Announcement PDF Verbrec Limited ABN 90 127 897 689 Directors’ Report Verbrec Limited ABN 90 127 897 689 Interim Financial Report 31 December 2023 Verbrec Limited ABN 90 127 897 689 Contents Page Directors’ report 2 Auditor’s Independence Declaration 9 Condensed consolidated statement of profit or loss and other comprehensive income 10 Condensed consolidated statement of financial position 11 Condensed consolidated statement of changes in equity 12 Condensed consolidated statement of cash flows 13 Notes to the condensed consolidated interim financial statements 14 Directors’ Declaration 27 Independent Auditor’s report 28 This consolidated interim financial statements do not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2023 and any public announcements made by Verbrec Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. These consolidated interim financial statements are the consolidated interim financial statements of the consolidated entity consisting of Verbrec Limited and its subsidiaries. The consolidated interim financial statements are presented in Australian currency. Verbrec Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office is: Verbrec Limited Level 14 200 Mary Street Brisbane QLD 4000 The consolidated interim financial statements were authorised for issue by the Directors on 27 February 2024. The Directors have the power to amend and reissue the consolidated interim financial statements. 1 Verbrec Limited ABN 90 127 897 689 Directors’ Report Your Directors present their interim financial statements on Verbrec Limited (“the Company or Verbrec or VBC”) and its controlled entities (“the Group”) for the half-year ended 31 December 2023. 1. DIRECTORS and COMPANY SECRETARIES The Directors of the Company in office during or since the end of the half-year ended 31 December 2023 are set out below: Name Position Mr Phillip Campbell Mr Matthew Morgan Ms Sarah Zeljko Mr Brian O’Sullivan AM Independent Non-Executive Chairperson Independent Non-Executive Director Independent Non-Executive Director (retired 29 November 2023) Non-Executive Director The Company Secretaries of the Company in office during or since the end of the half-year ended 31 December 2023 are set out below: Mr Joel Voss Company Secretary 2. PRINCIPAL ACTIVITIES Verbrec is a leading engineering, asset management, infrastructure and mining technology software (collectively reported as “Engineering services” under note 5 - segment reporting) and training company (reported as “Training services” under note 5 - segment reporting) operating across the entire asset life cycle to a diverse range of industries including energy, mining, defence and infrastructure. The Group has more than 400 professionals operating across Australia, New Zealand, PNG, and the Pacific Islands from 11 offices throughout Australia and New Zealand and from our project delivery site offices. The Company’s focus, in line with the commitments provided throughout FY2024, remains to strengthen client relationships, increase the proportion of the Company’s revenue streams related to sustainable and renewable energy related projects, and protect gross margins by tightly controlling operating expenses and selecting economically attractive project opportunities. The Group has a strong position across its portfolio of services and has key long-term customers that continue to be supportive and provide Verbrec with strong revenue streams. Engineering Services: Verbrec provides a range of engineering and project management services across the following areas: Asset Management: Specialist asset management services including maintenance and reliability engineering, asset integrity, operational readiness, material and inventory management systems that increases efficiency, reduces costs and improves productivity. Automation & Control: Specialist engineering and project delivery services in controls and automation, data acquisition, industry digitalisation (including IIOT – Industrial Internet of Things), industrial data analytics and advanced algorithms. Infrastructure Services: Specialist pipeline and compressor station operation and maintenance services to the gas and mining industries. We have a reputation for the highest standards in safety for our people, contractors and the general public in addition to full compliance with legislative 2 Verbrec Limited ABN 90 127 897 689 Directors’ Report (continued) requirements. This work is managed using a proprietary in-house ‘Integrated Management and Operating System’ (IMOS). Pipeline Engineering: Specialist engineering and project delivery services