DXN LIMITED — Annual Report 2021

Aug 24, 2021

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Appendix 4E

Preliminary Final Report period ending 30 June 2021

Results for announcement to the market

Financial Results			June 2021	June 2020
Revenue from ordinary activities	Up	58%	8,202,707	5,188,280
Comprehensive Profit / (Loss) from ordinary activities after tax attributable to members	Up	62%	(4,812,631)	(12,590,529)

Dividends	2021 Final Dividend	2020 Final Dividend
Amount per Ordinary Security	nil	nil
Franked amount per Security	N/A	N/A
Record date for determining entitlements to final dividend	N/A

Net Tangible Asset Backing	June 2021	June 2020
Net tangible asset backing per ordinary security	0.86 cents	1.25 cents

DXN LIMITED and its controlled entities

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COMMENTARY

The 2021 year continued to show revenue growth across the business alongside significant cost reduction. Revenue from ordinary activities increased by 58% from $5.2m in 2020 to $8.2m in 2021, propelled by an increase in both the modular business and colocation revenues.

Colocation revenue increased by $1m due to TAS01 our Tasmania data centre performing to plan. Colocation sales in SYD01 our Sydney Data Centre continue to be slow but our sales strategy implemented in September 2020 has seen an increase in Telco connectivity to the site with 5GN and Fibreconnex installing racks and fibre services.

The DXN Modules manufacturing strategic focus on subsea cables, the resources sector and EDGE data centre opportunities has seen revenue increase 42% to $7.2m. During the year a significant cable landing station contract was awarded with SUB.CO, as well as modular data centre sales in the mining sector with contracts awarded by Newcrest Mining, Streamline Connect and Covalent Lithium as well as Boeing Defence. The pipeline of new business opportunities in our key markets continues to be strong and this is expected to support sales into FY22.

Operating costs have been a strong focus for the company throughout FY21. The restructuring of the organisation throughout FY21 has resulted in a reduction of operating costs (employee expenses, lease amortisation, travel and telecommunications expenses) of $2.3m when compared to FY20. Gross margin has remained stable with a slight increase from 27% in FY 20 to 29% in FY21.

Depreciation has increased over prior year by $2.5m as a direct result of the change in accounting estimates relating to the DC Module assets when compared to FY20. The board has decided to accelerate the depreciation on the SYD01 asset to reflect a change in the market demand or service output of this asset.

DXN's liability to pay rent for the Melbourne data centre is the subject of a dispute. There are currently legal proceedings on foot between the landlord of the Lorimer St property and DXN in which the landlord is claiming unpaid rent since April 2021. DXN has brought a claim alleging that the landlord repudiated the lease, the lease has been terminated and DXN has no ongoing liability to pay rent. In addition, DXN has sued the landlord for loss and damage arising as a result of alleged breaches of the lease by the landlord. Rent has been characterised as a contingent liability pending determination or resolution of the dispute. A $3.3m lease liability write off has been recorded in the 2021 Financial Statements.

The loss before income tax expense for FY21 is $4.8m. FY20 the result was a $12.5m loss, resulting in a 62% improvement.

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021

Continuing operations Sales to customers Cost of Sales Gross Profit Revenue R&D tax incentive claim Export marketing development grant Government Covid support Other income Lease Liability reversed Interest received Foreign exchange gain Expenses Acquisition expenses Administration expenses Amortisation – intangibles Compliance and legal expenses Consultants and contractors Depreciation Employee expenses Finance expenses Foreign exchange loss Impairment on right of use assets Impairment of trade receivables Impairment of Inventory Lease amortisation Lease interest charge Loss on sale of plant & equipment Marketing expenses Occupancy expenses Telecommunication and technology expenses Travel Expenses Loss before income tax expense Income tax expense Total comprehensive income/ (loss) for the period Basic earnings per share (cents per share)	Note	CONSOLIDATED CONSOLIDATED 2021 $ 2020 $
	5 (ii)	8,202,707 5,188,280 (5,787,131) (3,787,169)
		2,415,576 1,401,111
		725,766 918,157 100,000 87,774 291,000 245,000 187,048 9,391 3,302,433 - 10,422 64,935 - 79,190
		4,616,669 1,404,447
		(54,487) (28,808) (370,320) (422,820) (487,328) (77,550) (365,217) (205,400) (160,486) (559,665) (4,121,271) (1,590,639) (3,670,467) (5,401,590) (203,495) (180,435) (92,142) - - (3,743,255) (167,570) (36,428) (136,006) - (599,555) (1,197,751) (295,482) (217,849) (1,169) (1,548) (1,942) (241,801) (993,353) (966,801) (101,461) (208,455) (23,125) (315,292)
		(11,844,876) (15,396,087)
		(4,812,631) (12,590,529) - -
		(4,812,631) (12,590,529)
		(0.45) (2.57)

