This article first appeared in The Edge Malaysia Weekly on October 8, 2018 - October 14, 2018
IRIS Corp Bhd is evidence that a brilliant idea and a good product do not necessarily translate into a handsome profit and money in the bank.
A pioneer in trusted identification systems, the company designed the world’s first ePassport in 1998 and went on to manufacture a variety of smart cards, biometric card readers and automatic gates, among others. Its products are used in more than 30 countries worldwide.
But despite all these achievements, Iris has been bleeding red ink the past four years. Sadly, it never really performed and seemed to lack focus as it diversified into education, sustainable development, hydroponic systems and mining and building systems, resulting in heavy losses.
The emergence of new controlling shareholders, followed by a new management team, is a ray of hope that Iris might finally shine one day.
The new management is seeking to stem the losses. Divesting non-core and non-performing assets, such as Stamford group and Regal Energy Ltd, is one way to turn it around. Stamford group is its education unit while Regal Energy is a waste treatment company that was set to undertake projects in Weinan, China.
Iris also handed over two affordable housing projects under Rimbunan Kaseh to Pahang and Melaka, and is looking to give up another five similar projects as well, which will help it reduce operating costs.
“Iris lost money for a few years ... four or five years. It was baffling. The trusted ID division was doing RM70 million to RM80 million [in revenue] consistently every year, largely from Africa, Canada, parts of Asia such as Thailand and the Middle East,” president and managing director Datuk Paul Poh Yang Hong tells The Edge.
“And these are all long-term contracts. The technology is patented and it’s really good technology,” Poh says in his first interview since taking over the reins. “I know you (The Edge) have been wanting to speak to me on Iris for some time now, but it is only now that I feel I have something to share.”
CEO Shaiful Zahrin Subhan, who joined Iris a year ago, says diversification has its merits, but unprofitable ventures, like those Iris had in the past, strained its financials and dragged it into heavy losses.
“We are moving away from these non-core areas and will primarily focus on trusted ID going forward,” he adds.
Poh, who first surfaced in Iris in July 2017, acquired a 9.78% stake via a placement on the open market, and has since raised his stake to about 16%, of which 8% is held via Caprice Development Sdn Bhd, a vehicle he co-owns with Datuk Rozabil @ Rozamujib Abdul Rahman, who directly holds 2.78% in Iris.
Other substantial shareholders include the Federal Land Development Authority with a 14.60% stake and Datuk Robin Tan, son of tycoon Tan Sri Vincent Tan, who holds 8.33% after a recent placement.
The share placements have brought in prominent shareholders and seem to have given Iris a shot in the arm.
Its cash coffers expanded to RM96.71 million as at June 30. Its long-term borrowings stood at RM129.19 million, and it had short-term debts of RM44.25 million and accumulated losses of RM318.67 million.
Shaiful says, “We’ve been through some dark days trying to clean up shop. As CEO, I should spend more time on developing the business, but the management team was hampered by the cleaning up, which occupied a lot of our time.
“But I think we’ve turned the corner now with the injection of funds (from the share placement) and we are well poised to secure new jobs.”
For its first financial quarter ended June 30, Iris posted a net profit of RM8.68 million on revenue of RM75.81 million. Compared with the corresponding period a year ago, net profit was up 66.6% despite revenue sliding 25%.
“We believe our results for 1Q2018 are sustainable,” Poh says.
Shaiful expects the global trusted ID market to continue to grow in line with population growth. Much of this growth is expected to come from Asia, Africa and certain parts of America. Apart from the growing population, Iris is also banking on increasing existing relationships with customers and provide more services under the trusted ID portfolio.
“Our plan now is to stay the course and focus on this business. To complement this, we will explore adjacent solutions that will enhance our Trusted ID offerings, for example, new biometric technologies as well as digitalisation in order to develop new revenue streams for the company,” Shaiful explains.
The trusted ID business is lucrative. For instance, Datasonic Group Bhd, which is Iris’ main competitor locally, registered a net profit of RM67.24 million from RM258.6 million in revenue — a good performance considering the bulk of its business is derived from the local market.
Iris has never registered such profits since its listing in 2002. Its best showing was in March 2012, when it changed its financial year end, and for a 15-month period, recorded a net profit of RM43.58 million from RM484.50 million in revenue.
“Looking forward to the rest of FY2019, we are positive about our financial position. Our emphasis will not just be looking at top-line results but also delivering a healthy bottom line by optimising the costs of our operations,” says Shaiful.
“What we bring to the table is our experience and expertise in deploying such solutions to 32 countries to date. That means we have had the opportunity to provide our trusted ID solutions to 32 clients with different needs,and operating in different environments. So, we don’t see ourselves as just vendors; we are partners of growth for our clients from across the globe,” he sums up.
At last Thursday’s close of 15.5 sen, Iris’ share price was less than a third of its peak of 61.5 sen in early 2014. The minorities will be placing their hopes on the new management to enhance shareholder value.
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