2014 Annual Report Genea 1m223r

Annual Report 2014

“All of us deeply feel the loss of our friend and colleague, Professor Rob Jansen, who provided the inspiration and capability for Genea to be a world leader in fertility and to help couples realise their dream of having a healthy baby. ” Rowan Ross AM

Contents Tribute to Professor Robert Paul Siebrand Jansen

3

Chairman’s Report

6

Board

8

2014 Group Result Summary

10

CEO’s Report

11

Genea Divisional Reports

16

Corporate Governance

32

Our Values

42

Financial Report

44

Company History

112

Stages Of Embryo Development

114

Glossary Of Biotechnical

115

Locations And s

117

Genea Limited Annual Report 2014

2Genea

Professor Robert Paul Siebrand Jansen 1946 - 2014 On the night of Friday 11 July 2014, one of Genea’s guiding lights went out. After more than 35 years at the forefront of reproductive medicine and genetics, Professor Robert Paul Siebrand Jansen died of Multiple Myeloma during a final holiday to Europe to indulge his twin ions – travel and Genea. In the words of his friend Dr Robert Lyneham, Prof Jansen was an inspiration of the likes of which this speciality may never see again. “Every generation of doctors produces leaders that are so inspirational, they not only change the lives of their own patients by their knowledge and care, they influence others to change direction and strive for uncompromising excellence like them. Such is their understanding of the science of medicine, the comion of medicine, the ethics of medicine, so broad is their intellectual creativity and vision, they literally change how medicine is practised.” An internationally acclaimed medical researcher who established Genea as Sydney IVF almost 30 years ago in 1985, Prof Jansen never lost his fascination for the physiology of reproduction. And he never exhausted his desire to share what he had learnt nor bored of writing and presenting on the topic. A prolific writer, Rob authored one book, edited three more and wrote 31 chapters in books edited by others. He was the principal or instigating author in approximately 150 scientific publications and co-author in many, many others. He also authored 25 papers on ethics and reproduction and six or more on the mitochondrial genome.

Prof Jansen was a college examiner, Chairman of the college subspecialisation committee and a consultant to the NSW Law Reform Commission. He was the President of the 11th World Congress on IVF and Human Reproductive Genetics in Sydney in 1999, he was on the editorial board of two international journals, he was a referee for 15 journals and he had an extensive involvement with the NHMRC. During his career, Prof Jansen gave over 120 presentations as an invited speaker at international and national meetings on a vast array of subjects and in 2012 he was honoured with hip of the Order of Australia for services to medical research and education. But most importantly to Sydney IVF and Genea, Prof Jansen was our mentor and guiding light. His vision and leadership motivated the team at Genea to make breakthrough developments in the culture and incubation of embryos as well as the first true integration of IVF and genetics. Genea CEO Dr Tomas Stojanov ed Prof Jansen as a brilliant human being. “Without Prof Jansen’s visionary and entrepreneurial pursuit of innovation and cutting edge medicine, there would be no Genea and no opportunity to help start and grow the families of the thousands of couples we see each and every year.” Born in The Hague on 25 October 1946, to parents who had been incarcerated in Singapore and Java during World War II, Prof Jansen grew up at Newport, north of Sydney after his family moved to Australia seeking a better life.

His contributions to the discipline of genetics and reproductive medicine were not limited to the written word.


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Professor Robert Paul Siebrand Jansen 1946 - 2014 Graduating as Dux of Narrabeen Boys’ High School in 1963, Prof Jansen embarked upon a remarkable life long journey of self education and research. He completed a Bachelor of Medical Science with first class honours at Sydney University in 1968, then his medical degree (MB. BS) in 1970. He became a Member (later Fellow) of the Royal Australasian College of Physicians in 1974 and then became a Fellow of the Royal Australian College of Obstetrics and Gynaecology (RACOG, later RANZCOG) in 1980. During 1979 and 1980, Prof Jansen lived and studied at the University of Texas, San Antonio as Associate Professor in the Department of Obstetrics & Gynaecology on Royal Prince Alfred’s Chenhall Fellowship. His research focused on the physiology of the fallopian tube of the estrous rabbit and the macaque monkey and led to his being awarded a Doctorate of Medicine from the University of Sydney in 1987 for his thesis “The fallopian tube’s reproductive province”. Dr Lyneham explained that those two years in San Antonio were a vital key to Prof Jansen’s future career in reproductive medicine. “What these two years also did was to expose Rob to American doctors specialising in infertility alone. This gave him the confidence to start his own practice in Parramatta and later in Macquarie Street on his return to Sydney.” In 1983, Prof Jansen travelled to the 3rd World IVF Congress in Helsinki and heard corridor talk about an ultrasound technique that could be used to reach ovarian follicles covered with scar tissue and inaccessible at laparoscopy - the then sole technique for egg retrievals. While Prof Jansen’s practice was well established back in Sydney, the reality was that treatments for infertility were still largely limited, despite the birth of the first IVF baby in London four and a half years before.

However, there was a plan in play and Prof Jansen approached Dr John “Jock” Anderson with the information he had gleaned in Helsinki and together they came up with a vision for a more patient-friendly IVF treatment which could be conducted in day surgery. Combining their expertise and knowledge, the pair designed and produced the world’s first transvaginal ultrasound probe, dramatically revolutionising oocyte collection and the overall field of assisted reproduction as well as paving the way for the birth of Sydney IVF in February 1986. Sydney IVF started with one scientist, one nurse and five doctors and the first IVF egg retrieval, using the transvaginal transducer was conducted on a patient - Marilyn - at King George V Hospital in Sydney. The fertility clinic’s first babies were born before the end of 1986, from pregnancies achieved in that first month of operation. Prof Jansen instilled in that infant company a set of principles still in place today. His very first rule for the whole team was the one he believed was the most important and it was introduced almost on day one. Essentially, he told the team that Sydney IVF would not be a place where you faced the sack for making a mistake but you would most certainly risk dismissal if you tried to cover it up. Integrity and ability were essential. Secondly, the level of medical care given to our patients had to be the best. Prof Jansen led the way by becoming the first person in Australia, in 1991, to achieve Certification in Reproductive Endocrinology and Infertility (CREI) - the gold standard subspecialist degree - with the RACOG (now RANZCOG).

4Genea

This superior level of medical care was also extended to the public sector – from the beginning there has been an IVF unit at RPA for public patients, with the same pregnancy rate. Prof Jansen was always proud of this Sydney IVF/Genea public hospital service. Thirdly, the general level of care had to be personal and genuine, from s to counselling. “This strategic essence was well captured in 2005 with a successful new brand look and the tagline: no better chance, no greater care,” Dr Lyneham said. Above all, science was the key and the driving force. “Rob never wavered from his view that excellence in IVF was predicated on excellence in the science of IVF and this excellence demanded a large investment in research, unequalled in Australia. It was, and is, this investment that sets Genea apart from its competitors and has been responsible for its world-leading success rates,” Dr Lyneham said. These are just a few of the many, many world first developments in IVF and fertility science developed at Sydney IVF and Genea: In 1991, work began on Project M91, a culture medium that replicated conditions within the human fallopian tube. Today, more than 600 clinics around the world nurture embryos using culture media developed by Genea. In 1996, Sydney IVF began providing diagnostic genetic services and was at the forefront in Australia in developing genetic testing of embryos – preimplantation genetic diagnosis or PGD. Sydney IVF developed the method of PGD at the blastocyst (Day 5) stage of embryo development, a technique now recognized internationally as the gold standard of this form of IVF treatment.

As Genea Fertility Specialist Dr Geoffrey Reid explained, these ground breaking developments represented both Prof Jansen’s vision and his ability to gather the best possible people to work at Sydney IVF and Genea. “This was his ‘modus operandi’, as he offered guidance, encouragement and mentorship to innumerable doctors and scientists,” Dr Reid said. A considered and caring teacher as well as a physician, researcher and scientist, Prof Jansen was an inspiration, a mentor, a treasured colleague and a friend to all. He was also a loving husband, father and grandfather and the thoughts of all of us at Genea are with Diana, Wendy, Alice, Peter and Christopher. Prof Jansen gave his last public address at the Australian Gynaecological Endoscopy Society (AGES) Annual General Meeting in March 2014 from his wheelchair. He spoke about the history and future of Ross AM Rowan assisted reproduction, and his address was received with a standing ovation. Prof Jansen’s legacy of innovation, commitment to excellence, his dedication to the best patient care and unrelenting enthusiasm lives on at Genea - and the company’s accredited doctors and staff are determined to maintain the vision and culture that he instilled in all of us. Thank you to Dr Robert Lyneham and Dr Geoffrey Reid for their contributions to this tribute.

In 2004, Sydney IVF produced Australia’s first human embryonic stem cells from just the second donated embryo thawed.


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Chairman’s Report Soon after financial year end we were immensely saddened by the loss of Professor Rob Jansen, the Company’s founder, former Chairman and Chief Executive Officer. Genea today is the product of Rob’s vision, medical and scientific abilities, ethical values, business acumen, energy and drive. We owe him a huge debt of gratitude. He not only created the Company but was primarily responsible for shaping its destiny and the impact it has had on the community. His business model of improving success rates for live healthy births by investing prudently and successfully in related research and development has underwritten both the clinical and business success of Genea. A brilliant doctor specialising in reproductive medicine, Rob was also at the forefront of the associated science and the ethical issues it entailed. By combining these talents with his business skills, he embedded in Genea the vision, mission and values which are the Company’s raison d’etre. It’s success is his legacy. With a 30.3% shareholding in Genea, the Jansen family is the Company’s largest shareholder and at the time of his death Rob was a non executive director of the Company. Your directors believe it is in the Company’s best interests for the Jansen family to be represented on the board and accordingly issued an invitation to Mrs Diana Jansen to the board as a non executive director. We are delighted that Mrs Jansen has accepted our invitation and we look forward to the contribution she is well qualified to make to the good governance of Genea. In accordance with the Company’s Constitution Mrs Jansen will stand for re-election at the forthcoming Annual General Meeting. Genea’s financial performance in FY 2014 was in line with expectations. Revenue of $76.3 million was up by 4.0% and net profit after tax of $4.9 million was the same as the previous year. The result reflected the significant investment being made to transform Genea from a domestically focussed clinic based operation into an international IVF products and service business.

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Genea Fertility benefitted from a 5.6% increase in oocyte pick-ups (OPUs) and a price increase implemented in September 2013, resulting in an 8% increase in revenue to $75.4 million. Notwithstanding intense competition from our larger, ASX listed full service rivals and from low cost providers, Genea maintained market share in NSW and Western Australia while limiting losses in the ACT following the departure of a key specialist. An important initiative implemented during the year was a new doctor engagement model designed to better align the interests and loyalty of our doctors. So far this initiative has proven successful with all our clinicians being retained following its implementation. Sound progress was made during the year towards developing and commercialising the instrumentation projects, Gavi and Geri, which are fundamental to the future of Genea Biomedx. A new facility was established at Sandwich, Kent, UK to be the European base and sales office for Genea Biomedx products including the Gems media suite. Planned investment in the Division resulted in an EBIT operations loss of $8.1 million for the year. We anticipate using the instrumentation products in our clinics this calendar year, with external sales being made in the second quarter of calendar 2015. Genea Biocells made steady progress during the year, refining its strategy which includes commercialising existing products and services and developing a stem-cell based discovery platform. An EBIT operations loss of $2.5 million was recorded reflecting this development and commercialisation phase. The Division has now established a dedicated business development team which will greatly assist in growing the customer base for its differentiated stem cell lines.

Chairman’s Report

The combination of reduced operating cash flows and continuing development expenditure in Genea Biomedx and Genea Biocells resulted in net cash decreasing by $4.6 million. Cash balances stood at $0.8 million at year end after drawing down $5.4 million of a new banking facility arranged with the Commonwealth Bank of Australia. The unutilised amount of this facility at year end was $8.1 million with a further amount of GBP1.4 million also undrawn. Cash flow projections indicate that the Company is in a sound financial position to continue to fund forecast capital expenditure and operating requirements of these new businesses prior to sales of their products ramping up. An interim dividend of 37 cents per share, unfranked, was paid during the year. Your directors have resolved to pay a final dividend of 54 cents, partially franked, in respect of FY 2014, bringing total dividends for the year to 91 cents per share ($1.22 per share in FY 2013). The Company has limited franking credits available due to the effect of concessional tax treatment of research and development (R&D) expenditure on the corporate tax rate.

I would like to acknowledge the contribution of our Chief Executive Officer, Dr Tomas Stojanov, and his senior management team during the year and thank our doctors, scientists and staff for their commitment. I would also like to thank my board colleagues for their . All of us deeply feel the loss of our friend and colleague, Professor Rob Jansen, who provided the inspiration and capability for Genea to be a world leader in fertility and to help couples realise their dream of having a healthy baby. Your board believes it is of paramount importance that his vision, mission and values remain firmly embedded in the Company. Rowan Ross AM

Rowan Ross AM

The Company’s shares sold in a range of $49.50 to $55.50 during the year with most recent sales around $50.00. With our two largest competitors, Virtus Limited and Monash IVF Limited, now listed on the ASX it is possible to benchmark our Genea Fertility operations and to obtain market based valuation parameters to assist in assessing the worth of Genea shares. As advised to shareholders in the Shareholder Update for the year ended 30 June 2014, the Company is budgeting for Net Profit After Tax to remain relatively stable in FY 2015 at $4.0-5.5 million on higher revenues of $83-88 million. This subdued profit level continues to reflect the start-up phase of the Genea Biomedx and Genea Biocells divisions. We remain confident that the significant investment we have made in these divisions will reward shareholders over the medium term, and ensure the Company’s future in an increasingly competitive market.


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Board 30 June 2014 Left to right (Inset) Professor Robert Jansen AM Non-Executive Director Mr Euan Pizzey Non-Executive Director Mr David Smithers AM Non-Executive Director Mr Rowan Ross AM Chairman Dr Robert Woolcott Non-Executive Director Dr Tomas Stojanov Chief Executive Officer

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9

2014 Group Result Summary Group Revenue

76.3

$

million

$2.8 million IVF revenues were up 8%

Basic EPS

173

cents

Final dividend declared

54

cents

Group profit after tax

4.9

$

million

Group cash generation $0.3 million

(4.6)

$

10

million

2014 Group Result Summary

From the CEO Everybody in the world of reproductive science and medicine, and a great many outside of it, knows the name Professor Robert Jansen or, at the very least, the company he created - Sydney IVF which developed and grew into Genea.

Tomas Stojanov – CEO

Prof Jansen was a leading clinician and academic in the field of infertility treatment, he was an inspirational entrepreneur and business leader and he was the visionary founder and managing director of Sydney IVF and Genea for 25 years. Through Sydney IVF and Genea, he set the gold standard for the IVF industry and was often many, many years ahead of the pack. Prof Jansen was publishing on blastocyst culture 10 years before it became mainstream, Sydney IVF led work on the holy grail of embryo culture through development of its own unique and proprietary culture medium. It is still the only fertility clinic that creates and produces its own culture medium. He was preaching the importance of Preimplantation Genetic Diagnosis (PGD) in mainstream IVF clinics a decade before it became fashionable, advocating (and doing) blastocyst biopsy and leveraging the value of our blastocyst culture well ahead of his competitors. He also recognised and instigated the use of embryo karyotyping as the best method to select the embryo most likely to succeed in creating a healthy pregnancy. On the care side of the equation, Prof Jansen understood the need to take this world leading fertility science to the patients by opening regional fertility clinics, including the first in New South Wales in the north west centre of Orange. Despite this deep involvement in the detail of fertility science and patient care, or perhaps because of it, Prof Jansen was also able to gain a wider perspective on our maturing industry and recognise the need for diversification to achieve continuous growth.


Innovation and growth Sydney IVF’s and now Genea’s commitment to regularly dedicate 10% of revenue to R&D has laid the foundation for your company’s logical and effective diversification into an existing industry related range of products, technologies and services. The strategy and structure of the modern day Genea is unique here in Australia and internationally and the expansion of our technological and R&D arms, while remaining integrated with our clinical services, is critical for our continued growth and success.

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From the CEO (cont.) Above and beyond all of this though, Prof Jansen’s most important achievement was the culture of scientific excellence and innovation he instilled at Genea. It lasts to this day and combined with the talented and skilled team Prof Jansen built up over his time at Genea, there is a focused and ionate commitment from the Board down that this legacy of scientific excellence and innovation will be carried and protected into the future by all of us.

Notwithstanding the difficult and very competitive environment that prevailed during the financial year, Genea was still able to deliver impressive sales revenue growth from its Fertility business of $75.4 million (up 8% on FY2013) and an EBIT of $14.2 million (up 6.5% on FY2013). The Fertility business EBIT was offset by the planned new business start-up EBIT losses of the Biomedx business of $8.1 million and the Biocells business of $2.5 million.

Current market conditions

Future growth dependent on measured strategic diversification The difficult business factors of FY2014 could be interpreted as market disrupting, but in fact they are a validation of Genea’s diversification strategy, in place since 2010 and refined and expanded each year since.

With the arrival of private equity ownership of Genea’s main competitors and their subsequent floating on the ASX, Genea’s fertility business is now operating in a saturated market characterised by the newly listed competitors with ambitious commercial goals. The year just past has delivered new competition in the form of low cost clinics and clinics offering rudimentary services at the Medicare only rate, all against the backdrop of an industry that is not fully transparent about outcomes. Some market players claim success on the basis of comparatively strong clinical pregnancy rates when we all know that the only measure of success important to our patients is taking home a healthy baby. The lack of transparency and a consistent measure in this area allows lower performing clinics to pick and choose when selecting a metric to show success, potentially hiding their true outcomes. Medicare contributions to fertility treatment are important to ensure accessibility for all facets of the population, not just the more wealthy socio-economic segment. However, the downside of the rebate and services designed to be delivered with no out-of-pocket costs is that they lower normal market economy pressures on poor performance. Under Medicare, the fact that “someone else” is paying for the IVF treatment removes a great deal of the impetus for excellence. It’s far too easy, at $0 to $500 a treatment, to simply say: “we can afford to have another cycle”.

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We have to accept that the industry has changed forever and the main goal of some of our competitors is to maximise profit not to maximise the long term chances of patients to achieve a healthy pregnancy. We have to adapt! And most importantly we have to make sure that everybody relevant knows who we are and why we are by far the best value for money when you need infertility treatment. Your company is focused on continuing to deliver our , full cost model of fertility treatment with a service offering that stretches from pre-conception through conception to post clinical pregnancy testing and care. Our world leading status in PGD, genetic testing and embryo vitrification already provides patients with numerous options to start and grow their families and the coming year will see an expansion of these services to help a wider range of patients. Our new technologies and methodologies are rapidly enabling the reality of entire families being developed from one stimulated cycle (oocyte pick-up or OPU). Multiple healthy embryos are created, one is transferred leading to pregnancy and others are vitrified for later transfer on a natural cycle. Essentially F = OPU1 (one family equals one OPU). Continued development of this approach to fertility treatment will be cost effective for patients and for society. From the CEO

However, the reality is that the volume of OPUs remains Genea’s main business driver for the Fertility business and activity needs to be focused on OPU growth while still delivering the best clinical outcomes possible. Genea Biomedx Our expertise in the processes and procedures undertaken to continue to improve the success of each form of assisted reproduction is translated into our IVF technologies company, Genea Biomedx. Genea Biomedx is the second pillar of our three pronged business model. The relationship between Genea Fertility and Genea Biomedx is symbiotic and our main competitive advantage - access to the Genea Embryo Medium Suite, or Gems™, has already greatly benefited tens of thousands of our patients. We anticipate that late in the 2014 calendar year, the benefits will also begin to flow back to the Fertility business with the scheduled introduction of instruments Geri™ (time lapse incubation) and Gavi™ (automated vitrification) in our labs. Genea Biocells The third pillar in Genea’s new diversified business model is the creation of the Genea Biocells business. This business draws on your company’s acknowledged expertise in cellular biology, genetics and stem cell derivation. It also provides an important avenue for our PGD patients to donate their excess embryos to research into finding a cure for any relevant genetic condition impacting their family.

Genea’s credentials as an IVF pioneer are unquestionable. Your company’s history of innovation includes being the first: • IVF clinic in the world to develop and routinely conduct blastocyst biopsy • IVF clinic in the world to develop a triple sequential, ready-to-use embryo culture media system • Australian fertility clinic to introduce routine Day 5 embryo transfers • Australian fertility clinic to introduce routine single embryo transfer • Australian fertility clinic to develop and routinely replace the old slow freezing method for embryos and eggs with a more efficient and successful vitrification process • Australian fertility clinic to perform full chromosomal analyses of an embryo by microarray CGH • Australian fertility clinic to achieve a live birth following egg vitrification • Australian Fertility Clinic to conceive and develop a benchtop incubator (the MINC) • Australian Fertility Clinic to develop a world leading embryo transfer catheter. The Sydney IVF catheter developed by Prof Jansen and Dr Anderson more than 20 years ago is still the most popular embryo transfer catheter globally.

