ANNUAL REPORT
ABN 80 129 643 492
CONTENTS
2 Chairman’s statement
6 Chief Executive’s overview
12 Board of Directors
16 Directors’ report
40 Auditor’s independence declaration
41 Statement of comprehensive income
42 Statement of financial position
43 Statement of changes in equity
44 Statement of cash flows
45 Table of contents
46 Notes to the financial statements
85 Directors’ declaration
86 Independent auditor’s report to the
members of Virtus Health Limited
91 Shareholder Information
93 Corporate directory
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.
127
FERTILITY SPECIALISTS
20,300
FRESH IVF CYCLES
242
SCIENTISTS
1,046
NURSE, COUNSELLOR AND PATIENT SUPPORT
43
FERTILITY CLINICS
7
DAY HOSPITALS
General information
The financial report consists of the financial statements, notes to the financial statements
and the directors’ declaration.
Virtus Health Limited is a listed public company limited by shares, incorporated and domiciled in Australia.
Its registered office and principal place of business is:
Level 3
176 Pacific Highway
Greenwich NSW 2065
A description of the nature of the consolidated entity’s operations and its principal activities are
included in the directors’ report, which is not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of directors,
on 20 August 2019. The directors have the power to amend and reissue the financial statements.
Management is focused on maximizing return
from operational changes being implemented
in Australia, business development in our
European clinics and the delivery of greater
synergies across our six European sites.
CHAIRMAN’S
STATEMENT
The results for the financial year ended 30 June 2019 reflect a challenging year
in several individual operations.
Group revenue increased 6.1% to $280.1 million. Revenue growth was flat in
Australia, impacted by price pressure in a competitive Australian market and a
decline in our genetic screening revenue following a change in internal clinical
practice. The performance of our Alexandria and Hobart operations were both
disrupted in the first half by their relocations to new facilities.
International revenue increased by 25.2% supported by a first year
contribution from our new Danish clinic, Trianglen and continued
growth in Singapore. However, the performance of Aagaard
Fertility Clinic, Denmark and Complete Fertility Centre, UK were
below expectations, with Aagaard suffering a decline in revenue
as doctor resource issues took longer than expected to resolve.
These issues have been addressed by management and we will
have a stronger complement of specialists by November 2019.
For the year ended 30 June 2019, the Directors announce a final
dividend of 12.0 cents per share fully franked and this results in
a full year dividend payout of 24.0 cents per share fully franked;
this is a decrease of two cents per year on the prior year reflecting
reduced earnings.
Management is focused on maximizing return from operational
changes being implemented in Australia, business development
in our European clinics and the delivery of greater synergies
across our six European sites. The Board continues to work
closely with management to identify international development
opportunities.
Cycle volume in Virtus Australian clinics increased 1.5% over pcp
against comparable market growth of 4.9%. Growth in demand
for lower priced services continues to increase and Virtus Health
lower priced services through our TFC branded clinics increased
by over 25% over the pcp. Growth in premium service activities
declined by 2.6% but overall we maintained our aggregate EBITDA
in our fertility operations in New South Wales, Victoria and
Queensland.
The Board recognise that the Australian ARS market continues
to evolve and we have maintained our focus 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.
An exciting illustration of our commitment to improving patient
outcomes is the development of the Artificial Intelligence
software, “Ivy”. In April 2019, we were pleased to announce the
collaboration and further development of this activity with our
technology partners, Vitrolife based in Sweden, the manufacturer
of EmbryoScope time-lapse incubators and Harrison.AI, an
Australian technology company specialising in AI in healthcare.
The relocations in Alexandria and Hobart, which provide long-
term capacity and capability improvements to Virtus, affected
our profits in FY2019 although management is focused on
business development in each location in the new financial year.
Changes to federal and territory legislation are an important
The Australian ARS
market continues to
evolve and we have
maintained our focus
on service delivery
to support patients
across a range of
social and economic
demographics.
feature of the future landscape for ARS across the world. In
Australia the Federal Health department published its review
of the Medicare Benefits Schedule; to date there have been no
announcements regarding the ARS sector.
In Europe, changes to donor services, identified last year, are
still expected in Ireland and our European management team
continue to assess the opportunities to expand our donor
services in our chosen territories.
At Board level, we welcomed Shane Solomon as an independent
non-executive Director in October 2018. Shane adds to the depth
of healthcare operating experience on our Board. I also wish to
announce that, after six years as Chairman, I will be stepping down
from the Board at the Annual General Meeting in November. I
would like to thank Board members for their diligence and support
during my time as Chairman. An independent recruitment firm
conducted a process with the remaining independent Directors
who unanimously nominated Sonia Petering as Chair elect
commencing from 20 November 2019.
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 our continued success.
PETER MACOURT
Chairman
2
3
VIRTUS HEALTHANNUAL REPORT 2019 Virtus’ diversified and vertically integrated
platform and our recent investment in
infrastructure reaffirms our strong position
to capture volume in our ARS markets and
associated services of day hospitals and
diagnostics in FY20 and beyond.
CHIEF
EXECUTIVE’S
OVERVIEW
We see a future where everyone in the community has access to the
opportunity to create a family. Our ambition is to be the most valued and
leading provider of ARS based on extraordinary patient care and clinical and
scientific leadership.
Results
Performance throughout FY19 is indicative of changing market
conditions and Virtus Health’s significant investment across our
three pillars of fertility, diagnostics and day hospitals to ensure
we remain the market-leading Assisted Reproductive Services
(ARS) provider in Australia and continue to increase our presence
globally.
Identifying opportunities to enable future growth, in FY19 we
set the foundation for evolving patient services, improving
productivity and, ultimately, advancing revenue through
the implementation of a number of strategic activities and
infrastructure projects. Whilst these investments had an impact
on overall financial performance in FY19, we are confident
the groundwork laid will facilitate business development
opportunities and growth through our competitive service
offerings in FY20.
Virtus Health teams completed 20,300 fresh IVF
cycles in FY19, 37,864 treatments, 32,827
day hospital procedures and more than
200,000 diagnostic referrals.
Growth initiatives
Throughout FY19 we implemented key strategic initiatives to
support future growth across international and domestic ARS
markets as well as specialised diagnostics and day hospitals in
Australia.
We continue to focus on providing a range of services across the
ARS value chain from consultation to diagnostics, low cost and
full service fertility treatment through to high-end genetics and
we are the only ARS organisation in Australia that is delivering this
comprehensive fertility care for patients.
We also continue to evolve our clinical approach and service
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 market segments.
While our targeted response to low cost competition in Australia
resulted in overall volume growth, margins were impacted.
Revenue diversification through international expansion
continues with the full year contribution from Trianglen in
Denmark and Complete Fertility in Southampton, UK taking
overall revenue contribution from international activities to 21%.
Leading minds
The Virtus network has remained stable in FY19 with 127 fertility
specialists (103 in Australia) supported by over 1300 professional
staff including scientists, nurses, researchers and administrators
all with the ultimate goal of providing the highest standards of
clinical care and patient outcomes.
The average age of our fertility specialists is 52 and has remained
relatively stable over FY19. 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.
Our two biggest infrastructure projects were commissioned in
FY19. Alexandria Specialist Day Hospital commenced operation
after the relocation of IVF Australia’s eastern suburbs facilities
were completed in August 2018 and whilst the impact on EBITDA
from the relocation costs and a slowdown in non-IVF activities
is evident in FY19, we expect to see the results of our business
development activities, including the recruitment of additional
surgeons, deliver revenue growth in FY20.
Our second development, Hobart Specialist Day Hospital,
commenced operation in late 2018 and achieved full
accreditation in February 2019. This purpose-built facility was
developed to better cater to the needs of patients and has
cemented our competitive position in Tasmania.
In FY19 Virtus Diagnostics undertook the relocation of its main
pathology lab to new premises in the medical precinct of Revesby,
introducing a full suite of state-of-the-art diagnostic equipment
and an expanded testing capacity.
Virtus’ diversified and vertically integrated platform and our
recent investment in infrastructure reaffirms our strong position
to capture volume in our ARS markets and associated services of
day hospitals and diagnostics in FY20 and beyond.
Multiple Sources of Revenue
FY12
FY19
80%
13%
7%
21%
63%
8%
8%
Australian ARS
International/other
Day Hospitals
Specialised Diagnostics
6
7
VIRTUS HEALTHANNUAL REPORT 2019 Leading science
The Virtus-developed “Ivy” Artificial Intelligence (AI) system
continued to build momentum in FY19 gaining international
medical and scientific community interest with publication in
Human Reproduction, the prestigious ARS international journal.
In April 2019, Virtus entered into transfer and collaboration
agreements for the “Ivy” software with Swedish company,
Vitrolife, the manufacturer of EmbryoScope time-lapse
incubators and Harrison.AI, an Australian technology company
specialising in AI in healthcare.
“Ivy” analyses the growth of embryos continuously over a five-day
period and uses millions of data points from time-lapse imaging
to predict the likelihood of an individual IVF embryo leading to a
viable pregnancy.
The AI technology supports elective single embryo transfer and
is anticipated to shorten the time to pregnancy by ranking the
most viable embryos for selection and transfer. The collaboration
agreements build on existing scientific and commercial
relationships and will focus on further innovation in the field of
assisted reproductive services.
The “One Lab” strategy under the leadership of Professor David
Gardner has continued to develop, setting new benchmarks,
pursuing process improvements and driving efficiency and
consistency across our laboratories.
Research continues to remain a key focus for Virtus and we aim
to enhance our scientific and clinical research activities with an
annual R&D investment of approximately $2.2 million. Throughout
FY19 support continued for a number of specific research
projects and PhD Scholarships within Virtus.
Leading care
We remain focused on service delivery of the highest standard
across our fertility, day hospital and diagnostics businesses and
are committed to supporting our doctors and specialist teams in
their delivery of patient care.
In FY18 we appointed an HR advisor to develop the Virtus “people
plan” with the aim of ensuring both our management teams and
frontline staff have the opportunity to develop their careers
within Virtus Health. Throughout FY19, we began implementation
of the “people plan” which will continue into FY20 ensuring Virtus
is an employer of choice within the ARS sector, renowned for
professional staff creating exceptional patient experiences.
With the aim of ensuring a positive risk culture across the
organisation, Virtus management teams continue to utilise our
electronic platform RiskMan to enable greater awareness of the
risks within our workplaces, analyse incidents and encourage
open conversations to continually improve the safety and
efficacy of all of our programs of care.
Our patient satisfaction survey which measures our Net Promoter
Score (NPS) has delivered promising results in FY19 with our
overall NPS score lifting to 52, up from 42.8 in FY18.
Our focus on the
evolution of our service
models combined
with our significant
investment in science
and technologies
ensures we remain
relevant to the markets
in which we operate
and can deliver the
highest quality of care
across the full range
of reproductive and
fertility issues.
Looking forward
Infertility affects 1 in 6 couples of reproductive age world-wide and
demand for Assisted Reproductive Services continues to increase.
Virtus Health has a focused strategy to deliver earnings growth in
the face of a restructuring market. The key aspects of our strategy
are;
In Australia we will;
•
Defend and build services and growth in our Premium
business;
We expect our focus on harmonisation and process improvement
across our three key pillars of fertility, diagnostics and day
hospitals to support our future growth, create additional capacity
and ensure patients across the world have access to the best
treatment and facilities to support their fertility journey.
I extend my gratitude to the Virtus Board, the Executive team and
all of our doctors and staff around the world for their support and
ongoing commitment to the organisation and, importantly, the
needs of our patients. Thank you for your continued effort and
contribution to the Virtus culture of excellence.
• Grow our low price services;
• Grow non IVF day hospital revenue; and
• Grow diagnostic revenue.
In our International markets we will;
•
Target organic revenue growth in our current international
markets; and
• Consider acquisition in selected international territories.
Margin enhancement will be targeted in all current locations. Our
“One Lab” project and ICT projects are key components of our
strategy driving improved patient satisfaction through process
improvement and efficiency.
Our focus on the evolution of our service models combined with
our significant investment in science and technologies ensures
we remain relevant to the markets in which we operate and
can deliver the highest quality of care across the full range of
reproductive and fertility issues.
As the leading ARS organisation in Australia and Ireland with a
growing presence in Europe we are well-positioned to continue
to attract the very best clinical and scientific teams to meet the
growing needs of the patients we treat.
SUE CHANNON
Group CEO
8
9
VIRTUS HEALTHANNUAL REPORT 2019
PIONEERING
ARTIFICIAL INTELLIGENCE IN IVF
The Virtus-developed “Ivy” Artificial Intelligence
system has gained significant ground at an
international level with a team of leading minds
driving the powerful technology forward.
Dr Aengus Tran of Harrison.AI, Dr Simon Cooke, Scientific
Director of IVFAustralia, A/Prof Peter Illingworth,
Medical Director of IVFAustralia and Professor
David Gardner, Group Director of ART at Virtus Health
led the continued development of Ivy in FY19.
With the ability to more accurately and objectively predict the best
embryo to select for transfer based on the presence of a fetal heart,
early findings of Ivy were published in Human Reproduction in May 2019;
the world’s leading peer-reviewed journal in reproductive medicine.
Gaining approval from the Therapeutic Goods Administration (TGA),
the framework of a Randomized Controlled Trial (RCT) has been
approved to further investigate whether embryo selection using
Ivy can lead to a higher clinical pregnancy rate after transfer
of the first embryo compared to when selection is performed
by an embryologist using the standard published criteria.
Virtus Health, together with Harrison.AI, also announced a
partnership in FY19 with Swedish company Vitrolife, the world’s
leader in time-lapse incubation systems, to further
refine the pioneering system.
BOARD OF
DIRECTORS
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.
Other current directorships:
None
Former directorships (last 3 years):
None
Special responsibilities:
Member of the Risk 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 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.
GREG COUTTAS
Non-Executive Director
BCom.; FCA; MAICD
Greg spent 40 years with Deloitte including 28 years
as partner. In his years at Deloitte 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.
of the Board of Partners for Deloitte Australia from
2005 to 2016. Greg is also a director of Sydney
Water Corporation, Hireup Pty Limited and a
member of the Governance Board of The Salvation
Army Australia Territory.
