Annual
Report
2012
IMPORTANT NOTICE:
Forward Looking Statements and Business Risks:
Silex is a research and development Company whose
assets include its proprietary rights in technologies,
including, but not limited to, the SILEX technology, the Solar
Systems technology and business, Translucent technology
and ChronoLogic technology. Several of the Company’s
technologies are in the development stage and have not
been commercially deployed, and therefore are high-risk.
Accordingly, the statements in this report regarding the future
of the Company’s technologies and commercial prospects
are forward looking and actual results could be materially
different from those expressed or implied by such forward
looking statements as a result of various risk factors.
Some risk factors that could affect future results and commercial
prospects include, but are not limited to: results from the
uranium enrichment development program; the demand
for enriched uranium; the business risks associated with
technology development, manufacturing and marketing
activities conducted by Solar Systems; the outcomes of
the Company’s interests in the development of various
semiconductor, photonics, instrumentation and alternative
energy technologies; the time taken to develop various
technologies; the development of competing technologies;
the potential for third party claims against the Company’s
ownership of Intellectual Property associated with its
numerous technologies; the potential impact of government
regulations or policies; and the outcomes of various
commercialisation strategies undertaken by the Company.
Silex Systems Limited ABN 69 003 372 067
Contents
02
Chairman’s Report
04
CEO’s Report
10 Company Overview
22 Directors’ Report
54
Corporate Governance Statement
63 Concise Financial Report
74
Independent Auditor’s Report to the Members
76 Shareholders’ Information
81 Company Directory
Chairman’s Report
Professor Stephen Burdon
Chairman
28 September 2012
Dear Fellow Shareholders,
This year we have implemented important corporate
governance initiatives as well as focussing on delivering
on our operational priorities.
We achieved a number of milestones across our businesses.
These highlight the value of our holistic approach to managing
the opportunities within our group and illustrate our commitment
to progressing technological development to realise
monetised solutions.
We have enjoyed several successes this year, particularly
in our uranium enrichment and utility-scale solar power
businesses. On the other hand, we made the decision to
cease our silicon flat-panel solar business which had been
operating in what became an increasingly unfavourable and
highly challenging market.
Financial Performance
We have achieved a good result this year in terms of preserving
our balance sheet, ending the 2012 financial year with cash
reserves of $87.6 million. All continuing business units were
operating according to budget and progressing towards key
commercial objectives.
This achievement has been reflected in the Silex Systems
share price which was trading around $2.30 at the 2011
AGM and is approximately $3.85 at the time of writing.
We are strongly focused on delivering key milestones and
commercialising our technologies for the benefit of our
shareholders, and have every confidence that the Company
will continue to accrue benefits from the impetus generated
during this past year.
Operational Achievements
The United States’ Nuclear Regulatory Commission’s
announcement in September approving Global Laser
Enrichment’s (GLE) commercial facility license is the first
time in history that a company has been granted a licence
for the construction and operation of a uranium enrichment
plant utilising laser technology. We will continue to work
alongside GLE as it progresses towards the commercialisation
of this technology.
2
Silex Annual Report 2012
We advanced the commercialisation of our utility-scale solar
concentrated photovoltaic technology by implementing
additional product improvements, opening our test and
demonstration facility in Bridgewater, Victoria, and continuing
initial works on our Mildura project also in Victoria. We are
also very pleased to have secured demonstration projects
in the United States and Saudi Arabia.
We have also made progress in developing the technologies
within our advanced materials and instrumentation businesses,
including initiating a process to consider strategic partnership
opportunities for ChronoLogic.
The Remuneration Committee is aware that there are various
shareholder concerns with the remuneration of KMP and
non-executive directors. Issues raised by shareholders in
relation to the 2011 Remuneration Report, resulted in a
“first strike” being recorded in relation to the adoption of
this report. A great deal of work has been done this year to
address these issues. Our remuneration approach both for
the 2012 financial year and for future years is set out in the
Remuneration Report commencing on page 30. We believe we
have incorporated several enhancements to our remuneration
practices and look forward to answering any questions you
may have at our Annual General Meeting in November 2012.
Corporate Governance
Management
A number of important changes were made at the Board level
during the year to reflect the changing needs of our business
and the need to refresh the Board and update the collective
skills and experience of the Directors. This is a crucial step
forward for Silex as the company continues to transition from
research and development to commercialisation activities.
In February 2012, Peter Campbell decided to step down as
Chairman in recognition that the Company was entering a
stage of its development which would demand greater time
commitment from the Chairman as the company moved
forward with its technology commercialisation, marketing
and change management activities. I was honoured to be
appointed by the Board to the role. We are pleased that Peter
has agreed to continue to serve as a non-executive director.
We were delighted to announce the appointment of Dr Lisa
McIntyre as an additional non-executive Director in July. An
experienced company director, Lisa has brought with her a
unique set of high-technology, commercialisation and financial
skills that has strengthened and diversified the skill set of the
Board. Lisa has already made a significant contribution and
the Directors unanimously recommend shareholders vote to
formally elect her at the Annual General Meeting.
Board renewal remains an ongoing objective.
The Company has also taken further steps around risk
management during the year outlining a formalised approach
to succession planning for key senior positions. This will
help Silex identify strengths and weaknesses in executive
positions and further develop a human resources plan to
assist in recruitment and training.
We have decided to bolster our executive management
capability to provide for greater focus on the commercialisation
phase of our business. This includes the appointment of Julie
Ducie as Chief Financial Officer in February. Julie has a deep
knowledge of all facets of our business having joined the
company in May 2010. Julie has also served as Company
Secretary since October 2010. Julie has also assumed
responsibility for investor relations and has overseen a
restructuring of our practices in this area.
In addition, we have continued to recruit to boost our executive
ranks, as and when it makes commercial sense, and are presently
seeking suitably experienced executives for our Group as it
undergoes significant growth. This includes the appointment
of a corporate intellectual property lawyer to assist with the
management of our extensive technology patent portfolio.
Outlook
As countries around the world continue to focus on energy
supply and the desire to source low carbon emitting fuels,
the demand for nuclear and solar power is expected to
increase significantly. Businesses and governments are
looking for innovative solutions and Silex is extremely well
placed to capitalise on these opportunities.
I look forward to updating you again at the Annual General
Meeting in November.
Professor Stephen Burdon
Chairman
Silex Annual Report 2012
3
CEO’s Report
The 2012 financial year was a successful
year for Silex in many respects. Significant
progress was achieved in advancing the
development of our globally focused
technologies and we are excited by the
potential of these technologies as each
moves closer to key commercial milestones.
Silex is in a strong financial position with
cash reserves of $87.6 million at 30 June
2012. Investment in the development
and deployment of our core technologies
into target markets has accelerated,
resulting in significant progress towards
the commercialisation of potentially
game-changing technologies.
Operational updates for each of
our businesses are detailed following.
Dr Michael Goldsworthy
CEO and Managing Director
‘
Investment in the development and deployment
of our core technologies into target markets has
accelerated, resulting in significant progress
towards the commercialisation of potentially
game-changing technologies.
’
4
Silex Annual Report 2012
SILEX Technology
Global demand for enriched uranium is expected to increase
significantly over the next two decades, with the anticipated
construction of a new generation of nuclear power plants.
Despite the tragic events of Fukushima in Japan in 2011,
the industry is moving ahead with many governments around
the world recognising that nuclear power is an important
potential and actual source of energy supply.
Test Loop & Engineering Design Activities
Further positive tests were achieved in the Test Loop facility
during the period. These tests and ongoing activities aim to
accumulate performance, operating and reliability data on the
technology to assist the engineering design program for the
first proposed commercial production plant.
The outlook for the uranium enrichment market is
therefore positive.
Significant expansion in nuclear capacity is planned by
several countries including, most notably, China and India.
According to the latest available data on the World Nuclear
Association website1, there are currently 433 operable
reactors around the world today. Additionally, there are
currently 65 nuclear reactors under construction, 160 new
nuclear reactors planned with approvals, funding and/or
major commitments in place and 323 more units proposed
and mostly expected to be in operation within 15 years.
Against this backdrop, it is pleasing to report that the United
States Nuclear Regulatory Commission (“NRC”) has recently
approved the combined construction and operating licence
for Global Laser Enrichment’s proposed uranium enrichment
facility in Wilmington, North Carolina. The granting of this
licence is an historic milestone for the industry – it is the first
time a licence of this nature has been granted for a uranium
enrichment facility utilising laser-based technology anywhere
in the world. We are very proud of this unique achievement.
Concurrent testing and engineering design activities will
continue into next year, with the aim of providing additional
information supporting the scaling up of equipment for the
proposed commercial production plant.
The Path Forward
Under current plans, key criteria required to be met prior to
GLE making a final decision to proceed with the construction
of the first commercial production facility:
•
•
Construction and Operating License from the NRC
– received 25th September 2012.
Completion of the commercial plant engineering design
program, including the evaluation of prototype systems
for commercial production; and
• Securing of conditional customer commitments.
Subject to these and other factors and activities, GLE
plans to make a decision on the construction of the first
full-scale commercial production facility with a capacity
of up to 6 million separative work units (SWU).
1 www.world-nuclear.org (September 2012)
Silex Annual Report 2012
5
Solar Systems
During the year, a number of important operational
milestones were achieved by Solar Systems.
proprietary ‘Dense Array’ CPV modules and receivers
are manufactured.
In addition to the achievement of significant product
development milestones, we connected the Bridgewater
600kW test and demonstration facility to the grid, signed
our first power purchase agreement with Diamond Energy,
progressed work on the Mildura project and embarked upon
two new exciting projects – securing a site in Beaumont,
California for the installation of a solar power facility of up
to 1MW and commencing construction of a demonstration
facility at the Nofa Equestrian Resort in Saudi Arabia also of
up to 1MW. This development pipeline covers three of the
most prospective global target markets for Solar Systems’
utility-scale concentrating photovoltaic (CPV) technology,
representing key regions with excellent direct normal
irradiance (DNI) characteristics.
The Product Release milestone, involving a review of the
CS500 ‘Dense Array’ Dish Systems installed at Bridgewater,
was successfully completed in June 2012.
Significant progress with the development of the unique
‘Dense Array’ CPV technology, including performance
optimisation, reliability testing and cost reductions continues
to be made. Solar Systems plan to release a lower cost and
improved performance product to the market during FY 2013.
Significant progress has also been achieved in the development
of intellectual property associated with the ‘Dense Array’
technology, with the filing of four new patent applications
and drafting of several more potential patent applications.
Product Development
Bridgewater Demonstration Facility
The product commercialisation program co-funded by the
Victorian Government has recently been completed, with the
final report submitted to the government in September 2012.
The Manufacturing Review milestone was completed in
March 2012. This involved a review of the manufacturing
capabilities and processes at Solar Systems’ clean-room
fabrication facility in Melbourne, in which the Company’s
The Bridgewater test and reliability facility was officially
opened on 28 June 2012. This facility will underpin reliability
testing leading ultimately to international certification of the
technology for global deployment.
Solar System’s first commercial power purchase agreement
for power off-take onto the local Bridgewater grid was signed
with Diamond Energy on 28 June 2012.
6
Silex Annual Report 2012
Michael Caton
MC of Official Opening of Bridgewater
Demonstration Facility – 28 June 2012
Mildura CPV Power Station Project
Stage 1 – Pilot Plant Facility (1.5MW)
Construction activities are currently continuing on schedule
and budget, with scheduled completion by the end of FY 2013.
A grid connection agreement has been signed with Powercor
Australia and discussions regarding a power purchase
agreement are well advanced.
Three milestones under the Commonwealth Government’s
Asia-Pacific Partnership on Clean Development and Climate
grant program for Mildura Stage 1, being the Utility System
Development Review, Planning Approval and Construction
Start and Utility Development Review were completed by
June 2012.
Stage 2 – Solar Power Station Project (100MW)
The Stage 2 100MW Power Station Project has received
funding commitments of $75 million from the Commonwealth
Government under the Low Emissions Technology
Demonstration Fund, and approximately $35 million from
the Victorian Government under the Energy Technology
Innovation Strategy Fund (net of around $15 million to be
drawn down prior to Stage 2).
The planning phase continues, with construction
commencement expected in FY 2014, subject to
successful completion of Stage 1.
Power Station Projects and Pilot Plants
As noted above, Solar Systems is also actively pursuing
offshore opportunities to demonstrate its technology through
the deployment of demonstration plants.
Subject to successful completion of these smaller plants,
the objective is to undertake major utility power station
development projects in these offshore markets, potentially
in collaboration with strategic partners.
Two off-shore pilot demonstration plants of up to 1MW
capacity each are underway:
•
•
Nofa Equestrian Resort near Riyadh, Saudi Arabia:
Construction is expected to be completed in Q3 FY 2013.
Beaumont, California USA: Construction is expected to
be completed in Q2 FY 2014.
‘ Our vision is to establish Solar
Systems’ technology as the
world’s leading utility scale
solar power generating system,
and the grant provided by the
Victorian State Government
advances our unique and
innovative technology to the next
scale of deployment in Mildura.
The commercial prospects for
Solar Systems are very exciting,
and we continue to see strong
domestic and overseas interest
from companies seeking to
develop large scale solar
power station projects.’
Silex Annual Report 2012
7
Commercial Activities
Commercial activities continue to increase with potential
customers in both the Power Electronics and LED industries
building functional devices and conducting trials on
Translucent’s silicon wafer-based vGaN™ substrates with
continuously improving results. This product line offers
significant cost advantages compared to sapphire and other
expensive substrates currently used in these industries.
Apart from realising lower substrate costs, the additional
advantage for customers is that the vGaN™ substrates can
be readily utilised in standard 200mm silicon wafer process
plants – again with significant cost benefits.
In the GeSn substrate project outlined above, Translucent
has initiated collaborative efforts with three key CPV solar cell
manufacturers (Spectrolab, Emcore and IQE), and expects to
be able to supply them with product-quality substrates during
FY 2014. This project has received a funding grant from the
Australian Solar Institute worth $2 million over three years.
Translucent
Translucent continued to advance product development
and industry validation activities in three target markets
during the period – Power Electronics, LED lighting and
CPV solar cells. It is estimated that the total accessible
market across these three sectors is approximately
$1.5 billion per year and growing, providing some
exciting opportunities for the business.
Product Development Activities
Power Electronics and LED Lighting
Improvements continue with the quality of Translucent’s
proprietary vGaN™ substrates (Gallium Nitride (GaN) epitaxial
layers deposited on Rare Earth Oxide (REO) layers on silicon
wafers). This iterative improvement process which includes
testing by several potential customers is well advanced,
producing very encouraging results with product quality
substrates anticipated in FY 2013.
Translucent is currently constructing an in-house designed,
fully functional multi-wafer prototype production system,
which will significantly increase the volume of vGaN™
substrates that can be produced, and will enable the
production of large 200mm substrates for the first time.
Ultra-High Efficiency Solar Cells
Translucent is developing a novel process to reduce the cost
and increase the efficiency of advanced multi-junction solar
cells used in concentrating solar photovoltaic applications
(such as the technology being developed by Solar Systems).
The process involves deposition of germanium-tin (GeSn)
layers on to silicon wafers in a proprietary designed epi-reactor.
Analysis undertaken in collaboration with Arizona State University
has indicated that GeSn based multi-junction cells have the
potential to achieve 50 percent or more solar conversion
efficiency, compared to around 43 percent for today’s best
multi-junction cells, and around 20 percent for conventional
silicon solar cells.
8
Silex Annual Report 2012
ChronoLogic
ChronoLogic continues to work on the development of its
new product range, which continues to generate significant
interest in the multi-billion dollar Test and Measurement industry.
Recent breakthroughs with the core USB-inSync™ technology
have generated further interest in several new applications,
potentially opening up additional market segments.
ChronoLogic has embarked on an exhaustive process to
secure appropriate strategic partners for its technology
and / or products. Several trips have been undertaken to the
US and Asia, resulting in more detailed discussions evolving
on possible business transactions, including joint venturing,
merger or acquisition.
Silex Solar
A significant restructuring of Silex Solar was undertaken
throughout the period, however, in light of continuing
economic difficulties in the global and domestic solar
flat panel industry, Silex made the difficult decision to
terminate all activities. The Sydney Olympic Park facility
has now been vacated with the corporate head office
relocating to the Sydney CBD.
Outlook
We are firmly committed to progressing each of our
technologies through their respective commercialisation
phases and have a well-structured and focussed program
for the 2013 financial year and beyond.
in the Power FET market and in collaboration with Solar
Systems on the CPV cell development project. Finally, we
will advance the process for securing appropriate strategic
partners for the ChronoLogic business.
With the recent NRC approval of GLE’s application to
construct and operate a commercial uranium enrichment
plant utilising our SILEX Technology, we are excited about
working alongside GLE on the path to commercialisation.
We will continue to deploy capital into our Solar Systems
business throughout the year as we manage and deliver on our
product development targets and demonstration pilot plant
projects in Saudi Arabia, the United States and Australia.
We are also confident that further progress will be made with
Translucent’s technology development programs, particularly
Dr Michael Goldsworthy
CEO and Managing Director
28 September 2012
Silex Annual Report 2012
9
Company Overview
Mission
To become a world leader in advanced technology solutions in key strategic
markets, including the nuclear industry, the solar power industry and the
semiconductor / photonics industry.
