For personal use only - ASX · 2013-09-24 · Auditor’s Report thereon. The information set out...

Annual Report 2013

maynepharma.com

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ContentsOverview

2013 Highlights & Upcoming Milestones 4

Evolution of Mayne Pharma 4

Chairman’s Letter 5

Financial Report

Directors’ Report 7

Remuneration Report 18

Auditor’s Independence Declaration 25

Corporate Governance Statement 26

Consolidated Statement of Profit and Loss and

other Comprehensive Income 34

Consolidated Statement of Financial Position 35

Consolidated Statement of Cash Flows 36

Consolidated Statement of Equity 37

Notes to the Consolidated Financial Statements 38

Directors’ Declaration 79

Independent Auditor’s Report 80

ASX Additional Information 82

Mayne Pharma / Annual Report 20132

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Direct Commerical presence

Indirect presence through distribution partners

Mayne Pharma’s International footprint

Midlothian Laboratories1,000m2 commercial and distribution facility in Montgomery, Alabama

Metrics’ Facility 14.6 hectare facility at Greenville, North Carolina has 9,200m2 of manufacturing space. FDA inspected and cGMP compliant. Annual production capacity of :

~1 billion capsulesSegregated potent and cytotoxic drug development facility

Corporate registered office Melbourne, Victoria

Head office and manufacturing facility 13 hectare facility at Salisbury, South Australia has 12,000m2 of manufacturing space. FDA, MHRA and TGA approval. Annual production capacity of:

~2.5 billion capsules/tablets100 tonnes of bulk product16 million units of liquids and creams

Australia US Europe Japan Korea Canada

Branded products Yes Yes Yes Yes Yes Yes

Generic products Yes Yes

Contract services Yes Yes Yes Yes

Mayne Pharma / Annual Report 2013 3

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2013 Highlights November 2012 Acquisition of Metrics

In-licensed a range of

injectable molecules from Intas

Pharmaceuticals Ltd

December 2012 SUBACAP® approvable in select

European countries

February 2013 Acquisition of Kapanol® marketing

and distribution rights

March 2013 SUBACAP® filed to the TGA in

Australia

April 2013 FDA approval of 200mg Doryx® tablet

May 2013 National sales force began

promotion of Kapanol®

June 2013 7 products pending approval at the

US FDA and 9 products pending

approval at the Australian TGA.

1970s 1980s 1990s 2000s 2010s

Development of enteric-coated erythromycin (Eryc®).

FDA approval and first US sales of Eryc® by Warner Lambert (Chilcott).

Salisbury site acquired in 1983.

Development of delayed-release doxycycline capsules (Doryx®) and enteric-coated aspirin (Astrix®).

Development of taste-making technology (Cleantaste®), sustained-release morphine (Kadian® / Kapanol®), pulse-released dilitiazem HCI (US equivalent to Cardizem CD) and transfer of drug delivery technology and products to Faulding US site (Purepac Pharmaceutical Co).

Metrics founded as a contract testing company in Greenville, North Carolina.

Development of improved bioavailability technology (SUBA®).

Development of pellet-in-a-tablet technology (Doryx® 75/100/150mg tablet).

Development of SUBACAP®, improved formulation of itraconazole.

2004: Metrics moved to new purpose built facility in Greenville and began development of its own generic products.

2008: Metrics invested in highly potent / cytotoxic suite to add to its development and manufacturing capabilities.

2011: Metrics acquired its own US distribution capabilities - Midlothian Laboratories.

2012: Mayne Pharma Group Ltd acquired Metrics Inc.

2012: Mayne Pharma Group Ltd acquired Kapanol® and related assets in Australia.

2013: Mayne Pharma launches its first Australian developed oral generic products in the US since 1999.

est.1845 FH Faulding & Co 2001

Evolution of Mayne Pharma

Upcoming milestones SUBACAP® launch in Europe and

Australia

FDA approval and launch of filed

ANDA products

FDA filing of ANDA products under

development

Launch an injectable portfolio in

Australia

Partner and file SUBACAP® in Korea


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Chairman’s letter

Dear Fellow Shareholders,

On behalf of the Mayne Pharma Board and Management, I am pleased to present the 2013

annual report.

The past year has been extraordinary and truly transformational for our Company.

We made a number of acquisitions which have materially increased the scale and reach of the organisation. We launched a number

of new products in Australia and the US and received our first approval for SUBACAP® (our improved formulation of itraconazole

used to treat fungal infections) in Europe. We also in-licensed for the Australian market a range of injectable and over the counter

(OTC) products.

Mayne Pharma is now a much larger and more diverse and sustainable business following the changes made during the year. The

Company now has more revenue, products, customers, technologies, distribution channels and an increased pipeline and we have

substantially mitigated the product concentration risk that was a feature of our business twelve months ago. We have strengthened

our management team across all functional areas including the sales and marketing, business development, quality and regulatory

functions.

Following the Metrics, Inc. (Metrics) acquisition in November 2012, Phil Hodges joined the Board and was elected as a Director at the

2012 AGM. Phil was the founder of Metrics and has overseen the transition of this business from a start-up analytical laboratory with

four employees to a specialty pharmaceutical company with a portfolio of niche generic products, employing over 300 people.

At the start of the financial year, the outlook for Mayne Pharma was uncertain with our major product Doryx® (doxycycline hyclate

delayed-release tablets) facing generic competition. I am pleased to say that the doxycycline franchise is now in a much stronger

position following the approval and launch of a 200mg dose strength which received three years of exclusivity protection from the

US Food and Drug Administration (FDA) and the launch of generic versions of the 75mg and 100mg Doryx® tablets which are being

sold through our new US distribution platform acquired as part of Metrics. These generic tablets were the first revenue synergies to

materialise from this acquisition.

During the year, the Company delivered strong growth in sales and earnings and met or exceeded the guidance targets that were

announced to the market in October 2012 as part of the capital raising. Sales revenue grew 61% to $83 million and gross margin was

up 73% to $39 million. Reported earnings before interest, tax, depreciation and amortization (EBITDA) was $9 million and underlying

EBITDA (excluding acquisition costs and certain other specified expenses) was $18 million, up 61%. The reported net loss after tax

was driven by a number of items including acquisition-related costs and a non-cash change in the fair value of the earn-out liability

associated with the MPI acquisition as a result of a reassessment of the expected future revenues used in the calculation. Total cash

at the end of the period was $20m, up 74% and our interest bearing debt was $47 million.

Roger Corbett AO / Chairman

5Mayne Pharma / Annual Report 2013

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The Company’s research and development (R&D) pipeline has been transformed and now includes 20 generic products under

development targeting US markets with annual sales of $3 billion (Source: IMS Health) of which seven products are pending

approval at the FDA. In Australia, the Company filed nine products with the Therapeutic Goods Administration during the year. This is

a remarkable change from last year, when the Company had no products filed with either regulatory agency. The increased pipeline

reflects the significant investment that has been made in R&D which increased 170% from $4 million in FY12 to $11 million in FY13.

On behalf of the Board, I would like to thank all of our dedicated employees for their efforts over the last year and commitment

to our strategic goals. I would also like to thank our shareholders for their strong support through the various capital raisings that

funded the Metrics and Kapanol® acquisitions. As a result of all the changes to the business, it is pleasing to report our market

capitalization has increased more than 4 times over the financial year from $50 million to $240 million as at 30 June 2013.

The Board believes the Company has a sound, diversified strategy and the resources to continue to grow the Company. The outlook

for the year ahead is very positive with FY14 earnings expected to benefit from growth in the doxycycline franchise, further expansion

of the US generic portfolio through increased market penetration and new product approvals, the addition of sales and milestone

payments from SUBACAP® and growth in the Australian pain franchise (Kapanol®) and OTC portfolio. The Company starts the new

financial year well positioned and with strong business momentum.

Roger Corbett, AO

Chairman

Chairman’s letter cont.


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DIRECTORS’ REPORT The Directors of Mayne Pharma Group Limited (‘the Company’) present their report together with the financial report of the Company and its controlled entities (collectively the ‘Group’ or ‘Consolidated Entity’ or “Mayne Pharma”) for the year ended 30 June 2013 and the Auditor’s Report thereon. The information set out below is to be read in conjunction with the Remuneration Report set out on pages 18 to 23 which forms part of this Directors’ Report. DIRECTORS The Directors of the Company during the financial year and up to the date of this report are: Mr Roger Corbett AO (Chairman) Mr Scott Richards (Managing Director and Chief Executive Officer) Mr William (Phil) Hodges (Executive Director and President of Metrics, Inc.) – appointed 15 November 2012 Hon Ron Best Mr Bruce Mathieson Mr Ian Scholes Particulars of the Directors’ qualifications, other listed company directorships, experience and special responsibilities are detailed on page 15 of the Annual Report. Particulars of the qualifications and experience of the Company Secretary are detailed on page 16 of the Annual Report. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the Directors of the Company during the 2013 financial year are:

BOARD AUDIT COMMITTEE NOMINATION COMMITTEE

REMUNERATION AND PEOPLE COMMITTEE

HELD1 ATTENDED2 HELD1 ATTENDED2 HELD1 ATTENDED2 HELD1 ATTENDED2

Mr R Corbett 16 15 - - - - 1 1

Mr S Richards 16 15 - - - - - -

Mr I Scholes 16 14 7 7 - - 1 1

Hon R Best 16 12 7 6 - - 13 1

Mr B Mathieson 16 12 7 3 - - 1 1

Mr P Hodges 7 7 - - - - - - 1. This column shows the number of meetings held during the period the Director was a member of the Board or Committee. 2. This column shows the number of meetings attended. 3. Hon R Best is not a member of the Remuneration and People Committee but attended this meeting at the Chairman’s invitation. The Nomination Committee did not meet separately during the year. The appointment of Mr Hodges was discussed by the Board as a whole as part of its deliberations on the acquisition of Metrics, Inc. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The Company underwent several Company-defining events during the year that significantly affected the state of affairs of the Company during the financial year. These changes, including the acquisition of Metrics, Inc. and Kapanol are discussed in the Principal Activities, Results of Operations and Likely Developments section of this report. PRINCIPAL ACTIVITIES, RESULTS OF OPERATIONS AND LIKELY DEVELOPMENTS Nature of operations

The Company is a specialty pharmaceutical company that develops, manufactures and markets branded and generic products globally – either directly or through distribution partners, while applying its drug delivery expertise for contract development and manufacturing services. Mayne Pharma has a 30-year track record of innovation and success in developing new oral drug delivery systems and these technologies have been successfully commercialised in numerous products that have been marketed around the world. Mayne Pharma has two drug development and manufacturing facilities based in Salisbury, Australia and Greenville, North Carolina, United States of America (“USA” or “US”) with expertise in formulating complex oral dose forms including highly potent compounds, controlled substances, modified release products and inherently unstable compounds. The business is supported by over 500 staff with more than 50 formulation scientists and analytical chemists dedicated to the development of owned products. During the year the Company significantly expanded and diversified its operations through two acquisitions:

• On 14 November 2012, the Company completed the acquisition of Metrics, Inc. (“Metrics”), a privately-owned, US-based provider of contract development services to the pharmaceutical industry that also develops and manufactures niche generic pharmaceuticals. Mayne Pharma acquired Metrics for an upfront payment of US$105m plus a further payment (now determined to be US$10.5m) based on the performance of the business for the year ending 30 June 2013.

• On 1 February 2013, the acquisition of Kapanol® rights and related assets in Australia from GlaxoSmithKline (GSK) was completed. Mayne Pharma acquired the Kapanol® trademark, marketing authorisations, product dossier, technical data and product inventory for $13.8m and the existing license between Mayne Pharma and GSK was amended so that Mayne Pharma had the rights to sell Kapanol® in Australia.

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Financial performance

Set out below is a summary of financial performance for FY13 compared to the previous corresponding period (pcp). This summary includes some non-IFRS financial information that is stated excluding certain specified expenses. The results excluding such expenses are considered by the Directors to be a better basis for comparison from period to period as well as being more comparable with future performance. Earnings before interest, tax, depreciation and amortisation (EBITDA) is considered by Directors to be the primary measure of earnings considered by Management in operating the business and assessing performance.

CHANGE ON PCP

SALES AND PROFIT NOTES 2013 2012 $M %

Sales revenue 83.4 51.9 31.5 61 Gross margin 1 39.0 22.6 16.4 73 Gross margin % 46.7% 43.5% Adjusted EBITDA 18.4 11.5 6.9 61 Adjustments 2 (9.1) 2.8 (11.9) nm

EBITDA 9.3 14.3 (5.0) (35) Depreciation / Amortisation (7.4) (5.6) (1.8) 32 PBIT 1.9 8.7 (6.8) (78) Net Interest 3 (2.6) (0.9) (1.7) 209 Income tax (expense) / benefit (2.1) (1.6) (0.5) 34

Reported NPAT (2.8) 6.2 (9.0) nm Adjusted NPAT 2 9.6 6.0 3.6 61

1. Gross margin excludes other revenue however other revenue is included in gross profit per the Statement of Profit or Loss and Other

Comprehensive Income. 2. Adjustments in FY13 include $4.4m of acquisition costs, $4.4m for the non-cash charge arising from the increase in the fair value of the earn-out

liability associated with the Mayne Pharma International Pty Ltd (MPI) acquisition in November 2009 and $0.2m arising from the revaluation of Directors’ options as a result of the impact of the rights issue made as part of the funding for the Metrics acquisition.

3. Includes finance expenses of $2.3m, notional non-cash interest expense of $0.7m representing the charge for the unwinding of the discount on the earn-out for the MPI acquisition less interest revenue $0.4m.

The non IFRS financial information has been reviewed by the Group’s independent auditor The Group recorded sales revenue of $83.4m, up 61% on pcp and gross margin was up 73% to $39m. Reported EBITDA was $9.3m and underlying EBITDA (excluding certain specified expenses) was $18.4m, up 61% on pcp. The reported net loss after tax of $2.8m was impacted by a number of items including acquisition costs of $4.4m and a non-cash charge due to a change of $4.4m in the valuation of the Hospira earn-out liability. The change to the Hospira earn-out is a non-cash change in the fair value of the earn-out liability associated with the MPI acquisition following the reassessment of the underlying assumptions (including movements in expected future sales revenues and foreign exchange movements) used in the calculation. Gross margin

Manufacturing gross margin (ie. gross margin excluding the impact of “other revenue”) as a percentage of sales revenue was 47%, up from 44% on the pcp. The improved margin in FY13 reflects the inclusion of the Metrics business which has a much stronger margin (54%) than MPA (46%) or MP Global (37%).

Expenses

Net research and development expenses were consistent with the prior period at $3.9m despite the addition of Metrics, as $7.5m of expenditure was capitalised during the period for qualifying products under development in line with Australian Accounting Standards.

Marketing expenditure increased by $1.9m to $2.6m reflecting the addition of the Metrics business and recruitment of additional marketing personnel and increased promotion of the MPA branded portfolio.

Amortisation of intangible assets was consistent with the prior period at $3.7m although the majority of the amortisation now relates to the Metrics acquisition. In the prior period the amortisation solely related to the intangible assets associated with the MPI acquisition in November 2009.

Finance costs of $2.3m represent the interest expense on the USD loan facility taken out for the Metrics acquisition and the amortisation of related borrowing costs.

Administration costs increased by $7.4m reflecting the inclusion of Metrics’ expenses ($7.4m).

The acquisition costs of $4.4m reflect the due diligence and non-capitalised capital raising costs connected with the Metrics and Kapanol® acquisitions during the period.

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Tax

The tax expense of $2.1m comprised:

• Current period income tax for the year to 30 June 2013 of $1.8m; • A reduction in current income tax in respect of prior years of $0.1m; and • A charge of $0.4m relating to the movement in deferred tax assets and liabilities.

Financial Position

Set out below is a summary of the financial position as at 30 June 2013 compared to the position as at 30 June 2012.

CHANGE ON PCP

BALANCE SHEET EXTRACT NOTES 2013 2012 $M %

Cash 1 20.1 11.6 8.5 74 Inventory & receivables 38.2 11.1 27.2 245 PP&E 55.0 22.2 32.8 148 Intangibles 115.5 4.2 111.3 2,653

Total assets 233.4 50.2 183.2 365 Interest-bearing debt 46.7 - 46.7 Nm Other liabilities 28.2 9.3 18.9 202

Total liabilities 112.5 19.6 92.9 474 Equity 120.9 30.6 90.3 295

1. Includes restricted cash of $1.2m

The two acquisitions during the year materially changed the operating assets and liabilities of the business.

Assets

The assets recognised at the acquisition dates are summarised as follows:

• $17.6m net working capital; • $43.2m in goodwill; • $29.0m in property, plant & equipment; • $9.0m in development costs; • $13.8m in Kapanol® marketing and distribution rights; and • $32.0m in other intangibles.

Other liabilities

Other liabilities as at 30 June 2013 include the earn-out liabilities for the Metrics and MPI acquisitions and deferred consideration for the Kapanol® acquisition. Other financial liabilities increased by $18.9m from 30 June 2012 as a result of:

• An increase of $11.4m (including foreign exchange impact) for the earn-out associated with the Metrics acquisition; • An increase of $3.4m for the deferred payment associated with the Kapanol® acquisition; • An increase of $5.2m (including unwinding of discounting) due to a non-cash change in the fair value of the earn-out liability

associated with the MPI acquisition following the reassessment of the underlying assumptions (including movements in expected future sales revenues and foreign exchange movements) used in the calculation and the non-cash unwinding of the discount; and

• A payment of $1.3m in February 2013 representing the instalment for the MPI acquisition earn-out for the 2012 calendar year. • An increase of $0.2m relating to foreign exchange contracts and other items.

Cash flow

Net operating cash flow before interest, tax and transaction costs was $14.8m. Total net cash flows from operating activities was an inflow of $6.8m after including $4.4m of transaction costs, $2.0m of net tax payments and $1.6m of net interest payments.

Cash on hand at 30 June 2013 was $20.1m representing an increase of $8.5m from 30 June 2012.

The Company has bank debt of $46.7m with substantial headroom under its gearing and interest cover covenants.

Notable cash flows during the period included:

• The inflow of $89.6m from the issue of new shares for the Metrics and Kapanol® acquisitions; • An inflow of $41.7m representing the net proceeds from new borrowings used to acquire Metrics; • The $103.1m payment to acquire Metrics on 14 November 2012;

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• The $10.4m payment to acquire the Kapanol® rights and related assets in Australia on 1 February 2013; • $10.9m in payments for research and development; • The $1.3m earn-out payment to Hospira for the acquisition of MPI on 30 October 2009; • An outflow of $4.4m for acquisition related expenses; • $1.1m in loan repayments; and • $3.2m in capital expenditure across the Group.

Research and development

During the period, the Company increased its investment in research and development by 170% to $10.9m (including both expensed and capitalised expenditure) reflecting the on-going commitment to the expansion of the product portfolio. As at the end of the financial year, the Company had seven ANDA products pending FDA approval and nine products pending approval at the TGA. This was a significant change from 12 months ago when the Company had no products filed with either regulatory agency. The Company also received its first regulatory approval for SUBACAP® in Europe and executed two marketing and distribution agreements with ISDIN and Glenmark in four key European markets since the end of FY13. The Company is continuing to progress the commercialisation of SUBACAP® in other markets, including Japan, US, Korea and Australia.

US Generic Products

Nature of operations

The US Generic Products operating segment (previously called Metrics Products) manufactures and distributes generic pharmaceutical products in the US.

FY13 performance

Sales were $25.2m and gross profit was $15.8m for the 7.5 month period that Mayne Pharma owned the business. The performance of this business in the 12 months to 30 June 2013 versus pcp was up 40% driven by new product launches and improved market penetration of existing products. Direct sales through USGP’s own distribution arm now represent more than 30% of the segment sales in the 12 months to 30 June 2013, up from 11% on pcp.

Since the acquisition of Metrics in November 2012, the Company has launched four ANDA products (Doxycycline Hyclate DR tablets, Erythromycin DR capsules, Oxycodone-APAP unit dose (UD) tablets and Oxycodone HCl UD tablets). In addition, in July 2013 the Company acquired a portfolio of products as part of the Libertas Pharma, Inc. acquisition which included six approved ANDAs and a further two pipeline ANDAs. The Company now has seven ANDA’s filed with the FDA targeting markets with current annual sales of more than US$400m1.

Metrics Contract Services

Nature of operations

The Metrics Contract Services segment provides contract pharmaceutical development services to third party customers principally in the USA.

FY13 performance

Sales were $14.8m and gross profit was $6.4m for the 7.5 month period that Mayne Pharma owned the business. The sales performance of this segment in the 12 months to 30 June 2013 versus pcp was up 2%.

Metrics Contract Services has been a key enabler for the development of the US Generic Products segment. During the period, Metrics provided analytical, regulatory and project management support for Mayne Pharma’s extended release pain management product, which remains on track for FDA filing by the end of this calendar year.

Mayne Pharma Australia (MPA)

$MILLION 2013 2012 CHANGE %

Sales revenue 11.0 9.8 11.9

Gross profit 5.0 3.1 63.0

Gross profit % 45.7% 31.4%

No. of approved products 8 5

No. of TGA filed products 9 0 Nature of operations

MPA’s revenues and gross profit are derived from the manufacturing, distribution and marketing of branded and generic pharmaceutical products within Australia.

1 IMS Health (ex-wholesaler), MAT April 2013

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FY13 performance

MPA sales were $11.0m, up $1.2m on the pcp and gross profit was up $1.9m or 63% on pcp to $5.0m. The improved performance of MPA was driven by the addition of the Kapanol® product into the MPA portfolio and improved pricing of other products in the portfolio.

The relaunch of Kapanol® occurred in May 2013 following the recruitment of a national sales team, who have since made over 1,000 calls to targeted physicians which is expected to lead to improved market share of this product in the modified release oral opioid analgesic market which is valued at more than $100m2.

During the period, the Company launched Percutane® pain relief cream in pharmacies nationally, launched Astrix® capsules in Woolworths and in-licensed Licener®, a new natural plant-based head lice treatment. The head lice market in Australia is valued at $22m and growing at 8% per annum2. These products add to the over the counter (OTC) portfolio that also includes Magnoplasm®. The Company continues to progress the commercialisation of SUBACAP® in Australia and is also building an injectable portfolio. Nine products were filed with the TGA in FY13. The expected TGA approval time for these products is typically around 12-14 months with the majority of these products expected to launch in calendar 2014.