Other current directorships:
None
Former directorships (last 3 years):
None
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
Special responsibilities:
Chair of the Audit Committee and a member of
the Risk and the Nomination and Remuneration
Committees.
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.
Other current directorships:
None
Former directorships (last 3 years):
None
Special responsibilities:
Member of the Risk Committee
SONIA PETERING
Non-Executive Director
LLB; BComm; FAICD
Sonia has more than 15 years experience in non
executive director and chair roles with listed and
unlisted companies and government authorities
across financial services, payments, insurance,
professional services and healthcare. Sonia is an
experienced commercial lawyer who commenced
her legal practice in 2001. She holds a current
Victorian legal practicing certificate. Sonia previously
served as a non executive director on the boards of
Transport Accident Commission of Victoria and Rural
Finance Corporation of Victoria and as Chair of the
Board of Rural Finance Corporation from 2009 - 2016.
Sonia is also a non executive director of TAL Dai - ichi
Australia Ltd, Qantm IP (ASX:QIP) and Cuscal Ltd.
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.
SHANE SOLOMON
Non-Executive Director
BSW, MA (Public policy), Adjunct Professor UTS Business School
Shane is a highly experienced healthcare professional
having worked in numerous Executive and Board
roles across the public and private health sector
over the past 34 years. Shane brings extensive health
policy and a strong understanding of operational
and clinical governance gained from his roles in the
Victorian public health system including the role
of Undersecretary for Health, and Chief Executive
of the Hong Kong Hospital Authority. Returning to
Australia in 2010, Shane became a Partner at KPMG
Australia, leading the National Health practice and in
2013, he became founder and Managing Director of
Telstra’s eHealth business, Telstra Health. Shane was
appointed in 2011 by the Commonwealth Government
to be Chairman of the Independent Hospital Pricing
Authority. He maintains this role and is on the Board
of Silver Chain, one of the largest community based
health care service providers in Australia. Shane also
chairs the SA Health EMR Project Board.
Other current directorships:
None
Former directorships (last 3 years):
None
Special responsibilities:
Chair of the Risk Committee and a member of the
Audit Committee.
12
VIRTUS HEALTH
ANNUAL REPORT 2019
13
BUILDING
THE FUTURE
OF VIRTUS DIAGNOSTICS
In FY19 the Virtus Diagnostics team
launched key strategic initiatives to
underpin the growth of the business.
The relocation of the Virtus Diagnostics pathology lab
from Hurstville to Revesby was completed in April 2019
and delivered facilities, equipment and capacity to
achieve the goal of expanding operations both in general
pathology services and complex genetic testing.
To support the growth of the genetics division, a key appointment for the
Diagnostics team in FY19 was the introduction of Professor David Coman
to the role of Clinical Supervisor, Genetics. The world of genetics is rapidly
evolving and, as a highly respected leader in this field of medical science,
Professor Coman’s expertise will be invaluable to Virtus staff and clinicians.
Additional pathology specialists were also appointed in FY19 in
response to new supervisory requirements of the National
Pathology Accreditation Advisory Council (NPAAC) regulations.
Setting the framework of the future, the Virtus Diagnostics
team is well positioned to grow both its operations
and service offering to patients in FY20.
14
15
VIRTUS HEALTHANNUAL REPORT 2019 DIRECTORS’
REPORT
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the
‘consolidated entity’) consisting of Virtus Health Limited (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it
controlled at the end of, or during, the year ended 30 June 2019.
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 ( resigned on 21 November 2018)
Sonia Petering
Greg Couttas
Shane Solomon ( appointed on 24 September 2018)
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 2019 of 12.0 cents (2018: 14.0 cents)
per fully paid ordinary share paid in April 2019
Final ordinary dividend for the year ended 30 June 2018 of 12.0 cents (2017: 12.0 cents)
per fully paid ordinary share paid in October 2018
Consolidated
2019
$’000
9,647
2018
$’000
11,255
9,647
9,646
19,294
20,901
A final dividend of 12.00 cents per share, fully franked, will be paid on 25 October 2019 to the shareholders on the register at
4 October 2019.
Recognition and measurement
Dividends are recognised when declared during the financial year.
Review of operations
The profit for the consolidated entity after providing for income tax and non-controlling interest amounted to $28,426,000 (30 June
2018: $30,753,000).
A reconciliation of Segment EBITDA to profit before tax for the year is as follows:
Consolidated
Segment EBITDA
Transfer of Intellectual Property (IP)
Share-based payment expense
Other non-trading expenses
Fair value adjustment to put liabilities and contingent consideration
Impairment of goodwill
EBITDA (reported)
Depreciation and amortisation
EBIT
Interest
Interest on other financial liabilities - non-cash interest
Amortisation of bank facility fee
Profit before income tax from continuing activities
2019
$’000
71,146
4,110
(1,161)
(13,045)
8,261
(5,800)
63,511
(13,628)
49,883
(7,682)
(1,464)
(563)
40,174
2018
$’000
76,018
-
(881)
(11,199)
1,089
-
65,027
(12,496)
52,531
(6,479)
(981)
(207)
44,864
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 6.1% to $280.1m;
•
Group EBITDA decreased by 2.3% to $63.5m (Group EBITDA for FY19 includes $4.1m profit on sale of Virtus’ IP in relation to its
Artificial Intelligence software “Ivy”);
• Segment EBITDA decreased by 6.4% to $71.1m;
• Australian segment EBITDA decreased by 8.6% to $61.1m;
•
• Net profit after tax (“NPAT”) attributable to equity holders decreased by 7.6% to $28.4m; and
• Successful refinancing of existing debt facilities (refer to note 15 for details).
International segment EBITDA increased by 9.3% to $10.1m;
Operating overview
Australia
Australian fresh cycle activity grew by 4.9% in the markets in which Virtus participates. Volume growth summary by state is as follows:
• NSW up by 2.6%, Virtus down by 1.6%;
• VIC up by 8.4%, Virtus up by 5.9%;
• QLD up by 5.0%, Virtus up by 0.4%; and
• TAS down by 2.7%, Virtus up by 8.2%
Virtus fresh cycle activity in Australia in FY19 grew by 1.5%. Key aspects of the volume movement compared to pcp were as follows:
• Premium service volumes reduced by 2.6%; and
• TFC volumes increased by 25.6% the bulk of which arose in VIC through targeted initiatives to drive volume growth.
Overall, EBITDA in the Australian segment decreased by 8.6% to $61.1m from pcp with three main factors contributing to this:
Revenue Mix Change – ($2.2m)
•
•
$1.7m related to TasIVF arising from a change in revenue mix from premium to more low cost and bulk bill cycles. Whilst this was
part of a targeted effort to recover market share from competitors, it significantly affected revenue per cycle;
$0.5m related to premium volume softness in key states of NSW and VIC which was partially offset by an increase in premium
volumes in QLD and strong growth in TFC activity.
16
17
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
Diagnostics – ($2.3m)
•
•
$1.3m related to decreases in genetic testing utilisation driven by a change in clinical practice and softer cycle revenue as a result of
lower IVF activity in the key states of NSW and VIC; and
$1.0m due to increase in supervision costs as a result of new regulatory requirements and the appointment of an additional
pathologist.
Relocation Projects - ($1.5m)
•
•
•
$0.9m impact on EBITDA from the relocation costs and disruption to non-IVF activities related to the move to new facilities in
Alexandria (NSW). There were delays in the commissioning of the facility which subsequently affected business development
opportunities and recruitment of additional surgeons; and
$0.4m related to Hobart (Tasmania) as a result of delayed accreditation, additional labour costs and delays in commencement of
non-IVF procedures;
Balance of $0.2m related to softness in the remaining Day Hospitals in NSW due to lower IVF activity.
International
Volumes in Ireland decreased slightly by 1.3% from pcp but revenue was up by $1.4m due to an increase in frozen cycles. EBITDA
however reduced by $0.5m primarily related to bad debt write offs and restructuring expenses.
Volumes in Singapore increased by 2.7% and EBITDA increased by $0.2m over pcp.
The Danish clinics delivered mixed results contributing to a net increase of $1.2m to EBITDA. Trianglen, acquired in June 2018 exceeded
expectations and produced a strong EBITDA result. This was however partially offset by Aagaard which suffered short term clinical
resource issues and this resulted in volume reductions of 23.2% compared to the prior year.
In the UK, Complete Fertility achieved a positive EBITDA although below expectations. We completed a planned refurbishment of
clinic facilities, which took longer than expected and caused some disruption to operations in the first quarter. Additionally donor cycle
activity was lower than anticipated due to a shortage of donor gametes.
Overall, EBITDA in the International segment increased by 9.3% to $10.1m.
Operating expenses (OPEX)
Group OPEX increase was approximately $15.2m, including $5.5m related to additional OPEX from acquisitions. The net increase of
$9.7m after adjusting for acquisitions comprised the following major movements.
•
•
•
•
•
•
•
Employment costs (adjusted for acquisition related increase of $4.2m) increased by $5.8m against pcp and included:
$0.5m increase in remuneration/recruitment costs associated with the appointment of a Group Chief Information Officer and
a strategic HR role
$1.2m relating to cessation of capitalization of IT personnel costs on completion of the Australian patient management
software rollout. These resources now support the ongoing maintenance and improvement of our technology platform. This
activity is also focused on business process improvement across all activities;
$1.0m relates to hiring of an additional pathologist and supervisors in our Diagnostics business to satisfy new compliance
requirements
$0.6m in termination costs across the group; and
Balance relates to wage inflation and EBA increases across the group.
Occupancy expenses (adjusted for acquisition related increase of $0.4m) were also up $1.9m and included increased rental
costs of the two major facility upgrades at Alexandria and Hobart of $1.5m. Approximately $0.3m of the overall increase is
non-recurring as the previous sites are now vacated
Debt and interest expense
The increase in interest expense over the prior period relates to the additional drawdown of $30m on 30 June 2018 for the acquisition
of Fertilitesklinikk Trianglen Aps (“Trianglen”) based in Copenhagen, Denmark.
At 30 June 2019, total facilities drawn were $175m in borrowings and $5.0m in guarantees. Unused and available facilities amounted to
$82.4m. Following a refinancing of our debt facility during the H1 FY19, $92m of the credit facility expires in September 2021, whilst the
remaining $170m expires in September 2023. Cash balances at 30 June 2019 were $18.8m.
The company continued to comply with the financial covenants of its facility agreement. A voluntary debt repayment of $7.5m was
made in June 2019.
Other financial liabilities ($17.2m)
The non-controlling interests of Sims Clinic Limited and TasIVF Pty Limited hold put options established at the time of acquisition.
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 FY19 of $1.1m (FY18: $0.9m). The consolidated entity has reviewed the underlying liabilities and (recognising the actual
EBITDA expectations for each of these businesses) has reduced the aggregate fair value of the financial liabilities by $4.5m to $8.6m.
This liability has also been classified as a current liability at 30 June 2019 as both put options are expected to be exercised within the
next 12 months.
The remaining $8.6m of the balance of other financial liabilities relates to contingent consideration ($5.7m) and a vendor loan note
($2.9m) in relation to the acquisition of Trianglen. Based on the most recent forecast trading outlook, the consolidated entity reduced
the estimated liability for the contingent consideration by $3.8m to $5.7m at 30 June 2019. (See Note 18 and 19 for details).
Impairment of Goodwill
Virtus undertakes impairment testing on the carrying value of goodwill on an annual basis, or more frequently if there is a trigger of
impairment. Virtus reviewed the assumptions relating to the valuation of the goodwill relating to the acquisition of TasIVF to reflect
changes in the competitive landscape and recent delays in business development in relation to its newly commissioned Day Hospital
facilities. Based on the review, a goodwill impairment charge of $5,800,000 has been recognised for TasIVF. Further details and
sensitivities are provided in Note 11 of the financial report.
Amortisation of borrowing costs
Amortisation of borrowing cost expense for FY19 was $563,000, (FY18: $207,000). The increase reflects the write off of residual
borrowing costs on the previous borrowing facility that was refinanced in September 2018 (refer to note 16 for details of refinance).
Taxation
The effective tax rate on operating earnings for FY19 was 27.8% (FY18: 28.8%).
Earnings per share
Basic earnings per share decreased by 7.6% to 35.37 cents per share (FY18: 38.26 cents per share). Diluted earnings per share
decreased by 7.9% to 34.97 cents per share (FY18: 37.98 cents per share).
Dividend
A final dividend of 12.00 cents per share fully franked (2018:12.00 cents per share) will be paid on 25 October 2019 to shareholders on
the register at 4 October 2019.
Outlook
The Board recognises that although general economic conditions have been less than favourable in certain markets, in the last twelve
months growth opportunities exist for all Virtus business activities. Relocation and restructure activities in Sydney, Tasmania and the UK
have disrupted the financial performance of the business in FY19 and management are focused on business development activities to
improve shareholder returns in FY20.
Significant changes in the state of affairs
There were no 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 2019 that has significantly affected, or may significantly affect the consolidated
entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years.
Likely developments and expected results of operations
Based on the long term trend of women in Australia delaying the birth of children and the fertility rate among Australian women aged
over 30 continuing to decline 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 demographic 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 are not limited to:
Change in Commonwealth Government funding/increasing patient out of pocket expenses
Australian 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’). A review of the MBS has
been undertaken by the Federal Health department and, to date, no changes to the MBS have been proposed.
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.
18
19
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
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/investor-centre/corporate-governance).
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law.
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:
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.
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
None
None
Member of the Risk Committee
448,633 ordinary shares
132,183 options over ordinary shares
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:
Greg Couttas
Non-Executive Director
B Com.; FCA; MAICD
Greg spent 40 years with Deloitte including 28 years as partner. In his years at Deloitte 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. Greg is also a director of Sydney Water Corporation, Hireup Pty Limited and a member
of the Governance Board of The Salvation Army Australia Territory.
