A N N U A L
2020
R E P O R T
CONTENTS
1 / KEY ACHIEVEMENTS FOR 2019-20
2 / LETTER FROM THE CHAIR AND THE CEO
3 / OPERATING AND FINANCIAL REVIEW
4 / DIRECTORS’ REPORT
4.1 Directors
4.1.1 Company Secretary
4.2 Directors’ meetings
4.3 Remuneration report
4.5 Auditor’s independence declaration
4.6 Corporate Governance
5 / FINANCIAL STATEMENTS
6 / AUDITOR’S REPORT
7 / SHAREHOLDER INFORMATION
2
4
6
28
29
33
33
34
60
61
62
109
113
GLOSSARY
Our term
OEM
Programs or wheel programs
What it means
Original equipment vehicle manufacturer, eg
Ford, Ferrari. The OEMs are our customers
and the owners of their vehicles are their
customers
Commercial arrangements with OEMs to
supply wheels. Arrangements start with
engineering validation and end with a contract
to supply a specific wheel(s) at an agreed price.
Carbon Revolution has a range of wheel
programs with existing clients and is pursuing
new programs with both those clients (for new
car models) and new OEMs.
1
K EY
S E C TIO N 1 /
A C HIEVE M E N TS
F O R 2019-20
S U S TAIN E D C U S T O M E R D E M A N D
S T R O N G G R O W T H A N D
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2020 ANNUAL REPORT
K ey achieve m ents
for 2019–20
Awarded 3 new vehicle programs
and in engineering trials with a new
Asian OEM
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Growth of 158%
$38.9m revenue
S U S TAIN E D C U S T O M E R D E M A N D
S T R O N G G R O W T H A N D
P O SITIV E T E A M E N G A G E M E N T
D E S PIT E T H E IM P A C T O F C O VID-19
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KEY ACHIEVEMENTS FOR 2019-20
3
SECTION 2 /
LETTER FROM THE CHAIR AND THE CEO
Dear Shareholder
On behalf of the Directors of Carbon Revolution Limited (“Carbon Revolution” or the “Company”
or the “Group”), we are pleased to present our annual report for the financial year ending 30
June 2020 (FY20).
Carbon Revolution is an Australian technology company manufacturing advanced carbon
fibre wheels. Our wheels are materially lighter than steel and aluminium alternatives and as
a result deliver significant efficiency gains. These efficiency gains translate into enhanced
performance and increased fuel efficiency or range enhancement for electric vehicles. Our
wheels are currently available on a number of cars made by Ford, Ferrari and Renault and we
have contracts to supply wheels to a number of other car makers for future models. We are
also working with the Australian Defence Force on the design of wheels for the CH-47 (Chinook)
Helicopter as part of our expansion into the aerospace sector.
The past year has been a very significant one for the Company. We made good progress in
the industrialisation of our production processes, delivered strong growth and completed
a successful listing on the Australian Securities Exchange (ASX). However, we also faced
significant challenges. In particular, issues associated with the COVID-19 pandemic materially
impacted our business, affecting our customers, our supply chains, our production and
ultimately our ability to deliver on our prospectus forecasts. We are disappointed that we were
not able to deliver on our expectations for this year, but we also believe that these impacts are
relatively short-term in nature and that our long-term growth prospects are unchanged.
The Company completed a successful Initial Public Offering (IPO) on the ASX on 29 November
2019. On behalf of your Board of Directors, we would like to express our appreciation for the
support shown by our long-term shareholders up to the listing and by all shareholders since the
IPO. We would like to particularly express our thanks for the strong support we have received
over time from the State Government of Victoria, Ronal AG and Deakin University.
In our prospectus we forecast production of 22,821 wheels and revenue of $62.2m for FY20
and that we would become EBITDA positive in Q4 of that year. Unfortunately, the second half
of the financial year was heavily impacted by the global COVID-19 pandemic. Our two largest
customers, Ferrari and Ford, shut down manufacturing during this time. The pandemic
impacted our global supply chain and affected our ability to procure key raw materials. We also
took steps to safeguard our team at our facility in Geelong, Victoria which affected production.
As a result of these issues and uncertainty created by the pandemic, we withdrew our
prospectus forecasts for FY20 on 25 March 2020. Further, we took steps to ensure the company
was in as strong a financial position as possible to deal with uncertainty by raising $25m through
an institutional placement in March 2020 and a further $2.7m via a share purchase plan.
The operational focus for the business in FY20 was to increase production capacity, particularly
the capacity of the moulding processes. It is pleasing to report that monthly annualised
moulding output increased to 30,000 wheels per annum by the June quarter. However, as
further outlined in the Operating and Financial Review, as a result of challenges in finishing
wheels to the required aesthetic quality, compounded by the constraints that we had to impose
due to the pandemic, our finishing rates were lower than our moulding rates. This resulted in
lower sales and higher work-in-progress inventory levels than planned.
4
2020 ANNUAL REPORT The issue of finish quality, particularly as we industrialise our process to increase rate and lower
costs, has been a major focus for our team. During the year we completed development work
on a new technology that addresses these challenges. This new technology, known as ‘fascia’,
will address the majority of our quality issues and provide a materially enhanced aesthetic finish
to our wheels. In addition, it will reduce costs and allow us to sell through the excess inventory
carried over from FY20.
This fascia technology is being implemented with customers now and the first commercial sales
of wheels featuring it will occur through September. It will be progressively introduced over
most of our existing programs and all future programs.
We have applied for a patent for this technology which will add to the valuable intellectual
property portfolio developed and owned by the Company. We currently have 43 granted patents
in eight patent families, with further patents pending in an additional four patent families.
Research and development will continue to be a focus for us and is critical to the success of the
Company. We are proud to have developed this technology here in Geelong.
Customer demand for our wheels has continued to be very strong – both from our original
equipment vehicle manufacturer (OEM) partners and their customers. We are constrained by
confidentiality arrangements from disclosing details of existing and new contracts. However,
during FY21 we expect to enter into new supply arrangements with existing customers for new
vehicle programs as well as new customers, in Europe, North America and Asia. We expect that
through the year a number of new cars will be launched with our wheels and at that time we
will look to update our investors on those programs, when we are able to. At present we have
11 programs for specific vehicles with five OEM partners and a further program in engineering
validation stage with a sixth OEM based in Asia.
The Company’s FY20 revenue of $38.9m exceeded the prior year by 158%. Carbon Revolution
reported a loss after tax of $114.0m (FY19: $27.2m). The FY20 loss after tax includes $87.2m of
non-cash items associated with the IPO. Looking forward to FY21, we expect strong sales growth
and continued progress with our industrialisation strategy.
On behalf of the Board, we would like to thank each and every member of the Carbon Revolution
team for their considerable efforts and achievements throughout the financial year, particularly
in the face of the unusual challenges of COVID-19. Carbon Revolution builds a unique and highly
sophisticated product, and it has a unique team and culture which we are confident will deliver
long-term, profitable growth for our shareholders.
We would also like to thank the Non-Executive Directors, our customers, suppliers, partners,
financiers and advisors for their contribution and collaboration through the year.
Finally, thank you to our fellow Carbon Revolution shareholders who have recognised the
strategic growth opportunities ahead for this company and invested to help us execute on
our plans. We are excited about the year ahead and look forward to keeping you updated on
our progress.
James Douglas
Chair
Jake Dingle
CEO and Managing Director
LETTER FROM THE CHAIR AND THE CEO
5
S E C TIO N 3 /
O P E R ATIN G
A N D
FIN A N CIA L
R E VIE W
6
2020 ANNUAL REPORT
ABOUT CARBON REVOLUTION
Carbon Revolution was established in 2007 and is an advanced manufacturing company
that designs, manufactures and markets single piece carbon fibre wheels. We are the
only company globally to have successfully developed and manufactured single piece
carbon fibre automotive wheels to original equipment vehicle manufacturers (OEM) quality
standards with commercial adoption across several major OEM’s vehicle platforms.
Carbon Revolution’s principal operations, which include its corporate office and
manufacturing facilities, are located in Geelong, approximately 75 kilometres from
Melbourne, Australia. Carbon Revolution has a number of permanent and contract
personnel in North America and Europe to service current and prospective customers.
The Geelong facility is a purpose-built facility which was opened in 2014 with an initial
size of 3,000m2. Since commencing production for its first OEM program for Ford in 2015,
the Company has progressively increased production capacity in response to increasing
demand from customers.
Carbon Revolution completed a manufacturing facility expansion in October 2018,
increasing the building footprint from 3,000m2 to 10,000m2. This will allow the Company
to materially increase production capacity over the coming years. The Geelong facility is
quality accredited to international automotive supply standard IATF16949.
INITIAL PUBLIC OFFERING
In November 2019 the company completed its Initial Public Offering (IPO), which raised
$30.0m in new capital to invest in manufacturing equipment to reduce unit costs of
production and increase production capacity at the Geelong facility as well as fund
continued research and development (R&D) activities and pre-pay $5m of the Ronal
AG loan. The IPO included a secondary sell-down facility of $60.1m allowing existing
shareholders the opportunity to realise part of their investment in Carbon Revolution.
The listing triggered both the conversion of convertible notes into equity shares resulting
in a revaluation loss of $51.4m and the issue of anti-dilution shares to investors in a 2016
capital raising, resulting in a loss of $35.8m for accounting purposes.
BUSINESS MODEL AND STRATEGIC PRIORITIES
Carbon Revolution primarily generates revenue through the sale of carbon fibre wheels
to global OEMs. The Company also generates revenue via the provision of associated
engineering services and customer-owned tooling related to those wheel sales to
global OEMs. The sale of Carbon Revolution’s wheels takes place under supply contracts
with OEMs.
The business model is based on concurrently developing materials, products and processes
with the aim of lower cost and higher volume industrialised production. The company has
prioritised the automotive new vehicle wheel market, where its lightweight wheels deliver
substantial performance and efficiency benefits. There are a number of strategic growth
opportunities available to Carbon Revolution, in addition to the scaling up of its Geelong
manufacturing facility to materially increase production capacity. Carbon Revolution also
aims to leverage its technology into adjacent industries, such as the aerospace
and transportation sectors.
OPERATING AND FINANCIAL REVIEW
7
OPERATING AND
FINANCIAL REVIEW (CONT)
Carbon Revolution’s strategy and competitive advantage are derived from:
• Leadership in carbon fibre wheel technology
• World class customer excellence
• Industrialisation, developing strong and sustainable earnings.
The key stages of Carbon Revolution’s industrialisation strategy are:
INITIAL COMMERCIAL
PRODUCTION AND
PLANNING
(2014-2019)
• Initial commercial supply to OEMs focused on achieving required product performance,
manufacturing quality and throughput
• Industrialisation was largely in the planning stage, with a focus on understanding the
product and manufacturing processes with a view to future automation, and designing
advance manufacturing equipment
• Some first generation manufacturing equipment was employed
• With its product commercialised, Carbon Revolution is focused on automating discrete
core manufacturing processes, by constructing and commissioning advanced equipment
designed during the previous phase. With this equipment coming on line during FY20 and
FY21, the benefits will be realised as customer programs ramp up
• Planning has already commenced for next stage
• Once core processes are automated in stage 2, Carbon Revolution will focus on linking
these processes together to form a seamless autonomous and industrialised process
• Existing processes and equipment will be subject to review with the aim of continuous
improvement
AUTOMATION OF
CORE PROCESSES
(FY20 and FY21)
FULLY
INDUSTRIALISED
PRODUCTION
(Development
Underway)
RESULTS OF OPERATIONS
Carbon Revolution’s wheel program portfolio
TOTAL REVENUE ($’000) & WHEEL SALES (UNITS)
$45,000
16000
$30,000
$40,000
$35,000
The Company is now nominated for, or has been awarded, 11 contracts programs with five
global OEMs. Six of these programs have been publicly announced by the relevant OEM and
are in production. The Company is prevented by confidentiality obligations from detailing
these arrangements. The Company is also working with an Asian OEM on the engineering
and development of a new program. The Company’s wheel programs cover most vehicle
segments, including wheels for several performance sedans, a performance hatch, a SUV
and a hypercar being brought to market by a major Asian OEM. The status of the company’s
programs is:
$20,000
$25,000
12000
14000
10000
6000
8000
$15,000
$10,000
$5,000
$0
FY17
FY18
FY19
FY20
Total revenue
Sales volume (# wheels)
4000
2000
0
8
2020 ANNUAL REPORT
Stage of Program Lifecycle
Awarded programs in production during FY20
Programs in development
Awarded
Under engineering
order
Programs entering run out during FY21
Awarded programs planned to enter
production in FY21
Number of
Programs
6
5
1
3
2
Programs vary in size and length and run out over different periods of time. Taking into
account the combination of new programs, growth from existing programs and the
reduction from programs in run out, the company expects to deliver strong sales
growth in FY21.
9
62
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Page 51 – Announced Programs in the Public Domain
The awarded programs in production during FY20 are:
NOTE FOR MARK: Pics are high res except Renault Megane
Exhibit 15 – Announced programs (in the public domain)
Ford Mustang GT350R
(2015)
6.9kg WEIGHT
REDUCTION per wheel
Sports Car of the Year1
WEIGHT
45%2
SAVING over
aluminium equivalent
Ford GT (2016)
Carbon Revolution’s
FIRST EXPOSED
WEAVE OEM product
WEIGHT
22%3,4
SAVING over
aluminium equivalent
Ferrari 488 Pista (2018)
Next generation
PREFORM
TECHNOLOGY AND
RESIN SYSTEM
WEIGHT
40%2
SAVING over
aluminium equivalent
Ford Mustang GT500
(2019)
First industrialised wheel
MOULDED UNDER
HIGH PRESSURE
WEIGHT
41%4
SAVING over
aluminium equivalent
Renault Megane Trophy RS
(2019)
FIRST FRONT WHEEL
DRIVE hot hatch
application
WEIGHT
23%3,4
SAVING over
aluminium equivalent
Ferrari SF90 Stradale
(2019)
FIRST PLUG-IN HYBRID
ELECTRIC vehicle
application
WEIGHT
32%4
SAVING over
aluminium equivalent
1 Popular Mechanics Sports Car of the Year for 2015.
Note:
1 Popular Mechanics Sports Car of the Year for 2015.
1 Popular Mechanics Sports Car of the Year for 2015.
2 As publicly stated by OEM.
2 As publicly stated by OEM.
2 As publicly stated by OEM.
3 Constrained by styling requirements and compared to lightweight forged aluminium wheel;.
3 Constrained by styling requirements and compared to lightweight forged aluminium wheel.
4 Based on calculations by the Company which compared the weight of the benchmark aluminium wheel to the relevant Carbon
3 Constrained by styling requirements and compared to lightweight forged aluminium wheel.
4 Based on calculations from the company which compared the weight of the benchmark
Revolution wheel
aluminium wheel to the relevant Carbon Revolution wheel.
OPERATING AND FINANCIAL REVIEW
9
OPERATING AND
FINANCIAL REVIEW (CONT)
MANUFACTURING AND INDUSTRIALISATION PROGRAM
The business is now well progressed in its industrialisation phase where the focus has
been on increasing the scale of manufacturing and the first phase of process automation.
Annualised wheel moulding rate was increased from approximately 12,000 to over 30,000
per annum in FY20 through the installation of new cutting, preforming, rim forming and rim
close out machines, robotic machine tending and surface preparation machines, thermal
barrier coating capacity and new high-pressure moulding stations.
Unfortunately, the sales ramp-up was impacted by operational changes necessary due to
COVID-19 and by wheel aesthetic surface finish issues. COVID-19 significantly impacted the
business during the second half of the year in the following ways:
• Recruitment associated with the volume ramp was frozen in March and shift separation
was introduced. Both measures limited wheel production from March to June;
•
Indirect staff were all required to work from home as much as possible impacting a
number of activities that were in place to support and improve manufacturing activities;
• Global supply chains were interrupted with some raw material manufacturers in Europe
and the USA being shut for extended periods. To reduce the risk of stock outs, the
business increased raw materials stock levels which increased working capital in the
last quarter and incurred significantly elevated freight costs during this period;
• Both volume and price impacts significantly increased the cost of consumables from
March (particularly face masks, gloves, hand sanitiser and cleaning products). Price
levels only started to settle to more normal levels in June;
• Some OEM customers have delayed the introduction of some programs, however, all
customers are currently in production and demand for our technology remains strong.
The wheel finishing issues increased processing time and led to both reduced sales and
increased inventory levels throughout the downstream finishing processes (the processes
after moulding). In response to this the business used the global slowdown to fast track
the development and implementation of a new technology (known as ‘fascia’) that improves
finished wheel aesthetic quality. The new fascia technology involves applying the surface
fabric at the end of the moulding process rather than the beginning which dramatically
improves the surface finish of the wheel. This new technology will drive significant
reduction in labour cost per wheel and reduction in work in process along with a higher
immediate conversion rate of moulded wheels to sold wheels.
10
2020 ANNUAL REPORT
REVENUE GROWTH
It is pleasing that the company grew revenue by 158% in FY20, a record year for sales during
what was a challenging global environment in the second half of the year.
TOTAL REVENUE ($’000) (LHS) & WHEEL SALES (UNITS) (RHS)
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
16000
14000
12000
10000
8000
6000
4000
2000
0
FY17
FY18
FY19
FY20
Total revenue
Sales volume (# wheels)
WHEEL SALES
During FY20 revenue of $36.9m was derived from wheel sales, an increase of 167% from
FY19. This significant increase in revenue was driven by strong underlying demand across
production programs including the full year impact of the Ferrari 488 Pista program and
from new programs entering production in FY20, including the Ford Mustang GT500,
Ferrari SF90 Stradale and Renault Megane R.S. Trophy-R programs. These new programs
represented 38% of wheel sales revenue in FY20 and will form a greater share of revenue in
FY21 as they deliver a full year of wheel sales.
While underlying demand for these programs was strong during FY20, the ramp-up in
wheel sales was materially impacted by COVID-19 from March. There was significant
uncertainty around some customers’ ability to receive wheels in March and April as a result
of COVID-19 impacts and uncertainty around the timing of their resumption of vehicle
production post lock down. The business has used the COVID-19 related volume slowdown
to move to sea freight for some customers, providing order stabilisation and lower cost
shipping. There were an additional 1,344 wheels shipped during the year that will not be
recognised as revenue ($4.5m) until FY21.
OPERATING AND FINANCIAL REVIEW
11
OPERATING AND
FINANCIAL REVIEW (CONT)
ENGINEERING SERVICES AND TOOLING REVENUE
Revenue from engineering services reflects the OEM contribution to wheel design and
validation activities undertaken prior to the commencement of production to assist Carbon
Revolution achieve the specifications unique to each OEM vehicle program. This revenue
stream is driven by the number of new products under development. Revenue from tooling
reflects the sale of certain OEM tooling designed to the specification of each OEM program.
Revenue from Engineering Services and Tooling increased by $0.8m to $2.1m. This increase
reflected the activity being undertaken with ongoing development and launch activities
related to programs that entered production during FY20 and new OEM programs.
TALENT AND ENGAGEMENT
Our employees are a key factor in the growth and success of the business. Despite the
COVID-19 freeze on hiring associated with the volume ramp, the business grew significantly
throughout the year, with over 220 people hired in 2020, up 46% on FY19. Total headcount
increased by 327 to peak at over 600 by April 2020 as the company continued its growth
trajectory, notwithstanding the hiring freeze undertaken by the company in mitigating
the risk associated with COVID-19. The team demonstrated their initiative and resilience
during this period to continue with both production and development activities during the
disruptions arising from the COVID-19 virus. Unfortunately, due to a COVID-19 related
reduction in demand in the first half of FY21, in July and early August the company made
efficiency and operational changes including workforce reductions and shift optimisation.
The engagement of the Carbon Revolution team has remained very strong through FY20.
The employee engagement score measure was 72 which is consistent with 73 scored in
FY19. The result is pleasing given the measure was taken late in the year when the business
was challenged with growing turnover while dealing with restrictions related to COVID-19.
During the year, the business introduced CARE, which is our Mental Health Model designed
specifically for the Carbon Revolution team. As part of the program, the business has
appointed a part time Team Psychiatrist and launched the Bonfyre App which is used to
actively engage with all staff. The Bonfyre App is a great tool to promote awareness and
education around mental health and build a place where the team can feel safe, supported
and connected.
12
2020 ANNUAL REPORT
FINANCIAL REVIEW
Historical consolidated performance
Sale of wheels
Engineering services & tooling
Total revenue
Cost of goods sold
Gross loss
% of total revenue
Selling, general and administration expenses
Research and development expenses
Capital raising transaction costs
Total expenses
% of total revenue
Other income
Gain on revaluation of financial instruments
EBIT before losses related to the IPO
Anti-dilutive shares issued on IPO
Conversion of financial instruments on IPO
EBIT
Net interest expense
Loss before tax
Income tax
Loss after tax
EBITDA adjusted1
% of total revenue
2020
$m
36.8
2.1
38.9
(50.5)
(11.6)
(30%)
(13.0)
(4.8)
(1.4)
(19.2)
49%
6.2
–
(24.6)
(35.8)
(51.4)
(111.8)
(2.2)
(114.0)
2019
$m
13.8
1.3
15.1
(22.5)
(7.4)
(49%)
(11.1)
(4.5)
(7.7)
(23.3)
154%
5.0
0.5
(25.2)
–
–
(25.2)
(2.0)
(27.2)
Change
%
167%
62%
158%
124%
57%
19 pts
17%
7%
(82%)
(18%)
105 pts
24%
2%
–
–
344%
10%
319%
-
-
(114.0)
(27.2)
319%
(17.1)
(44%)
(22.4)
(148%)
(24%)
104 pts
Individual items of income and expense are consistent with the statutory information.
1 EBITDA adjusted is earnings before interest, tax, depreciation and amortisation and before the losses from anti-
dilutive shares issued on IPO and loss on conversion of financial instruments
OPERATING AND FINANCIAL REVIEW
13
OPERATING AND
FINANCIAL REVIEW (CONT)
Carbon Revolution reported a loss after tax of $114.0m (FY19: $27.2m). The FY20 loss after
tax includes $87.2m of losses associated with the IPO from the conversion of convertible
notes into equity shares resulting in a revaluation loss of $51.4m and the issue of anti-
dilution shares to investors in a 2016 capital raising resulting in a loss of $35.8m.
