Report on Financial Performance: Mayne Parma Group Limited (MPG)

This report, prepared for Bundoora Partners, examines Mayne Parma Group Limited (MPG), a pharmaceutical company listed on the Australian Stock Exchange. It analyzes MPG's operations, industry regulations (including the Therapeutic Goods Act 1989 and Corporation Act 2001), and financial performance. The report details significant changes in the balance sheet and profit and loss account for the year ended 2016, including movements in other current assets, trade receivables, fixed assets, and liabilities. It also assesses business risks and the company's going concern status, alongside social responsibility considerations. The analysis covers revenue streams, cost of revenue, and expense trends, providing a comprehensive overview of MPG's financial health and market position. The report highlights the company's growth through product acquisitions and investments in capital projects, reflecting its strategic direction and future prospects in the Australian pharmaceutical market.

MAYNE PARMA GROUP LIMITED (MPG)
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Report title: MAYNE PARMA GROUP LIMITED (MPG)
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Executive summary

The audit firm Bundoora Partners has been given the responsibility to carry out the audit work
of Mayne Parma Group Limited (MPG). The audit team on the assignment has been given the
responsibility to prepare a report that needs to be presented to the senior partners of the audit
firm that will provide information about the business operations of the company. The report will
also provide information about the industry in which the company is carrying out its operation. It
will provide information about the legal requirements that need to be met in the industry in
which the company is operational. It will provide information about the profit and loss account
and balance sheet for the last year and the important accounting heads that has witnessed
significant change since last year. Further, report will provide information about the material
which statement about the business risk that could have been there considering the business in
which the company's operations.
Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Legislative requirements for Pharmaceutical companies................................................................5
Company Analysis...........................................................................................................................7

Business Risk.................................................................................................................................11
Going Concern...............................................................................................................................12
Social Responsibility.....................................................................................................................13
Conclusion.....................................................................................................................................14
Bibliography..................................................................................................................................15
Introduction
Mayne Parma Group Limited is a pharmaceutical company. The company is listed in the
Australian Stock Exchange. The management of the company which is more focused on
applying its expertise on commercializes branded and generic pharmaceuticals. The company
apart from its core activities is also involved in providing manufacturing and contract
development services to more than 100 clients all across the globe. The company is more

Technology driven and has a strong product portfolio and with number of products in pipeline.
Distribution channel of the company is very strong with its distribution partners scattered all
across the globe including Australia, North America, Asia, Europe etc. The company employs
more than 200 scientists with 750 local stuff to cater its need. The company in the last 30 years
has gained success in developing new oral drug delivery systems. This technology has been
successfully commercialized in number of products which has been successfully marketed all
across the globe.
The pharmaceutical companies in Australia includes biotechnology firms, companies providing
generic medicines, biomedical Research and other service related segments which includes
distribution and wholesaler. These companies are also indulged exporting medicines on across
the globe. As a result of which pharmaceutical is one of the largest manufacturer exports from
Australia. The Pharmaceutical industry in Australia has been considered as the most growing
industry in the country. The Australian pharmaceutical market has been considered as one of the
most competitive market in the country. There have been significant advancements in terms of
Technology that has been taken place in the country the recent years. In the last few years, there
has been major reforms increase the number of scrutiny from number of payers, regulators and
from various communities. In this situation, he pharmaceutical companies operational in
Australia is required to go through revision of their business model to remain responsive in the
market. (Pharma, n.d.)
Despite of all this fact it has been argued that the pharmaceutical industry in Australia is not
doing well as what is expected from them. In spite of developing new improved live saving and
life improving drugs, we are unable to meet out the expectation that the stakeholders and
shareholders has on the company. The pharmaceutical companies in Australia not working

