Notice of Annual General Meeting/Proxy Form
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THE AGENCY GROUP AUSTRALIA LTD
ACN 118 913 232
NOTICE OF ANNUAL GENERAL MEETING
Notice is given that the Meeting will be held at:
TIME: 9.00am AWST
DATE: 23rd December 2020
PLACE: 68 Milligan Street
Perth WA 6000
The business of the Meeting affects your shareholding and your vote is important.
This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how
they should vote, they should seek advice from their professional advisers prior to voting.
The Directors have determined pursuant to Regulation 7.11.37 of the Corporations
Regulations 2001 (Cth) that the persons eligible to vote at the Meeting are those who are
registered Shareholders at 5.00PM AWST on 21 December 2020.
Independent Expert’s Report: Shareholders should carefully consider the Independent
Expert’s Report prepared for the purpose of the Shareholder approval under section 611
item 7 of the Corporations Act (refer to Resolution 6). The Independent Expert’s Report
comments on the fairness and reasonableness of the transactions the subject of Resolution
6 to the non-associated Shareholders. The Independent Expert has determined the Share
issues the subject of Resolution 6 are not fair but reasonable to the non-associated
Shareholders.
BUSINESS OF THE MEETING
AGENDA
1. FINANCIAL STATEMENTS AND REPORTS
To receive and consider the annual financial report of the Company for the
financial year ended 30 June 2020 together with the declaration of the Directors,
the Director’s report, the Remuneration Report and the auditor’s report.
2. RESOLUTION 1 – ADOPTION OF REMUNERATION REPORT
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as a non-binding resolution:
“That, for the purposes of section 250R(2) of the Corporations Act and for all
other purposes, approval is given for the adoption of the Remuneration
Report as contained in the Company’s annual financial report for the
financial year ended 30 June 2020.”
Note: the vote on this Resolution is advisory only and does not bind the Directors or the
Company.
A voting prohibition statement applies to this Resolution. Please see below.
3. RESOLUTION 2 – RE-ELECTION OF DIRECTOR – MATTHEW LAHOOD
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That, for the purpose of clause 14.2 of the Constitution, Listing Rule 14.5 and
for all other purposes, Matthew Lahood, a Director, retires by rotation, and
being eligible, is re-elected as a Director.”
4. RESOLUTION 3 – RATIFICATION OF PRIOR ISSUE OF OPTIONS TO PETERS INVESTMENTS
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That, for the purposes of Listing Rule 7.4 and for all other purposes,
Shareholders ratify the issue of 2,000,000 Options to Peters Investments on the
terms and conditions set out in the Explanatory Statement.”
A voting exclusion statement applies to this Resolution. Please see below.
5. RESOLUTION 4 – RATIFICATION OF PRIOR ISSUE OF OPTIONS TO PETERS INVESTMENTS
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That, for the purposes of Listing Rule 7.4 and for all other purposes,
Shareholders ratify the issue of 8,829,559 Options to Peters Investments on the
terms and conditions set out in the Explanatory Statement.”
A voting exclusion statement applies to this Resolution. Please see below.
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6. RESOLUTION 5 – AMENDMENT OF EXISTING CONVERTIBLE NOTES ON ISSUE
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That for the purposes of ASX Listing Rule 6.23.4 and for all other purposes,
approval is given for the Company to amend the terms of the 1,000,000
Existing Convertible Notes on the terms and conditions set out in the
Explanatory Statement.”
A voting exclusion statement applies to this Resolution. Please see below.
7. RESOLUTION 6 – APPROVAL FOR ISSUE OF CONVERTIBLE NOTES, OPTIONS AND
MAXIMUM VOTING POWER TO PETERS INVESTMENTS PTY LTD
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That, for the purpose of section 611 (item 7) of the Corporations Act and for
all other purposes, authorisation and approval is given for the Company to
issue:
(a) 5,000,000 Convertible Notes; and
(b) the Remainder Options,
to Peters Investments Pty Ltd which if converted or exercised (in conjunction
with the Existing Convertible Notes and the Existing Options) will result in
Peters Investments Pty Ltd’s being issued Shares such that Peters Investments
Pty Ltd’s voting power in the Company may increase beyond 20% and
otherwise on the terms and conditions set out in the Explanatory Statement.”
A voting exclusion statement applies to this Resolution. Please see below.
Expert’s Report: Shareholders should carefully consider the report prepared by the
Independent Expert for the purposes of the Shareholder approval required for Resolution
6 under Section 611 Item 7 of the Corporations Act. The Independent Expert’s Report
comments on the fairness and reasonableness of the transactions the subject of this
resolution to the non-associated Shareholders in the Company.
8. RESOLUTION 7 – APPROVAL OF 7.1A MANDATE
To consider and, if thought fit, to pass the following resolution as a special
resolution:
“That, for the purposes of Listing Rule 7.1A and for all other purposes,
approval is given for the Company to issue up to that number of Equity
Securities equal to 10% of the issued capital of the Company at the time of
issue, calculated in accordance with the formula prescribed in Listing Rule
7.1A.2 and otherwise on the terms and conditions set out in the Explanatory
Statement.”
Dated: 23 November 2020
By order of the Board
Stuart Usher
Company Secretary
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Voting Prohibition Statements
Resolution 1 – Adoption of A vote on this Resolution must not be cast (in any capacity) by or
Remuneration Report on behalf of either of the following persons:
(a) a member of the Key Management Personnel, details of
whose remuneration are included in the Remuneration
Report; or
(b) a Closely Related Party of such a member.
However, a person (the voter) described above may cast a vote on
this Resolution as a proxy if the vote is not cast on behalf of a person
described above and either:
(a) the voter is appointed as a proxy by writing that specifies
the way the proxy is to vote on this Resolution; or
(b) the voter is the Chair and the appointment of the Chair as
proxy:
(i) does not specify the way the proxy is to vote on
this Resolution; and
expressly authorises the Chair to exercise the proxy even though this
Resolution is connected directly or indirectly with the remuneration
of a member of the Key Management Personnel.
Voting Exclusion Statements – ASX
In accordance with Listing Rule 14.11, the Company will disregard any votes cast in favour of the
resolution set out below by or on behalf of the following persons:
Resolution 3 – Ratification A person who participated in the issue or is a counterparty to the
of prior issue of Options agreement being approved (namely Peters Investments) or an
associate of that person or those persons.
Resolution 4 – Ratification A person who participated in the issue or is a counterparty to the
of prior issue of Options agreement being approved (namely Peters Investments) or an
associate of that person or those persons.
Resolution 5 – Amendment A person who participated in the issue or is a counterparty to the
of Convertible Notes on agreement approved (namely holders of the Convertible Notes) or
issue an associate of that person or those persons.
However, this does not apply to a vote cast in favour of the Resolution by:
(a) a person as a proxy or attorney for a person who is entitled to vote on the Resolution, in
accordance with the directions given to the proxy or attorney to vote on the Resolution in
that way; or
(b) the Chair as proxy or attorney for a person who is entitled to vote on the Resolution, in
accordance with a direction given to the Chair to vote on the Resolution as the Chair
decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf
of a beneficiary provided the following conditions are met:
(i) the beneficiary provides written confirmation to the holder that the beneficiary is
not excluded from voting, and is not an associate of a person excluded from
voting, on the resolution; and
(ii) the holder votes on the resolution in accordance with directions given by the
beneficiary to the holder to vote in that way.
Voting Exclusion Statement – Corporations Act
Resolution 6 – Approval for No votes may be cast in favour of this Resolution by:
Issue of Convertible Notes, (a) the person proposing to make the acquisition and their
Options and Maximum associates; or
Voting Power to Peters (b) the persons (if any) from whom the acquisition is to be
Investments Pty Ltd made and their associates.
Accordingly, the Company will disregard any votes cast on this
Resolution by Peters Investments Pty Ltd and any of its associates.
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Voting by proxy
To vote by proxy, please complete and sign the enclosed Form and return by the time and in
accordance with the instructions set out on the Form.
In accordance with section 249L of the Corporations Act, Shareholders are advised that:
• each Shareholder has a right to appoint a proxy;
• the proxy need not be a Shareholder of the Company; and
• a Shareholder who is entitled to cast two (2) or more votes may appoint two (2) proxies
and may specify the proportion or number of votes each proxy is appointed to exercise.
If the member appoints two (2) proxies and the appointment does not specify the
proportion or number of the member’s votes, then in accordance with section 249X(3) of
the Corporations Act, each proxy may exercise one-half of the votes.
Shareholders and their proxies should be aware that:
• if proxy holders vote, they must cast all directed proxies as directed; and
• any directed proxies which are not voted will automatically default to the Chair, who must
vote the proxies as directed.
Voting in person
To vote in person, attend the Meeting at the time, date and place set out above.
Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact
the Company Secretary on +61 (0) 499 900 044.
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EXPLANATORY STATEMENT
This Explanatory Statement has been prepared to provide information which the Directors
believe to be material to Shareholders in deciding whether or not to pass the Resolutions.
1. FINANCIAL STATEMENTS AND REPORTS
In accordance with the Corporations Act, the business of the Meeting will include
receipt and consideration of the annual financial report of the Company for the
financial year ended 30 June 2020 together with the declaration of the Directors,
the Directors’ report, the Remuneration Report and the auditor’s report.
The Company will not provide a hard copy of the Company’s annual financial
report to Shareholders unless specifically requested to do so. The Company’s
annual financial report is available on its website at theagencygroup.com.au.
2. RESOLUTION 1 – ADOPTION OF REMUNERATION REPORT
2.1 General
The Corporations Act requires that at a listed company’s annual general meeting,
a resolution that the remuneration report be adopted must be put to the
shareholders. However, such a resolution is advisory only and does not bind the
company or the directors of the company.
The remuneration report sets out the company’s remuneration arrangements for
the directors and senior management of the company. The remuneration report
is part of the directors’ report contained in the annual financial report of the
company for a financial year.
The chair of the meeting must allow a reasonable opportunity for its shareholders
to ask questions about or make comments on the remuneration report at the
annual general meeting.