None
None
Chair of the Audit Committee and a member of the Risk and the Nomination and
Remuneration Committees
5,000 ordinary shares
None
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
Sonia Petering
Non-Executive Director
LLB; BComm; FAICD
Sonia has more than 15 years experience in non executive director and chair roles with listed
and unlisted companies and government authorities across financial services, payments,
insurance, professional services and healthcare. Sonia is an experienced commercial lawyer
who commenced her legal practice in 2001. She holds a current Victorian legal practicing
certificate. Sonia previously served as a non executive director on the boards of Transport
Accident Commission of Victoria and Rural Finance Corporation of Victoria and as Chair
of the Board of Rural Finance Corporation from 2009 - 2016. Sonia is also a non executive
director of TAL Dai - ichi Australia Ltd, Qantm IP (ASX:QIP) and Cuscal Ltd
Qantm IP Limited
None
Chair of the Nomination and Remuneration Committee and member of the Risk Committee
8,066 ordinary shares
None
20
21
VIRTUS HEALTHANNUAL REPORT 2019 DIRECTORS’ REPORT (continued)
Name:
Title:
Qualifications
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Shane Solomon
Non-Executive Director
BSW, MA (Public policy), Adjunct Professor UTS Business School
Shane is a highly experienced healthcare professional having worked in numerous Executive
and Board roles across the public and private health sector over the past 34 years. Shane
brings extensive health policy and a strong understanding of operational and clinical
governance gained from his roles in the Victorian public health system including the role
of Undersecretary for Health, and Chief Executive of the Hong Kong Hospital Authority.
Returning to Australia in 2010, Shane became a Partner at KPMG Australia, leading the National
Health practice and in 2013, he became founder and Managing Director of Telstra’s eHealth
business, Telstra Health. Shane was appointed in 2011 by the Commonwealth Government to
be Chairman of the Independent Hospital Pricing Authority. He maintains this role and is on
the Board of Silver Chain, one of the largest community based health care service providers in
Australia. Shane also chairs the SA Health EMR Project Board.
None
None
Chair of the Risk Committee and a member of the Audit Committee
None
None
‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types
of entities, unless otherwise stated.
‘Former directorships (in the last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
Company secretary
Glenn Powers joined Virtus as Chief Financial Officer (‘CFO’) and Company Secretary in August 2008. Prior to joining Virtus, Glenn was
CFO and Company Secretary of Tower Software Limited. Glenn has a broad range of experience in private equity backed businesses,
working in a range of engineering, electronics, software and service businesses. Glenn has also been a Director for both main and AIM
market listed businesses in the UK. Glenn is a Chartered Management Accountant (CMA).
Meetings of directors
The number of meetings of the company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended
30 June 2019, and the number of meetings attended by each director were:
Peter Macourt - Chairman
Susan Channon
Greg Couttas
Lyndon Hale
Peter Turner
Sonia Petering
Shane Solomon
Peter Macourt - Chairman
Susan Channon
Greg Couttas
Lyndon Hale
Peter Turner
Sonia Petering
Shane Solomon
Full Board
Nomination and Remuneration
Committee
Attended
Held
Attended
Held
9
9
9
8
4
9
7
9
9
9
9
4
9
7
4
4
3
-
3
4
-
4
4
3
-
3
4
-
Audit Committee
Risk Committee
Attended
Held
Attended
Held
4
4
4
-
2
-
3
4
4
4
-
2
-
3
-
3
3
3
-
3
3
-
3
3
3
-
3
3
Remuneration report (audited)
The directors present the 2019 remuneration report prepared in accordance with the requirements of the Corporations Act 2001.
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.
A. Executive summary
Key Changes in FY19
There were no significant changes made to the remuneration framework in FY2019, however the LTI performance hurdles were
reviewed and updated to average Return on Equity and relative Total Shareholder Return (‘TSR’) against the constituents of the ASX
300 index.
Virtus Health Group’s remuneration framework enables the organisation to attract and retain high calibre, talented Executives,
management and specialists while ensuring that pay outcomes are aligned to building long term shareholder value.
The Board has determined that the Key Management Personnel (‘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 (resigned 21 November 2018)
Greg Couttas – Non-executive director
Sonia Petering – Non-executive director
Shane Solomon – Non-executive director (appointed 27 September 2018)
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 (notice of resignation received August 2019)
Steve Zappia – Managing Director, Queensland and Virtus Health Diagnostics
Dean Cleary – Chief Information Officer (appointed 17 October 2018)
Richard Banks – Managing Director, Europe
Anthony Walsh – Executive Chairman, Ireland
Peter Illingworth – Medical Director, New South Wales
David Molloy – Medical Director, Queensland
William Watkins – Medical Director, Tasmania
Total KMP remuneration for FY19 decreased from FY2018 by $142,881 (4.0%).
The short term incentives (‘STI’) and long term incentives (‘LTI’) achieved in FY2019 are set out in further detail below. There are no STI
accruals for FY2019 as the EPS hurdle of 5% growth was not met.
The performance hurdles tested in FY2019 of the LTIs granted in November 2015 and November 2016 were not achieved and
accordingly 125,034 performance rights lapsed during the financial year.
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 all independent non-executive Directors: Sonia Petering (Chairman), Peter Macourt and Greg Couttas.
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 set out 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.
Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee.
22
23
VIRTUS HEALTHANNUAL REPORT 2019 DIRECTORS’ REPORT (continued)
Use of remuneration consultants
When considered necessary, the Committee seeks external advice from independent consultants on the appropriateness of the
remuneration practices and arrangements including remuneration levels, independent benchmarking data and incentive structures.
The Committee and Board consider this input with several other factors when making decisions regarding remuneration.
During FY19, the Committee engaged Mercer to review the long term incentive plan for KMPs. The review also considered the
appropriateness of the relative TSR measure and peer group parameters. The Committee concluded that:
•
•
It would retain the measure of 50% of the LTI grant to be linked to Return on Equity; and
It would retain relative TSR as a performance measure, but only measured against the constituents of one single comparator
group, the ASX300, as this index appears to have the closest correlation to Virtus Health share price volatility. Accordingly, 50% of
the performance grant will be linked to the relative TSR of Virtus Health compared to the performance of the ASX300 index.
C. Executive remuneration framework
Remuneration philosophy and principles
The objective of the executive remuneration framework is to ensure that reward for performance is competitive and appropriate for
the results delivered. The Board continually monitors the effectiveness of the remuneration framework in terms of alignment with
shareholder interests and market practice.
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
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 the plan’s 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 for Australian employees comprises base salary, superannuation and other benefits such as annual leave and long
service leave in accordance with the regulations in the Australian state in which they are employed. 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.
Short term incentive plan – STI
The STI plan is an annual individual target based scheme aligned to the targets of individual executives respective business units. STI
payments are granted to executives based on achievement of specific annual targets and key performance indicators (‘KPIs’). 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 plan provides for cash settlement where successful performance against KPIs is 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 STI plan includes an EPS growth target of 5% over prior year that acts as a financial gateway for the payment of STIs, hence the STI
remains linked to the performance of the Company and alignment is maintained with shareholder interests.
Key features of the STI arrangements for FY19 were as follows:
• the maximum potential aggregate payment of STIs for the KMPs in total was $850,000; and
•
assuming the financial gateway is satisfied, 60% of the maximum opportunity is linked to the achievement of individual financial
outcomes and 40% of the maximum opportunity is linked to other individual measures established by the Nomination and
Remuneration Committee;
The STI KPIs for FY2019, which are set by the Nomination and Remuneration Committee and the CEO, included:
• 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:
o Risk management;
o Patient experience and improvement in net promoter score;
o Corporate governance objectives; and
o Other individual personal goals.
The STI KPI structure for FY2020, established by the Nomination and Remuneration Committee, assuming the financial gateway is
satisfied is as follows:
•
•
•
•
Applicable to Sue Channon and Glenn Powers – 40% of the maximum STI opportunity is linked to the achievement of target
Net Profit after Tax (‘NPAT’) attributable to the company’s shareholders, 20% of the maximum STI opportunity is linked to the
achievement of target consolidated Australian EBIT and 40% of the maximum STI opportunity relates to achievement of individual
management objectives set by the Board;
Applicable to Jade Phelan and Steve Zappia – 20% of the maximum STI opportunity is linked to the achievement of target
consolidated Australian EBIT; 45% of the maximum STI opportunity is linked to the achievement of relevant target State EBIT; and
35% of the maximum STI opportunity is linked to the achievement of individual management objectives;
Applicable to Richard Banks - 60% of the maximum STI opportunity is linked to the achievement of target consolidated European
EBIT and 40% of the maximum STI opportunity is linked to the achievement of individual management objectives; and
Applicable to Dean Cleary - 40% of the maximum STI opportunity is linked to the achievement of target Net Profit after Tax
(‘NPAT’) attributable to the company’s shareholders and 60% of the maximum STI opportunity is linked to the achievement of
individual management objectives.
EBIT and NPAT targets include individual interpolation schedules for national and territory percentage growth over prior year 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 5% and 10%, straight line interpolation of the relevant STI component is payable.
The Nomination and Remuneration Committee has the discretion to apply variations to these targets after consideration of local
market conditions.
Long term incentive plan – LTI
The company has adopted a performance rights plan (‘LTI Plan’) to balance the following key factors in its design:
•
•
•
•
Participant’s experience, reward, motivation and retention in response to challenging but achievable LTI measures;
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;
Shareholder expectations and alignment of executive reward outcomes to shareholder experience; and
Appropriate cost to the business considering the affordability and quantum of awards for Participants.
The Virtus plan objectives are aligned to market practice and the LTI Plan provides participants 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 on those rights until the rights have vested and converted into shares.
Generally, vesting conditions attached 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.
24
25
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
Eligibility to participate in the LTI Plan and the number of options or performance rights offered to each individual participant is
determined by the Board. The Board maintains full discretion in administering the grant and vesting of LTI awards. Virtus provides for
malus under Board discretion or approval to lapse/vest awards. Currently there are four executive performance grants in operation as
follows:
1. 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. Calculations
of the company’s TSR and ROE are determined at the end of the three year vesting period by the Board with verification performed by
an external party.
Relative TSR
S&P ASX 200
Relative TSR
S&P ASX 200 Health
Rights Vesting %
Notes
FY2016 STI Grant
Performance Hurdle
Percentile less than
Percentile at
Percentile range
50
50
50-75
TSR Base share price
$5.13
% ROE less than
% ROE at
% ROE range
3 Year average ROE
15.0%
15.0%
15.0-17.5%
50
50
50-75
$5.13
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
The TSR performance hurdles, tested on 15 September 2018 were not achieved and the ROE performance hurdle, tested on 30 June
2018 was not achieved.
2. 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 same performance hurdles as the FY2016 grant, and the TSR base share price is $8.05.
As at 30 June 2019, it is expected that the TSR performance hurdles, to be tested on 15 September 2019 will not be met. The ROE
performance hurdle, tested on 30 June 2019 was not met. The annual AASB 2 accounting charge of this scheme is currently $33,540
and the maximum earnings dilution to existing shareholders is 0.06%.
3. 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
Richard Banks
The performance rights vest subject to the same performance hurdles as the FY2016 grant, and the TSR base share price is $5.58.
The annual AASB 2 accounting charge of this scheme is currently $58,641 and the maximum earnings dilution to existing shareholders
is 0.22%.
4. Senior executives - FY2019 grant
On 21 November 2018, performance rights were granted to the following members of the executive management team:
Sue Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Jade Phelan
Richard Banks
The Nomination and Remuneration Committee changed the performance hurdles for the FY2019 grant as follows:
•
•
Recognising the change in the S&P Index classification for the company, the TSR performance hurdles were amended to ASX300
and ASX 300 Healthcare Index; and
The ROE hurdle had been set at a higher level in previous years and given the changing nature of the Company’s Australian market,
the Nomination and Remuneration Committee reset the hurdle to a more realistic level. It should be noted that the minimum
average annual ROE remains above the level achieved in the previous two years and the Nomination and Remuneration Committee
believes this maintains the aspirational aspect of the new hurdle.
Relative TSR
S&P ASX 300
Relative TSR
S&P ASX 300 Health
Rights Vesting %
Notes
FY2019 STI Grant
Performance Hurdle
Percentile less than
Percentile at
Percentile range
50
50
50-75
TSR Base share price
$5.70
% ROE less than
% ROE at
% ROE range
3 Year average ROE
12.0%
12.0%
12.0-14.0%
50
50
50-75
$5.70
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 $88,117 and the maximum earnings
dilution to existing shareholders is 0.22%
26
27
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
D. Link between remuneration and consolidated entity performance
Accordingly the actual proportion of remuneration linked to performance and the fixed proportion in FY2019 is as follows:
Consolidated entity performance and link to remuneration
Remuneration for certain individuals is directly linked to performance of the consolidated entity. Non-executive Directors receive only
fixed remuneration. STI payments are dependent on a defined earnings per share target being met. Assuming that all performance
conditions are met, the proportion of remuneration linked to performance and the fixed proportion is as follows:
Name
Executive Directors:
S Channon
L Hale
Other Key Management
Personnel:
G Powers
J Phelan
N Stankovic
S Zappia
D Cleary
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
Fixed remuneration
At risk - STI
At risk - LTI
2019
2018
2019
2018
2019
2018
48%
100%
48%
100%
48%
58%
58%
58%
78%
52%
100%
100%
100%
-
48%
58%
58%
58%
-
88%
100%
100%
100%
-
24%
-
24%
18%
18%
18%
22%
13%
-
-
-
-
24%
-
24%
18%
18%
18%
-
9%
-
-
-
-
28%
-
28%
24%
24%
24%
-
35%
-
-
-
-
28%
-
28%
24%
24%
24%
-
3%
-
-
-
-
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
D Cleary
R Banks
Cash bonus paid/payable
Cash bonus forfeited
2019
2018
2019
2018
-
-
-
-
-
-
-
51%
100%
49%
79%
51%
23%
-
-
40%
100%
100%
100%
100%
100%
100%
21%
49%
77%
100%
-
60%
Name
Executive Directors:
S Channon
L Hale
Other Key Management
Personnel:
G Powers
J Phelan
N Stankovic
S Zappia
D Cleary
R Banks
A Walsh
P Illingworth
D Molloy
Fixed remuneration
At risk - STI
At risk - LTI
2019
2018
2019
2018
2019
2018
86%
100%
70%
100%
85%
93%
100%
100%
100%
93%
91%
100%
100%
65%
84%
89%
85%
-
88%
84%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
18%
-
14%
-
12%
-
25%
13%
-
6%
-
9%
-
-
-
15%
7%
-
-
-
7%
9%
-
-
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 2019
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)
EPS Growth on prior year
2019
$’000
280,069
63,511
49,883
28,990
28,426
2019
4.50
24.00
35.37
34.97
(7.6%)
2018
$’000
263,916
65,027
52,531
32,009
30,753
2018
5.75
26.00
38.26
37.98
9.3%
2017
$’000
256,518
64,834
50,799
30,004
28,103
2017
5.38
28.00
35.00
34.79
(15.0%)
2016
$’000
261,210
68,916
57,736
34,865
32,918
2016
6.87
28.00
41.18
40.79
11.7%
2015
$’000
234,142
61,355
51,361
30,441
29,434
2015
5.37
27.00
36.86
36.54
(5.0%)
Remuneration outcomes for FY2019
Total KMP remuneration for FY2019 decreased by $142,881 (4.0%). Included in the net decrease, $374,896 relates to reduced STI
performance accruals.
