Cadmus restructuring on track at half year

For Immediate Release
27 February 2008

Cadmus restructuring on track at half year

AUCKLAND: Cadmus Technology (NZX: CTL), New Zealand’s leading exporter of point of sale payment solutions, has reported ‘on track’ financial results for the six months ended 31 December 2007.

Cadmus’ chief executive officer Julian Beavis said the highlight at the half year point was to achieve an operating surplus of $1.7 million. Operating revenue was flat at $14.6 million ($14.8 million for the same period last year). This, he said, reflected more rigorous qualification of export opportunities, with some immediate but low margin opportunities being declined in favour of longer-term, higher-value, solutions-based opportunities.

A net deficit of $671,000 was reported, reflecting significant restructuring costs and costs related to the proposed merger with Provenco.

“The half year result is on track with respect to the restructuring plans outlined to shareholders in the 2007 annual report,” Beavis said.

This restructuring began in the second half of 2007 following major changes to the Cadmus board and senior management team. Navman founder Peter Maire increased his shareholding to 19.9 percent shareholding and was appointed as chairman. Management team changes included the appointment of former Teradata Australasian vice president Julian Beavis as chief executive, along with other new senior management appointments in operations, finance, sales and marketing.

Beavis said the most immediate challenge facing the new management team was to restore sustainable, profitable growth. Sales costs needed to be brought into line with sales revenue. More streamlined and better integrated processes across manufacturing, sales implementation and support services were required. A refocus of research and development on higher value solutions, rather than just terminal sales, required increased resources. New ways needed to be found to reduce manufacturing costs.

“At the half-year point we are satisfied that that solid progress has been made to address these issues and challenges,” Julian Beavis said.

“Even though overall costs have been reduced, our investment in research and development has been increased.

“We have simplified internal management and administration to reduce costs. We’ve streamlined our sales operations, focussing on fewer markets and are better qualifying opportunities than in the past.

“We’ve addressed basic issues such as development of a product road map, conducted up-to-date market research, and introduced new disciplines in sales management around setting objectives and holding people accountable to them.
“We’ve also improved training and made a big investment in technology and tools to improve efficiency.

“As a result, market share in New Zealand has improved by more than ten percent, going from approximately 18 percent of the local market to 21 percent.
“At the same time we have not backed away from our international growth plans. During the half we opened an office in Singapore. We also achieved a substantial improvement in the performance of our Australian business – which has more than doubled sales revenue compared to last year.”

Export highlights during the half year, Beavis said, included the successful go live of a multi-million dollar electronic payment solution for Melbourne-based TaxiEpay, one of Australia’s leading taxi companies. The Cadmus solution is the first in Australia to give taxi drivers a card swipe, in-car payment system which is not only fast but also enables drivers to be paid in full at the end of every shift. The solution is now being rolled out through all 700 yellow cabs operated by TaxiEpay in Melbourne and other major centres around Australia. Longer term, additional revenue will be earned as TaxiEpay sells the solution to other taxi operators in Australia. Strong sales potential also exists in other offshore markets.

In addition to the TaxiEpay agreement, Cadmus has shipped AUD $3 million of product to Bendigo Bank. A highly successful project to help integrate the Cadmus terminals with the new bank switch has helped build a closer working relationship with Bendigo Bank and also resulted in the certification of a broader range of Cadmus solutions in Australia, including the Cadmus mobile solution.

Outside the New Zealand and Australian markets – in conjunction with a local Kiwi company, Postec Data Systems - Cadmus received an order worth over $1 million to provide an integrated forecourt solution for a major petrol station chain in India. Revenue is expected through this calendar year.

During the half Cadmus achieved an important product development milestone, completing a much needed technology refresh of its core product range of EFTPOS terminals. Most important is a new design which is lower cost to manufacture while improving reliability and durability. This will reduce assembly time from approximately 24 minutes to six minutes and significantly increased the company’s ability to support increased sales volumes.

Cadmus also satisfied the stringent requirements for PCI 2.0 certification – the highest level security certification for EFTPOS terminals in the world – and will be the first manufacturer in the Asia Pacific region to achieve this certification.

To further reduce manufacturing costs and achieve research and develop synergies, Cadmus signed a strategic technology partnership agreement with Navico, the world’s largest marine electronics company. The agreement will see Cadmus and Navico sharing technology between their research and development teams. This is particularly important for the next generation of Cadmus products.

“Because we sell into different markets, but share some technologies and manufacturing requirements, there is great potential for synergy. Initially Cadmus will collaborate with Navico on sub-system design and manufacturing which will allow us to work towards convergence of technologies in new products for both companies. This will achieve immediate manufacturing efficiencies for both Cadmus and Navico, with some Cadmus manufacturing being carried out at Navico’s Birkenhead manufacturing plant,” Beavis said.

“In summary, the new management team has now had six months to more fully understand both the strengths and weaknesses of the business. We’ve said what we plan to do and we’re doing it. We continue to be confident that there is a positive way forward and that a viable, growing business can be built. Targeted investments in solutions and markets will and indeed are being made but we want to be clear that building a sustainable business will be a two-to- three-year process.

“As committed in our last annual report our objective is to trade profitably by year end. At the half year point we are on track to achieve that objective. In future years we must grow to achieve much stronger returns for our shareholders.

“What is really pleasing is that we have made this progress while at the same time going through the not insubstantial work of the proposed merger with Provenco. I commend the great team we are building for not allowed this to distract us. We are focussed on restructuring Cadmus into a successful business – irrespective of the outcome of current merger plans,” Beavis said.

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