S i l e x A n n u a l R e p o r t 2 0 1 4 Annual Report 2014 Important Notice Forward Looking Statements and Business Risks: Silex Systems is a research and development company whose assets are its proprietary rights in various technologies, including, but not limited to, the SILEX technology, 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 SILEX uranium enrichment commercialisation program; the demand for enriched uranium; the risks associated with the development of Solar Systems technology and related marketing activities; 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 Chair’s Report 04 CEO’s Report 12 Company Overview 18 Directors’ Report 45 Corporate Governance Statement 55 Concise Financial Report 67 Independent Auditor’s Report to the Members 69 Shareholders’ Information 72 Company Directory Chair’s Report Dear Fellow Shareholders It is a privilege to be appointed as Chair of the Silex Board and I look forward to working further with my fellow Board members and Management, building on our core strengths and achievements to date. Silex Systems and the SILEX uranium enrichment technology are unique and I am excited by the potential that this innovative and disruptive Australian technology holds. Dr Lisa McIntyre Chair The year ended 30 June 2014 marked a period of significant change for Silex. While progress was made in the development of our technologies, including aligning our programs and efforts to target key strategic partners, the adverse market conditions in the uranium and enrichment markets and Australian renewable energy market led the Board to conduct a major strategic review of all activities. This resulted in a significant restructure of the Company announced on 30 June, which continues to be implemented by our Management team. The strategic review announcement was followed by an announcement on 24 July 2014 that the Licensee for the SILEX uranium enrichment technology, GE-Hitachi Global Laser Enrichment LLC (GLE), had announced changes to the funding and pace of the commercialisation program to align with adverse trading conditions in the global nuclear markets. While this announcement does slow the development of the SILEX Technology, it is important to note that the key commercial terms of our license agreement, in particular the royalty structure, has not changed. In addition, GLE continue to negotiate with the US Department of Energy regarding the strategically important opportunity in Paducah, Kentucky. The strategic review will see the Company turn its primary focus to development of our foundation technology and core asset, the SILEX laser-based uranium enrichment technology, and to continuing to support our Licensee, GLE. The restructure also sees an accelerated transition to market for our subsidiaries Solar Systems and Translucent and the cessation of operations at ChronoLogic. I am eager to ensure that the excellent innovation and hard work by our teams in Solar Systems and Translucent reach their commercial potential through external transactions anticipated for this coming year. We maintain a strong focus on delivering the operational and financial priorities resulting from our major strategic review, a full update of which is provided by Dr Michael Goldsworthy, our CEO/MD, in the CEO’s report. Financial Performance Our net loss for the year was $29.5 million which was in line with expectations, following the major strategic review, the resulting judicious review of asset carrying values and the reassessment of the useful life of our various development assets. We were pleased to maintain our cash balance during the year with only a minimal net decrease of $0.4 million – largely as a result of the milestone payment of US$15 million from GLE received in July 2013. All business units operated according to approved budgets. At the time of writing, Silex maintains a solid cash reserve position of $57 million. Corporate Governance We continued efforts with regard to Board renewal during the year, including aligning the structure and experience of our Board in accordance with our major strategic review. During the period, Professor Stephen Burdon and Dr Colin Goldschmidt resigned from the Board. On behalf of the Board, I would like to thank Professor Burdon and Dr Goldschmidt for their outstanding service, commitment and counsel. We were also pleased to welcome Mr Andrew Stock to the Board on 1 August 2013, who was formally elected by shareholders at our 2013 Annual General Meeting. Andrew brings considerable energy industry experience and business acumen to the Board. 2 Silex Annual Report 2014 “ Silex Systems and the SILEX uranium enrichment technology are unique and I am excited by the potential that this innovative and disruptive Australian technology holds” We believe that we have an appropriate mix of skills, experience and industry knowledge on the Board for our current opportunities and challenges, particularly as we navigate the company through this important restructure. The implementation of our strategic restructure has also resulted in a Board review of Key Management Personnel remuneration structures to align with the anticipated reduction in the activities of the Company. This review is ongoing. Outlook We are working hard to position Silex for the inevitable turnaround in the nuclear industry over the coming years and to deliver long-term value for our shareholders. We are also presently focused on fast-tracking the path to market for our Solar Systems and Translucent technologies, and have made progress with both businesses, having recently appointed a corporate advisor to seek commercial opportunities for Solar Systems and continuing discussions with potential partners for Translucent. On behalf of the Silex Board and management team, I would like to thank our employees for their hard work and our shareholders for their support as we continue to navigate our company through this very challenging period. I look forward to updating you again at our Annual General Meeting in November. Dr Lisa McIntyre Chair 2 October 2014 3 Silex Annual Report 2014 CEO’s Report “ The SILEX Technology … remains our key asset and the best path forward to deliver value to our shareholders.…” Dr Michael Goldsworthy CEO/Managing Director The financial year ended 30 June 2014 saw progress in key activities achieved despite the adverse market conditions experienced which led the Silex Board to conduct a major strategic review of all activities, resulting in a significant restructure of the Company. The Board advised investors on 30 June that it would return its primary focus to development of the Company’s foundation technology and core asset – the SILEX laser-based uranium enrichment technology. On 24 July, GE-Hitachi Global Laser Enrichment LLC (‘GLE’), our Licensee of the SILEX Technology, also announced its own restructure, in response to adverse trading conditions in global nuclear fuel markets, initially triggered by the events in Fukushima, Japan in March 2011. The major strategic review and resulting restructure is expected to deliver a number of financial and operational benefits. It has resulted in the cessation of operations at ChronoLogic, and implementation of strategies designed to accelerate transition to market for subsidiaries Translucent and Solar Systems, with the aim of minimising operational cash burn across the Company in FY 2015. A significant number of cost reduction measures have been implemented across our businesses, including the reduction in corporate head count by 45%. With our restructure now well underway, we remain positive about the commercial prospects for Solar Systems and Translucent and are committed to finding the right partners for our unique technologies. Solar Systems is well positioned to participate in the emerging Concentrated Photovoltaic (CPV) market, as it establishes itself as a key source of renewable energy in regions such as the Middle East and the US. In the case of Translucent, the semiconductor industry’s focus on new materials, particularly in the power electronics and photovoltaic sectors, has created an exciting path forward as it prepares its products for market. Despite GLE’s restructure, our focus in the coming years will be on our core SILEX uranium enrichment technology. We were pleased to see recent positive news from Japan including the approval of a new energy policy that confirmed that nuclear will remain a key source of electricity generation. In addition, two Japanese nuclear power plants (Sendai 1 and 2) recently passed the safety inspection by the Nuclear Regulatory Authority (NRA) – an important milestone that may see these two reactors become the first to be restarted in the next few months. The news from Japan, together with the continued growth in nuclear around the world, supports our medium to long-term outlook for uranium and enrichment services returning to strong growth. It is our mission to deliver the unique and disruptive SILEX Technology, as the next generation technology for the global uranium enrichment industry. This remains our key asset and best path forward to deliver value to our shareholders. At the time of writing, Silex is in a strong financial position with cash reserves of ~$57 million. We are committed to accelerating the route to market for our unique technologies and will continue to build on the milestone achievements of the past 12 months. An overview of each of our businesses and an operational update is detailed in the following sections. 4 Silex Annual Report 2014 SILEX Uranium Enrichment Business Facts Platform Location Nuclear Energy Lucas Heights, NSW, Australia GLE: Wilmington, North Carolina, USA Corporate Office Sydney, NSW, Australia The two methods of uranium enrichment used to date have been the now obsolete Gas Diffusion (first generation) and Centrifuge (second generation). Silex’s third generation laser- based process provides much higher enrichment efficiency compared to these earlier methods, offering significantly lower costs. Business Description Silex has licensed its ‘SILEX’ laser-based uranium enrichment technology to GLE, a business venture comprising GE (51%), Hitachi (25%) and Cameco (24%). Silex and GLE are commercialising the technology for potential deployment in the USA. Background 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 signed 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. In 2006, Silex signed a Technology Commercialisation and License agreement with General Electric Company (GE) 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 GLE. Uranium Enrichment Naturally occurring uranium must be enriched before it can be used as fuel in a nuclear power reactor. Enrichment is a technically difficult process and constitutes a major component of nuclear fuel costs accounting for approximately half of the cost of nuclear fuel and about 5% of the total cost of the electricity generated. Uranium enrichment involves increasing the atomic concentration of the ‘active’ U-235 isotope from 0.7% in natural uranium to approximately 5% required for reactor fuel. 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. It has a number of advantages over other uranium enrichment processes including: • Breakthrough in efficiency – SILEX is the most cost effective enrichment method • Smaller footprint than centrifuge and diffusion plants • Anticipated to have the lowest capital costs of all enrichment technologies Significantly, the SILEX Technology is the only third generation laser-based uranium enrichment technology under development in the world. GLE Agreement Silex’s agreement with GLE is an exclusive worldwide commercialisation and licensing agreement for the SILEX laser-based uranium enrichment technology. The underlying value in the agreement with GLE is a perpetual royalty of up to 12 percent payable to Silex, comprising: • A base royalty of 7 percent of revenues generated from enrichment services using the SILEX Technology; and • 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. Additionally, the commercialisation and license agreement has two further milestone payments potentially payable: • US$5 million – on commencement of construction for the initial commercial plant; and • US$15 million – following the Nuclear Regulatory Commission’s (NRC) verification of construction compliance of the initial commercial plant. These milestone payments follow the US$15 million milestone payment that was received by Silex in July 2013, triggered by the successful completion of the Test Loop Program Phase 1 Milestone: Technology Demonstration and Validation. 5 Silex Annual Report 2014 Highlights of the Year in Review Paducah, Kentucky Opportunity Update • GLE and Silex successfully completed the Test Loop Program Phase I Milestone at GLE’s facility in the US, triggering a US$15 million milestone payment which was received in July 2013. • In November 2013, the US Department of Energy (DOE) selected GLE for future operations at its Paducah, Kentucky Site. The DOE and GLE continue to negotiate a 40-year commercial contract to detail the terms of an agreement which may see the SILEX Technology commercially deployed for the re-enrichment of significant inventories of depleted uranium tails owned by the DOE. • In July 2014, GLE announced its own restructure in response to worsening trading conditions in the global nuclear fuel markets, initially triggered by the events in Fukushima, Japan in March 2011. The changes have resulted in the consolidation of some GLE operations, although the Paducah opportunity continues to be negotiated with the US DOE. Importantly, the key commercial terms of Silex’s license agreement with GLE have not changed. The GLE Restructure On 24 July, GLE announced it would be slowing the commercialisation pace of the SILEX laser-based uranium enrichment technology to align with adverse market conditions experienced in the uranium and enrichment services markets. GLE’s restructure is now largely complete following a consolidation and streamlining of GLE operations. Negotiations for the establishment of the Paducah Laser Enrichment Facility (PLEF) continue to proceed constructively, albeit slower than hoped. Whilst Silex awaits an outcome from these negotiations, it is important to understand that this proposal involves the potential disposition of hundreds of thousands of tons of depleted tails inventories owned by the DOE over a 40-year period. Subject to prevailing market conditions and regulatory requirements being met, including obtaining a combined construction and operating license from the NRC, a positive outcome from these negotiations would potentially provide a clear path to market for our disruptive laser enrichment technology. Phase II: Full-Scale Engineering and Economic Validation The reduced GLE project team remains focussed on Phase II of the Commercialisation Program, which includes economic and engineering validation of the technology. GLE is conducting a phased approach to commercialisation of the SILEX Technology, as follows: Phase