2.2 Voting consequences
A company is required to put to its shareholders a resolution proposing the calling
of another meeting of shareholders to consider the appointment of directors of
the company (Spill Resolution) if, at consecutive annual general meetings, at least
25% of the votes cast on a remuneration report resolution are voted against
adoption of the remuneration report and at the first of those annual general
meetings a Spill Resolution was not put to vote. If required, the Spill Resolution
must be put to vote at the second of those annual general meetings.
If more than 50% of votes cast are in favour of the Spill Resolution, the company
must convene a shareholder meeting (Spill Meeting) within 90 days of the second
annual general meeting.
All of the directors of the company who were in office when the directors' report
(as included in the company’s annual financial report for the most recent financial
year) was approved, other than the managing director of the company, will
cease to hold office immediately before the end of the Spill Meeting but may
stand for re-election at the Spill Meeting.
Following the Spill Meeting those persons whose election or re-election as directors
of the company is approved will be the directors of the company.
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2.3 Previous voting results
At the Company’s previous annual general meeting the votes cast against the
remuneration report considered at that annual general meeting were less than
25%. Accordingly, the Spill Resolution is not relevant for this Annual General
Meeting.
3. RESOLUTION 2 – RE-ELECTION OF DIRECTOR – MATTHEW LAHOOD
3.1 General
Listing Rule 14.5 provides that an entity which has directors must hold an election
of directors at each annual general meeting.
The Constitution sets out the requirements for determining which Directors are to
retire by rotation at an annual general meeting.
Matthew Lahood, whose election as a Director was approved at the general
meeting of the Company on 15 November 2018 and has subsequently served as
a Director since 17 January 2019, retires by rotation and seeks re-election.
3.2 Qualifications and other material directorships
Mr Lahood is synonymous with Australian real estate, during more than two
decades at the forefront of the industry, he has honed his expertise in everything
from property sales to auctioneering. Having personally coached and mentored
many of the industry’s finest sales agents to become million-dollar writers, Mr
Lahood knows what it takes to significantly grow their businesses. He is also well
known around Australia for his outstanding leadership skills and for building super
sales and operational teams. He has been recognised with countless
performance awards and is considered a thought leader within the Australian real
estate space.
Mr Lahood provides media commentary on a national level and is a regular
keynote speaker at real estate and financial events. Mr Lahood’s love of real
estate is only outshone by his passion for helping people grow personally and
professionally. For over 28 years, he has stood firmly by his values of humility,
transparency and integrity, values that he has passed onto many who have been
lucky enough to work alongside him.
3.3 Independence
If re-elected the Board does not consider Mr Lahood will be an independent
Director.
3.4 Board recommendation
The Board has reviewed Mr Lahood’s performance since his appointment to the
Board and considers that Mr Lahood’s skills and experience will continue to
enhance the Board’s ability to perform its role. Accordingly, the Board supports
the re-election of Mr Lahood and recommends that Shareholders vote in favour
of Resolution 2.
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4. BACKGROUND TO RESOLUTIONS 3 TO 6 – CONVERTIBLE NOTE AGREEMENTS WITH
PETERS INVESTMENTS
4.1 May 2020 Note Agreement
On 15 May 2020, the Company announced that it had entered into a convertible
note agreement with Peters Investments Pty Ltd (Peters Investments) to raise $1
million through the issue of 1,000,000 convertible notes each with a face value of
$1.00, together with 2,000,000 free attaching Options (May 2020 Note Agreement).
Resolution 3 seeks ratification for the 2,000,000 free attaching Options issued
pursuant to the May 2020 Note Agreement.
The May 2020 Note Agreement included the following material terms:
(a) Quantum: Provision of an advance and the issue of convertible securities
for an aggregate amount $1,000,000.
(b) Face Value: $1.00 per convertible notes,
(c) Conditions precedent: Peters Investments’ subscription for the convertible
notes was subject to:
(i) the Company receiving the prior written consent of Macquarie
Bank Limited to the issue of the convertible notes; and
(ii) the Company receiving Macquarie Bank Limited’s prior written
consent to the Company granting the security contemplated
below.
(d) Options: The Company issued 2,000,000 Options to Peters Investments on
the terms and conditions set out in Schedule 1.
(e) Security: The Company’s obligations in relation to the convertible notes
shall be secured by a charge over all of the assets of the Company
subordinate to Macquarie Bank Limited’s security over all of the assets of
the Company and subject to an intercreditor deed between Top Level
Real Estate Pty Ltd, Peters Investments and <Macquarie Bank Limited.
(f) Convertible note terms: The current terms of the convertible notes issued
under the May 2020 Note Agreement are set out in Schedule 4 in the
column entitled “Current Terms under May 2020 Note Agreement”.
The Company subsequently sought ASX approval for the amendment of the terms
of the convertible notes issued pursuant to the May 2020 Note Agreement to be
the same terms and conditions as the Convertible Notes the subject of the
October 2020 Note Agreement (detailed at Section 4.2 below) (Revised
Convertible Notes). Resolution 6 seeks the approval of Shareholders to amend the
terms.
4.2 October 2020 Note Agreement
The Company has entered into a subsequent convertible note agreement with
Peters Investments to raise $5 million (October 2020 Note Agreement) through the
issue of 5,000,000 convertible notes each with a face value of $1.00 (Convertible
Notes). The Convertible Notes have a maturity date of 31 March 2023.
The obligation of Peters Investments to subscribe for the Convertible Notes is
subject to satisfaction of the following outstanding conditions precedent:
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(a) completion of due diligence by Peters Investments, including review and
agreement with the terms and conditions imposed by Macquarie Bank in
respect to the amendment to the terms of Macquarie Bank’s Senior Debt
and Deed of Forbearance;
(b) the satisfaction of all other conditions imposed by Macquarie Bank to
amend the terms of its Senior Debt and Deed of Forbearance to satisfy
the matters contemplated by the October 2020 Note Agreement;
(c) to the extent that the convertible notes issued under the May 2020 Note
Agreement are not converted:
(i) the terms and conditions of the convertible notes issued under
the May 2020 Note Agreement are amended so that they are
the same terms and conditions as the Convertible Notes: and
(ii) the amended terms and conditions of the convertible notes
issued under the May 2020 Note Agreement have been
approved by the ASX and Shareholders (to this end, the
Company is seeking Shareholder approval to amend the terms
of the Existing Convertible Notes pursuant to Resolution 5);
(d) entry into the financing documents required to complete the matters
contemplated by the October 2020 Note Agreement (Financing
Documents);
(e) Shareholders approving the issue of the Convertible Notes; and
The conditions set out above must be satisfied as soon as practicable after the
date of the October 2020 Note Agreement and in any event by 23 January 2021.
Under the October 2020 Note Agreement, the Company will pay a facilitation fee
of 3.0% of the amount of the Convertible Notes issued pursuant to the October
2020 Note Agreement, being an amount of $150,000. The facilitation fee will be
capitalised and added to the face value of the $5 million advanced for the
5,000,000 convertible notes.
The Company also agreed to issue 12,000,000 Options to Peters Investments on
the following terms:
(a) 8,829,559 Options were issued on 4 November 2020 (Upfront Options); and
(b) the issue of the balance of the Options, being 3,170,441 Remainder
Options, is subject to receipt of Shareholder approval; and
Resolution 4 seeks ratification of the issue of 8,829,559 Upfront Options. The issue of
the 3,170,441 Remainder Options is part of the approvals being sought under
Resolution 6. In the event that the Company does not receive Shareholder
approval for the issue of the Remainder Options, the October 2020 Note
Agreement requires that the Company pay to Peters Investments an amount
equal to the Black & Scholes valuation of the Remainder Options at the time of
the Shareholder meeting where the approval for issue is not obtained.
4.3 Item 7 Section 611 of Corporations Act
Pursuant to the October 2020 Note Agreement, the Company has agreed to seek
Shareholder approval for the issue of the Convertible Notes and the Remainder
Options and for Peters Investments’ voting power in the Company to increase
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beyond 20% pursuant to item 7 of section 611 of the Corporations Act. Resolution
6 seeks Shareholder approval for the issue of 5,000,000 Convertible Notes and
3,170,441 Remainder Options for the purpose of item 7 of section 611, and (in
conjunction with the Existing Options and Existing Convertible Notes and the issue
of Shares from conversion of interest accrued on the Existing Convertible Notes
and Convertible Notes) for the increase in Peters Investments’ voting power in the
Company as a result of the conversion of the Existing Convertible and 5,000,000
Convertible Notes pursuant to the October 2020 Agreement, exercise of the
Existing Options and the Remainder Options and issue of Shares in lieu of payment
of cash for interest accrued.
4.4 Terms of the Convertible Notes
The material terms of the Convertible Notes proposed to be issued under
Resolution 6 (and which the Existing Convertible Notes are proposed to be
amended to reflect) are set out below:
(c) Face Value
Each Convertible Note will have a face value of $1.00.
(d) Maturity Date
31 March 2023
(e) Interest
The interest rate is the higher of:
(i) 8% per annum; and
(ii) the interest rate of the remaining Senior Debt.
The interest will be calculated at the interest rate from 1 October 2020 to
the Maturity Date, payable on the Interest Payment Date and may be
satisfied in cash or Shares upon agreement of the Company and Peters
Investments.
(f) Conversion Price
The conversion price of the Convertible Notes is the lower of:
(i) $0.027; and
(i) the issue price of Shares offered under any subsequent capital
raising completed by the Company to raise over $1,000,000 on
or before the Maturity Date.
(g) Conversion Right
(i) Subject to paragraph (ii) below, Peters Investments may elect to
convert some or all of the Convertible Notes (including accrued
interest) to Shares by delivering to the Company:
(A) an executed Conversion Notice specifying the number
of Convertible Notes to be redeemed and converted;
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(B) the Note Certificate(s) in respect of the number of
Convertible Notes to be redeemed and converted; and
(C) advising the Company in writing if the Noteholder wishes
for the interest on the Convertible Notes to be paid in
cash (Cash Election).
(ii) Upon the announcement of a trade sale, scheme of
arrangement or takeover (each, a Takeover Event) by the
Company, to the extent required by the ASX Listing Rules and/or
the Corporations Act the Noteholder’s right to convert the
Convertible Note will be suspended until the earlier of:
(A) completion of the Takeover Event; and
(B) termination of the Takeover Event.