including conceptual studies, engineering design, EPC delivery, commercial services and condition assessments. We specialise in gas, oil, water and hydro-transport (slurry) pipelines including all associated facilities including compressor stations, pumping stations, terminal facilities, pigging systems, metering systems, SCADA systems and tie-ins. Power: Specialist engineering and project delivery in low voltage and high voltage electrical systems. This includes electrical distribution and reticulation, grid connections, switchboards and motor control centres, protection systems, as well as specialist expertise and electrical equipment in hazardous areas. Process Plant: Full multi-disciplinary engineering, design and procurement capabilities for all oil and gas and chemical facilities including well-head systems, gathering networks, processing facilities (physical and chemical processing), compression and pumping facilities, tank farms and distribution systems. Software Solutions: Verbrec has several mining technology software solution products currently either under development or in commercial use. The most advanced of these products that is both in commercial use and with further modules under development is StacksOn. StacksOn is a 3D stockpile yard modelling digital twin application that enables the visual tracking of material and grades. It tracks material being added to and reclaimed from stockpiles in order to maintain a 3D model of material in the stockyard. Verbrec offer customers an annual licence fee structure as well implementation services and ongoing support. Training Services: Under the Competency Training brand our Registered Training Organisation (RTO 31299) provides specialist industrial training services for the Mining, Resources, Infrastructure and Manufacturing sectors. The specialty offers an extensive range of site-specific training as well as customised competency assurance services. These services range from the development of eLearning modules through to implementation of competency management programs with integrated technology components (virtual reality). Competency Training has dedicated, fully equipped training facilities (allowing for ‘hands-on’ training with equipment) across Australia. 3 Verbrec Limited ABN 90 127 897 689 Directors’ Report (continued) 3. REVIEW OF FINANCIAL PERFORMANCE & MARKET OUTLOOK In compiling these financial statements, the discontinued operations (under AASB 5) have been shown separately from the continuing operations and comparable numbers from previous corresponding period (“PCP”) have been presented excluding those discontinued operations. 3.1 Financial Performance Overview The consolidated interim financial results for the half-year ended 31 December 2023 compared to the previous corresponding period ("PCP") is follows: 31 December 2023 31 December 2022 Change to PCP 49,994 17,430 59,070 15,064 (9,076) 2,367 34.9% 25.5% 9.4% 2,703 2,855 (597) (1,440) 3,300 4,295 Note 5 4,989 10.0% 1,340 2.3% 3,649 7.7% Note 8 (2,766) (1,217) (1,549) Total other comprehensive income, net of tax 92 99 (7) Total comprehensive profit/ (loss) attributable owners of the Company 181 (2,558) 2,739 1.2 (0.7) 1.9 (694) (8,763) (3,754) (8,405) 3,060 (358) Continuing Operations Revenue ($'000) Gross Margin Statutory ($'000) Gross Margin Statutory as a % of revenue (%) Note 5 Profit before tax ($'000) Profit after tax ($'000) EBITDA1 ($'000) EBITDA as a % of revenue (%) Loss after tax from discontinued operations Basic earnings per share (cents) – continuing operations Operating Cash Outflow ($'000) Net Cash2 ($'000) ¹ EBITDA (earnings before interest, taxes, depreciation and amortization) ² Cash on hand less borrowings and lease liabilities. 4 Verbrec Limited ABN 90 127 897 689 Directors’ Report (Continued) DISCONTINUED OPERATIONS – Site Services Training Verbrec acquired the Site Services Training Assets (“SST”) in April 2021 with a view to the acquisition complementing and increasing the profitability of its existing Competency Training business. Despite numerous attempts by the Verbrec team to fully integrate, grow and develop the SST business, the low barriers to entry and high competition prevented this from happening. Given its sustained poor performance the Directors and management took steps to close certain training facilities and seek an acquirer for the remainder of SST assets. In November 2023 the Company announced that it had entered an agreement with Harness Energy to sell the remaining assets, novate all leases and transfer staff to Harness Energy. The impact of the discontinued operations