CSL Ltd Annual Report 2019

CSL Limited Annual Report 2019 96 Notes to the Financial Statements Note 2: Revenue and Expenses Recognition and measurement of revenue Revenue is recognised when the Group satisfies a performance obligation by transferring control of the promised good or service to a customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for the goods or services. Further information about each source of revenue from contracts with customers and the criteria for recognition follows. Sales: Revenue is earned (constrained by variable considerations, which include returns, discounts, rebates and allowances) from the sale of products and services. Sales are recognised when performance obligations are either satisfied over time or at a point in time. Generally the supply of product under a contract with a customer will represent the satisfaction of a performance obligation at a point in time, which is when control of the product passes to the customer, or generally upon shipment. Significant estimates on Seqirus sales returns is performed by management in respect of the influenza season expected to be subject to return. Management performs the estimate with inputs including historical returns and customer sales data amongst other factors. For contracts where the customer controls the plasma (tolling contracts) and the Group provides fractionation services – the Group recognises revenue over time as the performance obligations are satisfied. Royalties: Revenue from licensees of CSL intellectual property reflect a right to use the intellectual property as it exists at the point in time in which the licence is granted. Where consideration is based on sales of product by the licensee, it is recognised when the customer’s subsequent sales of product occurs. Licence revenue: Revenue from licensees of CSL intellectual property reflects the transfer of a right to use the intellectual property as it exists at the point in time in which the licence is transferred to the customer. Consideration is highly variable and estimated using the most likely amount method. Subsequently, the estimate is constrained until it is highly probable that a significant revenue reversal will not occur when the uncertainty is resolved. Revenue is recognised as or when the performance obligations are satisfied. Pandemic facility reservation fees: Revenue from governments in return for access to influenza manufacturing facilities in the event of a pandemic. Contracts are time based and revenue is recognized progressively over the life of the relevant contract, which aligns to the performance obligations being satisfied. Revenue from contracts with customers includes amounts in Total Operating Revenue except Other Income. Expenses 2019 US$m 2018 US$m Finance costs 127.8 108.4 Unrealized foreign currency losses on debt 48.9 – Total finance costs 176.7 108.4 Depreciation and amortisation of fixed assets 273.1 238.9 Amortisation of intangibles 102.3 57.8 Total depreciation and amortisation expense 375.4 296.7 Write-down of inventory to net realisable value 191.3 174.6 Rental expenses relating to operating leases 81.6 69.3 Employee benefits expense 2,184.2 1,942.9 Net foreign exchange gain/(loss) 18.3 (16.4) Recognition and measurement of expenses Total finance costs: Includes interest expense and borrowing costs. These are recognised as an expense when incurred, except where finance costs are directly attributable to the acquisition or construction of a qualifying asset where they are capitalised as part of the cost of the asset. Capitalised interest for qualifying assets during the year ended 30 June 2019 was $16.4m (2018: $12.7m). Interest-bearing liabilities and borrowings are stated at amortised cost. Any difference between the borrowing proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the borrowing period using the effective interest method. Unrealized foreign currency losses on debt is related to the EUR350m and CHF400m of Senior Unsecured Notes in the US Private Placement market (see Note 11). The foreign currency risk related to this debt was fully hedged as a net investment hedge in 2018 but only partially hedged as a cash flow hedge in 2019 following a transitional change of functional currency in certain operational entities. Depreciation and amortisation: Refer to Note 8 for details on depreciation and amortisation of fixed assets and Note 7 for details on amortisation of intangibles. Write-down of inventory to net realisable value: Included in Cost of Sales in the Statement of Comprehensive Income. Refer to Note 4 for details of inventories. Rental expenses relating to operating leases: Operating leases are leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. Employee benefits expense: Refer to Note 5 for further details. Goods and Services Tax and other foreign equivalents (GST) Revenues, expenses and assets are recognised net of GST, except where GST is not recoverable from a taxation authority, in which case it is recognised as part of an asset’s cost of acquisition or as part of the expense.