(h) Repayment and redemption
(i) If the Convertible Notes have not been redeemed or converted
prior to the Maturity Date, the Company must repay the
outstanding amount to Peters Investments in cash on the Maturity
Date and the Convertible Notes will be deemed to have been
redeemed by the Company on that date.
(ii) No later than six (6) months prior to the Maturity Date Peters
Investments must advise the Company in writing of the number
of Convertible Notes that will be outstanding (and will therefore
need to be redeemed by the Company) on the Maturity Date.
A full summary of the terms and conditions of the Convertible Notes is set out in
Schedule 3.
4.5 Intention of Directors if Resolution 6 is not approved
If Resolution 6 is not approved by Shareholders, the 5,000,000 Convertible Notes
and the Remainder Options will not be issued. Peters Investments will also be
unable to exercise any Options and/or Convertible Notes it already holds if such
exercise or conversion will result in Peters Investments’ voting power increasing
beyond 20% in the Company without Shareholder approval being obtained.
Consequently, the conditions under the October 2020 Note Agreement will not
have been met. In such situation, the Company will not receive the $5,000,000
Investment Amount the subject of the October 2020 Note Agreement.
5. RESOLUTION 3 – RATIFICATION OF PRIOR ISSUE OF OPTIONS
5.1 General
As detailed in Section 4.1, on or around 15 May 2020, the Company issued
2,000,000 free attaching Options pursuant to the May 2020 Note Agreement (Free
Attaching Options).
Broadly speaking, and subject to a number of exceptions, Listing Rule 7.1 limits the
amount of equity securities that a listed company can issue without the approval
of its shareholders over any 12 month period to 15% of the fully paid ordinary
securities it had on issue at the start of that 12 month period.
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The issue of the Free Attaching Options does not fit within any of the exceptions
set out in Listing Rule 7.2 and, as it has not yet been approved by Shareholders, it
effectively uses up part of the 15% limit in Listing Rule 7.1, reducing the Company’s
capacity to issue further equity securities without Shareholder approval under
Listing Rule 7.1 for the 12 month period following the date of issue of the Free
Attaching Options.
Listing Rule 7.4 allows the shareholders of a listed company to approve an issue of
equity securities after it has been made or agreed to be made. If they do, the
issue is taken to have been approved under Listing Rule 7.1 and so does not
reduce the company’s capacity to issue further equity securities without
shareholder approval under that rule.
The Company wishes to retain as much flexibility as possible to issue additional
equity securities in the future without having to obtain Shareholder approval for
such issues under Listing Rule 7.1. Accordingly, the Company is seeking
Shareholder ratification pursuant to Listing Rule 7.4 for the issue of the Free
Attaching Options.
Resolution 3 seeks Shareholder ratification pursuant to Listing Rule 7.4 for the issue
of the Free Attaching Options.
5.2 Technical information required by Listing Rule 14.1A
If Resolution 3 is passed, the Free Attaching Options will be excluded in calculating
the Company’s 15% limit in Listing Rule 7.1, effectively increasing the number of
equity securities the Company can issue without Shareholder approval over the
12 month period following the date of issue of the Free Attaching Options.
If Resolution 3 is not passed, the Free Attaching Options will be included in
calculating the Company’s 15% limit in Listing Rule 7.1, effectively decreasing the
number of equity securities that the Company can issue without Shareholder
approval over the 12 month period following the date of issue of the Free
Attaching Options.
5.3 Technical information required by Listing Rule 7.5
Pursuant to and in accordance with Listing Rule 7.5, the following information is
provided in relation to Resolution 3:
(a) the Free Attaching Options were issued to Peters Investments;
(b) in accordance with paragraph 7.4 of ASX Guidance Note 21, the
Company confirms that none of the recipients were:
(i) related parties of the Company, members of the Company’s Key
Management Personnel, substantial holders of the Company,
advisers of the Company or an associate of any of these parties;
and
(ii) issued more than 1% of the issued capital of the Company;
(c) 2,000,000 Free Attaching Options were issued and the Free Attaching
Options were issued on the terms and conditions set out in Schedule 1;
(d) the Free Attaching Options were issued on or around 15 May 2020;
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(e) the Free Attaching Options were issued at a nil issue price, as they were
free attaching with the Convertible Notes issued pursuant to the May 2020
Note Agreement. The Company has not and will not receive any other
consideration for the issue of the Free Attaching Options (other than in
respect of funds received on exercise of the Free Attaching Options);
(f) the purpose of the issue of the Free Attaching Options was to satisfy the
Company’s obligations under the May 2020 Note Agreement; and
(g) the Free Attaching Options were issued to Peters Investments under the
May 2020 Note Agreement. A summary of the material terms of the May
2020 Note Agreement is set out in Section 4.1.
6. RESOLUTION 4 – RATIFICATION OF PRIOR ISSUE OF OPTIONS
6.1 General
On 4 November 2020, the Company issued 8,829,559 Upfront Options pursuant to
the October 2020 Note Agreement as detailed in Section 4.2.
Listing Rule 7.1 is summarised in Section 5.1 above.
The issue of the Upfront Options does not fit within any of the exceptions set out in
Listing Rule 7.2 and, as it has not yet been approved by Shareholders, it effectively
uses up part of the 15% limit in Listing Rule 7.1, reducing the Company’s capacity
to issue further equity securities without Shareholder approval under Listing Rule
7.1 for the 12 month period following the date of issue of the Upfront Options.
Listing Rule 7.4 allows the shareholders of a listed company to approve an issue of
equity securities after it has been made or agreed to be made. If they do, the
issue is taken to have been approved under Listing Rule 7.1 and so does not
reduce the company’s capacity to issue further equity securities without
shareholder approval under that rule.
The Company wishes to retain as much flexibility as possible to issue additional
equity securities in the future without having to obtain Shareholder approval for
such issues under Listing Rule 7.1. Accordingly, the Company is seeking
Shareholder ratification pursuant to Listing Rule 7.4 for the issue of the Upfront
Options.
Resolution 4 seeks Shareholder ratification pursuant to Listing Rule 7.4 for the issue
of the Upfront Options.
6.2 Technical information required by Listing Rule 14.1A
If Resolution 4 is passed, the Upfront Options will be excluded in calculating the
Company’s 15% limit in Listing Rule 7.1, effectively increasing the number of equity
securities the Company can issue without Shareholder approval over the 12
month period following the date of issue of the Upfront Options.
If Resolution 4 is not passed, the Upfront Options will be included in calculating the
Company’s 15% limit in Listing Rule 7.1, effectively decreasing the number of
equity securities that the Company can issue without Shareholder approval over
the 12 month period following the date of issue of the Upfront Options.
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6.3 Technical information required by Listing Rule 7.5
Pursuant to and in accordance with Listing Rule 7.5, the following information is
provided in relation to Resolution 4:
(a) the Upfront Options were issued to Peters Investments;
(b) in accordance with paragraph 7.4 of ASX Guidance Note 21, the
Company confirms that none of the recipients were:
(i) related parties of the Company, members of the Company’s Key
Management Personnel, substantial holders of the Company,
advisers of the Company or an associate of any of these
parties; and
(ii) issued more than 1% of the issued capital of the Company;
(c) 8,829,559 Upfront Options were issued and the Upfront Options were
issued on the terms and conditions set out in Schedule 2;
(d) the Upfront Options were issued on 4 November 2020;
(e) the Upfront Options were issued at a nil issue price pursuant to the
October 2020 Note Agreement. The Company has not and will not
receive any other consideration for the issue of the Upfront Options (other
than in respect of funds received on exercise of the Upfront Options);
(f) the purpose of the issue of the Upfront Options was to satisfy the
Company’s obligations under the October 2020 Note Agreement; and
(g) the Upfront Options were issued to Peters Investments under the October
2020 Note Agreement. A summary of the material terms of the October
2020 Note Agreement is set out in Schedule 3.
7. RESOLUTION 5 – AMENDMENT OF EXISTING CONVERTIBLE NOTES ON ISSUE
7.1 General
On 15 May 2020, the Company issued 1,000,000 convertible notes to Peters
Investments (Existing Convertible Notes). The Existing Convertible Notes were
issued pursuant to the May 2020 Note Agreement, a summary of which is set out
in Section 4.1 above.
None of the Existing Convertible Notes have been converted.
The Company has since entered into the October 2020 Note Agreement with
Peters Investments (a summary of which is set out in Section 4.2 above). It is a
condition to the $5 million investment, and issue of 5,000,0000 Convertible Notes,
the subject of the October 2020 Note Agreement that:
(a) the terms and conditions of the Existing Convertible Notes are amended
so that they are the same terms and conditions as the Convertible Notes
to be issued under the October 2020 Note Agreement;
(b) the amended terms of the amended Existing Convertible Notes have
been approved by the ASX and Shareholders; and
13
(c) ASX confirms that the terms of the amended Existing Convertible Notes
and 5,000,000 Convertible Notes to be issued under the October 2020
Note Agreement comply with ASX Listing Rule 6.1.
7.2 Purpose of Resolution 5
Resolution 5 seeks the approval of Shareholders to amend the terms of the Existing
Convertible Notes so that they are consistent with the terms of the 5,000,000
Convertible Notes to be issued under the October 2020 Note Agreement.
The proposed amendments to the Existing Convertible Notes are set out in
Schedule 4 (Proposed Amendments). Other than the Proposed Amendments, the
terms of the Existing Convertible Notes will remain unchanged.
7.3 ASX approval – Listing Rule 6.1
On 3 November 2020, ASX confirmed that:
(a) the terms of the Convertible Notes with a face value of $5,000,000
proposed to be issued by the Company to Peters Investments are
appropriate and equitable pursuant to Listing Rule 6.1; and
(b) the amendments to the terms of the Existing Convertible Notes with a
face value of $1,000,000 that were issued by the Company to Peters
Investments in May 2020 are appropriate and equitable pursuant to
Listing Rule 6.1.