Objectives Phase I Test Loop technology demonstration and NRC commercial plant license approval Status Completed Phase II Engineering and economic validation for the initial commercial production module Commenced in 2012 Phase III Construction of the first full-scale commercial production facility Yet to commence 6 Silex Annual Report 2014 The Nuclear Industry Outlook The global nuclear industry is still suffering the impacts of the Fukushima event in 2011 and the shutdown of the entire Japanese nuclear power plant fleet. Following the tragic events in Japan, the demand for uranium has been slower to recover than expected and enrichment services remain in significant oversupply. Downward pricing pressure continues in both the uranium and enrichment markets. However, the long-term fundamentals remain positive for the nuclear industry. The industry is moving ahead once again with many governments around the world recognising that nuclear power is an important source of clean base-load energy in a carbon-constrained world. Globally, there are 435 operable nuclear power plants (including 48 plants in Japan that remain offline). There are currently 72 nuclear reactors under construction world-wide, 174 reactors planned with funding or major commitments in place, and expected to be in operation within 8 to 10 years and a further 299 reactors proposed with specific program or site proposals and expected to be in operation within 15 years.1 This significant expansion in nuclear capacity is planned, most notably by China, India and the Middle East. Uranium and enrichment pricing has been significantly affected since the events of Fukushima, with prices currently down ~60% and ~45%, respectively. Pricing is expected to remain depressed in the short-term due to the continuing impact of excess supply of uranium and enrichment services in the global market. It was pleasing to see a small improvement to the Uranium spot price in late August and we hope this trend will continue to be witnessed in both the uranium and enrichment markets. The medium-term outlook is highly dependent on several macro factors including the pace of the restart of the operable Japanese nuclear reactor fleet, the potential for trade sanctions against Russia which may impact the world’s largest enrichment player, Tenex, the pace of global nuclear build and the strong influence of environmental drivers. We believe the long-term market outlook remains very positive. The recent positive news from Japan together with the continued growth in nuclear around the world supports our view that the markets for uranium and enrichment services will return to strong growth in the coming years. In the longer term, the approximate doubling of existing global nuclear power capacity by 2030 will see a significant increase in the demand for uranium enrichment services. In our view the long-term market fundamentals remain very strong and therefore the uncertainty primarily lies around the likely timing of market recovery. 1. www.world-nuclear.org (1 August 2014) 7 Silex Annual Report 2014 Solar Systems Business Facts Platform Ownership Head office Installations Acquired Solar Energy 100 percent Melbourne, Victoria, Australia Bridgewater, Victoria, Australia (16 dishes, 0.6MW) Mildura, Victoria, Australia (40 dishes, 1.5MW) Tibrak, Saudi Arabia (28 dishes, 1MW) 2010 Business Description Solar Systems has developed ultra-high efficiency concentrating photovoltaic (CPV) technology based on its proprietary ‘Dense Array’ dish concentrator system, targeting deployment of utility-scale solar power stations in key global markets. 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. Accelerated business development efforts are underway to secure a strategic partner or equity investor during FY 2015 with an aim to minimise need for parent company investment. Commercialisation and Project Deployment CPV Dish Technology Solar Systems utilises a novel approach known as the ‘Dense Array’ concentrating photovoltaic (CPV) dish technology, whereby low-cost large-area parabolic dishes concentrate the sunlight onto a small-area solar conversion module, concentrating the sunlight to the equivalent of approximately 500 to 1000 suns. The ‘Dense Array’ system is based on the close packing of ultra-high efficiency solar cells in a centrally mounted converter. The cells are cooled for maximum output efficiency, high reliability and extended cell life, all key differentiators when compared with other CPV technologies. The concentrator systems are based on highly reliable parabolic Dish Concentrators which are programmed to accurately track the sun from sunrise to sunset every day to maximise the total energy yield produced. Highlights of the Year in Review • Opening of Australia’s largest Concentrating Photovoltaic (CPV) Solar Power Station in Mildura, Australia. The 1.5MW facility, consisting of 40 large CPV dish concentrator systems. • Completion of a 1MW facility at the Nofa Equestrian Resort near Riyadh, Saudi Arabia – Solar Systems first overseas deployment of its CPV dish concentrator system. • Acceleration of business development activities primarily focused on securing a strategic partnership or equity transaction. Solar Systems is undertaking a phased approach to the commercialisation of its ‘Dense Array’ CPV Technology as follows: Phase Objectives Phase I Product Commercialisation Program: Status Completed – June 2012 • Product release milestone including upgrade of the ‘Dense Array’ receiver • 16 Dish 0.6MW test facility installed at Bridgewater, Victoria Phase II Pilot Demonstration Facilities: • Mildura Stage 1: 40 Dish dish demonstration (1.5MW peak power output) Completed – June 2013 • Nofa, Saudi Arabia: 28 dish facility (1MW) Completed – April 2014 Phase III Product development pathway to achieve competitive LCOE and exploring Planning underway domestic and global project opportunities at the 10 to 100MW scale 8 Silex Annual Report 2014 Commercial and Product Development Activities Solar Systems’ business development activities are primarily focused on securing a strategic partnership or equity transaction during FY 2015 which will take our technology to the next stage, with the aim of achieving a value-creating outcome and minimising further parent company investment. Several positive leads with interested third parties are currently being pursued and we have engaged a corporate adviser to assist with the process. Over the past few months, Solar Systems has seen continued uncertainty surrounding the renewable energy sector in Australia with the review of the Renewable Energy Target (RET) and particularly since the release of the Federal Budget in May 2014. Taking into account these and other factors, Silex announced the mutual termination of the Federal and Victorian government funding arrangements for Solar Systems’ proposed 100MW Mildura Power Station and the suspension of plans for this project on 18 August. Whilst we continue to analyse other alternatives to further develop the Mildura site and other Australian-based projects, our focus is increasingly on overseas markets. The Company continues to work on its product development pathway to reduce the Levelised Cost of Energy (LCOE) of its CPV ‘Dense Array’ dish technology to improve its competitive positioning. These initiatives encompass both increasing the efficiency and lowering component costs of the CPV dish systems and targeting project opportunities in areas where energy yield can be maximised (i.e. areas of high Direct Normal Irradiance (DNI) or sunlight quality). The current focus on the reduction of LCOE includes adoption of more efficient dish designs which will result in lower manufacturing and construction costs. The completion of the two solar facilities in separate markets: Mildura, Victoria and at the Nofa Equestrian Resort near Riyadh, Saudi Arabia has resulted in a great deal of useful data being obtained from the operation of these facilities and is assisting with further cost and product efficiency improvement projects. 9 Silex Annual Report 2014 Translucent Business Facts Platform Ownership Location Founded Advanced Semiconductor Materials 99 percent Palo Alto, California, USA 2001 Business Description Translucent has developed novel semiconductor materials based on the ‘rare earth oxide’ (REO) family for application to the manufacturing of next generation devices in the semiconductor, power electronics and photovoltaics industries. Background Commercial and Product Development Activities Translucent is now on an accelerated path to commercialisation with industry validation of epiwafer products underway. Translucent’s technology could lower costs and transform manufacturing for companies in the Power Electronics and photovoltaics industries: i) Substrates for Power Electronics Translucent has continued to improve the quality of Gallium Nitride (GaN) material incorporated in its vGaN™ on-silicon substrates which could significantly reduce production costs and enhance device performance for the Power Electronics industry. Commercial grade vGaN™ substrates are currently being validated by various potential customers and industry partners with encouraging results being obtained to date. Several industries are forced to use high-cost non-silicon substrates for high-end semiconductor device applications. For example, high cost substrates such as germanium, sapphire and silicon carbide are commonly used for fabrication of many high powered semiconductor devices. ii) Substrates for Ultra-High Efficiency Solar Cells Development of Translucent’s proprietary low-cost germanium-tin (GeSn) substrates for application to ultra-high efficiency multi-junction solar cells and photonics devices has advanced with wafers being processed by industry partners. 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 the semiconductor, Power Electronics and photovoltaics industries. Discussions with several third parties are underway as Silex accelerates efforts towards achieving a value-creating transaction with an industry/strategic partner. We remain committed to the aim of minimising the need for further parent investment by the end of FY 2015. 10 Silex Annual Report 2014 “ We remain firmly committed to execution of our strategic initiatives and accelerating the path to market of our technologies.” ChronoLogic Outlook Business Facts Platform Ownership Location Acquired Advanced Materials & Instrumentation 90 percent Adelaide, South Australia, Australia 2002 (51 percent) 2006 (90 percent) We remain firmly committed to execution of our Board’s strategic initiatives and accelerating the path to market of our technologies. We look forward to sharing our results with you and providing a further update at the Annual General Meeting in November. Business Description ChronoLogic has developed the world’s first high precision timing and control products based on the ultra-low cost USB-inSync™ platform, targeting applications in the electronic instrumentation markets. Dr Michael Goldsworthy CEO/Managing Director Update ChronoLogic has developed a range of instruments for the test and measurement industry called ‘Distributed Virtual Instrumentation’ (DVI), incorporating its ‘USB-inSync™’ technology. While ChronoLogic’s instrumentation technology is considered by many to be disruptive, following a comprehensive search to find investors or buyers for the business, the Silex Board made the decision to cease operations as announced on 30 June. This decision has resulted in a number of redundancies and the closure and make-good of the facility in Adelaide, South Australia. Silex will maintain a skeleton staff as it pursues IP licensing and sale opportunities with several interested parties. 11 Silex Annual Report 2014 Company Overview Mission To deliver the unique and disruptive SILEX laser enrichment technology as the next generation technology for the global uranium enrichment industry. Silex Corporate Structure Silex Systems Limited ASX: SLX OTCQX: SILXY HQ: Sydney, Australia (The SILEX Uranium Enrichment Technology) www.silex.com.au Solar Systems Pty Ltd Translucent Inc. ChronoLogic Pty Ltd Melbourne, Australia (100% ownership) Utility-Scale PV (Solar Power Stations) www.solarsystems.com.au Palo Alto, USA (99% ownership) Advanced Materials (Semiconductors & Solar) www.translucentinc.com Adelaide, Australia (90% ownership) Instrumentation (Test & Measurement) www.chronologic.com.au Translucent Earth Abundant Materials Technology 12 Silex Annual Report 2014 Historical Background Silex is established by founder Dr Michael Goldsworthy as a technology research and development subsidiary of Sonic Healthcare Limited, an Australian publicly listed company. Silex begins researching the isotope separation concepts of co-inventors Dr Michael Goldsworthy and Dr Horst Struve. The unique principles of the SILEX (Separation of Isotopes by Laser EXcitation) Process are formulated. ‘Proof of Principle’ demonstration of the SILEX Process is achieved at the Company’s laboratories in Lucas Heights, Sydney. Uranium enrichment, the largest market for isotope separation, becomes Silex’s primary focus. Silex is divested from Sonic Healthcare Limited and sets about establishing the commercial viability of the SILEX Technology. Silex lists on the Australian Stock Exchange (ASX) under the symbol ‘SLX’. An Agreement for Cooperation between the US and Australian Governments is signed, paving the way for continued development of the SILEX Technology for uranium enrichment, and facilitating its future transfer to the US. The first macroscopic demonstration of the SILEX uranium process is successfully achieved. Silex wins the 2000 Australian Technology Award for Excellence in the Manufacturing and Engineering sector. Silex raises $36 million through a share issue to assist in funding the development of its technology portfolio. Silex enters the semiconductor materials field with the founding investment for Translucent Inc., a Silicon Valley start-up developing silicon photonics technology. The SILEX Technology is officially Classified by the US and Australian Governments. The implications of classification relate mainly to security protocols. 2002 Silex acquires a controlling 51% interest in ChronoLogic Pty Ltd, an Adelaide-based start-up developing novel technology for the electronics and instrumentation industries. 2003 2004 The SILEX Uranium Enrichment Project achieves a key milestone with the first full demonstration on practical uranium enrichment using the SILEX ‘Direct Measurement Facility’ at Lucas Heights, Sydney. Silex takes a majority ownership in Translucent Inc., moving to ~70% interest (from 30%). Silex successfully commissions the world’s first silicon laser enrichment pilot plant. Translucent secures its first US Patent for ‘optical silicon’ and filed patents for Silicon-on- Insulator (SOI) and dielectric substrates for the semiconductor 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. 