Announcement PDF Carbonxt Group Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Carbonxt Group Limited 59 097 247 464 For the year ended 30 June 2024 For the year ended 30 June 2023 2. Results for announcement to the market $ Revenues from ordinary activities down 2.2% to 15,124,618 Underlying Earnings Before Interest, Tax, Depreciation and Amortisation ('EBITDA') up 21.5% to (2,749,377) Loss from ordinary activities after tax attributable to the owners of Carbonxt Group Limited up 35.7% to (8,118,499) Loss for the year attributable to the owners of Carbonxt Group Limited up 35.7% to (8,118,499) Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The loss for the Group after providing for income tax amounted to $8,118,499 (30 June 2023: $5,983,771). The increase in loss for the Group compared to prior year is primarily due to the increase in net interest expense of $1,794,493 associated with the funding of the investment in NewCarbon Processing, LLC. Revenues decreased 2.2% compared to the prior year primarily due to reduced supply to the largest Activated Carbon pellet customer due to temporary plant outages at that customer's facility. Carbonxt Group Limited Appendix 4E Preliminary final report The directors consider Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Underlying EBIT to reflect the core earnings of the Group. Underlying EBITDA and underlying EBIT are financial measures which are not prescribed by Australian Accounting Standards (‘AAS’) and represent the profit or loss under AAS adjusted for non-cash and significant items. The following table summarises key reconciling items between statutory loss after income tax and underlying EBITDA for the current and previous year period: Consolidated 2024 2023 $ $ Revenue 15,124,618 15,461,953 Gross margin Other income Shipping and distribution costs Operating expenses 5,737,677 648,636 (1,797,357) (7,338,333) 4,579,280 483,632 (1,667,001) (5,658,258) Underlying EBITDA Depreciation and amortisation (2,749,377) (2,369,736) (2,262,347) (2,444,432) Underlying Earnings before interest and tax ('EBIT') Net Interest expense Share-based payment expense Share in losses of joint ventures (5,119,113) (2,893,655) (73,533) (32,198) (4,706,779) (1,099,162) (177,830) - Loss before income tax expense (8,118,499) (5,983,771) For further commentary refer to 'Review of operations' section within the Directors' report of the Annual Report and the attached market announcement. 3. Net tangible assets Reporting period Cents Net tangible assets per ordinary security (0.68) Previous period Cents 1.96 The net tangible assets calculation does not include rights-of-use assets of $7,328,237 (30 June 2023: $5,101,083) but include the lease liabilities of $3,353,324 (30 June 2023: $2,132,186). 4. Control gained over entities Not applicable. 5. Loss of control over entities Not applicable. 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. Carbonxt Group Limited Appendix 4E Preliminary final report Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Reporting entity's percentage holding Name of associate / joint venture Reporting period % NewCarbon Processing, LLC 35.48% Previous period % 33.33% Contribution to profit/(loss) (where material) Reporting period $ Previous period $ - - Group's aggregate share of associates and joint venture entities' profit/(loss) (where material) Profit/(loss) from ordinary activities before income tax - - Income tax on operating activities - - 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unqualified opinion has been issued with a paragraph addressing material uncertainty related to going concern. 11. Attachments Details of attachments (if any): The Annual Report of Carbonxt Group Limited for the year ended 30 June 2024 is attached. Carbonxt Group Limited Appendix 4E Preliminary final report 12. Signed As authorised by the Board of Directors Signed ___________________________ Warren Murphy Managing Director Sydney Date: 30 August 2024 Carbonxt Group Limited ABN 59 097 247 464 Annual Report - 30 June 2024 Carbonxt Group Limited Contents 30 June 2024 Corporate directory Chairman's letter Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Consolidated entity disclosure statement Directors' declaration Independent auditor's report to the members of Carbonxt Group Limited Shareholder information 1 2 4 6 20 21 22 23 24 25 58 59 60 65 Carbonxt Group Limited Corporate directory 30 June 2024 Directors Matthew Driscoll - Chairman Warren Murphy - Managing Director David Mazyck - Director of Technology Imtiaz Kathawalla – Non-Executive Director Nicholas Andrews – Non-Executive Director Company secretary Laura Newell Registered office Level 8, Grosvenor Place 210 George Street Sydney NSW 2000 Australia Tel: +61 2 9290 8600 Principal place of business Suite 111 3951 NW 48th Terrace Gainesville FL 32606 United States of America Share register Boardroom Pty Limited Level 8, 210 George Street Sydney NSW 2000 Australia Tel: +61 2 9290 9600 Auditor Ernst & Young 200 George Street Sydney NSW 2000 Australia Solicitors Thomson Geer Level 14 60 Martin Place Sydney NSW 2000 Australia Stock exchange listing Carbonxt Group Limited shares are listed on the Australian Securities Exchange (ASX code: CG1) Website www.cglimited.com.au Business objectives The development and sale of specialised Activated Carbon ('AC') products, including Powdered Activated Carbon ('PAC') and AC pellets for the removal of pollutants and toxins in industrial processes. 