8. RESOLUTION 6 – APPROVAL FOR ISSUE OF CONVERTIBLE NOTES, OPTIONS AND
MAXIMUM VOTING POWER TO PETERS INVESTMENTS PTY LTD
8.1 General
As detailed at Section 4.3 above, Resolution 6 seeks Shareholder approval for the
purpose of item 7 of section 611 of the Corporations Act to allow the Company to
issue 5,000,000 Convertible Notes and 3,170,441 Remainder Options (on the terms
outlined in Schedule 2) to Peters Investments which, in conjunction with the Existing
Convertible Notes and Existing Options and issue of any Shares in repayment of
interests accrued on the Existing Convertible Notes and Convertible Notes, may
result in Peters Investments’ voting power in the Company increasing beyond 20%.
As at the date of this Notice of Meeting, Peters Investments does not have a
relevant interest in any Shares in the Company.
As a result of:
(a) exercise of the Existing Options and the Remainder Options;
(b) conversion of the Existing Convertible Notes and 5,000,000 Convertible
Notes to be issued pursuant to this Resolution (assuming a conversion
price of $0.027 per Convertible Note); and
(c) the issue of Shares in repayment of interest accrued on the Existing
Convertible Notes and Convertible Notes,
Peters Investments would have a relevant interest in 293,406,258 Shares in the
Company, representing an increase from 0% to up to 49.53% in the voting power
of the Company, assuming no other Shares are issued and no other Options are
exercised.
14
Resolution 6 seeks Shareholder approval for the purposes of item 7 of section 611
to issue and for all other purposes, authorisation and approval is given for the
Company to issue 5,000,000 Convertible Notes and the Remainder Options to
Peters Investments Pty Ltd which (in conjunction with the Existing Convertible Notes
and the Existing Options and the issue of Shares from conversion of interest
accrued on the Existing Convertible Notes and Convertible Notes) may result in
Peters Investments Pty Ltd having a voting power which is otherwise prohibited by
section 606(1) of the Corporations Act.
(a) Section 606 of the Corporations Act – Statutory Prohibition
Pursuant to Section 606(1) of the Corporations Act, a person must not
acquire a relevant interest in issued voting shares in a listed company if
the person acquiring the interest does so through a transaction in relation
to securities entered into by or on behalf of the person and because of
the transaction, that person’s or someone else’s voting power in the
company increases:
(i) from 20% or below to more than 20%; or
(ii) from a starting point that is above 20% and below 90%,
(Prohibition).
(b) Voting Power
The voting power of a person in a body corporate is determined in
accordance with Section 610 of the Corporations Act. The calculation of
a person’s voting power in a company involves determining the voting
shares in the company in which the person and the person’s associates
have a relevant interest.
(c) Associates
For the purposes of determining voting power under the Corporations
Act, a person (second person) is an “associate” of the other person (first
person) if:
(i) (pursuant to Section 12(2) of the Corporations Act) the first person
is a body corporate and the second person is:
(A) a body corporate the first person controls;
(B) a body corporate that controls the first person; or
(C) a body corporate that is controlled by an entity that
controls the person;
(ii) the second person has entered or proposes to enter into a
relevant agreement with the first person for the purpose of
controlling or influencing the composition of the company’s
board or the conduct of the company’s affairs; or
(iii) the second person is a person with whom the first person is acting
or proposes to act, in concert in relation to the company’s affairs.
Associates are, therefore, determined as a matter of fact. For example
where a person controls or influences the board or the conduct of a
15
company’s business affairs, or acts in concert with a person in relation to
the entity’s business affairs.
(d) Relevant Interests
Section 608(1) of the Corporations Act provides that a person has a
relevant interest in securities if they:
(i) are the holder of the securities;
(ii) have the power to exercise, or control the exercise of, a right to
vote attached to the securities; or
(iii) have power to dispose of, or control the exercise of a power to
dispose of, the securities.
It does not matter how remote the relevant interest is or how it arises. If
two or more people can jointly exercise one of these powers, each of
them is taken to have that power.
In addition, section 608(3) of the Corporations Act provides that a person
has a relevant interest in securities that any of the following has:
(i) a body corporate in which the person’s voting power is above
20%; or
(ii) a body corporate that the person controls.
8.2 Reason Section 611 Approval is Required
Item 7 of Section 611 of the Corporations Act provides an exception to the
Prohibition, whereby a person may acquire a relevant interest in a company’s
voting shares with shareholder approval. Peters Investments does not currently
have a relevant interest in any Shares in the Company, reflecting a voting power
in the Company of 0% as at the date of this Notice of Meeting.
Following the issue of the 5,000,000 Convertible Notes and Remainder Options and
exercise of the Existing Options and the Remainder Options and conversion of the
Existing Convertible Notes and 5,000,000 Convertible Notes (assuming a
conversion price of $0.027 per Convertible Note) , Peters Investments will have a
relevant interest in up to 293,406,258 Shares in the Company, representing 49.53%
in the voting power in the Company (Proposed Issue).
Accordingly, Resolution 6 seeks Shareholder approval for the purpose of section
611 Item 7 to enable Peters Investments to increase its voting power beyond 20%.
Section 8.3(b) below details the potential maximum increase in voting power of
Peters Investments as a result of the issue of the 5,000,000 Convertible Notes and
Remainder Options and subsequent exercise of Options and conversion of
Convertible Notes held by Peters Investments.
8.3 Specific Information required by Section 611 Item 7 of the Corporations Act and
ASIC Regulatory Guide 74
The following information is required to be provided to Shareholders under the
Corporations Act and ASIC Regulatory Guide 74 in respect of obtaining approval
for item 7 of section 611 of the Corporations Act. Shareholders are also referred
16
to the Independent Expert’s Report prepared by the Independent Expert,
annexed to this Explanatory Statement.
(a) Identity of Peters Investments and its associates
Peters Investments is an Australian proprietary limited company and
investment entity owned by prominent Australian horse-owner breeder,
Bob Peters.
The Company understands that there are no associates of Peters
Investments which have a relevant interest in the Shares of the Company
or will have a relevant interest in the Shares of the Company prior to or
upon completion of the Placement.
(b) Voting Power and Relevant Interest
The relevant interest of Peters Investments and the voting power of Peters
Investments in the Company (both current, and following the Proposed
Issue) are set out in the table below:
All Shareholders Non-associated Peters
Shareholders Investments
Current 298,954,431 298,954,431 0
shareholding
Current Voting 100% 100% 0%
Power
Conversion of 578,360,689 298,954,431 279,406,258
5,000,000
Convertible Notes
and Existing
Convertible Notes
and interest
accrued
Post-Conversion 100% 51.69 48.31%
Voting Power
Exercise of 592,360,689 298,954,431 293,406,258
Remainder
Options and
Existing Options
Post-Conversion 100% 50.47% 49.53%
and Post-Exercise
Voting Power
(e) Summary of increases
Following the matters contemplated in Section 8.3, Peters Investments will
have a relevant interest in 293,406,258 Shares in the Company,
representing an increase from 0% to up to 49.53% in the voting power of
the Company.
(f) Assumptions
Note that the following assumptions have been made in calculating the
above:
(i) the Company has 298,954,431 Shares on issue as at the date of
this Notice of Meeting;
17
(ii) no additional Shares are issued by the Company; and
(iii) Peters Investments does not acquire a relevant interest in any
additional Shares in the Company.
Further details on the voting power of Peters Investments is set out
in the Independent Expert’s Report prepared by the
Independent Expert.
(c) Reasons for the proposed issue of securities
The issue of the Shares will occur on the potential future conversion of the
Convertible Notes (together with accrued interest) and exercise of the
Remainder Options, in accordance with the terms of the October 2020
Note Agreement. The funds raised by the Company under the October
2020 Note Agreement will further secure the Company’s position to
accelerate its growth strategy and have and will continue to be
specifically applied to:
(i) reducing existing debts owed to Macquarie Bank Limited;
(ii) facilitating fundraising and re-financing costs; and
(iii) improving the Company’s working capital position.
(d) Date of proposed issue of securities
If Shareholder approval is obtained, the Shares will be issued on a date
after the Meeting to be determined by the Company and Peters
Investments.
(e) Material terms of proposed issue of securities
All Shares issued as a result of the Conversion Issues will rank pari passu
with the other Shares of the Company.
(f) Peters Investments’ Intentions
Other than as disclosed elsewhere in this Explanatory Statement, the
Company understands that Peters Investments:
(i) has no present intention of making any significant changes to the
business of the Company;
(ii) has no present intention to inject further capital into the
Company;
(iii) has no present intention of making changes regarding the future
employment of the present employees of the Company;
(iv) has no present intention to redeploy any fixed assets of the
Company;
(v) has no present intention to transfer any property between the
Company and themselves;
(vi) has no present intention to change the Company’s existing
policies in relation to financial matters or dividends; and
18
(vii) has no present intention to change the Board.
These present intentions may change as new information becomes
available, as circumstances change or in the light of all material
information, facts and circumstances necessary to assess the
operational, commercial, taxation and financial implications of those
decisions at the relevant time.
(g) Interests and Recommendations of Directors
Other than as set out in this section, none of the current Directors have an
interest in the proposed acquisition the subject of Resolution 6 or any
relevant agreement between Peters Investments and the Company (or
any of their associates) that is conditional on (or directly or indirectly
depends on) Shareholders’ approval al of the proposed acquisition.
Teldar Real Estate Pty Ltd <MJ Lahood Family A/C>, an entity controlled
by Director, Matthew Lahood and four other Shareholders (Guarantee
Shareholders) have each provided a joint and several guarantee to
Macquarie Bank Limited in relation to the entirety of the Senior Debt.
On the basis that funds received from Peters Investments under the
October 2020 Note Agreement are intended to be applied towards
reducing existing debts owed by to Macquarie Bank Limited, there will
ultimately be a corresponding reduction in their guarantees provided by
the Guarantee Shareholders.
The details of these Shareholders, their current shareholdings, current
guaranteed amount and remaining guaranteed amount on the basis
that all $5,000,000 of the Convertible Note funds are applied towards the
Senior Debt are set out in the table below.
