Ann: Clarification of market announcement, page-29

On holiday so won’t have exact figures but below is how I see it. Two ways to value this business.

1) liquidate the business now. This provides the most value imo to shareholders by selling the whole book to another party. Ok if you take the book value as of June of 67m, take say 3 or 4m off for cash deficit ytd, take say 2m away from Goodwill assuming you can sell spectrum, discount trail asset @ 75% of the book value (no one is going to pay full value for your trail asset), the whole book is probably worth 45-55m roughly. You could easily double your money and I think this will be the best solution for all shareholders.

2) value as on going business. As mentioned you can’t use the revenue as reported - you will need to value all future cash flows, not ebitda. This business has been a loss making business in terms of cash flow, in that its spending all its current cash for future cash inflow. From memory upfront commissions accounted for 20m, with another 10m from trail commissions. So say upfront commissions sep ytd is 7m, to be generous and no new direct sales for the rest of the year. Trail commission could have increased to 14m to be generous. if you cut expenses by 27m all together (I think 27m is right?), the total expenses for the year will still be around 18m. Which leaves you with positive cash flow of 2m, bearing in mind this is me being generous with the commissions. Ok next year in fy20, you will not have upfront commissions anymore and you will have policy laspses . You will only have say 12m trail commission vs a 18m expense. Ok it would be unrealistic to spend the 18m if this business isn’t viable so maybe they will spend 12m instead. Remember they still spend significant overheads to provide support for existing customers. This is a business that requires economy of scale and with a only decreasing book, it’s dead. Say No profit in fy20.

I actually don’t know what the numbers will be But my point is that this business will not make money without a viable business model and they are simply eating away their trail commissions covering the maintenance costs as each month goes by.

They may be waiting for the St. Andrews acquisition but how is it going to obtain finance without the cash and with its current market cap and cash flow? Remember they had only 17m in the bank, probably lost a few millions ytd, and spending a few millions on restructuring. So it’s not exactly loaded with cash.

Maybe a couple of points I missed. Like indirect insurance, but my main points have been covered.

So in summary I think
1) best for management to sell the assets
2) new business model - will take time to build and I can see a capital raising will be required, if not take on debt. I feel this would be a bad move, especially with the CEO gone.
3) wait for St. Andrews acquisition - regardless of how its financed. I don’t know if I know how to value this being included tbh. I actually haven’t researched it enough to comment on it so leave it to others