BENITEC BIOPHARMA LIMITED

ABN 64 068 943 662

Interim Report

for the half-year ended December 31, 2018

Contents

The information in this report should be read in conjunction with the most recent annual financial report and any public announcements made by Benitec Biopharma Limited.

BENITEC BIOPHARMA LIMITED

Interim Report for the half-year ended December 31, 2018

BENITEC BIOPHARMA LIMITED

Company history, general information, explanatory notes and forward looking statements

for the half-year ended December 31, 2018

Company History

Benitec Biopharma Limited (‘the Company’) was incorporated under the laws of Australia in 1995 and has been listed on the Australian Securities Exchange, or ASX, since 1997. Since then, the Company has focused on the development of novel genetic medicines. The propriety platform, called DNA-directed RNA interference, or ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease.

While the Company has established some licensing arrangements, the main source of revenue during the past 6 months has come from the global research partnership and license agreement for BB-301 (now designated as AXO-AAV-OPMD) with Axovant Sciences. Until this significant agreement was brokered the Company has funded its operations primarily from private placements of ordinary shares, including $5.4m in March 2017 and $2.5m in October 2016, a U.S. initial public offering in August 2015 of $18.8m (U.S.$13.8m) and $31.5m in February 2014. In May 2018, we undertook a placement of 15,444,020 fully paid ordinary shares representing 772,201 American Depositary Shares (ADS), resulting in A$2,625,483 in gross proceeds. In June 2018, we issued to Nant Capital, 36,442,672 shares in a 1-for-2 entitlement offer resulting in gross proceeds of A$6,195,254.  

The Company has taken to account cumulative research and development grants from the Australian federal government since inception, totalling $22.708m. Since the Nasdaq listing in July 2015, the Company has earned licensing revenue from licensing our ddRNAi technology to six biopharmaceutical companies, totalling $14.713m.

In October 2012, the Company acquired Tacere Therapeutics, Inc., an RNA interference therapeutics company based in California with a development program focused on hepatitis C and age related macular degeneration (AMD). As consideration for the acquisition, we issued a total of 4,092,854 ordinary shares (taking into account a 25:1 share consolidation that became effective in July 2013), representing 9.8% of our issued capital immediately after the transaction, having an aggregate value of $1.5m.

Benitec Biopharma Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is Suite 1201, 99 Mount Street, North Sydney, NSW 2060 Australia. Our telephone number is +61 2 9555 6986. The Company’s website address is www.benitec.com

General Information

The financial statements cover Benitec Biopharma Limited as a Group consisting of Benitec Biopharma Limited and the entities it controlled at the end of, or during, the six month period ended December 31, 2018. The financial statements are presented in Australian dollars, which is Benitec Biopharma Limited's functional and presentation currency.

A description of the nature of the Group's operations and its principal activities are included in the Directors' report, which is not part of the financial statements.

The financial statements were authorised for issue, in accordance with a resolution of directors, on February 22, 2019. The directors have the power to amend and reissue the financial statements.

The Company’s directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (3rd Edition) (‘Recommendations’) to the extent appropriate to the size and nature of the Group’s operations.

The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation throughout the financial reporting period for the Company, identifies any recommendations that have not been followed, and provides reasons for not following such recommendations.

BENITEC BIOPHARMA LIMITED

Company history, general information, explanatory notes and forward looking statements

for the half-year ended December 31, 2018

The Company’s Corporate Governance Statement and policies, which were approved by the Board of directors on August 2 9 , 201 8 can be found on its website:   http://www.benitec.com/investor-centre/governance .

Explanatory Notes

Unless otherwise indicated or the context implies otherwise:

The Company’s fiscal year end is June 30. References to a particular “fiscal year” are to our fiscal year ended June 30 of that calendar year.

Unless otherwise indicated, the consolidated financial statements and related notes included in this document have been prepared in accordance with AASB 134 Interim Financial Reporting and also comply with International Financial Reporting Standards, or IFRS, and interpretations issued by the International Accounting Standards Board, or IASB, which differ in certain significant respects from Generally Accepted Accounting Principles in the United States, or GAAP.

