Half-year results and financial report

Seeing Machines Limited

30 March 2022

Half year results and financial report

Seeing Machines Limited (AIM: SEE, "Seeing Machines" or the "Company"), the advanced computer vision technology company that designs AI-powered operator monitoring systems to improve transport safety, today publishes its unaudited results and financial report for the six months to 31 December 2021 ("H1 2021").

Financial Highlights:

- Total operational revenue of A$21.7m (H1 2021: A$18.1m), reflecting comparative growth of c.19.4% on previous period.

o Underlying revenue growth[1] using constant currency is 24.6% year on year (exchange rate as at 31 December 2021)

o OEM (Automotive and Aviation) revenue of A$5.2m, representing a 69% increase on the previous period (H1 2021: A$3.1m)

§ Includes a 170% increase in royalty revenue derived from the installation of the Group's DMS technology of $2.1m (H1 2021: A$0.78m)

o Annual Recurring Revenue including royalties increased by 9.3% since 30 June 2021 to A$18.8m (FY2021: A$17.2m)

o Aftermarket (Fleet and Off-Road) revenue grew by 9% to A$16.4m (H1 2021: A$15m)

o Aftermarket Monitoring Service Revenues including royalties grew by 16% to A$6.7m (H1 2021: A$5.8m)

- Net loss reduced by 17.8% to A$13.8m (H1 2021: A$16.8m)

- Cash at 31 December 2021 of A$79.3m (31 December 2020: A$52.4m)

OEM (Automotive and Aviation) Highlights:

- Global momentum calling for Driver Monitoring System (DMS) technology for enhanced safety continues and saw the USA introduce legislation that would require DMS to reduce risks of distracted and drunk driving.

- Seeing Machines announced the largest driver and occupant monitoring system technology award to date and was appointed by a new Tier 1 partner for a leading German automaker, with an initial lifetime value of A$125m. This brings total cumulative initial lifetime value of all Company won automotive programs to more than A$325m.

- With over nine vehicle models now past start of production, there are more than 250,000 cars on roads featuring Seeing Machines technology, representing an increase of 108% since 30 June 2021. A further 30 distinct vehicle models, featuring Seeing Machines technology, are expected to launch by early 2023.

- Key commercial traction in Aviation, as Airservices Australia announced that it will collaborate with Seeing Machines Aviation to enhance safety in Air Traffic Management, and Air Ambulance Victoria announced its use of Seeing Machines in the world-first pilot fatigue detection system.

- Seeing Machines and Collins Aerospace, the world's largest Tier 1 Avionics company, have signed a collaboration agreement to jointly market co-developed solutions across the Aviation industry.

Aftermarket Highlights:

- Guardian, the Company's Aftermarket driver distraction and fatigue technology, is now fitted to 36,933 individual vehicles, a 16.2% increase of 5,000 connections over the six month period (FY 2021: 31,771 units).

- The Company signed a Global Framework Agreement with Shell Global Solutions International B.V. for the provision of Guardian, to enhance safety across its worldwide operations.

- EROAD Limited, a leading transportation technology company that offers fleet management software and products, has integrated Seeing Machines Guardian technology into its fleet management software to help combat driver fatigue and make roads safer.

- Seeing Machines established a European sales team, headquartered in Amsterdam, the Netherlands, to lead the next phase of its business development and focus on growing demand in Europe for the Company's Aftermarket driver safety technology, Guardian.

Investment Highlights:

- On 23 November 2021, Seeing Machines issued 277,123,492 new ordinary shares of no par value each (the "New Ordinary Shares") at a price of 11 pence per New Ordinary Share, raising gross proceeds of approximately US$41,000,000 (the "Placing"). The net proceeds of the Placing are being used to accelerate a range of features to meet technology demands and for general working capital and corporate purposes, as well as to strengthen the Company's balance sheet.

Outlook:

- Seeing Machines continues to trade within the range of consensus expectations for FY2022.[2]

There is considerable accelerating momentum for the business, with current market conditions presenting a significant opportunity to capture an even greater market share as a number of structural tailwinds continue to support application of the Company's technology. The current 'active RFQ' pipeline, with program opportunities exceeding a cumulative total of A$1bn, underpins the board's view that Seeing Machines will have an increased market share by 2025.