Sales revenue increased by 158% to $38.9m. Key items of note in these results include:
• Average price per wheel increased by 9% to $2,643 due to changes in the sales mix and
a weakening of the Australian dollar relative to the Euro;
• Sales from new programs contributed 38% of wheel sales revenue in FY20. These
programs will deliver further growth in FY21 as they will be in production for a full year;
• Revenue from engineering services and tooling increased to $2.1m in FY20
(FY19: $1.3m), reflecting the work completed on new programs;
• The business has used the COVID-related volume slowdown to move to sea freight
for some customers, providing order stabilisation and lower cost shipping. There were
an additional 1,344 wheels shipped during the year that will not be recognised as
revenue ($4.5m) until FY21.
Gross loss increased to $11.6 m from $7.4m in FY19. This gross loss represented (30%) of
revenue which was an improvement from (49%) in FY19.
This gross loss improvement was driven by a number of factors, including the following
impacts on cost of goods sold:
•
Improved price as a result of a change in sales mix and favourable foreign currency
movements, in particular the weakening of the Australian dollar relative to the Euro;
• A higher proportion of wheels manufactured through more industrialised
manufacturing processes;
•
Improved recovery of manufacturing overheads arising from higher production volumes.
However, these improvements in cost of goods sold were partially offset by:
• Adverse foreign currency movement for raw material purchases;
• A range of COVID-19-related input price impacts, including both inbound and outbound
freight costs;
•
Increased processing time and operational costs associated with wheel finishing issues.
Selling, general and administration expenses increased by $1.9m to $13.0m. This
increase reflects additional costs to support increased manufacturing and development
activities, increased costs associated with public listing compliance and expanded sales and
marketing activities.
The business continued to invest strongly in research and development required to improve
the product technology, material systems and to bring its production processes to full
industrialisation. Accordingly, Research and Development (R&D) Expenses of $4.8m
were recorded along with the capitalisation of $12m development costs. During the year
a number of programs completed development activities ahead of program launch and a
number of new programs are under development.
14
2020 ANNUAL REPORT
The business continued to benefit from its collaborative R&D programs, in particular,
through its Innovative Manufacturing Collaborative Research Centre with Deakin University.
Other income which includes grant income increased by $1.2m to $6.2m. In particular
there was an increase in the expected R&D tax incentive refund in relation to the prior
financial year.
Losses from anti-dilution shares and on conversion of financial instruments on IPO both
relate to equity changes during the year and are related to fund raising activities. These
items are one-off and non-cash in nature.
CASHFLOW
EBIT
Change in working capital and other
Net interest paid (excl convertible loan interest)
Non-cash losses related to IPO
Other non-cash items in EBIT
Net cash used in operating activities
Capital Expenditure
Intangible Expenditure
Net cash used in investing activities
Net cash from financing activities
Net Cash outflows
2020
$m
2019
$m
Change
$
(111.8)
(25.2)
(86.6)
(11.3)
(2.2)
87.2
7.2
(30.9)
(14.6)
(12.3)
(26.9)
45.7
(12.1)
(2.7)
(2.0)
–
10.0
(19.9)
(14.9)
(7.8)
(22.7)
69.3
26.7
(8.6)
(0.2)
87.2
(2.8)
(11.0)
0.3
(4.5)
(4.2)
(23.6)
(38.8)
Net Cash used in operating activities increased by $11.0m to $30.9m driven by increased
working capital and increased operating losses. The increase is largely due to growth in
working capital, especially inventory which grew in line with business growth in FY20.
Inventory includes 2,750 moulded wheels in work in process awaiting the new fascia
technology and painted programs which will be finished and released for sale in the coming
year. Other non-cash items in EBIT consist of depreciation and amortisation which was
offset by other minor non-cash items.
OPERATING AND FINANCIAL REVIEW
15
OPERATING AND
FINANCIAL REVIEW (CONT)
Net Cash used in investing activities increased by $4.2m to $26.9m with significant
investment in industrialisation assets which support future growth plans. Intangible
expenditure increased by $4.5m to $12.3m resulting from the increased scope of R&D
activities on the core wheel technology and new program development.
The net cash inflow from financing activities was from funds raised in the company’s IPO
and also the COVID-19 Placement.
In November 2019 the company completed its IPO, which included a primary raise of $30m.
During March and April 2020, the company raised $27.7m to position the company as
strongly as possible to deal with the impacts on the business associated with the COVID-19
virus. This raising was completed through a $25m non-underwritten institutional share
placement and a $2.7m share purchase plan (SPP). The company elected to undertake this
raising to continue to maintain its growth program, secure key raw materials and operate
with greater security as a result of the uncertainty created by COVID-19 and its impact on
the global economy.
The net cash outflow in the second half of FY20 saw elevated levels of operating and
capital expenditure as the business responded to supply chain disruptions and invested
in industrialisation assets. Cash outflows in the last six months that will either not carry
forward or reverse include:
• COVID-19 related raw material safety stock buffer held in inventory will be released over
the coming quarters with the expected stabilisation of global supply chains;
• Moulded wheel inventory will reduce during FY21 due to both the new fascia technology
allowing moulded wheels to be finished and selling wheels through painted programs;
• Expansion capital requirements will reduce in the coming months as the current
industrialisation assets are commissioned and the business has sufficient capacity for
awarded programs;
• Stabilisation in R&D expenditure from the abnormally high fourth quarter FY20 spend
due to fast tracking of the fascia and spoke core programs.
16
2020 ANNUAL REPORT
CAPITAL EMPLOYED
Receivables
Inventories
Less: Payables
Working capital
Working capital / revenue
Debtor days
Inventory days
Property, plant and equipment
Intangible assets
Capital employed
2020
$m
7.9
27.8
(17.0)
18.7
48%
74
201
44.0
17.9
80.6
2019
$m
9.0
9.7
(11.7)
7.0
46%
218
156
31.5
7.9
46.4
Change
$
(1.1)
18.1
(5.3)
11.7
(2%)
(144)
45
12.5
10.0
34.2
Capital employed increased by $34.2m to $80.6m in June 2020.
Working capital increased by $11.7m to $18.7m. The increase is largely driven by growth in
inventory. Inventory growth was primarily related to:
• Raw materials ($2.2m increase) which is attributable to growth in stock levels
associated with mitigating the risks of COVID-19 supply chain disruptions;
• Work in progress ($10.2m increase). This was driven by a ramp-up in wheel sales and
in addition work in progress includes 2,750 wheels related to the wheel finishing issues
experienced during the year. These will be released for sale in the coming year;
• Finished goods ($5.7m increase) which mainly relates to the change to sea freight for
one customer where the wheels in transit at 30 June are not recognised in revenue until
delivered to the customer’s warehouse.
Property, plant and equipment increased by $12.5m to $44.0m as the company expanded
production capacity throughout the year to support expected growth in current and near-
term future programs.
Intangible assets increased by $10.0m to $17.9m reflecting the increased development
activities being undertaken on customer programs and core technology development.
OPERATING AND FINANCIAL REVIEW
17
OPERATING AND
FINANCIAL REVIEW (CONT)
NET DEBT
Loans and borrowings
Current
Non-current
Total loans and borrowings
Less: Cash and cash equivalents
Net debt/(cash)
2020
$m
2019
$m
Change
$
18.7
–
18.7
(33.9)
(15.2)
74.0
25.5
99.5
(55.3)
(25.5)
(80.8)
(45.8)
11.9
53.7
(68.9)
Net debt decreased by $68.9m to a net cash position of $15.2m at June 2020. This was
driven by the capital raised during both the IPO and COVID-19 raising, the conversion
of convertible notes into equity during the IPO offset by the $5m repayment of principal
associated with the Ronal AG loan and the staged repayment of a grant advance to the
State of Victoria as milestones associated with that grant were achieved. The level of
net debt was also impacted by the cash used in both operating and investing activities
throughout the year.
Arrangements to repay the $13m Ronal AG term loan are well progressed. Key terms
and conditions for a three year term loan facility with Export Finance Australia (EFA) have
been agreed and this arrangement is now being documented. The EFA loan will be a $13m
three year term debt facility which will amortise over the three years, have quarterly
repayments and the interest rate will be BBSY plus 5.95%. Completion is expected in
the coming months.
18
2020 ANNUAL REPORT
PROSPECTS
Carbon Revolution remains the only company globally to have successfully developed
and manufactured single piece carbon fibre automotive wheels to OEM quality standards
with commercial adoption across several major OEM models. Carbon fibre has the key
advantage of being lighter than traditional automotive wheel materials, primarily steel
and aluminium, for a given level of stiffness and durability. This weight saving delivers
significant performance and efficiency benefits, which are highly valued by our core
customers, global OEMs and their customers, the buyers of performance and luxury cars.
The company continues to invest strongly in new customer programs, core wheel
technology and industrialisation technology. Our products are underpinned by an extensive
intellectual property portfolio, including numerous granted and pending patents. Sales
growth, signing new programs and the industrialisation of the manufacturing process
remain key priorities for FY21.
Although some OEM customers have delayed the introduction of some programs, all
customers are currently in production and demand for our technology remains strong.
In FY21 the Company expects to:
• Deliver strong sales growth over FY20;
• Become gross profit positive during the second half of the FY21 year, when production
levels lift and the full impact of industrialisation benefits can be realised;
• Realise the cashflow benefits of reducing inventories (both raw materials and work
in progress), reduced expansion capital spend and reduced investment in research
and development;
• Repay the $13m Ronal AG loan, enter into a new three year loan facility with EFA and
obtain a new working capital facility.
FORWARD-LOOKING STATEMENTS
Carbon Revolution advises that this document contains forward-looking statements which
may be subject to significant uncertainties outside of the Carbon Revolution’s control. No
representation is made as to the accuracy or reliability of forward-looking statement or the
assumptions on which they are based. Actual future events may vary from these forward-
looking statements and it is cautioned that undue reliance not be placed on any forward-
looking statements.
OPERATING AND FINANCIAL REVIEW
19
OPERATING AND
FINANCIAL REVIEW (CONT)
BUSINESS RISKS
Carbon Revolution is subject to risk factors, some of which are specific to Carbon
Revolution’s business activities and others that are of a more general nature. Any single
risk event, or a combination of risk events, may have a material adverse impact on Carbon
Revolution’s business, operations, financial position or future performance.
This section does not purport to list every risk that may be associated with the business.
While Carbon Revolution seeks to manage risks to prevent adverse outcomes, the actions
taken to mitigate these risks cannot provide absolute assurance that a risk will not
materialise, and many of these risks are outside the control of Carbon Revolution, the
Board and Management.
Risk
Risks associated
with COVID-19
and other
pandemics
Description of Risk and
Potential Consequences
Mitigation strategies
• There is a risk that Carbon
• Carbon Revolution’s customers have
Revolution’s operations and future
demand are further disrupted by
the spread of COVID-19.
• In the event that customers
reduce or cease ordering wheels or
factory disruptions cause Carbon
Revolution to reduce production
of its wheels or cease producing
wheels altogether, this will have a
material negative impact on Carbon
Revolution’s ability to achieve its
forecasts. Carbon Revolution may
also experience issues meeting
required production under
customer contracts.
• There is risk the Company’s
suppliers are negatively
impacted by COVID-19, thereby
threatening the supply of raw
materials and consumables.
• Government policies or other
authoritative directions may
substantially impact or curtail
Carbon Revolution operations.
adopted their own new working
protocols aimed at reducing the risk of
a COVID-19 case in their business and
at a rapid recovery if there were to be a
case in their production facilities.
• Moving to or continuing wheel sales
via sea freight allows continued
production and shipping of wheels
in the event one or more customer’s
production facilities close due to a
COVID-19 case temporarily causing
a cease to production.
• The business has adopted its own
working protocols including: shift
separation, wearing masks for all
staff, working from home where ever
practical, infra-red temperature test
for all persons entering the building,
visitors are extremely limited and
must be absolutely necessary to be
on site, increased focus on hand
washing and sanitising and additional
cleaning staff.
• Raw materials stocks are constantly
reviewed and safety stock is held to
mitigate the risk of disruptions to the
raw material supply chain.
20
2020 ANNUAL REPORT
Risk
Carbon Revolution
may not be able to
execute its plans
Description of Risk and
Potential Consequences
Mitigation strategies
• There is a risk that Carbon
• Carbon Revolution is in constant
Revolution’s industrialisation plans
and growth strategy may not be
successful, or may take longer or
cost more than anticipated, which
would adversely affect Carbon
Revolution’s financial position
and performance.
• There are a range of factors which
may result in demand for Carbon
Revolution’s wheels being lower
than anticipated, and many of
these factors are outside Carbon
Revolution’s control. If demand for
Carbon Revolution’s wheels is lower
than anticipated, this will adversely
impact Carbon Revolution’s ability
to generate revenue which will in
turn impact on Carbon Revolution’s
financial performance and
prospects.
communication with customers to
identify any change in demand as early
as possible to provide an enhanced
ability to minimise impact on Carbon
Revolution operations.
• The company has well developed
business plans and strategies that
are regularly measured and adjusted
where appropriate.
• Key account management is
established for all customers and key
target customers. Sales performance,
delivery in full and on time (DIFOT) and
growth plans for each customer are
regularly reviewed and appropriate
actions are in place.
• To reduce risk related to design and
commissioning of industrialisation
assets and their effective ongoing
operation, new industrialised
equipment is designed tested using
discrete event simulation and virtual
commissioning techniques before
actual acquisition, construction
and go live. Maintenance plans are
established by the Industrialisation
team for all new equipment
before handover to the production
maintenance team.
OPERATING AND FINANCIAL REVIEW
21
OPERATING AND
FINANCIAL REVIEW (CONT)
Risk
Relationships
with customers
may deteriorate
Description of Risk and
Potential Consequences
• Carbon Revolution has 11 customer
programs with five OEMs and losing
any one of these may significantly
adversely affect its financial
performance and prospects.
• Failing to enter into additional
supply contracts and attract
additional OEM customers will
negatively impact on Carbon
Revolution’s prospects and likely
future financial performance.
Mitigation strategies
• The company has well developed
business plans and strategies that
are regularly measured and adjusted
where appropriate.
• Key account management is
established for all customers and key
target customers. Sales performance,
DIFOT and growth plans for each
customer are regularly reviewed and
appropriate actions are in place.
The establishment of a new executive
role – Director, Customer Excellence,
and appointment of a highly
experienced person into this role will
significantly mitigate this risk. This
role will carry responsibility for all
key customer deliverables related to
programs post-award.
22
2020 ANNUAL REPORT
Risk
Carbon Revolution
may not have
sufficient funds
for operational
requirements
and to repay
term debt
Description of Risk and
Potential Consequences
• Carbon Revolution has a term loan
from Ronal AG, under which the
company must pay Ronal AG the
principal amount outstanding, which
is $13m, plus accrued interest, by 30
June 2021.
• Carbon Revolution is also party to
a loan arrangement with the State
of Victoria (“SOV”), under which the
company was provided with an early
advance of which $5.5m is outstanding
at 30 June 2020 and is repayable on
30 June 2021.
• Carbon Revolution has not yet become
profitable and cashflow positive, as
such, is currently reliant on its cash
reserves and sources of new funds
until it is cash flow positive.
• If the company’s funds were to run
out and there is an inability to
raise funds when required, this
may adversely impact on Carbon
Revolution’s financial performance
and prospects.
Mitigation strategies
• Arrangements to repay the $13m
Ronal AG term loan are well
progressed. Key terms and conditions
for a three year term loan facility with
Export Finance Australia (EFA) have
been agreed and this arrangement is
now being documented. If new term
debt and working capital funding
cannot be obtained, the company
would look to negotiate extended
terms with its current debt providers
or raise equity funds to repay
term debt.
• The SOV loan is expected to reduce
during FY21 as the company earns
grant funds which will be offset
against this loan. At 30 June 2021,
there is expected to be sufficient
outstanding grant funds to be earned
in future years that could potentially
be used to offset the balance of this
outstanding loan.
• The company’s ability to raise
additional funds through debt or the
issue of securities will be subject to
factors beyond the control of Carbon
Revolution and its Directors, including
general factors affecting the economy
and capital markets (including
COVID-19). There is no guarantee that
such funding, whether debt, equity or
otherwise, will be obtained or available
on favourable terms, or at all.
OPERATING AND FINANCIAL REVIEW
23
OPERATING AND
FINANCIAL REVIEW (CONT)
Risk
Carbon Revolution
is subject to
inherent risks in
the development
and use of new
technology
Description of Risk and
Potential Consequences
Mitigation strategies
• The implementation of new technology
and manufacturing processes may
be challenging and involves risks
inherent in the development and use of
new technology and in particular, the
manufacturing of composite materials
which is known to be complex.
• Failure to properly implement new
technology may result in Carbon
Revolution’s product failing during
trials, failing to gain customer
approval or being difficult to profitably
commercialise.
• To reduce risk related to design and
commissioning of industrialisation
assets and their effective ongoing
operation, new industrialised
equipment is design tested using
discrete event simulation and virtual
commissioning techniques before
actual acquisition, construction
and go live. Maintenance plans are
established by the Industrialisation
team for all new equipment
before handover to the production
maintenance team’.
• Carbon Revolutions new product
introduction process involves stringent
testing and validation regimes that are
agreed with customers early in the life
of the program.
• The Company’s technology has been
thoroughly tested by numerous OEMs
and it now has multiple wheels in
market on vehicles. Therefore, the
Company has sufficiently developed
and proven the core wheel technology
that it uses in new program
development.
• The above risks may also result in
higher scrap rates and quality issues
than anticipated after customer
validation and commencement of
production. Higher scrap rates or
quality issues may result in higher
costs, and/or delays in deliveries to
customers.
• Failing to deliver to customer program
deliverables, may result in negative
customer perception about Carbon
Revolution’s ability to meet its supply
obligations under its supply contracts.
This in turn could adversely impact
Carbon Revolution’s ability to secure
new programs, which would have
an adverse impact on its ability to
generate revenues.
24
2020 ANNUAL REPORT
Mitigation strategies
• Carbon Revolution believes that it
has reasonable grounds to defend
any claim either on the basis that
it does not infringe or that it could
successfully challenge the validity of
these patents or patent applications
(if granted).
• Carbon Revolution continually
develops new technology and improves
its wheel core technologies. New
technologies are patented as soon as
practical.
• The company opts to use product
patents and not process patents
wherever possible. This protects
the work methods and process and
protects the visible technology in or
on the wheel.
Risk
Carbon Revolution’s
operations may
be restricted by
third-party
intellectual
property rights
Description of Risk and
Potential Consequences
• Carbon Revolution relies on its own
technology to develop, manufacture
and sell its carbon fibre wheels.
A number of Carbon Revolution’s
competitors are also developing
carbon fibre wheel technology. There
is a risk that these competitors may
create, or have already created,
intellectual property rights (including
patents) that restrict Carbon
Revolution’s ability to exploit its
own technology.
• Carbon Revolution is aware of
certain granted patents and patent
applications relating to certain
technologies used in carbon fibre
wheels which have been filed by
competitors and industry participants
in countries which are key markets
into which Carbon Revolution supplies
its carbon fibre wheels (including the
US, Australia, Europe, Japan, and
China).
• If these patents or patent applications
(if granted) are found to be valid and
Carbon Revolution is found to infringe
them (where it cannot take alternative
steps such as modifying its technology
or entering into licensing or royalty
arrangements), that may materially
restrict Carbon Revolution from selling
its wheels to its OEM customers.
• It is also possible that third parties
may challenge Carbon Revolution’s
intellectual property rights or assert
intellectual property infringement,
breach of confidentiality, or make
similar claims against Carbon
Revolution (or its customers)
under patent, trade secret or other
intellectual property laws. Such
claims, if made, may harm Carbon
Revolution’s business. If Carbon
Revolution is forced to defend claims
of intellectual property infringement
or breach of confidentiality, whether
they are with or without merit or are
determined in Carbon Revolution’s
favour, the costs of such litigation will
potentially be significant and will divert
Management’s attention from normal
commercial operations.
OPERATING AND FINANCIAL REVIEW
25
OPERATING AND
FINANCIAL REVIEW (CONT)
Risk
Carbon Revolution
may not be able to
retain key staff and
effectively manage
its workforce
Description of Risk and
Potential Consequences
• Carbon Revolution’s ability to
effectively execute its business
strategy depends upon the
performance and expertise of its
key management and engineering
personnel. The loss of key
management personnel, or any
delay in their replacement, or
any extended period where key
management personnel are unable
to work may therefore adversely
affect Carbon Revolution’s operations
and future performance.
• The achievement of Carbon
Revolution’s long-term growth plans
requires the services of additional
technical, manufacturing and sales
staff over time. Carbon Revolution
may not be able to attract and retain
the services of such people, and this
may limit Carbon Revolution’s growth
and consequently adversely affect
Carbon Revolution’s prospects and
future financial performance.
Mitigation strategies
• The company is generally viewed as
an exciting and innovative regional
employer and a destination for
top regional engineering talent.
Employees generally enjoy the
challenge of innovation and creating
new processes and technology.
• The Carbon Revolution Board and
management ensure appropriate
employee communication and
engagement strategies are in place.
The Company measures engagement
annually and adjusts engagement
strategies to address findings and
enhance engagement outcomes
• Carbon Revolution has an employee
share scheme which means many
staff are also owners of the business
and are truly invested in delivering its
current and future plans.
• The company has created a
competitive and incentivised
remuneration framework that is
designed to attract, motivate and
retain high quality executives as well
as align with business objectives and
generate sustainable growth.
• The company has developed its
CARE program, the business’s new
mental health model. Engagement
and staying close to the team are an
important part of this program.
26
2020 ANNUAL REPORT
27
S E C TIO N 4 /
DIR E C T O R S’
R E P O R T
28
2020 ANNUAL REPORT
The Directors of Carbon Revolution Limited (“the Company”) submit herewith the Annual
Report of the Company and its controlled entities (“the Group”) for the financial year ended
30 June 2020 (FY20) in compliance with the Corporations Act 2001.
The Directors in office at any time during the financial year and up to the date of this
report are:
James Douglas
Independent, Non-Executive Chair
Jake Dingle
Chief Executive Officer, Managing Director
Bruce Griffiths
Independent, Non-Executive Director
Lucia Cade
Independent, Non-Executive Director
Dale McKee
Independent, Non-Executive Director
Mark Bernhard
Independent, Non-Executive Director
Peter Lewinsky
Independent, Non-Executive Director
All Directors have been in office since the start of the financial year to the date of this report
unless otherwise stated.
4.1 DIRECTORS
Information on Directors and Officers of the Company
The skills, experience, expertise and special responsibilities of each person who has been a
Director of the Company at any time during or since the end of the financial year is provided
below, together with details of the Company Secretary as at the year end.