2 Carbonxt Group Limited Corporate directory 30 June 2024 Corporate Governance Statement The directors and management are committed to conducting the business of Carbonxt Group Limited in an ethical manner and in accordance with the highest standards of corporate governance. Carbonxt Group Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Fourth Edition) ('Recommendations') to the extent appropriate to the size and nature of its operations. The Group’s Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed, and ASX Appendix 4G are released to the ASX on the same day the Annual Report is released. The Corporate Governance Statement and Corporate Governance Compliance Manual can be found on the Company’s website at www.cglimited.com.au 3 Carbonxt Group Limited Chairman's letter 30 June 2024 Dear Shareholder, I am pleased to present our Annual Report for the financial year ending 30 June 2024 (“FY24”). This financial year is somewhat of a transition year for the Company as we undertake construction of the new activated carbon manufacturing facility in Kentucky, alongside our investment partners, Kentucky Carbon Processing, LLC. The investment in our jointly owned company, NewCarbon Processing, LLC (“NewCarbon”) is the Company’s largest ever investment and I am pleased to note that we are in the final stages of construction of an initial 10,000 tons per annum plant, with operations to commence very shortly. The investment is very timely. In April 2024, the United States Environmental Protection Agency (“EPA”) announced the first ever national drinking water standards for the USA. The rules regulate the removal of PFAS (or per and polyfluoroalkyl substances), commonly known as “forever chemicals”, such that municipal water authorities need to achieve a four parts per trillion level. The use of Granular Activated Carbon (“GAC”) is considered best available technology by the EPA for the removal of these harmful chemicals. Market estimates from the likes of leading engineering consultants, Black & Veatch, estimate an increase in market size of over 150,000 tons per annum from the introduction of these rules. Clearly such market demand estimates far exceed the current and anticipated supply. The removal of PFAS is of course an international problem, not just a U.S. phenomenon. Just this month, the Commonwealth Government of Australia announced a Senate enquiry into the dangers of “forever chemicals” following a series of investigative articles by the Sydney Morning Herald about the incidences of PFAS in Australian waterways. It is important to note though that the investment in this new facility is not predicated on the introduction of the PFAS rules. We believe that the Kentucky facility will produce the highest quality activated carbon in the North American market. The new plant enables Carbonxt’s entry into the liquid phase of the market and capitalizes on our position as the only U.S. domestic manufacturer of activated carbon pellets for the industrial markets. Our financial results in FY24 demonstrate the improvement in our operating portfolio from the efforts to lift product prices and reduce operating costs. Despite a reduction in supplies to our largest AC pellet customer due to operational issues at their plant, we have seen relatively stable annual revenue (down 2.2%) whilst our gross margin has increased from 30% to 38%. We congratulate our operational team on these successes. I noted before that we are in somewhat of a transition year and in a financial sense this is most notably seen in the increase in loss for the Group compared to the prior year. This increased loss is almost entirely due to the increase of $1.7m in our net interest expense associated with the extra debt assumed as part of the financing package to fund the investment in NewCarbon. We finished FY24 with some major accomplishments and the Company’s existing operations are well setup leading into FY25. In May 2024, we announced a $4.3 million forward sales contract with WPS of Wisconsin to supply our AC pellet product for WPS’ ReACT (regenerative activated coke technology) emissions control system. WPS is a long-standing customer of the Group and we thank them for their support. Post financial year-end, we secured a significant PAC contract with Reworld Waste, LLC, a provider of sustainable waste solutions. This contract is for four years and is expected to boost annual revenues by over 25% and lead to further improvements in our achieved gross margins. 4 Carbonxt Group Limited Chairman's letter 30 June 2024 FY25 will be a transformative year for Carbonxt. It has been a long journey and we would not be on the verge of a stepchange in our group’s revenues and profits without the support of our shareholders, our lenders at Pure Asset Management, but most importantly the dedication and talent of our employees. We thank all of you for your support and look forward to being able to bring you some exciting operational updates in FY25. Yours sincerely, Matthew Driscoll Chairman 30 August 2024 5 Carbonxt Group Limited Directors' report 30 June 2024 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Carbonxt Group Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2024. Directors The following persons were directors of Carbonxt Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Matthew Driscoll - Chairman Warren Murphy David Mazyck Imtiaz Kathawalla (appointed 19 July 2023) Nicholas Andrews (appointed 12 September 2023) Principal activities During the financial year the principal continuing activities of the Group consisted of the development and sale of specialised Activated Carbon ('AC') products, including Powdered Activated Carbon ('PAC') and AC pellets for the removal of pollutants and toxins in industrial processes. These products are used in industrial air purification, waste water treatment and other liquid and gas phase markets, primarily for the capture of mercury and sulphur in order to reduce harmful emissions into the atmosphere, as required by global regulations. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The loss for the Group after providing for income tax amounted to $8,118,499 (30 June 2023: $5,983,771). The increase in loss for the Group compared to prior year is primarily due to the increase in net interest expense of $1,794,493 associated with the funding of the investment in NewCarbon Processing, LLC. Revenue for the year was $15,124,618 (before other income) and $15,773,254 (after other income) representing a decrease of 2.2% and 1.1% respectively on the prior year's revenue of $15,461,953 (before other income) and $15,945,585 (after other income). In US dollars, revenue was US$9,915,700 (before other income) and US$10,340,946 (after other income) representing a decrease of 4.8% and 4.1% respectively on the prior year’s revenue of US US$10,412,064 (before other income) and US$10,784,213 (after other income). Revenues decreased 2.2% compared to FY23 primarily due to reduced supply to the largest Activated Carbon pellet customer due to plant outages at that customer's facility. 6 Carbonxt Group Limited Directors' report 30 June 2024 The directors consider Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Underlying EBIT to reflect the core earnings of the Group. Underlying EBITDA and underlying EBIT are financial measures which are not prescribed by Australian Accounting Standards (‘AAS’) and represent the profit or loss under AAS adjusted for non-cash and significant items. The following table summarises key reconciling items between statutory loss after income tax and underlying EBITDA for the current and previous year period: Consolidated 2024 2023 $ $ Revenue 15,124,618 15,461,953 Gross margin Other income Shipping and distribution costs Operating expenses 5,737,677 648,636 (1,797,357) (7,338,333) 4,579,280 483,632 (1,667,001) (5,658,258) Underlying EBITDA Depreciation and amortisation (2,749,377) (2,369,736) (2,262,347) (2,444,432) Underlying Earnings before interest and tax ('EBIT') Net Interest expense Share-based payment expense Share in losses of joint ventures (5,119,113) (2,893,655) (73,533) (32,198) (4,706,779) (1,099,162) (177,830) - Loss before income tax expense (8,118,499) (5,983,771) Liquidity During the financial year ended 30 June 2024, the Group incurred a net loss after tax of $8,118,499 (30 June 2023: $5,983,771) and a cash inflow from operating activities of $2,117,444 (30 June 2023: outflow of $2,420,250). As at 30 June 2024, the Group had net assets of $10,734,911 (30 June 2023: $16,276,611), net current liability of $12,687,391 (30 June 2023: $4,906,484) and cash and cash equivalents of $4,141,926 (30 June 2023: $4,305,838). As a result of the loss incurred for the year ended 30 June 2024 and the liquidity at the reporting date, there is a material uncertainty on whether the Group can continue as a going concern. The directors consider that the Group will continue as a going concern, as explained in note 2 to the financial statements. Business risks The following is a summary of material business risks that could adversely affect the Group's financial performance and growth potential in future years and how the Group proposes to mitigate such risks: Climate Risk The Group takes climate risk into account in its investment decisions. There is the possibility that such decisions have underestimated the severity of climate change. The bio-char input at Black Birch is a renewable source and has a lower footprint than most Activated Carbon manufacturing facilities, but it is feasible that climate change affects the availability of the input source. Construction Risk The NewCarbon investment is in construction phase. As with all construction activities there is the possibility of delays to completion or issues during the start-up phase. Given the plant has operated for a number of years as a waste-to-energy plant that risk is reduced, compared a a greenfields construction site, but nevertheless there is a potential for construction issues. Competition risk The Group operates in a dynamic AC market. There is a possibility that existing or new competitors may increase competitive pressure through technological advancements, volume increases or pricing and other strategies. Any significant advancements in technology for producing AC have the potential to change the competitive environment in which the Group operates. 