TZ LIMITED — Interim / Quarterly Report 2017

Apr 27, 2017

TZ Limited ABN 26 073 979 272

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28 April 2017

Lodged by ASX Online

The Manager Company Announcement Office ASX Limited Level 4, 20 Bridge Street Sydney, NSW 2000

Dear Sir/Madam

SHAREHOLDER UPDATE & APPENDIX 4C – MARCH QUARTER 2017

Please find attached the shareholder update and ASX Appendix 4C (unaudited) – Quarterly Report for entities admitted on the basis of commitments for TZ Limited for the quarter ended 31 March 2017.

Yours faithfully

TZ LIMITED

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Kenneth Ting Executive Director

TZ LIMITED

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TZ Limited ABN 26 073 979 272

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TZ LIMITED – SHAREHOLDER UPDATE

March Quarter 2017

The March quarter is seasonally a slow quarter for the Company with sales momentum cooling traditionally at the start of the New Year. The March quarter is usually followed by a seasonally much stronger June quarter, and FY17 is expected to follow this pattern.

Year-to-Date (YTD) revenue is sitting at A$16.0m (unaudited) which represents a 20% increase against the same period in FY 2016.

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$22.0
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Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17
Quarterly Revenue ‘000,000s
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•  IXP YTD sales were impacted significantly by delays to major infrastructure projects, which were anticipated to come through in Q3 and Q4 FY 2017. Although there is a steady run rate of sales through the established distribution network, business growth does depend on project sales, and of the three large infrastructure projects that were anticipated, only NEXTDC’s expansion in Australia will see some material sales in the last quarter of FY 2017.

•  PAD and POSTAL YTD sales continue to grow strongly with 20% and 50% annual growth respectively on last year’s numbers. This has encouragingly been fueled by overall stronger performances in the US and Asia with respective year-on-year sales growth of 50% and 28%. While the Postal Locker initiatives in the US, Singapore and Malaysia contributed to this growth, the US PAD business has almost doubled its sales over the same period last year.

•  Gross margins continued to improve for the Company, as product mix shifts from the lower margin Postal Locker business to the higher margin business streams. The gross margin was 56% for the quarter compared to 38% for the first half of fiscal year 2017, lifting the overall YTD gross margin to 40%. The Company expects this trend to continue with anticipated improvements to Postal business margins and the shift of the portfolio mix to more traditional splits.

TZ LIMITED

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TZ Limited ABN 26 073 979 272

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•  Net cash outflow from operating activities was A$0.8M for the quarter which improves on the A$1.7M outflow recorded in the December 2016 quarter. With an investment of $0.4M in product development and intellectual property, the net impact was a resultant decrease in Cash by A$1.2M from A$2.1M to A$0.9M.

Packaged Asset Delivery (PAD):

•  Postal Locker deployments are continuing in the US, Malaysia and Australia. Apart from Malaysia, deployments continue to fall behind schedule as the time to secure locker sites and get approval for installation continues to impact progress. This ultimately will influence when the next expansion phases can be considered.

•  Pos Malaysia Phase 1 expansion is however on track for completion in May 2017. The next phase has been released to public tender and is currently awaiting award. TZ has won the tenders for the Pos Malaysia Pilot and for the Phase 1 expansion, so the outlook for future orders is positive.

•  Plans are finally underway for the Poste Italiane Postal Locker expansion. We are confident of receiving a purchase order early next month to establish the Locker IT infrastructure and to support deployment.

•  US Corporate Locker sales continue to grow strongly at 90% growth over the same YTD period last year. The partnerships with national and regional distributors such as Ricoh are starting to pay dividends, accounting for 30% of the US revenue this quarter. About 80% of new business opportunities and the current corporate sales pipeline has been introduced and/or developed by these channel partners. As product knowledge continues to improve and awareness grows within these partner organisations, we should see continued strong US growth as we more deeply penetrate the Corporate and Higher Education sectors. There is also an increasing interest and potential for a very large sales pool with major retailers as they consider and move forward with Smart Locker solutions as part of their omni-channel retail strategy. We are anticipating this to play out in late calendar 2017 to 2018.