2006 2007 ChronoLogic wins a Federal Government Commercial Ready Grant for its novel ‘USB- inSync™’ Data Acquisition technology. Silex and the General Electric Company sign an exclusive Technology Commercialisation and License Agreement for the SILEX Uranium Enrichment Technology in May, with US Government authorisations received in October. Silex increases its stake in ChronoLogic to 90%. Transfer of the SILEX Uranium Enrichment Project to GE’s Wilmington, North Carolina (USA) nuclear fuel plant is completed in the first half. Hitachi joins 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. 1988 1990 1993 1995 1996 1998 2000 2001 14 Silex Annual Report 2014 2008 2009 2010 2011 2012 Global Laser Enrichment (GLE), formed as a subsidiary of GE-Hitachi Nuclear Energy (GEH) to commercialise the SILEX Technology, announces it has selected its Wilmington, North Carolina, headquarters site for the first potential commercial SILEX uranium enrichment facility. GLE is notified that the US Nuclear Regulatory Commission (NRC) has approved a license to operate the Test Loop for the demonstration of the next generation SILEX laser enrichment technology. GEH and Cameco Corp. announce that Cameco Corporation, the world’s largest uranium producer, has joined the GLE venture. Cameco paid US$123.8 million for a 24% stake in GLE. GE retains 51% ownership with Hitachi at 25%. In August, the US NRC announces it has accepted GLE’s license application to construct and operate a commercial SILEX uranium enrichment facility in Wilmington, triggering a ~30 month review process. In July, GLE announces the on-schedule start-up of the Test Loop to evaluate the next-generation SILEX laser-based uranium enrichment technology. In March, Silex acquires the business assets of Melbourne-based Solar Systems Group. Solar Systems’ concentrating photovoltaic (CPV) technology is applicable to large utility-scale solar power generation, using its unique ultra-high efficiency ‘Dense Array’ dish technology. In April, GLE and Silex announce the successful completion of the Test Loop initial measurement program. Silex successfully completes an $89 million capital raising and a share purchase plan which raises a further $20 million. Solar Systems is awarded a funding grant from the Australian Solar Institute. The business also secures a site for a facility at the Nofa Equestrian Resort near Riyadh, Saudi Arabia with construction of a 1MW facility commencing during the year. Solar Systems open its 0.6MW Test and Demonstration Facility at Bridgewater, Victoria. 2013 2014 In September, the US NRC approves the world’s first Construction and Operating License for a commercial laser enrichment plant utilising the SILEX Technology at Wilmington, North Carolina. In May, GLE and Silex achieve the successful completion of the Test Loop Program Phase I Milestone: Technology Demonstration and Validation in Wilmington, North Carolina – triggering a US$15 million milestone payment from GLE to Silex (which is received in July). In June, Solar Systems complete construction of Australia’s largest CPV Solar Plant – a 1.5MW Solar Demonstration Facility at Mildura, Victoria. Silex lists on the OTCQX exchange in the US under the symbol ‘SILXY’ in June. The US Department of Energy (DOE) selects GLE for future operations at its Paducah, Kentucky Site. The DOE and GLE continue negotiations for a 40-year contract to have the SILEX Technology commercially deployed for the re-enrichment of depleted uranium tails. Solar Systems completes the first off-shore deployment of its unique ‘Dense Array’ dish concentrator solar technology, a 1MW solar power plant at the Nofa Equestrian Resort, near Riyadh, Kingdom of Saudi Arabia. In June, Silex announces completion of a strategic review of the entire business, determining to refocus efforts on its primary economic asset, the SILEX laser-based uranium enrichment technology. The strategic review also involves an accelerated transition to market for Solar Systems and Translucent and results in the cessation of operations at ChronoLogic. In July, GLE announces its own restructure in response to worsening trading conditions in the global nuclear fuel markets, initially triggered by the events in Fukushima, Japan in March 2011. The changes result in the consolidation of GLE’s operations. Importantly, the key commercial terms of Silex’s license agreement with GLE do not change. 15 Silex Annual Report 2014 Concise Financial Report for the year ended 30 June 2014 Silex SyStemS limited & itS SubSidiarieS abN 69 003 372 067 17 Silex Annual Report 2014 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 2014. 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: Dr L M McIntyre Dr M P Goldsworthy Mr C D Wilks Mr A M Stock was appointed as a director on 1 August 2013 and continues in office at the date of this report. Mr R P Campbell, Dr C S Goldschmidt and Prof S W R Burdon were directors from the beginning of the financial year until their resignations on 30 September 2013, 2 May 2014 and 25 June 2014 respectively. 2. Principal activities During the year the principal activities of the consolidated entity consisted of: a) Silex: commercialisation of the Company’s foundation technology – the laser isotope separation process for uranium enrichment known as the ‘SILEX Technology’; b) Solar Systems: research, development and commercialisation activities for the unique ‘Dense Array’ concentrated photovoltaic (CPV) system being developed for utility-scale solar power stations by wholly-owned subsidiary Solar Systems Pty Ltd; c) translucent: research, development and commercialisation of novel semiconductor materials based on the ‘rare earth oxide’ family for application to the manufacturing of next generation devices in the semiconductor, power electronics and photovoltaics industries. These activities are being undertaken by Translucent Inc, a California based company in which Silex has a 99% fully diluted interest; and d) Chronologic: development and commercialisation of high precision timing and control products based on the proprietary USB-inSync™ technology targeting application in the electronic instrumentation markets. These activities were being undertaken by ChronoLogic Pty Ltd, in which Silex has a 90% interest. As part of a major strategic review, the Silex Board announced on 30 June 2014 that operations at ChronoLogic would cease. Several licence and intellectual property sale opportunities are continuing to be pursued. 3. Dividend No dividend payments were made during the year. No dividend has been recommended or declared by the Board. 18 Silex Annual Report 2014 Directors’ Report 4. Review of operations and activities Information on the operations and financial position of the consolidated entity and its business strategies and prospects is set out below and in section 8 ‘Likely developments and expected results of operations’. Trading Results A summary of consolidated revenue and results is set out below: Revenue from continuing operations (Loss)/profit before income tax expense Income tax expense Net (loss)/profit from continuing operations Net (loss) from discontinued operations Net (loss) for the year Net (loss) is attributable to: Owners of Silex Systems Limited Non-controlling interests 2014 $ 2013 $ 7,398,554 23,642,782 (29,246,377) 2,191,037 - - (29,246,377) 2,191,037 (385,083) (2,421,488) (29,631,460) (230,451) (29,488,786) (142,674) (29,631,460) (93,119) (137,332) (230,451) Key information about the consolidated operations, results and financial position Comments on the operations and the results of those operations are set out below: Whilst progress in key activities was achieved during the year ended 30 June 2014, adverse market conditions led the Silex Board to conduct a major strategic review of all activities, resulting in a significant restructure of the Company, which was announced on 30 June 2014. The Board advised that it would return its primary focus to development of the Company’s foundation technology and core asset – the SILEX laser uranium enrichment technology and to continue to support Licensee, GE-Hitachi Global Laser Enrichment LLC (‘GLE’). The restructure, which is expected to deliver a number of financial and operational benefits to Silex, has resulted in a cessation of operations at ChronoLogic, and the implementation of strategies designed to accelerate transition to market for subsidiaries Translucent and Solar Systems, reported as held for sale in these accounts, with the aim of minimising operational cash burn for the Company in FY 2015. We are pleased to report the cash position of the Company as at 30 June 2014 was $63.9m. Our focus in the coming years will be on our core SILEX laser uranium enrichment technology. We continue to see the medium to long-term outlook for uranium and enrichment services returning to strong growth, and therefore firmly believe the SILEX Technology, the only third generation laser enrichment technology being commercialised in the world, remains our key asset and the best path forward to deliver value to our shareholders. 19 Silex Annual Report 2014 Directors’ Report Financial review A summary of our consolidated income statement is set out below: Revenue from continuing operations Other income Cost of sales Research and development materials Depreciation and amortisation expense Impairment of intangibles Employee benefits expense Other expenses Income tax expense Net (loss)/profit from continuing operations Net (loss) from discontinued operations Net (loss) for the year 2014 $ 2013 $ 7,398,554 23,642,782 24,010,247 7,708,938 (5,185,474) (4,618,244) (18,887,138) (12,379,766) (3,620,804) (2,355,960) (2,945,893) - (13,016,744) (14,431,523) (6,567,812) (5,806,503) - - (29,246,377) 2,191,037 (385,083) (2,421,488) (29,631,460) (230,451) The Net (loss) for the year was impacted by the major strategic review completed by the Silex Board announced on 30 June 2014, resulting in impairment of the carrying value of development expenditure associated with intellectual property held by Solar Systems of $3.9m and impairment of the carrying value of the goodwill on consolidation in relation to Translucent of $8.5m (deemed necessary to comply with Australian Accounting Standards). These impairments are an accounting charge only and do not have any impact on the Company’s cash position, which reduced by only $0.4m during the year to $63.9m at 30 June 2014. Depreciation and amortisation expense from continuing operations of $18.9m ($2.9m in the prior year) increased primarily due to the reassessment of the useful life of Solar Systems plant and equipment. As a result of the reassessment, previously deferred Solar Systems Government grant income included in Other income was higher in the current year at $9.1m ($3.9m in the prior year). R&D tax incentive income from continuing operations of $14.9m was also included in Other income in the current year ($2.8m in the prior year). The above noted factors and the milestone revenue of US$15.0m (AU$15.4m) awarded in the previous year ($nil in the current year) are the key drivers of the increased net loss from ordinary activities after tax attributable to members. Further commentary on our business segments is provided below. 20 Silex Annual Report 2014 Directors’ Report Silex The Silex segment result was $0.2m profit in the current year compared to $15.9m profit in the previous year. The reduction in profit was largely due to the US$15.0m (AU$15.4m) revenue from GLE for the successful completion of the Test Loop Program Phase I Milestone in the prior year ($nil in the current year). Bank interest income also decreased to $2.6m in the current year compared to $3.4m in the previous year as a result of lower interest rates and lower average cash / term deposit holdings in the current year. Solar Systems The Solar Systems segment loss was $16.0m, up from $9.0m in the previous year. The increased loss was driven by depreciation and amortisation expense of $18.2m ($2.2m in the prior year) primarily relating to the reassessment of the useful life of plant and equipment and the impairment of development expenditure associated with intellectual property of $3.9m ($nil in the prior year). Whilst these conservative accounting adjustments have been made to the Solar Systems segment, we remain positive about the commercial prospects for Solar Systems and are committed to finding the right partner for this business. Cost of goods sold of $5.2m in the current year was due to completion of the CPV solar power station at the Nofa Resort near Riyadh, Saudi Arabia ($3.6m in the prior year). R&D materials used were $3.9m in the current year ($2.2m in the prior year). These unfavourable factors were partly offset by R&D Tax Incentive income of $14.9m in the current year ($2.8m in the prior year). Furthermore, Government grant income was higher in the current year at $9.1m ($3.9m in the prior year). Translucent As the business accelerates on its path to commercialisation, Translucent’s segment loss was $5.0m, marginally up from $4.6m in the previous year due to additional R&D materials used in manufacturing prototype substrates. Discontinued Operations ChronoLogic and Silex Solar discontinued operations loss was $0.4m, down from $2.4m in the previous year. This was favourably impacted by the collection of a receivable of $0.9m in Silex Solar which had been previously fully provided for. In addition, the ChronoLogic R&D Tax Incentive income was $1.1m in the current year ($0.5m in the prior year). 21 Silex Annual Report 2014 Directors’ Report Balance sheet A summary of our balance sheet is set out below: ASSETS Total current assets Total non-current assets total assets LIABILITIES Total current liabilities Total non-current liabilities total liabilities Net assets EQUITY total equity 30 June 2014 $ 30 June 2013 $ 97,343,949 119,311 89,074,871 48,155,201 97,463,260 137,230,072 5,266,206 111,971 8,502,832 7,402,984 5,378,177 15,905,816 92,085,083 121,324,256 92,085,083 121,324,256 As at 30 June 2014, total assets were $97.5m. Significant assets are cash holdings of $63.9m (cash and term deposits) and assets held for sale of $30.8m. Intangible assets of $12.4m were impaired during the year. Total liabilities were $5.4m and are made up of trade and other payables and provisions (e.g. amounts we have set aside for potential future liabilities, particularly those related to employees). The Company does not have any borrowings (e.g. bank debt). 5. Earnings per share 2014 Cents 2013 Cents Earnings per share for (loss)/profit 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 (17.2) (17.2) (17.3) (17.3) 1.3 1.3 (0.1) (0.1) 22 Silex Annual Report 2014 Directors’ Report 6. Significant changes in state of affairs On 30 June 2014, as part of the completion of a major strategic review of the entire Silex group, the Board advised that it would return its primary focus to development of the Company’s foundation technology and core asset – the SILEX laser uranium enrichment technology and to continue to support Licensee, GLE. The restructure, which is expected to deliver a number of financial and operational benefits to Silex, has resulted in a cessation of operations at ChronoLogic, and the implementation of strategies designed to accelerate transition to market for subsidiaries Translucent and Solar Systems, reported as held for sale in these accounts, with the aim of minimising operational cash burn for the Company in FY 2015. Additionally, as reported previously, all Silex Solar activities have ceased with the plant decommissioned and closed in October 2012. There were no other significant changes in the state of affairs of the Company during the financial year not otherwise dealt with in this report. 