MAYNE PHARMA GROUP LIMITED

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annual REpoRt 2012

Mayne pharma Annual Report 2012

MaynE phaRMa’s international footprint

MAyne PhARMA’s inteRnAtionAl footPRint

product	Distribution partners (outside australia)
astRix®	Boryung (Korea), akbar pharma (sri lanka)
DoRyx®	Warner Chilcott (usa)
ERyC®	teva (uK), pfzer (Canada), Meda (sweden, norway)
KaDian®/Kapanol®	abbott (Canada), gsK (Row ex. uK, ireland, Japan & usa)
MagnoplasM®

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HeaD office anD corporate
manufacturing facility registereD
32 acre facility at salisbury, south office
australia has 12,000m² of manufacturing Melbourne,
space with FDa and tga approval. Victoria
annual production capacity of:
 c.2.5 billion capsules/tablets
 100 tonnes of bulk product
 16 million units of liquids and creams
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Business oveRview

Business oveRview
Mayne pharma at a glance	4
2012 Company highlights	5
& upcoming Milestones
Chairman’s letter	6
Chief Executive offcer’s Review	8
Financial summary	10
Research & Development	12
suBaCap®	13
Management team	16

finAnciAl RePoRt

finAnciAl RePoRt
Directors’ Report	19
Remuneration Report	23
auditor’s independence Declaration	28
Corporate governance statement	29
Consolidated statement of
Comprehensive income	35
Consolidated statement of
Financial position	36
Consolidated statement of Cash Flows	37
Consolidated statement of
Changes in Equity	38
notes to the Consolidated
Financial statements	39
Directors’ Declaration	72
independent auditor’s Report	73
asx additional information	75

Mayne Pharma Annual Report 2012

mayne pHarma at a glanCE

Mayne pharma group limited (Mayne pharma) is an asx-listed specialty pharmaceutical company that develops and manufactures proprietary and generic products, which it distributes directly or through distribution partners and also provides contract manufacturing services.

Mayne pharma’s origins were in the drug delivery technology arm of F h Faulding & Co and is responsible for developing products with in-market sales of greater than us$500 million based on 2011 iMs health data.

Mayne pharma operates from its 32 acre facility located in salisbury, south australia which is approved by the FDa and tga. the drug development and manufacturing operations are supported by approximately 160 staff with 20 formulation and analytical scientists dedicated to the development of new products.

thRee coRe gRowth dRiveRs:

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capitalise on worlD
class oral Drug
Delivery platform
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proprietary products – eg. suBaCap[®] generic targets – us market focus Domestic-branded portfolio international out-licencing of product portfolio Collaborative development with global pharma Contract manufacturing

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leverage off mayne
branD anD proDuct
portfolio
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partnering services
to global pHarma
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MAyne PhARMA’s oPeRAtions

	Develop anD manufacture proprietary anD generic proDucts using oral Drug Delivery tecHnologies	Develop anD manufacture proprietary anD generic proDucts using oral Drug Delivery tecHnologies	Develop anD manufacture proprietary anD generic proDucts using oral Drug Delivery tecHnologies
	for out-licence	for domestic sale mayne pharma australia	research and development	contract services
fy12 sales revenue	a$30.7 million	a$9.8 million	na	a$11.4 million
key proDucts	• Doryx® • Kadian®/Kapanol® • Eryc® • astrix® • suBaCap®	• Doryx® • astrix® • Eryc® • Magnoplasm®	• suBaCap® • Extended release (ER) pain capsule • ER hypertension tablet	• liquid • Cream
key territories	• us • australia • Canada • Korea • Japan • European union	• australia	• us- Development of generic and proprietary complex modifed release products • global– Development of suBaCap®	• australia(contract manufacturing services) • global(contract development services)

Mayne Pharma Annual Report 2012

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Mayne Pharma Annual Report 2012

cHairman’s lEttER

Dear Fellow shareholders,

on behalf of the Mayne pharma Board and Management, i am pleased to present the 2012 annual report.

During the year, the business faced some challenging circumstances with a delay in the regulatory approval of suBaCap[®] in Europe and the launch of a generic Doryx[®] product in the united states. Despite this, the Company managed to report solid revenue and margin growth across all areas of the business. the improved profitability and cash flow was driven by the operational restructure undertaken in 2011, enhanced sales and marketing of our proprietary products and more effective working capital management. our strong cash flow enabled the Company to become debt free during the year and increase our cash balance by 100% to $11.6 million.

as you no doubt know, we appointed Mr scott Richards as Chief Executive officer to replace Dr Roger aston during the year. i would like to thank Roger again for his significant contribution to the Company over the past six years.

scott joined the Company at its adelaide headquarters in salisbury in February 2012 and brings a wealth of pharmaceutical experience to the Company having worked in the us, Europe and asia. scott has a proven track record in commercialising new products, business development, mergers and acquisitions and sales and marketing. scott began his career at the salisbury facility over 24 years ago and spent the next 18 years with F h Faulding & Co and Mayne pharma limited in numerous roles, culminating in the position of president, global Commercial operations, responsible for 600 staff and $600 million in sales.

Following scott’s appointment, the Company undertook a full review of the suBaCap[®] program to evaluate the commercial potential of the product to support further clinical and regulatory investment. the review, which included significant market research commissioned in Europe and the us, confirmed that physicians will value the clinical and compliance benefits of suBaCap[®] over conventional itraconazole.

in June 2012, the Company was pleased to announce that the uK Medicines and healthcare Regulatory agency (MhRa), the Reference Member state for our European registration procedure, had reversed its previous decision on suBaCap[®] and advised that the suBaCap[®] Marketing authorisation application (Maa) was approvable in the uK. this was a significant step as the MhRa confirmed that no further clinical work was required to support the application. the Company is now on track to seek final approval for suBaCap[®] in the uK, germany, spain and sweden during the current financial year.

the Company also completed a review of its research and development program culminating in the selection of two new projects targeting generic equivalence to existing us complex modified-release oral drugs with combined annual sales of us$1.4 billion (iMs health).

going forward, the key catalysts for growth are suBaCap[®] European approval and commercialisation, progressing suBaCap[®] towards filing in the us and other jurisdictions, delivering on key milestones for R&D projects, in-licensing new products into australia and broadening our international distribution network for existing products.

on behalf of the Board, i would like to thank all of our dedicated employees for their efforts over the last year and commitment to our strategic goals. i would also like to record our appreciation for the continued support of our shareholders.

as you know, my fellow Board members and i are major shareholders in this business and we are all very committed to delivering improved results and growth in shareholder wealth. Mayne pharma’s strengths lie in our world-class development and manufacturing facility, our proprietary product portfolio and pipeline and our highly skilled workforce that have the expertise to commercialise our products internationally.

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Roger Corbett, ao chairman

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“...ouR stRong Cash FloW
EnaBlED thE CoMpany to
BECoME DEBt FREE DuRing
thE yEaR...”
Roger Corbett ao / chairman
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Mayne Pharma Annual Report 2012

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“thE CoMpany also CoMplEtED a REViEW oF its
REsEaRCh anD DEVElopMEnt pRogRaM CulMinating
in thE sElECtion oF tWo nEW pRoJECts taRgEting
gEnERiC EquiValEnCE to Existing us CoMplEx
MoDiFiED RElEasE oRal DRugs With CoMBinED annual
salEs oF us$1.4 Billion (iMs hEalth).”
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overview of head office and manufacturing facility located in salisbury, south australia.

160 employees

12,000m[2] manufacturing space

FDA & TGA approval

the facility has annual production capacity of:

2.5 billion capsules/tablets

100 tonnes bulk product

16 million

units of liquids & creams

Mayne Pharma Annual Report 2012

cHief executive officer’s REViEW

it is a pleasure to present the Chief Executive officer’s Review for the first time having rejoined a business that i began my career at over 24 years ago.

having spent 15 years working in the united states and Europe in internationallyrecognised pharmaceutical companies, i was honoured to be offered the opportunity to lead Mayne pharma and return to australia to run a leading independent specialty pharmaceutical company with a portfolio of world-class products, people and technologies.

finAnciAl suMMARy

During the financial year, the Company delivered solid growth in sales, earnings and cash flow. sales revenue grew 10% to $51.9 million, EBitDa grew 81% to $14.3 million, reported net profit after tax grew 265% to $6.2 million and net operating cash increased 228% to $13.4 million.

the improved result was driven by solid revenue growth across all areas of the business. Margins have also improved from the prior year following the operational restructure, undertaken in 2011 to drive efficiencies and decrease operating expenses.

doRyx[®]

the Company’s shipments of Doryx[®] to the us have reduced since the launch of a generic product in May 2012 by Mylan pharmaceuticals inc. (Mylan). Despite this, iMs health data shows prescription volumes for Doryx[®] 150mg tablets sold by Warner Chilcott, the Company’s marketing and distribution partner, are not following a typical generic substitution curve and have only fallen approximately 35% since the entry of generic competition and stabilised across June, July and august. over this period Warner Chilcott have maintained their national Doryx[®] sales force and customer loyalty card.

Doryx[®] sales in Fy13 are expected to be significantly below Fy12 sales due to the timing of the generic launch and destocking of the pipeline in line with the new underlying demand profile. normalisation of supply is expected in the 2h Fy13 in line with this underlying demand profile.

suBAcAP[®]

improved results were driven by solid revenue growth across all areas of the business.

We are pleased to report that significant progress has been made with the commercialisation of suBaCap[®] in Europe:

the suBaCap[®] Marketing authorisation application is approvable in the uK and no further clinical work is required.

$51.9 million in sales revenue, an increase of 10%.

the Company has reactivated the Decentralised procedure in spain, germany and sweden and is on track for completing the approval process during Fy13.
Following $1.8 million of capital expenditure, the itraconazole spray dryer has been installed at the salisbury site in anticipation of production following European approval.

81%

the Company has commenced a process to secure marketing and distribution partners for suBaCap[®] and is in discussion with both regional and international pharmaceutical organizations.

increase in eBitdA to $14.3 million

265%

in the united states, the Company has completed the FDa special protocol assessment process for the design of a phase iii clinical trial in onychomycosis (nail infection) and has scheduled a meeting with the FDa in november 2012 to discuss the arguments presented to the MhRa (which may avoid the need for a phase iii trial completely) and a potential new formulation of itraconazole that will target more serious systemic infections.

growth in net profit after tax to $6.2 million.

228%

increase in net operating cash to $13.4 million.

stRAtegy

our business model is focused on diversifying our earnings base in complementary

wARneR chilcott doRyx[®] 150Mg tABlet weekly PRescRiPtion voluMes

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16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
tRx (total prescriptions) nRx (new prescriptions)
6 apr 13 apr 20 apr 27 apr 4 May 11 May 18 May 25 May 1 Jun 8 Jun 15 Jun 22 Jun 29 Jun 6 Jul 13 Jul 20 Jul 27 Jul 3 aug 10 aug 17 aug 24 aug
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source: Broker Research

Mayne Pharma Annual Report 2012

products, technologies and market segments.

the business’ key strategic priorities are:

capitalise on our world-class drug delivery platform;
leverage off the Mayne pharma brand and product portfolio; and
provision of partnering services to global pharma.

WoRlD Class DRug DEliVERy platFoRM

Mayne pharma has a suite of drug delivery systems that improve the performance of drugs by either controlling their release in the body or enhancing their absorption into the blood stream.

suBaCap[®] utilises our suBa[®] technology to improve the bioavailability of itraconazole. suBaCap[®] ’s improved formulation reduces inter- and intra-patient variability and provides a more predictable clinical response enabling a reduction in active drug quantity to deliver therapeutic blood levels.

the Company has also taken the significant step in expanding the research and development program with two modifiedrelease, oral generic products under development, targeting filing in the united states. these molecules are both off patent and have limited competition due to the complexity of the formulations.

MaynE phaRMa BRanD anD pRoDuCt poRtFolio

the Company is focused on growing its portfolio of existing products. this will be achieved through improved domestic sales and marketing activity and targeted in-licensing of niche specialty products for the australian market and out-licensing of existing products into new international markets. the Company’s existing products are only marketed in 10 countries today and numerous opportunities are currently being explored to expand the marketing footprint globally of the proprietary product portfolio.

Creating scale in the domestic portfolio will enable the business to invest further in our own sales and marketing capability to drive revenue and margin growth.

paRtnERing sERViCEs to gloBal phaRMa

the Company is also focused on providing a range of contract services to pharmaceutical and biotechnology companies across oral drug delivery systems, pellet products and microencapsulation and liquids and creams.

Contract manufacturing services are offered to a number of global and domestic companies. the business successfully renegotiated more than 50% of current contract manufacturing volume for a further three years during the period and the Company has devoted additional resources to retaining and growing this client base as well as offering collaborative pharmaceutical development services.

chAnges to the MAnAgeMent teAM

there were a number of changes to the structure and composition of the management team during the year:

peter truelove joined the Company as national sales and Marketing Director in May this year. peter joined from Fresenius Kabi and has more than 25 years’ experience in sales and marketing. he was previously the Vp Commercial operations of hospira / Mayne pharma.
stefan lukas was promoted to product Development Director and is responsible for the development of the group’s R&D program. stefan has been with the Company for 24 years and spent several years working with purepac in the us during this time.

in summary, i believe that the Company has significant upside in the coming 12 months and i am excited by the growth opportunities that the Company is currently pursuing to deliver ongoing profitability and growth in shareholder value.

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scott Richards chief executive officer

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“DuRing thE FinanCial yEaR,
thE CoMpany DEliVERED
soliD gRoWth in salEs,
EaRnings anD Cash FloW.”
scott Richards / ceo
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Mayne Pharma Annual Report 2012

financial suMMaRy

MAyne PhARMA AustRAliA

Mayne pharma australia (Mpa) manufactures, distributes and markets proprietary and generic products in the australian market. sales were $9.8 million for Fy12, up $0.5 million or 5.6% on the prior comparable period (pcp). the products in the Mpa portfolio include Doryx[®] , astrix[®] , Eryc[®] , Magnoplasm[®] and Mayne pharmabranded generic products (doxycycline, aspirin and erthryomycin). the Mayne pharma-branded products represent approximately 50% of Mpa sales. a new pricing program was implemented in the last quarter of the financial year for key products, which is having a positive impact on margins.

the Company received marketing approval from the therapeutic goods administration for astrix[®] and Mayne pharma-branded aspirin tablets to be manufactured at salisbury. the new tablet press was validated during the period and the first salisbury-manufactured aspirin tablets were shipped into the market in July 2012.

Mpa is reviewing several opportunities to inlicence new products not currently available in australia, focusing on generic injectable and niche proprietary segments.

MP gloBAl

Mp global manufactures and outlicences proprietary pharmaceuticals to international marketing and distribution partners including Warner Chilcott, pfizer, abbott laboratories, glaxosmithKline and Boryung and provides contract manufacturing services. in Fy12, sales revenue was $42.1 million, up $4.4 million or 11.5% on pcp reflecting solid growth across the portfolio including proprietary pharmaceuticals (Doryx[®] , astrix[®] and Eryc[®] ) and contract manufacturing revenues.

out-liCEnsED salEs

in Fy12, out-licensed sales were $30.6 million, up $3.5 million or 13.0% on pcp. all major territories showed strong growth including the us, Korea, Canada and Europe. Excluding sales of Doryx[®] in the us, sales were up 17.8% to $10.2 million. Expanded marketing efforts by Boryung (Korea) for astrix[®] low-dose aspirin capsules drove sales up $0.5 million or 17.9%. in Europe, teva pharmaceutical industries and Meda aB, the marketing and

distribution partners for Eryc[[®]] drove sales chAnnel sAles up $0.5 million or 94.3% to $1.1 million. sales of Doryx[®] to Warner Chilcott (us) were up 10.7% on pcp to $20.5 million. this was a strong result notwithstanding a 6% increase 22% in the average auD/usD rate settled in Fy12 versus pcp and a reduction in manufacturing volumes following the launch of a generic 19% 59% Doryx[®] 150mg tablet late in the period. in september 2011, a dual-scored formulation of Doryx[[®]] 150mg tablet was approved by the FDa and launched 5 by Warner Chilcott. in May 2012, Mylan launched a single-scored generic version[out-liCEnCED ] of the Doryx[[®]] 150mg tablet following a[DiRECt / Mpa] us District Court decision that its generic version did not infringe the Doryx[[®]] ‘161[ContRaCt ManuFaCtuRing]

distribution partners for Eryc[[®]] drove sales up $0.5 million or 94.3% to $1.1 million.

in september 2011, a dual-scored formulation of Doryx[[®]] 150mg tablet was approved by the FDa and launched by Warner Chilcott. in May 2012, Mylan launched a single-scored generic version of the Doryx[[®]] 150mg tablet following a us District Court decision that its generic version did not infringe the Doryx[[®]] ‘161 patent.

change pcp ContRaCt ManuFaCtuRing out-liCEnCED +13.0% sERViCEs out-liCEnCED +17.8% (ExCl. DoRyx[®] ) sales revenue from contract services was $11.4 million up $0.9 million or 9.0% on pcp. DiRECt (Mpa) +5.6% this was driven by growth in new product ContRaCt +9.0% lines introduced by customers. a major ManuFaCtuRing contract was renegotiated for a further three years during the second half. the Company continues to pursue new contract RegionAl sAles manufacturing opportunities to increase utilisation of plant capacity and improve manufacturing overhead recoveries. ReseARch And develoPMent Research and development income 46% decreased by $2.4 million in the period to 39% $0.3 million as the prior period included development activity on new formulations of Doryx[[®]] . going forward, the internal R&D resources will be focussed on the 4 development of new pipeline products for the group.[austRalia] gRoss MARgin[usa][KoREa] Manufacturing gross margin (ie, gross margin excluding the impact of “other[othER]

Research and development income decreased by $2.4 million in the period to $0.3 million as the prior period included development activity on new formulations of Doryx[[®]] . going forward, the internal R&D resources will be focussed on the development of new pipeline products for the group.

Manufacturing gross margin (ie, gross margin excluding the impact of “other revenue”) as a percentage of sales revenue improved slightly year on year: Fy12: 43.5%, Fy11: 42.9%.

change pcp austRalia +6.9% usa +10.7% KoREa +17.9% othER +28.5%

exPenses

Research and development expenses decreased by $2.0 million during the period to $4.0 million as a result of reduced clinical and development work on Doryx[®] and suBaCap[®] .