Current Share Current Guaranteed
holding guaranteed amount
amount following
$5,000,000 being
applied to
Macquarie Bank
Senior Debt
Teldar Real Estate 24,679,595 $8,716,071 $3,716,071
Pty Ltd <MJ
Lahood Family
A/C>
MAC Property 25,690,547 $8,716,071 $3,716,071
Group Pty Ltd
<MAC A/C>
SEMC 2 Pty Ltd 25,603,532 $8,716,071 $3,716,071
<The Chen Asset
A/C>
Ben Collier 27,060,515 $8,716,071 $3,716,071
Investments Pty Ltd
Daring 24,749,544 $8,716,071 $3,716,071
Investments Pty Ltd
Based on the information available, including that contained in this
Explanatory Memorandum and the Independent Expert’s Report, each
19
of the Directors recommends that Shareholders vote in favour of
Resolution 6.
The Directors are not aware of any other information other than as set out
in this Notice of Meeting that would be reasonably required by
Shareholders to allow them to make a decision whether it is in the best
interests of the Company to pass Resolution 6.
(h) Capital Structure
Details of the effects to the Company’s capital structure resulting from
the Proposed Issue is set out in Section 8.3(b) above.
8.4 Advantages of the Issue
The Directors are of the view that the following non-exhaustive list of advantages
may be relevant to a Shareholder’s decision on how to vote on proposed
Resolution 6:
(a) Peters Investments’ investment under the May 2020 Note Agreement and
October 2020 Note Agreement represents a cash advance of $6,000,000
which sum will be pivotal to assist the Company with its stated objectives
including paying down its current debt to Macquarie Bank Limited to
$5,000,000;
(b) Peters Investments is a strong institutional Shareholder partner who will
continue to add value to the Company’s strategic goals;
(c) if the Remainder Options and the Existing Options are issued to and
exercised by Peters Investments, additional funds of approximately
$391,656 will be raised from the exercise price of the Remainder Options
and the Existing Options; and
(d) in addition, the Independent Expert has noted the following advantages:
(i) the proposed transaction will significantly reduce the risk of the
Company defaulting on its loan from Macquarie Bank;
(ii) the proposed transaction may be the Company’s only option for
funding in the near future;
(iii) the terms of the Convertible Notes allow the Company to reserve
its cash balances in the short-term;
(iv) the proposed transaction will allow the Company; to continue to
operate and achieve its strategic goals and business objectives;
(v) the conversion of the Convertible Notes will improve the
Company’s solvency in the long-term.
20
8.5 Disadvantages of the Issue
The Directors are of the view that the following non-exhaustive list of
disadvantages may be relevant to a Shareholder’s decision on how to vote on
proposed Resolution 6:
(a) the Proposed Issue will increase the voting power of Peters Investments
from 0% up to 49.53%, reducing the voting power of non-associated
Shareholders in aggregate from 100% to approximately 50.47%;
(b) the increased shareholding of Peters Investments may reduce the liquidity
of the Company’s Shares and impact the ability for a Shareholder to
liquidate their investment;
(c) there is no guarantee that the Company’s Shares will not fall in value as
a result of the issue; and
(d) in addition the Independent Expert has specifically noted the following
disadvantages:
(i) Peter’s Investments will hold a significant interest in the Company
(up to 49.53%) which could result in a change of control, and
severely dilute existing shareholders’ collective interest in the
Company; and
(ii) The proposed transaction could reduce the liquidity of Shares.
8.6 Independent Expert’s Report - Resolution 6
The Independent Expert's Report prepared by the Independent Expert (a copy of
which is attached as Annexure A to this Explanatory Statement) assesses whether
the transaction contemplated by Resolution 4 is fair and reasonable to the non-
associated Shareholders of the Company.
The Independent Expert’s Report concludes that the transaction contemplated
by Resolution 6 is not fair but reasonable.
Shareholders are urged to carefully read the Independent Expert’s Report to
understand the scope of the report, the methodology of the valuation and the
sources of information and assumptions made.
8.7 ASX Listing Rule 7.1
Approval pursuant to ASX Listing Rule 7.1 is not required for the issue of the
Convertible Notes and Remainder Options the subject of Resolution 6 as approval
is being obtained for the purposes of Item 7 of Section 611 of the Corporations
Act, which is an exception to ASX Listing Rule 7.1. Accordingly, the issue of
Convertible Notes and the Remainder Options to Peters Investments (or its
nominees) the subject of Resolution 6 will not be included in the use of the
Company’s 15% annual placement capacity pursuant to ASX Listing Rule 7.1.
9. RESOLUTION 7 – APPROVAL OF 7.1A MANDATE
9.1 General
Broadly speaking, and subject to a number of exceptions, Listing Rule 7.1 limits the
amount of Equity Securities that a listed company can issue without the approval
21
of its shareholders over any 12 month period to 15% of the fully paid ordinary
securities it had on issue at the start of that period.
However, under Listing Rule 7.1A, an eligible entity may seek shareholder approval
by way of a special resolution passed at its annual general meeting to increase
this 15% limit by an extra 10% to 25% (7.1A Mandate).
An ‘eligible entity’ means an entity which is not included in the S&P/ASX 300 Index
and has a market capitalisation of $300,000,000 or less. The Company is an eligible
entity for these purposes.
Resolution 7 seeks Shareholder approval by way of special resolution for the
Company to have the additional 10% placement capacity provided for in Listing
Rule 7.1A to issue Equity Securities without Shareholder approval.
If Resolution 7 is passed, the Company will be able to issue Equity Securities up to
the combined 25% limit in Listing Rules 7.1 and 7.1A without any further Shareholder
approval.
If Resolution 7 is not passed, the Company will not be able to access the additional
10% capacity to issue Equity Securities without Shareholder approval under Listing
Rule 7.1A, and will remain subject to the 15% limit on issuing Equity Securities
without Shareholder approval set out in Listing Rule 7.1.
9.2 Technical information required by Listing Rule 7.1A
Pursuant to and in accordance with Listing Rule 7.3A, the information below is
provided in relation to Resolution 7:
(a) Period for which the 7.1A Mandate is valid
The 7.1A Mandate will commence on the date of the Meeting and expire
on the first to occur of the following:
(i) the date that is 12 months after the date of this Meeting;
(ii) the time and date of the Company’s next annual general
meeting; and
(iii) the time and date of approval by Shareholders of any
transaction under Listing Rule 11.1.2 (a significant change in the
nature or scale of activities) or Listing Rule 11.2 (disposal of the
main undertaking).
(b) Minimum Price
Any Equity Securities issued under the 7.1A Mandate must be in an existing
quoted class of Equity Securities and be issued at a minimum price of 75%
of the volume weighted average price of Equity Securities in that class,
calculated over the 15 trading days on which trades in that class were
recorded immediately before:
(i) the date on which the price at which the Equity Securities are to
be issued is agreed by the entity and the recipient of the Equity
Securities; or
22
(ii) if the Equity Securities are not issued within 10 trading days of the
date in Section 9.2(b)(i), the date on which the Equity Securities
are issued.
(c) Use of funds raised under the 7.1A Mandate
The Company intends to use funds raised from issues of Equity Securities
under the 7.1A Mandate for acquisition of new assets and investments
(including expenses associated with such an acquisition), the
development of the Company’s current business and/or general working
capital.
(d) Risk of Economic and Voting Dilution
Any issue of Equity Securities under the 7.1A Mandate will dilute the
interests of Shareholders who do not receive any Shares under the issue.
If Resolution 7 is approved by Shareholders and the Company issues the
maximum number of Equity Securities available under the 7.1A Mandate,
the economic and voting dilution of existing Shares would be as shown in
the table below.
The table below shows the dilution of existing Shareholders calculated in
accordance with the formula outlined in Listing Rule 7.1A.2, on the basis
of the closing market price of Shares and the number of Equity Securities
on issue as at 15 October 2020.
The table also shows the voting dilution impact where the number of
Shares on issue (Variable A in the formula) changes and the economic
dilution where there are changes in the issue price of Shares issued under
the 7.1A Mandate.
Dilution
Issue Price
Shares
Number of Shares on Issue issued – $0.018 $0.035 $0.053
(Variable A in Listing Rule 10% 50% Issue 50%
7.1A.2) voting decrease Price increase
dilution
Funds Raised
298,954,431 29,895,443
Current $523,170 $1,046,340 $1,569,510
Shares Shares
50% 448,431,647 44,843,164
$784,755 $1,569,510 $2,354,266
increase Shares Shares
100% 597,908,862 59,790,886
$1,046,340 $2,092,681 $3,139,021
increase Shares Shares
*The number of Shares on issue (Variable A in the formula) could increase as a result
of the issue of Shares that do not require Shareholder approval (such as under a pro-
rata rights issue or scrip issued under a takeover offer) or that are issued with
Shareholder approval under Listing Rule 7.1.
The table above uses the following assumptions:
1. There are currently 298,954,431 Shares on issue.
2. The issue price set out above is the closing market price of the Shares on the ASX
on 15 October 2020.
3. The Company issues the maximum possible number of Equity Securities under the
7.1A Mandate.
23
4. The Company has not issued any Equity Securities in the 12 months prior to the
Meeting that were not issued under an exception in Listing Rule 7.2 or with
approval under Listing Rule 7.1.
5. The issue of Equity Securities under the 7.1A Mandate consists only of Shares. It is
assumed that no Options are exercised into Shares before the date of issue of
the Equity Securities. If the issue of Equity Securities includes quoted Options, it is
assumed that those quoted Options are exercised into Shares for the purpose of
calculating the voting dilution effect on existing Shareholders.
6. The calculations above do not show the dilution that any one particular
Shareholder will be subject to. All Shareholders should consider the dilution
caused to their own shareholding depending on their specific circumstances.
7. This table does not set out any dilution pursuant to approvals under Listing Rule
7.1 unless otherwise disclosed.
8. The 10% voting dilution reflects the aggregate percentage dilution against the
issued share capital at the time of issue. This is why the voting dilution is shown in
each example as 10%.
9. The table does not show an example of dilution that may be caused to a
particular Shareholder by reason of placements under the 7.1A mandate, based
on that Shareholder’s holding at the date of the Meeting.
Shareholders should note that there is a risk that:
(i) the market price for the Company’s Shares may be significantly
lower on the issue date than on the date of the Meeting; and
(ii) the Shares may be issued at a price that is at a discount to the
market price for those Shares on the date of issue.