DIRECTORS’ REPORT
29
DIRECTORS’ REPORT (CONT)
JAMES DOUGLAS
Independent, Non-Executive Chair
Appointed to the Board in 2011 and as Chair in 2012
Member of the Audit and Risk Committee
Experience
• Over 25 years of investment banking and venture capital experience in
•
Australia and the United States
Investment Director and General Partner for the Acorn Capital
Expansion Fund, a Series B Venture Fund and Founder and general
partner of Newmarket Capital, a late stage venture capital business
• Prior to establishing Newmarket Capital, James spent 15 years in
investment banking, including as co-head of Global Banking at
Citi (Australia) and Global Head of Consumer Products Investment
Banking for Merrill Lynch in New York
• Science degree and Law degree from Melbourne University
• Graduate of the Australian Institute of Company Directors
JAKE DINGLE
CEO, Managing Director
Appointed to the Board in 2008 and as CEO and MD in 2012
Experience
• Started at Carbon Revolution in 2008 as one of the initial investors
and founders
• Background in engineering, operations, strategy and M&A within
Australian listed companies
• Former head of M&A and Corporate Development for Goodman Fielder
and has also held positions at BCG, L.E.K. and Tenix Defence Systems
• Mechanical Engineering degree from RMIT with First Class Honours and
an MBA from the Melbourne Business School (Dean’s List and Rupert
Murdoch Fellow)
• Graduate of the Australian Institute of Company Directors
BRUCE GRIFFITHS OAM
Independent, Non-Executive Director
Appointed: 2014
Chair of Remuneration and Nomination Committee
Experience
• Held a number of senior Executive roles within the manufacturing
industry and has served as a Non-Executive Director of Quickstep
Holdings Limited
• Awarded the Order of Australia Medal for services to the automotive
manufacturing industry and to the community
• Graduate of the Australian Institute of Company Directors
30
2020 ANNUAL REPORT
LUCIA CADE
Independent, Non-Executive Director
Appointed: 2018
Member of Remuneration and Nomination Committee
Experience
• Board and executive experience that spans utilities, technology and
innovation, industry led research and development, construction, global
technical advisory and infrastructure investment.
• Currently serves on the boards of South East Water (Chair), Paintback
(Chair), Future Fuels CRC (Chair of Commercialisation Committee),
Engineers Australia (Chair of Audit and Risk Committee), Regional
Investment Corporation (member of Audit and Risk Committee)
• Engineering, Economics and Master of Engineering Science degrees
from Monash University and an MBA from the Melbourne Business
School at the University of Melbourne. Fellow of Engineers Australia and
Fellow of Australian Institute of Company Directors
DALE McKEE
Independent, Non-Executive Director
Appointed: 2018
Chair of the Audit and Risk Committee
Experience
• Former senior partner at PwC with extensive experience serving listed
companies in audit, accounting, corporate governance, risk management
and capital markets matters
• Former lead partner of PwC’s risk management practice in Australia
• Former member of the Australian Auditing Standards Board
• Bachelor of Business from Federation University and a Fellow of the
Institute of Chartered Accountants in Australia and New Zealand
DIRECTORS’ REPORT
31
DIRECTORS’ REPORT (CONT)
MARK BERNHARD
Independent, Non-Executive Director
Appointed: 2019
Member of the Remuneration and Nomination Committee
Experience
• Significant board and executive management experience in the
automotive industry, having served as Chairman and Managing Director
of General-Motors Holden Australia from 2015 to 2018
• Chief Financial Officer and Vice-President of Shanghai-GM from 2011
to 2015
• Recently studied Transformational Management at Stanford University,
holds an MBA from Deakin University and a Business/Accounting degree
from Monash University
• Graduate of the Australian Institute of Company Directors
PETER LEWINSKY
Independent, Non-Executive Director
Appointed: 2019
Member of the Audit and Risk Committee
Experience
• Significant board, investment banking and corporate advisory experience
• He has served or is currently serving on the boards of Ambulance
Victoria, Holmesglen Institute of TAFE (Chair), TAL Superannuation Ltd
(Chair), the Tasmanian Water and Sewerage Corporation, Australian Red
Cross and Australian Centre for the Moving Image (Board President)
• MBA from the Melbourne Business School, Bachelor of Economics
from Monash University. He also is a Fellow of the Institute of Chartered
Accountants (FCA) and is a Fellow of the Australian Institute of Company
Directors (FAICD)
• Bachelor degrees in civil engineering (honours) and economics from
Monash University, a Masters of Engineering Science from Monash
University and an MBA from the Melbourne Business School at the
University of Melbourne
32
2020 ANNUAL REPORT
4.1.1 COMPANY SECRETARY
David Nock was appointed Company Secretary on 13 September 2017 and has held the
position since then. David has held a number of roles within Australian, US and European
listed companies and previously worked as a solicitor at a top-tier Australian law firm and
is an admitted solicitor in Victoria. He has Arts and Law (Hons) Degrees from Melbourne
University and an MBA from the Melbourne Business School (Dean’s List).
4.2 DIRECTORS’ MEETINGS
The number of meetings of the Board of Directors and of each Board committee held during
the financial year and the number of meetings attended by each director were:
Director
James Douglas
Jake Dingle
Bruce Griffiths
Lucia Cade
Dale McKee
Mark Bernhard
Peter Lewinsky
Attended
Board
meetings
eligible to
attend
ARC
meetings
eligible to
attend
Attended
RNC
meetings
eligible to
attend
Attended
29
29
29
29
29
29
29
29
27
27
27
29
28
24
6
–
–
–
6
–
6
6
–
–
–
6
–
6
–
–
11
11
–
11
–
–
–
11
11
–
11
–
All Directors can attend the sub-committees of the Board.
The Audit and Risk Committee (ARC) is comprised of Dale McKee (Chair), and James
Douglas and Peter Lewinsky (Members).
The Remuneration and Nomination Committee (RNC) is comprised of Bruce Griffiths
(Chair), and Lucia Cade and Mark Bernhard (Members).
DIRECTORS’ REPORT
33
33
DIRECTORS’ REPORT (CONT)
4.3 REMUNERATION REPORT
Dear fellow shareholders
On behalf of the Carbon Revolution Board of Directors, I am pleased to present the
Company’s inaugural Remuneration Report for the financial year ended 30 June 2020
(FY20). We would like to recognise the extensive work of the management team and all
employees along with the support of long-term shareholders in building the business and
achieving our ASX listing on 29 November 2019.
The Remuneration Report sets out remuneration information for the Chief Executive
Officer (CEO), the Chief Financial Officer (CFO) and Non-Executive Directors. It describes
the Carbon Revolution Remuneration Framework (Remuneration Framework) and pay
outcomes for FY20 in a simple and transparent way.
Performance and Remuneration Outcomes for FY20
As a growing Australian technology company manufacturing advanced carbon fibre wheels
for the global automotive industry, the Board determined that revenue growth, gross
margin, EBITDA and successful listing were the key financial metrics for the FY20 Short
Term Incentive (STI). Given the growth phase of the business, the Board also set strategic
and operational objectives focused on safety, customer and business development,
people and culture, technology and production capacity. The Board believes that financial
and strategic targets that drive the growth of the business will deliver sustainable
shareholder value.
The business achieved ASX listing on 29 November 2019. The listing of the business was
an important step in delivering sustainable returns for our shareholders which will remain
the focus of the Board. The business achieved revenue growth of 158% notwithstanding
the impact of COVID-19 on customers and sales. Our operations continued safely through
the COVID-19 pandemic with a 50% improvement in the Lost Time Injury Frequency Rate
in FY20. Our ongoing investment in technology and our industrialisation program has
continued to deliver manufacturing efficiencies, reduced costs, improved quality and
expanded capacity, positioning the business for future growth. Through FY20 significant
progress with our industrialisation strategy enhanced credibility with our customers which
will support increased adoption.
The Board has adopted remuneration principles, detailed in section 3, to determine the
following remuneration outcomes:
(i) Fixed Remuneration and Non-Executive Directors Fees – no increases in Non-Executive
Directors’ fees or Fixed Annual Remuneration will be made in FY21 in light of economic
circumstances resulting from the COVID-19 pandemic;
(ii) Short Term Incentives (STI) - STIs were awarded at 45% of maximum opportunities and
for FY20 will be delivered 100% in equity to further align employees and shareholders
while also preserving cash. The impact of the COVID-19 pandemic required the Board
to rigorously assess the impact of the pandemic on performance for several incentive
targets. This is disclosed in section 7. Ultimately the Board applied its discretion to
award fair STIs that reward and reinforce the growth of the business; and
34
2020 ANNUAL REPORT
2020 ANNUAL REPORT
(iii) One off equity award and long-term incentive - as detailed in the 2019 Prospectus
was awarded to the CEO, CFO and other senior executives to reward them for building
the business and for achieving listing. It was designed to align their interests with
shareholders while also representing the LTI award for FY20.
Remuneration Framework Review
Each year, the Board reviews the Remuneration Framework, ensuring that it supports our
business objectives, operates sustainably and is market competitive. The Board welcomes
feedback on the Remuneration Report and we consider that feedback as part of our review.
Given the listing occurred in November 2019 and recognising some of the remuneration
arrangements reflect the origins of a smaller, non-listed company, the Board has identified
a number of areas where the remuneration framework can be improved. The following
review and changes were made in FY20:
(i) Introducing a minimum shareholding policy for Non-Executive Directors, the CEO and
senior executives (effective 1 July 2020). The details are set out in Table 3;
(ii) Reviewing the design of the Short-Term Incentive (STI) Plan to enhance how both
financial and non-financial performance are measured and rewarded. Details of the
changes are included in section 5 of this report.
In the year ahead the Board will review the Long-Term Incentive (LTI) Plan and specifically
the performance hurdles of the plan. Given the 2019 Prospectus set out the details of the
FY21 LTI Plan, the outcomes of the review will be applicable for the FY22 plan. The changes
will be disclosed to shareholders in the FY21 Remuneration Report.
We believe that these changes will enhance our Remuneration Framework.
I invite you to review the 2020 Remuneration Report.
Bruce Griffiths
Chair, Remuneration and Nomination Committee (RNC)
DIRECTORS’ REPORT
35
DIRECTORS’ REPORT (CONT)
1 PURPOSE
This Report sets out the remuneration arrangements for the Key Management Personnel
(KMP) of Carbon Revolution for the year ended 30 June 2020. The report discloses
remuneration data for the period from 1 July 2019 to 30 June 2020. It has been prepared
based on the requirements of section 300A of the Corporations Act 2001 (Cth) (Corporations
Act) and Corporations Regulation 2M.3.03 and has been audited by Carbon Revolution’s
external auditor. The aim of this Report is to provide shareholders a ‘plain English’
understanding of Carbon Revolution’s remuneration framework, policies and individual
KMP remuneration outcomes for FY20. The report also details proposed changes for the
financial year ended 30 June 2021 (FY21).
2 KEY MANAGEMENT PERSONNEL (KMP)
Section 300A of the Corporations Act requires disclosure of remuneration information
for KMP, with KMP defined in Australian Accounting Standard AASB 124 Related Party
Disclosures as those persons having authority and responsibility for planning, directing and
controlling the activities of the entity, directly or indirectly, including any Director (whether
Executive or otherwise) of that entity.
KMP for the year ended FY20 are detailed in the table below.
Carbon Revolution’s KMP are the Non-Executive Directors, the Managing Director and the
Chief Financial Officer.
Table 1: Key management personnel
Name
Position
Term as KMP
Non-executive Directors (NEDs)
James Douglas
Bruce Griffiths
Lucia Cade
Dale McKee
Mark Bernhard
Peter Lewinsky
Executive KMP
Jake Dingle
Bryce Houghton
Chair
Director
Director
Director
Director
Director
Full year
Full year
Full year
Full year
Full year
Full year
Managing Director & CEO Full year
Chief Financial Officer
Gerard Buckle
Chief Financial Officer
Part year
(to 12th August 2019)
Part year (from 9th
September 2019)
36
2020 ANNUAL REPORT
3 REMUNERATION STRATEGY AND FRAMEWORK
Objective: Carbon Revolution’s remuneration framework is performance based and is
designed to pay fairly for achieving the business strategy and delivering sustainable value to
shareholders and employees.
Principles: The Remuneration and Nomination Committee (RNC) has adopted the following
principles to structure the remuneration framework and to guide remuneration decisions.
Table 2: Key principles of Carbon Revolution’s remuneration policy
Principle
Explanation and Practice
Performance based
Market competitive
Drives strategic and
shareholder value
All aspects of remuneration including fixed remuneration
and any incentives, are based on annual performance
against strategic objectives, business plans and longer-term
shareholder returns. The variable components of remuneration
(both short term and long term) are driven by challenging
targets designed to create sustained shareholder value.
A significant proportion of executive remuneration is
‘performance based’ as disclosed in Table 12.
Remuneration opportunities, including those elements which
can be earned subject to performance, are set at competitive
levels that will attract, motivate and retain high quality
executives. The Board reviews fixed and variable remuneration
by undertaking regular market benchmarking against equivalent
roles from organisations with similar market capitalisation,
revenue and EBITDA. The Board has set the policy for fixed
remuneration at the market median for the comparator group
and up to top quartile for total remuneration for
stretch performance.
The Board ensures that incentive plans and performance
measures are designed to create sustained shareholder
value. The Board ensures the performance measures in
both the STI and LTI plans are sufficiently demanding and
promote the delivery of both annual business plans and the
long-term strategy.
DIRECTORS’ REPORT
37
DIRECTORS’ REPORT (CONT)
Promotes employee
ownership
Carbon Revolution encourages all employees to act like owners.
Increasing alignment between employees and shareholders has
been promoted through:
(i)
(ii)
the Tax-Exempt Employee Share Ownership Plan (TESP).
Under this plan eligible employees are provided up to
$1,000 of Carbon Revolution shares per annum;
Including significant equity in the design of both STI and
LTI plans. This aligns KMP and senior executives with
shareholder interests through a significant emphasis on
variable remuneration;
(iii) NEDs, Executive KMP and senior executives are required to
hold, or make progress towards the minimum shareholding
requirements set out in the Minimum Shareholding Policy.
Remuneration arrangements should be simple for participants
and shareholders to understand. They should be cost effective to
administer. The Board will oversee the design of remuneration
arrangements and use appropriate discretion, where required,
to ensure there are not inappropriate benefits and that
performance and the creation of shareholder value
is rewarded.
Simple and fair
Elements: The key elements of Carbon Revolution’s executive remuneration and
Non-Executive Director fee frameworks are outlined below, with further details
provided in the body of the report.
38
2020 ANNUAL REPORT
Table 3: FY20 Remuneration framework
Element of
Remuneration
Fixed Annual
Remuneration
Includes base salary,
superannuation, and
other eligible salary
sacrifice benefits
Short-Term
Incentive (STI)
Annual incentive
opportunity
delivered in
cash and equity
including Short
Term Incentive
Deferral
Purpose and Market Positioning
Measures
Role and Responsibility
Skills, experience and
accountability
80-120% of the median for
comparable roles
Reviewed annually based upon
performance and economic data
Reviewed for promotions
Financial – includes revenue, gross
margin and EBITDA objectives
Non-financial focus on strategic
and operational objectives including
safety, customer, manufacturing
efficiency, industrialisation and
business development objectives
Assessment of financial and non-
financial objectives are made by
the Board
To pay fairly against the market for
comparable roles
Set to attract and retain capable
employees
Set at the market median for
Comparator Group companies
defined as ASX All Industries,
excluding Financials and Resources,
with a market capitalisation
between $200M-$400M
Drive and reward the achievement
of challenging annual growth and
performance targets
Target is set at median of
Comparator Group
The Board has the discretion to adjust
STI outcomes to ensure that individual
outcomes are appropriate
Typically, 50% of STI award is made
in cash and 50% deferred into Rights
through the Equity Incentive Plan (EIP)
which is subject to a continuous service
condition. This generally requires
the participant to be employed by the
Group until the one-year anniversary on
which the Rights are granted. In FY20
the Board determined that 100% of all
STI awards will be delivered in Rights
and that 50% of the Rights awarded
to Executive KMP and executives will
remain subject to a 12-month service
condition
DIRECTORS’ REPORT
39
DIRECTORS’ REPORT (CONT)
Long-Term
Incentive (LTI)
Achieve shareholder alignment
through equity ownership
Three-year incentive
opportunity delivered
through options with
vesting dependent
on service conditions
and / or achievement
of challenging
performance
conditions
Maximum grants of options are issued
through the EIP and are set at median
for Comparator Group
Achieve shareholder alignment through
equity ownership
Maximum grants of options are issued
through the EIP and are set at median
for Comparator Group
A one-off grant of Options was
made through the Employee Share
Ownership Plan (ESOP) in FY20
to reward executives’ efforts in
building the business and achieving
listing
The grant has a 3-year service
condition and an exercise price of
$2.60. Full details are provided in
section 6 and Table 14
Holders of options are not entitled
to dividends until the options have
been exercised and converted
into shares
Total Remuneration Is designed to attract, retain and reward executives to deliver sustainable
returns for shareholders with a significant proportion of Total Remuneration
being ‘at risk’ and performance based. Allows participants to earn up to
upper quartile compared with comparator group for stretch performance
Non-Executive
Director Fee
Framework
Fees
Purpose and Market Positioning
Non-Executive Directors are paid a base fee for service to the Board and an
additional fee for service to the Board committees
The fees are set with consideration to the fees paid in companies of a similar
size and complexity with the most recent benchmarking using the Comparator
Group of ASX200-300 companies
The fee pool is currently $800,000 per annum including superannuation
There are no retirement benefit schemes for Non-Executive Directors other
than statutory superannuation contributions
Minimum Shareholding Requirements
In FY20 the Board approved the Minimum Shareholding Policy which requires Non-Executive
Directors to hold shares equivalent in value to 12 months base fees, the CEO and CFO to hold shares
equivalent in value to 12 months of Fixed Annual Remuneration and other senior executives to hold
shares equivalent in value to six months of Fixed Annual Remuneration. Participants will be provided
reasonable time to acquire these interests
4 REMUNERATION GOVERNANCE
Carbon Revolution’s remuneration governance framework is set out below. The Board
oversees the remuneration policy both directly and through the Remuneration and
Nomination Committee. The composition and functions of the Remuneration and
Nomination Committee, which oversees remuneration issues and human resources
matters, are set out in the charter available from the Carbon Revolution website.
The charter was reviewed and updated during the year.
40
2020 ANNUAL REPORT
C
O
N
S
U
L
T
A
T
I
O
N
W
I
T
H
S
H
A
R
E
H
O
L
D
E
R
S
A
N
D
O
T
H
E
R
S
T
A
K
E
H
O
L
D
E
R
S
Figure 1: Carbon Revolution’s remuneration governance framework
Carbon Revolution Board
Overall responsibility to:
• Satisfy itself that Carbon Revolution’s remuneration framework is aligned with the
Company’s purpose, values, strategic objectives and risk appetite;
• Review and approve recommendations from the RNC with regards to remuneration
arrangements for Non-Executive Directors, executive KMP (including exercise of
discretion) and other senior executives.
Remuneration and Nomination Committee
Overall responsibility to:
• Review and recommend to the Board remuneration arrangements for Non-Executive
Directors within an aggregate pool approved by shareholders;
• Review and recommend to the Board remuneration arrangements for the CEO and the
senior executive team;
• Approve major changes to the Company’s policies and procedures related to retention,
termination, performance assessment and remuneration policies;
• Conduct regular reviews of the remuneration framework to confirm that it encourages a
culture aligned with the Company’s values, supports the Company’s strategic objectives
and is aligned with the Company’s risk management framework and risk appetite;
• Review and recommend to the Board major changes in relation to employee equity
incentive plans;
• Review and recommend to the Board the size and composition of the Board, including
reviewing Board succession plans and the succession of the Chair;
• Review succession plans for the CEO and other senior executives and identify and
recommend to the Board candidates where required;
• In accordance with the Diversity and Inclusion policy, develop and recommend to the Board
measurable objectives for achieving gender diversity in the composition of the Board,
senior executives and the workforce generally and assessing progress against those
objectives.
External Advisors
Management
• Provide independent advice, information
Provides information to the RNC on:
and recommendations relevant to
remuneration decisions;
• Throughout the year, the RNC and
management received information
from external providers related to
remuneration market data and analysis,
market practice on the structure and
design of incentive programs (both long
term and short-term), and legislative
and regulatory requirements;
• Incentive targets and outcomes;
• Remuneration benchmarking and policy;
• Long and short-term incentive
participation;
• Individual remuneration and contractual
arrangements for executives;
• Talent management and succession plans
for senior management;
• Carbon Revolution was not provided with
• Diversity and inclusion data and policies
a remuneration recommendation, as
defined by the Corporations Act 2001,
from external providers during the year.
that promote achieving gender equality and
an inclusive workplace.
DIRECTORS’ REPORT
41
DIRECTORS’ REPORT (CONT)
5 ACTIVITIES OF THE RNC IN FY20
The RNC has been active throughout the year in terms of reviewing the remuneration
framework to ensure the design meets its objectives and is consistent with the principles
set. The RNC also reviewed and approved the broader people and culture strategy for
the business. A review and evaluation of the performance of the RNC was completed in
accordance with its charter.
KEY POLICIES APPROVED BY THE RNC
(a) Minimum Shareholding Policy
A key principle of the remuneration framework is to promote employee ownership. The
Board believes that the interests of all KMP and the senior executive team should be closely
aligned to those of shareholders through significant exposure to the Company’s share price
and dividends. Accordingly, in FY20 the Board formally resolved that the following minimum
shareholding requirements will be implemented:
• the value of 100 per cent of base fees for Non-Executive Directors;
• the value of 100 per cent of fixed remuneration for the CEO and CFO; and
• the value of 50 per cent of fixed remuneration for other senior executives.
All KMP and senior executives are expected to build their shareholding on a progressive
basis over a reasonable period. Given the shareholdings prior to listing, most KMP exceed
these minimum requirements as detailed in tables 16 and 19. The Board regularly monitors
the shareholding of KMP and senior executives. The Equity Incentive Plan is an important
mechanism to drive executive share ownership through the regular vesting of rights on the
achievement of performance hurdles.
REVIEW OF THE REMUNERATION FRAMEWORK
(a) Short term incentive plan
The RNC undertook a review of the STI plan since listing. This review has helped build
upon our performance-based pay principle. The review improves the weightings applied to
financial and non-financial objectives. The FY21 plan will have 60% weighted to financial
results with the primary financial goals focussed on revenue growth, EBITDA and cash
management. Of the 40% weighted to non-financial objectives, half will be allocated to set
corporate objectives in the areas of safety and securing new wheels programs with the
other half allocated to achieving strategic or operational objectives related to the role. Given
the growth and need to build capacity of the business, the Board believes these weightings
are appropriate and adequate to align with shareholders. The changes from this review will
be implemented in the FY21 STI Plan and outcomes disclosed in the FY21 Remuneration
Report.