Mayne Pharma Annual Report 2012

the decrease in other expenses of $0.8 million reflects reduced net foreign exchange losses in the current period.

the majority of the restructure and redundancy costs in the current period reflect the termination payment made to the former CEo. the costs in the prior period were incurred when a restructuring program was undertaken at the salisbury production site to improve efficiencies and increase capacity utilisation.

the reduction in finance costs in Fy12 of $0.3 million is due to the interest expense being lower as the usD loan was repaid.

amortisation of the intangible assets that were recognised on the acquisition of Mayne pharma international pty ltd (Mpi) amounted to $3.8 million for the period compared to $6.1 million in the previous period. the intangible assets are amortised on a diminishing value basis that delivers higher amortisation charges in the earlier years of the assets’ useful lives.

the share-based payments expense of $0.3 million represents the cost of options issued to the CEo and CFo during the year and the shares issued to employees under the Company’s tax-exempt share plan.

a charge has been recognised for the impairment of the customer relationships intangible asset in relation to the Company’s relationship with Warner Chilcott. the charge of $0.2 million reflects an adjustment to the Company’s long-term forecasts for Doryx[®] following the launch of the generic to Doryx[®] .

eARn-out liABility

the carrying value of the earn-out liability has decreased by $5.7 million to $9.3 million as a result of:

an increase of $1.0 million recognised as a notional non-cash interest charge;
a decrease of $3.9 million due to a change in the fair value of the earn-out liability over the year following the reassessment of the underlying assumptions used in the calculation; and
a payment of $2.9 million in February 2012 representing the instalment for the 2011 calendar year.

tAx

the consolidated tax group has unutilised tax losses of $0.2 million as at 30 June 2012

finAnciAl suMMARy

	notes	30-Jun-12	30-Jun-11	cHange	on pcp
sales andproft		$m	$m	$m	%
sales revenue		51.9	47.0	4.9	10.4
gross margin other income		22.6 0.6	20.1 3.1	2.5 (2.5)	12.4 (80.6)
EBitDa - underlying		11.5	9.2	2.3	25.0
adjustments	1	2.8	(1.3)	4.1	nm
EBitDa Depreciation / amortisation		14.3 (5.6)	7.9 (7.9)	6.4 2.3	81.0 (29.1)
pBit net interest	2	8.7 (0.9)	- (1.5)	8.7 0.6	nm (40.0)
income tax (expense) / beneft npat		(1.6) 6.1	3.2 1.7	(4.8) 4.5	150.0 264.7
balance sheet extract
Cash		11.6	5.8	5.8	100.0
inventory & receivables		11.1	12.1		(8.3)
pp&E		22.2	21.5	0.7	3.2
intangibles total assets		4.2 53.9	8.2 53.7	(4.0) 0.2	(48.8) 0.4
interest-bearing debt		-	2.3	(2.3)	(100.0)
other fnancial liabilities		9.3	15.1	(5.8)	(38.4)
total liabilities Equity		23.3 30.6	29.5 24.2	(6.2) 6.4	(21.0) 26.4
ratios EBitDa margin - underlying (%)	1	22.2	19.6	+259bps
Eps (cents)		4.1	1.1	272.7%
Debt / equity (%)		-	8.8

notes to financial summary table: 1. adjustments in Fy12 include $3.9 million decrease to reported profit due to a change in the fair value of the earn-out liability following the reassessment of the underlying assumptions used in the calculation, one off restructure and redundancy costs of $0.9 million which include the payment to the former CEo and a $0.2 million impairment to intangible assets. 2. includes notional non-cash interest expense, representing the charge for the unwind of the discount on the earn-out.

a $2.9 million earn-out payment to hospira;

that are recognised as a Deferred tax asset. losses of approximately $3.1 million have been offset against the taxable income of the group during the period.

$2.3 million in loan repayments to retire the us$10 million loan facility in full; and
$2.5 million in capital expenditure for the new itraconazole spray dryer (for the production of suBaCap[®] ), and other tablet manufacturing equipment including an aspirin tablet press required for the transfer of the manufacturing of the aspirin tablets in-house.

cAsh flow

net operating cash generated during the period was $13.4 million, up 227.6%. Cash on hand at 30 June 2012 was $11.6 million, representing an increase of $5.8 million from 30 June 2011. notable cash flows during the period included:

Mayne Pharma Annual Report 2012

REsEaRCh & Development

ongoing investment in R&D of approximately 12% of sales in Fy13 will support the commercialisation of the product pipeline.

Mayne pharma has a 30-year track record of innovation and success in developing new oral drug delivery systems for both generic and proprietary applications including:

doryx[®] – delayed-release oral formulation of doxycycline used to treat acne, certain bacterial infections or as an anti-malarial.
Astrix[®] – delayed-release low-dose aspirin used to treat cardiovascular disease.
eryc[®] – delayed-release erythromycin used in the treatment of bacterial infections.
kadian[®] /kapanol[®] – sustained-release oral morphine used in the management of chronic pain.
diltiazem hydrochloride – pulse-released generic equivalent to Cardizem ER used to treat hypertension.

During the year, the Company completed a review of the research and development program. the review included the examination of the top 400 selling us molecules (by sales) to identify candidates for pipeline products. the review identified a total product candidate pool with us$11 billion in annual sales[1] . the tier 1 candidate pipeline is outlined in the table at right of which two projects were selected for development in addition to suBaCap[®] .

the projects selected were based on the criteria of:

cuRRent tieR 1 PRoduct cAndidAte Pool

	product	indication	size of market1 us$m	key patent expiry
unDER DEVElopMEnt	subacap®	Fungal infection	500	Mayne patent 2020
	er capsule	pain	270	Expired
	er tablet	hypertension	1,100	Expired
iDEntiFiED pRoJECts (us anDas)	film coated tablet	antidepressant/ antischizophrenia	1,000	2017
	er capsule	gastric refux	640	Expired
	capsule	alzheimer’s	600	2015
	capsule	stroke reduction	450	2017
	capsule	Crohns / iBs	390	2015
	er tablet	overactive bladder	250	2016
	er capsule	hypertension	250	Expired
	er capsule	aDhD	140	2020
	er capsule	psychostimulant /aDhD	110	Expired
	er capsule	hypertension	60	Expired
		total	5,760

the first program is an extended-release capsule used in the treatment of pain and is targeted for filing in 2013 following a pivotal biostudy. this program will require collaboration with a third-party drug delivery company. the second program

is an extended-release anti-hypertensive “pellet-in-a-tablet” formulation with a filing date expected in 2014. the combined target market opportunity for these two projects is us$1.4 billion[1] .

time to market;
ability to leverage Mayne pharma’s technical skill set;
minimal clinical, legal and regulatory risk and cost;
us target market; and
the existence of an attractive present and future market.

the two projects selected for development are both aB-rated generics of complex modified-release oral drugs with expired patents. the Company will seek filing for the products in the us via an abbreviated new Drug application (anDa).

iMs health (ex-wholesaler) us sales Mat Dec 2011, except suBaCap[®] which is the global (ex-wholesaler) sales Mat Dec 2011 of itraconazole.

Mayne Pharma Annual Report 2012

subacap[®]

suBaCap[®] is an improved formulation of itraconazole, a product used to treat fungal infections. suBaCap[®] has double the bioavailability and significantly reduced variability compared to the originator.

the key benefits of suBaCap[®] over the originator formulation are outlined below:

ConVEntional	subacap®
itRaConazolE	aDvantage	patiEnt BEnEFit
100mg capsules	50mg capsules	Eliminates risk of “super absorbers” reaching potentially unsafe blood levels
Must be taken on a	absorbed in fed	Can be taken regardless of food
full stomach	and fasted state	Ease of dosing, and improved compliance
large within-patient	reduced within-	improves medication reliability and
variability (greater	patient variability	increases doctor and patient confdence in a
than 50%)	(less than 30%)	successful outcome
Requires an acid	absorption not	Can be taken by achlorhydric patients and
gastric environment	affected by gastric	those taking medications that increase
for optimal absorption	pH	gastric ph including proton pump inhibitors
large capsule size 0	small capsule size 1	Easier to swallow

whAt PhysiciAns ARe sAying ABout suBAcAP[®]

“My patients hate taking the oral suspension, so i am thrilled that there is a pill that has better absorption”

– infectious disease specialist

“it seems like a good product. less dosing is better. i would use it in all indications where i currently use itraconazole”

– Family physician

“smaller size, no food interactions … sounds good, given the option patients prefer taking a lower dose”

– gp

as a result of these benefits the uK MhRa has proposed a clearly differentiated label to conventional itraconazole. the MhRa’s written conclusion stated:

“the suBaCap[®] formulation under consideration has demonstrated advantages over the reference, such as lower inter- and intra-individual variability, less pronounced food effect and therefore more predictability of dosing.”

these labelled benefits should support suBaCap[®] taking a significant share of the itraconazole market following launch.

Company-sponsored market research demonstrates significant interest in prescribing suBaCap[®] .

“Compliance may be improved with a smaller capsule. i recently looked at capsules and they are pretty big. one of my patients could not swallow it.”

– gp

Mayne Pharma Annual Report 2012

suBAcAP[®]

suBAcAP[®] MARket PotentiAl

itraconazole is one of the broadest spectrum anti-fungal drugs on the market and can be used to treat both:

superficial infections of the skin and nail (ie. onychomycosis)
systemic infections of the major organs (ie. histoplasmosis, aspergillosis, blastomycosis and candidiasis).

APPRoved fungAl indicAtions in the us

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----- Start of picture text -----

Histoplasmosis aspergillosis onychomycosis candidiasis cryptococcosis
itraconazole     
Fluconazole     
posaconazole     
Voriconazole     
terbinafine     
----- End of picture text -----

use of itraconazole in all indications has been restricted due to the poor absorption of the originator formulation.

suBaCap[®] ’s improved formulation is expected to grow the

itraconazole market and take share from other anti-fungal drugs.

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----- Start of picture text -----

itRAconAzole sAles us itRAconAzole sAles ($)
By countRy
27% 28%
36%
64%
17%
13%
total market = us$530 million
[Japan ] [China ] [supERFiCial]
[EuRopE] [KoREa] [6][systEMiC]
[usa] [othER]
[2] source: iMs health 2011
7%
8%
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Mayne Pharma Annual Report 2012

==> picture [201 x 842] intentionally omitted <==

----- Start of picture text -----

thE CoMpany is CuRREntly
REFining thE pRoposED
us REgulatoRy pathWay.
a MEEting With thE FDa
has BEEn sChEDulED FoR
noVEMBER 2012.
----- End of picture text -----

suBAcAP[®] PAthwAy to MARket

EuRopE

in December 2010 the suBaCap[®] marketing application was filed in Europe under article 10(3) of Directive 2001/83/EC. in this Decentralised procedure, the uK is the reference member state and germany, sweden and spain are concerned member states.

the basis for the reversal in June 2012 of the uK MhRa’s December 2011 decision on suBaCap[®] , was due to the analysis of individual subject data generated in pharmacokinetic studies, which demonstrated that:

Both suBaCap[®] and conventional itraconazole deliver therapeutic doses of itraconazole.
suBaCap[®] delivers therapeutic levels of itraconazole in both the fed and the fasted state.
suBaCap[®] is less prone to delivering excessive quantities of itraconazole than the reference.
the risk/benefit profile of suBaCap[®] is at least equal to the conventional itraconazole.

European approval is expected in Fy13 in the uK, germany, spain and sweden. approval in other key European territories such as italy, Belgium, the netherlands, greece and portugal will be sought through the ‘repeat use procedure’ and is expected six months after the first round of approvals. the total European market size is approximately us$85 million (iMs health 2011).

unitED statEs

suBaCap[® ] has an allowed investigational new Drug (inD) applications from the Division of Dermatology and Dental products and the Division of anti-infective products at the FDa.

the Company is currently refining the proposed us regulatory pathway. a meeting with the FDa has been scheduled for november 2012 to discuss the argument presented to the MhRa which may avoid the need for a phase iii clinical trial.

REst oF thE WoRlD

a meeting was held with the therapeutic goods administration in January 2012. pre-submission interactions with the tga will be initiated with the intention of filing a marketing application during the 2h of Fy13.

once European approval is granted, the dossier will be used to support the regulatory process in select asian and south american countries with Korea and Japan priority markets.

Mayne Pharma Annual Report 2012

management tEaM

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----- Start of picture text -----

scott RichARds
CEo anD Managing DiRECtoR
Mr Richards has more than 24 years’
experience in the pharmaceutical
industry and has worked in Europe,
the us and asia. prior to joining Mayne
pharma, he was president, European
operations intas pharmaceutical
limited. Mr Richards was also Executive
Vice president at actavis group
responsible for the hospital Business
operations worldwide and spent eighteen
years with Mayne pharma limited and
F h Faulding & Co limited in various
roles including president, EMEa (Europe,
Middle East and africa) and president,
global Commercial operations where he
was responsible for us$600m in sales
and over 600 employees. Mr Richard’s
experience spans sales and marketing,
regulatory / medical affairs, supply
chain, business development / M&a,
finance / it, intellectual property and
manufacturing.
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----- Start of picture text -----

MARk cAnsdAle
CFo & CoMpany sECREtaRy
Mr Cansdale is a Chartered accountant
with more than 20 years’ experience in
the accounting and finance profession.
Mr Cansdale was formerly the CFo
and Company secretary at McMillan
shakespeare limited and prior to that,
Vision systems limited. Mr Cansdale
has extensive experience in the areas
of business development, mergers and
acquisitions, corporate strategy, tax,
financial planning and analysis, risk
management, treasury and investor
relations. prior to joining Vision systems
in 2002, Mark held senior finance
positions in the insurance and financial
services industry at norwich union
australia and spent over five years at
KpMg.
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----- Start of picture text -----

vince cARetti
opERations DiRECtoR
Mr Caretti has 25 years’ experience in
the biotechnology and pharmaceutical
industries and has worked with
companies such as Enterovax, Faulding/
Mayne pharma and purepac (us).
Mr Caretti commenced working for
Faulding/Mayne pharma in 1989 and
has held various roles in product
development, technical services,
manufacturing, engineering and
operations administration.
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----- Start of picture text -----

Andy dunBAR
BusinEss DEVElopMEnt DiRECtoR
Dr Dunbar has spent more than 11 years
in the biopharmaceutical industry. his
background encompasses negotiating
mergers and acquisitions, ip license
agreements and R&D partnerships.
prior to joining Mayne pharma, he held
senior business development positions at
novozymes a/s and gropep ltd.
Dr Dunbar has a phD in Biochemistry/
Molecular Biology.
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Mayne Pharma Annual Report 2012

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----- Start of picture text -----

stefAn lukAs
pRoDuCt DEVElopMEnt DiRECtoR
Mr lukas has spent more than 25 years
at Faulding/Mayne pharma, developing
innovative oral pharmaceutical products
for the international market. Mr
lukas has worked across formulation
discovery, development and project
management. he has a Masters in
applied science and is a named inventor
on several patents directed to modified-
delivery drugs.
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----- Start of picture text -----

stuARt Mudge
REgulatoRy anD
CliniCal aFFaiRs DiRECtoR
Dr Mudge has more than 11 years’
experience in regulatory affairs across
European, us and australasian markets.
his background includes product
development planning, global regulatory
submission strategy, direct interactions
with the major international regulatory
authorities, dossier preparation and
submission and post-approval lifecycle
management. previously he was the
general Manager and senior Director at
Voisin Consulting australia pty ltd.
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----- Start of picture text -----

chRistelle siMPson
huMan REsouRCEs DiRECtoR
Ms simpson has over 14 years’
experience in various human resources
and recruiting roles. Currently
overseeing the human resources and
training functions, she joined Mayne
pharma in 2006 and has helped
transition the business through both the
hospira and halcygen acquisitions. prior
to joining Mayne pharma, Ms simpson
spent over five years in human resources
at skyCity adelaide (adelaide Casino).
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----- Start of picture text -----

PhilliP tindAll
quality DiRECtoR
Mr tindall has a Degree in Bachelor
of applied science in Chemistry
and Microbiology and has 18 years’
experience with Faulding/Mayne
pharma. he has held various roles in
the quality control, product development
and quality assurance departments and
has been in his current role for three
years. Mr tindall also held the position
of quality Manager for a company in the
food industry for a period of six years.
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----- Start of picture text -----

PeteR tRuelove
national salEs anD MaRKEting
DiRECtoR
Mr truelove has more than 25 years of
experience and has spent the last 15
years in the pharmaceutical industry
in sales leadership roles. Mr truelove
was formerly the sales and marketing
director for Fresenius Kabi (australia
and new zealand), a leading global
provider of injectable drugs and infusion
solutions. he also spent 11 years with
hospira pty ltd (previously Mayne
pharma ltd and F h Faulding & Co)
culminating in the position of Vice
president, Commerical operations anz.
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----- Start of picture text -----

BRenton wAlteR
FinanCial ContRollER
Mr Walter has over 19 years’ experience
at Faulding/Mayne. he has worked in a
number of diverse financial positions in
pharma manufacturing and pharmacy
distribution. Mr Walter has wide-
ranging finance experience from a
number of other industries including
paper packaging, manufacturing and
distribution and poultry growing,
processing and distribution.
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Mayne Pharma Annual Report 2012

finAnciAl RePoRt

finAnciAl RePoRt
Directors’ Report	19
Remuneration Report	23
auditor’s independence Declaration	28
Corporate governance statement	29
Consolidated statement of
Comprehensive income	35
Consolidated statement of
Financial position	36
Consolidated statement of Cash Flows	37
Consolidated statement of
Changes in Equity	38
notes to the Consolidated
Financial statements	39
Directors’ Declaration	72
independent auditor’s Report	73
asx additional information	75

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----- Start of picture text -----

MaynE phaRMa has a suitE oF worlD-class
Drug Delivery systems that iMpRoVE thE
pERFoRManCE oF DRugs By EithER ContRolling
thEiR RElEasE in thE BoDy oR EnhanCing thEiR
aBsoRption into thE BlooD stREaM.
----- End of picture text -----

DIRECTORS’ REPORT

The Directors of Mayne Pharma Group Limited (‘Company’) present their report together with the financial report of the Company and its controlled entities (collectively the ‘Group’ or ‘Consolidated Entity’) for the year ended 30 June 2012 and the Auditor’s Report thereon. The information set out below is to be read in conjunction with the Remuneration Report set out on pages 23 to 27 which forms part of this Directors’ Report.

DIRECTORS

The Directors of the Company during the financial year and up to the date of this report are:

Mr Roger Corbett AO (Chairman)

Mr Scott Richards (Chief Executive Officer) - appointed 13 February 2012

Hon Ron Best

Mr Bruce Mathieson Mr Ian Scholes

Dr Roger Aston (former Chief Executive Officer) - resigned 15 February 2012

Particulars of the Directors’ qualifications, other listed company directorships, experience and special responsibilities are detailed on pages 20 and 21 of the Annual Report. Particulars of the qualifications and experience of the Company Secretary are detailed on page 21 of the Annual Report.