Silex Corporate Structure
Silex Systems
Limited
ASX: SLX
HQ: Sydney, Australia
(The SILEX Uranium
Technology)
www.silex.com.au
Solar Systems Pty Ltd
Melbourne, Australia (100% ownership)
Utility scale PV (Solar Power Stations)
www.solarsystems.com.au
Translucent Inc.
Palo Alto, USA (98% ownership)
Advanced Materials (Semiconductors & Solar)
www.translucentinc.com
ChronoLogic Pty Ltd
Adelaide, Australia (90% ownership)
Instrumentation (Test & Measurement)
www.chronologic.com.au
10
Silex Annual Report 2012
Historical Background
1988 Silex was established by founder Dr Michael
Goldsworthy as a technology research and
development subsidiary of Sonic Healthcare
Limited, an Australian publicly listed company.
2001 Silex entered the semiconductor materials field
with the acquisition of a 30 percent interest in
Translucent Inc, a Silicon Valley start-up developing
silicon photonics technology.
1990 Silex began researching the isotope separation
ideas of the co-inventors Dr Michael Goldsworthy
and Dr Horst Struve.
1993 The unique principles of the SILEX
(Separation of Isotopes by Laser EXcitation)
Process were formulated.
1995 ‘Proof of Principle’ demonstration of the
SILEX Process was achieved at the Company’s
laboratories in Lucas Heights, south of Sydney.
Uranium Enrichment, the largest market for isotope
separation, became the primary focus of the Company.
1996 Silex was divested from Sonic and set about
establishing the commercial viability of the
SILEX technology.
1998 Silex listed on the Australian Stock Exchange
on 8 May 1998.
1999 An Agreement for Cooperation between the United
States and Australian Governments was signed
paving the way for continued development of the
SILEX Technology for uranium enrichment, and
facilitating its future transfer to the US.
2000 The first macroscopic demonstration of the SILEX
uranium process was successfully achieved.
Silex won the 2000 Australian Technology
Award for Excellence in the Manufacturing
and Engineering sector.
Silex raised $36 million through a share issue
to assist in funding the development of the
Company’s technology portfolio.
The SILEX Technology was officially “Classified” by
the US and Australian Governments. The implications
of classification relate mainly to security protocols.
2002 Silex acquired a controlling 51 percent interest in
ChronoLogic Pty Ltd, Adelaide-based start-up
developing novel technology for the electronics
and instrumentation industries.
The SILEX Uranium Enrichment Project achieved
a key milestone with the first full demonstration
on practical uranium enrichment using the SILEX
‘Direct Measurement Facility’.
2003 Silex took a majority ownership in Translucent Inc,
moving to ~70 percent interest (from 30 percent). Silex
also increased its stake in ChronoLogic to 90 percent.
2004 Silex commissioned the world’s first silicon laser
enrichment pilot plant.
Translucent secured its first US Patent for ‘optical
silicon’ and filed patents for Silicon-on-Insulator (SOI)
and dielectric substrates for the silicon chip industry.
2005 Translucent wins a US Defence Department
DARPA Grant to help develop the ‘optical silicon’
technology, under DARPA’s Electronics and
Photonics Integrated Circuits (EPIC) Program.
Subsidiary ChronoLogic wins a Federal
Government “Commercial Ready Grant” for
its novel ‘USB-inSync™’. Data Acquisition
technology ($1.2 million for three years).
2006 Silex and the General Electric Company sign
an exclusive Commercialisation and License
Agreement for the SILEX Uranium Enrichment
Technology in May, with US Government
authorisations received in October.
Silex Annual Report 2012
11
Historical Background continued
2007 Transfer of the SILEX Uranium Enrichment project
to GE’s Wilmington, North Carolina (USA) nuclear
fuel plant was completed in the first half of 2007.
Hitachi joined GE as project partner.
GE-Hitachi signs Letters of Intent for uranium
enrichment services and support using the SILEX
Technology with Exelon and Entergy – the two
largest nuclear power utilities in the US.
Silex successfully completes a $50 million capital
raising in October.
2008 Global Laser Enrichment (GLE), formed as a
subsidiary of GE Hitachi Nuclear Energy (GEH) to
commercialise the SILEX Technology, announced
that it had selected its Wilmington, North Carolina,
headquarters site for the first potential commercial
SILEX uranium enrichment facility.
GLE was notified that the U.S. Nuclear Regulatory
Commission (NRC) approved a license to operate
the Test Loop for the next generation SILEX laser
enrichment technology.
GEH and Cameco Corporation. announced that
Cameco, the world’s largest uranium producer,
had joined the GLE venture.
Cameco paid US$123.8 million for a 24 percent
stake in GLE. GE retained 51 percent ownership
with Hitachi at 25 percent.
2009 Silex announced in June the acquisition of the
Sydney Olympic Park (SOP) solar photovoltaic (PV)
panel manufacturing facility — the only PV panel
plant in Australia at the time.
GLE submitted a licence application to the US NRC
to build and operate a commercial SILEX uranium-
enrichment facility in Wilmington. In August the NRC
announced it had accepted the licence application,
triggering a ~30-month review process.
GLE in July announced the on-schedule start-up of
the Test Loop to evaluate the next-generation SILEX
uranium enrichment technology.
2010 Silex acquired the business assets of Melbourne
based Solar Systems in March for $20 million.
Solar Systems’ concentrating photovoltaic (CPV)
technology is applicable to large utility-scale solar
power generation, using its unique ultra-high
efficiency ‘Dense Array’ technology.
2011 Silex successfully completed a capital raising of $89
million and a share purchase plan which raised a
further $20 million (total capital raised of $109 million).
Completion of a $75 million Federal Government
funding package for the 100MW Mildura solar power
station was announced by Solar Systems in June.
A $50 million package from the Victorian Government
for the same project was confirmed in 2010.
GLE and Silex announced the successful completion of
the Test Loop initial measurement program in April.
2012 NRC issued the final Safety Evaluation Report and
Environmental Impact Statement in relation to the
proposed uranium enrichment facility planned by Global
Laser Enrichment. Mandatory hearings in relation to the
licence application were held in July and in September
the NRC issued its decision in relation to the application.
NRC approves GLE’s licence application to construct
and operate a commercial uranium enrichment plant
utilising the SILEX Technology.
Solar Systems was awarded a grant from the
Australian Solar Institute. The business also secured
two sites for demonstration facilities in Beaumont,
California (USA) and at Nofa Equestrian Resort in
Saudi Arabia. Solar Systems opened its Test &
Demonstration Facility at Bridgewater in Victoria.
Following a significant business restructure and
continuing challenging trading conditions in the
Australian solar panel market, Silex decided to
cease the panel manufacturing operations at
Silex Solar’s Sydney Olympic Park plant.
Silex Systems’ head office relocated to Sydney
CBD in September.
12
Silex Annual Report 2012
Business Overview
SILEX Technology
Business Facts
Platform
Nuclear Energy
Location
Lucas Heights, NSW, Australia
Sydney, NSW, Australia
GLE: Wilmington, North Carolina,
and Oak Ridge, Tennessee, USA
Business Description
Developing the SILEX laser technology for application to
uranium enrichment.
Background
After several years of pioneering R&D, the SILEX
Technology was invented by Silex Systems scientists
Dr Michael Goldsworthy and Dr Horst Struve in the mid
1990’s. In order to facilitate the potential commercial
deployment of the technology in the United States, an
Agreement for Cooperation between the United States
and Australia was enacted in May 2000.
In June 2001, the technology was officially Classified by
the United States and Australian governments, bringing the
project formally under the security and regulatory protocols
of each country.
Silex signed a Technology Commercialisation and License
agreement with General Electric Company (GE) in 2006
to develop and commercialise the technology to enrich
uranium for use in nuclear power reactors. Since 2008,
the project has been managed by GE subsidiary Global
Laser Enrichment (GLE), comprising GE (51 percent)
Hitachi (25 percent) and Cameco (24 percent).
Uranium Enrichment
Naturally occurring uranium must be enriched before it
can be used as fuel in a nuclear reactor. Enrichment is
a technically difficult process and constitutes a major
component of nuclear fuel costs.
Uranium enrichment involves increasing the atomic
concentration of the ‘active’ U-235 isotope from
0.7 percent in natural uranium to approximately
5 percent required for reactor fuel.
The two methods of uranium enrichment used to date have
been Gas Diffusion (first generation) and Centrifuge (second
generation). The third generation laser-based SILEX process
provides much higher enrichment efficiency compared to
these earlier methods, offering significantly lower costs.
Silex Annual Report 2012
13
SILEX Technology continued
Demand for Enriched Uranium
GE Agreement
The global demand for nuclear power and therefore enriched
uranium, is expected to increase significantly over the next
few decades to help meet the world’s converging needs to
achieve energy supply security and address climate change.
The uranium enrichment market is currently worth in excess
of $6 billion per annum (2012). It is expected that this will
increase to approximately $20 billion by 2030.
The SILEX Technology
The SILEX Technology is a unique laser-based process that
has the potential to efficiently separate uranium isotopes as
well as other various elements.
Subject to the continued success of the program,
GE agreed to fund the following activities to be undertaken
in conjunction with Silex:
•
•
Test Loop: This program is designed to test the
performance and efficiency of engineering-scale
equipment and to provide the engineering design
detail for a commercial production facility.
Lead Cascade: This program involves the construction
and operation of the first full-scale production module
after successful completion of the Test Loop. If the Lead
Cascade confirms the efficiency and reliability expected
of the technology at full-scale production, then GE may
continue with the deployment of the first large-scale
commercial enrichment plant.
The SILEX Technology has a number of advantages over
other uranium enrichment processes including:
In addition to funding the technology development program,
GE agreed to the following milestone payments to Silex:
• Significantly higher enrichment process efficiency.
• Relatively low operating costs.
•
Considerably lower capital costs compared to
centrifuge technology.
Significantly, SILEX Technology is the only third generation
laser-based uranium enrichment technology under
development in the world.
•
•
•
•
US$5 million after receipt of preliminary US government
approval (payment was received in June 2006).
US$15 million on receipt of final government approval
(payment was received in October 2006).
US$15 million upon successful completion of the
Test Loop program and receipt of an NRC license for
the commercial plant.
US$20 million upon successful completion/licensing of
the Lead Cascade.
Additionally, Silex will receive a perpetual royalty of up to
12 percent, comprising:
•
•
A base royalty of 7 percent of revenues generated from
enrichment services using the SILEX Technology.
An additional royalty of up to 5 percent based on the
total cost of deployment whereby the lower the cost of
deployment per unit production, the higher the royalty.
14
Silex Annual Report 2012
Solar Systems
Business Facts
Platform
Solar Energy
Ownership
100 percent
Manufacturing
Melbourne, Victoria, Australia
Project Sites
Bridgewater, Victoria, Australia
Mildura, Victoria, Australia
Beaumont, California, USA
Tibrak, Saudi Arabia
Acquired
2010
CPV Technology
Business Description
Solar Systems designs and manufactures ultra-high
efficiency concentrating photovoltaic (CPV) power
generation systems, which are ideally suited to large
utility-scale deployment globally.
Background
As climate change issues bring about a paradigm shift
in energy production from conventional fossil fuel sources
to renewable energy sources and nuclear power, there
has been increasing interest in developing solar energy
technology that could be economically viable in very
large-scale utility projects in the order of 10’s to 100’s
of megawatts (MW’s) electrical output.
Silex acquired the assets of Melbourne based Solar Systems
including the technology intellectual property and patents, a
new manufacturing facility in Abbotsford, Melbourne, and a
large-scale test and demonstration facility in Bridgewater,
central Victoria in 2010.
Solar Systems utilises a novel approach known as the ‘Dense Array’ concentrating photovoltaic (CPV) technology, whereby
low-cost large-area parabolic mirrors reflect the sunlight onto a small-area solar conversion module, concentrating the sunlight
to the equivalent of approximately 500 to 1000 suns.
Key elements in the Solar Systems Technology
Manufacturing
Melbourne
CPV Module
6cm x 6cm
CPV Converter
0.25m2
CS500 Dish
15m Diameter
Silex Annual Report 2012
15
Solar Systems continued
The principle advantages of Solar Systems’ Dense Array
CPV technology are:
•
•
•
•
•
•
Smaller area module dramatically decreases the costs
associated with PV material, thereby permitting use of
more expensive but much higher efficiency solar cells.
Compact ‘Dense Array’ CPV module can be actively
cooled, decreasing both the power losses and lifetime
performance degradation caused by extended operation
at higher temperature.
Ground-mounted dish mirror systems are relatively cheap
and are controlled with proprietary technology to track the
sun throughout the day, increasing the total solar power
produced each day compared to non-tracking systems.
The technology can be easily upgraded – replacing
an older Dense Array receiver with a newer more
powerful model.
Currently cells have approximately 40 percent solar
conversion efficiency.
Future cell designs are projected to reach over
50 percent efficiency.
Commercialisation and Project Deployment
Solar Systems is undertaking a phased approach to the
commercialisation of its Dense Array CPV Technology:
Phase 1
Technology Commercialisation Program
(Completed September 2012)
•
Bridgewater (Victoria, Australia) 600kW Test
and Reliability Facility (completed June 2012)
Phase 2: Small Scale Deployments
(Demonstration Plants)
•
•
•
Mildura Stage 1 (Victoria, Australia): 1.5MW
(Expected completion mid-CY2013)
Nofa (Tibrak, Saudi Arabia): 1.0MW
(Expected completion early-CY2013)
Beaumont (California, USA): up to 1.0MW
(Expected completion late-CY2013)
Phase 3: Large Scale Deployment
• Mildura Stage 2 (Victoria, Australia): 100MW
•
Potentially several intermediate scale plants
(approximately 10 - 20MW each)
Phase 4: Open Market Deployment
• Global Market
16
Silex Annual Report 2012
Translucent
Business Facts
Platform
Advanced Semiconductor Materials
Ownership
98 percent
Location
Palo Alto, California, USA
Acquired
2001
Business Description
Translucent is developing a unique family of ‘rare earth
oxide’ (REO) semiconductor materials which enable a
new class of low-cost silicon wafer-based substrates,
with commercial applications in the photonics,
semiconductor and solar PV industries.
Background
Translucent has been developing advanced materials, initially
based on rare earth oxides (REOs) in its state-of-the-art
development facility in Palo Alto, California, since 2001.
The initial research and development activities focused on
applications in the photonics and semiconductor industries.
By carefully depositing REOs onto well-established
semiconductor materials such as silicon, and making them
compatible with other semiconductor materials and industrial
semiconductor processes, the original photonics applications
have been expanded to include photovoltaics and power
electronics, with a common theme of using the REOs to
develop low cost “on-silicon” solutions.
REO Technology – Commercial Applications
Several industries are forced to use high-cost non-silicon
substrates for high-end semiconductor device applications.
Silex Annual Report 2012
For example, high cost substrates such as germanium;
sapphire and silicon carbide are commonly used for
fabrication of many high powered semiconductor devices.
Translucent’s innovative REO platform could enable these
industries to use large low-cost silicon wafers, potentially
overcoming traditional barriers (such as wafer bowing and
cracking), in the highly prized transition to silicon wafers.
Translucent is commercialising this technology with a focus
on applications in three key markets:
• LED Lighting substrates
• Power Electronics devices
• CPV Solar cell substrates
Commercial Progress
LED Lighting substrates
Translucent has engaged with customers in the USA and
Asia, with strong interest to test Mirrored-Si™ wafers for
LED fabrication. Repeat commercial orders for sample
evaluations (up to 150mm diameter wafers) have been filled.
Work continues for the development of commercial-grade
substrates and full validation by commercial customers.
Power Electronics devices
Translucent has engaged with customers in the USA, Europe
and Asia with strong interest for 100mm and 150mm vGaN™
substrates for ‘Field Effect Transistor’ (FET) device fabrication and
testing. Additionally, Translucent is developing higher margin
vFET™ substrates for evaluation and customer validation.
CPV Solar Cell substrates
The application of Translucent’s REO-based ‘virtual germanium’
(vGe™) substrates may potentially result in significant cost
reductions for ultra-high efficiency multi-junction solar cells,
currently operating at around 40 percent efficiency. Translucent’s
initial engagement in the PV solar industry has been with
customers in the USA and Europe. The solar application
project has received a $2 million grant from the Australian
Solar Institute, which will help accelerate the commercialisation
of this product.
17
ChronoLogic
Business Facts
Platform
Advanced Materials & Instrumentation
Ownership
90 percent
Location
Adelaide, South Australia, Australia
Acquired
2002 (51 percent)
2005 (90 percent)
The target markets for ChronoLogic’s initial range of products
are quite considerable, amounting to several billions of dollars
revenue annually. They include (in order of importance):
• Test & Measurement market
• Data Acquisition market
• Precision Timing market
ChronoLogic has recently developed a new range of
instruments for the Test and Measurement industry called
‘Distributed Virtual Instrumentation’ (DVI), incorporating its
‘USB-inSync™’ technology.
ChronoLogic is also pioneering new USB-based connectivity
standard called ‘UXI’ to extend cross-platform interoperability
from existing technology to the ‘USB-inSync™’ platform.
Business Description
ChronoLogic’s Technology
ChronoLogic is devoted to providing the world’s best
precision timing systems and synchronized measurement
instruments in a universal distributed platform, extending
the capabilities of conventional USB with its patented
‘USB-inSync™’ technology.
Background
In September 2002, Silex acquired a 51 percent interest
in ChronoLogic and, in 2005, increased its interest to 90
percent as a result of a restructuring of the business.
