Announcement PDF Spectur Limited Appendix 4E Preliminary Financial Report - For the year ended 30 June 2023 (Previous corresponding period: Year ended 30 June 2022) Results for announcement to the market Spectur Limited Year ended 30 June 2023 $ Year ended 30 June 2022 $ % Change Revenue from ordinary activities 7,367,578 5,828,024 26% Loss from ordinary activities after tax (2,923,065) (1,908,779) (53)% Net Loss for the period attributable to shareholders (2,923,065) (1,908,779) (53)% Adjusted EBITDA from continuing operations Note 1 (1,610,019) (1,485,342) (8)% Note 1 Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortization and share-based payments. This is an unaudited non- IFRS measure. Commentary on the results for the year can be found in the Review of Operations and Activities of the accompanying Preliminary Final Report on pages 2 to 7. Commentary on the above figures is included in the attached Preliminary Final Report for the year ended 30 June 2023. 1. Statement of Profit and Loss and other comprehensive income 2. Statement of financial position 3. Statement of cash flows 4. Statement of changes in equity / retained earnings 5. Dividend payments 6. Dividend reinvestment plans Refer to attached Preliminary Final Report page 8. Refer to attached Preliminary Final Report page 9. Refer to attached Preliminary Final Report page 11. Refer to attached Preliminary Final Report page 10. Refer to attached Preliminary Final Report. The Company does not propose to pay any dividends in the current year. The Company does not have a dividend reinvestment plan. This Appendix 4E Annual Report is provided to the ASX under Listing Rule 4.3 and should be read in conjunction with the accompanying Preliminary Annual Financial Report for the year ended 30 June 2023. 7. Net tangible assets per security Net Tangible Assets per ordinary share 8. Current Year (30 June 2023) 0.30 cents Previous Corresponding Year (30 June 2022) 0.26 cents Details of entities over which control has been gained or lost Spectur Limited acquired 100% of the share capital of Three Crowns Technologies Pty Ltd on 17 February 2023. On 17 March 2023 Spectur Limited acquired 49% of the share capital in Spectur New Zealand Limited, adding to the 51% held previously, bringing the total shareholding to 100%. Refer to the review of operations and activities and business combinations in the attached Preliminary Final Report page 5 and 20. 9. Details of Associates and joint ventures 10. Other significant information 11. Foreign entities – Accounting Standards 12. Results for the period 13. Not applicable Not applicable Not applicable. Refer to the review of operations and activities in the attached Preliminary Final Report page 2. Status of audit The Preliminary Final Report is based on financial statements that are in the process of being audited. This Appendix 4E Annual Report is provided to the ASX under Listing Rule 4.3 and should be read in conjunction with the accompanying Preliminary Annual Financial Report for the year ended 30 June 2023. Spectur Limited ACN 140 151 579 Preliminary Final Report 30 June 2023 Content Principal Activities 2 Operating and Financial Review 2 Consolidated Statement of Profit or Loss and other Comprehensive Income 8 Consolidated Statement of Financial Position 9 Consolidated Statement of Changes in Equity 10 Statement of Cash Flows 11 Basis of Preparation 12 Other Notes to the Financial Statements 13 Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 1 of 20 Review of Operations and Activities For the year ended 30 June 2023 Spectur Limited is pleased to announce its preliminary financial results for the year ended 30 June 2023. Principal Activities The principal activities of the Company during the year were providing security, safety, environmental monitoring and visual AI solutions that contribute to making communities safer, smarter and more sustainable. Spectur develops, manufactures and sells solar-powered and remotely connected hardware, and writes firmware, software, cloud and web apps that enable solutions to be delivered reliably and securely to customers. An in-house customer service team provides warehousing, installation, repair and maintenance services to Spectur customers and resellers. The Company also provides a selection of 3rd party hardware and software to supplement the in-house capabilities. Operating and Financial Review Overall Performance FY23 was a year characterised by organic as well as acquisitive growth. The year began with capital raisings intended to underpin investments that would form the foundation for ongoing profitable growth, including development of our Global Modular Platform and expansion into South Australia. These investments were effectively deployed, including a highly strategic acquisition, positioning the Company well for FY24 and