Announcement PDF ENERGY TECHNOLOGIES LIMITED ABN 38 002 679 469 Annual Financial Report for the year ended 30 June 2023 Energy Technologies Limited – 2023 Annual Report Corporate Information ABN 38 002 679 469 Directors Matthew Driscoll (Chairman, Non-Executive Director) Alfred J. Chown (Executive Director) Anthony L Smith (Non-Executive Director) Company Secretary Gregory R. Knoke Registered Office Unit J, 134-140 Old Pittwater Road Brookvale NSW 2100 Bankers National Australia Bank Limited NAB House, 255 George Street Sydney NSW 2000 Share Register Computershare Investor Services Pty Ltd 60 Carrington Street Sydney NSW 2000 Telephone:- (02) 8234 5000 Facsimile:- (02) 8235 8150 Auditors Crowe Audit Australia Level 42, 600 Bourke Street Melbourne VIC 3000 Telephone:- (03) 9258 6700 2 Energy Technologies Limited – 2023 Annual Report Contents Chairman’s Report 4 Directors’ Report 5 Remuneration Report (audited) 13 Corporate Governance Statement 19 Auditor’s Independence Declaration 31 Statement of Profit or Loss 32 Consolidated Statement of Comprehensive Income 33 Consolidated Statement of Financial Position 34 Consolidated Statement of Changes in Equity 35 Consolidated Statement of Cash Flows 36 Notes to the Financial Statements 37 Directors’ Declaration 76 Independent Auditor’s Report 77 ASX Additional Information 81 3 Energy Technologies Limited – 2023 Annual Report Chairman’s Report Dear Shareholder, Before proceeding to the main body of the Chairman’s Report I would like to acknowledge the contribution to Energy Technologies Limited (EGY) of its previous Chairman Brian Jamieson, deceased 7 August 2023, and to again express my sincere condolences to Brian’s family. Throughout his tenure as Chairman, Brian was a mentor to the Board and his guidance and governance in the role was exemplary. I would also like to thank Mr Ian Campbell for his work, as a director of EGY, through the last couple of years, which have presented us with a number of challenges. As the Chairman of EGY, including wholly owned subsidiary Bambach Wires and Cables Pty Limited (Bambach), I would like to start by highlighting some key metrics from FY2023 that reflect the journey and progress of our company: Group revenue reached $15.5m, marking a 24% increase compared to the previous corresponding period (PCP). This was despite Bambach continuing to experience further issues with utilisation rates at the factory due partly to the lasting effects of COVID, although these reduced greatly in the second half of the year as normal staffing levels resumed, and this provided for an increase in productivity, which allowed Bambach to take advantage of the higher-than-normal order book. While the Group reported loss for the period was $15.3m, 76% down on PCP, this included a $5.2m full impairment of intangible development assets and purchased IP and a $798K inventory write down following a detailed review of inventory by location and adjustment for slow moving lines. When taking this into account, as well as higher finance costs as interest rates moved higher, the operating result was marginally improved on the FY2022 result. During the last quarter of FY2023, Bambach entered a restructuring of the factory to move to 24-hour operations which resulted in a restructuring of staffing levels. While largely done, this is still being finalised to ensure that the new work arrangements have the necessary number of staff to support this increase in factory utilisation. Production planning has also been improved and final commissioning of machinery undertaken on the Rosedale site. The second shed housing the new silicone line is also nearing completion. The Board has determined to impair both intangible assets and inventory to prepare the business for its fresh start in operations under the increase in factory utilisation. EGY also proudly announced recently Bambach’s largest contract win, with a value of $1.14m, further demonstrating growth prospects. Importantly, Bambach current order book remains robust, which reflects the enduring strength of our business. In conclusion, whilst I acknowledge the hurdles faced during the past year, the Board and I remain resolute in our commitment to growth and prosperity. Our team's dedication, coupled with the enduring support of our stakeholders, positions us for a promising future. We are focused on leveraging our strong order book and optimising our operations to deliver value to our shareholders. Thank you for your continued trust and support. Matthew Driscoll Chairman 28 September 2023 4 Energy Technologies Limited – 2023 Annual Report Directors’ Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Energy Technologies Limited (referred to hereafter as the ‘Company’) and the entities it controlled at the end of, or during, the year ended 30 June 2023. DIRECTORS The names and details of the Company's Directors in office during the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Matthew Driscoll, (Chairman - Non-Executive Director) Appointed 20 December 2016 Mr Driscoll has significant experience across several industries, including online technologies, financial services, fintech, property and resources. He has more than 30 years’ experience in capital markets and the financial services industry and is an accomplished company director in roles across listed and private companies. He has significant experience in international business growth, mergers and acquisitions, equity and debt raisings and building strategic alliances, and remains committed to