Review of Q1 (March Quarter) 2019 Activities
- 39% increase in cash receipts from sales on previous quarter as well as:
o Improved gross profit margin
o Reduced operating costs
- 42% decrease in operational cash shortfall
- Investors support $1.25m capital raise in February 2019
- Bracknor facility repaid
Operating cash flows - strong increase in the March quarter
As flagged in the commentary for the previous quarter (Dec 2018), the March quarter has delivered a significantly improved operating result at the revenue line while also delivering improved margins through lower cost of goods sold (COGS) and reduced general operating expenses.
Cash receipts from sales were boosted by the payment receipted from a significant order placed in the previous quarter by one the group's key clients in relation to the application of YPB's anti-counterfeit mark on one of the world's most issued passports.
Complementing the lift in the top-line, the gross profit margin improvement was enabled by a 26% decrease in COGS due to the proportion of higher-margin anti-counterfeit sales with a lower relative contribution from lower margin retail anti-theft.
General overhead expenditure also reduced by 12% on the previous quarter primarily due to stabilisation of the staff costs. This reflects the positive flow-through of the operational streamlining initiatives that took effect from October 2018 as well as further head count reductions made in January 2019.
Although the associated payouts are a one-off in the March quarter, the Company has reorientated some of the cost savings to the recruitment of new staff in sales and IT development. Furthermore, the Company has implemented stronger controls on overhead expenditures.
Other significant payments include the quarterly interest payment of $37,000 to the convertible loan note holders that will continue while the notes remain outstanding. The aggregate principal balance of the notes has reduced by $50,000 to $1.45m with the first conversion notice received during the quarter.
Other significant receipts during the quarter include the R&D tax refund of $172,000 in relation to the corporate income tax return for FY2017.
Research & development costs will continue into Q2 (June quarter) 2019 with particular focus on commercialising Motif Micro, developing the associated smartphone application for the Android platform and ongoing enhancements to the YPB Connect platform as part of the product development roadmap.
Capital raise and debt repayment
On 13 February 2019, the Company announced that it had received commitments for $1.25m to be received across two tranches. The issue of shares under the first tranche of $1.1m was completed on 20 February 2019, with the balance of $150,000 to be received subject to shareholder approval at the Company's AGM.
A free attaching listed YPBOA option will also be issued for each share issued under the placement subject to shareholder approval.
YPB expects to raise further capital in the June quarter and the Company is in discussions with its advisors and is fielding a number of enquiries from potential strategic investors.
As noted in the commentary for the previous quarter, on 2 January 2019, YPB paid USD145,000 to fully settle the outstanding loan balance with Bracknor and obtained a signed Deed of Release. This will reduce the burden of debt on our balance sheet.
In February 2019 the Company engaged EverBlu Capital as its lead Capital markets advisor. The Company is working with EverBlu to liaise with the investment community and assist with the management of the Company's external capital requirements while internally revenues continue to grow. EverBlu successfully led the most recent placement and continues to assist the Company in considering its funding requirements.
EverBlu has also introduced Stocks Digital that have been engaged to complement the groups investor relations and public relations activities. Significantly Stocks Digital has agreed to receive their fees entirely in YPB shares that will be issued subject to shareholder approval at the Company's AGM.
The sustained activities of the newer sales team members appointed over the last two quarters are starting to flow through to the pipeline numbers.
This uplift in the effectiveness of sales activities has been enabled primarily through the calibre of our current team bolstered by key appointments that come with strong sales and industry experience. The sales team has also been reorganised under a more efficient and effective reporting and management structure with greater accountability and focus on achieving key commercial objectives.
We are receiving excellent feedback from our current and prospective clients and distributors. The industry-driven refinement of our products particularly in the wine and broader caps and closures space is starting to yield early results and the strong promise of significant distribution by packaging and product producers.
We look forward to being in a position to update the market in the coming weeks on several of these major initiatives that we believe will materially contribute to our earnings performance this calendar year.
Update on YPB's Token
With the recent improvement in the global market for digital tokens the Company had sought to progress it's token plans however the Company has put any further work on hold while it works through the ASX queries that were initiated following the announcement released 3 April 2019. YPB will provide an update to the market when it is able to do so.
About YPB Group Ltd
YPB Group Ltd