YPB Group secures first significant clients in China

Anti-counterfeit company YPB Group (ASX: YPB) says it has taken its “most significant commercial step in China” to date by securing its first significant clients in the country.

YPB said it struck a deal with Chinse company CCN Technologies, a powerful new distribution partner in China following a rebuild of its Chinese sales capability, culture and market approach earlier this year.

YPB has estimated that the contract with CCN is set to commence in September 2018 and has announced that the deal will “initially be a moderate revenue contributor”, estimated at around $100,000-$1 million per year.

CCN Technologies provides anti-counterfeit technologies and has sought out an Australian business partner in the form of YPB to obtain patented anti-counterfeit and customer engagement solutions.

According to CCN, it is developing solutions that “detect and prove certainty of authenticity” while connecting brands directly to their customers.

Under a 3-year “master services agreement”, CCN Technologies has agreed to supply YPB’s patented, covert forensic anti-counterfeit tracer to its clients who will integrate YPB’s tracer into their own production processes.

YPB has said that “the possibilities in this new relationship mark it as the most significant commercial step by YPB in China since inception” due to the scope of the opportunity and has gone as far as to say that deal “implicitly validates the quality of YPB’s core anti-counterfeit solutions.”

Looking forward to commercial revenue

With the ink barely dry on the deal, YPB says that two clients have already been secured as part of the company’s commercial venture into China.

The first is one of the world’s leading automotive producers who will use YPB tracer to protect after-market spare parts. Headquartered in the US, the as yet unnamed company has a number of production sites throughout China, sells within the domestic Chinese market and exports worldwide.

The second client is reportedly one of the world’s leading oil companies, planning to use YPB tracers to protect lubricant within China from counterfeiting. According to market analysts, the lubricant market has seen a rapid increase in counterfeit over the past few years with the issue becoming a serious problem for customers given the poor quality of product typically served up by counterfeiters.

Corporate results

In parallel to its business development and distribution progress, YPB has recently published company performance metrics indicating growing commercial gravitas for its proprietary anti-counterfeit technology.

YBP says that in the first half of this year, the company saw an improvement in the company’s operating results with revenue rising and costs falling compared to the previous year.

The normalised post-tax operating loss excluding write-downs improved by 67% to $1.99 million from $5.95 million.

Reported post-tax loss improved 44% to $4.35 million and non-cash balance sheet write-downs were $2.36 million in 2018. Net cash used in operating activities in the first 6 months of 2018 improved 35% to $3 million.

YPB said that the “the improvement of H1 is expected to gather pace with clearly lower cash consumption in H2 2018”.

As further testament to the possibilities offered by its patented technology, YPB signed up a customer wishing to utilise its authentication technology within the blooming cannabis industry.

Last week, YPB said it had secured its third cannabis partner in less than a month after signing an authentication services agreement with Totem Vaporizers, a Canadian vaporiser manufacturer supplying the emergent cannabis industry.

The deal could potentially be the first of many cannabis industry agreements given the added importance of verifying cannabis-infused products, currently under the media spotlight due to active decriminalisation of cannabis in countries such as Australia, Germany, Canada and the US.

“Although we have achieved relationships with other channel partners in China in the past, most have proven disappointing. By contrast, CCN Technologies has already delivered clients of exceptional quality and scale, surpassing anything in our past and with further opportunity ahead,” said John Houston, executive chairman of YPB Group.

“The new client relationships via CCN also open up new market verticals for YPB in automotive, petroleum and lubricants in all relevant geographies. We are intent on making YPB China profitable and this first fruit of our refocused strategy is a significant stride toward realising that intention,” said Mr Houston.

Today’s news helped to lift YPB’s shares up to $0.025 per share, up around 19% in morning trade.