MAGONTEC LIMITED — Interim / Quarterly Report 2020

Jul 30, 2020

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Suite 1.03, Level 1 46A Macleay St Potts Point NSW 2011 Australia Ph: +61 2 8084 7813 Fax: +61 2 9252 8960

31 July 2020 Company Announcements Office Australian Securities Exchange Limited 20 Bridge Street, Sydney NSW 2000

Dear Sirs,

Appendix 4C – Quarter Ended 30 June 2020

In this letter are –

• Attachment 1 – Unaudited Cash Flow Statement for the 6 months to 30 June 2020

• Attachment 2 – Unaudited Appendix 4C cash flow report for the quarter ended 30 June 2020

Attachment 1 is presented in the format that appears in the Company’s half year and annual reports and is prepared on a basis consistent with the recognition and measurement requirements of accounting standards.

Attachment 2 is presented in the format required by Paragraph 4.7B of Chapter 4 of the ASX listing rules.

Given the Company’s report for the half year ended 30 June 2020 will be released on or prior to 31 August 2020, no supplementary accounting data and Executive Chairman’s report are included in this report.

It is reiterated that all data presented in this report is unaudited.

Yours sincerely

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Nicholas Andrews, Executive Chairman of Magontec Limited has authorised the release of this document to the market on 31 July 2020.

Rounding

The data in this report may indicate apparent errors to the extent of one unit (being $1,000) in the addition of items comprising totals and sub totals and the comparative balances of items from the financial accounts. Such differences arise from the process of converting foreign currency amounts to two decimal places in AUD and subsequent rounding of the AUD amounts to one thousand dollars.

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Attachment 1

UNAUDITED STATEMENT OF CASH FLOWS

Unaudited Consolidated Cash Flow Statement
Source: Magontec Limited Consolidated Management Accounts
3 months to 3 months to 6 months to
$000 31-Mar-20 30-Jun-20 30-Jun-20
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from/ (utilised in) underlying operating activities 1,776 573 2,350
Net working capital assets
- Trade and other receivables 4,813 5,491 10,304
- Inventory (1,464) (1,089) (2,553)
- Trade and other payables 1,037 (6,779) (5,742)
- Other 41 (44) (3)
Cash generated from/ (utilised in) net working capital assets 4,427 (2,421) 2,007
Other operating activities
- Net Interest paid (182) (96) (278)
- Income tax paid (56) (166) (222)
Cash generated from/ (utilised in) other operating activities (238) (262) (500)
Net Cash generated from/ (utilised in) all operating activities 5,966 (2,109) 3,856
CASH FLOW FROM INVESTING ACTIVITIES
Net cash out on purchase/disposal of property, plant & equipment (161) (228) (389)
Group information technology (15) 12 (3)
Security deposit 71 (118) (47)
Other including leased assets - (132) (132)
Net cash provided by / (used in) investing activities (105) (466) (571)
CASH FLOW FROM FINANCING ACTIVITIES
Bank Debt (2,555) (3,087) (5,642)
Net capital raised from issue of securities - 260 260
Other - (8) (8)
Net cash provided by / (used in) financing activities (2,555) (2,834) (5,390)
Net increase / (decrease) in cash and cash equivalents 3,305 (5,410) (2,105)
Foreign exchange effects on total cash flow movement 646 (505) 142
Cash and cash equivalents at the beginning of the period 4,303 8,254 4,303
Cash and cash equivalents at the end of theperiod 8,254 2,340 2,340

Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Attachment 2

APPENDIX 4C

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Limited

QUARTERLY UNAUDITED CASH FLOW APPENDIX 4C

for the Period Ended 30 June 2020

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

Page 1

Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Appendix 4C

Quarterly cash flow report for entities subject to Listing Rule 4.7B

Name of entity

Magontec Limited

ABN

Quarter ended (“current quarter”)

51 010 441 666

30 June 2020

Consolidated statement of cash flows	Current quarter $A’000	Year to date (6 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff costs (f) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Government grants and tax incentives 1.8 Other (provide details if material) 1.9 Net cash from / (used in) operating activities	23,555 (126) (23,566) (13) - (1,745) (519) - 21 (117) (166) 567 -	59,933 (219) (49,985) (74) - (3,789) (2,188) - 34 (312) (222) 678 -
	(2,109)	3,856
2. Cash flows from investing activities 2.1 Payments to acquire: (a) entities (b) businesses (c) property, plant and equipment (d) investments (e) intellectual property (f) other non-current assets	- - (228) - - 12	- - (389) - - (3)

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter $A’000	Year to date (6 months) $A’000
2.2 Proceeds from disposal of: (a) entities (b) businesses (c) property, plant and equipment (d) investments (e) intellectual property (f) other non-current assets 2.3 Cash flows from loans to other entities 2.4 Dividends received (see note 3) 2.5 Other (provide details if material) 2.6 Net cash from / (used in) investing activities		- - - - - - - - - (250)	- - - - - - - - - (178)
		(466)	(571)
3. Cash flows from financing activities 3.1 Proceeds from issues of equity securities (excluding convertible debt securities) 3.2 Proceeds from issue of convertible debt securities 3.3 Proceeds from exercise of options 3.4 Transaction costs related to issues of equity securities or convertible debt securities 3.5 Proceeds from borrowings 3.6 Repayment of borrowings 3.7 Transaction costs related to loans and borrowings 3.8 Dividends paid 3.9 Other (provide details if material) 3.10 Net cash from / (used in) financing activities		260 - - - 3,936 (7,023) - - (8)	260 - - - 4,276 (9,918) - - (8)
		(2,834)	(5,390)
4. 4.1 4.2 4.3 4.4 4.5 4.6	Net increase / (decrease) in cash and cash equivalents for the period Cash and cash equivalents at beginning of period Net cash from / (used in) operating activities (item 1.9 above) Net cash from / (used in) investing activities (item 2.6 above) Net cash from / (used in) financing activities (item 3.10 above) Effect of movement in exchange rates on cash held Cash and cash equivalents at end of period	8,254 (2,109) (466) (2,834) (505)	4,303 3,856 (571) (5,390) 142
		2,340	2,340