(b) Long-Term Incentive Plan
The Board has determined that the FY21 plan as disclosed in the 2019 Prospectus will
apply for the FY21 offer. However, the Board recognises that further review of the future
performance hurdles is warranted to ensure optimum alignment with the principles of the
remuneration strategy. The outcomes of the review will be applicable for the FY22 plan. The
changes will be disclosed to shareholders in the FY21 Remuneration Report.
42
2020 ANNUAL REPORT
(c) Employee ownership
The RNC has identified additional ways to promote further employee ownership of Carbon
Revolution securities. The Board has approved a NED fee sacrifice plan and will implement
an employee salary sacrifice plan. These plans are designed to further align interests of
employees and NEDs with shareholders while also preserving cash. Details of the NED
fee salary sacrifice plan and employee salary sacrifice plan as it relates to the CEO will be
included in the 2020 Notice of Meeting for shareholder approval. Upon approval these plans
will be implemented in FY21 and disclosed in the FY21 Remuneration Report.
(d) Non-Executive Director fees
In reviewing fees for FY21 the Board determined there would be no increases to base or
committee fees in FY21.
6 COMPOSITION OF REMUNERATION
The components of the fixed and variable or ‘at risk’ remuneration (STI and LTI) are
detailed below.
(i) Fixed remuneration
Fixed remuneration comprises base salary, superannuation and other eligible salary
sacrifice benefits. As discussed above, fixed remuneration is targeted at the median of
the market for jobs of comparable size and responsibility in the comparator group defined
as ASX All Industries, excluding Financials and Resources, with a market capitalisation
between $200M and $400M. In some cases, superior performance or strong market
demand for specific job categories may justify above-median fixed remuneration.
Fixed remuneration is reviewed annually or on promotion. There are no guaranteed
increases included in any executives’ contracts.
(ii) At risk remuneration – short term incentive plan
Table 4: Details of the short term incentive plan
Purpose
Frequency
and timing
To drive individual and team performance to deliver annual business plans
and increase shareholder value.
Awards are determined on an annual basis with performance measured over
the year to 30 June and payment made in September.
Financial measures All eligible employees have a common set of financial KPIs set
Non-financial
objectives
at the commencement of the performance period. The key financial goals in
FY20 were revenue growth, gross margin, EBITDA and successful listing.
Non-financial objectives include strategic and operational goals that are
aligned to the business plan. These goals include safety improvements,
customer goals, operational improvements including quality and cost,
implementation of the industrialisation program, technology and productivity
and business growth.
DIRECTORS’ REPORT
43
DIRECTORS’ REPORT (CONT)
Why the
performance
conditions
were chosen
Assessment of
performance against
measures
Board
discretion
The Board believes that having a mix of financial and non-financial KPIs will
provide measurable financial performance criteria strongly linked to growth
and year-on-year shareholder returns and encourage the achievement of
business goals consistent with the Company’s overall objectives.
At the end of the Carbon Revolution financial year, an assessment is made
of both the group financial performance and each participant’s performance
compared with the performance goals set. A review of the Managing
Director’s performance is completed by the Chair and discussed by the Board.
Reviews of senior executives are completed with the Managing Director to
determine performance against the relevant individual objectives.
The RNC approves KMP and senior executive STIs and the overall
STI pool in aggregate.
These methods of assessing performance were chosen because they are, as
far as practicable, objective, fair and are the most appropriate way to assess
true financial performance of the Company, the Executive KMP’s individual
contribution and determine remuneration outcomes.
The intention is to minimise discretionary adjustments to STI outcomes,
however, the Board retains overriding discretion to adjust the final STI
outcome. This is an important measure to ensure any STI award is appropriate
in the circumstances and that performance and the creation of shareholder
value is rewarded.
44
2020 ANNUAL REPORT Equity
deferral
The EIP will be used to deliver the deferred equity component of STI awards.
Typically, any STI award to executive KMP and senior executives will be
delivered 50% in cash and 50% in Rights. In FY20 the Board determined that
all participants would have 100% of their STI outcome delivered in the form
of equity in lieu of a cash payment. This decision was made to further align
employees with shareholders while also preserving cash.
A Right entitles the participant to acquire a Share at no cost on vesting,
subject to the satisfaction of vesting conditions. Rights do not carry dividend
or voting rights prior to vesting. Shares allocated on vesting of Rights carry
the same dividend and voting rights as other Shares.
Under the EIP rules the Board has broad clawback powers if, for example,
the participant has acted fraudulently or dishonestly or there is a material
financial misstatement.
For FY19 awards granted during FY20, the number of Rights granted to each
participant was determined by dividing the value of the equity component of
the participant’s STI award by the Offer Price. For future years the number of
Rights granted will be determined by the volume weighted average price of
Shares traded on ASX during the 20 trading day period following release of the
full year financial results.
50% of Rights awarded to executive KMP and senior executives in FY20 will
be subject to a continuous service condition, which generally requires the
participant to be employed by the Group until the one-year anniversary of the
date on which the Rights are granted.
Unless the Board determines otherwise:
• if a participant’s employment is terminated for cause or a participant
resigns (or gives notice of their resignation), all of their unvested Rights will
lapse; and
• if a participant ceases employment for any other reason (such as
retirement, redundancy, death, total & permanent disability, or termination
by mutual agreement), the Rights will remain and will vest in the ordinary
course.
(iii) At risk remuneration – long term incentive plan
Carbon Revolution’s LTI program aims to:
• drive performance and deliver strategic objectives that create long-term
shareholder value;
• promote the opportunity for executives to build their interests in Carbon Revolution
equity; and
• attract, motivate and retain the necessary executive talent to grow the business and
increase returns to shareholders.
All securities referred to in this report are granted by Carbon Revolution Limited.
In FY20 the EIP provided a one-off equity award to Executive KMP, senior executives and a
small number of other key staff. This was to reward recipients for building the business and
for achieving listing. It was also designed to align their interests with shareholders while
also representing the LTI award for FY20. The detail of the ESOP Award is detailed below:
DIRECTORS’ REPORT
45
DIRECTORS’ REPORT (CONT)
Table 5: Summary of the FY20 ESOP Award
Eligibility
Managing Director, senior executives and a small number of other key staff
were eligible for the ESOP Award as approved by the Board.
Grant frequency
A one-off award.
Type of award
Quantum of
Grants
Options which entitle the participant to acquire a Share on vesting and
exercise, subject to the satisfaction of vesting conditions and payment of an
exercise price.
As set out in the prospectus the ESOP award was capped at 4% of the issued
share capital of the Company at the time of Listing. 5,093,678 Options were
issued under the ESOP award.
The grants of Options were made following extensive market benchmarking
of other companies who recently listed on the ASX. The Board approved
the ESOP grant in recognition of the extensive work completed to build the
business, for achieving listing on 29 November 2019 and to further align long-
term interests of senior executives with shareholders. Further details are
provided in Table 14.
Grant Date
Options were granted shortly after listing on 23 December 2019
Issue and
exercise price
Vesting and
performance
period
The Options were issued to the participant at no cost.
Participants must pay an exercise price to exercise their Options. The exercise
price for Options issued under the ESOP will be the offer price on listing of
$2.60. Each option had a fair value of $0.77 at grant date as provided by a
third-party valuation.
The Options vest three years from the date of Listing, on 29 November 2022.
Options will vest at the end of the vesting period, subject to the cessation of
employment provisions outlined below. Participants will be required to pay an
exercise price to exercise their Options which acts as a “share price” hurdle.
There are no other specific performance conditions attaching to the Options
as the ESOP Award was to reward executives for building the business and for
achieving listing.
Exercise of options
Participants may exercise any vested Options from the date the Options vest
until the fifth anniversary of the date on which the Options are granted. After
that time, any unexercised Options will lapse.
Dividends and
voting rights
Cessation of
employment
In order to exercise an Option, a participant must submit an exercise notice
and pay the exercise price.
Options do not carry dividend or voting rights prior to vesting and exercise.
Shares allocated on exercise of Options carry the same dividend and voting
rights as other Shares.
Unless the Board determines otherwise:
• if a participant’s employment is terminated for cause or a participant
resigns (or gives notice of their resignation) prior to the vesting date, all of
their unvested Options will lapse;
• if a participant ceases employment for any other reason (such as
retirement, redundancy, death, total & permanent disability, or termination
by mutual agreement) prior to the vesting date, all of their unvested Options
will remain on foot and vest in the ordinary course; and
• all vested Options will remain on foot if a participant ceases employment
after the vesting date and must be exercised within 90 days.
46
2020 ANNUAL REPORT
Restrictions on
dealing
Clawback and
preventing
inappropriate
benefits
Change of control
Prior to vesting, the Plan Rules provide that participants must not sell,
transfer, encumber, hedge or otherwise deal with their incentives. After
vesting, participants will be free to deal with their incentives, subject to the
Securities Dealing Policy.
The Board has broad clawback powers if, for example, the participant
has acted fraudulently or dishonestly or there is a material financial
misstatement.
If there is a takeover bid or the Board considers a change of control is likely
to occur, the Board has the discretion to accelerate vesting of some or all of
a participant’s unvested Options. Where only some of the Options vest, the
remainder will lapse, unless the Board determines otherwise. Any vested but
unexercised Options will be exercisable for a period of 60 days or otherwise
for a period notified by the Board and will lapse after the end of that period if
they are not exercised.
If an actual change of control occurs before the Board has exercised its
discretion, all unvested Options will vest and participants will have 60 days to
exercise vested Options.
(iv) Other equity incentive plans
Table 6: Other equity incentive plans
Purpose
Eligibility
Tax Exempt Employee Share Ownership Plan (TESP)
To encourage share ownership by enabling employees to benefit from
favourable Australian tax treatment.
All employees (except executives, CEO and directors), who have the equivalent
of at least six months service at the date the shares are allotted.
Form and quantum
of award
Each year, the Board approves the allocation of shares up to a maximum
value of $1,000 (being the limit of the tax exemption) at no cost for each
eligible participant.
Vesting period
Absence of a
performance
condition
Dividends and
voting rights
Shares vest immediately upon acquisition by participants. The shares can
only be sold three years after the date of grant, unless the participant’s
employment ceases before then.
The plans are designed to encourage share ownership for employees and
therefore do not have any performance conditions attached.
Participants are entitled to dividends and other distributions and have full
voting rights.
DIRECTORS’ REPORT
47
DIRECTORS’ REPORT (CONT)
7
LINKING REMUNERATION TO PERFORMANCE
A key underlying principle of Carbon Revolution’s executive remuneration strategy is the
link between company performance and executive reward. This section outlines how key
financial and non-financial performance have driven remuneration outcomes. Tables 7 and
8 summarise key performance measures for financial and non-financial objectives. Table
9 provides the FY20 outcomes approved by the Board for Executive KMP. The LTI plan has
not reached the end of the performance period, however ESOP has been linked to company
performance as the value of options ultimately depends on share price performance.
As Carbon Revolution only listed on the ASX on 29 November 2019 it is not possible to
address the statutory requirement that Carbon Revolution provides a five-year explanation
of the link between company performance and remuneration. Table 7 will be expanded in
future years to address this requirement.
The Board assessed the financial and non-financial performance in determining the STI
outcomes for executive KMP and other participants. The Board believes that financial and
strategic targets that drive the growth of the business will deliver sustainable shareholder
value and weighted these accordingly. The Board determined that 45% of maximum STI
opportunities would be awarded. Table 9 provides the FY20 STI outcomes approved by the
Board for Executive KMP.
Board Discretion
COVID-19 directly impacted the achievement of several goals set by the Board while also
redirecting management activity to create other strategic value. In reaching the FY20 STI
determination, the Board thoroughly assessed the impact of COVID-19 on the financial
and non-financial results. The Board exercised its discretion to provide fair outcomes for
executive KMP as set out in Table 9. The Board exercised its discretion to determine that
all participants would have 100% of the STI outcome delivered in the form of Rights. This
decision was made to further align employees with shareholders while also preserving
cash. Fifty per cent of Rights awarded to executive KMP and senior executives in FY20
will remain subject to a 12-month continuous service condition. Further details of this for
executive KMP are provided in table 9.
(i) STI and financial measures
Given the growth orientation of the business the key financial metrics assessed by
the Board were revenue growth, gross margin, EBITDA and successful listing which
was achieved on 29 November 2019. The business achieved revenue growth of 158%
notwithstanding the impact of COVID-19 on customers and sales. The Board assessed the
goals of revenue growth and listing at target while gross margin and EBITDA were assessed
below target.
48
2020 ANNUAL REPORT
Table 7: Key Indicators of financial performance and shareholder returns in FY20
Financial performance
Revenue
($ million)
EBITDA
($million)
Dividend
(cents)
Total
Shareholder
Return %1
Earnings Per
Share ($)
Share price
($)2
FY20
38.9
-17.1
nil
-29.2
-1.14
1.84
1 TSR is calculated as the change in share price since listing on the ASX plus dividends paid during the financial
year divided by the opening share price on listing being 29 November 2019. This differs to the full year TSR
where existing shareholders prior to listing were able to realise part of their investment.
2 The opening share price on listing on the ASX on 29 November 2019 was $2.60
(ii) STI and non-financial measures
Each year the Board approves a range of strategic and operational goals that support the
growth of the business. Table 8 summarises the key non-financial goals and assessments
of performance made by the Board.
Table 8: Non-financial goals and achievements
Performance
area
Workplace Health,
Safety (WHS)
Measure
Performance
Lost Time Injury Frequency
Rate (LTIFR) and Medical
Treatment Injury
Frequency Rate (MTIFR)
Targets exceeded for both for LTIFR and
MTIFR. The LTIFR reduced to 1.1 representing
a 50% improvement. The MTIFR reduced to 5.0
representing a 44% improvement. These results
were achieved as the business grew and total
hours worked doubled in FY20. Additionally, the
business introduced Mental Health program,
CARE, specifically designed for the Carbon
Revolution team.
Target met – the employee engagement score
was maintained at 72 during the year. This was
positive given the workforce increased by 327
employees to 600 during the year and the impact
of COVID-19.
Target not met – yield and quality below target
offset by development of new fascia technology
that will address the majority of quality issues
and provide a materially enhanced aesthetic
finish to our wheels. This technology will also
reduce cost and inventory levels.
People and Culture
Employee Engagement
Score
Customers
Yield, Quality
DIRECTORS’ REPORT
49
DIRECTORS’ REPORT (CONT)
Technology and
Productivity
Manufacturing Efficiency
and Growing Capacity
Business
Development
New Wheel Programs
and Future Wheel
Volumes secured
Intellectual Property
(IP) Portfolio
Innovations Submitted
Targets met - ongoing implementation of the
industrialisation program has operational
and strategic dimensions. Operationally the
industrialisation program has resulted in
increased rate from approximately 12,000 to over
30,000 moulded wheels per annum. Strategically
the industrialisation program also delivered
detailed design work of the mega line that
significantly improves capacity, quality, cost and
intellectual property.
Partially met – while three new wheel programs
were achieved, the ability to secure new wheel
programs in FY20 was negatively impacted by
COVID-19 due to the interruptions our customers
faced across their operations and planning
processes.
Target met - as a global technology business
developing and protecting intellectual property
creates long-term shareholder value. During
the year the IP pipeline was enhanced with 20
specific production innovations.
Table 9: FY20 STI Awards
FY20 STI Awarded1
$ Maximum STI
opportunity
$ STI
Awarded
% of Max STI
Awarded
% of Max STI
Forfeited
300,000
135,000
113,151
50,918
45%
45%
55%
55%
Managing Director –
Jake Dingle
Chief Financial Officer –
Gerard Buckle2
1 As part of approving the FY20 STI awards, the Board determined that all participants would have 100% of
their STI outcome delivered in the form of Rights in lieu of a cash payment. The number of Rights allocated is
calculated by dividing the $STI Awarded by the 20 day VWAP of Shares traded on ASX during the 20 trading day
period following release of the full year financial results. 50% of Rights issued to executive KMP and senior
executives for the FY20 STI will remain subject to a 12-month service condition. The minimum value of this
award is nil and the maximum value will be determined by the share price of the Company.
2 Mr Buckle has a pro rata STI payment awarded given his commencement date of 9 September 2019.
The maximum STI opportunity has also been represented on a prorata basis.
(iii) Long Term Incentive Plan
The LTI plan has not reached the end of the performance period, however ESOP has
been linked to company performance as the value of options ultimately depends on share
price performance.
8
SERVICE AGREEMENTS
Managing Director – Executive service agreement
Jake Dingle was appointed as Managing Director of Carbon Revolution effective
18 April 2012. Mr Dingle’s remuneration package is summarised as follows:
50
2020 ANNUAL REPORT
Table 10: Managing Director’s remuneration package
Fixed remuneration Fixed annual remuneration of $500,000 inclusive of superannuation
contributions effective from 2 September 2019. Fixed remuneration is
reviewed annually. Increases are not guaranteed.
Notice period
Under the Executive’s Service Agreement there is no fixed term and
Mr Dingle’s employment can be terminated by:
STI
LTI
• the company giving him twelve months’ notice of termination; or
• Mr Dingle giving six months’ notice of resignation.
There is no minimum entitlement to an STI payment and the maximum STI
opportunity is 60% of fixed annual remuneration for exceptional performance.
Under the STI deferral plan, typically 50% of the STI value will be deferred into
Rights which vest in twelve months. Further detail on the STI deferral plan is
contained in Table 4.
Details of the one-off equity award of ESOP Options for FY20 and performance
conditions set by the Board are set out in Table 5. From FY21, the value of
any award of Rights is currently set at a maximum of 75% of fixed annual
remuneration.
Chief Financial Officer – Executive service agreement
Gerard Buckle was appointed as Chief Financial Officer effective 9 September 2019.
Mr Buckle’s remuneration package is summarised as follows:
Table 11: Chief Financial Officer’s remuneration package
Fixed remuneration Fixed annual remuneration of $350,000 inclusive of superannuation
contributions effective from 9 September 2019. Fixed remuneration is
reviewed annually, but with no guarantee of an increase.
Notice period
Under the Executive’s Service Agreement, Mr Buckle’s employment can be
terminated by:
STI
LTI
Transition Benefit
• the company giving him six months’ notice of termination; or
• Mr Buckle giving six months’ notice of resignation.
There is no minimum entitlement to an STI payment and the maximum STI
opportunity is 40% of fixed annual remuneration for exceptional performance.
Under the STI deferral plan, typically 50% of the STI value will be deferred into
Rights which vest in twelve months. Further detail on the STI deferral plan is
contained in Table 4.
Details of the one-off equity award of ESOP Options for FY20 and performance
conditions set by the Board are set out in Table 5. From FY21, the value of
any award of Rights is currently set at a maximum of 60% of fixed annual
remuneration.
To attract high calibre talent, it is customary market practice to compensate
new employees for the loss of earned but unpaid variable remuneration with
their previous employer. As a result, Mr Buckle was granted 100,962 shares
on Listing with a face value of $262,501 which will vest on 9 September 2021,
subject to Mr Buckle remaining employed on that date. No other performance
conditions apply as this award was made in lieu of unpaid variable
remuneration Mr Buckle would have received from his previous employer.
DIRECTORS’ REPORT
51
DIRECTORS’ REPORT (CONT)
Bryce Houghton ceased as Chief Financial Officer effective 12 August 2019.
Mr Houghton’s remuneration package is summarised as follows:
Fixed remuneration Fixed annual remuneration of $364,140 inclusive of superannuation
contributions effective from 1 July 2019. Fixed remuneration is reviewed
annually, but with no guarantee of an increase.
Notice period
Under the Executive’s Service Agreement, Mr Houghton’s employment
can be terminated by:
• the company giving him six months’ notice of termination; or
• Mr Houghton giving three months’ notice of resignation.
STI
LTI
There is no minimum entitlement to an STI payment and the maximum STI
opportunity is 25% of fixed annual remuneration for exceptional performance.
No ESOP grant was made to Mr Houghton.
9
STATUTORY REMUNERATION
Remuneration of the Managing Director and Chief Financial Officer
The remuneration table below shows total remuneration expensed for accounting purposes
for executive KMP in FY20.
Table 12: Executive KMP statutory remuneration for full year to 30 June 2020
Fixed1
Variable
Year end
30 June
Cash
salary
$
Super-
annuation
$
Leave
benefits
$
Other
benefits2
$
STI
expense3
$
LTI
expense4
$
Managing Director – Jake Dingle
‘Performance
based’
One-off
Equity
Award5
$
Total
$
STI6
LTI6
2020
466,225
25,000
34,811
–
167,761
140,591
–
834,388
20%
17%
Chief Financial Officer – Gerard Buckle
2020
233,681
15,752
10,415
–
38,188
39,366
106,079
443,481
11%
12%
Chief Financial Officer – Bryce Hougton7
2020
Total
37,920
19,277
779
737,826
60,029
46,005
–
–
–
–
–
57,976
0%
0%
205,949
179,957
106,079 1,355,845
17%
15%
1 Fixed remuneration may be allocated at the executive’s discretion to cash, superannuation (subject to legislative
minimums), annual and long service leave benefits, motor vehicles and certain other benefits.
2 No other benefits were provided during the year.
3 STI expense for FY20 plus amortisation of STI deferrals relating to prior year’s grants.
4 ESOP grants are expensed over the vesting period at a valuation determined on grant date by a third party
detailed in Table 14.
5 Total expense of the one-off equity grant made to Mr Buckle on 29 November 2019 as a sign on award to replace
a portion of an incentive from his previous employer which he forfeited on joining Carbon Revolution. The face
value of these shares was $262,501 and they vest upon completion of two years’ service.
6 STI and LTI as a percentage of total remuneration. For Mr Buckle the one off equity award has been removed to
provide a better disclosure of the performance based components.
7 Mr Houghton ceased as CFO on 12 August 2019. His cash salary does not include a payment in lieu of six
months’ notice being $177,865 or an ex-gratia payment of $74,625 in lieu of his FY19STI.
52
2020 ANNUAL REPORT
10 DEFERRED STI RIGHTS
Table 13: STI deferred rights for executive KMP
Number of STI deferred rights
Balance
1 July
2019
Granted as
Remuneration1
Vested
Lapsed
–
–
35,006
–
–
–
–
–
Balance
30 June
20202
35,006
–
Managing Director –
Jake Dingle
Chief Financial Officer –
Gerard Buckle
1 Deferred rights relating to FY19 STI with grant date of 23 December 2019. The number of rights granted to each
participant was calculated using the offer price at time of listing of $2.60. These rights will vest on 16 October
2020 consistent with the STI deferral plan. The cash component of the FY19 STI was $91,016 for Mr Dingle and
was paid on 18 October 2019.