Mayne Pharma Global (MP Global)

$MILLION 2013 2012 CHANGE %

Sales revenue 33.4 42.1 (20.7)

Gross profit 12.2 19.5 (37.4)

Gross profit % 36.6% 46.3% Nature of operations

The MP Global operating segment’s revenues and gross profit are derived from the manufacturing and out-licensing of branded pharmaceutical products to international marketing and distribution partners and provision of contract manufacturing services to third-party customers within Australia.

FY13 performance

MP Global’s sales were $33.4m down $8.7m or 20.7% on the pcp and gross profit fell 37% reflecting the forecast reduction in US sales of Doryx® following the launch of a generic competing product in May 2012. However, the second half performance of MP Global was well up on the first half (2H13 sales up 37.1% and gross profit up 75.7% on the 1H13) with Doryx® sales more than double the sales in the first half due to the restocking impact for the launch of the 200mg tablet. Excluding the sales of Doryx® in the US, MP Global sales were $20.7m.

Although, this segment experienced a significant drop in its earnings in FY13 as a result of generic competition to the US 150mg strength Doryx® tablet, the Company has since launched a 200mg strength Doryx® tablet which has three years of market exclusivity and is sold by the Company’s US marketing and distribution partner, Warner Chilcott.

Strategy and material business risks Mayne Pharma is using its world-class oral drug delivery expertise to build a global speciality pharmaceutical company. The Company is focused on increasing the breadth of its product portfolio, technologies and footprint.

Corporate strategic priorities

The Company’s core strategic priorities include the following:

KEY GROWTH DRIVER ACTIVITIES

US retail generics maximisation • Portfolio expansion through organic development and bolt-on acquisitions

Doxycycline franchise optimisation • Build doxycycline generic portfolio • Optimise Doryx® franchise

SUBACAP® global commercialisation • Participate in global itraconazole market with US, Japan, Europe and Korea as priority markets

Australian pain franchise expansion • Broaden portfolio through in-licensing, internally supplied products (Metrics), organic growth of Kapanol®

Optimise and grow US contract services • Globalise customer base • Leverage combined business expertise

2 IMS Health (ex-wholesaler), MAT June 2013

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Material business risks

The Company maintains a risk register and the material business risks are regularly reported on and discussed with the Audit Committee. The material business risks faced by the Group that are likely to have an effect on the financial prospects of the Group include:

RISK NATURE OF THE RISK ACTIONS / PLANS TO MITIGATE

Product development • Failure to establish bioequivalence and meet end points in clinical trials

• Development of new intellectual property and products takes longer and is more expensive than forecast

• Recruitment of experienced product development personnel

• Disciplined and risk balanced product selection process

• Robust business cases developed for selected products

• Regular monitoring of product development progress

• Input from regulatory authorities before and during the development process

Product registration and compliance

• Delays in regulatory approval of products • Increasing cost to maintain product registrations • New government policies, regulations and

legislation introduced • Ability to obtain and maintain licenses and

product registrations

• Recruitment of experienced regulatory personnel • Input from regulatory authorities before and during

the development process • Active participation in relevant industry associations • Engagement with independent regulatory and

quality experts

In-market pricing and competitive intensity

• Competitive dynamics for a product become unfavourable

• New competitors enter a market or competitors increase market share

• Inability to obtain or delays in obtaining satisfactory pricing and reimbursement from government bodies, national health authorities and other third parties

• Recruitment of experienced sales and marketing personnel

• Disciplined and risk balanced product selection process

• Strong systems and processes to monitor and manage the performance of each product and customer relationship

Customer relationships

• Loss of a key customer • Inability to renew contracts on similar terms • Inability to attract new customers • Customers fail to honour payment obligations

• Recruitment of experienced sales and marketing and business development personnel

• Manage customer pricing, economics and contract compliance

• Strong systems and processes to manage and monitor collections

Product cost inflation • Increasing cost of active pharmaceutical ingredients

• Exclusive supply arrangements • Distribution arrangements with partners allow for

rising input costs to be passed through

Foreign exchange movements

• Adverse movements in exchange rates

• Hedging of net receipts • Natural hedge provided by US operations

Product liability • Serious adverse event with patient and potential product liability risks in marketing and use of products

• Medical information, pharmacovigilance and quality systems established and maintained

• Allocate or share risk with distribution partners where appropriate

• Appropriate Insurance cover

Intellectual property • Infringement of third party intellectual property rights

• Loss or infringement of owned intellectual property

• Disciplined product selection process taking into account intellectual property infringement

• Implementation of a robust intellectual property strategy

Legal

• Litigation and other proceedings taken against the company

• Recruitment of experienced legal personnel • Limit liability in contractual relationships where

possible • Provide for resolution of disputes through mediation

and arbitration The above list does not represent an exhaustive list and it may be subject to change based on underlying market events.

Future prospects

Pipeline

The Company now has a much deeper pipeline compared with FY12, with more than 20 products under development and seven products currently pending approval at the FDA. In addition, the Company had nine products pending at the TGA at the end of the financial year.

In the coming year, the Company is planning to increase its cash investment in research and development to more than $15m, which is expected to accelerate future growth in both the generic and branded product pipeline. In addition, the Company has commenced a major expansion of its development laboratories in the US to ensure capacity exists to absorb a broader array of new development programs.

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The Company is continuing to progress the commercialisation of SUBACAP® globally. In the US the Company is optimistic that it will submit a New Drug Application (NDA) for this product with the FDA in 2014 utilising the 505(b)(2) application pathway. The 505(b)2 pathway is a more streamlined new drug application process that allows a sponsor to rely partially on existing clinical pharmacology, safety and efficacy data. In Australia, the Company applied for marketing approval of SUBACAP® with the TGA in March 2013 and is on track for approval in 2014. The Company also expects to file SUBACAP® in Korea in 2014 and seek marketing approval in additional European countries through the expedited pathway known as a ‘repeat use procedure’. Further detail around the commercialisation of SUBACAP® globally is detailed in the table below:

EUROPE REGULATORY STATUS DISTRIBUTION PATHWAY EXPECTED LAUNCH MARKET SIZE1

Europe

Approved in the UK, Spain, Sweden and Germany

ISDIN – Spain, Italy, Portugal. Glenmark – UK Late stage discussions with other partners for additional EU markets

FY14 - UK & Spain. FY15 – Italy, Portugal and other markets subject to ‘repeat use’ procedure

US$80m

Australia Filed with TGA Mayne Pharma Australia FY15 US$4m

Korea Expected filing in 2014

Discussions with partner ongoing FY16 subject to approval by Korean FDA

US$30m

US Pivotal PK studies underway Expected filing in 2014

Market evaluation commenced FY15-FY16 depending on final regulatory pathway

US$70m

Japan - Detailed market evaluation complete

TBC US$130m

Rest of world - Entry strategies underway for key markets

TBC US$180m

1. IMS Health, MAT December 2012

Outlook

The Company is now significantly diversified across products, geographies and technologies. MPA will focus in the coming year on growing the market share of its key pain product (Kapanol®) and its OTC portfolio as well as targeted in-licensing of niche specialty pharmaceutical products and launching an injectable portfolio. MP Global will benefit from the addition of sales and milestone payments from SUBACAP® and further growth of the Doryx® franchise. SUBACAP® is expected to launch in the UK and Spain in FY14 and is expected to launch in Italy and Portugal in FY15 following completion of the ‘repeat-use procedure’.

In the US, FY14 earnings are expected to benefit from continued expansion of the US generic portfolio through market penetration and new product approvals. The Company will continue to invest in new research and development projects to further expand the US generic pipeline which is expected to deliver revenue and margin growth into the future.

DIVIDENDS The Directors have not declared an interim or final dividend for the 2013 financial year. EVENTS SUBSEQUENT TO THE REPORTING PERIOD On 2 July 2013, Mayne Pharma announced the acquisition of Libertas Pharma Inc., a US-based generic pharmaceutical company that distributes and markets a range of niche products in the US. Libertas was acquired by way of an upfront payment (US$1m) comprising cash and a small scrip component and a three year performance-based earn-out which will be funded from operating cash (up to US$2.68m over three years). On 9 July 2013, Mayne Pharma announced the launch in the US of Doxycycline Hyclate Delayed-Release 75mg and 100mg tablets via its US Generic Products Division. On 9 August 2013, the Company announced the signing of two distribution agreements for its SUBACAP® product, in four key European markets. Under the exclusive distribution agreements, Mayne Pharma will receive upfront payments, milestone payments and a percentage of net sales in each country. On 11 September 2013, the Company announced the signing of an exclusive Supply and License Agreement with US-based HedgePath Pharmaceuticals, Inc. (HPPI), whereby HPPI will pursue clinical development, registration and commercialisation of Mayne Pharma’s patented formulation of itraconazole, known as SUBA™-Itraconazole, for treatment of a variety of cancers in the United States. This agreement is independent of Mayne Pharma’s commitment to progress the commercialisation of SUBACAP® globally for the treatment of fungal infections. As part of the agreement, Mayne Pharma expects to appoint one representative to the HPPI Board. Although the Supply and License Agreement is effective immediately, it remains subject to certain conditions being achieved, as detailed in the Current Report on Form 8-K that HPPI filed with the US Securities and Exchange Commission on 10 September 2013. Subject to meeting these conditions, and in return for granting HPPI exclusive US rights, Mayne Pharma is expected to acquire an equity stake in HPPI of between 30-45%. Under the terms of the agreement, Mayne Pharma will supply HPPI with SUBA™-Itraconazole for use in clinical trials and for future exclusive commercial supply following FDA approval.

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DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES MR ROGER CORBETT AO, BCom, FAIM, FRMIA Independent Chairman Appointed 17 November 2010 Mr Corbett joined the Board of Mayne Pharma Group Limited in November 2010 and was appointed Chairman in January 2011. Mr Corbett has been involved in the retail industry for more than 40 years. In 1984, Mr Corbett joined the board of David Jones Australia as a Director of Operations and in 1990 was appointed to the board of Woolworths Limited and to the position of Managing Director of BigW. In 1999, Mr Corbett was appointed Chief Executive Officer of Woolworths Limited, from which he retired in 2006. Mr Corbett is currently the Chairman of Fairfax Media Limited, one of Australia’s largest diversified media companies, a director of the Reserve Bank of Australia, a director of Wal-Mart Stores and Chairman of PrimeAg Australia Limited. In addition to being Chairman of the Board, Mr Corbett is Chair of the Remuneration and People Committee and is a member of the Nomination Committee. MR SCOTT RICHARDS Executive Director and Chief Executive Officer Appointed 13 February 2012 Mr Richards has more than 24 years’ experience in the pharmaceutical industry and has worked in Europe, the US and Asia. Prior to joining Mayne Pharma, he was President, European Operations of Intas Pharmaceutical Limited. Mr Richards was also Executive Vice President at Actavis Group responsible for the Hospital Business Operations worldwide and spent 18 years with Mayne Pharma Limited and F H Faulding & Co Limited in various roles including President, EMEA (Europe, Middle East and Africa) and President, Global Commercial Operations where he was responsible for US$600m in sales and over 600 employees. Mr Richards’ experience spans sales and marketing, regulatory/medical affairs, supply chain, business development, mergers and acquisitions, finance, intellectual property and manufacturing. HON RON BEST Independent Non-Executive Director Appointed 26 July 2006 The Hon Ron Best is a highly respected former member of the Victorian Parliament (1988 to 2002), having held a number of senior positions in the National Party of Australia (Victoria) including Parliamentary Secretary, Shadow Minister for Housing and Spokesman for Health, Housing, Racing, Sport and Recreation. Mr Best has also been a member of various Parliamentary Committees including the Public Accounts and Estimates Committee, the Environmental and Natural Resources Committee and a Board Member of the Victorian Health Promotion Foundation. Prior to his political career, Mr Best was the owner of a successful food distribution business and General Manager of the Glacier Food Group. Mr Best was, until 30 June 2013, a consultant to PFD Food Services Pty Ltd, one of Australia’s largest privately-owned food service companies. Mr Best is Chairman of the Nomination Committee and a member of the Audit Committee. MR BRUCE MATHIESON Independent Non-Executive Director Appointed 16 February 2007 Mr Mathieson is currently a Director and was the former Chief Executive Officer of Australian Leisure and Hospitality Group Pty Limited, a joint venture between Woolworths Limited and the Mathieson Family. The ALH Group owns approximately 325 hotels and 520 retail outlets across Australia, and employs more than 15,000 staff. Mr Mathieson has operated in the hotel, leisure and hospitality industry since 1974 and is a well-respected member of the Australian business community. He has previously served as a Director of the Carlton Football Club. He is trained as an engineer, and brings management and transactional experience from across a number of industries to the Board. Mr Mathieson is a member of the Remuneration and People, Audit and Nomination Committees. MR IAN SCHOLES BCom, CA Independent Non-Executive Director Appointed 17 October 2007 Mr Scholes has extensive financial and corporate advisory experience, both in Australia and internationally. Mr Scholes has held senior roles within Merrill Lynch Australia, most recently as Vice Chairman of Investment Banking. Previously Mr Scholes held the position of Executive General Manager at National Australia Bank Limited, running the corporate and institutional banking division. Mr Scholes is currently a Partner and Chief Executive Officer of Chord Capital Pty Ltd. Mr Scholes has previously held positions on the Board of St Vincent’s Health as Chairman of the St Vincent’s Foundation and was a former Director of SDI Limited. Mr Scholes is Chairman of the Audit Committee and a member of the Remuneration and People Committee. MR WILLIAM (PHIL) HODGES Executive Director Appointed 15 November 2012 Mr Hodges has been involved in the pharmaceutical industry for over 30 years and founded the Metrics business in 1994. Mr Hodges is currently the President of Metrics and responsible for guiding the strategic direction and growth of the company. Since 1994, Mr Hodges has overseen the transition of Metrics from a start-up analytical laboratory with four employees to a specialty pharmaceutical company with a portfolio of niche generic products. Prior to starting Metrics, Mr Hodges spent 11 years at Burroughs Wellcome Co. (which became part of GlaxoSmithKline) in the development and validation of analytical methods.

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COMPANY SECRETARY Mr Mark Cansdale, BEc, CA (Group CFO and Company Secretary) was appointed as the Company Secretary on 27 January 2011. Mr Cansdale is a Chartered Accountant with more than 20 years’ experience in the accounting and finance profession. Mr Cansdale has extensive experience in the areas of business development, mergers and acquisitions, corporate strategy, tax, financial planning and analysis, risk management, treasury and investor relations. DIRECTORS’ INTERESTS IN SHARE CAPITAL AND OPTIONS The relevant interest of each Director in the share capital and options of the Company as at the date of this report is as follows:

FULLY PAID ORDINARY SHARES

NUMBER OF OPTIONS OVER ORDINARY SHARES

Mr R Corbett 5,047,499 - Mr S Richards 2,500,000 7,500,000 Hon R Best 2,173,244 - Mr B Mathieson 43,774,748 - Mr I Scholes 1,010,328 - Mr P Hodges 5,302,738 -

UNISSUED SHARES UNDER OPTION As at the date of this Directors’ Report there were 35,300,000 unissued ordinary shares under option (33,500,000 at the reporting date). Details of these options are as follows: DATE OPTIONS GRANTED EXPIRY DATE EXERCISE PRICE NUMBER UNDER OPTION

25 July 2011 27 January 2016 $0.352 1,500,00013 February 2012 13 February 2019 $0.2608 7,500,0001 January 2013 15 March 2016 $0.25 2,000,00011 January 2013 12 January 2019 $0.33 14,300,0001

25 January 2013 26 January 2019 $0.33 8,000,0002

1 July 2013 1 July 2019 $0.43 1,000,0002 July 2013 6 May 2019 $0.41 1,000,000

Total 35,300,000

1. 1,000,000 options were forfeited prior to year-end and are excluded from the outstanding options. 2. 200,000 options were forfeited post year-end and are excluded from the outstanding options.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company. SHARE OPTIONS GRANTED

The following option issues were made during and since the end of the year ended 30 June 2013:

2,000,000 options over ordinary shares were granted to the VP, Metrics Products on 1 January 2013; 15,300,000 options over ordinary shares were granted to members of the US management team on 11 January 2013; 8,200,000 options over ordinary shares were granted to members of the Australian management team on 25 January 2013; 1,000,000 options over ordinary shares were granted to the VP, US Sales & Marketing on 1 July 2013; and 1,000,000 options over ordinary shares were granted to the VP and General Counsel on 2 July 2013.

Further details of options granted are contained in Note 20 of the financial statements. SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS During the financial year options have been exercised to acquire a total of 2,950,000 fully paid ordinary shares in Mayne Pharma Group Limited at a weighted average exercise price of $0.1858 per share. NON-AUDIT SERVICES The Company’s auditor, EY Australia (EY), provided the following non-audit services. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

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EY received or are due to receive the following amounts for the provision of non-audit services:

2013

$ 2012

$

Taxation services 267,450 61,460General accounting advice - 42,500Other Assurance 70,300 58,500

Total 337,750 162,460

INDEMNIFICATION AND INSURANCE OF OFFICERS During the financial year, the Company maintained an insurance policy which indemnifies the Directors and Officers of Mayne Pharma Group Limited in respect of any liability incurred in connection with the performance of their duties as Directors or Officers of the Company, other than for matters involving a wilful breach of duty or a contravention of sections 182 or 183 of the Corporations Act 2001 as permitted by section 199B of the Corporations Act 2001. The Company’s insurers have prohibited disclosure of the amount of the premium payable and the level of indemnification under the insurance contract. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group’s operations are subject to various environmental laws and regulations. These environmental laws and regulations control the use of land, the erection of buildings and structures on land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste, and the investigation and remediation of soil and groundwater contamination. The Group has procedures in place designed to ensure compliance with all environmental regulatory requirements. In particular, it has developed an environmental management system to enable identification and assessment of environmental hazards which arise from its activities. This management system provides processes for effectively managing environmental risks by applying sound practices for the prevention of pollution and disposal and minimisation of waste. The Australian business reports to the National Pollutant Inventory every year its land, air and water emissions together with gas and electricity usage. The Metrics business is subject to compliance inspections by the North Carolina Department of Environment and Natural Resources. The Group has recycling initiatives in place for paper/cardboard, soft plastics, metals, wood, metal, plastic drums, oil and polystyrene. The Directors are not aware of any material breaches of environmental regulations by the Group. ROUNDING The amounts contained in this report and in the financial report have been rounded to the nearest thousand dollars (where rounding is applicable and where noted ($’000) under the option available to the Company under ASIC CO 98/0100. The Company is an entity to which the Class Order applies. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s independence declaration has been received from the Auditor and is included on page 25 of this report.

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REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for the key management personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the Company. 1. KEY MANAGEMENT PERSONNEL DETAILS Non-Executive Directors

Mr Roger Corbett AO – Independent Chairman Hon Ron Best – Independent Non-Executive Director Mr Bruce Mathieson – Independent Non-Executive Director Mr Ian Scholes – Independent Non-Executive Director

Executive Directors:

Mr Scott Richards – Executive Director and Chief Executive Officer Mr Phil Hodges – Executive Director and President of Metrics (appointed 15 November 2012)

Other executive KMPs:

Mr Mark Cansdale – Group CFO and Company Secretary Mr Stefan Cross – Vice President, Business and Corporate Development (appointed 11 December 2012)

In accordance with Accounting Standards, the following are considered former KMPs:

Mr Vince Caretti – General Manager, MPA Operations Mr Peter Truelove – MPA National Sales & Marketing Director Mr Angelo Morella – formerly General Manager, Research & Innovation (ceased employment 6 March 2012) Dr Roger Aston – formerly CEO and Executive Director (ceased employment on 15 February 2012)

The changes to KMP in relation to Messrs Caretti and Truelove arose as a result of the material expansion of the Group’s operations into the United States of America. The roles held by Messrs Caretti and Truelove are focused solely on the Australian operations rather than the broader Group and as such they no longer meet the definition as KMP (effective 14 November 2012). There have been no changes to KMP after the reporting date and before the date the financial report was authorised for issue. 2. REMUNERATION GOVERNANCE The Board of Directors has delegated the responsibility for determining and reviewing compensation arrangements for the Directors, other members of the KMP and the balance of the CEO’s direct reports to the Remuneration and People Committee. The Remuneration and People Committee is made up of three Non-Executive Directors and the CEO attends meetings as required at the invitation of the Committee Chair. The Remuneration and People Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Such officers are paid their base emolument in cash only. To ensure the Remuneration and People Committee is fully informed when making remuneration decisions it will seek advice from the Company’s Director of People and Culture as well as specialist advice from external remuneration consultants. The Remuneration and People Committee sought advice from Sydney-based Egan Associates Pty Ltd (Egan Associates) during the year. The fees paid to Egan Associates for the remuneration advice were $25,000. The Remuneration and People Committee is satisfied that the advice received from Egan Associates was free from undue influence from the KMP to whom the recommendations may relate as Egan Associates were engaged by, and reported directly to, the Chair of the Remuneration and People Committee. Remuneration Report approval at the FY12 Annual General Meeting The FY12 Remuneration Report received positive shareholder support at the FY12 AGM with a vote of 91% in favour. 3. REMUNERATION POLICY In general, the Board links the nature and amount of KMP and other senior executives’ emoluments to the Company’s financial and operational performance. Given the nature of the industry in which the Company operates and the position it is in regarding the on-going development of new products, the review of performance can give regard to elements such as the scientific progress and commercialisation of the Company’s projects, results of trials, progress with the development of relationships with sales and marketing partners, research institutions, and other collaborations. Remuneration paid to the Company’s Directors and executives is also determined with reference to the market level of remuneration for other listed development, pharmaceutical and manufacturing companies in Australia. This assessment is undertaken with reference to published information provided by various executive search firms operating in the sector.

