Announcement PDF Annual Report For the year ended 30 June 2023 ABN 77 602 793 644 Contents Company directory 3 Managing Director, Herbert Koeck’s Statement 5 Directors report 14 Auditors independence declaration 37 Financial statements 39 Consolidated statement of profit or loss and other comprehensive income 39 Consolidated statement of financial position 40 Consolidated statement of changes in equity 41 Consolidated statement of cash flows 42 Notes to the financial statements 43 Directors’ declaration 85 Independent auditors report 86 Shareholder information 90 2 Titomic Annual Report 2023 | Company directory Company Directory DIRECTORS SHARE REGISTRY Mr Humphrey Nolan (Independent Non-Executive Chairman) Computershare GPO Box 3224 Melbourne, Victoria 3001, Australia Mr Herbert Koeck (Managing Director) AUDITORS Mr Richard Willson (Independent Non-Executive Director) BDO Audit Pty Ltd Tower Four, Level 18, 727 Collins Street Melbourne, Victoria 3008, Australia Dr Andreas Schwer (Independent Non-Executive Director) Mr Dag W.R. Stromme (Independent Non-Executive Director) SOLICITORS Ms Mira Ricardel (Independent Non-Executive Director) K&L Gates GPO Box 4388 Melbourne, Victoria 3001, Australia COMPANY SECRETARY BANKERS Mr Christopher Healy National Australia Bank Level 2, 330 Collins Street Melbourne, Victoria 3000, Australia PRINCIPAL PLACE OF BUSINESS Ground Floor, 365 Ferntree Gully Road Mount Waverley, Victoria 3149, Australia SECURITY QUOTED Australian Securities Exchange Ordinary Fully Paid Shares (Code: TTT) Listed Options (Code: TTTO) REGISTERED OFFICE IN AUSTRALIA Ground Floor, 365 Ferntree Gully Road Mount Waverley, Victoria 3149, Australia WEBSITE http://www.titomic.com/ 3 Managing Director, Herbert Koeck’s Statement 4 Titomic Annual Report 2023 | Herbert Koeck’s Statement Managing Director, Herbert Koeck’s Statement Dear Shareholder, Over the course of my career, I’ve had the opportunity to write many speeches, narratives, emails, letters, and keynotes. But this is the first time having the honour of addressing you directly as shareholders of Titomic in my function as Managing Director. Fiscal year 2023 started with lots of unknowns and uncertainties, all around a fading pandemic and the question of what the war in Ukraine will bring to the world. From an economic standpoint we saw projects being moved and delayed for multiple reasons – some customers were cautious and delayed/ cancelled some spending – others simply focused their existing budgets to maximize their production output on existing assets, to optimize their income and leverage the opportunities generated by this conflict. At the same time we all experienced a strong increase in inflation – reducing the overall appetite from investors to invest in new technologies – respectively an unprecedented raise of energy prices across all sources. Prices for electricity, fuel, gas, etc. rose to record highs and with that putting lots of pressure on many companies which have a high need for energy as part of their manufacturing processes. We at Titomic came off a record fiscal year 2022 revenue of $5.32 million and were poised to double again in FY23. At that time, we had contracts in place for two joint ventures (NEOS, REPKON) and, on top, an entire funnel with sales opportunities for many D-series solutions in parallel to orders for parts and metal powders. All lights on green, ready to make 2023 a superb year going forward. Now what was planned to be a super year, became a very good year 2023. Let me explain how I can say this with a reported revenue of $4.49 million, less than what we had the year before. I commenced with Titomic two years ago with the clear objective of driving commercial outcomes. Us moving away from an R&D house and transitioning to a provider of cutting-edge capabilities for production and protection of parts with high-performance materials, at speed and scale. From the very beginning we started to focus on a few, carefully selected use cases to ensure we have the proper funding from customers to execute, but also do things which have a fit to our underlying cold spray technology at this point in time. We continuously apply our skills and experiences on areas so that we can deliver on our promise. While I strongly believe that cold spray can do a lot more in the future, today we must sell what we have based on what can be done – now and today. For that purpose we have developed our four core company initiatives: • Grow customer revenue. • Reduce costs and our dependency on tax credits while optimizing grants. • Educate the market on cold spray technology. • Scale all revenue-generating activities across all active regions. When it comes to revenue FY23 was planned to be a superb year, but ended as a very good year. Soon we saw some signs that projects for our large machines were delayed, meetings were postponed. Our great partner Repkon continued to