Announcement PDF 1 FOS CAPITAL LIMITED | 1 FOS Capital Limited ACN 637 156 275 Appendix 4D - Half Year Report for six months ended 31 December 2023 Results for announcement to the market Name of entity FOS CAPITAL LIMITED ACN 637 156 275 Reporting Period Half Year Ended 31 December 2023 Previous Corresponding period – half year ended 31 December 2022 Results for announcement to the market Revenue from ordinary activities Up 14.9% to 9,902,286 Operating profit before tax and restructure cost 1 Up 29.8% to 676,614 Net profit after tax down 67.5% to 127,401 1. Operating profit before tax and restructure cost is a non-IFRS measure reported to provide a greater understanding of the underlying business performance of the Group. The above disclosures are extracted or derived from the financial report for the period ended 31 December 2023, which has been reviewed by WilliamBuck. No interim dividend has been declared for the half-year ended 31 December 2023. Amount per Security Franked amount per Security Nil Nil Nil Nil Interim Dividend - Current period - Previous corresponding period Net tangible assets per security Net tangible asset backing per ordinary security Current Period Previous Corresponding Period 9.4 cents 12.5 cents Additional Appendix 4D disclosure requirements can be found in the enclosed half year financial report of FOS Capital Limited for the half year ended 31 December 2023. This report is also to be read in conjunction with the Annual Report of FOS Capital Limited for the year ended 30 June 2023 and any public announcements made by FOS Capital Limited during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules. This report is based on the consolidated financial statements for the half year ended 31 December 2023 which have been reviewed by William Buck. The Independent Auditor's Review Report provided by WilliamBuck is included in the Half-Year Financial Report of FOS Capital Limited for the half-year period ended 31 December 2023. ` FOS Capital Limited Dec 2023 Half Year Report CONTENTS Directors’ Report 3 Consolidated Statement of Profit and Loss and other Comprehensive Income 5 Consolidated Statement of Financial Position 6 Condensed Consolidated Statement of Changes in Equity 7 Consolidated Statement of Cash Flows 8 Notes to Condensed Consolidated Half-Year Financial Statements 9 Directors’ Declaration 13 Auditor’s Independence Declaration 14 Independence auditor’s review report 15 FOS CAPITAL LIMITED | 2 FOS Capital Limited Dec 2023 Half Year Report DIRECTORS’ REPORT The directors present their report together with the condensed financial report of the Consolidated entity consisting of FOS Capital Limited and the entities it controlled (the Consolidated entity), for the half-year ended 31 December 2023 and independent auditor’s review report thereon. DIRECTORS The names of the company’s directors in office during the half-year and until the date of this report are set out below. Each of the directors was in office for this entire period, unless otherwise stated. Con Scrinis, Managing Director Michael Koutsakis, Director Michael Monsonego, Director Alexander (Sandy) Beard, Director PRINCIPAL ACTIVITIES The principal activities of the Consolidated entity include the manufacturing of a full range of commercial luminaries, outdoor fittings and linear extruded lighting as well as distributing a complete range of commercial and architectural lighting. RESULTS OF OPERATIONS AND SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The Board is pleased to report that Consolidated entity’s trading improved significantly with group revenues of $9.9 million (2022: $8.6 million) for the half year ended 31 December 2023, Operating profit before restructuring costs and tax $676,614 (2022: $521,149) and statutory net profit after tax $127,401 (2022: $392,145) for the half year ended 31 December 2023. The first half also showed significant improvement in market conditions with orders in hand at December 2023 $11 million (2022:$5.3m) and active quotes at December 2023 was $110 million (2022:$58m). On 1 October 2023 FOS Lighting Pty Ltd acquired the business of Klik Systems, established over 40 years and based in Sydney, NSW. It manufactures an extensive range of commercial, industrial & architectural LED linear lighting. The company has 31 employees and services the Australian commercial lighting market with distributors in all capital cities. KLIK derives 25% of its income from export markets with a significant presence in the USA. Klik Systems acquisition expands FOS’s market share in linear lighting and provides a platform to consolidate manufacturing operations for our fastest growing product line. There will be significant operational benefits with the increased volumes and the ability to further rationalise fixed costs as we share knowledge and resources across the group. KLIK also provide FOS with its first substantial