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Fixed remuneration Executive directors and executive officers Fixed remuneration consists of a base remuneration package, which generally includes salary and employer contributions to superannuation funds. Fixed remuneration levels for KMP and other senior executives are reviewed annually by the Board through a process that considers the employees’ personal development, achievement of key performance objectives for the year, industry benchmarks wherever possible and CPI data. Key performance indicators (KPIs) are individually tailored for the Chief Executive Officer by the Board and the other executive members of the KMP by the Chief Executive Officer, and reflect an assessment of how that employee can fulfil their particular responsibilities in a way that best contributes to Group performance and the creation of shareholder value in that year. Non-executive directors Total remuneration for non-executive directors is determined by resolution of shareholders. The maximum available aggregate cash remuneration approved for non-executive directors at the 2010 Annual General Meeting is $500,000. Non-executive directors do not receive retirement benefits other than a superannuation guarantee contribution required by government regulation, which is currently 9.25% of their fees, except where a non-executive director elects to have their directors’ fees paid as contributions to a superannuation fund. Non-executive directors may provide specific consulting advice to the Group upon direction from the Board. Remuneration for this work is made at market rates. No such consulting advice was provided to the Company during the year. Performance-linked remuneration KMP and other senior executives may receive short-term incentives in the form of bonuses and/or share options based on achievement of specific goals related to performance against individual KPIs and to the performance of the Group as a whole as determined by the Directors based on a range of factors. These factors can include traditional financial considerations such as financial operating performance, transactions concluded, increases in the market capitalisation of the Company and successful capital raisings and also industry-specific factors relating to the advancement of the Company’s research and development activities and intellectual property portfolio, operational performance, collaborations and relationships with scientific institutions, third parties and internal employees. These measures are chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long-term value. Refer to the Employment Contracts section of this report for further information. Options over ordinary shares may be awarded to the Chief Executive Officer under the Chief Executive Officer Share Option Plan (CEO SOP) subject to various vesting conditions and under the Employee Share Option Plan (ESOP) to other executives with various vesting conditions such as the individuals’ performance against milestones, the level of involvement in achieving corporate milestones and goals, including, but not limited to, growth in the share price and/or earnings per share. The CEO SOP was structured with advice from Egan Associates. Non-executive directors may also participate in the Company’s ESOP (subject to shareholder approval), given the Company’s size and stage of development and the necessity to attract the highest calibre of professionals to the role, whilst maintaining the Company’s cash reserves. The Non-Executive Directors do not currently hold any options over ordinary shares. The performance of the CEO against the agreed objectives is reviewed by the Chairman on behalf of the Board. The performance of the other KMP and other senior executives is reviewed by the CEO and reported to, and discussed by, the Board. Performance reviews take place shortly after the end of the financial year. Hedging of equity awards The Company prohibits KMP from entering into arrangements to protect the value of unvested equity awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package. 4. ELEMENTS OF KMP REMUNERATION Remuneration packages may contain the following key elements:

Short-term benefit – salary/fees, annual leave, bonuses and other benefits such as novated lease payments; Post-employment benefits – superannuation; Share-based payments – share options granted under the Company’s approved option plans as disclosed in Note 27 to

the financial statements; Long-term benefits – long service leave; and Termination payments

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The following table discloses key management personnel remuneration during the year ended 30 June 2013:

SHORT-TERM BENEFITS

POST-EMPLOYMENT

BENEFITSLONG-TERM

BENEFITS

SHARE- BASED

PAYMENTS

TERMINATION

PAYMENTS

DIRECTORS’ FEES

$ SALARY

$ BONUS1

$

OTHER BENEFITS2

$

SUPER-ANNUATION

$OTHER3

$OPTIONS

$

$ TOTAL

$

PROPORTION RELATED TO

PERFORMANCE%

Non-Executive Directors Mr R Corbett 110,000 - - - 9,900 - - - 119,900 -Hon R Best 51,708 - - - 24,592 - 25,115 - 101,415 24.7Mr B Mathieson 70,000 - - - 6,300 - 25,115 - 101,415 24.7Mr I Scholes 70,000 - - - 6,300 - 25,115 - 101,415 24.7 Executive Directors Mr S Richards - 459,259 85,000 4,840 24,120 3,175 102,817 - 679,211 27.7Mr P Hodges - 207,416 1,462 28,317 - - - - 237,195 - Other KMP Mr M Cansdale - 312,600 85,020 46,799 16,470 3,838 60,897 - 525,624 27.8Mr S Cross4 - 149,344 31,505 - 15,137 - 12,284 - 208,270 21.0Mr V Caretti5 - 78,587 10,730 1,998 6,881 7,160 - - 105,356 10.2Mr P Truelove5 - 76,265 17,677 - 7,642 - - - 101,584 17.4 Total 301,708 1,283,471 231,394 81,954 117,342 14,173 251,343 - 2,281,385

1. Bonuses are accrued when specified personal and/or corporate parameters are met. 2. Other benefits include car lease payments, rental allowances and medical related payments. 3. Other long-term benefits represent accruals for long service leave entitlements that may arise should the relevant key management personnel

meet the eligibility requirements in the future. 4. Mr Cross commenced employment on 11 December 2012. 5. Mr Caretti and Mr Truelove ceased to be classified as KMP upon acquisition of Metrics Inc. and hence their remuneration disclosed is for the

period to 14 November 2012.

The following table discloses key management personnel remuneration during the year ended 30 June 2012:

SHORT-TERM BENEFITS

POST-EMPLOYMENT

BENEFITSLONG-TERM

BENEFITS

SHARE- BASED

PAYMENTS

TERMINATION

PAYMENTS

DIRECTORS’ FEES

$ SALARY

$ BONUS1

$

OTHER BENEFITS2

$

SUPER-ANNUATION

$OTHER3

$

OPTIONS & TESP4

$

$ TOTAL

$

PROPORTION RELATED TO

PERFORMANCE%

Non-Executive Directors Mr R Corbett 110,000 - - - 9,900 - - - 119,900 -Hon R Best 23,162 - - - 53,138 - - - 76,300 -Mr B Mathieson 70,000 - - - 6,300 - - - 76,300 -Mr I Scholes 70,000 - - - 6,300 - - - 76,300 -

Non-Executive Directors Mr S Richards5 - 150,396 - 10,133 6,047 - 69,473 - 236,049 29.4Dr R Aston6 - 349,281 - 14,256 29,400 - - 580,875 973,812 - Other KMP Mr M Cansdale7 - 289,966 69,488 39,225 15,775 1,725 57,893 - 474,072 26.7Mr V Caretti - 176,122 28,614 444 26,248 6,587 1,000 - 239,015 12.0Mr P Truelove8 - 23,513 - - 1,948 - - - 25,461 -Dr A Morella9 - 110,053 - - 17,044 3,132 1,000 195,918 327,147 - Total 273,162 1,099,331 98,102 64,058 172,100 11,444 129,366 776,793 2,624,356

1. Bonuses are accrued when specified personal and/or corporate parameters are met. 2. Other benefits include car lease payments and rental allowances. 3. Other long-term benefits represent accruals for long service leave entitlements that may arise should the relevant key management personnel

meet the eligibility requirements in the future. 4. 2,564 shares valued at $1000 issued under the Mayne Pharma Group Ltd Tax Exempt Share Plan (TESP), trading restricted until 18 October

2014, entitlement stays at cessation of employment. 5. Mr Richards commenced employment on 13 February 2012. 6. Dr R Aston ceased employment 15 February 2012. 7. Mr M Cansdale’s bonus provision was accounted for as 80% in cash and 20% in shares. 8. Mr P Truelove commenced employment on 21 May 2012. 9. Dr A Morella ceased employment on 6 March 2012.

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5. VALUE OF OPTIONS ISSUED TO KEY MANAGEMENT PERSONNEL The following table discloses the options granted, exercised and lapsed during the year:

OPTIONS GRANTED OPTIONS

EXERCISED OPTIONS LAPSED

VALUE OF CHANGES TO

OPTIONS REMUNERATION

VALUE AT GRANT DATE

$

INTRINSIC VALUE AT EXERCISE

DATE$

NUMBERVALUE AT TIME OF

LAPSE$

TOTAL VALUE OF OPTIONS

GRANTED, EXERCISED AND

LAPSED $

VALUE OF OPTIONS INCLUDED IN

REMUNERATION FOR THE YEAR

$

30 June 2013 Mr R Corbett - - - - - -Mr S Richards 1, 3 - - - - - 102,817Hon R Best 1, 2 - 46,970 - - 46,970 25,115Mr B Mathieson 1, 2 - 46,970 - - 46,970 25,115Mr I Scholes 1, 2 - 46,970 250,0004 - 46,970 25,115Mr P Hodges - - - - - -Mr M Cansdale - - - - - 60,897Mr S Cross 101,600 - - - 101,600 12,284

Total 101,600 140,910 250,000 - 242,510 251,343

1. As a result of the underwritten pro-rata accelerated non-renounceable entitlement offer announced on 4 October 2012 to part-fund the Metrics acquisition, the exercise price of unquoted options issued to certain directors was reduced by $0.0842 on 17 December 2012 in accordance with ASX Listing Rule 6.22.

2. The fair value of the non-executive director’s options prior to the revaluation was $0.0226 per option and it was $0.0995 per option after revaluation. The revaluation occurred 1 November 2012 and the share price was $0.27 on that date. The non-executive director options had an expiry date of 31 December 2012 and were exercised prior to the expiry date.

3. The fair value of options prior to revaluation were Tranche one $0.13, Tranche two $0.13 and Tranche three $0.12. The fair values after revaluation were Tranche one $0.045, Tranche two $0.035 and Tranche three $0.024. The options expiry date is 13/02/2019. The exercise price was $0.345 before revaluation and $0.2608 after revaluation.

4. Options with an exercise price of $0.60 lapsed as the share price was $0.30 and therefore the intrinsic value was nil.

The options issued during the year to Mr S. Cross were issued on the following terms:

OPTIONS GRANTED 25 JANUARY 2013

TRANCHE 1 TRANCHE 2 TRANCHE 3

Number of options over shares 200,000

300,000 500,000Monte Carlo Simulation model fair value $0.115 $0.107 $0.093Share price at grant date $0.355 $0.355 $0.355Exercise price $0.33 $0.33 $0.33Expiry date 26/1/19 26/1/19 26/1/19

Options vest if the volume weighted average share price is greater than AUD0.60 as of 26/1/15

- -

Options vest if the volume weighted average share price is greater than AUD0.80 as of -

25/1/16 -

Options vest if the volume weighted average share price is greater than AUD1.00 as of -

- 25/1/17

Vesting date is 21 business days after - 26/1/15 26/1/16 25/1/17 Any options which remain unvested as of 21 business days after 25 January 2017 will lapse. The options may not be exercised unless Mr Cross is and has been at all times since the period between the Grant date and the date the options vest, employed by Mayne Pharma. Subject to conditions of the plan, all unvested options as of termination of employment will lapse and all vested options will lapse 31 business days following termination. F

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The following table discloses the options granted, exercised and lapsed during the 2012 financial year:

OPTIONS GRANTED OPTIONS

EXERCISED OPTIONS LAPSED

VALUE AT GRANT DATE

$

INTRINSIC VALUE AT EXERCISE

DATE$

NUMBERVALUE AT TIME OF

LAPSE$

TOTAL VALUE OF OPTIONS

GRANTED, EXERCISED AND

LAPSED $

VALUE OF OPTIONS INCLUDED IN

REMUNERATION FOR THE YEAR

$

30 June 2012 Mr R Corbett - - - - - -Mr S Richards1 940,0003 - - - 940,000 69,473Hon R Best - - - - - -Mr B Mathieson2 - - 250,000 - - -Mr I Scholes - - - - - -Mr M Cansdale3 152,994 - - - 152,994 56,893Mr V Caretti - - - - - -Dr R Aston4 - - 625,000 - - -Mr P Truelove - - - - - -Dr A Morella - - - - - -

Total 1,092,994 - 875,000 - 1,092,994 126,366

1. Percentage of remuneration for the year that consists of options was 29.4% 2. Options with an exercise price of $0.60 that lapsed when the share price was $0.29 and therefore the intrinsic value was nil. 3. Percentage of remuneration for the year that consists of options was 25.2%

6. OPTIONS GRANTED SUBSEQUENT TO REPORTING DATE No options were issued to KMP subsequent to report date. 7. SHARES ISSUED ON EXERCISE OF OPTIONS BY KMP

SHARES ISSUED

NUMBERPAID PER SHARE

$ UNPAID PER SHARE

$

30 June 2013 Hon R Best 350,000 0.1858 -Mr B Mathieson 350,000 0.1858 -Mr I Scholes 350,000 0.1858 -

Total 1,050,000 -

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8. EMPLOYMENT CONTRACTS Remuneration and other key terms of employment for the Chief Executive Officer, Group Chief Financial Officer and the other KMP are formalised in service agreements. The service agreements specify the components of remuneration, benefits, notice periods and termination provisions.

The table below provides details on the executive KMP service agreements:

NAME TERM OF AGREEMENT

BASE SALARY INCLUDING

SUPERANNUATION1 NOTICE PERIOD INCENTIVE ARRANGEMENTS TERMINATION BENEFITS

Mr S Richards Chief Executive Officer

On-going commencing 13 February 2012

$500,000 12 months STI @ 20% of package; plus entitlement to participate in LTI option plan

Nil if for serious mis-conduct. Otherwise, up to 12 months’ pay in lieu of notice. If employment is terminated within six months of a change of control, entitled to a payment equal to 12 months’ pay.

Mr P Hodges President of Metrics, Inc.

Fixed term of 14 November 2012 to 31 December 20132

US$350,0003 6 months STI for the period ended 31 December 2013 based on achievement of non-financial goals (up to US$30,000) and financial goals (up to US$45,000) plus 5% of incremental EBITDA above an agreed target.

Nil if for serious mis-conduct. Otherwise, payment of health plan premiums to 31 December 2013, plus on-going salary that would have otherwise been earned to 31 December 2013.

Mr M Cansdale Group CFO & Company Secretary

On-going commencing 27 January 2011


Nil if for serious mis-conduct. Otherwise, up to 3 months’ pay in lieu of notice.

Mr S Cross VP, Business & Corporate Development

On-going commencing 11 December 2012


Nil if for serious mis-conduct. Otherwise, up to 6 months’ pay in lieu of notice.

1. Base salaries quoted are for a 12 month period and are current for the year ended 30 June 2013 and are reviewed annually by the Remuneration

and People Committee. 2. Could be extended by mutual agreement if notice of this intention was given by 30 June 2013 – this did not occur. 3. Mr Hodges contract also provides for the provision of a fully maintained vehicle to the value of US$60,000.

9. GROUP PERFORMANCE In considering the Group’s performance and its effect on shareholder wealth, the Board has regard to a broad range of factors, primarily related to financial and operational performance, the scientific progress and commercialisation of the Company’s projects, results of trials, relationship building with sales and marketing partners, research institutions, and collaborations. As part of the Board’s commitment to align remuneration with Company performance, employee performance is reviewed annually against agreed performance objectives set prior to the commencement of the financial year. The Company’s performance review system involves employees completing a self-assessment template, as well as their manager completing an assessment document. These written assessments form the basis of a performance review discussion between the employee and their manager. The Board (through the Remuneration and People Committee) agrees objectives for the evaluation of the CEO. The performance of the CEO against the agreed objectives is reviewed by the Chairman on behalf of the Board. The performance of the other KMP and other senior executives is reviewed by the CEO and reported to, and discussed by, the Board. Performance reviews take place shortly after the end of the financial year. During the 2013 financial year, the Company implemented a broader based long-term incentive (LTI) plan for senior management. This plan places a greater percentage of remuneration at risk and more closely aligns employee remuneration with the earnings growth of the Company. The LTI plan was rolled out to 68 senior managers in Australia and the US and vesting is subject to the achievement of service conditions and share price hurdles ranging from $0.60 to $1.00. The following table outlines Mayne Pharma Group Limited’s results over the last five years to 30 June 2013:

2013 2012 2011 2010 2009

Total revenue ($000) 84,071 52,546 50,101 36,713 -NPAT ($000) (2,843) 6,153 1,679 3,253 (3,761)Basic EPS (cents) (0.70) 4.05 1.12 2.64 (4.94)Dividends per share (cents) - - 1.0 2.0 -

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CORPORATE GOVERNANCE STATEMENT The Board of Directors of Mayne Pharma Group Limited is responsible for the corporate governance of the Group and is committed to applying the ASX Corporate Governance Council Corporate Governance Principles and Recommendations (“ASX Principles”) where practicable. The Board guides and monitors the business and affairs of the Group on behalf of the shareholders. It is a requirement of the Board that the Company maintains high standards of ethics and integrity at all times. The ASX Principles are an important regulatory guide for listed companies reporting on their corporate governance practices. Under ASX Listing Rule 4.10.3, listed companies must disclose the extent to which they have followed the ASX Principles, and if any of the recommendations have not been followed then the Company must explain why. The Board believes that the Company’s policies and practices comply in all substantial respects with the ASX Principles. 1. CORPORATE GOVERNANCE WEBSITE

Important information relating to the Company’s corporate governance policies and practices are set out on the Company’s website at www.maynepharma.com. The following documents are available on this website:

Board Charter; Audit Committee, Remuneration and People Committee and Nomination Committee Charters; Code of Conduct; Communications Policy; Continuous Disclosure Policy, and Securities Trading Policy.

The corporate governance section of Mayne Pharma’s website was first made available from 27 June 2007 and the documents referred to above were available from that date. The Company will continue to update its policies and practices to reflect developing corporate governance requirements and practices.

2. ROLE AND RESPONSIBILITY OF THE BOARD 2.1 The Board’s duties

As the Board acts on behalf of and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations and strives to meet those expectations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The role of the Board is to oversee and guide the management of the Group with the aim of protecting and enhancing the interests of its shareholders and taking into account the interests of other stakeholders including employees and the wider community. The Board has adopted a formal Charter that clearly establishes the relationship between the Board and management and describes their functions and responsibilities. The Charter was last reviewed on 30 July 2013. The Board Charter has been posted on the corporate governance section of the Company’s website. The Board is responsible for setting the strategic direction of the Group, establishing goals for management and monitoring the achievement of those goals. The Chief Executive Officer is responsible to the Board for the day-to-day management of the Group. The Board ensures that the Chief Executive Officer is appropriately qualified and experienced to discharge his responsibilities and has procedures in place to assess the performance of the Chief Executive Officer.

2.2 Code of Conduct

Directors of the Company are also subject to Mayne Pharma’s Code of Conduct (see further discussion below in the Conduct and Ethics section). The Code of Conduct is considered by the Board to be an effective way to guide the behaviour of all directors and employees and demonstrates the Company’s commitment to ethical and compliant practices.

3. BOARD COMPOSITION

The composition of the Board is determined in accordance with the following principles and guidelines:

the Board should comprise at least three directors; the Board should comprise directors with an appropriate range of qualifications and expertise; and the Board shall meet regularly and follow meeting guidelines set down to ensure all directors are made aware of, and have

available all necessary information, to participate in an informed discussion of all agenda items. As at the date of this report, the Board comprises three non-executive independent directors, an independent non-executive Chairman and two executive directors. Details of the Directors are set out in the Directors’ Report. In making recommendations to the Board regarding the appointment of directors, the Nomination Committee periodically assesses the appropriate mix of skills, experience and expertise required by the Board and the extent to which the required skills and experience are represented on the Board. The committee also takes account of other factors such as diversity and cultural fit. The identification of a potential director may be assisted by the use of external search organisations and detailed background information in relation to the potential candidate is provided to all directors prior to any decisions being made. Nominations for appointment are then approved by the Board as a whole.

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3.1 Independence of directors The Board has reviewed the position and associations of each of the six Directors in office at the date of this report and considers that four of the Directors are independent. In considering whether a director is independent, the Board has regard to the independence criteria in ASX Corporate Governance Principle 2 and other facts, information and circumstances that the Board considers relevant. The Board assesses the independence of new directors upon appointment and reviews their independence, and the independence of other directors, as appropriate. The Board considers that Messrs Corbett, Best, Mathieson and Scholes meet the criteria in Principle 2. They have no material business or contractual relationship with the Company, other than as a director, and no conflicts of interest that could interfere with the exercise of independent judgement. Mr Richards and Mr Hodges are employed in an executive capacity by the Company and so are not considered to be independent. The Directors will continue to monitor the composition of the Board to ensure its structure remains appropriate and consistent with effective management and good governance.

4. APPOINTMENT, ELECTION AND RE-ELECTION OF DIRECTORS The Constitution of the Company requires one third of the directors, other than Executive Directors, to retire from office at each Annual General Meeting. Directors who have been appointed by the Board during the year are required to retire from office at the next Annual General Meeting and are not taken into account in determining the number of directors to retire at that Annual General Meeting. Directors cannot hold office for a period in excess of three years or later than the third Annual General Meeting following their appointment without submitting themselves for re-election. Retiring directors are eligible for re-election by shareholders.

5. NOMINATION AND APPOINTMENT OF NEW DIRECTORS Recommendations of candidates for new directors are made by the Directors for consideration by the Board as a whole. If it is necessary to appoint a new director to fill a vacancy on the Board or to complement the existing Board, a wide potential base of possible candidates is considered. If a candidate is recommended by a director, the Board assesses that proposed new director against a range of criteria including background, experience, professional skills, personal qualities, the potential for the candidate’s skills to augment the existing Board and the candidate’s availability to commit to the Board’s activities. If these criteria are met and the Board appoints the candidate as a director, that director must retire at the next Annual General Meeting of Shareholders and will be eligible for election by shareholders at that General Meeting.

6. BOARD MEETINGS The Board meets formally at least ten times each year, and from time to time meetings are convened outside the scheduled dates to consider matters of importance. The Board met 16 times between 1 July 2012 and 30 June 2013. The Directors’ attendance at Board meetings is detailed on page 7 of this annual report. The agenda for meetings is prepared by the Company Secretary, in conjunction with the Chairman, Chief Executive Officer, and periodic input from the Board. Comprehensive Board papers are distributed to directors in advance of scheduled meetings. Board meetings typically take place at the Company’s head office and manufacturing facility based in Salisbury, South Australia but have also taken place at the Company’s registered office in Melbourne and at the Metrics facility in North Carolina, USA. The Non-Executive Directors also meet regularly without management (including Executive Directors) present.

7. PERFORMANCE REVIEW The Chairman evaluates the performance of the Board as a whole and the individual Directors. The performance evaluation includes an examination of the performance of the Board and individual Directors as against the Board Charter. The evaluation may establish goals and objectives for the Board and provide any recommendations for improvement to Board performance. The Chairman undertook the performance appraisal of the Board with respect to the financial year ended 30 June 2013 in August 2013. The Board aims to ensure that shareholders are informed of all information necessary to assess the performance of the Directors. Information is communicated to the shareholders through:

the annual report; the half-yearly report; the annual general meeting and other meetings to obtain shareholder approval for Board actions as appropriate; and continuous disclosure in accordance with ASX Listing Rule 3.1 and the Company’s Continuous Disclosure Policy.

