
21,502
Total
$’000
964
25,799
26,763
There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due
to their short-term nature.
The fair value of other financial liabilities is estimated by discounting the remaining contractual maturities at the current market
interest rate that is available for similar financial liabilities.
Valuation techniques for fair value measurements categorised within level 2 and level 3
Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of
observable market data where it is available and relies as little as possible on entity specific estimates. Other financial liabilities have
been valued using a forecast earnings model, discounted using specific borrowing rates.
83
ANNUAL REPORT 2018 Note 36. Fair value measurement (continued)
Fair value hierarchy (continued)
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2016
Additions
Foreign exchange impact
Amounts paid during the period
Interest on unwinding
Fair value adjustment
Balance at 30 June 2017
Additions
Foreign exchange impact
Amounts paid during the period
Amounts paid in exercise of put option
Interest on unwinding
Fair value adjustment
Balance at 30 June 2018
Contingent
Consideration
$’000
1,355
3,816
129
(826)
77
(529)
Put Option
$’000
24,130
–
(103)
–
1,067
(3,317)
4,022
8,817
223
(4,152)
–
105
(198)
8,817
21,777
–
669
–
(10,220)
823
(891)
12,158
Total
$’000
25,485
3,816
26
(826)
1,144
(3,846)
25,799
8,817
892
(4,152)
(10,220)
928
(1,089)
20,975
The unobservable inputs and sensitivity of level 3 assets and liabilities are as follows:
Description
Other financial liabilities
Unobservable inputs
Discount rate
EBITDA
Sensitivity
a 1% change would increase/decrease the fair value by $132,789/($129,937)
a 1% change would increase/decrease the fair value by $108,841/($108,026)
Note 37. 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
2018
$
3,153,600
190,418
7,553
294,995
3,646,566
2017
$
2,622,706
199,237
(3,647)
15,565
2,833,861
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
84
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 38. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by PricewaterhouseCoopers, the auditor of the
company, and its network firms:
Audit services – PricewaterhouseCoopers
Audit or review of the financial statements
Other services – PricewaterhouseCoopers
Due diligence
Tax compliance services
Non-statutory audits and reviews relating to acquisitions
Audit services – network firms
Audit or review of the financial statements
Other services – network firms
Tax services
Other
Consolidated
2018
$
2017
$
467,300
498,613
208,500
7,500
–
216,000
683,300
112,945
7,650
1,000
121,595
620,208
119,692
121,760
68,792
20,782
89,574
209,266
49,704
–
49,704
171,464
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.
85
ANNUAL REPORT 2018 Note 39. 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 $25,000 per claim. 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 materially affect the financial position of the entity and it is expected that the claims will be covered by the consolidated
entity’s insurance policies.
Guarantees
Drawdowns of $4,718,000 (2017: $5,148,000) 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 1 year (2017: 2 years).
Note 40. Commitments
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
Consolidated
2018
$’000
2017
$’000
12,748
32,330
26,132
71,210
10,704
30,821
21,197
62,722
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 $286,874 (2017: $419,277).
Capital Commitments
The consolidated entity had $4,707,000 (FY17: $nil) in capital commitments for property, plant and equipment as at 30 June 2018.
86
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH
Note 41. Related party transactions
Parent entity
Virtus Health Limited is the parent entity and ultimate controlling party.
Subsidiaries
Interests in subsidiaries are set out in note 44.
Associates
Interests in associates are set out in note 45.
Key management personnel
Disclosures relating to key management personnel are set out in note 37 and the remuneration report included in the directors’ report.
Transactions with related parties
The following transactions occurred with related parties:
Other revenue:
Rental income(i)
Other transactions:
Provider fees(ii)
Consolidated
2018
$
2017
$
285,004
274,783
3,062,921
3,305,382
(i) The following key management personnel paid rent for the use of leased space in Virtus : Lyndon Hale, Peter Illingworth and David Molloy.
(ii) The following key management personnel received provider fees for IVF services delivered to patients: Lyndon Hale, Peter Illingworth, David Molloy and William Watkins
(30 June 2016: Lyndon Hale, Peter Illingworth, David Molloy and William Watkins).
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 associates
Other receivables
Current payables:
Other payables for provider fees
Other payables for dividends
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Consolidated
2018
$
2017
$
675,245
11,062
975,757
14,959
377,048
–
320,024
900,000
87
ANNUAL REPORT 2018 Note 42. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of comprehensive income
Profit 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
Total equity
Parent
2018
$’000
26,669
26,669
2017
$’000
26,309
26,309
Parent
2018
$’000
41,642
293,750
6,992
8,341
285,409
242,251
7,485
35,673
285,409
2017
$’000
34,627
282,100
2,101
2,853
279,247
242,001
7,340
29,906
279,247
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 2018 and 30 June 2017 apart from
being a party to the deed of cross guarantee as detailed in note 46.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017.
Capital commitments – property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and 30 June 2017.
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:
•
•
• Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an
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.
impairment of the investment.
88
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 43. Business combinations
Fertilitesklinikken Trianglen Aps
On the 28 June 2018, Virtus Health Europe Limited acquired 100% of the ordinary share capital in Fertilitesklinikken Trianglen Aps
(Trianglen), based in Copenhagen Denmark for an estimated consideration of $41,996,000. The values identified in relation to the
acquisition of the entity are provisional as at 30 June 2018.
Cash and cash equivalents
Trade receivables
Property, plant and equipment
Brand names
Trade payables
Other payables
Deferred tax liability
Employee benefits
Other provisions
Other liabilities
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
Cash paid
Contingent consideration
Loan note
Acquisition costs expensed to profit or loss
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: contingent consideration
Less: loan note
Net cash used
Fair value
$’000
2,838
280
595
366
(168)
(232)
(87)
(503)
(540)
(2,177)
372
41,624
41,996
30,000
8,817
3,179
41,996
177
41,996
(2,838)
(8,817)
(3,179)
27,162
The goodwill is attributable to the workforce and the expected profitability of the acquired entity.
Contingent consideration
In the event Trianglen achieves the forecast normalised earnings before interest, tax, depreciation and amortisation (‘EBITDA’) for the
Financial year ending 30 June 2020, then additional consideration of $8,817,000 will be payable. Virtus Health Europe Limited has the
discretion to settle the total additional consideration payable in cash or a combination of ordinary shares of Virtus Health and cash
during September 2020. The fair value of the consideration of $8,817,000 was estimated with reference to the expected EBITDA of
Trianglen from management forecasts.
Loan note
Reflects a loan from the vendor to Virtus Health Europe Limited of $3,179,000 with a coupon of 4% and repayable over four years.
89
ANNUAL REPORT 2018
Note 43. Business combinations (continued)
Complete Fertility Limited
On 1 April 2018, Virtus Health Europe Limited acquired 90% of the ordinary share capital in Complete Fertility Limited (CFL), based in
Southampton England. The consideration transferred amounted to $9,641,000. The values identified in relation to the acquisition of
the entity are provisional as at 30 June 2018.
Details of the acquisition are as follows:
Cash and cash equivalents
Trade receivables
Plant and equipment
Brand name
Trade payables
Other payables
Deferred tax liability
Other provisions
Other liabilities
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
Cash paid or payable to vendor
Non-controlling interest
Acquisition costs expensed to profit or loss
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: Non-controlling interest
Net cash used
Fair value
$’000
401
449
144
1,145
(90)
(17)
(218)
(7)
(277)
1,530
9,124
10,654
9,641
1,013
10,654
849
10,654
(401)
(1,013)
9,240
The goodwill is attributable to the workforce and the expected profitability of the acquired entity.
Aagaard Fertilitetsklinik ApS (Aagaard) acquired in the prior financial year
Aagaard did not achieve its full earn-out targets and hence only $4,152,000 of the contingent consideration of $4,350,000 was paid
during 2018. The balance of $198,000 was reversed to profit and loss.
90
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH
Note 44. Interests in 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:
Ownership interest
Name
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.
Spring Hill Specialist Day Hospital Pty Limited
The QFG Day Theatres Unit Trust
Hunter Fertility 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
Virtus Health Europe Limited
Virtus Health Ireland Limited
SIMS Clinic Limited
Xentra Pharm Limited
IVF Sunshine Coast Limited
Human Assisted Reproduction Ireland (HARI) Limited
TAS IVF Pty Limited
Virtus Andrology Laboratory Singapore Pte. Ltd
Virtus Fertility Centre Singapore Pte Limited
Virtus Health Specialist Diagnostics Pty Limited
Lab Services Pty Limited
Lab Services Unit Trust
Aagaard Fertilitetsklinik Aps
Complete Fertility Limited
Fertilitesklinikken Trianglen Aps
Principal place of business/
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
United Kingdom
Ireland
Ireland
Ireland
Australia
Ireland
Australia
Singapore
Singapore
Australia
Australia
Australia
Denmark
United Kingdom
Denmark
2018
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
85.00%
85.00%
100.00%
85.00%
85.00%
90.00%
90.00%
100.00%
100.00%
100.00%
100.00%
90.00%
100.00%
2017
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
70.00%
70.00%
100.00%
70.00%
70.00%
90.00%
90.00%
100.00%
100.00%
100.00%
100.00%
–
–
91
ANNUAL REPORT 2018 Note 44. Interests in subsidiaries (continued)
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries with non-controlling
interests in accordance with the accounting policy described in note 1:
Name
Sims Clinic Limited and its
controlled entities
Tas IVF Pty Limited
Principal place of
business/Country of
incorporation
Ireland
Australia
Virtus Fertility Centre
Singapore Pte Limited and
its controlled entities
Complete Fertility Limited United Kingdom
Singapore
Principal activities
provision of
healthcare services
provision of
healthcare services
provision of
healthcare services
provision of
healthcare services
Parent
Ownership
interest
2018
%
85.00%
Ownership
interest
2017
%
70.00%
Non-controlling interest
Ownership
interest
2018
%
15.00%
Ownership
interest
2017
%
30.00%
85.00%
70.00%
15.00%
30.00%
90.00%
90.00%
10.00%
10.00%
90.00%
–
10.00%
–
Summarised financial information
Set out below is the summarised financial information of the non-controlling interests that are material to the consolidated entity.
The amounts disclosed are before inter-company eliminations.
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Summarised statement of comprehensive income
Revenue
Expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income
Total comprehensive income
Statement of cash flows
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Other financial information
Profit attributable to non-controlling interests
Dividends paid to non-controlling interests
Accumulated non-controlling interests at the end of reporting period
92
SIMS Clinic Limited
2018
$’000
2017
$’000
5,365
12,245
17,610
4,978
1,161
6,139
11,471
34,991
(29,580)
5,411
(680)
4,731
–
4,731
6,498
(293)
(6,345)
(140)
899
1,212
6,207
5,638
11,858
17,496
4,182
1,113
5,295
12,201
31,480
(26,187)
5,293
(673)
4,620
–
4,620
3,239
(307)
(2,972)
(40)
1,386
861
12,919
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Transactions with non-controlling interests
Dividends paid/payable to non-controlling interest
Consolidated
2018
$’000
(1,212)
2017
$’000
(861)
Note 45. Interests in associates
Interests in associates are accounted for using the equity method of accounting. Information relating to associates that are material
to the consolidated entity are set out below:
Principal place of business/
Country of incorporation
Australia
Australia
Name
Obstetrics & Gynaecological Imaging Australia Pty Ltd
City West Specialist Day Hospital Pty Ltd
Summarised financial information
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Summarised statement of comprehensive income
Revenue
Expenses
Profit before income tax
Other comprehensive income
Total comprehensive income
The above reflects 50% of the total assets, liabilities and comprehensive income of the associate entities.
Ownership interest
2018 %
50.00%
50.00%
2017 %
50.00%
50.00%
2018
$’000
2017
$’000
724
906
1,630
527
20
547
1,083
3,562
(2,992)
570
–
570
766
1,090
1,856
851
–
851
1,005
3,523
(3,037)
486
–
486
93
ANNUAL REPORT 2018 Note 46. 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.
Virtus Health Specialist Diagnostics Pty Limited
Lab Services Pty Limited
By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare audited financial statements
and directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission.