(e) Allocation policy under the 7.1A Mandate
The recipients of the Equity Securities to be issued under the 7.1A
Mandate have not yet been determined. However, the recipients of
Equity Securities could consist of current Shareholders or new investors (or
both), none of whom will be related parties of the Company.
The Company will determine the recipients at the time of the issue under
the 7.1A Mandate, having regard to the following factors:
(i) the purpose of the issue;
(ii) alternative methods for raising funds available to the Company
at that time, including, but not limited to, an entitlement issue,
share purchase plan, placement or other offer where existing
Shareholders may participate;
(iii) the effect of the issue of the Equity Securities on the control of the
Company;
(iv) the circumstances of the Company, including, but not limited to,
the financial position and solvency of the Company;
(v) prevailing market conditions; and
(vi) advice from corporate, financial and broking advisers (if
applicable).
(f) Previous approval under Listing Rule 7.1A
24
The Company previously obtained approval from its Shareholders
pursuant to Listing Rule 7.1A at its annual general meeting held on 29
November 2019 (Previous Approval).
During the 12 month period preceding the date of the Meeting, being on
and from 23 December 2019, the Company has not issued any Equity
Securities pursuant to the Previous Approval.
25
SCHEDULE 1 – TERMS AND CONDITIONS OF FREE ATTACHING
OPTIONS
(a) Entitlement
Each Option entitles the holder to subscribe for one Share upon exercise of the
Option.
(b) Exercise Price
Subject to paragraph (i), the amount payable upon exercise of each Option will
be $0.033828 (Exercise Price).
(c) Expiry Date
Each Option will expire at 5:00 pm (AWST) on that date which is two (2) years from
the date of issue (Expiry Date). An Option not exercised before the Expiry Date
will automatically lapse on the Expiry Date.
(d) Exercise Period
The Options are exercisable at any time on or prior to the Expiry Date (Exercise
Period).
(e) Notice of Exercise
The Options may be exercised during the Exercise Period by notice in writing to
the Company in the manner specified on the Option certificate (Notice of
Exercise) and payment of the Exercise Price for each Option being exercised in
Australian currency by electronic funds transfer or other means of payment
acceptable to the Company.
(f) Exercise Date
A Notice of Exercise is only effective on and from the later of the date of receipt
of the Notice of Exercise and the date of receipt of the payment of the Exercise
Price for each Option being exercised in cleared funds (Exercise Date).
(g) Timing of issue of Shares on exercise
Within 15 Business Days after the Exercise Date, the Company will:
(i) issue the number of Shares required under these terms and conditions in
respect of the number of Options specified in the Notice of Exercise and
for which cleared funds have been received by the Company;
(i) if required, give ASX a notice that complies with section 708A(5)(e) of the
Corporations Act, or, if the Company is unable to issue such a notice,
lodge with ASIC a prospectus prepared in accordance with the
Corporations Act and do all such things necessary to satisfy section
708A(11) of the Corporations Act to ensure that an offer for sale of the
Shares does not require disclosure to investors; and
(ii) if admitted to the official list of ASX at the time, apply for official quotation
on ASX of Shares issued pursuant to the exercise of the Options.
If a notice delivered under paragraph (g)(ii) for any reason is not effective to
ensure that an offer for sale of the Shares does not require disclosure to investors,
26
the Company must, no later than 20 Business Days after becoming aware of such
notice being ineffective, lodge with ASIC a prospectus prepared in accordance
with the Corporations Act and do all such things necessary to satisfy section
708A(11) of the Corporations Act to ensure that an offer for sale of the Shares does
not require disclosure to investors.
(h) Shares issued on exercise
Shares issued on exercise of the Options rank equally with the then issued shares
of the Company.
(i) Reconstruction of capital
If at any time the issued capital of the Company is reconstructed, all rights of an
Optionholder are to be changed in a manner consistent with the Corporations
Act and the ASX Listing Rules at the time of the reconstruction.
(j) Participation in new issues
There are no participation rights or entitlements inherent in the Options and
holders will not be entitled to participate in new issues of capital offered to
Shareholders during the currency of the Options without exercising the Options.
(k) Change in exercise price
An Option does not confer the right to a change in Exercise Price or a change in
the number of underlying securities over which the Option can be exercised.
(l) Transferability
The Options are transferable subject to any restriction or escrow arrangements
imposed by ASX or under applicable Australian securities laws.
27
SCHEDULE 2 – TERMS AND CONDITIONS OF OPTIONS
(a) Entitlement
Each Option entitles the holder to subscribe for one Share upon exercise of the
Option.
(b) Exercise Price
Subject to paragraph (i), the amount payable upon exercise of each Option will
be $0.027 (Exercise Price).
(c) Expiry Date
Each Option will expire at 5:00 pm (AWST) on 31 March 2023 (Expiry Date). An
Option not exercised before the Expiry Date will automatically lapse on the Expiry
Date.
(d) Exercise Period
The Options are exercisable at any time on or prior to the Expiry Date (Exercise
Period).
(e) Notice of Exercise
The Options may be exercised during the Exercise Period by notice in writing to
the Company in the manner specified on the Option certificate (Notice of
Exercise) and payment of the Exercise Price for each Option being exercised in
Australian currency by electronic funds transfer or other means of payment
acceptable to the Company.
(f) Exercise Date
A Notice of Exercise is only effective on and from the later of the date of receipt
of the Notice of Exercise and the date of receipt of the payment of the Exercise
Price for each Option being exercised in cleared funds (Exercise Date).
(g) Timing of issue of Shares on exercise
Within 5 Business Days after the Exercise Date, the Company will:
(i) issue the number of Shares required under these terms and conditions in
respect of the number of Options specified in the Notice of Exercise and
for which cleared funds have been received by the Company;
(ii) if required, give ASX a notice that complies with section 708A(5)(e) of the
Corporations Act, or, if the Company is unable to issue such a notice,
lodge with ASIC a prospectus prepared in accordance with the
Corporations Act and do all such things necessary to satisfy section
708A(11) of the Corporations Act to ensure that an offer for sale of the
Shares does not require disclosure to investors; and
(iii) if admitted to the official list of ASX at the time, apply for official quotation
on ASX of Shares issued pursuant to the exercise of the Options.
If a notice delivered under paragraph (g)(ii) for any reason is not effective to
ensure that an offer for sale of the Shares does not require disclosure to investors,
the Company must, no later than 20 Business Days after becoming aware of such
28
notice being ineffective, lodge with ASIC a prospectus prepared in accordance
with the Corporations Act and do all such things necessary to satisfy section
708A(11) of the Corporations Act to ensure that an offer for sale of the Shares does
not require disclosure to investors.
(h) Shares issued on exercise
Shares issued on exercise of the Options rank equally with the then issued shares
of the Company.
(i) Reconstruction of capital
If at any time the issued capital of the Company is reconstructed, all rights of an
Optionholder are to be changed in a manner consistent with the Corporations
Act and the ASX Listing Rules at the time of the reconstruction.
(j) Participation in new issues
There are no participation rights or entitlements inherent in the Options and
holders will not be entitled to participate in new issues of capital offered to
Shareholders during the currency of the Options without exercising the Options.
(k) Change in exercise price
An Option does not confer the right to a change in Exercise Price or a change in
the number of underlying securities over which the Option can be exercised.
(l) Transferability
The Options are transferable subject to any restriction or escrow arrangements
imposed by ASX or under applicable Australian securities laws.
29
SCHEDULE 3 – MATERIAL TERMS OF THE OCTOBER 2020
CONVERTIBLE NOTES AND OCTOBER 2020 NOTE AGREEMENT
A summary of the terms and conditions of the Convertible Notes and the Convertible Note
Agreement is set out below:
(d) Quantum: Provision of an advance and the issue of convertible securities for an
aggregate amount of up to A$5,000,000.
(e) Face Value: $1.00 per Convertible Note
(f) Facilitation Fee: a fee of 3.0% of the amount of the Convertible Notes issued
pursuant to the Convertible Note Agreement, being an amount of $150,000.The
facilitation fee will be capitalised and added to the face value of the $5 million
advanced for the 5,000,000 convertible notes.
(g) Upfront Options: at the same time as paying the Facilitation Fee (in accordance
with clauses 12.5(b) and 12.5(c) of the Convertible Note Agreement), the
Company will grant to the Investor or its nominee up to 12,000,000 Options on the
following basis:
(a) the number of Options to be issued at the same time as payment of the
Facilitation Fee shall be equal to the number of securities the Company
is able to agree to issue on the date of entry into the Financing
Documents without breaching its 15% limit under Listing Rule 7.1 (Upfront
Options);
(b) the Company agrees to issue the number of Options equal to 10,000,000
less the number of Upfront Options subject to receipt of Shareholder
approval; and
(i) the Options will have the terms and conditions set out in
Schedule 5 of the Convertible Note Agreement; and
(ii) in the event that the issue of the Options requires Shareholder
approval, and the Company does not receive Shareholder
approval, the Company will, within 5 Business Days of the date of
the meeting where Shareholder approval is not obtained, pay to
the Investor an amount equal to the Black & Scholes valuation of
the Options at the time of the Shareholder meeting.
(h) Maturity Date: 31 March 2023, unless otherwise agreed in writing by the Parties.
(i) Conversion: Subject to paragraph (g), the Noteholder may convert some or all of
the Convertible Notes held by the Noteholder into Shares (including those
Convertible Notes which following the occurrence of a Redemption Event, the
Noteholder has not required the Company to redeem, at any prior to the Maturity
Date by delivering to the Company :
(i) an executed Conversion Notice specifying the number of Convertible
Notes to be redeemed and converted;
(ii) the Note Certificate(s) in respect of the number of Convertible Notes to
be redeemed and converted; and
(iii) advising the Company in writing if the Noteholder wishes for the interest
on the Convertible Notes to be paid in cash.
30
(j) Suspension of conversion rights: Upon the announcement of a trade sale, scheme
of arrangement or takeover (each, a Takeover Event) by the Company, to the
extent required by the ASX Listing Rules and/or the Corporations Act the
Noteholder’s right to convert the Convertible Note will be suspended until the
earlier of:
(i) completion of the Takeover Event; and
(ii) termination of the Takeover Event.
