This information should be read in conjunction with Mayne Pharma Group Limited s 2012 Annual Report.

Transcription

1 Manager, Company Announcements ASX Limited Level 4 20 Bridge Street SYDNEY, NSW 2000 Wednesday, 27 February 2013 Via E-Lodgement Dear Sir/Madam Mayne Pharma Group Limited Interim Results Please find attached the Appendix 4D Half Year Report, Directors Report, the Financial Report and Auditor s Independent Review Report relating to the results for the half-year ended 31 December. This information should be read in conjunction with Mayne Pharma Group Limited s Annual Report. This announcement comprises the information required by ASX Listing Rule 4.2A and the statement required by Rule 4.2C.2. Yours faithfully, Mayne Pharma Group Limited Mark Cansdale Group CFO & Company Secretary Mayne Pharma Group Limited ACN a Level 14, 474 Flinders St, Melbourne, VIC, 3000 t f

2 Mayne Pharma Group Limited (ABN ) RESULTS FOR ANNOUNCEMENT TO THE MARKET APPENDIX 4D HALF YEAR REPORT % Change Dec 1 Dec 2011 Revenue from ordinary activities Up 0.9% 27,375 27,128 (Loss)/profit from ordinary activities before income tax expense NM (1,483) 5,429 (Loss)/profit from ordinary activities after income tax expense NM (2,546) 3,881 Net (loss)/profit attributable to members NM (2,546) 3,881 Other comprehensive loss attributable to members after income tax expense NM (1,744) - Total comprehensive (loss)/income attributable to members after income tax expense NM (4,290) 3,881 Net tangible assets per ordinary share 2 $0.073 $0.144 Cents 2011 Cents Basic earnings per share 2 (1.00) 2.55 Diluted earnings per share 2 (1.00) 2.51 Final dividend in respect of the financial year ended 30 June per share nil nil Special dividend in respect of the period ended 31 December per share nil nil Notes: 1. Includes the contribution of Metrics, Inc for the period 14 November to 31 December 2. The company issued 393,374,369 shares during the period ended 31 December. No dividend has been declared in relation to the period ended 31 December. Refer to the Directors Report and the accompanying ASX announcement dated 27 February 2013 for a brief commentary on the results.

3 MAYNE PHARMA GROUP LIMITED ABN HALF-YEAR FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER (Prior comparable period: Half-year ended 31 December 2011) 1

4 CONTENTS Corporate Information 3 Directors Report 4 Auditor s Independence Declaration 7 Consolidated Statement of Comprehensive Income 8 Consolidated Statement of Financial Position 9 Consolidated Statement of Changes in Equity 10 Consolidated Statement of Cash Flows 11 Notes to the Financial Statements 12 Directors Declaration 28 Auditor s Independent Review Report 29 2

5 CORPORATE INFORMATION DIRECTORS: COMPANY SECRETARY: Mr Roger Corbett, AO (Chairman) Mr Scott Richards (Managing Director and CEO) Hon. Ron Best Mr Bruce Mathieson Mr Ian Scholes Mr William (Phil) Hodges Mr Mark Cansdale REGISTERED OFFICE AND PRINCIPAL PLACE OF Level 14 BUSINESS: 474 Flinders Street Melbourne VIC 3000 Telephone: (03) Facsimile: (03) AUDITORS: SOLICITORS: SHARE REGISTRY: BANKERS: Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Minter Ellison Lawyers Rialto Towers 525 Collins Street Melbourne VIC 3000 Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone: (03) Facsimile: (03) National Australia Bank Limited Level Rathdowne Street Carlton VIC 3053 ABN: DOMICILE AND COUNTRY OF INCORPORATION: LEGAL FORM OF ENTITY: Australia Public company listed on the Australian Securities Exchange (MYX) 3