2 The closing balance of deferred rights at 30 June 2020 represents unvested rights for FY19 STI. Rights for the
FY20 STI will be granted in November 2020. The number of Rights allocated is calculated by dividing the STI
Awarded by the 20 day VWAP of Shares traded on ASX during the 20 trading day period following release of the
full year financial results.
11 ESOP OPTIONS
Table 14 Executive KMP ESOP Options
A one-off ESOP equity award was made to reward executives for building the business,
achieving listing and also represents the FY20 LTI Award with a service condition of
three years.
Number
of Options
Granted
Grant
Date
Vesting
Date
Expiry
Date
Exercise
Price
Fair Value
per Option
on Grant
Date1
1,273,419 23 Dec 2019 29 Nov 2022 29 Nov 2024
$2.60
$0.77
356,557 23 Dec 2019 29 Nov 2022 29 Nov 2024
$2.60
$0.77
Managing Director –
Jake Dingle
Chief Financial Officer
– Gerard Buckle
1 The fair value is provided by a third-party valuation at the time of grant and represents a grant value of $980,533
to Mr Dingle and $274,549 to Mr Buckle.
DIRECTORS’ REPORT
53
DIRECTORS’ REPORT (CONT)
Table 15: Movement in Options
Number of Options
Balance
1 July
2019
Granted
as
Remuneration
Vested
Lapsed
–
–
1,273,419
356,557
–
–
–
–
Balance
30 June
2020
1,273,419
356,557
Managing Director –
Jake Dingle
Chief Financial Officer –
Gerard Buckle
12 EXECUTIVE KMP SHAREHOLDINGS
Table 16: Executive KMP shareholdings
Number of Carbon Revolution shares1
Balance
29 November
20192
Granted
as
Remuneration Acquired
Sold or
transferred
Other
Balance
30 June
2020
4,036,975
120,193
–
–
–
13,334
–
–
– 4,036,975
–
133,527
–
80,000
–
– (80,000)
-
Managing Director –
Jake Dingle
Chief Financial Officer –
Gerard Buckle3
Chief Financial Officer –
Bryce Houghton4
1 Carbon Revolution shares in which the executive KMP has a beneficial interest, including shares held via
their related parties and spousal shareholdings. The following escrow arrangements apply to these shares:
Mr Dingle has 4,019,443 shares subject to mandatory escrow until 29 November 2021 and 17,532 shares subject
to voluntary escrow until 1 December 2020; Mr Buckle has 19,231 shares subject to voluntary escrow until
1 December 2020.
2 Represents Carbon Revolution shares from listing
3 Includes 100,962 shares issued to Mr Buckle as part of his employment contract and which requires
Mr Buckle to be in employment with the Company until 9th September 2021 in order these shares to fully vest.
The minimum value of this award is nil and the maximum value will be determined by the share price of
the Company.
4 Effective from 12 August 2019 Mr Houghton ceased from his role as CFO. The ‘other’ change does not represent
a disposal of shares.
54
2020 ANNUAL REPORT
NON-EXECUTIVE DIRECTOR REMUNERATION
13 POLICY AND ARRANGEMENTS
Non-Executive Directors receive a base fee in relation to their service as a Director of the
Board, and an additional fee for membership of, or for chairing a Committee.
NEDs do not participate in the company’s STI or LTI plans or receive any variable
remuneration.
No retirement allowances are payable to NEDs other than statutory superannuation
allowances.
To further align NEDs’ interests with those of shareholders, the company expects all NEDs
to acquire the equivalent of twelve months base fees in Carbon Revolution shares over a
reasonable time period.
The fees are set with consideration to the fees paid in companies of a similar size and
complexity.
The maximum amount of fees (including superannuation contributions) that can be paid
to NEDs is capped by a pool approved by shareholders. The fee pool as approved by
shareholders is currently $800,000 per annum including superannuation. The current fee
schedule is set out in the table below
Table 17: Non-Executive Director (NED) fee schedule
Role
Chair base fees
Other NED base fees
Annual fee for FY20
(including super guarantee)
$180,000
$90,000
Chair of the Audit and Risk Committee
An additional $10,000
Chair of the Remuneration and
Nomination Committee
An additional $10,000
Committee memberships
An additional $5,000 per committee
Following benchmarking in FY20, the Board has determined not to increase NED
fees for FY21.
DIRECTORS’ REPORT
55
DIRECTORS’ REPORT (CONT)
Table 18: Non-Executive Directors’ fees paid
Year ended 30 June 2020
James Douglas (Chair)
Bruce Griffiths
Lucia Cade
Dale McKee
Mark Bernhard
Peter Lewinsky
Total Non-Executive Directors
FY20
FY20
FY20
FY20
FY20
FY20
FY20
Directors’ fees
$
Superannuation
$
Total
$
168,950
16,050 185,000
91,324
86,758
91,324
86,758
86,758
8,676 100,000
8,242
95,000
8,676 100,000
8,242
95,000
8,242
95,000
611,872
58,128 670,000
14 SHAREHOLDINGS
Table 19: Non-Executive Directors’ shareholdings
Number of Carbon Revolution shares1
Balance
29 November
20192
1,654,876
204,799
32,877
66,624
38,462
9,616
Granted as
remuneration Acquired
Other
Balance
30 June
2020
–
–
–
–
–
–
20,000
– 1,674,876
-
20,000
20,000
20,000
13,000
–
–
–
-
–
204,799
52,877
86,624
58,462
22,616
James Douglas
Bruce Griffiths
Lucia Cade
Dale McKee
Mark Bernhard
Peter Lewinsky
1 Carbon Revolution shares in which the Director has a beneficial interest, including via related parties and
spousal shareholders.
2 Represents Carbon Revolution shares from listing with following escrow arrangements: Mr Douglas has
1,088,908 shares subject to mandatory escrow until 29 November 2021 and 565,968 shares subject to voluntary
escrow until 1 December 2020; Mr Griffiths has 40,247 shares subject to mandatory escrow until 29 November
2021 and 164,552 shares subject to voluntary escrow until 1 December 2020; Ms Cade has 13,647 shares subject
to mandatory escrow until 29 November 2021 and 19,230 shares subject to voluntary escrow until 1 December
2020; Mr McKee has 20,471 shares subject to mandatory escrow until 29 November 2021 and 46,153 shares
subject to voluntary escrow until 1 December 2020; Mr Bernhard has 38,462 shares subject to voluntary escrow
until 1 December 2020 and Mr Lewinsky has 9,616 shares subject to voluntary escrow until 1 December 2020
56
2020 ANNUAL REPORT
15 OPTIONS AND RIGHTS ISSUED DURING OR SINCE FY20
In compliance with section 300(1)(d) of the Corporations Act: a total of 5,093,687 options and
97,172 rights were issued during or since FY20. Of these, no options or rights were issued
to Non-Executive Directors; 1,273,419 options and 35,006 rights were issued to the CEO as
part of his remuneration; and 967,799 options and 12,775 were issued to other executive
officers as part of their remuneration.
16 OTHER TRANSACTIONS WITH KMP
There were no other transactions, including loans between Carbon Revolution and KMP
(including their related parties), during FY20.
4.4 OTHER MATTERS
Principal activities
The principal activity of the Group during the financial year was the manufacture and sale of
carbon fibre wheels and research and development projects related to carbon fibre wheel
technology. There have been no significant changes in the nature of these activities during
the year.
Significant changes in the state of affairs
The financial position and performance of the Company was particularly affected by the
following transactions and events during the reporting period:
•
listing on the Australian Securities Exchange on 29 November 2019;
• the COVID-19 global pandemic;
• the $25m placement and $2.7m share purchase plan completed during
March/April 2020.
Events arising since the end of the reporting period
Apart from what is referred to in Note 6.10 of the financial statement, there have not been
any matters or circumstances that have significantly affected, or may significantly affect,
the results reported in the financial statements.
Likely future developments
Taking into account the combination of new programs, growth from existing programs and
the reduction in programs in run out, the company expects to deliver strong sales growth
in FY21. The group expects to enter into new supply arrangements in FY21 with existing
customers for new vehicle programs as well as new customers in Europe, North America
and Asia. We expect that a number of new cars will be launched with our wheels.
Carbon Revolution enjoys a range of strategic growth opportunities. In addition to the
scaling up of its Geelong manufacturing facility to materially increase production capacity,
the company aims to leverage its technology into adjacent industries, such as the aerospace
and transportation sectors, and will continue to invest in this during FY21.
DIRECTORS’ REPORT
57
DIRECTORS’ REPORT (CONT)
Environmental regulation
The Group’s operations are subject to environmental regulations under the following laws
of the Commonwealth or of a State or Territory:
• The Environmental Protection Act; and
• The Dangerous Goods Act.
No breaches have occurred of the above regulations during the financial year and up to the
date of this report.
Dividends paid, recommended and declared
The Group has not declared or paid any dividends in respect of the 30 June 2020
financial year.
Proceedings on behalf of the Group
No proceedings have been brought or intervened in on behalf of the Group, nor any
application made under section 237 of the Corporations Act.
Non-audit services and auditor independence
Deloitte continues in office as the Company’s external auditor in accordance with section
327 of the Corporations Act. The Company has a policy on non-audit services that is
intended to support the independence of the external auditor by regulating the provision of
services by the external auditor.
The external auditor will not be engaged to perform any service that may impair or be
perceived to impair the external auditor’s judgement or independence.
The external auditor provided the following services to the Company during the
reporting period.
Audit services
Audit and review of the financial report
Other services
Capital raising – IPO investigating accountant and vendor
due diligence
Member firm of Deloitte
Employee payroll service - Germany
FY20
$
140,000
572,064
2,755
714,819
58
2020 ANNUAL REPORT
The Board has considered the position and, in accordance with advice received from the
Audit and Risk Committee, is satisfied that the provision of the non-audit services during
the reporting period is compatible with the general standard of independence for auditors
imposed by the Corporations Act. The Directors are satisfied that the provision of non-audit
services by Deloitte did not compromise the auditor independence requirements of the
Corporations Act. This is because these services did not undermine the general principles
of auditor independence including reviewing or auditing the auditor’s own work (the payroll
services provided were clearly insignificant to Deloitte and to these financial statements),
acting in a management or decision making capacity, acting as an advocate or jointly
sharing economic risks and rewards.
The Group’s external auditor, Deloitte, has provided an independence declaration in
accordance with section 307C of the Corporations Act, which is set out in section 4.5 and
forms part of this Report.
Indemnification and insurance of Directors, Officers and Auditors
During the financial year, the Company paid a premium in respect of a contract insuring the
Directors of the Company and all executive officers of the Company and of any related body
corporate against a liability incurred as such a Director or executive officer to the extent
permitted by the Corporations Act. The contract of insurance prohibits disclosure of the
nature of the liability and the amount of the premium.
The Company has not otherwise, during or since the end of the financial year, except to
the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the
Company or of any related body corporate against a liability incurred as such an officer or
auditor.
Rounding of amounts
The Company has applied the Australian Securities and Investments Commission (ASIC)
Corporations (Rounding in Financial/Directors’ reports) Instrument 2016/191 to this report
and amounts in the Financial Statements have been rounded to the nearest million dollars,
unless stated otherwise.
DIRECTORS’ REPORT
59
DIRECTORS’ REPORT (CONT)
4.5 AUDITOR’S INDEPENDENCE DECLARATION
Deloitte Touche Tohmatsu
ABN 74 490 121 060
477 Collins Street
Melbourne VIC 3000
Tel: +61 3 9671 7000
www.deloitte.com.au
24 August 2020
The Board of Directors
Carbon Revolution Limited
Building NR
75 Pigdons Road
Waurn Ponds VIC 3216
Dear Board Members,
Auditor’s Independence Declaration to Carbon Revolution Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Carbon Revolution Limited.
As lead audit partner for the audit of the financial report of Carbon Revolution Limited for the year ended
30 June 2020, I declare to the best of my knowledge and belief, there have been no contraventions of:
(i)
(ii)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Stephen Roche
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
60
2020 ANNUAL REPORT
4.6 CORPORATE GOVERNANCE
The Board is committed to conducting the business of Carbon Revolution in accordance
with high standards of corporate governance and with a view to creating and delivering
value for Carbon Revolution’s shareholders while taking into account the interests of other
stakeholders, including employees, customers, suppliers and the wider community.
The Board considers that high standards of corporate governance are a cornerstone to
creating long-term and sustainable shareholder value and fostering a culture of personal
and corporate integrity and compliance which values ethical, lawful and responsible
behaviour, accountability, fairness, transparency and respect for others.
Carbon Revolution’s values are set out in more detail in the Code of Conduct which is
available at the Corporate Governance section of the Company website (https://investors.
carbonrev.com/Investor-Centre/?page=corporate-governance).
The Board is committed to fulfilling its corporate governance responsibilities in the best
interests of Carbon Revolution and its stakeholders. Accordingly, the Board has created a
framework for managing Carbon Revolution, including adopting relevant internal controls,
risk management processes and corporate governance policies and practices that it
believes are appropriate for Carbon Revolution’s business and that are designed to promote
the responsible management and conduct of Carbon Revolution.
Carbon Revolution’s governance arrangements have been in place since listing on
29 November 2019. These arrangements are consistent with the 4th edition of the ASX
Corporate Governance Principles and Recommendations (‘ASX Recommendations’), unless
otherwise indicated in the Carbon Revolution 2020 Corporate Governance statement
released to the market on 25 August 2020 alongside this Annual Report. It is available on
the Company website.
The Corporate Governance Statement was approved by the Board and is current as at
24 August 2020.
Copies of Carbon Revolution’s key corporate governance policies and the charters for the
Board and each of its committees are available at the Corporate Governance section of the
Company website.
DIRECTORS’ REPORT
61
F O R T H E YE A R E N D E D
30 J U N E 2020
S E C TIO N 5 /
FIN A N CIA L
R E P O R T
2
62
TABLE OF CONTENTS
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
64
65
66
67
68
108
63
2020 ANNUAL REPORT Consolidated statement of comprehensive income
For the Year Ended 30 June 2020
Sale of wheels
Engineering services
Sale of tooling
Revenue
Cost of goods sold
Gross margin
Other income
Operational expenses
Research and development
Administrative expenses
Marketing expenses
Capital raising transaction costs
Finance costs
Gain on revaluation of financial instruments
Loss from anti-dilutive shares issued on IPO
Loss on conversion of financial instruments
on IPO
Loss before income tax expense
Income tax expense
Note
2
2.2
2.4
4.4
4.2
5
2020
$‘000
36,853
1,492
600
38,945
(50,519)
(11,574)
6,766
(1,567)
(4,813)
(9,432 )
(2,056)
(1,448)
(2,678)
-
(35,801)
(51,443)
(114,046)
-
2019
$‘000
13,837
870
361
15,068
(22,534)
(7,466)
5,121
(3,037)
(4,490)
(6,379)
(1,671)
(7,684)
(2,154)
548
-
-
(27,212)
-
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences –
foreign operations
Other comprehensive income
(114 ,046)
(27,212)
7
7
(94)
(94)
Total comprehensive loss for the year, net of tax
(114,039)
(27,306)
Earnings per share
Basic
Diluted
2.5
2.5
($1.14)
($0.53)
($1.14)
($0.53)
The accompanying notes form an integral part of these financial statements.
64
2020 FINANCIAL REPORT Consolidated statement of financial position
As at 30 June 2020
Current assets
Cash and cash equivalents
Receivables
Inventories
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Total non-current assets
Total assets
Current liabilities
Payables
Borrowings
Lease liability
Deferred income
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liability
Deferred income
Provisions
Total non-current liabilities
Total liabilities
Net (liabilities) / assets
(Deficiency in equity) / Equity
Contributed equity
Reserves
Accumulated losses
Total (deficiency in equity) /Equity
30 June 2020
30 June 2019
Note
$‘000
$‘000
4.1
3.1
3.2
3.3
3.4
3.5
3.6
4.2
3.4
3.7
3.8
4.2
3.4
3.7
3.8
4.4
4.6
33,861
7,880
27,826
811
70,378
44,036
9,290
17,947
71,273
141,651
16,962
18,674
979
798
2,853
40,266
-
8,540
3,416
519
12,475
52,741
88,910
291,226
924
(203,240)
88,910
45,843
9,031
9,670
321
64,865
31,536
-
7,886
39,422
104,287
11,695
74,032
-
608
2,521
88,856
25,500
-
3,160
180
28,840
117,696
(13,409)
75,897
(477)
(88,829)
(13,409)
The accompanying notes form an integral part of these financial statements.
65
2020 ANNUAL REPORT Consolidated statement of changes in equity
For the Year Ended 30 June 2020
Contributed
equity
Share
buyback
reserve
Share based
payment
reserve
Accumulated
losses
Total equity
Foreign
currency
translation
reserve
Note
$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
Balance as at 1 July 2018
75,814
(311)
Net loss after tax for the
full year
Other comprehensive loss
for the full year
Total comprehensive loss
for the full year
-
-
-
-
-
-
Transactions with owners in their capacity as owners
Share-based payments
Total transactions with
owners in their capacity
as owners
83
83
-
-
Balance as at 30 June 2019
75,897
(311)
Balance as at 30 June 2019
75,897
(311)
Change in accounting policy
6.8
-
-
Restated total equity at
1 July 2019
Net loss after tax for the
full year
Other comprehensive loss
for the full year
Total comprehensive loss
for the full year
75,897
(311)
-
-
-
-
-
-
Transactions with owners in their capacity as owners
Issue of share capital
Share-based payments
Share issue costs
4.4
4.4
4.4
57,730
296
(3,932)
Issue of ordinary shares on
conversion of convertible
notes
Anti-dilutive shares issued
on IPO
Total transactions with
owners in their capacity
as owners
4.4 125,434
4.4
35,801
215,329
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,394
-
-
-
1,394
(61,617)
(72)
13,814
(27,212)
-
(27,212)
-
(94)
(94)
(27,212)
(94)
(27,306)
-
-
-
-
83
83
(88,829)
(166)
(13,409)
(88,829)
(166)
(13,409)
(365)
-
(365)
(89,194)
(166)
(13,774)
(114,046)
-
-
7
(114,046)
7
(114,046)
7 (114,039)
-
-
-
-
-
-
-
-
-
-
-
-
57,730
1,690
(3,932)
125,434
35,801
216,723
Balance as at 30 June 2020
291,226
(311)
1,394
(203,240)
(159)
88,910
The accompanying notes form an integral part of these financial statements.
66
2020 FINANCIAL REPORT Consolidated statement of cash flows
For the Year Ended 30 June 2020
Note
2020
$‘000
2019
$‘000
Cash flow from operating activities
Receipts from customers
Receipt of grants and research and development
incentives
Payments to suppliers and employees
Interest received
Finance costs
Net cash used in operating activities
4.1.1
Cash flow from investing activities
Payments for property, plant and equipment
Payments for intangible assets
3.5
Net cash used in investing activities
Cash flow from financing activities
Proceeds from convertible notes
Capital raising transaction costs
Proceeds from third party borrowings
Repayment of third-party borrowings
Repayment of related party borrowings
Proceeds from share issues
Repayment of lease liability
Net cash provided by financing activities
Net increase / (decrease) in cash held
Cash at beginning of financial year
Effects of exchange rate changes on cash
and cash equivalents
Cash at end of financial year
4.2
4.4
The accompanying notes form an integral part of these financial statements.
37,094
13,151
7,627
(73,752)
578
(2,522)
(30,975)
(14,633)
(12,289)
(26,922)
-
(6,518)
881
(746)
(5,000)
57,730
(629)
45,718
(12,179)
45,843
197
33,861
4,367
(36,140)
109
(1,398)
(19,911)
(14,901)
(7,846)
(22,747)
73,122
(6,341)
7,702
(161)
(5,000)
-
-
69,322
26,664
19,179
-
45,843
67
2020 ANNUAL REPORT Notes to the Financial Statements
For the Year Ended 30 June 2020
1 /
BASIS OF PREPARATION
1.1
1.2
1.3
1.4
1.5
1.6
Corporate information
Basis of preparation
Going concern
Basis of consolidation
Significant accounting judgements, estimates and assumptions
Goods and Services Tax (GST)
2 /
OPERATING PERFORMANCE
2.1
2.2
2.3
2.4
2.5
Revenue
Other income
Segments
Expenses
Earnings per share
3 /
OPERATING ASSETS AND LIABILITIES
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Receivables
Inventories
Property, plant and equipment
Leases
Intangible assets
Payables
Deferred income
Provisions
4 /
CAPITAL STRUCTURE AND FINANCING
4.1
4.2
4.3
4.4
4.5
4.6
Cash and cash equivalents
Borrowings and other financial liabilities
Financial risk management
Contributed equity
Share-based payment arrangements
Reserves
5 /
TAXES
5.1
5.2
5.3
5.4
Critical accounting estimates and judgements
Income tax expense
Deferred taxes
Unrecognised deferred tax assets
6 /
OTHER NOTES
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
Information about subsidiaries
Deed of Cross Guarantee
Key management personnel compensations
Transactions with related parties
Parent entity disclosures
Auditor’s remuneration
Unrecognised items
Changes in accounting policies
Accounting standards issued but not yet effective at 30 June 2020
Subsequent events
69
69
69
70
70
71
71
72
72
72
73
74
76
76
76
77
79
80
82
83
84
84
86
86
87
89
94
95
97
98
99
99
99
100
100
100
101
103
103
103
104
105
105
106
107
68
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
1 /
BASIS OF PREPARATION
1.1. Corporate information
This note sets out the accounting policies adopted by Carbon Revolution Limited
(the “Company” or “parent”) and its consolidated entities, collectively known as the
“consolidated entity” or the “Group” in the preparation and presentation of the financial
report. Where an accounting policy is specific to one note, the policy is described within
the note to which it relates.
The financial report was authorised for issue by the Directors as at the date of the
Directors’ Report.
Carbon Revolution Limited is a listed public company limited by shares, incorporated
and domiciled in Australia. Its principal activity is the manufacture and sale of carbon fibre
wheels, as well as research and development projects relating to carbon fibre
wheel technology.
The address of the Company’s registered office and its principal place of business is:
Building NR
75 Pigdons Road
Waurn Ponds VIC 3216
1.2. Basis of preparation
The Group financial statements are general purpose financial statements which:
• Have been prepared in accordance with the Corporations Act, Australian accounting
standards, and other authoritative pronouncements of the Australian Accounting
Standards Board;
• Have adopted all accounting policies in accordance with Australian accounting
standards, and where a standard permits a choice in accounting policy, the policy
adopted by the Group has been disclosed in these financial statements;
• Do not early adopt any accounting standards or interpretations that have been issued
or amended but are not yet effective;
• Comply with International financial reporting standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’);
• Have been prepared for a for profit entity under the historical cost convention, except
for certain non-current assets and financial instruments that are measured at revalued
amounts or fair values, as explained in the accounting policies below. Historical cost is
generally based on the fair values of the consideration given in exchange for assets.;
• Are presented in Australian dollars, which is the Group’s functional and presentation
currency;
• Have been rounded to the nearest million dollars, unless otherwise stated, in accordance
with ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191.