7 Carbonxt Group Limited Directors' report 30 June 2024 Ability to retain existing clients or attract new clients The Group’s business depends on its ability to retain contracts with existing customers and to attract further business from existing customers or attract new customers. The loss of existing customers or the inability to attract new customers would have an adverse impact on the financial position of the Group. Regulatory risk The Group is heavily reliant on US environmental policies and regulation. Any change to or reversal of current legislation would have a significant negative effect on the Group’s business model and financial performance. Intellectual property risk The Group relies on its intellectual property (including technology, know how, trademarks, designs and patents) and there can be no assurance that competitors or other parties will not imitate or develop technology and know-how that challenges or competes with the Group or supersedes the Group’s intellectual property. In addition, any unauthorised use or disclosure of the Group’s intellectual property may also have an adverse effect on the Group's financial performance. Reliance on key personnel The Group employs, or engages as consultants, a number of key management and scientific personnel. The inability of the Group to retain and attract highly qualified and experienced personnel could have a material adverse impact on the Group’s business and financial performance. Safety and industrial accidents The manufacture and supply of the Group’s products are subject to safety related risks, which are managed carefully by the Group. Despite the relevant safety guards there is no guarantee a serious accident will not occur in the future, which may negatively affect the financial performance of the Group. Brand establishment and maintenance Establishing and maintaining its brand in the industry is critical to growing the Group’s customer base and product acceptance. Prior to entering into supply agreements, the Group is required to undertake vigorous testing of its Activated Carbon solutions. Any unsuccessful tests for potential customers could adversely affect the Group’s brand, and its business and operating results could be adversely affected. The Group must also maintain and support its existing customer relationships to maintain its brand and attract further customers. Offshore operations While the Group’s corporate management is in Australia, its operations are based in the United States. The global nature of the pollution control business, may result in the Group's activities extending to other countries in the future. Geographic diversity adds risk to the ability of the Group to manage its operations and employees, and introduces additional risks relating to the general economic, regulatory, legal, social and political environment in the jurisdictions in which it intends to operate, which may in turn adversely affect the Group's business and financial condition. Exchange rate risk The Group is exposed to movements in exchange rates as the vast majority of the Group's revenue and expenses are denominated in USD. Adverse movements in the AUD/USD exchange rate may have an adverse effect on the reported financial performance and/or financial position of the Group. Product liability and uninsured risks The Group is exposed to potential product liability risks, which are inherent in the research and development, manufacturing, marketing and use of its products or products that are developed in the future. Whilst the Group has liability insurance to help manage such risks, the Group may not be able to maintain insurance for product or service liability on reasonable terms in the future and/or the Group’s insurance may not be sufficient to cover large claims, or the insurer could disclaim coverage on any such claims. Significant changes in the state of affairs Capital raising On 4 December 2023, the Company announced the non-renounceable pro-rata entitlement offer for the placement of 30,589,440 fully paid shares at $0.06 per share before issue costs. The offer was completed and shares were issued on 22 January 2024. On 6 December 2023, the Company announced the successful completion of a $600,000 from the placement of 10,000,000 fully paid shares at $0.06 per share before issue costs. The placement shares were issued on 18 December 2023. 8 Carbonxt Group Limited Directors' report 30 June 2024 In February 2024, the Company issued a further 700,000 shares at $0.06 per share as part of the scale back of the fully subscribed rights issue which were accidentally under allocated to one of the placement participants. As part of the capital raise, the Company made a placement of 8,333,333 new fully paid ordinary shares at an issue price of $0.06 to Pure Asset Management to raise an additional $500,000. The Company used $395,753 to pay the penalty interest to Pure Asset Management, with the remaining $104,247 received in cash. These shares were issued in February 2024. Funds raised have been used to provide funding to the Company for the development of the Kentucky Facility and for working capital purposes. Investment in NewCarbon On 15 November 2023, the Company announced the additional US$500,000 investment in NewCarbon which increased the ownership to 35.48% as at 30 June 2024 (30 June 2023: 33.33%). There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year In July 2024, the Company advanced US$625,000 to NewCarbon. No other matter or circumstance has arisen since 30 June 2024 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations The Group will continue to expand its industrial AC pellet business in vapour control, liquid solvent recovery and other specific industrial uses of pellets. In line with this expansion, the Group