invest in Titomic, acknowledging their belief that our solutions will deliver superb business results. However at the same time they used their cash-flow to maximize output in their existing Defence businesses to leverage the global conflicts and maximize their current returns. Our partner NEOS in the UK was facing energy prices which tripled over the months leading up to them going into administration, bringing our plans for a joint venture to a full-stop. In parallel grant investments to Sabanci in Turkey were delayed and as a result so did our machine order which we were awarded in August 2023, beginning of our FY24. While we were missing out on three very large machine orders we were up and almost matched the prior year revenue, as the one machine order from TWI contributed 60% of prior year’s business. We did sell 22 D-series machines as compared to six machines the year before. Boeing, Triton, and others awarded us with great orders all adding up to the reported customer revenue of $2.62 million. All that without a single large machine order. 5 Titomic Annual Report 2023 | Herbert Koeck’s Statement That said, we have now started FY24 with a contracted revenue backlog of more than that of FY23. That in combination with our other sales opportunities, positions us well to achieve our budget for FY24. While we do not give guidance our current backlog and full sales funnel will allow us to drive significant revenue growth. At the same time we reduced our dependency on tax credits. While any dollar income is welcome, it is a strong proof point that we work on projects that are driven by commercial customers orders rather than generic R&D work. We also continue to find ways to attract further funding for our work. We still received funding from the Space Grant but also were successful in receiving new grant funding in Europe as part of the European COBRAIN initiatives, leading to an additional income of $1.02 million in FY23. As soon as it became obvious that some projects like NEOS will not happen we started work to understand how we can reduce our cost structure significantly while not risking completion of our other projects. We completed a major restructuring exercise leading to a cost reduction overall of 30% globally. It is a testament to our wonderfully engaged and capable employees that despite making significant overhead changes we didn’t miss a beat and continue to deliver on our promises, like me, they are true believers. Cold spray as of today is still a young technology. According to AMPOWER, a German research company, the technology is ready for prime-time in manufacturing in less than two years. We definitely see many more requests from customers today than a year or two ago. So a strategic task within our commercialization journey is to educate the market about cold spray and to sell to research and education as a target segment. Today this is our most successful industry segment. Customers like TWI from 2022, University of Madrid, Research lab in Bayreuth, Windesheim aka Perron038, and now Sabanci in FY2024 confirm that our strategy works. Having these research and education customers will lead to many more applications and use cases, allowing us to be even more successful in industrial manufacturing and service and repair. In FY2024 you will see an additional mid-range product dedicated to this market. Great progress was also made in marketing. Focusing on a small number of applications has allowed us to deliver dedicated products and services, positioned by a clear value proposition for our targeted customers. With the promotion of these products and solution we are also seeing a significant increase in almost every category we measure on our website. Web traffic overall is up 33%, new visitors up 31%, and page views are up 33%. All leading to the point that our weighted sales funnel at the beginning of FY2024 is more than double compared to last year. Last but not least, let me express the importance of our reseller channel. Resellers are our extended sales force, enabling us to reach customers in geographies or areas in which we are not physically present ourselves and respectively do not have the proper skills and tools to work with customers. Resellers overcome boundaries by e.g. they share geography as it is simply not possible to deal with customers across the U.S. with a handful of sales people on your own. You need channel partners to amplify your reach and do the job in territories where you cannot go most of the time. In other places like Europe or Asia Pacific you simply must overcome language barriers. Not being able to speak French in France or Spanish in Spain is a non-starter. So we continue to expand our reseller partner network, knowing well that not all of our resellers will be super successful. However, we will grow with the ones which bring us revenue and customers going forward. All these facts together