6 DIRECTORS REPORT The Directors of Mayne Pharma Group Limited the Company or Mayne Pharma submit their report for the half-year ended 31 December. DIRECTORS The names of the Company s Directors in office during the half-year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated. Mr Roger Corbett, AO, Chairman Mr Scott Richards, Managing Director and CEO The Hon Ron Best Mr Bruce Mathieson Mr Ian Scholes Mr William (Phil) Hodges (appointed 15 November ) RESULTS AND REVIEW OF OPERATIONS The consolidated entity s net (loss)/profit attributable to members of the Company for the half-year ended 31 December was a loss of $2,546,000 (half-year ended 31 December 2011: profit of $3,881,000). As announced on 4 October, the Company entered into a definitive agreement to acquire Metrics, Inc. (Metrics), a privately owned, US based provider of contract development services to the pharmaceutical industry that also develops and manufactures niche generic pharmaceuticals. Mayne Pharma acquired Metrics for an upfront payment of US$105m plus further payments based on the performance of the business in the year ending 30 June The acquisition of Metrics was completed with effect from 14 November. Operating performance Readers should note that the results for the six months to 31 December include the revenue and expenses for Metrics for the period 14 November to 31 December. Metrics Products The Metrics Products operating segment manufactures and distributes generic pharmaceutical products in the United States of America. Sales were $5,170,000 and gross profit was $3,473,000 for the period that Mayne Pharma owned the business. This was driven by strong performances over the period both in products sold through third party partners and those sold through Metrics own distribution arm. Metrics Contract Services The Metrics Contract Services segment provides contract pharmaceutical development services to third party customers principally in the USA. Sales were $2,994,000 and gross profit was $1,889,000 for the period that Mayne Pharma owned the business. Mayne Pharma Australia (MPA) Mayne Pharma Australia (MPA) sales were $4,782,000, slightly down on the prior comparable period (pcp), however gross profit was up $611,000 or 40.5% to $2,120,000. The improved gross profit was driven by a new pricing programme implemented across the portfolio in early and the transfer in house of the manufacture of aspirin tablets. The revenue derived from aspirin sales was impacted in the period by a 16% price decrease mandated by the PBS due to price discounting driven by competitor products to Astrix and the launch of a new competitor, which resulted in minor market share loss. 4

7 DIRECTORS REPORT Mayne Pharma Global (MP Global) MP Global s sales were $14,066,000 down $7,883,000 or 35.9% on the pcp and gross profit was significantly lower reflecting the reduction in sales of Doryx in the US following the launch of a generic product in May. Excluding the impact of Doryx in the US, MP Global s sales were $10,330,000, down $0.7m on pcp, resulting from a small contraction in contract manufacturing volumes and a phasing of customer orders into the second half. Gross margin Manufacturing gross margin (ie. gross margin excluding the impact of Other revenue ) as a percentage of sales revenue was 44.1%, down from 45.5% in the pcp. Metrics gross margin for Products and Contract Services was much stronger at 65.7% versus Mayne Pharma s gross margin for MPA and MP Global at 34.7% (pcp: 45.5%). This was driven by the lower sales of the high margin Doryx product in the USA. Expenses Net research and development expenses were down $456,000 on the pcp despite the addition of Metrics, as $1,700,000 of expenditure was capitalised during the period for the generic products under development in line with accounting standards. Marketing expenditure increased by $474,000 reflecting further investment in people and increased promotion of the MPA branded portfolio. Amortisation of intangible assets fell by $952,000 as the intangible assets are amortised on a diminishing value basis. $2,837,000 of the intangible assets relates to the Mayne Pharma International Pty Ltd (MPI) acquisition in November Finance costs of $463,000 increased by $436,000 on pcp due to the interest expense on the USD loan facility taken out for the Metrics acquisition and the amortisation of related borrowing costs. Administration costs increased by $340,000 as a result of the inclusion of Metrics expenses of $1,379,000 partially offset by savings in MPA and MP Global, Corporate and Administrative expenses. The acquisition costs of $3,946,000 reflect the due diligence and capital raising costs connected with the Metrics and Kapanol acquisitions during the period. Earn-out liability The total carrying value of the earn-out liability as at 31 December increased by $10,433,000 as a result of: An increase of $381,000 recognised as a notional non-cash interest charge on the earnout associated with the MPI acquisition plus a $3,000 adjustment for changes in forecasts; and An increase of $10,049,000 for the earn-out associated with the Metrics acquisition. Tax The tax expense of $1,063,000 comprised: Current period income tax for the six months to 31 December of $388,000; An adjustment for current income tax in respect of prior years of $72,000; and A charge of $603,000 relating to the movement in net tax deferred tax assets. 5

