No Faking It With YPB
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Fakes are big business. The International Chamber of Commerce (ICC) estimates that the global cost of counterfeit trade reached US$1.7 trillion last year. According to the World Customs Organisation (WCO), 7 per cent of total world trade is counterfeit, worth an estimated US$600 billion a year. Research firm Havoscope.com estimates that the value of the global counterfeit industry by product is currently US$641 billion, with pharmaceuticals accounting for almost one-third of the value.
Putting a stop to the rip-off business is the business of Australian anti-counterfeiting technology firm YPB Group Limited (YPB), which owns two Chinese patents for invisible, non-destructible tracer and scanner technology. The covert forensic tracers, which are derived from rare earths and manufactured to a particle size of airborne microns, can be embedded in a product or its packaging before, during or after the manufacturing process, effectively becoming part of the product and/or its packaging. The tracer can be added to virtually any material, including edible products.
The other part of the technology suite is the scanner, which decodes the presence of the tracers using fluorescent-like technology, which detects the unique signature of the tracer and emits a response to the material. The scanner can be used to confirm product authenticity at any point in the supply chain, from manufacture to the shop counter.
YPB is also developing its Brand Reporter technology platform, which identifies, tracks and reports counterfeit products within supply chains and at point-of-sale. It has also bought businesses in security consulting and print management, building out its strategy of being able to sell to corporate and government customers an integrated anti-counterfeit solution, from the embedded tracer to a smartphone solution for counterfeit detection.
The company’s patents, which have 15 and 17 years to run respectively, were developed by the Dalian Maritime University in Liaoning, China, and acquired by YPB in 2014. The Sydney-based company – the name is an acronym for the Chinese “You Pin Bao” or “excellent brand protection” – was established by Australian telecommunications and IT entrepreneur John Houston (currently the executive chairman) in 2012. YPB Group listed on the Australian Securities Exchange (ASX) in August 2014 following the reverse takeover of sapphire exploration and mining company AUV Enterprises, and the raising of $10 million.
The first three contracts were signed in China, where YPB had first-mover advantage as the only company certified by the Chinese government to supply invisible tracers for anti-counterfeiting and authentication. In January, 2015, YPB announced a deal with HiCap Closures, one of China’s largest bottle closure manufacturers for the alcohol, pharmaceutical and food industries, and with Shenzhen Shensaier, a leading supplier of high-end UV printing ink and paints to the Chinese tobacco industry.
These deals were followed by a three-year contract to supply its tracer material and scanners to Guangzhou Renmin Printing for the protection of tax invoices produced for the Guangdong National Tax Bureau. Between them, the three initial contracts are expected to generate total revenue of 318 million yuan ($66 million) over four-and-a-half years.
YPB followed up in 2015 with contracts with two major Chinese banks, and a deal with a major global passport manufacturer to supply its VariSec ePassport technology. This year it has struck contracts with a “large African country” and a “large Southeast Asian nation” for VariSec ePassports, with Australian Analytical Laboratories (AAL) to include the tracer technology in the Australian Made logo on AAL products, with several Mexican states for the supply of high-security vital record documents, and has launched in India. Earlier this month, YPB signed an agreement with Australian packaging giant Orora to provide it with a full range of products and services.
Orora – the former packaging arm of Amcor – has 39 manufacturing plants and 83 distribution sites across seven countries, and supplies packaging products and services to the grocery, fast-moving consumer goods and industrial markets. The deal sees Orora able to offer YPB's anti-counterfeit technology and other security services to its customer base. The contract – which runs for a minimum of five years – is the first of what YPB hopes will be many such deals with major global manufacturers.
This week YPB successfully completed an institutional share placement at 24 cents, to raise $4.5 million. The proceeds from the placement – which was over-subscribed, and saw six new institutions join the share register – will be used to accelerate business development, expand into new markets and partnerships, and further enhance the company’s solutions suite through R&D.
YPB is yet to show a profit, but the company says revenue in the first quarter of 2016 was up 123 per cent on the preceding quarter. For the placement documentation, YPB provided guidance for estimated breakeven being reached by the end of the first quarter of 2017 and pre-tax profit of $5 million being realised for 2017 (YPB uses the calendar year as its financial year.)
YPB issued shares at 20 cents when it listed in August 2014, and moved nicely to 39.5 cents by October 2015. The stock has come back to 29.5 cents, which capitalises it at $57 million. Having given the market a number to expect, YPB now has to live up to it: the company itself says that “achieving our $5 million profit expectation for 2017 is now set as a primary marker of success.”
YPB says it has 152 customer accounts across its range of solutions and technologies, and has 150 projects in its 2017 “pipeline opportunity” – it lists 196 projects (including existing clients and “advanced” opportunities, worth $37 million a year in revenue. To this it adds 22 “intermediate” opportunities, worth $22.8 million a year. These are spread across Mexico (30 per cent), China (21 per cent), Australia/New Zealand (20 per cent), Thailand (12 per cent), India (10 per cent) and USA (7 per cent), with the anti-counterfeit (45 per cent) and government (31 per cent) sectors dominating. YPB has shown the market its detailed revenue pipeline and its path to profitability – now it has to execute.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au