have led me to say that last year has been very good. Titomic remains optimistic for FY2024. I said this loud and clear during our results conference on 1 September 2023. We see three steps to success: 1. Reduce ongoing costs - done. 2. Successful capital raise – done. 3. Accelerate commercialization though successful sales. While the first two are history by now we are amid execution to increase sales and revenues. Our pipeline is at record size and growing as we speak, we win new resellers almost monthly, we have a clear understanding of our products and solutions and with that our marketing is able to be efficient and convince new customers to engage with us. I thank you for being an investor in Titomic. My strong belief and my passion for the technology and the ability of Titomic to deliver great returns remain unchanged, actually is stronger than ever before. Thank you, Herbert Koeck. 6 Titomic Annual Report 2023 | Review of operations and significant events for the period Review of operations and significant events for the period At the end of the financial year ending June 30, 2023: Revenue & other income Cash & cash equivalents $4,488,394 $1,470,969 2022: $5,320,623 2022: $7,108,180 Net assets Loss after income tax ($714,958) $15,332,899 2022: $7,412,620 2022: $16,971,886 7 Titomic Annual Report 2023 | Review of operations and significant events for the period Operational update Diversifying sales Coatings and Repairs revenues During FY23, Titomic sold 22 D523 machines, supplying enhanced maintenance, repair, and sustainment capabilities to a broad range of industries. Additionally, a D523 was sold to Marine Nationale - the French Navy - in August, 2023. Titomic’s versatile technology is now providing benefit within the transport, rail, mining, oil and gas, automotive, defence, and aerospace industries. In November 2022, Titomic announced the completed development of a medium-pressure cold spray system; the Titomic D623. In the same month, Titomic sold a D623 to Neue Materialien Bayreuth GmbH in Germany, and to Universidad Rey Juan Carlos in Spain, totalling AUD ~270,000. Sale of Integrated Spray Booth to Perron038 Titomic announced the sale of an Integrated Spray Booth to Perron038 for AUD 710,000, which will house a robotised Titomic D623 medium-pressure cold spray unit. It has been agreed that the System will be delivered and paid for by the end of 2023. Located in the Netherlands, Perron038 is a research and development facilitator that connects high- tech companies, research companies, and educational institutions for collaborative development. For example, Perron038 works with Windesheim University to educate students about emerging and advanced technologies, such as Titomic Kinetic Fusion. Titomic announced the sale of an Integrated Spray Booth to Perron038 for AUD 710,000, which will house a robotised Titomic D623 medium-pressure cold spray unit. It has been agreed that the System will be delivered and paid for by the end of 2023. Located in the Netherlands, Perron038 is a research and development facilitator that connects high- tech companies, research companies, and educational institutions for collaborative development. For example, Perron038 works with Windesheim University to educate students about emerging and advanced technologies, such as Titomic Kinetic Fusion. World’s first automated cold spray system for glass mould coatings The glass mould coating system delivered to Vetropack in Austria has passed its Site Acceptance Test. During May 2022, Titomic Europe delivered its first glass mould coating System which was developed in collaboration with the International Partners in Glass Research (IPGR) - a leading global glass research organization headquartered in Germany - for the coating of glass moulds. 8 Titomic Annual Report 2023 | Review of operations and significant events for the period Key highlights 12 1 MARCH, JULY, 2021 2023 12 3 MARCH, JULY, 2021 2023 Tri-D Continued Dynamics commercial Acquisition engagement with Boeing Tri-D Manufacturing Dynamics Acquisition Purchase Order from Triton Systems Titomic received a purchase order from Boeing Space, Intelligence, and Weapons Systems (Boeing) for AUD 132,174 for the continuation of flight qualifications of Titomic Kinetic Fusion manufactured components, which were initiated in 2021. The purchase order is a result of an agreement made between Titomic and Boeing in May 2019, which was centred around the production of additively manufactured test parts. Titomic received a purchase order for AUD 260,000 from Triton Systems for the manufacture of components using Titomic’s patented additive manufacturing technology, Titomic Kinetic Fusion. As announced on March 31st, 2020, Triton and Titomic first entered a strategic partnership to introduce Titomic Kinetic Fusion to the US Department of Defence. 