Silex Systems Limited

ASX: SLX

OTCQX: SILXY

ABN 69 003 372 067

ASX Preliminary final report

year ended 30 June 2016

Appendix 4E

Lodged with the ASX under Listing Rule 4.3A

Contents

Page

Results for announcement to the market

2

Commentary on the results for the period

4

Preliminary consolidated income statement

7

Preliminary consolidated statement of comprehensive income

8

Preliminary consolidated balance sheet

9

Preliminary consolidated statement of changes in equity

10

Preliminary consolidated statement of cash flows

11

Notes to the preliminary financial statements

12

2016

$

2015

$

Movement

$

Movement

%

Cash and cash equivalents & Held to maturity investments

51,282,074

55,161,228

(3,879,154)

7.0%

Revenue from continuing operations Revenue from discontinued operations

1,617,655

2,153,951

3,674,860

183,013

(2,057,205)

1,970,938

56.0%

1,076.9%

Revenue from ordinary activities

3,771,606

3,857,873

(86,267)

2.2%

Earnings before interest, tax, depreciation, and amortisation from continuing operations (EBITDA)

(6,291,168)

(4,405,917)

(1,885,251)

42.8%

Net (loss) from continuing operations attributable to

(4,700,759)

(2,284,993)

(2,415,766)

105.7%

members

Net profit/(loss) from discontinued operations

attributable to members

1,303,871

(33,659,803)

34,963,674

N/A

Net (loss) from ordinary activities after tax attributable to members

(3,396,888)

(35,944,796)

32,547,908

90.5%

Net (loss) for the period attributable to members

(3,396,888)

(35,944,796)

32,547,908

90.5%

No dividends have been paid or proposed during the period Overview

Silex Systems is a research and development company whose primary asset is the SILEX laser uranium enrichment technology, originally developed at the Company's technology facility in Sydney during the 1990's and 2000's. The SILEX technology was licensed exclusively to GE-Hitachi Global Laser Enrichment LLC (GLE) in the USA in 2006, and is currently in the final phase of a commercialisation program involving engineering scale-up and economic validation. The pace of this commercialisation program was slowed significantly by GLE in July 2014 in line with continued adverse conditions in the nuclear fuel markets.

In June 2014, Silex announced a major restructure which aimed to return the Company's focus solely on the SILEX laser enrichment technology. The restructure has been completed and resulted in the exclusive licensing of Translucent's unique semiconductor technology known as 'cREO™' to IQE Plc based in the UK. IQE is progressing the cREO™ technology towards commercial deployment in various advanced semiconductor markets. Under the terms of the License and Assignment Agreement signed in September 2015, IQE has 30 months in which to elect to acquire Translucent's technology. Translucent ceased its Californian operation in December 2015 following the successful transfer of the technology and commercialisation program to IQE.

Our subsidiary Solar Systems Pty Ltd also ceased operations during FY2016 with $2.3m being received for the sale of property, plant and equipment.

These financial statements primarily reflect the ongoing support of operations associated with the commercialisation of the SILEX laser uranium enrichment technology.

The SILEX Technology Commercialisation Program

The Company's primary focus in FY2016 was on the continued development and commercialisation of our core asset - the SILEX technology, and the restructure of our Licensee GLE. As announced to the ASX on 18 April 2016, GE-Hitachi Nuclear Energy (GEH) is looking to exit GLE, due to changes in business priorities and the continuing difficult market conditions. Silex subsequently successfully negotiated and executed a term sheet with GEH securing an exclusive option to acquire GEH's 76% interest in GLE, and the right to assign in part or in whole the acquisition terms to third parties. Accordingly, in recent months Silex has taken the lead on the search for new investors for GLE, with a preference for securing high calibre strategic investors who are capable of supporting GLE's transition to market with the SILEX technology. Discussions continue with a number of interested parties.

Under the term sheet signed with GEH, Silex agreed to reimburse GEH its pro-rata share of funding for the Wilmington operation for CY2016. This is in addition to Silex funding the development of commercial-scale laser systems at its Lucas Heights facility in Sydney. GLE shareholder, Cameco, 24% owner of GLE, remains supportive of Silex's efforts to restructure GLE.

Meanwhile, the technology engineering and economic validation program has continued to achieve pleasing results during FY2016 with program milestones achieved at both the Wilmington and Sydney project sites. Activities in the Test Loop facility in Wilmington, North Carolina (NC) resulted in the successful demonstration of key process efficiency improvements which should translate into lower operating and capital costs. Ongoing laser system development activities in Sydney resulted in the initial demonstration of a prototype commercial-scale plant laser system during the year.