8. BOARD MEMBERS’ RIGHTS TO INDEPENDENT ADVICE

The Board has procedures to allow Directors, in the furtherance of their duties as directors or members of a Committee, to seek independent professional advice at the Company’s expense, subject to the prior written approval of the Chairman.

9. BOARD COMMITTEES

The Board has established the following committees to advise and support the Board in carrying out its duties:

Audit Committee; Nomination Committee; and Remuneration and People Committee.

Directors’ attendance at meetings of these committees is detailed on page 7 of this annual report.

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9.1 Audit Committee

It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company, including internal controls to deal with both the effectiveness and efficiency of significant business processes. Effective internal controls include the safeguarding of assets, the maintenance of proper accounting records, managing and mitigating business risks and the reliability of financial information. The Board has established an Audit Committee, which operates under a Charter approved by the Board, and has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Company to the Audit Committee. The Charter was last reviewed and approved by the Board on 30 July 2013. The duties and responsibilities of the Audit Committee include:

ensuring appropriate accounting policies and procedures are defined, adopted and maintained; ensuring that the operating and management reporting procedures, and the system of internal control, are of a

sufficiently high standard to provide timely, accurate and relevant information as a sound basis for management of the Group’s business;

reviewing the Financial Statements prior to their presentation to the Board; reviewing the scope of work including approval of strategic and annual audit plans and effectiveness of the external

audit function; ensuring that appropriate processes are in place to ensure compliance with all legal requirements affecting the Group; ensuring that all internal and industry codes of conduct and standards of corporate behaviour are being complied with; appointing a person(s) responsible for Internal Audit functions as specified from time to time by, and in accordance with,

the Committee’s Charter; making recommendations to the Board of Directors on the appointment, reappointment or replacement (subject, if

applicable, to shareholder ratification) of the external auditors and monitoring the effectiveness, and independence of the external auditors;

approving and monitoring the Company’s risk management strategy; review and recommendation of policies and procedures for managing and mitigating risks across the Company; regular review of the Company’s Risk Management Framework and Risk Register; and actioning any other business processes or functions which may be referred to it by the Board of Directors.

The operation and responsibilities of the Audit Committee are consistent with ASX Principle 4. The Committee met seven times during the financial year ended 30 June 2013. The members of the Audit Committee at the date of this report were:

Mr I Scholes – Chairman; Hon R Best; and Mr B Mathieson.

In addition to the members of the Committee, the Group CFO attends the Audit Committee meetings and representatives of the external auditors are invited to attend when appropriate.

9.2 Appointment of external auditors The Audit Committee is directly responsible for the appointment, reappointment or replacement (subject, if applicable, to shareholder ratification), remuneration, monitoring of effectiveness, and independence of the external auditors, including resolution of disagreements between management and the auditor regarding financial reporting. The Committee must approve all audit and non-audit services provided by the external auditors and must not engage the external auditors to perform any non-audit/assurance services that may impair or appear to impair the external auditor’s judgement or independence in respect of the Company. The Committee may delegate the approval authority to a member of the Committee. The decisions of any Audit Committee member to whom the approval authority is delegated must be presented to the full Committee at its next scheduled meeting. When reviewing the auditor’s independence, the Committee will require the rotation of the audit partner at least once every five years, in accordance with the Corporations Act 2001.

9.3 Nomination Committee The Board has established a Nomination Committee to assist the Board in selecting candidates for the position of director. The members of the Nomination Committee at the date of this report were:

Hon R Best – Chairman; Mr R Corbett; and Mr B Mathieson.

The primary purpose of the Nomination Committee as set out in its Charter is to support and advise the Board in fulfilling their responsibilities to shareholders in ensuring that the Board is comprised of individuals who are best able to discharge the responsibilities of directors having regard to the law and standards of governance by:

assessing the skills required on the Board, and the extent to which the required skills are represented on the Board; establishing processes for the review of the performance of individual directors and the Board as a whole; and establishing processes for the identification of suitable candidates for appointment to the Board.

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The Charter was last reviewed and approved by the Board on 30 July 2013. The operation and responsibilities of the Nomination Committee are consistent with ASX Principle 2. The Committee did not formally meet during the financial year ended 30 June 2013. The appointment of Mr Hodges to the Board was discussed and agreed by the full Board during its deliberations in relation to the acquisition of Metrics.

9.4 Remuneration and People Committee The Board has established a Remuneration and People Committee to assist the Board in ensuring that appropriate and effective remuneration and other people-related policies are in place that supports the Company’s strategy and objectives and to review these on behalf of the Board. The Remuneration and People Committee shall comprise at least three members and the members of the Remuneration Committee at the date of this report were:

Mr R Corbett – Chairman; Mr B Mathieson; and Mr I Scholes.

The duties and responsibilities of the Remuneration and People Committee are set out in its Charter which was last reviewed and approved by the Board on 27 August 2013. The key duties and responsibilities are:

to review and recommend to the Board, remuneration policies and packages for the Chief Executive Officer, executive directors and direct reports to the Chief Executive Officer;

to recommend to the Board any changes in remuneration policy including superannuation, other benefits and remuneration structure for executives and which is likely to have a material impact on the Company;

to review and recommend to the Board proposals for employee equity plans; to review and recommend to the Board proposals for short- and long-term incentive programs for executives; to review and recommend to the Board any changes to non-executive directors’ fees; to ensure there is a proper performance management process in place throughout the organisation and that it is

operating effectively; and to be informed of:

- current trends in executive remuneration and associated incentive initiatives; - legislative issues associated with executive remuneration programs.

The Committee met once during the financial year ended 30 June 2013.

9.5 Remuneration for Directors and executives A brief discussion on the Company’s remuneration policies in respect of directors and executives is set out on pages 18 to 19 of this annual report. Detailed disclosure of the remuneration paid to the Company’s directors and executives is set out on pages 20 to 23.

10. INTEGRITY IN FINANCIAL REPORTING Consistent with ASX Principle 7.3, the Company’s financial report preparation and approval process for the financial year ended 30 June 2013 involved both the Chief Executive Officer and the Group CFO providing detailed representations to the Board covering:

compliance with the Company’s accounting policies and relevant accounting standards; the accuracy of the financial statements and that they provide a true and fair view; integrity and objectivity of the financial statements; and the effectiveness of the system of internal control.

11. RISK IDENTIFICATION AND MANAGEMENT

The Board accepts that taking and managing risk is central to building shareholder value and the Board is responsible for the Group’s risk management strategy. Management is responsible for implementing the Board’s strategy and for developing policies and procedures to assist the Board to identify, manage and mitigate the risks across the Group’s operations. The Company employs executives and retains consultants each with the requisite experience and qualifications to enable the Board to manage the risks to the Company. The Board has requested the Audit Committee oversee the Group’s risk management processes and procedures. The Group’s identification and management of business risks is set out in a Risk Management Framework. The Framework is based on AS/NZS ISO 31000:2009 and captures all of the risks that Management consider are faced by the Group; the likelihood, consequence and potential impact if the risk were to eventuate and the residual risk faced by the Group given the existence of appropriate controls. The Company is in the process of updating the risk register following the Metrics acquisition on 14 November 2012. The risks faced by the Company are diverse and vary significantly in terms of the likelihood of the event occurring and the consequence of such an event. Each specific risk is allocated to a member of the Executive Team and managed through day-to-day operations and compliance with a comprehensive set of Standard Operating Procedures. The register is updated by the Executive Team as required, and at least quarterly, and regularly reviewed by the Audit Committee. Following the most recent review of the register, Management and the Board believe that the Company’s management of the material risks faced by the Company is effective. A summary of the revised Risk Management Framework is disclosed on the Company’s website in accordance with ASX Principle 7.1.

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12. SECURITIES TRADING BY DIRECTORS AND EMPLOYEES

The Board reviewed and approved the Company’s Securities Trading Policy on 30 July 2013. The policy summarises the law relating to insider trading and sets out the policy of the Company on directors, officers, employees and consultants dealing in securities of the Company. The policy is reviewed regularly and a summary of the Securities Trading Policy can be accessed on the corporate governance section of the Company’s website at www.maynepharma.com. This policy is provided to all directors and employees and compliance with it is reviewed on an ongoing basis in accordance with the Company’s risk management systems.

13. CONTINUOUS DISCLOSURE The Company has established policies and procedures in order to comply with its continuous and periodic disclosure requirements under the Corporations Act 2001 (Commonwealth) and the ASX Listing Rules. The Board has adopted a formal Continuous Disclosure Policy, a summary of which is available from the corporate governance section of the Company’s website at www.maynepharma.com. The Continuous Disclosure Policy was last reviewed by the Board on 30 July 2013. The Company Secretary has primary responsibility for the disclosure of material information to ASIC and ASX and maintains a procedural methodology for disclosure, as well as for record keeping. The Company’s Continuous Disclosure Policy requires all management to notify the Chief Executive Officer, or the Company Secretary in his absence, of any potentially material information as soon as practicable. The Policy also sets out what renders information material. The Board reviews the Company’s compliance with this policy on an ongoing basis and will update it from time to time, if necessary.

14. SHAREHOLDER COMMUNICATIONS The Board’s formal policy on communicating with shareholders, its Communications Policy, is available from the corporate governance section of the Company’s website and supplements the Company’s Continuous Disclosure Policy. The aim of the Communications Policy is to make known Mayne Pharma’s methods for disclosure to shareholders and the general public. The Policy details the steps between disclosure to ASIC and ASX and communication to shareholders, with the Company’s website playing an important role in Mayne Pharma’s communications strategy. The Board reviews this policy and compliance with it on an ongoing basis. The policy was last reviewed on 30 July 2013.

15. CONDUCT AND ETHICS

The Mayne Pharma Code of Conduct was last reviewed on 27 August 2013. The Code covers a broad range of issues and refers to those practices necessary to maintain confidence in the Company’s integrity, including procedures in relation to:

compliance with the law; business and financial records; occupational health and safety; conduct within and outside the workplace; confidentiality and use of information; conflict of interest; equal opportunity; whistle-blowing; and bribery and corruption.

The Code directs individuals to report any contraventions of the Code to their superior or the Chief Executive Officer.

16. DIVERSITY

The Board recognises that a diverse and inclusive workforce is not only good for our employees but also good for business. Diversity enables the Group to attract and retain talented people, create more innovative solutions, and be more flexible and responsive to our customers’ and shareholders’ needs. The Board approved a diversity policy on 21 August 2012. This diversity policy provides a framework that helps Mayne Pharma to achieve the following:

access to the broadest pool of available talent; a welcoming workforce culture that embraces diversity at all levels; recruitment practices that ensure a fair and equitable selection process at all levels and where candidates are assessed on

the basis of skills and capabilities; improved employee motivation and engagement; and enhanced teamwork and innovative solutions.

During the year the Company has made good progress in increasing female participation at the senior executive level. Ms Kate Rintoul was appointed as Vice President, General Counsel and Ms Leigh Willis was appointed as Vice President, Quality. Both are senior executives and members of the Australian Executive Committee.

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Below is a summary of the gender composition of the organisation:

FEMALE PARTICIPATION 2013 2012

Company 40% 36%Senior Executives 27% 11%Board 0% 0%

The Group’s approach to diversity is underpinned by practical objectives to ensure that all of its employees have equal opportunity to demonstrate their talents, commitment and results. The Company will measure its progress against these objectives and report to the Board annually. Diversity Statistics1

OBJECTIVE MEASUREMENT FY13 PERFORMANCE

Improve support for pregnancy and maternity leave Programs are implemented that provide better support for pregnant women in the workplace and for women returning from maternity leave

Target a return to work following pregnancy ratio of 75%

The percentage of women who returned to work was 100%

Flexible working arrangements Flexible working initiatives are supported by management and where appropriate, made available to employees to achieve improved business outcomes and support work/life balance

Requests for flexible working arrangements

Annual feedback to CEO on requests for flexible working arrangements and their usage and effectiveness. 100% of flexible work arrangements were approved during 2013.

Equal opportunity employer Ensure our recruitment practices are fair and equitable at all levels and candidates are assessed on the basis of their skills and capabilities

Management review annually the recruitment and selection policy and procedures to ensure recruitment practices are fair and equitable

All members of the management team believe that Mayne Pharma exemplifies an equal opportunity culture

Development of high potential women High potential women are identified and developed for career progression

Develop a program to identify high potential women within Mayne Pharma

Planning has commenced towards implementing this program in FY14

1. Measurable objectives exclude Metrics, which was acquired during the 2013 financial year.

17. ASX CORPORATE GOVERNANCE COUNCIL’S CORPORATE GOVERNANCE PRINCIPLES AND

RECOMMENDATIONS

ASX PRINICPLE REFERENCE1 COMPLAINCE

Principle 1 Lay solid foundations for management and oversight 1.1 Companies should establish the functions reserved to the board and

those delegated to senior executives and disclose those functions. 2 Comply

1.2 Companies should disclose the process for evaluating the performance of senior executives.

Remuneration Report Comply

1.3 Companies should provide the information indicated in the Guide to Reporting on Principle 1.

2 Comply

Principle 2 Structure the board to add value 2.1 A majority of the board should be independent directors. 3 Comply 2.2 The chair should be an independent director. 3 Comply 2.3 The roles of chair and chief executive officer should not be exercised

by the same individual. 3 Comply

2.4 The board should establish a nomination committee. 9.3 Comply 2.5 Companies should disclose the process for evaluating the

performance of the board, its committees and individual directors. 7 Comply


2, 3, 4, 5, 7, 8, Board Members (page 15) Directors’ Report

Comply

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Principle 3 Promote ethical and responsible decision making 3.1 Companies should establish a code of conduct and disclose the

code or a summary of the code as to: The practices necessary to maintain confidence in the company’s integrity.

The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders.

The responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

15 Comply

3.2 Companies should establish a policy concerning diversity and disclose the policy or summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them.

16 Comply

3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

16 Comply

3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.

16 Comply


15, 16 Comply

Principle 4 Safeguard integrity in financial reporting 4.1 The board should establish an audit committee. 9 Comply 4.2 The audit committee should be structured so that it:

consists only of non-executive directors. consists of a majority of independent directors. is chaired by an independent chair, who is not chair of the board and has at least three members.

9 Comply

4.3 The audit committee should have a formal charter. 9 Comply 4.4 Companies should provide the information indicated in Guide to

Reporting on Principle 4. 9 Comply

Principle 5 Make timely and balanced disclosure 5.1 Companies should establish written policies and procedures

designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.

13 Comply


13 Comply

Principle 6 Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting

effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

14 Comply


14 Comply

Principle 7 Recognise and manage risk 7.1 Companies should establish policies for the oversight and

management of material business risks and disclose a summary of those policies.

11 Comply

7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

11 Comply

7.3 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

10 Comply


11 Comply

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Principle 8 Remunerate fairly and responsibly 8.1 The board should establish a remuneration committee. 9 Comply 8.2 The remuneration committee should be structured so that it:

consists of a majority of independent directors is chaired by an independent chair has at least three members

9 Comply

8.3 Companies should clearly distinguish the structure of nonexecutive directors’ remuneration from that of executive directors and senior executives.

3, Remuneration Report Comply


3, Remuneration Report Comply

1. All references are to sections of this Corporate Governance Statement unless otherwise stated

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2013

CONSOLIDATED

NOTE2013 $’000

2012$’000

Continuing operations Sale of goods 56,448 39,014Services revenue 25,814 11,422Royalties revenue 1,169 1,468Other revenue 4 640 642

Revenue 84,071 52,546Cost of sales (44,441) (29,342)

Gross profit 39,630 23,204 Research and development expenses (3,985) (4,018)Distribution expenses (1,802) (613)Marketing expenses (2,618) (675)Regulatory affairs expenses (1,030) (872)Share-based payments (707) (272)Amortisation expenses (3,698) (3,808)Administration expenses (14,373) (6,985)Finance costs 6 (2,306) (28)Other expenses (216) -Fair value movement in earn-out liability 5 (5,151) 2,850Acquisition costs 6 (4,422) -Restructure and redundancy costs (25) (851)Impairment of customer relationship intangible asset - (181)

(Loss)/Profit before income tax (703) 7,751Income tax expense 8 (2,140) (1,598)

Net (loss)/profit from continuing operations after income tax (2,843) 6,153 Other comprehensive income for the period, net of tax

Items that may be reclassified to profit or loss Exchange differences on translation

6,843 -

Income tax effect - -

Total comprehensive income for the period attributable to owners of the parent 4,000 6,153

Earnings per share for profit attributable to the ordinary equity holders of the parent:

Basic earnings per share 9 (0.70) cents 4.05 centsDiluted earnings per share 9 (0.70) cents 4.02 cents

Note: Includes the results of Metrics, Inc for the period 14 November 2012 to 30 June 2013. This statement is to be read in conjunction with the accompanying notes.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2013

CONSOLIDATED

NOTE

2013 $’000

2012$’000

Current assets Cash and cash equivalents 24 18,938 11,596Trade and other receivables 10 24,622 3,821Inventories 11 13,593 7,244Income tax receivable 1,596 -Other financial assets 12 1,825 -Other current assets 13 1,335 594

Total current assets 61,909 23,255 Non-current assets Property, plant and equipment 14 55,036 22,224Deferred tax assets 8 976 530Intangible assets and goodwill 15 115,470 4,194

Total non-current assets 171,482 26,948Total assets 233,391 50,203 Current liabilities Trade and other payables 16 10,504 4,234Interest-bearing loans and borrowings 17 7,471 -Income tax payable - 1,456Other financial liabilities 18 18,346 2,782Provisions 19 5,790 3,832

Total current liabilities 42,111 12,304 Non-current liabilities Interest-bearing loans and borrowings 17 39,227 -Other financial liabilities 18 9,842 6,549Deferred tax liabilities 8 20,570 -Provisions 19 752 750

Total non-current liabilities 70,391 7,299Total liabilities 112,502 19,603Net assets 120,889 30,600

Equity Contributed equity 20 118,302 32,016Reserves 21 7,461 1,087Accumulated losses 22 (4,874) (2,503)

Total equity 120,889 30,600

This statement is to be read in conjunction with the accompanying notes. F

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CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2013

CONSOLIDATED

NOTE 2013 $’000

2012$’000

Cash flows from operating activities Receipts from customers 81,674 56,464Payments for research and non capitalised development expenditure (3,399) (4,018)Payments to suppliers and employees (63,434) (40,009)Interest received 394 181Interest paid (1,979) (8)Tax paid (3,874) -Tax received 1,885 777

Net operating cash flows before transaction costs 11,267 13,387Transaction costs (4,422) -Net cash flows from operating activities 24 6,845 13,387

Cash flows from investing activities Payments for property, plant and equipment (3,151) (2,547)Payments for intangible assets (10,445) -Acquisition of subsidiary (103,145) -Payments for capitalised development costs (7,463) -Payment of earn-out instalment (1,340) (2,881)

Net cash flows used in investing activities (125,544) (5,428) Cash flows from financing activities Proceeds from issues of shares 89,577 -Transaction costs on issue of shares (3,995) -Repayment of borrowings (1,084) (2,315)Proceeds from borrowings (net of fees) 41,685 -Proceeds from the acquisition process to be refunded 2,298` -Proceeds from the acquisition process refunded (2,298) -

Net cash flows from/(used in) financing activities 126,183 (2,315)

Net increase in cash and cash equivalents 7,484 5,644Cash and cash equivalents at the beginning of the period 11,596 5,807Effect of exchange rate fluctuations on cash held 1,048 145

Cash at the end of the period 20,128 11,596Less restricted cash 12 (1,190) -Cash at the end of the period (unrestricted) 24 18,938 11,596

Note: Includes the cash flows of Metrics, Inc for the period 14 November 2012 to 30 June 2013.

This statement is to be read in conjunction with the accompanying notes.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2013

CONTRIBUTED EQUITY

PAID UP CAPITAL

ISSUED CAPITAL ON

OPTIONS EXERCISED

SHARE-BASED

PAYMENTS RESERVE

FOREIGN CURRENCY

TRANSLATION RESERVE

ACCUMULATED LOSSES

TOTAL EQUITY

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2012 31,072 944 1,087 - (2,503) 30,600 Loss for the period - - - - (2,843) (2,843) Other comprehensive income Foreign exchange differences - - - 6,843 - 6,843

Total comprehensive income for the period -

- -

6,843 (2,843) 4,000

Transactions with owners in their

capacity as owners

Shares issued 89,577 - - - - 89,577 Share issue costs (3,995) - - - - (3,995) Share-based payments - - 707 - - 707 Share options exercised - 704 (704) - - - Lapsed / expired options reclassified

to retained earnings - - (472) - 472 -

Balance at 30 June 2013 116,654 1,648 618 6,843 (4,874) 120,889

Balance at 1 July 2011 30,926 944 960 - (8,656) 24,174 Profit for the period - - - - 6,153 6,153 Other comprehensive income - - - - - -

Total comprehensive income for the period -

- -

- 6,153 6,153

Transactions with owners in their

capacity as owners

Shares issued 146 - - - - 146 Share-based payments - - 127 - - 127

Balance at 30 June 2012 31,072 944 1,087 - (2,503) 30,600

This statement is to be read in conjunction with the accompanying notes.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2013

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES 39

NOTE 2 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES 48

NOTE 3 – SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS 52

NOTE 4 – OTHER REVENUE 53

NOTE 5 – FAIR VALUE MOVEMENT IN EARN-OUT LIABILITY 53

NOTE 6 – EXPENSES 54

NOTE 7 – AUDITOR’S REMUNERATION 54

NOTE 8 – INCOME TAX 55

NOTE 9 – EARNINGS PER SHARE 57

NOTE 10 – TRADE AND OTHER RECEIVABLES 58

NOTE 11 – INVENTORIES 58

NOTE 12 – OTHER FINANCIAL ASSETS 58

NOTE 13 – OTHER ASSETS 59

NOTE 14 – PROPERTY, PLANT AND EQUIPMENT 59

NOTE 15 – INTANGIBLE ASSETS AND GOODWILL 60

NOTE 16 – TRADE AND OTHER PAYABLES 62

NOTE 17 – INTEREST-BEARING LOANS AND BORROWINGS 62

NOTE 18 – OTHER FINANCIAL LIABILITIES 63

NOTE 19 – PROVISIONS 64

NOTE 20 – CONTRIBUTED EQUITY 64

NOTE 21 – RESERVES 67

NOTE 22 – ACCUMULATED LOSSES 67

NOTE 23 – OPERATING SEGMENTS 68

NOTE 24 – NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 69

NOTE 25 – RELATED PARTY DISCLOSURES 70

NOTE 26 – KEY MANAGEMENT PERSONNEL DISCLOSURES 71

NOTE 27 – SHARE-BASED PAYMENT PLANS 72

NOTE 28 – PARENT ENTITY DISCLOSURES 74

NOTE 29 – COMMITMENTS AND CONTINGENCIES 74

NOTE 30 – DIVIDENDS 75

NOTE 31 – BUSINESS COMBINATIONS 75

NOTE 32 – DEED OF CROSS GUARANTEE 76

NOTE 33 – EVENTS SUBSEQUENT TO THE REPORTING PERIOD 78

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NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES Mayne Pharma Group Limited (‘Company’) is a company limited by shares incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange. The financial report for the year ended 30 June 2013 was authorised for issue by the directors on 23 September 2013. The nature of the operations and principal activities of the Group are described in the Directors’ Report. A. Basis of preparation The Financial Statements are a general purpose financial report which has been prepared for a “for-profit” enterprise and in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis except for forward exchange contracts which have been measured at the fair value. The financial report is presented in Australian dollars and rounded to the nearest thousand dollars ($’000) unless otherwise stated. B. Compliance with IFRS The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. C. New accounting standards and interpretations Accounting Standards and Interpretations issued and adopted in this report applicable to the Company: The accounting policies adopted are consistent with those of the previous financial year except as follows: AASB 2011-9 Presentation of items of Other Comprehensive Income

From 1 July 2012 the Group has adopted the relevant standards and interpretations, mandatory for annual reports beginning on or after 1 July 2012. Adoption of the standards and interpretations did not have any effect on the financial position or performance of the Group. Accounting Standards and Interpretations issued but not yet effective applicable to the Company: Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the year ended 30 June 2013 are outlined below: AASB 1053 - Application of Tiers of Australian Accounting Standards Application date of standard: 1 July 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and will comply with the Tier 1 requirements.