Genea’s unique value proposition The strength of Genea lies in the interaction between its three core businesses - Genea Fertility, Genea Biomedx and Genea Biocells. As an IVF technologies business, we understand the IVF industry, IVF patients, Fertility Specialists and Fertility Scientists because at our core we are also an IVF clinic. The knowledge and intelligence derived from these inseparable relationships is invaluable and has provided the foundation for the establishment of Genea Biomedx. Genea Limited Annual Report 2014

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From the CEO (cont.) Growth and Expansion Genea Biomedx’s business strategy starts from these innovations and focuses on the development, manufacture, sale and distribution of existing and future innovative and game changing fertility technologies. Genea Biocells grew out of our expertise in cellular biology and genetics and has developed into a globally recognised stem cell company. As stem cell-based disease models become common practice in pharmaceutical drug development and the technique of cell therapy is developed, Genea Biocells’ technology platform means it is well positioned to play a key role in both market segments. Commercialisation of these technologies and Genea’s clinical and genetic expertise will be the key success factor in our drive for geographical growth and expansion. The realities of the Australian IVF industry are that currently it is a saturated market with price pressures and a lack of recognition of the value of better performing clinics to the Australian health system; all of which validate and justify Genea’s three pronged business model as the best possible way to deliver sustainable growth for your company.

Our People The highly competitive market in which we operate means that attracting and retaining talented employees is a critical business success factor. We continue to ensure Genea is an attractive place to work by listening to our employees and hearing what they enjoy about working for Genea and what can be improved. This year we have made a number of enhancements to our employee value proposition in the areas of Wellbeing (through our Good for You programme) and Employee Benefits in particular. Building the capability of our employees continues to remain a core focus and during the year we have developed an extensive programme focused on our senior leaders. This forms a component of our Talent Framework launched this year that strategically drives capability development, employee retention and key talent acquisition. Conclusion In conclusion, I would like to thank Genea’s dedicated executives and senior managers who work tirelessly to ensure we remain world leaders. My thanks also to you, our shareholders, for your enthusiasm, interest and which inspires me and all of the Genea team to enshrine Prof Jansen’s vision, values and ground breaking scientific achievements and to keep pushing to create innovative instruments and treatments and deliver better outcomes for our patients. Tomas Stojanov

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From the CEO


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Genea Fertility Highlights • 40% Better Chance campaign launched successfully • Growth in both geographic reach and breadth of clinical services • In-house pathology services established • Innovative marketing initiatives launched to continue building brand awareness and capture market share • Development of the partnership with Superior ART to expand Genea’s expertise across the Asian region The foundations of our fertility business are our leading success rates and the delivery of ive patient care. In the 2011 ANZARD Report*, an assessment of success across all Australian and New Zealand clinics showed the live birth rate per IVF attempt for women under 35 years of age ranged from 4.8% to 36.8%. In contrast to this dramatic range, Genea consistently has results in the highest quartile and, in the period covered by this report, we delivered a 40% greater chance of success compared to the average of all other clinics across Australia and New Zealand**. We believe it’s important for everyone considering fertility treatment to be aware of this point of difference between clinics to help them make an informed decision about where to seek treatment - that is the clinic which will give them the best possible chance of taking home a healthy baby. This data and Genea’s 40% better chance of success message formed the centrepiece to our advertising during FY 2014. Month on month we consistently recorded patient scores well above 90%, demonstrating that we met patient expectations and our patients were satisfied with our services. These metrics demonstrate our leadership in the field. Continued success Genea’s fertility laboratories continued to provide Genea clinicians and patients with leading outcomes. A comparison of the most recent available national data (from the 2011 ANZARD Report) to Genea’s preliminary results from 2012, shows our clinics continue to rank in the top quartile. 16

Success rates worth screaming about.

For more than 28 years, we’ve been dedicated to finding better ways to help couples realise their dream of having a baby. First as Sydney IVF, now as Genea. Our commitment has created world leading advances in fertility, culminating in a 40% greater chance of taking home a baby when assisted by Genea, than the average of other clinics in Australia and New Zealand*. For those we help, that’s the most valuable statistic of all.

To ﬁnd out how we can best help you, call our Genea fertility experts. 1800 359 799 genea.com.au/success

Everything we do at Genea is about improving your chance of success. It’s why our expert Fertility Specialists, in collaboration with our holistic practitioners, consider all aspects of your fertility to create the best treatment plan for you. Age, lifestyle and diet, as well as medical factors, can all play a part. And we’ll continue to lead the way in researching new and better methods of further improving chances, such as our recent IVF innovation in embryo culture media GemsTM - the vital solutions that nurture egg, sperm and embryo development. Our people, technology and unrivalled expertise together create a greater chance for everyone we assist.

* 40% greater than the average of other clinics combined, according to analysis of the latest available data (2011) released August 2013 from the Australian and New Zealand Reproduction Database (ANZARD) and based on live births per embryo transfer.

Genea - Latte ad - Sept2014.indd 1

23/09/2014 5:03:19 PM

Genea Fertility


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Genea Fertility (cont.) A review of Genea’s results across IVF/ICSI, frozen embryo transfers and PGD over the past 12 months shows that Genea laboratories have continued to perform, with particularly strong improvements in the frozen embryo transfer and PGD outcomes (Table 1). Table 1: Genea’s fetal heart pregnancy data (July 2013-June 2014) July 2013 - June 2014 <38 Fresh

No. ETs

1,513

1,277

1.08

1.21

33.62

41.21

% Clinical preg

39.9%

19.0%

% Imp rate

38.4%

16.2%

% Mult preg

4.0%

3.7%

% cycles represented

61.5%

61.9%

1,281

455

1.02

1.05

Avg age

33.08

40.09

% Clinical preg

44.4%

26.8%

% Imp rate

44.8%

26.4%

Avg No. ETd Avg age

FET

No. ETs Avg No. ETd

PGD

18

>=38

% Mult preg

3.3%

3.3%

% cycles represented

65.2%

65.9%

No. ETs

295

118

Avg No. ETd

1.02

1.01

Avg age

33.04

40.20

% Clinical preg

51.9%

43.2%

% Imp rate

52.5%

42.9%

% Mult preg

3.3%

0.0%

Over the past 12 months we have implemented automated technologies in Genea fertility laboratories with the aim of improving productivity. Our embryology labs now have a fully automated system for the production of embryo culture dishes, a system which has resulted in a reduction of staff required to undertake this work. In collaboration with the IT Department, the teams across all fertility laboratories are working on an auditable witnessing system that will allow all our laboratories to improve staffing allocations and patient security. It is envisaged that the system will be rolled out to all Genea clinics by the end of 2014. Genea’s biochemistry laboratory expanded its geographical reach during the year and the advancement of next generation sequencing technology led to the introduction of new clinical services that were well received by referring clinicians and their patients. Helping patients recognise the Genea difference Over the past year and a half, one of our primary projects within Genea Fertility has been the establishment and refinement of a strategy to manage new patients seeking information and from us. We know that patients can find it a big step to move from trying to conceive naturally, to the recognition they may have a problem conceiving and then on to undertaking fertility treatment. By closely ing these patients on each step of their fertility journey, we ensure they get to see a Genea Fertility Specialist in a timely fashion. Attracting patients to Genea and Genea’s Fertility Specialists is integral to the business model. Again, these activities faced a challenging environment with heightened activity in all forms of media from both of our main competitors who are now listed on the ASX. Exploring new and more effective communication channels is no longer an additional expense or luxury employed by large IVF clinics but a fundamental necessity of survival for every clinic large or small, low cost or full service. It is especially new patients, undergoing their first IVF cycle, who cannot clearly differentiate between Genea Fertility

IVF clinics. That said, Genea’s marketing activities across the financial year successfully generated almost 3,000 opportunities through the integrated marketing channels of direct, digital, medical and public relations. Ours is a business characterised by a surprising slowness to act on the part of consumers who are daunted by itting they are infertile and need to seek help. During the year, patient prospect to OPU conversion plateaued at approximately 22% with an average 6 to 10 month lag, however, some opportunities generated by the embryo culture media publicity in February 2013 were still trickling through 18 months later. On Christmas Eve 2013, Genea launched a new website for the Fertility business. Filled with new, relevant content and operating on a responsive and intelligent platform, the new website has shown a 66% increase year on year in the percentage of traffic visiting Fertility Specialist and Genea clinic pages, leading to 644 appointments made through the website in the six months to the end of June 2014. Furthermore, page engagement has significantly increased – by a magnitude of three-fold on average and we expect this will continue to generate further new opportunities and OPUs. We will seek to improve our online presence through continual website optimisation. Public relations activity throughout the year eclipsed our major competitor IVF Australia with 70 articles, interviews and television news segments about Genea, reaching an audience of 12.7 million (compared to IVF Australia’s audience of approximately 11 million). A partnership struck with Australia’s leading women’s network, Business Chicks saw Genea’s brand and key messages delivered directly to more than 33,000 people (predominantly women) in our target market across the country. Genea has exclusive partnership rights at events with regular audiences of 800-1,500 people learning about Genea alongside the featured high profile and successful women which has already included Olympic Gold Medallist Alisa Camplin, novelist Kathy Lette, Net-a-Porter’s Megan Quinn and global publishing icon Arianna Huffington. Genea Limited Annual Report 2014

For people seeking fertility treatment, Genea is very well known for our expertise and success in treating the difficult cases and the hard to get pregnant patients. To capitalise on this perception, we launched the Switch campaign which encouraged patients of other NSW and ACT fertility clinics to switch to Genea for treatment. Strong in the digital and outdoor space, the Switch campaign went into market in the month of June and generated a great response. This high profile, highly targeted and market leading campaign delivered 146 potential patients to the business. Shortly after the end of FY 2014, Genea launched The Australian Fertility Census. An Australian - and to all indications, a World - first, the Census was an exciting new marketing initiative to build Genea’s brand and, at the same time, build a body of information about exactly what Australia thinks and knows about all things related to sex, baby making and kids. The enlightening and interesting findings of the Census were released on 1 September 2014 to mark the beginning of Spring and Fertility Awareness Week. Operational efficiency initiatives to enhance productivity At the commencement of FY 2014, we committed to implementing a program of operational efficiency initiatives in order to streamline processes, improve our service offering and enhance the profitability of the Fertility business. Areas of focus included: • Patient on-boarding into Genea: all patient education and medical consenting processes were redeveloped to streamline our interactions with patients and reduce the istrative burden for our clinics. • Morning clinic: a patient queuing and workforce management system was introduced to our Kent Street morning clinic where patients present for blood testing, ultrasounds, to collect drugs and have questions answered. The new system gives patients the option to check in immediately using their 19

Genea Fertility (cont.)

Genea card at kiosks in our reception when they arrive or even before we open in the morning using their smart phones. The system permits us to direct patients efficiently to the appropriately qualified member of staff, track the use of the facility, monitor turnaround times of staff performing a task and streamlines activity overall. The system has decreased our patient wait time by approximately 80%; improved the patient experience and allowed us to more efficiently allocate our staff.

• A number of improvements around our patient payment processes to significantly reduce the manual steps our staff perform to collect fees were introduced. • Centralising booking lines from across multiple clinic locations for patient ease and to maximise the offering of our various clinic locations.

Growth and extended geographic reach Genea Fertility’s profitability is driven by the number of stimulated cycles undertaken with the team committed to growing total OPU volumes by capturing marketshare where we have established clinics. We did this through our marketing initiatives and brand awareness and also by extending our geographic reach into markets where we can successfully offer our services by opening new clinics to provide a local, more convenient service for patients. During FY 2014 we opened: • a clinic in Manly to better current and new patients on the Northern Beaches • a clinic in St Leonards to have a presence on the North Shore - an area that has traditionally been IVF Australia territory; providing patients with a strong competitive alternative for treatment

• Introduction of more standard clinical protocols to streamline patient management and our staff’s interaction points with our Fertility Specialists.

• a clinic t venture with Oxford Women’s Health in Christchurch, New Zealand

With these initiatives in place, the Fertility division successfully reached the targets set-out at the onset of the FY 2014 to reduce personnel cost as a percentage of revenue.

• Superior ART continued to grow rapidly in Thailand. It is one of the leading providers of PGD for karyotyping and genetic conditions. A new clinic was opened in Udon Thani, and we have established consultancies in Myanmar and Vietnam and offices in China.

Internationally during FY 2014:

• Licensing of our IVF and PGD technology was undertaken in the Czech and Slovak republics 10 years ago which deliver a stable revenue stream to our Fertility business. Our European partner Sanatorium Helios has established itself as an industry leader in Europe, with a respectable live birth rate matching results at our Kent Street facility. This model of technology licensing and franchising is currently underutilised in our view and we are actively testing this model with our Thai partners throughout South East Asia.

Forte building, Christchurch, New Zealand 20

Genea Fertility

Most importantly, all international growth by Genea will be undertaken with the preservation and successful export of our culture of innovation and scientific excellence, ethical and risk management culture and transparency. Growth in service and test volumes In a saturated market, differentiation of Genea’s science and care is highly important. Some examples of new initiatives in the clinical arena include: • Introduction of a PGD-Chromosomal analysis opt-in service aiming to provide the latest clinical options to all patients. Our PGD service remains a key service differentiator and treatment cycles incorporating microarray chromosome analysis are producing very strong results, even in the traditionally ‘hard to get pregnant’ groups (see Figure 4). Figure 4: IVF/ICSI vs Chromosomal Analysis 60% 50% 40%

44%

42.2%

30% 20%

24.3% 19%

21.7%

10% 3.9%

0% IVF/ICSI embryos

Embryos that have undergone chromosomal analysis

% Fetal Heart % Live Birth

• Expansion of the centralised specimen reception (CSR) function in Kent Street allowing Genea to control all aspects of pathology sample logistics (including everything from routine bloods testing to molecular DNA samples) from sample collection through to electronic delivery of results to Genea Fertility Specialists. The reach of the suite of Genea tests was expanded to the Liverpool, Canberra, RPAH and North West clinics during the FY 2014. The CSR has triaged over 27,000 tests for Genea Fertility Specialists, retaining 5,500 for in house testing and in the process allowing us to both collect the associated revenue and decrease the external costs to third party pathology providers. • Non-Invasive Prenatal Screening program: in late 2013 work commenced on implementing a Non-Invasive Prenatal Screening program, with a successful pilot study run in early 2014. Negotiations were undertaken with a technology partner, one of the largest suppliers of this technology in the world, to allow us to deliver the service from Australia - a move which means Genea will be one of the first clinics in Australia to provide this technology for early pregnancy management. The growth of this service is expected to overtake current standard First Trimester Screening program over the next 12-18 months. • Introduction of endocrinology testing into the Canberra clinic has been a great success. A significant reduction has been achieved in service delivery times to our Fertility Specialists, allowing clinical discussions to take place earlier in the day which has a positive influence on patient management. We have also delivered significant cost reductions by reducing the use of third party providers of pathology services.

% Clinical Miscarriage Comparison of straight IVF/ICSI embryos with the superior testing delivered by Chromosomal analysis to select the healthiest embryos for patients 38 years and over. IVF/ICSI data is for Day 5 or 6 fresh transfers only. Genea Limited Annual Report 2014

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Genea Fertility (cont.) • Genea Genescreen: During FY 2014 we launched an advanced cystic fibrosis test and there has been strong uptake by our Fertility Specialists and patients. During October 2014 the next service, GeneScreen Plus, will be launched offering testing for the most common single gene disorders. Genea Fertility revenue of $75.4 million was up $5.6 million on the prior year, mainly due to an increase in the number of oocyte pick-ups (OPUs) performed. In an increasingly price sensitive market, and under intense competitive pressure from both our larger, listed, full service rivals as well as low-cost providers, we managed to maintain our market share in NSW and Western Australia, while limiting losses in the ACT following the departure of one of our key specialists. Consistent with our stated aim of being a ‘World Leading Fertility’ company, as judged by our success rates and the level and breadth of our services, all of our growth has been achieved in the full price segment of the market whereas, the growth among our competitors has been achieved mainly in low cost IVF.

Community Work on Genea’s application to secure a Medicare rebate for patients undergoing PGD was ongoing through the year as it progressed through the government review process. The PGD Assistance Program continued through generous ongoing donations, the of a number of Genea Fertility Specialists and the dedication of the PGD Assistance Program Selection Committee comprising: Mrs Dianne Petrie OAM, Ms Carolyn Shalhoub and Mr Bruce Cutler. Genea is very proud of the continued success of the Program and to assist couples who would otherwise be unable to afford treatment. To date 21 babies have been born, there are 16 ongoing pregnancies and 13 couples are still to complete treatment. The Program was initially established by a generous donation by Professor and Mrs Diana Jansen. There are already 11 couples who have been accepted for 2015, and Mrs Jansen will continue to provide the main financial for this Program. We extend our heartfelt thanks to Mrs Jansen and all who make this Program possible.

Overall, the Fertility business EBIT of $14.2 million was up by $0.8 million on the prior year. The result was impacted by the write off of goodwill of $1.3 million to recognise the shift away from our traditional diagnostic offerings towards new molecular-based technology services. Adjusting for this one-off item EBIT would have been $2.1 million higher than the prior year.

* Latest available data (2011) released August 2013 from the Australian and New Zealand Assisted Reproduction Database (ANZARD). ** Than the average of other clinics combined, according to analysis of the latest available data (2011) released August 2013 from the Australian and New Zealand Assisted Reproduction Database (ANZARD) and based on live births per embryo transfer. 22

Genea Fertility


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Genea Biomedx Highlights • Secured European Commercial and Media Operations facility in Kent, UK. Refurbishment and operations commissioning in progress, on time and on budget • Kent Street media production facility commissioned and operational, servicing all Genea clinics with Gems media • Gavi ed major development milestone by completing verification testing. Product has now transitioned to pilot manufacture and final testing • Geri ed pre-verification and now commencing formal verification testing. Product in design transfer in preparation for final testing Genea Biomedx develops innovative high-technology products designed to standardise and automate laboratory processes to ensure consistency of high quality outcomes. Our objectives are to: • Develop and commercialise IVF laboratory technologies for sale to the global ART market • Utilise these technologies within our Fertility business to improve processes, reduce handling risk and ultimately create a competitive advantage in the markets in which we operate.

Laura Sandys, MP for South Thanet, Tomas Stojanov, Genea CEO and Mark Dance, Cabinet Member for Regeneration and Economic Development at Kent County Council cutting the ribbon at the new Biomedx UK facility. 24

Over the past 12 months, Genea Biomedx has focused on the transition of the instrumentation development projects, Gavi and Geri, through to commercial manufacture. In Sydney, we upgraded the Kent Street culture media production facility to comply with stringent international regulatory standards. Offshore, the team secured a substantial UK facility which includes a GMP grade clean-room for large-scale media manufacturing. The facility is also the intended location of the European commercial headquarters. istratively, we implemented a business-wide Enterprise Resource Planning system which includes a sophisticated supply chain management system. We are also progressing QA processes and regulatory submissions for Gems, Gavi and Geri. It is anticipated that the complete range will have CE marking in 2015. Facilities The existing Kent Street culture media production facility was upgraded during FY 2014 in order to provide for increased volumes of commercial media to external parties in regulated and unregulated markets. The upgraded facility has state of the art equipment within a controlled, high-grade clean room environment to ensure high quality product is provided to customers.

Genea Biomedx


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Genea Biomedx (cont.) A site in Sandwich, Kent UK, with easy access to mainland Europe via the Channel Tunnel and nearby Gatwick Airport, was selected for our European operations and sales office. The site was previously operated by Pfizer and included a substantial specialised clean-room as part of the facility. A new state-of-the-art media production unit will utilise this space with additional refurbishment work to incorporate offices, logistics and service facilities nearing completion. The site was officially opened in June 2014 – an event that was attended by the local MP and other dignitaries. In addition to establishing a presence in the UK, we also successfully applied to the local government in Kent for a grant to accelerate our operations in the area.

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Gems – Embryo culture medium suite Gems is our embryo culture medium suite. Originally formulated in 1991, the third generation of the medium suite has been in full clinical use within Genea clinics since February 2013. We are currently supplying all Genea related clinics across Australia and New Zealand, as well as Sanatorium Helios clinic in the Czech Republic. Gems media is a Class III medical device in Europe and therefore stringent regulatory requirements must be satisfied prior to clearance being granted by the various authorities (EMA, MHRA and Notified Bodies). This process has been underway since 2013, with the various review time-points being achieved, and clearance for sale anticipated in 2015. Europe is the primary focus for commercialisation due to market size, attractiveness and ease of access.

Genea Biomedx

Gavi – Automated vitrification instrument Vitrification is now a well-accepted methodology to ‘fast freeze’ excess embryos for potential use at a later date. However, the current vitrification process is very manual and highly dependent on the skill level of the scientist.

Production quality units of Geri are in progress with testing and evaluations in Genea clinics due at the start of 2015. Commercial launch is anticipated later in 2015.

Gavi is designed to automate and standardise much of the vitrification process, ensuring that it is performed the same way every time.

The launch of Geri is eagerly anticipated by the market and although we have not yet received regulatory clearance for Geri, we are now being invited by various conference organisers to participate in specially organised time-lapse workshops.

Development of Gavi is complete with the transition to manufacture being the primary focus toward the end of FY 2014. Production quality units of Gavi have now been built and utilised for final regulatory testing and clinical evaluation in Genea clinics before year end. As per Gems, regulatory clearance for Gavi is anticipated in 2015.

Our continued investment in the various development and commercialisation activities of Genea Biomedx has resulted in an EBIT loss for the year of $8.1 million. We expect that the pay-back from this investment will begin to be realised over the next 12-18 months as sales of Genea Biomedx’s products ramp up.