26 JUNE, 2022 Successful installation of TKF 1000 System at TWI 17 OCTOBER, 2022 Receipt of Horizon Europe Grant Titomic successfully installed, commissioned, and received Site Acceptance Testing for the TKF 1000 additive manufacturing system which was sold to TWI in August, 2021. TWI are using the TKF 1000 to expand their aerospace manufacturing capability for the British defence and commercial aerospace industries. Titomic has received EUR 260,000 (~AUD 400,000) in COBRAIN funding to research and develop applications of artificial intelligence and machine learning within cold spray applications. The outcomes of the research will assist Titomic in optimising cold spray processes for manufacturing with new and existing materials and metals. 13 JULY, 2023 Retail Entitlement Offer & Placement Titomic has completed a fully underwritten pro rata accelerated renounceable entitlement offer to existing eligible shareholders and a placement offer to raise AUD 6.5 million before costs. Funds raised under the Capital Raising will be used to develop increased manufacturing capacity, enhance capability for increased sales opportunities of current products and new business opportunities and to provide additional general working capital to advance the Company’s business. 9 Titomic Annual Report 2023 | Review of operations and significant events for the period Key highlights 26 OCTOBER, 2022 26 OCTOBER, 2022 Building a global distribution network with resellers Launch of D623 System Titomic developed a new product; the Titomic D623 mediumpressure cold spray System and has received two purchase orders for these Systems, totaling AUD 270,000. This ‘mid-pressure’ system expands Titomic’s capacity to work with various metals, unlocking new application possibilities. The D623 further extends Titomic’s product line, enhancing Titomic’s commercial offering and providing further product options to key prospective customers to meet their varying needs. Titomic has strategically strengthened its global presence by forging a robust distribution network across nine countries, and particularly within the United States, where Titomic has partnered with three resellers. This expansion holds promising implications for the Company’s overall sales and growth trajectory. By leveraging existing networks and collaborating with local sales teams intimately familiar with their client base and market intricacies, Titomic is ensuring an efficient and targeted approach. This comprehensive distribution strategy positions Titomic to effectively navigate diverse markets, build strong customer relationships, and ultimately achieve sustained success. Building a global distribution network with resellers Titomic is now supported by 11 resellers across the globe, ensuring a strong distribution network within key regions including Asia Pacific, South Asia, North America, Europe, and Australia. Pursuing Joint Ventures (Tooling) Titomic Europe Titomic Resellers - APAC Titomic USA Titomic Resellers - USA Titomic Head Office & Manufacturing & Innovation Centre Titomic Presence Joint Venture / Pursuing Joint Venture Resellers 10 Titomic Annual Report 2023 | Review of operations and significant events for the period Joint Venture Update Developing joint venture relationship with Repkon In 2022, Titomic signed a joint venture with Repkon, which will deliver the world’s first hybrid cold-spray, flowforming manufacturing facility. Titomic-Repkon is now a registered and capitalised company within Turkey. Though delayed due to unforeseen circumstances, Titomic expects to receive the previously-announced purchase orders for Titomic Kinetic Fusion systems including a TKF 1000 and TKF 3250R within 2023-24 financial year. Announced in August 2022, Titomic developed its partnership with Repkon by signing an agreement for Repkon to become a reseller of Titomic manufacturing systems, consumables, and service contracts within Turkey, the United Arab Emirates and Saudi Arabia. Nèos International joint venture Titomic signed a Joint Venture agreement with Neos International Limited (Neos International) in June, 2022. Neos International is part of the UK Neos Group of companies, which entered administration earlier this year. Titomic does not have any assets or investments that will need to be written off as a result. Despite this, the commercial viability of Titomic Kinetic Fusion’s capabilities pertaining to tooling manufacture remains strong. As such, Titomic is continuing discussions with a separate UK-based manufacturer of tooling and moulds to explore tooling production through a joint venture. 