69
2020 ANNUAL REPORT 1.3. Going concern
The financial statements have been prepared on a going concern basis.
Carbon Revolution is an advanced technology manufacturing business which is in the
process of industrialising its production processes. At this pre-profitability stage of Carbon
Revolution’s business lifecycle, it is essential that it has sufficient capital to fund ongoing
research and development on product, material and process technologies and invest in
the industrialisation equipment required to achieve profitability.
While the Group incurred a loss after tax of $114.0 ($26.8 million before losses related
to the IPO of $87.2 million) (2019: $27.2 million) and generated negative cashflows from
operating activities of $30.9 million (2019 $19.9 million), as at 30 June 2020 it is in a net
asset position and has cash balances of $33.9 million (2019 $45.8 million).
Since balance date the Group is well progressed with arrangements to repay the $13 million
Ronal AG term loan. Key terms and conditions for a three year term loan facility with Export
Finance Australia (EFA) have been agreed and this arrangement is now being documented.
On the basis of detailed cash flow forecasts, which have allowed for the impacts of
COVID-19, the Group believes sufficient, appropriate funding options are available to it and
therefore has prepared the financial statements on a going concern basis.
1.4. Basis of consolidation
The consolidated financial statements are presented in Australian dollars which is also
the functional currency of the parent entity and its Australian subsidiaries.
Controlled entities
The consolidated financial statements comprise the financial statements of the parent
and of its subsidiaries as at reporting date. The Group controls an entity when it is exposed,
or has rights, to variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity.
The financial statements of subsidiaries are prepared for the same reporting period as
the parent entity, using consistent accounting policies. Adjustments are made to bring into
line any dissimilar accounting policies which may exist. Subsidiaries are consolidated from
the date on which control is established and are de-recognised from the date that control
ceases.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating
to transactions between members of the Group are eliminated in full on consolidation.
Any changes in the Group’s ownership interests in subsidiaries that do not result in the
Group losing control over the subsidiaries are accounted for as equity transactions.
Foreign currency translation
The Group has one overseas subsidiary in the United States of America (“US”) and one in
the United Kingdom (”UK”). The UK subsidiary was dormant during the financial year.
70
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
The results and financial position of all of the Group entities that have a functional
currency different from the presentation currency are translated into the presentation
currency as follows:
• assets and liabilities are translated at the closing rate at the reporting date;
• income and expenses are translated at average exchange rates throughout the course
of the year (unless this is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rates on the dates of the transactions); and
• all resulting exchange differences are recognised in other comprehensive income
and accumulated in the foreign currency translation reserve, a separate component
of equity.
1.5. Significant accounting judgements, estimates and assumptions
In preparing these consolidated financial statements, management has made judgements,
estimates and assumptions that affect the application of the Group’s accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to estimates are recognised prospectively. The significant
judgements made by management in applying the Group’s accounting policies and the key
sources of estimation uncertainty are outlined in detail within the specific note to which
they relate.
Information about critical judgements in applying accounting policies that have the most
significant effect on the amounts recognised in the consolidated financial statements are
included in the following notes:
Note 3.2 Inventories
Note 3.4 Leases
Note 3.5 Intangible assets
Note 5.1 Income tax.
1.6. Goods and Services Tax (GST)
Goods and Services Tax (GST) is recognised in these financial statements as follows:
1. Revenues, expenses and assets are recognised net of the amount of associated GST,
unless the GST incurred is not recoverable from the taxation authority;
2. Receivables and payables are stated inclusive of the amount of GST receivable or
payable;
3. The net amount of GST recoverable from, or payable to, the taxation authority is
included with other receivables or payables in the consolidated balance sheet;
4. Cash flows are presented on a gross basis. The GST components of cash flows arising
from investing and financing activities are presented as operating cash flows; and
5. Commitments are disclosed net of GST.
71
2020 ANNUAL REPORT 2 /
OPERATING PERFORMANCE
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies
performance obligations by transferring the promised goods or services to its customers,
regardless of when the payment is received. Revenue is measured at the fair value of
consideration received or receivable, taking into account contractually defined terms of
payment and excluding taxes or duty. The Group has concluded that it is the principal in all
of its revenue arrangements since it is the primary obligor in all the revenue arrangements,
has pricing discretion, and is also exposed to inventory and credit risks.
2.1 Revenue
2020
$’000
2019
$’000
Revenue recognised at a point in time
Sale of wheels
Sale of tooling
Revenue recognised over time
Engineering services
Total revenue
2.2 Other income
Government grants
Interest income
Foreign exchange gain
Other income
Total other income
36,853
600
1,492
38,945
2020
$’000
6,048
520
107
91
6,766
13,837
361
870
15,068
2019
$’000
4,936
169
7
9
5,121
2.2.1 Information about revenue and other income
Sale of goods
Revenue from the sale of Carbon Revolution wheels and tooling is based on the
contracted sales price. Revenue is recognised at a point in time, being when the company
has transferred to the buyer the significant risks and rewards of ownership of the
wheels or tooling, in accordance with the relevant customer contracted international
commercial terms.
Under the Group’s standard contract terms, end customers have a right to claim for faulty
wheels within a specified warranty period. While a warranty provision and corresponding
adjustment to revenue is recorded at the time of the product sale, historically, Carbon
Revolution has not experienced warranty claims.
72
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
Rendering of services
Revenue from a contract to provide engineering, design and testing services is recognised
over time based on the stage of completion of the contract. The Directors have assessed
that the stage of completion determined as the proportion of the milestones achieved under
the customer contract is an appropriate measure of progress towards complete satisfaction
of these performance obligations under AASB 15.
Interest income
Interest income is recognised on a time proportionate basis that takes into account
the effective yield on the financial asset.
Government grants
Government grants income includes government grants and research and development
incentive rebate amounts received or receivable by the Group. Grants and rebates are
recognised where there is reasonable assurance that the grant will be received and all
attached conditions have been complied with. When the grant relates to an expense item,
it is recognised as income on a systematic basis over the periods that the related costs, for
which it is intended to compensate, are expensed. When the grant relates to an asset, it is
recognised as income in equal amounts over the expected useful life of the related asset.
Other income
Other income is recognised on the satisfaction of the performance obligations.
2.3 Segments
The Group operates in one business segment, being the manufacture and sale of carbon
fibre wheels. This single segment is based on the internal reports that are reviewed
and used by the Chief Executive Officer, who is also the Chief Operating Decision Maker
(‘CODM’), in assessing performance and determining allocation of resources. The
accounting policies adopted for internal reporting to the CODM are consistent with those
adopted in the financial statements. While revenue is almost entirely international, all non-
current assets are domestic.
Included in revenues, are revenues of approximately $33 million (2019: $13 million) which
arose from sales to the Group’s two major international customers, representing more than
90% of the Group’s revenue. No other single customers contributed 10 per cent or more to
the Group’s revenue in either 2019 or 2020.
73
2020 ANNUAL REPORT Revenue and non-current assets by geography comprise:
2020
$’000
2019
$’000
Revenue
International
Domestic
Non-current assets
International
Domestic
2.4 Expenses
Finance costs
Interest on Ronal AG loan
Interest on insurance premium facility
Facility costs
Interest on loan
Salaries and employee benefit expense
Wages and salaries
Post-employment benefits
Share-based payments expense
Depreciation and amortisation
Property, plant and equipment
Right of use assets
Capitalised development costs
Patents and trademarks
38,945
-
38,945
-
71,273
71,273
2020
$’000
1,699
12
450
517
2,678
26,624
2,058
932
29,614
4,559
724
2,149
79
7,511
15,068
-
15,068
-
39,422
39,422
2019
$’000
1,624
6
523
-
2,154
16,664
1,247
300
18,211
2,772
-
468
56
3,296
74
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
2.4.1 Information about expenses
Finance costs
Finance costs are expensed in the period in which they occur.
Share based payments
The Group operates several employee incentive schemes to remunerate employees,
including senior executives, in the form of share-based payments. Refer to note 4.5
for information on share-based payments.
Depreciation
Property, plant and equipment, including leasehold improvements, are depreciated over
their estimated useful lives, commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the lesser of the assets estimated useful
life and the expected term of the lease.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a
purchase option or if the lease transfers ownership of the underlying asset to the lessee by
the end of the lease term, the right-of-use asset is depreciated over the underlying asset’s
useful life.
The depreciation periods and method for each class of assets are:
Class of fixed asset
Depreciation period
Depreciation method
Leasehold improvements
20 years
Straight line
Manufacturing plant and equipment
7 to 10 years
Tooling
Other equipment
Intangible assets
5 years
3 to 5 years
Diminishing value
Diminishing value
Diminishing value
Expenditure on research activities is recognised as an expense in the period in which it is
incurred. Refer to note 3.5 Intangible assets for further information in relation to capitalised
development costs, patents and trademarks.
75
2020 ANNUAL REPORT 2.5 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purposes of basic earnings
per share being loss for the year
Effect of dilutive potential ordinary shares
Earnings for the purposes of diluted earnings
per share
Number of shares
Weighted average number of ordinary shares for
the purposes of basic earnings per share
Effect of dilutive potential ordinary shares
2020
$’000
(114,046)
-
2019
$’000
(27,212)
-
(114,046)
(27,212)
2020
No. ’000
100,296
-
100,296
2019
No. ’000
50,881
-
50,881
3 /
OPERATING ASSETS AND LIABILITIES
This section shows the assets used to generate the Group’s revenue and the liabilities
incurred. Assets and liabilities relating to the Group’s financing activities are disclosed
in note 4. Deferred tax assets and liabilities are disclosed in note 5.
3.1 Receivables
Trade receivables
Not past due
Past due 1 – 30 days
Past due 31 – 90 days
Past due 90 days and over
Allowance for impairment losses
Trade receivables net of allowance
for impairment losses
Other receivables
GST recoverable
Trade and other receivables
2020
$’000
5,943
639
120
41
6,743
-
6,743
78
1,059
7,880
2019
$’000
4,008
179
463
-
4,650
-
4,650
3,308
1,073
9,031
76
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
3.1.1 Information about receivables
Trade receivables are measured at the transaction price in accordance with AASB 15.
Receivables are measured at amortised cost using the effective interest method, less any
impairment. Other receivables relate to research and development tax incentive refunds
due to the Group.
The Group makes use of the simplified approach in accounting for expected credit losses
related to the trade and other receivables 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 which are reviewed at each reporting period. Debts that
are known to be uncollectible are written off when there is information indicating that the
debtor is in severe financial difficulty and there is no realistic prospect of recovery.
See note 4.3.2 regarding credit risk of trade receivables, which explains how the Group
manages and measures credit quality of trade receivables. There is currently an immaterial
provision for expected credit losses which has been determined by management in
consideration of historically collected debt as well expected collectability of customers
as at 30 June 2020.
In reaching this view on expected credit losses and having regard to the COVID-19
environment management has performed a review on an individual customer basis
including monitoring customer performance and timing of payments. 90% of sales are from
two major international customers, neither are seen to have any risk of credit loss on the
basis of viability and transaction history.
3.2 Inventories
Current
Raw materials
Work in progress
Finished goods
Finished goods in transit
Consumables and spare parts
Provision for trial wheels, obsolescence
and scrap
Inventories at the lower of cost and
net realisable value
2020
$’000
8,209
15,282
2,653
3,816
2,753
2019
$’000
5,954
5,092
723
-
877
(4,887)
(2,976)
27,826
9,670
77
2020 ANNUAL REPORT 3.2.1 Information about inventories and significant estimates
Inventories are valued at the lower of cost and net realisable value. Net realisable value
is the estimated selling price in the ordinary course of business, less the estimated costs
necessary to make the sale.
Costs incurred in bringing each product to its present location and condition are accounted
for as follows:
• Raw materials – recorded at standard cost, reassessed against actual costs quarterly;
• Finished goods and work-in-progress – cost of direct materials, labour, outsourced
processing costs and a proportion of manufacturing overheads based on normal
operating capacity but excluding finance costs. Includes inventory in transit reflecting
the relevant customer incoterm;
• Consumables and spare parts – recorded at purchase price. Consumables and
spares are assessed for ongoing usefulness and written off if they are no longer
likely to be of use.
Inventory provisions include an allowance for trial wheels, obsolete stock and
production scrap.
Amounts recognised in profit or loss
Inventories recognised as an expense during the year ended 30 June 2020 amounted to
$50.5 million (2019: $22.5 million). These were included in cost of goods sold.
During the year $4.2 million (2019: $0.7 million) of obsolescence and scrap were recognised
as an expense and included in ‘cost of goods sold’ in the consolidated statement of profit
or loss and other comprehensive income.
Critical accounting estimates and judgement
Determining the Net Realisable Value of work in process requires assessments of costs
to complete and ship and judgements about ultimate customer demand levels. This
assessment is made more complex as constantly evolving production processes and
emerging technologies significantly affect the cost of production and customer appeal.
Management’s judgement is applied in determining the provision for trial wheels,
obsolescence and scrap. All trial wheels are fully expensed as they are manufactured.
All after-market wheels have also been expensed in full on the basis that this sales channel
is not currently a strategic focus of Carbon Revolution.
Scrapped wheel provisioning has been calculated using historical data as well as
management experience in determining an adequate provision. Carbon Revolution uses
a traceability system for all wheels which is used to identify and isolate wheels at risk of
non-recoverability. Management judgement is applied to assign a probability of recovery
to individual groups of wheels.
78
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
3.3 Property, plant and equipment
Gross cost
Less accumulated
depreciation
At 30 June 2019
Capital works
in progress
Leasehold
improvements
Manufacturing
equipment
Tooling
Other
equipment
Total
$‘000
8,979
-
8,979
$‘000
5,011
(554)
4,457
$‘000
17,086
$‘000
8,046
$‘000
$‘000
1,339
40,461
(4,306)
(3,602)
(463)
(8,925)
12,780
4,444
876
31,536
Gross cost
10,521
5,549
28,555
11,017
1,810
57,452
Less accumulated
depreciation
At 30 June 2020
-
10,521
(810)
4,739
(6,789)
(5,137)
(680)
(13,416)
21,766
5,880
1,130
44,036
Movement in carrying amounts
Balance at 1 July 2018
Additions
Transfer into/(out of)
capital WIP
Depreciation expense
Disposals/write-offs
Balance at 30 June 2019
4,966
16,504
(12,345)
-
(146)
8,979
2,271
7,390
2,918
486
18,031
-
-
-
-
16,504
2,338
(152)
-
6,824
2,633
550
-
(1,421)
(1,043)
(156)
(2,772)
(13)
(64)
(4)
(227)
4,457
12,780
4,444
876
31,536
Additions
17,516
-
378
-
-
17,894
Transfer into/(out of)
capital WIP
Write-offs from WIP
Depreciation expense
Disposals/write-offs
(15,183)
(787)
-
(4)
539
-
11,178
2,973
-
-
493
-
-
(787)
(257)
(2,535)
(1,537)
(230)
(4,559)
-
(35)
-
(9)
(48)
Balance at 30 June 2020
10,521
4,739
21,766
5,880
1,130
44,036
3.3.1 Information about how the Group accounts for property, plant and equipment
Property, plant and equipment is measured at cost less accumulated depreciation and
any accumulated impairment losses.
An asset’s residual value and useful life is reviewed, and adjusted if appropriate, at the
end of each reporting period. Any depreciation and impairment losses of an asset are
recognised in profit or loss.
Gains and losses on disposal are determined by comparing proceeds with the carrying
amount. These gains and losses are included in profit or loss when the asset is
derecognised.
79
2020 ANNUAL REPORT Capital works in progress includes leasehold improvements, manufacturing equipment,
tooling and other equipment that are under construction as at the reporting date.
The Group has capital commitments of $3.651 million for manufacturing equipment as at
30 June 2020 (2019: $2.688 million).
3.4 Leases
This note provides information for leases where the Group is the lessee. Refer to note 6.9
for the impact of change in accounting policies.
Amounts recognised in the balance sheet
Right-of-use assets
Property
Equipment
Lease liabilities
Current
Non-current
Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts relating to leases:
Depreciation charge or right of use assets
Property
Equipment
Interest expense (included in finance cost)
Expense relating to short-term leases (included in costs of goods sold
and administrative expenses)
2020
$’000
8,470
820
9,290
979
8,540
9,519
2020
$’000
91
633
724
517
87
80
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
3.4.1 Information about how the Group accounts for leases
The Group has two leases. One is for the head office and the other is for equipment. The
lease agreements do not impose any covenants other than the security interests in the
leased assets that are held by the lessor. Leased assets may not be used as security for
borrowing purposes. In prior years leases were classified as operating leases. From 1 July
2019, leases are recognised as a right-of-use asset and a corresponding liability at the date
at which the lease asset is available for use by the Group.
Right-of-use assets
Right-of-use assets are measured at cost comprising the amount of the initial
measurement of lease liability, any initial direct costs and restoration costs reduced by any
lease incentives received. The Group applies AASB 136 Impairment of Assets to determine
whether a right-of-use asset is impaired and accounts for any identified impairment loss
as described in the critical accounting estimate.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a
purchase option or if the lease transfers ownership of the underlying asset to the lessee by
the end of the lease term, the right-of-use asset is depreciated over the underlying asset’s
useful life.
Payments associated with short-term leases of equipment are recognised on a straight-
line basis as an expense in profit or loss. Short-term leases are leases with a lease term
of twelve months or less.
Lease liabilities
The lease liability is initially measured at the present value of the lease payments that
are not paid at the commencement date, discounted by using the rate implicit in the lease.
If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Refer to note 4.3.3 for maturity analysis relating to lease liabilities.
Expense relating to low value leases (included in administrative expenses) for year ending
30 June 2020 was $0.087 million.
Critical accounting estimates and judgement
Management’s judgement is applied in determining whether any impairment is required
on the right of use assets. Management have used judgement in determining whether the
option of the property lease will be extended. An estimate has been made in calculating
the incremental borrowing rate.
81
2020 ANNUAL REPORT 3.5 Intangible assets
Gross cost
Less accumulated amortisation
At 30 June 2019
Gross cost
Less accumulation amortisation
At 30 June 2020
Movement in carrying amounts
Balance at 1 July 2018
Additions
Amortisation
Balance at 30 June 2019
Additions
Amortisation
Balance at 30 June 2020
Development
costs
Patents and
trademarks
$’000
7,732
(468)
7,264
19,738
(2,617)
17,121
-
7,732
(468)
7,264
12,006
(2,149)
17,121
$’000
867
(245)
622
1,150
(324)
826
564
114
(56)
622
283
(79)
826
Total
$’000
8,599
(713)
7,886
20,888
(2,941)
17,947
564
7,846
(524)
7,886
12,289
(2,228)
17,947
3.5.1 Information about intangible assets and significant estimates
Intangible assets are measured on initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated
impairment losses.
An intangible asset’s residual value and useful life is reviewed, and adjusted if appropriate,
at the end of each reporting period or more frequently if appropriate. Any amortisation or
impairment losses is recognised in profit or loss. The Group has no intangible assets with
an indefinite life.
Gains and losses on disposal or derecognition are determined by comparing proceeds with
the carrying amount. These gains and losses are included in profit or loss when the asset
is derecognised.
Capitalised development costs
Research costs are recognised as an expense in the period in which they are incurred. An
internally generated intangible asset arising from development (or from the development
phase of an internal project) is recognised only if it is probable that the project will be a
success considering its commercial and technical feasibility, sufficient resources exist and
the Group has the intention to complete the project and is able to use or sell the asset and
costs can be measured reliably.
82
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
Subsequent to initial recognition, internally-generated intangible assets are reported at
cost less accumulated amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
Amortisation is calculated using a straight-line method to allocate the cost of intangible
assets over their estimated useful lives (5 year period). Amortisation commences when the
intangible asset is available for use.
Patents and trademarks
The Group has paid to acquire patents and trademarks and these are recorded at cost.
Patents are amortised over their useful life of 15 years.
Critical accounting estimates and judgements
The Group has no indefinite life assets and therefore is only required to perform an
impairment test in case of any impairment indicators. The impairment testing is performed
at a cash generating unit level, being the company itself, due to the unique nature of
the business.
Management uses Fair Value Less Costs to Sell (FVLCTS) in estimating recoverable amount
on the basis that there are strategic initiatives, as referred to in the Prospectus and the
OFR, including the industrialisation of production, which require future capital expenditure
that is important in realising the value of assets. In assessing FVLCTS, management has
had due regard for the impacts of COVID-19 on the business, including the impact on
industrialisation of production and the expected timeframe to meet revenue and EBITDA
milestones as a result. The recoverable amount of assets exceed carrying amount and
therefore no impairment charge has been recognised during the year.
3.6 Payables
Current
Unsecured liabilities
Trade payables
Accruals
Interest accrued
Other payables
2020
$’000
12,928
2,780
978
275
16,962
2019
$’000
6,462
4,474
732
27
11,695
3.6.1 Information about payables
Trade and other creditors and accruals are carried at amortised cost and represent
liabilities for goods and services provided to the Group prior to the end of the financial year
that are unpaid and arise when the Group becomes obliged to make future payments in
respect of the purchase of these goods and services.
Payables are non-interest bearing and are settled based on the specific creditor’s terms.
Payables includes interest payable on borrowings.
For further policy detail regarding the Group’s liquidity risk management processes refer to
note 4.3.3.
83
2020 ANNUAL REPORT 3.7 Deferred income
Deferred income consists of government grants. Government grants have been received
to assist with the purchase of certain items of plant and equipment as well as the cost of
employment of new employees. The conditions attached to these grants will be fulfilled
progressively over the period of the grant. For revenue recognition policy, refer to note 2.1.1
2020
$’000
3,768
2,939
(2,493)
4,214
798
3,416
4,214
$’000
1,093
-
1,093
729
-
729
583
510
-
1,093
2019
$’000
3,094
1,273
(599)
3,768
608
3,160
3,768
Total
$’000
2,521
180
2,701
2,853
519
3,372
1,727
1,650
(676)
2,701
Onerous
contracts
$’000
102
-
102
-
-
-
-
102
-
102
Balance as at 1 July
Received during the year
Released to the statement of profit or loss
Balance as at 30 June
Current
Non-current
3.8 Provisions
Current
Non-current
At 30 June 2019
Current
Non-current
At 30 June 2020
Movement in carrying amounts
Balance at 1 July 2018
Provided for during the year
Utilised during the year
Balance at 30 June 2019
Provided for/(released during)
the year
Utilised during the year
Balance at 30 June 2020
Employee
benefits
Make good
provision
Warranty
claims
$’000
1,326
180
1,506
2,124
316
2,440
1,144
1,038
(676)
1,506
1,706
(772)
2,440
$’000
-
-
-
-
203
203
-
-
-
-
203
-
203
(364)
-
729
(102)
1,443
-
-
(772)
3,372
84
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
3.8.1 Information about individual provisions and significant estimates
Non-employee provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of past events, for which it is probable that an outflow of economic
benefits will result in an amount that can be reliably measured.