The accompanying notes form part of the Statement of Comprehensive Income

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021

ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other assets Non Current Assets held for sale Inventory / Work in Progress Total Current Assets Non-Current Assets Bank Guarantees Plant and equipment Intangible assets Lease right of use assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Income in advance Borrowings Provisions Lease liabilities Total Current Liabilities Non-current Liabilities Borrowings Lease liabilities Total Non-current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Option reserve Share based payments reserve Accumulated losses TOTAL EQUITY	Note	CONSOLIDATED CONSOLIDATED 2021 2020 $ $
	2 2 3 4 5 6 7 8 5 8 5	1,663,955 3,592,472 666,152 389,726 124,854 511,409 544,011 - 1,231,781 1,204,672
		4,230,753 5,698,279
		1,028,917 3,087,841 8,701,703 13,139,787 1,502,016 1,734,707 8,407,598 8,180,752
		19,640,234 26,143,087
		23,870,987 31,841,366
		2,153,523 785,512 387,556 734,573 1,027,255 872,920 181,290 143,162 625,417 1,104,312
		4,375,041 3,640,479
		605,011 2,486,586 7,882,462 10,790,503
		8,487,473 13,277,089
		12,862,514 16,917,568
		11,008,473 14,923,798
		40,345,107 39,604,052 310,302 310,302 866,654 710,403 (30,513,590) (25,700,959)
		11,008,473 14,923,798

The accompanying notes form part of the Statement of Financial Position

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT STATEMENT OF CHANGES IN EQUITY AS AT 30 JUNE 2021

Balance at 1 July 2019 Total comprehensive income for the period: Loss for the period Transaction with owners in their capacity as owners: Issue of shares Capital raising costs Capital raising costs-share based payments Share-based payment expense Reclass to equity Balance at 30 June 2020 Balance at 1 July 2020 Total comprehensive income for the period: Loss for the period Transaction with owners in their capacity as owners: Issue of shares Capital raising costs Share-based payment expense Reclass to equity Balance at 30 June 2021	Issued Capital Option Reserve Share Payments Reserve Accumulated Losses Total 29,662,628 310,302 11,621 (13,110,430) 16,874,121
	- - - (12,590,529) (12,590,529)
	- - - (12,590,529) (12,590,529)
	10,903,046 - - - 10,903,046 (867,532) - - - (867,532) (437,604) - 437,604 - - - 604,692 - 604,692 343,514 - (343,514) - -
	39,604,052 310,302 710,403 (25,700,959) 14,923,798
	39,604,052 310,302 710,403 (25,700,959) 14,923,798
	- - - (4,812,631) (4,812,631)
	- - - (4,812,631) (4,812,631)
	732,859 - - - 732,859 (19,519) - - - (19,519) - - 183,966 - 183,966 27,715 - (27,715) - -
	40,345,107 310,302 866,654 (30,513,590) 11,008,473

The accompanying notes form part of the Statements of Changes in Equity

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021

Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid R&D tax incentive claim Government grants Payment of deposit Receipt of deposit Net cash flows provided by (used in) operating activities Cash flows from investing activities Refund / (Payment) of deposits and guarantees Purchase of plant and equipment Purchase of intangible assets Acquisition of the assets from Data Centre 3 Net cash flows provided by (used in) investing activities Cash flows from financing activities Proceeds from convertible notes Proceeds from the issue of shares and options Payment of capital raising costs Finance facility drawdown Repayment of finance facility Loans made to employee Repayment of loans made to employees Net cash flows provided by (used in) financing activities Net increase / (decrease) in cash held Effect of movement in exchange rates on cash held Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the period	Consolidated Consolidated 2021 2020 $ $ 7,363,041 5,350,036 (11,056,801) (12,526,572) 19,141 108,790 (70,520) (150,748) 725,766 918,157 454,000 269,774 - - - -
	(2,565,373) (6,030,563)
	2,058,925 (12,821) (140,112) (3,281,314) (39,036) (157,201) - (2,700,000)
	1,879,777 (6,151,336)
	- 1,000,000 732,860 9,903,285 (19,520) (867,772) 1,179,429 1,315,885 (3,037,522) (944,287) - - - 5,125
	(1,144,753) 10,412,236
	(1,830,349) (1,769,663) (98,168) -
	3,592,472 5,362,135
	1,663,955 3,592,472

The accompanying notes form part of the Statement of Cash Flows

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

1. SEGMENT INFORMATION

An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the Group’s Chief Operating Decision Maker (CODM) in order to effectively allocate Group resources and assess performance.