7. Matters subsequent to the end of the financial year Silex On 24 July 2014, the Licensee for the SILEX Uranium Enrichment Technology, GLE, announced changes to the funding and pace of the commercialisation program to align with current adverse market conditions. GLE confirmed their intention to consolidate efforts on the technology development activities to its Wilmington facility in North Carolina, USA. The financial effect of this decision is not expected to have a material impact on the results of the Company. Solar Systems On 18 August 2014, Silex announced that the Australian Renewable Energy Agency (ARENA) and Solar Systems have agreed to suspend plans for the 100MW Mildura Solar Power Station and terminate the conditional funding deed for $75 million. The decision was based on a number of factors, including low wholesale electricity prices and the uncertainty surrounding the Renewable Energy Target. Due to these circumstances, the $35 million in conditional funding from the Victorian Government has also been terminated. Alternatives to further develop the Mildura site and other Australian-based projects are currently being explored. There is no direct financial cost anticipated to Solar Systems as a consequence of the decision to suspend plans for the 100MW Mildura Solar Power Station. Management continue efforts towards securing a strategic partnership or equity transaction for Solar Systems during FY 2015, aiming to achieve a value-creating outcome and potentially reducing the quantum of parent company investment. Other The consolidated entity is not aware of any other 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 other than those referred to above. 23 Silex Annual Report 2014 Directors’ Report 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 research, development and 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. Business strategies and future prospects – segmental analysis The Company’s segments are summarised below: Silex 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 GE-Hitachi Global Laser Enrichment LLC (‘GLE’) – a business venture owned by GE (51%), Hitachi (25%) and Cameco (24%). The successful completion of the Test Loop Program Phase I Milestone resulted in a US$15m milestone payment to Silex in July 2013. On 24 July 2014, GLE announced that they would be slowing the commercialisation pace of the SILEX laser uranium enrichment technology to align with adverse market conditions currently being experienced in the uranium and enrichment services markets. While these changes have resulted in the consolidation of some GLE operations, importantly, Phase II work is still continuing at the facility in Wilmington, North Carolina. Silex has been informed that negotiations with the US Department of Energy (DOE) concerning the establishment of the Paducah Laser Enrichment Facility (PLEF) continue to proceed constructively, albeit slower than hoped. The key commercial terms of Silex’s license agreement with GLE have not changed. GLE is conducting a phased approach to commercialisation of the SILEX laser enrichment technology, as follows: Phase Phase I Phase II Objectives Test Loop technology demonstration and NRC commercial plant license approval Economic and engineering validation for the initial commercial production module Status Completed in FY 2013 Commenced in 2012 Phase III Construction of the first full-scale commercial production facility Yet to commence The global nuclear industry is still suffering the impacts of the Fukushima event in 2011 and the shutdown of the entire Japanese nuclear power plant fleet. Following the tragic events in Japan, the demand for uranium has been slower to recover than expected and enrichment services remain in significant oversupply. Downward pricing pressure continues to be witnessed in both the uranium and enrichment markets. 24 Silex Annual Report 2014 Directors’ Report Uranium and enrichment pricing has been significantly affected since the events of Fukushima, with prices currently down ~60% and ~45%, respectively. Pricing is expected to remain depressed in the short-term due to the continuing impact of excess supply of uranium and enrichment services in the global market place. It was pleasing to see a small improvement to the Uranium spot price in late August and we hope this trend will continue to be witnessed in both the uranium and enrichment markets. The long-term fundamentals remain positive for the nuclear industry. Significant expansion in nuclear capacity is planned in many countries, with many governments around the world recognising that nuclear power is an important source of clean base-load energy in a carbon-constrained world. It is anticipated that existing global nuclear power capacity will approximately double in the longer term and we will see a significant increase in the demand for uranium enrichment services. The risks surrounding industry growth projections and market conditions, most of which are beyond our control, could impact the Phase II and Phase III programs outlined above. Solar Systems In the past year, Solar Systems opened two facilities in separate markets: in Mildura, Victoria and at the Nofa Equestrian Resort near Riyadh, Saudi Arabia. A great deal of useful data has been obtained from the operation of these facilities. This is assisting with further cost down and product efficiency improvement projects for Solar Systems’ unique concentrating photovoltaic (CPV) ‘Dense Array’ technology. Solar Systems’ business development activities are primarily focused on securing a strategic partnership or equity transaction during FY 2015 with the aim of achieving a value-creating outcome and minimising further parent company investment. Several positive leads with interested third parties are currently being pursued and we have engaged a corporate adviser to assist with the process. In parallel, the Company continues to work on its product development pathway to reduce the Levelised Cost of Energy (LCOE) of its concentrated photovoltaic (CPV) ‘Dense Array’ dish technology to improve its competitive positioning. These initiatives encompass both increasing the efficiency and lowering component costs of the CPV dish systems and targeting project opportunities in areas where energy yield can be maximised [i.e. areas of high Direct Normal Irradiance (DNI) or sunlight quality]. The current focus on the reduction of LCOE includes adoption of more efficient dish designs which will result in lower manufacturing and construction costs. Translucent Silex has a 99% fully diluted interest in Translucent Inc, a California based company which has developed novel semiconductor materials based on the ‘rare earth oxide’ family for application to the manufacturing of next generation devices in the semiconductor, power electronics and photovoltaics industries. Translucent is now on an accelerated path to commercialisation. With industries currently forced to use high-cost non-silicon substrates such as germanium, sapphire and silicon carbide for high-end semiconductor devices, Translucent’s technology could transform manufacturing, enabling the power electronics and photovoltaics industries to instead use high performing low-cost silicon-wafer based substrates. Discussions with several third parties are underway as Silex accelerates efforts towards achieving a value-creating transaction with an industry/strategic partner. We remain committed to the aim of minimising the need for further parent investment following the end of FY 2015. 25 Silex Annual Report 2014 Directors’ Report 9. Information on Directors a) Directors’ profiles The following directors are currently serving on the Silex Systems Limited Board: Dr Lisa McIntyre BSc (Hons), PhD, GAICD Chair – Non-executive (director since 2012) Experience and expertise Dr McIntyre is a company director for various companies including HCF, Cover-More Group Limited, and Tutoring Australasia Pty Ltd. Prior to 2011, Lisa was a senior partner in global strategy firm L.E.K. Consulting for 19 years. She spent the first half of her career in the US and returned to Australia in 2002 to lead L.E.K.’s Asia Pacific Life Science and Technologies practice in Sydney where she advised organisations on strategy, commercialisation and performance issues. Other current directorships Non-executive director of Cover-More Group Limited since November 2013. Former directorships in last 3 years None Special responsibilities Member of Audit Committee Chair of People and Remuneration Committee Dr Michael Goldsworthy BSc (Hons), MSc, PhD, FAIP, GAICD CEO/MD – Executive (director since 1992) Experience and expertise Dr Goldsworthy received his PhD in Physics from The University of New South Wales. Prior to starting with Silex 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 CEO/MD 26 Silex Annual Report 2014 Directors’ Report Mr Andrew Stock BEng (Chem) (Hons), FIE Aust, GAICD Non-executive (director since 2013) Experience and expertise Mr Stock was appointed to the Board in August 2013. He is one of Australia’s most senior business leaders in the energy sector, with over thirty years’ experience in Australia and overseas. He spent eighteen years with Origin Energy in a number of senior executive positions. Other current directorships Non-executive director of Horizon Oil Limited since 2011 and non-executive director of Geodynamics Limited since 2003. Former directorships in last 3 years None Special responsibilities Chair of Audit Committee (since 1 October 2013) Member of People and Remuneration Committee (since 1 October 2013) Mr Christopher Wilks BComm, FAICD Non-executive (director since 1988) 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 Finance director of Sonic Healthcare Limited since 1989. Former directorships in last 3 years None Special responsibilities Business development and corporate strategy Member of Audit Committee (since 27 June 2014) Member of People and Remuneration Committee (since 27 June 2014) 27 Silex Annual Report 2014 Directors’ Report The following directors are former directors of the Silex Board: Professor Stephen Burdon MBA BSc (Hons) FAICD, FAIM, FIE Aust Chair – Non-executive (resigned 25 June 2014) Experience and expertise Professor 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, Professor 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 Professor of Management at the University of Technology, Sydney and CASS Business School, London. 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 (resigned 25 June 2014) Member of People and Remuneration Committee (resigned 25 June 2014) Mr Peter Campbell FCA, CTA, FAICD Non-executive (resigned 30 September 2013) Experience and expertise Mr Campbell was an independent and non-executive director since 1996. 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 Tax Institute of Australia. Mr Campbell is also a registered Company Auditor. Other current directorships Non-executive director of Sonic Healthcare Limited since 1993 and Chair since October 2010 and non-executive director of QRxPharma Limited since 2007. Former directorships in last 3 years None Special responsibilities Chair of Audit Committee (resigned 30 September 2013) Member of People and Remuneration Committee (resigned 30 September 2013) Dr Colin Goldschmidt MB BCh, FRCPA, FAICD Non-executive (resigned 2 May 2014) 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 (resigned 2 May 2014) 28 Silex Annual Report 2014 Directors’ Report 10. Remuneration Report Dear Shareholder, I am pleased to present to you the Silex Systems Limited Remuneration Report for the year ended 30 June 2014. As you are aware, the Board undertook a major strategic review of the Company’s operations in June 2014 in response to the deteriorating market conditions and share price. This resulted in a significant restructure of the Company, which continues to be implemented. The major strategic review’s implementation has resulted in the Board reviewing the current structure of Key Management Personnel (KMP) remuneration to ensure that a clear link is maintained between business performance, corporate structure and the remuneration of KMP. This review is ongoing. However some difficult decisions have already been made this year, including the Board’s determination that no increases will be made to KMP remuneration for FY 2015. In addition, the Board has reviewed the long-term incentive plan offered to executive KMP and ascertained that the plan, in its current form, is no longer appropriate and will not be offered in FY 2015. I would like to highlight that the current review also includes the fixed remuneration and ‘at risk’ incentives for our CEO/MD which is anticipated to result in a significant reduction in total remuneration. As Chair of the People & Remuneration Committee, I remain committed to ensuring our remuneration policies and practices reinforce and align with the Company’s strategic performance. Following a comprehensive international search, the Board was pleased to appoint Mr Chris Murray as CEO of our Solar Systems business in January 2014. Mr Murray is integral to the execution of the Board’s major strategic review and his remuneration package has been structured accordingly, with the view to realising early shareholder value from this business unit. Details of Mr Murray’s remuneration are included in this report. On behalf of the Board, I invite you to review the full report and thank you for your continued interest. I look forward to answering any questions you may have at our Annual General Meeting in November 2014. dr lisa mcintyre Chair, People & Remuneration Committee 29 Silex Annual Report 2014 Directors’ Report The Remuneration Report for the year ended 30 June 2014 sets out the remuneration information for the company’s non-executive directors, executive directors and other executive key management personnel. The report contains the following sections: a) Directors and KMP disclosed in this report b) Remuneration governance c) Linking remuneration to company performance d) Performance of Silex Systems Limited e) Executive KMP remuneration structure f) Non-executive directors remuneration g) Voting and comments made at the Company’s 2013 Annual General Meeting h) Director’s and KMP remuneration i) Details of share-based compensation and bonuses j) Shares under option a) Directors and KMP disclosed in this report The 2014 