Geri – Embryo incubator with time-lapse functionality Geri is a state of the art embryo incubator. It has been designed to maintain an optimal environment for the embryo in its first few days of growth before being transferred back to the patient. It also has time-lapse imaging functionality that allows a scientist to review embryo morphology without taking the embryo out of its optimal environment. Interest in time-lapse continues to grow in the market. Pre-production units of Geri have been displayed at key scientific conferences during the year, with the response from delegates and potential customers being very positive. Hardware development of Geri is complete with the transition to manufacture being the primary focus toward the end of FY 2014. Software is an integral part of Geri due to the high level of interaction with the product and the large volume of data generated by the time-lapse imaging system. on the launch version of software has been very positive due to the intuitive interface developed with valuable input from Genea Fertility embryologists.


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Genea Biocells Highlights • In February/March 2014 achieved status as the world’s largest contributor to the NIH registry with 52 approved human embryonic stem cell lines, suring the Harvard Stem Cell Institute for the first time • Commercialisation of stem cell-derived skeletal muscle cells commenced • Business Development team successfully established to drive leads • Additions to Genea Science & Research Commercialisation Committee • Brand development was completed Introduction Stem cell-based disease models are gradually becoming common practice in pharmaceutical drug development according to a recent survey with 70% of pharma companies expressing an interest in this technology for drug discovery. There is also a big push to demonstrate clinical success of cell therapy - spearheaded by the California Institute of Regenerative Medicine (CIRM) and more recently by the UK government (Cell Therapy Catapult). Both market segments are projected to grow strongly in the future. Genea Biocells is well positioned in this market with a technology platform that comprises key-elements that are fundamental to applications in research/drug discovery as well as clinical areas. Our strategy is to engage world leading experts to build a globally recognised stem cell company that supplies cells, reagents and services to the stem cell research/drug discovery market to generate a revenue stream in the short term while leveraging our technology platform to advance cell therapy applications that potentially promise revolutionary future treatment options.

in the Huntington’s disease field will expand Biocells’ customer base in the USA, our most important market. We also contracted Colin Tristram to establish a presence in Europe, a market to which we have had little exposure to date. Their expertise had a significant impact and transformed the division over the past year with clearer messaging and direction and a much increased capacity to generate, follow up and convert leads. At conferences in the second half of the year we attracted significant attention and generated over 100 leads from both pharma/biotech and academic scientists. The team was further complemented by Dr Alan Colman, an eminent scientist who recently retired from an academic position in Singapore. Dr Colman personally knows many stem cell scientists in both academia and industry and has already made a valuable contribution through introductions to key people. The team, with Dr Colman’s are actively exploring opportunities for Genea Biocells’ involvement in European Union-funded consortia which will increase our credibility and brand awareness in Europe, attract grant funding and future revenue and leverage Genea’s existing facility and expertise in clinical media manufacturing in Sandwich, Kent, UK.

The year in review The Biocells business development team was successfully established by hiring Dr Jamshid Arjomand as VP Business Development and our first United States-based employee. Dr Arjomand’s experience in rare diseases and coordinating and managing contract research projects, together with his existing connections

Prof Jeanne Loring of the Scripps Research Institute, San Diego, another eminent, internationally renowned stem cell scientist, ed the Science and Research Commercialisation Committee (SRCC). Prof Loring has been our collaborator for the past five years and is well connected in California and in general within the USA, our largest market.

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Genea Biocells

Vascular smooth muscle cells Genea Limited Annual Report 2014

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Genea Biocells (cont.) Business development activities were further ed by developing the Biocells brand. The brand essence is defined as ‘science humanised’ - including an emotional element that is lacking from all our competitors. The branding is based on the insight that “Genea Biocells, together with the scientists they partner with, are pushing the boundaries - exploring new biological frontiers, pioneering new medical techniques and changing the game for the sake of human development”. The visual presentation and key messages were well received at conferences and attracted significant traffic to our booths. This was an important first step towards establishing Genea Biocells as a recognisable brand in the stem cell market. In October last year we announced a major R&D breakthrough - the world’s first efficient and scalable protocol to generate functional skeletal muscle from human pluripotent stem cells. This process has always been considered to be very difficult and to date has not been matched by either competing companies or academic labs. The soft launch saw us successfully distributing cells and reagents to a number of collaborators for further testing, and validation. Our muscle R&D team, led by Dr Leslie Caron, was then able to show disease-related phenotypes demonstrating the potential of our system to model adult diseases and thus, its usefulness for drug discovery research and phenotypic drug screening. Our scientific progress enabled us to secure second research contracts with both Roche (Switzerland) and Novogen (Australia), using skeletal muscle cells or skeletal muscle/neurons, respectively. Stem cell-derived skeletal muscle was more broadly promoted as a unique and exciting new product to the wider scientific community and biotechnology industry at the annual meeting of the International Society for Stem Cell Research in Vancouver and the BIO International Convention in San Diego. At both events skeletal muscle applications dominated the interest of visitors to our booth or participants in partnering meetings.

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In February/March 2014 Genea Biocells was the world’s largest contributor to the NIH registry with 52 approved human embryonic stem cell lines, for the first time suring the Harvard Stem Cell Institute. NIH approval is very prestigious and globally recognised as external validation of the highest ethical standards. It also makes access to our cell lines easier for many customers and many companies will only work with cells derived from NIH-approved stem cell lines. Our high-content screening platform for stem cell media development lends itself to screening chemical compounds for their desired effects on stem cell culture and differentiation. We have applied this platform very successfully in the past, the development of the world’s first skeletal muscle differentiation protocol being a recent example. Besides muscle, other R&D efforts focused more consistently on chemical biology since our market insights showed that there is a strong desire for biologics-free stem cell culture and differentiation media due to their advantages of being more consistent, more stable and easier to produce for clinical applications. Another benefit is that small molecules are generally cheaper than biologics, and equivalent small molecules-based media will have higher profit margins. This approach will give us a clear competitive advantage in the stem cell media market for both research and clinical applications. Brand development was completed and successfully rolled out in time for the annual meeting of the International Society for Stem Cell Research (ISSCR), the largest scientific stem cell conference. The new visual design helped to draw in people, and many ISSCR attendees commented on our presentation. As with Genea Biomedx, the anticipated portfolio build up and commercialisation activities of Genea Biocells resulted in an EBIT loss for the year of $2.5 million. Again, we expect that the pay-back from this investment will start to be realised over the next 12-18 months as sales of Genea Biocells’ products and services ramp up.

Genea Biocells

Outlook for the Genea Group Looking ahead, all three businesses either have a number of activities due to come to fruition or about to begin. Genea Fertility Next Generation Sequencing technology will play a large role in the activities of Genea Fertility in the coming year. It will deliver improved diagnostic capacity and service with reduced reporting times. The technology will also contribute to further development of laboratory test menus to cover all aspects of fertility pathology. Pathology services will continue to be expanded to provide improved access to collection sites for Genea patients and clinicians and geographical expansion of fertility services nationally and internationally will be undertaken. Genea consulting services will be developed with a view to establishing long term revenue streams based on monetising Genea’s extensive IP. Genea Biomedx Genea Biomedx will take the final steps towards validation and registration for Gavi and Geri and will complete Genea clinical evaluations ahead of the publishing of associated scientific papers for both instruments. During the coming financial year, both Gavi and Geri will be in routine clinical use within Genea clinics. CE-Mark clearance will obtained for Gavi and Geri as well as Gems and ISO13485 regulatory certification will be achieved for the wider Genea Biomedx business. Tier 1 regions will be the focus of commercial discussions with agreements formalised with channel partners in Europe, Japan and select non-regulated markets.

Genea Biocells Revenue from stem cell related products and services is expected to grow four fold as the full benefits of the activities currently being undertaken by the business development team are realised. The company intends to launch three new products in the coming year: • Chemical compound kit • Skeletal muscle differentiation kit • Cardiovascular progenitor medium Growth is also expected to be derived from the establishment of distribution agreements for Australia and New Zealand during the current financial year, followed by European agreements in FY 2016. A need to be closer to Genea Biocells’ main market will see the business expand its US operations. This move will also assist in reducing operating costs and will allow Genea Biocells to tap into a larger talent pool and take advantage of additional funding opportunities. Finally, integral to their overarching strategy, Genea Biocells will expand their position as leaders in stem cell-derived skeletal muscle and muscular dystrophy disease models through publications, strategic collaborations and partnerships. We remain firmly of the belief that diversifying our business to add and develop technology and stem cell arms is the right strategy for the future. It is smarter and more sustainable than continuing to compete solely in a crowded market where potential patients primarily use price as a Australian fertility service decision maker.

Alongside expanding istrative work, Genea Biomedx’s UK media manufacturing site will be commissioned and pilot production will complete.


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Corporate Governance This section of the Annual Report outlines Genea’s governance framework. Genea is committed to ensuring that its policies and practices reflect a high standard of Corporate Governance.

5. ensure that the processes of strategic planning, budgeting and reporting (including information, control and audit systems) are soundly designed, properly conducted, and regularly monitored;

The Genea policies referred to in this corporate governance statement are available to shareholders on the Genea Shareholder Portal at www.genea.com.au/ shareholders.

6. ensure that statutory legal requirements as well as externally and internally generated ethical standards are complied with;

The Board of Directors

7. ensure that appropriate risk management procedures are maintained and followed;

As at 30 June 2014, the Board of Directors of Genea Limited comprised: Mr Rowan Ross AM (Chair), Professor Robert Jansen AM, Mr Euan Pizzey, Mr David Smithers AM, Dr Tomas Stojanov and Dr Robert Woolcott.

8. ensure that shareholders and others with legitimate interests have appropriate, reliable and timely information regarding the operations of the Company; and

The Board of Directors governs Genea Limited to operate in the field of human reproduction for the long-term enhancement of shareholder and community value. In exercising corporate governance, the Board takes responsibility for the strategic direction of the Company, appointment of a single or t Chief Executive Officer (to whom executive authority is delegated), setting goals for management, monitoring the achievement of these goals, and ensuring that all obligations to the community are met. The Company’s obligations include compliance with legal requirements, observation of sound and consistent ethical principles, and the pursuit of best scientific and social practice and outcomes.

9. approve and monitor the operation of the delegation of authority to management under the Statement of Delegated Authority.

Specifically, the Board will: 1. approve the vision and strategic direction of the Company and ensure that this vision and these strategic goals evolve as required in the interacting realms of business, biology, ethics and the community; 2. appoint, review and determine the remuneration of a single or t Chief Executive Officer; 3. monitor the operational and financial performance of the Company and approve the financial statements; 4. regularly review the performance of the Board as a whole and of individual of the Board; 32

Board composition In accordance with the constitution of the Company, the Board will consist of between four and ten directors. The current Board has a broad range of diverse and complementary skills and experience, specifically, a combination of scientific expertise, industry experience, clinical expertise and financial expertise. The Board has adopted a policy of ensuring an appropriate mix of executive and non-executive directors, with the Chairman to be elected by directors from among the non-executive directors. As at 30 June 2014 the Board had one executive director, being Dr Tomas Stojanov, Chief Executive Officer, and five non-executive directors, being Mr Rowan Ross AM, Professor Robert Jansen AM, Mr Euan Pizzey, Mr David Smithers AM and Dr Robert Woolcott. On 11 July 2014, the Company lost one of its directors and the founding father of the Company, Professor Robert Jansen AM. His enormous contribution to the establishment and the success of Genea cannot be measured and it is of paramount importance to the Corporate Governance

Board to ensure that Professor Jansen’s vision, mission and values remain embedded in the Company.

retire at the next following annual general meeting, at which they may be re-elected.

Of the non-executive directors: Mr Ross, Mr Pizzey and Mr Smithers meet the criteria set out in the ASX Corporate Governance Principles and Recommendations (2010) that determine the independent status of a director as none of these directors is a substantial shareholder of the Company; is employed or has been employed by the Company in an executive capacity within the last three years; has within the last three years been a principal of a material professional advisor to the Company; is a material supplier or customer of the Company; or, has a material contractual relationship with the Company.

In addition to six scheduled full meetings each year, other Board meetings may be held as required and if necessary on short notice.

The Chairman’s Committee (described below) assists the Board to review Board composition and nominations and makes recommendations to the Board on candidates for appointment as directors. In recommending potential new directors, and considering the re-election of incumbent directors, the Chairman’s Committee makes recommendations to the Board after carefully considering factors including the following: • competencies required to ensure that the Board is able to efficiently and effectively fulfil its responsibilities and duties; • the need to maintain an appropriate balance of skills, experience, expertise and diversity; • relevant regulatory and statutory requirements; • the results of reviews of Board performance; and • the overall mix of functional skills of the of the Board. In accordance with the Company’s constitution, one third of the Board of Directors (excluding the Chief Executive Officer, either t or single) retire each year at the annual general meeting and may be re-elected. Directors appointed by the Board between annual general meetings are required by the constitution to Genea Limited Annual Report 2014

Directors have the right, in connection with their duties and responsibilities as directors, to seek independent professional advice at the Company’s expense in relation to the Company’s affairs, subject to prior written approval of the Chairman, which will not be unreasonably withheld. If the Chairman determines it to be appropriate, such advice will be made available to the other directors. Under the Company’s constitution, the Company indemnifies its directors, to the extent permitted by law, against liabilities incurred by the directors in connection with the Company’s affairs to persons other than Genea Limited or its related bodies corporate. Conflicts of interest In accordance with the Corporations Act and the Company’s constitution, a director who has a material personal interest in a matter that relates to the affairs of the Company is required to declare the nature of the interest at a meeting of directors as soon as practicable after the relevant facts have come to the director’s knowledge. Where the Board believes that a significant conflict exists, the director concerned does not receive the relevant Board papers and is not present at the meeting, or segment of the meeting, at which the item is considered. Non-executive directors’ compensation It is the policy of the Board to maintain the remuneration of directors at levels that are consistent with market practice, having regard to the nature of their responsibilities and the size and business activities of the Company. From time to time the Board will seek independent advice on the directors’ appropriate remuneration. Non-executive directors are paid for their services in aggregate not more than 33

Corporate Governance (cont.) the fixed sum last approved at a general meeting of (shareholders). The directors determine the remuneration to be paid to each non-executive director within this aggregate limit, and in the absence of agreement the aggregate fixed sum is paid to them in equal shares.

Diversity On 15 August 2012, the Board approved the Genea Diversity Policy. The policy is designed to and promote the principles of diversity in the workplace and the Board monitors the Company’s overall diversity strategy and policy.

Ethical standards of corporate conduct The Board endeavours to ensure that the directors, officers and employees of the Company act with integrity and observe the highest standards of behaviour and business ethics in relation to their corporate activities, and comply with the Genea Code of Conduct.

Genea currently reports annually to the Equal Opportunity for Women in the Workplace Agency on the policies and business practices Genea has in place for all staff and for women that are either aimed at or have resulted in contributing to equal opportunity in the workplace.

Directors, officers and employees are expected:

Genea is very proud of the gender diversity that exists within the Company. Women comprise 89% of the total Genea workforce and occupy 66% of senior and frontline management positions, and women currently hold 2 of the 8 senior executive positions on the Genea Executive Committee.

1. to comply with the law and the constitution of the Company; 2. to adhere to recommendations made by the Company’s independent auditors, the Ethics Committee, and the Professional Advisory Board; 3. to act only in the best interest of the Company and its shareholders taken as a whole; 4. to disclose actual or potential conflicts of interest, including any additional direct or indirect commercial relationship with the Company or with the Company’s competitors; 5. to be responsible and able for all their actions, and to act always with due skill, care and diligence; 6. to observe the ethical values of fairness and honesty; 7. to respect the dignity of others; 8. at all times to respect the privacy and right to confidentiality of the Company’s patients, clients and customers; and 9. not knowingly to conceal an error, whether clinical, scientific, clerical or istrative (the reciprocal duty of the Company being a policy not to disadvantage a member of the Company for the making of a mistake). 34

Board committees 1. Chairman’s Committee Chaired by the Chairman of the Board and consisting entirely of non-executive directors with the majority being independent, the role of the Chairman’s Committee is to assist the Board in fulfilling its responsibilities by reviewing, advising and making recommendations to the Board in the following areas: A. Remuneration: • the Company’s remuneration, recruitment, retention and termination policies and procedures for senior executives; • senior executives’ remuneration and incentives; • superannuation arrangements; • the remuneration framework for directors; and • gender equality remuneration.


B. Nomination • the necessary and desirable competencies of directors; • review of board succession plans; • the development of a process for the evaluation of the performance of the board, its committees and directors; and •

the appointment and re-election of directors.

The Committee thus assures the Board of the effectiveness, integrity and compliance of the Company’s remuneration and nomination policies and practices, ensures that the overall remuneration and nomination policies and approaches fit with the strategic goals of the Company, and assists the Board in appropriate executive management and Board succession planning. Specifically, the Committee must consist of at least three non-executive directors with the majority being independent, confirmed annually by the Board, is chaired by the Chairman of the Board, has the power to appoint a secretary, and includes the following duties and responsibilities: 1. to make recommendations to the Board on the remuneration to be paid to a single or t Chief Executive Officer, including any offers of equity; 2. to make recommendations to the Board on the remuneration to be paid to the non-executive directors, including any retirement schemes; 3. to review and approve the total annual remuneration paid to employees of the Company, including any equity offers; 4. to review and monitor remuneration paid to direct reports to a single or t Chief Executive Officer; 5. to exercise all of the powers and discretion of the Board in relation to equity plans for directors, executives and other officers and employees;


6. to review Board composition and nominations and make recommendations to the Board on candidates for appointment as directors and, when necessary, on the process for the re-election of directors; 7. to review and make recommendations to the Board on the operation of the Board, including reviewing the performance of the current directors; 8. to review reports on management succession planning for executive positions and board succession plans; 9. to review human resource policies and practices for the Company including superannuation arrangements; and 10. each year, to review these of reference. The Chairman’s Committee has in place processes to review and evaluate the performance of the Board, its Committees, individual directors and the Company’s senior executives. The process for conducting the Board’s performance review consists of the Chairman conducting individual interviews with each of the directors. In conjunction with those interviews, the directors complete a questionnaire and are able to make other comments or raise any issue that they have relating to the Board’s or a Board Committee’s operation. Where appropriate, from senior executives may also be sought as part of the review process. The performance of the Board was assessed during the financial year ended 30 June 2014 in accordance with this process, and is due to again be assessed during the financial year ending 30 June 2015. Additionally, the Board, through the Chairman’s Committee, annually reviews the performance of a single or t Chief Executive Officer. In relation to the Company’s senior executives, a single or the t Chief Executive Officers will evaluate, at least annually, the performance of those executives. Either a single or the t Chief Executive Officers report to the Chairman’s Committee on the performance of senior executives in conjunction with the remuneration review process. The performance of senior 35

Corporate Governance (cont.) executives was assessed during the financial year ended 30 June 2014, in accordance with this process.

Correspondingly, the Committee has the following duties and responsibilities:

The Committee must meet as often as the Chairman decides is needed to fulfil its duties. As well, the Chairman must call a meeting if asked to do so by the Board, by a single or t Chief Executive Officer, or by any of the Committee’s . A majority of constitutes a quorum.

1. to review the audit plan with the external auditors in advance;

At 30 June 2014, the Committee’s hip comprised: Mr Rowan Ross AM (Chair), Professor Robert Jansen AM, Mr Euan Pizzey, Mr David Smithers AM and Dr Robert Woolcott. 2. Audit, Risk Management and Compliance Committee The Audit, Risk Management and Compliance Committee assists the Board in fulfilling its responsibilities relating to ing and financial reporting practices, the management of business and operational risks, and the placement, compliance and monitoring of internal controls. Specifically, the Committee: 1. oversees the integrity and quality of financial information presented to the Board; 2. reviews the independence and appointment of the auditor; 3. oversees the scope and the quality of the external audit; 4. evaluates the need for and scope of internal audit processes, taking of the Company’s risk profile; 5. gains assurance that there are processes in place for appropriate management of identified risks; 6. ensures that the management of identified risks is monitored through a number of activities including internal and external audits; and 7. ensures compliance with statutory responsibilities and internal policies. 36

2. to determine that no management restrictions are being placed upon the external auditors by inter alia meeting alone with the auditor at least annually; 3. to evaluate the overall effectiveness of the external audit; 4. to evaluate the adequacy of the Company’s ing control system by reviewing written reports from the external auditors and monitor the Board’s and management’s responses and actions to correct any noted deficiencies; 5. to review management’s response to the external auditor’s letter prior to remittance of that response; 6. to review all financial reports to be made public prior to their release; 7. to review and consult on all significant ing policy changes; 8. to review the financial statements contained in the statutory s and annual report with the Chief Executive Officer (t or single), the Chief Financial Officer and external auditors and recommend acceptance to the Board; 9. to oversee the assessment of the risk profile for the Company, to understand the key risks affecting the financial, regulatory and operational exposures of Genea Limited; 10. to review the risk management systems for the adequacy of systems to monitor and manage the key risks, by setting prudent limits, and requiring adequate and timely reporting processes; 11. to review the effectiveness of the policies and procedures designed to minimise risk exposure;


12. to plan internal audit practices and projects including communicating expectations, approving the scope, monitoring management’s response and assessing the effectiveness of the internal audit; 13. to prepare a report to the Board summarising the work performed by the Committee to fully discharge its duties during the year; 14. to review the existence and adequacy of the Company’s insurance policies and ensure they are sufficient to cover the nature and value of potential loss from insurable events; 15. to review management of cash and other assets; 16. to advise the Board on any regulatory compliance and reporting issues likely to affect the Company’s financial performance, operation or service; 17. to undertake self-assessment process; and 18. each year, to review these the of reference. Composition of the Committee The Committee must have at least three and: • each member must be a non-executive director; • the majority of must be independent directors; and • the Committee must be chaired by an Independent Chair who is not Chair of the Board. Further, in accordance with the ASX Corporate Governance Principles and Recommendations (2010), the Committee includes one member who is a qualified ant and who are all financially literate and some who have an understanding of the industry in which the Company operates. The Board confirms hip of the Committee annually and appoints one of the to chair the Committee.