STI Outcomes for FY2019
Participants in the STI plan receive a payment 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)
subject to the group achieving 5% growth in EPS on prior year.
Based on the financial results of the consolidated entity the Committee determined that as a consequence of the decrease in EPS, no
STIs are payable to any KMP for FY19.
LTI outcomes for FY2019
In FY2019 the following performance hurdles were tested in respect of the performance rights grant dated 11 November 2016 and 10
November 2015:
•
Performance rights grant dated 11 November 2016:
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 49,746 of the performance rights granted on 10 November 2016 did not vest and have
lapsed. As at 30 June 2019, it is expected that the remaining 50% of the performance rights which are to be tested against the TSR
performance hurdles on 15 September 2019 will not vest; and
28
29
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
•
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 relative TSR over the
three year performance period; accordingly 75,288 of the performance rights granted on 10 November 2015 did not vest and have
lapsed. The other 50% of these performance rights were tested by reference to the average ROE over the three year performance
period to 30 June 2018, did not vest and accordingly lapsed in the prior year.
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:
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.
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Glenn Powers
Chief Financial Officer and Company Secretary
11 June 2013
No fixed end date
The Executive’s contract is similar to that of Sue Channon except the company may terminate
by giving 6 months’ notice in writing or by making a payment in lieu of notice.
Other Key Management Personnel
Jade Phelan, Steve Zappia, Nadia Stankovic, Dean Cleary, 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 Australian 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.
F. Remuneration, share and option disclosures for FY2019
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
$
Non-
monetary and
termination
$
STI
$
Super-
annuation
$
Long
Service
Leave
$
Equity-
settled
$
Total
$
135,803
42,743
91,001
91,477
65,525
504,348
163,171
344,870
256,690
258,454
258,943
207,337
279,361
44,230
189,422
119,554
-
3,052,929
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,901
4,061
8,645
8,690
6,225
20,531
7,103
20,531
24,649
16,333
22,759
15,399
18,477
-
-
11,358
-
-
-
-
-
-
-
-
-
-
-
148,704
46,804
99,646
100,167
71,750
10,815
-
89,584
-
625,278
170,274
6,895
5,326
1,660
5,412
172
-
-
-
-
-
63,587
(70,626)
19,918
31,997
-
20,769
4,359
-
-
-
435,883
216,039
296,365
319,111
222,908
318,607
48,589
189,422
130,912
-
197,662
30,280
159,588
3,440,459
2019
Non-Executive
Directors:
P Macourt
P Turner
S Petering
G Couttas
S Solomon
Executive Directors:
S Channon
L Hale
Other Key
Management
Personnel:
G Powers
N Stankovic
J Phelan
S Zappia
D Cleary
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
30
31
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-based
payments
STI
$
Non-
monetary
$
Super-
annuation
$
Long
Service
Leave
$
Equity-
settled
$
Total
$
2018
Non-Executive
Directors:
P Macourt
P Turner
S Petering
G Couttas
Salary,
leave
and fees
$
133,562
92,104
86,986
86,986
-
-
-
-
Executive Directors:
S Channon
L Hale
475,203
161,697
132,865
-
Other Key
Management
Personnel:
G Powers
N Stankovic
J Phelan
S Zappia
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
344,594
250,092
252,426
264,126
279,308
42,638
189,428
119,554
-
146,677
-
44,193
19,896
31,265
-
-
-
-
2,778,704
374,896
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,688
8,750
8,264
8,264
-
-
-
-
-
-
-
-
146,250
100,854
95,250
95,250
20,049
6,962
9,329
-
84,495
-
721,941
168,659
20,049
24,320
27,583
26,210
15,921
-
-
11,358
-
190,418
15,546
(21,541)
477
3,742
-
-
-
-
-
60,429
30,909
8,668
30,340
9,018
7,910
-
-
-
587,295
283,780
333,347
344,314
335,512
50,548
189,428
130,912
-
7,553
231,769
3,583,340
Shane Solomon joined the Board in September 2018 so the total benefit in FY2019 does not represent a full year of fees. Similarly, Peter
Turner retired from the Board in November 2018 hence the total benefit in FY2019 does not represent a full year of fees.
Richard Banks joined the group in August 2017 so the total benefit in FY2018 does not represent a full year salary.
The value of share-based payments and the 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 performance rights which lapsed during the year.
Share-based payments expense in respect of performance rights granted to the Medical Directors is not included in these tables
because these performance rights were granted to the medical directors for the provision of fertility services (refer Section H) and do
not constitute remuneration paid in respect of their roles as KMP.
STI 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.
The next two tables show the actual cash payments made to KMPs in the relevant financial years:
32
2019
Non-Executive Directors:
P Macourt
P Turner
S Petering
G Couttas
S Solomon
Executive Directors:
S Channon
L Hale
Other Key Management Personnel:
G Powers
N Stankovic
J Phelan
S Zappia
D Cleary
R Banks
A Walsh
P Illingworth
D Molloy
W Watkins
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
Salary,
leave
and fees
$
135,803
42,743
91,001
91,477
65,525
STI
$
Super-
annuation
$
-
-
-
-
-
12,901
4,061
8,645
8,690
6,225
Total
$
148,704
46,804
99,646
100,167
71,750
511,022
156,940
132,865
-
20,531
5,327
664,418
162,267
355,491
259,466
259,466
263,843
205,385
293,174
44,230
189,422
119,554
-
3,084,542
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
146,677
-
44,193
19,896
-
32,581
-
-
-
-
376,212
20,531
24,649
20,531
24,649
15,399
18,477
-
-
11,358
-
522,699
284,115
324,190
308,388
220,784
344,232
44,230
189,422
130,912
-
201,974
3,662,728
STI
$
Super-
annuation
$
-
-
-
-
-
-
-
-
47,671
-
-
-
-
-
-
47,671
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
-
371,300
280,320
331,585
284,283
295,229
42,638
189,428
130,912
-
188,858
3,055,058
33
VIRTUS HEALTHANNUAL REPORT 2019
Balance at
the end of
the year
18,485
448,633
8,066
5,000
823,694
-
50,000
114,150
272,040
400,628
DIRECTORS’ REPORT (continued)
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:
Balance at
the start of
the year
Received
as part of
remuneration
Additions
Disposals/
other
Peter Macourt
Susan Channon
Sonia Petering
Greg Couttas
Lyndon Hale
Shane Solomon
Peter Turner
Glenn Powers
Peter Illingworth
David Molloy
18,485
448,633
8,066
5,000
823,694
-
50,000
114,150
324,020
400,628
2,192,676
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(51,980)
-
(51,980)
2,140,696
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:
Balance at
the start of
the year
Granted
Exercised/
cancelled
Expired/
forfeited/
other
Balance at
the end of
the year
124,648
88,477
20,095
44,528
44,619
20,908
8,867
17,921
32,258
402,321
56,441
40,061
20,086
20,086
20,086
20,980
-
-
-
177,740
-
-
-
-
-
-
-
-
-
-
(48,906)
(34,715)
-
(17,469)
(17,559)
-
(6,383)
-
-
132,183
93,823
40,181
47,145
47,146
41,888
2,484
17,921
32,258
(125,032)
455,029
Options over ordinary shares
Susan Channon
Glenn Powers
Jade Phelan
Nadia Stankovic
Steve Zappia
Richard Banks
Anthony Walsh
Peter Illingworth
William Watkins
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 2019.
Options or performance rights
The terms and conditions of each grant over ordinary shares affecting remuneration of Executive directors and other key management
personnel in this financial year or future reporting years are as follows:
Grant date
10 November 2015
11 November 2016
22 November 2017
21 November 2018
Vesting date and
exercisable date
10 November 2018
11 November 2019
22 November 2020
21 November 2021
Expiry date
Exercise price
10 November 2025
11 November 2026
22 November 2027
21 November 2028
$0.00
$0.00
$0.00
$0.00
Fair value
per right
at grant date
$4.41
$4.52
$3.79
$2.77
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 2019 and 30 June 2018 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 rights
granted during
the year 2019
Number of rights
granted during
the year 2018
Number of rights
vested during
the year 2019
Number of rights
vested during
the year 2018
56,441
40,061
20,086
20,086
20,086
20,980
-
-
-
56,247
39,925
20,095
20,095
20,095
20,908
-
17,921
32,258
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 2019 are set out below:
Name
Susan Channon
Glenn Powers
Nadia Stankovic
Steve Zappia
Richard Banks
Jade Phelan
Anthony Walsh
Peter Illingworth
William Watkins
Fair value of
rights granted
during the year
$
Net market
value of rights
exercised
during the year
$
Number of
rights lapsed
during
the year
156,059
110,769
55,538
55,538
58,010
55,538
-
-
-
-
-
-
-
-
-
-
-
-
48,907
34,715
17,469
17,560
-
-
6,383
-
-
Note: Of the options lapsing 75,288 were granted on 10 November 2015 and 49,746 were granted on 11 November 2016.
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 remuneration is 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 the determination of his remuneration. Non-executive directors do not receive share options or other incentives.
In FY2019 the Committee elected to increase remuneration for non-executive directors .The Chairman of the Committee is 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.
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 non-executive directors for the financial year ended 30 June 2019 were $467,071. The maximum authorised amount
payable including superannuation to all non-executive directors in total for their services approved by the shareholders is currently
$600,000 per annum.
Non-executive director fees comprise a base director fee of $81,864 (including superannuation) and an additional payment to reflect a
director’s involvement in Board committees as follows:
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.
• Chairman of Audit Committee receives an additional fee of $15,000;
• Chairman of Risk Committee receives an additional fee of $15,000;
34
35
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
• 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 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
The fertility specialist incentive schemes applicable for FY19 and FY20 are as follows:
initial and performance rights granted to specialists before 1 September 2016;
initial and performance rights granted to specialists after 1 September 2016;
•
•
• high performance rights granted to specialists up to 1 July 2018; and
• a loyalty share scheme;
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 30 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. Details of each type of scheme are set out below:
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 grant offer
value by the amount of the increase in the share price between the share price at vesting compared to the share price at grant date all
divided by the share price at vesting.
At 30 June 2019 the potential number of unvested initial and performance rights subject to these grants is estimated to be 68,510.
Grants made after 1 September 2016
Grants of rights are made twice a year as follows:
•
•
Grants in March each year to new fertility specialists contracting in the six month period ending 31 December and grants in
September each year to new fertility specialists contracting in the 6 month period ending 30 June. These performance rights
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 twelve month period during the two years post
commencement of the contractual relationship with the consolidated entity;
Grants in September each year of performance rights to existing fertility specialists in relation to achievement of incremental
increases in practice cycles in the 12 month period ending 30 June. These 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; and
•
In all cases 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 is fixed at grant date.
At 30 June 2019 the potential number of unvested performance rights subject to these grants is estimated to be 654,606.
High performance rights – 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
deliver more than 299 cycles per annum. There are two issues of HPSIS tranches outstanding, details of which are as follows:
•
•
HPSIS Issue three 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
HPSIS Issue four 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 outstanding 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 Virtus Health Limited 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 per annum over a 4 year period.
In FY17, 11 fertility specialists qualified for HPSIS Issue three. In FY18, 2 fertility specialists qualified for HPSIS Issue four.
At 30 June 2019 the potential number of unvested performance rights subject to these grants is estimated to be 275,307.
Vesting conditions of High Performance Rights
High 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. Participants are not required to pay cash to be granted performance rights
under the Plan. No further grants are planned under this structure.
Loyalty share scheme – fertility specialists
The Loyalty Share Scheme (‘LSS’) is designed to recognise the sustained contribution of the top quartile of specialists on an annual
basis and replaced the High Performance Share Incentive Scheme in FY19. The key features of the LSS are as follows:
•
value of award is variable and dependent on individual number of personal cycles delivered adjusted by a loading factor to
recognise a higher award for specialists making a higher contribution to the business.
• award per loaded cycle for FY19 and FY20 is $50, hence awards are as follows:
o 200 cycles, = 200 *1.0 * $50 = $10,000 worth of shares;
o 250 cycles, = 250 *1.1 * $50 = $13,750 worth of shares;
o 300 cycles, = 300 *1.2 * $50 = $18,000 worth of shares;
o 350 cycles, = 350 *1.3 * $50 = $22,750 worth of shares;
o 400 cycles, = 400 *1.4 * $50 = $28,000 worth of shares;
• Loading factors per cycle:
o >399 cycles, 1.4
o >349 cycles, 1.3
o >299 cycles, 1.2
o >249 cycles, 1.1
o >199 cycles, 1.0
• Annual Qualifying hurdle is 200 cycles;
• Annual vesting, no waiting period, no escrow arrangements;
• Other considerations;
o annual loyalty award replaces all standard performance awards for improvement above 200 cycles;
o awards are payable in shares; conversion from award value is at the Virtus share price on the 15th business day following the
group’s annual result announcement (normally mid-September); and
o annual pool value for FY19 is capped at $500,000 (assessed annually by the Nomination and Remuneration Committee); this
cost is consistent with the annual cost of the HPSIS.