Forward-Looking Statements

This document contains "forward-looking statements" within the meaning of section 27A of the US Securities Act of 1933 and section 21E of the US Securities Exchange Act of 1934. The Company has tried to identify such forward- looking statements by use of such words as "expects", "intends", "hopes", "anticipates", "believes", "could", "may", "evidences" and "estimates", and other similar expressions, but these words are not the exclusive means of identifying such statements. Such statements include, but are not limited to, any statements relating to Benitec's pipeline of ddRNAi-based therapeutics, including the initiation, progress and outcomes of clinical trials and any other statements that are not historical facts. Such forward-looking statements involve risks and uncertainties, including, but not limited to, risks and uncertainties relating to the difficulties or delays in our plans to develop and potentially commercialise our product candidates, the timing of the initiation and completion of preclinical and clinical trials, the timing of patient enrolment and dosing in clinical trials, the timing of expected regulatory filings, the clinical utility and potential attributes and benefits of ddRNAi and our product candidates, potential future out-licenses and collaborations, our intellectual property position and duration of our patent portfolio, the ability to procure additional sources of financing and other risks detailed from time to time in filings that the Company makes with the ASX and US Securities and Exchange Commission, including our most recent annual report on Form 20-F and our reports on Form 6-K. Such statements are based on management's current expectations, but actual results may differ materially due to various factors, including those risks and uncertainties mentioned or referred to in this presentation. Accordingly, you should not rely on those forward-looking statements as a prediction of actual future results.

The forward-looking statements made in this document relate only to events or information as of the date on which the statements are made in this document. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements because of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2017

The Company’s Directors present their report on the consolidated entity consisti ng of Benitec Biopharma Limited and the entities it controlled (‘Group’) for the half-year ended December 31 , 201 8 .

Directors

The following persons were directors of Benitec Biopharma Limited (‘Benitec’) during the whole of the period and up to the date of this report, unless otherwise noted:

Dr Jerel A Banks (Executive Chairman and Chief Executive Officer)

Mr Peter Francis (Non-Executive Director)

Mr Kevin Buchi (Non-Executive Director)

Ms Megan Boston (Executive Director and Head of Operations Australia)

Financial Update

Benitec's comprehensive profit for the half-year ended December 31, 2018 was $9.065m compared to a loss of $5.809m the previous corresponding period.

The profit of $9.065m is explained by:

As at December 31, 2018, the Company had cash on hand of $23.186m. This was an increase of $7.101m from June 30, 2018. This represents operating cash outflow of $9.579m offset by reimbursement from Axovant of $1.565m and revenue and other income of $14.246m, purchase of plant and equipment of $0.042m and a foreign exchange gain of $0.911m.

Benitec's current assets at December 31, 2018 were $29.894m (June 30, 2018: $20.895m), with current liabilities of $2.141m (June 30, 2018: $2.547m).

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

R eview of Operations

Benitec Biopharma is a clinical-stage biotechnology company focused on the development of novel genetic medicines.  The proprietary platform, called DNA-directed RNA interference, or ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes following a single administration.

The ddRNAi-based genetic medicines under development by Benitec represent a pipeline of proprietary and partnered product candidates that can, potentially, be used to meaningfully improve upon the existing standards of care for chronic and life-threatening human diseases. Through the combination of the targeted gene silencing effect of RNAi together with the durable gene expression associated with the use of modified viral vectors, ddRNAi has the potential to produce durable silencing of disease-causing genes following a single administration of the proprietary genetic medicine. This novel attribute of the investigational agents emerging from the platform could facilitate the achievement of robust clinical activity while greatly reducing the dosing frequencies traditionally expected for medicines employed for the management of chronic diseases. Additionally, the establishment of chronic gene silencing via ddRNAi-based genetic medicines could significantly reduce the risk of patient non-compliance during the course of medical management of potentially fatal disorders.

Benitec endeavours to become the leader in discovery, development, and commercialisation of ddRNAi-based therapeutics for a range of human diseases with high unmet clinical need.

The management team will pursue the following corporate strategies to accomplish these goals:

Benitec will work in concert with Axovant Sciences to complete the preclinical development work and the core development work underlying the achievement of FDA-compliant Chemistry, Manufacturing and Controls related processes and Good Manufacturing Practices for AXO-AAV-OPMD (formerly designated as BB-301).

Preclinical research activities supporting the development of ddRNAi-based therapeutics for the five clinical indications partnered with Axovant Sciences, are slated to begin in the coming months. The research program focused on, C9orf72 gene-related ALS and FTD is the first partnered research program that has been disclosed.  

Following the recent restructuring of the management team, and the execution of the transformative research, development, and commercial partnership with Axovant Sciences, the senior leadership team of Benitec will work to redefine the core proprietary programs on which our efforts will focus.

Benitec will provide additional details regarding the strategic direction of the research and development activities efforts of the Company during the first quarter of the 2019 calendar year.