beyond. Spectur largely renewed the hardware and core elements of its cloud technology stacks, ready for scaling. Sales and revenue also grew substantially in the government and reseller sectors per focussed marketing and outbound sales. The final quarter of the year included a strategic placement to existing shareholders and a renegotiation of the EGP debt facility, reducing the outstanding debt to $650k and extending the term until 31 December 2024. The Company is well placed for FY24, following a Q4 FY23 of consolidated operating cash usage of only $6k. The ongoing growth in the sales pipeline into FY24 is consistent with the agreed strategic frameworks. It is expected that the investments of FY23 (and earlier years) will be realised in FY24 and beyond as the Company executes its “profitable growth” strategy. Market Conditions FY23 was a year where economic conditions were dominated by rising inflation and associated interest rates. Spectur’s focus on government and utilities clients benefited the Company via increased government and utilities spending, whilst our reduced exposure to the residential building market insulated the Company from material margin erosion and increasing competitive pressures. Other notable events were the ongoing conflict between Russia and Ukraine, general acceptance of COVID-19 in the community and the re-opening of Australia to international travellers. The latter item has led to some increase in the available workforce, but workers in key areas remain in short supply whilst pressure on housing availability only continues, offsetting the interest rate impacts. Through productivity improvements, Spectur has been able to offset some inflationary pressures, and ongoing price review, engineering work and careful component selection has enabled us to mitigate recent supply chain cost increases. H2 FY23 was also characterised by the “arrival” of generative AI to the public, most notably Chat-GPT and similar technologies. This has increased the awareness of the potential and opportunities associated with AI in the broader community, creating growth in that sector and adjacent sectors. Spectur has seen increased opportunities in partnering or supplying the AI community as it seeks to extend further into the “unwired” environment. The rush towards implementing AI is expected to continue as the technology evolves at an ever-increasing rate. Spectur seeks to partner with AI companies either as a platform for their end customers or as a provider of AI for Spectur customers. It is expected that this element of the business will grow with these strong market tailwinds. FY24 is expected to bring a peak in interest rates and inflation, with some likely reductions in rates later in the financial year, potentially alongside recessions in the USA and other countries. Increasing unemployment is already being felt in Australian markets, which will likely flow into crime statistics and demand for security solutions. Spectur continues to push hard into the provision of security solutions direct to business and government customers, and increasingly to resellers or other security providers in the market. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 2 of 20 Review of Operations and Activities For the year ended 30 June 2023 Material Acquisitions On 17 February 2023, Spectur acquired 3 Crowns Technologies Pty Ltd (3CT) for $876k (including subsequent minor adjustment) comprising of $250k of Spectur shares and $626k of cash. 3CT aligns well with Spectur's focus areas, serving essential sectors such as state and local government and emergency services. 3CT provides a broad range of practical solutions, from smart city applications and coastal monitoring to analytics and disaster management. Its versatile platform can integrate sensor and video data with AI and analytics, delivering useful real-time insights or reports via a customizable web dashboard. On 17 March 2023, Spectur acquired the remaining 49% share of Spectur New Zealand Limited (SNZ) from Deus Ex Limited for $58k (AUD), also extinguishing any remaining debts between Deus Ex Limited and SNZ. The original Joint Venture (JV) was established in FY21 and was an exceptional low risk / low cost learning platform for other international markets. The JV enabled Spectur to establish and build the business at a time when international travel was not possible, leveraging local New Zealand contacts and knowledge. Through FY23, Spectur progressively assumed control of key functions to deliver a more consistent and repeatable customer experience, and now through full acquisition will benefit from more efficient decision making and associated capital allocation. Revenue from Operations For FY23 Spectur reported consolidated revenue of $7.368 million, up 26% on FY22 of $5.828 million and up 40% on FY21 of $5.249 million. Spectur