Announcement PDF 1. Company details Name of entity: Spenda Limited 2023 Appendix 4E Spenda Limited ABN 67 099 084 143 1. Company details Name of entity: ABN Reporting period: Previous period: Spenda Limited 67 099 084 143 For the year ended 30 June 2023 For the year ended 30 June 2022 2. Results for announcement to the market Revenues from ordinary activities Loss from ordinary activities after tax attributable to the owners of Spenda Limited Year ended 30 June 2023 $ Year ended 30 June 2022 $ Movement $ % 3,111,513 2,245,971 865,542 39% (11,002,914) (50,241,209) 39,238,295 78% Refer to commentary on the results of the period within the review of operations and results of the period contained within the financial report. 3. Net tangible assets 30 June 2023 cents 30 June 2022 cents 0.002 0.004 Net tangible assets (liabilities) per ordinary security 4. Control gained over entities Not applicable. 5. Loss of control over entities Entity name Spenda Software Group Pty Ltd Ownership % 100 Detail Voluntarily deregistered 6. Dividends There were no dividends paid, recommended, or declared during the current financial period or previous period. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Compliance Statement This report has been prepared in accordance with AASB standards, other AASB authoritative pronouncements and interpretations or other standards acceptable to the ASX. No other standards have been applied. This report and the accounts upon which the report is based use the same accounting policies. This report gives a true and fair view of the matters disclosed. 10. Audit qualification or review This preliminary financial report is based on the audited annual report of Spenda Limited for the year ended 30 June 2023. The Company received an unqualified audit report, as detailed in the Independent Auditors Report to Members contained within the Annual report. Signed on behalf of Spenda Limited ________________________ Justyn Stedwell Company Secretary 31 August 2023 2023 Annual Report Spenda Limited ABN 67 099 084 143 Contents Corporate directory 1 Corporate governance statement 2 Directors’ report 3 Remuneration Report (Audited) 13 Auditor’s independence declaration 29 Consolidated statement of profit or loss and other comprehensive income 30 Consolidated statement of financial position 31 Consolidated statement of changes in equity 32 Consolidated statement of cash flows 33 Notes to the consolidated financial statements 34 Directors’ declaration 71 Independent auditor's report 72 Additional stock exchange information 76 Corporate directory Directors Peter Richards (Non-Executive Chairman) Adrian Floate (Managing Director and Chief Executive Officer) Howard Digby (Non-Executive Director) Stephen Dale (Non-Executive Director) Company secretary Justyn Stedwell Registered office Suite 605, 275 Alfred Street North Sydney, New South Wales 2060 Principal place of business Building B, The Garden Park Share registry Automic Registry Services 355 Scarborough Beach Road Osborne Park, Perth, Western Australia 6017 Level 5, 126 Philip Street Sydney, New South Wales 2000 Phone (local): 1300 288 664 Phone (international): +61 (2) 9698 5414 www.automic.com.au Auditor HLB Mann Judd (WA Partnership) Level 4, 130 Stirling Street, Perth, Western Australia 6000 Lawyers Murcia Pestell Hillard Pty Ltd Suite 183, Level 6 580 Hay Street Perth, Western Australia 6000 Bankers Australia & New Zealand Banking Group Limited Stock exchange listing Spenda Limited’s shares are listed on the Australian Securities Exchange (ASX code: SPX) Website www.spenda.co Spenda Limited • 2023 Annual Report 833 Collins Street, Melbourne, Victora 3000 1 Corporate governance statement In recognising the need for the highest standards of corporate behaviour and accountability, the Directors support the principles of Corporate Governance. Where deemed appropriate, the Company follows the best practice recommendations as set out by the ASX Corporate Governance Council. Where the Company has not followed best practice for any recommendation, an explanation is given in the Corporate Governance Statement. The Company’s Corporate Governance Statement is available on the Company’s website at www.spenda.co Spenda Limited • 2023 Annual Report 2 Directors’ report The Directors present their report together with the financial report of the consolidated entity (referred to hereafter as the ‘Group’) consisting of Spenda Limited (‘Spenda’ or ‘the Company’) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of the Company during the whole financial year and up to the date of this report, unless stated otherwise: • • • • Peter Richards Adrian Floate Howard Digby Stephen Dale Principal activities The Group’s principal activities during the financial year were the development and commercialisation