On Track for Step Change in Profitability - Appendix 4D and Commentary
Sydney, Aug 31, 2016 AEST (ABN Newswire) - Brand Protection and Customer Engagement solutions company YPB Group Limited (
ASX:YPB) is pleased to announce its financial results for the half year ended 30 June 2016.
- Half year loss in line with expectations
- Substantial progress in business development to become apparent later in H2 2016
- A strong acceleration in revenue to commence in Q4 2016
- Costs being judiciously controlled
- Expectations of breakeven Q l 2017 and FY17 EBT of $5m reconfirmed
The period was pivotal for the company as it launched commercialization of its end-to-end Anti-Counterfeit and Customer Engagement solutions suite. Significant development of the business was achieved in the half year although that progress was not yet visible in the financial results. Numerous valuable contracts announced during HI will only first contribute revenue in H2 2016. Further, it is likely H2 will see both a greater number and a greater value of contract closures with revenue acceleration to follow. It is this conversion of an ever-increasing opportunity pipeline together with careful cost control that underpins confidence in cashflow breakeven being achieved by end Q l 2017 and $5m EBT for FY2017 (December year end).
Financial results HI 2016
Cash consumed by the business of $4.4m for HI 2016 was in line with expectations. The reported loss of $6.2m included non-cash adjustments of $1.8m, the most significant being share based payments (primarily for businesses acquired), non-cash depreciation and amortisation, and a mark-to-market adjustment of the funds due from Lanstead Capital LP.
Revenue growth of 107% in H I 2016 on pep was a sound achievement but the absolute dollar increment modest. A more significant revenue increment is likely in H2 although it will be heavily Q4 weighted and subject to contract closure and commencement dates.
Expenses for the period also effectively doubled as the personnel necessary to execute commercialisation were hired. Importantly, there was negligible growth in the cost base between Ql 2016 and Q2 2016. Cost control and minimisation is a core value of the company and is evidenced by a majority of the executive team operating from virtual offices. Costs are unlikely to increase notably in H2 2016 with the possible exception of fees to JV partners or agents should a new client introduced by such parties begin generating substantial revenues. Obviously, in such a case there would be a large net benefit to profitability.
During the half company raised $4.5 million in new equity. The raise was led by international investment bank Moelis and the company's first institutional support was achieved with six institutions joining the YPB register.
Business Developments
Personnel
YPB has assembled a talented, experienced team to drive the commercialisation of its solutions suite.
Key hires and role changes during the half included:
- John Houston passing the CEO baton to COO Jens Michel. John remains a driving force in strategy and key opportunity development as Executive Chairman.
- Jens Michel promoted to CEO 6 months post-joining YPB to drive day-to-day business growth and execution. Prior to YPB Jens had major success in business building in SE Asia for several European companies.
- Greg O'Shea as COO from a 23-year career in logistics and supply chain management, primarily in SE Asia.
- Jason York as CFO with significant experience in multi-national, multi-currency financial management.
- Rob Whitton freed from CFO duties to take an expanded role in business development in ANZ while retaining Company Secretary and Director responsibilities.
- Tianya Song a Western educated Chinese citizen with significant experience with EU companies in China, heading a renewed, refined and reinvigorated strategy in China.
- Mark Stafford after a multi-decade career in retail supply, spearheading the Australian retail and export focused business.
- Sheldon Brady with multi-faceted business development experience as Director ANZ & China, Corporate Accounts and Strategic Alliances.
- Philipp Hoffman with significant experience in SE Asia as President YPB Connect.
- Simon Szewach, co-founder of YPB Connect, moving into the key role of VP Emerging Markets and Strategic Partnerships.
- Isaac Balbin remaining the driving force behind the development and expansion of the YPB Connect platform.