DIRECTORS’ MEETINGS

The number of Directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the 2012 financial year are:

	BOARD	BOARD	AUDIT COMMITTEE	AUDIT COMMITTEE	NOMINATION	NOMINATION	REMUNERATION	REMUNERATION
					COMMITTEE		COMMITTEE
	HELD1	ATTENDED2	HELD1	ATTENDED2	HELD1	ATTENDED2	HELD1	ATTENDED2
Mr R Corbett	16	16	-	-	3	3	2	2
Mr S Richards	7	7	-	-	-	-	-	-
Hon R Best	16	15	4	3	3	3	-	-
Mr B Mathieson	16	13	4	2	3	3	2	2
Mr I Scholes	16	15	4	4	-	-	2	2
Dr R Aston	9	7	-	-	3	-	-	-

This column shows the number of meetings held during the period the Director was a member of the Board or Committee.
This column shows the number of meetings attended.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

In the opinion of the Directors, there were no changes that significantly affected the state of affairs of the Company during the financial year.

PRINCIPAL ACTIVITIES

The Company is a specialist pharmaceutical company that develops and manufactures proprietary and generic products which it distributes directly or through distribution partners and also provides contract manufacturing services.

In the opinion of the Directors, there were no significant changes in the nature of the activities of the Group during the course of the year ended 30 June 2012 that are not otherwise disclosed in this Annual Report.

Disclosure of information relating to developments in the business strategies and prospects for the Consolidated Entity for future financial years, which would not, in the opinion of the Directors, be unreasonably prejudicial to the Consolidated Entity, is contained in the Business Overview.

REVIEW AND RESULTS OF OPERATIONS

A review of the operations of the Consolidated Entity during the 2012 financial year and of the results of those operations and financial position of the Consolidated Entity is contained in the Business Overview and elsewhere in the Annual Report. These sections of the Annual Report are incorporated by reference into and form part of this Directors’ Report.

DIVIDENDS

The Directors have not declared an interim or final dividend for the 2012 financial year.

EVENTS SUBSEQUENT TO REPORTING DATE

In July, the Company together with Warner Chilcott received notification of four anti-trust lawsuits from Mylan, Rochester Drug Cooperative, Meijer Inc. and American Sales Company LLC, alleging that Warner Chilcott and Mayne Pharma have engaged in conduct that constrains generic competition for Doryx®. At the date of this report, no certainty exists as to the outcome of these actions, however Mayne Pharma does not foresee incurring any material financial liabilities in relation to these actions based on pre-existing contractual rights with Warner Chilcott and current legal advice received by the Company. In September 2012, the US Court of Appeals for the Federal Circuit dismissed Warner Chilcott and Mayne Pharma’s appeal against the non-infringement determinations on the Doryx® ‘161 Patent.

LIKELY DEVELOPMENTS

Likely developments in the operations of the Consolidated Entity and the expected results of those operations are covered generally in the Business Overview. The Business Overview is incorporated by reference into, and forms part of this Directors’ Report.

Further information as to likely developments in the operations of the Consolidated Entity and the expected results of those operations in subsequent financial periods has not been included in this report because disclosure would be likely to result in unreasonable prejudice to the Consolidated Entity.

DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES

MR ROGER CORBETT AO, BCom, FAIM, FRMIA

Chairman Appointed 17 November 2010

Mr Corbett joined the Board of Mayne Pharma Group Limited in November 2010 and was appointed Chairman in January 2011. Mr Corbett has been involved in the retail industry for more than 40 years. In 1984, Mr Corbett joined the board of David Jones Australia as a Director of Operations and in 1990 was appointed to the board of Woolworths Limited and to the position of Managing Director of BigW. In 1999, Mr Corbett was appointed Chief Executive Officer of Woolworths Limited, from which he retired in 2006. Mr Corbett is currently the Chairman of Fairfax Media Limited, one of Australia’s largest diversified media companies, a director of the Reserve Bank of Australia, a director of Wal-Mart Stores and Chairman of PrimeAg Australia Limited.

In addition to being Chairman, Mr Corbett was appointed to the Remuneration Committee as Chairman effective 21 July 2011 and is a member of the Nomination Committee.

MR SCOTT RICHARDS

Executive Director and Chief Executive Officer Appointed 13 February 2012

Mr Richards has more than 24 years’ experience in the pharmaceutical industry and has worked in Europe, the US and Asia. Prior to joining Mayne Pharma, he was President, European Operations Intas Pharmaceutical Limited. Mr Richards was also Executive Vice President at Actavis Group responsible for the Hospital Business Operations worldwide and spent 18 years with Mayne Pharma Limited and F H Faulding & Co Limited in various roles including President, EMEA (Europe, Middle East and Africa) and President, Global Commercial Operations where he was responsible for US$600m in sales and over 600 employees. Mr Richards’ experience spans sales and marketing, regulatory / medical affairs, supply chain, business development / M&A, finance / IT, intellectual property and manufacturing.

HON RON BEST

Non-Executive Director Appointed 26 July 2006

The Hon Ron Best is a highly respected former member of the Victorian Parliament (1988 to 2002), having held a number of senior positions in the National Party of Australia (Victoria) including Parliamentary Secretary, Shadow Minister for Housing and Spokesman for Health, Housing, Racing, Sport and Recreation. Mr Best has also been a member of various Parliamentary Committees including the Public Accounts and Estimates Committee, the Environmental and Natural Resources Committee and a Board Member of the Victorian Health Promotion Foundation. Prior to his political career, Mr Best was the owner of a successful food distribution business and General Manager of the Glacier Food Group. Mr Best is a consultant to PFD Food Services Pty Ltd, one of Australia’s largest privately-owned food service companies.

Mr Best is Chairman of the Nomination Committee and a member of the Audit Committee.

MR BRUCE MATHIESON

Non-Executive Director Appointed 16 February 2007

Mr Mathieson is currently a Director and Chief Executive Officer of Australian Leisure and Hospitality Group Pty Limited, a joint venture between Woolworths Limited and the Mathieson Family. The ALH Group owns approximately 280 hotels and 450 retail outlets across Australia, and employs more than 13,000 staff. Mr Mathieson has operated in the hotel, leisure and hospitality industry since 1974 and is a well-respected member of the Australian business community. He has previously served as a Director of the Carlton Football Club. He is trained as an engineer, and brings management and transactional experience from across a number of industries to the Board.

20 Mayne Pharma Annual Report 2012

Mr Mathieson was Chairman of the Remuneration Committee until 21 July 2011 following the appointment of Mr Corbett to that role, but Mr Mathieson remained a member of the Remuneration Committee and is also a member of the Audit and Nomination Committees.

MR IAN SCHOLES BCom, CA

Non-Executive Director Appointed 17 October 2007

Mr Scholes has extensive financial and corporate advisory experience, both in Australia and internationally. Mr Scholes has held senior roles within Merrill Lynch Australia, most recently as Vice Chairman of Investment Banking. Previously Mr Scholes held the position of Executive General Manager at National Australia Bank Limited, running the corporate and institutional banking division. Mr Scholes is currently a Partner and Chief Executive Officer of Chord Capital Pty Ltd, a Director of SDI Limited and has previously held positions on the Board of St Vincent’s Health and as Chairman of the St Vincent’s Foundation.

Mr Scholes is Chairman of the Audit Committee and a member of the Remuneration Committee.

COMPANY SECRETARY

Mr Mark Cansdale, BEc, CA was appointed as Chief Financial Officer and Company Secretary of the Company on 27 January 2011. Mr Cansdale is a Chartered Accountant and Company Secretary with more than 20 years’ experience in the accounting and finance profession. Mr Cansdale has extensive experience in the areas of business development, mergers and acquisitions, corporate strategy, tax, financial planning and analysis, risk management, treasury and investor relations.

DIRECTORS’ INTERESTS IN SHARE CAPITAL AND OPTIONS

The relevant interest of each Director in the share capital and options of the Company as at the date of this report is as follows:

	FULLY PAID ORDINARY	NUMBER OF OPTIONS
	SHARES	OVER ORDINARY SHARES
Mr R Corbett	1,676,319	-
Mr S Richards	-	7,500,000
Hon R Best	957,244	350,000
Mr B Mathieson	13,411,622	350,000
Mr I Scholes	311,622	600,000

UNISSUED SHARES UNDER OPTION

As at the date of this Directors’ Report there were 12,200,000 unissued ordinary shares under option (12,200,000 at the reporting date). Details of these options are as follows:

DATE OPTIONS GRANTED	EXPIRY DATE	EXERCISE PRICE	NUMBER UNDER OPTION
30 November 2007	30 November 2012	$0.60	250,000
29 October 2009	31 December 2012	$0.27	2,950,000
25 July 2011	27 January 2016	$0.35	1,500,000
13 February 2012	13 February 2019	$0.345	7,500,000

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

SHARE OPTIONS GRANTED

1,500,000 options over ordinary shares were granted to Mr Mark Cansdale on 25 July 2011.

7,500,000 options over ordinary shares were granted to Mr Scott Richards on 13 February 2012.

Further details of options granted are contained in Note 26 of the financial statements.

SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS

During the financial year no options were exercised to acquire fully-paid ordinary shares in Mayne Pharma Group Limited.

NON-AUDIT SERVICES

The Company’s auditor, Ernst & Young Australia, provided the following non-audit services. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

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

	2012 $ 2011 $
Taxation services Accounting advice Total	61,460 125,910 42,500 28,750
	103,960 154,660

INDEMNIFICATION AND INSURANCE OF OFFICERS

During the financial year, the Company maintained an insurance policy which indemnifies the Directors and Officers of Mayne Pharma Group Limited in respect of any liability incurred in connection with the performance of their duties as Directors or Officers of the Company, other than for matters involving a wilful breach of duty or a contravention of sections 182 or 183 of the Corporations Act 2001 as permitted by section 199B of the Corporations Act 2001. The Company’s insurers have prohibited disclosure of the amount of the premium payable and the level of indemnification under the insurance contract.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Company’s operations are subject to various environmental laws and regulations. These environmental laws and regulations control the use of land, the erection of buildings and structures on land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste, and the investigation and remediation of soil and groundwater contamination.

The Company has procedures in place designed to ensure compliance with all environmental regulatory requirements. In particular, it has developed an environmental management system to enable identification and assessment of environmental hazards which arise from its activities. This management system provides processes for effectively managing environmental risks by applying sound practices for the prevention of pollution and disposal and minimisation of waste.

The Company reports to the National Pollutant Inventory every year its land, air and water emissions together with gas and electricity usage. The Company has recycling initiatives in place for paper/cardboard, soft plastics, metals, wood, metal, plastic drums, oil and polystyrene.

The Directors are not aware of any material breaches of environmental regulations by the Group.

ROUNDING

The amounts contained in this report and in the financial report have been rounded to the nearest thousand dollars (where rounding is applicable and where noted ($’000)) under the option available to the Company under ASIC CO 98/0100. The Company is an entity to which the Class Order applies.

AUDITOR’S INDEPENDENCE DECLARATION

The Auditor’s independence declaration has been received from the Auditor and is included on page 28 of this report.

22 Mayne Pharma Annual Report 2012

REMUNERATION REPORT (AUDITED)

This report outlines the remuneration arrangements in place for the key management personnel (“KMP”) and includes all Directors and Executives of Mayne Pharma Group Limited. Executives are those directly accountable for the operational management and strategic direction of the Company.

KEY MANAGEMENT PERSONNEL DETAILS

The Directors of Mayne Pharma Group Limited during the financial year were:

Mr Roger Corbett AO – Chairman
Mr Scott Richards – Executive Director and Chief Executive Officer (appointed 13 February 2012)
Hon Ron Best – Non-Executive Director
Mr Bruce Mathieson – Non-Executive Director
Mr Ian Scholes – Non-Executive Director
Dr Roger Aston – Executive Director and Chief Executive Officer (resigned 15 February 2012)

Other key management personnel consisted of:

Mr Mark Cansdale – Chief Financial Officer and Company Secretary
Mr Vince Caretti – General Manager, Operations
Mr Peter Truelove – National Sales & Marketing Director (appointed 21 May 2012)
Dr Angelo Morella – General Manager, Research and Innovation (ceased employment 6 March 2012)

REMUNERATION POLICY

The Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, other members of the KMP and the balance of the senior management team. The Board will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Such officers are paid their base emolument in cash only. The Company’s remuneration strategy has been developed over time with specialist advice from external remuneration consultants (Egan Associates Pty Ltd) where appropriate. Egan Associates Pty Ltd provided advice free from undue influence by members of the KMP to whom the recommendations may relate.

To assist in achieving this objective, the Board will link the nature and amount of Executive Directors’ and Officers’ emoluments to the Company’s financial and operational performance. Given the nature of the industry in which the Company operates and the position it is in regarding the on-going development of new products, the review of performance can give regards to elements such as the scientific progress and commercialisation of the Company’s projects, results of trials, progress with the development of relationships with sales and marketing partners, research institutions, and other collaborations.

Remuneration paid to the Company’s Directors and executives is also determined with reference to the market level of remuneration for other listed development, pharmaceutical and manufacturing companies in Australia. This assessment is undertaken with reference to published information provided by various executive search firms operating in the sector.

Remuneration Report approval at the FY11 Annual General Meeting

The FY11 remuneration report received positive shareholder support at the FY11 AGM with a vote of 93% in favour.

Fixed remuneration

Executive directors and executive officers

Fixed remuneration consists of a base remuneration package, which may include salary, consulting fees and employer contributions to superannuation funds.

Fixed remuneration levels for executive directors and executive officers are reviewed annually by the Board through a process that considers the employees’ personal development, achievement of key performance objectives for the year, industry benchmarks wherever possible and CPI data.

Key performance indicators (KPIs) are individually tailored for the Chief Executive Officer by the Board and the other executive members of the key management personnel by the Chief Executive Officer, and reflect an assessment of how that employee can fulfil their particular responsibilities in a way that best contributes to Group performance and shareholder wealth in that year.

Non-executive directors

Total remuneration for non-executive directors is determined by resolution of shareholders. The maximum available aggregate cash remuneration approved for non-executive directors at the 2010 Annual General Meeting is $500,000. Non-executive directors do not receive retirement benefits other than a superannuation guarantee contribution required by government regulation, which is currently 9% of their fees, except where a non-executive director elects to have their directors’ fees paid as contributions to a superannuation fund.

Non-executive directors may provide specific consulting advice to the Group upon direction from the Board. Remuneration for this work is made at market rates. No such consulting advice was provided to the Company during the year.

Performance-linked remuneration

Key management personnel may receive short-term incentives in the form of bonuses and/or share options based on achievement of specific goals related to performance against individual KPIs and to the performance of the Group as a whole as determined by the Directors based on a range of factors. These factors can include traditional financial considerations such as financial operating performance, deals concluded, increases in the market capitalisation of the Company and successful capital raisings and also industryspecific factors relating to the advancement of the Company’s research and development activities and intellectual property portfolio, operational performance, collaborations and relationships with scientific institutions, third parties and internal employees. These measures were chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long-term value. Refer to the Employment Contracts section of this report for further information.

Options over ordinary shares may be awarded to the Chief Executive Officer under the Chief Executive Officer share option plan (CEO SOP) subject to various vesting conditions and under the Employee Share Option Plan to other executives with various vesting conditions such as the individuals’ performance against milestones, the level of involvement in achieving corporate milestones and goals, including, but not limited to, growth in earnings per share. The CEO SOP was structured with advice from Egan Associates Pty Ltd.

Non-executive directors may also participate in the Company’s Employee Share Option Plan, given the Company’s size and stage of development and the necessity to attract the highest calibre of professionals to the role, whilst maintaining the Company’s cash reserves.

Hedging of equity awards

The Company prohibits KMP from entering into arrangements to protect the value of unvested equity awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package.

ELEMENTS OF KEY MANAGEMENT PERSONNEL REMUNERATION

Remuneration packages may contain the following key elements:

Short-term benefit – salary/fees, annual leave, bonuses and other benefits such as novated lease payments;
Post-employment benefits – superannuation, and
Share-based payments – share options granted under the Employee Share Option Plan as disclosed in Note 26 to the financial statements;
Long-term benefits.

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

POST- EMPLOY ENT	POST- EMPLOY ENT
		LONG- SHARE-		TERMINA
		M TERM BASED		TION
		BENEFI PAYME		PAYMEN
SHORT-TERM BENEFITS BENEFITS		TS NTS		TS
DIRECTORS’ FEES SALARY BONUS1 OTHER BENEFITS2 SUPER- ANNUATION		OTHER3 $ OPTIONS & TESP4 $			$ TOTAL $ PROPORTION RELATED TO PERFORMANCE %
$ $ $ $ $
Non-Executive Directors
Mr R Corbett 110,000 - - - 9,900			- - -		119,900 -
Hon R Best 23,162 - - - 53,138			- - -		76,300 -
Mr B Mathieson 70,000 - - - 6,300			- - -		76,300 -
Mr I Scholes 70,000 - - - 6,300			- - -		76,300 -
Mr S Richards 5 - 150,396 - 10,133 6,047			- 69,473 -		236,049 29.4
Dr R Aston 6 - 349,281 - 14,256 29,400			- - 580,875		973,812 -
Total Directors 273,162 499,677 - 24,389 111,085			- 69,473 580,875		1,558,661

Other key management personnel
Mr M Cansdale 9	- 289,966 69,488 39,225 15,775 - 176,122 28,614 444 26,248 - 23,513 - - 1,948 - 110,053 - - 17,044		1,725 57,893 -		474,072 26.7
Mr V Caretti			6,587 1,000 -		239,015 12.0
Mr P Truelove 7			- - -		25,461 -
Dr A Morella 8			3,132 1,000 195,918		327,147 -
Total other KMP	- 599,654 98,102 39,669 61,015		11,444 59,893 195,918		1,065,695
Total	273,162 1,099,331 98,102 64,058 172,100		11,444 129,366 776,793		2,624,356

Bonuses are accrued when specified personal and/or corporate parameters are met.
Other benefits include car lease payments, and rental allowances.
Other long-term benefits represent accruals for long service leave entitlements that may arise should the relevant key management personnel meet the eligibility requirements in the future.
2,564 shares valued at $1000 issued under the Mayne Pharma Group Ltd Tax Exempt Share Plan (TESP), trading restricted until 18 October 2014, entitlement stays at cessation of employment.
Mr Richards commenced employment on 13 February 2012
Dr R Aston ceased employment 15 February 2012
Mr P Truelove commenced employment on 21 May 2012
Dr A Morella ceased employment on 6 March 2012
Mr M Cansdale bonus provision will be accounted for as 80% in cash and 20% in shares

24 Mayne Pharma Annual Report 2012

The following table discloses key management personnel remuneration during the year ended 30 June 2011:

POST- EMPLOYMENT LONG-TERM SHARE- BASED	POST- EMPLOYMENT LONG-TERM SHARE- BASED	TERMINATION PAYMENTS
SHORT-TERM BENEFITS BENEFITS BENEFITS PAYMENTS
DIRECTORS’ FEES SALARY BONUS1 OTHER BENEFITS2 SUPER- ANNUATION OTHER3 OPTIONS		$ TOTAL $ PROPORTION RELATED TO PERFORMANCE %
$ $ $ $ $ $ $
Non-Executive Directors
Mr R Corbett 59,800 - - - 5,382 - - - 65,182 -
Hon R Best - - - - 59,950 - - - 59,950 -
Mr B Mathieson 55,000 - - - 4,950 - - - 59,950 -
Mr I Scholes 55,000 - - - 4,950 - - - 59,950 -
Executive Directors
Dr R Aston - 568,800 - 21,384 49,780 21,162 - - 661,126 -
Mr C Bottomley - 18,854 - - 5,519 - - - 24,373 -
Total Directors 169,800 587,654 - 21,384 130,531 21,162 - - 930,531

Other key management personnel
Mr M Cansdale	- 127,650 40,875 6,458 10,012 - - - 184,995 24.1
Mr V Caretti	- 161,235 - - 27,591 17,242 - - 206,068 -
Dr A Morella	- 146,369 - - 19,541 12,881 - - 178,791 -
Mr A Finlay 4	- 134,466 - 32,200 18,952 - - - 185,618 -
Ms G Greentree5	- 225,000 - - 27,000 - - 92,308 344,308 -
Mr P Schembri6	- 152,003 - - 17,543 11,235 - 99,138 279,919 -
Total other KMP	- 946,723 40,875 38,658 120,639 41,358 - 191,446 1,379,699
Total	169,800 1,534,377 40,875 60,042 251,170 62,520 - 191,446 2,310,230

Bonuses are accrued when specified personal and/or corporate parameters are met.
Other benefits includes car lease payments, rental and travel allowances.
Other long-term benefits represent accruals for long service leave entitlements that may arise should the relevant key management personnel meet the eligibility requirements in the future.
Mr Finlay ceased employment with the Group effective 27 January 2011.
Ms Greentree ceased employment with the Group effective 31 March 2011.
Mr Schembri ceased employment with the Group effective 6 June 2011.

