Announcement PDF 2023 Annual Report Spenda Limited ABN 67 099 084 143 This page was intentionally left blank. Contents Spenda Limited • 2023 Annual Report Shareholder letter from the Managing Director 04 Executive leadership team 10 Corporate directory 12 Corporate governance statement 13 Directors’ report 14 Remuneration report (Audited) 24 Auditor’s independence declaration 39 Consolidated statement of profit or loss and other comprehensive income 40 Consolidated statement of financial position 41 Consolidated statement of changes in equity 42 Consolidated statement of cash flows 43 Notes to the consolidated financial statements 44 Directors’ declaration 81 Independent auditor's report 82 Additional stock exchange information 86 01 “Enabling businesses to transact with fast, error-free digital efficiency and boost cash flow across the entire supply chain.” 02 Spenda Limited • 2023 Annual Report Improving the way your business trades and gets paid Spenda is a next generation integrated payment and lending platform that provides solutions to any business that needs to make or receive payments. The Company’s services a real-time views of cash movements, providing businesses cost-saving benefits that automate tasks and take the burden out of chasing late payments, sending quotes and invoices, and collecting payments. Payments Spenda has transformed from a pure software business to a transactional fee-based SaaS business that allows the company gain a greater share of customer transaction values at both B2B and B2C levels. Lending Utilising the ledger-to-ledger dataset provided by these transactions, Spenda has a clear view of its customers underlying cash flow which facilitates more efficient delivery of on-demand lending, early settlement discounts, advanced payment programs and trade finance for further revenue growth. Software Spenda operates a SaaS model for licensing of the components of the Spenda platform. Businesses have several ways to take up the service with the ability to choose which modules will be turned on. Integration Spenda can easily plug into commonly used applications to deliver smooth transactions, help businesses reduce manual data entry, and provide one centralised source of data truth. Spenda Limited • 2023 Annual Report 03 Shareholder letter From the Managing Director To my fellow shareholders, It is a pleasure to provide all our shareholders with an update on Spenda’s performance and our strategic direction over the past year. We commenced FY23 with a clear focus to scale our payments volume through the delivery of Spenda as a business transactional service that provides real benefit to our customers. Throughout the period we received very positive feedback from our customers, with monthly payments volume increasing 481% from July 2022 to June 2023. Reflecting on the year that’s been, it’s pleasing to see that we achieved this outcome. The year also saw us deliver a healthy 39% growth in revenue, from $2.2m in FY22 to $3.1m in FY23, which demonstrates not only the business’s dedication to success, but the hard work of our committed and dedicated team. I made a commitment last year to keep shareholders more informed and would like to acknowledge that our primary objective to achieve cash flow positivity and to establish the foundations for sustainable long-term growth remain unchanged. To achieve these objectives lies in the execution of strategic decisions that ultimately create a solution that is truly unique. Our mission is to fundamentally change the way people do business by providing one product ecosystem designed to support every part of running a business. Delivering to this vision naturally requires time and effort compared to accepting what already exists in the market and conforming to established norms. Each step in the development and commercialisation of the Spenda product suite has required careful consideration, problem solving, and innovation. The growth we achieved in FY23 builds upon the success achieved in FY22, where the Company underwent a significant consolidation process, bringing together four complementary businesses. It is only the tip of what Spenda can deliver and has been predominantly attributed to the successful delivery of services to a handful of customer networks. Following the crowd and maintaining the status quo is a quicker path and may seem less risky, but it rarely leads to a product that leaves an indelible mark on an industry. 04 Spenda Limited • 2023 Annual Report The year in review Taking a journey through the past 12 months at our key achievements and milestones I am very proud of what the team has achieved. I have highlighted below valuable insight into the decisions that have shaped our business this year and the impact of these achievements. Key strategic achievements delivered through the past year include: • Secured a $50m debt warehouse facility to accelerate growth. Funds from the debt warehouse have been used to fund a range of non-bank lending products and on-demand lending services, delivered through the Spenda solution. Since the debt warehouse was established in August 2022, we have built our lending book to $14m across a range of satisfied customers. Spenda intends to further enhance its ability to deliver capital to businesses through expansion of the warehouse structure. • Established a partnership with Carpet Court, a prominent national flooring franchise and successfully completed the roll out of Spenda’s core services to Carpet Court’s National Support Centre (NSC) and their 205 connected retail businesses. The delivery of the Carpet Court solution, on time and in budget, was an important metric for the business as it showcased several strategies in action. • That our go-to-market Node to Spoke strategy is effective, through winning one aggregator (in this case to Carpet Court’s National Support Centre) and rolling out Spenda services across the supply chain (in this case into the 205 franchise stores and back up to the businesses who supply CC NSC); • That our solution addresses a genuine need within businesses; • That our software can handle high-level increases in data and transactions across its infrastructure; and • That our software facilitates quick onboarding and is easy to use. • Entered into a Payment Facilitator (PayFac) Agreement with Fiserv in December 2022 and in September 2023 launched these services. Becoming a PayFac certified business is a significant achievement for us as a business. Not only are there less than 20 certified Australian Payment Facilitators, but this certification provides significant uplift