efficiently and effectively that they could have been in normal circumstances. There has been
global transformation in terms of technology and in the healthcare industry which has shown
positive path to the pharmaceutical companies in Australia to prosper and grow. (PWC, n.d.)
Legislative requirements for Pharmaceutical companies
It is important for every industry to get regulated by some of the other regulations. These
regulations can be imposed on them either by the government or buy some of the regulatory
authority that has been set up by the government itself. The Pharmaceutical industry in Australia
is also bound by some of the regulations that have directly or indirectly been imposed on them
by the government. These regulations are important being they guide the companies to function
within the core limits that have been approved for them.
 Therapeutic Goods Act 1989: The Therapeutic Goods Act 1989, who provides
information about the export, import, supplier, manufacturing of Therapeutic Goods in
Australia. This act provides further information about the products which includes
labeling, advertisement and appearance of the medical product. As per the provisions of
this act, all medicines, medical devices and biological products are required to be
registered at Australian Register of Therapeutic Goods (ARTG). Through the help of the
regulations provided under this act, government can exercise proper control worthy over
the Therapeutic Goods. Further, the government facilitates control over trades between
the states and territories. This has been done with the intention to provide benefits to the

ultimate customer. The regulations and orders under the act are subject to change based
on the current day requirements. (TGA, n.d.)
 Corporation Act 2001: The financial statements of the company are required to be
prepared in accordance with the requirements provided by the Corporation Act 2001. The
financial statements of the company are required to abide by the Australian accounting
standards and other pronouncements that has been made by the Australian accounting
standard board. The financial statements are also required to comply with requirements of
international financial reporting standards.
 Australian pharmaceutical industry codes: Medical industry in Australia is regulated
by number of codes. There has been a separate industry body named as Medicines
Australia which takes care of the coding of the medicine. This body has its own code of
practice "the Medicines Australia Code of Conduct". This code of ethics provides
information about the marketing strategies and promotional techniques that can be used
by the companies at times of promoting their medicines in the market. The code of
practice provide by the body compliments the regulations provided in the Therapeutic
Goods Act 1989. There are basically two types of medicines prescribed medicines and
the other one is a non prescribed medicine. The above code of practice applies only to the
prescribed medicines. (Group, n.d.)
 Health Practitioner Regulation National Law (ACT) Act 2010: This act provide
information about the registration of pharmaceutical companies nationwide. This app has
been set up to provide consultancy all across the nation in relation to education practice
and registration of pharmaceutical companies. (Pharmatips, n.d.)

Company Analysis
In order to test the financial health of a company, it is important to analyze the balance sheet,
profit and loss account and cash flow statement of the company. The balance sheet provides
information about the financial position of the company whereas the profit and loss account
provides information about the financial performance of the companies in the current year. On
the other hand the cash flow statement will provide information about the moment can cash that
has been taken place in the company in the current year.
Mayne Parma Group Limited (MPG) is a pharmaceutical company which is listed in Australian
Stock Exchange. In the year ended 2016 there are certain line items in the balance sheet and
profit and loss account which has witnessed a significant movement as compared to last year.
Line items from the balance sheet that has witnessed significant movement as compared to last
year are as follows:
 The other current assets head in balance sheet has reached down to $888 million in the
year 2016 as compared to $5 million in the year 2015. There has been a huge increase in
the other assets numbers when it is compared to the prior year. The Other current assets
head majorly includes prepayment assets. There has been an approx 100% prepayment
asset in the year 2016 as compared to the prior year. There has been an additional new
line item "Contract rights relating to the Teva transaction settled post year-end"
amounting to $876 million which has driven all movement in other current assets. The

company has entered into an agreement of acquiring 42 new products from Teva
Pharmaceutical Industries Limited (“Teva”) and Allergan plc (“Allergan”). Company for
the year ended 30th June 2016 is recognized rights and obligations under the contract
 The Trade receivables of the company has increased 100% in the year ended 2016 as
compared to the prior year. Increase witnessed in the trade receivables of the company is
in line with increasing sales numbers. Out of the balance recognized on 30th June 2016 in
trade receivables more than 95% of the balance is below the threshold limit that the
company has set up for booking provisions for doubtful debts. The collection procedure
of the company is also very strong. The fight this is very evident from the fact that the
receivable turnover ratio of the company has come down to 3.22 in the year ended 30th
June 2016.
 The fixed assets of the company include land, buildings plant and equipments and capital
under construction. There has been a 40% increase in the gross block of the company in
terms of the fixed assets. The major movement has been witnessed in the capital under
construction head for the fixed assets. The company has been making huge Investments
in its capital projects which show that the company is on the verge of growth and is
expecting to capture huge market going forward. Further, there has been approx 20%
increase in the plant and equipment hand for the fixed assets in the current year.
 The Other liabilities of the company include other payable. For the financial year ended
30th June 2015 the other liabilities balance was close to $8 million. In the current
financial year ended 30th June 2016 there has been an additional line item "Settlement
obligation in relation to the Teva transaction" which has increased The Other liabilities
balance by $876 million. Just liability has been booked in account majorly on account of