Limited revenue (pre-consolidation) was $6.900m, up 18% on FY22 of $5.828 million and up 31% on FY21 of $5.249 million. Noting that the consolidated revenue only included 4.4 months of 3CT and 3.5 months of SNZ, it is expected that underlying growth across all entities, consolidated for a full year, will result in increased revenues in FY24 and beyond. Comparing FY23 in more detail with FY22 provides additional insights to the trends across the four key revenue streams within Spectur and recent acquisitions: Revenue System Sales Field Services Subscriptions Rentals 3CT SNZ Total FY23 $’000 2,086 850 1,644 2,308 (From 17 February 2023) 442 (From 17 March 2023) 38 7,368 FY22 $’000 1,757 742 1,397 1,932 5,828 % Increase 19% 15% 18% 19% 26% Several larger contracts expected to be awarded in H2 FY23 were deferred and only a small portion of the expected revenues from the Optus contract expansion was realised, leading to a softer half of revenue following the 26% organic growth noted in H1 FY23. Strong growth in subscriptions within Spectur Limited, noting the extensive base that existed in FY22, was due to higher average value subscription contracts as well as overall increases in the numbers of systems that are subscribed. Currently there are more than 2,300 Spectur systems active, with nearly 3,000 cameras deployed. For some of our advanced, Company-owned systems, up to 5 different applications are running on one platform with 3 different customers subscribing to data and applications. The charts above show the ongoing strong growth of Spectur’s recurring revenue streams (Rentals and Subscription) and the impact of the recent 3CT acquisition in particular (3CT and SNZ combined shown as a hashed extension on the FY2023 Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 3 of 20 Review of Operations and Activities For the year ended 30 June 2023 bars). It is notable that the full year revenues for 3CT were run rating at more than $1.2m/year for the portion of the financial year they were owned by Spectur. Rental revenue growth rates exceeded unit deployment rates as the proportion of more advanced multi-camera systems displaced earlier, simpler models in the rental fleet. As Spectur increasingly focuses towards government, utility, institutional and reseller customers, the growth rate in the direct-to-customer rental business (mainly construction) is expected to be less than the overall business growth rate. Full year subscription revenue for Spectur Limited, which included AI services, data plans, storage, server access and monitoring services, was $1.644m. Full year rental revenue for Spectur Limited was $2.308m. The recurring revenue contribution from the 3CT and SNZ acquisitions was $454k for the part year leading to a consolidated full year annual recurring revenue (ARR) of $4.406m. The run rate of ARR, based on Q4 FY23 results, was over $5.3m per annum. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 4 of 20 Review of Operations and Activities For the year ended 30 June 2023 Sales performance FY23 was characterised by steady broad-based growth in sales rather than singular material contracts. Even the large contract extension from Optus in Q3 FY23 only had a minor impact on revenues for FY23, with most of the revenue now expected in FY24. The nature of the Spectur sales pipeline has shifted with an increasing number of larger opportunities with government, utility, reseller and institutional type customers. Construction opportunities have moved to be more dominated by larger construction alliances for major projects compared with smaller rental contracts with individual builders. This is increasing the average size of contracts and value of customers, improving the ability of the sales team to deliver increasing sales without having to increase at a parallel rate. In many cases, customers are growing in an incremental fashion with multiple (in some cases monthly) orders of systems rather than singular large buying processes. FY24 is expected to bring a continuation and extension of the current strategic focus. Increasing shift in volumes to resellers, with the security, hire and AI industries being core targets, will be key to increasing the ratio of revenue to sales costs. FY23 investments in product development, sales expertise and establishing our presence on strategic panel contracts will also position Spectur to be more active and successful in state and government tenders. Expansion of our marketing team in Q2 FY24 is expected to further leverage and improve the performance of our sales and marketing group, and the top line. Cost performance Gross margin percentages improved substantially in Spectur Limited from 55% to 58%. Consolidated gross margin percentages improved from 55% to 56%, noting lower gross margin percentages in SNZ and 3CT. The Spectur NZ business