The group has identified its operating segments based on internal reports that are reviewed and used by the Chief Executive Officer (CEO) in the capacity of CODM. Two operating segments have been identified:

• Data Centre Manufacturing

• Data Centre Operations

Year ended 30 June 2021 Revenue from external customers Other Income Total Revenue Profit / (loss) before income tax expense Total segment assets Total segment liabilities Year ended 30 June 2020 Revenue from external customers Other Income Total Revenue Profit / (loss) before income tax expense Total segment assets Total segment liabilities	Data Centre Manufacturing Data Centre Operations Other (Corporate) Total 7,218,506 984,201 - 8,202,707 - 43,696 4,572,973 4,616,669
	7,218,506 1,027,897 4,572,973 12,819,376
	849,864 (5,166,389) (496,106) (4,812,631)
	2,639,828 18,463,810 2,767,349 23,870,987
	1,781,997 9,631,800 1,448,717 12,862,514
	Data Centre Manufacturing Data Centre Operations Other (Corporate) Total 5,070,234 118,046 - 5,188,280 - - 1,404,447 1,404,447
	5,070,234 118,046 1,404,447 6,592,727
	(136,148) (3,610,734) (8,843,647) (12,590,529)
	1,863,085 20,490,935 9,487,346 31,841,366
	1,010,593 11,496,961 4,410,014 16,917,568

The revenue reported above represents revenue generated from external customers. There were no intersegment sales during the period. 100% of the Group’s revenue from external customers is recognised over time.

The accounting policies of the reportable segments are the same as the Group’s accounting policies.

Segment profit represents the profit earned by each segment without allocation of the share of central administration costs including directors’ salaries, finance income, non-operating gains and losses in respect of financial instruments and finance costs, and income tax expense. This is the measure reported to the Group’s Managing Director for the purpose of resource allocation and assessment of segment performance.

Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments.

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

Major customers

The Group has a number of customers to which it provides services and products. The Group supplies 2 single external customers in the Data Centre Manufacturing segment which accounts for 25% and 22% of external revenue (2020: 21%, 18%, 15%). The next most significant customer accounts for 10% (2020:14%) of external revenue. Within the Data Centre Operations segment, The Group supplies 1 single external customers which accounts for 92% of external revenue (2020: 86%).

	Consolidated	Consolidated
2(a) INVENTORIES	2021	2020
	$	$
Materials and consumables	660,956	963,376
Work in progress - Customers1(Contract asset)	570,825	241,296
	1,231,781	1,204,672
1 Relates to external customers
2(b) NON-CURRENT ASSETS HELD FOR SALE
Non Current Assets held for sale	544,011	-
	544,011	-
	Consolidated	Consolidated
3. BANK GUARANTEES	2021	2020
	$	$
9 Mumford Place, Balcatta WA1	-	76,000
5 Parkview Drive, Olympic Park, Sydney NSW1	495,000	507,128
286-292 Lorimer Street, Port Melbourne, Victoria1	500,000	504,713
3 Dampier Road, Welshpool, WA1	33,917	-
ANZ Chattel Finance Facility2	-	2,000,000
	1,028,917	3,087,841

1 Relates to term deposits given to secure bank guarantees over leased premises. The bank guarantees are restricted cash.

2 The term deposit is restricted cash and is provided as security for the ANZ Chattel Finance Facility per note 8.

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

4. PLANT AND EQUIPMENT Plant and Equipment At cost Accumulated depreciation DC Modules At cost Accumulated depreciation ICT Hardware At cost Accumulated depreciation Office Equipment At cost Accumulated depreciation Motor Vehicles At cost Accumulated depreciation Leasehold Improvements At cost Accumulated depreciation Assets Under Construction At cost Accumulated depreciation Total cost Total accumulated depreciation Total Written Down Value	Consolidated Consolidated 2021 2020 $ $ 260,685 2,896,793 (116,195) (464,102)
	144,490 2,432,691
	11,227,465 9,297,085 (4,608,445) (1,114,648)
	6,619,020 8,182,437
	340,736 376,629 (259,378) (139,543)
	81,358 237,086
	61,126 86,104 (37,678) (37,030)
	23,448 49,074
	26,016 26,016 (8,780) (5,528)
	17,236 20,488
	2,285,853 2,292,567 (469,702) (91,436)
	1,816,151 2,201,131
	- 16,880 - -
	- 16,880
	14,201,881 14,992,074 (5,500,178) (1,852,287)
	8,701,703 13,139,787