of technology assets that enable modernisation of business IT systems via conversion, migration, and management of server-based legacy data and systems to the cloud, as well as providing customers with tailored payment and lending solutions. Spenda has developed into a transaction services business supplying industries with a broad range of Businessto-Business (‘B2B’) payment services, digital trading software and integrated solutions. The Group’s goal is to convert EFT payments to card payments utilising the BPSP engagement coupled with its payments collaboration framework. The Group’s competitive advantages deliver customers end-to-end e-invoicing, integration, rapid ordering, digital trust and automated reconciliation. Dividends The Company did not pay any dividends during the 2023 financial year (2022: $nil). The Directors do not recommend the payment of a dividend in respect to the 2023 financial year. Spenda Limited • 2023 Annual Report 3 Directors’ Report (continued) Review of results and operations Results summary The below table details key financial information for the year ended 30 June 2023 (FY23), with FY22 comparative: 30 June 2023 30 June 2022 Movement Revenue - including SaaS and Payments Revenue - loan interest 938,790 2,172,723 593,794 1,652,177 344,996 520,546 Total income $ Other income $ 250,643 $ 3,362,156 1,827,838 4,073,809 (1,577,195) Cost of services rendered Employee and directors’ benefits expense (1,417,929) (5,254,173) (976,510) (7,448,706) (441,419) 2,194,533 Less: non-cash expenses/benefits Share-based payment expense (1,498,960) Loss on extinguished liability Other expenses (2,331,633) (2,387) (3,458,857) (2,008,212) Impairment of goodwill Depreciation and amortisation expense (3,854,967) (41,533,263) (3,606,591) Statutory net loss after income tax (11,002,914) (50,241,209) Income tax benefit (7,408) 4,719,508 (711,653) 2,387 1,127,224 509,252 41,533,263 (248,376) (4,726,916) 39,238,295 Revenue for FY23 was $3.1m compared to FY22 revenue of $2.2m, representing an increase of $866k or 39%. This increase was predominantly driven by the blending of SaaS, payments and lending services offered. The statutory net loss after tax for FY23 was $11m compared to a FY22 loss of $50.2m. The FY23 results included the following non-cash items: • • $1.5m share-based payments expense; and $3.8m depreciation and amortisation expense. Operating costs have decreased from the prior year, which is mainly attributable to the recognition of eligible wages and salaries to software develop intangible assets and a decrease in consulting fees relating to the establishment of the debt warehouse. During the year the Company has decreased its total headcount to 71 personnel (FY22: 73). The Group had a closing cash and cash equivalents position of $8.3m (restricted $3.4m) as of 30 June 2023 and a client loan portfolio of $12m, representing loan capital deployed to multiple customers. The Group’s net cash position of $7.8m as at 30 June 2023 is represented in the below table: Net cash position $ Cash and cash equivalents (A) 8,349,186 Gross client loan book 12,022,652 Less: Debt Warehouse facility (12,600,000) Net client loan book (B) (577,348) Net cash position (A + B) 7,771,838 Spenda Limited • 2023 Annual Report 4 Directors’ Report (continued) Review of results and operations (continued) Operations summary In FY23, the Company continued to build upon the strategic decisions made in FY22. The primary objective was to establish the foundations for sustainable long-term growth. In FY22, the Company underwent a significant consolidation process, bringing together four complementary businesses. By integrating the capabilities of these businesses, the Company developed a robust payments and lending software solution, which sets the Company apart from competitors in the market. As announced in the FY22 Annual Report, on 1 August 2022, following an exhaustive process and extensive negotiations, the Group secured a $50m debt facility with a prominent Australian private credit fund, whose lending proposal and strategy was most aligned with Group’s future direction. The debt warehouse was a vital piece of capability and extended the Group’s available capital to lend to customers, also enabling accelerated payments offering suppliers on near real time terms, freeing up valuable working capital. Throughout FY23, the Company successfully: • • • • • • • • • • • established a $50m debt warehouse facility to accelerate growth; received commitment from Carpet Court Australia Ltd (‘Carpet Court’) to integrate the Spenda platform into its standard operating environment; secured a Payment Facilitator Agreement (‘PayFac’) with Fiserv Inc (‘Fiserv’), to leverage greater returns from this increased transaction flow; concluded a strategic