is shown on note 8 in the financial statements. Financial Performance For the half-year ended 31 December 2023, the Group reported revenues of $50.0m, a decrease from $59.0m reported in the previous corresponding period as (i) poor performing projects wound down, (ii) revenue from procurement reduced from 26% to 22%, (iii) training revenues reduced with the closure and sale of SST assets during the period and (iv) partly from management efforts to target economically attractive project opportunities. In terms of revenue by industry sector, the composition of Verbrec’s revenue is broadening into sustainability and transition project although still largely in the hydrocarbon (gas) space and infrastructure projects (including defence). The gross margin has increased to 34.9% from 25.5% in the PCP, partly as a result of the reduced procurement revenue and the remaining poor performing projects running down and partly from management efforts to target economically attractive project opportunities. EBITDA increased to $5.0m (10% of revenue) as a result of the higher gross margins achieved and the Company’s focus on reducing overhead. BALANCE SHEET The Group’s finance facilities are provided by Westpac Banking Corporation. As reported at December 2022 and again in June 2023 the Westpac banking covenants had been breached. Verbrec has worked throughout the year to repair this position and can report that at the half year ended 31 December 2023 all covenants have been passed. This has allowed Verbrec to reclassify certain forms of debt from Westpac as non-current (please refer to note 12 in the financial statements for more information). In November and December 2023, Verbrec successfully raised approximately $4.0m between an oversubscribed placement, a non-renounceable entitlement offer and the placement of the subsequent shortfall. Cash and cash equivalent for the Group at 31 December 2023 is $5.9m, compared to $4.4m at 30 June 2023. Overall, the liabilities of the Group have reduced predominantly with the reduction in Trade and other payables and contract liabilities over the 6 months. The total Assets of the Group have also reduced with a reduction in both trade receivables and contract assets. In addition, at the June 2023 reporting date Verbrec impaired $1.4m of intangibles (goodwill) associated with the closure of Carole Park and Darwin training facilities. With the sale of the remaining training facilities and assets to Harness Energy in November, the remaining intangible value associated with these training facilities ($1.8m) has been impaired and included as part of the discontinued operations, as noted in disclosures note 8. 5 Verbrec Limited ABN 90 127 897 689 Directors’ Report (Continued) CASH FLOW Closing cash for the half-year was $5.9m compared to $4.4m at 30 June 2023. The $5.9m balance includes $2.9m in restricted cash that is required to be held under the Westpac facility as part security for the issuance of bank guarantees. The quantum of bank guarantees and securities across the group is reducing and Verbrec will take the opportunity to transfer the cash to unrestricted accounts as it becomes available from term deposit investment. 3.2 Market Outlook The markets in which Verbrec operates are adapting to the changing sustainable environment and Verbrec’s work in hand remains strong as the Company continues to support our core and key client base. Commodity prices continue to trade at long term elevated levels which in turn provides free cash flow for our clients to invest in new production capacity, and sustaining capital projects, as well as projects to improve safety and operating efficiency, with improved energy efficiency a recurring theme. This trading environment will support strong ongoing demand for Verbrec’s services. The significant capital investment in sustainability in our key traditional markets particularly energy, resources and digital transformations is very encouraging. New projects driven by investment in alternative energy are providing exciting new customer opportunities. Addressing the changing nature of the market, the Company’s focus is expanding to ensure that we can meet client needs in a move to a more sustainable future. Leveraging the Company’s diverse pool of talented engineers, and by selectively recruiting where necessary to improve the group’s consolidated skillset, Verbrec is in a position to participate in: • Electrification & Energy Storage by addressing the need for gas firming in a renewables rich grid, assisting our clients transition to an electrical economy with projects currently