8 DIRECTORS REPORT Cash flow Net operating cash flow before tax and transaction costs was $5,673,000 and total net cash flows from operating activities was an inflow of $202,000 after including $3,946,000 of transaction costs and $1,525,000 of tax payments. Cash on hand at 31 December (net of restricted cash held as security for letters of credit on issue) was $30,381,000, representing an increase of $18,785,000 from 30 June. Notable cash flows during the period included: Inflow of $84,435,000 representing the proceeds from the issue of new shares for the Metrics and Kapanol acquisitions; Inflow of $41,609,000 representing the net proceeds from new borrowings used to acquire Metrics; The $102,870,000 payment to acquire Metrics on 14 November ; An outflow of $3,946,000 of acquisition related expenses; and $1,053,000 in capital expenditure across the Group. Dividend The Directors have not declared an interim dividend in relation to the period ended 31 December. ROUNDING The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. AUDITOR S INDEPENDENCE DECLARATION The Auditor s independence declaration is included on page 7 of the Financial Report. EVENTS SUBSEQUENT TO REPORTING DATE Refer to Note 13 for details in relation to matters that arose subsequent to 31 December. Signed in accordance with a resolution of the Directors. Dated at Melbourne, this 27th day of February Scott Richards Director 6

9 AUDITOR S INDEPENDENCE DECLARATION 7

10 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER Notes 31 December 1 31 December 2011 Sale of goods 17,555 20,298 Services revenue 8,746 5,652 Royalties revenue Other revenue Revenue 27,375 27,128 Cost of sales (15,106) (14,596) Gross profit 12,269 12,532 Research and development expenses (1,653) (2,109) Distribution expenses (488) (283) Marketing expenses (708) (234) Regulatory affairs expenses (546) (435) Share-based payments (122) (173) Additional option expenses (215) - Amortisation expense (966) (1,918) Administrative expenses (4,009) (3,669) Finance costs (463) (27) Redundancy costs 3 - (638) Other expenses (252) (131) Fair value movement in earn-out liability 3 (384) 2,514 Acquisition costs 3 (3,946) - (Loss)/profit before income tax (1,483) 5,429 Income tax expense 4 (1,063) (1,548) Net (loss)/profit for the period (2,546) 3,881 Other comprehensive income 2 Exchange differences on translation (1,744) - Income tax effect - - Total comprehensive (loss)/income for the period (4,290) 3,881 Earnings per share for profit attributable to the ordinary equity holders of the parent: Basic earnings per share (1.00) cents 2.55 cents Diluted earnings per share (1.00) cents 2.51 cents Notes: 1. Includes the results of Metrics, Inc for the period 14 November to 31 December. 2. Foreign exchange differences in Other Comprehensive Income may be reclassified subsequently to profit and loss when specific conditions are met. This consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the financial statements. 8

11 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER Notes 31 December 30 June Current assets Cash and cash equivalents 5 30,381 11,596 Trade and other receivables 18,950 3,821 Inventories 12,112 7,244 Income tax receivable 1,836 - Other financial assets Other current assets 1, Total current assets 64,647 23,255 Non-current assets Property, plant and equipment 56,200 22,224 Deferred tax assets Intangible assets and goodwill 8,10 68,349 4,194 Total non-current assets 125,017 26,948 Total assets 189,664 50,203 Current liabilities Trade and other payables 7,866 4,234 Interest-bearing loans and borrowings 7 2,681 - Income tax payable - 1,456 Other financial liabilities 6 14,228 2,782 Provisions 9 5,816 3,832 Total current liabilities 30,591 12,304 Non-current liabilities Interest-bearing loans and borrowings 7 39,241 - Other financial liabilities 6 8,374 6,549 Deferred tax liabilities 4 3,562 - Provisions Total non-current liabilities 51,912 7,299 Total liabilities 82,503 19,603 Net assets 107,161 30,600 Equity Contributed equity ,234 32,016 Reserves (1,495) 1,087 Accumulated losses (4,578) (2,503) Total equity 107,161 30,600 This consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements. 9

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER Contributed equity Share-based payment reserve Foreign Currency Translation Reserve Accumulated losses Total Balance at 1 July 32,016 1,087 - (2,503) 30,600 Loss for the period (2,546) (2,546) Other comprehensive income Foreign exchange differences - - (1,744) - (1,744) Total comprehensive income - - (1,744) (2,546) (4,290) Transactions with owners in capacity as owners Shares issued 84, ,435 Share issue costs (3,921) (3,921) Share based payments Share options exercised 704 (704) Lapsed / expired options reclassified to retained earnings - (471) Balance at 31 December 113, (1,744) (4,578) 107,161 Balance at 1 July , (8,656) 24,174 Profit for the period ,881 3,881 Other comprehensive income Total comprehensive income ,881 3,881 Transactions with owners in capacity as owners Shares issued Share based payments Balance at 31 December , (4,775) 28,228 This consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements. 10