The changes will have no impact. Summary This Standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards; and (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements. Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) for-profit entities in the private sector that have public accountability (as defined in this Standard); and (b) the Australian Government and State, Territory and Local Governments. The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) for-profit private sector entities that do not have public accountability; (b) all not-for-profit private sector entities; and (c) public sector entities other than the Australian Government and State, Territory and Local Governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11 and 2012-1.

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AASB 10 - Consolidated Financial Statements Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has fully assessed the impact of the changes and expects them to have minimal

impact on the Group. Summary AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7. AASB 12 - Disclosure of Interests in Other Entities Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has fully assessed the impact of the changes and expects them to have minimal

impact on the Group. Summary AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. AASB 13 - Fair Value Measurement Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact

on the Group. Summary AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. AASB 119 – Employee Benefits Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact

on the Group Summary AASB 119 includes the following key features: The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10.

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Annual Improvements to IFRSs 2009–2011 Cycle Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal

impact on the Group. Summary This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IAS 1 Presentation of Financial Statements

Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment

Classification of servicing equipment IAS 32 Financial Instruments: Presentation

Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting

Interim financial reporting and segment information for total assets and liabilities

AASB 2011-4 – Amendments to Australian Accounting Standards – Disclosures – Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] Application date of standard: 1 July 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact

on the Group. Summary This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. AASB 2012-2 – Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact

on the Group. Summary AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. AASB 9 - Financial Instruments Application date of standard: 1 January 2015 Application date for Group: 1 July 2015 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal effect on

the Group. Summary AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below.

(a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for

managing the financial assets; (2) the characteristics of the contractual cash flows.

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(b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.

(c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

(d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: the change attributable to changes in credit risk are presented in other comprehensive income (OCI); the remaining change is presented in profit or loss.

If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. D. Basis of consolidation Investments in subsidiaries held by the Group are accounted for at cost in the separate financial statements of the parent entity less any impairment charges. The consolidated financial statements comprise the financial statements of Mayne Pharma Group Limited and its controlled entities (collectively the “Group”). The financial statements of the subsidiaries are prepared for the same reporting period as the parent, noting that Metrics was only included from 14 November 2012, and using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra group transactions have been eliminated in full. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values. The difference between the above items and the fair value of the consideration is goodwill or a discount on acquisition. E. Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139; Financial Instruments Recognition and Measurement in profit or loss. F. Foreign currency translation The Group’s consolidated financial statements are presented in Australian dollars, which is also the Parent’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency for Metrics is US dollars. The Group uses the direct method of consolidation and has elected to recycle the gain or loss that arises from using this method. Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

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Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. Group companies On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is reclassified to profit or loss as part of the gain or loss on sale. G. Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand (excluding restricted cash) and short-term deposits with an original maturity 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. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. H. Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for any uncollectible amounts. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. A provision for impairment loss is raised when there is objective evidence that the Group will not be able to collect the debt. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. I. Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials – purchase cost on a first-in, first-out basis; and Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. J. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Land and buildings are measured at cost less accumulated depreciation on buildings and less any impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Land Not depreciated Buildings Over 40 years Plant and equipment Between 1.5 and 20 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year-end. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the Consolidated Statement of Comprehensive Income. K. Goodwill and intangibles Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following its initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment at each reporting date, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

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Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes and is not larger than an operating segment in accordance with AASB 8 Operating Segments. Intangibles Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred. Intangibles are reviewed for impairment at each reporting date, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Intangible assets with finite lives are amortised over their useful life, which range from ten to twenty years, and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Certain intangible assets other than goodwill (ie, customer contracts, relationships, intellectual property and trade marks) have been assessed as having finite useful lives and as such are amortised over their useful lives. Intangible assets relating to the Metrics acquisition are amortised on a straight line basis while intangibles relating to the MPI acquisition continue to be amortised using the reducing balance method. Marketing and distribution rights are considered to have an infinite life and hence are not amortised. The assets’ residual values, useful lives and bases of amortisation are reviewed annually and adjusted if appropriate. L. 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 asset and the arrangement conveys a right to use the asset. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the lease item are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives are recognised in the income statement as an integral part of the total lease expense. Group as a lessor Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases M. Trade and other payables Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. N. Interest-bearing loans and borrowings Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings. O. Earn-out liabilities Recognition and derecognition Earn-out liabilities of the Group are initially recognised on the consolidated statement of financial position as part of the business combination contract at fair value. Financial liabilities are derecognised when they are extinguished. Subsequent measurement After initial recognition, earn-out liabilities are recognised at fair value through profit or loss and are remeasured each reporting period. Movements in the liability from these changes are reported in the consolidated statement of comprehensive income.

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P. Provisions and employee benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of Management’s best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. Employee leave benefits Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Q. Share-based payment transactions The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). In the event that an employee leaves the Group prior to the vesting of any share-based payment previously granted to the employee, the share-based payment will be forfeited. Where an employee leaves the Group subsequent to the vesting but prior to the expiry of share-based payments granted, the Board has absolute discretion to determine whether or not such share-based payments will lapse. In the event that the Company’s Employee Share Option Plan was cancelled, this would not affect the rights of employees in relation to previously issued share-based payments. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using an appropriate option-pricing model, depending on the complexity of the exercise conditions. The Group engaged an accredited independent valuer, to determine the fair value of options issued at the date at which they are granted. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the vesting period. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (refer to Note 9). R. Contributed equity 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 from the proceeds. S. Operating segments An operating segment is a component of the Group:

that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group);

whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and

for which discrete financial information is available. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Operating segments have been identified based on the internal reports that are reviewed and used by the key management personnel (the chief operating decision maker – being the CEO) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the nature of revenue flows and responsibility for those revenues. Discrete financial information about each of these operating segments is reported to chief operating decision makers on at least a monthly basis. The consolidated entity operates in four operating segments, being Mayne Pharma Australia (MPA), Mayne Pharma Global (MP Global), US Generic Products and Metrics Contract Services. MPA revenues and gross profit are derived from the manufacturing, distribution and marketing of proprietary and generic products within Australia. MP Global revenues and gross profit are derived from the manufacturing and out-licensing of proprietary pharmaceutical products to international marketing and distribution partners and provision of contract manufacturing services to third-party customers within Australia.

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The US Generic Products (formerly Metrics Products) segment’s revenue and gross profit are derived from the manufacturing and distribution of generic pharmaceutical products in the United States. The Metrics Contract Services segment’s revenue and gross profit are derived from providing contract pharmaceutical development services to third-party customers principally in the United States. T. Revenue recognition Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer or wholesalers. US distribution sales are typically subject to agreement with customers allowing for chargebacks, rebates, rights of returns and other pricing adjustments. These amounts are presented in the financial statements as reductions to revenue and accounts receivable and as such revenue is recognised on a net basis. The distribution receivables are included in trade receivables. Chargebacks and rebates for pharmaceutical products sold by the Group to its wholesalers but estimated to be unsold by the wholesalers at year end are recorded as accrued chargebacks and rebates. The Group may incur chargebacks and rebates that differ from its original estimate. Profit-sharing revenue represents the Group’s share of the net profit from the sale of generic pharmaceutical products based on agreements with distribution partners. Amounts are based on calculated profits net of cost of goods sold, distribution expenses, chargebacks, returns and related accruals as reported by the distribution partners. Product return allowances are calculated for products that may be returned due to expiration dates or recalls. The group and its distribution partners do not expect any significant product returns that are not adequately covered by the reserve amounts calculated and recorded by the distribution partners. Services Revenue Service revenue relates to manufacturing and analysis for third parties. Revenue is recognised when the work is completed and the work is billed or billable to the client. Royalties revenue Royalties arising from the manufacturing rights are recognised when earned in accordance with the substance of the agreement. Research and development income Research and development income is recognised when its recoverability can be regarded as assured when the specific milestones of the projects are met. Interest revenue Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest revenue over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Lease Revenue Rental income arising from the operating lease on the building at Salisbury is accounted for on a straight-line basis over the lease terms and included in other revenue due to its operating nature. U. Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

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Mayne Pharma Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Tax consolidation legislation Mayne Pharma Group Limited and its wholly-owned Australian controlled entities elected to form an income tax consolidated group from 31 October 2009. The head entity, Mayne Pharma Group Limited, and the controlled entities in the income tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the “separate taxpayer within group” approach in determining the appropriate amount of current taxes and deferred taxes to allocate to the members of the income tax consolidated group. In addition to its own current and deferred tax amounts, Mayne Pharma Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the income tax consolidated group. Each company in the Group contributes to the income tax payable by the Group in proportion to their contribution to the Group’s taxable income. Assets or liabilities arising under the tax funding agreement with the income tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned income tax consolidation entities. Other taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation 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 recoverable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of financial position. Cash flows are included in the consolidated statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. V. Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares of the Company. Diluted earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares of the Company, adjusted for the effect of all dilutive potential ordinary shares. W. Research and development expenditure Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

The technical feasibility of completing the intangible asset so that the asset will be available for use or sale Its intention to complete and its ability to use or sell the asset How the asset will generate future economic benefits The availability of resources to complete the asset The ability to measure reliably the expenditure during development

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually. X. Forward exchange contracts The Group uses derivative financial instruments (forward currency contracts) to hedge its risks associated with foreign currency, commodity prices and interest rate fluctuations. These derivatives do not qualify for hedge accounting and mark to market valuation adjustments are recognised in profit or loss in income or expenses. Y. Reclassification of comparatives Where required, the 2012 comparative period has been reclassified to reflect current treatment and enable better comparison between periods, including:

Reclassification in Statement of Comprehensive Income – service revenue is now disclosed separately. Reclassification in Statement of Financial Position - refer Note 8 Change in Operating segment disclosure – refer Note 23

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NOTE 2 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise cash, short-term deposits, receivables, payables and bank loans. The Group manages its exposure to key financial risks, including credit risk, interest rate risk, currency risk and liquidity risk in accordance with the Group’s financial risk management framework. The objective of the framework is to support the delivery of the Group’s financial targets whilst protecting future financial security. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange rates. Liquidity risk is monitored through the development of future rolling cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below. Risk exposures and responses Interest rate risk The Group’s main interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. During the year the group’s borrowings at variable rates were denoted in US dollars. As at the end of the reporting period, the group had the following variable rate borrowings outstanding:

2013 $’000

2012$’000

Interest bearing loans and borrowings 48,532 - The variable interest rate risk on borrowings is partially off-set by the variable interest rate risk of cash at bank and on hand

2013 $’000

2012$’000

Cash at bank and in hand 18,938 11,596 The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At reporting date, if interest rates had moved, as illustrated in the table below, with all other variables held constant, net profit and equity would have been affected as follows: NET PROFIT / (LOSS) EQUITY

HIGHER / (LOWER) HIGHER / (LOWER)

2013$’000

2012$’000

2013 $’000

2012$’000

+1% (100 basis points) (171) 87 - -

-0.5% (50 basis points) 86 (43) - - The movements are due to higher / lower interest expense on borrowings less lower / higher interest revenue from cash balances. Possible movements in interest rates were determined based on the current observable market environment. Foreign currency risk The Group has significant transactional currency exposures arising from sales and purchases in currencies other than the functional currency. Approximately 66% of the Group’s revenues and 47% of the Group’s costs are denominated in currencies other than the functional currency. It is the Group’s policy to enter into simple Forward Exchange Contracts or Participating Forward Exchange Contracts over a set percentage of the forecast net receipts of US dollars. The percentages used vary depending on the length of the forecast period (0-3 months and 4-6 months). The Group has not applied the hedge accounting rules and the mark-to-market valuation (2013: $216,000 loss; 2012: $65,000 gain) for the contracts is recognised in profit and loss at 30 June 2013. The Group also holds assets and liabilities in US dollars (USD), British pounds (GBP), Japanese yen (JPY), Canadian dollars (CAD) and Euro (EUR). The existence of both assets and liabilities denominated in USD provides a limited natural hedge against adverse currency movements. F

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At balance date the Group had the following exposures to foreign currency:

USD$’000

GBP $’000

EUR$’000

CAD $’000

JPY$’000

As at 30 June 2013 Cash at bank 7,625 - - - -Other financial assets 1,825 Trade and other receivables 21,244 - - 318 492Trade and other payables (18,370) (4) (56) - (10)Interest-bearing borrowings (47,093) - - - -

Net exposure (34,769) (4) (56) 318 482

As at 30 June 2012 Cash at bank 2,456 - - - -Trade and other receivables 43 - - 245 530Trade and other payables (755) (13) (10) - -Interest-bearing borrowings - - - - -

Net exposure 1,744 (13) (10) 245 530 The following sensitivity analysis is based on the foreign currency risk exposures in existence at the reporting date. At reporting date, if foreign exchange rates had moved, as illustrated in the table below, with all other variables held constant, net profit/(loss) and equity would have been affected as follows: NET PROFIT / (LOSS) EQUITY

HIGHER / (LOWER) HIGHER / (LOWER)

2013$’000

2012$’000

2013 $’000

2012$’000

AUD/USD +10% (282) (111) 2,444 -AUD/ JPY +10% (31) (34) - -AUD / (GBP,EUR,CAD) +10% (16) (14) - -

AUD/USD -5% 163 64 (1,415) -AUD/JPY -5% 18 20 - -AUD/ (GBP, EUR, CAD) -5% 9 8 - - The movements are due to foreign currency gains or losses as a result of changes in the balances of cash, borrowings, and the net of trade receivables and payables and includes the impact of translating foreign operations. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of the financial assets. The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. Management of credit risk: It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Approximately 26% of the Group’s 2013 revenue is derived from the two largest customers and 10% of revenue is derived from the next largest customer. All of these customers were operating within agreed trading terms at the end of the 2013 period. The Group believes that there is no credit risk on the above key customer concentration as there has never been any default on their obligations. The collectability of debts is assessed on an ongoing basis, A provision for impairment loss is raised when there is objective evidence that the Group will not be able to collect the debt. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. Bad debts are written off when identified. Receivables are monitored on an ongoing basis and the incidence of bad debt write off has been extremely low.

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Financial assets included on the Consolidated Statement of Financial Position that potentially subject the Group to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. The Group minimises this concentration of risk by placing its cash and cash equivalents with financial institutions that maintain superior independent credit ratings in order to limit the degree of credit exposure. The maximum exposures to credit risk as at 30 June 2013 in relation to each class of recognised financial assets is the carrying amount of those assets, as indicated in the Consolidated Statement of Financial Position. Credit quality of financial assets:

2013 $’000

2012$’000

Cash and cash equivalents1 18,938 11,596Trade and other receivables2 24,622 3,821

43,560 15,417

Notes: 1. Minimum of S&P AA rated counterparty with which deposits are held 2. At period end 2013 Trade receivables comprise $20,613,000 of the total $24,622,000, with 81% of trade receivables within trading terms. A

further $3,304,000 is profit share receivable with payment terms of 90 days.

Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and cash and short-term deposits sufficient to meet the Group’s current cash requirements. The Board manages liquidity risk by monitoring, on a monthly basis, the total cash inflows and outflows expected forecast on a rolling 18-month basis. The following table discloses the remaining contractual maturities for the Group’s financial assets and liabilities based on undiscounted cash flows. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. LESS THAN

6 MONTHS$’000

6 TO 12 MONTHS$’000

1 TO 5 YEARS $’000

TOTAL$’000

30 June 2013 Liquid financial assets Cash and cash equivalents 18,938 - - 18,938Trade and other receivables 24,622 - - 24,622

43,560 - - 43,560

Financial liabilities Trade and other payables (10,504) - - (10,504)Interest-bearing loans and borrowings (5,471) (2,432) (40,629) (48,532)Other financial liabilities (11,672) (6,674) (11,586) (29,932)

(27,647) (9,106) (52,215) (88,968)

Net inflow/(outflow) 15,913 (9,106) (52,215) (45,408) Less THAN

6 MONTHS$’000

6 TO 12 MONTHS$’000

1 TO 5 YEARS $’000

TOTAL$’000

30 June 2012 Liquid financial assets Cash and cash equivalents 11,596 - - 11,596Trade and other receivables 3,821 - - 3,821

15,417 - - 15,417

Financial liabilities Trade and other payables (4,234) - - (4,234)Interest-bearing loans and borrowings - - - -Other financial liabilities - (2,782) (8,090) (10,872)

(4,234) (2,782) (8,090) (15,106)

Net inflow/(outflow) 11,183 (2,782) (8,090) 311

The Group has undrawn facilities of $5,000,000 plus the undrawn portion of the revolving loan US$3,000,000 available at reporting date. Refer note 17.

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Fair Value Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements.

CARRYING AMOUNT FAIR VALUE

Assets 2013

$’000 2012 $’000

2013 $’000

2012 $’000

Forward exchange contracts - 65 - 65 Cash and short-term deposits 18,938 11,596 18,938 11,596

CARRYING AMOUNT FAIR VALUE

Liabilities 2013

$’000 2012 $’000

2013 $’000

2012 $’000

Earn-out liability - (Hospira) 13,141 9,331 13,141 9,331 Earn-out liability - (Metrics former shareholders) 11,449 - 11,449 - Payment to GSK for purchase of Kapanol® 3,375 - 3,375 - Forward exchange contracts 216 - 216 - Interest-bearing term loan 45,605 - 47,439 -

Interest-bearing revolving loan 1,093 - 1,093 -

Cash and short-term deposits approximate their carrying amounts largely due to the short-term maturities of these instruments. The Group enters into forward exchange contracts with financial institutions with investment grade credit ratings. The payment to GSK for the purchase of Kapanol® is a contracted amount and the earn-out payable to former shareholders of Metrics has been calculated using final and known parameters. The earn-out liability payable to Hospira utilises present value calculation techniques that are not based on observable market data. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

Assets and liabilities measured at fair value As at 30 June 2013, the Group held the following financial instruments carried at fair value in the Statement of Financial Position: LEVEL 2

2013 $’000

2012 $’000

Financial Assets Foreign exchange forward contracts - 65 LEVEL 2 LEVEL 3

2013 $’000

2012 $’000

2013 $’000

2012 $’000

Financial Liabilities Earn-out liability – Hospira - - 13,141 9,331 Earn-out liability - (Metrics’ former shareholders) 11,449 - - - Payment to GSK for purchase of Kapanol® 3,375 - - - Forward exchange contracts 216 - - - Interest-bearing loans 48,532 - - -

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Reconciliation of fair value measurements of Level 3 financial instruments The Group carries earn-out liability classified as Level 3 within the fair value hierarchy. A reconciliation of the beginning and closing balances including movements is summarised below: 2013

$’000 2012 $’000

Opening balance 9,331 15,062 Fair value movement (refer Note 5) 5,151 (2,850) Payments (1,341) (2,881)

Closing Balance 13,141 9,331 NOTE 3 – SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires Management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. Significant accounting judgements Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. During the year ended 30 June 2013, 16 development projects met the requirements for capitalisation (2012: nil). Chargebacks and returns Chargebacks and rebates for pharmaceutical products sold by the Group to its wholesalers but estimated to be unsold by the wholesalers at year end are recorded as accrued chargebacks and rebates. The Group may incur chargebacks and rebates that differ from its original estimate. Deferred tax assets The Group’s accounting policy for taxation requires Management’s judgement in assessing whether deferred tax assets are recognised in the Consolidated Statement of Financial Position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on Management’s estimates of future cash flows. These depend on estimates of future revenues, operating costs, capital expenditure and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of other tax losses and temporary differences not yet recognised. Significant accounting estimates and assumptions Earn-out liability The Group has recognised an earn-out liability to the former owners of Mayne Pharma International Pty Ltd payable over the period to 31 October 2015. The earn-out liability has been determined based on contracted royalty rates payable on expected future cash flows earned on certain products in calendar years across different geographic markets. The estimation of the cash flows over a significant period, combined with the impact of currency movements and interest rates may result in substantial movements in the value of the liability recognised between reporting periods. The cash flows, assumed discount rate and forecast exchange rates are reviewed every six months to ensure the most accurate fair value of the liability is reported. Movements in the liability from changes in these assumptions and forecasts are reported in the consolidated statement of comprehensive income. In addition to the earn-out liability described above, the Group has recognised an earn-out liability to the previous shareholders of Metrics, payable by the end of September 2013, as the required performance parameters were met.