ethical, commercial and consumer-based outcomes. Other Current Directorships: Chair Carbonxt Group (CGI), Chair Tennant Minerals (TMS), Chair Smoke Alarms Holdings. Mr Driscoll is a member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Anthony Lloyd Smith (Non-Executive Director) Appointed 24 December 2020 Mr Smith has over 30 years’ experience in finance with a variety of firms concentrating on small to medium sized companies in regard to corporate finance, institutional research sales and private wealth advice. During this time, he was charged with running these businesses along with titles of Head of Securities and Country Director of Austock Group and Phillip Capital. Mr Smith currently handles the investments at Cashel Family Office, a Melbourne based multi-family office company. Mr Smith is a member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Alfred J Chown, B.Econ, (Executive Director) Appointed 10 August 2023. Mr Chown has extensive experience in building businesses across Australasia. He returned to Australia in 2012 after residing in Hong Kong from 1987-2012. In 1987 he co-founded E.L. Consult Ltd an executive search provider that prior to being sold to the Clarius group (ASX:CND) in 2007, had an extensive network of offices throughout Hong Kong, China, Singapore and Malaysia. In the early 1990’s Mr Chown co-founded what became the Dulhunty Power Group, under Dulhunty Power Limited (formerly ASX:DUL), a manufacturer of line fittings for the electric power transmission and distribution industry with factories in Australia, China, Malaysia and Thailand and offices in New Zealand and the USA. The Dulhunty Power Group was sold to Maclean Power Systems of the USA in 2012. Mr Chown is a former Chairman of the Australian Chamber of Commerce in Hong Kong and has extensive commercial experience in both Australia and Asia. Mr Chown was formerly Chairman and Director of Energy Technologies Limited (EGY), resigning on 24 December 2020 and remaining as CEO of the group and director of subsidiary Bambach Wires and Cables Pty Limited (Bambach). Following his re-appointment as a director of EGY, Mr Chown remains as CEO of the group and director of Bambach. Mr Chown is a member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. 5 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) Brian Jamieson (Chairman – Non-Executive Director) Appointed 24 December 2020. Deceased 7 August 2023. Mr Jamieson had over 40 years’ experience in the advisory, manufacturing, resources and technology industries in Australia and offshore. Mr Jamieson was Chief Executive of Minter Ellison Melbourne from 2002-2005. Prior to joining Minter Ellison, Mr Jamieson was Chief Executive Officer at KPMG Australia from 1998-2000, Managing Partner of KPMG Melbourne and Southern Regions from 1993-1998 and Chairman of KPMG Melbourne from 2001- 2002. Prior to the merger of Touche Ross & Co and Peat Marwick Hungerfords to form KPMG, Mr Jamieson was the Managing Partner for Australia for Touche Ross & Co. He had over 40 years’ experience in providing advisory and audit services to a diverse range of public and large private companies. He was also a Fellow of the Institute of Chartered Accountants in Australia and New Zealand and a Fellow of the Australian Institute of Company Directors. Mr Jamieson was also a Non-Executive Director of IODM Limited and a Non-Executive Director of Highfield Resources Limited. Mr Jamieson was formerly Non-Executive Chairman of Sigma Healthcare Limited (resigned 13 May 2020), Non-Executive Chairman of Mesoblast Limited (resigned 31 March 2019), Non-Executive Director of Oxiana/OZ Minerals Limited from 2005 to 2015 and served as Chairman of Audit Risk and Compliance, Nomination and Remuneration, and Due Diligence Committees. He was a Non-Executive Director of Tatts Group Limited from 2005 to December 2017 and served as the Chairman of Audit and Risk Committee, Chairman of the Due Diligence Committee and member of the Remuneration Committee. He was also a Non-Executive Director of ASX listed Tigers Realm Coal from 2010 to 2015 and chaired various committees. Mr Jamieson was a member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Ian Alistair Campbell (Non-Executive Director) Appointed 24 December 2020. Resigned 16 June 2023. Mr Campbell joined Olex Cables in 1989 as Group General Manager and then as Managing Director of the Pacific Dunlop Cables Group until 1998. In 1998 Mr Campbell joined ASX-200 listed GUD Holdings Ltd as its Managing Director and CEO until his retirement in mid-2013. GUD managed a stable of consumer, trade and industrial businesses. It was a diverse portfolio of branded manufactured or sourced products selling to the retail, trade wholesale and B-to-B sectors. Companies in the GUD stable during his tenure were Sunbeam appliances, Oates cleaning, Victa Lawncare (divested in 2007), Davey Water Products, Lock Focus, Ryco and Wesfil automotive, and Dexion storage solutions. Mr Campbell joined the BWX board in 2015 and was appointed Chairman in September 2018. Mr Campbell has been a non-executive director of Mirrabooka Investments Ltd since 2007. He was formerly a national councillor and Victorian Vice-President of the Australian Industry Group. Mr Campbell has not held any other listed directorships in addition to those set out above in the past three years. Mr Campbell was a member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. COMPANY SECRETARY Gregory R Knoke, B. Com, CA (Company Secretary and Chief Financial Officer) Appointed 30 April 2003 Director of Cogenic Pty Limited. Mr Knoke was a director of Energy Technologies Limited from May 2000 until 30 April 2003, resigned upon acceptance of the position of CFO and Company Secretary. Born in 1952, educated at University of NSW and graduated in 1973 with major in accountancy, he holds a Bachelor of Commerce degree with merit. Mr Knoke is a Chartered Accountant and Associate member of Chartered Accountants Australia and New Zealand since 1979, and an affiliate member of Chartered Secretaries of Australia. Business consultant and advisor, with extensive work experience throughout Asia and Europe, Mr Knoke spent 13 years in Hong Kong as Asian Group Financial Controller and Director for BIL Asia Holdings Limited and subsidiaries of the Brierley Investments Limited Group. 