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Redflex May Leave The Photo Ticketing Business
After scandal and heavy losses, Redflex CEO suggests the company may transition to non-photo enforcement business opportunities.

Redflex Annual Meeting 2014
Ongoing fraud investigations and vanishing profits sparked a revolt at the annual shareholder meeting of Redflex Traffic Systems in the suburbs of Melbourne, Australia on Thursday. Investors voted against the re-election of Michael McConnell to the red light camera firm's board of directors, rejected the company's executive bonus and payment plan and voted down a planned stock award to newly appointed CEO Paul Clark. Clark suggested Redflex may leave the photo ticketing business entirely.

Company officials put on a brave face at the annual meeting, letting the market know that more legal troubles are on the horizon.

"As much as we'd like to close this sobering chapter of the company's history, Redflex still faces a potential legal risk as a result of the investigative findings," Redflex Chairman Adam Gray said. "We don't know the timing or potential actions of various authorities, and cannot quantify the potential exposure at this time, but we will update you as, and when, appropriate. I think the key takeaway is that we are making solid though difficult progress to move forward and I am proud of the work our team has done."

Redflex last year posted a $3.8 million operating loss, which the company blames on public sentiment, which has turned against automated ticketing in the United States, the source of 68 percent of the company's business.

"North America (particularly the US), where the bulk of our asset base, EBITDA and cash flow resides, continues to be a low/no-growth market made more challenging by public pushback against photo enforcement," Gray explained.

The loss of lucrative contracts around the nation to voter referendum efforts and the decisions of city councils was only part of the problem. The ongoing Redflex bribery scandal in Chicago, Illinois cost the company $9.7 million in lost revenue, plus $2.4 million in legal costs. The "Student Guardian" school bus camera flop has cost $4.3 million. The New Jersey class action lawsuit settlement and being caught underpaying wages in California has cost $1.5 million. The search for a new CEO and a new business strategy cost $1.5 million. The company hopes to move away from the constant turmoil.

"Over just the past three years, this company has seen seven directors leave the organization, has had three chairmen and is on its third group CEO," Gray said. "Seven directors. Three chairmen. Three CEOs. Over three years."

Clark cited "negative publicity" along with "negative community reaction driving contract terminations (not new contracts), legislation changes, lower enforcement levels and multiple class actions" for the company's woes.

"Redflex needs to be de-risked," Clark explained. "Revenue volatility, geographic and product concentration risks, class actions, federal investigations, different technology platforms all create a high risk business... [our objective is] to move into the non-photo enforcement market, organically or inorganically."

Redflex competitor American Traffic Solutions has already diversified its portfolio by becoming a player in the toll road market with PlatePass and systems that photograph drivers to bill them for tolls. Redflex was originally a defense contractor, but the company sold its military communications equipment division in 2006.

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