investment in Fresh Supply Co Pty Ltd (‘FSC’), to leverage customers in the Agribusiness sector; secured a new contract in the automotive industry with long-time partner Capricorn Society Ltd (‘Capricorn’); reduced implementation times by 50%; successfully achieved commitments to raise $3.9m from a private placement; substantially increased payment flows processed through the Spenda system; expanded its product and lending services; boarded new strategic customer networks; and matured integration services, including the release of a developer portal to provide access to third-party developers. The Company was focused on executing its go-to-market strategy and validating the product-market fit for Spenda’s services, being a business platform that combines SaaS, Payments and Lending, via a fully integrated software platform. As announced on 7 December 2022, delivering this solution into the Carpet Court franchise network allowed the Company to deploy its unique Node-to-Spoke strategy, as depicted in the example in Figure 1 below. Carpet Court, the largest retail floor covering specialist in Australia, engaged Spenda to deliver an optimised payment solution to its 205 franchised stores. The roll-out of the Carpet Court solution, which originally involved delivering Spenda’s Accounts Receivable software to the Carpet Court National Support Centre (Node) and PayStatement-By-Link services to the franchise store network (Spokes), was completed on schedule in June 2023. Building off this positive momentum the Company is on track to deliver extended credit on store payments, which leverages funds from the debt warehouse, as well as capturing terminal payments between stores and consumers. The successful roll-out of Spenda into a franchise network and the appetite from the network for additional Spenda services successfully demonstrated how Spenda’s products effectively address market demands. Spenda Limited • 2023 Annual Report 5 Directors’ Report (continued) Review of results and operations (continued) Operations summary (continued) Figure 1: Case Study depicting the Company’s Node-to-Spoke strategy By proving this product fit, the Company has established a strong value proposition for future customers. This validation has not only enhanced future customer confidence and credibility in delivering into complex business networks but has also provided insights for further product improvements and refinements. Additionally, this success has allowed the Company to refine its marketing and sales strategies to target franchise groups and closed business networks and maximize revenue generation from this segment. Throughout the year, the Company experienced sustained growth in payment volumes as it expanded the rollout of the Spenda platform to its contracted customer networks. This growth was a result of the unique features and capabilities offered by the platform, which challenge conventional business payment methods mainly one-way billing platforms, EFT payment processes, and direct debit services. To leverage greater returns from these increased payment flows, the Company entered into a two-year PayFac agreement with Fiserv, as announced 28 December 2022. This agreement marked a significant shift from the existing Independent Sales Organisation (‘ISO’) model for the delivery of direct merchant facilitates. Once fully executed, it will run in parallel to Spenda’s merchant on record agreements, Business Payments Solutions Provider (‘BPSP’) and Bank Payment Automation (‘BPA’) agreements with Fiserv, to provide a holistic card processing service to Spenda customers. One of the key benefits of entering into a PayFac agreement is a reduction in acquiring costs for Spenda. This reduction will have a direct and positive impact on the Company’s net payment margins, potentially increasing margins as much as 30-50%. Becoming PayFac certified involved a complex underwriting process, an ability to demonstrate capacity to scale payment volume efficiently and effectively handle the associated risks. Meeting these requirements and gaining sponsorship from Fiserv, as the Company’s referring partner, is a significant achievement and allows Spenda to operate as a trusted intermediary, managing the payment processing needs of its customers. Throughout FY23, the Group has also demonstrated consistent growth in its lending portfolio, capitalising on established referral agreements with Mastercard Asia/Pacific (Australia) Pty Ltd (‘Mastercard’) and FSC to attract new customers in invoice and trade finance. These referral partnerships have proven valuable in expanding the Group's customer base and facilitating access to a diverse range of industries. Spenda Limited • 2023 Annual Report 6 Directors’ Report (continued) Review of results and operations (continued) Operations