an agreement that has been entered by Teva Pharmaceutical Limited 42 new products.
The company has acquired its liabilities that were settled on 3rd August 2016. Thus,
because pending liability worth 876 million dollars was booked in account for 30th June
2016 that was settled 3 days after the year end.
 The Intangible assets and goodwill the company has witnessed an increase of approx
10%. This was majorly on account of increase in development expenditure for the
company worth 22 million dollars in the current financial year ending 30th June 2016.
There has been addition worth 18 million dollars in the Intellectual Property Rights
section.
 The revenue numbers of the company includes sale of goods, sale of services, license
fees income and royalty income. Major League 95% of the sales numbers are contributed
by sale of goods and sale of services. There has been approx 35% increase in the sale of
service numbers. On the other hand, in case of sale of goods, the sales numbers has
increased by approx 115%. This is majorly on account of increased promotional an
advertisement activities that has been carried out by the company. Further, the company
has launched certain you life saving and life improvement drugs which has increased its
sales. Even the gross profit ratio of the company has increased from 56% to 62% in the
year ended 30th June 2016.
 The sales and other general administrative expenses have increased considerable e in
the current year ending 30th June 2016. This is majorly on account of increase in sales
numbers. Majorly the numbers have increased in the salary and wages expenses and other
salary related expenses for the company. Amortization of intangible assets numbers have
also increased by 100% in the current year.

 The cost of revenue numbers of the company has increased considerable in the current
year ending 30th June 2016. The increase in cost of revenue numbers is in line with the
increase in the revenue numbers of the company. However, the company has shown a
sign of improvement where the cost of revenue numbers in percentage to the sales has
improved. The cost of sales percentage numbers to sales has improved from 43% to 37%.
 The net cash from Operating activities has witnessed an increase approx 150%. This is
majorly on account of increase in receipt from customers. However company has paid
increased tax and interest cost but because of increasing the reset receipt from customers,
overall the net cash flow from operating activities has increased.
 The net cash flow from financing activities has decreased considerable in the current
year ending 30th June 2016. This was majorly on account of proceeds received from
shares in the last year which was being used in making payment of borrowings that has
been made by the company. Overall there was a net cash inflow from financing activities
worth 115 Million dollars. In the current year ending 30th June 2016 there was no such
transactions, resulting in an overall increase in the net cash inflow from financing
activities for 18 million dollars.
Business Risk
The Pharmaceutical companies because of their very nature are subject to various kinds of
business risk. This business risk may sometimes let to material misstatement in the financial
statements.

In the current scenario, there have been continuous technological changes that have taken place
on across the globe. As a result of which, there is a possibility that the plant and machinery that
has been acquired by company in a particular year may become obsolete in few years as
compared to what has actually been depreciating in the books. In this case, the plant and
machinery numbers that has been replicating in the balance sheet of the companies may not
replicate a true picture and may lead to material misstatement.
It is important for a pharmaceutical company to maintain low inventory levels. There might
always be a possibility that the inventory that the company is holding become obsolete because
of its expiry. In the situation it is important for the company to have a clear demarcation among
the inventory levels. Thus, having huge inventory maybe a business risk for the company and
can even lead to material misstatement.
This sales number for the company includes the sale of medicines that has been made to the
wholesalers. This is made by the pharmaceutical company’s book with an impression that if the
expiry of the goods or medicines the goods has been sold to the ultimate consumer the same will
be returned back to the company. In this scenario, management of the pharmaceutical company
is required to make necessary provision in the books for the returned medicines. In this case
there is a hello, possibility that the sales numbers of the company are inflated and may let to
material misstatements in the financial statements of the company.
The company while determining the intangible assets valuation includes the amount that has
been spends on development and research work. The amount so spent on development and
Research what is amortized over the period of time. In case of the Mayne Parma Group Limited
(MPG), the company in the current year ending 30th June 2016 has booked research and