The above companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, 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
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Equity – retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense
Dividends paid
Retained profits at the end of the financial year
94
2018
$’000
125,439
570
22,835
2,151
(32,149)
(48,263)
(7,312)
(7,895)
(3,437)
(942)
(949)
(6,240)
(7,218)
36,590
(11,508)
2017
$’000
124,923
483
16,924
3,886
(32,589)
(46,054)
(6,855)
(6,931)
(2,438)
(939)
(1,137)
(5,700)
(7,321)
36,252
(10,880)
25,082
25,372
306
306
25,388
2018
$’000
25,327
25,082
(20,901)
29,508
554
554
25,926
2017
$’000
22,462
25,372
(22,507)
25,327
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 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
Derivative financial instruments
Income tax
Provisions
Other financial liabilities
Other
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Other financial liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
2018
$’000
6,189
18,840
–
1,782
26,811
1,489
221,776
22,002
206,615
3,530
77
455,489
482,300
8,776
420
3,058
2,661
–
5,005
19,920
180,743
107
2,941
3,695
187,486
207,406
274,894
242,251
3,135
29,508
274,894
2017
$’000
11,246
25,237
327
1,679
38,489
1,489
181,090
15,874
207,426
2,992
76
408,947
447,436
7,492
527
–
2,429
2,764
4,613
17,825
153,536
437
2,810
3,343
160,126
177,951
269,485
242,001
2,157
25,327
269,485
95
ANNUAL REPORT 2018 Note 47. Events after the reporting period
No matter or circumstance has arisen since 30 June 2018 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 48. Reconciliation of profit after income tax to net cash from operating activities
Consolidated
2018
$’000
32,009
2017
$’000
30,004
12,496
–
881
207
(1,089)
(1,029)
–
981
(592)
6
(941)
5,043
3,756
(428)
3,667
54,967
12,165
1,870
440
207
(3,846)
205
10
1,202
(1,545)
(119)
1,762
(3,181)
366
16
(850)
38,706
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Impairment of goodwill
Share-based payments
Amortisation of bank facility fees
Net fair value gain on other financial liabilities
Other non-cash items
Net (gain)/loss in disposal of non-current assets
Interest on other financial liabilities – non-cash interest
Change in operating assets and liabilities:
Increase in trade and other receivables
Decrease/(increase) in inventories
Decrease/(increase) in deferred tax assets
Increase/(decrease) in trade and other payables
Increase in provision for income tax
Increase/(decrease) in other provisions
Increase/(decrease) in other operating liabilities
Net cash from operating activities
96
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH Note 49. Changes in liabilities arising from financing activities
Consolidated
Balance at 1 July 2016
Net cash from financing activities
Repayment of borrowings
Proceeds from borrowings
Exchange differences
Balance at 30 June 2017
Net cash used in financing activities
Repayment of borrowings
Proceeds from borrowings
Exchange differences
Balance at 30 June 2018
Note 50. Earnings per share
Profit after income tax
Non-controlling interest
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
Weighted average number of ordinary shares used in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Options over ordinary shares
Estimated Issuable shares
Weighted average number of ordinary shares used in calculating diluted earnings per share
Basic earnings per share
Diluted earnings per share
Cash/Bank
overdraft
$’000
22,215
5,166
–
–
(44)
27,337
(6,045)
–
–
421
21,713
Borrowings
$’000
(147,537)
–
5,000
(11,000)
–
(153,537)
–
6,000
(33,000)
–
(180,537)
Total
$’000
(125,322)
5,166
5,000
(11,000)
(44)
(126,200)
(6,045)
6,000
(33,000)
421
(158,824)
Consolidated
2018
$’000
32,009
(1,256)
30,753
97
2017
$’000
30,004
(1,901)
28,103
89
30,850
28,192
Number
80,388,866
Number
80,304,581
828,823
–
81,217,689
567,226
165,297
81,037,104
Cents
38.26
37.98
Cents
35.00
34.79
97
ANNUAL REPORT 2018 Note 51. Share-based payments
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.
Set out below are summaries of options and performance rights granted under the plans:
Expiry date
21/01/2024
21/01/2024
03/10/2024
10/11/2024
13/05/2025
13/05/2025
13/05/2025
13/05/2025
13/05/2025
10/11/2025
21/08/2025
28/10/2025
16/12/2025
16/12/2025
16/12/2025
21/09/2026
21/09/2026
11/11/2026
21/06/2027
24/10/2027
24/10/2027
24/10/2027
24/10/2027
22/11/2027
22/11/2027
Exercise or
base price
$5.68
$6.40
$8.57
$0.00
$7.16
$7.53
$7.94
$7.94
$8.01
$0.00
$5.67
$5.01
$6.07
$6.17
$6.28
$8.05
$8.05
$0.00
$5.35
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Balance at
the start of
the year
8,808
63,573
106,536
55,095
3,686
912
794
343
262
175,526
7,434
16,406
6,197
5,509
4,776
8,616
4,332
99,491
3,129
–
–
–
–
–
–
571,425
Exercised/
cancelled/
other
–
–
–
–
–
–
–
–
–
–
–
(1,444)
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,444)
Expired/
forfeited/
other
(8,808)
(34,125)
