veritas: briefing note tz limited

BRIEFING NOTE TZ LIMITED

Comment
The Q4 and 1H FY2011 cash flow are not indicative of the increasing level of deployments and the benefits from recent restructuring within TZI and PDT. These are expected to show a demonstrable impact in 2H FY2012 supported by announced and potential trials, which indicate strong ongoing interest in both TZI applications.

Q2 & 1H FY2012 Cash Flow Statement
TZL reported a 11.6% increase in receipts for both Q2 and 1H FY2012.
This was weaker than expected, due to:
? Delays in some TZI deployments and timing issues related to sales and receipts. This includes next NextDC, with the Melbourne rollout and revenue receipts deferred from Q2 to Q3.
? Lowers than expected revenue from PDT, due to a focus on larger contract opportunities which resulted in a longer process. PDT expects to reverse this in H2, with bid success, and to achieve FY2012 forecasts. In addition, royalty income was not accounted for, despite investments being made.
Payments increased in Q2 and 1H by 19.8% and 9.2%, resulting in a 3.1% increase in net operating cash outflow for 1H FY12 of $4.8m. This was mainly due to:
? Staff (+26.8% in 1H, including +41% in Q2), reflecting the expansion of employee numbers within PDT and additional sales personnel within TZI.
? Working Capital (+6.1%) with the ramp up of operations,
Cash - Cash at the end of September 2011 was $1.0m after a net $0.6m in one-off payments. TZL expect this to be reversed in 2H Fy2012..

Outlook has continued to improve, including:
? Success with the Australia Post PAD trial and the prospect of an extensive rollout across its network.
? A trial of 6 PAD lockers for Coles Myer to commence in March 2012 and an opportunity for PAD with leading shopping centre mananger (see below)
? Further re-ordering by existing customers for PAD, increasing the base above the 40 systems currently in place.
? The prospect of additional Data Centre contracts with NextDC and other key DC operators, both in Australia and offshore.
? For PDT, success with its focus on larger projects across both health and military, including 14 outstanding Android contracts.


Loan Facility
TZL has established a US$3.00 standby loan facility with QVT Fund/Quintessence Fund, its major shareholder, for working capital and some funding needs.

Potential Shopping Centre opportunity for PAD
TZL has announced the signing of a Letter of Intent with a leading shopping centre management group for the potential deployment of intelligent lockers at its centres.
TZL and the management group will: develop a commercial business model; consider a trial; and if successful, a potential rollout to further shopping centre properties. A decision on a trial is expected by June 2012.

The aim of the lockers for management groups, such as Westfield, is to increase shopper numbers and spend at its centres through:
• Providing a central point for collection of online purchases.
• Providing a collection point for purchases from within the centre