June Quarter 4C and Commentary
- Cash receipts lower in Q2 on prior quarter as foreshadowed
- Non-COGS costs trending lower and closing in on $6.5m annualised target
- Executive leadership change in early July already increasing operational effectiveness
The quarter again showed similar financial operating results to the preceding quarter. Cash receipts were down as were costs. All results were in line with expectations.
Net cash used in operating activities fell 13% on Q1 2017 despite lower cash receipts due to lower R&D, personnel and corporate costs.
The cost out programme is tracking to plan with quarterly non-COGS gross spend on costs falling from $2.8m in Q4 2016, to $2.1m in Q1 2017 and $1.8m in Q2 2017. The trend largely confirms the trajectory of annual overhead expense falling from $11.1m as at end 2016 to $6.5m by mid-2017 as previously advised.
Contract closures in the quarter were poorer than originally anticipated but cash receipts were largely as expected. Contract closures are still slower than hoped thus far in Q3 but progress is clear and the prospect of good contract closures in the current quarter remains solid.
The timing of closures will determine the outcome of Q3 2017 cash receipts. Nevertheless, present indications are that Q2 2017 will mark the low in cash receipts and a clear improvement should be evident in Q3 2017.
Post quarter-end, following the CEO's departure in early July 2017, founder, major shareholder and Executive Chairman John Houston resumed day to day operational leadership. John has already clearly improved operational traction and resource allocation effectiveness.
John's greater operational intensity has reinforced the Board's already strong expectation of a $5m pretax profit in 2018. As previously noted, building the company's potential new business pipeline to $122m has been a major achievement and the profit target requires only relatively modest conversion of that pipeline to revenue. As previously observed, the company is on the cusp of a profound financial transformation but contract delivery and revenue commencement remain the keys. Conversion of pipeline to revenue is the subject of vigorous, refocussed effort.
Developments in Q2 2017 included:
- Signing Guangzhou Panyu MCP Industries part of SOE COFCO's packaging operations, as a new channel partner (signed end March);
- Concluding a US$10m convertible notes with warrants funding facility with Bracknor Investment Group of Dubai; and
- Signing Kim Pai Impact of Thailand, a major tube producer for multi-national FMCG operators.
In early July:
- John Houston resumed full operational leadership; and
- A four year A$5.6m print contract to supply winning ticket registers was awarded by the National Lottery Office in Mexico
Q1 2017 cash flows were in line with expectations. Cash receipts for Q2 were $0.532m down from $0.770m in Q1. Clear improvement in cash receipts is likely in Q3, although they will remain relatively modest in terms of the company's potential and ambitions.
Gross cash outflows were down approximately 7% on Q1 2017 including COGS and down circa 11% excluding COGS. Net cash used in operating activities was down 13% on the prior quarter at $2.0m from $2.4m
R&D spend fell $0.196m in Q2 from Q1 due to the bulk of the CONNECT 2.0 software release being completed. R&D spend fell faster than previously expected in Q2 and is expected to remain fairly stable in Q3 whereas previously it was expected to fall further.
Staff costs fell roughly 10% in Q2 from Q1 and will fall further in the current quarter. Corporate costs fell 12% and will fall further in Q3. COGS may rise in Q3 due to imminent Retail Anti-Theft opportunities.
Cash at end Q2 was $0.557m down from $0.680m at end Q1 2017.
Please note that the Appendix 4C includes "estimated cash outflows for next quarter" at item 9. Please be aware that this is a gross cash outflows forecast and should not be compared to the net cash flow figure in item 1 of the Appendix 4C. Q3 2017 gross cash outflows are likely to be down approximately 20% on Q2 2017. This is in line with the trend forecast in the last 4C Commentary and is on track for the annualised 40% reduction in non-COGS costs announced in February 2017.
YPB Executive Chairman John Houston said: "While Q2 2017 was an expectedly soft quarter financially, the data show we are on target to meet our cost-out goals. More importantly, since resuming full operational control, minor changes are quickly lifting effectiveness. We have an A Grade on-field team and with the relevant resourcing, support, counsel and focus we can and will build a thriving, profitable business by driving pipeline conversion."
To view the Appendix 4C, please visit:
About YPB Group Ltd
YPB Group Ltd (ASX:YPB) lives by three words - certainty of authenticity. We deliver on this through our experience in creating revolutionary, patented brand protection and customer engagement solutions. Solutions that detect and prove certainty of authenticity and connect brands directly to their customers, empowering them to engage one-on-one.
In an evolving marketplace and with the rapid growth of cross border commerce, our expertise presently focuses on the rapidly growing markets of Australia, South East Asia and China.
YPB Group Ltd