Announcement PDF Annual Report 2023 Amaero International Ltd Annual Report 2023 Amaero International Ltd ABN 82 633 541 634 Contents 2 Chairman and CEO’s Report 6 Key Personnel 8 Corporate Governance 10 Directors’ Report 21 Risk Factors 3DA 23 Auditor’s Independence Declaration 25 Consolidated Statement of Profit or Loss and Other Comprehensive Income 26 Consolidated Balance Sheet 27 Consolidated Statement of Changes in Equity 28 Consolidated Statement of Cash Flows 29 Notes to the Financial Statements 59 Directors’ Declaration 60 Independent Auditor’s Report 64 ASX Additional Information 69 Corporate Directory 1 Annual Report 2023 Amaero International Ltd Chairman and Chief Executive Officer Report Progress with titanium powder facility and green light of flagship facility in the U.S. In July 2022, Amaero announced that the Notting Hill, Victoria project had been delayed and later in the month, it was announced that Hank Holland would join the Board. In September 2022, Amaero announced the following: Hank J. Holland Dear Shareholders, The 2023 financial year was one of transformation and renewal for Amaero International Limited as we repositioned from an additive manufacturing company to an advanced material and manufacturing business. Importantly, the business has line of sight to commissioning state-of-art titanium powder production that will position Amaero as a U.S.-based, integral supplier to aerospace & defense and medical industries. 2 1. that the Board had terminated the Victorian project; 2. that Hank Holland had been appointed Executive Chairman; 3. that Amaero would focus its efforts of titanium powder production and would exit businesses considered non-core; and 4. that Amaero would explore alternative opportunities for titanium powder production facility and operations in the Middle East. In November 2022, Amaero announced that Pegasus Growth Capital would fully sub-underwrite a $10.5 million Renounceable Entitlement Offering, that Hank Holland would assume the roles of Chairman and Chief Executive Officer and that Amaero had signed a Term Sheet for a joint venture with a UAE-based strategic partner. In March 2023, Amaero terminated the JV Agreement. Amaero announced that it would proceed without a partner, anticipated green lighting the project by June 30 and that approvals were advancing with key stakeholders including KEZAD and Emirates Development Bank. In July 2023, we moved to green light our flagship titanium project in Tennessee, U.S. with a number of financial, operational and strategic advantages leading Amaero to select this location over the UAE. The State of Tennessee, ClevelandBradley and Oak Ridge National Laboratory acted decisively to coordinate and to commit economic incentives to attract the re-location of the flagship facility, as well as Amaero’s research & development and corporate headquarters. The economic incentives included a long-term commitment from the Tennessee Valley Authority (“TVA”) for an investment credit and a longterm electricity rate subsidy. The TVA’s proposed investment credit includes a 10-year commitment for electricity rates that will be lower than the subsidised rates in the UAE and 85% less than the prevailing rates in Victoria. Further, TVA has established strong infrastructure, including a dedicated substation for Spring Branch Industrial Park. The Spring Branch Industrial Park is a 330-acre industrial park located on Interstate 75. To attract relocating manufacturing operations such as Amaero, Cleveland-Bradley partnered with a local developer to develop a 9,300 square meter facility that was “nearing completion.” Amaero signed a 15-year lease that includes the development of 2,800 square metre purpose-built, high-bay extension for the titanium powder production plants. After nine months of all consuming efforts in the UAE, after advancing the build-to-suit planning at KEZAD and after the recent receipt of the Term Sheet from Emirates Development Bank, it was difficult to consider last minute advances for alternative locations in Tennessee or other States in the Southeast U.S. At the same time, circumstances were fluid and Amaero’s Board and management had a fiduciary duty to decisively pursue opportunities that are in our shareholders’ best interests. U.S. location has a number of financial and strategic advantages for Amaero Firstly, the “Nearing Completion” industrial facility in the U.S. will accelerate the installation of titanium powder manufacturing plant, accelerate our breakeven operations by 12 months and reduce our working capital need by $22 million. Secondly, Tennessee’s aerospace & defence cluster includes 70+ companies that are supported by the national science laboratory, low cost and modern electricity infrastructure, a world-class university system and a strong, highly skilled workforce. In addition to A&D companies, Tennessee has a thriving manufacturing ecosystem that includes companies