summary (continued) The capital deployed within the Group's lending portfolio is strategically allocated across multiple industry sectors, including Agriculture, Manufacturing and Business Services. By diversifying lending activities across these sectors, the Group mitigates risk and takes advantage of opportunities for growth in different segments of the economy. As announced on 6 February 2023 and as part of the Company’s Agribusiness strategy, the Company made a strategic investment in FSC, investing $1.025m for a 5% equity interest in FSC through the conversion of an existing debt facility. This investment not only strengthened the partnership between Spenda and FSC but also provided Spenda with exposure to FSC’s extensive networks and substantial credibility in the Agribusiness sector. The Agribusiness sector is an attractive segment for Spenda, as it’s a natural fit for its Node-to-Spoke strategy within a supply chain (see Figure 2) and the substantially large transactions and payment flows involved, surpassing those seen in many other industries. By aligning Spenda and FSC more closely, the Company has the ability to gain access to a vast ecosystem of Agribusiness participants, enabling it to provide liquidity and financial services at various levels of the value chain. Figure 2: Agribusiness Node-to-Spoke strategy This investment has already provided inroads with two large agricultural networks, with whom the Company is in active negotiations to deliver improved business efficiencies and cash flow solutions to Australian agribusinesses, that are expected to be commercialised in FY24. Furthermore, during FY23, the Company converged its lending and payment services, establishing itself as the industry standard for trade credit and Accounts Receivable/Payable services. This strategic direction involved a transitional period where the Company gradually eliminated traditional lending products, in favour of the Spenda platform being utilised as a comprehensive working capital solution. By integrating lending and payment services within the Spenda platform, the Company is streamlining financial processes for its customers, simplifying cash flow management and improving overall operational efficiency. This convergence will allow businesses to access a comprehensive suite of financial tools and services and consolidate their payment and lending activities into a single platform. By offering flexible and user-centric payment processing events and eliminating traditional lending products in favour of the Spenda platform, the Company has positioned itself as a leading provider of working capital solutions for businesses. Spenda Limited • 2023 Annual Report 7 Directors’ Report (continued) Review of results and operations (continued) Operations summary (continued) As announced on 16 May 2023, the Company built on and leveraged its expertise in the automotive industry by expanding its 20-year partnership with Capricorn, to include eCommerce capabilities, where Capricorn selected Spenda as its preferred vendor to deliver the first phase of its Digital Service Delivery (DSD) initiative. The DSD initiative builds upon Capricorn’s existing CAPLink infrastructure, which forms part of the services currently delivered by Spenda to Capricorn under the existing Software Services and Maintenance agreement. Spenda will substantially increase its services provided to Capricorn under the agreement to commence delivery of the DSD project. The first phase of the DSD is to deliver CAPCharge to Capricorn’s member and supplier network. CAPCharge incorporates various components of the Spenda product suite including Pay-Statement-By-Link (PSBL), the payment widget and Spenda’s inside sales capabilities. The agreement with Capricorn further emphasises the strength of the Company’s Node-to-Spoke go-to-market strategy and cornerstones its involvement in the automotive sector in Australia and New Zealand. Throughout FY23 the Company also embarked on a strategic initiative to expand its presence and enhance brand awareness into Asia through a series of non-deal roadshows to engage various stakeholders in Singapore and across the broader Asian region. In line with this objective, the Company exhibited at the Singapore Fintech Festival in November 2022 with Austrade alongside other Australian businesses as part of its strategic relationship with Fintech Australia. The combination of these initiatives has created strong relationships in the region, where the Company will continue to nurture these relationships and explore avenues for growth into the Asian market. Significant changes in the state of affairs Other than as referred to elsewhere in this report, there have been no other significant changes in the state of affairs. Matters subsequent to the