DTI GROUP LTD — AGM Information 2017

Nov 20, 2017

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ASX announcement

21 November 2017

Chairperson’s Statement 2017 Annual General Meeting

Ladies and Gentlemen, I am delighted to address you today as the Chairperson of DTI. As Chair, I will provide an overview of the Company’s performance for the year ended 30 June 2017, following which we will deal with the formal business of the meeting. At the conclusion of the formal meeting, the CEO Peter Tazewell will provide a detailed overview of the business performance for FY17.

FY17 Overview

FY17 was an active and transformational year for DTI in which:

• over $7 million was invested in new product development;

• $11.5 million in new capital was raised to support research and development activities and increased working capital;

• a range of innovative new recording, Passenger Information Display (PID) and maintenance/operational efficiency products were launched;

• significant new contracts in the rail sector were secured; and

• the contracted backlog and opportunity pipeline increased to record new levels.

While all of this activity is part of the strategy to support the future growth of the business it has had a detrimental impact on short term profits which has resulted in the company recording a loss in FY17. In addition, the recently announced Balance Sheet review has highlighted process deficiencies that the Company is addressing and the difficulties encountered when developing new products.

Despite these short term issues, DTI continues to operate in an attractive global industry, one in which large capital projects continue to attract investment from government and industry alike and the incentive to assure passengers of safety and security, as well as improve operational performance remains stronger than ever.

Performance

There is no masking the fact the FY17 was a disappointing financial result for DTI. The reported revenue of $15.9 million was marginally below the guidance provided at the time of the capital raising and 2.2 per cent below the FY16 revenue. The revenue result was also well below the expectations that the Board had for the business. While there were no significant contract losses that contributed to the lower revenue, the slippage in major contracted projects together with delays in completing product development each contributed to the lower than anticipated revenue.

DTI continues to build its recurring revenue base as an increasing number of sites adopt DTI solutions. During FY17 approximately 17 per cent of revenue was derived from recurring

31 Affleck Rd | Perth Airport WA 6105 T +61 8 9479 1195 | F +61 8 9479 1190 DTI Group Ltd | ABN 15 069 791 091

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maintenance work, 56 per cent from new projects and 27 per cent from recurring sales to existing customers

DTI reported negative EBITDA of $3.0 million compared with positive EBITDA of $3.9 million in the previous year. This result was attributed to significantly higher costs associated with the company’s product development and market entry activities as well as individual project execution costs. After adjusting for the identified non-recurring costs of $3.5 million, DTI produced a positive EBITDA of $0.5 million.

Subsequent to the closure of FY17 DTI has completed a thorough balance sheet review and determined that the carrying value of certain assets had become impaired. These impairments will have an adverse impact on the financial results of the business in FY18 however are necessary to rebase the business for future profitability.

The Board has taken action to address these legacy issues and enhanced the executive management team. At this point I would like to acknowledge Mr Tazewell, Mr Oldland and Mr Surendran who have all joined the business since the last AGM and together with Mr Johnson are part of DTI’s executive management team.

With the balance sheet now re-based, management is focused on developing the necessary internal processes to support growth and leverage the investment that the Company has made in new products for new markets.

As at 30 June 2017, DTI had a gross cash balance of $3.1 million and $0.5 million of secured debt, comprising equipment finance and insurance premium funding. Cash flow from operations was disappointing at negative $3.6 million, due primarily to the high spend on product development (R&D) throughout the year and the timing of invoicing projects, which was heavily weighted to the second half and resulted in a large increase in net working capital at 30 June.

As noted earlier, product development is a key part of DTI’s DNA and while we will continue to develop new products and solutions, the level of R&D spend in FY18 is likely to be considerably less than in FY17.

As at 30 June 2017 net working capital was $11.3 million and elevated due to the timing of invoicing in 2H FY17. This balance is expected to unwind and reduce in 1H FY18.

In relation to safety, I am greatly pleased to report DTI has strong safety metrics with a zero LTIFR. DTI is a company committed to the health and safety of its employees and we are proud of our safety record.