model was impacted primarily by scaling issues and some challenges with maintaining and supporting equipment from Australia. The Company has learned substantially from this multi-year experiment, with ongoing improvements expected into FY24. The 3CT business model is somewhat different to Spectur, almost exclusively (at this time) being based on recurring revenue. Hardware, software, 3rd party costs and much of the labour within the organisation is in the direct costs of the business associated with subscriptions, with only a small residual element of overheads. Fortunately, many of these costs are relatively fixed (up to certain volumes of services) allowing margin improvement to occur with increasing volume. Gross margin percentages 3CT Spectur NZ Spectur Ltd Equipment sales Spectur Ltd Field services Spectur Ltd Equipment rentals Spectur Ltd Subscriptions Consolidated GM % FY23 $’000 30% 18% 47% 24% 83% 55% 56% FY22 $’000 42% 12% 78% 62% 55% % Increase NA NA 14% 107% 6% -12% 3% Within Spectur Ltd, supply chain pressures on componentry, which were exacerbated by earlier hardware designs with limited optionality, had led to some gross margin erosion in FY22 and at the beginning of FY23. This substantially improved as the year progressed with the introduction of the STA6s model upgrade. It is expected that this will continue in FY24 with the new STA-Power, HD6 and STA7 models replacing prior hardware. Field services margins improved progressively and into FY24 as simpler technology, that is easier to install and more reliable, began to displace earlier technology. These ongoing improvements are also making it easier for resellers and end customers to self-install. Rental business margin improvements were substantially linked to extended life of the rental fleet. The rental fleet, which has a harder life than most owner-operated systems, was originally estimated to be 3 years. Spectur platforms have demonstrated extraordinary resilience and the rental fleet in some cases is up to 5 years old, improving returns on the original asset costs. Resellers who are seeking to hire Spectur systems in most cases can also return substantial gross margins for highly utilised platforms. Subscription margins declined in response to growing costs associated with cloud AI hosting and data. Changes in the cloud infrastructure made during the year along with a shift in data providers has led to improvements in margin in FY23 Q4, that are expected to continue to improve through to Q4 of FY24 as they are deployed. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 5 of 20 Review of Operations and Activities For the year ended 30 June 2023 Overall gross margins (in dollar terms) increased across all Spectur Limited revenue streams without the benefit of acquired margin. As expected and budgeted, Spectur overhead costs increased in FY23 as substantial investments were made in technology, systems, sales and marketing to underpin the next phase of growth. Most of these strategic objectives were achieved in FY23, with the final phases of ERP deployment still to be completed and the STA7 to be deployed later in H1 FY24. These investments allow Spectur to now focus on execution and shifting to more profitable growth, underpinned by growing top line, gross margins and reduced overhead spend. Adjusted and consolidated EBITDA declined by 9% to a $1.61m loss for FY23 compared to $1.48m loss for FY22. (Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, and share-based payments). Consolidated Expenses (unadjusted) Finance charges Employee and Admin Share-based payments Other expenses Total FY23 $’000 127 5,530 530 1,208 7,395 FY22 $’000 87 4,433 124 828 5,472 % Increase 45% 25% 326% 46% 35% Finance charges increased in FY23 in response to carrying a larger level of debt ($1.1m) for most of FY23, with the reduction to $650k occurring later in Q4 FY23. Employee benefits now include additional six employees from acquisitions in addition to organic staff growth in engineering and sales. There were also substantial legal and restructuring costs associated with acquisitions that occurred in FY23 and are considered “one-off”. Share-based payments (non-cash) have increased as the business continues to track towards agreed Service Rights and goals set in the Employee Securities Incentive Plan (to be assessed following FY24 and FY25. Other expenses include the impairment (non-cash) of $435k of goodwill (all goodwill) from both the 3CT and SNZ acquisitions. As the operations of both businesses are assimilated into the Spectur business, and increasing crossover occurs in both sales and costs, it will become increasingly difficult to distinguish the margins being generated by these acquisitions. Accordingly, the Board has taken a conservative approach in deciding to fully impair the goodwill arising from both acquisitions. It