(35,507)
(55,095)
(929)
–
–
–
(262)
(87,763)
–
(3,471)
(6,197)
–
(4,776)
–
–
–
–
–
–
–
–
–
–
(236,933)
Balance at
the end of
the year
–
29,448
71,029
–
2,757
912
794
343
–
87,763
7,434
11,491
–
5,509
–
8,616
4,332
99,491
3,129
171,199
72,580
116,128
43,548
229,391
136,508
1,102,402
Granted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
171,199
72,580
116,128
43,548
229,391
136,508
769,354
2018
Effective
grant date
01/07/2013
01/07/2013
03/10/2014
10/11/2014
13/05/2015
13/05/2015
13/05/2015
13/05/2015
13/05/2015
10/11/2015
21/08/2015
28/10/2015
16/12/2015
16/12/2015
16/12/2015
21/09/2016
21/09/2016
11/11/2016
21/06/2017
24/10/2017
24/10/2017
24/10/2017
24/10/2017
22/11/2017
22/11/2017
98
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH 2017
Grant date
11/06/2013
01/07/2013
01/07/2013
01/07/2013
03/10/2014
10/11/2014
13/05/2015
13/05/2015
13/05/2015
13/05/2015
13/05/2015
10/11/2015
21/08/2015
28/10/2015
16/12/2015
16/12/2015
16/12/2015
21/09/2016
21/09/2016
11/11/2016
21/06/2017
Expiry date
11/06/2018
27/01/2017
21/01/2024
21/01/2024
03/10/2024
10/11/2024
13/05/2025
13/05/2025
13/05/2025
13/05/2025
13/05/2025
10/11/2025
21/08/2025
28/10/2025
16/12/2025
16/12/2025
16/12/2025
21/09/2026
21/09/2026
11/11/2026
21/06/2027
Exercise or
base price
$5.68
$5.68
$5.68
$6.40
$8.57
$0.00
$7.16
$7.53
$7.94
$7.94
$8.01
$0.00
$5.67
$5.01
$6.07
$6.17
$6.28
$8.05
$8.05
$0.00
$5.35
Balance at
the start of
the year
177,788
263,000
22,568
96,238
88,948
126,457
7,372
912
794
343
262
201,111
7,434
16,406
6,197
5,509
4,776
–
–
–
–
1,026,115
Granted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,616
4,332
99,491
3,129
115,568
Exercised
(177,788)
(263,000)
(4,800)
(6,968)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(452,556)
Expired/
forfeited/
other
–
–
(8,960)
(25,697)
17,588
(71,362)
(3,686)
–
–
–
–
(25,585)
–
–
–
–
–
–
–
–
–
(117,702)
Balance at
the end of
the year
–
–
8,808
63,573
106,536
55,095
3,686
912
794
343
262
175,526
7,434
16,406
6,197
5,509
4,776
8,616
4,332
99,491
3,129
571,425
The weighted average exercise price is $0.99 (2017: $3.08).
The weighted average remaining contractual life of options and performance rights outstanding at the end of the financial year was
8.7 years (2017: 7.9 years).
For the options and performance rights 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
24/10/2017
24/10/2017
24/10/2017
24/10/2017
22/11/2017
22/11/2017
Expiry date
24/10/2027
24/10/2027
24/10/2027
24/10/2027
22/11/2027
22/11/2027
Share price
at grant
date
$5.52
$5.52
$5.52
$5.52
$5.28
$5.28
Exercise
price or
base price
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Expected
volatility
27.00%
27.00%
27.00%
27.00%
27.00%
27.00%
Dividend
yield
4.33%
4.33%
4.33%
4.33%
4.33%
4.33%
Risk-free
interest
rate
2.10%
2.10%
2.10%
2.10%
2.10%
2.10%
Fair value
at grant
date
$3.79
$3.92
$3.92
$3.92
$3.99
$3.99
99
ANNUAL REPORT 2018 Note 51. Share-based payments (continued)
Grants of options and performance rights – fertility specialists
Details of the grant of options and performance rights to fertility specialists is included in Section H of the remuneration report which
forms part of the Directors’ report.
Vesting Conditions
Options and performance rights 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 and performance rights 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 and performance right will be
exercisable into a variable number of shares based on the terms of issue of the options or performance rights.
100
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2018VIRTUS HEALTH In the directors’ opinion:
• the attached financial statements and notes 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 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 give a true and fair view of the consolidated entity’s financial position as at
30 June 2018 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 liable, subject by virtue of the deed of cross guarantee
described in note 46 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
21 August 2018
Sydney
101
DIRECTORS’ DECLARATIONANNUAL REPORT 2018 Independent auditor’s report
to the members of Virtus Health Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Virtus Health Limited (the Company) and its controlled entities
(together the Group), is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its
financial performance for the year then ended
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
102
102
INDEPENDENT AUDITOR’S REPORTto the members of Virtus Health LimitedVIRTUS HEALTH Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
• For the purpose of our audit we applied an overall Group materiality of $2.2 million which represents
approximately 5% of the Group’s profit before tax.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
• We chose Group profit before tax because, in our view, it is the key measure used by members to assess the
performance of the Group.
