Announcement PDF ENERGY TECHNOLOGIES LIMITED ABN 38 002 679 469 Annual Financial Report for the year ended 30 June 2015 Energy Technologies Limited – 2015 Annual Report Corporate Information ABN 38 002 679 469 Directors Alfred J. Chown (Chairman/Managing Director) Gary A. Ferguson (Non-executive Director) Philip W. Dulhunty (Non-executive Director) Company Secretary Gregory R. Knoke Registered Office 102 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 Level 3, 60 Carrington Street Sydney NSW 2000 Telephone:- (02) 8234 5000 Facsimile:- (02) 8235 8150 Auditors Russell Bedford NSW Chartered Accountants Level 29, Suncorp Place 259 George Street SYDNEY NSW 2000 2 Energy Technologies Limited – 2015 Annual Report Contents Chairman’s Report 4 Directors’ Report 5 Remuneration Report (audited) 10 Corporate Governance Statement 14 Auditor’s Independence Declaration 22 Consolidated Income Statement 23 Consolidated Statement of Comprehensive Income 24 Consolidated Statement of Financial Position 25 Consolidated Statement of Changes in Equity 26 Consolidated Statement of Cash Flows 27 Notes to the Financial Statements 28 Directors’ Declaration 70 Independent Auditor’s Report 71 ASX Additional Information 73 3 Energy Technologies Limited – 2015 Annual Report Chairman’s Report Energy Technologies Limited (EGY) reported a FY2015 loss after tax and minority interests of $429,960, which is a substantial improvement on the previous year’s loss of $987,407 but still not acceptable. The main operating subsidiary of the company, Bambach Wire and Cables Pty Ltd (BWC) was again negatively impacted by a stagnant Australian economy, further shocks to the mining industry, inertia , policy change and the postponement of major infrastructure work due to three state elections during the period and for a large part of the financial year a persistently high Australian dollar. As a result overall revenues fell from $14,299,526 in FY2014 to $12,915,533 for FY2015, albeit on improved margins. Of major impact on budgeted forecasts of the company was the cancellation by the incoming Andrews Government in Victoria of the Pakenham-Cranbourne Rail project and in Newcastle NSW the postponement of significant rail projects due to the downturn in the coal industry and the removal of several local politicians, highly supportive of rail infrastructure projects in the Hunter Valley region , who lost power on the back of campaign funding irregularities. In response to the above and in light of continuing poor economic conditions the company further reduced its costs via headcount reduction and diligent and competitive purchasing practices. It also continued with an expansion of its product range, developing new cables focused on the infrastructure market, and in particular infrastructure projects planned for NSW and Victoria. The company now boasts the ability to supply a full range of rail signal cables, traffic cables and other power cables required for road and rail infrastructure builds. In order to try and insulate the business from political whimsy and its recent negative impact on major infrastructure projects, the company also moved to develop new cable products aimed at the commercial building sector and agricultural industry. These products are due for release in the latter part of calendar year 2015. The company was successful in raising funds during the period in the form of convertible notes and these funds were put toward paying out the vendor liability, providing working capital, increasing stocking levels and the purchase of new equipment. The company has an equipment upgrade program that is expected to deliver substantial reduction in the overall cost of manufacture and this increased efficiency and the recent fall in the value of the Australian dollar bodes well for the business going forward. To fund the purchase of equipment over and above that funded from the funds raised in FY2015 and to enable a further increase in stock levels to allow the company to stock the new products it has developed, the company is seeking to raise further funds via either equity or convertible notes. At the recent EGM held on 28 July 2015 the shareholders approved the issuance of further convertible notes to the value of $2m . Subsequent capital raising activities give the board reason to believe that the company will be successful in obtaining up to 2 million dollars in funding via a mix of equity injection and convertible notes. With large gains in production efficiency due to new equipment, a vastly broader range of products to offer and adequate stock holdings the board is confident that the business will move into a period of continual profitability over the next 12 to 18 monthsthe lag being due to the time it takes to purchase made to order machines, install and commission them and to build adequate stock Alfred J Chown Chairman Sydney, 30 September 2015 4 Energy Technologies Limited – 2015 Annual Report Directors’ Report Your Directors submit their report for the year ended 30 June 2015. 