1H FY18 Performance

DTI entered FY18 with an order book of $31.6 million which is expected to underpin stronger revenue in FY18. Due to ongoing project delays being experienced on a key refurbishment project, revenue is again forecast to be weighted more strongly in the second half.

As recently announced DTI has identified a total impairment of $3.1 million following the completion of a comprehensive review of its balance sheet with a focus on asset recoverability and valuation.

This review was performed after the development of a range of new recorder and passenger information system (PIS) products for the global transit industry. During FY17 DTI invested in excess of $7 million in developing these products.

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The identified impairments are attributed to:

• Obsolete stock associated with components and spares held for legacy products;

• Slow moving stock held in support of maintenance and support agreements which does not have a commercially realisable value;

• Products returned for repair where the repair costs are uneconomic compared to value of the product;

• Accelerated obsolescence of existing products attributed to future replacement by DTI’s new product range;

• Items reported as inventory that have been reclassified as property, plant & equipment;

• Impairment associated with obsolescence of intangibles assets (historical research & development projects); and

• Impairment of aged debtors where future recoverability is uncertain.

In addition during the course of this review DTI has identified a number of improvements to inventory management and classification that will be progressively implemented to ensure stronger controls over inventory valuation and classification in the future.

The impairment will be reflected in the Company’s 1H FY18 results.

Reported earnings for FY18 is also expected to be adversely impacted by the execution of an ongoing large, long term contract that will return lower than normal project margins.

It is anticipated that DTI will return to stronger margins in 2H FY18.

Tender Activity

DTI continues to be active in tendering activity and currently has tenders valued at $275 million submitted and awaiting award.

DTI’s contracted order book remains at $29.5 million at 31 October 2017 and the Opportunity Pipeline a healthy $389 million. North America, the United Kingdom and Europe remain the largest target markets for DTI’s products and services. Mr Tazewell will provide further commentary about contracted backlog and Opportunity Pipeline in his presentation.

Achievements

During FY17 DTI successfully developed a range of new products including:

• next generation hybrid digital video recorder (capable of analogue and IP feeds);

• a ruggedized train data recorder (to meet specific requirements of heavy rail);

• a range of Passenger Information Displays;

• mobile amplifier and associated passenger emergency intercom; and

• Pantograph fault identification system.

DTI also installed its first passenger counting solution for a UK customer. During FY17 DTI commenced delivery of its integrated CCTV, passenger emergency intercom and passenger information display solution to the Sydney Metro Project.

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Corporate Governance

The Board of DTI continues to be committed to a high level of corporate governance and fostering a culture that values ethical behaviour, integrity and respect.

As part of our ongoing commitment to best practice corporate governance, the Board will continue to review its governance policies and practices and will continue to make changes to ensure DTI has an appropriate governance structure.

Outlook

The Board continues to have great confidence in the outlook for DTI for FY18 and beyond. While FY17 was a disappointing financial result, DTI made significant progress in renewing its product suite in order to meet the increasing demands of its customers and the market. The Board has ensured there is a pipeline of new products and technologies to drive future revenue growth, enhanced the management capability of the business with new executive level appointments and overseen a substantial increase in the contracted backlog and Opportunity Pipeline.

DTI develops sophisticated technical products for the transit industry which are recognised for their quality and reliability. DTI is proud of this reputation and is prepared to continue to invest the resources required to ensure that DTI products continue to be recognised globally for their quality, reliability and technical innovation.

Conclusion

On behalf of the Board I express my thanks to all of the DTI team for their efforts over the past 12 months. While the financial performance was not to the desired standard the development and launch of DTI’s innovative range of new products has been a considerable achievement.

In addition I would like to thank Chris Morris for his long standing and continued support of the Company and his valuable contribution and stewardship as the Chairperson of DTI since its ASX listing. As was announced at the release of the Annual Report, Chris stepped down as Chairperson during the year and his contribution to the company has been immeasurable.

Similarly, I would like to thank the DTI investor base which continues to be patient and supportive as the Company implements its growth strategies. The Board looks forward to shareholders being rewarded for their faith and confidence with share price appreciation in the future.

Neil Goodey CHAIRPERSON

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