to the revenue we are able to earn from our payment services and allows us to provide better customer services to our valued clients. It also serves as a strong endorsement to Spenda’s internal processes to have passed the strict certification process. Additionally, as a PayFac we can better study transaction flows and identify new opportunities to scale revenue from a single customer. • Secured a strategic investment with Fresh Supply Co to increase our presence in the agriculture sector. This investment has allowed us to internally resource our sales team with specialists from within the sector. Spenda has developed a comprehensive agriculture strategy, and we expect to announce progress on this in the near term. • Extended our relationship with long term partner the Capricorn Society in May 2023, expanding the services we deliver into eCommerce through a Direct Service Delivery initiative (DSD). Spenda was selected to deliver the DSD to the Capricorn Society after a strict and competitive proposal process. The DSD proposal, which was successfully taken to the next phase of the project by Capricorn in August 2023, folds in much of the capability native to the Spenda ecosystem and is expected to generate significant opportunities for future growth. Spenda Limited • 2023 Annual Report 05 Product innovation Spenda is a business ecosystem that facilitates the transfer of both operational and financial data between businesses as they buy and sell from each other. We own an integrated application, payments and lending platform used by aggregator networks, buying groups and SMEs. During FY23 we continued to enhance this product offering and introduced new features and services while also improving the performance of our core services. These innovations have had fast uptake from our customers and the positive feedback received is testament to our ability to meet the evolving needs of our customers. A key achievement during the FY23 period was the continued improvement of our tenant-to-tenant infrastructure, the backbone that drives true B2B collaboration. Tenant-to-tenant (or ledger-to-ledger) integration is the ability to pass data securely between two separate businesses, combatting the increasing threat of data tampering, fraud, and security risks. For businesses within the Spenda ecosystem it means we can take a transaction, like an invoice, and securely send it from the seller’s ecosystem into the buyer’s tenant. Each business can collaborate in real time on the same document, requesting amendments or substitutions to purchase orders for example, before completing payment for goods and/or services. Upon the successful completion of a transaction the relevant data and respective documentation is sent back to each business automatically and fed into their accounting software (ERP or small business accounting solutions) to streamline reconciliation. 06 Tenant-to-tenant integration is often overlooked by software companies, however, it offers significant benefits to B2B businesses. It is a key element in Spenda’s vision to provide true collaboration between businesses, removing the barriers created by siloed software and instead providing an ecosystem that delivers real value to both parties in a transaction. Doing this not only improves business efficiencies, saves on administration costs and delivers better transparency for the buyer and seller, but it also cements Spenda between every transaction as the facilitator of trade. During the year we achieved positive momentum on our market entry into the AsiaPacific region by taking advantage of emerging opportunities and relationships cultivated in Singapore. In time, this expansion will be instrumental in diversifying our customer base and growing our revenue to support international trade. To support our international ambitions, the team has been developing key relationships to expand our card issuing and international settlement rails to support both cross boarder and multi-country domestic settlements, expand our card financing capabilities, and finally regionally focus our external software relationships. Spenda Limited • 2023 Annual Report Customer satisfaction We have always had a strong commitment to our customers success and see them as symbiotic longterm partners; as they achieve success, so too do we. This year we were able to accurately measure our customer satisfaction and engagement levels, both with the usability of our products and the tangible impact our services have had on their business. Using Carpet Court as a case study, we are thrilled to report high levels of satisfaction with our software from both to Carpet Court’s National Support Centre and the store level, customer success, responsive support, and a commitment to tailoring future solutions to their evolving business needs. Every month Carpet Court processes 13,000 invoices between member stores and the National Support Centre. Through the implementation of Spenda’s accounts receivable and accounts payable software solution, Carpet Court has enhanced efficiency by transitioning to e-Invoicing and reducing the number of human touchpoints required across the invoice payment cycle, improving month-end allocation processes by 40%. 13,000 40% 40% Invoices processed every month Improvement in month-end allocation processes Boost in team productivity By partnering with Spenda, we have been able to achieve improved payment and cash flow transparency across our network and significantly enhance team productivity. Mark Hogan, Chief Financial Officer at Carpet Court Spenda Limited • 2023 Annual Report 07 Employee engagement At Spenda we are very lucky to have a strong team of not only dedicated, but talented individuals working together to deliver our vision. We know that our people are the driving force behind our success, and we take our commitment to their wellbeing and growth very seriously. We are pleased to report that this year our employee engagement survey showed a 39% increase in employee sentiment within the business. In 2023 our Employee Net Promotor score, the industry standard for measuring how an employee feels about a company, was at an impressive 60. To put this into perspective the global benchmark sat between 10-20 in 2022. This is a clear indicator that the investment we have made in professional development, supporting worklife balance, and creating a supportive work environment is delivering an environment where staff want to work and are empowered to excel in their roles. 