being delivered in batteries, biogas and hydrogen. • Gas Market Transition to guide and deliver solutions to our client base to design fit for purpose solutions for their existing assets to address gas as a peaking fuel rather than a base load fuel, with current prospects to participate in projects related to carbon capture utilisation and storage and biofuel / hydrogen augmentation / replacement. • Sustainable Mining & Green Commodities assisting and advising our clients in minimising their scope 3 emissions, maximising the yield of their higher grade and ‘green’ metals such as magnetite and minimising waste by using the power of StacksOn to give clients greater grade control at iron ore mines / ports and developing innovative product transport solutions. Positioning for growth of Verbrec’s business offerings: The Company is focused on areas of growth including: • Engineering: providing innovative engineering and project delivery solutions to clients, through our technical specialties, including automation & control, power, process plant, pipelines and asset management. • Competency Training: Focus can now be applied to the remaining parts of CT with the sale of the Site Skills Training assets. The shift to sustainable and renewable energy, underpinned by demand for resources supporting this transition provides excellent opportunities for Competency Training which specialises in hazardous areas, high voltage, safety and access and other emerging courses. 6 Verbrec Limited ABN 90 127 897 689 Directors’ Report (Continued) Our training business is working with industry to upskill current and new employees including those of Verbrec’s core client base. • Asset Management: continues to expand during the first half year while maintaining strong EBITDA performance. Working with owners and operators across Australia, New Zealand and PNG to provide asset management solutions that increase efficiencies, reduce cost and improve productivity, unlocking higher value from client’s assets. The diversified client base has contributed to half yearly revenues increasing year-on-year. • Infrastructure Services: providing clients full lifecycle services for project delivery from inception through procurement and/or construction, commissioning and operations. On the back of continued growth in the Resources and Oil and Gas developments in Australia, the Infrastructure Services business continues to grow and provides services in the NT, QLD, VIC, SA and WA. This growth is largely linked to long term contracts with recurring revenues. • StacksOn: a digital twin for stockyards enabling on-specification product in challenging conditions, whilst increasing throughput and reducing downtime continues to be enhanced in order to provide even more benefits to its client base. New opportunities are being pursued by the team and early interest from new clients established. Our work in hand number continues to remain healthy and the group continues to focus on recurring revenue agreements which are under-pinned by: • key long-term customers that provide >40% of the Company’s revenue • 43 (up from 41) Master Service Agreements • 12 (up from 10) Operations and Maintenance Agreements • Rate increases and rise and fall mechanisms to mitigate cost escalation pressures Verbrec continues to pursue opportunities to increase capability, pursue partnerships and alliances in the areas of electrification, gas market transition and green commodities. Finally, the restoration of a dividend remains a fundamental objective of the Group. With carried forward tax losses of $37.8m (note 7), we expect operating cashflows to continue to improve resulting in the generation of free cashflow to fund dividends. The group also carries $5.7m in franking credits which will be distributed once dividends resume. DIVIDENDS The Board has elected not to declare an interim dividend for the period ended 31 December 2023. AFTER BALANCE DATE EVENTS The Directors are not aware of any other matters or circumstances not otherwise dealt with in this report or the interim financial statements that have, or may, significantly affect the operations or state of affairs of the Group in future years. ROUNDING OF AMOUNTS The Group is of the kind referred to in Australian Securities and Investments Commission (ASIC) Corporations Instruments 2016/191 dated 24 March 2016 pursuant to s.341(1) of the Corporations Act 2001, relating to the ‘rounding off’ of amounts in the Directors’ Report and Consolidated Interim Financial Statements. In accordance with that legislative instrument, amounts in the Consolidated