end of the financial year As announced on 10 July 2023, the Group signed a five-year exclusive agreement to offer lending services to Carpet Court franchise network. Likely developments and expected results The likely developments in the economic entity’s operations, to the extent that such matters can be commented upon, are covered in the Review and Results of Operations. Environmental regulation The Group is currently not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. Spenda Limited • 2023 Annual Report 8 Directors’ Report (continued) Key Business Risks & Challenges The Group effectively manages risks and will continue to strengthen and invest in risk resources and capability to proactively identify and manage risks as operations expand. The principal risks and business challenges for the Group include: 1) 2) Loss or failure e to attract or retain key management personnel. o Risks associated with a challenging employment market and the Company’s ability to attract new talent and retain existing talent with a tightening labour market. 3) Ability for the Company to continue to drive customer and merchant growth. o Ability to increase transaction volume, merchant and customer numbers; o Risks associated with macro-economic factors. o o 4) Risks related to technology infrastructure and intellectual property. o o o o 5) Exposure to security breaches and data protection issues; and Risks of superseded technology by market competitors. o Risk of Spenda customers not repaying their loans as they become due; o Risk of merchants/customers business failures resultant projected revenue shortfall. Risk of fraud, both internal and external; Risk of merchants unable to fulfil delivery of goods; and Access to funding to support growth. o o 7) Failures or disruptions to technology systems; Third party banking or processing performance; Credit risk, fraud and other related risks o o 6) Increased competition and new sector entrants; Ability for the Group’s technology to integrate with third party platform’s; and Access to sufficient equity funding sources; and Access to sufficient debt funding sources. Risks associated with compliance and changes to regulatory environment that may impact the Group’s operations. o o Changes to payment system regulations; Anti-Money Laundering/Know Your Customer (AML/KYC) laws; o Financial product regulations. o Privacy laws; and Spenda Limited • 2023 Annual Report 9 Directors’ Report (continued) Information on directors Name: Title: Qualifications: Experience and expertise: Peter Richards Non-Executive Chairman B Com from University of Western Australia Peter is an experienced independent director with over 40 years of international business experience with global companies including British Petroleum, Wesfarmers Limited, Dyno Nobel Limited and Norfolk Holdings Limited. During his time at Dyno Nobel, he held several senior positions within the North American and Asia Pacific businesses, Other current directorships: Former directorships (last 3 years): Special responsibilities: before being appointed as Chief Executive Officer based in Australia (2005 to 2008). Chairman of GrainCorp Limited (ASX: GNC) Chairman of Emeco Holdings Limited (ASX: EHL) Elmore Limited (retired December 2021) (ASX: EML) Chairman of the Board and Member of the Remuneration Interests in shares: Committee 38,289,454 Name: Adrian Floate Experience and expertise: Adrian is an IT innovator who has been building software for more than 20 years. He has founded, built, and sold several technology Interests in options: Title: Qualifications: 40,000,000 Managing Director and Chief Executive Officer B Com from Curtin University businesses and worked in Asia, Australia, the UK and US. Adrian has both private and public company experience at an executive level. He is a business strategist that looks to overcome complex problems with software automation solutions. Adrian has worked in supply chain management systems since 1997 and has experience in manufacturing, wholesale distribution, retail and eCommerce. Adrian’s career includes designing and developing Bunning’s BITS system EDI over IP network, the development and commercialisation of Australia’s first SET payments gateway, the development and commercialisation of a Windows Mobile based email platform that pre-dated the Blackberry equivalent technology, designed the CAPlink EDI network for the automotive industry in conjunction with the Capricorn Society, co-founding the CLANG online car service portal and in more recent times leading the Appstablishment software team to create award-winning mobile App’s for business collaboration. He has also been instrumental in providing the online portal to utilise Spenda’s conversion software to provide a global Other current directorships: online