THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION. THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

For immediate release

4 December 2023

Spectra Systems Corporation

("Spectra" or the "Group")

Acquisition of Cartor Holdings Limited

To accelerate the Group's penetration of the polymer banknote substrate market and open new sales channels for its security products

Spectra Systems Corporation (AIM: SPSY.L), a leader in machine-readable high speed banknote authentication, brand protection technologies and gaming security software is pleased to announce that it has entered into a conditional agreement to acquire Cartor Holdings Limited ("Cartor"), a leader in the security printing industry, for a maximum consideration of £10.5 million (the "Acquisition").  Completion of the Acquisition ("Completion") is subject to certain customary conditions.

Highlights

Once completed and Cartor has been integrated into the Group, the Acquisition is expected to:

·    Consolidate the supply of Spectra's Fusion^TM polymer substrate within the enlarged Group

·    Increase margins on polymer substrates by bringing profit margin within the enlarged Group

·    Open new sales opportunities for Spectra security products in:

o  postage stamps,

o  tax and revenue stamps,

o  brand protection and security labels,

o  other security documents

·    Increase combined earnings through replacing current supplies to Cartor with Spectra's optical materials

·    Increase product development capabilities with direct access to Cartor's state-of-the-art printing capabilities

·    Increase visibility for Spectra through two facilities in Wolverhampton, UK, and Meauce, France, giving the enlarged Group presence in four G7 countries

Background on Cartor

Cartor, through its three wholly-owned subsidiary companies, operates from two manufacturing sites in the UK and France, supplying postage stamps to over 180 administrations globally. In addition to conventional and hybrid postage stamps, it prints and produces tax stamps, vouchers, coupons, certificates, and security documents, and provides a safe and secure environment for hand assembly and fulfilment. Cartor differentiates itself from its competitors by using state-of-the-art technology to make it difficult for counterfeiters to operate in industries with high monetary or intellectual value products and services.

In addition to its core security printing business, Cartor has worked with Spectra for the past two years to develop the necessary expertise to produce Fusion^TM substrates for qualification by central banks and leading polymer banknote printers.

In its year ended 30 September 2022, based on audited financial statements prepared  in accordance with UK GAAP (FRS102), Cartor  generated an EBITDA of £3,022,088 and profit before taxation of £1,010,026 on turnover of £16,022,532. Its net assets at that date were £4,441,120. In its year ended 30 September 2023, based on unaudited management accounts, Cartor generated an EBITDA of £2,525,100 and profit before taxation of £435,600 on turnover of £16,188,200. Its net assets at that date were £4,909,800. No tax was paid in either year due to offset against capital expenditure and  tax losses, of which c. £1.9 million remain available.

Summary of the Acquisition

Spectra will acquire 100% of the outstanding shares of Cartor on Completion. The consideration for Cartor comprises:

·    £5.5 million to be satisfied in cash on Completion;

·    up to £3.0 million, subject to customary net asset, net cash and third-party debt adjustments to be made prior to Completion, which will be satisfied through the issue of new shares of common stock of Spectra ("Shares") on Completion at the thirty-day volume weighted average stock price of Spectra's shares prior to the date on which the conditions to Completion (except the admission of the Shares to trading on AIM) are satisfied. A total of £1 million of the Shares will be subject to 12-month lock-up agreements (subject to customary exceptions); and

·    a potential further sum of £2.0 million, which may become payable by Spectra by no later than 18 months after Completion, through the issue of further Shares, in the event that Spectra has qualified its Fusion^TM polymer substrate for tender submissions with a central bank customer. If this consideration becomes payable, this tranche of Shares would be issued at the higher of (i) the thirty-day volume weighted average stock price of Spectra's shares prior to Completion; and (ii) the five-day volume weighted average stock price of Spectra's shares at the time of a successful qualification by a central bank. 

In addition, Spectra will assume up to £4.5 million of Cartor's current external debt, at an average interest rate of 0.3%, as part of the Acquisition.

Completion is conditional on the satisfaction of customary conditions, including obtaining consents from certain customers of Cartor. Spectra currently expects Completion to occur during December 2023.

On Completion, each member of Cartor's senior management team will enter into a new employment agreement with Cartor. Cartor will also enter a new 20-year lease on Completion in respect of Cartor's purpose-built manufacturing facility in Wolverhampton, UK.

Rationale for the Acquisition and Increased Opportunity

The international polymer substrate market currently has only two suppliers, CCL Industries in Canada and De La Rue International in the UK. Spectra's research and dialogues with central banks has clearly shown the desire of the banks to have another supplier of ready to print bespoke polymer substrate. 

Spectra has been working with Cartor for two years to achieve high quality conventional and machine-readable, ready for printing polymer substrates which include conductive layers, opacity layers and bespoke window designs as required by central banks. Spectra has enhanced its competitive position in the market by further integrating the production supply chain of Fusion^TM.

In addition to driving Spectra's growth in the polymer substrate market, the Acquisition will, in the opinion of Spectra's Board of Directors, enable Spectra to introduce its advanced security technologies into Cartor products which include postage stamps, tax and revenue stamps, brand authentication labels and ID documents.  Cartor has established an international presence in these products, which currently utilize various public features, and is expected to be able to both develop the necessary processes to integrate Spectra's technologies, as well as work with its customers to upsell Spectra products.

Dr. Nabil Lawandy, Chief Executive Officer of Spectra, commented: "The Spectra Board of Directors and I are delighted to announce the acquisition of Cartor to solidify our position in the polymer substrate market and expand our business through new sales channels.  Our experience in working with the Cartor team for two years has been exceptional and I have great confidence in the leadership of the group led by Andrew Brigham (Managing Director), Ian Brigham (Chairman) and Martin French (Finance Director).  Andrew, Ian and Martin are experienced, innovative, resourceful and energetic individuals, with whom I am excited to work to increase our revenues and earnings over the coming years.

"Given Spectra's strong cash position as well as cash generation, the Board is confident that we will continue to issue our dividends and meet our customers' financial obligations following Completion."

Andrew Brigham, Managing Director of Cartor, commented: "The acquisition comes at a time when Cartor is poised for growth and under Nabil's leadership we hope to accelerate this and unlock new opportunities. The Cartor group expects to leverage Spectra's deep technical expertise and Cartor's operational 'know-how' to deliver game changing solutions to its current and future customers."

Ian Brigham, Chairman of the Board of Cartor, commented: "I have spent most of my career in the security printing industry and I am very much looking forward to this next chapter working with Nabil and the high performing Spectra team to grow revenues and earnings through new opportunities."

Enquiries:

Important Notices:

The person responsible for arranging the release of this announcement on behalf of the Company is            Dr. Nabil Lawandy, Chief Executive Officer of Spectra.

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

This announcement contains certain forward-looking statements. No forward-looking statement is a guarantee of future performance and actual results or performance or other financial condition could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact they do not relate only to historical or current facts. They may contain words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "projected", "expect", "estimate", "intend", "plan", "goal", "believe", "achieve" or other words with similar meaning. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of these influences and factors are outside of the Group's control. As a result, actual results may differ materially from the plans, goals and expectations contained in this announcement. No statement in this announcement is intended to be, nor may it be construed as, a profit forecast or be relied upon as a guide to future performance. Any forward-looking statements made in this announcement speak only as of the date they are made. Except as required by applicable law or regulation, Spectra expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement.