Ann: Preliminary Profit Advice - Half Year Ended 31 December 2016, page-40

@BrownDirtCowboy

I have been a shareholder of ASW since 2010. Before I read your earlier post, I thought that I know my investee company quite well. But it turns out that I had never paid attention to the % of income that the top customers of ASW has.

Because of your post, I had now updated my little spreadsheet and will continue to monitor this metric going forward. So, thank you for prompting me to do this!

Now, to your concerns about 38% of the income derived from the top 10 customers.

ASW is more leveraged to the level of corporate activity amongst its top customers and the number of shareholders of its top customers than the total number of customers on its book itself.

And by top customers, I mean customers with a big shareholder base, not the market cap itself. Granted, a company with bigger market cap, usually has a bigger number of shareholders. But, it's not always the case.

In other words, a 10% increase in the level of corporate activity in its top 10 customers will probably have a bigger impact than a 10% increase in the total number of customers in its book.

ASW was established back in 1996. It has a 21 year long history. As far as I know, we have never lost a major customer due to our failure to deliver acceptable level of service to our customers. In fact, when SOL moved its registry to ASW back in March 2011, the migration process went smoothly. This is a commendable effort considering SOL has a relatively big shareholder base and is second oldest listed company in the ASX.

Of those clients who did leave ASW in the past, I believe the main reason is the false belief that CPU or LNK are more prestigious and are able to provide better service.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0	Year	Sales (A)	No. Customers with > 2% of ASW income (B)	% of income represented by these top customers (C)	Average % of income represented by top customers (C / B)	Average of $ income represented by top customers (C x A / B)
1	2009	$3,453,590	7	21%	3.00%	$103,608
2	2010	$4,438,295	10	26%	2.60%	$115,396
3	2011	$5,389,082	5	13%	2.60%	$140,116
4	2012	$5,131,628	8	20%	2.50%	$128,291
5	2013	$5,114,392	7	22%	3.14%	$160,738
6	2014	$5,173,083	6	23%	3.83%	$198,302
7	2015	$5,157,489	9	27%	3.00%	$154,725
8	2016	$6,060,980	10	38%	3.80%	$230,317

Looking at the above table, I notice the following:

- Between 2012 and 2015 when sales is pretty much flat, the number of major customers (representing > 2% of income) fluctuates widely with no particular pattern. This is also the case for the average % of income and average of $ income represented by the top customers.

- In FY2016, there was a big increase in the level of corporate activity amongst ASW top 10 customers. This can be clearly seen by the big increase in the average of $ income from $154k in FY2015 to $230k in FY2016.

A real life example of this is Pilbara Minerals or PLS. In FY2015, it only had 2,432 shareholders. In FY2016, as its share price increased from $0.04 in May 2015 to $0.80 in May 2016, the number of shareholders increased by more than 5 fold to 11,285. This kind of massive increase in shareholders number combined with PLS' capital raising in FY2016 provides a not so insignificant revenue boost to ASW.

Another example is G8 Education or GEM. In FY2015, its shareholders number was 10,795, by FY2016 it had increased to 20,165. During this period, it was also involved in a failed takeover bid for Affinity Education, AFJ. ASW, as the registry provider of GEM, benefited greatly because of the thousands of pages of statements that it had to print and mail to AFJ's shareholders during this period.

A current example is SOL's takeover bid for HHL. Every time SOL issues a new bidder's statement, by law, it has to mail these to HHL's 2,200 or so shareholders. As SOL's registry provider, ASW earns income from the many mailouts that it has to send on behalf of SOL.

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the introduction of another registry provider in Perth would have been a shock to the system for ASW

There is already a Perth-based registry provider in Perth. It's called Security Transfer Australia. In fact, this company started much earlier than ASW, 1983 to be exact.

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As for the catalysts for further ASW share price appreciation, I believe the 2 main ones:
- Recovery in WA's junior miners which are ASW's bread and butter.
- Further migration of SOL's other associated companies to ASW. The one that I believe has a high chance of migrating is BKW. The next one would be NHC.

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I hope the above explanation allows you to understand that I'm not worried about the percentage of ASW income derived from its top 10 customers at all.

In fact, I'm quite excited to learn that its top customers are becoming more active and ASW is able to handle their requirements with ease.