Home' Acrux Annual Report : Acrux Annual Report 2017 Contents Notes to the consolidated financial statements continued
For the financial year ended 30 June 2017
3. Financial risk management and fair value measurements continued
(b) Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange
rates. The consolidated entity is exposed to material currency risks due to revenue primarily being denominated in US dollars. Currency risk
management strategies are regularly reviewed.
Bank accounts denominated in US dollars are maintained in order to facilitate receipts and payments. Cash reserves at 30 June 2017
included $9.4 million (2016: $0.5 million) denominated in US dollars. A change of 10% in the AUD/USD exchange rate at 30 June 2017
would change the net profit/(loss) and equity of the consolidated entity by approximately $1.0 million (2016: immaterial).
The balance of receivables at 30 June 2017 includes the right to receive US$4.0 million (2016: US$3.2 million) of Axiron® royalties
for the fourth quarter of the 2016/17 financial year. A change of 10% in the AUD/USD exchange rate at 30 June 2017 would change
the consolidated net profit/(loss) and equity by approximately $0.5 million (2016: $0.4 million).
The consolidated entity does not enter into forward exchange contracts. At balance date, there were nil (2016: nil) forward exchange
contracts. The accounting policy for forward exchange contracts is detailed in Note 1(n).
In future periods, material amounts of revenue are expected to be received in US dollars as royalties and potential sales milestone payments
under the Axiron® agreement are payable in US dollars and royalties and milestones payments under potential agreements relating to
pipeline products may be payable in US dollars.
(c) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation. The maximum exposure to credit risk of recognised financial assets at balance date, excluding the value of any collateral
or other security, is the carrying amount of those assets, net of any provisions for impairment of those assets, as disclosed in Consolidated
Statement of Financial Position and notes to the consolidated financial statements.
Cash reserves form the majority of the consolidated entity's financial assets at 30 June 2017. Acrux Limited is a Pooled Development Fund.
The Pooled Development Fund Act restricts the investment of cash reserves to deposits with an Australian bank licensed to take deposits.
This policy is also followed for all cash held by the other companies within the consolidated entity.
At 30 June 2017 the consolidated entity had a material credit risk exposure to Eli Lilly and Company and its subsidiaries. The receivables
recorded on the consolidated entity's balance sheet contains an amount of AUD$5.3 million due from Eli Lilly and Company under the
licence agreement for the commercialisation of Axiron®. During future reporting periods, the consolidated entity is expected to continue
to have a material credit exposure to Eli Lilly and Company and its subsidiaries, due to the royalties and milestone payments expected.
At 30 June 2017, Eli Lilly and Company's credit ratings were AA-(S&P) and A2 (Moodys). The credit rating and financial health of Eli Lilly
and Company are monitored regularly. The grant of the licence under the licence agreement is subject to payment by Eli Lilly and Company
of the amounts in accordance with the agreement.
(d) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The financial liabilities of the consolidated entity at the balance date are all expected to mature within three months of the balance date.
The consolidated entity has sufficient cash reserves, $34.0 million (2016: $29.4 million), to settle these liabilities and to fund operating
expenditure for at least two years based on current cash flow forecasts. The consolidated entity does not have an overdraft or loan facility.
The maturity profile of the consolidated entity's cash term deposits is actively managed and compared with forecast liabilities to ensure
that sufficient cash is available to settle liabilities as they fall due.
(e) Fair values
The fair value of financial assets and financial liabilities approximates their carrying amounts as disclosed in the Consolidated Statement
of Financial Position and notes to the consolidated financial statements. Financial assets and liabilities measured and recognised at fair
value have been determined by the following fair value measurement hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Input other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs for the asset or liability that are not based on observable market data.
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