YPB has overseas success with brand protection technology

YPB Group Ltd (ASX:YPB) released its report for the June quarter on Thursday, but it could be argued that it was overshadowed by the important news that emerged earlier in the week.

The product authentication and consumer engagement solutions group announced on Monday that it had reached the significant milestone of over 100 million proprietary QR codes known as “ProtectCodes” issued to existing customers of the company’s Connect platform.

This represented another important milestone for the group which has continued to expand quickly in fiscal 2019.

In May, YPB announced that it had reached a milestone of 75 million “ProtectCodes” issued, a level that had been reached in around 24 months from the launch of Connect.

In the past two months, it has mainly been YPB’s cannabis and pharmaceutical customers that have been responsible for the accelerated uptick to 100 million, with over 29 million codes being issued in the past 60 days.

The company’s growth rate, as well as news that it had recently negotiated a Master Supply Agreement (MSA) with cannabis extraction specialist Halo Labs, has attracted significant investor interest.

The MSA was formalised in mid-July, and since then the company’s shares have doubled.

Management highlights cost controls and operational improvements

The trend of reduced cash consumption of approximately $800,000 continued in the June quarter with net operating cash burn falling 18% from the March quarter and 48% from the previous corresponding period in 2018.

Quarter on quarter reductions in staff costs of 27% and corporate overheads of 23% were the primary drivers of the improvement, and this can also be attributed to ongoing operational refinement and refocusing.

The improved June quarter result occurred despite a 33% fall in cash receipts on a quarter on quarter basis.

This partly reflected the timing of payments from passport-related sales, which are variable between quarters, but there was 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.

Management said that further cost reductions will follow intense ongoing scrutiny on the value-generation of every cog in the business with the first important goal being a self-funding operation.

This represents astute prioritisation by management as it will assist the company in facilitating a change in product mix and strategic direction if required.

Focusing on resilient sectors

YPB indicated that it has narrowed its focus on sectors that are of a non-discretionary nature and/or those where brand protection is more essential.

This often sees the company developing relationships with overseas organisations where counterfeit risks are greater.

YPB has rekindled and struck new partnerships with key packaging suppliers to brands in order to gain leveraged market access and reach.

The group has also increased the robustness of its key ProtectCodeTM and Connect technologies, while refining its sales process.

Looking to the near to medium-term, YPB should benefit from the rollout of its Motif Micro technology which is very promising for the first iteration of smartphone yes/no scanning, and the company is on track to achieve a key milestone of curved surface readability.

Management still expects MM1 to be commercially ready by the end of 2019.

Smartphone readability of high integrity authentication marks is a generational technical leap with mass market applications.

Tamper proof technology in high demand

Curved surface readability is of value to all consumer brands but particularly so in health and beauty, and bottled goods such as wine.

On this note, the June quarter featured the co-launch of Vintail with Seppeltsfield one of Australia’s largest wine producers.

Vintail is a high-end authentication and engagement solution for premium wines where counterfeiting in export markets is a problem.

This technology 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 refilling of the originally exported wine bottles.

Another important achievement was the adoption of YPB tracer thread by one of the world’s largest cotton garment manufacturers, Esquel Group, in China.

In Indonesia, YPB has appointed PT Meidanum Imperii as a channel partner where it will focus on medical equipment and packaging for beauty, cosmetics, food, beverage and baby products.