13 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER Cash flows from operating activities Notes 31 December 1 31 December 2011 Receipts from customers 28,018 25,411 Net receipts from shareholders of Metrics Inc for acquisition excluded items Payments for research and development expenditure (1,377) (2,038) Payments to suppliers and employees (21,397) (19,293) Interest received Interest paid (418) (7) Tax paid (1,525) - Net operating cash flows before transaction costs 4,148 4,136 Transaction costs 3,8 (3,946) - Net cash flows from operating activities 202 4,136 Cash flows from investing activities Purchase of plant and equipment (1,053) (1,667) Acquisition of subsidiary 8 (102,870) - Capitalised development costs (1,700) - Net cash flows used in investing activities (105,623) (1,667) Cash flows from financing activities Proceeds from issue of shares 84,435 - Proceeds from acquisition settlement process to be refunded 2 2,298 - Transaction costs on issue of shares (3,921) - Repayment of borrowings - (2,315) Proceeds from borrowings (net of fees) 41,609 - Net cash flows from/(used in) financing activities 124,421 (2,315) Net increase in cash and cash equivalents 19, Cash and cash equivalents at beginning of period 11,596 5,807 Effect of foreign exchange changes on cash held in foreign currencies Cash and cash equivalents at end of period 5 30,651 6,076 Less restricted cash Cash and cash equivalents at end of period 30,381 6,076 Notes: 1. Includes the cash flows of Metrics, Inc for the period 14 November to 31 December. 2. Timing difference of payment owing to vendors of Metrics Inc for cash not cleared prior to settlement in accordance with the Merger Agreement. Return of these funds is expected prior to 30 June This consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statements. 11

14 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation The financial report for the half-year ended 31 December has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the annual financial report. It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June and considered together with any public announcements made by Mayne Pharma Group Limited during the half-year ended 31 December in accordance with the continuous disclosure obligations of the ASX Listing Rules. The accounting policies and methods of computation are the same as those adopted in the most recent annual financial report. Changes in accounting policy From 1 July the Group has adopted the relevant standards and interpretations mandatory for annual reports beginning on or after 1 July. Adoption of the standards and interpretations did not have any effect on the financial position or performance of the Group. AASB Amendments to Australian Accounting Standards Presentation of Other Comprehensive Income Application date of standard: 1 July Application date for Group: 1 July 2013 Summary This standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. This has been assessed and reflected in this half-year financial report. New accounting standards and interpretations All applicable standards and interpretations introduced since 1 July have been adopted but have had no material impact. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the half-year ended 31 December are outlined below: AASB Application of Tiers of Australian Accounting Standards Application date of standard: 1 July 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and will comply with the Tier 1 requirements. The changes will only have minimal impact. 12

15 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES - cont Summary This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: a) Tier 1: Australian Accounting Standards; and b) Tier 2: Australian Accounting Standards Reduced Disclosure Requirements. Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: a) for-profit entities in the private sector that have public accountability (as defined in this Standard); and b) the Australian Government and State, Territory and Local Governments. The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: a) for-profit private sector entities that do not have public accountability; b) all not-for-profit private sector entities; and c) public sector entities other than the Australian Government and State, Territory and Local Governments. Consequential amendments to other standards to implement the regime were introduced by AASB , , , and -1 and -7. AASB 10 - Consolidated Financial Statements Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has fully assessed the impact of the changes and expects them to have minimal impact on the Group. Summary AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB AASB 13 - Fair Value Measurement Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group. 13

16 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES - cont Summary AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB AASB 119 Employee Benefits Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group from the restatement of short-term employee benefits relating to annual leave. The Group does not have any defined benefit plans. Summary The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB AASB -2 Amendments to Australian Accounting Standards Disclosures Offsetting Financial Assets and Financial Liabilities Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group. Summary AASB -2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity s recognised financial assets and recognised financial liabilities, on the entity s financial position. 14