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 KMP of the Company. KMP are defined as those persons who have authority and responsibility for planning, directing and controlling the activities of the Company. Name Position Non-executive and executive directors Dr L M McIntyre Dr M P Goldsworthy Mr A M Stock Mr C D Wilks Prof S W R Burdon Mr R P Campbell Dr C S Goldschmidt Other Executive KMP Ms J E Ducie Mr C R Murray Chair (from 27 June 2014) and Non-executive director CEO/MD – Executive director Non-executive director (from 1 August 2013) Non-executive director Chair and Non-executive director (until 25 June 2014 ) Non-executive director (until 30 September 2013 ) Non-executive director (until 2 May 2014 ) CFO/Company Secretary CEO – Solar Systems (from 6 January 2014) b) Remuneration governance Board oversight The Silex Board is ultimately responsible for ensuring that the Company’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. People & Remuneration Committee structure The People & Remuneration 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 Company’s remuneration policies and practices, including those applicable to the Company’s KMP. 30 Silex Annual Report 2014 Directors’ Report Members of the People & Remuneration Committee as at the date of this report were as follows: Committee members Dr L M McIntyre – Chair Mr A M Stock (member since 1 October 2013) Mr C D Wilks (member since 27 June 2014) Committee secretary Number of meetings in FY 2014 Ms A N Scott 3 Other individuals who regularly attended meetings Dr M P Goldsworthy – CEO/MD Ms J E Ducie – CFO/Company Secretary The role of the People & Remuneration Committee is to: • Review and recommend to the Board the appropriate remuneration policies and practices for the Company and its specific application to KMP, as well as the general application to all employees; • Determine remuneration levels of the CEO/MD and other KMP; • Manage the incentive plans which apply to executive directors and senior executives (the executive team), including key performance indicators and performance hurdles; and • Review and make recommendations to the Board regarding the remuneration of non-executive directors. The role and responsibilities of the People & Remuneration Committee are set out in the People & Remuneration Committee Charter, which is available on the Company’s website at www.silex.com.au/about/corporate-governance. Further information on the People & Remuneration Committee is provided in the Corporate Governance Statement of this Report. Use of remuneration consultants The People & Remuneration Committee directly engaged Aon Hewitt to provide recommendations on KMP remuneration package structure. Under the terms of the engagement Aon Hewitt provided recommendations as defined in section 9B of the Corporations Act 2001. Total fees paid were $7,800 for these services. Aon Hewitt has confirmed that the above recommendations have been made free from undue influence by members of the Company’s KMP. The following arrangements were made to ensure that the remuneration recommendations were free from undue influence: • Aon Hewitt was engaged by, and reported directly to, the Chair of the People & Remuneration Committee. The agreement for the provision of remuneration consulting services was executed by the Chair of the People & 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 People & Remuneration Committee; and • Aon Hewitt was permitted to speak to our Group Human Resources Manager throughout the arrangement to understand company processes, practices and other business issues. 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 People & Remuneration Committee considered the recommendations along with other factors in making the remuneration decisions. 31 Silex Annual Report 2014 Directors’ Report c) Linking remuneration to company performance Remuneration strategy, policy and framework In determining executive KMP remuneration, the board aims to ensure that remuneration practices are designed to attract, motivate and retain highly qualified personnel, whilst having regard for contemporary market practice, good governance and alignment to changing business circumstances and strategy execution as we work towards commercialisation of our various technologies. The Company aims to reward executive KMP with a level and mix of remuneration commensurate with their position and responsibilities within the Company that is competitive within the market in which they were recruited. Those executive KMP who have a greater ability to influence outcomes have a greater portion of their overall remuneration package ‘at risk’. Remuneration for executive KMP is reviewed annually and considers market data, insights into remuneration trends, the performance of the Company and the individual, and the broader economic environment. This review is conducted in consultation with independent remuneration consultants where appropriate. The executive KMP remuneration framework has two components: • Total fixed remuneration; and • At risk incentives. total Fixed remuneration Composition Purpose Link to Performance Comprises base salary, superannuation and any other packaged benefits, including motor vehicle benefits. To provide competitive fixed remuneration set with reference to role, market and experience. Company and individual performance are considered during the annual remuneration review. incentives (Sti/lti) (Success based) Composition All executives are eligible to participate in the incentive plan. Purpose Link to Performance Awards are currently paid in cash or by escrow share awards. Rewards are generally based on a percentage of the executive’s Total Fixed Remuneration (TFR) and the ability to influence outcomes for the Company. To reward executives for their contribution to achievement of Company and/or divisional outcomes, as well as divisional Key Performance Indicators (KPIs). At all times the Board has the discretion to make a final determination based on share price performance or other factors. Performance may be linked to financial metrics such as operating cash flow and to non-financial measures, such as commercial deliverables, and other specific operational and strategic deliverables for the Company. Incentive awards may be clawed back if the relevant executive acts fraudulently or dishonestly or breaches their obligations to the Company. The People & Remuneration Committee is responsible for assessing performance against KPIs and determining the incentive awards to be paid. To assist in this assessment, the committee receives detailed reports on performance from management. The committee has the discretion to adjust awards in light of unexpected or unintended circumstances. The Company’s policy is to position total fixed remuneration at or 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 KMP the opportunity to earn total remuneration above the market median for outstanding performance against the stretch targets. 32 Silex Annual Report 2014 Directors’ Report d) Performance of Silex Systems Limited year ended 30 June 2010 2011 2012 2013 2014 ePS Cents (12.3) (19.6) (21.6) (0.1) (17.3) Sti $ Share price at 30 June $ 85,000 13,761 304,000 140,000 76,000 4.60 2.92 3.20 2.20 1.16 The increased Net (loss) for the year ($29.6m compared to $0.2m in the prior year) and the resulting increase in the negative earnings per share in the current year was mainly due to the accounting impact of the major strategic review and the milestone revenue of US$15.0m (AU$15.4m) which was awarded in the previous year ($nil in the current year). It is important to note that our cash balance was largely maintained during the year ended 30 June 2014 with only a minimal decrease of $0.4m. Silex’s share price has suffered over recent years primarily as a result of the Fukushima event in 2011 which has had a negative impact on all uranium-based stocks. Progress in the Company’s various technology projects has not directly been reflected in Earnings Per Share (EPS) as the Company’s projects remain in the research and development phase and are yet to generate substantial revenue. e) Executive KMP remuneration structure Remuneration structure For FY 2014, all executive KMP remuneration packages included a mix of total fixed remuneration (TFR) and at-risk incentives (short-term and long-term incentives). An outline of each remuneration component and the maximum potential opportunity is shown in the below table: CeO/md CFO/Company Secretary CeO – Solar Systems Total Fixed Remuneration (TFR) Composition Assessment Base salary, superannuation and packaged motor vehicle benefits* Base salary and superannuation Base salary, superannuation and packaged motor vehicle benefits Based on responsibilities, performance and market data Based on responsibilities, performance and market data Based on responsibilities, performance and market data At Risk No No No Maximum Short-Term Incentive Plan Opportunity Composition Assessment Maximum value of 50%* of TFR. Awards may be delivered in cash or Restricted Silex Systems Limited ordinary shares subject to shareholder approval. Maximum value of 30% of TFR. Awards are currently paid in cash. A portion of the payment may also be delivered in Restricted Silex Systems Limited ordinary shares. Maximum value of 40% of TFR. Awards are currently paid in cash. A portion of the payment may also be delivered in Restricted Silex Systems Limited ordinary shares. Award is subject to the achievement of agreed performance criteria comprising financial metrics and specific key strategic/commercial objectives. Award is subject to the achievement of divisional and Company financial performance, supplemented by strategic and commercial measures specific to business unit deliverables. Award is subject to the achievement of Solar Systems financial performance, supplemented by strategic and commercial measures specific to the Solar Systems business. At Risk Yes Yes Yes 33 Silex Annual Report 2014 Directors’ Report Other Incentives Composition Assessment CeO/md CFO/Company Secretary CeO – Solar Systems A LTI award may be granted annually at the discretion of the Board to a maximum value of 62.5%* of TFR. A LTI award may be granted annually at the discretion of the Board to a maximum value of 25% of TFR. The LTI award is subject to performance criteria set by the Board at the time of issue and was approved by shareholders at the 2013 AGM. Performance criteria for the FY 2014 award included a Relative Total Shareholder Return and an absolute share price hurdle. The actual LTI determined at the end of the 3 year performance period will be paid via the allotment of restricted Silex Systems Limited ordinary shares subject to a further escrow period of 3 years. The LTI award is subject to performance criteria set by the Board at the time of issue. Performance criteria for the FY 2014 award included a Relative Total Shareholder Return and an absolute share price hurdle. The actual LTI determined at the end of the 3 year performance period will be paid via the allotment of restricted Silex Systems Limited ordinary shares subject to a further escrow period of 3 years. A Success fee bonus based on the execution of the Board’s stated strategy being to obtain a transaction for the Solar Systems business unit. The award amount will be assessed on the basis of the value secured for Silex shareholders after taking into account Silex’s investment to date. The success fee payment form will be determined at the time of any award and will be commensurate with the form of payment made to Silex. The success fee bonus is not time-bound and will be assessed at the time of financial close of a transaction involving the Solar Systems business or assets. At Risk Yes Yes Yes * A review of the CEO/MD’s remuneration is underway and a significant reduction is anticipated in line with the planned re-focused activities of the Company. Short-term incentive – FY 2014 outcome In considering the appropriate award for executive KMP short-term incentive achievement in FY 2014, the Board considered the Company’s reduced share price. In assessing the appropriateness of an award being made to the CEO/MD, the Board at its discretion determined that no award would be made to the CEO/MD for FY 2014. The Board also considered the Company’s reduced share price when assessing whether an award would be appropriate for the CFO/Company Secretary. While it was determined that the majority of stated deliverables had been achieved (75%), the Board discretionally determined that an award of 25% of the maximum short-term incentive opportunity of $80,000 would be granted. The resulting gross award of $20,000 will be paid in cash prior to 31 December 2014. A different approach was adopted by the Board when reviewing the award of an STI for the CEO – Solar Systems. In assessing the achievement of targets set for the STI period (2nd half of FY 2014), it was determined that 70% of deliverables had been achieved. This will result in an award of 70% of the maximum short-term incentive opportunity of $80,000. The gross award of $56,000 will be paid in cash prior to 31 December 2014. For commercially sensitive reasons, short-term incentive targets for executive KMP are not published within this Remuneration Report, however the People & Remuneration Committee believe that all targets are set appropriately and align with shareholder expectations. 34 Silex Annual Report 2014 Directors’ Report Long-term incentive – issued during FY 2014 Long-term incentives were granted to the CEO/MD and CFO/Company Secretary during FY 2014 and vest subject to a share price hurdle of $5.40 and a Total Shareholder Return (TSR) hurdle measured over a three (3) year performance period relative to the ASX300 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. The CEO/MD award was approved by shareholder at the 2013 AGM. The share price hurdle of $5.40 is required to be met as at the close of market on the date of the 2016 Annual General Meeting and is equal to the Offer Price from the December 2010 Placement. Long-term incentive – FY2015 The People & Remuneration Committee and Silex Board are mindful of general shareholder concern that long-term equity-based remuneration be linked to growth in shareholder value. The terms and quantum of future long-term incentives for the CEO/MD and CFO/Company Secretary remain subject to review with no long-term incentives to be offered for FY 2015. The LTI/Success Fee Bonus for the CEO – Solar Systems is not time-bound and remains an ongoing incentive. The maximum incentive opportunity will be determined in accordance with the quantum of the transaction and value secured for Silex shareholders, with the form of payment to be commensurate with that made to Silex. Share Trading Policy The Silex share trading policy applies to all staff including KMP. It only permits the purchase or sale of Company securities during certain open periods and applies other restrictions with regard to hedging arrangements. KMP must not enter into any hedging arrangements. f) Non-executive directors’ remuneration Aggregate directors’ fees are reviewed annually by the Board taking into account comparable roles and market data provided by the Board’s independent remuneration consultant. The director’s fees remain well within the limits of the shareholder approved aggregate directors fee pool maximum of $750,000, as approved by shareholders at the 2011 AGM. During the period, a process of Board renewal occurred with 2 directors resigning from the Board. The Silex Board will now comprise of 3 non- executive directors and 1 executive director, a permanent reduction of 2 non-executive directors. The reduction in Board size is deemed appropriate in light of the planned re-focused activities of the Company. The current fee structure is outlined below: Board Committee Chair 100,000 8,000 member 80,000 6,000 In addition to these fees, statutory entitlements such as superannuation contributions will be paid. Additional fees may be payable to Non-executive directors should they undertake specific consulting projects for the Company in the areas of their expertise. 