Interim Financial Statements have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar. 7 Verbrec Limited ABN 90 127 897 689 Directors’ Report (Continued) RESOLUTION APPROVING DIRECTORS’ REPORT This Directors’ Report is made in accordance with a resolution of the Directors. The auditor’s independence declaration as required under s.307C of the Corporations Act 2001 is set out on page 10. Phillip Campbell Chairperson Brisbane 28 February 2024 8 Grant Thornton Audit Pty Ltd King George Central Level 18 145 Ann Street Brisbane QLD 4000 GPO Box 1008 Brisbane QLD 4001 T +61 7 3222 0200 Auditor’s Independence Declaration To the Directors of Verbrec Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the review of Verbrec Limited for the half year ended 31 December 2023, 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 review; and b no contraventions of any applicable code of professional conduct in relation to the review. Grant Thornton Audit Pty Ltd Chartered Accountants CDJ Smith Partner – Audit & Assurance Brisbane, 28 February 2024 www.grantthornton.com.au ACN-130 913 594 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389 ACN 127 556 389. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Limited is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 ACN 127 556 389 and its Australian subsidiaries and related entities. Liability limited by a scheme approved under Professional Standards Legislation. w Verbrec Limited ABN 90 127 897 689 Condensed consolidated statement of profit or loss and other comprehensive income For the half-year ended 31 December 2023 Notes 31 December 2023 $’000 31 December 2022 $’000 Continuing Operations Revenue 5 49,994 59,070 Cost of providing services 6(a) (32,564) (44,006) 17,430 15,064 32 (14,180) (36) (15,277) Profit/ (loss) from operating activities 3,282 (249) Finance expense (579) (348) Profit/ (loss) before income tax 2,703 (597) Gross profit Other income Other operating expenses 6(b) Income tax benefit/ (expense) Profit/ (loss) for the half-year from continuing operations 7 152 2,855 (843) (1,440) Loss from discontinued operations 8 (2,766) (1,217) 89 (2,657) Foreign currency translation differences 92 99 Other comprehensive income for half-year, net of tax 92 99 Total comprehensive profit/ (loss) for the half-year attributable to owners of the Company 181 (2,558) 2,947 (2,766) 181 (1,341) (1,217) (2,558) Basic earnings per share (cents per share) 1.2 (0.7) Diluted earnings per share (cents per share) 1.2 (0.7) Earnings per share for profit attributable to the ordinary equity holders of the company Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 0.0 (0.0) (1.2) (1.2) Profit/ (loss) for the half year attributable to owners of the Company Other comprehensive income Items that may be reclassified to profit or loss Total comprehensive (Loss)/profit for the half-year attributable to owners of the Company arises from: Continuing Operations Discontinued Operations Earnings per share from Continuing Operations 10 Verbrec Limited ABN 90 127 897 689 Condensed consolidated statement of financial position As at 31 December 2023 31 December 2023 $’000 30 June 2023 $’000 Cash and cash equivalents 5,907 4,461 Trade and other receivables 15,594 17,102 Contract assets 3,524 5,804 Notes Assets Current tax assets 275 263 Total current assets 25,300 27,630 1,105 1,476 Right-of-Use Assets 5,916 4,799 Deferred tax assets 7,761 7,606 Property, plant and equipment 9 Intangible assets 10,508 12,566 Total non-current assets 10 25,290 26,447 Total assets 50,590 54,077 8,583 14,667 4,201 6,022 3,212 6,780 2,365 2,727 313 916 4,510 4,831 628 870 23,812 36,813 448 643 4,544 - 4,549 3,359 Liabilities Trade and other payables Contract liabilities Borrowings_Current 12 Lease liabilities_Current Other financial liabilities_Current 13 Employee benefits_Current Provisions_Current 11 Total current liabilities Employee benefits_Non Current Borrowings_Non Current 12 Lease liabilities_Non Current Provisions_Non Current 176 221 Total non-current liabilities 11 9,717 4,223 Total liabilities 33,529 41,036 Net assets 17,061 13,041 28,021 24,267 443 266 Retained earnings (11,403) (11,492) Total equity attributable to owners of the Company 17,061 13,041 Equity Share capital 14 Reserves 11 Verbrec Limited ABN 90 127 897 689 Condensed consolidated statement of changes in equity For the half-year ended 31 December 2023 Attributable to owners of Verbrec Share Capital $’000 $’000 Retained earnings $’000 24,267 226 (1,969) $’000 22,524 Profit for the half-year - - (2,657) (2,657) Other comprehensive income - 99 - 99 Total comprehensive