such as Bridgestone, Nissan, Eastman Chemical and Volkswagen. Locating in Tennessee also has the strategic advantage of operating in a highly efficient and pro-growth business environment, as well as close proximity to Amaero’s primary customers, to research and development partners, to the supply chain, to highly skilled employees and to robust capital markets. Locating in the U.S. will give Amaero more business development flexibility from an export control and technology transfer perspective. Thirdly, Amaero will pursue U.S. government funding and incentives that target re-shoring advanced manufacturing and critical materials supply chain, with the U.S. passing cornerstone legislation for these initiatives over the past year. The established funding conduits include programs authorised by the U.S. Congress (Inflation Reduction Act; CHIPs and Science Act), by Department of Defense (includes Defense Production Act, Title III), by Department of Energy (includes Critical Materials Research, Development, Demonstration and Commercialization Application Program) and by the White House (AM Forward Program; Advanced Manufacturing Production Tax Credit for titanium production). U.S. lease agreement secured Under the move, Amaero signed a lease to be the sole tenant in 12,100 square metre manufacturing facility in Cleveland, Tennessee. Located in the 330-acre Spring Branch Industrial Park, the primary facility is comprised of 9,300 square metres and the shell will be completed in August 2023. The “nearing completion” industrial facility will accelerate installation of the titanium powder production plant, accelerate breakeven operations by 12 months and reduce working capital need by $22 million. 3 Annual Report 2023 Amaero International Ltd Chairman and Chief Executive Officer Report continued In conjunction with the lease, a 2,800 square metre high-bay extension will be designed and purpose built for the installation of four (4) electrode inert gas atomisers (EIGAs). The lease has a primary term of 15 years, includes an allowance for tenant improvements and an Option to Purchase. The lease payments will be approximately 75% less than the former proposed build-to-suit facility at KEZAD in the UAE. It is expected that Amaero will occupy the 9,300 square metre facility in April 2024 and will occupy the 2,800 square metre highbay extension in July 2024. The facility is strategically located in close proximity to Chattanooga, Tennessee and is convenient to Oak Ridge National Laboratory and the University of Tennessee, Knoxville. Whilst we selected the U.S. over the UAE, Amaero continues to have strong relationships in the UAE and will pursue “offset credit” funding for other strategic projects. The Tawazun Economic Council, Abu Dhabi Investment Office, Emirates Development Bank and KEZAD remain committed to provide enabling support for locating Amaero manufacturing operations in the UAE. Capital raising and financials In November 2022, we completed an Entitlement Offer raising approximately $10.5 million with the funds raised used for restructuring costs, operating activities and working capital. In FY23, the Company reported a net loss of $12.53 million (FY22: $8.62 million). The Company had $8.8 million in cash and cash equivalents as at 30 June 2023. Board renewal During the financial year, we renewed our Board with a number of new appointments, including my appointment as Executive Chairman in September 2022 and my subsequent move to Chairman and Chief Executive Officer in November. On 25 November 2022, commercial law specialist, Ms. Lucy Robb Vujcic was appointed as a Non-Executive Director. Ms. Robb Vujcic is an experienced Barrister that is briefed to advise and appear in complex litigation and arbitrations involving corporate law, general equity and breach of contract. On 12 January 2023, Mr. Omer Granit was appointed as a NonExecutive Director following the completion of regulatory requirements, as approved by shareholders of the Company at the Annual General Meeting held in November 2022. Mr. Granit is a US trained M&A attorney and a global investor, Partner at US-based early-stage venture capital firm, Infinity VC, and a Managing Partner and Founder at West 4 Capital Management, a London-based hedge fund. On 31 March 2023, Amaero appointed Erik Levy as a NonExecutive Director. Based in New York City, Mr. Levy is an experienced private equity investor who brings a depth of experience in global capital markets, M&A and corporate strategy. He is Managing Partner of EnPar Capital and prior to that, he was a Founding Partner and Managing Director of BlackRock’s Direct Private Equity business. 