July 31, 2019 YPB Marketing

Further significant reduction in cash burn

  • Q2 net operating cash burn falls 18% on Q1 2019 and 48% on Q2 2018
  • Improving trend to continue with ongoing streamlining
  • Valuable client wins and important Vintail launch in quarter
  • Commercially important technical strides made with Motif Micro31st July 2019 – Product authentication and consumer engagement solutions provider YPB Group Limited (ASX:YPB) presents highlights of activities for the quarter ended 30 June 2019.Operating cashflows continue improving trend

    The trend of reduced cash consumption continued in the June quarter with net operating cash burn falling 18% from Q1 2019 and 48% from Q2 2018 to –$0.799m. Reductions in staff costs of 27% and corporate overhead of 23% in Q2 from Q1 were the primary drivers of the improvement and arose from ongoing operational refinement and refocus.

    The improved Q2 result occurred despite a 33% fall in cash receipts in Q2 from Q1. This partly reflected the timing of payments from passport-related sales, which are variable between quarters, but also a noticeable drop in Retail Anti-Theft (RAT) sales. The competitiveness and price pressure in the RAT sector has intensified recently and, given the opportunities building in far higher quality authentication and engagement revenues, YPB’s RAT activities are presently under review.

    Future quarters are expected to see the trend of falling cash burn continue. Further cost reductions will follow intense ongoing scrutiny on the value-generation of every cog in the business. The clear first goal is a self-funding operation.

    Pleasing across-the-board progress in Q2

    The operating strategy set in place over the last year determined to:

  • Focus on food and beverage, health and beauty, and legal cannabis;
  • Emphasise brands exporting to or operating in high counterfeit risk geographies;
  • Rekindle and strike new partnerships with key packaging suppliers to brands to gain leveraged market access and reach;
  • Increase the robustness of the key ProtectCodeTM and Connect technologies while refining their sales process and collateral; and
  • Develop Motif Micro to commercial readiness

Pleasing progress has been made on all fronts:

  • There is meaningful engagement with brands in all focus sectors, partly due to a “riper” market with increased recognition of the quality and value of YPB’s authentication and engagement solutions;
  • Joint efforts with existing access partners such as Orora (ASX: ORA) and Impact Tubes has lifted several notches and active brand engagements are being advanced;
  • The development of new channel partners is progressing well, with one signed in Indonesia, and potential major partners in Australia have introduced YPB and its solutions to their clients;
  • The development of ProtectCode has been valuable as an easily marketable product and as a precursor to launching Motif Micro commercially;
  • Connect is now a robust software platform capable of recording authentication scans and engaging directly with consumers globally (anywhere there is a mobile network), including behind the technically challenging great firewall of China; and
  • Motif Micro technical progress is very promising for the first iteration of smartphone yes/no scanning and we are on track to achieve a key milestone of curved surface readability. Accordingly we still expect “MM1” to be commercially ready by end 2019. Curved surface readability is of value to all consumer brands but particularly so in health and beauty, and bottled goods (e.g. wine in Australia). Smartphone readability of high integrity authentication marks is a generational technical leap with mass market application. We will update shareholders as soon as we have reached the next key milestone in the development of Motif Micro.More specifically, operational achievements announced in Q2 included:
  • The co-launch of Vintail with Seppeltsfield Wines. Vintail is a high-end authentication and engagement solution for higher value wines but is also potentially relevant to other high value consumer goods (e.g. health and beauty). Vintail is a highly innovative solution solving multiple significant problems especially “tamper evidence”. YPB’s Vintail solution is highly relevant to Australian wine exporters to China and Asia where a major issue is re-use and re-filling of the originally exported wine bottles.
  • The adoption of YPB tracer thread by one of the world’s largest cotton garment manufacturers, Esquel Group, in China.
  • The appointment of PT Meidanum Imperii as a channel partner in Indonesia where it will focus on medical equipment and packaging for beauty, cosmetics, food and beverage and baby products.Board changesMr Philip Wade joined the YPB board as a Non-Executive director upon shareholder approval at the 17 June 2019 AGM.

    Mr Anoosh Manzoori resigned on 4 June 2019 after a short but valuable contribution to YPB due to the pressure of other commitments.

Funding

A short-term working capital line was negotiated and drawn in Q2. It will be fully repaid in early August 2019.

YPB Group CEO John Houston said: “The reduced cash requirement in Q2 evidences progress toward making YPB genuinely match fit. Further operational improvements are in prospect to hasten business sustainability. While I’d like the extent of progress to be more evident in our financial results and new client flow, I’m optimistic that success is finally within sight. We are a leaner and more effective organisation with a strong solutions suite, clear go-to-market plan and irons in the fire that, if successfully concluded, would transform our business.”

Ends.

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Julia Maguire
The Capital Network
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