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

Review of Operations continued

The partnership with Axovant Sciences provides Benitec with an extraordinarily rare opportunity to unambiguously demonstrate the exceptional breadth of the scientific, clinical, and commercial applications of the ddRNAi platform. This transformative partnership significantly enhances the financial, intellectual, and clinical development resources available to the Company as we work to build Benitec into a diversified biopharmaceutical company.

The senior leadership team will continue to explore partnership opportunities with global pharmaceutical companies, as we expect the unique attributes of the proprietary ddRNAi approach and the breadth of potential clinical applications to support the formation of additional collaborations over a broad range of disorders with significant unmet medical need.

Proprietary Research Programs

Coincident with the initiation of the tenure of the new management team, a comprehensive review of the research and development pipeline was initiated.  The senior leadership team, the Board of Directors and key members of the research and development teams have been engaged in a stringent strategic planning process with the core efforts focused on identification of critical areas of intersection between the unique biological and clinical applications of ddRNAi, existing areas of significant unmet medical need and the current competitive landscape with respect to therapeutic discovery and development. Throughout this process, the Benitec team has also continued to focus on further refinement of the proprietary processes employed to affect successful target selection and program prioritization.

To date, this strategic review has yielded several putative biological targets and clinical indications that bear further evaluation, and the scientific team is working to complete the requisite analytical processes to support the production of comprehensive research plans for each potential program prior to final target selection and approval by the senior leadership team and the Board of Directors.  

Head and Neck Squamous Cell Carcinoma:

On December 21, 2018 Benitec announced that the objective response rate required to support continued patient enrolment into the BB-401 Phase II study was not achieved.    Patients enrolled in the Phase II clinical trial have been diagnosed with an advanced disease that is refractory to all available standard therapies and must have at least one malignant lesion that is amenable to direct injection with BB-401. An interim analysis was conducted to evaluate the objective response rate observed for the initial 12-patient cohort treated in Stage 1 of the Phase II study. Benitec’s scientific and clinical teams continue to evaluate the data derived from the interim evaluation of the first cohort of patients treated in this Phase II study.  However, as noted above, the objective response rate required to support continued patient enrolment into the Phase II study was not achieved. Benitec’s scientific and clinical teams will continue with patient follow-up for the patients treated in Stage 1 of the Phase II study and additional details will be disclosed following the completion of the comprehensive analyses of the clinical data derived from ongoing patient follow-up. There are several critical points to note regarding the underlying nature of BB-401 as it relates to the other distinct investigational agents in the Benitec pipeline:

• At the molecular level, all of the investigational agents that are currently under development by Benitec are fundamentally different from BB-401. The proprietary investigational agents under development by

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

Review of Operations continued

Propriety Research Programs continued

Benitec employ ddRNAi which facilitates gene silencing via the production of short hairpin RNA-based molecules whereas BB-401 represents a modified antisense oligonucleotide.

• All of the investigational agents that are currently under development by Benitec function by a mechanism of action that is completely distinct from that of BB-401.  BB-401 achieves gene-silencing via a mechanism described as post-transcriptional interference. The proprietary ddRNAi-based agents in the Benitec pipeline ultimately achieve gene-silencing via RNA interference driven by activation of the RNA-Induced Silencing Complex.

• All of the investigational agents that are currently under development by Benitec employ tissue specific delivery vectors (e.g. AAV9) whereas BB-401 has no delivery vector and was delivered intratumorally as a “naked” plasmid.

Hepatitis B (HBV):

The Company is developing BB-103 for the treatment of HBV. Results of in vivo and in vitro studies, from December 2016, March 2016 and December 2015, demonstrated the potential utility of an approach that combines RNAi with gene therapy to treat HBV. In April 2017, the Company completed a pre-IND submission with the FDA in which the feedback provided by The Agency included details regarding steps required to initiate a clinical trial for BB-103.

The Company is seeking partnerships to support the progression of BB-103 into the clinic.

Partnered Program

Oculopharyngeal Muscular Dystrophy (OPMD):

OPMD is an insidious, autosomal-dominant, late-onset degenerative muscle disorder that typically presents in patients at 40-to-50 years of age. The disease is characterized by progressive swallowing difficulties (dysphagia) and eyelid drooping (ptosis).  OPMD is caused by a specific mutation in the poly(A)-binding protein nuclear 1, or PABPN1, gene. OPMD is a rare disease and has been reported in at least 33 countries. Patients suffering with OPMD are well identified and are geographically clustered, which could simplify the clinical development and global commercialisation efforts.