6 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) PRINCIPAL ACTIVITIES EGY’s principal activities during the year were: • The manufacture and sale of specialist industrial cables through wholly owned subsidiary Bambach Wires and Cables Pty Limited (BWC); • Driving organic growth and organisational change in BWC; and • Seeking other products, businesses and opportunities for the Group. REVIEW AND RESULTS OF OPERATIONS EGY has reported a consolidated loss after tax and minorities for FY2023 of $15,344,996 (FY2022 loss after tax and minorities $8,731,756). Wholly owned subsidiary Bambach Wires and Cables Pty Limited (Bambach) reported a loss after tax of $14,127,919 (FY2022 loss $7,798,291). This includes a one-off amount of $5,194,327 to fully impair the FY2023 carrying value of intangible development assets and purchased intellectual property to NIL. In addition, the result includes an inventory write down of $798,286 (2022: $484,338) as a result of a detailed review of inventory items by location and including slow moving stock. During the period, Bambach experienced further issues with utilisation rates at the factory due to the lasting effects of COVID. Pleasingly, these reduced greatly in October 2022 as normal staffing levels resumed and from November 2022 provided for an increase in productivity which allowed the company to take advantage of the higher-than-normal order book. This resulted in a 24% increase in sales compared to the previous corresponding period and continues to underpin the opportunities that the company has going forward. During April 2023, Bambach entered a restructuring of the factory to move to 24-hour operations which resulted in a restructuring of staffing levels. While largely done, they are still being finalised to ensure that the new work arrangements have the necessary number of staff to support this increase in factory utilisation. The Board has determined to impair both intangible assets and inventory to prepare the business for its fresh start in operations under this increase in utilisation. The FY2023 loss of $15.3m, when taking in to account the impairment of intangible assets ($5.2m), the higher impairment of inventory ($0.3m) and the higher finance cost ($1m) was largely in line with the FY2022 result (down by $0.08m) due to the similar utilisation rates, from the prior year, of the factory. Sales still remain strong, with the company having a healthy order book in place, as underpinned by it announcing its first project win in excess of $1m, on 28 July 2023. STATE OF AFFAIRS During the financial year, the Group repaid $8,579,009 (2022: $5,492,799) of both long and short-term interest bearing debt. In relation to the Going Concern position of the Group, please refer to the details set out in Note 1(c) to the Financial Statements and the Events After the Reporting Period Note 29. DIVIDENDS No dividends were paid or recommended by the parent company EGY this financial year. NON-AUDIT SERVICES During the year, Grant Thornton Audit Pty Ltd, the Company’s previous auditor, performed no other services in addition to their statutory duties. The Company’s auditor, Crowe Audit Australia, appointed on 15 May 2023, performed no other services in addition to their statutory duties. Details of the amounts paid to the auditors and their associates for audit services provided during the year are set out in note 6 to the financial statements. In addition, amounts paid to other auditors for other statutory audit services have been disclosed in that note. 7 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) EVENTS SUBSEQUENT TO REPORTING DATE The following matters have occurred post reporting date: • The company has raised $2,606,500 by way of the issue of convertible notes with funding received in five tranches. These notes have a face value of $1.00, attract a 10% coupon rate, which is payable on maturity, and are convertible at $0.08 subject to shareholder approval. These notes mature two years from the date of issue; and • Convertibles notes of $1,000,000 which matured on 25 August 2023 have been extended until 27 November 2023. The terms of the notes remain unchanged. Other than what is noted per above, there have been no other matters that have arisen since the end of the financial period any other matter of circumstance which, in the opinion of the directors of the Company, significantly affects the operations of the Company, the results of those operations, or the state of affairs of the Company in subsequent financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Refer Events Subsequent to Reporting Date above. Future Developments and Risks Opportunities Energy Technologies Limited (EGY) 100% owned subsidiary, Bambach