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

5. RIGHT-OF-USE ASSETS / LEASE LIABILITIES

i. Right-of-use-assets Land & Buildings Balance at 1 July 2020 Depreciation expense Tas01 Right of Use Balance at 30 June 2021	2021 $ 8,180,752 (599,555) 826,401
	8,407,598

ii. Lease liabilities

The measurement principles of AASB 16 are only applied from 1 July 2019. At the date of initial application, the right-of-use assets equals to the lease liabilities and there was no adjustment to the retained earnings. The lease liabilities are presented below:

Balance at 1 July 2020 Payments Melbourne Lease Liability reversal Tas01 Lease Liability Interest charges during period Balance at 30 June 2021 Lease liability recognised as at 30 June 2021 Of which are: Current lease liabilities Non-current lease liabilities	11,894,815 (1,206,386) (3,302,433) 826,401 295,482
	8,507,879
	625,417 7,882,462
	8,507,879

6. TRADE & OTHER PAYABLES Trade Creditors1 Other creditors & accruals2 GST Payable Payroll liabilities	Consolidated Consolidated 2021 2020 $ $ 1,354,906 467,556 271,601 151,050 102,614 - 424,402 166,906
	2,153,523 785,512

Terms and conditions relating to the above financial instruments.

• 1 Trade creditors are non-interest bearing and generally on 30 day terms.

• 2 Other creditors are non-interest bearing have no fixed repayment terms..

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

7. INCOME IN ADVANCE Income in advance	Consolidated Consolidated 2021 2020 $ $ 387,555 734,573
	387,555 734,573

The above balance relates to amounts received in advance from external customers for the custom-built DXN data centre and cable landing station modules

8. BORROWINGS Current Chattel mortgage1 Export Finance Loan2 Insurance premium funding Less: unexpired charges Non-Current Chattel mortgage1 Less: unexpired charges	Consolidated Consolidated 2021 2020 $ $ 366,145 949,296 639,364 - 54,765 55,026 (33,018) (131,402)
	1,027,256 872,920
	628,384 2,615,697 (23,373) (129,111)
	605,011 2,486,586

1 An initial $5 million secured Chattel Finance Facility (revolving) with ANZ Bank to finance generators, chillers and battery/power supply equipment. Facility has been reduced to $971,000 at 30 June 2021

2 A $500,000 loan facility was drawndown with Export Finance in October 2021 with $136,363 remaining to be repaid. A second loan facility of $503,000 was drawndown with Export Finance in June 2021. Repayments will start in Oct 2021 with the last money owing to be paid in December 2021.

DXN LIMITED and its controlled entities

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PRELIMINARY FINAL REPORT NOTES TO AND FORMING PART OF PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2021

9. ASSOCIATE

Ni

10. INVESTMENT

Nil

11. SIGNIFICANT EVENTS

Nil

12. EVENTS AFTER THE BALANCE SHEET DATE

Nil

13. CONTINGENT ASSETS & LIABILITIES

DXN's liability to pay rent on the Melbourne datacentre is the subject of a dispute. There are currently legal proceedings on foot between the landlord of the Lorimer St property and DXN in which the landlord is claiming unpaid rent since April 2021. DXN has brought a claim alleging that the landlord repudiated the lease, the lease has been terminated and DXN has no ongoing liability to pay rent. In addition, DXN has sued the landlord for loss and damage arising as a result of alleged breaches of the lease by the landlord. Rent has been characterised as a contingent liability pending determination or resolution of the dispute.

14. BASIS FOR PREPARATION

This preliminary final report has been prepared in accordance with ASX listing rule 4.3A and the disclosure requirements of ASX Appendix 4E. The accounting policies adopted in the preparation of the preliminary final report are consistent with those adopted in the preparation of the annual financial report.

15. UNAUDITED APPENDIX 4E

This report is in the process of being audited.

At the date of this report, the Directors are not aware of any matter that will result in a qualification of the audit report.

DXN LIMITED and its controlled entities

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