Make good provision
Carbon Revolution is required to restore its leased premises to their original condition
at the end of the lease team. A provision has been recognised for the present value of the
estimated expenditure required to remove any leasehold improvements. These costs have
been capitalised as part of the cost of leasehold improvements and are amortised over
the shorter of the term of the lease and the useful life of the assets.
Warranty claims
Provisions for warranty-related costs are recognised when the wheel is sold to the
customer based on management judgement and a growing body of historical experience.
The estimate of warranty related costs is reassessed annually.
Critical accounting estimates and judgements
Management’s judgement is applied in determining the key assumptions used in the
calculation of the provision for warranty claims at reporting date, being future % of wheel
sales subject to warranty claims and future costs of honouring the warranty for those
claims.
Onerous contracts
Provisions for onerous contracts are recognised when the tooling in progress is expected
to be sold to the customer below cost. The onerous provision estimate on tooling exposure
is reassessed annually. This amount was released in 2020 and no provision is required at
30 June 2020.
Employee provisions
A liability is recognised for benefits accruing to employees in respect of wages and salaries,
annual leave, and long service leave when it is probable that settlement will be required,
and they are capable of being measured reliably.
Liabilities recognised in respect of employee benefits expected to be settled within
12 months, are measured at their nominal values using the remuneration rate expected
to apply at the time of settlement.
Liabilities recognised in respect of employee benefits which are not expected to be
settled within 12 months are measured as the present value of the estimated future
cash outflows to be made by the company in respect of services provided by employees
up to reporting date.
Payments to superannuation funds are recognised as an expense when employees have
rendered service entitling them to the contributions.
85
2020 ANNUAL REPORT 4 /
CAPITAL STRUCTURE AND FINANCING
This section outlines how the Group manages its capital structure, including its balance
sheet liquidity and access to capital markets.
When managing capital, the Board’s objective is to ensure the Group continues to maintain
sufficient capital to enable it to pursue its commercial objectives. This is achieved through
the monitoring of historical and forecast performance and cash flows.
4.1 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and
investments in money market instruments that are readily convertible to known amounts
of cash and which are subject to an insignificant risk of changes in values.
Cash flows are presented in the statement of cash flows on a gross basis, except for the GST
component of investing and financing activities, which are disclosed in operating cash flows.
4.1.1 Notes to the consolidated statement of cash flow
For information on cash flows relating to financing activity see note 4.4
86
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
Reconciliation of profit for the period to cash flows from operating activities
Loss after income tax
Non cash items from ordinary activities
Depreciation and amortisation
Share based payment expenses
Reduction of borrowings from achievement of grant
milestones
Movement in inventory provision
Write off of property, plant and equipment
Gain on revaluation of financial instruments
Non cash losses related to IPO
Anti-dilutive shares issued on IPO
Loss on conversion of financial instruments on IPO
Capital raising transaction costs
Changes in assets and liabilities
(Increase)/decrease in assets:
- Receivables
- Inventories
- Other assets
Increase/(decrease) in liabilities:
- Payables
- Deferred income
- Provisions
Cash used in operating activities
Note
2020
$’000
2019
$’000
(114,046)
(27,212)
4.4
4.2
7,511
1,680
(2,000)
(1,939)
(273)
-
35,801
51,443
1,448
3,296
83
-
(717)
182
(548)
-
-
7,684
1,151
(16,598)
(490)
(3,820)
(4,940)
(33)
4,220
4,466
446
671
673
975
(30,975)
(19,911)
4.2 Borrowings and other financial liabilities
Debt and equity instruments are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of
a financial liability and an equity instrument.
87
2020 ANNUAL REPORT
Interest
rate %
Maturity
2020
$’000
2019
$’000
Current borrowings
Unsecured
Insurance premium funding
5% August 2020
Loan
Ronal AG loan facility
Convertible notes
10.9%
10.0%
10.0%
174
5,500
June 2021
June 2021
13,000
41
-
-
May 2020
-
18,674
73,991
74,032
Non-current borrowings
Unsecured
Loan
Ronal AG loan facility
Convertible notes
6.0%
June 2021
10.0%
June 2021
-
-
-
7,500
18,000
25,500
Carrying amount at 1 July 2019
Loss on conversion recognised in profit or loss
Issue of ordinary shares upon conversion in November 2019
Balance at 30 June 2020
$’000
73,991
51,443
(125,434)
-
On listing of the Group on the Australian Stock Exchange on 29 November 2019, the
convertible notes converted into ordinary shares. In accordance with the terms of the
convertible note agreement, the shares were issued at a discount resulting in a loss on
conversion of $51.4 million, this included an amount of interest accrued of $3.1 million
on conversion.
Financial liabilities measured subsequently at amortised cost
The effective interest method is a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments (including all
fees and points paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the
financial liability, or (where appropriate) a shorter period, to the amortised cost of a
financial liability.
88
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
Loan
Carbon Revolution is party to a loan arrangement with the State of Victoria under which the
company was provided with an early grant advance. This loan will reduce as the company
achieves milestones associated with that grant. The company believes it has passed the
hurdles required to earn the 2020 grant, this will be assessed in the coming months. Once
approved, the loan will be reduced by $2m to $3.5m.
Ronal AG loan facility
The Group has issued a convertible loan facility to Ronal AG, a related party, which is due for
repayment on 30 June 2021. A partial repayment was made of $5 million during 2020 as per
the agreement. Interest payable on the convertible loan facility is included in payables and
is paid quarterly. The interest on the facility is subject to 10% withholding tax. The balance
at 30 June 2020 can only be converted into shares within 30 days of an event of default or
Ronal AG providing a notice of illegality of the contract.
Finance costs
Finance costs can include interest expense, finance charges in respect of finance leases,
amortisation of discounts or premiums, ancillary costs relating to borrowings, and
exchange differences arising from foreign currency borrowings to the extent that they
are regarded as an adjustment to interest costs.
Finance costs are expensed in the period in which they are incurred, except for finance
costs incurred as part of the cost of the construction of a qualifying asset which are
capitalised until the asset is ready for its intended use or sale.
Refer to note 2.4 for more information
4.3 Financial risk management
The Group is exposed to currency risk, interest rate risk, credit risk and liquidity risk. The
Group’s senior management oversees the management of these risks to ensure the most
appropriate use of the capital the Group has available to achieve its commercial objectives.
4.3.1 Market risk
a) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. The Group’s
exposure to foreign currency risk relates primarily to the Group’s operating activities
(when revenue or expense is denominated in a different currency from the Group’s
presentation currency).
51% of the Group’s revenues and 19% of costs are denominated in currencies other than
AUD. The Group does not currently have a sufficiently material exposure to any foreign
currency for movements in the exchange rate to be considered a material financial risk.
The primary currencies the Group has exposure to are US Dollars and Euros.
The Group’s exposure to foreign currency risk in relation to non-derivative financial
instruments at 30 June 2020 was as follows, based upon notional amounts.
89
2020 ANNUAL REPORT 2020
Trade receivables
Trade payables
Balance sheet exposure
2019
Trade receivables
Trade payables
Balance sheet exposure
EUR
$’000
1,855
(1,492)
363
EUR
$’000
3,441
(1,273)
2,168
The aggregate net foreign exchange gains/losses recognised in profit or loss were:
Net foreign exchange gain/(loss) included
in other income
Sensitivity
2020
$’000
107
USD
$’000
32
(307)
(275)
USD
$’000
7
-
7
2019
$’000
8
As shown in the table above the Group is primarily exposed to changes in US/AUD and EUR/
AUD. The sensitivity of profit or loss to changes in the exchange rates arises mainly from
EUR dollar denominated financial instruments and the impact on other components of
equity arises from the foreign exchange reserve and is not material.
The below table discloses the impact of the AUD strengthened and weakened by 5%
+/- 5% exchange rate
Impact on profit after tax
Impact on equity
b)
Interest rate risk
2020
$’000
4
(4)
2019
$’000
109
(109)
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Group’s exposure to the risk
of changes in market interest rates is not significant because the loans are both at a fixed
interest rate. The Group does not currently hedge its exposure to interest rate fluctuations
due to the low level of exposure.
90
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
The exposure to fixed or floating interest rates is described below:
Variable interest rate
Fixed interest rate
Total
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
Financial assets
Cash
Short term deposits
33,469
45,451
-
-
Total financial assets
33,469
45,451
-
392
392
-
33,469
45,451
392
392
392
392
33,861
45,843
Financial liabilities
Insurance premium funding
Convertible notes
Loan
Ronal AG loan facility
Total financial liabilities
-
-
-
-
-
-
-
-
-
-
174
41
174
41
-
73,991
-
73,991
5,500
7,500
5,500
7,500
13,000
18,000
13,000
18,000
18,674
99,532
18,674
99,532
Fixed interest rate on short term deposits is 0.20%. Fixed interest rates on financial
liabilities are disclosed in note 4.2
The Group holds $392,000 (2018: $392,000) on deposit as collateral for lease and banking
facility obligations. The operating cash account received an average interest rate of 1.4%
(2019: 0.79%) per annum.
Sensitivity
Profit or loss is sensitive to higher/ lower interest income from cash and cash equivalents
as a result of changes in interest rates.
The Group’s financial liabilities have fixed interest rate and therefore does not expose the
Group with an interest rate risk
+/- 100 basis points
Impact on profit after tax
Impact on equity
c) Price risk
2020
$’000
334
(334)
2019
$’000
458
(458)
The Group is not exposed to any significant price risk.
4.3.2 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial
instrument or customer contract, leading to a financial loss. The Group is exposed to
credit risk from its operating activities (primarily trade receivables) and from its financing
activities, including deposits with banks and financial institutions.
91
2020 ANNUAL REPORT Cash and cash equivalents
The Group held cash and cash equivalents of $33.9 million at 30 June 2020 (30 June 2019:
$45.8 million). The credit risk associated with cash and cash equivalents is considered as
minimal as the cash and cash equivalents are held with reputable financial institutions in
Australia. Cash and cash equivalents comprise cash balances and call deposits with an
original maturity of three months or less. The Group holds $0.4 million (2019: $0.4 million)
on deposit as collateral for lease and banking facility obligations.
Receivables
The Group held receivables of $7.9 million at 30 June 2020 (30 June 2019: $9.0 million).
The concentrated nature of receivables with only a few customers enables customer credit
risk to be assessed using the simplified approach when estimating the expected credit
losses. Depending on the customer, the Group’s credit terms vary between 30 and 90 days.
An impairment analysis is performed at each reporting date to account for the lifetime
expected credit losses for all receivables. Outstanding customer receivables are regularly
monitored and shipments to customers, to the extent that the Group retains ownership of
the goods, are covered by insurance.
There is currently an immaterial allowance for expected credit losses as the Group has
historically collected all customer debt amounts and expects to continue to do so for the
customers contained within the balance at year end.
4.3.3 Liquidity risk
The Group’s objective is to maintain a balance between the continuity of funding and
flexibility through the use of operating cash flows and committed available credit facilities.
The Group actively reviews its funding position to ensure the available facilities are
adequate to meet its current and anticipated needs. The Group manages liquidity risk
by monitoring forecast cash flows and ensuring that adequate borrowing facilities are
maintained, this includes an assessment of the impact of COVID on the business.
All available facilities are currently utilised. Arrangements to repay the $13 million term
loan are well progressed. Key terms and conditions for a three-year term loan facility with
EFA have been agreed and this arrangement is now being documented.
Maturity analysis
The table below represents the estimated and undiscounted contractual settlement terms
for financial instruments and management’s expectation for settlement of undiscounted
maturities.
92
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
On demand
‹ 3 months 3-12 months
1-5 years
› 5 years
Total
$’000
$’000
$’000
$’000
$’000
$’000
2020
Insurance premium funding
Convertible notes
Loan
Ronal AG loan
Lease Liabilities
2019
Insurance premium funding
Convertible notes
Loan
Ronal AG loan
4.3.4 Fair value risk
-
-
-
-
-
-
-
-
-
-
-
174
-
-
-
156
330
-
-
-
-
-
-
-
5,500
13,000
813
19,313
41
73,991
-
-
-
-
-
-
-
-
2,508
2,508
6,042
6,042
-
-
-
-
7,500
18,000
74,032
25,500
-
-
-
-
-
-
-
5,500
13,000
9,519
28,193
41
73,991
7,500
18,000
99,532
The fair value of financial assets and financial liabilities not measured at fair value
approximates their carrying amounts as disclosed in the statement of financial position
and notes to the financial statements.
As at 30 June 2020 there were no assets or liabilities impacted by fair value risk.
At 30 June 2019 the group measured the convertible loan facility rights at a fair value of
$73.991 million.
Accounting policy for fair value
For financial assets and liabilities measured and carried at fair value in 2019, the Group
used the following levels to categorise the valuation methods used:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair value of the convertible notes issued on 30 May 2019 was determined at inception
and at year end, based on the arms-length transaction value associated with the issue
of the convertible notes to 156 note holders. With the IPO on 29 November 2019, the
convertible notes converted into ordinary shares.
93
2020 ANNUAL REPORT 4.4 Contributed equity
30 June 2020
30 June 2019
# Ordinary shares
# Ordinary shares
30 June 2020
$’000
30 June 2019
$’000
Ordinary shares – fully paid
145,632,909
50,892,598
291,226
75,897
Ordinary shares – restricted
253,460
-
-
-
Total share capital
145,886,369
50,892,598
291,226
75,897
Movements in ordinary share capital
2019
Balance
Issue of shares in respect
of Share-Based Payments
plan (SBP)
Date
# Shares Issue Price
1 July 2018
50,869,000
23,598
Balance of fully paid shares
30 June 2019
50,892,598
2020
Balance
Date
# Shares Issue Price
1 July 2019
50,892,598
Issue of Shares (IPO)
29 November 2019
11,538,462
$2.60
$’000
75,814
83
75,897
$’000
75,897
30,000
Issue of shares in respect of
SBP plan
Issue of shares to
Convertible Note Holders
Anti-dilutive shares issued
on IPO
29 November 2019
95,605
$2.60
248
29 November 2019
48,243,689
$2.60
125,434
29 November 2019
16,356,588
*
35,801
Issue of employee shares
13 March 2020
19,230
Institutional placement
23 March 2020
16,666,667
$2.51
$1.50
48
25,000
Issue of shares in respect
of SPP
Share issue transaction costs
22 April 2020
1,820,070
$1.50
Balance of fully paid shares
30 June 2020 145,632,909
2,730
(3,932)
291,226
*
In December 2016 the Company raised capital and offered anti-dilution rights to the investors in that raising. The December
2016 raising was at a higher issue price than the discounted listing price at which convertible note holders received shares in
the IPO pursuant to the convertible note agreements. On IPO shares were issued to participants in the December 2016 raising
in accordance with the Anti-Dilution Deeds resulting in a valuation adjustment.
4.4.1 Information about contributed equity
Ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up of the Company
in proportion to the number of shares held. At shareholders’ meetings each ordinary share
is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a
show of hands.
94
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
On 29 November 2019 the Group listed on the Australian Stock Exchange at a listing price
of $2.60. This raising was fully subscribed and 11,538,462 shares were issued with cash
value of $30 million. On the same date the convertible notes converted into ordinary shares,
and anti-dilutive shares and shares in relation to share-based payment arrangements were
required to be issued.
On the 23 March 2020, an additional $25m institutional capital raising of $1.50 per
share was finalised. This was followed by a further $2.73m in April raised from existing
shareholders through the share purchase plan (“SPP”). These shares were also issued
at $1.50.
During the financial year ended 30 June 2020, the Company did not pay a dividend
(30 June 2019: $nil).
4.5 Share-based payment arrangements
The Group operates several employee incentive schemes to remunerate employees,
including senior executives, in the form of share-based payments.
The cost of share-based payments is determined by the fair value of the equity instruments
granted at the date when the grant is made using an appropriate valuation model. That
cost is recognised in employee benefits expense together with a corresponding increase in
equity over the period of service and, where applicable, when the performance conditions
are fulfilled (the vesting period).
The cumulative expense recognised for share-based payments at each reporting date until
the vesting date reflects the extent to which the vesting period has expired and the Group’s
best estimate of the number of equity instruments that will ultimately vest. The expense or
credit in the statement of profit or loss for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining
the grant date fair value of the equity instruments, but the likelihood of the conditions being
met is assessed as part of the Group’s best estimate of the number of equity instruments that
will ultimately vest. Market performance conditions are reflected within the grant date fair
value. Any other conditions attached to a share-based payment, but without an associated
service requirement, are considered to be non-vesting conditions. Non-vesting conditions
are reflected in the fair value of an instrument and lead to an immediate expensing of the
instrument unless there are also service and/or performance conditions.
No expense is recognised for instruments that do not ultimately vest because non-market
performance and/or service conditions have not been met. Where awards include a market
or non-vesting condition, the transactions are treated as vested irrespective of whether the
market or non-vesting condition is satisfied, provided that all other performance and/or
service conditions are satisfied.
Tax-exempt employee share ownership plan
The tax-exempt employee share ownership plan (“TESP”) was introduced in June 2018 and
enables eligible employees to acquire shares in the company and take advantage of certain
income tax concessions available. Eligible employees will be annually invited to apply for
shares up to a value of $1,000. The shares will be held in trust for the employee and may be
sold by the employee at any time after the last to occur of either:
95
2020 ANNUAL REPORT a) Elapse of three years from the date of grant; or
b) Listing of the Company’s shares on the ASX or earlier release of exercise restrictions
by the Board.
The employee participant is entitled to receive any dividends or other income associated
with the shares held in trust but is not entitled to participate in any dividend reinvestment
plan operated by the company.
The fair value of shares granted under the TESP is determined based on the market price
of the shares at grant date.
Grant date
Number of employees granted shares
Value of shares granted per employee (on FTE
and length of service pro-rata basis)
Total number of shares
Fair value at grant date
Short term incentive plan
2020
2019
Nov 2019
110
Dec 2018
83
$1,000
38,269
$2.60
$1,000
23,598
$3.50
The employee short term incentive (“STI”) plan was approved in November 2019. Under
the STI plan, senior executives and other employees, as determined by the Board, will defer
a portion of their short-term incentive payment in the form of rights. In 2020 the Board
determined that all participants would have 100% of their STI outcome delivered in the
form of rights in lieu of a cash payment.
Each right is equivalent to one share and is settled only in shares with no cash alternative.
The fair value of each right is determined based on the market price of the share at grant
date. Rights have a one-year service period.
Rights do not carry dividend or voting rights prior to vesting. Shares allocated on vesting
of rights carry the same dividend and voting rights as other shares.
97,172 rights were granted on 23rd December 2019, valued at $369,254 on the grant date
(2019: Nil). No rights were forfeited, exercised or expired during the year. The rights will
vest on 16 October 2020.
Employee stock ownership plan
The employee stock ownership plan (ESOP) was used to deliver a one-off equity award to
a number of senior executives and other employees, including the CEO, to reward their
efforts in the Company achieving listing, to align their interests with the shareholders from
listing and for retention purposes. Participation was at the discretion of the Board and
options are subject to vesting conditions determined by the Board.
96
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
The exercise price of the options is equal to the market price of the underlying shares at
IPO. The Board retains a discretion to make a cash payment to participants on vesting
and exercise of the options in lieu of an allocation of shares.
5,093,678 options were granted to members of the executive team and a small number
of other employees on 23 December 2019 under the one-off ESOP award on listing.
In September 2019, an independent valuation was undertaken of these options using a
modified form of the Black-Scholes option pricing model which assumed a 12.5% departure
rate, expected share price volatility of 40%, a 50% probability of no dividends through the
5-year option term and a 5% discount for marketability annual share price.
The terms of the options are:
• Issue date 23 December 2019
• Term of 5 years
• First exercise date – 3 years
• Exercise price $2.60 (IPO price).
The options were valued at $3.2m. This cost is being amortised over the three-year vesting
period. 96,780 options were forfeited during the year.
4.6 Reserves
Share-based payments
Share buyback reserve
Foreign currency translation reserve
4.6.1 Information about reserves
Share-based payments reserve
2020
$’000
1,394
(311)
(159)
924
2019
$’000
-
(311)
(166)
(477)
The reserve is used to recognise the value of equity benefits provided to employees
and directors as part of their remuneration.
Share buy-back reserve
The share buy-back reserve relates to shares brought back from former owners of
the business.
Foreign currency translation reserve
Exchange differences relating to the translation of the results and net assets of the
Group’s foreign operations from their functional currency to Australian dollars are
recognised directly in other comprehensive income and accumulated in the foreign
currency translation reserve.
97
2020 ANNUAL REPORT 5 /
TAXES
Income and other taxes consist of income tax and goods and services tax (“GST”).
Income tax
Current income tax expense or benefit for the current and prior periods is measured at the
amount expected to be recovered from or paid to the tax authorities. The current income tax
charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period.
Deferred tax is provided using the asset-liability method on temporary differences between
the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences, except when the
deferred tax liability arises from the initial recognition of goodwill or an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, the carry
forward of unused tax credits and any unused tax losses. Deferred tax assets are
recognised to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences, and the carry forward of unused tax credits
and unused tax losses can be utilised, except when the deferred tax asset relating to the
deductible temporary difference arises from the initial recognition of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is not probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
re-assessed at each reporting date and are recognised to the extent that it has become
probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit
or loss. Deferred tax items are recognised in correlation to the underlying transaction either
in other comprehensive income or directly in equity.
The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally
enforceable right to set off current tax assets and current tax liabilities and the deferred
tax assets and deferred tax liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities which intend either
to settle current tax liabilities and assets on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant amounts of deferred
tax liabilities or assets are expected to be settled or recovered.
2020 FINANCIAL REPORT
98
Notes to the Financial Statements (cont)
5.1 Critical accounting estimates and judgements
Deferred tax assets are recognised for unused tax losses to the extent that it is probable
that taxable profit will be available against which the losses can be utilised. Significant
management judgement is required to determine the amount of deferred tax assets that
can be recognised, based upon the likely timing and the level of future taxable profits,
together with future tax planning strategies. Management have determined that it is not
appropriate to recognise a deferred tax asset until consistent levels of profitability can be
demonstrated. No deferred tax assets have been recognised as at 30 June 2020 (2019: Nil).