Wires and Cables Pty Limited (Bambach) manufactures Low Voltage electric cables at its 13,000 sqm Rosedale, Victoria facility. Bambach has a substantial range of cable making equipment manufacturing a large range of both specialised and nonspecialised low Voltage cables. The company also has warehouses in Dandenong, Victoria, Brookvale, New South Wales and Perth, Western Australia, as well as Sales Offices in Newcastle and Adelaide. The recent raising of capital by way of convertible notes, with the prospect of a further convertible note placement, means that the business is adequately capitalised ensuring raw material supply to sustain growth which has been a failing of the company over recent years. Bambach has a strong order book and indications of further orders for major road and rail projects from major Australian contractors. It is involved with various defence primes and subcontractors in the development and provision of cables for a number of defence projects including defence materiel from ships to security systems as well as defence infrastructure, especially in Northern Australia. It is also heavily involved with nascent projects focused on developing hydrogen and electric vehicles, onshore and offshore wind farms, solar farms and is now progressing with supply to the Australian rolling stock industry, which is currently undergoing a massive resurgence. The company is also continuing its re-stocking program, which began last year, to re-stock its warehouses, which is increasing day to day sales substantially. Bambach has more new products to launch over the coming twelve months and is also well placed with appropriate approvals to take advantage of the expected infrastructure projects throughout Australia, such as Inland Rail, regional rail upgrades in Victoria, Perth Metronet Projects and projects associated with the Brisbane Olympics. The fact that Bambach manufactures in Australia, places it at the forefront of local content suppliers for low voltage cable. Recent global strategic considerations and supply chain dislocation due to the pandemic have benefited the company and this is expected to continue as both State and Federal governments become ever more demanding in their quest to support local industry both to ensure jobs and to build sovereign capability. Strategically, the company at all levels is well placed to take advantage of growing interest in Australian manufacturing and regionalisation and has the necessary contacts and skills to build on its capabilities to rival the best specialist cable manufacturers in the region. 8 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) LIKELY DEVELOPMENTS AND EXPECTED RESULTS (continued) Risks Bambach must continue to develop and upgrade its manufacturing facilities to enable it to meet efficiency and productivity requirements and produce locally a continually expanding range and size of cables. Failure to do so will substantially limit growth and will not allow anticipated margin improvement. A rise in the AUD against the USD will impact negatively on the competitiveness of the business. At AUD/USD 0.80 the business may be less competitive with imports of like quality. A fall from this level is favourable to the business whilst a rise is unfavourable. Bambach is a small player in a market where there are several very large competitors and management are very aware that to compete Bambach must maintain a point of difference. To this end it must continue with a very active research and development agenda, developing new cables and continuously upgrading existing cables. It must also continue to develop its manufacturing processes and adopt a continuous upgrade program. It must also continue to excel in the level of service that it provides. Any failure in any of these areas will bring significant risk to the business. Bambach continues to report a loss and has not been profitable for an extended period. This weakness has been supported financially by significant fund raising and investment, which has been successfully undertaken over the past four years and continued in FY2023. The company must deliver to maintain the support of its shareholders and financiers, and in this respect, it must deliver on the small objectives as well as the larger objective of returning to profitability. Thus, it must continue to deliver on bringing new products to market and on increasing productivity to build a robust sustainable business. Failure to meet accepted milestones on this path will pose a risk to continued financial support. The Group has based its business plan on the belief that both Federal and State governments will proceed with planned infrastructure, energy and defence spending. Now significant projects are proceeding. Any cancellation of these plans or continued delay will impact negatively on the opportunities that lie ahead for the company. The Group has developed products some of which still require final testing and approval. Any failure to pass testing in a timely manner or not obtain approval will impact negatively on the company’s performance. Like all businesses globally the threat of further waves of the Covid-19 pandemic pose significant risk to the economy and to the group. Rising geopolitical tensions also pose a significant risk. ENVIRONMENTAL REGULATION AND PERFORMANCE The group operates a factory in Rosedale, Victoria which is required to comply with local planning laws, and with State and Commonwealth Environmental laws. The company considers that the factory operations are currently compliant and is not expecting any adverse impact as a result of the environmental regulation. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Indemnification The Company has entered into Deeds of Indemnity and Access with persons who are an Officer or Director of the Company or a related body corporate, indemnifying such persons against a liability incurred by them in their capacity as an Officer or Director, including costs and expenses of defending legal proceedings and providing them with access to company records where a claim is made or threatened against such Officer or Director. Insurance Premiums The Company has not, during or since the end of the financial year, in respect of any person who is or has been an auditor of the Company or a related body corporate paid or agreed to pay a premium in respect of a contract insuring against a liability for costs or expenses of defending legal proceedings. The Company has paid insurance premiums in respect of Directors' and Officers' liability and legal expense insurance for Directors and Officers of the Company. In accordance with subsection 300(9) of the Corporations Act 2001, further details have not been disclosed due to confidentiality provisions contained in the insurance contract. 9 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. EMPLOYEES The consolidated entity employed 91 employees as at 30 June 2023 (2022: 74 employees). REMUNERATION REPORT The remuneration report is set out on page 13 and forms part of the Directors’ Report for the financial year ended 30 June 2023. DIRECTORS' MEETINGS The numbers of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of meetings attended by each director were as follows: Board of Directors Remuneration Committee Audit and Risk Committee Nomination Committee 15 - 7 - Brian Jamieson (deceased 7 August 2023) 15 - 7 - Anthony L Smith 14 - 7 - Ian A Campbell (resigned 16 June 2023) 15 - 7 - Matthew Driscoll 15 - 7 - Number of meetings held: Number of meetings attended: Committee Membership During the 2023 financial year, the company’s committees were comprised as follows: Audit and Risk Committee: Brian Jamieson Matthew Driscoll Anthony L Smith Ian A Campbell Remuneration Committee: Brian Jamieson Matthew Driscoll Anthony L Smith Ian A Campbell Nomination Committee: Brian Jamieson Matthew Driscoll Anthony L Smith Ian A Campbell At the date of this report, the company’s committees were comprised as follows: Audit and Risk Committee: Alfred Chown Matthew Driscoll Anthony L Smith Remuneration Committee: Alfred Chown Matthew Driscoll Anthony L Smith Nomination Committee: Alfred Chown Matthew Driscoll Anthony L Smith 10 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE The relevant interest of each director in the shares, and options over such instruments, issued by the companies within the consolidated entity and other related bodies corporate, as notified by the directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Dulhunty Engineering Energy Technologies Limited Limited Ordinary Listed Unlisted Ordinary Shares Shares Options Options Anthony L Smith 19,843,675 1,848,849 3,539,286 - Matthew Driscoll 6,560,277 889,921 1,041,667 - Alfred J Chown 8,243,575 - - 59,724 Gary A Ferguson – director of Bambach 1,154,044 - - - SHARES UNDER OPTION Unissued ordinary shares of EGY under share option at the date of this report are as follows: Grant date Expiry date Exercise price Number under option 18 November 2020 1 December 2023 $0.112 6,000,000 23 December 2020 23 December 2023 $0.112 800,000 30 June 2021 30 June 2024 $0.168 2,827,191 14 October 2021 31 October 2024 $0.200 9,000,000 Shares issued under the non-renounceable rights issue 14 October 2021 had 25,000,058 attaching listed share options expiring 31 October 2024. The offer price for these options was $NIL and the options have an exercise price of $0.20. No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of EGY issued on the exercise of options during the year ended 30 June 2023 and up to the date of this report. AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s Independence Declaration as required under s307C of the Corporations Act 2001 is included on page 31 of this financial report and forms part of this Directors’ Report. 11 Energy Technologies Limited – 2023 Annual Report Directors’ Report (continued) CORPORATE GOVERNANCE STATEMENT Energy Technologies Limited and the Board of Directors are committed to achieving and demonstrating the highest standards of corporate governance. Energy Technologies Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th Edition) published by the ASX Corporate Governance Council. Details of the corporate governance report is available on the Group website at https://www.energytechnologies.com.au Signed in accordance with a resolution of the Directors. Alfred Chown Director 28 September 2023 12 Energy Technologies Limited – 2023 Annual Report Remuneration Report (audited) The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the directors and the executive team. Remuneration levels are set to attract and retain appropriately qualified and experienced Directors and senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally. The Remuneration Committee also assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality Board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company. Executive remuneration packages include a mix of fixed remuneration and performance based remuneration Fixed Remuneration Fixed remuneration consists of bas