The Committee has unfettered access to the external auditors and to senior management of the Company, and may seek external advice and outsource projects where it deems this necessary. The Committee has adopted an Audit Independence Policy which addresses the selection and appointment of the external auditor, the rotation of external audit engagement partners and policies to ensure audit independence. The Committee holds at least three meetings per year and such additional meetings as the Chair shall decide in order to fulfil its duties. In addition, the Chair calls a meeting of the Committee if required to do so by any Committee member, the Chief Executive Officer (t or single), the Board, or the external auditors. If a Committee member cannot attend a meeting, he or she may appoint an alternate for such a meeting. The alternate must be a non-executive member of the Board. A quorum consists of a majority of Committee , and the executive provides secretarial assistance to the Committee. All directors of the Company who have not formally been appointed by the Board to the Committee have the right to attend Committee meetings. All directors of the Company are provided with copies of the agenda papers and minutes of the meetings in the same manner and at the same time as of the Committee. In addition to the Company’s auditors attending the relevant Committee meeting that reviews the Company’s financial statements, the Company’s auditors have a standing invitation to each and every meeting of the Committee. At 30 June 2014, the Committee’s hip comprised: Mr David Smithers AM (Chair), Mr Rowan Ross AM and Mr Euan Pizzey.

37

Corporate Governance (cont.) Risk Management The Company has a comprehensive system of risk management and oversight, istered by the Chief Risk Officer who reports to each meeting of the Audit, Risk Management and Compliance Committee on the effectiveness of the Company’s management of its material business risks. The risk management system includes extensive policies addressing the identification, control and management of material risks, including management of appropriate insurances. The Chief Executive Officer and the Chief Financial Officer have provided assurance, in writing to the Board that the financial reporting risk management and associated compliance and controls have been assessed and have been found to be operating effectively. The operational and other risk management compliance and controls have also been assessed and found to be operating effectively. Advisory committees 1. Ethics Committee The Company maintains an Ethics Committee composed predominantly of men and women who are independent of the Company and who are eminent in the community. The Committee will: Scope of responsibilities 1. provide independent ethical review of research involving humans conducted by the Company, as required by the National Statement on Ethical Conduct in Human Research (National Statement), including by reviewing protocols and progress reports on such research. The Committee may establish procedures for the review of low risk research in accordance with the National Statement; 2. not generally provide ethical approval or monitoring of research by researchers not d with the Company;

38

3. in addition to review of research involving humans, the Committee may be asked to review from an ethical and community perspective matters of ethical concern to the Company; 4. pay special attention to the processes of consent and agreement by which of the public are treated or have tests performed at or by the Company; 5. establish, implement and document working procedures to promote good ethical review; hip and meetings 6. comprise a chair and in at least such number and categories as is required by the National Health and Medical Research Council (NHMRC) to fulfil all functions required of an institutional Human Research Ethics Committee; 7. meet at least four times each year, and (at the discretion of the Committee’s Chairman) as requested by of either the Committee or the executive; 8. for at least a part of each meeting, consider matters in the absence of executives of the Company; ability and reporting 9. report annually or otherwise as required to the NHMRC and its committees on the conduct of its business, and provide a copy of that report to the Board; 10. maintain its independence of the Company’s operations (including by the open disclosure by to the Chairman of the Committee of any personal or commercial matter that could cause a conflict or an appearance of a conflict with the independent operation of the Committee); 11. maintain a direct link with the Chairman’s Committee of the Board, including the holding of at least one t meeting each year of which a part will be conducted in the absence of executives of the Company;


12. directly, and without any necessary reference to the executive of the Company, inform the independent directors of any substantial or unresolved concern the Committee may have in relation to any aspect of the Company’s conduct of its business; Remuneration 13. not charge fees for the provision of ethical review of the research and other activities of the Company; and 14. make public, in the Company’s annual report each year, the remuneration paid to the of the Committee. In the past year, Dr Simon Longstaff AO and Mr James Lane resigned as of the Committee. The Board extends their deep appreciation for their work on the Committee over many years. The Board also welcomes Ms Paula Trigg, Ms Barbara Ramjan and Rev. Peter Kurti who ed the Committee this year. At 30 June 2014, the hip of the Committee comprised: Mr Bruce Cutler (Chair), Hon. Jim Longley (layman), Rabbi Jacqueline Ninio (minister of religion), Dr Edith Weisberg AM (doctor familiar with, but not of, the institution’s fields of research) and Professor John Rasko AO (clinical haematologist with significant research experience), Ms Paula Trigg (layperson), Ms Barbara Ramjan (counsellor) and Rev. Peter Kurti (minister of religion). For the financial year ended 30 June 2014 the Chairman of the Ethics Committee is an annual fee of $9,000 (which equates to $1,500 per scheduled meeting), and each other member of the Committee received an annual fee of $4,500 (which equates to $750 per scheduled meeting). Professor Rasko, who is the Company’s principal approved pathology practitioner, and has other technical advisory roles within the Company, received $108,900 for these services (including his fee for the Ethics Committee) for the financial year ended 30 June 2014.


2. Science and Research Commercialisation Committee Principal committee functions The Science and Research Commercialisation Committee is an advisory committee to the Genea Board. The Committee’s purpose is to inform the Board and to assist the Chief Executive Officer (t or single) to create strategies, systems, processes and procedures that will advance Genea as a science-based business. Specifically, the Committee will ensure that: 1. the scientific, research and development paths set by Genea Biomedx and Genea Biocells are those that best match the Company’s business strategy; 2. the Company’s research and development strategy is that which makes best use of the opportunities for the Company’s business model in the Australian and international market place, and 3. the Company monitors the ongoing scientific and commercial viability of R&D projects on hand and ensures that the maximum commercial value is extracted from them. Committee hip The hip of the Committee will include at least four : 1. a Genea non-executive director to chair the Committee. This position is currently held by Mr Euan Pizzey; 2. an external non-executive member to monitor and advise on scientific activities. This position is currently held by Professor Alan Colman; 3. an external non-executive member to monitor and advise on commercialisation activities. This position is currently held by Dr Dianne Glenn.; and 4. the Chief Executive Officer, Dr Tomas Stojanov.

39

Corporate Governance (cont.) The Company is delighted to welcome the eminent scientist, Dr Jeanne F. Loring as a new member of the Committee. Dr Loring is the founding director of the Center for Regenerative Medicine at The Scripps Research Institute, La Jolla, California. Committee responsibilities in practice To assist Genea management to establish strategies, systems, processes and procedures that enable management and the Committee: 1. to ensure that commercial returns are maximised on current and future R&D programs and IP assets; 2. to identify unique Genea inventions to be protected by patent; 3. to enable the commercial opportunities that should guide the future R&D programs, product development requirements and IP acquisitions to be identified and evaluated; and 4. periodically to conduct reviews to identify and evaluate areas of potential commercial opportunity for Genea. Committee reporting and ability The Committee reports to the Genea Board after each of the Committee’s meetings, by way of • a brief, memo-style “Actions Arising” report; and • a verbal report from the Committee Chairman to a single or t Chief Executive Officer. Ethics and governance The Committee: • is subject to Genea’s corporate governance rules as they apply to other Board Committees and to the Board itself, both in the way the Committee operates within its charter and in how it deals with conflicts of interest; and

Work program and meetings The Committee conducts a number of formal meetings each year. These meetings are supplemented by meetings and teleconferences between individual and management as required. Meetings are convened at the discretion of the Committee Chair. Remuneration and tenure The Genea Board determine the remuneration of non-employee of the Committee. The Chair of the Committee is remunerated in accordance with the directors’ fees payable for a chairman of a Board Committee. Non-Board, non-executive are paid quarterly in arrears on submission of an invoice for a quarter of the agreed annual fee as determined by the Board. Alternatively, may elect to receive shares in lieu of cash remuneration (net of any applicable income tax) under the same conditions as those which apply to directors of the Company. hip of the Committee is made by annual appointment and is subject to review by the Board each year between the end of the financial year and the annual general meeting. Operational framework To achieve its objectives, the Committee may, through the Chief Executive Officer: • work closely with one or more key executives of the Genea Biomedx and Genea Biocells, and • request assistance from other business divisions within the Company.

• ensures that the Ethics Committee is advised of new R&D projects that are initiated or approved. 40


Operational responsibilities Together, the Chair of the Committee and the Chief Executive Officer develop formal reporting requirements and procedures for:

requirements). The Company also issues shareholder notices at other times if it considers that information should be disclosed to all participants in the market for shares in the Company.

• monitoring current R&D projects of the Genea Biomedx and Genea Biocells divisions;

The Company has had in place since May 2006, the Genea Share Trading Policy as directors, officers and employees are subject to the Corporations Act 2001 restrictions on applying for, acquiring and disposing of securities in the Company if they are in possession of inside information. The policy has been designed to ensure that all shareholders and other eligible participants may only buy and sell shares once price sensitive information has been released to all participants who can participate in the market for shares in the Company.

• evaluating proposals for new products and services of the Genea Biomedx and Genea Biocells divisions; and • keeping abreast of the R&D of others. These written requirements and procedures are identified as annexures to the Committee’s charter, will be kept up-to-date by the Committee, and modifications will be provided to the Board at its next meeting as part of the divisional report. At 30 June 2014, the hip of the Committee comprised: Mr Euan Pizzey (Chair), Professor Alan Colman, Dr Dianne Glenn, Dr Jeanne Loring and Dr Tomas Stojanov. Shareholder Communications and relevant Company Policies Developing strategies for communicating effectively with shareholders of the Company and policies that enhance the Company’s corporate governance framework are important priorities for the Board. The Company prepares and issues quarterly Shareholder Updates to shareholders. These updates contain a summary of the Company’s most recent financial results, with discussion and analysis of that information to provide shareholders with regular access to balanced and understandable information about the Company. It also provides an opportunity for the Company to disclose any other information that may be considered price sensitive, as the Company approved the Genea Continuous Disclosure Policy in May 2005 to formally adopt an ongoing disclosure regime (although by law Genea Limited is not currently required to comply with the Corporation Law continuous disclosure Genea Limited Annual Report 2014

In February 2010, the Company was granted an exemption by ASIC from the operation of Part 7.2 of the Corporations Act 2001. Under this exemption, the Company must operate the market in shares in the Company strictly in accordance with the process set out in the Company’s constitution, and the Company must establish and maintain adequate arrangements to manage any conflicts of interest that arise in relation to any activities undertaken by the Company in the market for shares. The Board approved the Genea Conflicts of Interest Policy in June 2010 which outlines the arrangements in place to manage any conflicts of interest that may arise in relation to any activities undertaken by the Company in the operation of the market for shares in the Company. The Genea Shareholder Communications Policy, approved by the Board in September 2010, summarises the various methods the Company has adopted for promoting effective communication with shareholders and a copy of this and all policies relevant to shareholders have been ed to the Genea shareholder portal at www.genea.com.au/shareholders.

41

Our Values At Genea, everything we do is in the spirit of our Values.

Our Principles

Integrity

The dominating principles by which we apply our Values were codified (as Our Goals) in the mid 1990s and have been reiterated annually since.

Do the right thing.

Excellence Lead beyond the expected.

ability See. Own. Solve. Do.

Innovation Imagine. Initiate. Strive.

ion Believe. Inspire. Celebrate.

Our Mantra

This set of principles governs, controls and clearly defines how we must operate: 1. When reproductive ambitions are in jeopardy, to provide our services in ways that will strengthen people’s wellbeing and their relationships, whatever the reproductive outcome and whatever their family circumstances. 2. In working with the people who seek our services, always and above all else, to respect their and their children’s need for knowledge, for comionate care and for privacy and confidentiality – and never knowingly to jeopardise their interests in any way without immediate disclosure and explanation. 3. To utilise our research and the research of others to advance best reproductive medical and social practice and to be transparent and open in our interactions within each community in which we practice our art.

Our Mission In 2014 we reviewed our Mission and Vision to ensure they stay relevant and compelling. Our Mission remains the same but in a broader context. To fulfil people’s hopes and expectations for a healthy baby (by providing fertility services and technologies around the world).

Our Vision Our Vision is to grow Genea from a specialised IVF & research organisation to an integrated fertility services & products company with broad geographical reach.

42

4. To achieve these ends in a way that expects everyone at Genea to show leadership, responsibility and ability to produce a personal, comionate, non-discriminatory, cost-effective and professionally satisfying environment in which to work. 5. To expand our business in Australia and abroad and, in doing so, to reaffirm these Principles and the Values to which we aspire. 6. To produce an appropriate return on equity for investors in Genea.


Financial Report Directors’ report

44

Statement of financial position

55

Statement of profit or loss and other comprehensive income

56

Statement of changes in equity

57

Statement of cash flows

58

Notes to the consolidated financial statements

59

Directors’ declaration

108

Independent auditor’s report

109

Lead auditor’s independence declaration

110

Additional information

111


43

Directors’ Report The directors present their report together with the financial report of Genea Limited (‘the Company’) and its subsidiaries and interest in associates (‘the Group’) for the financial year ended 30 June 2014 and the auditor’s report thereon.

1. Directors The directors of the Company at any time during or since the end of the financial year are: Name, qualifications and independence status R.A. Ross AM

Age 65

• More than 40 years experience in investment banking. An Executive Director of Macquarie Capital (Australia) Limited; former Chairman of Bankers Trust Investment Bank; former National President of the Securities Institute of Australia and former Chairman of the Sydney Dance Company, the Australian Brandenburg Orchestra and the Australian Major Performing Arts Group • Appointed 31 July 2002 • Chairman of the Chairman’s Committee • Member of the Audit, Risk Management and Compliance Committee

67

• Founding Managing Director and a major shareholder. Executive Chairman from 1984 to 1991. Extensive experience in reproductive medicine and IVF; inaugural Chairman of Australia’s Reproductive Endocrinology and Infertility Subspecialty Board; a past member of NHMRC Committees including the Medical Research Ethics Committee; and Clinical Professor at the University of Sydney since 1993 • Appointed as an Executive Director on 17 October 1984 and a Non-Executive Director on1 January 2011 • Former member of the Chairman’s Committee • Deceased 11 July 2014

66

• 20 years experience as a practising Chartered ant including 10 years as a partner of Coopers & Lybrand. 17 years extensive experience in commercialisation and financing of biotechnology. Former Director, CFO and Company Secretary of Vision Systems Ltd. Former Director of AFL Films • Appointed 4 March 2009 • Member of the Chairman’s Committee and the Audit, Risk Management and Compliance Committee • Chairman of the Science and Research Commercialisation Committee

BEc, BCom, FASA, SF Fin Chairman Non-Executive Director

R.P.S. Jansen AM MD (Syd), FRA, FRANZCOG, CREI, OPM (Harvard) Non-Executive Director

C.E. Pizzey Dip Com, FCA, FTIA, A, CTA Non-Executive Director

44

Experience, special responsibilities and other directorships

Directors’ Report

Name, qualifications and independence status D.W. Smithers AM

Age 70

• Extensive experience as a Partner and Chairman of PricewaterhouseCoopers in Australia. A former Director of Rabobank Australia Group; International Energy Services Ltd Group and Sydney Symphony Limited A former president of the Institute of Chartered ants in Australia. • Appointed 16 February 2005 • Member of the Chairman’s Committee • Chairman of the Audit, Risk Management and Compliance Committee

50

• More than 26 years experience in the health, biotechnology and agriculture sectors in a range of capacities including scientific research, operational management and commercialisation. Previously Director of Research and General Manager of Stem Cells and Research • Appointed 1 January 2011 • Member of the Science and Research Commercialisation Committee

56

• Medical and Managing Director of Genea Newcastle; Non-Executive Director of Genea Perth and Medical Director of Genea Oxford. Former Member of the RANZCOG Reproductive Endocrinology and Infertility Sub-specialty Board, the Hunter Postgraduate Medical Institute Board and the Mayne Health Medical Advisory Board • Appointed 1 January 2011 • Member of the Chairman’s Committee • Chairman of the Genea Biomedx Advisory Board

FCA, FICD Non-Executive Director

T. Stojanov PhD, GMP (Harvard) Chief Executive Officer

R.J. Woolcott MBBS (Hons), FRANZCOG, CREI, AMP (Harvard) Non-Executive Director

Experience, special responsibilities and other directorships

On 11 July 2014, the Company lost one of its directors and the founding father of the Company, Professor Robert Jansen AM. His enormous contribution to the establishment and the success of Genea cannot be measured and it is of paramount importance to the Board to ensure that Professor Jansen’s vision, mission and values remain embedded in the Company.


45

Directors’ Report (cont.) 2. Company Secretary Ms Mary Weaver AGIA, ACIS BA(Hons), LLB was appointed to the position of Company Secretary on 28 June 2012.

3. Directors’ meetings The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are: Director

Board Meetings

Audit, Risk Management & Compliance Committee Meetings

Chairman’s Committee Meetings

No. Of Meetings Held

No. Of Meetings Attended





R. A. Ross

8

8

3

2

3

3

R.P.S. Jansen (1)

8

3

n/a

n/a

3

1

C.E. Pizzey

8

8

3

3

3

3

D.W. Smithers

8

8

3

3

3

3

T. Stojanov

8

8

n/a

n/a

n/a

n/a

R.J. Woolcott

8

8

n/a

n/a

3

3

(1) On extended leave of absence.

46

Directors’ Report

4. Directors’ remuneration The Chairman’s Committee is responsible for making recommendations to the Board on executive and non-executive directors’ remuneration. The Board’s remuneration policy is to ensure remuneration packages properly reflect the individual’s duties and responsibilities and that the remuneration is competitive in attracting and retaining executive and non-executive directors having the requisite skills, experience and capacity to meet the Company’s needs. Directors’ remuneration incorporates: • for all directors, a fixed or base income component, which includes cash remuneration and superannuation; and • for executive directors only: – annual bonuses, based on quantitative and qualitative factors; and – the issue of options based on profitability or shareholder return targets. These are provided as longer term incentives. Details of the nature and amount of each major element of the emoluments of each non–executive director of the Company in respect of the year ended 30 June 2014 are set out hereunder: Director

Cash remuneration

Superannuation

Total

$

$

$

132,723

12,277

145,000

R.P.S. Jansen (1)

64,073

5,927

70,000

C.E. Pizzey

77,803

7,197

85,000

D.W. Smithers (1)

77,803

7,197

85,000

R.J. Woolcott (1)

66,552

6,156

72,708

418,954

38,754

457,708

R.A. Ross(1)

(1) These directors elected to receive a component of their remuneration as shares in Genea rather than cash as permitted by a resolution of shareholders.

Additional disclosure on the remuneration of directors is provided in notes 24(b) and 31 to the financial statements provided as part of this annual report.


47

Directors’ Report (cont.) 5. Directors’ interests The relevant interest of each director in the shares and options over such instruments issued by the Company at the date of this report is as follows: Ordinary shares direct interest

Ordinary shares indirect interest

Total number of ordinary shares

58,195

-

58,195

R.P.S. Jansen

-

866,063

866,063

C.E. Pizzey

-

12,783

12,783

D.W. Smithers

-

15,936

15,936

7,500

-

7,500

-

288,056

288,056

Director R. A. Ross

T. Stojanov R.J. Woolcott

6. Share options Options granted to directors and officers of the Company During or since the end of the financial year, the Company has not granted options over unissued ordinary shares in the Company to any non-executive director of the Company. Additional disclosure on share options is provided in note 24(b) to the financial statements as part of this annual report. Unissued shares under options At the date of this report there are no unissued ordinary shares of the Company under options. Note 24(b) to the financial statements details the option plan rules.

7. Principal activities The principal activities of the Group during the course of the financial year were the provision of assisted reproductive technology (ART) services and research and development in the field of reproductive science and medicine, including the commercialisation of research and development outcomes. No significant change in the nature of these activities occurred during the year.

48

Directors’ Report

8. Operating and financial review Overview of the Group The Group result in 2014 reflects the investment necessary to transform Genea from a domestically focused, clinic-centric operation into an international IVF products and services business. Revenues of $76.3 million are up 4.0% on last year (2013: $73.4 million) due to an improved result in Fertility. It should be noted that 2013 Group revenue included a one-off $2.7 million fee from the sale of a media licence. Profit attributable to equity holders of the Company of $4.9 million is in line with the prior year (2013: $4.9 million), despite increased costs in Fertility and continued investment in research, development and commercialisation in Biomedx and Biocells, including initial trading losses as these start-up businesses become established. Net cash during the year decreased $4.6 million (2013: $4.9 million decrease), after external funding via secured bank loan and overdraft totalling $5.4 million, due to reduced operating cash flows and continued investment in research and development, as well as capital expenditure in relation to the fitout of culture media production units in Sydney, Australia and Kent, UK, and various technology projects. Unutilised AUD facilities totalled $8.1 million at 30 June 2014 (see Note 23). Review of principal businesses From 1 July 2013 the Group established two new businesses: Genea Biomedx Pty Limited (‘Biomedx’), for the manufacture and sale of media and instruments used in IVF, and Genea Biocells Pty Limited (‘Biocells’), for the cultivation and sale of stem cells. Both businesses utilise research developed by the Group’s Stem Cells & Research division over many years. Trading for these two new businesses has been reported separately commencing 1 July 2013 and replaced reporting for the Stem Cells & Research division from that date.