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 Alfred J. Chown, B.Econ, (Age 54) (Chairman/Managing Director) Appointed 4 July 1997. Born in 1960, in Sale, Victoria, Mr Chown returned in 2012 from residing in Hong Kong. In 1987 he co-founded E.L. Consult Ltd an executive search provider that prior to being sold to the Clarius group (ASX:CND) and renamed Lloyd Morgan in March 2007, had an extensive network of offices throughout Hong Kong, China, Singapore and Malaysia. Mr Chown continues to provide his services to Lloyd Morgan in a regional role. In the early 1990’s Mr Chown also co-founded Dulhunty Engineering Ltd and in 1997 this company established Dulhunty Yangzhou Line Fittings Co Ltd, a manufacturer of line fittings for the electric power transmission and distribution industry. In 2003 Mr Chown was the driving force to merge these businesses together with Dulhunty Industries Pty Limited of Australia to form Energy Technologies Limited. 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 is also a member of the Remuneration and Nomination Committees of the company. Philip W. Dulhunty OAM (Age 91) (Non-Executive Director) Appointed 3 December 2014 Founder of Dulhunty Power (Aust) Pty Limited, importers, exporters and distributors of electrical power transmission equipment. Honorary Life Member and distinguished member of the international electrical transmission industry body, CIGRE and Honorary Life Senior member of IEEE. Holder of Centenary Medal for Contribution to Australian Industry. Mr Dulhunty was also the recipient of the Institute of Engineering and Technology (IET) James N Kirby Medal in 2007. Mr Dulhunty was previously a Director of the company from 31 March 2003 to 1 October 2012. Mr Dulhunty is also a member of the Audit and Nomination Committees of the company. Gary A Ferguson CA (Age 72) (Non-executive Director). Appointed 1 October 2012 Mr Ferguson is a qualified accountant. During his career, he has worked for manufacturing companies as a cost accountant, lectured in accounting (post-certificate Cost Accounting) with the then Department of Technical Education, developed the methodology associated with risk analysis profiles for capital expenditure projects in both the cable and abrasive sectors and providing consultant services to these companies. Mr Ferguson relocated to Mid-North Coast NSW in 1975 and gained a very broad level of experience, owning and operating businesses in the construction, hospitality, heavy transport and earthmoving and quarry industries. In 1992 he acquired a public practice in Kempsey, specializing in providing commercial clients with advice in corporate structure, taxation, reporting and financial management areas, including providing associated legal services from in house partners. Mr Ferguson is a Member of both Chartered Accountants Australia and New Zealand (CA) and Certified Practising Accountants in Australia (CPA). Mr. Ferguson is also Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees of the company. Michael D. Butcherine (BEc (Hons)/LLB (Hons)) (Age 48) (Non-executive Director). Appointed 14 December 2009. Resigned 5 December 2014. Mr Butcherine was born in Dubbo, New South Wales in 1967. He graduated from the University of Sydney with Honours in Economics in 1989 and Honours in Law in 1991. During his studies, he worked for the Commonwealth Bank and for a toptier Sydney law firm. After graduation, he travelled overseas, including working for two legal firms in the City of London. On his return to Australia, Mr Butcherine practiced with a commercial firm in Cairns, North Queensland. He returned to Dubbo in 1995 where he joined and subsequently became a principal of a local firm. His work was mainly in commercial property and business structuring and transactions. Since 2007, Mr Butcherine has conducted a private practice, acting for a very limited number of clients, providing highly specific revenue, structuring, commercial and financial advice, both strategic and transaction-specific. Mr Butcherine has completed the Graduate Diploma of Legal Practice, and the Graduate Diploma of Inhouse Legal Practice. He is a solicitor of the Supreme Court of New South Wales and the High Court, and a member of the Law Society of New South Wales, the Australian Corporate Lawyers Association and a Graduate Member of the Australian Institute of Company Directors. 5 Energy Technologies Limited – 2015 Annual Report Directors’ Report (Cont’d) COMPANY SECRETARY Gregory R. Knoke, B. Com, CA (Age 62) (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. 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, an affiliate member of Chartered Secretaries of Australia and member of the Australia China Business Council. 