BB-301 is a monotherapy delivered using an innovative AAV single vector system with the capability to both ‘silence and replace’ disease causing genes.  In addition to facilitating RNA interference to ‘silence’ the mutant PABPN1 gene expression that causes OPMD, BB-301 simultaneously introduces a normal copy of the aberrant gene into the affected tissues, thus, providing the potential to restore normal function to the treated tissues and, in the process, improve treatment outcomes. This single gene therapy product, when compared with an equivalent system comprised of two or more vectors, vastly simplifies the manufacturing and regulatory processes and reduces the complexity of the clinical strategy for BB-301.  

Key milestones achieved, and next steps:

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

Review of Operations continued

Partnered Program continue

Licensed programs

Benitec has also licensed its ddRNAi technology to companies engaged in the development of therapeutic agents for the treatment of infectious diseases, solid tumors and intractable pain.

HIV/AIDS: In March 2012, Benitec granted a non-exclusive, royalty-bearing, worldwide license to a U.S. based biotechnology company, Calimmune, Inc. Under the agreement, Calimmune could develop, use and commercialise ddRNAi to silence up to three targets for the treatment or prevention of HIV/AIDS. Calimmune's approach was developed with core technology from the laboratory of Dr. David Baltimore, a Nobel Laureate in the area of HIV/AIDS, and involves silencing the gene that codes for a receptor protein known as CCR5. Calimmune's HIV/AIDS treatment is known as CAL-1. In August 2017, the CSL Behring subsidiary of CSL Ltd. announced that it will acquire Calimmune Inc.

As part of this transaction, CSL Behring also acquired CAL-1, the autologous T cell and blood stem cell therapy in Phase I/II testing to treat HIV infection. Calimmune, Inc. has terminated the license, and CSL Behring is unlikely to continue development of CAL-1.

Cancer Immunotherapy: In August 2013, an exclusive, royalty-bearing, worldwide license was granted to a U.S.-based biotechnology company, Regen Biopharma Inc. to use ddRNAi for silencing expression of indoleamine 2,3—dioxygenase, or IDO, in dendritic cells. Regen is developing a cancer immunotherapy using the licensed technology. IDO is associated with immune-suppression and is overexpressed in some cancers. Regen's first treatment, which is for breast cancer, is called dCellVax.

Intractable Neuropathic Pain: In November 2014, an exclusive, royalty-bearing, worldwide license was granted to a U.S.-based biotechnology company, Circuit Therapeutics, Inc. to use ddRNAi for the development of therapeutic agent for the treatment and prevention, of pain.

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

Review of Operations continued

Intellectual property

The Company manages a substantial portfolio of patents relating to the ddRNAi platform technology, improvements to this technology and its pipeline programs.  The Company continues to hold a dominant position in the field of expressed RNAi and it defends its position in this space.  With the limited patent term remaining on the platform patents licensed from CSIRO, Benitec’s focus has increasingly been on establishing patent protection for its pipeline and products in development with the aim of securing competitive and commercially relevant intellectual property positions for each of its programs.  

Commercialisation

Business development activities based on proactive engagement with biotechnology and pharmaceutical companies remains a major focus for the Company, primarily in the following areas:

The Company continues to generate strong interest from a number of potential partners.

Shareholdings by each director and other members of key management

The number of shares in the Company held during the period by each director and other members of key management personnel (KMP) of the Group, including their personally related parties, is set out below:

None of the shares are held nominally by the key management personnel.

BENITEC BIOPHARMA LIMITED

Directors' Report

for the half-year ended December 31, 2018

Review of Operations continued

Option holdings by each director and other members of key management

The number of options over ordinary shares in the Company held during the period by each director and other members of key management personnel of the Group, including their personally related parties, is set out below:

Other transactions with key management personnel and their related parties

Legal services at normal commercial rates totalling $254, at the end of the period (half-year ended December 31, 2017: $2,128) were provided by Francis Abourizk Lightowlers, a law firm in which Peter Francis is a partner and has a beneficial interest.

Events after the balance sheet date

On January 14, 2019 the Company received $4.121m, being the Research & Development refundable tax offset for the year ended June 30, 2018 .

Signed in accordance with a resolution of the Directors.