39% Increase in employee sentiment within the business 60 Employee Net Promotor score 08 Spenda Limited • 2023 Annual Report Focus for FY24 and beyond As we embark on a new financial year, we enter a period we expect to be defined by strong and consistent growth. We intend to build upon the positive momentum achieved this year and continue to scale payments volume with the delivery of Spenda as a transactional service. We plan to sustain and expand our current partner agreements, build new relationships that support our network growth model, and create opportunities for us to enter new industries and markets. Through these global partnerships we will continue to extend the services available in the Spenda ecosystem to meet the changing needs of our client base. We operate in a constantly evolving landscape, driven by shifting market dynamics, advancements in security and technological requirements, and changing societal expectations. Working in such a fast-paced industry is both exciting and humbling. For Spenda to remain competitive and relevant we must continue to adapt and innovate, a challenge I am confident our team is capable of meeting. FY23 has been a year of great challenges but of even greater successes. As we look ahead, we remain committed to delivering value to our current and future shareholders while pursuing innovation and sustainable growth. We are excited about the opportunities that lie ahead for the business and are confident that Spenda is wellpositioned for continued success. Thank you for your trust and continued support, Adrian Floate Spenda Limited • 2023 Annual Report 09 Executive Leadership Team Adrian Floate Managing Director Adrian Floate has founded, built and sold technology businesses and worked in Asia, Australia, the UK and US over the past 20 years. He is the founder of the Cirralto business originally acquired by Motopia in 2016. Richard Jarvis Chief Financial Officer Richard Jarvis is a qualified Chartered Certified Accountant and has over 20 years experience in professional accountancy and financial leadership roles with both private and publicly listed companies. Andy Hilton Chief Commercial Officer Andy Hilton has spent nearly 30 years in traditional lending and established three lending businesses. He has a background in accounting and engineering and managed the 20x growth of an IT distribution business. Prior to joining the executive team at Spenda, Andy was the co-founder and Managing Director of Australian fintech, Invigo. Spenda acquired Invigo in 2021. 10 Spenda Limited • 2023 Annual Report David Wood Chief Product Officer David Wood has over 20 years of experience in Software and Systems Design, Dave is the driving force behind bringing Spenda’s vision to life and works closely with his team to deliver a seamless experience for Spenda's customers. Corrie Hassan Chief Operating Officer With over two decades of international business finance experience, Corrie provides vital risk and operational management insights. She founded an Australian SME lending business and co-founded Invigo, acquired by Spenda in 2021. As a crucial member of Spenda's Executive Leadership Team, Corrie influences strategy, oversees operations and project management, and manages lending portfolio risk. Olivia Johnson Chief Revenue Officer Bringing more than ten years of marketing, communications and sales experience in roles across public and private sectors in Australia, India, South Korea, and Myanmar, Olivia plays a key role in the Executive Team. She oversees Spenda's shareholder communications and leads the company's sales and marketing initiatives to achieve strategic growth objectives. Raghav Jain Chief Executive Officer Spenda India As an entrepreneur and global business leader, Raghav holds over 20 years of experience in technology services and digital transformation solutions. Prior to joining Spenda, he co-founded MintWorx, a tech startup in India which eventually led to setting up Spenda India in 2021. As a member of the Executive Team, Raghav spearheads Spenda’s Asian entry and plays a key role in driving the overall company's strategic direction. Spenda Limited • 2023 Annual Report 11 Corporate directory 12 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 355 Scarborough Beach Road Osborne Park, Perth, Western Australia 6017 Share registry Automic Registry Services 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 833 Collins Street, Melbourne VIC 3000 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 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 13 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 Business- to-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. 14 Spenda Limited • 2023 Annual Report 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 938,790 593,794 344,996 Revenue - loan interest 2,172,723 1,652,177 520,546 Other income 250,643 1,827,838 (1,577,195) Total income 3,362,156 4,073,809 (711,653) Cost of services rendered (1,417,929) (976,510) (441,419) Employee and directors’ benefits expense (5,254,173) (7,448,706) 2,194,533 - (2,387) 2,387 (2,331,633) (3,458,857) 1,127,224 (1,498,960) (2,008,212) 509,252 - (41,533,263) 41,533,263 (3,854,967) (3,606,591) (248,376) (7,408) 4,719,508 (4,726,916) (11,002,914) (50,241,209) 39,238,295 Loss on extinguished liability Other expenses Less: non-cash expenses/benefits Share-based payment expense Impairment of goodwill Depreciation and amortisation expense Income tax benefit Statutory net loss after income tax 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. Spenda Limited • 2023 Annual Report 15 Directors report (continued) 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 $’m 12,022,652 Gross client loan book Less: Debt Warehouse facility (12,600,000) Net client loan book (B) (577,348) Net cash position (A + B) 7,771,838 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 thirdparty developers. 16 Spenda Limited • 2023 Annual Report Directors report (continued) 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 Pay- Statement-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. Supply chain players Example numbers SPOKES NODE SPOKES End Consumer Stores (Franchisee) Head Office (Franchisor) Suppliers 10,000 Consumers 200 Stores 1 Franchisor 75 Suppliers Indicative payment flow volumes $40m per/month in payments from End Consumers to Stores $21m per/month in payments from Stores to Head Office $20m per/month in payments from Head Office to Suppliers 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. Spenda Limited • 2023 Annual Report 17 Directors report (continued) 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. 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