(k) Conversion Price means the lower of:
(i) $0.027; and
(ii) the issue price of Shares offered under any subsequent capital raising
completed by the Company to raise over $1,000,000 on or before the
Maturity Date.
(l) Redemption Events:
(i) At any time following the occurrence of a Redemption Event, the
Noteholder may require the Company to redeem some or all of the
Convertible Notes held by the Noteholder
(ii) Each of the following is a Redemption Event (whether or not caused by
anything outside the control of any party):
(A) on Insolvency Event (as defined in the October 2020 Note
Agreement) occurs in relation to the Company.
(B) The Company breaches its obligations under the October 2020
Convertible Note Agreement or the convertible note terms and
such breach is not remedied within 7 days of being notified of
such breach by Peters Investments.
(m) Within 20 Business Days of receiving a redemption notice and note
certificates, the Company must pay to Peters Investments the
outstanding amount for such number of Convertible Notes being
redeemed.
(n) Redemption on Maturity Date: If the Convertible Notes have not been redeemed
or converted in accordance with the Convertible Note Agreement prior to the
Maturity Date, the Company must repay the Outstanding Amount to the Investor
in cash on the Maturity Date and the Convertible Notes will be deemed to have
been redeemed by the Company on that date.
(o) Interest Payment Date means the earlier of:
(i) the Redemption Date;
(ii) the Conversion Date; or
(iii) the Maturity Date.
(p) Interest Rate means the higher of:
(i) 8% per annum; and
31
(iii) the interest rate of the remaining Senior Debt.
The interest will be calculated at the interest rate from 1 October 2020 to the
Maturity Date, payable on the Interest Payment Date and may be satisfied in cash
or Shares upon agreement of the Company and Peters Investments.
(q) Security
The Company’s obligations in relation to the Convertible Notes shall be secured
by a charge over all of the assets of the Company subordinate to Macquarie
Bank’s security over all of the assets of the Company for so long as any debt
remains outstanding to Macquarie Bank.
32
SCHEDULE 4 – PROPOSED AMENDMENTS TO EXISTING CONVERTIBLE
NOTE TERMS
Current Term under May 2020 Note Proposed Amendment
Agreement
Conversion Price The lower of: The lower of:
(a) $0.04; and (a) $0.027; and
(b) A 20% discount to the 15- (b) the issue price of Shares
day VWAP prior to the offered under any
Conversion Date. subsequent capital
raising completed by
the Company to raise
over $1,000,000 on or
before the Maturity
Date.
Interest Rate 9% per annum The higher of:
(a) 8% per annum; and
(b) the interest rate of the
remaining
Senior Debt.
Computation of interest Interest on the Convertible Notes Interest on the Convertible Notes
will: will:
(a) will be calculated at the (a) will be calculated at
Interest Rate from 15 May the Interest Rate from
2020 to the Maturity Date 15 May 2020 to the
(no matter when the Maturity Date (no
Convertible Notes are matter when the
converted, redeemed or Convertible Notes are
the Outstanding Amount converted, redeemed
repaid by the Company); or the Outstanding
and Amount repaid by the
Company);
(b) be due and payable on
the Interest Payment (b) be due and payable
Date, subject to the on the Interest Payment
Company’s obligation to Date, subject to the
redeem. Company’s obligation
to redeem; and
(c) be satisfied in cash or
Shares upon
agreement of the
Noteholder and the
Company.
Maturity Date The earlier of 31 December 2020 or 31 March 2023
when all amounts owing by the
Company to Macquarie Bank
under or in connection with its loan
arrangements have been repaid,
unless otherwise agreed in writing
by the Parties.
Conversion The Noteholder may convert some Subject to the suspension of
or all of the Convertible Notes held conversion rights provision below,
by the Noteholder into Shares the Noteholder may convert
33
(including those Convertible Notes some or all of the Convertible
which following the occurrence of Notes held by the Noteholder
a Redemption Event, the into Shares (including those
Noteholder has not required the Convertible Notes which
Company to redeem), by following the occurrence of a
delivering to the Company: Redemption Event, the
Noteholder has not required the
(a) an executed Conversion Company to redeem, at any
Notice specifying the prior to the Maturity Date by
number of Convertible delivering to the Company :
Notes to be redeemed
and converted; (a) an executed
Conversion Notice
(b) the Note Certificate(s) in specifying the number
respect of the number of of Convertible Notes to
Convertible Notes to be be redeemed and
redeemed and converted;
converted; and
(b) the Note Certificate(s)
(c) advising the Company in in respect of the
writing if the Noteholder number of Convertible
wishes for the interest on Notes to be redeemed
the Convertible Notes to and converted; and
be paid in cash (Cash
Election). (c) advising the Company
in writing if the
Noteholder wishes for
the interest on the
Convertible Notes to
be paid in cash.
Suspension of conversion N/A Upon the announcement of a
rights trade sale, scheme of
arrangement or takeover (each,
a Takeover Event) by the
Company, to the extent required
by the ASX Listing Rules and/or
the Corporations Act the
Noteholder’s right to convert the
Convertible Note will be
suspended until the earlier of:
(a) completion of the
Takeover Event; and
(b) termination of the
Takeover Event.
Redemption on Maturity If the Convertible Notes have not (a) If the Convertible Notes
Date been redeemed (in accordance have not been
with paragraph 7.3) or converted redeemed (in
(in accordance with paragraph 8) accordance with
prior to the Maturity Date, the paragraph 7.3) or
Company must repay the converted (in
Outstanding Amount to the Investor accordance with
in cash on the Maturity Date and paragraph 8) prior to
the Convertible Notes will be the Maturity Date, the
deemed to have been redeemed Company must repay
by the Company on that date. the Outstanding
Amount to the Investor
in cash on the Maturity
Date and the
Convertible Notes will
be deemed to have
34
been redeemed by
the Company on that
date.
(b) Subject to the
suspension of
conversion rights
provision, no later than
six (6) months prior to
the Maturity Date the
Noteholder must
advise the Company in
writing of the number
of Convertible Notes
that will be outstanding
(and will therefore
need to be redeemed
by the Company on
the Maturity Date.
Events of Default N/A Each of the following is an Event
of Default:
(a) breach: the Company
is in breach of this
Deed and fails to
rectify such breach
within five (5) Business
Days of receiving
written notice from the
Noteholder specifying
such breach;
(b) misrepresentation: any
representation,
warranty or statement
made or repeated in or
in connection with this
Deed is untrue or
misleading (whether
by omission or
otherwise) when so
made or repeated or
becomes untrue or
misleading (or, in the
case of financial
forecasts, unfair or
unreasonable) when
taken as a whole;
(c) involuntary winding up:
an application or order
is made for the winding
up of the Company or
for the appointment of
a liquidator;
(d) voluntary winding up:
the Company passes
a resolution for its
winding up;
(e) receiver: a receiver,
controller or analogous
person is appointed to
take possession of all or
35
any part of the assets
of the Company ;
(f) insolvency: the
Company :
(i) suspends
payment
generally;
(ii) becomes an
externally-
administered
body
corporate;
(iii) becomes
subject to
administration,
or steps are
taken which
could
reasonably be
expected to
result in the
Company
becoming so
subject; or
(iv) is or states that
it is, or is
deemed by
applicable law
to be, unable
to pay its debts
as and when
they fall due;
(g) compromise or
arrangement: the
Company takes any
step for the purpose of
entering into a
compromise or
arrangement with any
of its members or
creditors except for the
purpose of a
reconstruction,
amalgamation,
merger or
consolidation on terms
approved by the
Noteholder;
(h) failure to comply with
waiver: if any Event of
Default (or occurrence
which would otherwise
have been or become
an Event of Default) is
conditionally waived
by the Noteholder and
the Company does
not comply with those
conditions or those
36
conditions are not
fulfilled (whether by
the Company or any
other person) or are or
become incapable of
fulfilment; and
(i) investigations: a
person is appointed
under any legislation to
investigate or manage
any part of the affairs
of the Company .
Noteholder’s powers on N/A If an Event of Default occurs, the
default Noteholder may, subject to the
terms of the Intercreditor Deed,
then or at any time subsequently
by notice to the Company:
(a) declare all money owing
under this Deed to be
immediately due and
payable, and the
Company must
immediately pay that
money (including
accrued interest and
fees) and cash cover for
the full amount of any
money contingently
owing under this Deed;
and/or
(b) cancel its obligations (if
any) under this Deed.
37
GLOSSARY
$ means Australian dollars.
7.1A Mandate has the meaning given in Section 9.1.
Annual General Meeting or Meeting means the meeting convened by the Notice.
ASIC means the Australian Securities & Investments Commission.
ASX means ASX Limited (ACN 008 624 691) or the financial market operated by ASX
Limited, as the context requires.
AWST means Western Standard Time as observed in Perth, Western Australia.
Board means the current board of directors of the Company.
Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday,
Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a
business day.
Chair means the chair of the Meeting.
Closely Related Party of a member of the Key Management Personnel means:
(a) a spouse or child of the member;
(b) a child of the member’s spouse;
(c) a dependent of the member or the member’s spouse;
(d) anyone else who is one of the member’s family and may be expected to
influence the member, or be influenced by the member, in the member’s dealing
with the entity;
(e) a company the member controls; or
(f) a person prescribed by the Corporations Regulations 2001 (Cth) for the purposes
of the definition of ‘closely related party’ in the Corporations Act.
Company means The Agency Group Australia Ltd (ACN 118 913 232).
Constitution means the Company’s constitution.
Conversion Notice means a notice substantially in the form contained in Schedule 2 of the
October 2020 Note Agreement.
Corporations Act means the Corporations Act 2001 (Cth).
Deed of Forbearance means an amended and restated deed of forbearance between,
amongst others, the Company and Macquarie Bank on terms acceptable to Macquarie
Bank.
Directors means the current directors of the Company.
Equity Securities includes a Share, a right to a Share or Option, an Option, a convertible
security and any security that ASX decides to classify as an Equity Security.
