Ann: Clarification of market announcement, page-34

Great analysis. A few facts to add:

1) FIG is traditionally a cash flow positive company without hiccups, cash EBITDA (excluding trailing asset movement) was positive for 2015, 2016 and 2017, except in FY18 (first half suffered a one-off lead issue, second half cash EBITDA returned positive from memory). As you mentioned its business model is based on economy of scale, and it benefited as such from 4 years of consistent growth, going forward without a viable growth model the costs will eat up this company as time drags on.

2) How likely will this happen? The departing founder/CEO own 27% of the company, the new CEO is former COO he hired personally (the fact that he took up the CEO post instead of looking for outsiders is the strongest sign there's something in the works), the exiting founder has a strong vested interest with existing shareholders, he definitely doesn't want his protege shuffling his feet without a concrete plan knowing this will erode business value each week. The new CEO comes from a marketing background, I known many CEOs who climbed the ranks from a marketing background and those are definitely not the sort of people that will stay in a dying business, its just not in their DNA. The new CEO (or ex-COO) has been in the job for 8 months, unless something significant is happening soon I'm certain he would've just jumped shipped with both the CFO and CEO.

3) That brings me to the St Andrews deal. I thought about this today and suddenly realised it will go through almost 100%, despite the fact that Freedom now have little synergy to offer. About 50% of the deal is funded by Swiss Re, having a global re-sinsurer as a guarantor is about as rock solid as it gets for a bank. Of the $10m that needs to be funded by cash, in fact only $2.7m is required (they get back $7.3m St Andrews already have in cash). Of the $20m bank debt, that is secularised by St Andrew's book. BOQ is desperate to offload this for legal compliance, that means price is not important for them and spending another year shopping for a buyer is dangerous. They would've not proceeded with announcing the deal if they had not already hatched out an agreement with the banks, the only reason it has been delayed was due to ASIC expressing concerns to APRA. Their direct channel is canned completely and Mr Cohen has left so abruptly imo is to clear the regulators. Think about it, many companies are still making direct selling as I write this, did FIG really needs to chop its direct channel by 100%? To me this is simple, because the benefit of St Andrews going through far outweighs investing more effort in their direct channel.

4) You mentioned you don't invest in businesses not knowing where the future of the business lies. I bought about 5 companies that plunged to a net-net, in each of those cases I made money (except one where I sold out of frustration because liquidity dried up but went up 5 fold another year later). They all have one thing in common besides their balance sheet, their business models at the time were questionable as a going-concern after some permanent hit, like losing their only 1 customer. Its impossible to find a net-net these days if the future business model is clear, in other words higher certainty is already reflected in price, so in fact it all balances, an ASX50 company will never fall to a net-net and FIG is definitely not worth 0, that is for certain. Last time FIG went down to a net-net it immediately shot up above 10c.

Gosh I really have to stop writing so much. Have a nice holiday.

Imo.