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Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using an appropriate option-pricing model depending on the complexity of the exercise conditions with both the Black Scholes option-pricing model and the Monte Carlo Simulation option-pricing model utilised during the period. The specific assumptions applied to the options issued during the year are provided in Note 20. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. Restoration provision A provision has been made for the present value of anticipated costs for future restoration of the Salisbury site. The calculation of this provision requires assumptions such as application of environmental legislation, timing of restoration and cost estimates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. Estimation of useful lives of assets The estimation of the useful lives of assets has been based on historical experience as well as manufacturers’ warranties and lease terms. In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary. The estimation of the useful lives of intangible assets has been based on the assets’ contractual lives for the expected period of the future cash flows. In addition, the valuation assumptions used are assessed at least annually and considered against the useful life and adjustments to useful lives are made when considered necessary. Impairment of intangible assets The Group determines whether intangible assets are impaired in accordance with the accounting policies stated in Note 1(K). This process requires an estimation to be made of the recoverable amount of future cash flows of the assets. NOTE 4 – OTHER REVENUE

2013 $’000

2012$’000

Interest received 394 181Rental excess office space 161 155R&D income 69 306Net gain on foreign exchange 8 -Other 8 -

640 642

NOTE 5 – FAIR VALUE MOVEMENT IN EARN-OUT LIABILITY

2013 $’000

2012$’000

Movement in undiscounted fair value of earn-out liability 4,430 (3,856)Change in fair value attributable to the unwinding of the discounting of the earn-out liability 721 1,006

5,151 (2,850) The increase in the earn-out liability of $5,150,000 is a non-cash change in the fair value of the earn-out liability associated with the MPI acquisition following the reassessment of the underlying assumptions (including movements in expected future sales revenues and foreign exchange movements) used in the calculation and the non-cash unwinding of the discount;

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NOTE 6 – EXPENSES Finance costs

Interest expense 1,979 8

Amortisation of borrowing costs 327 20

2,306 28

Depreciation1 3,632 1,780

Employee benefits expense2

Wage and salaries 21,981 11,133

Superannuation expense 1,381 1,067

Other employee benefits expense 4,492 2,476

Total employee benefits 27,854 14,676

Loss on forward exchange contracts 216 - Notes: 1. Depreciation expense is included in R&D expenses and cost of sales.

2. Employee benefit expense is included in various expense categories and cost of sales. Acquisition costs Expenditure of $4,032,000 relating to the acquisition of Metrics Inc, and $390,000 relating to the acquisition of the Australian rights for Kapanol® from GSK was expensed during the period. NOTE 7 – AUDITOR’S REMUNERATION

2013 $

2012$

Amounts received or due and receivable by EY for Audit and review of financial statements 309,000 175,000Tax compliance services 133,450 61,460Tax advisory services 134,000 -Acquisition accounting audit 100,000 -Accounting advice - 42,500Other Assurance 70,300 58,500

746,750 337,460

2013

$ 2012

$

Non EY Auditors Audit and review of financial statements 269,000 -Tax compliance services 35,000 -

304,000 -

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NOTE 8 – INCOME TAX A. The major components of income tax expense are:

2013 $‘000

2012 $’000

Income tax expense Current income tax (1,769) (1,601)Adjustment in respect of current income tax of previous years 73 194Deferred income tax (444) (191)

Income tax expense in the consolidated statement of profit or loss and other comprehensive income (2,140) (1,598)

Deferred income tax benefit/(expense) included in income tax expense comprises

Increase/(decrease) in deferred tax assets 855 (939)Decrease/(increase) in deferred tax liabilities (1,299) 748

(444) (191) B. Numerical reconciliation between aggregate tax expense recognised in the consolidated statement of profit or loss and

other comprehensive income and tax expense calculated per the statutory income tax rate

2013 $‘000

2012 $’000

The prima facie tax on operating profit differs from the income tax provided in the accounts as follows:

(Loss)/profit before income tax (703) 7,751

Prima facie tax benefit/(expense) at 30% 211 (2,325)Effect of R&D concession 299 289Adjustment relating to earn-out liability (599) 855(Under)/overprovision in respect of prior years (20) 31Tax effect of amounts which are not deductible in calculating taxable income (37) (3)Restatement of deferred tax balances upon entry into tax consolidation - (363)Share-based payments (144) (82)Effect of higher tax rate in USA (342) -Non deductible acquisition costs (1,325) -US State taxes (268) -US Domestic production activity deduction 85 -

Income tax expense (2,140) (1,598) C. Recognised deferred tax assets and liabilities

2013 $‘000

2012 ‘000

Deferred tax assets Intangible assets 2,305 2,526 Provisions 1,795 1,650 Other

Payables 108 63 Unrealised foreign exchange losses 86 19 Inventory 12 - Carried forward R&D credits 26 - Earn-out liability 902 - Other 195 2

1,329 84

5,429 4,260

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C. Recognised deferred tax assets and liabilities (cont’d)

2013 $‘000

2012 ‘000

Reconciliation to the Statement of Financial Position Total Deferred Tax Assets 5,429 4,260 Set off of Deferred Tax Liabilities that are expected to reverse in the same period (4,453) (3,730)

Net Deferred Tax Assets 1 976 530

INTANGIBILE ASSETS

$’000PROVISIONS

$’000OTHER

$’000 TOTAL

$’000

Deferred tax asset movements Balance at 1 July 2011 2,118 1,123 1,958 5,199Charge to profit/loss 408 527 (1,874) (939)

Balance at 30 June 2012 2,526 1,650 84 4,260Charge to profit/loss (221) (124) 1,200 855Restatement of foreign currency balances - 43 7 50Acquisition of subsidiary - 226 38 264

Balance at 30 June 2013 2,305 1,795 1,329 5,429 Note: 1. Represent Australian Deferred Tax Assets that cannot be offset against US Deferred Tax Liabilities. These amounts were not set off in previous

reports.

2013 $‘000

2012 ‘000

Deferred tax liabilities Property, plant and equipment 4,739 2,306 Intangible assets 18,518 1,195 Other

Other receivables / prepayments - 33 Inventory 16 19 Unrealised foreign currency gain - 59 US State taxes 1,750 - Other - 118

1,766 229

25,023 3,730

Reconciliation to the Statement of Financial Position Total Deferred Tax Liabilities 25,023 3,730 Set off of Deferred Tax Assets that are expected to reverse in the same period (4,453) (3,730)

Net Deferred Tax Liabilities 1 20,570 -

PROPERTY PLANT

EQUIPMENT$’000

INTANGIBLE ASSETS$’000

OTHER $’000

TOTAL$’000

Deferred tax liability movements Balance at 1 July 2011 2,266 1,869 343 4,478Charge to profit/loss 40 (674) (114) (748)

Balance at 30 June 2012 2,306 1,195 229 3,730Charge to profit/loss 283 1,339 (323) 1,299Restatement of foreign currency balances 287 2,048 218 2,553Acquisition of subsidiary 1,863 13,936 1,642 17,441

Balance at 30 June 2013 4,739 18,518 1,766 25,023 Notes: 1. Represent US Deferred Tax Liabilities that cannot be offset against Australian Deferred Tax Assets.

Deferred tax assets and deferred tax liabilities are presented based on their respective tax jurisdictions.

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D. Tax consolidation Members of the tax consolidated group and the tax sharing arrangement Mayne Pharma Group Limited and its 100%-owned Australian resident subsidiaries formed an income tax consolidated group with effect from 31 October 2009. Mayne Pharma Group Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. Tax effect accounting by members of the tax consolidated group Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting. The head entity and the controlled entities in the income tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the “separate taxpayer within group” approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the income tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the income tax consolidated group. Each company in the Group contributes to the income tax payable by the Group in proportion to their contribution to the Group’s taxable income. Assets or liabilities arising under the tax funding agreement with the income tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned income tax consolidation entities. Nature of tax funding agreement The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable/(payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiary. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. NOTE 9 – EARNINGS PER SHARE

2013 $’000

2012$’000

For basic earnings per share Net (loss)/profit (2,843) 6,153

For diluted earnings per share Net (loss)/profit (2,843) 6,153

2013 ‘000

2012‘000

Weighted average number of ordinary shares for basic earnings/(loss) per share 406,081 152,041

Effect of dilution: Share options 4,378 848

Weighted average number of ordinary shares adjusted for the effect of dilution 410,459 152,889

Diluted earnings per share is the same as basic earnings per share due to the result being a loss. The calculation of weighted average number of ordinary shares adjusted for the effect of dilution does not include the following options which could potentially dilute basic earnings per share in the future, but were not dilutive in the periods presented: 2013 2012

Number of potential ordinary shares - 10,125,000 Options Subsequent to year end an additional 2,000,000 employee share options were issued. Had these options been issued prior to year end they would not have had any dilutory effect. There have been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding at the end of the reporting period.

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NOTE 10 – TRADE AND OTHER RECEIVABLES

2013 $’000

2012$’000

Current Trade receivables 20,612 3,027Trade receivables – profit share 3,304 -Provision for impairment (44) -Other receivables 750 794

24,622 3,821 Provision for impairment loss The movements in the impairment provision were as follows – Balance acquired on acquisition of subsidiary 44 -Reassessment written back to profit/loss (5) -Foreign currency restatement 5 -

Balance at end of year 44 - At 30 June 2013, the ageing analysis of trade receivables is as follows:

0-30 DAYS

$’00031-60 DAYS

$’000 61-90 DAYS

$’000+91 DAYS

$’000 TOTAL

$’000

Trade receivables 15,427 3,436 564 1,185 20,612 Trade receivables are non-interest bearing and are generally on 30 to 60-day terms. A provision for impairment loss is raised when there is objective evidence that the Group will not be able to collect the debt. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. As at reporting date, $44,000 of receivables were considered to be impaired. Trade receivables – profit share are payable on 90 day terms. None of these receivables are considered to be impaired. Other receivables include amounts outstanding for goods and services tax (GST). These amounts are non-interest bearing and have repayment terms applicable under the relevant government authority. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Due to the short-term nature of these receivables, their carrying value is equal to their fair value. NOTE 11 – INVENTORIES 2013

$’000 2012$’000

Raw materials and stores at cost 8,181 4,039Work in progress at cost 1,640 1,460Finished goods at lower of cost and net realisable value 3,772 1,745

13,593 7,244 NOTE 12 – OTHER FINANCIAL ASSETS 2013

$’000 2012$’000

Current Restricted cash 1,190 -Unbilled client service fees 635 -

1,825 - Restricted cash represents cash held by US legal counsel at 30 June 2013 awaiting settlement of the Libertas Inc. acquisition on July 2, 2013 and cash held as security for letters of credit.

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NOTE 13 – OTHER ASSETS 2013

$’000 2012$’000

Current Pre-payments

1,335 529

Forward exchange contracts - 65

1,335 594 NOTE 14 – PROPERTY, PLANT AND EQUIPMENT

LAND1 BUILDINGS1

PLANT AND EQUIPMENT

CAPITAL UNDER CONSTRUCTION TOTAL

$’000 $’000 $’000 $’000 $’000

Year ended 30 June 2013

Balance at beginning of year net of accumulated depreciation 4,540 7,520 7,438 2,726 22,224

Additions - 243 2,985 2,581 5,809Acquisition of subsidiary 3 3,388 14,654 10,966 - 29,008Disposals - - (123) - (123)Transfer 2 - - - (2,173) (2,173)

Depreciation charge for year - (538) (3,094) - (3,632)

Foreign currency restatement 472 2,002 1,449 - 3,923

Balance at end of year net of accumulated depreciation 8,400 23,881 19,621 3,134 55,036

At 30 June 2013 At cost 8,400 25,237 26,909 3,134 63,680Accumulated depreciation - (1,356) (7,288) - (8,644)

Net carrying amount 8,400 23,881 19,621 3,134 55,036

LAND1 BUILDINGS1 PLANT AND

EQUIPMENT CAPITAL UNDER CONSTRUCTION TOTAL

$’000 $’000 $’000 $’000 $’000

Year ended 30 June 2012 Balance at beginning of year net of

accumulated depreciation 4,540 7,678 8,021 1,218 21,457Additions - 49 990 2,547 3,586Acquisition of subsidiary - - - - -Transfer 2 - - - (1,039) (1,039)Depreciation charge for year - (207) (1,573) - (1,780)Foreign currency restatement - - - - -

Balance at end of year net of accumulated depreciation 4,540 7,520 7,438 2,726 22,224

At 30 June 2012 At cost 4,540 8,298 11,439 2,726 27,003Accumulated depreciation - (778) (4,001) - (4,779)

Net carrying amount 4,540 7,520 7,438 2,726 22,224 Notes: 1. A first registered mortgage over property situated at 1538 Main North Rd, Salisbury South, South Australia is held by the Group’s Australian banker.

2. Transfer as additions to the respective completed class of property, plant and equipment. 3. Certain US-based assets are pledged as security – refer Note 17.

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NOTE 15 – INTANGIBLE ASSETS AND GOODWILL

GOODWILL

CUSTOMER CONTRACTS,

RELATIONSHIPS AND

INTELLECTUAL PROPERTY

DEVELOPMENT EXPENDITURE

MARKETING & DISTRIBUTION

RIGHTS TRADE NAMES TOTAL

$'000 $'000 $'000 $'000 $'000 $'000

Year ended 30 June 2013 Balance at beginning of year

net of accumulated amortisation 391 3,803

-

-

- 4,194

Additions - - 7,400 13,820 - 21,220

Acquisition of subsidiary 43,160 28,416 8,983 - 3,589 84,148

Amortisation - (3,478) (103) - (117) (3,698)

Foreign currency restatement 3,646 3,749 1,725 - 486 9,606 Balance at end of year net of

accumulated amortisation 47,197 32,490 18,005 13,820 3,958 115,470

As at 30 June 2013 Cost 47,197 51,570 18,121 13,820 4,089 134,797

Accumulated amortisation - (19,080) (116) - (131) (19,327)

Net carrying amount 47,197 32,490 18,005 13,820 3,958 115,470

Year ended 30 June 2012

Balance at beginning of year net of accumulated amortisation 391 7,792

-

-

- 8,183

Amortisation - (3,989) - - - (3,989) Balance at end of year net of

accumulated amortisation 391 3,803

-

-

- 4,194

As at 30 June 2012

Cost 391 19,195 - - - 19,586

Accumulated amortisation - (15,392) - - - (15,392)

Net carrying amount 391 3,803 - - - 4,194 Customer contracts, relationships and intellectual property Arising on the acquisition of MPI Following the business combination in October 2009, the Consolidated Entity recognised $19,195,000 in relation to customer contracts, relationships and intellectual property. The customer contracts’ initial carrying value of $11,443,000 was fully amortised by 30 June 2013. The Consolidated Entity also recognised a total of $6,067,000 in relation to customer relationships that are being amortised over six years through to the period ending 30 June 2015. This value was determined in relation to expected future cash flows relating to customer relationships acquired on the acquisition of MPI. The balance of $1,643,000 represents the value attributed to an intellectual property royalty arrangement that is being amortised over six years through to 30 June 2015. Cash flows were estimated based on the sales levels of products to existing customer relationships and costs of production, raw materials and overhead attributable to those products. A discount rate of 17.5% was applied following a corporate tax rate of 30% and a 7% contributory asset charge. These assets are carried at cost less accumulated amortisation and any accumulated impairment losses. These intangible assets have been assessed as having finite useful lives and are amortised over their useful lives on a diminishing value basis. As at 30 June 2013 the value to be amortised over the remaining two years was $2,056,000. Arising on the acquisition of Metrics Following the business combination in November 2012, customer contracts and relationships of $32,375,000 were recognised attributed to Metrics Contract Services and US Generic Products segments. The valuations were undertaken using the multi-period excess earnings method (MEEM). Key parameters included a discount rate of 15%, a corporate tax rate of 38.9% and a contributory asset charge of 8.5% for Metrics Contract Services and 5.1% for US Generic Products. These intangible assets have been assessed as having finite useful lives and are amortised over their useful lives on a straight line basis. The useful lives of these assets vary from ten to fifteen years. The amortisation charge has been recognised in the Consolidated Statement of Profit or Loss and other Comprehensive income in the line item “Amortisation expense”. If an impairment indicator arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

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Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. Goodwill to the value of $391,000 has been allocated to the MP Global cash generating unit (CGU). The recoverable amount of the CGU is determined based on the value in use calculation using cash flow projections based on financial budgets approved by management covering a five-year period. The pre-tax, risk-adjusted discount rate applied to these asset specific cash flow projections is 16%. Goodwill to the value of $46,806,000, arising from the acquisition of Metrics, has been allocated between two CGUs operating in the USA. The two CGUs are the US Generic Products and Metrics Contract Services segments. The allocation of the $46,806,000 will be 65% ($30,424,000) to US Generic Products and the balance ($16,382,000) to Metrics Contract Services. The Directors have used the following key assumptions in determining the value-in-use calculations:

Gross margin The basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the year immediately before the first budgeted year adjusted for the budgeted growth for the next two years;

Budgeted overheads

The basis used to determine the value assigned to the budgeted overheads is the average overhead achieved in the year immediately before the budgeted year adjusted for the budgeted increase for the following two years;

Discount rates

Discount rates reflect Management’s estimate of time value of money and the risks specific to the CGU. In determining appropriate discount rates, regard has been given to the weighted average cost of capital of the entity as a whole and adjusted for business risk specific to the CGU;

Growth rate estimate

The basis used reflects Management’s estimates, determined by future forecasts in sales generation methods and by growth rates achieved within previous periods. o The average growth rate used for the MP Global CGU for the first three years was 19.6%, for the next two years 5.0% and

the long-term rate of 2.5% for future periods. o The average growth rate used for the US Generic Products CGU was 25.5% for the first three years, 11.5% for the next

three years and a long-term rate of 3% for future periods. The average growth rate used for the Metrics Contract Services CGU was 6.6% for the first three years5.5%% for the next three years and a long-term rate of 1% for future periods.

Sensitivity to changes in assumptions Management believe that, based on currently available information, there are no reasonably possible changes to any of the above key assumptions that would result in the carrying value of the CGUs materially exceeding its recoverable amount. Development expenditure Arising on the acquisition of Metrics Following the business combination in November 2012, development expenditure of $10,234,000 was recognised for products in process development (In process R&D) in the USA. The valuation for development expenditure of $2,515,000 was undertaken using the multi-period excess earnings method (MEEM). Key parameters included a discount rate of 15%, a corporate tax rate of 38.9% and a contributory asset charge of 6.0%. This intangible asset has been assessed as having a finite useful life and amortised over that useful life on a straight line basis. The valuation of the intellectual property for the products under development ($7,719,000) is based on the replacement cost method. The useful life of the In-process R&D will be determined on a product-by-product basis. The value will be amortised based on one of the following scenarios:

If the products gain FDA approval, amortisation of the value will commence when the product enters the market and be amortised over the useful life of the product

If the product is not approved, then an impairment event will occur and the specific product value expensed. Expenditure on selected products which qualify for capitalisation under AASB 138 totalling $7,887,000 has been capitalised during the 2013 financial year.

Sixteen products are under development across the Australian and US sites. Selected products within this group should reach final development in the 2014 financial year and amortisation of the capitalised

value over the useful life will commence when the product enters the market. Trade Names Arising on the acquisition of Metrics Following the business combination in November 2012, a trade name intangible of $4,089,000 was recognised. The valuation was undertaken using the relief from royalty (RFR) method. Key assumptions included a royalty rate of 3%, a corporate tax rate of 38.9% and a discount rate of 15%. This intangible asset has been assessed as having a finite useful life (20 years) and is amortised over that useful life on a straight line basis.

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Marketing and Distribution rights On 1 February 2013, Mayne Pharma acquired the Kapanol® trademark, marketing authorisations, product dossier, technical data product inventory and rights to sell Kapanol® in Australia from GlaxoSmithKline (GSK).

The total value of intangible assets acquired was $13,820,000. The assets have been assessed to have an indefinite life as the product has had a strong presence in the market for many years, has a lack of competitors and has continued growth prospects. The assets will be subject to impairment testing using a value in use calculation using cash flow projections. Consideration of $10,445,000 was paid during the reporting period with the balance of $3,375,000 payable February 2014. Refer Note 18. The initial parameters used for assessment which resulted in no impairment were an average earnings growth rate of 21.3% over the first 5 years with a zero rate for future periods, WACC of 14% and a corporate tax rate of 30%. NOTE 16 – TRADE AND OTHER PAYABLES 2013

$‘000 2012$’000

Current Trade payables 6,832 2,893Other payables 3,672 1,341

10,504 4,234

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid (>88%) within 30 days of recognition. Due to the short-term nature of these payables, their carrying value is their fair value. Information regarding liquidity risk exposure is set out in Note 2. NOTE 17 – INTEREST-BEARING LOANS AND BORROWINGS

2013 $‘000

2012 $’000

Current MidCap term loan 7,903 -Borrowing costs (net of amortisation) (432) -

7,471 -

Non-current Revolving loan (USD 1.0m) 1,093 -MidCap term loan 39,536 -Borrowing costs (net of amortisation) (1,402) -

39,227 - The term loan facility provided by MidCap Funding V LLC as the primary lender is a five year loan effective 14 November 2012 for an initial amount of USD44,500,000. The revolving loan is a facility of USD4,000,000 also provided for a term of five years. The loans are subject to certain covenants and Metrics was in compliance with these at period end. The term loan and revolving facility are secured by a first priority perfected lien upon all of the personal and real property of Metrics and the parent company has guaranteed the obligations of Metrics under the Credit Agreement with MidCap Funding VLLC, via provision of a first priority perfected security interest in all and outstanding capital stock and all of its rights under the Merger Agreement. The Directors believe there is no risk of default at reporting date. The term loan bears interest payable monthly based on LIBOR (with a minimum rate of 1%) plus the applicable margin. The applicable margin is based on total debt to Earnings before interest, taxation, depreciation and amortisation (EBITDA) ratio (of Metrics) as defined and ranges from 5% for a total debt to EBITDA ratio of less than 2:1 to 5.75% for a total debt to EBITDA ratio greater than 3.5:1. From the closing date until two business days after the first Compliance Certificate is delivered, the applicable margin is 5.5% and may not be less than 5.5% for the first year after the closing date. At 30 June 2013, the interest rate was 7.0%. Interest on the revolving loan is payable monthly based on LIBOR (with a minimum rate of 1%) and the applicable margin is as defined for the term loan. In addition, an unused line fee is payable monthly in arrears based on the unused portion of the facility at the rate of 0.75% per annum. Subject to certain conditions, the agreement also provides for an uncommitted term loan increase up to USD15,000,000 to be used solely to finance any earn-out payments due relating to the acquisition of Metrics. Such increase shall be effective no later than 14 May 2014. The Group has accrued $11,449,000 (US$10,470,000) in relation to this earn-out (refer note 18).

