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Cadmus Readies Itself For EMV Opportunity

27 August 2004

Cadmus Readies Itself For EMV Opportunity

Payment solutions company, Cadmus Technology Limited (NZX: CTL), today announced a net surplus of $56,000 (2003: $406,000) based on revenues of $13.1million (2003: $13.2 million), for the twelve months ended 30th June 2004.

The result is affected by a number of factors relating to the pending transition to the EMV (Europay, MasterCard, Visa) standard, including additional costs incurred in preparation for the migration to EMV compliant products. Abnormal items include a one-off stock write down relating to non- compliant rental inventory of $677,000 combined with significantly increased investment in infrastructure, development and certifications processes, in order to address the large EMV opportunity.

“Our strategy remains focused on developing, manufacturing and marketing advanced payment solutions to meet niche needs in international payments markets, with an immediate short-term opportunity much closer to home,” says Managing Director, Ian Bailey. “The transition to EMV is the biggest single change to the payments industry worldwide since the introduction of EFTPOS terminals.”

Credit card companies worldwide are mandating a move away from magnetic stripe cards to more secure chip-based cards. This means that merchants must replace all non-compliant EFTPOS terminals and update the associated software. To take the lead in capturing this opportunity Cadmus has made substantial investments in technology, manufacturing marketing and service and to take the lead role in effecting this change. All Cadmus payment products are now certified to meet the new EMV and DES 3 security standards.

“We estimate the New Zealand total replacement market value to be approximately $150 to $200 million – and expect to see a substantial increase in demand between 2004-2008 as many of New Zealand’s 75,000-80,000 merchant terminals need to be replaced with EMV compliant models,” says Bailey. “To meet demand we have established a scalable manufacturing capability which includes a 10% shareholding in Production Manufacturing Limited (PML), with an option to increase the shareholding to 100% over the next two years.” “We have also taken additional warehousing space, combined with the creation of a separate and independently located service arm to assist our customers and channel partners. Over the last year we have also secured full rights in all our critical intellectual property and we have greatly increased our sales and marketing staff numbers. Taken together these actions leave us with a solid foundation from which to address the EMV opportunity. ”

By enhancing distribution capability, both domestically and internationally, increasing sales staff, and developing additional sales channels over the next twelve months Cadmus will continue to gain future growth and profitability.

“While we continue to develop export markets for our products, it is the work the company has done to ready its product lines, distribution channels and certifications to enable us to take advantage of the EMV opportunity will have most impact on our performance over the next year.”

Beyond EMV

While EMV remains the immediate focus, Cadmus continues to invest in developing international markets, increasing staff, building niche applications and gaining bank certification for its products in international markets. “Beyond the immediate EMV opportunity it is the relationships we are forming in international markets, in particular our strategic alliance with CET Technologies Pte Limited (CET), that will drive Cadmus’ future growth,” says Chairman, Keith Philips.

“For example, CET’s parent company, Singapore Engineering Technologies, has an established footprint in China and India, and business interests in the United Kingdom and the US, which we expect will provide opportunities for our company in the short to medium term. We will leverage this, and other relationships, to market our products into targeted Asian countries including Singapore, Malaysia, Thailand, Taiwan, Hong Kong, Korea and the Philippines.”

“In terms of market capitalisation Cadmus is a relatively small company competing against major players in what is often regarded as a cost driven industry. However, our greatest strength and point of difference – compared to our international competitors – is that we manufacture our own payments technology, prove it locally and then export it to niche markets, through our network of in-market distributors,” says Philips. “That enables us to be faster to market and more responsive to the unique needs of different niche market sectors, than our larger and less agile competitors.”

NEW TECHNOLOGIES FOR EMERGING NICHE MARKET SEGMENTS The Board’s decision to have Cadmus take full control of its core intellectual property, achieved through the purchase of Aurium Systems Limited, will secure the basis for future development. With that transaction completed, Cadmus continues to develop new software for key growth segments, such as mobile payment, taxi systems, bill payment applications and pre-paid top-ups for mobile phones. The company’s innovative SmartTaxi system, for example (originally developed to meet New Zealand taxi operators’ need to handle credit cards and vouchers), now includes a full EMV and EFTPOS compliant service for customers.

Cadmus supplies payment terminals to a growing number of taxis. It has received orders from major taxi companies in Auckland, Wellington Christchurch, Dunedin and Queenstown for the upgraded SmartTaxi or full EMV EFTPOS system. Cadmus also received an order from CET for 5000 Cadmus CPO3 SCR pinpads, to be delivered to Singaporean taxi fleet operator, CityCab Pte Ltd, within the next 12-18 months. As we build on this established foundation of enhanced payment solutions, continuous innovation will continue to be a key to the company’s future growth.


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