As part of the restructuring, ChronoLogic shifted its focus
from the depressed optical communications market to the
growing data acquisition and instrumentation markets, which
continues to be its predominant commercialisation focus.
Virtually every consumer product we use today has
been manufactured and tested in plants and laboratories
using data acquisition and control systems, and test
and measurement instrumentation. Applications fall within
the Test, Control and Automation areas, including the
semiconductor, automotive and mining industries through
to medical diagnostics and food processing.
A large number of these applications require synchronous
measurements and acquisition of data, and the ability to
control processes and/or events with precise relative timing.
These requirements are addressed for the first time on the
low-cost USB-based instrumentation platform by ChronoLogic.
ChronoLogic’s USB-inSync™ technology transforms
the ubiquitous USB connection from a simple consumer
connectivity data-bus to an instrumentation grade interface
with class-leading synchronisation capabilities.
18
Silex Annual Report 2012
20
Silex Annual Report 2012
Concise Financial Report
for the year ended
30 June 2012
Silex SyStemS limited
& itS SubSidiaRieS
abN 69 003 372 067
directors’ Report
Your directors present their report on the consolidated entity consisting of Silex Systems Limited (Silex or the
Company) and the entities it controlled at the end of, or during the year ended 30 June 2012.
1. Directors
The following persons were directors of Silex Systems Limited during the whole of the financial year and up to
the date of this report:
Prof S W R Burdon
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy
Mr C D Wilks
Dr L M McIntyre was appointed a director on 2 July 2012 and continues in office at the date of this report.
2. Principal Activities
During the year the principal continuing activities of the consolidated entity consisted of:
(a)
(b)
(c)
SILEX Technology: commercialisation of the Company’s foundation technology – the laser isotope
separation process for uranium enrichment known as the ‘SILEX Technology’;
Solar Systems: research, development and commercialisation activities for the unique ‘Dense Array’
concentrated photovoltaic system being developed for utility-scale solar power stations by wholly-owned
subsidiary Solar Systems Pty Ltd;
Translucent: research, development and commercialisation of novel ‘Rare Earth Oxide’ materials for
application to low cost LED lighting devices, power electronics technology and ultra-high efficiency solar
energy conversion materials. These activities are being undertaken by Translucent Inc, a California based
company in which Silex has a 98% fully diluted interest; and
(d)
Chronologic: development and commercialisation of data acquisition equipment, and test and measurement
instrumentation utilising the proprietary ‘USB-inSync™’ technology developed by subsidiary ChronoLogic
Pty Ltd, in which Silex has a 90% interest.
The Australian PV panel market continued to deteriorate during the year and led to a decision to cease Silex
Solar’s manufacturing operations at Sydney Olympic Park. Subsequent to this, a decision to cease all activities
was made.
3. Dividend
No dividend payments were made during the year. No dividend has been recommended or declared by the Board.
22
Silex Annual Report 2012
directors’ Report
4. Review of operations and activities
Trading Results
A summary of consolidated revenue and results is set out below:
Revenue from continuing operations
(Loss) before income tax expense
Income tax expense
Net (loss) from continuing operations
Net (loss) from discontinued operation
Net (loss) for the year
(Loss) is attributable to:
Owners of Silex Systems Limited
Non-controlling interests
2012
$
2011
$
9,438,691
9,924,566
(17,982,777)
(12,731,789)
–
–
(17,982,777)
(18,987,847)
(36,970,624)
(12,731,789)
(18,749,977)
(31,481,766)
(36,792,005)
(31,301,061)
(178,619)
(180,705)
(36,970,624)
(31,481,766)
Comments on the operations and the results of those operations are set out below:
The increased loss for the period was mainly due to:
a)
b)
Solar Systems’ segment loss increased from $5.7 million in the prior year to $10.8 million in the current year
as the business ramped up its product development and commercialisation programs. During the year,
Solar Systems announced it had built and commissioned Australia’s largest concentrating photovoltaic
(CPV) solar power station in Bridgewater, central Victoria. Solar Systems has also commenced construction
of a demonstration CPV solar power station in Mildura, north-west Victoria.
The loss for the period was also impacted by the decision to cease Silex Solar’s manufacturing operations
and close the plant at Sydney Olympic Park. Silex Solar’s loss from the discontinued operation increased
by $0.2 million to $19.0 million. The current year loss included the impact of further reductions in selling
prices and costs associated with the closure including the negotiated lease settlement, dismantling and
decommissioning, further write downs of fixed assets and inventory and redundancy payments.
Interest income increased from $4.6 million to $5.6 million in the current year. Interest income increased as a
result of higher average cash/term deposit holdings in the current year as a consequence of the capital raising
completed mid-financial year 2011.
Silex Annual Report 2012
23
directors’ Report
Details of segment results are detailed below:
Silex Systems
The segment result for the parent company Silex Systems Limited, was a profit of $2.3 million compared to a
profit of $1.1 million in the prior year. The result in the current year was impacted by higher income as Silex’s
average cash / term deposit balances were higher in the current year as a consequence of the capital raising
completed mid-financial year 2011.
Translucent
The segment result for Translucent, based in the United States, was a loss of $5.4 million compared to a loss of
$4.4 million in the prior year, as development activities increased.
ChronoLogic
The segment result for ChronoLogic was a loss of $1.7 million compared to a loss of $1.8 million in the previous year.
Solar Systems
The segment result for Solar Systems was a loss of $10.8 million compared to a loss of $5.7 million for the
prior year, as the business ramped up its product development and commercialisation programs. During the
year, Solar Systems announced it had built and commissioned Australia’s largest concentrating photovoltaic
(CPV) solar power station in Bridgewater, central Victoria. Solar Systems has also commenced construction of a
demonstration CPV solar power station in Mildura, north-west Victoria. Sites for demonstration plants (of up to
1MW each) have been secured in Beaumont California, USA, and at the Nofa Resort near Riyadh, Saudi Arabia.
Manufacturing and construction has commenced for these plants, which are the first off-shore demonstration
facilities using the CS500 Dense Array Dish CPV System.
Discontinued operation
Silex Solar
The loss for the period was also impacted by the decision to cease Silex Solar’s manufacturing operations and
close the plant at Sydney Olympic Park. The loss from this discontinued operation increased by $0.2 million
to $19.0 million. The current year loss included the impact of further reductions in selling prices and costs
associated with the closure including the negotiated lease settlement, dismantling and decommissioning,
further write downs of fixed assets and inventory and redundancy payments.
5. Earnings per share
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
2012
cents
(10.5)
(10.5)
(21.6)
(21.6)
2011
cents
(7.8)
(7.8)
(19.6)
(19.6)
24
Silex Annual Report 2012
directors’ Report
6. Significant changes in state of affairs
The significant changes in the state of affairs of the consolidated entity during the course of the year included
the Company’s announcement in August 2011 to cease manufacturing solar cells at Silex Solar. In May 2012,
Silex Solar announced the full closure of the manufacturing plant at Sydney Olympic Park. Subsequent to this,
a decision was made to cease all activities at Silex Solar.
7. Matters subsequent to the end of the financial year
On 25 September 2012, the US Nuclear Regulatory Commission announced that it had issued a combined
construction and operating lisense to Global Laser Enrichment, the subsidary of GE responsible for
commercialising the SILEX Technology (refer to Section 8: ‘Silex Systems’ below). Other than this, the directors
are not aware of any matters or circumstances which are not otherwise dealt with in the financial statements that
have significantly or may significantly affect the operations of the consolidated entity, the results of its operations
or the state of the consolidated entity in subsequent years.
8. Likely developments and expected results of operations
Silex is a technology company with interests in a number of technology development projects both in
Australia and overseas. Silex also has manufacturing operations through its subsidiary Solar Systems Pty Ltd
at Abbotsford, Victoria. The Company’s future prospects remain dependent on the outcomes of the various
technology development programs, including the Company’s success in ultimately commercialising those technologies.
The Group’s segments are summarised below:
Silex Systems
Silex invented a novel method for enriching uranium using lasers in the mid-1990’s, and after further development
activities in Australia, is currently supporting the commercialisation of the SILEX Technology in Wilmington, North
Carolina, USA under a Technology Commercialisation and License Agreement with Global Laser Enrichment
(GLE – a venture owned by GE (51%), Hitachi (25%) and Cameco (24%)). Test Loop operations have continued
during the year accumulating performance, operating and reliability data to assist the engineering design of the
first commercial plant. The successful completion of the Test Loop program and the grant of a construction and
operating license (issued 25 September 2012 – refer to Section 7) from the US Nuclear Regulatory Commission,
would trigger a milestone payment of US$15 million to Silex.
Translucent Inc
Silex has a 98% fully diluted interest in Translucent Inc, a California based company which has been researching
and developing advanced semiconductor materials called “Rare Earth Oxides”. These unique materials may
generate commercial outcomes in key areas such as low cost LED lighting, power electronics and ultra-high
efficiency solar cells.
These technologies continue to be developed. Potential customers in both the power electronics and
LED industries are continuing trials with Translucent’s substrates with steadily improving results being
achieved. Future commercial prospects for the Translucent technology will depend on continued success
with the technical program, third party validation of the technologies, protection of Intellectual Property
including Patents, and successful implementation of commercialisation strategies.
ChronoLogic
Silex holds a 90% interest in ChronoLogic, which continues to develop a range of innovative instrumentation
products incorporating its unique patented ‘USB-inSyncTM’ technology, including the new Distributed Virtual
Instrumentation (DVI) product range. ChronoLogic has embarked on an exhaustive process to secure
appropriate strategic partners for its technology and/or products. Detailed discussions on possible
business transactions, including joint venturing, merger or acquisition are continuing.
Silex Annual Report 2012
25
directors’ Report
Solar Systems
Significant progress with the development of Solar Systems’ unique concentrating photovoltaic (CPV)
‘Dense Array’ technology and associated intellectual property has been made in the last 12 months. During
the year, Solar Systems announced it has built and commissioned Australia’s largest CPV solar power station
in Bridgewater, central Victoria. Solar Systems has also commenced construction of a 1.5MW demonstration
CPV solar power station in Mildura, north-west Victoria. Sites for off-shore demonstration plants (of up to 1MW
each) have also been secured in Beaumont California, USA and at the Nofa Resort near Riyadh, Saudi Arabia.
9. Share options
Shares under option
Unissued ordinary shares of Silex Systems Limited under option at the date of this report are as follows:
Number of options
issue price of shares
Grant date
expiry date
100,000
190,000
25,000
50,000
50,000
50,000
205,000
205,000
60,000
690,000
540,000
165,000
455,000
1,469,242
75,000
4,329,242
$5.81
$7.06
$3.63
$3.54
$3.51
$4.19
$5.88
$6.13
$5.99
$5.24
$4.65
$5.28
$2.92
$2.04
$3.61
24th December 2007
23rd December 2012
15th July 2008
14th July 2013
7th October 2008
6th October 2013
28th November 2008
27th November 2013
5th December 2008
4th December 2013
31st March 2009
29th June 2009
30th March 2014
28th June 2014
11th January 2010
10th January 2015
19th March 2010
18th March 2015
27th May 2010
30th July 2010
26th May 2015
29th July 2015
15th October 2010
14th October 2015
5th July 2011
4th July 2016
8th December 2011
7th December 2016
16th March 2012
15th March 2017
No option holder has any right under the option to participate in any other share issue of the Company or of
any other entity. Between balance sheet date and the date of this report no options were granted.
Shares issued on the exercise of options
No ordinary shares of Silex Systems Limited were issued during the year ended 30 June 2012 on the exercise of
options granted under the Silex Systems Limited Employee Share Option Plan.
Between balance date and the date of this report, no options were exercised.
26
Silex Annual Report 2012
directors’ Report
10. Information on Directors
a) Directors’ profiles
Professor Stephen Burdon
MBA BSC(Hons) FAICD, FAIM, FIEAust
Chairman - Non-executive (director since 2011)
Age 69
Experience and expertise
Prof Burdon has extensive management experience. He previously held the position of Managing Director of
OTC, Group Managing Director of Telstra, and Managing Director of British Telecom Asia Pacific. In addition,
Prof Burdon has experience as a non-executive director on over a dozen private and public company boards
in Australia, NZ, India and Japan. He is currently a Visiting Professor of Management at the University of
Technology Sydney and CASS Business School London. Prof Burdon was appointed Chairman of the Board
on the 28 February 2012.
Other current directorships
None
Former directorships in last 3 years
Non-executive director of Transfield Services Limited 2000 to July 2010.
Special responsibilities
Member of audit committee (Chairman from 30 September 2011 to 27 February 2012)
Chairman of remuneration committee (Member to 30 September 2011)
Mr Peter Campbell
FCA, FTIA, FAICD
Non-executive (director since 1996)
Age 67
Experience and expertise
Mr Campbell has been an independent and non-executive director since 1996 and held the position of
Chairman for the period October 2010 to February 2012. He is a Chartered Accountant with his own practice
based in Sydney and is a Fellow of both the Institute of Chartered Accountants in Australia and the Taxation
Institute of Australia. Mr Campbell is also a registered Company Auditor.
Other current directorships
Non-executive director of Sonic Healthcare Limited since 1993 and Chairman since October 2010 and
non-executive director of QRxPharma Limited since April 2007.
Former directorships in last 3 years
None
Special responsibilities
Chairman of audit committee (Member to 27 February 2012)
Member of remuneration committee
Silex Annual Report 2012
27
directors’ Report
Dr Colin Goldschmidt
MB BCh, FRCPA, FAICD
Non-executive (director since 1992)
Age 58
Experience and expertise
Dr Goldschmidt has extensive experience in listed public company management, operational company
leadership, international business operations and healthcare and scientific markets in Australia, Europe and
the USA. He is the CEO of Sonic Healthcare Limited, a global laboratory services company.
Other current directorships
Managing Director of Sonic Healthcare Limited since 1993.
Former directorships in last 3 years
None
Special responsibilities
Member of audit committee (Chairman between 27 October 2010 and 30 September 2011)
Member of remuneration committee to 30 June 2012 (Chairman between 27 October 2010 and 30 September 2011)
Dr Michael Goldsworthy
BSc (Hons), MSc, PhD, FAIP
Managing Director/CEO – Executive (director since 1992)
Age 54
Experience and expertise
Dr Goldsworthy received his PhD in Physics from The University of New South Wales. Prior to starting with Silex
Systems Limited in 1988, Dr Goldsworthy was a member of the University’s academic staff and was involved in
a number of laser-associated research projects. Dr Goldsworthy is the founder of the Company and has been
the driving force behind the SILEX uranium enrichment project, and the establishment of the consolidated entity’s
extensive interests in solar, semiconductor and photonics technologies. Dr Goldsworthy was awarded the Royal
Society of NSW’s James Cook Medal for 2009 which recognises outstanding contributions for science and
human welfare.
Other current directorships
None
Former directorships in last 3 years
None
Special responsibilities
Managing Director
28
Silex Annual Report 2012
directors’ Report
Dr Lisa McIntyre
BSc (Hons) PhD MAICD
Non-executive (director since July 2012)
Age 47
Experience and expertise
Dr McIntyre was appointed to the Board in July 2012. She is a company director for various companies including
HCF, I-MED Network Pty Ltd, the Garvan Institute of Medical Research and Tutoring Australasia. Prior to 2011,
Lisa was a senior partner in global strategic firm L.E.K. Consulting for 19 years and led L.E.K.’s Asia Pacific Life
Science and Technologies practice in Sydney where she advised healthcare companies and organisations on
strategy, commercialisation and performance issues.
Other current directorships
None
Former directorships in last 3 years
None
Special responsibilities
Member of audit committee
Member of remuneration committee
Mr Christopher Wilks
BComm, FAICD
Non-executive (director since 1988)
Age 54
Experience and expertise
Mr Wilks has a background in chartered accounting and investment banking. He was previously a partner in a
private investment bank and has held positions on the board of a number of public companies.
Other current directorships
Executive director of Sonic Healthcare Limited since 1989.
Former directorships in last 3 years
None
Special responsibilities
Business development and corporate strategy
b) Directors’ interests in shares and options as at the date of this report
director’s name
Prof S W R Burdon
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy
Dr L M Mcintyre
Mr C D Wilks
Class of shares
No. of shares
Share options
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
20,000
1,354,823
2,525,937
5,849,533
–
2,794,021
–
–
–
1,102,207
–
367,035
Silex Annual Report 2012
29
directors’ Report
11. Remuneration report
Message from the Remuneration Committee Chairman
Dear Shareholder,
I am pleased to introduce Silex Systems’ Remuneration Report for the year ended 30 June 2012.
Report overview
The Board has endorsed our approach to the Remuneration Report this financial year in order to demonstrate
the nature and purpose of changes to the remuneration strategy. Our objective is to provide greater clarity of
our remuneration practices, enabling shareholders to assess:
•
•
How we have improved the linkages between remuneration, execution of the Group’s strategy and Group
performance; and
How the initiatives undertaken this year and those proposed over the coming years respond to the concerns
that were raised by shareholders in the vote on the 2011 remuneration report.
The Remuneration Report contains disclosures as required by Australian regulations and additional disclosures
relating to the structure and approach to remuneration at Silex.
