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TZ Limited On Track For FY2014 Target Of $8M, Above Guidance

TZ Limited (ASX: TZL) has made a strong start towards achieving its forecast financial year 2014 revenue of $8 million with revenue of $1.1 million in the September 2013 quarter about 17% higher than previous guidance.

In addition, the company has secured additional purchase orders worth $1.8 million that are expected to be supplied in the coming quarter.

Its U.S., European and Australian operations are all experiencing strong growth underpinned by multi-year supply contracts.

High levels of sales enquiries and a solid pipeline of new opportunities are presenting due to increased visibility and rising awareness of the company's product offerings.

Activity levels are expected to grow in the coming months through product deployment to existing and new customers as TZ's product offerings become more widely known in the market place.

Infrastructure Protection (NYSEARCA:IXP)

The company's Infrastructure Protection business (IXP) has seen a four-fold increase in unaudited revenue from the previous corresponding period with continued revenue growth expected as its offering gain market share.

This is due to the increasing push towards mandated data security, compliance and governance in the IT sector accelerating the adoption of electronic cabinet locking solutions.

Since the initial introduction of the IXP product range in mid-2010, the company has progressed from small pilot trials with early technology adopters into more structured larger scale evaluation deployment programs.

In the last six months it has moved into a new phase of full product acceptance and broader scale deployments as IXP has been accepted as the data cabinet security standard by our customers.

This shift in adoption preference and the IXP products being established as a proven value based offering are driving significant growth, allowing TZ to gain market share and build a strong and differentiated brand awareness.

According to Frost and Sullivan's World Server Rack and Rack Options 2009 market research report, the total number of data centre cabinets sold world-wide is circa 2 million per year with an expected average compound growth rate of about 10% per annum.

The majority of these cabinets when deployed use standard mechanical swing handle locks.

As the data centre cabinet market grows, it is expected that the percentage of new cabinets added each year fitted with electronic locks will grow and management expects a portion of IXP's growth to be driven by capturing a percentage of this growing market.

It also estimated that the current global addressable market for electronically locked cabinets is in the order of around 200,000 new cabinets per annum.

The company is targeting to triple last year's IXP sales numbers in FY 2014 and deliver locking solutions for 8,000 cabinets, or an estimated market share of 4% (up from about 1.5% in FY 2013).

To support on-going market penetration, the company has delivered a number of significant product extensions:

- Substantially upgraded and improved TZ Centurion Server™ software offering launched in October 2013 as part of annual software maintenance obligations to customers. This improves processing performance and provides new features that greatly enhance useability and reporting. Roll-out to Australian customer base has already been very well received, with European and North American roll-outs expected over the next two weeks;
- New patent pending TZ SwingHandle™ offering is expected to be introduced by the end of this calendar year. This product will be the first modular cabinet locking offering in the market that comprises a mechanical lock with the capability of being electronically upgraded in-the-field with the simple attachment of a proprietary TZ module. This product is being targeted at the cabinet manufacturers and suppliers to address the 90% of the cabinet market who use mechanical locks. This product will act as a mechanical lock substitute with an upgrade path and will be priced competitively to promote wide spread adoption.

Packaged Asset Delivery (PAD)

The company's Packaged Asset Delivery (PAD) business has increased its revenue three-fold from the previous corresponding period.

In addition, the value of additional PAD purchase orders already secured is $1.7 million. This is expected to be invoiced in the coming quarter will underpin the first half FY2014 revenue target.

This is underpinned by sales to the corporate mail sector in the U.S. as well as the faster than expected roll-out of Parcel Locker Banks by Singapore Post.

TZ had recently received a purchase order for an additional 30 Locker Banks from Singapore Post, which has stated that it intends to have 100 Locker Banks operational within the next 12 months. To date, 15 Locker Banks have been deployed.

Like its IXP business, the U.S. PAD business has seen a shift in adoption preference with several large US corporations moving from pilot trials to full scale product acceptance and locking in multi-year supply contracts.

These contracts ensure a minimum fixed number of locker bank deliveries and installation per month over a multi-year time period. As TZ's PAD offerings become the standard for accountable mail management, customers are rapidly extending the PAD locker bank deployment to other buildings and campuses within their networks.

These corporations have as many as 50 to 100 sites / buildings on a campus and this accelerated roll-out represents a significant source of growth.

It has released an upgraded version of its PAD TZ Courier™ application software and the first general release of its TZ Courier™ Locker Management Server software which enables centralised management of dispersed locker banks, a pre-requisite for broad scale deployment.

The pipeline of opportunities for further Postal and Logistic locker opportunities is very strong. In the last 12 months, TZ has had several major organisations start to explore Parcel Locker strategies to complement their existing consumer service and e-commerce business offerings.

The company is also being actively approached to engage in invitation only RFI (Request for Information) submissions, formal tenders and specific pricing proposals for these customers in all geographies including the US, Central America, Europe, South Africa and Asia.

These are significant infrastructure commitments for these postal and logistics customers and therefore the tender and procurement process can take a significant amount of time to progress, particularly if government procurement policies apply.

In Australia, the A.D.A.M. Parcel Locker Network is due to expand with the next batch of lockers scheduled for deployment in the coming weeks.

As indicated previously, the company has ordered an additional 18 Locker Banks which will start deployment this quarter and into early 2014.

A.D.A.M. Locker usage continues to grow primarily through carrier service agreements and direct service offerings to business clients.

TZ receives a transactional fee for every parcel dropped off/picked up from the Locker Bank.

Parcel volumes are expected to grow as courier companies start to expand the catchment area for each A.D.A.M. Parcel Locker location outside the initial trial zone.

Additional initiatives are currently being pursued which should offer the company some exciting and new business options.

Analysis

TZ's results from the September 2013 quarter clearly demonstrate that it is on track to meet and possibly beat its FY2014 revenue target of $8 million.

It also highlights the strong momentum building for its Packaged Asset Delivery and Infrastructure Protection businesses, both of which are gaining increasing market recognition and the corresponding orders.

Proactive Investors continues to value TZ Limited at between $0.16-$0.20 within the next 6-9 months.

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