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other (provide details) 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	2,340 - - -	8,254 - - -
	2,340	8,254
6. Payments to related parties of the entity and their associates 6.1 Aggregate amount of payments to related parties and their associates included in item 1 6.2 Aggregate amount of payments to related parties and their associates included in item 2
		Current quarter $A'000
		-
		-

Note: if any amounts are shown in items 6.1 or 6.2, your quarterly activity report must include a description of, and an explanation for, such payments

Explanation

During the quarter ended 30 June 2020, there were no payments for purchase of pure Mg from the Qinghai Salt Lake Magnesium Co Ltd.

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

7. Financing facilities Note: the term “facility’ includes all forms of financing arrangements available to the entity. Add notes as necessary for an understanding of the sources of finance available to the entity. Total facility amount at quarter end $A’000 Amount drawn at quarter end $A’000 7.1 Loan facilities 16,939 15,578 7.2 Credit standby arrangements 7.3 Other (please specify) 7.4 Total financing facilities 7.5 Unused financing facilities available at quarter end $ 1,360,175 7.6 Include in the box below a description of each facility above, including the lender, interest rate, maturity date and whether it is secured or unsecured. If any additional financing facilities have been entered into or are proposed to be entered into after quarter end, include a note providing details of those facilities as well.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
	16,939	15,578
		$ 1,360,175

	Borrowings facilities as at 30 June 2020
	Interest Limit Drawn Security
	Lender Maturity % $A 000 $A 000 status
	Commerzbank Germany 30-Sep-20 1.55% 11,041 9,809 Secured
	ING Romania Open 4.2% 4,714 4,711 Secured
	Total borrowings on balance sheet 15,756 14,520
	Postbank(factoring) 30-Nov-20 1.06% 1,183 1,058
	Total facilities 16,939 15,578

8. Estimated cash available for future operating activities	$A’000
8.1 Net cash from / (used in) operating activities (Item 1.9) 8.2 Cash and cash equivalents at quarter end (Item 4.6) 8.3 Unused finance facilities available at quarter end (Item 7.5) 8.4 Total available funding (Item 8.2 + Item 8.3) 8.5 Estimated quarters of funding available (Item 8.4 divided by Item 8.1)	-2,109 +2,340 +1,361 +3,701
	1.6

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

• 8.6 If Item 8.5 is less than 2 quarters, please provide answers to the following questions:

• Does the entity expect that it will continue to have the current level of net operating cash flows for the time being and, if not, why not?

Answer:

The June 2020 net operating cash of -$2.1m outflow included a -$2.4m outflow from changes in working capital. Excluding the change in working capital gives a net cash operating inflow of +$311k.

For Magontec, working capital is relatively high ($30 million+) compared with sales and earnings, and our customer base is highly concentrated. Although movements in working capital will impact the headline operating cash number, this is generally a reflection of timing differences rather than underlying cash generated from earnings.

It is expected that the company will continue to generate positive net operating cash flows (excluding working capital changes) for the remainder of the year assuming no unforeseen developments.

1. Has the entity taken any steps, or does it propose to take any steps, to raise further cash to fund its operations and, if so, what are those steps and how likely does it believe that they will be successful?

Answer:

The company is expected to finalise a new banking facility in China shortly to replace the Bank of Communications loan of RMB 20 million that was repaid in April 2020.

In addition, the PRC business had notes receivable of RMB 14.4 million (~A$2.9 million) contained within its debtors account, which can be redeemed for cash at a small discount should the need arise.

1. Does the entity expect to be able to continue its operations and to meet its business objectives and, if so, on what basis?

Answer:

Yes. As explained above:

• The June 2020 quarter headline operating cash outflow of -$2.1 million was impacted by working capital changes of -$2.4 million which are only a reflection of timing differences. Excluding this net operating cash was +$311k.

• In addition to $1.36 million of headroom under our existing EU facilities, the China business has access to ~A$2.9 million of notes receivable (redeemable at a discount immediately) as well as an expected bank facility renewal of the RMB 20 million facility (~$4 million) anticipated to be finalised shortly.

• See Chapter 19 for defined terms Quarterly report for 30 June 2020

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Date: 31 July 2020

Authorised by: Nicholas Andrews, Executive Chairman

(Name of body or officer authorising release – see note 4)

Notes

1. This quarterly cash flow report and the accompanying activity report provide a basis for informing the market about the entity’s activities for the past quarter, how they have been financed and the effect this has had on its cash position. An entity that wishes to disclose additional information over and above the minimum required under the Listing Rules is encouraged to do so.

2. If this quarterly cash flow report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash flow report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. If this report has been authorised for release to the market by your board of directors, you can insert here: “By the board”. If it has been authorised for release to the market by a committee of your board of directors, you can insert here: “By the [ name of board committee – eg Audit and Risk Committee ]”. If it has been authorised for release to the market by a disclosure committee, you can insert here: “By the Disclosure Committee”.

5. If this report has been authorised for release to the market by your board of directors and you wish to hold yourself out as complying with recommendation 4.2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations , the board should have received a declaration from its CEO and CFO that, in their opinion, the financial records of the entity have been properly maintained, that this report complies with the appropriate accounting standards and gives a true and fair view of the cash flows of the entity, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

6. See Chapter 19 for defined terms Quarterly report for 30 June 2020

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