4 The Company also nominated Robert “Bob” Latta as a NonExecutive Director, with his appointment to become effective upon satisfying the requisite regulatory conditions. Based in California, he is a Partner and General Counsel at Pegasus Growth Capital, Amaero’s largest shareholder. He joined Wilson Sonsini Goodrich & Rosati in 1979 and was a senior partner of the leading law firm for 40 years. He brings extensive knowledge and experience in growth capital financings, public offerings, strategic partnerships and mergers & acquisitions. Non-Executive Director Ms. Kathryn Presser and Executive Director Mr. Stuart Douglas resigned from the Board during the financial year and Amaero thanks them for their service. Outlook and closing Amaero enters FY24 with a solid foundation for growth with a titanium production facility in a region that presents numerous financial, strategic and operational benefits for our Company. The green lighting of our flagship project in Tennessee was a seminal event for Amaero and a cornerstone development for Amaero’s shareholders, our employees and our customers. I’d like to thank my fellow Board Members, Management team and all Amaero employees for their hard work and dedication over the past twelve months as we have repositioned our Company for growth. I’d like to thank our shareholders for their patience and continued support over a period of immense change and renewal for Amaero. With the green lighting of the Tennessee project, we expect the cadence of material announcements and tangible milestones to accelerate and I look forward to updating shareholders on our progress over the months ahead. Hank J. Holland Chairman and Chief Executive Officer 5 Annual Report 2023 Amaero International Ltd Board of Directors Hank J. Holland Chairman and Chief Executive Officer - appointed on 1 November 2022 Mr Holland is Founder and Managing Partner of Pegasus Growth Capital, a U.S.‑based private equity firm. Pegasus led Amaero’s May 2022 privately placed $11 million financing and Pegasus was sub-underwriter for the November 2022 Rights Offering financing of $10.5 million. Holland has 35 years of investment, finance and capital markets experience. Prior to founding Pegasus, he held senior investment positions at First Republic Bank, Merrill Lynch and Alliance Bernstein. He received a B.S. in Civil Engineering at Southern Methodist University and a Masters in Agriculture at Colorado State University. David Hanna Non-Executive Director appointed on 13 June 2019 David is an experienced Board member and senior bureaucrat. He was Director, Business Strategy for Monash University from 2012 until September 2020 where he led a small team providing strategic support and financial advice in relation to the University’s major investment decisions. In the 15 years prior to joining Monash University, David held a variety of senior management positions in the Victorian Government, these positions focused mainly around economic development policy, international policy and operations and innovation policy. Earlier, David spent 15 years in the Commonwealth Government, including three years on the personal staff of then Prime Minister, Bob Hawke. He has substantial experience in strategy development and delivery, innovation, governance and stakeholder engagement and management. He sits or has sat on the Boards and Finance and risk committees of Docklands Studios Melbourne, the Hudson Institute of Medical Research and Unimutual Ltd giving him varied experience on both commercial and not for profit Board with particular focus on strategy, governance and financial accountability. David has a Bachelor of Economics and a Bachelor of Arts (Asian Studies) from The Australian National University. He is also a Graduate of the Australian Institute of Company Directors. 6 Lucy Robb Vujcic Non-Executive Director appointed on 25 November 2022 Lucy is a non-executive director and Chair of the Audit and Risk Committee. She is a commercial barrister specialising in the resolution of complex disputes involving corporate governance, defence procurement, government contracts and international arbitration. Before coming to the Bar, Lucy was an associate at U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP, where she acted for multinational corporations in bilateral investor state disputes. Lucy started her career as a member of the team defending Momcilo Krajisnik, a Bosnian Serb civilian leader charged with genocide, conspiracy and crimes against humanity at the International Criminal Tribunal for the Former Yugoslavia. She has lectured extensively in commercial law subjects and constitutional law at the University of Sydney. Lucy has a Bachelor of Arts and a Bachelor of Laws with first class honours from the University of Sydney. She completed her Masters of Law as a Vanderbilt Scholar at New York University. Lucy is a Fellow of the Governance Institute of Australia and a reserve officer in the Royal Australian Navy. Omer Granit Erik Levy Non-Executive Director appointed on 12 January 2023 Non-Executive Director appointed on 31 March 2023 Omer joined Amaero’s Board to assist with the group’s global expansion and capital markets engagement. After a career as a practicing attorney at the offices of White & Case in New York City, Omer pivoted to finance, managing a multi-million dollar family office in London and serving in roles including international investments, business development, M&A and the structuring of new products and services at the Migdal Group, one of Israel’s leading financial services firms. Based in New York City, Mr. Levy is an experienced private equity investor who brings a depth of experience in global capital markets, M&A and corporate strategy. He is Managing Partner of EnPar Capital and prior to that, he was a Founding Partner and Managing Director of BlackRock’s Direct Private Equity business. He is the Founder and former CEO of high-end co-working company, Mixer Global and the Managing Partner and Founder of West 4 Capital, a leading hedge fund in the income generating real-estate space. Omer currently serves as a Partner at early-stage venture capital firm Infinity VC. His previous positions include Board Directorships at the Monte Rosa Private Equity Fund, The Dragon Variation Fund, and the MGT hedge fund. Prior, he spent over 12 years with CPP Investment Board building the firm’s Direct Private Equity business. He received a BSc in Actuarial Mathematics at Concordia University and a Masters Business Administration (MBA) from University of Toronto - Rotman School of Management. Omer has LLM (Master of Law), Corporate lawLLM (Master of Law) & Corporate law 2006-2007 degrees from New York University School of Law where he was also Elected for the Student Bar Association as Valedictorian. He also has a LLB (Law) & BA, Finance LLB(Law) & BA, Finance 2000 -2004 degrees form Reichman University. See pages 11 to 13 for further information 7 Annual Report 2023 Amaero International Ltd Corporate Governance Amaero and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board is responsible for ensuring that the Company has an appropriate corporate governance framework to protect and enhance company performance and build sustainable value for shareholders. The Board of Directors has reviewed the Company’s corporate governance practices against the Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate Governance Council. The Corporate Governance Statement is available on the company’s website at https://www.amaero.com.au. 8 Directors’ Report FY23 For the year ended 30 June 2023 9 Annual Report 2023 Amaero International Ltd Directors’ Report 30 June 2023 DIRECTORS AND COMPANY SECRETARY The following persons held office as directors of Amaero International Ltd during the whole of the financial year and up to the date of this report, except where otherwise stated: Mr Hank J. Holland (appointed as Director on 1 August 2022, Executive Chairman on 29 September 2022; assumed the role of Chairman and Chief Executive Officer on 1 November 2022) Mr David Hanna (Non-Executive Chairman until 29 September 2022; Non-Executive Director from 29 September 2022) Ms Lucy Robb Vujcic (appointed as Non-Executive Director 25 November 2022) Mr Omer Granit (appointed 12 January 2023) Mr Erik Levy (appointed 31 March 2023) Ms Kathryn Presser (resigned as Non-Executive Director 29 September 2022) Mr Stuart Douglas (resigned as Non-Executive Director 25 November 2022) PRINCIPAL ACTIVITIES During the year, the principal continuing activities of the group were primarily focused on titanium powder production utilised by the additive manufacturing industry as well as developing an integrated and resilient midstream supply chain for titanium. The group provides applied engineering and commercialisation services in collaboration with aerospace, defence and other industries that utilise additive manufacturing. DIVIDENDS - AMAERO INTERNATIONAL LTD No dividends were declared or paid to members for the year ended 30 June 2023. The directors do not recommend that a dividend be paid in respect of the financial year. REVIEW OF OPERATIONS The group has reported a loss for the year of $12,527,776 (2022: $8,621,489), with net assets amounting to $14,958,610 as at 30 June 2023 (2022: $14,670,982), including cash reserves of $8,833,468 (2022: $11,117,957). In November 2022, Amaero raised ~A$10.5 million via a Fully Underwritten Renounceable Entitlement Offer, fully underwritten by PAC Partners Securities which entered into a sub-underwriting agreement with an affiliate of major shareholder, Pegasus Growth Capital (Pegasus), whereby Pegasus agreed to sub-underwrite the Entitlement Offer to the amount of A$10.5 million. Funds raised were used for restructuring costs, operating activities and working capital. In September, Amaero announced a strategic review of the group’s operations, business development opportunities, allocation of capital and funding needs. On 29 September 2022, the Group announced the completion of the initial phase of the strategic review, with the Board deciding not to proceed with the titanium powder manufacturing facility in Victoria, Australia. 