export market outside of New Zealand with the ability to increase export sales of our broader product range. The Company has commenced restructuring and consolidating linear lighting product manufacturing at one location to maximize production capacity utilization, achieve cost synergy, and improve product profitability to continue manufacturing linear lighting products in Australia. This includes the closure of the Sunshine Coast factory and associated redundancy’s and the relocation of linear production from the Brisbane factory to Klik in Sydney. The Company has booked a one-off charge of $500,000 for the costs of business restructuring and consolidation of linear lighting product manufacturing operations. The Company expects to complete the restructuring of linear lighting products manufacturing by June 2024. The Board is pleased with the progress the company is making and following the acquisition of Klik brings FOS to its first critical mass hurdle of annualised sales of $25 million. The company is well placed to continue its growth with 79 staff and expansive operations in Australia and New Zealand. We take this opportunity to thank all stake holders especially our dedicated staff and are looking forward to an exciting second half. FOS CAPITAL LIMITED | 3 FOS Capital Limited Dec 2023 Half Year Report DIRECTORS’ REPORT (CONTINUED) DIVIDEND The Directors have not declared the interim dividend for the half year ended 31 December 2023. MATTERS SUBSEQUENT TO REPORTING DATE There were no matters or circumstances specific to the Consolidated entity that have arisen since 31 December 2023 that have significantly affected or may significantly affect the Consolidated entity’s operations and state of affairs. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation to the review for the half-year attached to these financial statements. ROUNDING OF AMOUNTS In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2020/191, the amounts in the directors’ report and in the financial report have been rounded to the nearest dollar. Signed in accordance with a resolution of the directors. Con Scrinis Director Date: 22 February 2024 FOS CAPITAL LIMITED | 4 FOS Capital Limited Dec 2023 Half Year Report CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER 2023 Notes 31 Dec 2023 31 Dec 2022 $ $ 9,902,286 8,618,313 Cost of sales (5,556,439) (5,308,044) Gross Profit 4,345,847 3,310,269 103,605 95,570 Selling and distribution expenses (953,849) (730,837) Administrative and corporate expenses (2,279,577) (1,754,746) Depreciation of right of use assets (339,307) (309,017) Depreciation & amortisation (116,008) (62,925) Finance costs (84,097) (27,165) (500,000) - (4,272,838) (2,884,690) Profit before income tax expense 176,614 521,149 Income tax expense (49,213) (129,004) Profit after tax 127,401 392,145 15,738 51,157 143,139 443,302 0.24 0.83 Revenue Revenue Other Income 2 2 Expenses Restructure costs 3 Total expenses Other comprehensive income Other comprehensive income that may subsequently reclassified to the profit or loss - foreign currency translation gain Total comprehensive income for half-year Earnings per share (cents per share) for profit attributable to the equity holders of the entity: Basic and diluted earnings per share 5 The accompanying notes forms part of these Financial Statements FOS CAPITAL LIMITED | 5 FOS Capital Limited Dec 2023 Half Year Report CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 Notes 31 Dec 2023 30 Jun 2023 $ $ Cash and cash equivalents Trade and other receivables Inventories Other current assets 1,228,709 4,701,281 5,806,520 149,570 1,413,914 2,997,585 4,360,641 171,568 Total current assets 11,886,080 8,943,708 Non-current assets Plant and equipment Right of use assets Intangible assets Deposits for leaseholds Deferred tax assets 1,122,955 452,669 4,395,810 1,047,417 629,409 960,574 2,334,603 66,199 687,919 Total Non-current assets 7,018,851 4,678,704 Total assets 18,904,931 13,622,412 Current liabilities Trade and other payables Lease liabilities Borrowings Deferred consideration Provision for employee entitlements Provision for income tax expense Provision for restructure and warranty 2,117,690 536,674 1,378,976 1,270,000 1,497,096 314,660 420,271 1,640,385 806,359 300,000 679,216 126,739 8,640 7,535,367 3,561,339 1,450,000 9,541 36,513 442,996 1,939,050 9,474,417 284,758 33,890 455,050 773,698 4,335,037 Net assets 9,430,514 9,287,375 Equity Contributed capital Foreign currency translation reserve Retained earnings Total equity 5,422,042 (54,372) 4,062,844 9,430,514 5,422,042 (70,110) 3,935,443 9,287,375 Current assets 4 7 Total current liabilities Non-current liabilities Borrowings Lease liabilities Provision for employee entitlements Deferred tax liability Total non-current liabilities Total Liabilities 4 The accompanying notes forms part of these Financial Statements FOS CAPITAL LIMITED | 