ferret's stock to watch: keycorp corporation

Ferret's Stock to Watch: KEYCORP CORPORATION
08:23, Monday, 18 April 2005

A COMPANY FINALLY BEGINNING TO FULFILL ITS EARLY PROMISE

Sydney - Monday - April 18: (RWE Aust Business News)
****************************************************

OVERVIEW
********

Over the years Keycorp Ltd (KYC) was accepted as a trail blazer
in its industry of secure electronic transaction solutions, but somehow
many of the big fish clients slipped by for one reason or another.

These days it's back on the comeback trail and last week the
company announced a preliminary 70 per cent acquisition of Fox
Technology Ltd, an Australian software company in the payments market.

Fox Technology specialises in creating applications for EFTPOS
devices, POS (point of sale) terminals, mobile devices and value-added
POS transaction solutions.

Keycorp has worked extensively with Fox as part of its managed
services agreement with Westpac.

By taking a controlling interest in Fox, Keycorp says it will
be able to build on that relationship by incorporating Fox software,
terminal management and value-added solution capabilities into its
internet and dial transaction solutions for the merchant payment
market.

"These capabilities would assist Keycorp to deliver richer
managed services and applications for customers in Australia and
internationally," the company says.

"Fox also developed one of the first digital identification
systems in the late 1980s and is acknowledged for its expertise in the
ID market.

"This creates synergies with Keycorp's smartcard-based ID
solutions," Keycorp says.

The parties have reached agreement in principle and terms have
been accepted, conditional on final due diligence and legal
documentation.

It is proposed that Fox will operate as a business unit within
Keycorp's Transaction Solutions operation and is expected to be a solid
earnings contributor to the company.

Financial terms of the transaction are subject to a
confidentiality agreement with the vendor.

However, it will not have a negative impact on Keycorp's target
of zero net debt for the full year.

It is expected the transaction will be concluded within the
next month.

SHARE PRICE MOVEMENTS
*********************

Shares of Keycorp fell 3c to $1.79 on Friday despite what could
be construed as an encouraging report. Rolling high for the year has
been $2.20 and low $1.25. Dividend is 3c to yield a meagre 1.68 per
cent.

Keycorp showed signs of improvement in the first half of the
year after reporting a net profit of $1.3 million compared with $1.1
million in the previous corresponding period.

EBITA was $10.4 million, up 30 per cent from $8 million, on a 21
per cent increase in sales to $57 million.

Chief executive officer Bruce Thompson commented on the result
saying that one of the key contributors was the Smartcard business,
"which is going extremely well for us".

Mr Thompson said the company had a big pick-up in both orders
and shipments in the first half.

"We're seeing the start of what's been promised for a long time,
that is strong demand and repeat business, particularly in Asia, but
also in Europe and other parts of the world.

"Our MULTOS smartcard platform is becoming more accepted as the
most secure operating system.

"The other key contributor to the first half was the impetus
from our managed services business with Westpac Banking Corporation,
which is starting to generate strong growth.

"Against that, our Access Devices business was relatively flat,
although we're expecting a strong pick-up in the second half, and the
Secure Transaction business declined, not in activity levels but as a
result of contractual arrangements with Telstra, which we'd previously
flagged to the market," Thompson recently told Corporatefile.

CASH FLOW AND WESTPAC CONTRACT
******************************

Keycorp generated net operating cash flow of $15.4 million in
the first half, up from $10.5 million in the previous first half.

Excluding project debt relating to the Westpac managed services
contract, Keycorp's corporate debt fell to $11.5 million from $25.6
million at the end of June 2004.

Corporatefile quizzed the Keycorp CEO about the outlook for
full-year cash flow and what happens to the cash flow after the
corporate debt has been repaid.

Mr Thompson said he expected the company's cash flow to
strengthen in the current half.

"At the end of January our corporate debt, net of cash on hand,
was zero, so other than our Westpac project debt, we now have a net cash
position.

"We're looking very carefully at capital management, including
dividends, share buy-backs and acquisitions.

Keycorp's achilles heel, Services and Fleet Management, appears
to have turned the corner this year.

Mr Thompson told Corporatefile it expected the business to
exceed last year's numbers, both at the top and bottom lines.

"We're very positive about the future of this business, which is
very profitable and showing good growth.

The Access Devices business booked EBITDA of $400,000 in the
first half in contrast to a loss of $3.5 million previously.

Revenue was flat at $16.3 million.

Mr Thompson said dramatically reduced costs and an improvement
the velocity of its supply chain have been the main contributors to the
earnings turnaround.

"We've reduced production costs with better scale and purchasing
power and we've also reduced R&D costs by spending more wisely."

Mr Thompson forecast sales of $110 million to $120 million for
the current year to June and an increase in EBITDA from last year's
$21.6 million.

"We've had a very strong January and we're on track to
meet those full-year targets," he declared.

BACKGROUND
**********

Keycorp Ltd is a global provider of secure electronic
transaction solutions - from smartcards and point-of-service payment
terminals to network carriage and payment engines.

It provides the infrastructure that facilitates secure
electronic transactions via a physical network or the internet.

Keycorp develops, manufactures and services smartcard-capable
online and offline terminals capable of processing credit, charge, debit
and stored-value transactions.

The terminals are designed for use at a retail point of sale,
over the phone, in mobile environments or via the internet, and can
communicate with host systems via fixed or mobile communications.

Keycorp develops and distributes smartcard operating systems
such as MULTOS and OSSCA, as well as smartcard applications, smartcard
personalisation and SIM cards for GSM mobile phones.

It is a founding member of the MULTOS consortium, which has
responsibility for developing the MULTOS multi-application smartcard
operating system.

The company's transaction network solutions provide high-speed,
flexible and robust transaction carriage services.

Keycorp's e-commerce platform delivers secure and truly
end-to-end online transaction processing interfacing services like IVR
(integrated voice response), call centres, mail, telephone or fax
ordering and internet-based transactions.

Keycorp's services business provide deployment, training, onsite
services, maintenance, warranties and repair programs, expedited
replacement, teletraining, help-desk, remote terminal management, asset
tracking, and asset management.

ENDS

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