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. 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): Managing BWC and integrating its operations into the Group; Driving organic growth and organisational change in BWC; Investing in Dulhunty Poles Pty Limited (DPPL), by providing financial and administrative support; Developing energy co-generation technology and seeking opportunities to participate in alternate and off-grid generation projects; Seeking other products, businesses and opportunities for the Group; REVIEW AND RESULTS OF OPERATIONS EGY continues to report a loss in FY2015 but improved in comparison with last year’s results (FY2015 consolidated loss after tax and minorities interests of $429,960; FY2014 loss of $987,407). The parent entity reported a 2015 loss after tax of $482,061 (2014 loss of $925,510), which included impairment of controlled entities of $1,152,256 (2014 $1,020,186). Excluding the impairment adjustment the parent entity achieved a profit after tax for 2015 of $670,195 (2014 profit of $94,676). The parent entity result also includes a further final reduction in BWC vendor liability of $1,139,039 (FY2014 $$224,546). The parent entity continues to cut costs and the resources of EGY, and its directors and executive were applied almost exclusively in the intensive management of BWC. Bambach Wires and Cables Pty Ltd (BWC) reported a loss after tax of $1,054,574 (FY2014 loss $1,013,458). BWC continues to be impacted from the general down turn in sector-wide trading conditions. Overall BWC revenue from operations has decreased to $11,650,278 from previous $13,911,667. However margins have improved, overheads have been cut and the impact of new product range and a lower Australian Dollar is expected to improve trading results in FY2016. Included in FY2015 revenue is a further $843,040 R&D Grant (FY2014 R&D Grant revenue $1,201,822) which partially recovered the significant research and development expense undertaken by BWC in new product development, cable projects and testing. With the fall in the value of the Australian dollar, an upgrading of production equipment and subsequent production cost savings, the development of a raft of new cable products and finally the go ahead of major infrastructure projects in NSW, Victoria and WA, EGY’s main subsidiary, Bambach Wire and Cables is well placed to continue its turnaround and move to a rapid growth phase which management anticipates will become fully evident this time next year. STATE OF AFFAIRS During the 2015 year, EGY raised $2,100,000 by the issue of secured convertible notes, resulting in the issue of 2,100 Convertible Notes each with a face value of one thousand dollars to investors. Shareholder approval for the issue of $1,500,000 of the Convertible Notes was given at the Annual General Meeting of the company held on 27 November 2014, with approval for the oversubscription of a further $600,000 given at a General Meeting held on 28 July 2015. Funds raised have been applied in the satisfaction of EGY’s commitments to the vendors of BWC, for some factory capital expenditure and to meet working capital requirements. EGY is currently seeking to raise up to $2m in further convertible notes as approved at the General Meeting held on 28 July 2015. 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. 6 Energy Technologies Limited – 2015 Annual Report Directors’ Report (Cont’d) DIVIDENDS No dividends were paid or recommended by the parent company EGY this financial year. NON-AUDIT SERVICES During the year an associate of the Company’s auditor performed certain tax compliance services in addition to their statutory duties. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001. The reasons for this are that all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditor and their associates for audit and non-audit services provided during the year are set out in note 6 to the financial statements. In addition, amounts paid to other auditors for the statutory audit have been disclosed in that note. AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration as required under Section 307C of the Corporations Act is included on page 22 of the Directors’ Report. EVENTS SUBSEQUENT TO REPORTING DATE There are no other matters or circumstances that have arisen since 30 June 2015 that have significantly affected or may significantly affect the operations of the group, the results of those operations or the state of affairs of the group in subsequent financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS On 28 July 2015 the company obtained approval at General Meeting to raise a further $2m of convertible notes and is currently in discussion with potential investors. The directors expect that BWC will return to profitability in the 2016 financial year. The trend of improvement in sales margin has continued since the reporting date, and, if budgeted sales levels can be maintained, together with cost reductions in place, will mean BWC achieves budget for the year. ENVIRONMENTAL REGULATION AND PERFORMANCE The group operates a factory in Brookvale, Sydney which is required to comply with local planning laws, and with State and Commonwealth Environmental laws. The company considers that the factory’s operation is currently compliant, and is not expecting any adverse impact as a result of the environmental regulation. 