17 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES - cont AASB -3 Amendments to Australian Accounting Standards -Offsetting Financial Assets and Financial Liabilities Application date of standard: 1 January 2014 Application date for Group: 1 July 2014 Impact on financial report: The Group has yet to assess the impact of the changes but expects them to have minimal impact on the Group. Summary AASB -3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. AASB -5 Amendments to Australian Accounting Standards arising from Annual Improvements Cycle Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group. Summary AASB -5 makes amendments resulting from the Annual Improvements Cycle. The standard addresses a range of improvements, including the following: (a) Repeat application of AASB 1 is permitted (AASB 1) (b) Clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements). AASB -10 Amendments to Australian Accounting Standards Transition Guidance and Other Amendments Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group. Summary AASB -10 amends the following standards: (a) (b) (c) AASB 10 Consolidation and related Standards - clarifies the transition guidance, in particular that the assessment of control is to be made at the beginning of the period AASB 10 is adopted rather that prior periods.. AASB 10 and related Standards to defer the mandatory application by not-forprofit entities to annual reporting periods beginning on or after 1 January Various editorial amendments to a range of Australian Accounting Standards and to Interpretation 12 Service Concession Arrangements, to reflect changes made to the text of IFRSs by the IASB AASB 9 - Financial Instruments Application date of standard: 1 January 2015 Application date for Group: 1 July 2015 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal effect on the Group. 15

18 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES - cont Summary AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) (b) (c) (d) Financial assets that are debt instruments will be classified based on (1) the objective of the entity s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: the change attributable to changes in credit risk are presented in other comprehensive income (OCI); the remaining change is presented in profit or loss. If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB and superseded by AASB and SEGMENT REPORTING The Group has identified its operating segments based on the internal reports that are reviewed and used by the CEO (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the nature of revenue flows and responsibility for those revenues. Discrete financial information about each of these operating segments is reported to the chief operating decision maker on at least a monthly basis. The Consolidated Entity now operates in four operating segments, being Mayne Pharma Australia (MPA), Mayne Pharma Global (MP Global) plus two new segments arising from the acquisition of Metrics, Inc., namely Metrics Products and Metrics Contract Services. MPA MPA s revenues and gross profit are derived from the manufacturing, distribution and marketing of branded and generic pharmaceutical products within Australia. 16

19 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2. SEGMENT REPORTING - cont MP Global The MP Global operating segment s revenues and gross profit are derived from the manufacturing and out-licensing of branded pharmaceutical products to international marketing and distribution partners and provision of contract manufacturing services to thirdparty customers within Australia. Metrics Products The Metrics Products segment s revenue and gross profit are derived from the manufacturing and distribution of generic pharmaceutical products in the United States. Metrics Contract Services The Metrics Contract Services segment s revenue and gross profit are derived from providing contract pharmaceutical development services to third-party customers principally in the United States. The Consolidated Entity reports the following information on the operations of its identified segments: Half Year ended 31 December METRICS PRODUCTS METRICS CONTRACT SERVICES MPA MP GLOBAL TOTAL SEGMENTS ELIMINATIONS & ADJUSTMENTS TOTAL CONSOLIDATED Sale of goods 5,170-4,782 7,603 17,555-17,555 Services income - 2,994-5,752 8,746-8,746 Royalty income R&D income Other Revenue 5,170 2,994 4,782 14,066 27, ,375 Cost of sales (1,697) (1,105) (2,662) (9,642) (15,106) - (15,106) Gross profit 3,473 1,889 2,120 4,424 11, ,269 Amortisation of intangible assets (966) Fair value movement in earn-out liability (384) Other expenses (refer Statement of Comprehensive Income) (12,402) Loss before income tax (1,483) Income tax expense (1,063) Net loss for the period (2,546) 17

20 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2. SEGMENT REPORTING - cont Half Year ended 31 December 2011 METRICS PRODUCTS METRICS CONTRACT SERVICES MPA MP GLOBAL TOTAL SEGMENTS ELIMINATIONS & ADJUSTMENTS TOTAL CONSOLIDATED Sale of goods - - 4,847 15,452 20,299-20,299 Services income ,652 5,652-5,652 Royalty income R&D income Other Revenue - - 4,847 21,949 26, ,128 Cost of sales - - (3,338) (11,258) (14,596) - (14,596) Gross profit - - 1,509 10,691 12, ,532 Amortisation of intangible assets (1,918) Fair value movement in earn-out liability 2,514 Other expenses (refer Statement of Comprehensive Income) (7,699) Profit before income tax 5,429 Income tax expense (1,548) Net profit for the period 3,881 Geographical segment information 31 December 31 December 2011 Revenues from external customers Australia 11,394 11,713 United States 11,285 11,108 Korea 1,867 1,945 Other 2,829 2,362 Total external revenue 27,375 27, EXPENSES 31 December 31 December 2011 Finance costs Interest expense Amortisation of borrowing costs