•  The Australian business came into the New Year anticipating the outcomes of two major tender submissions. The Company was unsuccessful on one tender due to budget constraints on the project while the other tender is on an indefinite hold.

•  The Australian University Student Housing vertical is starting to show some traction with the business winning a sizeable student housing customer project in Sydney, with another deployment anticipated in Adelaide later this calendar year. Two further sites, through another provider, are forecast to come through in FY 2018. Both Student Housing providers have multi-site property portfolios and subject to successful initial deployments, we are hopeful that Locker Banks will be rolled out to these existing locations.

TZ LIMITED

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TZ Limited ABN 26 073 979 272

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•  The Australian Day Locker business continues to be buoyant with Westpac continuing to roll out Day Lockers to new fit-outs in Sydney and now to Perth, which should see supply this Q4 FY 2017. The Company has also participated on a number of

• “Expressions of Interest” responses which should drive on-going business growth in FY 2018 should the projects come to fruition.

•  In Asia, Corporate PAD products appear to be gaining traction with strong opportunities emerging across many different industries. There are a number of active tenders and proposals that our Asian business has participated on. Some of these projects are anticipated to close in the near term.

•  In Europe, TZ recently finalised a reseller agreement with Ricoh Europe, which will open the doors to the marketing of the Company’s PAD Corporate Solutions to the region. At present, focus is on the UK and Italian markets, the latter to support the Poste Italiane roll-out, which will be coordinated through Ricoh Italy.

Infrastructure Protection (IXP):

•  Despite tracking reasonably well to the half year, IXP sales that were anticipated for Q3 FY 2017 failed to materialize leaving the current YTD sales about 45% down against the same YTD period of last year.

•  US IXP business lacked any large project sales with only run rate business from the existing and retained customer base supporting activity. The only exception being supply of the final stage of a multi-site deployment for a global provider of on-line rental and holiday accommodation. Project slippage will see much of the original budgeted revenue move into FY 2018. Q4 FY 2017 will see stronger activity through some North American projects, which are still expected to close before fiscal year end.

•  IXP Australia also had a poor quarter with project sales slipping. Sales to existing customers, NextDC and Macquarie Telecom, as well as a Global Data Centre Operator in Sydney are now expected to come through in the last quarter of FY 2017 or in early FY 2018.

•  In Europe, IXP sales were also slow with delays to stocking orders to the distribution channel. In addition, the large Data Centre in the north of UK that was expected to fuel strong sales in this half year will now push out to the second half of calendar year 2017. Accordingly, this will have an impact on IXP revenue expectations for FY 2017 but will boost FY 2018 sales.

•  In Asia, on the back of the recent OCBC data centre deployment, the team are fielding a number of new IXP enquiries with opportunities in both Singapore and other South East Asia countries developing.

TZ LIMITED

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TZ Limited ABN 26 073 979 272

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Other:

•  TZ participated successfully last month in IOT Asia presenting its technology roadmap and some of the new applications and latest Smart Locking Device prototypes. Interest was high and a number of leads have since emerged including some potential licensing opportunities.

TZ LIMITED

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

+Rule 4.7B

Appendix 4C

Quarterly report for entities subject to Listing Rule 4.7B

Introduced 31/03/00 Amended 30/09/01, 24/10/05, 17/12/10, 01/09/16

Name of entity

Name of entity	Name of entity
TZ Limited
ABN 26 073 979 272	Quarter ended (“current quarter”)
26 073 979 272	31 March 2017

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff costs (f) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes refunded 1.7 Government grants and tax incentives 1.8 Other (provide details if material) 1.9 Net cash from / (used in) operating activities	4,584 (2,334) (36) (150) (2,185) (632) (27) 4	16,458 (12,445) (270) (472) (6,748) (2,543) 10 (32) 2
	(776)	(6,040)
2. Cash flows from investing activities 2.1 Payments to acquire: (a) property, plant and equipment (b) businesses (see item 10) (c) investments	(26)	(74)