This concludes the remuneration report which has been audited.
36
37
VIRTUS HEALTHANNUAL REPORT 2019
DIRECTORS’ REPORT (continued)
Shares under option
Unissued ordinary shares of Virtus Health Limited under option at the date of this report are as follows:
Grant date
Expiry date
03 October 2014*
13 May 2015*
13 May 2015*
13 May 2015*
13 May 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*
10 October 2018*
10 October 2018*
10 October 2018*
10 October 2018*
21 November 2018*
03 October 2024
13 May 2025
13 May 2025
13 May 2025
13 May 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
10 October 2028
10 October 2028
10 October 2028
10 October 2028
21 November 2028
Number under
option or
shares to be
issued
Exercise or
base price
$8.57
$7.16
$7.53
$7.94
$7.94
$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
$0.00
$0.00
$0.00
$0.00
$0.00
45,415
1,536
617
712
329
7,434
8,231
4,236
8,616
3,969
49,745
3,129
177,365
72,580
116,128
43,548
243,728
136,508
241,581
31,579
14,336
14,211
177,740
1,403,273
* 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 nil 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 2019 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.
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
Peter Macourt
Chairman
20 August 2019
Sydney
38
39
VIRTUS HEALTHANNUAL REPORT 2019
AUDITOR’S INDEPENDENCE
DECLARATION
STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 30 June 2019
Consolidated
2019
$’000
2018
$’000
Note
Auditor’s Independence Declaration
As lead auditor for the audit of Virtus Health Limited for the year ended 30 June 2019, 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 other
than as noted below.
A partner in the lead audit engagement office held an immaterial investment in Virtus Health
Limited. The investment was immediately disposed of when the matter was identified. The partner
did not provide any services to the entity and the audit team were not aware of the investment. On
this basis I do not believe this matter has impacted the objectivity of PricewaterhouseCoopers 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
20 August 2019
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.
40
280,069
263,916
510
8,890
570
1,844
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
4
4
5
5
5
6
22
23
3
3
(76,170)
(98,972)
(13,628)
(5,800)
(19,936)
(4,259)
(2,601)
(3,653)
(14,456)
(9,820)
40,174
(11,184)
28,990
(1,383)
2,561
1,178
30,168
564
28,426
28,990
456
29,712
30,168
Cents
35.37
34.97
The above statement of comprehensive income should be read in conjunction with the accompanying notes
(71,717)
(89,044)
(12,496)
-
(17,694)
(4,427)
(2,213)
(2,562)
(13,510)
(7,803)
44,864
(12,855)
32,009
306
2,833
3,139
35,148
1,256
30,753
32,009
1,040
34,108
35,148
Cents
38.26
37.98
41
VIRTUS HEALTHANNUAL REPORT 2019
STATEMENT OF
FINANCIAL POSITION
As at 30 June 2019
STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 June 2019
Consolidated
2019
$’000
2018
$’000
Note
Consolidated
Issued
capital
$’000
Reserves
$’000
Retained
profits
$’000
Non-
controlling
interest
$’000
Total equity
$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
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
Unearned income
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
8
9
12
11
6
37
10
16
6
13
18
15
17
6
14
19
20
22
23
24
18,831
14,842
1,256
2,876
37,805
1,489
38,036
459,576
7,143
287
506,531
544,336
24,856
764
1,121
4,642
9,397
16,306
57,086
173,678
1,738
1,065
6,722
7,750
1,684
192,637
249,723
294,613
241,890
5,159
37,111
284,160
10,453
294,613
21,713
12,491
752
3,035
37,991
1,489
34,477
465,436
5,468
517
507,387
545,378
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
283,550
242,251
2,837
27,979
273,067
10,483
283,550
Balance at 1 July 2017
242,001
(11,416)
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 21)
Balance at 30 June 2018
Consolidated
Balance at 1 July 2018
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:
Dividends payable by subsidiaries to non-
controlling interests
Issue of shares pursuant to share based payment
schemes (note 20)
Share based payment expense
Settlement of partly paid shares
Purchase of treasury shares (note 20)
Dividends paid (note 21)
Balance at 30 June 2019
-
-
-
-
-
-
250
-
-
242,251
Issued
capital
$’000
242,251
-
-
-
-
125
-
225
(711)
-
241,890
-
3,355
3,355
-
-
10,017
-
881
-
2,837
18,127
30,753
-
30,753
19,659
1,256
(216)
1,040
268,371
32,009
3,139
35,148
-
1,013
1,013
-
-
-
-
(20,901)
(1,212)
(10,017)
-
-
-
(1,212)
-
250
881
(20,901)
27,979
10,483
283,550
Reserves
$’000
Retained
profits
$’000
Non-
controlling
interest
$’000
Total equity
$’000
2,837
-
1,286
1,286
-
(125)
1,161
-
-
-
5,159
27,979
28,426
-
28,426
10,483
564
(108)
456
283,550
28,990
1,178
30,168
-
(486)
(486)
-
-
-
-
(19,294)
-
-
-
-
-
37,111
10,453
-
1,161
225
(711)
(19,294)
294,613
The above statement of changes in equity should be read in conjunction with the accompanying notes
The above statement of financial position should be read in conjunction with the accompanying notes
42
43
VIRTUS HEALTHANNUAL REPORT 2019
STATEMENT OF
CASH FLOWS
For the year ended 30 June 2019
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
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
Payment of dividends
Dividend paid to non-controlling interest in subsidiaries
Repayment of borrowings
Proceeds from borrowings
Payment of finance facility fees in relation to refinancing
Purchase of treasury shares
Net cash from/(used in) financing activities
Net 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
Cash and cash equivalents at the end of the financial year
Consolidated
2019
$’000
2018
$’000
Note
273,095
(217,696)
260,757
(191,637)
55,399
69,120
6,481
(7,793)
(15,797)
38,290
-
-
-
(14,553)
243
111
665
2,502
(6,615)
(10,040)
54,967
(10,220)
(4,152)
(36,402)
(15,500)
14
136
875
(13,534)
(65,249)
225
(19,294)
(486)
(7,500)
1,500
(1,628)
(711)
(27,894)
(3,138)
21,713
256
18,831
250
(20,901)
(2,112)
(6,000)
33,000
-
-
4,237
(6,045)
27,337
421
21,713
33
20
20
8
The above statement of cash flows should be read in conjunction with the accompanying notes
TABLE OF
CONTENTS
Notes to the Financial Statements
Notes to the financial report
Notes to the financial report
Financial performance overview
Operating segments
Earnings per share
Revenue
Expense
Income Tax
Business combinations
Balance sheet items
Current assets- cash and cash equivalent
Current assets- trade and other receivables
Current liabilities- trade and other payables
Non-current assets- intangibles
Non-current assets- property, plant and equipment
Current liabilities- provisions
Non-current liabilities- provisions
Capital structure and risk management
Non- current liabilities- borrowings
Current liabilities- derivative financial instruments
Non- current liabilities- derivative financial instruments
Current liabilities- other financial liabilities
Non- current liabilities- other financial liabilities
Equity- issued capital
Equity- dividends
Equity- reserves
Equity- retained profits
Equity- non-controlling interest
Financial risk management
Fair value measurement
Group structure
Interest in subsidiaries
Deed of cross guarantee
Parent entity information
Other notes to the financial statements
Share based payments
Related party transactions
Key management personnel disclosure
Reconciliation of profit after income tax to net cash from operating activities
Events after the reporting period
Commitments
Contingent liabilities
Non-current assets- other
Remuneration of auditors
Other accounting policies
46
48
50
51
52
53
56
57
57
58
58
61
62
63
64
65
66
66
66
66
68
68
69
69
70
73
74
76
78
78
80
81
81
81
82
83
83
83
84
44
45
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE
FINANCIAL STATEMENTS
30 June 2019
Note 1. Notes to the financial report
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 2019 the consolidated entity’s current liabilities exceeded its current assets by $19,281,000 (June 2018: $10,579,000).
The current liabilities include unearned income of $16,306,000 as well as employee leave liabilities of $10,591,000. 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 $82,402,000 which has a combination of a 3 year and 5 year
maturity period to September 2021 and September 2023.
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.
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 29.
Principles of consolidation
In preparing these financial statements, subsidiaries are consolidated from the date the Group gains control until the date on which
control ceases. The Group’s share of results of equity accounted investments is included in the consolidated financial statements
from the date that significant influence or joint control commences, until the date that significant influence or joint control ceases. All
intercompany transactions are eliminated.
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.
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.
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.
New or revised accounting standards
As outlined below, the consolidated entity has adopted all amendments to Australian Accounting Standards which became applicable
for the consolidated entity from 1 July 2018.
AASB 15 Revenue from Contracts with Customers (‘AASB15’)
The consolidated entity as adopted AASB 15 from 1 July 2018 which resulted in changes in accounting policies. The new standard is
based on the principle that revenue is recognised when control of a good or service transfers to a customer, that is, the ‘notion of
control’ replaces the existing ‘notion of risks and rewards’. Refer to note 4.
AASB 9 Financial Instruments (‘AASB9’)
The consolidated entity has adopted all of the phases of the new financial instruments standard, including; classification and
measurement of financial assets and liabilities, impairment including expected credit losses and hedge accounting, which resulted in
changes to accounting policies.
The adoption of both of the above standards has not materially impacted the financial report of the consolidated entity.
New standards not yet applicable
Other than AASB 16 Leases, standards not yet applicable are not expected to have a material impact on the consolidated entity. Refer
to note 35 for further disclosure on the impact of AASB 16 Leases.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect
the reported amounts in the financial statements. These are based on historical experience and on other various factors, including
expectations of future events, management believes to be reasonable under the circumstances. The judgements and estimates that
have the most significant effect on the amounts recognised in the financial statements are detailed in the notes below:
Judgement/Estimation
Business combinations
Goodwill and other indefinite life intangible assets
Share-based payments
Notes to the financial reports
The notes are organised into the following sections.
Note
7
11
30
Financial performance overview: provides a breakdown of individual line items in the statement of financial performance, and other
information that is considered most relevant to users of the annual report.
Balance sheet items: provides a breakdown of individual line items in the statement of financial position that are considered most
relevant to users of the annual report.
Capital structure and risk management: provides information about the capital management practices of the consolidated entity and
shareholder returns for the year. This section also discusses the consolidated entity’s exposure to various financial risks, explains how
these affect the consolidated entity’s financial position and performance and what the consolidated entity does to manage these risk.
Group structure: explains aspects of the Virtus group structure and the impact of this structure on the financial position and
performance of the consolidated entity.
Other:
•
provide information on items which require disclosure to comply with Australian Accounting Standards and other regulatory
pronouncements; and
provide information about items that are not recognised in the financial statements but could potentially have a significant impact
on the consolidated entity’s financial position and performance.
•
46
47
VIRTUS HEALTHANNUAL REPORT 2019
Consolidated - 2018
Revenue
Sales to external customers
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Share based payment expense
Corporate costs
Transaction costs
Fair value adjustments to put liabilities and contingent
consideration
Depreciation and amortisation expense
Net interest
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
46,064
-
-
46,064
66,822
9,196
1,489
14,675
-
53,824
-
-
13
3
-
-
-
Total
$’000
262,033
1,747
136
263,916
76,018
(881)
(10,168)
(1,031)
1,089
(12,496)
(7,667)
44,864
(12,855)
32,009
1,489
68,499
Accounting policy for 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.
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 2. 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 - 2019
Revenue
Sales to external customers
Other revenue
Interest revenue
Total revenue
Segment EBITDA
Transfer of IP
Share based payment expense
Corporate costs
Transaction costs
Fair value adjustments to put liabilities and contingent
consideration
Depreciation and amortisation expense
Impairment of goodwill
Net interest
Foreign exchange
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
216,429
5,853
108
222,390
57,676
-
-
57,676
61,091
10,055
1,489
12,580
-
1,973
-
-
3
3
-
-
-
Total
$’000
274,105
5,853
111
280,069
71,146
4,110
(1,161)
(12,693)
(196)
8,261
(13,628)
(5,800)
(9,709)
(156)
40,174
(11,184)
28,990
1,489
14,553
Australian segment revenue includes $4,110,000 for the transfer of Virtus’ IP in relation to its Artificial Intelligence software “Ivy”.
Corporate cost increase of $2,525,000 over pcp reflects key investments to support the ongoing development of the business and
comprised mostly of the employment related costs for a CIO, strategic HR and IT noted earlier in the operating and financial review
under employment costs.
48
49
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 3. Earnings per share
Note 4. Revenue
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
Consolidated
2019
$’000
28,990
(564)
28,426
118
2018
$’000
32,009
(1,256)
30,753
97
Profit after income tax attributable to the owners of Virtus Health Limited used in calculating
diluted earnings per share
28,544
30,850
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
Number
Number
80,373,944
80,388,866
1,248,839
828,823
Weighted average number of ordinary shares used in calculating diluted earnings per share
81,622,783
81,217,689
Revenue from contracts with customers
Rendering of services
Other revenue
Rent
Transfer of IP
Interest
Revenue
Cents
35.37
34.97
Cents
38.26
37.98
Other income
Fair value gain on put liabilities
Fair value gain on contingent consideration
Other income
Other income
Basic earnings per share
Diluted earnings per share
Recognition and measurement
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Virtus Health Limited, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year,
adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after
income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average
number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
Consolidated
2019
$’000
2018
$’000
274,105
262,033
1,743
4,110
111
5,964
1,747
-
136
1,883
280,069
263,916
Consolidated
2019
$’000
4,484
3,778
628
8,890
2018
$’000
891
198
755
1,844
Recognition and measurement
From 1 July 2018, Virtus adopted AASB 15 Revenue from Contracts with Customers. The new standard is based on the principle that
revenue is recognised when control of a good or service transfers to a customer, that is, the ‘notion of control’ replaces the existing
‘notion of risks and rewards’. The impact of this change in accounting standard is not material to Virtus as the ‘notion of control’ is
closely aligned to the ‘notion of risks and rewards’ for Virtus revenue streams.
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.
Unearned revenue: fees for fertility treatment cycles paid in advance are recognised as unearned revenue ( recognised in balance
sheet) until the service has been provided whereupon the fees are recognised as revenue.