Segment revenue Fertility Biomedx Biocells

2014

2013

$000

$000

75,436 110 713

69,849 2,670 923

14,171 (8,078) (2,511)

13,312 (3,741) (1,755)

33,180 13,770 3,792

28,316 8,854 5,130

Segment profit before interest and tax (EBIT) Fertility Biomedx Biocells Segment assets Fertility Biomedx Biocells


Directors’ Report (cont.) Fertility Segmental revenues of $75.4 million are up 8.0% on last year (2013: $69.8 million) due to a 5.6% increase in the number of oocyte pick-ups (OPUs) and a price increase implemented during the financial year. The increase in OPUs reflects an improving IVF market that in aggregate has grown by approximately 7% in the states and territories where the Group operates. Segmental EBIT of $14.2 million is up 6.8% on last year (2013: $13.3 million) due to a $1.3 million write-off of goodwill to recognise the shift away from our traditional diagnostic offerings towards new molecular-based technology services. Adjusting for this one-off item segmental EBIT would have been $2.2 million (16.5%) higher than the prior year. Biomedx Segmental revenues of $0.1 million (2013: $2.7 million) reflect the start-up nature of this business, with media sales at this stage confined to associated entities pending European accreditation (CE marking) and sale of instruments not due to commence until 2015. There was a one-off $2.7 million fee from the sale of a media licence in prior year. The segmental EBIT loss of $8.1 million (2013: loss of $3.7 million) reflects the Group’s continued investment in the development and commercialisation of Biomedx activities. The pay-back from this investment is expected to commence over the next 12-18 months as sales of Biomedx products ramp up. Biocells Segmental revenues of $0.7 million (2013: $0.9 million) reflect the start-up nature of this business, with a dedicated business development team being established during the financial year. The segmental EBIT loss of $2.5 million (2013: loss of $1.8 million) reflects initial trading losses and continued development of Biocell’s stem cell-based discovery platform. Shareholder return 2014

2013

2012

2011

2010

Net profit attributable to equity holders of the Company ($000)

$4,936

$4,883

$9,060

$7,781

$10,184

Basic earnings per share (EPS)

$1.73

$1.73

$3.23

$2.80

$3.75

Dividends paid ($000)

$2,363

$5,546

$6,597

$6,497

$7,079

Dividends per share(1)

$0.83

$1.96

$2.35

$2.35

$2.60

$50.19

$55.00

$48.50

$58.88

$52.36

17%

19%

35%

34%

52%

Share price

(2)

Return on equity

(3)

(1) Dividends per share disclosed on an historically paid basis. (2) Based on the latest traded price. (3) Determined as Profit Attributable to Equity Holders of the Company divided by Total Equity Attributable to Equity Holders of the Company.

50

Directors’ Report

Aggregate returns to shareholders in the form of dividends have declined relative to the prior year as a result of the decrease in net profit, as has the return on equity, although EPS is consistent with prior year. The latest share price based on recent trades is approximately $50.00 per share. The shares were independently valued in the range $55.00 – $74.32 in September 2013. A short-form independent valuation was obtained in July 2014 which indicated that the market value of the shares is likely to have marginally reduced since the full valuation. Significant changes in the state of affairs In the opinion of the directors there were no significant changes in the state of affairs of the Group that occurred during the financial year under review other than as disclosed in this report.

9. Dividends Dividends paid or declared by the Company to since the end of the previous financial year were: Cents per share Declared and paid during the year 2014

Total amount

Franked/ unfranked

Date of payment

$000

Interim 2014 ordinary

37.0

1,053

Unfranked

24 April 2014

Final 2013 ordinary

46.0

1,310

Unfranked

26 November 2013

Total amount

2,363

Declared after end of year After the balance sheet date the following dividends were declared by the directors. The dividends have not been provided for and there are no income tax consequences. Cents per share Declared after end of year Final 2014 ordinary

Total amount

Franked/ unfranked

Date of payment

Partially franked

28 November 2014

$000 54.0

1,539

The financial effect of these dividends has not been brought to in the financial statements for the year ended 30 June 2014 and will be recognised in subsequent financial reports.


51

Directors’ Report (cont.) 10. Events subsequent to reporting date On 11 July 2014, Company director and founder, Professor Robert Jansen, ed away. At 1 July 2014 the assets and liabilities of the Genea Genetics Unit Trust were transferred to Genea Limited and the trust dissolved. Development of a media production facility for Genea Biomedx at its premises in Kent, UK is expected to be completed in the next financial year and the building itself acquired, with some financial assistance made available by the local regional development council. The Group opened a new IVF clinic in St Leonards in August 2014, as part of its program of expanding in important markets. In July 2014, the Group incorporated two wholly owned foreign subsidiaries, Genea (UK) Limited in the United Kingdom and Genea Hong Kong Limited in Hong Kong. Neither subsidiary has commenced operation. In August 2014, the Company became aware that an independent specialist who utilised the Superior ART (‘SART’) facility treated a patient engaged in a commercial surrogacy arrangement. Following this incident, the Company has assisted SART with improvements to its risk governance framework to ensure it is equivalent to Genea’s ethical and risk governance framework. Other than these matters and those noted elsewhere in this report, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

11. Likely developments The outlook for the Group’s future developments and results in subsequent financial years is commented on in the Chief Executive Officer’s Report.

12. Indemnification and insurance of officers and auditors Indemnification No indemnities have been given or insurance s paid, other than in accordance with the provisions of paragraph 35 of the Company’s constitution, during or since the end of the financial year, for any person who is or has been an officer or auditor of the Group. Insurance s During or since the financial year, the Company has paid insurance s in respect of directors’ and officers’ liability insurance contracts for current and former directors and officers, including executive officers and secretaries of the Company, and directors and officers, including executive officers and secretaries, of its controlled entities. Disclosure of the nature of the liabilities covered and the amount of the is prohibited under the conditions of the contract of insurance. 52

Directors’ Report

13. Non-audit services During the financial year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non–audit services provided during the year by the auditor and in accordance with advice provided by the Audit, Risk Management and Compliance Committee, is satisfied that the provision of those non–audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services are subject to the corporate governance procedures adopted by the Company and are reviewed by the Audit, Risk Management and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in Professional Statement F1 Professional Independence, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or tly sharing risks and rewards. Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out below: Consolidated 2014

2013

$

$

206,400

209,905

Income tax

-

10,123

Research & development taxation advice

-

16,890

-

6,000

40,650

-

Audit services Auditors of the Company KPMG Australia: Audit Tax services Auditors of the Company KPMG Australia:

Other services Auditors of the Company KPMG Australia: Due diligence services KPMG Italy: Due diligence services Genea Limited Annual Report 2014

53

Directors’ Report (cont.) 14. Lead auditor’s independence declaration The lead auditor’s independence declaration is set out on page 48 (page110 of this Annual Report) and forms part of the Directors’ report for financial year ended 30 June 2014.

15. Rounding off The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. This report is made in accordance with a resolution of the Directors:

R.A. Ross AM Chairman

T. Stojanov Chief Executive Officer

Dated at Sydney this 17th day of September 2014

54

Directors’ Report

Statement of Financial Position As at 30 June 2014 Consolidated In AUD ($000) Assets Cash and cash equivalents Trade and other receivables Other assets Income tax receivable Total current assets Receivables Investments in equity ed investees Deferred tax assets Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities Trade and other payables Other liabilities Loans and borrowings Employee benefits Provisions Total current liabilities Deferred tax liabilities Other liabilities Loans and borrowings Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Equity compensation reserve Translation reserve Retained earnings Total equity attributable to equity holders of the Company Non-controlling interest Total equity

Note

2014

2013

13a 14 15 18

844 2,584 3,374 395

5,443 2,660 1,692 1,908

7,197

11,703

14 16 18 19 20

619 4,341 2,703 15,996 21,100

3,186 15,199 17,094

5

44,759 51,956

35,479 47,182

21 22 23 24 25

5,525 2,434 1,431 3,392 211

5,816 2,841 8 3,721 -

12,993

12,386

18 22 23 24 25

3,558 4,000 758 1,253

1,442 4,322 12 677 1,415

5

9,569 22,562 29,394

7,868 20,254 26,928

10,309 163 76 18,127

10,107 140 215 15,554

28,675 719

26,016 912

29,394

26,928

The notes on pages 59 to 107 are an integral part of these consolidated financial statements.


55

Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2014 Consolidated In AUD ($000) Revenue

Note 5

Cost of goods and services sold Gross profit Other income

6

Sales and marketing expenses Research and development expenses

10

istrative expenses Results from operating activities Financial income Financial expenses Net financing (expense)/income

9

Share of profit of equity ed investees

16

Profit before income tax Income tax expense/(benefit)

11

Profit for the year

2014

2013

76,259 (38,092)

73,442 (35,233)

38,167 468

38,209 394

(4,433)

(3,148)

(4,175) (28,056)

(6,473) (25,048)

1,971 30 (141)

3,934 148 (7)

(111)

141

1,443

1,581

3,303

5,656

2,100

(334)

5,403

5,322

Other comprehensive income Items that may be reclassified subsequently to profit or loss: (139)

195

5,264

5,517

Non-controlling interest

4,936 467

4,883 439

Profit for the year

5,403

5,322

Non-controlling interest

4,797 467

5,078 439

Total comprehensive income for the year

5,264

5,517

Foreign currency (loss)/gain for foreign operations Total comprehensive income for the year Profit attributable to: Equity holders of the Company

Total comprehensive income attributable to: Equity holders of the Company

Earnings per share: Basic earnings per share

12

1.73

1.73

Diluted earnings per share

12

1.73

1.71


56

Financial Report

Statement of Changes in Equity For the year ended 30 June 2014 Consolidated In AUD ($000)

Share capital

Translation reserve

Equity compensation reserve

Retained earnings

Total

Noncontrolling interest

Total equity

Balance at 1 July 2012

9,071

20

287

16,217

25,595

1,514

27,109

Profit

-

-

-

4,883

4,883

439

5,322

Total other comprehensive income

-

195

-

-

195

-

195

-

195

-

4,883

5,078

439

5,517


Transactions with equity holders, recorded directly in equity Contributions by and (distributions to) equity holders Share options exercised

502

-

-

-

502

-

502

-

-

(29)

-

(29)

-

(29)

118

-

(118)

-

-

-

-

-

-

-

-

-

(273)

(273)

Shares issued

416

-

-

-

416

-

416

Dividends paid

-

-

-

(5,546)

(5,546)

(768)

(6,314)

1,036

-

(147)

(5,546)

(4,657)

(1,041)

(5,698)

Balance at 30 June 2013

10,107

215

140

15,554

26,016

912

26,928


10,107

215

140

15,554

26,016

912

26,928

Profit

-

-

-

4,936

4,936

467

5,403

Total other comprehensive income

-

(139)

-

-

(139)

-

(139)

-

(139)

-

4,936

4,797

467

5,264

Equity-settled transactions, net of tax Transfers Reduction in pre-acquisition reserve arising from acquisition

Total contributions by and (distributions to) equity holders


Transactions with equity holders, recorded directly in equity Contributions by and (distributions to) equity holders Share options exercised

6

-

-

-

6

-

6

Equity-settled transactions, net of tax

-

-

23

-

23

-

23

Shares issued

196

-

-

-

196

-

196

Dividends paid

-

-

-

(2,363)

(2,363)

(660)

(3,023)

202

-

23

(2,363)

(2,138)

(660)

(2,798)

10,309

76

163

18,127

28,675

719

29,394

Total contributions by and (distributions to) equity holders Balance at 30 June 2014



57

Statement of Cash Flows For the year ended 30 June 2014 Consolidated In AUD ($000)

Note

2014

2013

76,635

72,432

(73,529)

(63,383)

3,106

9,049

Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid

(48)

(6)

30

148

Dividends received

640

656

Income taxes paid

(504)

(823)

13b

3,224

9,024

-

46

Acquisition of property, plant and equipment

19

(4,121)

(2,683)

Development expenditure

20

(5,802)

(4,399)

(505)

(1,529)

(10,428)

(8,565)

Interest received

Net cash from operating activities Cash flows from investing activities Proceeds on disposal of property, plant and equipment

Acquisition of investments Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of share capital

202

918

Proceeds from drawdown/(repayment) of loans and borrowings

5,426

(6)

Distributions to non-controlling interests

(660)

(768)

(2,363)

(5,546)

Net cash from/(used in) financing activities

2,605

(5,402)

Net decrease in cash and cash equivalents

(4,599)

(4,943)

5,443

10,386

844

5,443

Dividends paid

26

Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June

13a


58

Financial Report

Notes to the Consolidated Financial Statements Index To Notes to the Consolidated Financial Statements 1. 2. 3.

Reporting entity Basis of preparation Significant ing policies a. Basis of consolidation b. Foreign currency c. Financial instruments d. Property, plant and equipment e. Intangible assets f. Trade and other receivables g. Other assets h. Cash and cash equivalents i. Impairment j. Interest-bearing borrowings k. Employee benefits l. Provisions m. Trade and other payables n. Non-controlling interest o. Revenue p. Lease payments q. Finance income and expenses r. Income tax s. Earnings per share t. Segment reporting u. Goods and services tax v. New standards and interpretations not yet adopted


4. 5.

Determination of fair values Operating segments

6. 7. 8. 9. 10. 11. 12. 13

Other income Other expenses Auditors’ remuneration Finance income and expenses Research and development expenditure Income tax expense Earnings per share a. Cash and cash equivalents b. Reconciliation of cash flows from operating activities 14. Trade and other receivables 15. Other assets 16. Investments in equity ed investees 17. Group entities and non-controlling interest 18. Tax assets and liabilities 19. Property, plant and equipment 20. Intangible assets 21. Trade and other payables 22. Other liabilities 23. Loans and borrowings 24. Employee benefits 25. Provisions 26. Capital and reserves 27. Financial instruments 28. Operating leases 29. Capital and other commitments 30. Contingencies 31. Related party transactions 32. Subsequent events 33. Company disclosures

59

Notes to the Consolidated Financial Statements 1. Reporting entity Genea Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s ed office is 321 Kent Street, Sydney. The consolidated financial statements of the Company as at and for the year ended 30 June 2014 comprise the Company and its subsidiaries (together referred to as the ‘Group’) and the Group’s interest in associates. The Group is a for-profit entity and primarily is involved in the provision of assisted reproductive technology (ART) services and research and development in the field of reproductive science and medicine, including the commercialisation of research and development outcomes (see note 10).

2. Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian ing Standards (‘AASBs’) (including Australian Interpretations) adopted by the Australian ing Standards Board (‘AASB’) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International ing Standards Board (IASB). The consolidated financial statements were authorised for issue by the directors on 17 September 2014. (b) Basis of measurement The consolidated financial statements have been prepared on an historical cost basis. (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and the functional currency of the majority of the Group.

60

The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of ing policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to ing estimates are recognised in the period in which the estimate is revised and in any future periods affected. (e) Changes in ing policies Except for the changes below, the Group has consistently applied the ing policies set out in Note 3 to all periods presented in these consolidated financial statements. The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 July 2013. a) AASB 10 Consolidated Financial Statements (2011) b) AASB 11 t Arrangements c) AASB 12 Disclosure of Interests in Other Entities d) AASB 13 Fair Value Measurement e) AASB 119 Employee Benefits (2011) The nature and effects of the changes are explained below.

Notes to the Consolidated Financial Statements

(i) Subsidiaries As a result of AASB 10 (2011), the Group has changed its ing policy for determining whether it has control over and consequently whether it consolidates its investees. AASB 10 (2011) introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

(iii) Disclosure of interests in other entities As a result of AASB 12, the Group would be required to expand its disclosures about its interests in subsidiaries and equity-ed investees in certain circumstances such as when the Group has greater than 50% ownership interest and the entity is not consolidated. There are currently no instances in the Group therefore this change had no impact on the disclosures in the financial statements.

In accordance with the transitional provisions of AASB 10 (2011), the Group reassessed the control conclusion for its investees at 1 July 2013. The application of AASB 10 (2011) had no impact on the recognised assets, liabilities and comprehensive income of the Group.

(iv) Fair value measurement AASB 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other AASBs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other AASBs, including AASB 7. As a result, the Group has included additional disclosures in this regard (see Note 27).

(ii) t arrangements As a result of AASB 11, the Group has changed its ing policy for its interests in t arrangements. Under AASB 11, the Group has classified its interests in t arrangements as either t operations (if the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement) or t ventures (if the Group has rights only to the net assets of an arrangement). When making this assessment, the Group considered the structure of the arrangements, the legal form of any separate vehicles, the contractual of the arrangements and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification. The Group has re-evaluated its involvement in its t ventures and this has not resulted in any reclassifications. The investments continue to be recognised by applying the equity method and there has been no impact on the recognised assets, liabilities and comprehensive income of the Group.


In accordance with the transitional provisions of AASB 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Group’s assets and liabilities. (v) Employee benefits – Annual leave As a result of AASB 119 (2011), the Group changed its ing policy in respect of employee benefits with the adoption of AASB 119 Employee Benefits. One of the impacts of this change is that annual leave has changed from a short-term employee benefit to a long-term employee benefit. Notwithstanding the above, the change had no significant impact on the measurements of the Group’s assets and liabilities.

61

Notes to the Consolidated Financial Statements (cont.) 3. Significant ing policies Certain comparative amounts in the consolidated statement of profit or loss and other comprehensive income have been reclassified to conform with the current year’s presentation (see Note 10). In addition, comparative amounts in Note 5 have been restated to reflect the reportable segments recognised from 1 July 2013. The Group has elected not to early adopt any ing standards. (a) Basis of consolidation (i) Business combinations The Group s for business combinations using the acquisition method when control is transferred to the Group (see (a)(iii)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment (see 3(e)(i)). Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities (see 3(c)). The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is ed for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. (ii) Non-controlling interests (NCI) NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

(iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iv) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. (v) Investments in equity-ed investees The Group’s interests in equity-ed investees comprise interests in associates and t ventures. Associates are those entities in which the Group has significant influence, but not control or t control, over the financial and operating policies. A t venture is an arrangement in which the Group has t control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in associates and t ventures are ed for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity-ed investees, until the date on which significant influence or t control ceases.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are ed for as equity transactions. 62


(vi) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-ed investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Foreign currency differences are recognised directly in other comprehensive income, and presented in the translation reserve in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to the statement of profit or loss and other comprehensive income.

(b) Foreign currency

Non-derivative financial assets Non-derivative financial assets comprise trade and other receivables and cash and cash equivalents. Cash and cash equivalents comprise cash balances and call deposits.

(i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the statement of profit or loss and other comprehensive income. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions.


(c) Financial Instruments (i) Non-derivative financial instruments

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through the statement of profit or loss and other comprehensive income) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition non-derivative financial assets are measured as described below. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of the ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

63

Notes to the Consolidated Financial Statements (cont.) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through the statement of profit or loss and other comprehensive income) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Non-derivative financial liabilities comprise trade and other payables and loans and borrowings. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Other ing for finance income and expense is discussed in note 3(q). (ii) Share Capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and 64

share options are recognised as a deduction from equity, net of any tax effects. Dividends Dividends are recognised as a liability in the period in which they are declared. Transaction costs Transaction costs of an equity transaction are ed for as a deduction from equity, net of any related income tax benefit. (d) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see ing policy 3(i)). Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property, plant and equipment have different useful lives, they are ed for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in the statement of profit or loss and other comprehensive income. (ii) Leased and hire purchase assets Leases and hire purchases of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition Notes to the Consolidated Financial Statements

the lease or hire purchased asset is measured at an amount equal to the lower of its fair value and the present value of minimum lease payments. Subsequent to initial recognition, the asset is ed for in accordance with the ing policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. (iii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the statement of profit or loss and other comprehensive income as incurred. (iv) Depreciation Depreciation is recognised in the statement of profit or loss and other comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. The estimated useful lives in the current and comparative period are as follows: Plant and equipment

3 - 10 years

Leasehold improvements

2 - 15 years

Depreciation methods, useful lives and residual values are reassessed at the reporting date. (e) Intangible assets (i) Goodwill Goodwill, or negative goodwill, arises on the acquisition of subsidiaries, associates and t ventures.


Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in the statement of profit or loss and other comprehensive income. Upon disposal of an underlying asset or cash generating unit to which goodwill relates, the associated goodwill is disposed of as part of the transaction. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. In respect of equity ed investees, the carrying amount of goodwill is included in the carrying amount of the investment. (ii) Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the statement of profit or loss and other comprehensive income as an expense as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in the statement of profit or loss and other comprehensive income when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.

65

Notes to the Consolidated Financial Statements (cont.) (iii) Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses (see ing policy 3(i)). (iv) Amortisation Amortisation is calculated over the cost of the asset, or any other amount substituted for cost, less its residual value. Amortisation is recognised in the statement of profit or loss and other comprehensive income on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date they are available for use. Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (f) Trade and other receivables Trade and other receivables are stated at their amortised cost less impairment losses (see ing policy 3(i)). (g) Other assets (i) Supplies and spares Supplies and spares are measured at cost. (h) Cash and cash equivalents Cash and cash equivalents comprise cash balances, short term bills and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (i) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be 66

impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the statement of profit or loss and other comprehensive income. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in the statement of profit or loss and other comprehensive income. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.