21 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 3. EXPENSES - cont 31 December 31 December 2011 Depreciation (1) 1, Employee benefits expense Wages and salaries 8,134 5,490 Superannuation expense Other employee benefits expense 886 1,107 Total employee benefits expense 9,638 7,128 Other expenses Gain on forward exchange contracts - (32) Net loss on foreign exchange Fair value movement in earn-out liability Movement in undiscounted fair value of earnout liability 3 (3,127) Change in fair value attributable to the unwinding of the discounting of the earnout liability (2,514) Redundancy payment The redundancy payment of $638,000 in the prior period related to the termination payment to the outgoing CEO. Acquisition costs Expenditure of $3,746,000 related to the acquisition of Metrics Inc, $108,000 related to the acquisition of the Australian rights for Kapanol from GlaxoSmithKline and $92,000 the payment of residual stamp duty relating to the purchase of MPI. Notes: 1. Depreciation expense is included in R&D expenses and cost of sales 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 4. INCOME TAX A. The major components of income tax expense are: 31 December 31 December 2011 Current income tax Current income tax (388) (866) Adjustment in respect of current income tax of previous years (72) 192 Deferred income tax Relating to movement in net tax deferred tax assets (603) (1,406) Restatement of deferred tax balances upon entry to a tax consolidated group Income tax expense in the consolidated statement of comprehensive income (1,063) (1,548) B. Numerical reconciliation between aggregate tax expense recognised in the consolidated statement of comprehensive income and tax expense calculated per the statutory income tax rate 31 December 31 December 2011 The prima facie tax on operating profit differs from the income tax provided in the accounts as follows: (Loss)/profit before income tax (1,483) 5,429 Prima facie tax benefit/(expense) at 30% 445 (1,629) Effect of R&D concession Adjustment relating to earn-out liability 1 (751) (Under)/overprovision in respect of prior years (165) 192 Non deductible entertainment - (2) Tax effect of amounts which are not deductible (taxable) in calculating taxable income (27) - Restatement of deferred tax balances upon entry into tax consolidation Share based payments (101) - Effect of higher tax rate in USA (111) - Non deductible Metrics acquisition costs (1,183) - US State taxes (65) - US Domestic production activity deduction 73 - Income tax expense (1,063) (1,548) 20

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 4. INCOME TAX - cont C. Recognised deferred tax assets and liabilities Deferred tax assets 31 December 30 June Intangible assets 2,375 2,526 Payables Unrealised foreign exchange losses Provisions 1,537 1,650 Inventory 10 - Carried forward tax losses Earn-out liability 72 - Other ,314 4,260 Reconciliation to the Statement of Financial Position Total Deferred Tax Assets 4,314 4,260 Set off of Deferred Tax Liabilities (3,846) (3,730) Net Deferred Tax Assets Deferred tax liabilities Other receivables / prepayments - 33 Inventory Property, plant and equipment 5,987 2,306 Intangible assets 1,392 1,195 Unrealised foreign currency gain - 59 Other ,408 3,730 Reconciliation to the Statement of Financial Position Total Deferred Tax Liabilities 7,408 3,730 Set off against Deferred Tax Assets (3,846) (3,730) Net Deferred Tax Liabilities 1 3,562 - The changes in the amount recognised in the Consolidated Statement of Financial Position as stated above represent the amount of deferred tax movement recognised in the Consolidated Statement of Comprehensive Income. Notes: 1. Represent US Deferred Tax Liabilities that cannot be offset against Australian Deferred Tax Assets. 21