35 Silex Annual Report 2014 Directors’ Report g) Voting and comments made at the Company’s 2013 Annual General Meeting Silex Systems Limited received more than 92% of “yes” votes on its remuneration report for the 2013 financial year. h) Directors’ and KMP remuneration The table below has been prepared in accordance with the requirements of the Corporations Act 2001 and relevant accounting regulations in Australia. This table details the remuneration received by the Company’s KMP for the current and previous financial year. 2014 Name Executive directors Dr M P Goldsworthy Non-executive directors Dr L M McIntyre Mr A M Stock (from 1 August 2013) Mr C D Wilks Prof S W R Burdon (until 25 June 2014) Mr R P Campbell (until 30 September 2013) Dr C S Goldschmidt (until 2 May 2014) Other Executive KMP Ms J E Ducie Mr C R Murray (from 6 January 2014) Total Short-term employee benefits Cash salary and fees* $ Cash bonus $ Non - monetary benefits $ Post- employment benefits long- term benefits Super annuation $ long service leave $ Share-based payments Options $ deferred rights $ total $ 789,754 - 19,035 24,975 4,561 231,390 116,320 1,186,035 94,159 - 83,833 145,095 112,000 23,500 72,318 - - - - - 266,400 20,000 - - - - - - - 8,710 - 7,755 13,422 10,360 2,174 6,689 - - - - - - - 77,053 - - - - - - - - - 102,869 91,588 235,570 122,360 25,674 79,007 24,975 4,152 387 1,801 317,715 179,073 56,000 454 29,387 454 - - 265,368 1,766,132 76,000 19,489 128,447 9,167 308,830 118,121 2,426,186 *Inclusive of movement in annual leave accruals. 36 Silex Annual Report 2014 Directors’ Report 2013 Name Executive directors Dr M P Goldsworthy Non-executive directors Dr L M McIntyre (from 2 July 2012) Mr C D Wilks Prof S W R Burdon Mr R P Campbell Dr C S Goldschmidt Other Executive KMP Ms J E Ducie Total Short-term employee benefits Cash salary and fees* $ Cash bonus $ Non - monetary benefits $ Post- employment benefits long- term benefits Super annuation $ long service leave $ Share-based payments Options $ deferred rights $ total $ 760,523 - 63,549 16,740 14,623 231,390 161,349 1,248,174 92,800 127,844 113,200 94,000 86,000 - - - - - 238,170 30,000 - - - - - - 8,352 - - 13,500 (1,303) 77,053 10,188 8,460 7,740 - - - - - - - - - - - 101,152 217,094 123,388 102,460 93,740 24,840 1,879 38,437 10,000 343,326 1,512,537 30,000 63,549 89,820 15,199 346,880 171,349 2,229,334 * Inclusive of movement in annual leave accruals. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Fixed remuneration at risk – Sti at risk – lti* 2014 2013 2014 2013 2014 2013 Directors Dr L M McIntyre Dr M P Goldsworthy Mr A M Stock Mr C D Wilks Prof S W R Burdon Mr R P Campbell Dr C S Goldschmidt Other Executive KMP Ms J E Ducie Mr C R Murray 100.0% 100.0% 70.7% 68.5% 100.0% N/A 67.3% 64.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% N/A 0.0% N/A N/A N/A N/A N/A N/A 8.0% N/A N/A N/A N/A N/A 93.0% 78.9% 77.2% N/A 6.3% 21.1% 11.6% N/A N/A N/A 29.3% 23.5% N/A N/A 32.7% 35.5% N/A N/A N/A 0.7% N/A N/A N/A N/A 11.2% N/A * This relates to options and deferred shares issued on a LTI basis with the percentages based on the value of amounts expensed during the year. 37 Silex Annual Report 2014 Directors’ Report i) Details of share-based compensation and bonuses Options The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are as follows: Grant date 30th July 2010 5th July 2011 expiry date 29th July 2015 4th July 2016 8th December 2011 7th December 2016 exercise price $4.65 $2.92 $2.04 Value per option at grant date $1.97 $1.18 date exercisable (subject to share price hurdle) 100% after 30th July 2012* 100% after 5th July 2013 $0.63 100% after 8th December 2014 Share price hurdle $4.86 $3.05 $2.13 * 40,000 options to Ms J E Ducie vested during the year ended 30 June 2013. However, as the share price hurdle has not been met, these options remain unable to be exercised. Options granted under the plan carry no dividend or voting rights. Details of options over ordinary shares in the company provided as remuneration to KMP are shown below. When exercisable, each option is convertible into one ordinary share of Silex Systems Limited. Vesting of the options following the vesting date is subject to meeting the share price hurdle. The exercise price of the options is based on the volume weighted average price of the shares for the 5 trading days preceding the date of issue. Name year of grant years in which options may vest Number of options granted Vested % Dr M P Goldsworthy Y/E 30/06/2012 Y/E 30/06/2015 1,102,207 Mr C D Wilks Ms J E Ducie Ms J E Ducie Y/E 30/06/2012 Y/E 30/06/2015 367,035 Y/E 30/06/2011 Y/E 30/06/2013* Y/E 30/06/2012 Y/E 30/06/2014 40,000 60,000 - - 100 100 Number of options forfeited during the year maximum total value of grant to vest ($) - - - - 694,170 231,159 N/A N/A * These options issued to Ms J E Ducie are subject to a share price hurdle of $4.86 , which had not been achieved between the period between two years after grant date and 30 June 2014. The assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values on grant date are independently 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 volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. The Employee Share Option Plan (No. 1) under which the above options were issued was terminated by a resolution of the Silex Board in accordance with the plan rules on 24 October 2013. There were no options granted or any options exercised by any individual during FY 2014. 38 Silex Annual Report 2014 Directors’ Report Bonuses and rights to deferred shares For each award of deferred shares, the percentage of bonus awarded or forfeited in the financial year is set out below. All shares issued are subject to an escrow period ending 30 June 2015. Name Dr M P Goldsworthy Ms J E Ducie awarded % Forfeited % Performance period year granted Number granted 25% 80% 75% Y/E 30/06/2013 Y/E 30/06/2014 44,843 20% Y/E 30/06/2013 Y/E 30/06/2014 3,759 Value per share $ 2.23 2.66 Value of shares issued $ 100,000 9,999 Equity Instruments held by KMP The below table shows the number of ordinary shares in the company that were held during the financial year by KMP of the Company, including by entities related to them: balance at the start of the year received during the year on the exercise of options received on vesting of rights to shares Other changes during the year balance at the end of the year 2014 Directors Dr L M McIntyre 8,230 Dr M P Goldsworthy 5,934,212 Mr A M Stock Mr C D Wilks Former Directors* Prof S W R Burdon Mr R P Campbell - 2,814,021 35,000 1,354,823 Dr C S Goldschmidt 2,525,937 Other Executive KMP Ms J E Ducie Mr C R Murray - - - - - - - - - - - - 44,843 - - - - - 3,759 - - - - - - - - - - 8,230 5,979,055 - 2,814,021 N/A N/A N/A 3,759 - *This information relates to the period these individuals were Directors. 39 Silex Annual Report 2014 Directors’ Report The below table shows the number of options over ordinary shares in the company that were held during the financial year by KMP of the Company, including by entities related to them: Granted during the year as compen- sation lapsed during the year balance at the start of the year Forfeited during the year exercised during the year balance at the end of the year Vested and exercisable at the end of the year unvested 2014 Name Directors Dr M P Goldsworthy Mr C D Wilks 1,102,207 367,035 Other Executive KMP Ms J E Ducie 100,000 - - - - - - - - - - 1,102,207 - 1,102,207 - 367,035 - 367,035 - 100,000 60,000 - j) 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 130,000 350,000 200,000 165,000 245,000 1,469,242 2,559,242 $6.13 $5.24 $4.65 $5.28 $2.92 $2.04 11th January 2010 10th January 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 No option holder has any right under the options to participate in any other share issue of the company or any other entity. 11. Company secretary Ms Julie Ducie, BBus, CA, GAICD 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, Julie was a Senior Associate with a Chartered Accounting Practice. 40 Silex Annual Report 2014 Directors’ Report 12. 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 Dr L M McIntyre Dr M P Goldsworthy Mr A M Stock Mr C D Wilks Prof S W R Burdon** Mr R P Campbell** Dr C S Goldschmidt** directors’ meetings audit Committee meetings People & remuneration Committee meetings Number Held Number attended Number Held Number attended Number Held Number attended 16 16 14 16 16 5 11 16 16 14 14 14 5 9 3 * 2 * 3 1 2 3 * 2 * 2 1 2 3 * 1 * 3 2 * 3 * 1 * 3 2 * * Not a member of the relevant committee at the time the scheduled meetings were held ** Resigned during the year 13. 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. 14. 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 is 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. 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. 41 Silex Annual Report 2014 Directors’ Report 15. 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 below. 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 below, 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. 2014 $ 2013 $ 165,000 165,000 181,000 181,000 10,000 10,000 175,000 75,400 75,400 250,400 10,000 10,000 191,000 - - 191,000 remuneration of auditors (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 Corporate services Total remuneration for other services total remuneration 42 Silex Annual Report 2014 Directors’ Report 16. Auditors PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. 17. 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 44. This report is made in accordance with a resolution of the Directors. dr m P Goldsworthy CEO/MD Sydney, 26 September 2014 mr C d Wilks Director 43 Silex Annual Report 2014 Directors’ Report Auditor’s Independence Declaration As lead auditor for the audit of Silex Systems Limited for the year ended 30 June 2014, 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. Stephen Humphries Partner PricewaterhouseCoopers Sydney 26 September 2014 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation 44 Silex Annual Report 2014 Corporate Governance Statement Silex Systems Limited (the Company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board continues to review the framework and practices to ensure they meet the interests of shareholders. 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 second edition of the ASX Corporate Governance Principles and Recommendations, noting that the third edition of the ASX Principles was released on 27 March 2014, and takes effect for a listed entity’s first full financial year commencing on or after 1 July 2014, the Company will report against the third edition in its 2015 Corporate Governance Statement. Silex has commenced a process of reviewing and updating its corporate governance documentation and practices against the third edition of the ASX Principles. Principle 1: Lay solid foundations for management and oversight The directors are responsible to 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 Company as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Company is properly managed. Day to day management of the Company’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the Board to the CEO/MD and senior executives. The Board of Directors is accountable to shareholders for the performance of the Company and is responsible for the corporate governance practices of the Company. The Board’s principal objective is to maintain and increase shareholder value while ensuring that the Company’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 Company are conducted ethically and in accordance with the law. The Board’s overall responsibilities include: • providing strategic direction and approving corporate strategies; • appointing and removing CEOs; • reviewing and approving business plans, annual budgets and financial plans; • 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 CEO/MD and senior executives as set out in the Company’s delegations policy. These delegations are reviewed on an annual basis. The CEO/MD 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 Company. The Chair undertakes an annual assessment of the performance of the CEO/MD, senior executives and the non-executive directors and meets privately with each director to discuss this assessment. The CEO/MD meets annually with senior management to discuss their performance. Feedback is also sought from other directors. 45 Silex Annual Report 2014 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 Chair is an independent non-executive director and all directors are required to bring independent judgement to bear in their Board decision making. The Chair 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 year appointed director Dr L M McIntyre 49 Non-executive director Dr M P Goldsworthy 56 CEO/MD Mr A M Stock 62 Non-executive director Mr C D Wilks 56 Non-executive director Strategy, Commercialisation and Company Management Physicist and Co-inventor of the SILEX Technology and Company Management Energy industry and Company Management Investment Banking, Finance and Company Management 2012 1992 2013 1988 Dr L M McIntyre and Mr A M Stock 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 9 of the Directors’ Report. 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. 46 Silex Annual Report 2014 Corporate Governance Statement 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. Recent thinking on corporate governance has introduced the view that a director’s independence may be perceived to be impacted by lengthy service on the Board. The Board will continue to monitor developments on this issue and further consider and review the independence status of long serving directors. Non-executive directors The non-executive directors met during the year, in scheduled sessions without the presence of management, to discuss the operation of the Board and a range of other matters. Relevant matters arising from these meetings were shared with the full Board. Term of office The Company’s Constitution specifies that all directors other than the CEO/MD must retire from office no later than the third annual general meeting (AGM) following their last election, with a minimum of one director retiring from office each year. 