• We selected 5% based on our professional judgement, noting that it is within the range of commonly
acceptable quantitative profit related thresholds.
Audit scope
• Our audit focused on:
-
-
subjective judgements made by the Group; and
significant accounting estimates involving assumptions and inherently uncertain future events.
• The Group comprises businesses in New South Wales, Queensland, Victoria, Tasmania, Denmark, United
Kingdom, Ireland and Singapore, with the most financially significant operations being those in Australia and
Ireland. Accordingly we structured our audit as follows:
- The Group audit was led by our team from the Australian PwC firm (“Group audit team”). The Group audit
team conducted an audit of the special purpose financial information of selected Australian businesses
used to prepare the consolidated financial statements.
- The Component auditor in Ireland, under instructions from the Group audit team, performed an audit of
the special purpose financial information for Virtus Health Ireland used to prepare the consolidated
financial statements.
- The Group audit team decided on their level of involvement needed in the work performed by the
component auditor, to be satisfied that sufficient appropriate evidence had been obtained for the purpose
of our opinion. Review of the work undertaken by the component team and regular dialogue between the
103
103
ANNUAL REPORT 2018 teams up to the reporting date supplemented the specific direct written instruction provided by PwC
Australia and augmented the reporting provided by the component auditor.
- The Group audit team undertook the remaining audit procedures, including over significant financial
statement items controlled at the Group level, the Group consolidation and the audit of the financial report
and remuneration report.
- The combination of all these procedures provided us with sufficient and appropriate audit evidence to
express an opinion on the Group’s financial report as a whole.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit Committee.
Key audit matter
How our audit addressed the key audit matter
Estimated recoverable amount of goodwill
assets (Refer to notes 2 and 15)
Goodwill of $453 million is recognised on the
consolidated statement of financial position.
Under Australian Accounting Standards, the Group is
required to test the goodwill annually for impairment,
irrespective of whether there are indicators of
impairment. This assessment is inherently complex and
judgemental. It requires judgement by the Group in
forecasting the operational cash flows of its cash
generating units, and determining discount rates and
terminal value growth rates to be used in the discounted
cash flow models used to assess impairment (the
models).
The recoverable amount of goodwill was a key audit
matter given the:
-
-
financial significance of the intangible assets to the
consolidated statement of financial position; and
judgement applied by the Group in completing the
impairment assessment.
We focused our efforts on developing an understanding
and testing the overall calculation and methodology of
the Group’s impairment assessment, including
identification of the cash generating units of the Group
for the purposes of impairment testing, and the
attribution of net assets, revenues and costs to those
units.
In obtaining sufficient audit evidence, our procedures
included, amongst others:
-
-
-
-
-
assessing the cash flow forecasts included in the
models with reference to actual historical earnings;
testing the mathematical calculations within the
models;
assessing the terminal value growth rates and
discount rates applied in the models by comparing
to external information sources;
performing sensitivity analyses over the key
assumptions used in the models; and
assessing the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
104
104
INDEPENDENT AUDITOR’S REPORTto the members of Virtus Health LimitedVIRTUS HEALTH Key audit matter
How our audit addressed the key audit matter
Accounting for financial liabilities relating to
put options (Refer to notes 2, 6, 28 and 36)
Financial liabilities of $12.2m in respect of the put
option arrangements exercisable in 2019 relating to the
acquisitions of the SIMS Clinic Limited and TasIVF Pty
Ltd are recognised on the consolidated statement of
financial position.
The financial liabilities are based upon a multiple of
earnings before interest, tax, depreciation and
amortisation.
The Group’s re-assessment of the fair value of the put
options reduced the associated liabilities by $0.9 million
and resulted in a fair value gain of $0.9 million being
recognised in other income.
The accounting for these financial liabilities was
assessed as a key audit matter given:
-
-
the financial significance of the liability to the
statement of financial position; and
the judgement applied by the Group in assessing
the assumptions deriving the liabilities.
Accounting for financial liabilities relating to
put options
(Refer to notes 2, 6, 28 and note 36)
Our procedures included evaluating the analysis
conducted by the Group for judgements made in respect
of the ultimate amounts expected to be paid in respect of
the put option arrangements.