Refer to note 5.4 for details regarding unrecognised tax amounts.
5.2 Income tax expense
The major components of income tax expense are:
Consolidated statement of profit or loss
Current income tax charge/benefit
Adjustment for current tax relating to prior periods
Deferred income tax relating to the origination
and reversal of temporary differences
2020
$’000
2019
$’000
-
-
-
-
-
-
-
-
The prima facie tax benefit on loss before tax
differs from the income tax expense as follows:
Accounting loss before tax
Benefit at the Australian statutory income tax rate
of 30% (2019: 30%)
2020
$’000
(114,046)
2019
$’000
(27,212)
34,213
8,164
Tax impact of:
Non-deductible expenses
Non-assessable income
Impact of different tax rates in foreign jurisdictions
Current year taxable loss not recognised
Income tax benefit
(28,831)
837
29
(6,248)
-
(1,353)
1,161
(43)
(7,929)
-
99
2020 ANNUAL REPORT 5.3 Deferred taxes
Deferred tax assets
Provisions and accruals
Capital raising
Tax losses
Other
Deferred tax liabilities
Receivables
Other
2020
$’000
2019
$’000
2,173
1,683
25,351
37
29,244
(1)
(31)
(32)
2,401
1,786
13,521
-
17,708
(18)
-
(18)
Net deferred tax asset
29,212
17,690
Deferred taxes not recognised
29,212
17,690
5.4 Unrecognised deferred tax assets
At 30 June 2020 the Group has unrecognised deferred tax assets of $29.2 million including
an amount of $25.3 million arising from the Group’s tax losses not booked of $66.8 million
mainly relating to Australian tax losses and research and development tax offset (2019:
unrecognised deferred tax asset of $17.7 million).
The Group has not recognised the net deferred tax asset as described in accounting
judgements and estimates at note 5.1.
6 /
OTHER NOTES
6.1 Information about subsidiaries
The table below lists the controlled entities of the Group.
Name
Principal activities
Country of
incorporation
% equity interest
2019
2020
Carbon Revolution
Operations Pty Ltd
Carbon Revolution
Technology Pty Ltd
Carbon Revolution
(USA) LLC
Carbon Revolution
(UK) Limited
Carbon fibre wheels
Australia
100
100
Carbon fibre wheels
Australia
100
100
Carbon fibre wheels
United States
100
100
Carbon fibre wheels
United
Kingdom
100
100
2020 FINANCIAL REPORT
100
Notes to the Financial Statements (cont)
6.2 Deed of cross guarantee
Carbon Revolution Limited and Carbon Revolution Operations Pty Ltd are parties to a deed
of cross guarantee under which each company guarantees the debts of the others. By
entering into the deed dated 25 June 2019, Carbon Revolution Operations Pty Ltd has been
relieved from the requirement to prepare a financial report and directors’ report under
ASIC Corporations (wholly owned companies) Instrument 2016/785 issued by the Australian
Securities and Investments Commission. Refer below for the statement of profit and loss
and other comprehensive income for the parties to the deed of cross guarantee for the year
ended 30 June 2020:
Sale of wheels
Engineering services
Sale of tooling
Revenue
Cost of goods sold
Gross margin
Other income
Operational expenses
Research and development
Administrative expenses
Marketing expenses
Capital raising transaction costs
Finance costs
Gain on revaluation of financial instruments
Loss on conversion of financial instruments on IPO
Anti-dilutive shares issued on IPO
Impairment of inter-company balances
Loss before income tax expense
Income tax expense
2020
$’000
36,868
1,492
600
38,960
(50,475)
(11,515)
6,729
(1,567)
(4,778)
(9,352)
(2,047)
(1,448)
(2,678)
-
(51,443)
(35,801)
(11)
(113,911)
-
2019
$’000
13,787
870
361
15,018
(22,499)
(7,481)
5,034
(3,034)
(4,490)
(6,377)
(1,431)
(7,684)
(2,154)
548
-
-
(241)
(27,310)
-
Loss for the year after income tax
(113,911)
(27,310)
Other comprehensive income
-
-
Total comprehensive loss for the year, net of tax
(113,911)
(27,310)
101
2020 ANNUAL REPORT Refer below for the statement of financial position for the parties to the deed of cross
guarantee as at 30 June 2020:
2020
$’000
2019
$’000
Current assets
Cash and cash equivalents
Receivables
Inventories
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Right of use asset
Intangible assets
Total non-current assets
Total assets
Current liabilities
Payables
Borrowings
Lease liability
Deferred income
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liability
Deferred income
Provisions
Total non-current liabilities
Total liabilities
Net liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity/(deficiency in equity)
33,855
7,952
27,697
811
70,315
44,036
9,290
17,947
71,273
141,588
17,037
18,674
979
798
2,853
40,341
-
8.540
3,416
519
12,475
52,816
88,772
291,226
1,083
(203,537)
88,772
45,706
9,092
9,503
321
64,622
31,536
-
7,886
39,422
104,044
11,718
74,032
-
608
2,521
88,879
25,500
-
3,160
180
28,840
117,719
(13,675)
75,897
(311)
(89,261)
(13,675)
102
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
6.3 Key management personnel compensations
Compensation by category
Short-term employment benefits
Post-employment benefits
Other long term benefits
Share based payments
6.4 Transactions with related parties
Convertible notes
2020
$
2019
$
1,695,146
1,245,376
118,867
46,005
399,027
2,258,335
79,682
-
200,000
1,525,058
Five directors participated in the convertible notes issue in May 2019 with a combined value
of $375,000, which were converted into shares as part of IPO in November 2019.
Convertible loan facility
The Group’s convertible loan facility was provided by Ronal AG, a related party, in the
financial year ended 2015. Refer to note 4.2 for details.
Share purchases
Four directors participated in the IPO in November 2019 acquiring 142,310 shares at
a value of $370,006.
Five directors participated in the share purchase plan in March 2020 acquiring 88,000
shares at a value of $132,000.
6.5 Parent entity disclosures
As at, and throughout, the financial year ended 30 June 2020 the parent entity of the Group
was Carbon Revolution Limited. The parent entity applied the same accounting policies as
the Group.
103
2020 ANNUAL REPORT Results of parent entity
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Financial position for the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent company comprising of
Contributed equity
Reserves
Accumulated losses
Total equity/(deficiency in equity)
6.6 Auditor’s remuneration
2020
$’000
2019
$ ‘000
114,887
-
114,887
36,532
110 ,210
(21,783)
(21,783)
291,226
1,083
(203,882)
88,427
27,307
-
27,307
49,471
89,209
(78,118)
(102,618)
75,897
(311)
(88,995)
(13,409)
The auditor of the Group for the year ended 30 June 2020 is Deloitte (30 June 2019: Deloitte).
2020
$’000
2019
$ ‘000
Audit services
Audit and review of the financial report
140,000
75,000
Other services
Capital raising – IPO investigating accountant
and vendor due diligence
Member firm of Deloitte
Employee payroll service - Germany
572,064
348,270
2,755
714,819
4,565
427,835
104
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
6.7 Unrecognised items
6.7.1 Guarantees
The Group has entered into property lease rental guarantees with a face value of $271,763
(30 June 2019: $271,763).
6.7.2 Capital commitments
The Group has capital commitments for manufacturing equipment as at 30 June 2020
totalling $3.651 million (30 June 2019: $2.688 million).
6.7.3 Contingent liabilities
The Group has no contingent liabilities as at 30 June 2020 (2019: nil).
6.8 Changes in accounting policies
In the current reporting period, the Group has changed its accounting policies and made
adjustments as a result of adopting AASB 16. The Group has adopted the new standard
retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting
period, as permitted under the specific transitional provisions in the standard. The Group
has elected to measure the carrying amounts of the right of use assets as though the
standard had applied from the commencement date of the leases. The reclassifications and
the adjustments arising from the new leasing rules are therefore recognised in the opening
balance sheet on 1 July 2019. The impact of the adoption of the leasing standard and the
new accounting policy is disclosed below.
Impact on financial statements
On transition to AASB 16, the Group has recognised $9.1 million of right-of-use assets,
$9.5 million of lease liabilities and $0.4 million in retained earnings. When measuring lease
liabilities, lease payments are discounted using the incremental borrowing rate at 1 July
2019. The weighted-average rate applied is 3.74%. Earnings per share decreased by 0.001c
per share for the 12 months to 30 June 2020 as a result of AABS 16 adoption.
Operating lease commitments disclosed as at 30 June 2019
Extension option included
Discount using incremental borrowing rate at 1 July 2019
Lease liability recognised as at 1 July 2019
2019
$’000
8,329
2,436
(1,491)
9,274
105
2020 ANNUAL REPORT 6.9 Accounting standards issued but not yet effective at 30 June 2020
At the date of authorisation of the consolidated financial statements, other Standards
and Interpretations issued but not yet effective were listed below.
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied
in the financial
year ending
1 January 2022
30 June 2023
Standard and Interpretation
AASB 2014-10 Amendments to Australian
Accounting Standards – Sale or Contribution of
Assets between an Investor and its Associate or
Joint Venture [AASB10 & AASB128], AASB 2015-10
Amendments to Australian Accounting Standards
– Effective Date of Amendments to AASB 10 and
AASB 128 and AASB 2017-5 Amendments to
Australian Accounting Standards – Effective Date
of Amendments to AASB 10 and AASB 128 and
Editorial Corrections
AASB 2018-6 Amendments to Australian
Accounting Standards - Definition of a Business
1 January 2020
30 June 2021
AASB 2018-7 Amendments to Australian
Accounting Standards – Definition of Material
1 January 2020
30 June 2021
AASB 2019-1 Amendments to Australian
Accounting Standards – References to the
Conceptual Framework
AASB 2019-3 Amendments to Australian
Accounting Standards – Interest Rate Benchmark
Reform
AASB 2019-5 Amendments to Australian
Accounting Standards - Disclosure of the Effect of
New IFRS Standards Not Yet Issued in Australia
AASB 2020-1 Amendments to Australian
Accounting Standards – Classifications of
Liabilities as Current or Non-Current
AASB 2020-3 Amendments to Australian
Accounting Standards – Annual Improvements
2018-2020 and Other Amendments
1 January 2020
30 June 2021
1 January 2020
30 June 2021
1 January 2020
30 June 2021
1 January 2022
30 June 2023
1 January 2022
30 June 2023
AASB 2020-4 Amendments to Australian
Accounting Standards – Covid-19 Rent Concessions
1 June 2020
30 June 2023
The Directors of the Group do not anticipate that the adoption of above amendments will
have a material impact in future periods on the financial statements of the Group.
106
2020 FINANCIAL REPORT Notes to the Financial Statements (cont)
6.10 Subsequent events
COVID-19 continues to be an ongoing global situation which is likely to continue to have
significant and unpredictable flow on impacts to the Group’s business. On 6 August 2020
the State of Victoria placed regional Victoria (including Geelong) under Stage 3 restrictions
which allows manufacturing businesses to continue to operate. Management continues to
keep up to date with all recommendations made by the Department of Health and Human
Services and WorkSafe Victoria best practices to ensure the safety and well-being of our
workforce. Management are also monitoring the impact in other countries where COVID-19
may also effect the Company’s operations.
107
2020 ANNUAL REPORT Directors’ Declaration
In accordance with a resolution of the Directors of Carbon Revolution Limited, I state that:
In the opinion of the Directors:
a)
the Financial Statements and Notes of Carbon Revolution Limited for the financial year
ended 30 June 2020 are in accordance with the Corporations Act, including:
i)
giving a true and fair view of the Group’s financial position at 30 June 2020 and
of its performance for the year ended on that date; and
ii) complying with Accounting Standards and the Corporations Regulations 2001;
b)
c)
the Financial Statements and Notes also comply with International Financial Reporting
Standards; and
there are reasonable grounds to believe that the Company will be able to pay its debts
as and when they become due and payable
James Douglas
Chair
Geelong
24 August 2020
2020 FINANCIAL REPORT
108
6 / AUDITOR’S REPORT
Deloitte Touche Tohmatsu
ABN 74 490 121 060
477 Collins Street
Melbourne VIC 3000
Tel: +61 3 9671 7000
www.deloitte.com.au
Independent Auditor’s Report to the Members of
Carbon Revolution Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Carbon Revolution Limited (the “Company”), and its
subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30
June 2020, consolidated income statement, consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with
the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report of the current period. These matters were addressed in the context
of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
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2020 ANNUAL REPORT
Key Audit Matter and why it was considered to be a
matter of most significance in the audit
How the Key Audit Matter was addressed in the
audit
Capitalisation of development costs
Our procedures included, but were not limited
to:
As at 30 June 2020
the Group’s capitalised
development costs total $17.1m as disclosed in Note
3.5.
Capitalisation
management judgement to determine whether:
development
costs
of
requires
•
•
•
•
Expenditure relates to development activity
and not research activity,
Expected future economic benefits attributable
to the intangible assets will flow to the Group,
The amortisation of intangible assets should
commence when revenue has been generated,
and
The useful lives assigned are appropriate.
• Obtaining an understanding of the
process undertaken by management to
determine whether expenditure should
be capitalised as intangible assets;
• Assessing
the appropriateness of
management’s accounting policy;
• Assessing capitalised development costs
at balance date to determine whether
they have been correctly capitalised and
it is probable that expected future
economic benefits attributable to those
assets will flow to the Group; and
• Reviewing the listing of capitalised
intangible assets at balance date to
verify that:
o Amortisation has commenced on
intangible assets that are available
for use; and
o The useful lives assigned to each
intangible asset are appropriate.
We have also assessed the appropriateness of
the disclosures in Note 3.5.1 to the financial
statements.
Valuation of inventory
Our procedures included, but were not limited
to:
As at 30 June 2020 the Group inventory balances total
$23.6m, as disclosed in Note 3.2. Provided against
this, is a total inventory provision of $4.4m.
The Group holds significant stock of finished goods and
work in progress inventory at its manufacturing facility,
the measurement of which is an important input into
gross margin.
Valuation of inventory at the lower of its cost and net
realisable value requires management judgement to
determine whether:
•
•
Finished goods are in a saleable condition in
order to meet quality specifications;
There are any indicators of technical or
functional obsolescence;
• Customers are willing to purchase finished
goods that had previously been identified to be
defective, and at what price.
• Selling costs that may impact the net realisable
finished goods on hand are
value of
appropriate.
• Obtaining
an
understanding
processes
of
management’s
and
judgements applied in estimating the
net realisable value of inventory;
Evaluating management’s judgements
in estimating net realisable value by
comparing the carrying value of a
sample of finished goods to contractual
sales prices;
•
• Validating the quantity and cost of
inventory subject to provision.
We have also assessed the appropriateness of
the disclosures in Note 3.2.1 to the financial
statements.
AUDITOR’S REPORT
110
6 / AUDITOR’S REPORT (CONT)
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information; we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due
to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
111
2020 ANNUAL REPORT
attention in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in section 4.3 of the Director’s Report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Carbon Revolution Limited, for the year ended 30 June
2020, complies with section 300A of the Corporations Act 2001.
Responsibilities
The director’s of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance
with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Stephen Roche
Partner
Chartered Accountants
Melbourne, 24 August 2020
AUDITOR’S REPORT
112
7 / SHAREHOLDER INFORMATION
In accordance with ASX Listing Rule 4.10, the Company provides the following information
to shareholders not elsewhere disclosed in this Annual Report.
The Shareholder Information set out below was applicable as at 6 August 2020.
1. CORPORATE GOVERNANCE STATEMENT
Carbon Revolution (‘the Company’) has prepared a Corporate Governance Statement which
sets out the corporate governance practices that were in operation since the listing of the
Company on the ASX on 29 November 2019.
In accordance with ASX Listing Rule 4.10.3, the Corporate Governance Statement will be
available for review on the Company’s website www.carbonrev.com and will be lodged with
ASX at the same time that this Annual Report is lodged with ASX.
2. DISTRIBUTION AND NUMBER OF SHAREHOLDERS OF EQUITY SECURITIES
The distribution and number of holders of equity securities on issue in the Company as at
the Reporting Date, and the number of holders holding less than a marketable parcel of the
Company’s ordinary shares, based on the closing market price as at the Reporting Date, is
as follows:
2.1 Distribution of ordinary shareholders
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Unmarketable Parcels1
Securities
115,416,076
21,676,412
4,089,186
3,920,229
784,466
145,886,369
0
%
No. of holders
79.11
14.86
2.80
2.69
0.54
100.00
0.00
98
697
536
1,470
1,451
4,252
0
1 Holders of less than a marketable parcel of $500 are included in the above total.
The above table includes 133,410,701 quoted ordinary shares, and 12,475,668 unquoted
ordinary shares which are subject to mandatory escrow following listing of the Company
on the ASX.
113
113
2020 ANNUAL REPORT
2.2 Distribution of holders of rights and options
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Securities
5,084,275
203,747
-
-
-
5,288,022
No. of holders
9
3
-
-
-
12
3. TWENTY LARGEST QUOTED EQUITY SECURITY HOLDERS
The Company only has one class of quoted securities, being ordinary shares. The names
of the twenty largest holders of ordinary shares, the number of ordinary shares and the
percentage of capital held by each holder is as follows:
Rank
Name
06 Aug 2020
%IC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RONAL AG
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
DEAKIN UNIVERSITY
NATIONAL NOMINEES LIMITED
UBS NOMINEES PTY LTD
CROWN IN RIGHT OF THE STATE OF VICTORIA
BNP PARIBAS NOMS PTY LTD
MR BRETT GASS
MATTHEW DINGLE
MR ASHLEY JAMES DENMEAD
RUBI HOLDINGS PTY LTD
ACORN CAPITAL PRIVATE OPPORTUNITIES FUND LP
DIXSON TRUST PTY LTD
EMBRACIA PTY LTD
ESCOR OPERATIONS (DIRECT) PTY LTD
MCGREGOR INVESTMENTS PTY LTD
INVIA CUSTODIAN PTY LIMITED
Total
Balance of register
Grand total
13,285,965
11,098,432
10,309,305
9,985,354
8,967,827
7,770,395
7,000,562
4,828,418
4,809,041
3,742,474
2,458,302
2,117,770
1,414,000
766,164
699,757
456,540
412,360
327,153
326,559
309,678
9.96
8.32
7.73
7.48
6.72
5.82
5.25
3.62
3.60
2.81
1.84
1.59
1.06
0.57
0.52
0.34
0.31
0.25
0.24
0.23
91,086,056
42,324,645
68.27
31.73
133,410,701
100.00
The above table is based only on quoted shares, and does not included unquoted escrowed shares.
SHAREHOLDER INFORMATION
114
7 / SHAREHOLDER INFORMATION (CONT)
4. SUBSTANTIAL HOLDERS
As at the Reporting Date, the names of the substantial holders of the Company and the
number of equity securities in which those substantial holders and their associates
have a relevant interest, as disclosed in substantial holding notices given to the Company,
are as follows:
Name
Deakin University
Ronal AG
Quest Asset Partners Pty Ltd
Commonwealth Bank of Australia
Greencape Capital Pty Ltd
Challenger Limited
ECP Asset Management Pty Ltd
UniSuper Limited as trustee for
UniSuper and UniSuper Management
Pty Ltd1
Number Held
8,377,592
14,227,941
7,890,718
7,591,335
8,590,781
9.505,170
7,535,361
8,494,800
% of
Issued Capital
6.58
11.17
6.20
5.27
6.13
6.78
5.17
5.82
Date notice
provided
29/11/2019
29/11/2019
10/12/2019
23/03/20
23/03/20
23/03/20
08/07/20
10/07/20
On 14 August 2020 UniSuper Limited notified the Company that its relevant holding had
increased to 10,374,775 shares
5. VOTING RIGHTS
The voting rights attaching to each class of equity securities are set out below:
5.1 Ordinary shares
At a general meeting of the Company, every holder of ordinary shares present in person or
by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote
for each ordinary share held.
5.2 Rights and options
Rights and options do not carry any voting rights.
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2020 ANNUAL REPORT
6. UNQUOTED EQUITY SECURITIES
ASX Code
CBRAA
CBRAB
TOTAL
Class
Rights
Options
TOTAL
Class
Number of securities
Ordinary shares, escrow
expiring 29 Nov 21
Ordinary shares, escrow
expiring 29 Nov 20
10,184,039
2,001,179
12,185,218
Number of securities
97,172
5,093,678
5,190,850
Holders of more than 20% of unquoted securities other than under an
Employee Incentive Scheme
ASX Code
Name
CBRAA
Ronal AG
Point Grey Investments Pty Ltd
CBRAB
Crown in Right of the
State of Victoria
Number of
securities
4,242,587
4,019,443
612,701
% of class
41.66
39.47
26.74
7. VOLUNTARY ESCROW
There are 22,120,112 securities subject to voluntary escrow in the Company as at the
Reporting Date.
The escrow period ends 1 December 2020.
8. ON-MARKET BUY-BACK
The Company is not currently conducting an on-market buy-back.
9. ON-MARKET PURCHASE OF SECURITIES
The company did not purchase securities on market during the reporting period.
SHAREHOLDER INFORMATION
116
10. CORPORATE DIRECTORY
Directors
Company Secretary
James Douglas
Jake Dingle
Bruce Griffiths
Lucia Cade
Dale McKee
Mark Bernhard
Peter Lewinsky
David Nock
Annual General Meeting
6 November 2020
Director nomination deadline
4 September 2020
Registered office
Share register
Auditor
Stock exchange listing
Business objectives
Carbon Revolution
Building NR,
Geelong Technology Precinct
75 Pigdons Road
Waurn Ponds, Victoria, 3216
Australia
Phone: +61 3 5271 3500
Share Registry
Link Market Services
Level 12, 680 George Street
Sydney NSW 2000
Australia
P: +61 1300 554 47
Deloitte Touche Tohmatsu
550 Bourke Street
Melbourne Victoria 3000
Carbon Revolution Limited shares are listed on
the Australian Securities Exchange
(ASX code: CBR)
In accordance with the Listing Rule ASX 4.10.19,
the Directors confirm that the Group has used
cash and cash equivalents that are held at the
time of listing in a way consistent with its stated
business objectives
Website
www.carbonrev.com
117
2020 ANNUAL REPORT CONTACT INFORMATION
Carbon Revolution
Building NR,
Geelong Technology Precinct
75 Pigdons Road, Waurn Ponds
Victoria 3216 Australia
Phone: +61 3 5271 3500
info@carbonrev.com
www.carbonrev.com