CODEIFAI LIMITED — Annual Report 2019

Mar 1, 2020

ASX ANNOUNCEMENT

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ASX:YPB | 28 February 2020

A year of major operating progress and financial improvement

• Critical technical advances achieved

• Commercial readiness of smartphone readable tech proven as final step prior to rollout

• Clear advances in sales effectiveness and channel partner activity and engagement

• Client wins in target verticals to lift 2020 volumes and revenues

• 2019 reduced operating loss and cash burn with greater improvement in 2020

Product authentication and consumer engagement solutions provider YPB Group Limited (ASX:YPB) presents its results for the year to 31 December 2019.

2019 saw the greatest technical and operational advances in YPB’s history that position the company to commercially advance in 2020 with now proven software and material solutions unavailable to the company in prior years. YPB’s product suite is stable, unique and appealing, and its sales focus and effectiveness has lifted sharply. 2019’s operational progress was not felt in the year’s financial results but is expected to clearly benefit 2020’s financial performance.

2019 financial improvement

2019 saw a reduced, but still unsatisfactory, loss driven by benefits from the rebuild and refocus program commenced after the removal of the previous management. Despite revenue falling $0.87m due to cutting low margin activities, operating costs fell $1.1m allowing the pre-tax operating loss to be 17% lower and reported loss post-tax 15% lower at $6.2m. Net cash used in operations was $4.7m a $1.1m or 19% improvement on 2018.

The significant revenue fall was driven by the deliberate exit of retail anti-theft (RAT) activities which, although a logical adjacency to product authenticity, proved a low margin distraction with no competitive edge compared with own-IP technology products. YPB’s technology solutions have major potential and high margins unlike RAT products.

The revenue fall disguised some pleasing trends with improving tracer/scanner and Connect volumes with key clients. YPB China won new channel partners with multi-national end-clients who drove record China 2019 sales, more than 2x 2018 and 9x 2017. Conversion of new accounts was behind that anticipated in early 2019 but key beachheads were achieved in focus sectors of wine and dairy. New client engagement is strong and clients won in latter 2019 will contribute revenue commencing in Q1 2020.

2019 operating costs were 15% lower, an improvement of $0.9m on 2018 and more than half that of 2017, due to the intense cost-out focus over 2017 and 2018. But carry-over costs from that time and further costs from final rebuild decisions in 2019 kept costs higher than ideal. 2020 will be the first period to fully benefit from the cost cuts with a further clear reduction likely.

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Anticipating more significant financial progress in 2020

Although not apparent to the outside observer, and after persistent disappointment, YPB is finally positioned to deliver on its promise. As noted previously, the solutions suite is stable and robust, its value proposition clear and sales execution vastly more professional.

The advances in smartphone readability of a forensic authentication marker was a major breakthrough in 2019. Together with a rebuilt Connect platform and fully in-housed, lower cost IT and AI capabilities, YPB now has a flexible, customer-responsive solution suite suited to rapid deployment of smartphone initiated consumer engagement solutions - a novel, low cost marketing channel direct from brand to end consumer. The appeal to brands desperate to engage more closely with consumers is high. The company has never been in such a market-ready position.

This step-change in the commerciality of the product offer is expected to drive a better revenue outcome in 2020. Together with full year benefits of cost-outs and ongoing cost scrutiny, the cost to revenue gap can close quickly to drive a much improved 2020 result. The board and management remains intensely focused on achieving breakeven as soon as possible and restoring and growing shareholder value.

Technical and operational advances of 2019

The key technical and operational achievements achieved during 2019 were:

• Technical

  • Smartphone readability – Smartphone readability of a forensic authentication mark under real-world conditions was a profound, value-enhancing achievement not reflected in the company’s share price. It opens mass-market opportunities for product authentication as a driver of direct consumer engagement and is believed to be a world first.

  • MM1 tracer in production lines - MotifMicro’s MM1 tracer’s commercial viability was proven under production-line conditions across a broad product range from printing to incorporation in various substrates and end uses (e.g. wine caps, infant formula tins, vitamin containers etc.). This was a critical final proof required for commercial adoption.

  • Connect production-line ready – Applications Interfaces (APIs) were completed to allow seamless integration of Connect with existing high volume, production line equipment. This integration was also a critical hurdle to commercial adoption.

  • Product innovation – A world first plastic security wrap with forensic authentication capabilities was created and produced in volume. Plastic security wrap is a large and potentially lucrative market.

  • Food safety – MM1 was certified as food safe to FDA standards by SGS, the world’s largest certification company, eliminating the possibility of food safety as a client concern.

  • Patent extension – the US Patent Office granted extended coverage of the MotifMicro family of patents.

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• Commercial

  • Sales –YPB’s sales personnel, disciplines and protocols developed over the past year have dramatically improved compared with prior ineffectiveness.

  • Channel partners – Major packaging, labelling and components producers are an ideal route to market for YPB. During the year key new relationships were established and others rekindled. Channel partner activity and engagement has never been higher and prospects for sales success are strong.

  • Clients – new wins of prominent brands in key wine and dairy verticals were individually valuable but should also result in further progress in those and other verticals. Lifting service levels to existing clients has been a focus and resulted in more opportunity for increased product coverage.

YPB Group CEO John Houston said: “I’m pleased to report a reduced loss but frustrated at the time taken to get to where we are and bitterly disappointed at the cost to shareholders. Nevertheless, YPB is now an entirely different company to that of two years ago, with strong and unique products making market inroads. Everyone at YPB is driving toward inflexion of the company’s financial performance and fortunes.”

Ends.

Authorised by John Houston, Executive Chairman.

For further information please contact:

Investor enquiries

investors@ypbsystems.com

About YPB Group

YPB Group Limited (ASX:YPB) is an Australia-based product authentication and consumer engagement solutions provider. YPB's proprietary smartphone enabled technology suite allows consumers to confirm product authenticity and, for brands, that triggers consumers’ engagement.

The combination of YPB’s smartphone authentication solutions and its SaaS Connect platform, creates ‘smart’ product packaging, opening cost-effective, digital and direct marketing channels between brands and their consumers. Connect gathers actionable data on consumer preferences. It can then host tailored marketing campaigns directly back to the scanning smartphone.

YPB’s technology is also trusted by the world’s largest passport issuing nation to ensure the authenticity of its passports. YPB is currently focused on the rapidly growing Australian, South East Asian, and Chinese markets. Its focus is dairy, cannabis, alcohol and cosmetics where the viral growth of fake products, particularly in Asia, affects brand value and endangers consumers. To learn more please visit: www.ypbsystems.com

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