24 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 4. INCOME TAX - cont Deferred tax assets and deferred tax liabilities are presented based on their respective tax jurisdictions. D. Tax consolidation Mayne Pharma Group Limited and its 100%-owned Australian resident subsidiaries formed an income tax consolidated group with effect from 31 October Mayne Pharma Group Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. On 14 November, the Mayne Pharma group acquired a further subsidiary, Metrics, Inc. As Metrics, Inc. is a US domiciled company and not an Australian company, it cannot join the Australian tax consolidated group and is therefore taxable in its own right in the USA. 5. CASH AND CASH EQUIVALENTS For the purpose of the consolidated statement of cash flows, cash and cash equivalents are comprised of the following: 31 December 30 June Cash at bank and in hand 30,381 11,596 30,381 11, OTHER FINANCIAL LIABILITIES Current 31 December 30 June Earn-out liability - Hospira 1,340 2,782 Earn-out liability - Metrics former shareholders 10,049 - Other Proceeds from acquisition settlement process to be refunded 2,298 - Non-current 14,228 2,782 Earn-out liability - Hospira 8,374 6,549 22

25 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 6. OTHER FINANCIAL LIABILITIES - cont The consolidated entity has recognised a total of $9,714,000 in relation to the earn-out liability incurred as part consideration on the acquisition of Mayne Pharma International Pty Ltd on 30 October The amount payable to Hospira amounts to a maximum $41,600,000 payable over a six-year period. The earn-out payment is based on the level of gross revenue recognised by Mayne Pharma International Pty Ltd in relation to products existing at the time of the acquisition greater than $40,000,000 in a calendar year period and capped at $65,000,000 in a calendar year period, with a maximum $7,800,000 payable in the first two years to 31 December 2011 and $6,500,000 for each of the subsequent four years. The value of the earn-out has been determined in relation to expected future cash flows required to be paid on the earn-out utilising a discount rate of 8% and an assumed foreign exchange rate of US$1:A$1.00 for the balance of the earn-out period. The earn-out liability represents the net present value of estimated future payments. The changes in fair value for changes in the net present value of estimated future payments are recognised in the statement of comprehensive income. The earn-out liability at balance date includes a charge representing the unwinding of the discounting of the earn-out liability of $381,000 (31/12/11: $613,000) for the period representing the change in fair value as a result of the unwinding of the discounting. The consolidated entity has also recognised a total $10,049,000 in relation to the earn-out liability incurred as part consideration on the acquisition of Metrics. The earn-out is payable if the EBITDA of Metrics for the twelve months ended 30 June 2013 meets prescribed thresholds. The maximum payable is USD 15,000,000 (AUD 14,460,619 at 31/12/12 exchange rate). 7. INTEREST BEARING LOANS AND BORROWINGS Current 31 December 30 June MidCap term loan (USD 44.5m) 2,681 - Non-current 2,681 - Revolving loan (USD 1.0m) MidCap term loan (USD 44.5m) 40,219 - Borrowing costs (net of amortisation) (1,942) - 39,241 - The facility provided by MidCap Financial LLC as the primary lender is a five year loan effective 14 November for the initial amount of USD 44,500,000. The revolving loan is a facility of USD 5,000,000 provided for a term of five years. The loans are subject to certain covenants and Metrics was in compliance with these at period end. The Company has guaranteed the obligations of Metrics, Inc under the Credit Agreement with MidCap Financial LLC, via provision of a first priority perfected security interest in all and outstanding capital stock and all of its rights under the Merger Agreement. The Directors believe there is no risk of default at reporting date. 23

26 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 8. BUSINESS COMBINATION - ACQUISITION OF METRICS, INC Effective 14 November, Mayne Pharma Group Ltd (MPG) acquired Metrics, Inc (Metrics) a privately-owned, US based provider of contract development services to the Pharma industry that also develops and manufactures niche generic pharmaceuticals. Under the terms of the Merger Agreement, the Group must pay the former shareholders of Metrics an additional cash payment based upon adjusted EBITDA targets for the 2013 financial year as defined in the Merger Agreement. The estimate of future payments of $10.004m has been included in the determination of the purchase consideration. Future changes in estimates of this amount may be recorded directly in the consolidated statement of comprehensive income in the period in which they occur. The total cost of the acquisition was $ m, comprising of a cash payment of $61.991m (paid out of proceeds raised from an equity raising and surplus cash), a loan facility with MidCap Financial, LLC of $41.176m and a potential future earn-out payment of $10.004m. The Group has provisionally recognised the fair values of the identifiable assets and liabilities acquired based on the information available at reporting date. The process of valuing separately identifiable intangible assets and the property, plant and equipment, has not yet been completed as permitted under Australian accounting standards. The intangible assets may include research and development projects that qualify for capitalisation, customer relationships, revenue backlogs and intellectual property. Until this is completed, a preliminary premium arising on acquisition has been recognised with intangible assets at 31 December. The provisional business combination accounting recognised is as follows; Recognised on acquisition Receivables current 15,246 Inventories 4,217 Current tax receivable 2,358 Other non-current assets 1,172 Property, plant and equipment 33,690 56,683 Payables current (3,311) Provisions current (1,385) Deferred tax liabilities (3,156) (7,852) Fair value of identifiable net assets 48,831 Premium arising on acquisition- preliminary 64, ,171 24