11 Titomic Annual Report 2023 | Review of operations and significant events for the period Activities Highlights Since Year End Order for high-pressure cold spray system Titomic received a purchase order from Sabanci University’s Integrated Manufacturing Technologies Research and Application Center. The System was sold for EUR 1.4 million (AUD 2.4 million) and is expected to be delivered, installed, and paid for by April 2024. The System incorporates Titomic’s roboticised high-pressure Titomic Kinetic Fusion technology, also known as cold spray, to enable novel additive manufacturing, material science, and surface engineering capabilities. Order from French Ministry of the Armed Forces Titomic received a purchase order from the French Ministry of the Armed Forces for a D523 low-pressure cold spray system. The sale was made to the Ministry for EUR 58,379 (AUD 99,168), which purchased the D523 on behalf of the Fleet Support Service of the Navy Nationale (French Navy). It is expected the D523 will be used in the sustainment and maintenance of the French Navy’s fleet and be used specifically to treat corrosion, restore worn surfaces, and restore part geometries in-situ, enabling faster, more cost-effective maintenance. Company Restructure Completed As originally announced in April 2023, Titomic successfully completed its company restructure in May 2023. The reorganisation has resulted in an optimal company size, enabling Titomic to efficiently meet immediate and near-term customer demands while prudently managing costs. This strategic move positions Titomic to seize upcoming opportunities and enhance overall performance. 12 12 Titomic Annual Report 2023 | Review of operations and significant events for the period Outlook Titomic has completed a capital raise and implemented a Company restructure. In addition, the Company recently received the largest ever sales order from Sabanci University, along with the sale of a D523 system to the French Ministry of the Armed Forces. Corporate update Company Restructure As originally announced in April 2023, Titomic successfully completed its company restructure in May 2023. The reorganisation has resulted in an optimal company size, enabling Titomic to efficiently meet immediate and near-term customer demands while prudently managing costs. This strategic move positions Titomic to seize upcoming opportunities and enhance overall performance. Titomic Summons As previously announced, Titomic has been served with a Summons, filed with the Supreme Court of NSW which names the Plaintiff as Composite Technology R&D Pty Ltd ABN 52 094 571 187 and the Defendant as Titomic. The claim set out in the Summons is commercially misleading conduct which the Company denies and continues to vigorously defend. Capital Raises In December 2022, Titomic completed an institutional placement to raise $5.1 million before costs. This placement received strong subscription from institutional investors. Titomic also completed a fully underwritten pro rata accelerated renounceable entitlement offer to existing eligible shareholders and a placement offer to raise $6.5 million before costs. Funds raised will be used to develop increased manufacturing capacity, enhance capability for increased sales opportunities of current products and new business opportunities and to provide additional general working capital to advance the Company’s business. 13 13 Directors’ report 14 Titomic Annual Report 2023 | Directors report Directors report The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Consolidated entity’) consisting of Titomic 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 2023. Directors, Key Management Personnel and Company Secretary The following persons were Directors of Titomic Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Mr Humphrey Nolan Independent Non-Executive Chairman Ms Mira Ricardel Independent Non-Executive Director Mr Herbert Koeck Managing Director Mr Jeffrey Lang (resigned 21 November 2022) Mr Richard Willson Independent Non-Executive Director Mr Christopher Healy Company Secretary Mr Andreas Schwer Independent Non-Executive Director Mr Jonathan Nield Chief Financial Officer Mr Dag W.R. Stromme Independent Non-Executive Director Principal activities Titomic Limited is an Australian publicly listed company specialising in manufacturing and technology solutions for highperformance metal additive manufacturing, metal coatings, and repairs using its unique patented Titomic Kinetic Fusion® cold spray technology with its principal activities in the global defence, aerospace, mining, energy and transport industries. 