income for the half-year - 99 (2,657) (2,558) Share based payment expense - 84 - 84 Balance at 31 December 2022 24,267 409 (4,626) 20,050 Balance at 30 June 2023 24,267 266 (11,492) 13,041 Profit for the half-year - - 89 89 Other comprehensive income - 92 - 92 Total comprehensive income for the half-year - 92 89 181 Contribution of equity, net of transaction costs 3,754 - - 3,754 Share based payment expense - 85 - 85 Balance at 31 December 2023 28,021 443 (11,403) 17,061 Balance at 30 June 2022 12 Reserves Total Verbrec Limited ABN 90 127 897 689 Condensed consolidated statement cash flows For the half-year ended 31 December 2023 31 December 2023 $’000 31 December 2022 $’000 Receipts from customers (including GST) 60,320 68,703 Payments to suppliers and employees (including GST) (60,695) (72,132) (375) (3,429) Cash flows from operating activities Interest received 48 21 Interest paid (367) (346) Net cash outflow from operating activities (694) (3,754) 16 - Payments related to sale of SST business (303) - Payment for acquisition of subsidiary, net of cash acquired (Note 13) (626) (558) Acquisition of property, plant and equipment and intangibles (210) (521) (1,123) (1,079) Share issue cost (199) - Proceeds from issue of shares 3,953 - Proceeds from borrowings 2,895 6,736 Repayment of borrowings (1,919) (133) Principal elements of lease payments (1,551) (1,440) Net cash inflow from financing activities 3,179 5,163 Net increase / (decrease) in cash and cash equivalents 1,362 330 Cash and cash equivalents at the beginning of the year 4,461 6,415 84 18 5,907 6,763 Cash flow from investing activities Proceeds from sale of property, plant and equipment Net cash outflow from investing activities Cash flow from financing activities Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the half-year 13 Verbrec Limited ABN 90 127 897 689 Notes to the Financial Statements For the half-year ended 31 December 2023 1 General information Verbrec Limited (the “Company”) or (“Verbrec’) is a company domiciled in Australia. The address of the Company’s registered office is Level 14, 200 Mary Street, Brisbane, Australia. The consolidated interim financial statements of the Company for the six months ended 31 December 2023 comprises the Company and its subsidiaries (together referred to as “the Group” and individually as “Group entities”) and the Group’s interest in associates and jointly controlled entities. The Group operates two segments being engineering and training. The engineering segment encompasses service lines in asset management, digital industry, infrastructure services, pipeline engineering, power and process plant across the hydrocarbons, mining and infrastructure industry sectors, with a focus on Australia, New Zealand, Papua New Guinea and the Pacific Islands. The training segment offers technical training and compliance services. The consolidated interim financial statements were approved by the Board of Directors on 27 February 2024. 2 Basis of preparation The consolidated interim financial statements for the half-year reporting period ended 31 December 2023 have been prepared in accordance with the requirements of the Australian Corporations Act 2001 and in compliance with AASB 134 – Interim Financial Reporting, that ensures compliance with International Financial Reporting Standard IAS 34 – Interim Financial Reporting. The consolidated interim financial statements do not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2023 and any public announcements made by Verbrec Limited during the interim reporting period in accordance with the continuous disclosure requirement of the Corporations Act 2001. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period. 3 Estimates The preparation of consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing the consolidated interim financial statements, the significant judgements were made by the management in applying the Group’s accounting policies, and the key sources of estimation uncertainty for continuing operations were the same as those applied to the consolidated financial statements for the year ended 30 June 2023. Those key accounting policies and estimates related to discontinued operations are as disclosed in respective disclosure notes to these financial statements. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. 14 Verbrec Limited ABN 90 127 897 689 Notes to the Financial Statements For the half-year ended 31 December 2023 4 Summary of significant accounting policies The accounting policies are consistent with those of the previous financial year and corresponding inter