27 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 8. BUSINESS COMBINATION - ACQUISITION OF METRICS, INC - cont Cost of the combination: Cash paid 102,870 Earn-out estimate 6 10,004 Cash payable for working capital 297 Total cost of the combination 113,171 Cash flow on acquisition: Transaction costs of acquisition 3,946 Cash paid 102,870 Net consolidated cash outflow 106, PROVISIONS The balance at 31 December of $5,816,000 includes $949,000 as a provision for charge backs and returns relating to the Metrics Products segment of the business. 10. INTANGIBLE ASSETS AND GOODWILL 31 December 30 June Customer contracts - cost 11,444 11,444 Customer contracts- amortisation (11,444) (11,444) Customer relationships - cost 6,108 6,108 Customer relationships - amortisation (3,821) (2,987) Customer royalty - cost 1,643 1,643 Customer royalty - amortisation (1,093) (961) Capitalised development costs 1,700 - Goodwill Premium on acquisition - preliminary 63,421-68,349 4,194 25

28 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 11. CONTRIBUTED EQUITY (a) Issued capital 31 December 30 June Ordinary shares, fully paid 113,234 32,016 (b) Movements in share capital 31 December Number Balance at beginning of period 152,153,044 32,016 Shares issued 1 393,374,369 81,218 Balance at end of period 545,527, ,234 Movements for period Number Metrics, Inc acquisition funding 1 329,364,354 62,659 Kapanol license fee acquisition funding 61,016,950 17,293 Exercise of options 2,950,000 1,252 CFO STI bonus entitlement (restricted) 43, Total 393,374,369 81,218 1 Shares issued are net of $3,921,000 of equity raising costs 12. DIVIDENDS The Board has decided to preserve the Company s capital and no interim dividend has been declared. 13. EVENTS SUBSEQUENT TO REPORTING DATE Other than as noted below, there have been no events subsequent to the balance date. Completion of Kapanol acquisition On 1 February 2013, the acquisition of Kapanol rights and related assets in Australia from GlaxoSmithKline was completed. Mayne Pharma acquired the Kapanol trademark, marketing authorisations, product dossier, technical data, product inventory for $13,839,000 and the existing licence arrangement between Mayne Pharma and GSK has been amended so that Mayne Pharma has the rights to sell Kapanol in Australia. Issue of options On 13 February 2013, the Company issued 25.5 million employee options to the management team as a long-term incentive to align employee remuneration to the earnings growth and performance of the Company. 26

29 NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 13. EVENTS SUBSEQUENT TO REPORTING DATE - cont SUBACAP marketing authorisation in the UK Since the end of the period, the regulatory authorities in the UK have granted marketing authorisation to SUBACAP for the treatment of superficial and systemic fungal infections. This marketing authorisation follows completion of the Decentralised Procedure in which the Medicines and Healthcare products Regulatory Agency (UK) serving as the Reference Member State, delivered a positive outcome for SUBACAP along with the three Concern Member States (CMS) of Germany, Spain and Sweden. 14. COMMITMENTS AND CONTINGENCIES There were no material changes in commitments and contingencies. No contingencies were present as at balance date. The Company has previously advised that it, together with its US distributor of Doryx, Warner Chilcott, has received notification of various anti-trust law suits. At the date of this report, no certainty exists as to the outcome of these actions, however the Company still does not forsee any material financial liabilities in relation to these actions based on preexisting contractual rights with Warner Chilcott and current legal advice received by the Company. 27

30 DIRECTORS DECLARATION In accordance with a resolution of the directors of Mayne Pharma Group Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the financial position as at 31 December and the performance for the half-year ended on that date of the consolidated entity; and complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. On behalf of the Board Scott Richards Director Melbourne, 27 February

31 AUDITOR S INDEPENDENT REVIEW REPORT 29

32 AUDITOR S INDEPENDENT REVIEW REPORT 30