Transfer of IP: the transfer of IP was recognised at a point in time as the customer is able to direct the use of and obtain substantially
all of the benefits from the IP at the time that control of the IP was transferred to the customer.
50
51
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 5. Expenses
Note 6. Income tax
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
Consolidated
2019
$’000
2018
$’000
3,492
486
2,588
3,406
9,972
2,174
1,482
3,656
13,628
3,025
409
2,439
2,879
8,752
2,167
1,577
3,744
12,496
5,800
-
7,793
1,464
563
9,820
6,615
981
207
7,803
15,589
13,677
6,606
5,885
2,200
2,000
1,009
152
1,161
625
256
881
Income tax expense
Current tax
Deferred tax - origination and reversal of temporary differences
Adjustment recognised for prior periods
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Decrease in deferred tax liabilities
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
Fair value gain on Put Liabilities and Contingent Consideration
Tax losses utilised/(recognised)
Other
Difference in overseas tax rates
Adjustment recognised for prior periods
Income tax expense
Amounts charged/(credited) directly to equity
Deferred tax assets
Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 17%
Consolidated
2019
$’000
12,580
(1,234)
(162)
11,184
(1,082)
(152)
(1,234)
40,174
12,052
1,740
(2,421)
-
861
12,232
(886)
(162)
11,184
2018
$’000
13,933
(1,072)
(6)
12,855
(1,048)
(24)
(1,072)
44,864
13,459
-
(327)
(311)
995
13,816
(955)
(6)
12,855
Consolidated
2019
$’000
2018
$’000
(593)
131
1,397
237
1,106
188
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.
52
53
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 6. Income tax (continued)
Deferred tax asset
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Employee benefits
Tax losses
Intangible assets
Other
Amounts recognised in equity:
Other
Deferred tax asset
Amount expected to be recovered within 12 months
Amount expected to be recovered after more than 12 months
Movements:
Opening balance
Credited to profit or loss
Credited/(charged) to equity
Closing balance
Consolidated
2019
$’000
2018
$’000
3,337
283
(165)
2,937
6,392
751
7,143
3,154
3,989
7,143
5,468
1,082
593
7,143
3,198
370
(347)
2,089
5,310
158
5,468
2,951
2,517
5,468
4,551
1,048
(131)
5,468
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
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
Additions through business combinations
Closing balance
Provision for income tax
Provision for income tax
Consolidated
2019
$’000
2018
$’000
1,079
(14)
1,065
151
914
1,065
866
(152)
351
1,065
855
11
866
468
398
866
585
(24)
305
866
Consolidated
2019
$’000
2018
$’000
1,121
4,337
Recognition and measurement
Income tax is payable on profits after allowing for expenses assessable and deductions exempt under tax laws.
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.
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.
54
55
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 7. Business combinations
Note 8. Current assets - cash and cash equivalents
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 details of which were disclosed in the 2018 Financial report.
During the year ended 30 June 2019, the following adjustments were made to the provisional purchase price allocation and purchase
price:
Cash at bank and on hand
Consolidated
2019
$’000
18,831
2018
$’000
21,713
Brands
Other asset/liabilities
Working capital adjustment to purchase price
Total Fair Value and working capital adjustments
Fair value
$’000
1,820
78
133
2,031
These adjustments resulted in an equivalent decrease in Goodwill of $2,031,000
Based on the most recent forecast trading outlook for Trianglen, the consolidated entity reduced the estimated contingent
consideration in June 2018 by $3,800,000, and took this amount to profit and loss. This adjustment has no impact on the underlying
carrying value of the related assets.
Recognition and measurement
The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other
assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or
liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For
each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of
the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity’s operating or
accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the
acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in
profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in
the fair value of 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.
Critical accounting estimates - provisional and fair value assessments
As discussed above, 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, refer to note 26 for details.
Recognition and measurement
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.
Note 9. Current assets - trade and other receivables
Trade receivables
Less: Allowance for expected credit losses
Other receivables
Consolidated
2019
$’000
12,552
(1,859)
10,693
4,149
14,842
2018
$’000
11,994
(1,470)
10,524
1,967
12,491
Allowance for expected credit losses
The consolidated entity has recognised an expense of $546,000 (2018: $746,000) in profit or loss in respect of impairment of
receivables for the year ended 30 June 2019.
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 $2,159,621 (2018: $1,765,000).
Movements in the allowance for expected credit losses are as follows:
Opening balance
Additional provisions recognised
Receivables written off during the year as uncollectable
Unused amounts reversed
Closing balance
Consolidated
2019
$’000
300
1,559
1,859
2018
$’000
295
1,175
1,470
Consolidated
2019
$’000
1,470
800
(157)
(254)
1,859
2018
$’000
1,944
803
(1,220)
(57)
1,470
Recognition and measurement
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest
method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days.
56
57
VIRTUS HEALTHANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 9. Current assets - trade and other receivables (continued)
Virtus has adopted AASB 9 Financial instruments, which requires an expected credit loss (‘ECL’) model as opposed to an incurred
credit loss model under AASB 139 Financial instruments: recognition and Measurement . The ECL model requires Virtus to account for
expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial
recognition of the financial assets. AASB 9 also requires a simplified approach for measuring the loss allowance at an amount equal
to lifetime ECL for trade receivables, contract assets and lease receivables in certain circumstances. Accordingly, Virtus allowance
for doubtful debts calculation applies the expected loss model and takes into consideration the likely level of bad debts ( based
on historical experience) as well as any known ‘at risk’ receivables. Bad debts are written off against the allowance account and any
other changes in the allowance account is recognised in the statement of financial performance. Other receivables are recognised at
amortised cost, less any allowance for expected credit losses.
Note 10. Current liabilities - trade and other payables
Trade payables
Other payables
Consolidated
2019
$’000
8,395
16,461
24,856
2018
$’000
10,341
14,127
24,468
Refer to note 25 for further information on financial risk management.
Recognition and measurement
Trade and other payables are recognised when Virtus becomes obliged to make future payments resulting from purchase of goods
and services. Payables are stated at their amortised cost.
Note 11. Non-current assets - intangibles
Goodwill - at cost
Software - at cost
Less: Accumulated amortisation
Brand names - at cost
Less: Accumulated amortisation
Consolidated
2019
$’000
2018
$’000
448,198
453,437
23,100
(18,728)
22,053
(16,553)
4,372
5,500
19,493
(12,487)
7,006
17,504
(11,005)
6,499
459,576
465,436
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 2017
Additions
Additions through business combinations
Exchange differences
Amortisation expense
Balance at 30 June 2018
Additions
Disposals
Exchange differences
Impairment
Transfers
Amortisation expense
Balance at 30 June 2019
Recognition and measurement
Goodwill
$’000
Software
$’000
399,707
-
50,748
2,982
-
453,437
-
-
2,592
(5,800)
(2,031)
-
448,198
5,437
2,201
-
29
(2,167)
5,500
1,108
(83)
21
-
-
(2,174)
4,372
Brand
names
$’000
6,339
-
1,511
226
(1,577)
6,499
-
-
169
-
1,820
(1,482)
7,006
Total
$’000
411,483
2,201
52,259
3,237
(3,744)
465,436
1,108
(83)
2,782
(5,800)
(211)
(3,656)
459,576
Intangible assets
Intangible assets including brand names 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.
Goodwill
Goodwill arise on the acquisition of a business and represents the excess of the cost of acquisition over the fair value of the identified
assets and liabilities acquired. Goodwill is not amortised, but tested annually and whenever there is an indicator of impairment.
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 over a defined useful life of 10-15 years and subsequently carried net of accumulated amortisation.
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.
58
59
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 11. Non-current assets - intangibles (continued)
Critical accounting estimates- impairment tests of 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
2019
$’000
111,807
122,294
66,626
14,661
26,719
106,091
448,198
2018
$’000
111,807
122,294
66,626
20,461
26,719
105,530
453,437
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 the board covering a one year period. Cash flows beyond the one year period use
management estimates covering a period not exceeding four years to determine income, expenses, capital expenditure and cash
flows for each CGU. In determining these forecasts senior management developed a view on the future revenue growth, and the
mix of the consolidated entities service offerings as well as margin per customer and the capital and operational expenditure
requirements. These determinations were based on past experience and expectations of the future. Cash flows beyond the five year
forecast period are extrapolated using estimated long-term growth rates (“terminal growth rate”). The terminal growth rates used do
not exceed the long term average growth rates for the business.
Each of the above factors is subject to significant judgement about future economic conditions and the ongoing structure of the
assisted reproductive services industry. Management have applied their best estimates to each of the variables and cannot warrant
their outcome.
New South Wales
Victoria
Queensland
Tasmania
International
Australia Diagnostics
Terminal Growth Rate
Pre-tax discount rate
2019
2.5%
2.5%
2.5%
1.0%
2.5%
2.0%
2018
2.5%
2.5%
2.5%
1.0%
2.5%
2.0%
2019
10.6%
10.6%
10.6%
10.6%
9.3%
10.6%
2018
12.0%
12.0%
12.0%
14.0%
10.3%
12.0%
Tasmania:
The consolidated entity as part of its budgeting process reviewed the assumptions relating to the Tasmanian business to reflect
changes in the competitive landscape and recent delays in business development in relation to its newly commissioned Day Hospital
facilities. Based on its review, a goodwill impairment charge of $5,800,000 has been recognised for Tasmania.
The reduction in the pre-tax discount rate to 10.6% reflects the current discount rate calculations and also takes into account the risk
adjustment to assumptions in relation to the expected cash inflows resulting from management’s review discussed above. If there
are any further negative changes in the key assumptions on which the recoverable amount of goodwill is based for Tasmania, this
would result in a further impairment charge for the Tasmanian CGUs goodwill.
60
Adjusting revenue growth in the budget and future years:
Downwards
Upwards
Adjusting discount rate:
Upwards
Downwards
Change in
Impairment
(Increase)/
Decrease
$’000
(4,400)
4,400
(2,165)
2,883
Adjustment
5.00%
5.00%
1.00%
1.00%
Each of the sensitivities above assumes that the specific assumption moves in isolation, whilst all other assumptions are held constant.
In reality, a change in one of the aforementioned assumptions may accompany a change in other assumptions. Action is also usually
taken to respond to adverse changes in economic assumptions that may mitigate the impact of such changes.
Queensland:
Queensland remains a price sensitive market and remains sensitive to annual projected growth rates and discount rates used disclosed
above. Management believes that a review of pricing and its efforts to manage costs during the new financial year will help the business
achieve its revenue and growth targets for FY2020 and beyond. Should this judgement of future EBITDA estimates not occur, the
goodwill carrying amount may become impaired. The key sensitivities for the Queensland cash-generating unit are as follows:
•
•
If forecast EBITDA that drives the terminal value decreases by more than 14% for the Queensland division, goodwill would need to
be impaired, with all other assumptions remaining constant; or
If the discount rate increases more than 1% for the Queensland division, goodwill would need to be impaired, with all other
assumptions remaining constant.
Reasonable changes in key assumptions on which the recoverable amount of the other cash generating units is based will not cause the
cash generating unit’s carrying amounts to exceed their recoverable amount.
Note 12. Non-current assets - property, plant and equipment
Consolidated
Leasehold improvements - 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
2019
$’000
51,941
(30,310)
21,631
3,926
(2,505)
1,421
19,865
(14,751)
5,114
35,660
(25,790)
9,870
38,036
2018
$’000
48,220
(28,932)
19,288
3,510
(2,006)
1,504
17,581
(12,137)
5,444
30,695
(22,454)
8,241
34,477
61
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 12. Non-current assets - property, plant and equipment (continued)
Accounting policy for employee benefits
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 2017
Additions
Additions through business combinations
Exchange differences
Depreciation expense
Balance at 30 June 2018
Additions
Disposals
Exchange differences
Depreciation expense
Balance at 30 June 2019
Leasehold
improvements
$’000
Furniture
and fittings
$’000
Office
equipment
$’000
Medical
equipment
$’000
13,470
8,534
254
55
(3,025)
19,288
5,833
(51)
53
(3,492)
21,631
1,536
350
-
26
(409)
1,503
394
-
11
(486)
1,422
5,765
2,086
-
32
(2,439)
5,444
2,237
-
21
(2,588)
5,114
8,218
2,329
486
88
(2,879)
8,242
4,981
(1)
53
(3,406)
9,869
Total
$’000
28,989
13,299
740
201
(8,752)
34,477
13,445
(52)
138
(9,972)
38,036
Recognition and measurement
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
Furniture and fittings
Office equipment
Medical equipment
Shorter of the useful and the 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.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the
consolidated entity.
Note 13. Current liabilities - provisions
Employee benefits - long service leave
Consolidated
2019
$’000
4,642
2018
$’000
4,169
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
62
Consolidated
2019
$’000
4,178
2018
$’000
3,752
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. The liabilities for wages and salaries (including non-
monetary benefits and annual leave) is included in Note 10 Current liabilities - trade and other payables.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Note 14. Non-current liabilities - provisions
Employee benefits - long service leave
Lease make good
Consolidated
2019
$’000
1,424
5,298
6,722
2018
$’000
1,454
4,961
6,415
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 - 2019
Carrying amount at the start of the year
Additional provisions recognised
Disposal provision recognised
Exchange differences
Unwinding of discount
Carrying amount at the end of the year
Lease
make good
$’000
4,961
147
(127)
35
282
5,298
Accounting policy for 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.
Accounting policy for 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.
63
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 15. Non-current liabilities - borrowings
Bank loans (net of borrowing costs)
Refer to note 25 for further information on financial risk management.
Consolidated
2019
$’000
2018
$’000
173,678
180,773
Assets pledged as security
The bank loans above 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:
Consolidated
2019
$’000
7,992
7,313
790
2,245
81,465
29,761
3,804
6,456
64
2018
$’000
10,856
7,726
529
2,098
81,465
28,732
5,451
4,711
56
Cash and cash equivalents
Receivables
Inventories
Other current assets
Investments
Plant and equipment
Intangible assets (excluding goodwill)
Deferred tax assets
Other financial assets
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
Borrowings-Financial Arrangements
The consolidated entity completed refinancing its existing debt facilities maturing in September 2019, with a combination of 3-year and
5-year debt financing on 28 September 2018.