Challenging market conditions continued to plague the nuclear fuel markets throughout FY2016. This was not unexpected given the continued slow pace of the restart of the Japanese nuclear reactor fleet following the Fukushima disaster in 2011 and the announcement of the premature retirement of a number of reactors in the US and Europe. As a result, demand for enrichment and uranium remains low and prices are currently depressed. However, we continue to believe that the outlook for the nuclear industry in the long term is positive and this is evidenced by the start-up of 10 new reactor units in the past year bringing the total of number of operable reactors to 445. With an additional 61 reactors under construction and 170 planned - the demand and supply fundamentals of nuclear fuel markets are expected to recover in the coming years.

Silex believes that GLE is the best vehicle to take the SILEX technology to market, based on the preservation of several key assets which will underpin GLE's value going forward. These assets include:

  • the highly skilled and specialised engineering team based in Wilmington (in addition to the highly talented laser development team in Sydney);

  • the Test Loop demonstration facility that has operated since 2010 and continues to advance the technology towards full- scale demonstration;

  • the Paducah commercial opportunity (to produce natural grade uranium from tails stockpiles owned by the US Department of Energy); and

  • the combined construction and operating license (COL) granted by the US Nuclear Regulatory Commission in 2012 for a potential commercial enrichment plant in Wilmington, NC.

We remain convinced that the best way to create value for our shareholders is to continue to focus our efforts on the restructure of GLE and to potentially take an equity interest in GLE ourselves such that we can have greater visibility and influence over the technology commercialisation program going forward.

This Preliminary final report should be read together with the Operational Update released in conjunction with this report and recent ASX announcements.

Commentary on the results for the period

Cash and cash equivalents & Held to maturity investments

Our cash balance as at 30 June 2016 was $51.3m, a net decrease of $3.9m during the year, primarily resulting from the finalisation of our own restructuring activities and the increased cash commitment for the SILEX laser uranium enrichment technology in Sydney and in Wilmington, in support of the GLE restructure.

Following the execution of a term sheet with GEH on 29 April 2016, Silex commenced reimbursing GEH for their pro-rata share of CY2016 GLE funding. $1.9m has been reimbursed to 30 June 2016. This investment was offset by R&D tax incentive cash receipts of

$5.1m during the year. The decrease of $9.0m in Receipts from customers and government grants was primarily due to a reduction of

$6.4m in R&D tax incentive receipts and a reduction of $2.3m in recoverable project cost receipts from GLE. The decrease in payments to suppliers and employees of $10.9m reflected the lower operating cost structure of the Company following the restructure of the Group.

Revenue from ordinary activities

Revenue from recoverable projects costs on the Uranium Enrichment Project reduced by $1.5m, whilst Interest income reduced by

$0.6m. As previously announced, GLE discontinued funding of Silex's Lucas Heights project costs during the previous financial year. These reductions were largely offset by $2.0m in Licence fees and Recoverable project costs in the current period resulting from the License agreement for the Translucent technology signed with IQE in September 2015.

Earnings before interest, tax, depreciation and amortisation from continuing operations (EBITDA)

EBITDA from continuing operations in FY2016 was a loss of $6.3m. This comprises the loss from continuing operations of $4.7m adjusted for net interest income of $1.6m and depreciation and amortisation of $0.03m.

Continuing Operations - Silex Systems

The Silex Systems segment result was a $4.7m loss in the current year compared to a $2.3m loss in the prior year. The increased loss was largely due to a reduction of $1.5m in Recoverable projects costs revenue on the Uranium Enrichment Project as mentioned above. Interest income also decreased to $1.6m in the current year compared to $2.2m in the prior year as a result of lower interest rates and lower average cash / term deposit holdings in the current year.

There was an increase in expenses from continuing operations of $1.8m compared to the prior year. This was mainly due to $2.6m of Development expenditure in the current year relating to Silex's reimbursement of GEH's pro-rata share of funding for the Wilmington operations. This was offset by a reduction in other expenses of $0.8m as a result of the Company's lower operating cost structure. In addition, there was a $1.4m increase in Other income which was mainly due to $1.5m for the R&D tax incentive for Silex's Lucas Heights operations.

Discontinued Operations - Solar Systems and Translucent

The Silex Board announced the cessation of the Solar Systems business operation on 30 July 2015. Various property, plant and equipment and technology assets have been sold to third parties with $2.3m received during the current year. At the time of writing, all remaining assets of the Solar Systems business have been sold.

As a result of the exclusive License and Assignment Agreement for Translucent's proprietary cREO™ technology that was signed on the 15 September 2015, the technology was transferred to IQE Plc during the year. IQE will now be responsible for the completion of product development and commercialisation activities. The Translucent operations in Palo Alto, California ceased at the end of December 2015.

The profit from discontinued operations was $1.3m in the current year compared to a loss of $33.7m loss in the prior year. The current year included $1.8m License Fee income from IQE compared to $nil in the prior year. Reversals of impairment of property, plant and equipment ($0.2m) and intangibles ($0.2m) improved the result in the current year compared to Impairments of $8.9m and $10.4m for property, plant and equipment, and intangibles respectively in the previous year.

Silex Systems Limited published this content on 22 August 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 21 August 2016 22:39:07 UTC.

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