shall make the remaining contributions of US$4,500,000 in stages, subject to completion of milestones, to increase its ownership in NewCarbon to 50%. The expansion will significantly increase production capacity and gross margins and will allow existing capacity to be repositioned to produce more specialised technologies. The Group will continue to provide its PAC solution for emission capture and wastewater treatment and will leverage the competitive advantage of its non-brominated PAC, that does not cause corrosion and damage to plant equipment. Furthermore, there is a renewed and continuing emphasis from a majority of US companies on ESG objectives. Carbonxt’s PAC products made at its Black Birch plant utilise renewable feedstock and thus would satisfy the needs of those who are seeking focus on renewable feedstocks. The Group’s current and prospective customers continue to emphasise a desire for US-made pellets. Carbonxt is the only activated carbon industrial pellet developer and producer located in the United States, and this is expected to continue to drive both revenue and margin growth. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 9 Carbonxt Group Limited Directors' report 30 June 2024 Information on directors Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Matthew Driscoll Non-Executive Chairman BA, Dip Ed, Grad.Dip.App.Fin. SF Fin, MSAA, GAICD Matthew Driscoll is an agile, entrepreneurial thinker, with strong networks and significant experience across several industries, including manufacturing, online technologies, financial services, fintech, property and resources. Matthew has over 35 years’ experience in capital markets and the financial services industry, with major financial institutions. Accomplished company Director in roles with listed and private companies, undertaking leadership positions on the Board (as Chairman) and on various committees (including audit and risk committees). Significant experience in international business growth, mergers and acquisitions, equity and debt raisings and building strategic political, financial, and commercial alliances. Passionate about high growth, innovative businesses, committed to ethical, commercial, and consumer-based outcomes. Clear, concise communicator able to grasp and disseminate complex issues effectively. A serial investor and strong supporter of start-ups providing seed and expansion capital with unique skills bringing private companies to the listed environment. Chair of Smoke Alarms Holdings Limited, the market leader in servicing smoke alarm rental properties in Australia, Chair of Workspace Australia a multi-regional business incubator network in Central Victoria, Chair, Energy Technologies Limited (EGY) an investment company focused on Australian based manufacturing businesses, MayorMount Alexander Shire, Victoria. Chair, Tennant Minerals (TMS) 2,315,424 ordinary shares 2,000,000 Warren Murphy Managing Director B.E. (Electrical and Electronic Engineering) (Hons), B.Com (Accounting and Economics) Warren was previously Co-Head of the Australian Infrastructure & Project Finance Group and Head of Energy at Babcock & Brown based in the Sydney office. Warren led the development of Babcock & Brown’s energy sector capability in Australia and New Zealand, including the founding of Australia's largest renewable energy company, Infigen Energy (and its unlisted predecessor, Global Wind Partners). None None 1,528,033 ordinary shares 6,000,000 options Dr David Mazyck Director of Technology Ph.D. from Penn State University in Environmental Engineering and Ph.D. minor in fuel science. David is a world-leading expert on AC and its applications. He has developed AC products for the major multinational AC manufacturers and has regularly consulted for them on technical issues. David was Chairman of the Activated Carbon Standards Committee for the American Water Works Association ('AWWA') and has developed products for National Aeronautics and Space Administration ('NASA'). David is also the current president of JV NewCarbon Processing, LLC. None None 426,062 ordinary shares 5,250,000 options 10 Carbonxt Group Limited Directors' report 30 June 2024 Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Imtiaz Kathawalla (appointed 19 July 2023) Non-Executive Director Dr Kathawalla has an extensive experience in the activated carbon and water purification industries. He was previously a Vice-President at NYSE-listed Cabot Corporation, a global chemical company where he had a 27-year career. He ran Cabot Corporation's global activated carbon business None None None Nicholas Andrews Non-Executive Director (appointed 12 September 2023) Nic was appointed as a Director of Carbonxt Group Limited in November 2023. He has a financial services background in investment management and investment banking. From 1996 to 2005 he was a Managing Director at UBS Investment Bank and responsible for global distribution of Australian and New Zealand Equity products. From 1989 to 1996 Nic was the Chief Investment Officer at LGT Investment Management in charge of the group’s investment portfolios for the Australasian region. Nic has been appointed a Member of Carbonxt’s Finance and Audit Committee. Executive Chairman, Magontec Limited (ASX: MGL) and Honorary Treasurer and Director of the International Magnesium Association None None None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entit