VALUE OF OPTIONS ISSUED TO KEY MANAGEMENT PERSONNEL

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

		OPTIONS	OPTIONS	OPTIONS
		GRANTED	EXERCISED OPTIONSLAPSED
	VALUE AT GRANT DATE $ INTRINSIC VALUE AT EXERCISE DATE $ NUMBER VALUE AT TIME OF LAPSE $			TOTAL VALUE
				OF OPTIONS VALUE OF OPTIONS
				GRANTED, INCLUDED IN
				EXERCISED REMUNERATION
				AND LAPSED FOR THE YEAR
				$ $
30 June 2012
Mr R Corbett	- - - - - -
Mr S Richards 3	940,000 3 - - - 940,000 69,473
Hon R Best	- - - - - -
Mr B Mathieson 1	- - 250,000 - - -
Mr I Scholes	- - - - - -
Mr M Cansdale 4	152,994 4 - - - 152,994 56,893
Mr V Caretti	- - - - - -
Dr R Aston 2	- - 625,000 - - -
Mr P Truelove	- - - - - -
Dr A Morella	- - - - - -
Total	1,092,994 - 875,000 - 1,092,994 126,366

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

	OPTIONS GRANTED	OPTIONS	OPTIONS
		EXERCISED OPTIONSLAPSED
	VALUE AT GRANT DATE $ INTRINSIC VALUE AT EXERCISE DATE $ NUMBER VALUE AT TIME OF LAPSE $		TOTAL VALUE
			OF OPTIONS VALUE OF OPTIONS
			GRANTED, INCLUDED IN
			EXERCISED REMUNERATION
			AND LAPSED FOR THE YEAR
			$ $
30 June 2011
Mr R Corbett	- - - - - -
Dr R Aston 1	- 126,000 25,000 - 126,000 -
Hon R Best	- 77,500 - - 77,500 -
Mr B Mathieson	- - - - - -
Mr I Scholes	- - - - - -
Mr C Bottomley	- 249,500 - - 249,500 -
Mr M Cansdale	- - - - - -
Mr V Caretti	- - - - - -
Dr A Morella	- - - - - -
Mr A Finlay	- 625,500 - - 625,500 -
Ms G Greentree	- - - - - -
Mr P Schembri	- - - - - -
Total	- 1,078,500 25,000 - 1,078,500 -

Options with an exercise price of $0.60 that lapsed when the share price was $0.56 and therefore the intrinsic value was nil.

There were no alterations to the terms and conditions of options awarded as remuneration since their award date.

OPTIONS GRANTED SUBSEQUENT TO BALANCE DATE

No options were granted subsequent to Balance Date.

SHARES ISSUED ON EXERCISE OF OPTIONS BY KMP

	SHARES ISSUED NUMBER PAID PER SHARE $	UNPAID PER SHARE
		$
30 June 2012 No shares issued in 2012 30 June 2011 Hon R Best Mr C Bottomley Mr C Bottomley Mr A Finlay Mr A Finlay Total	N/A N/A 250,000 0.60 750,000 0.60 400,000 0.27 1,400,000 0.27 250,000 0.60 3,050,000
		N/A


		-
		-
		-
		-
		-

EMPLOYMENT CONTRACTS

The Company has entered into standard employment agreements with all key management personnel. The agreements provide for fixed remuneration and short-term incentives (STI) based on achievement of Group and/or personal targets. The short-term incentives are generally cash-based, Mr Cansdale’s remuneration comprises a fixed component of $340,000 per annum plus STI entitlement which is split between cash and restricted shares (80%/20%). Any restricted shares issued will have dividend and voting rights attached but will be held in escrow for three years, and will be forfeited if Mr Cansdale’s employment is terminated.

The agreements provide for an indefinite period of appointment, and may be terminated by either party at three to six months’ notice.

The CEO’s Executive Service Agreement provides for fixed remuneration of $400,000 per annum, short-term incentive and a long-term incentive and was structured with advice from Egan Associates Pty Ltd. Shareholder approval was received via an Extraordinary General Meeting on 27 January 2012 for the long-term incentive. Mr Richards will be eligible for a discretionary short-term incentive of up to 20% of his total remuneration package (comprising base salary plus superannuation contributions). The payment of any STI will be determined by the Board in its sole and absolute discretion, having regard to Mr Richards’ performance against the KPIs set by the Board. The longterm incentive is in the form of options over ordinary shares. Shareholders approved the issue of 7,500,000 options to Mr Richards with an exercise price of $0.345 and will vest in tranches subject to the achievement of service conditions and share price hurdles ranging from $1.00 to $2.50. Mr Richards’ Executive Service agreement provides for a mutual 12-month notice period. Please refer to note 26 for further information relating to options for Mr Richards.

26 Mayne Pharma Annual Report 2012

Any termination payments will be made in accordance with the National E m ployment Stan d ards and any p ayment on ter m ination will be subject to the p rovisions of th e Corporations Act 2001 (Cth).

GROUP PERFORMANCE

In considering the Group’s performance and its effect on sh a reholder wealt h , the Board ha v e regard to a b road range of f actors, primaril y related to fina n cial and opera t ional performa n ce, the scienti f ic progress an d commercialisation of the Co m pany’s project s , results of trial s , relationship b u ilding with sale s and marketin g partners, res e arch institution s , collaboration s etc.

As part of the B oard’s commi t ment to align r e muneration with Company pe r formance, employee perform a nce is reviewe d annually against agree d performance o bjectives set p r ior to the com m encement of t h e financial year. The Compan y ’s performanc e review syste m involves empl o yees completi n g a self-asses s ment template, as well as thei r manager com p leting an asse s sment docum e nt. These written assessments form the basis of a perf o rmance revie w discussion between the empl o yee and their m anager. The B oard (through i t s Remuneration Committee) agrees objectives for the evaluat i on of the CEO and reviews th e objectives of t h e other senior executives. Th e performance o f the CEO against the agreed o bjectives is re v iewed by the C hairman on be h alf of the Boar d . The perform a nce of all othe r senior executi v es is reviewed by the CEO and reported to, a nd discussed b y, the Board. Performance rev i ews take plac e shortly after the end of the financial year.

It is the Board’s intention to i m plement a bro a der-based lon g -term incentiv e plan that will place a greater p ercentage of k e y managemen personnel and other senior st a ff’s remuneration at risk and m ore closely ali g n their remuneration to the e a rnings growth o f the Company

The following t able outlines M ayne Pharma G roup Limited’s results over th e last five years to 30 June 2012:

		20 12	2011	2010	2009	2008
Total revenue	($000)	52,54 6	50 ,101	36,713	-	-
NPAT ($000)		6,15 3	1 ,679	3,253	(3,761)	(3,472)
Basic EPS (ce nts)		4.0 5	1.12	2.64	(4.94)	(4.56)
Dividends per	share (cents)	-	1.0	2.0	-	-

This Directors’ Report is sign e d in accordance with a resolu t ion of the Dire c tors.

Dated at Melb o urne this 21st d ay of September 2012.

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Mr Scott Richards Managing Dir e ctor

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28 Mayne Pharma Annual Report 2012

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Mayne Pharma Group Limited is responsible for the corporate governance of the Group and is committed to applying the ASX Corporate Governance Council Corporate Governance Principles and Recommendations (“ASX Principles”) where practicable. The Board guides and monitors the business and affairs of the Group on behalf of the shareholders. It is a requirement of the Board that the Company maintains high standards of ethics and integrity at all times.

The ASX Principles are an important regulatory guide for listed companies reporting on their corporate governance practices. Under ASX Listing Rule 4.10.3, listed companies must disclose the extent to which they have followed the ASX Principles, and if any of the recommendations have not been followed then the Company must explain why not. The Board believes that the Company’s policies and practices comply in all substantial respects with the ASX Principles.

CORPORATE GOVERNANCE WEBSITE

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

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

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

ROLE AND RESPONSIBILITY OF THE BOARD

The Board’s duties

As the Board acts on behalf of and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations and strives to meet those expectations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

The role of the Board is to oversee and guide the management of the Group with the aim of protecting and enhancing the interests of its shareholders and taking into account the interests of other stakeholders including employees and the wider community.

The Board has adopted a formal Charter that clearly establishes the relationship between the Board and management and describes their functions and responsibilities. The Charter was last reviewed on 31 August 2011. The Board Charter has been posted on the corporate governance section of the Company’s website.

The Board is responsible for setting the strategic direction of the Group, establishing goals for management and monitoring the achievement of those goals. The Chief Executive Officer is responsible to the Board for the day-to-day management of the Group. The Board ensures that the Chief Executive Officer is appropriately qualified and experienced to discharge his responsibilities and has procedures in place to assess the performance of the Chief Executive Officer.

Code of Conduct

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

BOARD COMPOSITION

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

the Board should comprise at least three directors;
the Board should comprise directors with an appropriate range of qualifications and expertise; and
the Board shall meet regularly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items.

As at the date of this report, the Board comprises three non-executive independent directors, an independent non-executive Chairman and an executive director. Details of the Directors are set out in the Directors’ Report.

In making recommendations to the Board regarding the appointment of directors, the Nomination Committee periodically assesses the appropriate mix of skills, experience and expertise required by the Board and assess the extent to which the required skills and experience are represented on the Board. The committee also takes account of other factors such as diversity and cultural fit. The identification of a potential director may be assisted by the use of external search organisations and detailed background information in relation to the potential candidate is provided to all directors prior to any decisions being made. Nominations for appointment are then approved by the Board as a whole.

Independence of directors

The Board has reviewed the position and associations of each of the five Directors in office at the date of this report and considers that four of the Directors are independent. In considering whether a director is independent, the Board has regard to the independence criteria in ASX Corporate Governance Principle 2 and other facts, information and circumstances that the Board considers relevant. The Board assesses the independence of new directors upon appointment and reviews their independence, and the independence of other directors, as appropriate.

The Board considers that Messrs Corbett, Best, Mathieson and Scholes meet the criteria in Principle 2. They have no material business or contractual relationship with the Company, other than as a director, and no conflicts of interest that could interfere with the exercise of independent judgement.

Mr Richards is employed in an executive capacity by the Company and so is not considered to be independent.

The Directors will continue to monitor the composition of the Board to ensure its structure remains appropriate and consistent with effective management and good governance.

APPOINTMENT, ELECTION AND RE-ELECTION OF DIRECTORS

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

NOMINATION AND APPOINTMENT OF NEW DIRECTORS

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

BOARD MEETINGS

The Board meets formally at least eight times each year, and from time to time meetings are convened outside the scheduled dates to consider issues of importance. The Board met 16 times between 1 July 2011 and 30 June 2012.

Directors’ attendance at Board meetings is detailed on page 19 of this annual report.

The agenda for meetings is prepared by the Company Secretary, in conjunction with the Chairman, Chief Executive Officer, and periodic input from the Board. Comprehensive Board papers are distributed to directors in advance of scheduled meetings. Board meetings typically take place at the Company’s registered office in Melbourne or at the Company’s head office and manufacturing facility based in Salisbury, South Australia to assist the Board in its understanding of operational issues.

PERFORMANCE REVIEW

The Chairman evaluates the performance of the Board as a whole and the individual Directors. The performance evaluation includes an examination of the performance of the Board and individual Directors as against the Board Charter. The evaluation may establish goals and objectives for the Board and provide any recommendations for improvement to Board performance. The Chairman undertook the performance appraisal of the Board with respect to the financial year ended 30 June 2012 in September 2012.

The Board aims to ensure that shareholders are informed of all information necessary to assess the performance of the Directors. Information is communicated to the shareholders through:

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

BOARD MEMBERS’ RIGHTS TO INDEPENDENT ADVICE

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

30 Mayne Pharma Annual Report 2012

BOARD COMMITTEES

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

Audit Committee;
Nomination Committee; and
Remuneration Committee.

Directors’ attendance at meetings of these committees is detailed on page 19 of this annual report.

Audit Committee

It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company, including internal controls to deal with both the effectiveness and efficiency of significant business processes. Effective internal controls include the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information.

The Board has established an Audit Committee, which operates under a Charter approved by the Board, and has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Company to the Audit Committee. The Charter was last reviewed and approved by the Board on 31 August 2011.

The duties and responsibilities of the Audit Committee include:

ensuring appropriate accounting policies and procedures are defined, adopted and maintained;
ensuring that the operating and management reporting procedures, and the system of internal control, are of a sufficiently high standard to provide timely, accurate and relevant information as a sound basis for management of the Group’s business;
reviewing the Financial Statements prior to their approval by the Board;
reviewing the scope of work including approval of strategic and annual audit plans and effectiveness of the external audit function;
ensuring that appropriate processes are in place to ensure compliance with all legal requirements affecting the Group;
ensuring that all internal and industry codes of conduct and standards of corporate behaviour are being complied with;
appointing a person(s) responsible for Internal Audit functions as specified from time to time by, and in accordance with, the Committee’s Charter;
making recommendations to the Board of Directors on the appointment, reappointment or replacement (subject, if applicable, to shareholder ratification), monitoring of effectiveness, and independence of the external auditors; and
actioning any other business processes or functions which may be referred to it by the Board of Directors.

The operation and responsibilities of the Audit Committee are consistent with ASX Principle 4. The Committee met four times during the financial year ended 30 June 2012.

The members of the Audit Committee at the date of this report were:

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

In addition to the members of the Committee, the CEO and CFO attend the Audit Committee meetings wherever possible and representatives of the External Audit firm are invited to attend when appropriate.

Appointment of external auditors

The Audit Committee is directly responsible for the appointment, reappointment or replacement (subject, if applicable, to shareholder ratification), remuneration, monitoring of effectiveness, and independence of the external auditors, including resolution of disagreements between management and the auditor regarding financial reporting.

The Committee must approve all audit and non-audit services provided by the external auditors and must not engage the external auditors to perform any non-audit/assurance services that may impair or appear to impair the external auditor’s judgement or independence in respect of the Company. The Committee may delegate the approval authority to a member of the Committee. The decisions of any Audit Committee member to whom the approval authority is delegated must be presented to the full Committee at its next scheduled meeting.

When reviewing the auditor’s independence, the Committee will require the rotation of the audit partner at least once every five years, in accordance with the Corporations Act 2001. In line with this requirement, the audit partner has been rotated for the financial year ended 30 June 2012.

Nomination Committee

The Board has established a Nomination Committee to assist the Board in selecting candidates for the position of director.

The members of the Nomination Committee at the date of this report were:

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

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

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

The Charter was last reviewed and approved by the Board on 31 August 2011. The operation and responsibilities of the Nomination Committee are consistent with ASX Principle 2.

The Committee met three times during the financial year ended 30 June 2012, as part of the process for the selection and appointment of the new Managing Director and CEO.

Remuneration Committee

The Board has established a Remuneration Committee to assist the Board in ensuring that appropriate and effective remuneration packages and policies are implemented within Mayne Pharma for the Chief Executive Officer and direct reports to the Chief Executive Officer. The Committee’s role also extends to the review of non-executive directors’ fees.

The Remuneration Committee shall comprise at least three members and the members of the Remuneration Committee at the date of this report were:

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

The duties and responsibilities of the Remuneration Committee are set out in its Charter which was last reviewed and approved by the Board on 31 August 2011. The key duties and responsibilities are:

to review and recommend to the Board, remuneration policies and packages for the Chief Executive Officer, executive directors and direct reports to the Chief Executive Officer;
to recommend to the Board any changes in remuneration policy including superannuation, other benefits and remuneration structure for executives and which is likely to have a material impact on the Company;
to review and recommend to the Board proposals for employee and non-executive director equity plans;
to review and recommend to the Board proposals for short- and long-term incentive programs for executives;
to review and recommend to the Board any changes to non-executive directors’ fees;
to ensure there is a proper performance management process in place throughout the organisation and that it is operating effectively;
to be informed of:
current trends in executive remuneration and associated incentive initiatives;
legislative issues associated with executive remuneration programs.

The Committee met twice during the financial year ended 30 June 2012.

Remuneration for directors and executives

A brief discussion on the Company’s remuneration policies in respect of directors and executives is set out on pages 23 to 24 of this annual report. Detailed disclosure of the remuneration paid to the Company’s directors and executives is set out on pages 24 to 26.

32 Mayne Pharma Annual Report 2012

INTEGRITY IN FINANCIAL REPORTING

Consistent with ASX Principle 7.3, the Company’s financial report preparation and approval process for the financial year ended 30 June 2012 involved both the Chief Executive Officer and the Chief Financial Officer providing detailed representations to the Board covering:

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

RISK IDENTIFICATION AND MANAGEMENT

The Board accepts that taking and managing risk is central to building shareholder value and the Board is responsible for the Group’s risk management strategy. Management is responsible for implementing the Board’s strategy and for developing policies and procedures to assist the Board to identify, manage and mitigate the risks across the Group’s operations.