7 Energy Technologies Limited – 2015 Annual Report Directors’ Report (Cont’d) 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 officer or 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. 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 58 employees as at 30 June 2015 (2014: 59 employees). REMUNERATION REPORT The remuneration report is set out on page 10 and forms part of the Directors’ Report for the financial year ended 30 June 2015. 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 Committee Nomination Committee 7 3 2 1 Alfred J. Chown 7 3 - 1 Gary A. Ferguson 7 2 2 - Philip W. Dulhunty – Appointed 3/12/2014 4 - 1 1 Michael D. Butcherine – Resigned 5/12/2014 1 - 1 - Number of meetings held: Number of meetings attended: Committee Membership At the date of this report, the company’s committees were comprised as follows: Audit Committee: Gary A. Ferguson Philip W. Dulhunty Nomination Committee: Alfred J. Chown Gary A. Ferguson Remuneration Committee: Alfred J. Chown Gary A. Ferguson 8 Philip W. Dulhunty - Energy Technologies Limited – 2015 Annual Report Directors’ Report (Cont’d) 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: D Power International Ltd Energy Technologies Limited Ordinary Shares Options Ordinary Shares Alfred J. Chown 38,160,691 - 59,724 Gary A. Ferguson 24,096,851 - - Philip W. Dulhunty – appointed 3/12/2014 17,045,135 - - Michael D. Butcherine – resigned 5/12/2014 14,736,187 - - CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behavior and accountability, the Directors of the Company support and have adhered to the principles of corporate governance. The Company's corporate governance principles are contained in the Corporate Governance Statement. Signed in accordance with a resolution of the Directors. Alfred J. Chown Chairman/Managing Director Sydney, 30 September 2015 9 Energy Technologies Limited – 2015 Annual Report Remuneration Report (audited) The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the directors, the managing director 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 emolument 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 base remuneration as well as employer contributions to superannuation funds. Remuneration levels are reviewed annually by the Remuneration Committee through a process that considers individual, segment and overall performance of the consolidated and operating entity. A senior executive’s remuneration is also reviewed on promotion. Performance – linked Remuneration The Remuneration Committee links the nature and amount of directors’ and executives’ emoluments to the company’s financial and operational performance. All senior executives have the opportunity to qualify for participation in the Employee Bonus Plan, which currently provides incentives where specified criteria are met including criteria relating to profitability. Performance linked remuneration includes both short term and long term incentives and is designed to reward executive directors and senior executives for meeting or exceeding financial and personal objectives. The short term incentive is an at-risk bonus provided in the form of cash, and is based on the relevant operating subsidiaries’ results and on achieving a preset target. The long term incentive is provided as ordinary shares of Energy Technologies Limited or options over ordinary shares of Energy Technologies Limited under the rules of the Energy Technologies Limited Share Option Plan. The remuneration structures result in and took into account: • The overall level of remuneration for each director and executive • The executive’s ability to control performance • The amount of incentives within each executive’s remuneration. Short term incentive Each year the remuneration committee sets the key performance indicators, which generally include measures relating to the operating group, the relevant segment and the individual, and are based on financial, customer and strategy measures. The measures directly align the reward to the key performance indicators and the operating group performance. The financial performance objectives are operating group turnover and EBIT to working capital ratio analyses compared to budgeted amounts on a regional and consolidated basis. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety and business development. The remuneration committee approves the cash incentive to be paid to the individuals. Long term incentive Options are available to be issued under the Energy Technologies Share Option Plan (made in accordance with thresholds set in plans approved by shareholders at the 2014 AGM), and it provides for directors, executives and employees to receive options in total limited to 15% of the issued ordinary capital and exercisable strictly under the terms of the Plan. 10 Energy Technologies Limited – 2015 Annual Report Remuneration Report (audited) The Board considers that the above remuneration structure is adequate given the major restructuring of the operations required under the Business Plan, and secondly, the performance linked element appears to be appropriate because the executives strive to achieve a level of performance which qualifies them for bonuses. The remuneration for all non-executive directors, last voted upon by shareholders at the 2007 AGM, is not to exceed $500,000 per annum. Director’s base fees are presently up to $20,000. Directors receive additional cash benefit of $2,500 for participation and attendance at each board approved committee, up to a maximum $5,000. Names and positions held of consolidated entity key management personnel in office at any time during the financial year are: Key Management Person Position (s) Held during the Year Alfred J. Chown Chairman/Managing Director of EGY and Managing Director of BWC Gary A. Ferguson Director – Non-executive of EGY and Director of BWC Philip W. Dulhunty – appointed 3/12/2014 Director – Non-executive of EGY Michael D. Butcherine – resigned 5/12/2014 Director – Non-executive of EGY and Director of BWC Gregory. R. Knoke CFO/Company Secretary of EGY and BWC Options and Rights Holdings Gregory R. Knoke holds 200,000 Options issued under the Share Option Plan (FY2014 Nil). Refer also Note 30. Shareholdings Balance 30 June 2015 Balance 1 July 2014 Received as Remuneration Purchases Alfred J Chown 38,160,691 - - - 38,160,691 Gary A. Ferguson 21,596,851 - 2,500,000 - 24,096,851 Philip W. Dulhunty – appointed 3/12/2014 17,045,135 - - - 17,045,135 Michael D. Butcherine – resigned 5/12/2014 14,736,187 - - - 14,736,187 * 6,962,415 - - - 98,501,279 - 2,500,000 Number of Shares held by Key Management Personnel Disposals Specified directors Specified executives Gregory R. Knoke 6,962,415 - 101,001,279 * at date of resignation 5/12/14 Details of the nature and amount of each element of the remuneration of key management personnel including each director of the company and each of the specified executive officers of the company and the consolidated entity for the financial year are disclosed in the table on next page. 11 Energy Technologies Limited – 2015 Annual Report Remuneration Report (audited) Remuneration of key management personnel (audited) " " The following table provides the details of all directors of the Company ( specified directors ) and the executives of the consolidated entity with the greatest authority ("specified executives"), and the nature and amount of the elements of their remuneration for the year ended 30 June 2015. Short-term benefits 2015 Specified Directors Alfred J. Chown Post Employment Share-based Benefits payment Cash, salary, fees & commissions Cash Bonus Other Superannuation Equity $ $ $ $ $ Total $ Position (s) Held Date Left Date Appointed Chairman/Managing Director of EGY and Managing Director of BWC - - 261,308 - 15,000 18,783 - 295,091 - - 25,000 - - - - 25,000 - 3/12/2014 6,500 - - - - 6,500 Philip W. Dulhunty Non-executive Director of EGY and Director of BWC Non-executive Director of EGY Michael D. Butcherine Non-executive Director of EGY and Director of BWC 5/12/2014 - - - - - - - CFO/Company Secretary of EGY and BWC - - 170,025 - 13,006 15,938 - 198,969 462,833 - 28,006 34,721 - 525,560 Gary A. Ferguson Specified executives Gregory R. Knoke During the year, Gregory R Knoke was issued 200,000 options under the Share Option Plan at an exercise price of $0.008, refer Note 30. As at 30 June 2015 these options were not exercised and fair value at grant date was material even if negligible. 12 Energy Technologies Limited – 2015 Annual Report Remuneration Report (audited) Remuneration of key management personnel (audited) The following table provides the details of all directors of the Company ("specified directors") and the executives of the consolidated entity with the greatest authority ("specified executives"), and the nature and amount of the elements of their remuneration for the year ended 30 June 2014. Short-term benefits Post Share-based Total Employment payment Benefits Cash, salary, Cash Other Superannuation Equity 2014 fees & Bonus commissions Specified Directors Position (s) Held Date Left Date