In obtaining sufficient audit evidence, our procedures
included, amongst others:
-
-
-
-
-
-
reading the agreed underlying terms of the option
arrangements and checking that the basis and
composition of the liabilities recognised was
consistent with the accounting principles applied
to derive the liabilities;
assessing the liability valuation models and the
process by which they were developed;
compared current year trading performance to the
forecasted performance of the businesses;
tested the mathematical accuracy of the
calculations;
agreed amounts settled in the period to bank
statements; and
assessing the appropriateness of the Group’s
disclosure in the financial report in light of the
requirements of the Australian Accounting
Standards.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2018, but does not include the
financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other
information we obtained included the Directors’ report, the Chairman’s Statement, the Chief
Executive’s Overview, the Corporate Governance Statement and the Corporate directory. We expect
the remaining other information to be made available to us after the date of this auditor's report,
including the Shareholder Information. Our opinion on the financial report does not cover the other
information and we do not and will not express an opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
105
105
ANNUAL REPORT 2018 When we read the other information not yet received as identified above, if we conclude that there is a
material misstatement therein, we are required to communicate the matter to the directors and use
our professional judgement to determine the appropriate action to take.
Responsibilities of the directors 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 gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor’s report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 23 to 44 of the Directors’ report for the
year ended 30 June 2018.
In our opinion, the remuneration report of Virtus Health Limited, for the year ended 30 June 2018
complies with section 300A of the Corporations Act 2001.
106
106
INDEPENDENT AUDITOR’S REPORTto the members of Virtus Health LimitedVIRTUS HEALTH Responsibilities
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.
PricewaterhouseCoopers
Mark Dow
Partner
Sydney
21 August 2018
107
107
ANNUAL REPORT 2018 The shareholder information set out below was applicable as at 14 September 2018.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Size of Holding
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Distribution of Options
The distribution of unquoted options on issue are:
Size of Holding
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number of
Shareholders
70
306
680
3,698
4,388
9,142
Ordinary
Shares
55,996,278
7,939,792
5,078,918
9,126,271
2,248,679
80,389,938
% of Issued
Capital
69.7
9.9
6.3
11.3
2.8
100.0
Number of
Holders
2
32
4
12
7
57
Unlisted
Options
276,570
758,851
27,353
35,278
4,350
1,102,402
% of Issued
Capital
25.1
68.8
2.5
3.2
0.4
100.0
108
SHAREHOLDER INFORMATIONfor the year ended 30 June 2018VIRTUS HEALTH Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Number of
fully paid
Ordinary Shares
% of Issued
Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
Merlon Capital Partners
Dimensional Fund Advisors
Montgomery Investment Mgt
NovaPort Capital
Auscap Asset Mgt
BlackRock Investment Mgt - Index
Vinva Investment Mgt
Norges Bank Investment Mgt
Selector Funds Mgt
Acadian Asset Mgt (Australia)
Realindex Investments
Vanguard Group
Vanguard Investments Australia
14
JPMorgan Securities Australia
15
16
17
18
19
Allan Gray Investment Mgt
Mr Lyndon G Hale
Omega Global Investors
Segall Bryant Hamill Investment Counsel
Mr Francis Quinn
20
Arrowstreet Capital
Total
4,681,339
3,577,415
3,314,612
3,182,612
2,635,000
2,051,404
2,007,143
1,903,935
1,562,219
1,546,753
1,410,744
1,332,867
1,201,102
1,042,807
893,616
823,694
802,151
696,919
684,663
650,557
36,001,552
5.8
4.5
4.1
4.0
3.3
2.6
2.5
2.4
1.9
1.9
1.8
1.7
1.5
1.3
1.1
1.0
1.0
0.9
0.9
0.8
44.8
109
ANNUAL REPORT 2018 Unquoted equity securities
There are no unquoted equity securities.
Substantial holders
The names of the Substantial Shareholders listed in the Company’s Register as at 14 September 2018:
Merlon Capital Partners
Voting rights
The voting rights attached to ordinary shares are set out below:
Number of
Ordinary Fully
Paid Shares
4,681,339
% of Issued
Capital
5.8
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.
8,359,571 shares are held under Escrow arrangements with variable release dates linked to the age and retirement dates of the
fertility specialists.
There are no other classes of equity securities.
Corporate Governance Statement
The Corporate Governance Statement was approved by the Board of Directors on 21 August 2018 and can be found at
www.virtushealth.com.au/corporategovernance
110
SHAREHOLDER INFORMATIONfor the year ended 30 June 2018VIRTUS HEALTH Term
Meaning
AH (Assisted Hatching)
The procedure in which the outer layer of the embryo (called the zona) is thinned by a laser
to help the embryo implant more easily.
Andrology
Andrology is a sub-specialty in urology that is devoted to problems concerning the male
reproductive system, male urology and male infertility.
Assisted Reproductive Services /
Assisted Reproductive Technology
(ART)
A collective term for fertility treatments. Treatments that involve the application
of laboratory or clinical techniques to gametes and/or embryos for the purpose of
reproduction. Common treatments include IVF Cycles, frozen embryo transfers,
cryostorage of frozen embryos and intra-uterine insemination.