Improvement initiatives
Our business model requires a top calibre executive team with both the leadership skills to manage four
businesses across different geographies, as well as the technical expertise to manage and direct technical,
scientific and regulatory matters of varying complexity in each business. The executive remuneration strategy
is intended to ensure we have in place remuneration policies and programs that balance the following:
•
•
•
•
Based upon a globally consistent framework with some local flexibility to enable us to hire, retain and
motivate the requisite executive and specialised talent in each of the markets in which we operate;
Provide our key talent with incentive opportunities that have a clear alignment and appropriate balance
between remuneration outcomes and short and long term company performance including the
accomplishment of major strategic imperatives. These performance based awards need to be delivered
through a mix of cash and equity to provide executives with a sense of ownership in the business and an
appropriate level of reward for over-achievement. In this context, it should be noted some of our businesses
compete for executive and specialised talent with start-up entities where equity is a key element of a
competitive remuneration package;
Compliance with relevant regulatory and legislative requirements in Australia and with global good
governance practices; and
The desire to be transparent in the disclosures and explanations associated with our remuneration practices
while acknowledging the commercial sensitivity of some of the strategic targets and innovations upon which
an executive’s performance is assessed and incentive outcomes determined.
In response to feedback from shareholders and having regard to the above, we have implemented a program to
review Silex’s remuneration strategy.
As you will note by reading the Remuneration Report, the Company is modifying the method and manner in
which its Board and senior executives are remunerated. This will be achieved by adjusting the alignment between
company performance and executive remuneration outcomes.
30
Silex Annual Report 2012
directors’ Report
Over the course of the 2012 financial year, the Remuneration Committee has focussed its attention on improving
the design and governance of the Long Term Incentive Plan (LTIP) and on developing an associated Share
Rights Plan. This is our first step in better linking the risks and rewards of shareholders to those of Executives.
The proposed LTIP, which is subject to shareholder approval at our 2012 Annual General Meeting is based on
rewarding executive personnel with performance rights that are linked to Board approved hurdles which must
be met prior to eligibility. Previously, incentives were awarded under our Employee Share Option Plan. This is our
first step in better linking the risks and rewards of shareholders to those of executives. It is our view that offering
performance rights is consistent with market practice, employee expectations and less dilutive to shareholders
as the same remuneration value can be delivered with smaller allocation of rights than options.
Throughout the 2012 financial year, the Remuneration Committee has also undertaken a review of our Short
Term Incentive Plan (STIP), which currently operates to reward staff for the achievement of certain predetermined
targets. The value of these performance based STIP incentive outcomes are currently delivered through a mix of
certain predetermined targets and are currently delivered through a mix of cash, options or escrow (restricted)
equity. The proposed Share Rights Plan will also enable the award of STIP Deferred Rights in addition to, or
instead of options and escrow equity. Over the coming years, we will be focussing our attention on restructuring
this plan and its delivery, to ensure that the Group STIP will provide alignment between remuneration and
Company performance, while also being market-based in its operation. For some key employees, the STIP
needs to include an assessment of strategic accomplishments, including innovations and commercialisation
initiatives that do not result in an immediate ‘bottom line’ impact but may be the essence of our future growth.
We need to ensure our remuneration policies reinforce Silex’s future strategies and reward performance for
achieving these strategies and believe that our current approach to remunerating our Executives with a market-
based remuneration structure with an appropriate at-risk component appropriately aligns Executive and
shareholder risk and rewards. Our review of the STIP and LTIP is also to consider the “flow” of annual award
grants and to ensure we have in place controls to manage the overall total equity committed to equity based
incentives and employee share acquisition. This will take into account shareholders perspectives and good
governance guidelines issued by investor groups such as the Australian Council of Super Investors (ACSI).
Executive changes
During the past financial year there has been some change to our executive team. Ms Julie Ducie, our previous
Group Financial Controller and Company Secretary, was promoted to the dual role of Chief Financial Officer (CFO)
and Company Secretary effective 28 February 2012. Ms Ducie’s remuneration details are set out in this report.
Further details on our remuneration approach and the remuneration for the 2012 financial year are set out in this
Remuneration Report. We hope we have shown demonstrated enhancements to our remuneration practices and
look forward to answering any questions you may have at our Annual General Meeting in November 2012.
Professor Stephen Burdon
Chairman, Remuneration Committee
Silex Annual Report 2012
31
directors’ Report
Remuneration Report
Contents
Section Details
11.1
Introduction
11.2
11.2.1
11.2.2
11.2.3
11.3
11.3.1
11.3.2
11.3.3
Remuneration governance
Board oversight
Remuneration Committee structure
Use of remuneration consultants
Response to shareholder concerns and revised remuneration approach
Quantum and structure of senior executives’ remuneration
Quantum of non-executive directors’ remuneration
Special remuneration arrangements for consulting services provided by Mr Chris Wilks
11.4
Non-executive directors’ remuneration
Senior executive remuneration
Remuneration strategy
11.5
11.5.1
11.5.1.1 LTI performance and criteria and vesting
11.5.2
11.5.2.1 Fixed remuneration
11.5.2.2 Performance linked remuneration
11.5.2.3 New Long term Incentive Plan (LTIP)
11.5.3
Summary of senior executive contracts
Remuneration structure
11.6
Directors’ and senior executives’ remuneration
11.7
11.7.1
Other statutory disclosures
Analysis of options over equity instruments granted as remuneration
11.8
11.8.1
11.8.2
11.8.3
11.8.4
11.8.5
Company performance and consequences on shareholder wealth
Principles used to determine the nature and amount of remuneration: relationship between
remuneration and company performance
Details of remuneration: cash bonuses, options and restricted stock
Restriction on limiting risk
Other executives of the consolidated entity
Performance of Silex Systems Limited
32
Silex Annual Report 2012
directors’ Report
11.1 Introduction
The 2012 Silex Remuneration Report has been prepared in accordance with the requirements of section 300A
of the Corporations Act 2001 and accounting standard requirements and applies to Key Management Personnel
(KMP) of the Group. KMP are defined as persons who have authority and responsibility for planning, directing
and controlling the activities of the Group. KMP for the 2012 financial year are as follows:
Name
Position
Non-executive and executive directors
Prof S W R Burdon
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy
Dr L M McIntyre
Mr C D Wilks
Other key management personnel
Ms J E Ducie
Mr B J Spillane
Chairman and non-executive director
Non-executive director
Non-executive director
Managing Director/CEO – Executive director
Non-executive director
Non-executive director
CFO/Company Secretary (appointed CFO 28 February 2012)
Subsidiary Company Secretary (until 12 September 2011)
Details and disclosures relating to KMP who held office in prior financial years have been included in this report as required.
11.2 Remuneration Governance
11.2.1 Board oversight
The Silex Board is ultimately responsible for ensuring that the Group’s remuneration structure is equitable and
aligned with the long term interests of shareholders. The Board and its advisors are independent of Management
when making decisions affecting employee remuneration.
Consistent with this responsibility, the Board has established a Remuneration Committee to assist it in making
determinations. The Remuneration Committee is comprised solely of non-executive directors, all of whom are
considered by the Board to be independent directors.
In order to ensure that it is fully informed about the Group’s remuneration strategies, structures and decision
making processes, the Remuneration Committee meets regularly with Management in attendance by invitation.
Silex Annual Report 2012
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directors’ Report
11.2.2 Remuneration Committee structure
The Committee is a committee of the Board currently comprised of independent, non-executive directors.
Its role is to make recommendations to the Board regarding the Group’s remuneration policies and practices,
including those applicable to the Group’s KMP.
Members of the Remuneration Committee as at the date of this report were as follows:
Committee members
Prof S Burdon – Chairman
Mr P Campbell
Dr L McIntyre (appointed 2 July 2012)
Committee secretary
Ms Julie Ducie (appointed 6 August 2012)
Number of meetings in FY12
3
Other individuals who regularly Dr M Goldsworthy – MD/CEO
attended meetings
Ms J Ducie – CFO/Company Secretary – from February 2012
The role of the Remuneration Committee is to:
•
Review and recommend to the Board the appropriate remuneration policies and practices for the Group,
and its specific application to KMP, as well as the general application to all employees;
•
The determination of levels of reward to the MD/CEO and other KMP;
• Providing guidance to the Chair of the Board on evaluating the performance of the MD/CEO;
•
Review and make recommendations to the Board regarding the remuneration of non-executive directors; and
• Communication with shareholders and other key stakeholders on remuneration policy.
11.2.3 Use of remuneration consultants
The Remuneration Committee seeks and considers advice from independent remuneration consultants and
external advisers when required. Such advice will typically cover non-executive director remuneration, senior
executive remuneration and advice in relation to equity incentive plans. Remuneration consultants are engaged
by and report directly to the Remuneration Committee.
The Silex Board’s Remuneration Committee approved the engagement of Aon Hewitt to provide remuneration
recommendations regarding the MD/CEO and advice on matters to be addressed in relation to his existing
contractual arrangements, KMP remuneration benchmark review, and design of Silex’s proposed long term incentive
plan (LTIP). Aon Hewitt has provided their recommendations in relation to this and the coming financial year.
The Committee is satisfied with the advice received from Aon Hewitt regarding the above services, and is
free from undue influence from the KMP to whom the advice relates, as the relevant criteria as established
by the Board have been satisfied. The following arrangements were made to ensure that the remuneration
recommendations were free from undue influence from any members of the KMP:
•
•
34
Aon Hewitt was engaged by, and reported directly to, the chair of the Remuneration Committee.
The agreement for the provision of remuneration consulting services was executed by the chair of the
Remuneration Committee under delegated authority on behalf of the Board;
The report containing the remuneration recommendations was provided by Aon Hewitt directly to the chair
of the Remuneration Committee; and
Silex Annual Report 2012
directors’ Report
•
Aon Hewitt was permitted to speak to management throughout the engagement to understand company
processes, practices and other business issues and obtain management perspectives. However, Aon Hewitt
was not permitted to provide any member of management with a copy of their draft or final report that
contained the remuneration recommendations.
As a consequence, the Board is satisfied that the recommendations were made free from undue influence from
any members of the KMP.
The remuneration recommendations were provided to Silex as an input into decision making only. The Remuneration
Committee considered the recommendations along with other factors in making its remuneration decisions.
The total fees paid to Aon Hewitt for the remuneration recommendations were $26,924. There were no other
services provided by Aon Hewitt for the financial year ended 30 June 2012.
11.3 Response to shareholder concerns and revised remuneration approach
The Remuneration Committee is aware that there are various shareholder concerns with the remuneration of
KMP, non-executive directors and the special remuneration arrangements in place for Mr Chris Wilks. Issues
raised by shareholders in relation to the 2011 Remuneration Report, resulted in a “no” vote of 34% of the shares
voted at the Annual General Meeting being recorded in relation to the adoption of this report. The 34% “no” vote
was generated from a pool of 65% of the Company’s shareholders who registered to vote on the report.
Recognising the varying views on this issue but nonetheless cognisant of its importance, in the 2012 financial
year the Remuneration Committee undertook to commence a process of reviewing the remuneration of senior
executives.
The first part of this process related to the establishment of a proposed LTIP, and in this regard the Remuneration
Committee engaged Aon Hewitt to assist with the development of a suitable plan. The proposed LTIP which
is subject to shareholder approval at our 2012 Annual General Meeting is anticipated to operate alongside the
existing Silex Systems Limited Employee Share Option Plan and other STIP if approved by shareholders.
We have also implemented a freeze on the remuneration paid to the MD/CEO, and the non-executive directors
for the 2013 financial year.
11.3.1 Quantum and structure of senior executives’ remuneration
Shareholders also raised concerns in the prior year around the changes to the remuneration structure for the
MD/CEO. A comprehensive remuneration review was therefore conducted in the 2012 financial year to ensure the
overall executive remuneration structure supports the Group’s business goals by enabling it to attract, retain and
appropriately reward senior executives of the calibre necessary to deliver expected performance, and ensuring that
it is suitably market tested.
In direct response to Shareholder feedback received in late 2011, the Remuneration Committee were committed
to ensuring a high-quality partner was engaged to assist with the fixed remuneration review process. In this regard
and due to their expertise in human capital matters, Aon Hewitt were also selected to assist the Remuneration
Committee with this process.
Silex Annual Report 2012
35
directors’ Report
11.3.2 Quantum of non-executive directors’ remuneration
At the 2011 Silex Annual General Meeting (AGM), the directors sought and received shareholder approval
for an increase to the directors’ annual aggregate fee pool to $750,000. As was stated in the Explanatory
Memorandum accompanying the 2011 Notice of Meeting, the increase was sought so as to immediately
increase the directors’ fee pool given that an increase had not been effected since 1 July 2006. It was also to
allow flexibility to appoint additional new directors in the future and to continue to remunerate non-executive
directors for specialist consulting arrangements. The level of directors’ fees has and always will be subject to
rigorous market-based testing and advice from independent remuneration consultants.
The resolution was passed at the AGM, notwithstanding a 26% “no” vote from 62% of the Company’s
shareholders who registered to vote.
In the 2011 financial year, independent data was obtained by the Remuneration Committee to market test the
value of the directors’ fees. This data suggested that a rise in fees was warranted and that a greater spread
between the fees paid to the Chairman and those paid to the non-executive directors was required to better
reflect the relative time commitments of each.
11.3.3 Special remuneration arrangements for consulting services provided by
Mr Chris Wilks
Approval was sought at the 2011 AGM for an award of options to Mr Chris Wilks. The options proposed were
to vest in 3 years and have an exercise price using the Volume Weighted 5 day Average Market Price (5 day
VWAP) plus five cents for Silex Systems Limited shares. When requesting approval of this special remuneration
arrangement, the Board remained conscious of ASX Corporate Governance Principle 8 relating to non-
executive director remuneration however, considered it appropriate that Mr Wilks be recognised through a
reward arrangement aligned to his accomplishments and contributions on strategic business development
actions. Since the early days of Silex’s establishment, Mr Wilks has provided financial oversight and was a key
contributor in complex corporate development initiatives. He continues to bring his extensive expertise to the
commercialisation and corporate development of Silex’s diverse interests.
The resolution was passed at the AGM, notwithstanding a 26% “no” vote from 56% of the Company’s
shareholders who registered to vote. In view of this and the abovementioned Corporate Governance Principle,
the Board agreed not to allocate Mr Chris Wilks an equity award for the 2013 fiscal year.
11.4 Non executive directors’ remuneration
As indicated above, total remuneration for all non-executive directors of the Company is not to exceed
$750,000 per annum.
The table below sets out the annual fees paid to directors with effect from 23 November 2011. In addition to
these fees, superannuation contributions will be paid to the benefit of all non-executive directors capped at the
maximum amount required under the Superannuation Guarantee Legislation.
Board
Audit Committee
Remuneration Committee
Chairman
100,000
8,000
8,000
member
80,000
6,000
6,000
36
Silex Annual Report 2012
directors’ Report
The independent market analysis suggests that these fees remain below market but recognise current business
circumstances and shareholder perspectives; it is intended to transition gradually toward market rates over time
rather than through a significant one time “catch up” adjustment. To date, our below average market fees have
not been a hindrance to bringing on Board top calibre new independent directors.
11.5 Senior executive remuneration
11.5.1 Remuneration strategy
The senior executive remuneration strategies have been enhanced in 2012 having regard to contemporary
market practice and good governance. They are designed to attract, motivate and retain high quality personnel.
These arrangements are aligned with organisational practices and behaviours, driving improvement to
shareholder value and taking into account the dynamic labour market and regulatory landscape. The Group’s
aim is to reward senior executives with a level and mix of remuneration commensurate with their position and
responsibilities within the Group and competitive within the market in which they were recruited.
Remuneration
Component
Vehicle
Fixed
remuneration
Comprises base salary,
superannuation contributions
and other benefits.
Purpose
link to performance
To provide competitive
fixed remuneration set
with reference to role,
market and experience.
Company and individual
performance are considered
during the annual
remuneration review.
Short term
incentive plan
Awards are currently
paid in cash, options
or escrow shares.
STIP Rights may be
introduced to replace
escrow shares – see below.
Rewards executives for their
contribution to achievement
of Group and/or divisional
outcomes, as well as
divisional key performance
indicators (KPIs). Deferral
of a portion of the short
term incentive earned into
equity (performance rights
or options) will further
align reward with Group
performance.
Operating cash flow is
a key financial metric
(performance to approved
budget).
Linked to other non-financial
measures, such as safety,
performance, and specific
operational and strategic
deliverables.
Continued overleaf
Silex Annual Report 2012
37
directors’ Report
Remuneration
Component
Vehicle
Purpose
link to performance
Long term
incentive plan
(proposed
plan)
It is proposed that awards
are made in the form of
performance rights. The
new plan provides the
Remuneration Committee with
the flexibility to determine the
nature, terms and conditions
of each grant each year.
Should the plan be approved,
it is proposed that two types
of grants will operate:
• LTI performance rights are
an award of share rights
(i.e. a right to receive a share)
subject to performance
hurdles assessed over a
period of three years from
the date of award.
• STI deferred rights are rights
that are issued on the basis
of assessed performance
and convert to shares after
2 years from award.
LTI awards may be made
in Performance Options or
a combination of rights and
options from time to time.
Rewards executives for their
contribution to the creation
of shareholder value over the
longer term.
Delivering STIP awards
in cash and/or rights is
considered the best way
to recognise and reward
the accomplishment of
commercially sensitive
strategic business initiatives
and scientific and regulatory
breakthroughs.
Participants are aligned to
these accomplishments
delivering significant value
in future years rather than
in the current year.
For some participants other
than senior executives and
KMP the STIP rights may
replace LTIP.