is noted that this approach also removes the requirements for future ongoing assessments and valuations of goodwill for carrying value purposes. Debt facility utilised Spectur obtained a $1.5m debt facility from our largest shareholder EGP Capital, in H2, FY21. In Q1 FY23 Spectur renegotiated the facility to a reduced cap of $1.1m, which was the amount drawn at the time, as it was determined no more debt funding would be required. In Q4 FY23 Spectur undertook a placement of $500k to substantially reduce the debt to $650k and extended the term on the balance of the debt to December 2024. Technology advances FY23 brought large changes to the technology stack at Spectur. These changes were intended to prepare the Company for scale-improving key features such as reliability, cost, modularity, production efficiency, ease of shipping, installation and use, user experience and more. In the hardware stack, Spectur introduced a new product range with “STA-Power”, a fully integrated solar-battery power supply system that can be easily installed by a single person, with a van or light utility vehicle and no need for cranes or working at heights. This system was designed to be part of a modular suite of power solutions for Spectur platforms and 3rd party technology allowing mixing and matching to suit different uses, geographies and power needs. It has been well received in the market and has opened a new revenue stream in providing power technology (and associated services) for other technology customers. The HD5 camera system, optimised over many years to be the workhorse, backbone product of Spectur solutions, ended production in Q4 FY23. Remaining final systems are being sold and deployed, with the new HD6 system designed, tested, built and being deployed to Spectur outlets in advance of a Q1 FY24 launch. This new system builds on the lessons learned from HD5 and STA6 models, bringing improved modularity, edge AI, 4K video, 2-way communications and other features that were not previously available on HD5 models. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 6 of 20 Review of Operations and Activities For the year ended 30 June 2023 The STA6-240X model was developed and introduced late in the financial year, in response to demand from existing customers for a robust and flexible powered solution for indoor or heavily shaded locations. Fitting seamlessly into the Spectur ecosystem, the wall-mounted STA6-240X works from 240V power (a 110X model is available for 110V environments) and can support multiple cameras and peripherals either on the body of the system or located up to 100m away. The STA7 model, in advanced prototyping with the electronics complete and the firmware in final testing, is expected to be released in Q2 FY24, ending the production of the STA6s (expected in Q1 or early Q2 FY24). This new model brings highly modular edge AI for up to 4 cameras and multiple peripherals along with improved power management allowing more performance per watt of sunlight. This system (and the single camera HD6) is ideal for the next generation of Spectur applications as well as gathering data for other 3rd party AI technology customers. Whilst less visible but no less important, the Spectur cloud infrastructure was largely renewed and upgraded, improving on reliability and underpinning the platform for future growth. With the addition of the 3CT cloud and software stack, Spectur can now manage multiple data streams (not just cameras), integrated with advanced workflow managers (including leveraging AI) and present results, reports and data (and act) in real time through an industry leading user interface. Ongoing design work on the core Spectur user interface is expected to be visible to resellers and ultimately all Spectur customers later in FY24. The Spectur platforms have made a step change in modularity in FY23. They can now use multiple power sources, many different types of camera and peripherals, deploy an extensive array of AI or advanced algorithmic applications and present this in a very flexible and configurable user interface, or directly into 3rd party software. This makes Spectur extremely agile and able to respond to customer needs quickly, cost effectively and reliably. FY24 expectations Investments in FY23 and prior years have laid a foundation for profitable growth. FY24 is a year where the focus is on operational excellence and leveraging the investments made to date for cashflow and profitability improvements. The product market fit for our core solutions is proven, and Spectur is improving efficiency in delivery. FY24 will bring ongoing outbound focus on the government, utilities, construction and institutional spaces, with particular focus on resellers that support these markets. Current reseller focus is on providers in the security, hire and AI space with