10 The Board also took active steps to pursue alternative opportunities for titanium powder production in the Middle East. The Board also determined that Amaero’s operations will be primarily focused on titanium powder production. In December, Amaero secured a binding joint venture agreement with Rabdan Industries PLC, an affiliate of Ethmar Holdings, for additive manufacturing and powder production in Abu Dhabi, UAE. The JV Agreement provided that Amaero and Rabdan would exclusively partner on additive manufacturing and metal powder production in the Middle East. In addition, the JV would pursue an ambitious strategy to develop projects in order to vertically integrate the titanium supply chain including titanium sponge, melt, mill and forge operations. In March, Amaero and Rabdan terminated the JV Agreement with the termination increasing Amaero’s ownership of the UAE project from 50% to 100%. Amaero selected Khalifa Economic Zones Abu Dhabi as the site for its titanium powder production facility and advanced project financing with Emirates Development Bank. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than the information disclosed in the review of operations above, there are no significant changes in the state of affairs that the group has not disclosed. EVENTS SINCE THE END OF THE FINANCIAL PERIOD On 14 July 2023 Amaero announced it has green lighted its flagship titanium powder manufacturing facility in Tennessee, U.S instead of the UAE. The State of Tennessee acted decisively to coordinate and to commit economic incentives from multiple stakeholders to attract the relocation of the flagship facility, as well as Amaero’s research & development and corporate headquarters. On 12 July 2023 the new entity in Tennessee was incorporated: Amaero Advanced Material & Manufacturing INC (100% subsidiary of the Group). On 12 July 2023 Amaero signed a lease to be the sole tenant in 12,100 square metre manufacturing facility in Cleveland, Tennessee. The primary facility is comprised of 9,300 square metres and the shell will be completed in August 2023. In conjunction with the lease, a 2,800 square metre high-bay extension will be designed and purpose built for the installation of four (4) electrode inert gas atomisers (EIGAs). It is expected that Amaero will occupy the 9,300 square metre facility in April 2024 and will occupy the 2,800 square metre high-bay extension in July 2024. The lease is for an initial term of 15 years with an option to extend for another 5 years. This will result in recognition of right-of-use asset of $24,196,000 and a corresponding lease liability of $21,179,409 and make good provision of $3,016,591, in accordance with AASB 16 Leases. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected the group’s operations, results or state of affairs, or may do so in future years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Other than the information disclosed in the review of operations above, there are no likely developments or details on the expected results of operations that the group has not disclosed. ENVIRONMENTAL REGULATION The group is not affected by any significant environmental regulation in respect of its operations. INFORMATION ON DIRECTORS The following information is current as at the date of this report. Mr Hank J. Holland - Chairman and Chief Executive Officer Experience and expertise Mr Holland is Founder and Managing Partner of Pegasus Growth Capital, a U.S.‑based private equity firm. Pegasus led Amaero’s May 2022 privately placed $11 million financing and Pegasus was sub-underwriter for the November 2022 Rights Offering financing of $10.5 million. Holland has 35 years of investment, finance and capital markets experience. Prior to founding Pegasus, he held senior investment positions at First Republic Bank, Merrill Lynch and Alliance Bernstein. He received a B.S. in Civil Engineering at Southern Methodist University and a Masters in Agriculture at Colorado State University. Date of appointment 1 November 2022 Other current directorships Hank is a Director of W Motors in the UAE; DYLN in the U.S.; Trifecta, Inc in the U.S.; Warp Speed Mortgage in the U.S.; Project Apollo in Poland. Former directorships in last 3 years No ASX listed Directorships in the past 3 years but Hank was a Director of LogicSource, Inc in U.S. Special responsibilities No additional Responsibilities Mr David Hanna - Non-Executive Director Experience and expertise David is an experienced Board member and senior bureaucrat. He was Director, Business Strategy for Monash University from 2012 until September 2020 where he led a small team providing strategic support and financial advice in relation to the University’s major investment decisions. In the 15 years prior to joining Monash University, David held a variety of senior management positions in the Victorian Government, these positions focused mainly around economic development policy, international