STIP and LTIP rights are
considered important in the
retention of key employees.
LTI award performance
measures for KMP and
senior executives will be
linked to metrics such as
total shareholder return over
a three year period relative to
the ASX 300 Index (vesting
schedule shown below
11.5.1.1)
For executives other than
KMPs, LTIP Performance
Rights (or LTI Performance
Options) tailored performance
measure hurdles may also
be required.
KMP and senior executives
LTIP Rights may also be
subject to a minimum share
price target established at
the time of award.
Unvested LTI and STI
rights may be “clawed
back” in the event of
accounting irregularities,
unethical behaviour or
compliance breaches.
The Group’s policy is to position total fixed remuneration at around the median percentile of direct industry
peers and other Australian listed companies of a similar size and complexity. Variable remuneration opportunities
are intended to provide the opportunity to earn total remuneration above the market median for outstanding
performance against the stretch targets set.
Remuneration levels are considered through a remuneration review that considers market data, insights into
remuneration trends, the performance of the Company and individual, and the broader economic environment.
This review is conducted in consultation with independent remuneration consultants.
38
Silex Annual Report 2012
directors’ Report
11.5.1.1 LTI performance criteria and vesting
The TSR Performance Condition applied to KMP and senior executive LTI awards will be measured over a 3 year
performance period relative to the ASX 300 Index:
•
•
•
•
TSR less than 50th percentile = 0% vesting
TSR at 50th percentile = 25% vesting
TSR at 75th percentile = 75% vesting
TSR at or above 95th percentile = 125% vesting
• Pro rata vesting between each of the above
The target TSR has been set at the 85th percentile to achieve 100% vesting. This compares to 100% vesting at
the 75th percentile which is the prevalent market practice. This higher hurdle and the 25% premium for market
leading outperformance is consistent with our understanding of investor expectations.
11.5.2 Remuneration structure
For the 2012 financial year, the MD/CEO’s remuneration package included a mix of fixed, short term incentives
and long term incentives (at-risk) remuneration as illustrated in the table below:
Component
Composition
assessment
Fixed remuneration
Base salary, allowances
and other statutory
benefits
Based on responsibilities and
performance
Short term incentive
Maximum value of 50%
of Fixed Remuneration
Restricted Silex
Systems Limited
ordinary shares.
A mix of agreed performance criteria
comprising financial metrics and one
key strategic objective for each of the
5 businesses. The performance criteria
and their actual calibration and weighting
were established at the beginning of the
fiscal year.
Long term incentive
Maximum value of
proposed LTIP awarded
is 125% of fixed
remuneration value.
Option Issued.
The options have a life of 5 years, vest
subject to a Total Shareholder Return
(TSR) hurdle measured over a 3 year
performance period relative to the ASX
300 Index (vesting schedule as shown
above in 11.5.1.1).
LTI awarded during the 2012 financial
year – the LTI award of options was
approved at the 2011 AGM, with the
approved options issued in December
2011 with the abovementioned conditions.
at Risk
No
Yes
Yes
Remuneration packages paid to other senior executives for the year ended 30 June 2012 are detailed in section 11.6.
Silex Annual Report 2012
39
directors’ Report
For the 2013 financial year, the remuneration packages for other senior executives’ include a mix of fixed and
short term incentives (at-risk) remuneration as illustrated in the table below:
at Risk
No
Yes
Component
Composition
assessment
Fixed Remuneration
Base salary, allowances
and other statutory
benefits.
Based on responsibilities
and performance
Short term incentive
Currently cash
and/or options
Upon approval of
the Rights Plan
– Cash and/or STIP
Deferred Rights
Short term incentives paid by cash are
subject to the achievement of divisional
and Group financial performance
supplemented by non-financial measures
specific to business unit deliverables.
Short term incentives paid via
options have been subject to a 3 year
vesting period and have a life of 5
years. Options vest after 3 years if a
predetermined share price hurdle is met.
The 2 year vesting period and other
terms of the proposed STIP Deferred
Rights are noted above.
In the event that the proposed Share Rights Plan is approved by shareholders at the 2012 Annual General
Meeting, senior executives will also become eligible to be offered an award of LTI performance rights.
These will be offered with an appropriate set of performance hurdles measure over a 3 year vesting period.
11.5.2.1 Fixed Remuneration
Fixed remuneration consists of base salary, superannuation contributions and other benefits. Other benefits
include non-cash benefits such as motor vehicle and other allowances. The Group pays fringe benefits tax on
these benefits where required.
Fixed remuneration is reviewed annually by the Remuneration Committee in discussion with external remuneration
consultants. The review process considers individual, business unit and overall performance of the Group as well
as changing market, industry and economic circumstances. Any adjustments will take into account factors such
as market alignment with competitors, skill, experience, contribution and length of service to the Group.
During the 2012 financial year the Remuneration Committee obtained independent analysis and advice from
Aon Hewitt on the appropriateness of senior executive fixed remuneration.
40
Silex Annual Report 2012
directors’ Report
11.5.2.2 Performance linked remuneration
Performance linked remuneration includes short term and long term incentives and is designed to reward senior
executives for meeting or exceeding the organisation’s short term strategic and financial objectives.
Short term incentives
The Group’s short term incentives are an at-risk component of senior executives’ remuneration and are currently
provided in the form of cash, options or escrow (restricted) equity.
For the 2012 financial year, the actual STIP award for the MD/CEO was determined having regard to the Group’s cash
flow targets and the Board’s assessment of his performance and progress in achieving the agreed commercially
sensitive strategic objectives for each of the businesses within the Group as at 1 July 2011. This will result in an
award of escrow shares with a value of 76% of the maximum short term incentive opportunity (that is, $400,000
equivalent value). 20% of the maximum STI opportunity was based on cash flow targets, with the remaining
opportunity allocated to specific strategic and commercialisation objectives. Due to the challenging nature of the
targets set, it was deemed that 76% achievement was made for the 2012 financial year. At an assumed average
share price of say $4.00 would result in the award of 76,000 escrow shares. The allotment of STI deferred shares
will be issued in October 2012 (prior to 31 October 2012) at the price prevailing at that date.
Consistent with Resolution 6 passed at the 2011 AGM, the MD/CEO’s STIP for the 2012 financial year is not
delivered in cash, but through the allotment of restricted Silex Systems Limited ordinary shares subject to an
escrow period ending 2 years after the end of the financial year to which the award is related. The use of equity
rather than cash for the MD/CEO award recognises the current cash flow and profitability of the Group. While the
confidential and commercial sensitivity of the strategic accomplishments prevent their full disclosure at this point
in time, the Board considers that the objectives set will result in increases to shareholder value in a time frame
that is consistent with the vesting period of the deferred equity.
No other senior executives participated in a short term incentive for the 2012 financial year.
The current form of short term incentives entitles eligible employees to be rewarded based on set entitlement
criteria linked primarily to Group financial performance and key commercial business targets required to be
achieved within the financial year.
For commercially sensitive reasons, no short term incentive targets for executives are published within this
Remuneration Report, however the Remuneration Committee believe that all targets are set at levels appropriate
given market expectation of capital returns.
In reviewing the application of the current short term incentives after consultation with Aon Hewitt, the Remuneration
Committee will continue to review the short term incentives to ensure that the scheme is market based, at risk
and appropriately rewards executives for performance.
Silex Annual Report 2012
41
directors’ Report
Long term incentives
In 2011, Silex advised that they were moving from a single significant grant of LTI options for the MD/CEO
covering multiple years, to annual LTI awards in options (or rights) with a maximum value of 125% of fixed
remuneration. The maximum vesting only occurs in the event Silex’s 3 year TSR was in the top 5% of the ASX 300.
Shareholders will be asked to vote on the 2012 LTIP award of performance rights under the proposed plan.
The number of rights to be issued is based on a maximum of 125% of fixed remuneration for the 2013 financial
year and subject to performance criteria comprising Total Shareholder Return (TSR) over a 3 year period (as
described in 11.5.1.1) and will have a share price hurdle of $5.40. This share price hurdle is equal to the Offer
Price from the December 2010 placement.
11.5.2.3 New Long term Incentive Plan (LTIP)
In the 2012 financial year and in direct response to shareholder feedback, the Remuneration Committee carefully
considered the impact of implementing a more appropriately structured LTIP. In conjunction with its external
consultants, the Remuneration Committee has recently developed a new LTIP proposed for implementation.
This LTIP will include market based hurdles and is at-risk. This LTIP has been designed to ensure that Silex’s
remuneration framework is aligned with both the Company’s business strategy and the remuneration structures
of other publicly listed companies in Australia.
The proposed LTIP is structured in a manner whereby awards (described as LTI performance rights) granted to
senior executives are a right to acquire fully paid ordinary shares in the Company for nil consideration, subject
to meeting certain pre-determined vesting conditions. Performance rights awards are anticipated to be made
annually to senior executives of the Company at the sole discretion of the Board.
LTIP performance rights vest 3 years following the date of grant, subject to the achievement of various
performance measures including but not limited to relative Total Shareholder Return (TSR) targets, share price
hurdles and pre-determined performance measures and deliverables specific to the role held by the awardee.
Vesting Period
A 3 year performance period has been deemed appropriate to Silex’s business for the proposed LTIP, and is in
line with market practice and shareholder advisory group views. This vesting period will also encourage employee
retention and sustained longer-term performance.
42
Silex Annual Report 2012
directors’ Report
11.5.3 Summary of senior executives’ contracts
It is the Group’s policy that service contracts for senior executives, including the MD/CEO and CFO/Company
Secretary are unlimited in term however, capable of termination in accordance with their contracts.
With reference to the MD/CEO the notice period is 6 months. An additional termination benefit of 6 months total
fixed remuneration may be paid in the event a restraint or ‘gardening leave’ provision is applied. Any STI or LTI in
place at the time of gardening leave/termination commencement, will be dealt with in accordance with the rules
governing the respective plans and in line with the specific termination parameters provided to shareholders at
the time of approval of the equity incentive arrangements.
The Group retains the right to terminate all service contracts with senior executives immediately by making
payment in lieu of notice or as otherwise mutually agreed between the parties. On termination of employment,
senior executives are also entitled to receive their statutory entitlements of accrued annual and long service
leave, together with any superannuation benefits.
Service contracts outline the components of remuneration paid to senior executives in accordance with the
Group’s remuneration policy. Fixed remuneration levels are reviewed annually however, there is no obligation to
provide any adjustment. Any adjustment would take into account the executive’s performance and contribution,
the positioning of the current remuneration relative to the indicative market median, any change in the scope of
the role and any changes required to meet the principles of the Group’s remuneration policy and strategy.
Senior executives have no entitlements to payment in lieu of notice in the event of removal for misconduct.
Silex Annual Report 2012
43
directors’ Report
11.6 Directors’ and senior executives’ remuneration
The table below has been prepared in accordance with the requirements of the Corporations Act 2001 and
relevant accounting regulations in Australia.
2012
Name
Executive directors
Dr M P
Goldsworthy
Short-term
employee benefits
Post-
employment
benefits
long
term
benefits
Share-based
payments
Cash
salary
and fees
Non -
monetary
benefits
Sti
award
Super-
annuation
long
service
leave
termi-
nation
benefits Options
Sti
deferred
Rights
$
$
$
$
$
$
$
$
total
$
755,773
–
75,448
15,775
46,193
– 130,593 304,000 1,327,782
Non-executive directors
Prof S W R Burdon
91,797
Mr R P Campbell
89,262
Dr C S
Goldschmidt
Mr C D Wilks
83,285
142,704
–
–
–
–
–
–
–
–
8,262
8,034
7,496
11,984
–
–
–
–
–
–
–
–
–
–
–
100,059
97,296
–
90,781
823
–
43,487
–
198,998
Other key management personnel and group executives
Ms J E Ducie
Mr B J Spillane
(until 12
September 2011)
177,049
25,983
–
–
–
24,347
1,912
3,060
2,338
481
–
–
74,483
–
–
–
277,791
31,862
total
1,365,853
–
78,508
78,236
49,409
– 248,563 304,000 2,124,569
44
Silex Annual Report 2012
directors’ Report
2011
Name
Short-term
employee benefits
Post-
employment
benefits
long
term
benefits
Share-based
payments
Cash salary
and fees
Cash
bonus
Non -
monetary
benefits
Super-
annuation
long
service
leave
termi-
nation
benefits Options
Sti
deferred
Rights
$
$
$
$
$
722,401
–
77,478
15,199
11,779
$
$
total
$
–
–
826,857
–
–
189,164
–
–
–
–
–
–
–
–
28,824
76,300
74,523
–
24,876
–
960
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,023
159
–
–
–
–
–
2,380
6,300
6,153
2,054
75
–
–
–
–
1
Executive directors
Dr M P
Goldsworthy
Mr C D Wilks
(until 28 June
2011)
173,982
Non-executive directors
Prof S W R
Burdon (from 14
February 2011)
Mr R P Campbell
Dr C S
Goldschmidt
Mr B S Patterson
(until 27
October 2010)
Mr C D Wilks
(from 29
June 2011)
26,444
70,000
68,370
22,822
884
Ms J E Ducie
(from 27
October 2010)
Mr R J Seares
(until 28
June 2011)
Other key management personnel and group executives
99,635
13,761
–
9,728
255
–
26,633
–
150,012
Mr B J Spillane
132,246
190,608
–
–
–
15,077
(198)
28,938
(72,045)
13,742
11,665
1,759
–
–
total
1,507,392
13,761
91,220
83,654
13,755
28,938 (45,412)
–
–
–
162,380
159,412
1,693,308
Silex Annual Report 2012
45
directors’ Report
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
2012
2011
2012
2011
2012
2011
Fixed remuneration
at risk – Sti
at risk – lti*
Directors
Prof S W R Burdon (NED)
Mr R P Campbell (NED)
Dr C S Goldschmidt (NED)
Dr M P Goldsworthy (ED)
Mr B S Patterson (NED)
Mr C D Wilks**
100.0%
100.0%
100.0%
67.3%
N/a
78.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Other key management personnel and group executives
Ms J E Ducie
Mr R J Seares
Mr B J Spillane
73.2%
N/a
100.0%
73.1%
100.0%
100.0%
N/a
N/a
N/a
22.9%
N/a
N/a
–
N/a
–
N/A
N/A
N/A
–
N/A
N/A
N/a
N/a
N/a
9.8%
N/a
21.9%
N/A
N/A
N/A
–
N/A
–
9.2%
26.8%
–
–
N/a
–
17.7%
(44.4%)
–
* This relates to options issued on an LTI basis with the percentages based on the value of options expensed
during the year.
** Mr C D Wilks was a non-executive director for the year ended 30 June 2012. For the prior year, Mr C D Wilks
was an executive director until 28 June 2011 and a non-executive director from 29 June 2011.
11.7 Other statutory disclosures
11.7.1 Analysis of options over equity instruments granted as remuneration
Options are granted under the Silex Systems Limited Employee Share Option Plan. Full-time and part-time
staff of the consolidated entity are eligible to participate in the plan. Options are granted under the plan for no
consideration. Options are granted for a five year period and options issued to 15th March 2012 vest 100% after
two years. Options issued after the 16th March 2012 vest 100% after three years as recommended by various
governance bodies. Options have also been granted to the MD/CEO and Mr Chris Wilks. These were subject
to shareholder approval, granted for a five year period and vest after three years subject to a Total Shareholder
Return (TSR) hurdle measured over a three year performance period relative to the ASX 300 Index.
The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting
periods are as follows:
Grant date
expiry date
29th June 2009
28th June 2014
30th July 2010
29th July 2015
5th July 2011
4th July 2016
8th December 2011
7th December 2016
exercise
price
Value per
option at
grant date
date exercisable
$5.88
$4.65
$2.92
$2.04
$3.20
$1.97
$2.93
100% after 29th June 2011
100% after 30th July 2012
100% after 5th July 2013
$0.63
100% after 8th December 2014
Share
price
hurdle
N/A
$4.86
$3.05
$2.13
46
Silex Annual Report 2012
directors’ Report
Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible
into one ordinary share.
The exercise price of options is based on the weighted average price at which the Company’s shares are traded
on the Australian Stock Exchange during the five days immediately before the options are granted, plus five cents.
Details of options over ordinary shares in the company provided to each director of Silex Systems Limited and
each of the KMP of the Group are set out below. When exercisable, each option is converted into one ordinary
share of Silex Systems Limited.
Number
of options
granted
during
the year
Value of
options at
grant date
Number
of options
vested
during
the year
Number of
options that
were forfeited
during
the year
Number
of options
lapsed
during
the year
Value at
lapse date
Name
Directors of Silex Systems Limited
Dr M P Goldsworthy
1,102,207
Mr C D Wilks
367,035
694,170
231,159
Other key management personnel of the Group
Ms J E Ducie
Mr B J Spillane
60,000
–
70,716
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The assessed fair value at grant date of options granted to the individuals is allocated equally over the period
from grant date to vesting date, and the amount is included in the remuneration tables. Fair values at grant date
are determined using a binomial option pricing model that takes into account the exercise price, the term of the
option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share,
the expected dividend yield and the risk-free interest rate for the term of the option.