Jerel Banks

Chairman

February 25, 2019

Auditor’s Independence Declaration

To the Directors of Benitec Biopharma Limited

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the review of Benitec Biopharma Limited for the half-year ended 31 December 2018, I declare that, to the best of my knowledge and belief, there have been:

Grant Thornton Audit Pty Ltd

Chartered Accountants

M R Leivesley

Partner – Audit & Assurance

Sydney, 25 February 2019

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation.

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statements

for the half-year ended December 31, 2018

The interim consolidated financial statements (the interim financial statements) of the Group are for the half-year ended December 31, 2018 and are presented in Australian dollars ($), which is the functional currency of the parent company. These general purpose interim financial statements have been prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting . They do not include all of the information required in annual financial statements in accordance with International Accounting Standards and should be read in conjunction with the consolidated financial statements of the Group for the year ended June 30, 2018 and any public announcements made by the Group during the six months in accordance with continuous disclosure requirements arising under the Australian Securities Exchange Listing Rules and the Corporations Act 2001 . The interim financial statements have been approved and authorised for issue by the Board of Directors on February 25, 2019.

The half-year financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Accounting Standards including AASB 134 “Interim Financial Reporting” and other mandatory professional reporting requirements.

This financial report has been prepared on a going concern basis.

During the half-year ended December 31, 2018, the consolidated entity incurred a profit of $9.065m (2017 comparative period: loss $5.809m) and had net operating cash inflows of $6.232m (2017 comparative period $6.869m cash outflows).

The directors having performed a review of the cash flow forecasts, considering the cash flow needs of the Group, believe that funding will be sufficient to maintain the going concern status of the Group.

If these strategies are unsuccessful then the Group may need to realise its assets and extinguish liabilities other than in the ordinary course of business and at amounts different to those disclosed in the financial report.

The financial report does not contain any adjustments to the amounts or classifications of recorded assets or liabilities that might be necessary if the Group does not continue as a going concern.

The financial statements take no account of the consequences, if any, of the effects of unsuccessful product development or commercialisation, nor of the inability of the Group to obtain adequate funding in the future.

The financial report has been prepared in accordance with the historical convention.  For the purpose of preparing the financial report, the six months has been treated as a discrete reporting period.

The interim financial statements have been prepared in accordance with the accounting policies adopted in the Group’s last annual financial statements for the year ended June 30, 2018, with the exception of new accounting standards AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments (2014) which became mandatorily effective on 1 January, 2018.  Accordingly, these standards apply for the first time to this set of interim financial statements.

The nature and effect of the changes arising from these standards are summarised below.

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statement

for the half-year ended December 31, 2018

1. BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL REPORT continued

New Standards adopted as at July1, 2018

AASB 15 Revenue from Contracts with Customers

AASB 15 replaces AASB 118 and covers contracts for goods and services. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer; so the notion of control replaces the existing notion of risks and rewards.

The Group has adopted AASB 15 from July 1, 2018, using a modified retrospective approach. Under this approach, transitional adjustments are recognised in retained earnings as at July 1, 2018 (the date of initial application), without restating the comparative period.

Many of the Group’s contracts comprise a variety of performance obligations including, but not limited to, licensing fees, ongoing support, reimbursement of know how. Under AASB 15, the Group must evaluate the separability of the promised goods or services based on whether they are ‘distinct’. A promised good or service is ‘distinct’ if both:

While this represents significant new guidance, the implementation of this new guidance did not have significant impact on the timing or amount of revenue recognised during the year. As our main/significant contract was signed on July 9, 2018 there is no adjustment required to account for the impact of AASB 15.

AASB 9 Financial Instruments

AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement requirements. It makes changes to the previous guidance to the classification and measurement of financial assets and includes an ‘expected credit loss’ model for impairment of financial assets. Our financial assets include those outlined in note 5 and trade and other receivables.  There was no change to the classification of Listed equity investments. They remain fair value through the profit and loss.  The security deposit also remains unchanged and therefore no adjustment was required to be made to retained earnings.

The classification of trade and other receivables changed from loans and receivables to amortised cost. No adjustment was required as a result of this change.

( d) Changes in significant accounting policies

The Group’s accounting policies, which have changed as a result of the changes to accounting standards noted above, are summarised below :

Revenue
Revenue arises mainly from licensing revenues and royalties, as well as ongoing development activities.

To determine whether to recognise revenue, the Group follows a 5-step process:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognising revenue when/as performance obligation(s) are satisfied

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statement

for the half-year ended December 31, 2018

1. BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL REPORT continued

( d) Changes in significant accounting policies continued

Licensing revenues

Revenue is recognised when the Group has transferred control of the asset to the customer.
The grant of the licence and transfer of associated know-how and materials are accounted for as one performance obligation as they are not considered to be distinct; they are highly interrelated and could not provide benefits to the customer independently from each other.