service. None Interests in shares: Interests in options: 307,110,077 Nil Former directorships (last 3 years): Special responsibilities: Spenda Limited • 2023 Annual Report None Managing Director 10 Directors’ Report (continued) Information on directors (continued) Name: Title: Howard Digby Non-Executive Director Experience and expertise: Howard is a professional business leader with wide ranging international experience across a variety of industries and markets. Qualifications: Bachelor of Engineering (Hons), Mechanical Major from the University of Western Australia He has a proven track record in starting and growing businesses. Howard’s recent director experience includes exposure to disruptive early-stage technology, Israeli based provision of high security and bandwidth data voice and video communications technology, IT services, including cloud migration and cybersecurity, cloud-based application software in the healthcare sector, and a Silicon Valley Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Experience and expertise: based next generation memory technology. Non-Executive Director of Elsight Limited (ASX: ELS) Non-Executive Director of 4DS Limited (ASX: 4DS) Non-Executive Chairman of Singular Health Group Ltd (ASX: SHG) Non-Executive Chairman of Vortiv Limited (ASX: VOR)(Resigned on 19 April 2021) Chairman of the Remuneration Committee 16,516,434 10,000,000 Stephen Dale Non-Executive Director Stephen has successfully started, developed, managed and sold businesses across diverse sectors including telecommunications, logistics, retail furniture and equestrian ventures. Since 2003 he was a Board member of Saddleworld Australia, a franchised retail group, having served as chairman or deputy chairman for 15 years. He also served as a founding member of the Assumption College Kilmore advisory board for 14 years. His current activities include paddock to Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: plate retail of heritage beef and pork and development of a beef cattle breeding stud. None None Member of the Remuneration Committee 1,694,444 10,000,000 Other current directorships quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Former directorships (last 3 years) quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Spenda Limited • 2023 Annual Report 11 Directors’ Report (continued) Company secretary Justyn Stedwell has a Bachelor of Business & Commerce (Management and Economics) from Monash University, a Graduate Diploma of Accounting at Deakin University, a Graduate Diploma in Applied Corporate Governance with the Governance Institute of Australia and a Graduate Certificate of Applied Finance with Kaplan Professional. Justyn has over seventeen years’ experience acting as a Company Secretary of ASX listed companies in a wide range of industries. He has also acted as a director of several ASX listed companies. Meetings of directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each director were: Peter Richards ¹ Stephen Dale ¹ Adrian Floate Howard Digby ¹ Attended 15 15 15 14 Full Board Remuneration Committee Held Attended Held 15 15 2 2 15 15 2 2 2 2 ¹ Members of the Remuneration Committee Spenda Limited • 2023 Annual Report 12 Directors’ Report (continued) Remuneration Report (Audited) The Directors present the Group’s Remuneration Report for the financial year ended 30 June 2023 (‘FY23 Report’). The FY23 Report has been prepared in accordance with the disclosure requirement of the Corporations Act 2001 (Cth), the regulations made under the Act and Australian Accounting Standard AASB 124: Related Party Disclosures and outlines the remuneration arrangements for the Key Management Personnel (‘KMP’) of the Group during FY23. KMP are those persons who directly or indirectly had authority and responsibility for planning, directing and controlling the Group’s activities during the reporting period. The Report contains the following sections: a) KMP covered in this report b) Remuneration policy and link to performance c) Elements of executive remuneration d) Link between executive remuneration and performance e) Overview of non-executive director remuneration f) Remuneration expenses for KMP g) Contractual arrangement with KMP h) Use of remuneration consultants i) Voting and comments made at the Company’s 2022 Annual General Meeting a) KMP covered in this report Name Non-Executive Directors Peter Richards Howard Digby Stephen Dale Executive Directors Mr Adrian Floate Executives Mr Richard Jarvis Mr David Wood Mr Olly Speed Mr Andy Hilton Mrs Corrie Hassan Position Term as KMP Non-Executive Chairman Full financial year Chief Executive Officer and Full financial year Chief Financial Officer Full financial year Chief Commercial Officer Chief Credit and Risk Officer Full financial year Full financial year Non-E