The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (j) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss and other comprehensive income over the period of the borrowings on an effective interest basis. (k) Employee benefits (i) Defined contribution superannuation funds A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into Genea Limited Annual Report 2014

a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as a personnel expense in the statement of profit or loss and other comprehensive income during which services are rendered by personnel. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (ii) Other long-term employee benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on Commonwealth Government bonds that have maturity dates approximating the of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in the statement of profit or loss and other comprehensive income in the period in which they arise. (iii) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. (iv) Short-term benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to the reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates 67

Notes to the Consolidated Financial Statements (cont.) that the Group expects to pay as at the reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits are expensed based on the net marginal cost to the Group as the benefits are taken by the employees. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (v) Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The amount recognised is adjusted to reflect the number of awards for which the related service conditions and non–market vesting conditions are anticipated to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non–market performance conditions at the vesting date. (l) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. (i) Premises make good The provision for premises make good represents the best estimate of the present value of the expenditure required to remediate the premises in accordance with the relevant lease agreement. 68

(m) Trade and other payables Trade and other payables are stated at their amortised cost. (n) Non-controlling interest The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the subsidiaries. (o) Revenue (i) Services rendered Revenue from services rendered is recognised in the statement of profit or loss and other comprehensive income on completion of the service. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due. The Group provides ART services and facilities to accredited doctors and their patients. The Group has primary responsibility for providing the ART services to those patients, excluding only the clinical components which by law must be provided by a medical practitioner. Under the of billing arrangements between the Group and its accredited doctors, the Group bears the credit risk for the amount receivable from patients and pays to the doctors fees for the component of the service they provide. Accordingly revenue is stated at its gross amount before deducting related expenses which includes the fees payable to doctors for the component of the service they provide. (ii) Rental income Rental income is recognised in the statement of profit or loss and other comprehensive income on a straight line basis over the term of the lease. Rental income from subleased property is recognised as other income. (iii) Royalty income Royalty revenue is recognised in the statement of profit or loss and other comprehensive income when the Group is entitled to its receipt and it can be reliably measured.


(iv) Deferred income If payments received from customers exceed the income recognised or in advance of any work performed, then the difference is presented as deferred income, disclosed in the statement of financial position in other liabilities. Where government grants received in prior years relate to development expenditure capitalised, they have been deferred and will be recognised in the statement of profit or loss and other comprehensive income as revenue on a systematic basis in the same periods in which the related development expenditure will be amortised. (vi) Dividend income Dividend income is recognised on the date that the Group’s right to receive payment is established. (p) Lease payments Payments made under operating leases are recognised in the statement of profit or loss and other comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are deferred to other liabilities and recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are ed for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group Genea Limited Annual Report 2014

separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate. (q) Finance income and expenses Finance income comprises interest income on funds invested, changes in the fair value of financial assets recognised through the statement of profit or loss and other comprehensive income, and foreign currency gains. Interest income is recognised as it accrues, using the effective interest method. Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, changes in the fair value of financial assets recognised through the statement of profit or loss and other comprehensive income, and impairment losses recognised on financial assets. All borrowing costs are recognised in the statement of profit or loss and other comprehensive income using the effective interest method. Foreign currency gains and losses are reported on a net basis. (r) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of profit or loss and other comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 69

Notes to the Consolidated Financial Statements (cont.) In determining the amount of current and deferred tax the Group takes into the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities and receivables are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities and receivables; such changes to tax liabilities and receivables will impact tax expense in the period that such a determination is made. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither ing nor taxable profit, and differences relating to investments in subsidiaries and tly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised for unutilised tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group with effect from 1 July 2012. As a consequence, all of the tax-consolidated group are taxed as a single entity. The 70

head entity within the tax-consolidated group is Genea Limited. (s) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. (t) Segment reporting An operating segment is a distinguishable component of the Group that is engaged in providing related products or services, which is subject to risks and rewards that are different from those of other segments. A segment engages in business activities from which it may earn revenues and incur expenses. All operating segments operating results are regularly reviewed to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments and related revenue, loans and borrowings and related expenses, corporate assets and head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (u) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where Notes to the Consolidated Financial Statements

the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (v) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2013, and have not been applied in preparing these consolidated financial statements. None of these standards are expected to have a material impact on the financial statements.

4. Determination of fair values A number of the Group’s ing policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after Genea Limited Annual Report 2014

proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items. (b) Intangible assets Initially, intangible assets are measured at the cost to develop them. The recoverability of each intangible asset is assessed annually against the discounted cash flows expected to be derived from the use and eventual sale of the asset. (c) Trade and other receivables The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. (d) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. (e) Share-based payment transactions The fair value of employee stock options is measured using a Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into in determining fair value.

71

Notes to the Consolidated Financial Statements (cont.) 5. Operating segments The Group has three reportable segments: • Fertility (formerly known as IVF & Related Services) • Biomedx • Biocells From 1 July 2013 the Group established two new businesses: Genea Biomedx Pty Limited (‘Biomedx’), for the manufacture and sale of culture media and medical instruments used in IVF, and Genea Biocells Pty Limited (‘Biocells’), for the cultivation and sale of stem cells. Both businesses utilise research developed by the Group’s Stem Cells & Research division over many years. Trading for these two new businesses has been reported separately commencing 1 July 2013 and replaced reporting for the Stem Cells & Research division from that date.

Information regarding the results of each reportable segment is included below. Performance is measured using segment earnings before interest and tax as included in the internal management reports. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be directly allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Prior year comparative amounts have been restated to reflect the reportable segments recognised from 1 July 2013.

These business units offer different products and services and are reported separately to the Board, Executive and Management in the Group’s internal management reporting.

72


Information about reportable segments 2014 2014 In AUD ($000)

Consolidated Fertility

Biomedx

Biocells

Total

75,436

-

327

75,763

Sale of products

-

110

46

156

Royalties received

-

-

340

340

Total revenue

75,436

110

713

76,259

Depreciation and amortisation

(2,091)

(167)

(657)

(2,915)

1,443

-

-

1,443

14,171

(8,078)

(2,511)

3,582

External revenue Rendering of services

Share of profits from equity ed investees Segment earnings/(losses) before interest and tax (EBIT) (1) Unallocated amounts: other corporate expenses

(168)

Earnings before interest and tax (EBIT)

3,414 (111)

Net financing expense Profit before tax Reportable segment assets

3,303 33,180

13,770

3,792

Total assets Reportable segment liabilities

50,742 1,214

Other unallocated amounts

51,956 (8,113)

(2,282)

(903)

(11,298) (11,264)

Other unallocated amounts Total liabilities

(22,562)

Investment in equity ed investees

4,341

-

-

4,341

Segment capital expenditure

1,970

1,885

85

3,940

(1) EBIT for the Fertility segment includes the impairment loss of $1.3 million relating to goodwill written off (see note 20).


73

Notes to the Consolidated Financial Statements (cont.) Information about reportable segments 2013 2013 In AUD ($000)

Consolidated Fertility

Biomedx

Biocells

Total

69,849

-

246

70,095

Sale of licence fee

-

2,670

-

2,670

Royalties received

-

-

677

677

69,849

2,670

923

73,442

(2,411)

(372)

(127)

(2,910)

1,581

-

-

1,581

13,312

(3,741)

(1,755)

7,816

External revenue Rendering of services

Total revenue Depreciation and amortisation Share of profits from equity ed investees Segment earnings/(losses) before interest and tax (EBIT) Unallocated amounts: other corporate expenses

(2,301)

Earnings before interest and tax (EBIT)

5,515 141

Net financing income Profit before tax Reportable segment assets

5,656 28,316

8,854

5,130

Total assets Reportable segment liabilities

42,300 4,882

Other unallocated amounts

47,182 (8,964)

(972)

(869)

(10,805) (9,449)

Other unallocated amounts Total liabilities

(20,254)

Investment in equity ed investees

3,186

-

-

3,186

Segment capital expenditure

2,133

100

352

2,585

Geographical segments The Group operates principally out of one geographic segment, Australia. The Group also has operations in: • Thailand and New Zealand through a 50% interest in Oogonia Co. Limited and Genea Oxford Women’s Health Ltd (formerly known as Peterborough Clinic Limited) respectively, reported as equity ed investees; and • The United Kingdom, through its wholly-owned subsidiary Genea Biomedx UK Ltd. This operation is currently in a set-up phase and has not commenced trading.

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6. Other income Consolidated In AUD ($000)

2014

2013

Rental income

218

201

Other

250

193

468

394

7. Other expenses Consolidated In AUD ($000)

Note

2014

2013

1

-

Included in the statement of profit or loss and other comprehensive income but not separately disclosed: Net loss on disposal of plant and equipment (Net reversal of)/impairment losses on trade and other receivables

27

(66)

397

Credit with a trade supplier written off

13b

-

134

Plant and equipment written off

19

-

455

Intangible asset written off

20

1,288

416

28

3,786

3,344

19, 20

3,831

3,405

(1)

Operating lease rentals Depreciation and amortisation expenses

(1) Intangible asset written off relating to goodwill of $1.3 million is included in istrative Expenses in the statement of profit or loss and other comprehensive income.


75

Notes to the Consolidated Financial Statements (cont.) 8. Auditors’ remuneration Consolidated In AUD

2014

2013

206,400

209,905

Income tax

-

10,123

Research & development taxation advice

-

16,890

-

6,000

40,650

-

Audit services Auditors of the Company KPMG Australia: Audit Tax services Auditors of the Company KPMG Australia:

Other services Auditors of the Company KPMG Australia: Due diligence services KPMG Italy: Due diligence services

9. Finance income and expenses Consolidated In AUD ($000)

Note

2014

2013

Interest income on bank deposits

30

148

Financial income

30

148

Interest expense

(46)

-

Finance charges on capitalised leases

(2)

(6)

(44)

-

(49)

(1)

Financial expenses

(141)

(7)

Net financing (expense)/income

(111)

141

Net foreign exchange loss Unwind of discount on provisions

76

25


10. Research and development expenditure The ing for research and development is in accordance with the policy described in note 3(e)(ii). Consolidated In AUD ($000)

Note

2014

2013

(9,153)

(10,373)

(824)

(499)

Expenditure Direct research and development expenditure Depreciation and amortisation Development capitalised: Internally generated

20

823

503

Acquired

20

4,979

3,896

(4,175)

(6,473)

18,179

12,377

757

869

Research and development expensed in the statement of profit or loss and other comprehensive income

Accumulated development capitalised Accumulated deferred revenue

20

This research and development expenditure disclosure has been modified to reflect the fact such expenditure is now reported within several Group entities, rather than being a separate reporting segment. In addition, certain istrative expenses formerly treated as research and development are now reported as istrative expenses, and the comparative amounts have been restated accordingly, both here and in the statement of profit or loss and other comprehensive income, resulting in $1.0 million being reclassified from ‘Research and development expenses’ to ‘istrative expenses’ in the comparative period.


77

Notes to the Consolidated Financial Statements (cont.) 11. Income tax expense Consolidated In AUD ($000)

2014

2013

Current year

(1,600)

(922)

Adjustments for prior years

(2,128)

(108)

(3,728)

(1,030)

1,628

1,364

(2,100)

334

Current tax expense

Deferred tax expense Origination and reversal of temporary differences Total income tax expense in the statement of profit or loss and other comprehensive income

Numerical reconciliation between tax expense and pre-tax net profit Consolidated In AUD ($000)

2014

2013

Profit before tax

3,303

5,656

991

1,697

389

10

-

360

91

-

Share of after tax profits equity ed

(433)

(474)

R&D tax incentives not recognised in profit

(1,013)

(1,138)

3

(13)

(2,128)

(108)

(2,100)

334

Income tax using the domestic corporation tax rate of 30% (2013: 30%) Increase in income tax expense due to: Non-deductible expenses Tax losses not probable of recoupment Effect of tax rates in foreign jurisdictions Decrease in income tax expense due to:

Other items Adjustment for prior years Income tax expense

(1)

(1) In 2014, $7.1 million of previously unrecognised tax offsets were recognised as management considered it probable that future taxable profits would be available against which they can be utilised. These offsets arise as a result of the tax rebate associated with the Group’s substantial R&D expenditure.

78


12. Earnings per share Basic earnings per share The calculation of basic earnings per share at 30 June 2014 was based on the profit attributable to ordinary shareholders of $4.9 million (2013: $4.9 million) and a weighted average number of ordinary shares outstanding of 2,846,965 (2013: 2,829,386), calculated as follows: Consolidated In AUD ($000)

Note

Profit attributable to ordinary shareholders

2014

2013

4,936

4,883

2,846

2,813

In thousands of shares Issued ordinary shares at 1 July

26

Weighted average of shares issued Weighted average number of ordinary shares during the financial year ended 30 June Basic earnings per share

1

16

2,847

2,829

1.73

1.73

Diluted earnings per share The calculation of diluted earnings per share at 30 June 2014 was based on profit attributable to ordinary shareholders of $4.9 million (2013: $4.9 million) and a weighted average number of ordinary shares (diluted) outstanding during the financial year ended 30 June 2014 of 2,846,965 (2013: 2,852,055), calculated as follows: Consolidated In AUD ($000)

2014

2013

Profit attributable to ordinary shareholders (diluted)

4,936

4,883

2,847

2,829

-

23

2,847

2,852

1.73

1.71

In thousands of shares Weighted average number of ordinary shares (basic) Effect of share options on issue Weighted average number of ordinary shares (diluted) during the financial year ended 30 June Diluted earnings per share


79

Notes to the Consolidated Financial Statements (cont.) 13a. Cash and cash equivalents Consolidated In AUD ($000) Bank balances and cash on hand Call deposits Cash and cash equivalents

2014

2013

761

2,276

83

3,167

844

5,443

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets are disclosed in note 27.

80


13b. Reconciliation of cash flows from operating activities Consolidated In AUD ($000)

Note

2014

2013

5,403

5,322

3,831

3,405

Cash flows from operating activities Profit for the period Adjustments for: Depreciation and amortisation

7

Foreign exchange loss

9

44

-

Share of profit of equity ed investees

16

(1,443)

(1,581)

640

656

49

1

(395)

(470)

Dividends from equity ed investees Unwind of discount on make good provisions

25

Property incentive Share-based payments

24(c)

23

(29)

(Net reversal of)/impairment losses on trade receivables

27

(66)

397

Overpayment to a trade supplier written off

7

-

134

Plant and equipment written off

19

-

455

Intangible asset written off

20

1,288

416

1

(34)

Loss/(gain) on disposal of plant and equipment Operating profit before changes in working capital and provisions

9,375

8,672

Increase in trade and other receivables

(521)

(1,131)

(1,682)

(548)

(Decrease)/increase in trade and other payables

(291)

3,063

Decrease in deferred income

(518)

(637)

(Decrease)/increase in employee benefits

(247)

260

Increase in other assets

Decrease in other liabilities

(260)

(136)

(4,145)

1,364

Decrease/(increase) in provision for income tax receivable

1,513

(1,883)

Net cash from operating activities

3,224

9,024

(Decrease)/increase in deferred tax liabilities


81

Notes to the Consolidated Financial Statements (cont.) 14. Trade and other receivables Consolidated In AUD ($000)

2014

2013

Trade receivables

1,552

1,847

Other receivables

1,032

813

2,584

2,660

619

-

619

-

Current

Non-current Other receivables Loan to a related party

At 30 June 2014 trade and other receivables are shown net of an allowance for doubtful debts of $116,000 (2013: $408,000). The impairment loss recognised in the current year of $94,000 (2013: $397,000) was offset against a reversal of impairment loss of $160,000 (2013: $nil) to give a net reversal of impairment loss of $66,000. The Group’s exposure to credit risk and impairment losses related to trade and other receivables are disclosed in note 27.

15. Other assets Consolidated In AUD ($000)

2014

2013

Supplies and spares

1,395

1,263

885

429

1,094

-

3,374

1,692

Prepayments Pre-production payment

82


16. Investments in equity ed investees The Group’s recognised share of net profit in its equity ed investees for the year was $1.4 million (2013: $1.6 million). During the year, the Group received dividends of $640,000 (2013: $666,000) from its investments in equity ed investees. The Group has the following investments in equity ed investees: Reporting

Ownership

Principal activities

Country

Date

2014

2013

Scientific and medical services

Australia

30 June

40%

40%

Oogonia Co. Limited


Thailand

31 December

50%

50%

Genea Oxford Women's Health Ltd (formerly known as Peterborough Clinic Limited)


New Zealand

30 June

50%

50%

(a) Interest in associate Genea Newcastle Pty Limited (b) Interest in t ventures

Summary financial information for equity ed investees: Consolidated In AUD ($000)

2014

2013

3,715

2,445

626

741

4,341

3,186

t ventures

918

1,147

Associate

525

434

1,443

1,581

Carrying amount of interest: t ventures Associate

Share of profit:


83

Notes to the Consolidated Financial Statements (cont.) (i) t ventures 2014 Consolidated In AUD ($000) Ownership Non-current assets Current assets

Genea Oxford Women's Health Ltd

Oogonia Co. Limited

50%

50%

2,321

2,161

4,482

63

6,256

6,319

Total

Non-current liabilities

(863)

(36)

(899)

Current liabilities

(297)

(2,175)

(2,472)

Net assets (100%)

1,224

6,206

7,430

612

3,103

3,715

50

11,717

11,767

Carrying amount of interests in t ventures Revenue Depreciation and amortisation

-

(322)

(322)

Profit/(loss) and total comprehensive income (100%)

(544)

2,380

1,836

Group's share of profit/(loss) and total comprehensive income

(272)

1,190

918

2013 Consolidated Genea Oxford Women's Health Ltd

Oogonia Co. Limited

50%

50%

Non-current assets

647

994

1,641

Current assets

283

4,401

4,684

In AUD ($000) Ownership

Non-current liabilities

Total

-

(40)

(40)

(252)

(1,144)

(1,396)

Net assets (100%)

678

4,211

4,889

Carrying amount of interests in t ventures

339

2,106

2,445

Revenue

-

8,084

8,084

Depreciation and amortisation

-

(200)

(200)

Profit/(loss) and total comprehensive income (100%)

-

2,294

2,294

Group's share of profit/(loss) and total comprehensive income

-

1,147

1,147

Dividends received by the Group

-

136

136

Current liabilities

Oogonia Co. Limited has a reporting date of 31 December as required for Thai corporate entities. Genea does not have enough influence over the entity to make a change to its reporting date. 84


(ii) Associate Consolidated In AUD ($000)

2014

2013

Carrying amount of interest in associate

626

741

Share of profit from continuing operations

525

434

17. Group entities and non-controlling interests Country of incorporation

Ownership interest 2014

2013

(a) Parent entity Genea Limited

Australia

(b) Subsidiaries Genea Genetics Pty Limited as trustee for Genea Genetics Unit Trust

Australia

100%

100%

Genea Biocells Pty Limited

Australia

100%

100%

Genea Canberra Pty Limited

Australia

87.5%

87.5%

Genea Perth Pty Limited (formerly known as Sydney IVF Perth Pty Limited)

Australia

71%

71%

Genea Biomedx Pty Limited

Australia

100%

100%

Genea Biomedx UK Limited

UK

100%

0%

Genea US Inc.

US

100%

0%

(c) Trusts On 31 May 2014 Launceston.SIVF Unit Trust was dissolved. On 1 July 2014 the assets and liabilities of the Genea Genetics Unit Trust were transferred to Genea Limited and the trust dissolved.