development work worth 22 million dollars. The research and development work pertains to the
cost of new products that are expected to be coming in the future. It is not necessary that the
research work that has been carried out on a particular product or medicine has passed.
Sometimes it get failed and the company is required to book the entire amount is amortization
cost and is not required to carry out for a certain period of time. In pharmaceutical industry, it is
quite probable that the entire research and development work that has been carried out gives
positive results. Thus, in order to manipulate the current year profit numbers there might be a
possibility that the company has continued to amortize the entire development and research work
without determining whether any development and research work pertaining to a particular
product has failed or given negative results. This may let to material misstatement in the
financial statements of the company.
Going Concern
In situations where a company has to recall sum of its major brand products due to contamination
and product tempering, the company is required to remove this product from its sales numbers
for the year. In this scenario, it is important to determine the sales volume for the brands that has
been returned to the company as result of contamination and product tampering. Looking at the
sales numbers for the company for the current financial year, it is evident that the company is
entered into number of products and medicines. In order to comment on the Going Concern
ability of the company, it is important to determine the impact that these return product will have
on the entire sales volume of the company. Further it has been provided the impact of these
returned medicine is material, the management will test down the future viability of the

company. If the return of medicines due to contamination and product tempering is one of a case
and is not expected to take place in the future, it will not have any impact of the Going Concern
ability of the company. Although the sales of the company for the current financial year may fell
down but there is a possibility that with improved quality in the coming years the sales of those
major brands which have returned in the current year may increase. However if decontamination
and product tempering cannot be removed and is not an adhoc event, this might have an impact
on the Going Concern ability of the company and is required to be reported every annual report
by the auditors.
Social Responsibility
The management of Mayne Parma Group Limited (MPG) is socially very active. Management
takes care of the health of the employees and ensures that the employees work in a healthy
environment. They prefer making high quality products with more affordable pharmaceutical
pricing. The management further focuses on acquiring raw material from quality sources and
tries to meet out all regulatory standards in terms of quality for its products. They prefer
complying with the human rights and do not believe forced labors and trafficking. The company
has a separate based management mechanism through which they prefer meeting a byproduct
rather than throwing it as a scrap.

Considering the nature of industry in which the company is functioning into, it is important for
an auditor to obtain confirmation from some of the external sources. In case of sustainability
report, in order to test its reliability, the auditors can obtain confirmation from some of the other
external sources and based on the same can rely and make statement in the auditor report.
Conclusion
Considering the above analysis in relation to Mayne Parma Group Limited (MPG), Bundoora
Partners can accept the audit of the company. The company is fundamentally very strong and is
growing every year. The company has its own reputation in the eyes of shareholders and
stakeholders of the company.
Bibliography
Bibliography
Group, O.P., n.d. Australian Pharmaceutical Industry Codes. [Online] Available at:
http://www.ozpharmagroup.com/Australian-pharma-industry-regulations.asp [Accessed 17 Sept
2017].
Pharma, M., n.d. About Mayne Pharma. [Online] Available at:
https://www.maynepharma.com/about-us/about-mayne-pharma/ [Accessed 17 Sept 2017].
Pharma, M., n.d. Audit Report 2015. [Online] Available at:
https://www.maynepharma.com/media/1305/2015-annual-report.pdf [Accessed 19 Sept 2017].

Pharma, M., n.d. Audit report 2016. [Online] Available at:
https://www.maynepharma.com/media/1788/2016-mayne-pharma-annual-report.pdf [Accessed
19 Sept 2017].
Pharmatips, n.d. List of Pharmaceutical Company in Australia. [Online] Available at:
http://www.pharmatips.in/Articles/Pharma-Companies/List-Of-Pharmaceutical-Company-In-
Australia.aspx [Accessed 17 Sept 2017].
PSA, n.d. Legislation: Australian Capital Territory. [Online] Available at:
https://www.psa.org.au/practice-support-and-tools/psa-information-framework/legislation-
australian-capital-territory [Accessed 17 Sept 2017].
PWC, n.d. Challenges and Change: A report on the Australian pharmaceutical industry, PWC
Australia. [Online] Available at: http://www.pwc.com.au/publications/healthcare-challenges-
and-change.html [Accessed 17 Sept 2017].
TGA, n.d. About the Australian therapeutic goods legislation. [Online] Available at:
https://www.tga.gov.au/about-australian-therapeutic-goods-legislation [Accessed 17 Sept 2017].