Paul McGlone, CEO of Seeing Machines commented: "These results demonstrate positive momentum across the company. Our Automotive business continues to grow with more cars starting production, generating high-margin royalty revenue. This is underpinned by our increasing confidence in ongoing RFQ processes as we focus on feature development and integration options to support OEM demands, in partnership with our Tier 1 customers. Aftermarket is experiencing similar positive momentum with growth in our direct business resulting in a more profitable business model and a growing sales pipeline through our expanding global team.

"There are obviously challenges with the current geopolitical and global inflationary environment and supply chain that affect the market as a whole. We are focused on mitigating these risks as they are identified and are confident in our ability to continue to grow the business."

Enquiries:

Seeing Machines (LSE: SEE), a global company founded in 2000 and headquartered in Australia, is an industry leader in vision-based monitoring technology that enable machines to see, understand and assist people. Seeing Machines' technology portfolio of AI algorithms, embedded processing and optics, power products that need to deliver reliable real-time understanding of vehicle operators. The technology spans the critical measurement of where a driver is looking, through to classification of their cognitive state as it applies to accident risk. Reliable "driver state" measurement is the end-goal of Driver Monitoring Systems (DMS) technology. Seeing Machines develops DMS technology to drive safety for Automotive, Commercial Fleet, Off-road and Aviation. The company has offices in Australia, USA, Europe and Asia, and supplies technology solutions and services to industry leaders in each market vertical.

Review of Operations

Financial Results

The Company's total sales revenue for H1 FY2022 (excluding foreign exchange gains and finance income) increased by 19.4% to A$21.7m (H1 FY2021: A$18.1m).

Royalty revenue, derived from installation of Seeing Machines' Driver Monitoring System (DMS) technology, increased by 170% to A$2.1m compared to the same period last year (H1 FY2021: A$0.78m) as vehicles start production across a number of Automotive OEM programs. This demonstrates the significant ramp up of royalty revenues, earned at a substantial margin, that is set to continue as more of these programs are delivered.

Monitoring services revenue in Aftermarket grew by 16% to A$6.7m for the half-year, compared to A$5.8m for the same period last year. Installed Guardian units increased by over 5,000 to 36,933 connected units representing a 16.2% growth in connections over the six-month period (FY21: 31,771 units), demonstrating ongoing momentum for the Aftermarket business, despite ongoing challenges posed by COVID-19 and supply chain pressures.

The Company continued to invest in its core technology development to further strengthen our competitive moat, rapidly expand features and leverage systems approach across global OEM and Aftermarket industries. As a result, Seeing Machines incurred total research and development expenses of A$18.1m during the six-months ended 31 December 2021 (2020: A$8.9m), of which A$11.8m (2020: nil) was capitalised.

Customer support and operations cost categories increased to A$4.3m (2020: A$3.2m) and A$5.8m (2020: A$3.5m) respectively in line with strengthening of business pursuit and emerging markets activities to support increased pipeline and channel market expansion.

On 23 November 2021, Seeing Machines issued 277,123,492 new ordinary shares of no par value each (the "New Ordinary Shares") at a price of 11 pence per New Ordinary Share, raising gross proceeds of approximately US$41,000,000 (the "Placing"). The net proceeds of the Placing are being used to accelerate a range of features to meet technology demands and for general working capital and corporate purposes, as well as to strengthen the Company's balance sheet.

Cash and cash equivalents at 31 December totaled A$79.3m (2020: A$52.4m).

We highlight this report is unaudited. There is no requirement for the interim financial statements to be subject to review by the external auditor.

Interim Consolidated Statement of Financial Position - Unaudited

The above interim consolidated statement of financial position should be read in conjunction with the accompanying notes.

Interim Consolidated Statement of Comprehensive Income - Unaudited

The above interim consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Interim Consolidated Statement of Changes in Equity - Unaudited

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Interim Consolidated Statement of Cash Flows - Unaudited

The above interim consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the Interim Consolidated Financial Statements - Unaudited

1 Corporate information

Seeing Machines Limited (the "Company") is a limited liability company incorporated and domiciled in Australia and listed on the AIM market of the London Stock Exchange. The address of the Company's registered office is 80 Mildura Street, Fyshwick, Australian Capital Territory, Australia.