Following the early refinancing, the consolidated entity has total commitments of $262,403,000 through its syndicated debt facilities.
At 30 June 2019, total facilities drawn were $175,000,000 in borrowings and $5,001,000 (FY18: $4,718,000) in guarantees. Unused and
available facilities amounted to $82,402,000. The consolidated entity complied with the financial covenants of its borrowing liabilities
during the financial year ended 30 June 2019. Subject to the continued compliance with debt covenants, the bank facilities may be
drawn at any time and have an average maturity of 3 years (30 June 2018: 1 year).
$92,403,000 of the facility expires in September 2021, while the remaining $170,000,000 expires in September 2023.
Recognition and measurement
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are
subsequently measured at amortised cost using the effective interest method.
Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or
borrowings are classified as non-current.
Finance costs 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.
Note 16. Current liabilities - derivative financial instruments
Interest rate swap contracts - cash flow hedges
Refer to note 25 for further information on financial risk management.
Refer to note 26 for further information on fair value measurement.
Consolidated
2019
$’000
764
2018
$’000
420
139,890
141,624
Recognition and measurement
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.
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.
Consolidated
2019
$’000
2018
$’000
252,403
10,000
200,000
10,000
262,403
210,000
175,000
5,001
180,001
77,403
4,999
82,402
181,000
4,718
185,718
19,000
5,282
24,282
64
65
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 17. Non-current liabilities - derivative financial instruments
Movements in ordinary share capital
Interest rate swap contracts - cash flow hedges
Refer to note 25 for further information on financial risk management.
Refer to note 26 for further information on fair value measurement.
Note 18. Current liabilities - other financial liabilities
Other financial liability
Loan note
Consolidated
2019
$’000
1,738
2018
$’000
107
Consolidated
2019
$’000
8,582
815
9,397
2018
$’000
-
397
397
The other financial liability represents the fair value of the put options held by the non-controlling interests in Sims Clinic Limited and
TasIVF Pty Limited.
Loan note reflects the current portion of a loan owing to the vendors of Trianglen.
Note 19. Non-current liabilities - other financial liabilities
Details
Date
Shares
Issue price
$’000
Balance
Settlement of partly paid shares
Settlement of partly paid shares
Share issued- exercise of options
Balance
Settlement of partly paid shares
Settlement of partly paid shares
Balance
1 July 2017
11 October 2017
17 April 2018
28 March 2018
30 June 2018
12 October 2018
18 April 2019
30 June 2019
80,388,494
-
-
1,444
80,389,938
-
-
80,389,938
$0.00
$0.00
$0.00
$0.00
$0.00
242,001
115
135
-
242,251
115
110
242,476
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 $2.39 per share at 30 June 2019.
Treasury Shares
Treasury shares are shares in Virtus Health Limited that are held by the Virtus Health Limited Employee Share Trust (‘VHLEST’) for the
purpose of providing shares under selected Group equity plans.
Other financial liabilities
Loan note
Consolidated
2019
$’000
5,656
2,094
7,750
2018
$’000
20,975
2,782
23,757
On market acquisitions during the period
Distribution of shares during the period to employees
Balance at 30 June 2019
Share buy-back
There is no current on-market share buy-back.
Number of
shares
$
177,394
(30,626)
146,768
711,029
(124,901)
586,128
Refer to note 26 for other information on financial instruments.
The other financial liabilities represents the fair value of the contingent consideration arising from the acquisition of Trianglen. In the
prior year it also included the fair value of the put options held by the non-controlling interests in Sims Clinic Limited and TasIVF Pty
Limited, now classified as current liabilities.
Loan note reflects the non-current portion of a loan owing to the vendors of Trianglen.
Note 20. Equity - issued capital
Ordinary shares - fully paid
Treasury Shares
Consolidated
2019
Shares
2018
Shares
80,389,938
(146,768)
80,389,938
-
80,243,170
80,389,938
2019
$’000
242,476
(586)
241,890
2018
$’000
242,251
-
242,251
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.
Recognition and measurement
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.
When the company reacquires its equity instruments (treasury shares) their cost is deducted from equity. No gain or loss is recognised
in the profit or loss on the purchase, sale, issue or cancellation of treasury shares. Any difference between the cost of acquisition and
the consideration when reissued is recognised in the Share based payments reserve.
66
67
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 21. Equity - dividends
Dividend type
2017 Final
2018 Interim
2018 Final
2019 Interim
Cents per share
Franking
$’000
Date paid
12.0
14.0
12.0
12.0
100%
100%
100%
100%
9,646
11,255
9,647
9,647
13/10/2017
17/04/2018
12/10/2018
18/04/2019
A final dividend of 12.00 cents per share, fully franked, will be paid on 25 October 2019 to the shareholders on the register at 4 October
2019.
Recognition and measurement
Dividends are recognised when declared during the financial year.
Franking account balance
Consolidated
2019
$’000
24,008
2018
$’000
20,534
Recognition and measurement
The above amounts are calculated from the balance of the franking account as at the end of the reporting period, adjusted for franking
credits and debits that will arise from the settlement of income tax liabilities after the end of the year.
Note 22. Equity - reserves
Foreign currency translation reserve
Cash flow hedges reserve
Share-based payments reserve
Put option business combination reserve
Nature and purpose of reserves
Consolidated
2019
$’000
6,218
(1,755)
14,504
(13,808)
5,159
2018
$’000
3,549
(372)
13,468
(13,808)
2,837
•
•
•
•
Foreign currency translation reserve: this 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 hedge reserve: the reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments
that are 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 TasIVF Pty Limited acquisitions. The reduction is for the exercise of the first put option in
relation to both these entities.
Issued capital
Reserves
Retained profits
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2017
Revaluation - net
Foreign currency translation
Option expense
Put option exercise
Balance at 30 June 2018
Revaluation - net
Foreign currency translation
Option expense
Issue of shares pursuant to share
based payment schemes
Balance at 30 June 2019
Foreign
currency
translation
reserve
$’000
Cash flow
hedges
reserve
$’000
Share-based
payments
reserve
$’000
Put option
business
combination
reserve
$’000
501
-
3,048
-
-
3,549
-
2,669
-
-
6,218
(678)
306
-
-
-
(372)
(1,383)
-
-
-
12,586
-
-
882
-
13,468
-
-
1,161
(125)
(23,825)
-
-
-
10,017
(13,808)
-
-
-
-
(1,755)
14,504
(13,808)
Total
$’000
(11,416)
306
3,048
882
10,017
2,837
(1,383)
2,669
1,161
(125)
5,159
Note 23. Equity - retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense for the year
Dividends paid (note 21)
Retained profits at the end of the financial year
Note 24. Equity - non-controlling interest
Consolidated
2019
$’000
27,979
28,426
(19,294)
2018
$’000
18,127
30,753
(20,901)
37,111
27,979
Consolidated
2019
$’000
1,842
5,315
3,296
10,453
2018
$’000
1,842
5,423
3,218
10,483
68
69
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 25. Financial risk management
Financial risk management objectives
The group has exposure to the following risks in the course of its activities:
• Market risk;
• Credit risk; and
• Liquidity risk.
This note presents information about the Group’s exposure to each of the above risks, its objectives, policies and procedures for
measuring and managing risk and the management of capital. Further quantified disclosures are included throughout this financial report.
The consolidated entity’s financial 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. Derivative financial instruments such as
forward foreign exchange contracts are used to hedge certain risk exposures.
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, GBP, 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
2019
2018
Weighted
average
interest rate
%
3.46%
-
Weighted
average
interest rate
%
3.85%
-
Balance
$’000
175,000
(110,000)
65,000
Balance
$’000
181,000
(50,000)
131,000
An analysis by remaining contractual maturities is shown in the ‘liquidity and interest rate risk management’ section below.
Basis points increase
Basis points decrease
Consolidated - 2019
Basis points
change
Profit after
tax $’000
Equity
$’000
Basis points
change
Profit after
tax $’000
Bank loans
100
(455)
(455)
100
455
Basis points increase
Basis points decrease
Consolidated - 2018
Basis points
change
Profit after
tax $’000
Equity
$’000
Basis points
change
Profit after
tax $’000
Bank loans
100
(917)
(917)
100
917
Equity
$’000
455
Equity
$’000
917
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 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.
The consolidated entity has adopted an expected loss allowance in estimating expected credit losses to trade receivables through
the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all
customers of the consolidated entity based on recent sales experience, historical collection rates and forward-looking information that
is available.
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.
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of
a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater
than 1 year.
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
Consolidated
2019
$’000
78,725
4,999
83,724
2018
$’000
19,227
5,282
24,509
The consolidated entity has borrowing facilities totalling $262,403,000. $92,403,000 of the facility expires in September 2021,whilst the
remaining $170,000,000 expires in September 2023
70
71
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 25. Financial risk management (continued)
Note 26. Fair value measurement
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.
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; and
Level 3: Unobservable inputs for the asset or liability.
Weighted
average
interest rate
%
Between 1
and less than
2 years
$’000
1 year or less
$’000
Between 2
and 5 years
$’000
Over 5 years
$’000
Remaining
contractual
maturities
$’000
Consolidated - 2019
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Other financial liabilities
Loan note
Total non-derivatives
-
-
3.46%
3.46%
4.00%
Derivatives
Derivative financial instruments
-
Total derivatives
8,395
16,461
6,060
8,582
921
40,419
764
764
-
-
6,060
5,983
888
-
-
185,353
-
1,271
12,931
186,624
534
534
1,204
1,204
-
-
-
-
-
-
-
-
8,395
16,461
197,473
14,565
3,080
239,974
2,502
2,502
Consolidated - 2019
Liabilities
Derivative financial liabilities
Other financial liabilities
Total liabilities
Consolidated - 2018
Liabilities
Derivative financial liabilities
Other financial liabilities
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
2,502
-
2,502
-
14,238
14,238
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
527
-
527
-
20,975
20,975
Total
$’000
2,502
14,238
16,740
Total
$’000
527
20,975
21,502
Weighted
average
interest rate
%
Between 1
and less than
2 years
$’000
1 year or less
$’000
Between 2
and 5 years
$’000
Over 5 years
$’000
Remaining
contractual
maturities
$’000
Consolidated - 2018
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Other financial liabilities
Loan note
Total non-derivatives
-
-
4.28%
3.85%
4.00%
10,341
14,127
7,393
-
461
-
-
182,848
-
898
-
-
-
20,516
2,106
32,322
183,746
22,622
Derivatives
Derivative financial instruments
-
Total derivatives
420
420
107
107
-
-
-
-
-
-
-
-
-
-
10,341
14,127
190,241
20,516
3,465
238,690
527
527
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.
72
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.
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 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
Interest on unwinding
Foreign exchange impact
Fair value adjustment
Balance at 30 June 2019
Contingent
Consideration
$’000
Put Option
$’000
Total
$’000
4,022
8,817
223
(4,152)
-
105
(198)
8,817
363
254
(3,778)
5,656
21,777
-
669
-
(10,220)
823
(891)
12,158
689
219
(4,484)
8,582
25,799
8,817
892
(4,152)
(10,220)
928
(1,089)
20,975
1,052
473
(8,262)
14,238
73
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 26. Fair value measurement (continued)
Recognition and 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.
Note 27. 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
TasIVF 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
Virtus Innovation Pty Ltd
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
Australia
2019
%
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%
70.00%
70.00%
100.00%
100.00%
100.00%
100.00%
90.00%
100.00%
100.00%
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%
-
74
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
Principal place of
business /Country
of incorporation
Sims Clinic Limited and its
controlled entities
Ireland
TasIVF Pty Limited
Australia
Virtus Fertility Centre
Singapore Pte Limited and its
controlled entities
Singapore
Complete Fertility Limited
United Kingdom
Principal activities
provision of
healthcare services
provision of
healthcare services
provision of
healthcare services
provision of
healthcare services
Parent
Non-controlling interest
Ownership
interest
2019
%
Ownership
interest
2018
%
Ownership
interest
2019
%
Ownership
interest
2018
%
85.00%
85.00%
15.00%
15.00%
85.00%
85.00%
15.00%
15.00%
70.00%
90.00%
30.00%
10.00%
90.00%
90.00%
10.00%
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.
SIMS Clinic Limited
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 increase/(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
2019
$’000
6,783
12,504
19,287
5,198
1,169
6,367
12,920
2018
$’000
5,365
12,245
17,610
4,978
1,161
6,139
11,471
34,893
(30,099)
34,991
(29,580)
4,794
(675)
4,119
-
4,119
5,307
(689)
(3,240)
1,378
631
486
7,124
5,411
(680)
4,731
-
4,731
6,498
(293)
(6,345)
(140)
899
1,212
6,207
75
VIRTUS HEALTHANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 27. Interests in subsidiaries (continued)
Transactions with non-controlling interests
Dividends paid/payable to non-controlling interest
Consolidated
2019
$’000
(486)
2018
$’000
(1,212)
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
Note 28. 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
Impairment charge
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income/(loss)
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
2019
$’000
2018
$’000
126,083
510
22,561
5,678
(32,424)
(50,303)
(7,418)
(8,930)
(3,270)
(1,133)
(1,422)
(6,541)
(8,763)
(5,800)
28,828
(10,624)
18,204
(1,383)
(1,383)
16,821
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)
25,082
306
306
25,388
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
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
Unearned income
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Other financial liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
76
2019
$’000
29,508
18,204
(19,294)
28,418
2019
$’000
4,387
17,809
1,977
24,173
1,489
215,315
18,993
204,961
5,275
217
2018
$’000
25,327
25,082
(20,901)
29,508
2018
$’000
6,189
18,840
1,782
26,811
1,489
221,776
22,002
206,615
3,530
77
446,250
455,489
470,423
482,300
6,224
765
2,008
2,866
5,582
17,445
173,803
1,738
3,282
1,451
180,274
197,719
272,704
241,890
2,396
28,418
272,704
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
77
VIRTUS HEALTHANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 29. 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
2019
$’000
30,283
30,283
2018
$’000
26,669
26,669
Parent
2019
$’000
41,557
2018
$’000
41,642
299,712
293,750
3,574
3,647
6,992
8,341
296,065
285,409
241,890
7,513
46,662
242,251
7,485
35,673
296,065
285,409
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 2019 and 30 June 2018 apart from being a
party to the deed of cross guarantee as detailed in note 28.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018.