The Company employs executives and retains consultants each with the requisite experience and qualifications to enable the Board to manage the risks to the Company. The Board has delegated the oversight of the Group’s risk management processes and procedures to the Audit Committee.

The Group’s identification and management of business risks is set out in a Risk Management Framework. The Framework, based on AS/NZS ISO 31000:2009 was reviewed by Management during the year. This process included a complete review of the risks faced by the Group and resulted in the development of a new Risk Register. The Register captures all of the risks that Management consider are faced by the Group; the likelihood, consequence and potential impact if the risk were to eventuate and the residual risk faced by the Group given the existence of appropriate controls.

The risks faced by the Company are diverse and vary significantly in terms of the likelihood of the event occurring and the consequence of such an event. Each specific risk is allocated to a member of the Executive Team and managed through day-to-day operations and compliance with a comprehensive set of Standard Operating Procedures.

The register is updated by the Executive Team as required, and at least quarterly, and reviewed by the Audit Committee every six months. Following the most recent review of the register, Management and the Board believe that the Company’s management of the material risks faced by the Company is effective. A summary of the revised Risk Management Framework has not yet been disclosed in accordance with ASX Principle 7.1 as the Board has not yet approved its release.

SECURITIES TRADING BY DIRECTORS AND EMPLOYEES

The Company approved a Securities Trading Policy on 19 April 2011. The policy summarises the law relating to insider trading and sets out the policy of the Company on directors, officers, employees and consultants dealing in securities of the Company.

The policy is reviewed regularly and a summary of the Securities Trading Policy can be accessed on the corporate governance section of the Company’s website at www.maynepharma.com. This policy is provided to all directors and employees and compliance with it is reviewed on an ongoing basis in accordance with the Company’s risk management systems.

CONTINUOUS DISCLOSURE

The Company has established policies and procedures in order to comply with its continuous and periodic disclosure requirements under the Corporations Act 2001 (Commonwealth) and the ASX Listing Rules. The Board has adopted a formal Continuous Disclosure Policy, a summary of which is available from the corporate governance section of the Company’s website at www.maynepharma.com. The Continuous Disclosure Policy was last reviewed by the Board on 13 September 2011.

The Company Secretary has primary responsibility for the disclosure of material information to ASIC and ASX and maintains a procedural methodology for disclosure, as well as for record keeping.

The Company’s Continuous Disclosure Policy requires all management to notify the Chief Executive Officer, or the Company Secretary in his absence, of any potentially material information as soon as practicable. The Policy also sets out what renders information material.

The Board reviews the Company’s compliance with this policy on an ongoing basis and will update it from time to time, if necessary.

SHAREHOLDER COMMUNICATIONS

The Board’s formal policy on communicating with shareholders, its Communications Policy, is available from the corporate governance section of the Company’s website and supplements the Company’s Continuous Disclosure Policy.

The aim of the Communications Policy is to make known Mayne Pharma’s methods for disclosure to shareholders and the general public. The Policy details the steps between disclosure to ASIC and ASX and communication to shareholders, with the Company’s website playing an important role in Mayne Pharma’s communications strategy.

The Board reviews this policy and compliance with it on an ongoing basis. The policy was last reviewed on 13 September 2011.

CONDUCT AND ETHICS

The Mayne Pharma Code of Conduct was last revised on 31 August 2011. The Code covers a broad range of issues and refers to those practices necessary to maintain confidence in the Company’s integrity, including procedures in relation to:

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

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

DIVERSITY

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

This diversity policy provides a framework that helps Mayne Pharma to achieve the following:

access to the broadest pool of available talent;
a welcoming workforce culture that embraces diversity at all levels;
recruitment practices that ensure a fair and equitable selection process at all levels and where candidates are assessed on the basis of skills and capabilities;
improved employee motivation and engagement;
enhanced teamwork and innovative solutions.

The Board has approved a set of measurable objectives concerning strategies and programs for pursuing diversity and will report on progress against the set measurable objectives on an annual basis in the Annual Report. The Board has set objectives to promote more flexible working arrangements and to improve gender diversity across the Company.

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

Below is a summary of the gender composition of the organisation:
		% MALE % FEMALE
Company Senior Executives Board	64 36 89 11 100 0

34 Mayne Pharma Annual Report 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2012

NOTE	CONSOLIDATED 2012 $’000 2011 $’000
Continuing operations Sale of goods Royalties revenue Other revenue 4 Revenue Cost of sales Gross profit Other expenses 6 Research and development expenses Distribution expenses Marketing expenses Regulatory affairs expenses Share-based payments Amortisation expenses Administration expenses Finance costs 6 Fair value movement in earn-out liability 5 Restructure and redundancy costs Impairment of customer relationship intangible asset Inventory write down Profit / (loss) before income tax Income tax (expense) / benefit 8 Net profit from continuing operations after income tax Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to owners of the parent Earnings per share: Basic 9 Diluted 9	50,436 45,700 1,468 1,333 642 3,068
	52,546 50,101 (29,342) (26,861)
	23,204 23,240 - (799) (4,018) (5,974) (613) (614) (675) (709) (872) (641) (272) - (3,808) (6,098) (6,985) (6,771) (28) (341) 2,850 (677) (851) (1,005) (181) - - (1,115)
	7,751 (1,504) (1,598) 3,183
	6,153 1,679
	- -
	6,153 1,679
	4.05 cents 1.12 cents 4.02 cents 1.10 cents

The Consolidated Statement of Comprehensive Income is to be read in conjunction with the accompanying notes to the financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2012

NOTE	CONSOLIDATED 2012 $’000 2011 $’000
Current assets Cash and cash equivalents 23 Trade and other receivables 15 Inventories 11 Income tax receivable Other current assets 12 Total current assets Non-current assets Property, plant and equipment 13 Deferred tax assets 8 Intangible assets and goodwill 14 Total non-current assets Total assets Current liabilities Trade and other payables 15 Interest-bearing loans and borrowings 16 Income tax payable Other financial liabilities 17 Provisions 18 Total current liabilities Non-current liabilities Other financial liabilities 17 Deferred tax liabilities 8 Provisions 18 Total non-current liabilities Total liabilities Net assets Equity Contributed equity 19 Reserves 20 Accumulated losses 21 Total equity	11,596 5,807 3,821 5,697 7,244 6,423 - 630 594 281
	23,255 18,838
	22,224 21,457 4,260 5,199 4,194 8,183
	30,678 34,839
	53,933 53,677
	4,234 3,848 - 2,339 1,456 - 2,782 5,837 3,832 2,915
	12,304 14,939
	6,549 9,283 3,730 4,478 750 803
	11,029 14,564
	23,333 29,503
	30,600 24,174
	32,016 31,870 1,087 960 (2,503) (8,656)
	30,600 24,174

The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes to the financial statements.

36 Mayne Pharma Annual Report 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2012

NOTE	CONSOLIDATED 2012 $’000 2011 $’000
Cash flows from operating activities Cash receipts from customers Cash payments for research and development expenditure Cash paid to suppliers and employees Interest received Interest paid Tax received / (paid) Net cash flows from operating activities 23 Cash flows from investing activities Payments for property, plant and equipment Payments for acquisition of operating licences Payment of earn-out liability Net cash flows used in investing activities Cash flows from financing activities Proceeds from issues of shares Repayment of borrowings Dividends paid Net cash flows used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the period 23	56,464 52,441 (4,018) (6,482) (40,009) (39,000) 181 264 (8) (220) 777 (2,917)
	13,387 4,086
	(2,547) (2,063) - (41) (2,881) (6,556)
	(5,428) (8,660)
	- 1,467 (2,315) (5,057) - (4,521)
	(2,315) (8,111)
	5,644 (12,685) 5,807 19,709 145 (1,217)
	11,596 5,807

The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes to the financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2012

	CONTRIBUTED EQUITY SHARE-BASED PAYMENTS RESERVE $’000 $’000	ACCUMULATED LOSSES TOTAL EQUITY $’000 $’000
Balance at 1 July 2011 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners Shares issued Share-based payments Balance at 30 June 2012 Balance at 1 July 2010 Profit for the period Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners Shares issued Share options exercised Dividends paid Balance at 30 June 2011	31,870 960 - - - -	(8,656) 24,174 6,153 6,153 - -
	- - 146 - - 127	6,153 6,153 - 146 - 127
	32,016 1,087	(2,503) 30,600
	29,649 1,714 - - - -	(5,814) 25,549 1,679 1,679 - -
	- - 1,467 - 754 (754) - -	1,679 1,679 - 1,467 - - (4,521) (4,521)
	31,870 960	(8,656) 24,174

The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the financial statements.

38 Mayne Pharma Annual Report 2012

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 June 2012

1	Significant accounting policies	40
2	Financial risk management objectives and policies	49
3	Significant accounting judgements, estimates and assumptions	53
4	Other revenue	54
5	Fair value movement in earn-out liability	54
6.	Other expenses	55
7	Auditor’s remuneration	55
8	Income tax	55
9	Earnings per share	57
10	Trade and other receivables	57
11	Inventories	58
12	Other assets	58
13	Property, plant and equipment	58
14	Intangible assets and goodwill	59
15	Trade and other payables	60
16	Interest-bearing loans and borrowings	60
17	Other financial liabilities	60
18	Provisions	61
19	Contributed equity	61
20	Reserves	63
21	Accumulated losses	63
22	Operating segments	63
23	Notes to the Consolidated Statement of Cash Flows	64
24	Related party disclosures	65
25	Key management personnel disclosures	66
26	Share-based payment plans	67
27	Parent entity disclosures	69
28	Commitments and contingencies	70
29	Dividends	70
30	Closed-group class order	71
31	Events subsequent to balance date	71

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Mayne Pharma Group Limited (‘Company’) is a company limited by shares incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange. The financial report for the year ended 30 June 2012 was authorised for issue by the directors on 21st September 2012.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

A. Basis of preparation

The Financial Statements are a general purpose financial report which has been prepared for a “for profit” enterprise and in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis except for forward exchange contracts which have been measured at mark to market valuation.

The financial report is presented in Australian dollars and rounded to the nearest thousand dollars ($000) unless otherwise stated.

B. Compliance with IFRS

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

C. New accounting standards and interpretations

Accounting Standards and Interpretations issued and adopted in this report applicable to the company:

The accounting policies adopted are consistent with those of the previous financial year except as follows:

AASB 124 The revised AASB 124 Related Party Disclosures (December 2009) simplifies the definition of a related (Revised) party, clarifying its intended meaning and eliminating inconsistencies from the definition
AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]
AASB 2010-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]
AASB 2010-5 Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042]
� AASB 1054 Australian Additional Disclosures � AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7]
� AASB 1048 Interpretation of Standards

From 1 July 2011 the Group has adopted the relevant standards and interpretations, mandatory for annual reports beginning on or after 1 July 2011. Adoption of the standards and interpretations did not have any effect on the financial position or performance of the Group.

Accounting Standards and Interpretations issued but not yet effective applicable to the company:

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the year ended 30 June 2012 are outlined below:

AASB 1053 - Application of Tiers of Australian Accounting Standards

Application date of standard: 1 July 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and will comply with the Tier 1 requirements. The changes will only have minimal impact.

Summary

This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements:

(a) Tier 1: Australian Accounting Standards; and (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.

Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements.

40 Mayne Pharma Annual Report 2012

The following entities apply Tier 1 requirements in preparing general purpose financial statements:

(a) for-profit entities in the private sector that have public accountability (as defined in this Standard); and (b) the Australian Government and State, Territory and Local Governments.

The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements:

(a) for-profit private sector entities that do not have public accountability;
(b) all not-for-profit private sector entities; and
(c) public sector entities other than the Australian Government and State, Territory and Local Governments.

Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11 and 2012-1.

AASB 10 - Consolidated Financial Statements

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

Summary

AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities.

The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control.

Consequential amendments were also made to other standards via AASB 2011-7.

AASB 12 - Disclosure of Interests in Other Entities

Summary

AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests.

AASB 13 - Fair Value Measurement

Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal impact on the Group.

Summary

AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets.

AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined.

Consequential amendments were also made to other standards via AASB 2011-8.

AASB 119 – Employee Benefits

Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minor 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

AASB 119 includes the following key features:

The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets.

The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date.

Consequential amendments were also made to other standards via AASB 2011-10.

Annual Improvements to IFRSs 2009–2011 Cycle

Summary

This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB.

The following items are addressed by this standard:

IAS 1 Presentation of Financial Statements

Clarification of the requirements for comparative information

IAS 16 Property, Plant and Equipment

Classification of servicing equipment

IAS 32 Financial Instruments: Presentation

Tax effect of distribution to holders of equity instruments

IAS 34 Interim Financial Reporting

Interim financial reporting and segment information for total assets and liabilities
1 These IFRS amendments have not yet been adopted by the AASB.

AASB 2012-2 – Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities

42 Mayne Pharma Annual Report 2012

Summary

AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position.

AASB 9 - Financial Instruments

Application date of standard: 1 January 2015 Application date for Group: 1 July 2015 Impact on financial report: The Group has assessed the impact of the changes and expects them to have minimal effect on the Group.

Summary

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

(a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows.
(b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.
(c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.
(d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: � the change attributable to changes in credit risk are presented in other comprehensive income (OCI); � the remaining change is presented in profit or loss.

If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss.

Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10.

D. Basis of consolidation

Investments in subsidiaries held by the Group are accounted for at cost in the separate financial statements of the parent entity less any impairment charges. The consolidated financial statements comprise the financial statements of Mayne Pharma Group Limited and its controlled entities (collectively the “Group”). The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra group transactions have been eliminated in full. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values.

The difference between the above items and the fair value of the consideration is goodwill or a discount on acquisition.

E. Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree.

For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139; Financial Instruments Recognition and Measurement in profit or loss.

F. Foreign currency translation

Functional and presentation currency

Both the functional and presentation currency of Mayne Pharma Group Limited and its controlled entities is Australian dollars ($).

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date.

G. Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

H. Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for any uncollectible amounts.

Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt. Financial difficulties of the debtors and default payments of debts more than 90 days overdue are considered objective evidence of impairment.

I. Inventories

Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

Raw materials – purchase cost on a first-in, first-out basis; and

Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

J. Property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Land and buildings are measured at cost less accumulated depreciation on buildings and less any impairment losses.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:

Land Not depreciated Buildings Over 40 years Plant and equipment Between 1.5 and 20 years

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year-end.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the Consolidated Statement of Comprehensive Income.

44 Mayne Pharma Annual Report 2012

K. Goodwill and intangibles

Goodwill

Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following its initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

Goodwill is reviewed for impairment at each reporting date, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes and is not larger than an operating segment in accordance with AASB 8 Operating Segments.

Intangibles

Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.

Intangible assets with finite lives are amortised over their useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

The Group’s intangible assets other than goodwill (ie, customer contracts, relationships and intellectual property) have been assessed as having finite useful lives and as such are amortised on a diminishing value basis over their useful lives. The assets’ residual values, useful lives and bases of amortisation are reviewed annually and adjusted if appropriate.

L. Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or asset and the arrangement conveys a right to use the asset.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the lease item are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives are recognised in the income statement as an integral part of the total lease expense.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases

M. Trade and other payables

Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

N. Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at fair value of the consideration received less directly attributable transaction costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date. The accounting policy of subsequent measurement of interest-bearing loans and borrowings is on amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

O. Earn-out liabilities

Recognition and derecognition

Earn-out liabilities of the Group are initially recognised on the consolidated statement of financial position as part of the business combination contract at fair value. Financial liabilities are derecognised when they are extinguished.

Subsequent measurement

After initial recognition, earn-out liabilities are recognised at fair value through profit or loss and are remeasured each reporting period. Movements in the liability from these changes are reported in the consolidated statement of comprehensive income.

P. Provisions and employee benefits

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of Management’s best estimate of the expenditure required to settle the present obligation at the balance date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability.

Employee leave benefits

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

Q. Share-based payment transactions

The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

In the event that an employee leaves the Group prior to the vesting of any share-based payment previously granted to the employee, the share-based payment will be forfeited. Where an employee leaves the Group subsequent to the vesting but prior to the expiry of sharebased payments granted, the Board has absolute discretion to determine whether or not such share-based payments will lapse. In the event that the Company’s Employee Share Option Plan was cancelled, this would not affect the rights of employees in relation to previously issued share-based payments.

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using an appropriate option-pricing model, depending on the complexity of the exercise conditions.

The Group engaged an accredited independent valuer, to determine the fair value of options issued at the date at which they are granted.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the vesting period.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (refer to Note 9).

R. Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

S. Operating segments

An operating segment is a component of the Group:

that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group);
whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and
for which discrete financial information is available.

46 Mayne Pharma Annual Report 2012

Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements.

Operating segments have been identified based on the internal reports that are reviewed and used by the key management personnel (the chief operating decision maker – being the executive management team) in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on the nature of revenue flows and responsibility for those revenues. Discrete financial information about each of these operating segments is reported to chief operating decision makers on at least a monthly basis.

The consolidated entity operates in two operating segments, being Mayne Pharma Australia (MPA) and Mayne Pharma Global (MP Global).

MPA revenues and gross profit are derived from the manufacturing, distribution and marketing of proprietary and generic products within Australia.

T. Revenue recognition

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer.

Royalties revenue

Royalties arising from the manufacturing rights are recognised when earned in accordance with the substance of the agreement.

Research and development income

Research and development income is recognised when its recoverability can be regarded as assured when the specific milestones of the projects are met.

Interest revenue

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest revenue over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Lease Revenue

Rental income arising from the operating lease on the building at Salisbury is accounted for on a straight-line basis over the lease terms and included in other revenue due to its operating nature.

U. Income tax and other taxes

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date.

Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

Mayne Pharma Group Limited and its wholly-owned Australian controlled entities elected to form an income tax consolidated group from 31 October 2009.

The head entity, Mayne Pharma Group Limited, and the controlled entities in the income tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the “separate taxpayer within group” approach in determining the appropriate amount of current taxes and deferred taxes to allocate to the members of the income tax consolidated group.

In addition to its own current and deferred tax amounts, Mayne Pharma Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the income tax consolidated group.

Each company in the Group contributes to the income tax payable by the Group in proportion to their contribution to the Group’s taxable income.

Assets or liabilities arising under the tax funding agreement with the income tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned income tax consolidation entities.

Other taxes

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case, it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST recoverable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of financial position.

Cash flows are included in the consolidated statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.

V. Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares of the Company.

Diluted earnings per share is calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares of the Company, adjusted for the effect of all dilutive potential ordinary shares.

W. Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development.