Seeing Machines Limited and its subsidiaries (the "Group") provide operator monitoring and intervention sensing technologies and services for the automotive, mining, transport and aviation industries.

The interim consolidated financial report of the Group (the "interim financial report") for the six-month period ended 31 December 2021 was authorised for issue in accordance with a resolution of the Directors on 30 March 2022.

2 Basis of preparation and changes to the Group's accounting policies

The interim financial report for the six-month period ended 31 December 2021 has been prepared in accordance with AASB 134 Interim Financial Reporting in order to fulfil the reporting requirements of Rule 18 of the London Stock Exchange's AIM Rules for Companies issued July 2016.

The interim financial report does not include all the information and disclosures required in the annual financial report and should be read in conjunction with the Group's annual consolidated financial statements as at 30 June 2021.

There is no requirement for the interim financial report to be subject to audit or review by the external auditor and accordingly no audit or review has been conducted.

The accounting policies applied are consistent with those of the consolidated financial statements for the year ended 31 June 2021, except for the adoption of new amendments to the existing standards as set out below.

The Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for an accounting period that begins on or after 1 July 2021.

(i) Amendments to existing standards effective and adopted with no significant impact to the Group

There has been no significant impact due to the adoption of any of the following standards or amendments thereto.

(ii) New and amended standards and interpretations that have been issued but not yet effective or early adopted by the Group

At the date of authorisation of the interim financial report, the Group has not applied the following new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective.

Notes to the Interim Consolidated Financial Statements - Unaudited

2 Basis of preparation and changes to the Group's accounting policies (continued)

(ii) New and amended standards and interpretations that have been issued but not yet effective or early adopted by the Group (continued)

In addition, at the date of authorisation of the interim financial report the following IASB Standards and IFRS Interpretations Committee Interpretations were on issue but not yet effective, but for which Australian equivalent Standards and Interpretations have not yet been issued:

The Group is currently in the process of assessing the impact of the above standards or amendments.

3 Segment information

a. Segment revenue based on operating segment

The following table presents revenue and net profit/(loss) information for the Group's operating segments for the six-month periods ended 31 December 2021 and 2020, respectively:

Segment Revenue Segment Profit/(Loss)

Notes to the Interim Consolidated Financial Statements - Unaudited

3 Segment information (continued)

b. Revenue from contracts with customers

In the following tables, revenue segments have been disaggregated by type of goods or services which also reflects the timing of revenue recognition.

c. Geographic information

Notes to the Interim Consolidated Financial Statements - Unaudited

4 Research and development expenses

Research and development expense relates to ongoing investment in the Group's core technology.

The Group incurred total research and development expenses of A$18,069,000 during the six-months ended 31 December 2021 (2020: A$8,853,000), of which A$11,783,000 (2020: nil) were capitalised.

As part of the assessment of research and development expenses at 30 June 2021, total costs of A$8,311,000 were capitalised for the year ended 30 June 2021, of which A$3,134,000 pertained to the six-month period ended 31 December 2020.

5 Cash and cash equivalents

For the purpose of the interim consolidated statement of cash flows, cash and cash equivalents are comprised of the following:

On 10 December 2021 the Group entered into an enhanced yield deposit with HSBC for principal amount of GBP 27,000,000. This is classified as short-term, maturing on 10 January 2022 with an interest rate of 4.75%.

6 Trade and other receivables

The Group recognised nil impairment losses on receivables and contract assets arising from contracts with customers for the six-month period ended 31 December 2021 (2020: A$27,000).

7 Inventories

Notes to the Interim Consolidated Financial Statements - Unaudited

8 Property, plant and equipment

During the six-month period ended 31 December 2021, the Group acquired assets with a cost of A$304,000 (2020: A$92,000).

No assets were disposed by the Group during the six-month period ended 31 December 2021.

9 Intangible assets

During the six-month period ended 31 December 2021, the Group incurred expenditure of A$11,964,000 (2020: A$190,000) related to intangibles. A$181,000 (2020: A$190,000) of this expenditure related to patent and trademark applications and licences. A$11,783,000 (2020: nil) related to capitalised development costs.