The model inputs for options granted during the year ended 30 June 2012 included:
exercise
price cents Grant date
292 5th July 2011
expiry date
4th July 2016
204 8th December 2011
7th December 2016
Share
price at
grant
date cents
expected
volatility of
Company’s
shares
293
190.5
45.0%
47.6%
expected
dividend
yield
Risk free
interest
rate
–
–
5.00%
3.39%
Shares provided on exercise of remuneration options
There were no ordinary shares issued in the Company provided as a result of the exercise of remuneration options to
each director of Silex Systems Limited and other KMP of the Group for the years’ ended 30 June 2011 or 2012.
The Remuneration Committee has recognised that this scheme alone is not appropriate for rewarding senior
executives as there are no performance based criteria which impact on their ability to realise share entitlements.
It is for this reason that the proposed LTIP has been established. Whilst the proposed LTIP is reviewed for approval
and implementation, the current Silex Systems Limited Employee Share Option Plan may continue to apply to
senior executives. Any awards of options to senior executives will now be subject to performance criteria.
Silex Annual Report 2012
47
directors’ Report
11.8 Company performance and consequences on shareholder wealth
11.8.1 Principles used to determine the nature and amount of remuneration:
relationship between remuneration and company performance
The overall level of executive reward takes into account the performance of the Group over a number of years,
with greater emphasis given to the current and prior year.
11.8.2 Details of remuneration: cash bonuses, options and restricted stock
For each cash bonus, grant of options or restricted stock included in the tables on pages 44 to 46, the percentage of
the available bonus or grant that was paid, or that vested is set out below. The maximum value of options to vest is
based on the value determined using the binomial model taking the value calculated as at grant date.
Cash bonus
Options
Financial
year
granted
– year
ended
Paid
%
Forfeited
%
Vested
%
Forfeited
%
Financial
years in
which
options
may vest –
year ended
maximum
total value
of grant
to vest
N/A
N/A
100
N/A
N/A
N/A
N/A
N/A
30/06/2012
30/06/2012
30/06/2011
30/06/2012
–
–
–
–
–
–
–
–
30/06/2015
694,170
30/06/2015
231,159
30/06/2013
30/06/2015
78,820
70,716
Name
Dr M P Goldsworthy
Mr C D Wilks
Ms J E Ducie – YE 30/06/11
Ms J E Ducie – YE 30/06/12
Name
Dr M P Goldsworthy
Mr C D Wilks
Ms J E Ducie – YE 30/06/11
Ms J E Ducie – YE 30/06/12
Financial year
to be issued –
year ended
30/06/2013
N/A
N/A
N/A
Sti deferred shares
entitled
%
76
N/A
N/A
N/A
Forfeited
%
maximum value
of shares
24
N/A
N/A
N/A
304,000
N/A
N/A
N/A
At the 2011 AGM, shareholders approved a short term incentive scheme for Dr Michael Goldsworthy in the form
of restricted Silex Systems Limited ordinary shares. The maximum total value was set at $400,000 (50% of his
fixed 2012 remuneration package) subject to the accomplishment of performance objectives. The remuneration
committee deemed Dr Michael Goldsworthy was entitled to 76% of the short term incentive and the shares will
be issued in October 2012.
11.8.3 Restrictions on limiting risk
Where a part of the directors or executives’ remuneration consists of securities, the director or executive is not
allowed to limit their exposure to risk in relation to the securities. Directors and executives with remuneration
consisting of securities are required to provide an annual declaration of compliance with this policy.
48
Silex Annual Report 2012
directors’ Report
11.8.4 Other executives of the consolidated entity
There are no officers, other than Executive Directors and executives noted above, involved in, concerned in,
or taking part in, the management of the commercial affairs of Silex Systems Limited.
11.8.5 Performance of Silex Systems Limited
year ended 30 June
2008
2009
2010
2011
2012
ePS
cents
(6.5)
(2.6)
(12.3)
(19.6)
(21.6)
Sti
Share price at 30 June
$
–
–
85,000
13,761
304,000
$
7.96
6.00
4.60
2.92
3.20
The increase in the negative earnings per share in the current year was mainly due to the increased loss from
continuing operations. The loss increased in the current period mainly due to an increase in Solar Systems’
segment loss. Solar Systems’ segment loss increased from $5.7 million in the prior year to $10.8 million in
the current year as the business ramped up its product development and commercialisation programs.
The loss for the period was also impacted by the decision to cease Silex Solar’s manufacturing operations and
close the plant at Sydney Olympic Park. The loss from this discontinued operation increased by $0.2 million to $19.0
million. The current year loss included the impact of further reductions in selling prices and costs associated with
the closure including the negotiated lease settlement, dismantling and decommissioning, further write downs of
fixed assets and inventory and redundancy payments totalling approximately $13.4 million.
The short term incentives (STI’s) in the prior year were awarded to Ms Julie Ducie for her contribution to the
management of the Company’s financial affairs and for her role in the share placement and share purchase plan.
Of Dr Michael Goldsworthy’s short term incentive for the year ended 30 June 2012, 76% was awarded equating
to $304,000 of restricted Silex Systems Limited ordinary shares at the price prevailing at the date of issue.
In recent years, the share market has dropped considerably due to growing concerns over the deteriorating
conditions in global financial and equity markets. Silex’s share price has suffered as a result. In addition, events
in Fukushima have had a negative impact on uranium-based stocks, including a significant fall in the Silex share
price in the weeks following the initial event. Progress in the Group’s various technology projects has not directly
been reflected in EPS as some of the projects are still in the research and development phase and, with the
exception of the Uranium Enrichment Project are yet to generate substantial revenue.
Silex Annual Report 2012
49
directors’ Report
12. Company secretary
Ms Julie Ducie, B. Bus, CA was appointed to the position of Company Secretary in October 2010. Before joining
Silex, Ms Ducie spent 4 years in the Construction Industry in the Middle East as Finance Manager of a Facade
Engineering company with projects in Dubai, Bahrain and Qatar. Prior to this, Ms Ducie was a Senior Associate with
a Chartered Accounting Practice.
13. Meetings
The number of directors’ meetings held during the financial year and the number of meetings attended by each
director are set out in the following table:
director’s
Name
Prof S W R Burdon
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy
Mr C D Wilks
directors’
meetings
audit
Committee meetings
Remuneration
Committee meetings
Number
Held
Number
attended
Number
Held
Number
attended
Number
Held
Number
attended
16
16
16
16
16
16
15
15
16
16
3
3
3
–
–
3
3
3
–
–
3
3
3
3
–
–
3
3
–
–
14. Indemnification and insurance of directors
The Company has entered into agreements to indemnify the Directors of the Company against all liabilities
to persons (other than the Company or related body corporate) which arise out of the performance of their
normal duties as directors or executive officers unless the liability relates to conduct involving lack of good faith.
The Company has agreed to indemnify the directors and executive officers against all costs and expenses
incurred in defending an action that falls within the scope of the indemnity.
The directors’ and officers’ liability insurance provides cover against all costs and expenses involved in defending
legal actions and any resulting payments arising from a liability to persons (other than the Company) incurred in their
position as a director or executive officer unless the conduct involves a wilful breach of duty or an improper use
of inside information or position to gain advantage. The insurance policy does not allow specific disclosure of the
nature of the liabilities insured against or the premium paid under the policy.
50
Silex Annual Report 2012
directors’ Report
15. Environmental regulation
The parent entity is subject to the environmental and health and safety regulations applicable to tenants of the
Lucas Heights Science and Technology Centre. The parent entity is also bound by the rules and regulations
set out in the Australian Radiation Protection and Nuclear Safety Act, 1998, and are a licensee under the Act.
Solar Systems is subject to a number of regulations including VIC Occupational Health and Safety Act 2004,
VIC Occupational Health and Safety Regulations 2007, VIC Dangerous Goods Act 1985, VIC Dangerous Goods
(Storage and Handling) Interim Regulations 2011. Silex Solar was also subject to a number of regulations including
the Sydney Water Act, NSW Occupational Health and Safety (Dangerous Goods) Regulation and NSW Protection
of the Environment Operations (Clean Air) Regulations.
To the best of the Directors’ knowledge, all environmental and health and safety regulatory requirements have been
met and there have been no claims made during the financial year.
16. Non-audit services
The company may decide to employ the auditor on assignments additional to their statutory audit duties
where the auditor’s expertise and experience with the company and/or the consolidated entity are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services
provided during the year are set out on the following page.
The Board of Directors has considered the position and, in accordance with the advice received from the Audit
Committee is satisfied that the provision of the non-audit services is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision
of non-audit services by the auditor, as set out on the following page, did not compromise the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
•
•
All non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality
and objectivity of the auditor.
None of the services undermine the general principles relating to auditor independence as set out in
Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management
or a decision-making capacity for the company, acting as advocate for the company or jointly sharing
economic risk and rewards.
During the year the following fees were paid or payable for services provided by the auditor of the parent company,
its related practices and non-related audit firms.
Silex Annual Report 2012
51
directors’ Report
Remuneration of auditors
During the year the following fees were paid or payable for services provided
by the auditor of the parent entity, its related practices and non-audit firms:
(a) Assurance services
Audit services
PricewaterhouseCoopers Australian firm
Audit and review of financial reports and other audit work under the
Corporations Act 2001
Total remuneration for audit services
Other assurance services
PricewaterhouseCoopers Australian firm
Audit of government grants
Total remuneration for other assurance services
Total remuneration for assurance services
(b) Other services
Review of option valuation methodology for Long Term Incentive Plan for directors
Total remuneration for other services
total remuneration
2012
$
2011
$
163,000
163,000
202,000
202,000
5,000
5,000
168,000
11,000
11,000
19,000
19,000
221,000
–
–
179,000
221,000
17. Auditors
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
18. Auditors’ independence declaration
A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001
is set out on page 53.
This report is made in accordance with a resolution of the Directors.
Dr M P Goldsworthy
Managing Director
Sydney, 28 September 2012
Mr C D Wilks
Director
52
Silex Annual Report 2012
directors’ Report
Auditors’ Independence Declaration
As lead auditor for the audit of Silex Systems Limited for the year ended 30 June 2012, I declare that, to the best
of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Silex Systems Limited and the entities it controlled during the period.
Rod Dring
Partner
PricewaterhouseCoopers
Sydney
28 September 2012
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
Silex Annual Report 2012
53
Corporate Governance Statement
Silex Systems Limited (the Company) and the Board are committed to achieving and demonstrating the highest
standards of corporate governance.
A description of the Company’s main corporate governance practices is set out below. All these practices,
unless otherwise stated, were in place for the entire year. They comply with the ASX Corporate Governance
Principles and Recommendations (including 2010 Amendments).
Principle 1: Lay solid foundations for management and oversight
The directors are responsible to the shareholders for the performance of the Company in both the short and
the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a
whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the
Group is properly managed.
Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy
initiatives are formally delegated by the Board to the Managing Director and senior executives.
The Board of Directors is accountable to shareholders for the performance of the Group and is responsible for
the corporate governance practices of the Group.
The Board’s principal objective is to maintain and increase shareholder value while ensuring that the Group’s
overall activities are properly managed.
Silex’s corporate governance practices provide the structure which enables the Board’s principal objective to be
achieved, whilst ensuring that the business and affairs of the group are conducted ethically and in accordance
with the law.
The Board’s overall responsibilities include:
•
providing strategic direction and approving corporate strategies;
• monitoring management and financial performance and reporting;
•
monitoring and ensuring the maintenance of adequate risk management controls and reporting
mechanisms; and
•
ensuring the business is conducted ethically and transparently.
The Board delegates responsibility for day-to-day management of the business to the Managing Director.
The Managing Director also oversees the implementation of strategies approved by the Board. The Board
uses committees to support it in matters that require more intensive review and involvement. Details of the
Board committees are provided below.
As part of its commitment to good corporate governance, the Board undertakes regular reviews of the practices
and standards governing the Board’s composition, independence and effectiveness, the accountability and
compensation of directors and the Board’s responsibility for the stewardship of the Group.
The Chairman undertakes an annual assessment of the performance of executive directors and meets privately
with each executive director to discuss this assessment. The Managing Director meets annually with senior
management to discuss their performance. Feedback is also sought from other directors. These assessments
and meetings took place during the year.
54
Silex Annual Report 2012
Corporate Governance Statement
Principle 2: Structure the Board to add value
The Board is comprised of both executive and non-executive directors with a majority of non-executive directors.
Non-executive directors bring a balanced perspective to the Board’s consideration of strategic, risk and
performance matters and are best placed to exercise independent judgement and review and constructively
challenge the performance of management.
The Chairman is an independent non-executive director, the majority of the Board are independent of
management and all directors are required to bring independent judgement to bear in their Board decision
making. The Chairman is elected by the full Board.
The Company maintains a mix of directors on the Board from different backgrounds with complementary skills
and experience. When a new director is to be appointed, the Board prepares a list of the requisite range of skills,
experience and expertise. From this the Board, prepares a short-list of candidates with appropriate skills and
experience. A number of channels are used to source candidates to ensure the company benefits from a diverse
range of individuals in the selection process.
The Directors of the Company in office at the date of this statement are:
Name
age
Position
expertise
Prof S W R Burdon
69
Non-executive director/
Chairman
Telecommunications industry
and Company Management
Mr R P Campbell
67
Non-executive director
Finance and Accounting, Computing
and Company Management
Dr C S Goldschmidt
58
Non-executive director
Company Management
Dr M P Goldsworthy
54
Managing Director/CEO
Dr L M McIntyre
47
Non-executive director
Mr C D Wilks
54
Non-executive director
Physicist and Co-inventor of
the SILEX Technology
Strategy, Commercialisation
and Company Management
Investment Banking, Finance
and Company Management
year
appointed
director
2011
1996
1992
1992
2012
1988
Prof S W R Burdon, Mr R P Campbell, Dr C S Goldschmidt and Dr L M McIntyre are considered independent.
An independent director cannot be a substantial shareholder (as defined in section 9 of the Corporations Act 2001).
The size and composition of the Board is determined by the full Board. Additional information on the skills and
experience of the directors is included in Section 10 of the Directors’ Report.
Silex Annual Report 2012
55
Corporate Governance Statement
Directors’ independence
The Board has adopted specific principles in relation to directors’ independence. These state that to be deemed
independent, a director must be a non-executive and:
•
•
•
•
•
•
not be a substantial shareholder of the Company or an officer of, or otherwise associated directly with,
a substantial shareholder of the Company;
within the last three years, not have been employed in an executive capacity by the Company or any other
group member, or been a director after ceasing to hold any such employment;
within the last three years not have been a principal of a material professional adviser or a material
consultant to the Company or any other group member, or an employee materially associated with
the service provided;
not be a material supplier or customer of the Company or any other group member, or an officer of or
otherwise associated directly or indirectly with a material supplier or customer;
must have no material contractual relationship with the Company or a controlled entity other than as a
director of the Group; and
be free from any interest and any business or other relationship which could, or could reasonably be
perceived to, materially interfere with the director’s ability to act in the best interests of the Company.
Materiality for these purposes is determined on both quantitative and qualitative bases. In addition, a
transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’
understanding of the director’s performance.
Term of office
The Company’s Articles of Association specifies that all directors other than the Managing Director must retire
from office no later than the third annual general meeting (AGM) following their last election. Where eligible,
a director may stand for re-election.
Prior to appointment or being submitted for re-election each non-executive director is required to specifically
acknowledge that they have and will continue to have the time available to discharge their responsibilities to
the Company.
Chairman and Chief Executive Officer (CEO)
The Chairman is responsible for leading the Board, ensuring directors are properly briefed in all matters relevant
to their role and responsibilities, and facilitating Board discussions.
The CEO is responsible for the day-to-day management of the Company’s affairs, and for implementing Group
strategies and policies as determined by the Board of Directors.
56
Silex Annual Report 2012
Corporate Governance Statement
Induction
The induction provided to new directors and senior executives enables them to actively participate in board
decision-making as soon as possible. It ensures that they have a full understanding of the company’s financial
position, strategies, operations, culture, values and risk management policies. It also explains the respective
rights, duties, responsibilities, interaction and roles of the Board and senior executives and the Company’s
meeting arrangements.
Board meetings
The Board meets formally at least 9 times a year to consider a broad range of matters, including progress with
respect to the Company’s various development programs, strategy, financial reviews, acquisitions and investments.
Details of meetings and attendances are set out in the Directors’ Report. Various meetings during the year were
held at operational sites of the Company and a full tour of the facilities was included as part of the visit.
Conflicts of interest of directors
The Board has guidelines dealing with disclosure of interests by directors and participation and voting at board
meetings where any such interests are discussed. In accordance with the Corporations Act 2001, any director
with a material personal interest in a matter being considered by the Board does not receive the relevant board
papers, must not be present when the matter is being considered, and may not vote on the matter.
Independent professional advice
Directors and board committees have the right, in connection with their duties and responsibilities, to seek
independent professional advice at the Company’s expense. Prior written approval of the Chairman is required,
but this will not be unreasonably withheld.
All directors have access to Company records and information and receive detailed financial and operational reports
from senior management during the year to enable them to carry out their duties. Directors also liaise with senior
management as required, and may consult with other employees and seek additional information on request.
Performance assessment and remuneration
The Board meets to undertake an annual self-assessment of its collective performance, the performance of
the Chairman and of its committees. This was performed in June 2012 and all deemed satisfactory. The Board
discusses a broad range of issues including the progress of the various research and development projects,
the financial results, capital raisings, major deals negotiated and the share price. The Board considers the
appropriate mix of skills required by the Board to maximise its effectiveness and its contribution to the Group.