Set out below are summaries of options and performance rights granted under the plans:
2019
Effective
grant date
01/07/2013
03/10/2014
13/05/2015
13/05/2015
13/05/2015
13/05/2015
10/11/2015
21/08/2015
28/10/2015
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
10/10/2018
10/10/2018
10/10/2018
10/10/2018
21/11/2018
Expiry date
21/01/2024
03/10/2024
13/05/2025
13/05/2025
13/05/2025
13/05/2025
10/11/2025
21/08/2025
28/10/2025
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
10/10/2028
10/10/2028
10/10/2028
10/10/2028
21/11/2028
Exercise or
base price
Balance at
the start of
the year
Exercised/
cancelled/
other
Expired/
forfeited/
other
Balance at
the end of
the year
Granted
$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
$0.00
$0.00
$0.00
$0.00
$0.00
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
241,581
31,579
14,336
14,211
177,740
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,166
-
-
-
14,337
-
-
-
-
-
-
(29,448)
(25,614)
(1,221)
(295)
(82)
(14)
(87,763)
-
(3,260)
(1,273)
-
(363)
(49,746)
-
-
-
-
-
-
-
-
-
-
-
-
-
45,415
1,536
617
712
329
-
7,434
8,231
4,236
8,616
3,969
49,745
3,129
177,365
72,580
116,128
43,548
243,728
136,508
241,581
31,579
14,336
14,211
177,740
1,102,402
479,447
20,503
(199,079)
1,403,273
The weighted average exercise price is $0.48 (2018: $0.99).
The weighted average remaining contractual life of options and performance rights outstanding at the end of the financial year was 8.5
years (2018: 8.7 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:
Capital commitments - property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018.
Grant date
Expiry date
Share price at
grant date
Exercise price
or base price
Expected
volatility
Dividend
yield
Risk-free
interest rate
Fair value
at grant date
Note 30. 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.
10/10/2018
10/10/2018
10/10/2018
10/10/2018
21/11/2018
10/10/2028
10/10/2028
10/10/2028
10/10/2028
21/11/2028
$5.47
$5.47
$5.47
$5.47
$4.91
$0.00
$0.00
$0.00
$0.00
$0.00
30.00%
30.00%
30.00%
30.00%
30.00%
4.59%
4.59%
4.59%
4.59%
4.59%
2.16%
2.16%
2.16%
2.16%
2.13%
$4.42
$4.42
$4.42
$4.42
$2.77
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.
78
79
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 30. Share-based payments (continued)
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.
Recognition and measurement
Equity settlement: the fair value determined at the grant date of the equity settled share-based payments is expensed on a straight-line
basis over the vesting period (with a corresponding increase to the share-based payments reserve), based on the estimate of shares
that will eventually vest.
Critical accounting estimate - valuation of share based payments
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 a hybrid option-pricing model provided by Hoadley, taking into
account the terms and conditions upon which the instruments were granted.
Note 31. 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 27.
Key management personnel
Disclosures relating to key management personnel are set out in note 32 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)
Share based payments (iii)
Consolidated
2019
$’000
2018
$’000
278,726
285,004
2,892,025
137,862
3,062,921
63,226
(i)
(ii)
The following key management personnel paid rent for the use of leased space in Virtus : Lyndon Hale, Peter Illingworth and
David Molloy.
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 2018: Lyndon Hale, Peter Illingworth, David Molloy and William Watkins).
(iii)
The following key management personnel received performance rights for the provision of IVF services delivered to patients:
Lyndon Hale, Peter Illingworth, David Molloy and William Walkins (30 June 2018: Peter Illingworth 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
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Consolidated
2019
$’000
2018
$’000
517,025
17,821
675,245
11,062
358,808
377,048
Note 32. 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:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2019
$’000
3,052,929
197,662
30,280
159,588
2018
$’000
3,153,600
190,418
7,553
231,769
3,440,459
3,583,340
Note 33. Reconciliation of profit after income tax to net cash from
operating activities
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Impairment of intangibles
Write off of non-current assets
Share-based payments
Amortisation of bank facility fees
Net fair value gain on other financial liabilities
Other non-cash items
Interest on other financial liabilities - non-cash interest
Change in operating assets and liabilities:
Increase in trade and other receivables
Decrease/(increase) in inventories
Increase in deferred tax assets
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase/(decrease) in other provisions
Increase in other operating liabilities
Net cash from operating activities
Consolidated
2019
$’000
2018
$’000
28,990
32,009
13,628
5,800
135
1,161
563
(8,261)
(30)
1,464
(2,963)
(504)
(1,476)
380
(3,137)
780
1,760
38,290
12,496
-
-
881
207
(1,089)
(1,029)
981
(592)
6
(941)
5,043
3,756
(428)
3,667
54,967
Note 34. Events after the reporting period
No matter or circumstance has arisen since 30 June 2019 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.
80
81
VIRTUS HEALTHANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
Note 35. 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
2019
$’000
2018
$’000
13,160
39,150
33,332
85,642
12,748
32,330
26,132
71,210
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 may be 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 $154,470 (2018: $286,874)
Recognition and measurement
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.
Impact of new standards not yet applicable:
AASB 16 Leases
In February 2016 the AASB issued AASB 16, ‘Leases’, which replaces the current guidance in AASB 117 ‘Leases’. 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 $85,642,000, see note 35. The present value of the consolidated entities
operating lease payments as defined under the new standard will be recognised as lease liabilities on the balance sheet and included in
net debt.
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 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.
The consolidated entity has implemented a lease contract management system solution to electronically manage its lease portfolio
and perform lease calculations as required by the new lease standard. The standard will be first applicable for the year commencing 1
July 2019 and the group is currently in the final stages of determining the impact on the consolidated financial statements.
To date the most significant impact identified is in respect of the right to use (ROU) asset and lease liability for property leases. Under
either of the alternative approaches to transition allowed under the accounting standard, the impact at the date of transition will be an
estimated increase in new ROU assets in the range of $70-90m and lease liabilities in the range of $90-110m.
Capital Commitments
The consolidated entity had $Nil (FY18:$4,707,000) in capital commitments for property, plant and equipment as at 30 June 2019.
Note 36. 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 to $175,000 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 $5,001,000 (2018:$4,718,000) in the form of financial guarantees have been made against the working capital facility.
Subject to the continued compliance with debt covenants, the bank facilities may be drawn at any time and have an average maturity of
3 years (2018:1 year).
Note 37. Non-current assets - other
Security deposits
Consolidated
2019
$’000
287
2018
$’000
517
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
Audit services - network firms
Audit or review of the financial statements
Other services - network firms
Tax services
Other
Consolidated
2019
$’000
2018
$’000
480,000
467,300
20,000
-
20,000
208,500
7,500
216,000
500,000
683,300
141,513
119,692
52,584
103,991
156,575
68,792
20,782
89,574
298,088
209,266
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.
82
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VIRTUS HEALTHANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS (continued)
30 June 2019
DIRECTORS’
DECLARATION
Note 39. Other accounting policies
In the directors’ opinion:
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.
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.
•
•
•
•
•
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
2019 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 28 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
20 August 2019
Sydney
84
85
VIRTUS HEALTHANNUAL REPORT 2019
INDEPENDENT AUDITORS
REPORT
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 2019 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 statement of financial position as at 30 June 2019
the statement of comprehensive income for the year then ended
the statement of changes in equity for the year then ended
the statement of cash flows for the year then ended
the notes to the 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.
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.
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.
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 used overall Group materiality of $2.0 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 benchmark against which the performance
of the Group is most commonly measured.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
Our audit focused on where the Group made subjective judgements; for example, 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 Europe. 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 instruction from the Group audit team, performed an audit
of the special purpose financial information for specified entities within that country, used to prepare
the consolidated financial statements.
The component auditor in Denmark, under instructions from the Group audit team, performed a
review of the special purpose financial information for a specified entity within that country, 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 auditors, to be satisfied that sufficient appropriate evidence had been obtained for the
purpose of our opinion. Review of the work undertaken by the component teams and regular dialogue
between the teams up to the reporting date supplemented the specific direct written instruction
provided by PwC Australia and augmented the reporting provided by the component auditors.
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.
86
87
VIRTUS HEALTHANNUAL REPORT 2019 INDEPENDENT AUDITORS REPORT (continued)
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 and Risk Committee.
Key audit matter
How our audit addressed the key audit
matter
Estimated recoverable amount of goodwill
assets (Refer to note 11)
Goodwill of $448 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 current year assessment performed by the Group:
-
-
identified an impairment of $5.8 million against
the goodwill recognised in the Tasmanian cash
generating unit (CGU); and
did not identify the need for an impairment in
any of the other CGUs.
The recoverable amount of goodwill was a key audit
matter given the:
-
-
financial significance of the intangible asset to
the statement of financial position and the
impairment recognised in the statement of
comprehensive income; and
judgement applied by the Group in completing
and concluding upon 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
(CGUs) of the Group for the purposes of impairment
testing, and the attribution of net assets, revenues and
costs to those CGUs.
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 by
comparing to external information sources;
assessing if the discount rate assumptions were
reasonable by comparing them to market data
and comparable companies, with the assistance
of our valuation specialists;
performing sensitivity analyses over the key
assumptions used in the models;
considering the allocation and presentation of
the impairment charge recognised; and
assessing the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
Accounting for financial liabilities relating to
put options (Refer to note 4, 18 and 25)
Financial liabilities of $8.6 million in respect of the
put option arrangements exercisable in the year ended
30 June 2020 relating to the acquisitions of the SIMS
Clinic Limited and TasIVF Pty Ltd are recognised on
the statement of financial position.
to note 4, 18 and 25)
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:
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 $4.5
million and resulted in a fair value gain of $4.5
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.
-
-
-
-
-
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; 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 2019, 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.
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 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.
When we read the other information not yet received, 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.
88
89
VIRTUS HEALTHANNUAL REPORT 2019 INDEPENDENT AUDITORS REPORT (continued)
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 have 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 the 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 37 of the directors’ report for the year ended
30 June 2019. In our opinion, the remuneration report of Virtus Health Limited for the year ended 30 June 2019
complies with section 300A of the Corporations Act 2001.
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
20 August 2019
SHAREHOLDER
INFORMATION
30 June 2019
The shareholder information set out below was applicable as at 13 September 2019.
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
Ordinary
Shares
% of Issued
Capital
61
337
658
3,420
3,536
56,495,716
8,606,689
4,914,245
8,569,187
1,804,101
70.3
10.7
6.1
10.7
2.2
8,012
80,389,938
100.0
Number of
Holders
Unlisted
Options
% of Issued
Capital
2
38
2
13
6
61
301,900
1,051,111
16,810
30,078
3,374
21.5
74.9
1.2
2.1
0.3
1,403,273
100.0
90
91
VIRTUS HEALTHANNUAL REPORT 2019 SHAREHOLDER INFORMATION (continued)
30 June 2019
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Allan Gray Investment Mgt
Dimensional Fund Advisors
Vinva Investment Mgt
Merlon Capital Partners
Auscap Asset Mgt
Renaissance Smaller Companies
Norges Bank Investment Mgt
BlackRock Investment Mgt - Index
NovaPort Capital
Realindex Investments
Vanguard Group
Vanguard Investments Australia
Mr Lyndon G Hale
Morgan Stanley
Mr Francis Quinn
JPMorgan Securities
Acadian Asset Mgt (Australia)
Mr Jim Tsaltas & Ms Chryssa Anagno
Mr Andew KS Kan & Ms Cynthia ST C
BlackRock Investment Mgt (Australia)
Total
Unquoted equity securities
There are no unquoted equity securities.
Number of
Fully paid
Ordinary Shares
% of Issued
Capital
7,917,195
4,264,414
3,616,800
3,380,966
2,930,000
2,874,702
2,185,844
2,124,059
2,104,857
2,038,192
1,582,023
1,392,078
823,694
758,216
684,663
638,883
629,188
583,424
542,837
526,003
9.8
5.3
4.5
4.2
3.6
3.6
2.7
2.6
2.6
2.5
2.0
1.7
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.7
41,598,038
51.7
Substantial holders
The names of the Substantial Shareholders listed in the Company’s Register as at 13 September 2019:
Allan Gray Investment Mgt
Dimensional Fund Advisors
Voting rights
The voting rights attached to ordinary shares are set out below:
Number of
Ordinary Fully
Paid Shares
7,917,195
4,264,414
% of Issued
Capital
9.8
5.3
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.
7,980,990 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 20 August 2019 and can be found at
www.virtushealth.com.au/investor-centre/corporate-governance
CORPORATE
DIRECTORY
Directors
Peter Macourt - Chairman
Susan Channon
Lyndon Hale
Peter Turner ( resigned on 21 November 2018)
Sonia Petering
Greg Couttas
Shane Solomon ( appointed on 24 September 2018)
Company secretary
Glenn Powers
Notice of annual general meeting
The details of the annual general meeting of
Virtus Health Limited are:
Wednesday, 20 November 2019
at the Hilton Hotel Sydney at 2pm
488 George Street
Sydney NSW 2000
Registered office
Level 3
176 Pacific Highway
Greenwich NSW 2065
Phone: (02) 9425 1722
Fax: (02) 9425 1633
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 UK Bank Plc
Sixth Floor,
71 Queen Street,
London, EC4V 4AY
Principal place of business
Level 3
176 Pacific Highway
Greenwich NSW 2065
Stock exchange listing
Virtus Health Limited shares are listed on the Australian Securities
Exchange (ASX code: VRT)
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
Website
www.virtushealth.com.au
Corporate Governance Statement
The Corporate Governance Statement was approved by the
Board of Directors on 20 August 2019 and can be found at
www.virtushealth.com.au/investor-centre/corporate-governance
92
93
VIRTUS HEALTHANNUAL REPORT 2019