The grant of licence and associated know-how has been assessed as the ‘right to use’ Benitec’s IP, as it exists at a point in time. The licence and know-how have been transferred concurrently and although the transfer of know-how occurs over a period of time, it will not significantly affect the IP that has initially been transferred, it is provided to support the IP transferred. The point in time has been determined with regard to the point at which the transfer of know-how has substantially been completed and the customer has control of the asset and the ability to direct the use of and receive substantially all of the remaining benefits.  

Royalties
Sales-based or usage-based royalties are only recognised on the occurrence of the subsequent sale or usage.

Ongoing development activities
The Group provides ongoing development activities associated with some of its licence contracts . Revenue from these services is recognised in the accounting period in which services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. This is determined based on the actual labour hours spent relative to the total expected labour hours. Customers are invoiced as work progresses. Any amounts remaining unbilled at the end of a reporting period are presented in the statement of financial position as accounts receivable, as only the passage of time is required before payment of these amounts will be due.

Interest revenue

Interest income and expenses are reported on an accrual basis using the effective interest method.

Financial Instruments

Recognition and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statement

for the half-year ended December 31, 2018

1. BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL REPORT continued

( d) Changes in significant accounting policies continued

Subsequent measurement of financial assets

For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified into the following categories upon initial recognition:

• financial assets at amortised cost

• financial assets at fair value through profit or loss (FVPL)

Classifications are determined by both:

• The entity’s business model for managing the financial asset

• The contractual cash flow characteristics of the financial assets

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVPL):

• they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Financial assets at fair value through profit or loss (FVPL)

Financial assets that are held within a business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model, financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. The Group’s investments in equity instruments fall under this category.

Impairment of financial assets

AASB 9’s new impairment model use more forward looking information to recognize expected credit losses - the ‘expected credit losses (ECL) model’. The application of the new impairment model depends on whether there has been a significant increase in credit risk.

The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

In applying this forward-looking approach, a distinction is made between:

• financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and

• financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’).

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statement

for the half-year ended December 31, 2018

1. BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL REPORT continued

( d) Changes in significant accounting policies continued

‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.

‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category.

Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.

Trade and other receivables and contract assets

The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.

The Group assess impairment of trade receivables on a collective basis as they possess credit risk characteristics based on the days past due. The Group allows 1% for amounts that are 30 to 60 days past due, 1.5% for amounts that are between 60 and 90 days past due and writes off fully any amounts that are more than 90 days past due.

All financial assets, except for those at fair value through profit or loss (FVPL), are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Classification and measurement of financial liabilities

As the accounting for financial liabilities remains largely unchanged from AASB 139, the Group’s financial liabilities were not impacted by the adoption of AASB 9. However, for completeness, the accounting policy is disclosed below.

The Group’s financial liabilities include trade and other payables. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.

All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.

When preparing the interim financial statements, management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results. The judgements, estimates and assumptions applied in the interim financial statements, including the key sources of estimation uncertainty were the same as those applied in the consolidated entity's last annual financial statements for the year ended June 30, 2018. In addition, due to the implementation of AASB15, an additional judgmental area has been noted below.

Revenue recognition

For any licensing arrangements management needs to exercise significant judgement when determining whether the licence is a separate performance obligation within the contract and the appropriate timing of revenue recognition from such licences.

The Group had only one business segment during the period, being the global commercialisation by licensing and partnering of and licences in biotechnology, with applications in biomedical research and human therapeutics. Business operations are conducted in Australia. However, there are controlled entities based in the USA and United Kingdom. The United Kingdom entity has no segment revenues, results or assets.

BENITEC BIOPHARMA LIMITED

Notes to the consolidated financial statements

for the half-year ended December 31, 2018

Accounting Policies

Segment revenues and expenses are directly attributable to the identified segments and include joint venture revenue and expenses where a reasonable allocation basis exists. Segment assets include all assets used by a segment and consist mainly of cash, receivables, inventories, intangibles and property, plant and equipment, net of any allowances, accumulated depreciation and amortisation. Where joint assets correspond to two or more segments, allocation of the net carrying amount has been made on a reasonable basis to a particular segment. Segment liabilities include mainly accounts payable, employee entitlements, accrued expenses, provisions and borrowings. Deferred income tax provisions are not included in segment assets and liabilities.