15 Titomic Annual Report 2023 | Directors report Information on Directors, Company Secretary and Chief Financial Officer The qualifications and experience of each person who has been a Director of the Company at any time during or since 1 July 2022 is provided below, together with details of the Company Secretary and the Chief Financial Officer as at year end. MR HUMPHREY NOLAN MR HERBERT KOECK Independent Non-Executive Chairman Managing Director Experience and expertise Mr Nolan is a seasoned Board Director and CEO with 30 years’ experience driving strategic and operational change across industrial, logistics and distribution industries. Mr Nolan has held senior leadership positions within global logistics companies, including at the P&O Group. Experience and expertise Mr Koeck brings a wealth of experience in additive manufacturing, having headed up sales and global orders for 3D-Systems Corporation as Executive Vice-President Global-Go-to-Market, where he influenced product development for customer success. Mr Nolan is currently Chairman of both the Nolan Group and Tapex Group, both leading distributors of technical and industrial textiles operating across Australia and New Zealand. A proven leader, he was also Managing Director for HP Europe and Senior Vice-President for Europe, Middle-East, and Africa at Hewlett Packard for the PC and Printing Solutions Group. 16 Titomic Annual Report 2023 | Directors report Information on Directors, Company Secretary and Chief Financial Officer continued MR RICHARD WILLSON DR ANDREAS SCHWER Independent Non-Executive Director Independent Non-Executive Director Experience and expertise Richard Willson is an experienced, Non-Executive Director, Company Secretary and CFO with more than 20 years’ experience predominantly within the mining, technology and agricultural sectors for both publicly listed and private companies. Experience and expertise Through his extensive 25-year executive career across the global defence and aerospace industries, Dr Schwer has gained a wealth of experience, insight and a deep understanding, which he brings to the board of Titomic Limited. Dr Schwer’s executive track record is world-class, holding executive positions across a multitude of high-value industries, including Saudi Arabian Military Industries’ inaugural CEO, where he grew the business from a greenfield operation to become a prominent entity in the international defence market. Prior to this achievement, Dr Schwer held the role of Chairman, President, and CEO of Rheinmetall International and CEO of Combat Systems Division, both branches of international defence prime, Rheinmetall AG. Prior to joining Rheinmetall, Dr Schwer held various executive management positions, including 12 years at Airbus Group’s Defence & Space and Helicopters divisions and an executive role at the equipment manufacturing group, The Manitowoc Company. Dr Schwer is the CEO of Electro Optic Systems Ltd. Richard has a Bachelor of Accounting from the University of South Australia, is a Fellow of CPA Australia, and a Fellow of the Australian Institute of Company Directors. He is Non-Executive Chairman of Thomson Resources Limited (ASX:TMZ), a Non-Executive Director of Clara Resources Limited (ASX:C7A), MedTEC Holdings Limited, and Unity Housing Company Ltd; and Company Secretary of a number of ASX Listed Companies. Richard is the Chairman of the Audit Committee of Titomic Limited, Clara Resources Limited, and Unity Housing Company, and is the Chairman of the Remuneration & Nomination Committee of Titomic Limited. 17 Titomic Annual Report 2023 | Directors report Information on Directors, Company Secretary and Chief Financial Officer continued MR DAG W.R. STROMME MR JEFFREY LANG Independent Non-Executive Director Non-Executive Director (resigned 21 November 2022) Experience and expertise Dag W.R. Stromme is an investor and entrepreneur with over 30 years of experience from successful private ownership and leading European, as well as global, financial institutions. He has been running his own family investment office, PAACS Invest, since 2015. Mr Stromme was previously a senior industry advisor to Triton, an investment firm with €17B under management. He joined Morgan Stanley in New York in 1990, focusing on mergers and acquisitions and was a Managing Director of Morgan Stanley London from 2001 to 2007 and Co-Head of Nordic Investment Banking from 2000 to 2007. Experience and expertise Mr Jeffrey Lang is an experienced senior executive and technologist in R&D of advanced manufacturing technologies and implementation of automated manufacturing operations in Australia, Europe and Asia. With 30+ years of experience in Research and Development of advanced manufacturing technologies across several industry sectors, he has received awards in Europe, China and Australia for his work in composite technology and commercialisation of new manufacturing systems and products. Mr Lang has many years of business experience in the R&D of both material science and advanced technologies working and collaborating with many International Brands, Manufacturers, Universities, Government Agencies, Scientific Organisations and Industry Associations.) Mr Stromme has been a director of various public and non-public companies. He is currently controlling shareholder and Chairman of Racom AS, a technology company focused on security for public and private sector, and a director of software company Arundo. 18 Titomic Annual Report 2023 | Directors report Information on Directors, Company Secretary and Chief Financial Officer continued she was focuse