Ann: Appendix 4C - quarterly, page-112

Adding some more colour as a management consultant. Businesses with a new product need to spend money to drive adoption and achieve market penetration. Start ups often accept losses for the sake of expansion.

In some cases, it's an acceptable loss. If you win a key client relationship (e.g. US military) it raises your profile significantly and drives other customers to sign up as well. However, the commentary from new management is that they were trying to do too much at once and they've scaled back to targeting key strategic relationships first.

This relates to your comment about selling manufactured goods at a loss. Economies of scale are an easy answer, but there's more to it than that. The resource cost of pursuing clients is not solely the raw materials to produce the goods. There is a cost in terms of staff who are needed to go to client sites and demonstrate usage, perform trials, and teach them the application process. There is also staff cost on the sales teams used to pursue leads and attend conferences. As above, if these are spent on strategic relationships, it can be highly profitable in the long run. The problem so far has been that penetration into non-strategic markets has been slower than expected and are currently not worth the cost (hence the culling of "unprofitable" contracts). On top of that different channels also need separate channel strategies including marketing costs. Cutting back gives you a leaner operation and I believe the commentary has been aligned to this - the 4C specifically says staff costs will drop in the next report.