6 FOS Capital Limited Dec 2023 Half Year Report CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the half year ended 31 December 2023 At 1 July 2023 Profit for the half year Change in foreign currency translation reserve Total comprehensive income for the half-year Transactions with owners in their capacity as owners: At 31 December 2023 For the half year ended 31 December 2022 At 1 July 2022 Profit for the half year Change in foreign currency translation reserve Total comprehensive income for the half-year Transactions with owners in their capacity as owners Issue of shares – share placement Dividend paid At 31 December 2022 Contributed equity Foreign currency translation reserve Retained earnings Total equity $ $ $ $ 5,422,042 (70,110) 3,935,443 9,287,375 - - 127,401 127,401 - 15,738 - 15,738 15,738 127,401 143,139 - - - - 5,422,042 (54,372) 4,062,844 9,430,514 Contributed equity Foreign currency translation reserve Retained earnings Total equity $ $ $ $ 4,054,389 (97,813) 3,583,033 7,539,609 - - 392,145 392,145 - 51,157 - 51,157 51,157 392,145 443,302 1,367,653 - - 1,367,653 - - (231,531) (231,531) 5,422,042 (46,656) 3,743,647 9,119,033 The accompanying notes forms part of these Financial Statements FOS CAPITAL LIMITED | 7 FOS Capital Limited Dec 2023 Half Year Report CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2023 31 Dec 2023 31 Dec 2022 $ $ Receipts from customers 9,266,407 7,071,154 Payments to suppliers and employees (9,763,004) (7,953,358) 6,850 2,221 Interest paid (84,097) (27,165) Payment of income tax (34,174) (104,935) Net cash flows used in operating activities (608,018) (1,012,083) (48,522) (111,265) - (598,240) Payment for acquisition of Klik Systems (Note 7) (2,000,000) - Net cash flows used in investing activities (2,048,522) (709,505) 2,828,976 - Proceeds from issue of shares - 1,367,653 Dividend payments - (231,531) Payment of lease liabilities (373,379) (333,636) Net cash flows from financing activities 2,455,597 802,486 Net decrease in cash and cash equivalents (200,943) (919,102) 15,738 51,157 Cash and cash equivalents at beginning of half year 1,413,914 1,890,246 Cash and cash equivalents at end of the half year 1,228,709 1,022,301 Cash flows from operating activities Interest received Cash flows from investing activities Payment for plant and equipment Payment for acquisition of Hawko Lighting Cash flows from financing activities Proceeds from borrowings Impact of exchange rates on cash and cash equivalents The accompanying notes forms part of these Financial Statements FOS CAPITAL LIMITED | 8 FOS Capital Limited Dec 2023 Half Year Report NOTES TO CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT The condensed consolidated half year financial report does not include all notes of the type normally included within the annual financial report. It is recommended that this half-year financial report be read in conjunction with the annual financial report for the year ended 30 June 2023 of FOS Capital Limited. The financial report covers FOS Capital Limited and controlled entities as a Consolidated entity. FOS Capital Limited is a company limited by shares, incorporated, and domiciled in Australia. The address of FOS Capital Limited’s registered office and principal place of business is Unit 3, 41 Rose Street, Richmond, VIC 3121. FOS Capital Limited is a for-profit entity for the purpose of preparing the financial statements. The half-year financial report was authorised for issue by the directors as at the date of signing the attached Directors’ Declaration. a. Basis of accounting This condensed consolidated half-year financial report has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reporting, as appropriate for for-profit entities, and the Corporations Act 2001. Compliance with AASB 134, as appropriate for for-profit entities, ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The condensed consolidated half-year financial report includes the consolidated results of FOS Capital Limited and its controlled entities for the half year ended 31 December 2023. The half-year financial report has been prepared in accordance with the historical cost convention, with the exception of fair values applied to the acquisition of assets and assumption of liabilities upon business acquisitions. The accounting policies applied in this half-year financial report are consistent with those of the annual financial report for the year ended 30 June 2023 and the corresponding half-year. (b) New or amended Accounting Standards and Interpretations adopted The Consolidated entity adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. There was no material impact upon these financial statements arising from their adoption. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted, however the directors also consider that none of these will have a material impact on the Consolidated entity’s existing accounting policies. FOS CAPITAL LIMITED | 9 FOS Capital Limited Dec 2023 Half Year Report NOTES TO CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (CONT’D) 2. REVENUE 31 Dec 2023 31 Dec 2022 $ $ a) Sales revenue 9,902,286 8,618,313 b) Other Income Interest received Rent received Lease settlement Other revenue 6,850 63,229 2,925 30,601 2,221 62,500 30,849 103,605 95,570 10,005,891 8,713,883 Total Revenue 3. BUSINESS RESTRUCTURE The Consolidated entity acquired the business of Klik Systems on 1 October 2023, a well-known linear lighting product brand. Post-acquisition of Klik Systems, the FOS group undertook restructuring and consolidating linear lighting product manufacturing at one location to maximize production capacity utilization, achieve cost synergy, and improve product profitability to continue manufacturing linear lighting products in Australia. Business restructuring involves closing the Hawko manufacturing facility and relocating linear product manufacturing from FOS’s Brisbane factory to the Klik Systems site in Sydney. The consolidated entity has provided $500,000 in costs for the business restructuring and consolidation of linear lighting product manufacturing operations in half year ended 31 December 2023. The Consolidated entity expects to complete the restructuring of linear lighting products manufacturing by June 2024. 4. BORROWINGS Borrowing – current (i) Borrowing – non current (ii) 31 Dec 2023 31 Dec 2022 $ 1,378,976 1,450,000 2,828,976 $ - i. The secured borrowings as at 31 December 2023 represents the net position of invoice finance facility, provided by Westpac, This borrowing incurs a base rate equal to the BBSY, a loan margin rate of 1.18% p.a. and a margin rate of 0.52% p.a. and it secured by a fixed and floating charge over FOS Capital Limited and it’s controlled entities. The invoice finance facility has limit of $2,000,000. ii. The secured borrowings as at 31 December 2023 represents the business finance facility for 3 years, provided by Westpac. This borrowing incurs an interest rate of 6.50% p.a. and it is secured by a fixed and floating charge over FOS Capital Limited and it’s controlled entities. The Business finance facility has limit of $2,000,000. FOS CAPITAL LIMITED | 10 FOS Capital Limited Dec 2023 Half Year Report NOTES TO CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (CONT’D) 5. EARNINGS PER SHARE Reconciliation of earnings used in calculating earnings per share: 31 Dec 2023 31 Dec 2022 $127,401 $392,145 Number of shares Number of shares 53,806,139 47,423,948 0.24 0.83 Profit used to calculate earnings per share Weighted average number of ordinary shares used in calculating earnings and diluted earnings per share Earnings per share (in cents) There were no contingently issuable equity instruments that could have impacted the diluted earnings per share calculation as at period end. 6. OPERATING SEGMENTS The Consolidated entity is organised into two operating segments based on geographical locations, being Australia and New Zealand. All operating segments’ operating results are regularly reviewed by the Consolidated entity’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. There were no individual customers with revenues greater than 10% of trading revenues in the Consolidated entity. Geographic Segment information for the half year ended 31 December 2023 Sales revenue Other revenue Total Revenue Net profit after tax Total assets Total liabilities Australia New Zealand Total $ $ $ 8,733,717 96,755 8,830,472 1,168,569 6,850 1,175,419 9,902,286 103,605 10,005,891 304,675 (177,273) 127,401 17,047,280 (9,389,640) 1,857,652 (84,778) 18,904,932 (9,474,418) 6,898,693 93,685 6,992,378 1,719,620 1,885 1,721,505 8,618,313 95,570 8,713,883 367,515 24,630 392,145 12,406,207 (5,315,832) 2,399,795 (329,392) 14,806,002 (5,645,224) Geographic Segment information for the half year ended 31 December 2022 Sales revenue Other revenue Total Revenue Net profit after tax Total assets Total liabilities FOS CAPITAL LIMITED | 11 FOS Capital Limited Dec 2023 Half Year Report NOTES TO CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (CONT’D) 7. ACQUISITION OF KLIK SYSTEMS On 1 October 2023 FOS Lighting Pty Ltd acquired a business of Klik Systems, established over 40 years ago and is based in Sydney, NSW. It manufactures an extensive range of commercial, industrial & architectural LED linear lighting. The values identified in relation to the acquisition of Klik Systems are provisional as at 31 December 2023, as the fair value of intangible assets are yet to be finalised. The provisional fair values of the assets and liabilities of Klik Systems as at 1 October 2023 were as follows; Provisional Fair Value $ Inventory Plant and equipment Deferred tax assets Employee liabilities Goodwill 973,772 512,820 198,670 (794,681) 2,109,419 3,000,000 Details of the purchase consideration: Cash consideration paid 2,000,000 Deferred consideration 1,000,000 3,000,000 Contribution since acquisition Since the acquisition date Klik Systems has contributed revenue of $3,023,496 and a profit before tax of $309,889 which is included within the consolidated profit. The Consolidated entity will be required to pay additional consideration up to $1,000,000 on 1 October 2024. As at 31 December 2023, deferred consideration disclosed in the Statement of Financial Position represents $1,000,000 payable to Klik Systems and $270,000 payable to the vendors of Hawko Lighting which was paid in January 2024. 