X. Forward exchange contracts

The Group uses derivative financial instruments (forward currency contracts) to hedge its risks associated with foreign currency, commodity prices and interest rate fluctuations. These derivatives do not qualify for hedge accounting and mark to market valuation adjustments are recognised in profit or loss in income or expenses.

Y. Reclassification of comparatives

Where required, the 2011 comparative period has been reclassified to reflect the current treatment and enable better comparison between periods, including:

Reclassification in Statement of Comprehensive Income – refer Note 5
Change in Operating segment disclosure – refer Note 22

48 Mayne Pharma Annual Report 2012

NOTE 2 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise cash, short-term deposits, receivables, payables and bank loans.

The Group manages its exposure to key financial risks, including credit risk, interest rate risk, currency risk and liquidity risk in accordance with the Group’s financial risk management framework. The objective of the framework is to support the delivery of the Group’s financial targets whilst protecting future financial security.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange rates. Liquidity risk is monitored through the development of future rolling cash flow forecasts.

Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below.

Risk exposures and responses

Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and short-term deposits. At balance date, the Group had the following financial assets and liabilities exposed to a change in variable interest rates:

	2012 $’000 2011 $’000
Cash at bank and in hand Short-term deposits Total exposure	11,596 5,713 - 94
	11,596 5,807

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance date. At balance date, if interest rates had moved, as illustrated in the table below, with all other variables held constant, net profit and equity would have been affected as follows:

	NET PROFIT / (LOSS) EQUITY
	HIGHER / (LOWER) HIGHER / (LOWER)
	2012 $’000 2011 $’000 2012 $’000 2011 $’000
+1% (100 basis points) -0.5% (50 basis points)	87 41 - - (43) (20) - -

The movements are due to higher / lower interest revenue from cash balances. Possible movements in interest rates were determined based on the current observable market environment.

Foreign currency risk

The Group has significant transactional currency exposures arising from sales and purchases in currencies other than the functional currency. Approximately 46% of the Group’s revenues and 9% of the Group’s costs are denominated in currencies other than the functional currency.

It is the Group’s policy to enter into simple Forward Exchange Contracts or Participating Forward Exchange Contracts over a set percentage of the forecast net receipts of US dollars. The percentages used vary depending on the length of the forecast period (0-3 months and 4-6 months). The Group has not applied the hedge accounting rules and the mark-to-market valuation (2012: $65,000 gain; 2011: $58,000 loss) for the contracts is recognised in profit and loss at 30 June 2012.

The Group also holds assets and liabilities in United States dollars (USD), British pounds (GBP), Japanese yen (JPY), Canadian dollars (CAD) and Euro (EUR). The existence of both assets and liabilities denominated in USD provides a limited natural hedge against adverse currency movements.

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

	USD $’000	GBP EUR	CAD $’000 JPY $’000
		$’000 $’000
As at 30 June 2012 Cash at bank Trade and other receivables Trade and other payables Interest-bearing borrowings Net exposure As at 30 June 2011 Cash at bank Trade and other receivables Trade and other payables Interest-bearing borrowings Net exposure	2,456 43 (755) -		- - 245 530 - - - -

		- -
		- -
		(13) (10)

		- -

	1,744	(13) (10)	245 530
	2,799 1,306 (20) (2,359)		- - - 499 - - - -


		- -
		- - (112) (43) - -
	1,726	(112) (43)	- 499

The following sensitivity analysis is based on the foreign currency risk exposures in existence at the balance date.

At balance date, if foreign exchange rates had moved, as illustrated in the table below, with all other variables held constant, net profit/(loss) and equity would have been affected as follows:

	NET PROFIT / (LOSS)	EQUITY
	HIGHER / (LOWER)	HIGHER / (LOWER)
	2012 2011	2012 $’000 2011 $’000
	$’000 $’000
AUD/USD +10% AUD/ JPY +10% AUD / (GBP,EUR,CAD) +10% AUD/USD -5% AUD/JPY -5% AUD/ (GBP, EUR, CAD) -5%	(111) (110)	- - - - - -
	(34) (32)
	(14) 10
		- - - - - -
	64 63
	20 18
	8 (3)

The movements are due to foreign currency gains or losses as a result of changes in the balances of cash, borrowings, and the net of trade receivables and payables.

Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of the financial assets.

The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables.

Management of credit risk:

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation.

Approximately 41% of the Group’s 2012 revenue is derived from the largest customer and 13% of revenue is derived from the next largest customer. Both of these customers were operating within agreed trading terms at the end of the 2012 period.

The Group believes that there is no credit risk on the above key customer concentration as there has never been any default in collectability.

50 Mayne Pharma Annual Report 2012

The collectability of debts is assessed on an ongoing basis, and an allowance for doubtful debts is made where there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Receivables are monitored on an ongoing basis and the incidence of bad debt write off has been extremely low.

Financial assets included on the Consolidated Statement of Financial Position that potentially subject the Group to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. The Group minimises this concentration of risk by placing its cash and cash equivalents with financial institutions that maintain superior independent credit ratings in order to limit the degree of credit exposure. The maximum exposures to credit risk as at 30 June 2012 in relation to each class of recognised financial assets is the carrying amount of those assets, as indicated in the Consolidated Statement of Financial Position.

Credit quality of financial assets:

	2012 $’000 2011 $’000
Cash and cash equivalents 1 Trade and other receivables 2	11,596 5,807 3,821 5,697
	15,417 11,504

Minimum of S&P AA rated counterparty with which deposits are held.
At period end 2012 Trade receivables (net of rebate) comprise $3,027,000 of the total $3,821,000, with 94% of trade receivables within trading terms.

Liquidity risk

Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and cash and short-term deposits sufficient to meet the Group’s current cash requirements.

The Board manages liquidity risk by monitoring, on a monthly basis, the total cash inflows and outflows expected forecast on a rolling 12month basis.

The following table discloses the remaining contractual maturities for the Group’s financial assets and liabilities based on undiscounted cash flows. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract.

	LESS THAN 6 MONTHS $’000 6 TO 12 MONTHS $’000 1 TO 5 YEARS $’000 TOTAL $’000
30 June 2012 Liquid financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest-bearing loans and borrowings Other financial liabilities Net inflow/(outflow)	11,596 - - 11,596 3,821 - - 3,821
	15,417 15,417 (4,234) - - (4,234) - - - - - (2,782) (8,090) (10,872)
	(4,234) (2,782) (8,090) (15,106)
	11,183 (2,782) (8,090) 311

	LessTHAN 6 MONTHS $’000 6 TO 12 MONTHS $’000 1 TO 5 YEARS $’000 TOTAL $’000
30 June 2011 Liquid financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest-bearing loans and borrowings Other financial liabilities Net inflow/(outflow)	5,807 - - 5,807 5,697 - - 5,697
	11,504 - - 11,504 (3,848) - - (3,848) (2,339) - - (2,339) - (6,072) (11,683) (17,755)
	(6,187) (6,072) (11,683) (23,942)
	5,317 (6,072) (11,683) (12,438)

Fair Value

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

	CARRYING AMOUNT		FAIR VALUE
	2012	2011	2012	2011
Assets	$’000	$’000	$’000	$’000
Forward exchange	65	-	65	-
contracts
Cash and short-term
deposits	11,596	5,807	11,596	5,807

	CARRYING AMOUNT		FAIR VALUE
	2012	2011	2012	2011
Liabilities	$’000	$’000	$’000	$’000
Earn-out liability	9,331	15,062	9,331	15,062
Forward exchange
contracts	-	58	-	58
Interest-bearing loan	-	2,339	-	2,339
(5.05% fixedrate)

Cash and short-term deposits, bank loans approximate their carrying amounts largely due to the short-term maturities of these instruments.

The Group enters into forward exchange contracts with financial institutions with investment grade credit ratings.

The earn-out liability utilises present value calculation techniques that are not based on observable market data.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

Assets and liabilities measured at fair value

As at 30 June 2012, the Group held the following financial instruments carried at fair value in the statement of financial position:

		LEVEL 2 2012 $’000 2011 $’000
Financial Assets Foreign exchange forward contracts – non-hedged	LEVEL 2 2012 2011 $’000 $’000	65 -
		LEVEL 3 2012 2011 $’000 $’000
Financial Liabilities Earn-out Forward exchange contracts	- - - 58	9,331 15,062 - -

52 Mayne Pharma Annual Report 2012

Reconciliation of fair value measurements of Level 3 financial instruments

The Group carries earn-out liability classified as Level 3 within the fair value hierarchy.

A reconciliation of the beginning and closing balances including movements is summarised below:

� Period ending	� � 2012 $’000 2011 $’000
Opening balance Fair value movement (refer Note 5) Payments Closing Balance	� � 15,062 20,941 (2,850) 677 (2,881) (6,556)
	9,331 15,062

NOTE 3 – SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

Significant accounting judgements

Research and development costs

Deferred tax assets

The Group’s accounting policy for taxation requires management’s judgement in assessing whether deferred tax assets are recognised in the Consolidated Statement of Financial Position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits.

Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future revenues, operating costs, capital expenditure and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of other tax losses and temporary differences not yet recognised.

Significant accounting estimates and assumptions

Earn-out liability

The Group has recognised an earnout liability to the former owners of Mayne Pharma International Pty Ltd payable over the period to 31 December 2015. The earn-out liability has been determined based on contracted royalty rates payable on expected future cash flows earned on certain products in calendar years across different geographic markets. The estimation of the cash flows over a significant period, combined with the impact of currency movements and interest rates may result in substantial movements in the value of the liability recognised between reporting periods. The cash flows, assumed discount rate and forecast exchange rates are reviewed every six months to ensure the most accurate fair value of the liability is reported. Movements in the liability from changes in these assumptions and forecasts are reported in the consolidated statement of comprehensive income.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using an appropriate option-pricing model depending on the complexity of the exercise conditions and both the Black Scholes option-pricing model and the Monte Carlo Simulation option-pricing model have been utilised during the period. The specific assumptions applied to the two issues during the year are provided in Note 19. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

Restoration provision

A provision has been made for the present value of anticipated costs for future restoration of the Salisbury site. The calculation of this provision requires assumptions such as application of environmental legislation, timing of restoration and cost estimates. These uncertainties may result in future actual expenditure differing from the amounts currently provided.

Estimation of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience as well as manufacturers’ warranties and lease terms. In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.

The estimation of the useful lives of intangible assets has been based on the assets’ contractual lives for the expected period of the future cash flows. In addition, the valuation assumptions used are assessed at least annually and considered against the useful life and adjustments to useful lives are made when considered necessary.

Impairment of intangible assets

The Group determines whether intangible assets are impaired in accordance with the accounting policies stated in Note 1(K). This process requires an estimation to be made of the recoverable amount of future cash flows of the assets.

NOTE 4 – OTHER REVENUE

	2012 $’000 2011 $’000
Research and development income Interest Other revenue Total other revenue	306 2,655 181 264 155 149
	642 3,068

NOTE 5 – FAIR VALUE MOVEMENT IN EARN OUT LIABILITY[1]

	2012 $’000 2011 ‘$000
Movement in undiscounted fair value of earn- out liability Change in fair value attributable to the unwinding of the discounting of the earn-out liability	3,856 794 (1,006) (1,471)
	2,850 (677)

The fair value movement in earn-out liability has been presented separately within the Statement of Comprehensive Income. For the comparative year this has resulted in $1,471,000 of notional interest, previously included within Finance costs, being reclassified as “Fair value movement in earn-out liability”.

54 Mayne Pharma Annual Report 2012

NOTE 6 – EXPENSES

NOTE 6 – EXPENSES
	2012 $’000 2011 $’000
Depreciation included in the consolidated statement of comprehensive income Employee benefits expense: 1 Wages and salaries Defined contribution superannuation expense Other employee benefits expense Finance costs: 2 Bank loans and overdrafts Amortisation of borrowing costs Minimum lease payments – operating lease Statutory and listing expenses Net foreign exchange losses Loss on forward exchange contracts	1,780 1,653
	11,133 11,825 1,067 1,189 2,476 1,339
	14,676 14,353
	8 220 20 121
	28 321
	68 49
	123 143
	- 741 - 58
	- 799

Employee benefit expenses are included in administrative expenses, research and development expenses and cost of sales.
Please refer to item 1 in Note 5

NOTE 7 – AUDITOR’S REMUNERATION

	2012 $ 2011 $
Auditor of the Company Audit and review of financial statements Taxation services Accounting advice Other Assurance	175,000 165,000 61,460 125,910 42,500 28,750 58,500 47,500
	337,460 367,160

NOTE 8 – INCOME TAX

A. The major components of income tax benefit / (expense) are:

A. The major components of income tax benefit / (expense) are:
	2012 $’000 2011 $’000
Current income tax Current income tax benefit / (expense) Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax benefit / (expense) reported in the consolidated statement of comprehensive income	(1,601) (201) 31 461 (28) 2,923
	(1,598) 3,183

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

income and tax expense calculated per the statutory income tax rate
	2012 $’000 2011 $’000
The prima facie tax on operating profit / (loss) differs from the income tax provided in the financial statements as follows: (Loss) / profit before income tax Prima facie tax benefit / (expense) at 30% Effect of R&D tax concession Share-based payments Adjustment relating to earn-out liability Overprovision in respect of prior years Tax effect of amounts which are not deductible / (taxable) in calculating taxable income Deferred tax assets not previously brought to account Restatement of deferred tax balances upon entry into tax consolidation Income tax benefit / (expense)	7,751 (1,504)
	(2,325) 451 289 440 (82) - 855 217 31 461 (3) (2) - 979 (363) 637
	(1,598) 3,183

C. Recognised deferred tax assets and liabilities

	2012 $’000 2011 $’000 2,526 2,118 63 15 19 - 1,650 1,123 - 305 - 860 - 414 2 364 4,260 5,199
Deferred tax assets Intangible assets Payables Unrealised foreign exchange losses Provisions Inventory Carried forward tax losses Earn-out liability Other The deferred tax assets above were recognised in 2012 and 2011 as the Group has future taxable profits. Deferred tax liabilities Other receivables / prepayments Inventory Property, plant and equipment Intangible assets Unrealised foreign currency gain Other
	33 30 19 - 2,306 2,266 1,195 1,869 59 312 118 1
	3,730 4,478

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.

D. Tax consolidation

Members of the tax consolidated group and the tax sharing arrangement

Mayne Pharma Group Limited and its 100%-owned Australian resident subsidiaries formed an income tax consolidated group with effect from 31 October 2009. Mayne Pharma Group Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

Tax effect accounting by members of the tax consolidated group

Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting. The head entity and the controlled entities in the income tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the “separate taxpayer within group” approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the income tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes.

56 Mayne Pharma Annual Report 2012

In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the income tax consolidated group.

Nature of tax funding agreement

The tax funding agreement requires payments to / from the head entity to be recognised via an inter-entity receivable (payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiary.

The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

NOTE 9 – EARNINGS PER SHARE

	2012 $’000 2011 $’000
For basic earnings per share Net profit For diluted earnings per share Net profit	6,153 1,679
	6,153 1,679

	2012 ‘000 2011 ‘000
Weighted average number of ordinary shares for basic earnings / (loss) per share Effect of dilution: Share options Weighted average number of ordinary shares adjusted for the effect of dilution	152,041 150,385 848 2,840
	152,889 153,225

The calculation of weighted average number of ordinary shares adjusted for the effect of dilution does not include the following options which could potentially dilute basic earnings per share in the future, but were not dilutive in the periods presented:

	2012 2011
Number of potential ordinary shares	10,125,000 -

Options

There have been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding at the end of the reporting period.

NOTE 10 – TRADE AND OTHER RECEIVABLES

	2012 $’000 2011 $’000
Current Trade receivables Provision for impairment Other receivables	3,027 5,028 - (23) 794 692
	3,821 5,697

Allowance for impairment loss

At 30 June 2012, the ageing analysis of trade receivables is as follows:

	0-30 DAYS	31-60 DAYS	61-90 DAYS	+91 DAYS	TOTAL
	$’000	$’000	$’000	$’000	$’000
Trade receivables	1,878	1,126	23	-	3,027

Trade receivables are non-interest bearing and are generally on 30- to 60-day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. As at year-end, there were no receivables that were considered to be impaired. Other receivables include amounts outstanding for goods and services tax (GST). These amounts are non-interest bearing and have repayment terms applicable under the relevant government authority. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

Due to the short-term nature of these receivables, their carrying value is their fair value.

NOTE 11 – INVENTORIES

NOTE 11 – INVENTORIES
	2012 $’000 2011 $’000
Raw materials and stores at cost Work in progress at cost Finished goods at net realisable value	4,039 3,253 1,460 1,270 1,745 1,900
	7,244 6,423

A provision for the write down of the full value of selected Doryx® inventory of $1,115,000 was made within the 2011 year in the event manufactured batches reach expiry before regulatory approval was granted.

NOTE 12 – OTHER ASSETS

	2012 $’000 2011 $’000
Current Pre-payments Forward exchange contracts	529 281 65 -
	594 281

NOTE 13 – PROPERTY, PLANT AND EQUIPMENT

	LAND1 BUILDINGS1 $’000 $’000	PLANT AND EQUIPMENT CAPITAL UNDER CONSTRUCTION $’000 $’000	TOTAL
			$’000
Year ended 30 June 2012 Balance at beginning of year net of accumulated depreciation Additions Transfer 2 Depreciation charge for year Balance at end of year net of accumulated depreciation At 30 June 2012 At cost Accumulated depreciation Net carrying amount Year ended 30 June 2011 Balance at beginning of year net of accumulated depreciation Additions Transfer 2 Depreciation charge for year Balance at end of year net of accumulated depreciation At 30 June 2011 At cost Accumulated depreciation Net carrying amount	4,540 7,678 - 49 - - - (207)	8,021 1,218 990 2,547 - (1,039) (1,573) -
			21,457
			3,586
			(1,039)
			(1,780)
	4,540 7,520	7,438 2,726	22,224
	4,540 8,298 - (778)	11,439 2,726 (4,001) -

			27,003
			(4,779)
	4,540 7,520	7,438 2,726	22,224
	4,540 7,762 - 122 - - - (206)	8,403 342 1,065 2,063 - (1,187) (1,447) -

			21,047
			3,250
			(1,187)
			(1,653)
	4,540 7,678	8,021 1,218	21,457
	4,540 8,250 - (572)	10,449 1,218 (2,428) -

			24,457
			(3,000)
	4,540 7,678	8,021 1,218	21,457

A first registered mortgage over property situated at 1538 Main North Rd, Salisbury South, South Australia is held by the Group’s primary lender. 2. Transfer as additions to the respective completed class of fixed assets

58 Mayne Pharma Annual Report 2012

NOTE 14 – INTANGIBLE ASSETS AND GOODWILL

NOTE 14 – INTANGIBLE ASSETS AND GOODWILL
	2012 $’000 2011 $’000
Customer contracts, relationships and intellectual property Less accumulated amortisation at the start of period Less amortisation charge for period Less impairment of customer relationships Goodwill on acquisition	19,153 19,153 (11,361) (5,263) (3,808) (6,098) (181) - 391 391
	4,194 8,183

Customer contracts, relationships and intellectual property

Following the business combination in October 2009, the Consolidated Entity recognised $19,153,000 in relation to customer contracts, relationships and intellectual property. The customer contracts’ initial carrying value of $11,443,000 was fully amortised by 30 June 2012. This value was determined in relation to expected future cash flows relating to customer contracts acquired on the acquisition of Mayne Pharma International Pty Ltd (MPI).