Multiplier Partnerships
An important element of YPB's strategy is partnering where possible and logical. Partnering greatly multiplies the company's effective sales force and lifts the chance of effective market penetration by facilitating otherwise impossible access to key decision makers. Simultaneously, it minimises risk and capital commitment by keeping the cost base low. Key partnerships established in the period included:
- Affyrmx JV - Government Vital Documents in Mexico and Latin America
- Sachin Tendulkar in India
- Agent in Pakistan
- Agent in Sri Lanka
New business pipeline
The most important aspect of business development since the commercialisation phase began in earnest early in 2016 is clear confirmation that there is a large, hungry market for YPB's solutions. Brand Owners, particularly those exporting to destinations at high risk of counterfeit, increasingly recognise the need for Brand Protection strategies and the need to secure porous supply chains against counterfeit, substitution and theft. Consequently, the level of engagement with YPB is very high and the company is not aware of any potential client considering alternative solutions.
The new business pipeline has grown greatly over 2016. At the start of 2016 the new business pipeline was in the order of $20m of possible revenue per annum. It presently stands at over $128m of possible revenue per annum. This figure relates to projects at various stages of development from early to advanced. It should not be taken to mean that revenues approaching that figure are anticipated by the company.
Nevertheless, there is sufficient revenue with sufficiently high probability of conclusion in the pipeline to give the Board confidence to reiterate its stated milestones for 2017 of end Q l breakeven and $5m full year EBT.
Key achievements over 2016 thus far and likely further developments include:
- MOU signed with global packaging leader Orora - YPB's suite of Brand Protection and Customer Engagement solutions will be offered to Orora's customers under the agreement. It is anticipated a formal supply agreement with Orora will be concluded in the relatively near future. Further, YPB and Orora have progressed a targeted client rollout strategy.
- Affyrmx JV Mexico - Vital Records contracts won with four states in Mexico in the short period since the JV commenced in February 2016. The JV is progressing a number of other significant opportunities and expects at least one important Government Vital Document win prior to end 2016. The JV also recently announced its first non-Government contract in Mexico to protect food coupons for a charitable organization.
- Tedulkar JV India- Ten year contract with an entity associated with Sachin Tendulkar to spearhead YPB's move into the region. The JV is actively engaged in a number of Protect and Connect opportunities. Good progress is being made and closure of the first opportunities are possible pre end 2016.
- China - New management in China is achieving early success. YPB's technology was chosen to be applied in Government security passes used by officers of the Peoples Procuratorate of Beijing Municipality. YPB will also Protect tickets for a new private museum in Beijing. It is likely the real benefits of the reinvigorated strategy in China will not flow until 2017 when further progress is made.
- Australia - the pipeline is growing strongly with a focus on retail plus food, wine and neutraceutical exporters. The first pharma customer, Universal Pharmaceuticals, was signed in early July. Later in July, an MOU for a key supplier to the FMCG sector, Impact International, was signed with a MOU to offer the full product suite to its client base. Several other significant opportunities are well advanced and expected to close pre end 2016.
- First contract signed in New Zealand - YPB to supply its suite of technologies to clients of Comtech Solutions, with a focus on exporters in the food and beverage sector.
- Retail Anti-Theft - The extension of the Brand Protection range (PROTECT) into retail anti-theft commenced in early August with Dan Murphy's the first customer. This product extension is likely to prove very profitable in its own right and provide the platform for further penetration of the retail market with other elements of YPB's solution suite, notably CONNECT direct customer engagement.
- Thailand and ASEAN - a number of opportunities are progressing with several closures possible pre end 2016.
- Varisec ePassport technology - YPB's VariSec technology was chosen by a large Southeast Asian nation for its ePassports, in addition to a reorder by an existing customer covering a further 12 million ePassports. YPB is the only supplier of security foil to the passport market and it is likely further countries will adopt the technology of the next couple of years.
YPB Executive Chairman Mr. John Houston said: 'The period was the most important in the development of YPB as a genuine global franchise for Brand Protection and Customer Engagement, with a very strong Management team assembled, numerous clients signed and a burgeoning pipeline established to underpin our aggressive growth plans for the next 18 months. We've placed a stake in the ground regarding our expectations for 2017 and look forward to delivering on this and creating value for shareholders as a result."
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About YPB Group Ltd
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