Somnomed : SOM Preliminary Accounts FY17 24.08.2017

SOMNOMED LIMITED ABN 35 003 255 221 ASX Preliminary final report - 30 June 2017 Lodged with the ASX under Listing Rule 4.3A Contents

Results for announcement to the Market 1

Preliminary Consolidated Statement of Profit or Loss and Other Comprehensive Income 3

Preliminary Consolidated Statement of Financial Position 4

Preliminary Consolidated Statement of Changes in Equity 5

Preliminary Consolidated Statement of Cash Flows 6

Notes to the accounts 7-27

SomnoMed Limited Year ended 30 June 2017 Results for Announcement to the Market

2017	2016
Revenue from ordinary activities	Increase by $5,242,821	Increase by 11.89%	to	$49,326,974	$44,084,153
Revenue from ordinary activities and interest revenue	Increase by $5,311,122	Increase by 12.03%	to	$49,451,210	$44,140,088
Profit/(loss) from ordinary activities after tax attributable to members	Decreased by $3,508,883	Decreased by 2127%	to	($3,343,878)	$165,005
Profit/(loss) from ordinary activities before tax attributable to members	Decreased by $3,472,268	Decreased by 658%	to	($2,944,543)	$527,725

Additional dividend/distribution information

Details of dividends/distributions declared or paid during or subsequent to the year ended 30 June 2017 are as follows:

Dividends/distributions	Amount per security	Franked amount per security
Final dividend	Nil	Nil
Interim dividend	Nil	Nil

The Board has resolved that no dividend will be paid for the year ended 30 June 2017.

Record date for determining entitlements to the dividendN/A Review of the financial year 2017 A Historic Transitional Year for SomnoMed

The financial year 2016/17 is likely to be seen in retrospect as a milestone year for SomnoMed. Our new "Direct To Patient" business Renew Sleep Solutions ("RSS") was formed in the US at the beginning of the year and managed to open its first seven centres across six US states in a matter of just seven months from the time its first centre opened in December 2016.

At the same time, SomnoMed's core business, recovered in the fourth quarter showing a strong return to year on year growth, after slowing in the US in the second and third quarter because of the perception of some US customers that RSS would have a negative impact on their own practice. Very positive trends continued in Europe with growth rates climbing and exceeding 20% in Q4. This allowed Europe to represent close to 40% of our global sales in the financial year, which is the result of growing support for SomnoMed's alternative treatment for sleep apnea from medical practitioners and insurers in a growing number of European countries.

SomnoMed's core business increased its operating profit before group overheads by 30% generating an EBITDA growth of 60% to $2.4 million. The RSS start-up losses came to $4.1m associated with the recruitment of a skilled management team, formation of the RSS head office departments and start-up losses of the first seven centres. The consolidated EBITDA for the year came to a negative $1.7 million.

The financial year 2016/17 finished with revenues of $49.3 million, which represented an increase of 12% over the previous year. MAS device revenues were $41.1 million (up 10.6%), with non-device revenues exceeding $8.2 million. Total sales of 68,100 MAS units were 15.5% higher than in the previous year, with European sales growing by 20.6% due to strong results in both established and emerging markets and US unit sales increasing by 14.8%.

Gross margin generated on the sale of SomnoDent®devices during the financial year increased from 68.6% to 70%, due to volume increases and the impact of the use of digital technology. Overall gross margin increased from 57.5% to 58.4%

The cash investment made in RSS over 2017 has been $6.2m, with SomnoMed finishing the year with a cash balance of $14.2 million. The ongoing investment in RSS in the year ahead will be funded from existing cash reserves and operational cashflows.

SomnoMed is entering the new financial year in a very strong position. The first RSS centres were able to prove the concept and started generating a positive contribution after only five months of operation, whilst SomnoMed's core business will keep growing with positive signs in Europe and the US for 2017/18 and beyond.

Revenues for 2017/18 are expected to grow by 50-60%, from just under $50 million last year to between $75-80 million. The operating profits of SomnoMed's core business are expected to grow substantially in 2017/18. We expect the RSS centres open for 12 months or longer to generate contributions to cover the losses generated by the 10 to 12 new centres which are expected to open during the financial year 2017/18 and a substantial part of RSS' central cost.

The transition to a sleep solutions based company will continue and expand in 2017/18 and our guidance reflects SomnoMed's EBITDA increasing to around $5 million and providing a strong signal where the combined business of RSS and SomnoMed will go in the future.

SomnoMed Limited Preliminary Consolidated Statement of Profit or Loss and Other Comprehensive Income

Other comprehensive income Items that may be reclassified subsequently to profit or loss
Foreign exchange translation difference for foreign operations	(761,137)	295,748
Other comprehensive income for the year, net of tax	(761,137)	295,748
Total comprehensive income for the year attributable to the
owners of SomnoMed Limited	(4,924,468)	362,933

for the year ended 30 June 2017

Note	2017 $	2016 $
Revenue from sale of goods and services, net of discounts	49,326,974	44,084,153
Cost of sales	(20,517,224)	(18,741,061)
Gross margin	28,809,750	25,343,092
Sales and marketing expenses	(13,698,398)	(11,942,634)
Administrative expenses	(12,678,003)	(8,411,251)
Operating profit before corporate, research and business development expenses, other items of revenue and expenses and income tax	2,433,349	4,989,207
Corporate, research and business development expenses	(4,130,384)	(3,514,198)
Interest income	124,236	55,935
Net fair value (loss)/gain on contingent consideration payable	(32,551)	436,508
Share based payments	(805,502)	(337,397)
Depreciation and amortisation	(1,232,311)	(1,020,054)
Impairment of goodwill	(40,000)	-
Impairment of capitalised development costs	-	(49,843)
Interest expense	(20,422)	(10,723)
Loss on disposal of fixed assets	(6,025)	-
Unrealised foreign exchange loss	(54,386)	(58,663)
(Loss)/profit before income tax	(3,763,996)	490,772
Income tax expense attributable to operating profit	(399,335)	(423,587)
(Loss)/profit after income tax for the year	(4,163,331)	67,185

(Loss)/profit for the year is attributable to: Owners of the parent	(3,343,878)	165,005
Non-controlling interest	(819,453)	(97,820)
(4,163,331)	67,185
Total comprehensive income for the year attributable to:
Owners of SomnoMed Limited	(4,105,015)	460,753
Non-controlling interest	(819,453)	(97,820)
(4,924,468)	362,933
Basic earnings per share (cents per share)	9	(6.23)	0.34
Diluted earnings per share (cents per share)	9	(6.23)	0.32
The above statement should be read in conjunction with the consolidated notes.