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. Chair, CEO/MD and Senior Executives The Chair 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/MD and senior executives are responsible for the day-to-day management of the Company’s affairs, and for implementing Company strategies and policies as determined by the Board of Directors. Induction The induction provided to new directors and senior executives enables them to actively participate in 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. 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. 47 Silex Annual Report 2014 Corporate Governance Statement 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 Chair 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 Chair and of its committees. Due to the appointment of a new Chair, this process was performed in September 2014. The Board discusses a broad range of issues including the progress of the various research, development and commercialisation projects, the financial results, 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 Company. The Chair undertakes an annual assessment of the performance of individual directors and holds discussions with each director to discuss this assessment. The CEO/MD and the Chair meet 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 KMP. 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. 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 People & Remuneration and Audit Committees. Each is comprised solely 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 interests that the full Board deals with nomination issues. As a result, a Nomination Committee has not been established. From time to time, the Board may establish a temporary sub-committee to assist the Board in fulfilling its nomination responsibilities. 48 Silex Annual Report 2014 Corporate Governance Statement 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 at: www.silex.com.au/about/corporate-governance. 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 positions and management 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 Objective % actual % 35.0% 35.0% 33.0% 21.0% 43.0% 25.0% Responsibility for diversity has been included in the board charter and the people and remuneration committee charter (diversity at all levels of the Company). The Company submitted the annual compliance report for the year ended 30 June 2014 to the Workplace Gender Equality Agency and has been deemed compliant with the Workplace Gender Equality Act 2012. 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 at: www.silex.com.au/about/corporate-governance. 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. Trading of the subsequently issued shares is however subject to the prohibitions above. 49 Silex Annual Report 2014 Corporate Governance Statement Principle 4: Safeguarding integrity in financial reporting Audit Committee The Audit Committee consists of the following non-executive directors: Mr A M Stock (Chair from 1 October 2013) Dr L M McIntyre Mr C D Wilks (member since 27 June 2014) Mr R P Campbell (Chair until his resignation 30 September 2013) Prof S W R Burdon (until his resignation 25 June 2014) Dr C S Goldschmidt (until his resignation 2 May 2014) 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 Company operates. The Audit Committee has its own 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 at: www.silex.com.au/about/corporate-governance. Minutes of committee meetings are tabled at the subsequent Board meeting. 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; and • report to the Board on matters relevant to the committee’s role and responsibilities. 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 Chair of the Audit Committee or the Chair 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. 50 Silex Annual Report 2014 Corporate Governance Statement 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. The role of shareholders The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the Company’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 Company during the year, changes in the state of affairs of the Company and details of likely future developments, in addition to the other disclosures required by the Corporations Act 2001; • Proposed major changes in the Company 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 Company’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. 51 Silex Annual Report 2014 Corporate Governance Statement 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 Company’s business objectives. Considerable importance is placed on maintaining a strong control environment. There is an organisational 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, significant commercial exposures and various other business risks on a regular basis for review. The risks are managed in accordance with the risk management system in place and periodically reviewed. 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. 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 is a licensee under that Act. 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 and VIC Dangerous Goods (Storage and Handling) Interim Regulations 2011. To the best of the Directors’ knowledge, all environmental regulatory requirements have been met. 52 Silex Annual Report 2014 Corporate Governance Statement Corporate reporting In complying with recommendation 7.3, the CEO/MD and CFO/Company Secretary 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 are in accordance with relevant accounting standards; and • 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 People & Remuneration Committee The People & Remuneration Committee consists of the following non-executive directors: Dr L M McIntyre – Chair Mr A M Stock (member from 1 October 2013) Mr C D Wilks (member since 27 June 2014) Prof S W R Burdon (until his resignation 25 June 2014) Mr R P Campbell (until his resignation 30 September 2013) Details of these directors’ attendance at People and Remuneration Committee meetings are set out in the Directors’ Report. The role and responsibilities of the People & Remuneration Committee are set out in the People & Remuneration Committee charter, which is available on the Company’s website at: www.silex.com.au/about/corporate-governance. The People & 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 KMP’s remuneration is set out in the Directors’ Report, which distinguishes non-executive directors’ remuneration from that of executive directors and KMP. The People & Remuneration Committee adopts policies that attract and maintain talented and motivated directors and employees so as to encourage enhanced performance. 53 Silex Annual Report 2014 This page has been left blank intentionally. 54 Silex Annual Report 2014 Concise Financial Report 30 June 2014 Contents 56 Consolidated income statement 57 Consolidated statement of comprehensive income 58 Consolidated balance sheet 59 Consolidated statement of changes in equity 60 Consolidated statement of cash flows 61 Notes to the financial statements 66 Directors’ declaration 67 Independent auditor’s report to the members 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 2014. 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 9704 8888 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. ABN 69 003 372 067 55 Silex Annual Report 2014 Consolidated Income Statement for the year ended 30 June 2014 revenue from continuing operations Other income Cost of sales Research and development materials Finance costs Depreciation and amortisation expense Impairment of intangibles Employee benefits expense Consultants and professional fees Printing, postage, freight and stationery Rent, utilities and property outgoings Net foreign exchange losses Other expenses from ordinary activities (loss)/profit before income tax expense Income tax expense Net (loss)/profit from continuing operations Note 2 3 2014 $ 2013 $ 7,398,554 23,642,782 24,010,247 7,708,938 (5,185,474) (4,618,244) (529) (3,620,804) (2,355,960) (1,793) (18,887,138) (2,945,893) (12,379,766) - (13,016,744) (14,431,523) (2,521,051) (2,602,855) (146,958) (265,960) (1,840,250) (1,344,423) (15,847) - (2,043,177) (1,591,472) (29,246,377) 2,191,037 - - (29,246,377) 2,191,037 Net (loss) from discontinued operations 5 (385,083) (2,421,488) Net (loss) for the year (29,631,460) (230,451) Net (loss) is attributable to: Owners of Silex Systems Limited Non-controlling interests (29,488,786) (142,674) (29,631,460) (93,119) (137,332) (230,451) 2014 Cents 2013 Cents Earnings per share for (loss)/profit 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 (17.2) (17.2) (17.3) (17.3) 1.3 1.3 (0.1) (0.1) The above consolidated income statement should be read in conjunction with the accompanying notes. 56 Silex Annual Report 2014 Consolidated Statement of Comprehensive Income for the year ended 30 June 2014 Net (loss) for the year Other comprehensive income Items that may be reclassified to profit or loss: 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 interest total comprehensive income for the year Total comprehensive income for the period attributable to owners of Silex Systems Limited arises from: Continuing operations Discontinued operations 2014 $ 2013 $ (29,631,460) (230,451) (295,336) (295,336) (29,926,796) (29,784,122) (142,674) (29,926,796) 212,435 212,435 (18,016) 119,316 (137,332) (18,016) (29,538,133) 2,406,755 (245,989) (2,287,439) (29,784,122) 119,316 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 57 Silex Annual Report 2014 Consolidated Balance Sheet as at 30 June 2014 Note 30 June 2014 $ 30 June 2013 $ Assets Current assets Cash and cash equivalents Held to maturity investments - term deposits Trade and other receivables Inventories Assets held for sale 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 4 Liabilities directly associated with assets held for sale 4 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 interest total equity 3,178,811 60,756,039 2,571,418 18,498 66,524,766 30,819,183 97,343,949 8,720,156 55,663,843 21,048,200 3,642,672 89,074,871 - 89,074,871 110,226 27,427,549 2,491 6,594 - 6,080 20,618,441 103,131 119,311 48,155,201 97,463,260 137,230,072 1,469,740 1,237,149 2,706,889 2,559,317 5,266,206 - 111,971 111,971 7,440,541 1,062,291 8,502,832 - 8,502,832 7,210,483 192,501 7,402,984 5,378,177 15,905,816 92,085,083 121,324,256 231,671,231 231,417,226 9,882,811 9,744,529 (148,650,577) (119,161,791) 92,903,465 121,999,964 (818,382) (675,708) 92,085,083 121,324,256 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 58 Silex Annual Report 2014 Consolidated Statement of Changes in Equity for the year ended 30 June 2014 attributable to owners of Silex Systems limited Contributed equity $ reserves $ accumulated losses $ Non- controlling interests $ total $ total $ 231,068,369 9,180,044 (119,068,672) 121,179,741 (538,376) 120,641,365 - - - - (93,119) (93,119) (137,332) (230,451) 212,435 - 212,435 - 212,435 212,435 (93,119) 119,316 (137,332) (18,016) balance at 30 June 2012 Net (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 shares and options - value of employee services Transfer from share-based payments reserve Deferred tax credit recognised directly in equity balance at 30 June 2013 Net (loss) for the year Exchange differences on translation of foreign operations total comprehensive income for the year (5,367) - - 711,531 359,481 (359,481) (5,257) 348,857 - 352,050 - - - - - (5,367) 711,531 - (5,257) 700,907 - - - - - (5,367) 711,531 - (5,257) 700,907 231,417,226 9,744,529 (119,161,791) 121,999,964 (675,708) 121,324,256 - - - - (29,488,786) (29,488,786) (142,674) (29,631,460) (295,336) - (295,336) - (295,336) (295,336) (29,488,786) (29,784,122) (142,674) (29,926,796) transactions with owners in their capacity as owners Shares to employees, net of transaction costs Employee shares and options - value of employee services Transfer from share- based payments reserve Deferred tax credit recognised directly in equity balance at 30 June 2014 (4,966) - - 696,178 262,560 (262,560) (3,589) 254,005 - 433,618 - - - - - (4,966) 696,178 - (3,589) 687,623 - - - - - (4,966) 696,178 - (3,589) 687,623 231,671,231 9,882,811 (148,650,577) 92,903,465 (818,382) 92,085,083 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 59 Silex Annual Report 2014 Consolidated Statement of Cash Flows for the year ended 30 June 2014 2014 $ 2013 $ Cash flows from operating activities Receipts from customers and government grants (inclusive of GST) 30,060,966 19,625,906 Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Net cash inflows/(outflows) from operating activities (28,773,788) (31,567,717) 1,971,167 3,719,524 (529) (1,793) 3,257,816 (8,224,080) Cash flows from investing activities Payments for held to maturity investments - term deposits (5,092,196) - Proceeds from held to maturity investments - term deposits Payments for property, plant and equipment Payments for intangibles Proceeds from sale of property, plant and equipment Net cash (outflows)/inflows from investing activities Cash flows from financing activities Transaction costs from issue of shares Net cash (outflows) from financing activities - 28,249,078 (708,533) (13,818,509) (2,935,502) (1,598,172) 6,773 343,335 (8,729,458) 13,175,732 (4,966) (4,966) (5,367) (5,367) Net (decrease)/increase in cash held (5,476,608) 4,946,285 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* 8,720,156 (64,737) 3,178,811 3,682,254 91,617 8,720,156 Non-cash financing and investing activities - - *Held to maturity investments excluded from Cash and cash equivalents 60,756,039 55,663,843 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 60 Silex Annual Report 2014 Notes to the financial statements 30 June 2014 Note 1 Basis of preparation 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 2014. The accounting policies have been consistently applied to all years presented, unless otherwise stated below. The financial statements in this report are presented in Australian dollars. New and amended standards adopted by the Company Silex Systems Limited has changed some of its accounting policies as the result of new or revised accounting standards which became effective for the annual reporting period commencing on 1 July 2013. The affected policies are: • Principles of consolidation – new standards AASB 10 Consolidated Financial Statements and AASB 11 Joint Arrangements; and • Accounting for employee benefits – revised AASB 119 Employee Benefits Other new standards that are applicable for the first time for the 30 June 2014 financial report are AASB 13 Fair Value Measurement, AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities and AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle. These standards did not affect the Company’s accounting policies or any of the amounts recognised in the financial statements. (i) Principles of consolidation – subsidiaries and joint arrangements AASB 10 was issued in August 2011 and replaces the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements and in Interpretation 112 Consolidation – Special Purpose Entities. Under the new principles, the group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The group has reviewed its investments in other entities to assess whether the consolidation conclusion in relation to these entities is different under AASB 10 than under AASB 127. No differences were found and therefore no adjustments to any of the carrying amounts in the financial statements are required as a result of the adoption of AASB 10. (ii) Employee benefits The adoption of the revised AASB 119 Employee Benefits changed the accounting for the group’s annual leave obligations. As the entity does not expect all annual leave to be taken within 12 months of the respective service being provided, annual leave obligations are now valued and measured on a discounted basis. However, the impact of this change was immaterial since the majority of the leave is still expected to be taken within a short period after the end of the reporting period. The provision for annual leave continues to be classified as a current liability in the balance sheet. New accounting standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2014 reporting periods and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and interpretations is set out below. (i) Limited amendment of impairment disclosures (AASB 2013-3) The AASB has made amendments to the disclosures required by AASB 136 Impairment of Assets which: • remove the requirements to disclose the recoverable amount of all cash generating units (CGU) that contain goodwill or identifiable assets with indefinite lives if there has been no impairment • requires disclosure of the recoverable amount of an asset or CGU when an impairment loss has been recognised or reversed • requires detailed disclosures of how the fair value less costs of disposal has been measured when an impairment loss has been recognised or reversed. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 61 Silex Annual Report 2014 Notes to the financial statements 30 June 2014 (continued) Note 2 Revenue From continuing operations Milestone revenue – GLE Recoverable project costs from GLE Sale of goods Services Interest income From discontinued operations (note 5) Sale of goods Rent Interest income Note 3 Other income From continuing operations Government grants Research and development tax incentive Foreign currency exchange gains (net) Profit on sale of property, plant and equipment Other From discontinued operations (note 5) Research and development tax incentive Foreign currency exchange gains (net) Profit on sale of property, plant and equipment 2014 $ 2013 $ - 15,406,738 4,540,761 4,099,109 224,489 1,582 2,631,722 7,398,554 9,119 - 4,055 13,174 126,688 606,341 3,403,906 23,642,782 843,460 42,606 12,060 898,126 2014 $ 2013 $ 9,080,315 14,923,227 - 6,591 114 3,917,365 2,805,308 986,265 - - 24,010,247 7,708,938 1,077,213 - 182 1,077,395 480,808 102,010 171,662 754,480 (i) Government grants Federal and State Government solar project grants of $9,030,904 (2013: $3,768,178), 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. Export Market Development Grant income of $49,411 (2013: $149,187) was recognised as income during the financial year by Solar Systems. There are no unfulfilled conditions attached to these grants. 62 Silex Annual Report 2014 Notes to the financial statements 30 June 2014 (continued) (ii) Research and development tax incentive Research and development tax incentive income of $16,000,440 (2013: $3,286,116) was recognised as other income by the Company during the year. This relates to expenditure in the previous and current financial years. The Company has met the conditions of the tax incentive. Note 4 Assets and liabilities classified as held for sale On 30 June 2014, as part of the completion of a major strategic review of the entire Silex group, Silex announced an accelerated transition to market for subsidiaries Solar Systems and Translucent. It is expected that an outcome, with the aim of reducing the need for parent company investment beyond FY 2015, is highly probable in the next 12 months. As a result, these two business segments, net of cash and held to maturity investments, are reported as held for sale. Revenue Other income Expenses (Loss) before income tax Income tax expense 2014 $ 284,882 24,009,678 2013 $ 747,417 6,722,673 (45,284,643) (21,132,084) (20,990,083) (13,661,994) - - (loss) after income tax of held for sale operations (20,990,083) (13,661,994) Trade and other receivables Inventories Property, plant and equipment Intangible assets total assets of disposal group held for sale Payables Provisions total liabilities of disposal group held for sale 2014 $ 10,699,722 885,924 9,475,930 9,757,607 30,819,183 (1,905,028) (654,289) (2,559,317) 63 Silex Annual Report 2014 Notes to the financial statements 30 June 2014 (continued) Note 5 Discontinued operations On 30 June 2014, as part of the completion of a major strategic review of the entire Silex group, Silex announced that operations at subsidiary ChronoLogic would cease in order to end any requirement for Silex investment in the business beyond Q1 FY 2015. Several licence opportunities are continuing to be pursued. Additionally, as reported previously, all Silex Solar activities have ceased with the plant decommissioned and closed in October 2012. A summary of the results of the discontinued operations of ChronoLogic and Silex Solar is provided below. Revenue (note 2) Other income (note 3) Expenses (Loss) before income tax Income tax expense 2014 $ 13,174 1,077,395 (1,475,652) (385,083) - 2013 $ 898,126 754,480 (4,074,094) (2,421,488) - (loss) after income tax of the discontinued operations (385,083) (2,421,488) Silex $ Solar Systems $ 283,257 translucent $ 3,920,172 - (3,918,547) 283,257 1,625 8,588,134 (1,474,462) 7,113,672 total $ 12,791,563 (5,393,009) 7,398,554 221,325 (15,958,156) (5,031,927) (20,768,758) 64,764,354 29,133,782 2,784,748 96,682,884 2,064,813 2,307,186 252,131 4,624,130 Silex $ Solar Systems $ - (3,005,170) translucent $ 3,005,182 12 (4,614,789) total $ 27,855,093 (4,212,311) 23,642,782 2,191,037 3,497,389 128,147,101 521,515 12,407,538 747,405 747,405 (9,047,205) 43,761,286 9,970,906 24,102,506 (1,207,141) 22,895,365 15,853,031 80,888,426 1,915,117 Note 6 Segment information 2014 Total segment revenue Inter-segment revenue revenue from external customers Segment result Total segment assets Total segment liabilities 2013 Total segment revenue Inter-segment revenue revenue from external customers Segment result Total segment assets Total segment liabilities 64 Silex Annual Report 2014 Notes to the financial statements 30 June 2014 (continued) The Board of Directors assess the performance of the operating segments based on a result that excludes exchange gains and losses on intercompany loans which eliminate on consolidation and impairment of intangibles on consolidation. ChronoLogic and Silex Solar have been disclosed as discontinued operations and not as reportable segments. A reconciliation of the segment result to Net (loss)/profit from continuing operations is provided as follows: Segment result Impairment of goodwill on consolidation – Translucent 2014 $ 2013 $ (20,768,758) 2,191,037 (8,477,619) - Net (loss)/profit before income tax from continuing operations (29,246,377) 2,191,037 Note 7 Dividends No dividends were declared or paid during the year or in the prior year. Note 8 Events occurring after reporting date On 24 July 2014, the Licensee for the SILEX Uranium Enrichment Technology, GE-Hitachi Global Laser Enrichment LLC (‘GLE’), announced changes to the funding and pace of the commercialisation program to align with current adverse market conditions. GLE confirmed their intention to consolidate efforts on the technology development activities to its Wilmington facility in North Carolina, USA. The financial effect of this decision is not expected to have a material impact on the results of the Company. Solar Systems On 18 August 2014 Silex announced that the Australian Renewable Energy Agency (ARENA) and Solar Systems have agreed to suspend plans for the 100MW Mildura Solar Power Station and terminate the conditional funding deed for $75 million. The decision was based on a number of factors, including low wholesale electricity prices and the uncertainty surrounding the Renewable Energy Target. Due to these circumstances, the $35 million in conditional funding from the Victorian Government has also been terminated. Alternatives to further develop the Mildura site and other Australian-based projects are currently being explored. There is no direct financial cost anticipated to Solar Systems as a consequence of the decision to suspend plans for the 100MW Mildura Solar Power Station. Management continue efforts towards securing a strategic partnership or equity transaction for Solar Systems during FY 2015, aiming to achieve a value-creating outcome and potentially reducing the need for further parent company investment. Other The consolidated entity is not aware of any other 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 other than those referred to in this report. 65 Silex Annual Report 2014 Directors’ Declaration 30 June 2014 The directors declare that in their opinion, the concise financial report of the consolidated entity for the year ended 30 June 2014 as set out on pages 55 to 65 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 2014. 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 CEO/MD Sydney, 26 September 2014 mr C d Wilks Director 66 Silex Annual Report 2014 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 consolidated balance sheet as at 30 June 2014, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date and related notes, derived from the audited financial report of the company for the year ended 30 June 2014 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 of the company 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 control 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 2014. We expressed an unmodified audit opinion on that financial report in our report dated 26 September 2014. 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. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation 67 Silex Annual Report 2014 Independent auditor’s report to the members of Silex Systems Limited (continued) Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 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 consolidated entity for the year ended 30 June 2014 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 2014. We have audited the remuneration report included in pages 29 to 40 of the directors’ report for the year ended 30 June 2014. 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 2014 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 2014 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 Stephen Humphries Partner Sydney 26 September 2014 68 Silex Annual Report 2014 Shareholders’ Information 30 June 2014 1. Information relating to shareholders as at 15 September 2014 (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 holding less than a marketable parcel of shares Substantial shareholders Jardvan Pty Ltd M&G Investment (including M&G Investment Funds (3) & (12), M&G Investment Management Limited, M&G Limited, M&G Group Limited and Prudential plc) The Bank of New York Mellon Corporation Global X Management Company 2,317 2,955 1,007 1,109 112 7,500 61.68% 1,516 Ordinary shares 29,801,030 17,050,000 9,971,905 9,273,437 69 Silex Annual Report 2014 Shareholders’ Information 30 June 2014 (continued) (b) Names of Twenty Largest Holders as at 15 September 2014 Name HSBC Custody Nominees (Australia) Limited Jardvan Pty Ltd National Nominees Limited Majenta Holdings Pty Ltd Polly Pty Ltd J P Morgan Nominees Australia Limited Throvena Pty Ltd Hamlac Pty Ltd Mr Christopher David Wilks Citicorp Nominees Pty Limited Quintal Pty Ltd Merrill Lynch (Australia) Nominees Pty Limited Quadrangle Nominees Limited Mithena Holdings Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Felson Holdings Pty Ltd Hillboi Nominees Pty Ltd Mr Hayden Harvey Prior Mr John Robinson Mr Peter James Thomas + Ms Helen Thomas Number of securities 34,130,534 29,801,030 Percentage held 20.02% 17.48% 9,701,135 5,703,923 4,073,863 3,664,900 2,978,203 2,525,937 2,405,070 2,146,531 2,002,952 922,167 847,245 817,139 643,671 640,000 605,000 513,000 511,452 510,000 5.69% 3.35% 2.39% 2.15% 1.75% 1.48% 1.41% 1.26% 1.17% 0.54% 0.50% 0.48% 0.38% 0.38% 0.35% 0.30% 0.30% 0.30% 105,143,752 61.68% 70 Silex Annual Report 2014 Shareholders’ Information 30 June 2014 (continued) 2. Interest of directors in shares as at 15 September 2014 Dr M P Goldsworthy Dr L M McIntyre Mr A M Stock Mr C D Wilks Ordinary shares 5,979.055 8,230 - interest held Personally/Beneficially Beneficially N/A 2,814,021 Personally/Beneficially 3. Securities subject to voluntary escrow as at 15 September 2014 As at 15 September 2014 the following securities were subject to voluntary escrow: Ordinary shares 48,602 30 June 2015 Number on issue date escrow period ends 4. Unquoted equity securities as at 15 September 2014 Options issued under the Silex Systems Limited Employee Share Option Plan to take up ordinary shares Other options issued to take up ordinary shares * * These are options to Dr M P Goldsworthy (1,102,207) and Mr C D Wilks (367,035). Number on issue Number of holders 1,090,000 1,469,242 18 2 71 Silex Annual Report 2014 Share Registry 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: Enquiries outside Australia: Email: Website: www.computershare.com.au 1300 556 161 +61 8 8236 2300 web.queries@computershare.com.au Stock Exchange Listed on the Australian Stock Exchange, Ticker: SLX Listed on the OTCQX International, Ticker: SILXY Auditors PricewaterhouseCoopers Solicitors Baker & McKenzie Bankers Australia and New Zealand Banking Group Limited American Depository Receipts (ADR) Information Silex Systems Limited’s ADRs may be purchased on the US OTCQX market. Details are as follows: Ratio: Symbol: SILXY CUSIP: Exchange: OTCQX Country: Australia 1 ADR = 5 ordinary shares 827046 10 3 9414F102 Company Directory Directors Dr L M McIntyre – Chair Dr M P Goldsworthy – CEO/MD Mr A M Stock Mr C D Wilks Audit Committee Mr A M Stock – Chair Dr L M McIntyre Mr C D Wilks People & Remuneration Committee Dr L M McIntyre – Chair Mr A M Stock Mr C D Wilks Company Secretary Ms J E Ducie Registered Office and Principal Place of Business Suite 8.03, Level 8 56 Clarence Street Sydney NSW 2000, Australia Postal address: PO Box 364, Sydney NSW 2001 Phone: Fax: Email: Website: www.silex.com.au +61 2 9704 8888 +61 2 9279 1051 investor.relations@silex.com.au 72 Silex Annual Report 2014 S i l e x A n n u a l R e p o r t 2 0 1 4 www.silex.com.au