• See chapter 19 for defined terms

1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
(d) intellectual property (e) other non-current assets 2.2 Proceeds from disposal of: (a) property, plant and equipment (b) businesses (see item 10) (c) investments (d) intellectual property (e) other non-current assets 2.3 Cash flows from loans to other entities 2.4 Dividends received (see note 3) 2.5 Other (provide details if material) 2.6 Net cash from / (used in) investing activities	(381)	(1,267)
	(407)	(1,341)
3. Cash flows from financing activities 3.1 Proceeds from issues of shares 3.2 Proceeds from issue of convertible notes 3.3 Proceeds from exercise of share options 3.4 Transaction costs related to issues of shares, convertible notes or options 3.5 Proceeds from borrowings 3.6 Repayment of borrowings 3.7 Transaction costs related to loans and borrowings 3.8 Dividends paid 3.9 Other (provide details if material) 3.10 Net cash from / (used in) financing activities		220 2,000
	0	2,220
4. Net increase / (decrease) in cash and cash equivalents for the period 4.1 Cash and cash equivalents at beginning of quarter/year to date 4.2 Net cash from / (used in) operating activities (item 1.9 above) 4.3 Net cash from / (used in) investing activities (item 2.6 above) 4.4 Net cash from / (used in) financing activities (item 3.10 above)	2,113 (776) (407) 0	6,102 (6040) (1,341) 2,220

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of quarter	(28)	(39)
	902	902
5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other (provide details) 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	902	2,113
	902	2,113
6. Payments to directors of the entity and their associates Current quarter $A'000 6.1 Aggregate amount of payments to these parties included in item 1.2 - 6.2 Aggregate amount of cash flow from loans to these parties included in item 2.3 - 6.3 Include below any explanation necessary to understand the transactions included in items 6.1 and 6.2
		Current quarter $A'000
		-
		-
7. Payments to related entities of the entity and their associates Current quarter $A'000 7.1 Aggregate amount of payments to these parties included in item 1.2 93 7.2 Aggregate amount of cash flow from loans to these parties included in item 2.3 - 7.3 Include below any explanation necessary to understand the transactions included in items 7.1 and 7.2
		Current quarter $A'000
		93
		-

Being directors’ fees and allowances, office rent, accounting fees, administration and marketing costs paid during the period to entities related to the directors of the entity.

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

8. Financing facilities available Add notes as necessary for an understanding of the position Total facility amount at quarter end $A’000 Amount drawn at quarter end $A’000 8.1 Loan facilities 3,000 2,000 8.2 Credit standby arrangements - - 8.3 Other (please specify) - - 8.4 Include below a description of each facility above, including the lender, interest rate and whether it is secured or unsecured. If any additional facilities have been entered into or are proposed to be entered into after quarter end, include details of those facilities as well.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
	3,000	2,000
	-	-
	-	-

The entity has a secured loan facility with First Samuel for $3 million with a term of 24 months. The interest rate of the facility is 90 day BBSW plus 4% p.a.

9. Estimated cash outflows for next quarter	9. Estimated cash outflows for next quarter	$A’000	$A’000
9.1 Research and development 9.2 Product manufacturing and operating costs 9.3 Advertising and marketing 9.4 Leased assets 9.5 Staff costs 9.6 Administration and corporate costs 9.7 Other (provide details if material) 9.8 Total estimated cash outflows		(4,200) (100) (160) (2,250) (850)
		(7,560)
10. Acquisitions and disposals of business entities (items 2.1(b) and 2.2(b) above)	Acquisitions		Disposals
10.1 Name of entity	N/A		N/A
10.2 Place of incorporation or registration	N/A		N/A
10.3 Consideration for acquisition or disposal	N/A		N/A
10.4 Total net assets	N/A		N/A
10.5 Nature of business	N/A		N/A

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

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Sign here: ............................................................ Date: 28 April 2017 (Director)

Print name: KENNETH TING

Notes

1. The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity that wishes to disclose additional information is encouraged to do so, in a note or notes included in or attached to this report.

2. If this quarterly report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. See chapter 19 for defined terms 1 September 2016

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