85

Notes to the Consolidated Financial Statements (cont.) 18. Tax assets and liabilities (a) Current assets The current tax asset for the Group of $395,000 (2013: $1.9 million) represents the net amount of income taxes receivable in respect of the current financial period. The asset arises as a result of the tax rebate associated with the Group’s substantial R&D expenditure. A deferred tax asset is recognised for unused tax offsets, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (b) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Consolidated Assets In AUD ($000) Property, plant and equipment Employee benefits Impairment provision – trade receivables Capitalisation of development expenditure Operating leases Tax offsets carried forward Other items Net tax assets/(liabilities)

86

Liabilities

Net

2014

2013

2014

2013

2014

2013

279

268

-

-

279

268

1,140

1,041

-

-

1,140

1,041

44

122

-

-

44

122

-

-

(5,263)

(3,675)

(5,263)

(3,675)

312

390

-

-

312

390

5,773

-

-

-

5,773

-

418

412

-

-

418

412

7,966

2,233

(5,263)

(3,675)

2,703

(1,442)


19. Property, plant and equipment Consolidated In AUD ($000)

Note

Plant and equipment (1)

Leasehold improvements

Under construction

Total

Cost Balance at 1 July 2012

22,185

16,599

561

39,345

Acquisitions (2)

1,241

289

1,208

2,738

Disposals

(215)

-

-

(215)

Transfers

200

-

(200)

-

-

-

(455)

(455)


23,411

16,888

1,114

41,413


23,411

16,888

1,114

41,413

1,684

373

2,064

4,121

(72)

-

-

(72)

1,457

254

(1,711)

-

26,480

17,515

1,467

45,462

Assets written off

Acquisitions

7

(2)

Disposals Transfers Balance at 30 June 2014 Depreciation and impairment losses Balance at 1 July 2012 Depreciation charge for the year

7

16,082

7,057

-

23,139

1,948

1,330

-

3,278

(203)

-

-

(203)


17,827

8,387

-

26,214


17,827

8,387

-

26,214

1,900

1,423

-

3,323

(71)

-

-

(71)

19,656

9,810

-

29,466

At 1 July 2012

6,103

9,542

561

16,206

At 30 June 2013

5,584

8,501

1,114

15,199

At 30 June 2014

6,824

7,705

1,467

15,996

In AUD ($000)

2014

2013

Total acquisitions

4,121

2,738

-

(55)

4,121

2,683

Disposals

Depreciation charge for the year Disposals Balance at 30 June 2014

7

Carrying amounts

(1) Includes a leased asset costing $35,000 with an accumulated depreciation of $28,000 (2013: $21,000). (2) Reconciles to cash flow as follows:

Less: Fit out make good at end of lease Total property, plant and equipment cash outflow Genea Limited Annual Report 2014

87

Notes to the Consolidated Financial Statements (cont.) 20. Intangible assets

In AUD ($000)

Note

Consolidated Goodwill Development expenditure

Total

Cost Balance at 1 July 2012 Acquisitions through business combinations

3,917

8,394

12,311

927

-

927

-

503

503

Additions – Development expenditure capitalised: Internally generated Acquired

-

3,896

3,896

4,844

12,793

17,637

-

(416)

(416)


4,844

12,377

17,221


4,844

12,377

17,221

Development expenditure written off

Additions – Development expenditure capitalised: Internally generated

-

823

823

Acquired

-

4,979

4,979

Goodwill written off Balance at 30 June 2014

7

4,844

18,179

23,023

(1,288)

-

(1,288)

3,556

18,179

21,735

Accumulated amortisation Balance at 1 July 2012

-

-

-

Amortisation for the year

-

127

127


-

127

127

Amortisation for the year

-

508

508


-

635

635


3,917

8,394

12,311


4,844

12,250

17,094


3,556

17,544

21,100

Carrying amounts

88


Recoverability of development expenditure Development expenditure comprises costs incurred to plan and design substantially improved products and processes. A review is undertaken annually for indicators of impairment. At 30 June 2014 there are no indications that the value of development capitalised is impaired, with associated projects tracking against milestones. Amortisation commences on completion of each project and continues over the period future economic benefits are expected to accrue. Impairment tests for cash generating units containing goodwill For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each unit are as follows: Consolidated In AUD ($000)

2014

2013

First trimester screening

-

1,288

Genea Perth Pty Limited

3,556

3,556

3,556

4,844

The recoverable amount of cash-generating units containing goodwill is based on value in use calculations. Those calculations use cash flow projections based on the most recent budgeted operating results over a 5 year period and include a terminal value reflecting disposal of the assets. A growth rate of 2%, which is in line with the long term average national GDP growth rate, is used to extrapolate cash flow projections beyond the period covered by our budgets. Pre-tax discount rates of 9.3% (2013: 12.0%) and 10.4% (2013: 12.4%) were applied in determining the recoverable amount of First trimester screening and Genea Perth Pty Limited respectively. The discount rates were estimated based on the calculated weighted average cost of capital. At 30 June 2014 the value of the investment in Genea Perth Pty Limited is ed by the recoverable amount. Goodwill of $1.3 million relating to First trimester screening was written off in 2014 due to advancements in medical science that have rendered this technique obsolete.


89

Notes to the Consolidated Financial Statements (cont.) 21. Trade and other payables Consolidated In AUD ($000)

2014

2013

Trade payables

3,596

4,580

Accrued expenses

1,864

1,177

65

59

5,525

5,816

Current

Other payables

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 27.

22. Other liabilities Consolidated In AUD ($000)

2014

2013

1,591

2,109

Leasehold rental accrual

369

262

Operating lease incentive

474

470

2,434

2,841

670

1,036

2,888

3,286

3,558

4,322

Current Deferred income

Non-current Leasehold rental accrual Operating lease incentive

Grant income of $897,000 received in the period 2007 to 2009 in relation to capitalised development expenditure was recorded as deferred income. Amortisation of the relevant development expenditure commenced in 2013 over a period of 8 years. The deferred grant income will be amortised over the same period.

90


23. Loans and borrowings This note provides information about the contractual of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 27. All loans are denominated in Australian dollars unless otherwise indicated. Consolidated In AUD ($000)

2014

2013

1,431

-

Current Bank overdraft Finance lease liability

-

8

1,431

8

4,000

-

-

12

4,000

12

Non-current Secured bank loan Finance lease liability

Financing facilities Consolidated In AUD ($000)

2014

2013

Credit card facility

720

677

Multi option facility

13,000

-

13,720

677

1,400

-

In GBP ('000) Cash advance facility


91

Notes to the Consolidated Financial Statements (cont.) Financing facilities not utilised at reporting date Consolidated In AUD ($000)

2014

2013

Credit card facility

574

524

Multi option facility

7,569

-

8,143

524

1,400

-

In GBP ('000) Cash advance facility

The multi option facility encomes overdraft, cash advance and lease financing. Credit card facility Interest on credit card facilities is charged at prevailing market rates in the event it is incurred. Secured bank loan and bank overdraft Interest on the secured bank loan and bank overdraft is charged at prevailing market rates. The facilities are secured by a ed mortgage debenture (fixed and floating charge) over the assets of Genea Limited and its wholly-owned Australian subsidiaries. The bank overdraft is payable on demand while the secured bank loan is payable on maturity.

24. Employee benefits (a) Liabilities Consolidated In AUD ($000)

2014

2013

350

927

2,102

1,951

940

843

3,392

3,721

758

677

Current Salaries and wages accrued Liability for annual leave Liability for long service leave

Non-current Liability for long service leave 92


(b) Share-based payments Genea Share Plan On 28 June 2006, the directors approved an employee share plan whereby the directors, at their discretion, can grant to qualifying employees a limited recourse loan for the purpose of acquiring Company shares. The loans are interest free, repayable over 10 years from dividends paid on the shares, with additional repayments being optional during the period. Until the loan is repaid in full, loan recipients may not sell, transfer or otherwise deal with the shares. As a result of the shares being issued against a limited recourse loan, the share plan is ed for in the same manner as the option plan. Accordingly, the fair value of services received in return for shares issued under the plan is based on the fair value of the notional option granted. In addition, the recognition of an increase in equity and the associated loan receivable is deferred until such time as the loan is repaid. Equally, the dividends applied to the loan balance are not recognised in the financial statements. Employee Performance Rights Plan Shareholders approved an employee performance rights plan at the Annual General Meeting held on 16 November 2011. The Plan was designed to provide an incentive for eligible key employees to make a positive contribution to Genea. Participants are not required to pay any consideration for the Performance Rights or to acquire shares upon the vesting of the rights. The Performance Rights will automatically convert into Shares if held for 5 years after grant date and are then subject to a 2 year dealing restriction. Key employees who hold Performance Rights have no dividend, voting or other shareholder rights unless and until they acquire shares upon vesting of the Performance Rights. The fair value of the shares is based upon the latest traded market price for the shares prior to the offer. In estimating the fair value of the shares, the effect of post-vesting transfer restrictions is taken into consideration to estimate what the price of the restricted share would have been on the purchase date in an arm’s length transaction between knowledgeable, willing parties. In determining the discount to be applied, the indicator lending rate as published by the Reserve Bank of Australia has been used. (c) Employee expenses and share-based payments Consolidated In AUD ($000)

2014

2013

Wages and salaries

26,531

26,784

2,299

2,193

23

(29)

178

(67)

29,031

28,881

Contributions to defined contribution plans Share options granted – equity settled Long service leave entitlements Total expense recognised as employee costs


93

Notes to the Consolidated Financial Statements (cont.) 25. Provisions Provisions comprise make good obligations in relation to various leased premises. Make good The Group s for premises make good obligations in accordance with the policy in note 3(l)(i). At the inception of the lease the best estimate of the expenditure required to remediate the premises in accordance with the relevant lease agreement is recognised at its present value. A corresponding increase in the cost of the asset to be made good is recognised and depreciated over the term of the lease. Consolidated In AUD ($000)

Note

Balance at 1 July Premises make good provision recognised during the period Unwind of discount on make good provisions Balance at 30 June

Current Non-current

94

9

2014

2013

1,415

1,359

-

55

49

1

1,464

1,415

211

-

1,253

1,415

1,464

1,415


26. Capital and reserves Company Share capital

ordinary shares

In shares - fully paid On issue at 1 July

(1)

Options exercised

(2)

Director's fee issued in equity

(3)

Shares issued On issue at 30 June(4)

2014

2013

2,846,372

2,813,305

600

25,200

3,712

3,304

-

4,563

2,850,684

2,846,372

(1) Effective 1 July 1998, the Company Law Review Act abolished the concept of par value of shares and the concept of authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the distribution of the Company’s residual assets. (2) 600 options were exercised from the 2006 Employee Share Plan. (3) 3,712 ordinary shares were issued to four directors in lieu of director’s fees. All shares issued are fully paid. (4) The Company’s share records that there are 2,860,084 fully paid ordinary shares in the Company on issue. The difference of 9,400 shares reflects the number of shares that have been issued under the of the Genea Share Plan (see note 24(b).

Equity compensation reserve The equity compensation reserve represents the costs recognised in the statement of profit or loss and other comprehensive income arising from share-based payments. This reserve will be reversed against share capital when the underlying shares are exercised under share options. Translation reserve The translation reserve arises when the net assets and results of foreign operations are translated from the functional currency to Australian dollars.


95

Notes to the Consolidated Financial Statements (cont.) Dividends Dividends recognised in the current year by the Company are: Cents per share

In AUD

Franked/ unfranked

Date of payment

1,053

Unfranked

24 April 2014

1,310

Unfranked

26 November 2013

Total amount

$000

2014 Interim 2014 ordinary

37.0

Final 2013 ordinary

46.0

Total amount

2,363

2013 Interim 2013 ordinary Final 2012 ordinary

76.0

2,157

Partially franked

26 April 2013

120.0

3,389

Unfranked

30 November 2012

Total amount

5,546

After the balance sheet date the following dividend was proposed by the directors. The dividend has not been provided for. The declaration and subsequent payment of dividends has no income tax consequences. Cents per share

In AUD Final 2014 ordinary

Total amount

Franked/ unfranked

Date of payment

Partially franked

28 November 2014

$000 54.0

1,539

The financial effect of this dividend has not been brought to in the financial statements for the financial year ended 30 June 2014 and will be recognised in subsequent financial reports. Company In AUD ($000)

2014

2013

870

92

Dividend franking 30 per cent franking credits available to shareholders of Genea Limited for subsequent financial years

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $343,000 (2013: $nil). At year end, undistributed available profits to declare dividends in Australian subsidiary entities was $3.1 million. If or when a fully franked dividend distribution of these profits is paid out, the associated franking credits are $1.3 million. 96


27. Financial instruments Overview The Company and Group have exposure to the following risks from their use of financial instruments: • credit risk • liquidity risk • market risk • currency risk This note presents information about the Group’s exposure to each of the above risks, and the objectives, policies and processes for measuring and managing risk, and the management of capital. Risk management framework Risk management is part of the Group’s operating culture. At the Board level the Audit, Risk Management and Compliance Committee is responsible for the establishment, implementation, and annual review of the Group’s Risk Management System. Management has established and implemented the Risk Management System for assessing, monitoring and managing all risks, including material business risks, for the Group. The Chief Executive Officer and Chief Financial Officer have provided assurance to the Board that the financial reporting risk management and associated compliance and controls have been assessed and found to be operating effectively. The operational and other risk management compliance and controls have also been assessed and found to be operating effectively. Credit risk Credit risk is the risk of financial loss to the Group if a patient or customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables due from patients or customers. Exposure to credit risk Carrying amounts of the Group financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Consolidated In AUD ($000)

Note

2014

2013

Cash and cash equivalents

13a

844

5,443

Trade and other receivables

14

2,584

2,660

3,428

8,103


97

Notes to the Consolidated Financial Statements (cont.) Based on the Group’s monitoring of customer credit risk, the Group believes that, except as noted below, no impairment allowance is necessary in respect of trade and other receivables. The Group’s most significant concentration of credit risk s for $301,772 of the trade and other receivables carrying amount at 30 June 2014 (2013: $288,550). These amounts are associated with customers who have more than five years trading history with the Group. Other than these exposures, at reporting date there were no significant concentrations of credit risk with the exception of cash and cash equivalents which are held with a small number of financial institutions. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. The Group does not require collateral in respect of financial assets. The Group’s maximum exposure to credit risk for trade receivables at the reporting date was predominantly within Australia from patients receiving ART services. Trade and other receivables Under the billing arrangement between Genea and its accredited doctors, the Group bears the credit risk for the amount receivable from patients. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each patient. Processes have been established to limit the credit exposure in the first instance. Where amounts due are not received at the time of service, additional processes are in place to recover the outstanding amounts. The Group has established an allowance for impairment that represents the estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of actual incurred losses for similar financial assets. Impairment Losses Aging of the Group trade receivables at the reporting date was: Consolidated Gross

In AUD ($000)

Impairment

2014

Gross

Impairment

2013

Not past due

959

17

1,021

17

Past due to 30 days

276

11

166

6

Past due 31 - 60 days

211

15

238

14

Past due greater than 60 days

222

73

831

371

1,668

116

2,256

408

98


The movement in the allowance for impairment in respect of trade receivables during the year was: Consolidated In AUD ($000)

Note

Balance at 1 July (Net reversal of)/impairment losses Write off Balance at 30 June

7

2014

2013

408

127

(66)

397

(226)

(116)

116

408

The collective impairment loss relates to amounts owing from patients for the provision of ART services and other customers. Except for the exposure to credit risk noted above, no amounts owing from any particular patient are considered significant. Based on historical collection rates there are trade receivables past due date that are not considered impaired. No have been re-negotiated. Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses, risking damage to the Group’s reputation or financial statements. The Group performs regular cash forecasts, which assist it in monitoring cash flow requirements and optimising its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 30 days, excluding the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group maintains lines of credit as outlined in Note 23.


99

Notes to the Consolidated Financial Statements (cont.) The following are the contractual maturities of financial liabilities including estimated interest payments: Consolidated 2014 Carrying amount

Contractual cash flow

0-1 year

Trade and other payables

5,525

5,525

5,525

-

-

Bank overdrafts

1,431

1,431

1,431

-

-

In AUD ($000)

Secured bank loan

1-2 years

2-5 years

4,000

4,402

161

1,467

2,774

10,956

11,358

7,117

1,467

2,774

Consolidated 2013 In AUD ($000) Trade and other payables Finance lease liability

Carrying amount

Contractual cash flow

0-1 year

1-2 years

2-5 years

5,816

5,816

5,816

-

-

20

25

12

12

1

5,836

5,841

5,828

12

1

Market Risk Market risk is the risk that changes in market prices, such as equity prices, will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group has minimal exposure to market risks. Currency Risk The Group is exposed to currency risk on purchases and borrowings that are denominated in a currency other than the functional currency of the Group entities, primarily the Australian dollar (AUD). Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group. The Group currently has minimal exposure to foreign currency, although this will need to be monitored in future as its operations in the United Kingdom in particular commence trading.

100


Interest Rate Risk Investments in short-term receivables and payables are not exposed to interest rate risk. At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was: Consolidated In AUD ($000)

2014

2013

844

5,443

(5,431)

(20)

(4,587)

5,423

Variable rate instruments Financial assets Financial liabilities

Sensitivity Analysis Due to the limited exposure to interest rate risk the Group does not fix interest rates. Cash in excess of operating requirements is maintained in a high earning, but liquid to maximise the return. Financial liabilities are predominantly comprised of short term cash advances, where the interest rate is fixed over the term of the cash advance. Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board determines the level of dividends to ordinary shareholders. There were no changes in the Group’s approach to capital management during the year. No Group entities are subject to externally imposed capital requirements. Fair values The net fair value of all financial assets and financial liabilities in the financial statements, except for the secured bank loan, approximates their carrying value. No financial assets or financial liabilities are readily traded on organised markets. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and in the notes to and forming part of the financial statements.


101

Notes to the Consolidated Financial Statements (cont.) Financial instruments include: Consolidated Carrying amount

In AUD ($000) Cash and cash equivalents Trade and other receivables

Fair value

Carrying amount

2014 844

Fair value

2013 844

5,443

5,443

2,584

2,584

2,660

2,660

Trade and other payables

(5,525)

(5,525)

(5,816)

(5,816)

Secured bank loan

(4,000)

(3,929)

-

-

Bank overdraft

(1,431)

(1,431)

-

-

Finance lease liability

-

-

(20)

(20)

(7,528)

(7,457)

2,267

2,267

Measurement of fair values – valuation techniques All balances, except the secured bank loan, are due to be settled within the next 12 months and approximate fair value. The secured bank loan is a level 2 financial liability that is valued using discounted cash flows and does not have any significant unobservable inputs. The Group does not have any level 3 hierarchy financial instruments.

28. Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows: Consolidated In AUD ($000)

2014

2013

Less than one year

4,246

3,634

15,602

14,354

Between one and five years More than five years

11,712

10,404

31,560

28,392

The Group leases a number of office and lab facilities under non-cancellable operating leases expiring within 1 to 20 years. The leases have varying , escalation clauses and renewal rights. The Group leases various plant and equipment under non-cancellable operating leases. During the financial year ended 30 June 2014, $3,786,000 was recognised as an expense in the statement of profit or loss and other comprehensive income in respect of operating leases (2013: $3,344,000). The expense was reduced by the operating lease incentive of $395,000 (2013: $470,000). In respect of subleases $218,000 (2013: $201,000) was recognised as income in the statement of profit or loss and other comprehensive income. 102


29. Capital and other commitments At 30 June 2014 the Group had no capital or other commitments not otherwise reflected in the financial statements (2013: $2.2 million).

30. Contingencies From time to time through the course of normal operations the Group is exposed to claims in relation to services provided to patients. The Group has adequate insurance to mitigate any claims arising. There are no liabilities or exposures to the Group not otherwise reflected in the financial statements. Guarantees The of certain premises leases entered into by the Company and its subsidiaries include the grant of bank guarantees to owners of premises for $4,054,000 (2013: $2,786,000). These guarantees are payable on demand and are secured by a ed mortgage debenture (fixed and floating charge) over the assets of Genea Limited and its subsidiaries. The directors are of the opinion that provisions are not required in respect of the above guarantees, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

31. Related party transactions Identity of related parties The Group has related party relationships with its subsidiaries (see note 17), equity ed investees (see note 16) and its key management personnel. Transactions with key management personnel The following persons were directors of Genea Limited during the financial year: (i) Chairman – non-executive R.A. Ross AM (ii) Executive director T. Stojanov (iii) Non-executive directors R.P.S. Jansen AM C.E. Pizzey D.W. Smithers AM R.J. Woolcott


103

Notes to the Consolidated Financial Statements (cont.) Key management personnel compensation Key management personnel comprise directors and executives, where executives are those individuals having the authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, during the financial year. The key management personnel compensation included in the statement of profit or loss and other comprehensive income is as follows: Consolidated In AUD

2014

2013

Short-term employee benefits

2,915,977

3,547,018

Long-term employee benefits

9,521

53,742

15,360

(9,301)

2,940,858

3,591,459

Share-based payments

R.A. Ross, R.P.S. Jansen, D.W. Smithers and R.J. Woolcott elected to receive a component of their remunerations as shares rather than as cash as permitted by a resolution of shareholders. These amounts are included in the statement of profit or loss and other comprehensive income. Loans to key management personnel Under the employee share plan certain employees were granted an interest free, limited recourse loan for the purpose of acquiring Company shares. Details regarding the aggregate of loans made to key management personnel are as follows: Consolidated In AUD

2014

2013

Loans to key management personnel

61,670

67,480

Other key management personnel transactions From time to time, key management personnel of the Group may purchase services from the Group. These purchases are on the same and conditions as those entered into by other Group employees or customers and are not material in nature.

104


Other related party transactions Consolidated In AUD

2014

2013

Subsidiary

89,212

90,842

Associate

113,672

113,180

56,544

36,668

377,000

213,200

42,323

68,467

920,313

135,527

-

135,913

Licence fee

Rendering of services Associate t ventures Loans receivable Associate t ventures Dividends received t ventures

The parent company of the Group, Genea Limited, charges licence fees to a subsidiary and an equity ed investee for the use of the Genea brand name. Equity ed investees Expenses are incurred by the Group on behalf of equity ed investees. These expenses are reimbursed at cost. Other transactions with equity ed investees are priced on an arm’s length basis. None of the balances is secured. To the activities of Genea Oxford Women’s Health Ltd, the Group and the other investor in the t venture have agreed to make additional contributions in proportion to their interests to make up any losses, if required (see note 16). Total current year losses were $544,000 (2013: $Nil).


Notes to the Consolidated Financial Statements (cont.) 32. Subsequent events On 11 July 2014, Company director and founder, Professor Robert Jansen, ed away. At 1 July 2014 the assets and liabilities of the Genea Genetics Unit Trust were transferred to Genea Limited and the trust dissolved. Development of a media production facility for Genea Biomedx at its premises in Kent, UK is expected to be completed in the next financial year and the building itself acquired, with some financial assistance made available as grant funding from the local regional development council. The Group opened a new IVF clinic in St Leonards in August 2014, as part of its program of expanding in important markets. In July 2014, the Group incorporated two wholly owned foreign subsidiaries, Genea (UK) Limited in the United Kingdom and Genea Hong Kong Limited in Hong Kong. Neither subsidiary has commenced operation. In August 2014, the Company became aware that an independent specialist who utilised the Superior ART (‘SART’) facility treated a patient engaged in a commercial surrogacy arrangement. Following this incident, the Company has assisted SART with improvements to its risk governance framework to ensure it is equivalent to Genea’s ethical and risk governance framework. Other than these matters and those noted elsewhere in the financial statements and notes, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature.