The Consolidated Entity also recognised a total of $6,067,000 in relation to customer relationships that are being amortised over six years through to the period ending 30 June 2015. This value was determined in relation to expected future cash flows relating to customer relationships acquired on the acquisition of MPI.

The balance of $1,643,000 represents the value attributed to an intellectual property royalty arrangement that is being amortised over six years through to 30 June 2015. Cash flows were estimated based on the sales levels of products to existing customer relationships and costs of production, raw materials and overhead attributable to those products. A discount rate of 17.5% was applied following a corporate tax rate of 30% and a 7% contributory asset charge.

These assets are carried at cost less accumulated amortisation and any accumulated impairment losses. These intangible assets have been assessed as having finite useful lives and are amortised over their useful lives on a diminishing value basis. The amortisation charge has been recognised in the consolidated statement of comprehensive income in the line item “Amortisation expense”. If an impairment indicator arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

An impairment of the customer relationship within the MP Global segment relating to Warner Chilcott was recognised during the period after a review of expected future cash flows for the remaining three years. A charge of $181,000 was recognised in the Statement of Comprehensive Income.

Goodwill

After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment.

Goodwill has been allocated to the MP Global cash generating unit (CGU). The recoverable amount of the CGU is determined based on the value in use calculation using cash flow projections based on financial budgets approved by management covering a five-year period.

The pre-tax, risk-adjusted discount rate applied to these asset specific cash flow projections is 16%.

The Directors have used the following key assumptions in determining the value in use calculations:

Gross margin – the basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the year immediately before the budgeted year adjusted for the budgeted growth;
Budgeted overheads – the basis used to determine the value assigned to the budgeted overheads is the average overhead achieved in the year immediately before the budgeted year adjusted for the budgeted increase;
Discount rates – Discount rates reflect Management’s estimate of time value of money and the risks specific to the CGU. In determining appropriate discount rate, regard has been given to the weighted average cost of capital of the entity as a whole and adjusted for business risk specific to the CGU;
Growth rate estimate – the basis used reflects Management’s estimates, determined by future forecasts in sales generation methods and by growth rates achieved within previous periods. The average growth rate used for the first three years was 13.2%, for the next two years was 7.1% and the long-term rate of 2.5% for future periods.

Sensitivity to changes in assumptions

Management believe that based on currently available information there is no reasonable change to any of the above key assumptions, resulting in the carrying value of the CGU to materially exceed its recoverable amount.

NOTE 15 – TRADE AND OTHER PAYABLES

NOTE 15 – TRADE AND OTHER PAYABLES
	2012 $'000 2011 $'000
Current Trade payables Other payables	2,893 2,142 1,341 1,706
	4,234 3,848

Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Due to the short-term nature of these payables, their carrying value is their fair value.

Information regarding liquidity risk exposure is set out in Note 2.

NOTE 16 – INTEREST-BEARING LOANS AND BORROWINGS

	2012 $’000 2011 $’000
Current Bank loan 5.05% (secured)	- 2,339

The bank loan was fully repaid during the year ended 30 June 2012.

There were no defaults or breaches on any loans during the year ended 30 June 2012. During the year ended 30 June 2011 the Group’s lender waived a covenant in relation to an interest cover ratio due to a technical breach of the covenant.

A $5,000,000 Floating Rate Bill facility was put in place during the period with the Group’s banker. The facility can be used for any corporate purpose excluding payment of dividends. The facility was undrawn at 30 June 2012.

Security

A Registered Mortgage Debenture over the Group’s assets including goodwill has been provided to the Group’s banker. A first registered mortgage over property situated at 1538 Main North Rd, Salisbury South, South Australia is also held by the Group’s banker.

NOTE 17 – OTHER FINANCIAL LIABILITIES

	2012 $’000 2011 $’000
Current Earn-out liability Foreign Exchange Contract liability Non-current Earn-out liability	2,782 5,779 - 58
	2,782 5,837
	6,549 9,283

The Consolidated Entity has recognised a total of $9,330,894 in the current period (2011: $15,062,247), in relation to the earn-out liability incurred as part consideration on the acquisition of MPI on 30 October 2009. The amount payable to Hospira amounts to a maximum $41.6 million payable over a six-year period. The earn-out payment is based on the level of gross revenue recognised by MPI in relation to existing products at the time of the acquisition greater than $40 million in a calendar year period and capped at $65 million in a calendar year period, with a maximum $7.8 million payable in the first two years to 31 December 2011 and $6.5 million 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$1.00:A$1.00 for the balance of calendar year 2012 and for the balance of the earn-out period.

60 Mayne Pharma Annual Report 2012

NOTE 18 – PROVISIONS

NOTE 18 – PROVISIONS
	2012 $’000 2011 $’000
Provision for restoration Balance at beginning of year Utilised during the year Balance at end of year Current Non-current	562 600 (71) (38)
	491 562
	3,832 2,915 750 803
	4,582 3,718

NOTE 19 – CONTRIBUTED EQUITY

A. Movements in contributed equity

	2012 NUMBER 2011 NUMBER 2012 $’000 2011 $’000
Balance at beginning of year Issued during the year 1 Options exercised Transfer from employee equity benefits reserve on exercise of options Balance at end of year	151,778,700 148,178,700 31,870 29,649 374,344 - 146 - - 3,600,000 - 1,467 - - - 754
	152,153,044 151,778,700 32,016 31,870

These shares were issued under the Tax Exempt Share Plan (TESP) to long-term employees on 18 October 2011 for nil consideration at an effective issue price of $0.39 per share based on price at close of trade for that day. They are restricted for a period of three years but can be retained by employees who leave the company within that period.

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

B. Share options

	BALANCE AT GRANTED EXERCISED OTHER MOVEMENTS BALANCE	OPTIONS
		EXERCISABLE
EXERCISE PRICE EXPIRY DATE	BEGINNING DURING THE DURING THE DURING THE AT END	AT END OF
	OF YEAR YEAR YEAR YEAR OF YEAR	YEAR
Year ended 30 June
2012	Number Number Number Number Number Number
Unlisted options $0.600 17/04/12	875,000 - - (875,000) 1 - -
Unlisted options $0.600 30/11/12	250,000 - - - 250,000 250,000
Unlisted options $0.270 31/12/12	2,950,000 - - - 2,950,000 2,950,000
Unlisted options $0.352 27/01/16	- 1,500,000 - - 1,500,000 -
Unlisted options $0.345 13/02/19	- 1,500,000 - - 1,500,000 -
Unlisted options $0.345 13/02/19	- 2,500,000 - - 2,500,000 -
Unlisted options $0.345 13/02/19	- 3,500,000 - - 3,500,000 -
	4,075,000 9,000,000 - (875,000) 12,200,000 3,200,000

875,000 options lapsed during the period.

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

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

	BALANCE AT GRANTED EXERCISED	OTHER OPTIONS
		MOVEMENTS DURING THE BALANCE EXERCISABLE
EXERCISE PRICE EXPIRY DATE	BEGINNING OF YEAR DURING THE YEAR DURING THE YEAR	YEAR 2 AT END OF YEAR AT END OF YEAR
Year ended 30 June
2011	Number Number Number Number Number Number
Unlisted options $0.60 17/04/11	1,250,000 - (625,000) (625,000) - -
Unlisted options $0.60 17/04/12	1,750,000 - (875,000) - 875,000 875,000
Unlisted options $0.60 30/11/12	250,000 - - - 250,000 250,000
Unlisted options $0.27 31/12/12	5,050,000 - (2,100,000) - 2,950,000 2,950,000
	8,300,000 - (3,600,000) (625,000) 4,075,000 4,075,000

2. Comprises the sale of 600,000 options and the lapse of 25,000 options.

For share options granted during or since the financial year the fair value of the options granted was determined using the Black-Scholes option pricing model or the Monte Carlo Simulation option pricing model (refer to Note 1(Q)). The following inputs were used in the valuations:

valuations:
	OPTIONS ISSUED	OPTIONS ISSUED	OPTIONS ISSUED
	FEBRUARY 2012	JULY 2011	OCTOBER 2009
Number of options over shares	7,500,000	1,500,000	6,050,000
Black-Scholes model fair value	N/A	$0.102	$0.166
Monte Carlo Simulation model fair value	$0.125	N/A	N/A
Share price at grant date	$0.32	$0.35	$0.345
Exercise price	$0.345	$0.35	$0.270
Expected volatility	70%	60%	70%
Option life	7 years	4.51 years	1.9 years
Dividend yield	0%	8.5%	0%
Risk-free rate	3.86%	4.51%	5.13%

The expected volatility was determined based on historical volatility of the Company and of similar companies, and with reference to the Company’s stage of development.

C. Terms and conditions of contributed equity

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings.

In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.

D. Capital management

The primary objective of the Group in relation to capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 30 June 2012 and 30 June 2011.

Management monitors capital with reference to the net debt position. The Group includes within net debt, interest-bearing loans and borrowings, trade and other payables, less cash and cash equivalents. The Group’s current policy is to maintain a net debt position that the Directors are comfortable with and that can be serviced by the Group’s cash flows.

the Directors are comfortable with and that can be serviced by the Group’s cash flows.
	2012 $’000 2011 $’000
Trade and other payables Interest-bearing borrowings Less cash and cash equivalents Net (cash)/debt	4,234 3,848 - 2,339 (11,596) (5,807)
	(7,362) 380

The net (cash)/debt position excludes earn-out liabilities as they are funded from future gross revenue.

The Group is not subject to any externally-imposed capital requirements.

62 Mayne Pharma Annual Report 2012

NOTE 20 – RESERVES

Share-based payments reserve

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

management personnel, as part of their remuneration.
	2012 $’000 2011 $’000
Balance at beginning of year Issue of options to employees Transfer to contributed equity on exercise of options Balance at end of year	960 1,714 127 - - (754)
	1,087 960

NOTE 21 – ACCUMULATED LOSSES

	2012 $’000 2011 $’000
Balance at the beginning of the year Net profit after tax Dividends paid Balance at the end of the year	(8,656) (5,814) 6,153 1,679 - (4,521)
	(2,503) (8,656)

NOTE 22 – OPERATING SEGMENTS

The consolidated entity operates in two operating segments, being Mayne Pharma Australia (MPA) and Mayne Pharma Global (MP Global).

MPA revenues and gross profit are derived from the manufacturing, distribution and marketing of proprietary and generic products within Australia.

MP Global revenues and gross profit are derived from the manufacturing and out-licensing of proprietary pharmaceutical products to international marketing and distribution partners and provision of contract manufacturing services to third-party customers within Australia. The accounting policies used by the Group’s reporting segments internally are the same as those contained in Note 1 to the consolidated financial statements. Segments results are evaluated based on Gross Profit.

The segments identified in this report are different from previous reports where data was presented for two segments on an entity basis, namely Mayne Pharma International (MPI) and Mayne Pharma Group (MPG). This change in reportable segments has arisen as the newly appointed CEO and key management personnel have changed the way they manage and review the business’ operations. Comparatives have been restated.

Major customers

Approximately 51% of the MP Global segment revenue is derived from the sale of a particular product to a major customer and 17% of segment revenue is derived from the next largest customer.

Approximately 37% of the MPA segment revenue is derived from sales to the most significant customer and 32% of revenue is derived from the next largest customer.

Inter segment revenues

There were no inter-segment revenues for the 2012 or the 2011 year.

Revenue from external customers	2012 $’000 2011 $’000
Australia United States Korea Other Total external revenue	24,379 22,668 20,450 21,128 3,597 3,051 4,120 3,254
	52,546 50,101

The Consolidated Entity reports the following information on the operations of its identified segments:

	MPA $’000 MP GLOBAL $’000 TOTAL SEGMENTS $’000 ELIMINATIONS & ADJUSTMENTS $’000	TOTAL
		CONSOLIDATED
		$’000
Year ended 30 June 2012 Sale of goods 9,837 40,599 50,436 - Royalty income - 1,468 1,468 - R&D income - - - 306 Other - - - 336 Revenue 9,837 42,067 51,904 642 Cost of sales (6,749) (22,593) (29,342) - Gross profit 3,088 19,474 22,562 642 Amortisation of intangible assets Fair value movement in earn-out liability Other expenses (refer Statement of Comprehensive Income) Profit / (loss) before income tax Income tax benefit / (expense) Net profit / (loss) for the period	9,837 40,599 50,436 - - 1,468 1,468 - - - - 306 - - - 336
		50,436
		1,468
		306
		336
	9,837 42,067 51,904 642 (6,749) (22,593) (29,342) -	52,546
		(29,342)
		23,204
		(3,836)
		2,850
		(14,467)
		7,751
		(1,598)
		6,153

	MPA $’000 MP GLOBAL $’000 TOTAL SEGMENTS $’000 ELIMINATIONS & ADJUSTMENTS $’000	TOTAL
		CONSOLIDATED
		$’000
Year ended 30 June 2011 Sale of goods 9,316 36,384 45,700 - Royalty income 1,333 1,333 - R&D income 2,655 Other 413 Revenue 9,316 37,717 47,033 3,068 Cost of sales (6,562) (20,299) (26,861) - Gross profit 2,754 17,418 20,172 3,068 Amortisation of intangible assets Fair value movement in earn-out liability Other expenses(refer Statement of Comprehensive Income) Profit / (loss) before income tax Income tax benefit Net profit / (loss) for the period	9,316 36,384 45,700 - 1,333 1,333 - 2,655 413
		45,700
		1,333
		2,655
		413
	9,316 37,717 47,033 3,068 (6,562) (20,299) (26,861) -	50,101
		(26,861)
		23,240
		(6,098)
		(677)
		(17,969)
		(1,504)
		3,183
		1,679

NOTE 23 – NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

A. Cash and cash equivalents

For the purpose of the Statement of Cash Flows, cash and cash equivalents include cash on hand, in banks and deposits at call.

Cash and cash equivalents at the end of the year as shown in the statement of cash flows comprise the following:

	2012 $’000 2011 $’000
Cash at bank and in hand Short-term deposits	11,596 5,713 - 94
	11,596 5,807

Cash at bank attracts floating interest at current market rates.

64 Mayne Pharma Annual Report 2012

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

2012
$’000
2011
$’000

Net profit after income tax
Adjustments for:
Depreciation
Amortisation of intangibles and borrowing costs
Share based payments
Movement in earn-out liability
Net foreign exchange differences
Changes in assets and liabilities
Decrease in receivables
Decrease / (increase) in inventories
Decrease / (increase) in prepayments
(Increase) / decrease in deferred tax assets
(Decrease) / increase in creditors
Decrease) / increase in provisions
(Decrease) in current and deferred tax liabilities
Net cash from operating activities

6,153
1,679
1,781
1,653
4,009
6,205
272
-
2,850
677
(247)
(64)
1,876
302
(822)
77
(312)
40
939
(1,852)
387
(80)
864
(264)
1,337
(4,287)

13,387
4,086

NOTE 24 – RELATED PARTY DISCLOSURES

A. Subsidiaries

The consolidated financial statements include the financial statements of Mayne Pharma Group Limited and the subsidiaries listed in the following table:

COUNTRY OF INCORPORATION	% EQUITY INTEREST 2012 2011	INVESTMENT $’000 2012 2011
Mayne Pharma International Pty Ltd Australia Mayne Products Pty Ltd 1 Australia Mayne Pharma UK Limited 1 United Kingdom	100 100 100 100 100 100	39,205 39,205 - - - -
		39,205 39,205

Dormant subsidiaries

B. Ultimate parent

Mayne Pharma Group Limited is the ultimate parent entity.

C. Key management personnel

Details relating to KMP, including remuneration paid, are included in Note 25.

D. Transactions with related parties

The Company had no other transactions with related parties during the financial years ended 30 June 2012 or 30 June 2011.

Amounts owing to Directors, Director-related parties and other related parties at 30 June 2012 and 30 June 2011 were nil.

NOTE 25 – KEY MANAGEMENT PERSONNEL DISCLOSURES

A. Directors and other key management personnel

The Directors of Mayne Pharma Group Limited during the financial year were:

Mr Roger Corbett AO – Chairman
Mr Scott Richards – Executive Director and Chief Executive Officer (from 13 February 2012)
Hon Ron Best – Non-Executive Director
Mr Bruce Mathieson – Non-Executive Director
Mr Ian Scholes – Non-Executive Director
Dr Roger Aston – Executive Director and Chief Executive Officer (until 15 February 2012)

Other key management personnel consisted of:

Mr Mark Cansdale – Chief Financial Officer and Company Secretary
Mr Vince Caretti – General Manager, Operations
Mr Peter Truelove – National Sales and Marketing Director (from 21 May 2012)
Dr Angelo Morella – General Manager, Research and Innovation (until 6 March 2012)

B. Compensation of key management personnel

	2012 $ 2011 $
Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Termination payments	1,534,653 1,805,094 172,100 251,170 11,444 62,520 129,366 - 776,793 191,446
	2,624,356 2,310,230

C. Equity instrument disclosures relating to key management personnel

Option holdings

The number of options over ordinary shares in the Company held during the financial year by each Director of Mayne Pharma Group Limited and other key management personnel of the Company, including their personally related parties, are set out below.