initial research ongoing into the wholesaler and online space. It is expected that less capital-intensive and larger scaling will occur through the reseller channels. Spectur will focus on providing industry leading security and surveillance platforms - platforms that will become the preferred choice for security providers and end customers. Similarly, we expect to continue our push into providing safety and warning solutions for remote locations, building on our currently dominant position in beach safety. Spectur is also actively market testing platform solutions for AI and sensing customers. Whilst Spectur has existing customers in the USA (via 3CT), international focus will be on bringing Spectur NZ to profitability, along with other new locations such as South Australia. No new full-service geographic expansions (outside of resellers) are expected for FY24. Spectur has a unique offering that provides a very positive contribution to making our communities safer, more sustainable and smarter. We expect to focus on the areas where we can make the most positive impact, with the most valuable and differentiated offering, as we scale into a large, rapidly growing and ultimately international market. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 7 of 20 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Notes 30 June 2023 30 June 2022 $ $ Continuing Operations Revenue 7,367,578 5,828,024 Cost of Sales 2 (3,218,611) (2,624,964) Gross profit 4,148,967 3,203,060 Government grants received 18,361 - Depreciation and amortisation (313,883) (320,908) Employee benefits (4,301,784) (3,311,931) Finance charges (127,040) (87,735) (1,228,619) (1,121,171) (435,225) - - 13,994 General and administrative expenses Impairment of intangible assets 12 Inventories written back / (off) Loss on disposal of property, plant and equipment Marketing and advertising (268) (6,185) (232,154) (267,180) Property expenses (47,805) (44,186) Research and development expenses Fair Value remeasurement (on acquisition of subsidiary) Reversal of prior period impairment of loan to associate (285,451) (163,571) 50,708 - 37,734 - - (38,570) 12 Share of associate’s loss Share-based payment expense (529,738) (124,482) Loss before income tax benefit (3,246,197) (2,268,865) 323,132 360,086 (2,923,065) (1,908,779) 1,661 - (2,921,404) (1,908,779) (1.62) (1.80) Income tax benefit Loss for the period Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations Total comprehensive loss for the period Basic loss per share (cents per share) 5 The accompanying notes form part of these financial statements. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 8 of 20 Consolidated statement of financial position As at 30 June 2023 Notes 30 June 2023 30 June 2022 $ $ 1,522,090 629,613 Assets Current Assets Cash and cash equivalents Trade and other receivables 1,317,740 1,322,964 Inventories 6 1,072,164 649,465 Total Current Assets 3,911,994 2,602,042 Non-Current Assets Property, plant and equipment 7 504,734 470,095 Other receivables 8 128,304 165,668 Intangible assets 9 238,107 96,112 809,620 273,806 Total Non-Current Assets 1,680,765 1,005,681 Total Assets 5,592,759 3,607,723 1,470,035 1,326,911 664,212 440,602 6,374 8,584 Lease liability 154,498 166,728 Provisions 132,700 114,300 2,427,819 2,057,125 724,587 755,700 Lease liability 661,991 117,746 Employee benefits 50,109 33,789 Total Non-Current Liabilities 1,436,687 907,235 Total Liabilities 3,864,506 2,964,360 Net Assets 1,728,253 643,363 16,109,084 12,565,412 Right-of-use-assets Liabilities Current Liabilities Trade and other payables 10 Employee benefits Borrowings 11 Total Current Liabilities Non-Current Liabilities Borrowings 11 Equity Issued capital 3 Reserves 4 Accumulated losses Net Equity 730,413 266,130 (15,111,244) (12,188,179) 1,728,253 643,363 The accompanying notes form part of these financial statements. Spectur Limited – Consolidated Preliminary Final Report – Year ended 30 June 2023 Page 9 of 20 Consolidated statement of changes in equity For the year ended 30 June 2023 Balance at 1 July 2022 Issued Capital Reserves Total Equity $ Accumulated Losses $ $ 12,565,412 266,130 (12,188,179) 643,363 $ Loss for the period - - (2,923,065) (2,923,065) Other comprehensive income - 1,661 - 1,661 Total Comprehensive loss for the period - 1,661 (2,923,065) (2,921,404) Shares issued during the period 3,864,987 Share issue costs Value of expired performance rights written back Value of options brought to account during the period Value of performance rights brought to account during the period Value of service rights brought to account during the period (321,315) - - (321,315) - (8,361) - (8,361) - 28,024 - 28,024 - 381,275 - 381,275 - 61,684 - 61,684 16,109,084 730,413 (15,111,244) 1,728,253 Issued Capital Reserves Total Equity $ $ Accumulated Losses $ 12,573,174 177,772 (