policy and operations and innovation policy. Earlier, David spent 15 years in the Commonwealth Government, including three years on the personal staff of then Prime Minister, Bob Hawke. He has substantial experience in strategy development and delivery, innovation, governance and stakeholder engagement and management. He sits or has sat on the Boards and Finance and risk committees of Docklands Studios Melbourne, the Hudson Institute of Medical Research and Unimutual Ltd giving him varied experience on both commercial and not for profit Board with particular focus on strategy, governance and financial accountability. David has a Bachelor of Economics and a Bachelor of Arts (Asian Studies) from The Australian National University. He is also a Graduate of the Australian Institute of Company Directors. Date of appointment 13 June 2019 Other current directorships David was also Chairman of Docklands Studios Melbourne Pty Ltd (DSM) until 30 June 2023. Former directorships in last 3 years No ASX listed directorships in the last 3 years but was a Director of Unimutual Ltd, a Director of the Hudson Institute of Medical Research Ltd, and a Director of Springvale Monash Legal Service Ltd until June/September 2020. He ceased to be President of Film Victoria in October 2022. Special responsibilities Chair of the Remuneration Committee, Member of the Audit and Risk Committee. 11 Annual Report 2023 Amaero International Ltd Directors’ Report 30 June 2023 Ms Lucy Robb Vujcic - Non-Executive Director Experience and expertise Lucy is a non-executive director and Chair of the Audit and Risk Committee. She is a commercial barrister specialising in the resolution of complex disputes involving corporate governance, defence procurement, government contracts and international arbitration. Before coming to the Bar, Lucy was an associate at U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP, where she acted for multinational corporations in bilateral investor state disputes. Lucy started her career as a member of the team defending Momcilo Krajisnik, a Bosnian Serb civilian leader charged with genocide, conspiracy and crimes against humanity at the International Criminal Tribunal for the Former Yugoslavia. She has lectured extensively in commercial law subjects and constitutional law at the University of Sydney. Lucy has a Bachelor of Arts and a Bachelor of Laws with first class honours from the University of Sydney. She completed her Masters of Law as a Vanderbilt Scholar at New York University. Lucy is a Fellow of the Governance Institute of Australia and a reserve officer in the Royal Australian Navy. Date of appointment 25 November 2022 Other current directorships No other current listed directorships. Former directorships in last 3 years No ASX listed Directorships in the last 3 years Special responsibilities Chair of the Audit and Risk Committee Mr Omer Granit - Non-Executive Director Experience and expertise Omer joined Amaero’s Board to assist with the group’s global expansion and capital markets engagement. After a career as a practicing attorney at the offices of White & Case in New York City, Omer pivoted to finance, managing a multi-million dollar family office in London and serving in roles including international investments, business development, M&A and the structuring of new products and services at the Migdal Group, one of Israel’s leading financial services firms. He is the Founder and former CEO of high-end co-working company, Mixer Global and the Managing Partner and Founder of West 4 Capital, a leading hedge fund in the income generating real-estate space. Omer currently serves as a Partner at early-stage venture capital firm Infinity VC. His previous positions include Board Directorships at the Monte Rosa Private Equity Fund, The Dragon Variation Fund, and the MGT hedge fund. Omer has LLM (Master of Law), Corporate lawLLM (Master of Law) & Corporate law 2006-2007 degrees from New York University School of Law where he was also Elected for the Student Bar Association as Valedictorian. He also has a LLB (Law) & BA, Finance LLB(Law) & BA, Finance 2000 -2004 degrees form Reichman University. Date of appointment 12 January 2023 Other current directorships No other current listed directorships. Former directorships in last 3 years No ASX listed directorships in the last 3 years but was a Board Member of the Member of the Bord of the Monte Rosa Private Equity Fund until September 2017, and a Board Member of The Dragon Variation Fund and the MGT hedge fund until October 2014. Special responsibilities Member of the Audit and Risk Committee 12 Mr Erik Levy - Non-Executive Director Experience and expertise Based in New York City, Mr. Levy is an experienced private equity investor who brings a depth of experience in global capital markets, M&A and corporate strategy. He is Managing Partner of EnPar Capital and prior to that, he was a Founding Partner and Managing Director of