8. CONTINGENT LIABILTIES With the exception of the bank guarantee issued for a value of $133,396 (June 2023: deposit paid $45,000) for leasehold tenancies, as report date the directors are unaware of any contingent liabilities or commitments that may materially impact the Consolidated entity. 9. SUBSEQUENT EVENTS There were no matters or circumstances specific to the Consolidated entity that have arisen since 31 December 2023 that have significantly affected or may significantly affect the Consolidated entity’s operations and state of affairs. FOS CAPITAL LIMITED | 12 FOS Capital Limited Dec 2023 Half Year Report DIRECTORS’ DECLARATION The directors declare that: In the directors’ opinion, the financial statements and notes thereto, as set out in the accompanying financial report are in accordance with the Corporations Act 2001, including: • complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and • giving a true and fair view of the financial position of the Consolidated entity as at 31 December 2023 and of its performance for the half-year ended on that date. In the directors’ opinion there are reasonable grounds, at the date of this declaration, to believe that FOS Capital Limited will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of directors made pursuant to section 303(5) of the Corporations Act 2001. Con Scrinis Director Date: 22 February 2024 FOS CAPITAL LIMITED | 13 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the directors of FOS Capital Limited As lead auditor for the review of FOS Capital Limited for the half-year ended 31 December 2023, I declare that, to the best of my knowledge and belief, there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and — no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of FOS Capital Limited and the entities it controlled during the period. William Buck Audit (Vic) Pty Ltd ABN 59 116 151 136 N. S. Benbow Director Melbourne, 22 February 2024 Level 20, 181 William Street, Melbourne VIC 3000 +61 3 9824 8555 William Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation. vic.info@williambuck.com williambuck.com.au Independent auditor’s review report to the members of FOS Capital Limited Report on the half-year financial report Our conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the accompanying half-year financial report of FOS Capital Limited (the Company), and its controlled entities (together, the Group) does not comply with the Corporations Act 2001, including: — giving a true and fair view of the Group’s financial position as at 31 December 2023 and of its financial performance for the half-year then ended; and — complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. What was reviewed? We have reviewed the accompanying half-year financial report of the Group, which comprises: — the consolidated statement of financial position as at 31 December 2023, — the consolidated statement of comprehensive income for the half-year then ended, — the consolidated statement of changes in equity for the half-year then ended, — the consolidated statement of cash flows for the half-year then ended, — notes to the financial statements, including a summary of material accounting policy, and — the directors’ declaration. Basis for conclusion We conducted our review in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity. Our responsibilities are further described in the Auditor’s responsibilities for the review of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the annual financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Level 20, 181 William Street, Melbourne VIC 3000 +61 3 9824 8555 William Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation. vic.info@williambuck.com williambuck.com.au Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Auditor’s responsibilities for the review of the financial report Our responsibility is to express a conclusion on the half-year financial report based on our review. ASRE 2410 requires us to conclude whether we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group’s financial position as at 31 December 2023 and its performance for the half-year ended on that date, and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. William Buck Audit (Vic) Pty Ltd ABN 59 116 151 136 N. S. Benbow Director Melbourne, 22 February 2024