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The term loan is repayable in quarterly instalments and the revolving loan facility terminates 14 November 2017. The loan maturities are summarised as follows:

2013 $‘000

2012 ‘000

Current1 7,903 - Non current 40,629 -

48,532 -

Due by 30 June 20141 7,903 - Due by 30 June 2015 6,690 - Due by 30 June 2016 9,123 - Due by 30 June 2017 11,556 - Due by 30 June 2018 13,260 -

48,532 - Note: 1 As at 30 June 2013, this includes a mandatory prepayment of $3,647,000 based on the excess cash flow at 30 June as defined. Subsequent to

reporting date, MidCap Funding V LLC have removed the mandatory prepayment for the year ended 30 June 2014. Had this been in place at reporting date, the current amount outstanding would have been $4,257,000 and the non-current amount $44,275,000.

The Metrics assets pledged as security for the term loan and revolving facility are as follows:

2013 $‘000

2012 ‘000

Cash 6,779 - Receivables 17,326 - Inventory 6,596 - Other financial assets 941 - Other assets 755 - Property, Plant & Equipment 32,742 -

65,139 -

There were no defaults or breaches on any loans during the year ended 30 June 2013. Floating Rate Bill Facility A $5,000,000 Floating Rate Bill facility was in place during the period with the Group’s Australian banker. The facility can be used for any corporate purpose excluding payment of dividends. The facility was undrawn at 30 June 2013. Security A Registered Mortgage Debenture over the Closed Group’s assets including goodwill has been provided to the Group’s Australian banker. A first registered mortgage over property situated at 1538 Main North Rd, Salisbury South, South Australia is also held by the Group’s Australian banker. Refer Note 32. NOTE 18 – OTHER FINANCIAL LIABILITIES

2013 $‘000

2012 $’000

Current Earn-out liability – Hospira 3,299 2,782 Earn-out liability - Metrics’ former shareholders 11,449 - Payment to GSK for purchase of Kapanol® 3,375 - Foreign exchange forward contracts 216 - Other 7 -

18,346 2,782

Non-current Earn-out liability – Hospira 9,842 6,549

The consolidated entity has recognised a total of $13,141,000 in relation to the earn-out liability incurred as part consideration on the acquisition of MPI on 30 October 2009. The maximum amount payable to Hospira is $41,600,000 payable over a six-year period. To date the cumulative payments made total $11,872,000 including $1,340,000 made in the current period. The earn-out payment is based on the level of gross revenue recognised by MPI in relation to products existing at the time of the acquisition, greater than $40,000,000 but capped at $65,000,000 in a calendar year, with a maximum $7,800,000 payable in the first two years to 31 December 2011 and $6,500,000 for each of the subsequent four years.

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The value of the earn-out has been determined in relation to expected future cash flows required to be paid on the earn-out utilising a discount rate of 8% and an assumed average foreign exchange rate of US$0.88:A$1.00 for the balance of the earn-out period. The earn-out liability represents the net present value of estimated future payments. The changes in fair value for changes in the net present value of estimated future payments are recognised in the statement of profit or loss and other comprehensive income. The earn-out liability at reporting date includes a charge representing the unwinding of the discounting of the earn-out liability of $721,000 (2012: $1,006,000) for the period representing the change in fair value as a result of the unwinding of the discounting. The consolidated entity has also recognised a total $11,449,000 in relation to the earn-out liability incurred as part consideration on the acquisition of Metrics. The earn-out is now payable as the EBITDA of Metrics for the twelve months ended 30 June 2013 met the prescribed threshold. NOTE 19 – PROVISIONS

2013 $’000

2012$’000

Current Employee benefits

5,790 3,832

Non-Current Employee benefits

287 259

Restoration 465 491

752 750 Restoration provision The restoration provision represents the present value of anticipated costs for the future restoration of the Salisbury site.

Balance at beginning of year 491 562Utilised during the year (26) (71)

Balance at end of year 465 491

The outflows are expected to occur over twenty years. NOTE 20 – CONTRIBUTED EQUITY A. Movements in contributed equity 2013

NUMBER2012

NUMBER2013 $’000

2012$’000

Balance at beginning of year 152,153,044 151,778,700 32,016 31,870Issued during the year: Issue to staff under tax exempt share plan (restricted)1 - 374,344 - 146Metrics acquisition funding2 329,364,354 - 62,636 -Kapanol® acquisition funding3 61,016,950 - 17,293 -Options exercised 2,950,000 - 1,252 -Share purchase plan (SPP)4 16,968,161 - 4,955 -Placement to shareholders ineligible to participate in the SPP 460,901 - 136 -Group CFO STI bonus entitlement (restricted)5 43,065 - 14 -

Balance at end of year 562,956,475 152,153,044 118,302 32,016 Notes: 1. The shares are restricted for a period of three years but are retained if the employees leave the Company within that period.

2. Shares issued are net of $3,214,000 of equity raising costs. 3. Shares issued are net of $730,000 of equity raising costs. 4. Shares issued are net of $51,000 of equity raising costs. 5. The shares are restricted for a period of three years and are forfeited if the holder’s employment is terminated within that three-year period.

Contributed equity is made up of two separate accounts of share capital and exercised options reserve.

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B. Share options

EXERCISE

PRICE EXPIRY

DATE

BALANCE AT BEGINNING OF

YEAR

GRANTED DURING THE

YEAR

EXERCISED DURING THE

YEAR

OTHER MOVEMENTS DURING THE

YEAR

BALANCE AT END

OF YEAR

OPTIONS EXERCISABLE

AT END OF YEAR

Year ended 30 June 2013 Number Number Number Number Number Number

Unlisted options $0.6000 30/11/12 250,000 - - (250,000)1 - -Unlisted options $0.18582 31/12/12 2,950,000 - (2,950,000) - - -Unlisted options $0.3520 27/01/16 1,500,000 - - - 1,500,000 -Unlisted options $0.26083 13/02/19 7,500,000 - - - 7,500,000 -Unlisted options $0.2500 15/03/16 - 2,000,000 - - 2,000,000 -Unlisted options $0.3300 12/01/19 15,300,000 - (1,000,000)4 14,300,000Unlisted options $0.3300 26/01/19 - 8,200,000 - - 8,200,000 -

12,200,000 25,500,000 (2,950,000) (1,250,000) 33,500,000 - Notes: 1. Options lapsed 30 November 2012. The exercise price was $0.60 whereas the share price was $0.31. 2. Original exercise price of $0.27 adjusted down to $0.1858 under ASX Listing Rule 6.22 following the entitlement issue announced on 4/10/12. 3. Original exercise price of $0.345 adjusted down to $0.2608 under ASX Listing Rule 6.22 following the entitlement issue announced on 4/10/12. 4. Options were forfeited on the termination of employment. Options issued to executives under the ESOP during the year ended 30 June 2013

2,000,000 granted on 1 January 2013 with an exercise price of $0.25 and an expiry date of 15 March 2016 15,300,000 granted on 11 January 2013 with an exercise price of $0.33 and an expiry date of 12 January 2019 8,200,000 granted on 25 January 2013 with an exercise price of $0.33 and an expiry date of 26 January 2019

Options issued to executives under the ESOP subsequent to 30 June 2013

1,000,000 granted on 1 July 2013 with an exercise price of $0.43 and an expiry date of 1 July 2019 1,000,000 granted on 2 July 2013 with an exercise price of $0.41 and an expiry date of 6 May 2019

EXERCISE

PRICE EXPIRY

DATE

BALANCE AT BEGINNING OF

YEAR

GRANTED DURING THE

YEAR

EXERCISED DURING THE

YEAR

OTHER MOVEMENTS DURING THE

YEAR

BALANCE AT END

OF YEAR

OPTIONS EXERCISABLE

AT END OF YEAR

Year ended 30 June 2012 Number Number Number Number Number Number

Unlisted options $0.600 17/04/12 875,000 - - (875,000)1 - -Unlisted options $0.600 30/11/12 250,000 - - - 250,000 250,000Unlisted options $0.270 31/12/12 2,950,000 - - - 2,950,000 2,950,000Unlisted options $0.352 27/01/16 - 1,500,000 - - 1,500,000 -Unlisted options $0.345 13/02/19 - 1,500,000 - - 1,500,000 -Unlisted options $0.345 13/02/19 - 2,500,000 - - 2,500,000 -Unlisted options $0.345 13/02/19 - 3,500,000 - - 3,500,000 -

4,075,000 9,000,000 - (875,000) 12,200,000 3,200,000 Note: 1. 875,000 options lapsed during the period.

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Options issued to executives under the ESOP and CEOSOP during the year ended 30 June 2012

1,500,000 granted on 25 July 2011 with an exercise price of $0.352 and an expiry date of 27 January 2016 7,500,000 granted on 13 February 2012 with an exercise price of $0.345 and an expiry date of 13 February 2019.

For share options granted during the financial year the fair value of the options granted was determined by valuation specialists, Leadenhall Corporate Advisory Pty Ltd using the Monte Carlo Simulation option pricing model (refer to Note 1(Q)). The following inputs were used in the valuations:

OPTIONS GRANTED 25 JANUARY 2013 OPTIONS GRANTED 11 JANUARY 2013

OPTIONS GRANTED 1 JANUARY 2013

OPTIONS GRANTED FEBRUARY 2012

TRANCHE 1 TRANCHE 2 TRANCHE 3 TRANCHE 1 TRANCHE 2 TRANCHE 3

Number of options over shares 1,640,000

2,460,000 4,100,000 3,060,000 4,590,000

7,650,000 2,000,000 7,500,000

Monte Carlo Simulation model fair value $0.115

$0.107 $0.093 $0.100 $0.098

$0.086 $0.086 $0.125Share price at grant

date $0.355

$0.355 $0.355 $0.33 $0.33

$0.33 $0.30 $0.32Exercise price $0.33 $0.33 $0.33 $0.33 $0.33 $0.33 $0.25 $0.345Expected volatility 50% 50% 50% 50% 50% 50% 50% 70%Expected option life 2.85yrs 3.56yrs 4.12yrs 2.91yrs 3.55yrs 4.12yrs 2 yrs 7 yrsDividend yield 0% 0% 0% 0% 0% 0% 0% 0%Risk-free rate 2.70% 2.70% 2.70% 2.85% 2.85% 2.85% 2.70% 3.86% The expected volatility was determined based on historical volatility of the Company and of similar companies. The estimate reflects the likelihood that the volatility in financial markets over the next three to five years will be less extreme than that experienced during the global financial crisis, and also takes into account the likely stabilising impact of the capital raisings in 2012. The expected life of the share options is based on historical data and current expectations and is not necessarily reflective of exercise patterns that may eventuate. Option modification The terms of the options issued in February 2012 under the CEOSOP were modified during the year. Following the issue of shares under an underwritten pro-rata accelerated non-renounceable entitlement offer of new ordinary shares, as announced in October 2012, the exercise price of the options was adjusted under ASX Listing Rule 6.22 from $0.345 to $0.2608. As a result, the options were revalued as follows:

OPTIONS ISSUED FEBRUARY 2012, REVALUED

TRANCHE 1 TRANCHE 2 TRANCHE 3

Number of options over shares 1,500,000 2,500,000 3,500,000Revised Monte Carlo Simulation model fair value $0.045 $0.035 $0.024Share price at revaluation date $0.27 $0.27 $0.27Revised exercise price $0.2608 $0.2608 $0.2608Expected volatility 50% 50% 50%Expected option life 3.28yrs 4.29yrs 5.28yrsDividend yield 0% 0% 0%Risk-free rate 3.86% 3.86% 3.86% The modification resulted in an expense value less than original, as such the expense amount was not changed. In addition to the impact on the options issued under the CEOSOP, the entitlement offer also impacted the value of options previously issued to certain Directors in 2009. Those options vested on issue and the cost to the Company, as calculated at the time of issue, was borne in the year ended 30 June 2010. As a result of the entitlement offer, the exercise price of the options was also reduced by $0.0842 to $0.1858, which required the revaluation of those options and resulted in an additional charge to the profit or loss during the year ended 30 June 2013 of $75,000. The options were exercised in December 2012. C. Terms and conditions of contributed equity Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.

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D. Capital management The primary objective of the Group in relation to capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business objectives and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the Company’s strategy. To maintain or adjust the capital structure, the Company may return capital to shareholders or issue new shares, as occurred during the year ended 30 June 2013. No changes were made in the objectives, policies or processes during the years ended 30 June 2013 and 30 June 2012. Management monitors capital with reference to the net debt position. The Group includes within net debt, interest-bearing loans and borrowings, trade and other payables, less cash and cash equivalents. The Group’s current policy is to maintain a net debt position that the Directors are comfortable with and that can be serviced by the Group’s cash flows. 2013

$’000 2012$’000

Trade and other payables 10,504 4,234Interest-bearing borrowings 46,698 -Less cash and cash equivalents (18,938) (11,596)

Net debt/ (cash) 38,264 (7,362) The net (cash)/debt position excludes earn-out liabilities as they are funded from future gross revenue. The Group is not subject to any externally-imposed capital requirements. NOTE 21 – RESERVES 2013

$’000 2012$’000

Share-based payments reserve 618 1,087Foreign currency translation reserve 6,843 -

7,461 1,087 Share-based payments reserve The share-based payments reserve is used to record the value of share-based payments provided to employees, including key management personnel, as part of their remuneration. 2013

$’000 2012$’000

Balance at beginning of year 1,087 960Issue of options to employees 707 127Transfer to contributed equity on exercise of options (704) -Lapsed/expired options reclassified to accumulated losses (472) -

Balance at end of year 618 1,087 Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in Note 1F and accumulated in a separate reserve within equity. The cumulative amount in reclassified to profit and loss when the net investment is disposed of. 2013

$’000 2012$’000

Balance at beginning of year - -Foreign exchange translation differences 6,843 -

Balance at end of year 6,843 -

NOTE 22 – ACCUMULATED LOSSES

2013 $’000

2012$’000

Accumulated losses at the beginning of the period (2,503) (8,656)

Net (loss)/profit attributable to members (2,843) 6,153

Lapsed/expired options reclassified to retained earnings 472 -

Accumulated losses at the end of the period (4,874) (2,503)

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NOTE 23 – OPERATING SEGMENTS The Consolidated Entity has identified its operating segments based on the internal reports that are reviewed and used by the CEO (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by Management based on the nature of revenue flows and responsibility for those revenues. Discrete financial information about each of these operating segments is reported to the chief operating decision maker on at least a monthly basis. The Consolidated Entity now operates in four operating segments MPA, MP Global plus two new segments arising from the acquisition of Metrics, namely the US Generic Products and Metrics Contract Services segments. MPA MPA’s revenues and gross profit are derived from the manufacturing, distribution and marketing of branded and generic pharmaceutical products within Australia. MP Global The MP Global operating segment’s revenues and gross profit are derived from the manufacturing and out-licensing of branded pharmaceutical products to international marketing and distribution partners and provision of contract manufacturing services to third-party customers within Australia. US Generic Products The US Generic Products (formerly known as Metrics Products) segment’s revenue and gross profit are derived from the manufacturing and distribution of generic pharmaceutical products in the United States. Metrics Contract Services The Metrics Contract Services segment’s revenue and gross profit are derived from providing contract pharmaceutical development services to third-party customers principally in the United States. Non-current assets are held in Australia and the US. Australian assets are disclosed in note 32. The Consolidated Entity reports the following information on the operations of its identified segments:

US GENERIC

PRODUCTS $’000

METRICS CONTRACT SERVICES

$’000MPA

$’000MP GLOBAL

$’000

TOTAL SEGMENTS

$’000

ELIMINATIONS AND

ADJUSTMENTS $’000

TOTAL CONSOLIDATED

$’000

Year ended 30 June 2013 Sale of goods 25,220 - 11,009 20,679 56,908 (460) 56,448Services income - 14,783 - 11,509 26,292 (478) 25,814Royalty income - - - 1,169 1,169 - 1,169R&D income - - - - - 69 69Other - - - - - 571 571Revenue 25,220 14,783 11,009 33,357 84,369 (298) 84,071Cost of sales (9,426) (8,340) (5,977) (21,158) (44,901) 460 (44,441)Gross profit 15,794 6,443 5,032 12,199 39,468 162 39,630Amortisation of intangible

assets (3,698)Fair value movement in earn-

out liability (5,151)Other expenses (refer

Statement Profit or Loss and Other Comprehensive Income) (31,484)

Loss before income tax (703)Income tax expense (2,140)Net loss for the period (2,843) F

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US GENERIC PRODUCTS

$’000

METRICS CONTRACT SERVICES

$’000MPA

$’000MP GLOBAL

$’000

TOTAL SEGMENTS

$’000

ELIMINATIONS AND

ADJUSTMENTS $’000

TOTAL CONSOLIDATED

$’000

Year ended 30 June 2012 Sale of goods - - 9,837 29,177 39,014 - 39,014Services income - - - 11,422 11,422 - 11,422Royalty income - - - 1,468 1,468 - 1,468R&D income - - - - - 306 306Other - - - - - 336 336

Revenue - - 9,837 42,067 51,904 642 52,546Cost of sales - - (6,749) (22,593) (29,342) - (29,342)

Gross profit - - 3,088 19,474 22,562 642 23,204 Amortisation of intangible

assets (3,808)Fair value movement in earn-

out liability 2,850Other expenses (refer

Statement of Profit or Loss and Other Comprehensive Income) (14,495)

Profit before income tax 7,751Income tax (expense) (1,598)

Net profit for the period 6,153 Geographical segment information

Revenue from external customers 2013

$’000 2012

$’000

Australia 25,678 24,379United States 52,245 20,450Korea 3,356 3,597Other 2,792 4,120

Total external revenue 84,071 52,546

Product information

Revenue by product group / service 2013 $’000

2012$’000

Contract Services 11,509 11,422Analytical & Formulation 14,305 -Oral & Other Pharmaceuticals 56,448 39,014Other revenue 1,809 2,110

Total external revenue 84,071 52,546 NOTE 24 – NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS A. Cash and cash equivalents For the purpose of the Statement of Cash Flows, cash and cash equivalents include cash on hand and in banks (excluding restricted cash). Cash and cash equivalents at the end of the year as shown in the Statement of Cash Flows comprise the following:

2013 $’000

2012$’000

Cash at bank and in hand 18,938 11,596 Cash at bank attracts floating interest at current market rates.

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B. Reconciliation of net profit after income tax to net cash used in operating activities

2013 $’000

2012$’000

Net profit after income tax (2,843) 6,153 Adjustments for: Depreciation 3,632 1,781Amortisation of intangibles and borrowing costs 4,025 4,009Share-based payments 707 272Movement in earn-out liability 5,151 (2,850)Asset disposals 31 -Net foreign exchange differences 15 (247) Changes in assets and liabilities (Increase)/decrease in receivables (5,496) 1,876(Increase) in inventories (1,349) (822)(Increase) in prepayments (228) (312)(Increase)/decrease in deferred tax assets (731) 939Increase in creditors 2,648 387Increase in provisions 331 864Increase in current and deferred tax liabilities 952 1,337

Net cash from operating activities 6,845 13,387

NOTE 25 – RELATED PARTY DISCLOSURES A. Subsidiaries The consolidated financial statements include the financial statements of Mayne Pharma Group Limited and the subsidiaries listed in the following table:

COUNTRY OF

INCORPORATION % EQUITY INTEREST INVESTMENT $’000

2013 2012 2013 2012

Mayne Pharma International Pty Ltd Australia 100 100 39,205 39,205 Mayne Products Pty Ltd1 Australia 100 100 - - Mayne Pharma UK Limited1 United Kingdom 100 100 - - Metrics, Inc United States 100 - 62,1962 -

108,401 39,205

Note: 1. Dormant subsidiaries. 2. Refer note 31 for details of the business combination. On 2 July 2013, the Company announced the acquisition of 100% of the equity interests in US-based Libertas Pharma, Inc. B. Ultimate parent Mayne Pharma Group Limited is the ultimate parent entity. C. Key management personnel Details relating to KMP, including remuneration paid, are included in Note 26. D. Transactions with related parties The Company had no other transactions with KMP or other related parties during the financial years ended 30 June 2013 or 30 June 2012. Amounts owing to Directors, Director-related parties and other related parties at 30 June 2013 and 30 June 2012 were nil.

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NOTE 26 – KEY MANAGEMENT PERSONNEL DISCLOSURES i. Directors and other key management personnel The Directors of Mayne Pharma Group Limited during the financial year were:

Mr Roger Corbett AO – Chairman Mr Scott Richards – Managing Director and Chief Executive Officer Mr William (Phil) Hodges (Executive Director and President of Metrics) – Appointed 15 November 2012 Hon Ron Best – Non-Executive Director Mr Bruce Mathieson – Non-Executive Director Mr Ian Scholes – Non-Executive Director

Other key management personnel consisted of:

Mr Mark Cansdale – Group Chief Financial Officer and Company Secretary Mr Stefan Cross – Vice President, Business and Corporate Development (appointed 11 December 2012) Mr Peter Truelove – National Sales and Marketing Director (ceased to be KMP 14 November 2012) Mr Vince Caretti – General Manager operations (ceased to be KMP 14 November 2012)

For the year ended 30 June 2012, KMP included additional Australian-based executives. With the expansion of the Group to include significant US operations, the makeup of the KMP has changed, as the roles of those former members are solely focussed on the Australian business, rather than the Group.

ii. Compensation of key management personnel

2013 $

2012$

Short-term employee benefits 1,898,527 1,534,653Post-employment benefits 117,342 172,100Long-term benefits 14,173 11,444Share-based payments 251,343 129,366Termination payments - 776,793

2,281,385 2,624,356 iii. Equity instrument disclosures relating to key management personnel Option holdings The number of options over ordinary shares in the Company held during the financial year by each Director of Mayne Pharma Group Limited and other KMP of the Company, including their personally-related parties, are set out below.