The Chairman undertakes an annual assessment of the performance of individual directors and holds
discussions with each director to discuss this assessment. The Managing Director meets annually with
non-director senior executives to discuss their performance. Feedback is also sought from other directors.
The Directors’ Report contains details of remuneration paid to directors and executives. Executive and
non-executive directors’ fees are clearly separated in the Directors’ Report.
Where bonuses are paid, details of the reason for the bonus are described. Equity awards issued to executive
directors are approved by shareholders at the Annual General Meeting.
Additional information on performance evaluation and remuneration is provided in the Directors’ Report.
Silex Annual Report 2012
57
Corporate Governance Statement
Board committees
The Board has established a number of committees to assist in the execution of its duties and to allow detailed
consideration of complex issues. Current committees of the Board are the Remuneration and Audit Committees.
Each is comprised of a majority of non-executive directors. The committee structure and membership is
reviewed on an annual basis.
Nomination committee
The Board has decided that it is in the Company’s best interest that the full Board deals with nomination issues.
As a result a Nomination Committee has not been established.
Principle 3: Promote ethical and responsible decision making
Code of conduct
The Company has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and
applies to all directors and employees.
In summary, the Code requires that at all times Company personnel act with the utmost integrity, objectivity and
in compliance with the letter and the spirit of the law and company policies.
A copy of the Code is available on the Company’s website.
Diversity policy
The Company values diversity and recognises the benefits it can bring to the organisation’s ability to achieve
its goals. Accordingly the Company has developed a diversity policy, a copy of which can be found on the
Company’s website. This policy outlines the Company’s position on all forms of diversity, in particular diversity
as it relates to gender. It includes requirements for the Board to establish measurable objectives for achieving
diversity, and for the Board to assess annually both the objectives, and the company’s progress in achieving them.
In accordance with this policy and ASX Corporate Governance Principles, the Board has established the following
objectives in relation to gender diversity. The aim is to achieve these objectives over the coming 2 to 3 years as director,
senior executive and management positions become vacant and appropriately skilled candidates are available:
Number of women employees in the whole organisation
Number of women in senior executive and management positions
Number of women on the Board
* Target to be achieved by 2016
Objective (%)
actual (%)
35.0
35.0
33.0*
22.1
28.5
16.6
Responsibility for diversity has been included in the board charter and the remuneration committee charter
(diversity at all levels of the company).
58
Silex Annual Report 2012
Corporate Governance Statement
Share trading policy
The Company has in place a formal share trading policy which places certain prohibitions on the trading of the
Company’s shares. The policy is on the Company’s website. All Silex share dealings by directors are promptly
notified to the Australian Stock Exchange (ASX). All directors and employees are prohibited from buying and
selling Silex shares at any time if they are aware of any material price sensitive information that has not been
made available to the public. This however does not restrict directors and employees from exercising options
over unissued Silex shares. Trading of the subsequently issued shares is however subject to the prohibitions above.
Principle 4: Safeguarding integrity in financial reporting
Audit committee
The audit committee consists of 4 non-executive independent directors as follows:
Prof S W R Burdon (member for full year, Chairman from 30 September 2011 to 28 February 2012)
Mr R P Campbell (member for full year, Chairman from 28 February 2012)
Dr C S Goldschmidt (Chairman from 27 October 2010 to 30 September 2011)
Dr L M McIntyre (member from 2 July 2012)
Details of these directors’ qualifications and attendance at audit committee meetings are set out in the
Directors’ Report.
The Audit Committee has appropriate financial expertise and all members are financially literate and have an
appropriate understanding of the industries in which the Group operates.
The Audit Committee has its own written charter setting out its role and responsibilities, composition, structure,
membership requirements and the manner in which the committee is to operate. The charter is reviewed on an
annual basis and is available on the Company’s website.
Minutes of committee meetings are tabled at the subsequent Board meeting.
The Audit Committee operates in accordance with a charter. The main responsibilities of the committee are to:
•
review, assess and approve the financial reports and all other financial information published by the
Company or released to the market
•
assist the Board in reviewing the effectiveness of the organisation’s internal control environment covering:
− effectiveness and efficiency of operations
− reliability of financial reporting
− compliance with applicable laws and regulations
oversee the effective operation of the risk management framework
recommend to the Board the appointment, removal and remuneration of the external auditors,
and review the terms of their engagement, the scope and quality of the audit and assess performance
consider the independence and competence of the external auditor on an ongoing basis
review and approve the level of non-audit services provided by the external auditors and ensure it does not
adversely impact on auditor independence
review and monitor related party transactions and assess their propriety
report to the Board on matters relevant to the committee’s role and responsibilities.
•
•
•
•
•
•
Silex Annual Report 2012
59
Corporate Governance Statement
In fulfilling its responsibilities, the Audit Committee receives regular reports from management and the external
auditors. It also meets with the external auditors at least twice a year – more frequently if necessary, and reviews
any significant disagreements between the auditors and management, irrespective of whether they have been
resolved. The external auditors have a clear line of direct communication at any time to either the Chairman of
the Audit Committee or the Chairman of the Board.
The Audit Committee has authority, within the scope of its responsibilities, to seek any information it requires
from any employee or external party.
External auditors
The Company and Audit Committee policy is to appoint external auditors who clearly demonstrate quality
and independence. The performance of the external auditor is reviewed annually and applications for tender
of external audit services are requested as deemed appropriate, taking into consideration assessment of
performance, existing value and tender costs. It is PricewaterhouseCoopers policy to rotate audit engagement
partners on listed companies at least every five years.
An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services,
is provided in the Directors’ Report. It is the policy of the external auditors to provide annual declarations of
their independence to the Audit Committee.
The external auditor is requested to attend the annual general meeting and be available to answer shareholder
questions about the conduct of the audit and the preparation and content of the Audit Report.
Principles 5 and 6: Make timely and balanced disclosures and respect the rights
of shareholders
Continuous disclosure and shareholder communication
The Company has written policies and procedures on information disclosure that focus on continuous disclosure
of any information concerning the Company and its subsidiaries that a reasonable person would expect to have
a material effect on the price of the Company’s securities. These policies and procedures also include the
arrangements the Company has in place to promote effective communication with shareholders and encourage
participation at general meetings. The Company’s Continuous Disclosure Policy is available on the Company’s website.
The Company Secretary has been nominated as the person responsible for communications with the Australian
Stock Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure
requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX,
analysts, brokers, shareholders, the media and the public.
Information disclosed to the ASX is posted on the Company’s website as soon as it is disclosed to the ASX.
Procedures have also been established for reviewing whether any price sensitive information has been
inadvertently disclosed, and if so, this information is also immediately released to the market.
60
Silex Annual Report 2012
Corporate Governance Statement
The role of shareholders
The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting
the Group’s state of affairs. Information is communicated to shareholders as follows:
•
The Annual Report is distributed to all shareholders who have elected to receive it and is posted on the
Company’s website. The Board ensures that the Annual Report includes relevant information about the
operations of the Group during the year, changes in the state of affairs of the Group and details of likely
future developments, in addition to the other disclosures required by the Corporations Act 2001;
•
Proposed major changes in the Group which may impact on share ownership rights are submitted to a
vote of shareholders.
The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level
of accountability and identification with the Group’s strategy and goals. Important issues are presented to the
shareholders as single resolutions.
The shareholders are responsible for voting on the appointment of directors.
Principle 7: Recognise and manage risk
The Board, through the Audit Committee, is responsible for ensuring there are adequate policies in relation to risk
management, compliance and internal control systems. These policies, detailed in the Audit Committee charter
are available on the Company website. In summary, the Company policies are designed to ensure strategic,
operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and
monitored to enable achievement of the Group’s business objectives.
Considerable importance is placed on maintaining a strong control environment. There is an organisation
structure with clearly drawn lines of accountability and delegation of authority. Adherence to the Code of
Conduct is required at all times and the Board actively promotes a culture of quality and integrity.
Detailed control procedures cover management accounting, financial reporting, project appraisal, environment,
health and safety, IT security, compliance and other risk management issues.
The Board requires management to design and implement the risk management and internal control system
to manage the Company’s material business risks. The Board discusses these policies at regular intervals.
For example management provides details of cash deposits, intellectual property patenting and significant
commercial exposures on a regular basis for review. Management has reported to the Board on the
effectiveness of the Company’s management of its material business risks.
The Board requires that each major proposal submitted to the Board for decision is accompanied by sufficient
due diligence and risk review.
Occupational Health and Safety (OH&S)
The Company recognises the importance of Occupational Health and Safety (OH&S) issues and is committed
to the highest levels of performance. To help meet this objective, OH&S Committees have been established
to facilitate the systematic identification of OH&S issues and to ensure they are managed in a structured
and rigorous manner. This system has been operating for a number of years and allows the Company to:
• monitor its compliance with all relevant OH&S legislation and regulations;
•
•
•
continually assess and improve the effectiveness of the Company’s OH&S program;
encourage employees to actively participate in the management of all OH&S issues; and
reinforce the importance of safe work practices throughout the Company, as mandated by management.
Silex Annual Report 2012
61
Corporate Governance Statement
Environmental regulation
As noted in the Directors’ Report, the parent entity is subject to the environmental and health and safety
regulations applicable to tenants of the Lucas Heights Science and Technology Centre. The parent entity
is also bound by the rules and regulations set out in the Australian Radiation Protection and Nuclear Safety
Act, 1998, and are a licensee under that Act. Silex Solar was subject to a number of regulations including the
Sydney Water Act, NSW Occupational Health and Safety (Dangerous Goods) Regulation and NSW Protection
of the Environment Operations (Clean Air) Regulations. Solar Systems is also subject to a number of regulations
including VIC Occupational Health and Safety Act 2004, VIC Occupational Health and Safety Regulations 2007,
VIC Dangerous Goods Act 1985, VIC Dangerous Goods (Storage and Handling) Interim Regulations 2011.
To the best of the Directors’ knowledge, all environmental regulatory requirements have been met.
Corporate reporting
In complying with recommendation 7.3, the Managing Director/CEO and CFO have made the following
certifications to the Board:
•
•
that the Company’s financial reports are complete and present a true and fair view, in all material respects,
of the financial condition and operational results of the Company and Group and are in accordance with
relevant accounting standards
that the above statement is founded on a sound system of risk management and internal control and
that the system is operating effectively in all material respects in relation to financial reporting risks.
Principle 8: Remunerate fairly and responsibly
Remuneration committee
The remuneration committee consists of the following non-executive directors:
Prof S W R Burdon (member for full year, Chairman from 30 September 2011)
Mr R P Campbell
Dr L M McIntyre (member from 2 July 2012)
Dr C S Goldschmidt (member to 30 June 2012, Chairman from 27 October 2010 to 30 September 2011)
Details of these directors’ attendance at remuneration committee meetings are set out in the Directors’ Report.
The Remuneration Committee advises the Board on remuneration and incentive policies and practices generally,
and makes specific recommendations on remuneration packages and other terms of employment for executive
directors, other senior executives and non-executive directors. Further information on directors’ and executives’
remuneration is set out in the Directors’ Report, which distinguishes non-executive directors’ remuneration from
that of executive directors and senior executives.
The remuneration committee adopts policies that attract and maintain talented and motivated directors and
employees so as to encourage enhanced performance.
Where a part of the director’s or executive’s remuneration consists of securities, the director or executive is not
allowed to enter into transactions in associated products which limit the economic risk of participation in unvested
entitlements under any equity based remuneration schemes. Annual declarations of compliance are obtained.
Further details of directors’ remuneration, superannuation and retirement payments are set out in the
Directors’ Report.
62
Silex Annual Report 2012
Silex SyStemS limited
Concise Financial
Report – 30 June 2012
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated balance sheet
Consolidated statement of
changes in equity
Consolidated statement of
cash flows
Notes to the financial statements
directors’ declaration
Independent auditor’s
report to the members
64
65
66
67
69
70
73
74
Relationship of the concise financial
report to the full financial report
The concise financial report is an extract from the full financial report for the year
ended 30 June 2012. The financial statements and specific disclosures included
in the concise financial report have been derived from the full financial report.
The concise financial report cannot be expected to provide as full an understanding
of the financial performance, financial position and financing and investing activities
of Silex Systems Limited and its subsidiaries as the full financial report. Further
financial information can be obtained from the full financial report.
The full financial report and auditor’s report will be sent to members on request, free
of charge. Please call +61 2 9532 1331 and request a copy of the full financial report
(or email enquiries@silex.com.au). Alternatively, you can access both the full financial
report and the concise report via the internet on our website: www.silex.com.au.
Silex Annual Report 2012
63
Consolidated income statement
directors’ Report
for the year ended 30 June 2012
Revenue from continuing operations
Other income
Research and development materials
Finance costs
Depreciation and amortisation expense
Employee benefits expense
Consultants and professional fees
Printing, postage, freight and stationery
Rent, utilities and property outgoings
Travelling expenses
Changes in inventories of finished goods and work in progress
Raw materials and stores used
Net foreign exchange losses
Share of net loss of associate accounted for using the equity method
Other expenses from continuing activities
(loss) before income tax expense
Income tax expense
Net (loss) from continuing operations
Notes
2
3
2012
$
2011
$
9,438,691
9,924,566
1,504,310
3,148,904
(1,739,738)
(2,227,726)
(3,127)
(112,247)
(2,788,685)
(2,522,493)
(16,658,397)
(12,364,008)
(2,761,833)
(2,795,170)
(260,735)
(1,748,757)
(1,147,798)
(11,224)
(287,198)
(273,312)
(1,439,357)
(1,257,277)
33,004
(314,231)
–
(1,110,782)
(31,320)
(5,470)
(1,486,966)
(1,416,190)
(17,982,777)
(12,731,789)
–
–
(17,982,777)
(12,731,789)
Net (loss) from discontinued operation
Net (loss) for year
5
(18,987,847)
(18,749,977)
(36,970,624)
(31,481,766)
Net (loss) is attributable to:
Owners of Silex Systems Limited
Non-controlling interests
earnings per share for (loss) from continuing operations
attributable to the ordinary equity holders of the company
Basic earnings per share
Diluted earnings per share
earnings per share for (loss) attributable to the ordinary
equity holders of the company
Basic earnings per share
Diluted earnings per share
Notes
(36,792,005)
(31,301,061)
(178,619)
(180,705)
(36,970,624)
(31,481,766)
2012
cents
(10.5)
(10.5)
(21.6)
(21.6)
2011
cents
(7.8)
(7.8)
(19.6)
(19.6)
The above consolidated income statement should be read in conjunction with the accompanying notes.