106


33. Company disclosures As at, and throughout, the financial year ending 30 June 2014, the parent company of the Group was Genea Limited. Company In AUD ($000)

2014

2013

19,138

4,858

-

-

19,138

4,858

Current assets

33,278

10,628

Total assets

56,422

41,134

Current liabilities

13,980

12,965

Total liabilities

18,827

20,539

10,310

10,108

163

140

Retained earnings

27,122

10,347

Total equity

37,595

20,595

Result of the Company Profit for the year Other comprehensive income Total comprehensive income for the year Financial position of the Company at year end

Total equity of the Company comprising of: Share capital Equity compensation reserve

From 1 July 2013 the assets and liabilities of the Stem Cells & Research division in Genea Limited were transferred to Genea Biomedx Pty Limited and Genea Biocells Pty Limited, and their activities have been reported separately to the parent company from that date. As a result, the R&D expenditure and initial trading losses incurred by these entities are no longer reported in Genea Limited.


107

Directors’ declaration 1. In the opinion of the directors of Genea Limited (‘the Company’): (a) the financial statements and notes, set out on pages 59 to 107, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2014 and of their performance, for the financial year ended on that date; and (ii) complying with Australian ing Standards (including Australian ing Interpretations) and the Corporations Regulations 2001. 2. The financial report of the Group and the Company also comply with International Financial Reporting Standards as disclosed in note 2(a); 3. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 4. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and the Chief Financial Officer for the financial year ended 30 June 2014. Dated at Sydney, this 17th day of September 2014. Signed in accordance with a resolution of the directors:

R.A. Ross AM T. Stojanov Chairman Chief Executive Officer

108

Directors’ Report

Independent Auditor’s Report to the of Genea Limited


109

Lead Auditor’s Independence Declaration

110

Directors’ Report

Additional information 1. Shareholding The shareholder information set out below was applicable at 17 September 2014. a. Distribution of shareholders Category (size of holding)

Number of shareholders

% of shareholders

Number of shares

% of shares

1-1,000

98

51.04

34,477

1.21

1,001-5,000

44

22.92

116,671

4.08

5,001-10,000

14

7.29

106,890

3.74

10,001-100,000

30

15.63

942,336

32.95

6

3.12

1,659,710

58.02

100,001 and Over

192

2,860,084

b. Twenty largest shareholders Name

Number of shares

% held of issued capital

522,347

18.26%

Anadyomene Superannuation Pty Ltd <Jansen Super Fund>

343,716

12.02%

D & P Projects Pty Limited

247,239

8.64%

Woolcott Holdings Pty Limited

232,439

8.13%

Lyneham Robert Carleton

211,237

7.39%

Arven Pty Limited

102,732

3.59%

Kaltip Pty Limited

64,026

2.24%

Mark Bowman Pty Limited

61,591

2.15%

Anadyomene Pty Ltd <Jansen Unit Trust>

Ross Rowan Alexander

58,195

2.03%

Massy-Greene Roger Brian

56,052

1.96%

Silkmark Pty Limited

53,614

1.87%

Danat Nominees Pty Limited

50,950

1.78%

Trounson Alan

50,000

1.75%

DB Management Pty Limited

49,886

1.74%

Roberts Cynthia

42,671

1.49%

Tolbarno Pty Limited

38,247

1.34%

Grays Inn Pty Limited

34,033

1.19%

Madam Tussauds Waxworks Pty Limited

31,640

1.11%

Rimika Nominees Pty Limited

31,417

1.10%

Livingstone Mark

28,000

0.98%

2,310,032

c. Voting rights The voting rights attached to the ordinary shares are one vote for each ordinary share when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands.

2. Company Secretary The name of the Company Secretary is Ms Mary Weaver.

3. Address of principal office and of securities Genea Limited is incorporated in Australia. The address of the principal office and of securities is Level 2 321 Kent Street Sydney NSW 2000. Telephone (02) 9229 6420. Genea Limited Annual Report 2014

111

Company history 1983-88 Seed funding by the founding shareholders and in 1985 Sydney IVF operations commenced. 1989-90 Cytogenetics laboratory established. Sydney IVF operates profitably. 1990-91 First dividend paid. Export Market Development Grant from Austrade. Sydney IVF first qualifies for Industry Research and Development Board tax incentives. Sydney IVF takes over provision of public hospital IVF services at Royal Prince Alfred Hospital, Sydney 1992-93 Bangkok-Sydney IVF Company Limited commenced operations at the Vichaiyut Hospital, BangkokFirst. Regional clinic established in Orange. 1994-95 Operations commence at O’Connell Street in Sydney. 1995-96 Launceston IVF clinic established as a t venture with local gynaecologists in Launceston, Tasmania (operations ceased 2011). 1996-97 Interest acquired in DNALabs Pty Limited introducing molecular DNA technology to Sydney IVF (DNALabs name and testing business sold to Sonic Healthcare in 2010). 1997-98 $1.6 million R&D Start grant awarded to Sydney IVF (total value of the project $3.2 million). 1998-99 Licensing agreement entered into with Cook IVF to manufacture and distribute Sydney IVF designed embryo culture medium worldwide. Sydney IVF the main ing organization for the 11th World Congress on IVF and Human Reproductive Genetics, held at the Sydney Convention Centre, Darling Harbour and attended by over 2000 delegates. 1999-00 Corporate net profit exceeds $1 million. Independent Ethics Committee established.

2000-01 t venture with Sydney Ultrasound for Women for biochemical screening of early pregnancies. $2.5 million R&D Start grant awarded to Sydney IVF to further develop proprietary culture medium, develop DNA diagnostic chips and to develop miscarriage management investigations. U.S. Food and Drug istration approves Sydney IVF medium for sale in the United States. Founding director Dr John Anderson resigns from the Board. Sydney IVF becomes an unlisted public company. Sydney IVF opens a stand-alone IVF clinic in Liverpool NSW. 2001-02 Sydney IVF acquires 40% in Sydney IVF Newcastle Pty Limited, a t venture with Dr Robert Woolcott to operate established IVF services at Lingard Hospital Newcastle. 2002-03 Rowan Ross appointed a director and is elected Chairman of the Board. Sydney IVF forms Sydney IVF Canberra operating in the Australian Capital Territory. Sydney IVF commences Australia’s first comprehensive Miscarriage Management Program. 2003-04 Sydney IVF’s blastocyst culture and preimplantation genetic screening techniques receive international attention as results are published in the U.S. Sydney IVF achieves four licences for embryo research, the first such licences to be issued in Australia under new legislation. The first Australian human embryonic stem cell line is produced within two months. 2004-05 New clinics established in several further NSW regional centres. After almost 20 years, Sydney IVF better captures its strategic essence of no better chance, no greater care with a thorough and successful new brand look. 2005-06 Management restructure completed with vertical ability in three business divisions. Sydney IVF produces stem cells to pharmaceutical standards for Singapore-based client ESI Pte Limited. Majority share in Perth-based Hollywood Fertility Centre takes Sydney IVF across Australia. Fifty percent share in Superior ART, a new PGD clinic in Bangkok, Thailand.

112

Company history

2006-07 The Sydney CBD operations move to new premises at 321 Kent Street and celebrates its 21st birthday. The company is awarded its third major AusIndustry grant, with $2.7 million (total value of the project $5.5 million) awarded to develop stem cell-based laboratory assays for genetic disease-specific new drug development. 2007-08 Sydney IVF receives Australia’s first national licences to develop therapeutic cloning. Our first single-gene-defect stem cells prepared for research into Huntington’s disease and fascio-scapulohumeral dystrophy (FSHD). 2008-09 NorthWest clinic at Bella Vista opened. Eight of 10 current national embryo research licences are held by Sydney IVF. 2009-10 World first molecular method for detecting unbalanced chromosomes translocation errors in embryos introduced by Sydney IVF as part of PGD service. Development of vitrification automation device commences. 2011-12 Sydney IVF rebranded as Genea. Genea Holistic services launched. Superior ART celebrates its 5th anniversary and awarded Prime Minister’s Export Award 2012. 2012-13 Canberra clinic celebrates 10th anniversary. Orange Clinic celebrates 20th anniversary. Genea Biocells established as a corporate subsidiary and brand launched. 25 disease specific embryonic pluripotent stem cell lines listed on the USA NIH human stem cell registry Genea Biomedx established as a corporate subsidiary. Successful brand launch at 2013 ESHRE London. Third generation embryo culture medium suite launched. 2013-14 Launch of new model of engagement with Fertility Specialists. Successful messaging of our 40% Better Chance (based on ANZARD data). Successful launch of pathology collection in Kent Street and selected sites. Genea Biomedx establishes facility in Sandwich, Kent UK and a media processing unit in Kent Street, Sydney. Introduction of Next Generation Sequencing in October 2014.


113

Stages of embryo development Unfertilised Ovum (Egg) About 7 million form before birth, and ~300,000 are present when periods start. All but about 1000 are used by menopause, an average rate of 700 per month. Only one is released each month, but between 2 and 30 eggs have a chance of ovulating (depending on age) and can be encouraged to do so in an IVF treatment.

Fertilised Ovum (Pronuclear-Stage Embryo) Single cell The genetic material (chromosomes) from the sperm and egg are still separate. The next change is called syngamy whereby the two separate sets of chromosomes combine and create a new and unique set of chromosomes. The embryo then starts to divide from a single cell to 2 and then 4 cells.

Day 3 Embryo (Cleavage-Stage Embryo) 6 to 8 cells This is a crucial stage for the embryo when the embryo takes over its own growth and development from the maternal genome to the embryonic genome. Not all embryos have the necessary requirements to progress past this point and around 30-50% arrest in growth at this stage.

Day 4–5 Embryo (Compacting Morula) 16 to 32 cells The cells have “compacted” and are no longer distinct. Compaction occurs to increase the communication between the cells in the embryo to ready for the next transition stage.

Day 5–6 Embryo (Blastocyst) 64 to 128 cells and more A cavity has formed between the inner cell mass (ICM), composed essentially of embryonic stem cells, or ES cells, and the trophectoderm (TE), consisting of trophoblastic, or placentalstem cells. This is the stage that is most appropriate for an embryo transfer as the uterine environment is ready to accept a blastocyst.

Implantation Although the blastocyst may be well formed and may be genetically normal, the implantation stage is crucial and relies on the ability for the uterus and the embryo to signal each other and the blastocyst to begin to attach and implant into the endometrium (wall of the uterus). If all has gone well the blastocyst attaches to and burrows into the uterus on day 7.

114

Stages of embryo development

Glossary of biotechnical Adenosine triphosphate (ATP): a mobile molecule in the cell capable of delivering energy where it is needed. Amniocentesis: the sampling of fluid from the amniotic or gestational sac, usually performed around 14 weeks of pregnancy to check the genetic normality of the fetus by determining its karyotype or for performing biochemical tests. Amplification: see polymerase chain reaction. Array: a set of identical (or very similar) elements arranged in a regular pattern, typically on a glass slide or a wafer of silicon (such as a “DNA chip”). ART: assisted reproductive technology

Cytoplasm: The part of a cell that is not the nucleus (the nucleus contains the chromosomes). The cytoplasm is contained by the cell’s ‘plasma membrane’ and contains all the other cellular structures, including the mitochondria. Genetic inheritance is mostly by way of the nucleus (with a contribution from mother and father); a small part is by way of the cytoplasm (with a contribution only from the mother). It’s the cytoplasm of the egg into which a sperm cell is injected in the process of ‘intracytoplasmic sperm insertion’ (ICSI). Diploid: a cell, nucleus or organism having a double (i.e. paired) set of each chromosome - the normal state for most cells. DNA: deoxyribose nucleic acid, a molecule made up of a sequence of nucleotides, the order of which forms the genetic code.

Blastocyst: Stage of development of the embryo in which a fluid-filled cavity forms in the formerly solid ball of cells (the ‘morula’), about 5 days after fertilization. For the first time, a distinction can be made between a sheet of cells to one side, which will form the embryo proper (the inner cell mass), and the remaining, peripheral cells, which – after the blastocyst ‘hatches’ through the zona pellucida and undergoes implantation – will form the placenta (the “trophectoderm”).

DNA amplification: see polymerase chain reaction.

CGH: comparative genome hybridisation.

Embryo: The word is used loosely to describe everything from a fertilised egg to a fetus. What many people nowadays call the embryo has for long been called the ovum by professional embryologists. Up to the time that the embryo would normally implant in the uterus (as a blastocyst), any of the cells of the fertilised ovum can develop into a whole new embryo - they are ‘totipotent’. After implantation a group of cells (the inner cell mass) differentiates to form the embryo itself (later the fetus), whereas remaining cells go on to form ‘afterbirth’ tissues, namely the pregnancy membranes and placenta.

Chorionic villus sampling (CVS): a test performed at about 10 weeks of pregnancy at which, under ultrasound guidance, a small sample of tissue is taken from the placenta (afterbirth) for genetic testing, such as a karyotype. Chromosome: the visible structure formed by a single long strand of DNA with its ing and regulatory proteins. There are 46 chromosomes in the nucleus of every human cell, 22 pairs of “autosomes” (common to both sexes) and the two sex chromosomes, XX in a female and XY in a male. Comparative genomic hybridisation: the genome of a cell is made to undergo hybridisation with a standard set of genomic DNA, each genome first being labelled with either a green or red fluorescent dye; by comparing the resultant colour (which is either neutralised or deviates towards red or green) it can be determined if the right amount of DNA is present, or whether some is missing or present in excess. Culture medium: a solution of nutrients required for the growth of an embryo or tissue in culture. CVS: chorionic villus sampling Cytogenetics: the study of genetics at the level of the chromosomes, usually by preparing a karyotype.

Down syndrome: a genetic disability caused by the presence of a third copy of chromosome 21. Egg or Ovum (pl. ova): The female sex cell, or egg, from the earliest stage, through its release from the follicle (ovulation), and (to professional embryologists) through fertilization up to and sometimes beyond the stage of implantation.

Embryo biopsy: the procedure whereby one or two cells are removed from an embryo (usually performed at the 8-cell stage, on Day 3 after fertilisation) for genetic analysis. Embryonic disc: Derived from the inner cell mass. The part of the implanted embryo that will form the embryo itself, i.e. the fetus. Fertilisation: the fusion of the male and female gametes, a spermatozoon with an oocyte to form an embryo and, potentially to create a new individual. FISH: fluorescent in-situ hybridisation. Fluorescent in-situ hybridisation (FISH): a technique using fluorescently tagged pieces of synthetic DNA (“probes”) to label particular regions of a chromosome so that it can be seen under a fluorescence microscope using ultraviolet light. Gamete (pl. gametes): the generic term for a male or female germ cell, i.e. the spermatozoon or oocyte.


115

Glossary of biotechnical (cont.) Gene: a specific part of the DNA that contains the genetic code for a single molecule such as an enzyme or other protein. Genome: the entire genetic code of an individual cell or organism. Haploid: a cell, nucleus or organism having a single (unpaired) set of chromosomes. HLA: surface proteins present on most cells (including the fetus) and responsible for immune recognition or rejection. Hybridisation: the matching of two complementary strands of DNA. Implantation: the process whereby the blastocyst-stage embryo burrows into the lining of the uterus to establish a pregnancy. In vitro fertilisation (IVF): literally, fertilisation “in glass” (but in reality “in plastic”). This technique, whereby oocytes and spermatozoa are mixed in the laboratory to achieve fertilisation, is used as a treatment for infertility when the process has not occurred naturally inside the woman’s body. Karyotype: a preparation made from one or more cells in the laboratory to study whether an individual has a normal set of chromosomes. A normal male is 46, XY while a normal female is 46, XX. See also Down syndrome. Meiosis: the process of division of cells destined to become sperm or egg cells by which the number of chromosomes is reduced to half (i.e. a single copy of each). The process is circuitous: the chromosomes are first doubled, then halved twice (so a sperm-precursor cell produces four haploid sperm; but a precursor egg cell produces only one oocyte, the spare chromosomes being shed in the two polar bodies). Mitochondrion (pl. mitochondria): structures inside every cell that resemble bacteria. These are the site of metabolism where carbohydrates are oxidised to release energy, which is stored as ATP for use around the cell. Mutation: a change in the coding sequence of a gene usually altering its function, often causing harm. Next Generation Sequencing Technology (NGS): a type of genome sequencing used to detect specific gene errors. Non-invasive Pre-natal Screening (NIPS): a method for detecting trisomy 21 by extracting and analysing the DNA from a foetus which is present in a sample of blood taken from the mother. Nucleotide: one of the molecular building blocks of DNA. A set of three nucleotides forms one letter in the genetic code. Nucleus: the central part of each cell where the genetic code carried in the chromosomes resides.

OPU: oocyte pick up, the term used to describe the clinical procedure during which unfertilised eggs are collected from a woman’s ovaries. aging: subculture of cells to enable replication (multiplication) without differentiation or specialisation. PCR: polymerase chain reaction. PGD: preimplantation genetic diagnosis. Polar body: one of the two small cell fragments produced and discarded during each of the two cell divisions that comprise meiosis in women, subsequently yielding a haploid egg. Polymerase chain reaction (PCR): a molecular genetic technique that allows a single copy of a genetic sequence to be amplified geometrically to produce vast numbers of copies that can then be measured and analysed. It uses a thermostable DNA polymerase enzyme that replicates DNA and a repetitive sequence of warm-tohot-and-back-again temperature shifts in a “thermal cycler” machine to produce copies of a particular region of the genetic code located between a pair of specifically chosen primers. Polymorphism: a variation of a gene comparable to a mutation but common enough in the population not to be strictly “abnormal”; may be advantageous or disadvantageous, depending on circumstances. Preimplantation genetic diagnosis (PGD): testing performed on the embryo involving embryo biopsy and analysis of one or two cells using genetic techniques such as FISH or PCR. Sequence: the specific order of nucleotides, the basic building blocks of DNA, in a gene. This can be determined using an automated sequencer machine. Spermatozoon (pl. spermatozoa): the scientific term for the male sex cell, often referred to as the sperm. Stem cell: A cell in the embryo, child or adult capable of dividing repeatedly without itself aging appreciably, and retaining the ability to form different types of tissues depending on local circumstances. Embryonic stem cells form normally in the embryonic disc. Fully formed tissues also contain stem cells, but such “adult stem cells” are perhaps a little more “committed” to forming tissues of a restricted range. Researchers are interested in both forms of stem cells for possible future treatments of degenerative diseases such as diabetes, Alzheimer’s disease, Parkinson’s disease and many others, as well as cells to replace tissues or organs destroyed by cancer or cancer treatment. Stem cell line: The clonal derivation of a population of cells from a single precursor stem cell that retain the properties of stem cells.

Oocyte: the scientific term for the unfertilised egg. 116

Glossary of biotechnical

Location & s NSW Metropolitan clinics Sydney CBD Level 2, 321 Kent Street Sydney NSW 2000 p +61 2 9229 6420 f +61 2 9233 7519 Bella Vista Suite 101, 10 Norbrik Drive Bella Vista NSW 2153 p +61 2 8919 8000 f +61 2 8883 4380 Liverpool 173-175 Bigge Street Liverpool NSW 2170 p +61 2 8734 3300 f +61 2 8734 3399 Manly Level 5, 22 Darley Road Manly NSW 2095 p +61 2 8484 1515 f +61 2 8484 1595 St Leonards The Forum, Suite 3.02, Level 3, 205 Pacific Highway St Leonards NSW 2065 p +61 2 9437 0988 f +61 2 9437 9077 Wollongong Ground Floor, 1 Rawson Street Wollongong NSW 2500 p +61 2 4242 9000 f +61 2 4242 9090


Newcastle Suite 2, 23 Merewether Street Merewether NSW 2291 p +61 2 4902 7000 f +61 2 4965 3721 Regional clinics Tamworth Suite 6, 32-34 Marius Street Tamworth NSW 2340 p +61 2 6766 7903 f +61 2 6766 7325 Orange 3 Hampden Avenue Orange NSW 2800 p +61 2 6362 0530 f +61 2 6360 1885 Lismore Lismore Private Day Surgery 79 Uralba Street Lismore NSW 2480 p +61 2 6622 6665 f +61 2 6622 8454 Coffs Harbour Suite 1, 71 Albany Street Coffs Harbour NSW 2450 p +61 2 6650 0442 f +61 2 6651 8309

Maitland Maitland Private Hospital 173 Chisholm Road East Maitland NSW 2323 p +61 2 4902 7000 f +61 2 4965 3721 Central Coast 31 Hills Street Gosford NSW 2250 p 0437 436 677 f +61 2 4965 3721

ACT Canberra Ground Floor, 2 King Street Deakin ACT 2600 p +61 2 6260 3400 f +61 2 6260 3466

WA Hollywood Fertility Centre - Perth Hollywood Private Hospital Monash Avenue Nedlands WA 6009 p +61 8 9389 4200 f +61 8 9386 1463

Port Macquarie 57 Lake Road Port Macquarie NSW 2444 p +61 2 6583 4922 f +61 2 6583 9496

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