HELD AT 30	HELD AT 30	GRANTED AS	EXERCISED/	GRANTED AS
		COMPEN-	OTHER OTHER HELD AT 30	COMPEN-
JUNE 2010		SATION	CHANGES CHANGES JUNE 2011	SATION
Directors Number Number Number Number Number Number Number Number Number
Mr R Corbett - - - - - - - - -
Mr S Richards - - - - - 7,500,000 - - 7,500,000
Hon R Best 600,000 - (250,000) - 350,000 - - - 350,000
Mr B Mathieson 600,000 - - - 600,000 - - (250,000) 350,000
Mr I Scholes 600,000 - - - 600,000 - - - 600,000
Mr C Bottomley 1,150,000 - (1,150,000) - - - - - -
Dr R Aston 3,150,000 - (600,000) 1 (25,000) 2,525,000 - (1,900,000) (625,000) - 2
6,100,000 - (2,000,000) (25,000) 4,075,000 7,500,000 (1,900,000) (875,000) 8,800,000

Other key management personnel
Mr M Cansdale	- - - - - 1,500,000 - - 1,500,000
Mr A Finlay 3	1,900,000 - (1,900,000) - - - - - -
Mr V Caretti	- - - - - - - - -
Dr A Morella 4	- - - - - - - - -
Mr P Truelove 5	- - - - - - - - -
	1,900,000 - (1,900,000) - - 1,500,000 - - 1,500,000
	8,000,000 - (3,900,000) (25,000) 4,075,000 9,000,000 (1,900,000) (875,000) 10,300,000

Dr R Aston sold 600,000 options that had vested to a third party.
Dr R Aston ceased employment with Mayne Pharma Group Ltd on 15 February 2012 and as such his holdings are not reported at 30 June 2012.
Mr A Finlay ceased employment with the Group effective 27 January 2011.
Dr A Morella ceased employment with the Group effective 6 March 2012.
Mr P Truelove commenced employment with the Group effective 21 May 2012.

66 Mayne Pharma Annual Report 2012

Movements in shares

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

HELD AT 30 JUNE 2010	HELD AT 30 JUNE 2010	RECEIVED DURING THE OTHER	RECEIVED DURING THE YEAR ON EXERCISE OF OTHER CHANGES DURING THE HELD AT
		YEAR ON CHANGES HELD AT
		EXERCISE OF DURING THE 30 JUNE
		OPTIONS YEAR 2011	OPTIONS YEAR SALES 30 JUNE 2012
Directors Number Number Number Number Number Number Number Number
Mr R Corbett - - 1,676,319 1,676,319 - - - 1,676,319
Mr S Richards - - - - - - - -
Hon R Best 957,244 250,000 (250,000) 957,244 - - - 957,244
Mr B Mathieson 11,533,833 - 1,877,789 13,411,622 - - - 13,411,622
Mr I Scholes 311,622 - - 311,622 - - - 311,622
Mr C Bottomley 3,280,000 1,150,000 (4,430,000) - - - - -
Dr R Aston 10,571,000 - (1,500,000) 9,071,000 - (9,071,000) 1 - - 1
26,653,699 1,400,000 (2,625,892) 25,427,807 - (9,071,000) - 16,356,807

Other key management personnel
Mr M Cansdale	- - 12,141 12,141 - 2,564 2 - 14,705
Mr V Caretti	10,000 - - 10,000 - 2,564 2 - 12,564
Dr A Morella 3	- - - - - - - -
Mr P Truelove 4	- - - - - - - -
Mr A Finlay 5	1,000,000 1,650,000 (2,650,000) - - - - -
Mr P Schembri 6	30,000 (30,000) - - - - -
	1,040,000 1,650,000 (2,667,859) 22,141 - 5,128 - 27,269
	27,693,699 3,050,000 (5,293,751) 25,449,948 - (9,065,872) - 16,384,706

Dr R Aston ceased with Mayne Pharma Group Ltd on 15 February, 2012 and as such his holdings are not reported at 30 June 2012.
Issued on 18 October 2011 to employees under the Mayne Pharma Group Ltd Tax Exempt Share Plan, restricted until 18 October 2014, and can be retained by the employee if they leave within that period.
Dr A Morella ceased employment on 6 March 2012.
Mr P Truelove commenced employment on 21 May 2012
Mr A Finlay ceased employment on 27 January 2011
Mr P Schembri ceased employment on 6 June 2011

NOTE 26 – SHARE-BASED PAYMENT PLANS

Recognised share-based payments expense

The expense recognised for employee services received during the year is shown in the table below:

	2012	2011
	$’000	$’000
Expense arising from equity-settled share-based payment transactions	127		-
Expense arising from Tax Exempt Share Plan	146		-

Tax Exempt Share Plan (TESP)

374,344 shares were issued under the Tax Exempt Share Plan to long-term employees on 18 October 2011 for nil consideration at an effective issue price of $0.39 per share based on price at close of trade for that day. They are restricted for a period of three years but can be retained by employees who leave the company within that period.

Employee share option plan (ESOP)

An employee share option plan is in place where directors and employees of the Company may be issued with options over the ordinary shares of Mayne Pharma Group Limited. Shareholders approved the plan at the AGM held on 28 October 2009. The options, issued for nil consideration, are issued in accordance with guidelines established by the Directors of Mayne Pharma Group Limited.

Each employee share option converts to one ordinary share in Mayne Pharma Group Limited upon exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. A total of 1,500,000 options were issued during the 2012 year under the ESOP. No options were issued during the year ended 30 June 2011.

	2012 NUMBER OF OPTIONS 2012 WEIGHTED AVERAGE EXERCISE VALUE$ 2011 NUMBER OF OPTIONS 2011 WEIGHTED AVERAGE EXERCISE PRICE$
Balance at beginning of year Granted during the year Exercised during financial year Other movements Balance at end of year	- - 2,200,000 0.34 1,500,000 0.352 - - - - (1,950,000) 0.31 - - (250,000) 1 0.17
	1,500,000 -

250,000 options were sold to a third party.

The remaining contractual life of share options outstanding as at 30 June 2012 was 3.6 years

Chief Executive Officer Share Option Plan (CEOSOP)

A share option plan is in place where the CEO of the Company may be issued with options over the ordinary shares of Mayne Pharma Group Limited. Shareholders approved the plan at the Extraordinary General Meeting held on 27 January 2012. The options, issued for nil consideration, were issued in accordance with guidelines established by the Directors of Mayne Pharma Group Limited.

Each CEO share option converts to one ordinary share in Mayne Pharma Group Limited upon exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to seven years after the Grant Date (13 February 2019) subject to the terms and conditions outlined in the plan, including Share Price hurdles ranging from $1.00 to $2.50, Service and Share Gateway conditions.

The options were issued in three tranches:

Tranche	NUMBER OF OPTIONS GRANT DATE VESTING DATE
1 2 3	1,500,000 13 February 2012 13 February 2016 2,500,000 13 February 2012 13 February 2017 3,500,000 13 February 2012 13 February 2018 2012 NUMBER OF OPTIONS 2012 WEIGHTED AVERAGE EXERCISE VALUE$ 2011 NUMBER OF OPTIONS 2011 WEIGHTED AVERAGE ERERCISE PRICE$
Balance at beginning of year Granted during the year Balance at end of year	- - - - 7,500,000 0.345 - -
	7,500,000 - - -

68 Mayne Pharma Annual Report 2012

Options not within the ESOP plan

Options issued outside of the ESOP are at the discretion of the Directors, subject to the necessary shareholder approval. All share options granted under this plan vested immediately. Share options were not subject to vesting conditions as it was the Board’s intention to incentivise key management personnel and executives to achieve the target performance of the Group from the business combination transaction during the year and not based on total shareholders’ return. There were no options granted during the year.

	2012 NUMBER OF OPTIONS 2012 WEIGHTED AVERAGE EXERCISE VALUE $ 2011 NUMBER OF OPTIONS 2011 WEIGHTED AVERAGE EXERCISE PRICE$
Balance at beginning of year Granted during the year Exercised during financial year Other movements Balance at end of year	4,075,000 0.36 6,100,000 0.42 - - - - - - (1,400,000) 0.51 (875,000) 0.60 (625,000) 0.60
	3,200,000 - 4,075,000

The weighted average remaining contractual life for the share options outstanding as at 30 June 2012 was 6.1 years.

The weighted average fair value of options granted during the year was $0.121.

All option plans have no cash settlement for options.

NOTE 27 – PARENT ENTITY DISCLOSURES

Financial position

*Financial position*
		2012 $’000 2011 $’000
Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity *Financial performance*		209 2,071 39,344 40,200
		39,553 42,271
		5,549 9,013 24,261 22,495
		29,810 31,508
		9,743 10,763
		32,016 31,871 1,087 960 (23,360) (22,068)
		9,743 10,763
		2012 $’000 2011 $’000
Loss for the year Other comprehensive income Total comprehensive income		(1,292) (353) - -
		(1,292) (353)

NOTE 28 – COMMITMENTS AND CONTINGENCIES

A. Commitments

Leasing commitments

The Company has entered into an operating lease on building office space for a one-year term, as well as equipment leases. Future minimum rentals payable under these operating leases are as follows:

	2012 $’000 2011 $’000
Within one year 1 After one year but not more than five years Total minimum lease payments	289 242 325 208
	614 450

The only commitment to the Parent is $49,000 for lease of premises.

Capital Commitments

The Group had no contractual obligations for the purchase of capital equipment as at 30 June 2012 (2011: $1,701,000).

B. Contingencies

Doryx® litigation

The Company together with Warner Chilcott received notification of four anti-trust lawsuits from Mylan, Rochester Drug Co-operative, Meijer Inc. and American Sales Company LLC, alleging that Warner Chilcott and Mayne Pharma have engaged in conduct that constrains generic competition for Doryx®. At the date of this report, no certainty exists as to the outcome of these actions, however Mayne Pharma does not foresee incurring any material financial liabilities in relation to these actions based on pre-existing contractual rights with Warner Chilcott and current legal advice received by the Company.

NOTE 29 – DIVIDENDS

No dividends were paid in the year ended 30 June 2012.

Dividends recognised in the 2011 year by the Company were:

CENTS PER SHARE	TOTAL AMOUNT $'000 FRANKED/ UNFRANKED DATE OF PAYMENT
2011 Special 2011 ordinary 1.0 Final 2010 ordinary 2.0	1,516 100% Franked 25 March 2011 3,005 100% Franked 18 November 2010 4,521

Franked dividends declared or paid were franked at the corporate tax rate of 30%.

Franking credit balance

	2012 $’000 2011 $’000
Opening balance Franking credits arising from payments Refunds from ATO Franking credits that will arise from the payment of income tax payable as at the end of the financial year Franking credits available for future reporting periods	592 592 - 480 (359) (729) 1,601 -
	1,834 343

70 Mayne Pharma Annual Report 2012

NOTE 30 – CLOSED GROUP CLASS ORDER

As an entity subject to Class Order 98/1418, relief has been granted to Mayne Pharma International Pty Ltd from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their financial report.

As a condition of the Class Order, Mayne Pharma Group Limited and Mayne Pharma International Pty Ltd entered into a Deed of Cross Guarantee on 28 June 2010. The effect of the deed is Mayne Pharma Group Limited has guaranteed to pay any deficiency in the event of winding up of its controlled entity or if they do not meet their obligations under the terms of the liabilities subject to the guarantee. The controlled entity has also given a similar guarantee in the event that Mayne Pharma Group Limited is wound up or if it does not meets its obligations under the terms of loans or other liabilities subject to the guarantee.

The Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position of the Closed Group is equal to the consolidated result of the Group as the controlled entities that are not part of the Closed Group were dormant during the financial year.

NOTE 31 – EVENTS SUBSEQUENT TO BALANCE DATE

DIRECTORS’ DECLARATION

In accordance w ith a resolution of the Director s of Mayne Ph a rma Group Limited, we state t h at:

1 . In the opini o n of the Direct o rs:
(a) The fin a ncial statemen t s and notes of Mayne Pharma Group Ltd for t he financial ye a r ended 30 Ju n e 2012 are in a ccordance wit h the Cor p orations Act 2 0 01, including:
- (i) Giving a true and f a ir view of its fi n ancial position as at 30 June 2 012 and perfor m ance
- (ii) Co m plying with Ac c ounting Stand a rds (including t he Australian A ccounting Interpretations) and Corporations R egulations 2001
(b) There a r e reasonable g rounds to believe that the Co m pany will be a b le to pay its debts as and whe n they become due and payable.
(c) There a r e reasonable g rounds to believe that the me m bers of the Cl o sed Group ide n tified in note 3 0 will be able to meet any obligati o ns or liabilities to which they are or may become subject, by v irtue of the Deed of Cross Guarantee.

(d) The fin a ncial statemen t s and notes al s o comply with t he International Financial Rep o rting Standard s as disclosed in Note 1B. T his declaration has been mad e after receivin g the declaratio n s required to b e made to the D irectors in acc o rdance with s e ction 295A of the Corporation s Act 2001 for t h e financial year ended 30 June 2012.

O n behalf of th e Board

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Scott Richards M anaging Direc t or

D ated at Melbo u rne this 21st d a y of Septembe r 2012.

72 Mayne Phar m a Annual Report 2012

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74 Mayne Pharma Annual Report 2012

ASX ADDITIONAL INFORMATION

Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 31 August 2012.

DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS

SIZE OF HOLDING	NUMBER OF SHAREHOLDERS NUMBER OF SHARES	NUMBER OF OPTION HOLDERS
			NUMBER OF OPTIONS
1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total	321 14.5% 63,997 0.0% 511 23.1% 1,450,644 1.0% 287 13.0% 2,399,152 1.6% 917 41.5% 32,938,536 21.7% 174 7.9% 115,300,715 75.8%	- - - - - - - - 6 12,200,000
	2,210 100.0% 152,153,044 100.0%	6 12,200,000

Included in the above total are 367 shareholders holding less than a marketable parcel of 1,316 shares.

OPTIONS

There are 12,200,000 options on issue held by six individual option holders. Options do not carry a right to vote.

TWENTY LARGEST ORDINARY FULLY-PAID SHAREHOLDERS

TWENTY LARGEST ORDINARY FULLY-PAID SHAREHOLDERS
	SHARES	% OF TOTAL
Mr Bruce Mathieson and related entities	13,411,622	8.81
HSBC Custody Nominees (Australia) Limited	10,691,977	7.03
Dr Roger Aston and related entities	9,071,000	5.96
UBS Nominees Pty Ltd	7,691,757	5.06
RBC Investor Services Australia Nominees Pty Limited	7,468,888	4.91
R & JS Smith Holdings Pty Ltd	6,100,000	4.01
Morgrae Pty Ltd	3,300,000	2.17
National Nominees Limited	2,401,324	1.58
Rosherville Pty Ltd	2,100,000	1.38
Dilan Corp Pty Ltd	2,000,000	1.31
Insync Investments Pty Ltd	1,700,000	1.12
Mr Roger Corbett and related entities	1,676,319	1.10
Mieke Investments Pty Ltd	1,500,000	0.99
G & N Lord Superannuation Pty Ltd	1,419,244	0.93
Westcap Pty Ltd	1,416,721	0.93
Ms Leanne Jane Weston	1,151,621	0.76
Harlin Pty Ltd	1,066,082	0.70
J & B Grant	1,000,000	0.66
Harvey Springs Estate Pty Ltd	1,000,000	0.66
Mr Barrie Smith	997,758	0.66

SUBSTANTIAL SHAREHOLDERS

The names of substantial shareholders in the Company who had notified the Company in accordance with section 671B of the Corporations Act are:

Mr B L Mathieson and related entities	13,411,622 shares
TIGA Trading Pty Ltd	9,488,557 shares
Dr R Aston and related entities	9,071,000 shares
Australian Leaders Fund Limited	7,644,395 shares

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INTELLECTUAL PROPERTY & GLOSSARY

Astrix®, Doryx®, Eryc®, Kadian®, Magnoplasm® and SUBACAP® are registered trademarks of the Consolidated Entity. Kapanol® is a registered trademark of Glaxo Group Limited used with permission.

Glossary

ANDA – Abbreviated New Drug Application

FDA – US Food and Drug Administration

IND – Investigational New Drug Application

MHRA – Medicines and Healthcare Products Regulatory Agency

Pharmacokinetic study – A study performed to examine the absorption, distribution, metabolism and excretion of a drug under investigation in health volunteers.

TGA – Therapeutic Goods Administration

76 Mayne Pharma Annual Report 2012

Mayne Pharma Annual Report 2012

corporate inFoRMation

legAl foRM of entity

mayne pharma group limited is a publiclylisted company whose shares are listed on the australian securities Exchange (asx) and are traded under the code ‘Myx’.

diRectoRs

Mr Roger Corbett, ao

BAnkeRs

national australia bank

level 2, 151 Rathdowne street Carlton ViC 3053

doMicile And countRy of incoRPoRAtion

australia

Mr scott Richards
hon Ron Best
Mr Bruce Mathieson
Mr ian scholes

coMPAny secRetARy

Mr Mark Cansdale

RegisteRed office

aBn: 76 115 832 963

level 14, 474 Flinders street Melbourne ViC 3000

telephone: +61 3 8614 7777 facsimile: +61 3 9614 7022 website: www.maynepharma.com

AuditoRs

Ernst & young 8 exhibition street Melbourne ViC 3000

solicitoRs

minter ellison lawyers Rialto towers 525 Collins street Melbourne ViC 3000

MAyne PhARMA shARe RegistRy

computershare investor services pty limited

yarra Falls, 452 Johnston street abbotsford ViC 3067 australia gpo Box 2975, Melbourne ViC 3001 australia

telephone Australia: 1300 132 632 international: +61 3 9415 4184 facsimile: +61 3 9473 2500 email: [email protected]

MAyne PhARMA

coMMunicAtions

the Mayne pharma website, www.maynepharma.com offers information about the Company, announcements to asx and presentations by the Chairman and Chief Executive officer. the website also provides essential information about the Company and its products.

mayne pharma group limited level 14, 474 Flinders street, Melbourne, Victoria, 3000, australia telephone: +61 3 8614 7777 facsimile: +61 3 9614 7022 website: www.maynepharma.com

AI assistant

MAYNE PHARMA GROUP LIMITED — Annual Report 2012

65396_rns_2012-09-20_9323b345-58c0-4094-afcd-1570802a9d1d.pdf

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DIRECTORS’ REPORT

DIRECTORS

DIRECTORS’ MEETINGS

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

PRINCIPAL ACTIVITIES

REVIEW AND RESULTS OF OPERATIONS

DIVIDENDS

EVENTS SUBSEQUENT TO REPORTING DATE

LIKELY DEVELOPMENTS

DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES

MR ROGER CORBETT AO, BCom, FAIM, FRMIA

MR SCOTT RICHARDS

HON RON BEST

MR BRUCE MATHIESON

MR IAN SCHOLES BCom, CA

COMPANY SECRETARY

DIRECTORS’ INTERESTS IN SHARE CAPITAL AND OPTIONS

UNISSUED SHARES UNDER OPTION

SHARE OPTIONS GRANTED

SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS

NON-AUDIT SERVICES

INDEMNIFICATION AND INSURANCE OF OFFICERS

ENVIRONMENTAL REGULATION AND PERFORMANCE

ROUNDING

AUDITOR’S INDEPENDENCE DECLARATION

REMUNERATION REPORT (AUDITED)

KEY MANAGEMENT PERSONNEL DETAILS

REMUNERATION POLICY

Remuneration Report approval at the FY11 Annual General Meeting

Fixed remuneration

Executive directors and executive officers

MAYNE PHARMA GROUP LIMITED Annual Report 2012