A$1,000 (2020: nil) of intangibles relating to trademark applications were disposed by the Group during the six-month period ended 31 December 2021.

10 Trade payables

At 31 December 2021, the balance of the trade payables was A$2,372,000 (30 June 2021: A$2,186,000), of which an amount of A$2,123,000 (30 June 2021: A$2,043,000) was aged less than 60 days; and an amount of A$249,000 (30 June 2021: A$144,000) was aged over 60 days.

11 Lease liabilities

The table below summarises the maturity profile of the Group's liabilities based on contractual undiscounted payments:

12 Dividends paid

No interim dividends or distributions have been made to members during the six-month period ended 31 December 2021 (2020: nil) and no interim dividends or distributions have been recommended or declared by the directors in respect of the six-month period ended 31 December 2021 (2020: nil).

Notes to the Interim Consolidated Financial Statements - Unaudited

13 Earnings per share

The following table reflects the income and share data used in the basic and diluted earnings per share computations:

Earnings used in calculating earnings per share

Consolidated

dilution 3,931,717 3,506,736

14 Share capital

Notes to the Interim Consolidated Financial Statements - Unaudited

15 Share-based payments

From 1 July 2015, senior staff and other key staff are offered long term incentive (LTI) performance rights or share options. Under this structure, the staff are only able to exercise the rights, and have new ordinary shares issued to them, if any performance, market and vesting conditions are met. These conditions typically include a performance condition requiring the staff member to achieve a minimum "meets expectations" rating and some rights have included a market condition in the form of a minimum Target Share Price (TSP). The vesting period ranges from 9 months to 5 years from the end of the relevant financial year or grant date. Performance rights or options are often offered as part of the annual remuneration review and may be offered at other times. Any offer of performance rights or options requires Board approval and, when granted, is announced to the market.

In November 2021 the Company awarded a total of 64,996,414 performance rights in respect of ordinary shares to Executive and key staff to be issued at nil cost.

14,845,702 of the performance rights under the LTI have been awarded in recognition of the past achievement of the Company's objectives in FY2021. The rights were valued at the spot rate of the shares at grant date, and the value is amortised over the vesting period. The rights vest annually over 3 years in equal tranches with the first vesting date being 1 July 2022 and require the employee to remain continuously employed by the Company until each relevant vesting date. If an employee leaves before the rights vest and the service condition is therefore not met, the rights lapse. 

In some cases, for 'good leavers', determined on a discretionary basis by management, options are prorated for service in the current period and that portion are vested on termination, and the remaining rights are cancelled. 

The remaining 50,150,712 performance rights have been granted under Key Person Agreements in respect of a total of 27 nominated key people. These people have been identified as having key roles directly related to the Company's long-term success and the allocation of accelerated performance rights has been implemented by the Board to successfully retain these employees and affirm successful delivery on a range of projects and customer commitments. These awards have an accelerated grant with delayed vesting taking place on 1 July 2024 and require the employee to remain continuously employed by the Company until the vesting date. If an employee leaves before the rights vest and the service condition is therefore not met, the rights lapse. 

There is no cash settlement of the rights.

16 Related party disclosures

The following table provides the total amount of transactions that have been entered into with related parties during the six-month period ended 31 December 2021 and 2020:

17 Commitments

As at 31 December 2021, the group had commitments of A$32,598,000 (31 December 2020: A$23,674,000) relating to the manufacturing contract for the Group's Guardian 2.1 product for the period January 2022 to March 2023 (31 December 2020: January 2021 to January 2022).

Notes to the Interim Consolidated Financial Statements - Unaudited

18 Events after the reporting period

Other than the matters outlined below, there have been no matters that have occurred subsequent to the reporting date, which have significantly affected, or may significantly affect, the Group's operations, results or state of affairs in future periods.

· As noted in cash and cash equivalents (refer Note 5), the enhanced yield deposit matured on 10 January 2022. The strike rate of the transaction was 0.5365 GBP/AUD, resulting in a principal amount of A$50,326,000 and interest of A$203,000.