64
Silex Annual Report 2012
Consolidated statement
of comprehensive income
directors’ Report
for the year ended 30 June 2012
Net (loss) for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
total comprehensive income for the year
Attributable to:
Owners of Silex Systems Limited
Non-controlling interests
total comprehensive income for the year
2012
$
2011
$
(36,970,624)
(31,481,766)
(121,503)
(121,503)
(471,034)
(471,034)
(37,092,127)
(31,952,800)
(36,913,508)
(31,772,095)
(178,619)
(180,705)
(37,092,127)
(31,952,800)
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
Silex Annual Report 2012
65
Consolidated balance sheet
directors’ Report
as at 30 June 2012
aSSetS
Current assets
Cash and cash equivalents
Held to maturity investments – term deposits
Trade and other receivables
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments accounted for using the equity method
Total non-current assets
total assets
liabilitieS
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Provisions
Total non-current liabilities
total liabilities
Net assets
eQuity
Contributed equity
Reserves
Accumulated losses
Capital and reserves attributable to owners of:
Silex Systems Limited
Non-controlling interests
total equity
30 June 2012
30 June 2011
$
$
3,682,254
83,912,921
6,633,569
1,887,567
15,470,436
93,937,500
8,550,710
9,183,917
96,116,311
127,142,563
15,687,753
14,486,600
11,337
20,168
20,555,407
22,037,511
98,236
129,556
36,352,733
36,673,835
132,469,044
163,816,398
5,070,084
1,814,642
6,884,726
5,210,593
811,607
6,022,200
4,779,164
163,789
4,942,953
11,827,679
2,334,690
124,434
2,459,124
8,481,324
120,641,365
155,335,074
231,068,369
231,040,738
9,180,044
6,930,760
(119,068,672)
(82,276,667)
121,179,741
155,694,831
(538,376)
(359,757)
120,641,365
155,335,074
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
66
Silex Annual Report 2012
Consolidated statement of changes in equity
directors’ Report
for the year ended 30 June 2012
attributable to owners of Silex Systems limited
Contributed
equity
$
Reserves
$
accumulated
losses
$
Non-
controlling
interests
$
total
$
total
$
balance
at 30 June 2010
122,423,175
5,035,839
(50,975,606)
76,483,408
(179,052)
76,304,356
Loss for the year
–
–
(31,301,061)
(31,301,061)
(180,705)
(31,481,766)
Exchange differences
on translation of
foreign operations
total comprehensive
income for the year
–
–
(471,034)
–
(471,034)
–
(471,034)
(471,034)
(31,301,061)
(31,772,095)
(180,705)
(31,952,800)
transactions with
owners in their
capacity as owners
Contributions
of equity, net of
transaction costs
Employee share
options – value of
employee services
Transfer from
share based
payments reserve
Deferred tax credit
recognised directly
in equity
balance at
30 June 2011
108,347,195
–
–
108,347,195
–
108,347,195
–
2,637,140
271,185
(271,185)
–
–
2,637,140
–
(817)
108,617,563
–
2,365,955
(817)
–
– 110,983,518
–
–
–
–
2,637,140
–
(817)
110,983,518
231,040,738
6,930,760
(82,276,667)
155,694,831
(359,757)
155,335,074
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Silex Annual Report 2012
67
Consolidated statement of changes in equity
directors’ Report
for the year ended 30 June 2012 (continued)
attributable to owners of Silex Systems limited
Contributed
equity
$
Reserves
$
accumulated
losses
$
Non-
controlling
interests
$
total
$
total
$
–
–
–
–
(36,792,005)
(36,792,005)
(178,619)
(36,970,624)
(121,503)
–
(121,503)
–
(121,503)
(121,503)
(36,792,005)
(36,913,508)
(178,619)
(37,092,127)
36,462
–
–
36,462
–
2,364,665
–
2,364,665
–
–
–
36,462
2,364,665
6,122
–
6,122
(8,831)
27,631
–
2,370,787
–
–
–
6,122
(8,831)
2,398,418
–
–
(8,831)
2,398,418
231,068,369
9,180,044
(119,068,672) 121,179,741
(538,376)
120,641,365
Loss for the year
Exchange differences
on translation of
foreign operations
total comprehensive
income for the year
transactions with
owners in their
capacity as owners
Shares to employees,
net of transaction
costs
Employee share
options – value of
employee services
Transactions with
non-controlling
interests
Deferred tax credit
recognised directly
in equity
balance at
30 June 2012
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
68
Silex Annual Report 2012
Consolidated statement of cash flows
directors’ Report
for the year ended 30 June 2012
2012
$
2011
$
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
16,794,963
28,955,595
Payments to suppliers and employees (inclusive of goods and services tax)
(38,846,105)
(60,903,378)
Transaction costs relating to acquisition of business
Interest received
Interest paid
Net cash (outflows) from operating activities
Cash flows from investing activities
Payment for investments accounted for using the equity method
Payments for held to maturity investments – term deposits
–
5,897,855
(3,127)
(226,160)
3,597,163
(153,492)
(16,156,414)
(28,730,272)
–
–
(135,026)
(93,937,500)
Proceeds from maturity of held to maturity investments – term deposits
10,024,579
–
Payments for property, plant and equipment
Payments for intangibles
Proceeds from sale of property, plant and equipment
Repayment of loans by employees
(6,100,818)
(7,525,386)
(126,375)
233,911
–
(107,979)
6,355
3,731
Net cash inflows/(outflows) from investing activities
4,031,297
(101,695,805)
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of shares to non-controlling interest
Net cash inflows from financing activities
Net (decrease) in cash held
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash
Cash and cash equivalents at end of year*
(1,538)
106,347,190
6,122
4,584
–
106,347,190
(12,120,533)
(24,078,887)
15,470,436
40,731,209
332,351
(1,181,886)
3,682,254
15,470,436
* Held to maturity investments excluded from cash and cash equivalents
83,912,921
93,937,500
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Silex Annual Report 2012
69
Notes to the financial statements
directors’ Report
30 June 2012
This concise financial report relates to the consolidated entity consisting of Silex Systems Limited and the
entities it controlled at the end of, or during, the year ended 30 June 2012. The accounting policies have been
consistently applied to all years presented, unless otherwise stated otherwise.
Note 1 Presentation currency
The presentation currency used in this concise financial report is Australian dollars.
Note 2 Revenue
From continuing operations
Recoverable project costs
Sale of goods
Interest income
Other
From discontinued operation
Sale of goods
Interest income
Note 3 Other income
From continuing operations
Government grants
Foreign currency exchange gains (net)
Profit on sale of property, plant and equipment
Other
From discontinued operation
Government grants
Foreign currency exchange gains (net)
Profit on sale of property, plant and equipment
Other
2012
$
2011
$
3,865,756
5,208,290
61,472
251,877
5,500,081
4,446,495
11,382
17,904
9,438,691
9,924,566
8,063,520
19,136,713
128,831
129,995
8,192,351
19,266,708
2012
$
2011
$
1,245,381
3,127,617
250,397
5,266
3,266
–
–
21,287
1,504,310
3,148,904
–
264,636
79,456
190,201
–
269,657
–
–
7,125
271,761
70
Silex Annual Report 2012
Notes to the financial statements
directors’ Report
30 June 2012 (continued)
(i) Government grants
Federal and state government solar project grants of $1,245,381 (2011: $3,112,954) were recognised as other
income by Solar Systems during the financial year. The company has met the conditions of the grants and the
income has been recognised. An export market development grant of nil (2011: $14,663) was recognised as
income during the financial year by Solar Systems. State government solar project grants of nil (2011: $264,636)
were recognised as other income by Silex Solar during the financial year. There are no unfulfilled conditions
attached to these grants.
Note 4 Segment information
2012
Silex Systems
translucent
Chronologic
Solar Systems
Total segment revenue
10,327,364
2,082,430
Inter-segment revenue
(982,048)
(2,070,909)
$
$
$
19,015
–
$
total
$
62,839
12,491,648
–
(3,052,957)
Revenue from
external customers
Segment result
9,345,316
2,275,255
11,521
19,015
62,839
9,438,691
(5,362,564)
(1,720,243)
(10,830,614)
(15,638,166)
total segment assets
88,113,766
2,987,328
total segment liabilities
1,715,089
330,330
305,912
243,832
29,565,459
120,972,465
4,007,021
6,296,272
2011
Silex Systems
translucent
Chronologic Solar Systems
$
$
$
$
total
$
Total segment revenue
10,440,020
2,702,959
38,398
242,592
13,423,969
Inter-segment revenue
(815,186)
(2,684,217)
–
–
(3,499,403)
Revenue from external
customers
Segment result
9,624,834
1,077,843
18,742
38,398
242,592
9,924,566
(4,351,375)
(1,759,477)
(5,731,189)
(10,764,198)
total segment assets
107,706,026
1,539,538
total segment liabilities
1,538,358
238,263
366,300
237,454
25,532,081
135,143,945
2,188,363
4,202,438
The Board of Directors assesses the performance of the operating segments based on a result that excludes
share based payments, exchange gains and losses on intercompany loans which eliminate on consolidation and
amortisation of intellectual property on consolidation. A reconciliation of segment result to net (loss) before tax from
continuing operations is provided as follows;
Segment result
Amortisation of intellectual property on consolidation
2012
$
2011
$
(15,638,166)
(10,764,198)
(797)
(1,913)
Share based payments expense in continuing operations
(2,343,814)
(1,965,678)
Net (loss) from continuing operations
(17,982,777)
(12,731,789)
Silex Annual Report 2012
71
Notes to the financial statements
directors’ Report
30 June 2012 (continued)
Note 5 Discontinued operation
The Australian PV panel market continued to deteriorate during the year and led to a decision to cease all
manufacturing operations at Sydney Olympic Park in May 2012. Subsequent to this, a decision to cease all
activities was made.
The current year loss included the impact of further reductions in selling prices and provision for costs associated
with the closure, including the negotiated lease settlement cost, dismantling and decommissioning costs, further
write downs of fixed assets and inventory, redundancy payments and other costs totalling $13.4 million.
A summary of the results of the discontinued operation is provided below.
Revenue (note 2)
Other income (note 3)
Expenses
(Loss) before income tax
Income tax expense
2012
$
8,192,351
269,657
2011
$
19,266,708
271,761
(27,449,855)
(38,288,446)
(18,987,847)
(18,749,977)
–
–
(Loss) after income tax of discontinued operation
(18,987,847)
(18,749,977)
Net cash (outflow) from operating activities
(3,411,963)
(20,886,780)
Net cash inflow / (outflow) from investing activities
180,912
(2,392,935)
Net cash (outflow) from financing activities
–
–
Net cash (outflow) from the discontinued operation
(3,231,051)
(23,279,715)
Note 6 Dividends
No dividends were declared or paid during the year or in the prior year.
Note 7 Events occurring after reporting date
On the 25th September 2012, the US Nuclear Regulatory Commission announced that it had issued a
combined construction and operating license to Global Laser Enrichment, the subsidiary of GE responsible
for commercialising the SILEX Technology. Other than this, the directors are not aware of any matters or
circumstances which are not otherwise dealt with in the financial statements that have significantly or may
significantly affect the operations of the consolidated entity, the results of its operations or the state of the
consolidated entity in subsequent years.
72
Silex Annual Report 2012
directors’ declaration
directors’ Report
The directors declare that in their opinion, the concise financial report of the consolidated entity for the
year ended 30 June 2012 as set out on pages 63 to 72 complies with Accounting Standard AASB 1039:
Concise Financial Reports.
The concise financial report is an extract from the full financial report for the year ended 30 June 2012.
The financial statements and specific disclosures included in the concise financial report have been derived
from the full financial report.
The concise financial report cannot be expected to provide as full an understanding of the financial performance,
financial position and financing and investing activities of the consolidated entity as the full financial report, which
is available on request.
This declaration is made in accordance with a resolution of the directors.
Dr M P Goldsworthy
Managing Director
Mr C D Wilks
Director
Sydney, 28 September 2012
Silex Annual Report 2012
73
independent auditor’s report to the
members of Silex Systems limited
Report on the concise financial report
We have audited the accompanying concise financial report of Silex Systems Limited (the company) which
comprises the balance sheet as at 30 June 2012, the income statement, statement of comprehensive income,
statement of changes in equity and statement of cash flows for the year then ended and related notes, derived
from the audited financial report of the company for the year ended 30 June 2012 for Silex Systems Limited
Group (the consolidated entity). The concise financial report does not contain all the disclosures required by
the Australian Accounting Standards and accordingly, reading the concise financial report is not a substitute for
reading the audited financial report.
Directors’ responsibility for the concise financial report
The directors are responsible for the preparation of the concise financial report in accordance with Accounting
Standard AASB 1039 Concise Financial Reports, and the Corporations Act 2001, and for such internal controls
as the directors determine are necessary to enable the preparation of the concise financial report.
Auditor’s responsibility
Our responsibility is to express an opinion on the concise financial report based on our audit procedures which
were conducted in accordance with Auditing Standard ASA 810 Engagements to Report on Summary Financial
Statements. We have conducted an independent audit, in accordance with Australian Auditing Standards, of the
financial report of the consolidated entity for the year ended 30 June 2012. We expressed an unmodified audit
opinion on that financial report in our report dated 28 September 2012. The Australian Auditing Standards require
that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report for the year is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
concise financial report. The procedures selected depend on the auditor’s judgement, including the assessment
of the risks of material misstatement of the concise financial report, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation of the concise financial
report 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 entity’s internal control.
Our procedures include testing that the information in the concise financial report is derived from, and is consistent
with, the financial report for the year, and examination on a test basis, of audit evidence supporting the amounts
and other disclosures which were not directly derived from the financial report for the year. These procedures have
been undertaken to form an opinion whether, in all material respects, the concise financial report complies with
AASB 1039 Concise Financial Reports.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
74
Silex Annual Report 2012
Independent auditor’s report to the
Directors’ Report
members of Silex Systems Limited (continued)
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of Silex Systems Limited would be in the same terms if given to the directors as at the date of this
auditor’s report.
Auditor’s opinion
In our opinion, the concise financial report of the company for the year ended 30 June 2012 complies with
Australian Accounting Standard AASB 1039: Concise Financial Reports.
Report on the remuneration report
The following paragraphs are copied from our report on the remuneration report for the year ended 30 June 2012.
We have audited the remuneration report included in pages 30 to 49 of the directors’ report for the year
ended 30 June 2012. The directors 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.
Auditor’s opinion
In our opinion, the remuneration report of Silex Systems Limited for the year ended 30 June 2012,
complies with section 300A of the Corporations Act 2001.
Matters relating to the electronic presentation of the audited concise financial report
This auditor’s report relates to the concise financial report and remuneration report of Silex Systems Limited
(the company) for the year ended 30 June 2012 included on Silex Systems Limited web site. The company’s
directors are responsible for the integrity of the Silex Systems Limited web site. We have not been engaged
to report on the integrity of this web site. The auditor’s report refers only to the concise financial report and
remuneration report named above. It does not provide an opinion on any other information which may have been
hyperlinked to/from the concise financial report or the remuneration report. If users of this report are concerned
with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of
the audited financial report and remuneration report to confirm the information included in the audited financial
report and remuneration report presented on this web site.
PricewaterhouseCoopers
Rod Dring
Partner
Silex Annual Report 2012
Sydney
28 September 2012
75
Shareholders’ information
directors’ Report
1. Information relating to shareholders as at 24 September 2012
(a) Distribution schedule
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Total number of holders of each class of security
Voting rights - on a show of hands
- on a poll
Percentage of total holding held by the largest 20 holders
Number of total holdings less than a marketable parcel of shares
Substantial shareholders
Jardvan Pty Ltd
M&G Investment*
The Bank of New York Mellon Corporation
2,284
2,563
775
765
91
6,478
72.32%
337
Ordinary shares
29,801,030
15,375,371
14,268,822
* Including M&G Investment Funds (3) & (12), M&G Investment Management Limited, M&G Limited, M&G Group
Limited and Prudential plc
76
Silex Annual Report 2012
Shareholders’ information
directors’ Report
(continued)
(b) Names of Twenty Largest Holders as at 24 September 2012
Name
Jardvan Pty Ltd
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
J P Morgan Nominees Australia Limited (Cash Income A/c)
Majenta Holdings Pty Ltd
Polly Pty Ltd
Throvena Pty Ltd
Hamlac Pty Ltd
Mr Christopher David Wilks
Quintal Pty Ltd
Citicorp Nominees Pty Limited
Truenergy Solar Pty Ltd
Mithena Holdings Pty Ltd
Merrill Lynch (Australia) Nominees Pty Limited
BNP Paribas Noms Pty Ltd (Master Cust DRP)
Matrix Investments Pty Limited (Matrix Holdings Account)
Mr Hayden Harvey Prior
RBC Investor Services Australia Nominees Pty Ltd (PISelect)
UBS Wealth Management Australia Nominees Pty Ltd
2. Vendor securities as at 24 September 2012
There are no vendor securities.
Number of
securities
29,801,030
26,219,112
19,245,157
13,524,522
7,521,600
5,703,923
4,073,863
2,978,203
2,525,937
2,405,070
2,002,952
1,848,957
1,103,927
817,139
721,177
554,176
511,452
500,000
498,502
493,938
Percentage
held
17.52%
15.41%
11.31%
7.95%
4.42%
3.35%
2.39%
1.75%
1.48%
1.41%
1.18%
1.09%
0.65%
0.48%
0.42%
0.33%
0.30%
0.29%
0.29%
0.29%
123,050,637
72.32%
Silex Annual Report 2012
77
Shareholders’ information
directors’ Report
(continued)
3. Interest of directors in shares as at 24 September 2012
Prof S W R Burdon
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy
Dr L M McIntyre
Mr C D Wilks
Ordinary shares
interest held
20,000
1,354,823
2,525,937
Beneficially
Beneficially
Beneficially
5,849,533
Personally/Beneficially
-
N/A
2,794,021
Personally/Beneficially
4. Securities subject to voluntary escrow as at 24 September 2012
As at 24 September 2012 the following securities were subject
to voluntary escrow:
Ordinary shares
10,000
16 January 2013
Number
on issue
date escrow
period ends
5. Unquoted equity securities as at 24 September 2012
Options issued under the Silex Systems Limited
Employee Share Option Plan to take up ordinary shares
Other options issued to take up ordinary shares*
Number
on issue
2,860,000
1,469,242
Number
of holders
53
2
*These are options to Dr M P Goldsworthy (1,102,207) and Mr C D Wilks (367,035).
78
Silex Annual Report 2012
Company directory
Directors
Prof S W R Burdon – Chairman
Mr R P Campbell
Dr C S Goldschmidt
Dr M P Goldsworthy – Managing Director/CEO
Dr L M McIntyre
Mr C D Wilks
Remuneration Committee
Prof S W R Burdon – Chairman
Mr R P Campbell
Dr L M McIntyre
Audit Committee
Mr R P Campbell – Chairman
Prof S W R Burdon
Dr C S Goldschmidt
Dr L M McIntyre
Company Secretary
Ms J E Ducie
Registered office and principal place of business
Share Registry
Building 64, Lucas Heights Science
& Technology Centre
New Illawarra Road, Lucas Heights,
New South Wales 2234, Australia
Ph: +61 2 9532 1331
Fax: +61 2 9532 1332
Postal address: PO Box 75
Menai Central, NSW 2234
www.silex.com.au
Computershare Registry Services Pty Limited
Level 5, 115 Grenfell Street, Adelaide
South Australia 5000, Australia
GPO Box 1903 Adelaide SA 5001, Australia
Enquiries within Australia: 1300 556 161
Enquiries outside Australia: +61 3 9415 4000
Email: web.queries@computershare.com.au
Website: www.computershare.com.au
Stock Exchange
American Depository Receipts (ADR) Information
Listed on the Australian Stock Exchange
Auditors
PricewaterhouseCoopers
Solicitors
Baker & McKenzie
Bankers
Australia and New Zealand Banking Group Limited
Silex Systems Limited has established a Level 1 ADR
Program. Silex ADRs may be purchased on the
Over-the-Counter “Pink Sheet” (OTC) market.
Details are as follows:
Ratio: 1 ADR = 5 ordinary shares
Symbol: SILXY
CUSIP: 827046 10 3
Exchange: OTC
Country: Australia
www.silex.com.au