Blastocyst
Cytogenetics
The term for an embryo five days after fertilisation which has now developed a special shape
with different parts identifiable and a fluid-filled cavity.
Cytogenetics is a branch of genetics that focuses on the microscopic analysis of
chromosomes in individual cells.
Donor insemination
The use of sperm from a male donor in order to achieve a pregnancy.
Egg collection
The stage of an IVF treatment cycle where the woman’s eggs are collected under vaginal
ultrasound.
Embryo
Once the egg has joined with the sperm it is called an embryo.
Embryo Transfer (ET)
The stage of an IVF treatment cycle where the embryo is transferred back to the woman’s
uterus via a fine catheter.
EMSN
Endocrinology
hCG
The Australian Government’s Extended Medicare Safety Net.
Endocrinology is a branch of biology and medicine dealing with the endocrine system, its
diseases, and hormones, including hormones that relate to the reproductive system.
The hormone that is produced by the embryo and is measured in a pregnancy test.
Injections of hCG can be used to trigger maturation of the egg followed by ovulation.
Injections of hCG may also be used to maintain hormone levels in the second half (luteal
phase) of the cycle.
ICSI
(Intracytoplasmic Sperm Injection)
The fertility technique where a single sperm is selected and directly injected into an egg. High
Magnification ICSI uses extremely high magnification to help sperm selection for specific
patients.
Implantation
The embedding of the embryo in the lining of the uterus 6-7 days after fertilisation.
Intra-uterine Insemination (IUI)
Treatment that involves inserting the partner’s concentrated semen through the neck of the
womb into the uterus itself close to the time of ovulation.
IVF (In Vitro Fertilisation)
The procedure, by which an egg and sperm are joined together outside the body, in a
specialised laboratory. The fertilised egg (embryo) is allowed to grow in a protected
environment for some days before being placed back (transferred) into the uterus.
MBS
The Commonwealth Government’s Medicare Benefits Schedule.
Medicare Levy Surcharge
Levy on payers of Australian tax who do not have private health insurance with hospital cover
and who earn above a certain income.
111
GLOSSARY OF TERMSANNUAL REPORT 2018 Term
Meaning
National Association of Testing
Authorities (NATA)
Authority responsible for accreditation of laboratories, inspection bodies, calibration
services, producers of certified reference materials and proficiency testing scheme
providers throughout Australia.
NIPT
Oocyte
OPU
Non-Invasive Prenatal Testing (NIPT), available for women who are at least 9 weeks pregnant,
analyses the baby’s DNA within the mother’s blood sample for certain chromosome
conditions that could affect the baby’s health.
The fully mature egg produced from the ovary each month.
Oocyte Pick Up
Ovarian Hyperstimulation
Syndrome (OHSS)
A condition where women over-respond to the fertility drugs and can develop severe fluid
retention and abdominal swelling.
Pre-implantation Genetic Diagnosis
(PGD/PGT)
Pre-implantation Genetic Screening
(PGS)
Testing the genetic makeup of the embryo before it is transferred back into the woman.
Screening all 24 chromosomes in a developing embryo prior to implantation in an IVF cycle.
112
GLOSSARY OF TERMSVIRTUS HEALTH Directors
Peter Macourt – Chairman
Susan Channon
Lyndon Hale
Peter Turner
Sonia Petering
Greg Couttas
Company secretary
Glenn Powers
Notice of annual general meeting
The details of the annual general meeting of
Virtus Health Limited are:
Wednesday, 21 November 2018
at the Hilton Hotel Sydney at 2pm
488 George Street
NSW 2000
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
Share register
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Phone: 1300 554 474
Auditor
PricewaterhouseCoopers
One International Towers Sydney
Watermans Quay, Barangaroo
NSW 2000
Solicitors
Minter Ellison
Governor Macquarie Tower
1 Farrer Place
Sydney NSW 2000
Bankers
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,
United States of America
National Australia Bank
Level 19, NAB House,
255 George Street,
Sydney NSW 2000
HSBC Bank
Level 36, Tower 1,
International Towers
100 Barangaroo Avenue,
Sydney NSW 2000
Australia and New Zealand Banking Group Limited
242 Pitt 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
Corporate Governance Statement
The Corporate Governance Statement was approved by the
Board of Directors on 21 August 2018 and can be found at
http://virtushealth.com.au/about-us/corporate-governance
CORPORATE DIRECTORYANNUAL REPORT 2018