HELD AT 30 JUNE 2011

GRANTED AS COMPEN-

SATION EXERCISED/

OTHER CHANGES FORFEITEDHELD AT 30 JUNE 2012

GRANTED AS COMPEN-

SATION

EXERCISED/ OTHER

CHANGES FORFEITED HELD AT 30 JUNE 2013

Directors Number Number Number Number Number Number Number Number Number

Mr R Corbett - - - - - - - - -Mr S Richards - 7,500,000 - - 7,500,000 - - - 7,500,000Mr P Hodges - - - - - - - - -Hon R Best 350,000 - - - 350,000 - (350,000) - -Mr B Mathieson 600,000 - - (250,000) 350,000 - (350,000) - -Mr I Scholes 600,000 - - - 600,000 - (600,000)3 - -Dr R Aston 2,525,000 - (1,900,000) (625,000) -1 - - - - 4,075,000 7,500,000 (1,900,000) (875,000) 8,800,000 - (1,300,000) - 7,500,000

Other key management personnel Mr M Cansdale - 1,500,000 - - 1,500,000 - - - 1,500,000Mr S Cross2 - - - - - 1,000,000 - - 1,000,000 - 1,500,000 - - 1,500,000 1,000,000 - - 2,500,000 4,075,000 9,000,000 (1,900,000) (875,000) 10,300,000 1,000,000 (1,300,000) - 10,000,000

Notes: 1. Dr R Aston ceased employment with Mayne Pharma Group Ltd on 15 February 2012 and as such his holdings were not reported at 30 June

2012. 2. Mr S Cross commenced employment with the Group effective 11 December 2012 3. 250,000 options lapsed and 350,000 options were exercised.

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Movements in shares The movement during the year in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each KMP including their related parties, is as follows:

HELD AT

30 JUNE 2011

RECEIVED DURING THE YEAR ON EXERCISE OF

OPTIONS OTHER CHANGES

DURING THE YEARHELD AT

30 JUNE 2012

RECEIVED DURING THE YEAR ON EXERCISE OF

OPTIONS OTHER CHANGES

DURING THE YEARHELD AT

30 JUNE 2013

Directors Number Number Number Number Number Number Number

Mr R Corbett 1,676,319 - - 1,676,319 - 3,371,180 5,047,499Mr S Richards - - - - - 2,500,000 2,500,000Hon R Best 957,244 - - 957,244 350,000 866,000 2,173,244Mr B Mathieson 13,411,622 - - 13,411,622 350,000 30,013,126 43,774,748Mr I Scholes 311,622 - - 311,622 350,000 348,706 1,010,328Mr P Hodges - - - - - 5,302,738 5,302,738Dr R Aston 9,071,000 - (9,071,000)1 -1 - - - 25,427,807 - (9,071,000) 16,356,807 1,050,000 42,401,750 59,808,557

Other key management personnel Mr M Cansdale 12,141 - 2,564 2 14,705 - 216,005 230,710Mr S Cross3 - - - - - - -Mr V Caretti 10,000 - 2,564 2 12,564 - - -4

22,141 - 5,128 27,269 - 216,005 230,710 25,449,948 - (9,065,872) 16,384,706 1,050,000 42,617,755 60,039,267

Notes: 1. Dr R Aston ceased with Mayne Pharma Group Ltd on 15 February, 2012 and as such his holdings are not reported at 30 June 2012. 2. Issued on 18 October 2011 to employees under the Mayne Pharma Group Ltd Tax Exempt Share Plan, restricted until 18 October 2014, and

can be retained by the employee if they leave within that period. 3. Mr S Cross began employment with the Group effective 11 December 2012 4. Mr Caretti is no longer considered KMP and his holdings are therefore not disclosed at 30 June 2013 NOTE 27 – SHARE-BASED PAYMENT PLANS Recognised share-based payments expense The expense recognised for employee services received during the year is shown in the table below:

2013 $’000

2012 $’000

Expense arising from equity-settled share-based payment transactions 479 127

Expense arising from Tax Exempt Share Plan - 145

Option modifications (refer Note 20B). 217 -

707 272

Tax Exempt Share Plan (TESP) 374,344 shares were issued under the Tax Exempt Share Plan to long-term employees on 18 October 2011 for nil consideration at an effective issue price of $0.39 per share based on price at close of trade for that day. They are restricted for a period of three years but are retained by employees who leave the Company within that period. There were no issues under the TESP during the year ended 30 June 2013. Employee share option plan (ESOP) An employee share option plan is in place where directors and employees of the Company may be issued with options over the ordinary shares of Mayne Pharma Group Limited. Shareholders re-approved the plan at the AGM held on 9 November 2012. The options, issued for nil consideration, are issued in accordance with guidelines established by the Directors of Mayne Pharma Group Limited. Each employee share option converts to one ordinary share in Mayne Pharma Group Limited upon exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The exercise price is set by reference to the volume weighted average price at which the Company’s shares trade on the Australian Securities Exchange (ASX) across an agreed period. The contractual term varies across the various issues but generally ranges from three to six years and there are no cash settlement alternatives for employees.

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A total of 25,500,000 options were issued during the 2013 year under the ESOP. A total of 1,500,000 options were issued during the year ended 30 June 2012.

2013NUMBER OF OPTIONS

2013WEIGHTED AVERAGE

EXERCISE VALUE $2012

NUMBER OF OPTIONS


EXERCISE VALUE $

Balance at beginning of year 1,500,000 0.352 - -Granted during the year 25,500,000 0.324 1,500,000 0.352Exercised during financial year - - - -Other movements - - - -

Balance at end of year 27,000,000 1,500,000 The weighted average fair value of options granted during the year was $0.324 (2012: $0.352) All option plans have no cash settlement for options and there were no cancellations or modifications in relation to options on issue under the ESOP. Chief Executive Officer Share Option Plan (CEOSOP) A share option plan is in place where the CEO of the Company may be issued with options over the ordinary shares of Mayne Pharma Group Limited. Shareholders approved the plan at the Extraordinary General Meeting held on 27 January 2012. The options, issued for nil consideration, were issued in accordance with guidelines established by the Directors of Mayne Pharma Group Limited. Each CEO share option converts to one ordinary share in Mayne Pharma Group Limited upon exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to seven years after the Grant Date (13 February 2019) subject to the terms and conditions outlined in the plan, including Share Price hurdles ranging from $1.00 to $2.50, Service and Share Gateway conditions. The options were issued in three tranches:

NUMBER OF OPTIONS

GRANT DATE

VESTING DATE

Tranche 1 1,500,000 13 February 2012 13 February 2016 Tranche 2 2,500,000 13 February 2012 13 February 2017 Tranche 3 3,500,000 13 February 2012 13 February 2018



EXERCISE PRICE $2012

NUMBER OF OPTIONS


ERERCISE PRICE $

Balance at beginning of year 7,500,000 0.26081 - -Granted during the year - - 7,500,000 0.345

Balance at end of year 7,500,000 7,500,000 Note: 1. The weighted average exercise price of the CEOSOP options changed during the year as a result of the application of ASX Listing Rule 6.22

following the Company’s entitlement offer announced in October 2012. Refer Note 20B. There were no option issues under the CEOSOP during the year (2012: 7,500,000). Refer Note 20B. Options not within the ESOP plan Options issued outside of the ESOP are at the discretion of the Directors, subject to the necessary shareholder approval. All share options granted under this plan (in 2009) vested immediately. Share options were not subject to vesting conditions as it was the Board’s intention to incentivise KMP and other executives to achieve the target performance of the Group from the business combination transaction in October 2009 and not based on total shareholders’ return. There were no options granted outside of the ESOP during the year.



EXERCISE PRICE $2012

NUMBER OF OPTIONS


EXERCISE PRICE $

Balance at beginning of year 3,200,000 0.36 4,075,000 0.36Granted during the year - - - -Exercised during financial year (2,950,000) 0.18581 - -Other movements2 (250,000) 0.60 (875,000) 0.60

Balance at end of year - 3,200,000 Notes: 1. The exercise price of the previously vested options that were issued outside of the ESOP changed during the year as a result of the application

of ASX Listing Rule 6.22 following the Company’s entitlement offer announced in October 2012. The previous exercise price was $0.27. 2. These options lapsed as the share price was below the exercise price The weighted average remaining contractual life for the share options outstanding as at 30 June 2013 was 5.22 years (2012: 5.82 years). Refer Note 20B. The range of exercise prices for options outstanding at the end of the year was $0.2608 to $0.352 (2012: $0.27 to $0.60).

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NOTE 28 – PARENT ENTITY DISCLOSURES Financial position

2013 $’000

2012$’000

Assets Current assets 9,675 209Non-current assets 102,337 39,344

Total assets 112,012 39,553

Liabilities Current liabilities 4,207 5,549Non-current liabilities 24,346 24,261

Total liabilities 28,553 29,810

Net assets 83,459 9,743

Equity Issued capital 118,302 32,016Reserves 618 1,087Accumulated losses (35,461) (23,360)


Financial performance

2013 $’000

2012$’000

Loss for the year (12,573) (1,292)Other comprehensive income - -

Total comprehensive income (12,573) (1,292) The parent entity has guaranteed the borrowings of a subsidiary. Refer Note 17. The parent entity has lease commitments of $221,000. NOTE 29 – COMMITMENTS AND CONTINGENCIES A. Commitments Leasing commitments The Group has entered into operating leases on warehouse and office space as well as equipment leases. Future minimum rentals payable under these operating leases are as follows:

2013 $’000

2012$’000

Within one year 642 289After one year but not more than five years 1,114 325

Total minimum lease payments 1,756 614 Capital Commitments The Group had $555,000 of contractual obligations for the purchase of capital equipment as at 30 June 2013 (2012: $nil). B. Contingencies Doryx® litigation The Company together with Warner Chilcott received notification of four anti-trust lawsuits from Mylan, Rochester Drug Co-operative, Meijer Inc. and American Sales Company LLC, alleging that Warner Chilcott and Mayne Pharma have engaged in conduct that constrains generic competition for Doryx®. At the date of this report, no certainty exists as to the outcome of these actions, however Mayne Pharma does not foresee incurring any material financial liabilities in relation to these actions based on pre-existing contractual rights with Warner Chilcott and current legal advice received by the Company.

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NOTE 30 – DIVIDENDS No dividends were paid or declared in the year ended 30 June 2013 (2012: nil).

Franking credit balance

2013 $’000

2012$’000

Opening balance 233 592Franking credits arising from payments 1,525 -Refunds from ATO - (359)

Franking credits (debits) that will arise from the payment (refund) of income tax as at the end of the financial year

(145) 1,601

Franking credits available for future reporting periods 1,613 1,834 NOTE 31 – BUSINESS COMBINATIONS Acquisition of Metrics Effective 14 November 2012, Mayne Pharma acquired Metrics a privately-owned, US-based provider of contract development services to the pharmaceutical industry that also develops and manufactures niche generic pharmaceuticals. Under the terms of the Merger Agreement, the Group must pay the former shareholders of Metrics an additional cash payment based upon adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) targets for the 2013 financial year as defined in the Merger Agreement. The final amount due of $10,049,000 (US$ 10,471,000) (based on the exchange rate at acquisition date) has been included in the determination of the purchase consideration. The total cost of the acquisition at 14 November 2012 was $113,194,000, comprising of a cash payment of $61,969,000 (paid out of proceeds raised from an equity raising and surplus cash), a loan facility with MidCap Funding V LLC of $41,176,000 and the earn-out payment of $10,049,0000. The Group has recognised the fair values of the identifiable assets and liabilities acquired. The process of valuing separately identifiable intangible assets and the property, plant and equipment, has been completed as permitted under Australian Accounting Standards. The intangible assets include research and development projects that qualify for capitalisation, customer relationships and intellectual property.

The business combination accounting recognised is as follows:

RECOGNISED ON ACQUISITION

$’000

Receivables – current 15,238 Inventories 4,355 Current tax receivable 2,511 Intangible assets 40,988 Property, plant and equipment 29,008

Total identifiable assets acquired 92,100

Payables – current (3,504) Provisions – current (1,385) Deferred tax liabilities (17,177)

Total identifiable liabilities assumed (22,066)

Fair value of identifiable net assets 70,034 Goodwill 43,160

113,194

Cost of the combination:

Cash paid 103,145

Earn-out 10,049

Total cost of the combination 113,194

Cash flow on acquisition:

Transaction costs of acquisition 4,032

Cash paid 103,145

Net consolidated cash outflow 107,177

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Note: The values above are based on the USD:AUD exchange rate applying at the date of acquisition. Year end balances are based on USD:AUD exchange rate at 30 June 2013. From the date of acquisition, Metrics has contributed $40,003,000 of revenue and $7,125,000 to the profit before tax from continuing operations of the Group. The Group is unable to calculate the contribution and result if the combination had occurred at the beginning of the year due to the lack of Australian Accounting Standards information. The goodwill comprises the fair value of expected synergies arising from acquisition. The strategic rationale to acquire Metrics included:

Provides Mayne with direct access to largest pharmaceutical market and participants Strengthen and diversify revenue streams Expand and diversify new product pipeline Metrics has a strong and complimentary management team The Metrics business is complimentary to the Mayne Pharma business with significant combination opportunities.

The acquisition was completed by acquiring the shares of Metrics and merging the Metrics entity into a special purpose acquisition entity owned by Mayne Pharma. NOTE 32 – DEED OF CROSS GUARANTEE As an entity subject to Class Order 98/1418, relief has been granted to MPI from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their financial report. As a condition of the Class Order, Mayne Pharma Group Limited and MPI entered into a Deed of Cross Guarantee on 28 June 2010. The effect of the deed is that the Company has guaranteed to pay any deficiency in the event of winding up of its controlled entity or if they do not meet their obligations under the terms of the liabilities subject to the guarantee. The controlled entity has also given a similar guarantee in the event that the Company is wound up or if it does not meets its obligations under the terms of loans or other liabilities subject to the guarantee. Set out below are a Consolidated Statement of Profit or Loss and other Comprehensive Income and a summary of movements in consolidated accumulated losses for the year ended 30 June 2013 of the closed group consisting of the Company and MPI. (a) Consolidated Statement of Profit or Loss and other Comprehensive Income and a summary of movements in accumulated

losses.

CONSOLIDATED

2013 $’000

2012$’000

Continuing operations Sale of goods 31,688 39,014Services revenue 11,509 11,422Royalties revenue 1,169 1,468Other revenue 639 642

Revenue 45,005 52,546Cost of sales (27,135) (29,342)

Gross profit 17,870 23,204 Research and development expenses (2,804) (4,018)Distribution expenses (658) (613)Marketing expenses (1,682) (675)Regulatory affairs expenses (1,030) (872)Share-based payments (479) (272)Amortisation expenses (1,747) (3,808)Administration expenses (6,930) (6,985)Finance costs (56) (28)Other expenses (218) -Fair value movement in earn-out liability (5,150) 2,850Acquisition costs (4,422) -Restructure and redundancy costs (25) (851)Impairment of customer relationship intangible asset - (181)

Profit/(loss) before income tax (7,331) 7,751Income tax (expense)/benefit 379 (1,598)

Net profit from continuing operations after income tax (6,952) 6,153Other comprehensive income for the period, net of tax - -

Total comprehensive income for the period attributable to owners of the parent (6,952) 6,153

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2013 $’000

2012$’000

Accumulated losses at the beginning of the financial year (2,503) (8,656)Profit/(loss) for the period (6,952) 6,153Lapsed/expired options reclassified to retained earnings 472 -Accumulated losses at the end of the financial year (8,983) (2,503) (b) Consolidated Statement of Financial Position Set out below is a Consolidated Statement of Financial Position as at 30 June 2013 of the closed group consisting of the Company and MPI. CONSOLIDATED

2013 $’000

2012$’000

Current assets Cash and cash equivalents 12,159 11,596Trade and other receivables 9,360 3,821Inventories 7,403 7,244Income tax receivable 202 -Other financial assets 884 -Other current assets 978 594

Total current assets 30,986 23,255 Non-current assets Investment in subsidiary 62,196 -Property, plant and equipment 22,294 22,224Deferred tax assets 832 530Intangible assets and goodwill 19,733 4,194

Total non-current assets 105,055 26,948Total assets 136,041 50,203 Current liabilities Trade and other payables 4,608 4,234Income tax payable - 1,456Other financial liabilities 6,890 2,782Provisions 4,012 3,832

Total current liabilities 15,510 12,304 Non-current liabilities Other financial liabilities 9,842 6,549Provisions 752 750

Total non-current liabilities 10,594 7,299Total liabilities 26,104 19,603Net assets 109,937 30,600

Equity Contributed equity 118,302 32,016Reserves 618 1,087Accumulated losses (8,983) (2,503)


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NOTE 33 – EVENTS SUBSEQUENT TO THE REPORTING PERIOD Other than as noted below, there have been no events subsequent to the reporting date. On 2 July 2013, Mayne Pharma announced the acquisition of Libertas Pharma Inc., a US-based generic pharmaceutical company that distributes and markets a range of niche products in the US. Libertas was acquired by way of upfront payment (US$1m) comprising cash and a scrip component and a three year performance based earn-out which will be funded from operating cash (up to US$2.68m over three years). On 9 July 2013, Mayne Pharma announced the launch, via the US Generic Products segment, of Doxycycline Hyclate Delayed-Release 75mg and 100mg tablets, in the United States. On 9 August 2013, the Company announced the signing of two distribution agreements for SUBACAP®, in four key European markets. Under the exclusive distribution agreements, Mayne Pharma will receive upfront payments, milestone payments and a percentage of net sales in each country. On 11 September 2013, the Company announced the signing of an exclusive Supply and License Agreement with US-based HedgePath Pharmaceuticals, Inc. (HPPI), whereby HPPI will pursue clinical development, registration and commercialisation of Mayne Pharma’s patented formulation of itraconazole, known as SUBA™-Itraconazole, for treatment of a variety of cancers in the United States. This agreement is independent of Mayne Pharma’s commitment to progress the commercialisation of SUBACAP® globally for the treatment of fungal infections. As part of the agreement, Mayne Pharma expects to appoint one representative to the HPPI Board. Although the Supply and License Agreement is effective immediately, it remains subject to certain conditions being achieved, as detailed in the Current Report on Form 8-K that HPPI filed with the US Securities and Exchange Commission on 10 September 2013. Subject to meeting these conditions, and in return for granting HPPI exclusive US rights, Mayne Pharma is expected to acquire an equity stake in HPPI of between 30-45%. Under the terms of the agreement, Mayne Pharma will supply HPPI with SUBA™-Itraconazole for use in clinical trials and for future exclusive commercial supply following FDA approval.

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Mayne Pharma / Annnual Report 2013 81

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ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 31 August 2013. DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS

SIZE OF HOLDING NUMBER OF SHAREHOLDERS NUMBER OF SHARES NUMBER OF OPTION

HOLDERS

NUMBER OF OPTIONS

1 to 1,000 326 10.6% 51,278 0.0% - -1,001 to 5,000 522 17.0% 1,524,951 0.3% - -5,001 to 10,000 390 12.7% 3,103,985 0.6% - -10,001 to 100,000 1,382 44.9% 53,649,699 9.5% 23 2,300,000100,001 and over 455 14.8% 505,130,055 89.6% 47 33,000,000

Total 3,075 100.0% 563,459,968 100.0% 70 35,300,000 Included in the above total are 295 shareholders holding less than a marketable parcel of 893 shares. OPTIONS There are 35,300,000 options on issue held by 70 individual option holders. Options do not carry a right to vote. TWENTY LARGEST ORDINARY FULLY-PAID SHAREHOLDERS SHARES % OF TOTAL

HSBC Custody Nominees (Australia) Limited 59,724,028 10.60 National Nominees Limited 52,453,345 9.31 UBS Nominees Pty Ltd 47,444,009 8.42 Mr Bruce Mathieson and related entities 43,774,748 7.77 RBC Investor Services Australia Nominees Pty Limited 19,190,916 3.41 J P Morgan Nominees Australia Limited 18,235,028 3.24 Citicorp Nominees Pty Limited 14,450,614 2.56 R & JS Smith Holdings Pty Ltd 12,067,000 2.14 BNP Paribas Noms Pty Ltd 11,163,753 1.98 Westcap Pty Ltd 5,331,471 0.95 Mr William Hodges and related entities 5,302,738 0.94 Sandhurst Trustees Ltd 5,162,808 0.92 Mr Roger Corbett and related entities 5,047,499 0.90 Dilan Corp Pty Ltd 5,000,000 0.89 Insync Investments Pty Ltd 4,950,000 0.88 UBS Wealth Management Australia Nominees Pty Ltd 4,838,599 0.86 Thorney Holdings Pty Ltd 4,800,000 0.85 Rosherville Pty Ltd 4,500,000 0.80 Chimera Capital Limited 4,400,000 0.78 WAL Assets Pty Ltd 4,243,542 0.75

SUBSTANTIAL SHAREHOLDERS The names of substantial shareholders in the Company who had notified the Company in accordance with Section 671B of the Corporations Act are: Mr B L Mathieson and related entities 7.8% TIGA Trading Pty Ltd 6.3% Australian Leaders Fund Limited 5.6%

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INTELLECTUAL PROPERTY & GLOSSARY Astrix®, Doryx®, Eryc®, Kadian®, Kapanol®, Magnoplasm® and SUBACAP® are registered trademarks of the Consolidated Entity. Glossary ANDA – Abbreviated New Drug Application FDA – US Food and Drug Administration MHRA – Medicines and Healthcare Products Regulatory Agency TGA – Therapeutic Goods Administration

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CORPORATE INFORMATION DIRECTORS: Mr Roger Corbett, AO (Chairman) Mr Scott Richards (Managing Director and CEO)

Hon. Ron Best Mr Bruce Mathieson Mr Ian Scholes Mr William (Phil) Hodges

COMPANY SECRETARY: Mr Mark Cansdale REGISTERED OFFICE AND PRINCIPAL PLACE OF Level 14 BUSINESS: 474 Flinders Street

Melbourne VIC 3000 Telephone: (03) 8614 7777 Facsimile: (03) 9614 7022

AUDITORS: EY Australia 8 Exhibition Street Melbourne VIC 3000

SOLICITORS: Minter Ellison Lawyers Rialto Towers 525 Collins Street Melbourne VIC 3000

SHARE REGISTRY: Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone: (03) 9415 4184 Facsimile: (03) 9473 2500

BANKERS: National Australia Bank Limited Level 2 151 Rathdowne Street Carlton VIC 3053

Midcap Financial, LLC 7255 Woodmont Ave Suite 200 Bethesda, MD 20814 USA

ABN: 76 115 832 963 DOMICILE AND COUNTRY OF INCORPORATION: Australia LEGAL FORM OF ENTITY: Public company listed on the Australian Securities Exchange (MYX)

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Mayne Pharma Group LimitedABN 76 115 832 963maynepharma.com

Level 14, 474 Flinders Street, Melbourne, VIC AustraliaT +61 3 8614 7777 F +61 3 9614 7022

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For personal use only - ASX · 2013-09-24 · Auditor’s Report thereon. The information set out...

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