38
Existing Options means 10,829,559 Options, being the total of the 2,000,000 Options
currently held by Peters Investments, the subject of Resolution 3, and the 8,829,559 Options
the subject of Resolution 4.
Explanatory Statement means the explanatory statement accompanying the Notice.
Key Management Personnel has the same meaning as in the accounting standards issued
by the Australian Accounting Standards Board and means those persons having authority
and responsibility for planning, directing and controlling the activities of the Company, or
if the Company is part of a consolidated entity, of the consolidated entity, directly or
indirectly, including any director (whether executive or otherwise) of the Company, or if
the Company is part of a consolidated entity, of an entity within the consolidated group.
Listing Rules means the Listing Rules of ASX.
Macquarie Bank means Macquarie Bank Limited ABN 46 008 583 542.
Notice or Notice of Meeting means this notice of meeting including the Explanatory
Statement and the Proxy Form.
Option means an option to acquire a Share.
Optionholder means a holder of an Option.
Proxy Form means the proxy form accompanying the Notice.
Remainder Options means 3,170,441 Options.
Remuneration Report means the remuneration report set out in the Director’s report section
of the Company’s annual financial report for the year ended 30 June 2020.
Resolutions means the resolutions set out in the Notice, or any one of them, as the context
requires.
Section means a section of the Explanatory Statement.
Senior Debt means the enforceable financial obligations owed to Macquarie Bank by the
Company and its subsidiaries arising from existing secured interests pursuant to senior debt
facilities advanced by Macquarie Bank.
Share means a fully paid ordinary share in the capital of the Company.
Shareholder means a registered holder of a Share.
Variable A means “A” as set out in the formula in Listing Rule 7.1A.2.
39
2940-11/2524609_20 40
The Agency Group Australia Ltd
Proposed potential issue of fully paid ordinary shares to
Peters Investments Pty Ltd and its associates upon conversion
of convertible notes and/or upon exercise of options.
Independent Expert’s Report
and Financial Services Guide
23 November 2020
In our opinion the Proposed
Transaction is not fair but
reasonable
FINANCIAL SERVICES GUIDE
Dated: 23 November 2020
What is a Financial Services Guide (“FSG”)?
This FSG is designed to help you decide whether to use any of the general financial product advice provided
by Nexia Perth Corporate Finance Pty Ltd ABN 84 009 342 661 (“NPCF”), Australian Financial Services Licence
(“AFSL”) Number 289358.
This FSG includes information about:
NPCF and how they can be contacted;
the services NPCF is authorised to provide;
how NPCF are paid;
any relevant associations or relationships of NPCF;
how complaints are dealt with as well as information about internal and external dispute resolution
systems, and how you can access them; and
the compensation arrangements that NPCF has in place.
Where you have engaged NPCF we act on your behalf when providing financial services. Where you have
not engaged NPCF, NPCF acts on behalf of our client when providing these financial services and are required
to provide you with a FSG because you receive a report or other financial services from NPCF.
Financial Services that NPCF is Authorised to Provide
NPCF holds an AFSL authorising it to carry on a financial services business to provide financial product advice
for securities and deal in a financial product by arranging for another person to issue, apply for, acquire, vary
or dispose of a financial product in respect of securities to retail and wholesale clients.
We provide financial product advice when engaged to prepare a report in relation to a transaction relating to
one of these types of financial products.
NPCF's Responsibility to You
NPCF has been engaged by the directors of The Agency Group Australia Ltd (“AU1”, “The Agency Group” or
the “Client”) to provide general financial product advice in the form of an independent expert’s report to be
included in the Notice of Annual General Meeting (“NoM” or “Document”) sent to The Agency Group
shareholders on or about 23 November 2020 (“Report”).
You have not engaged NPCF directly but have received a copy of the Report because you have been provided
with a copy of the NoM. NPCF or the employees of NPCF are not acting for any person other than the Client.
NPCF is responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions
in the Report.
General Advice
As NPCF has been engaged by the Client, the Report only contains general advice as it has been prepared
without taking into account your personal objectives, financial situation or needs.
You should consider the appropriateness of the general advice in the Report having regard to your
circumstances before you act on the general advice contained in the Report.
You should also consider the other parts of the Document before making any decision in relation to the
Proposed Transaction.
page | 2
Fees NPCF May Receive
NPCF charges fees for preparing Reports. These fees will usually be agreed with, and paid by the Client. Fees
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approximately $20,000 (excluding GST and out of pocket expenses) for preparing the Report. NPCF and its
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Through a variety of corporate and trust structures NPCF is controlled by and operates as part of Nexia Perth
Pty Ltd (or the “Nexia Perth Entity”). NPCF's directors and authorised representative may be directors in the
Nexia Perth Entity. Mrs Muranda Janse Van Nieuwenhuizen, authorised representative of NPCF and director
in the Nexia Perth Entity, has prepared this Report. The financial product advice in the Report is provided by
NPCF and not by the Nexia Perth Entity.
From time to time NPCF, the Nexia Perth Entity and related entities (“Nexia Entities”) may provide professional
services, including audit, tax and financial advisory services, to companies and issuers of financial products
in the ordinary course of their businesses.
Over the past three years $78,550 (excluding GST) in professional fees has been received from the Client
and/or the Client’s related parties in relation to Independent Expert Reports and other valuation related
services.
No individual involved in the preparation of this Report holds a substantial interest in, or is a substantial
creditor of, the Client or has other material financial interests in the Proposed Transaction.
Complaints Resolution
If you have a complaint, please let NPCF know. Formal complaints should be sent in writing to:
Nexia Perth Corporate Finance Pty Ltd
Compliance Officer
GPO Box 2570
Perth WA 6001
If you have difficulty in putting your complaint in writing, please telephone the Compliance Officer, Mr Henko
Vos, on +61 8 9463 2463 and he will assist you in documenting your complaint.
Written complaints are recorded, acknowledged within 5 days and investigated. As soon as practical, and not
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writing.
page | 3
External Complaints Resolution Process
If NPCF cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the
Australian Financial Complaints Authority (“AFCA”). The AFCA is an independent company that has been
established to provide free advice and assistance to consumers to help in resolving complaints relating to the
financial services industry.
Further details about the AFCA is available at the AFCA website https://www.afca.org.au/ or by contacting
them directly at:
Australian Financial Complaints Authority Limited
GPO Box 3, Melbourne, Victoria 3001
Telephone: 1300 56 55 62
Facsimile (03) 9613 6399
Email: info@afca.org.au
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you may use to obtain information about your rights.
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GPO Box 2570
PERTH WA 6001
page | 4
23 November 2020
The Directors
The Agency Group Australia Ltd
68 Milligan Street
PERTH WA 6000
Dear Sirs,
Independent Expert’s Report on the Proposed Potential Issue of Fully Paid Ordinary Shares to
Peters Investments Pty Ltd and its Associates Upon the Conversion of Convertible Notes
and/or Upon the Exercise of Options
1. BACKGROUND AND OUTLINE OF THE PROPOSED TRANSACTION
1.1. General Background
On 15 May 2020, The Agency Group Australia Ltd (“AU1”, “The Agency Group” or the “Company”) issued
$1 million of convertible notes (“May 2020 Convertible Notes”) and 2 million options (“AU1 Options”) in the
Company (“May 2020 Options”) to Peters Investments Pty Ltd (“Peters Investments”).
On 29 October 2020, AU1 announced that the Company and its subsidiaries (“the Group”) had secured a
long-term $11 million funding package (“Funding Package”) comprising the following:
“Convertible Notes”, which is made up of:
o $5 million in new convertible notes (“October 2020 Convertible Notes”), and 12 million AU1 Options
(“October 2020 Options”) to be issued to Peters Investments; and
o the existing $1 million May 2020 Convertible Notes previously issued to Peters Investments, with
their terms to be amended to be in line with the terms of the October 2020 Convertible Notes
(“Amended May 2020 Convertible Notes”); and
an extended $5 million primary secured debt facility from Macquarie Bank Limited (“Macquarie Bank”),
down from $12 million (“Senior Debt”) and subject to shareholder approval of the Convertible Notes,
with final documentation and terms to be finalised.
According to the announcement, Macquarie Bank will provide an extended forbearance deed to provide
sufficient time for shareholder approval to occur and final loan documentation to be executed.
There is currently a joint and several guarantee that has been provided to Macquarie Bank in relation to the
Senior Debt by five shareholders (“Guarantors”), of which one is a director of the Company (refer to
Section 1.3 and note 5b of section 5.6.2).
Nexia Perth Corporate Finance Pty Ltd (“NPCF”) has been requested by the directors of the Company to
prepare an Independent Expert’s Report (“Report”) in relation to the potential issue of fully paid ordinary
shares in AU1 (“AU1 Shares”) to Peters Investments if the Convertible Notes are converted and/or if the May
2020 Options and the October 2020 Options (together referred to as the “Peters Investments Options”) are
exercised (“Proposed Transaction”).
The Proposed Transaction is subject to shareholder approval and is the subject of Resolution 6 of the Notice
of Annual General Meeting (“NoM” or “Document”) for the Annual General Meeting (“AGM”) which will be
held on or around 23 December 2020. If the Proposed Transaction is approved, Peters Investments’ voting
power in the Company may increase from 0% to 45.00%, assuming the Convertible Notes are converted
immediately at the date of the Report. If the Convertible Notes are converted closer to their maturity date,
Peters Investments’ voting power in the Company may increase further to 49.53% (as outlined in
section 1.4).
Further information on the May 2020 Convertible Notes and the May 2020 Options (together referred to as
the “May 2020 Convertible Notes and Options”), and the October 2020 Convertible Notes and October 2020
Options (together referred to as the “October 2020 Convertible Notes and Options”), are outlined below in
sections 1.2 and 1.3:
1.2. May 2020 Convertible Notes and Options
As indicated in section 1.1 the Funding Package includes the amendment of the terms of the $1,000,000
May 2020 Convertible Notes, so that these are in line with the terms for the proposed October 2020
Convertible Notes (as outlined in the table in section 1.3).
Full details of the amendment of the terms are detailed in the NoM, however, a summary of the material
amendments relevant to our Report are set out below:
Terms May 2020 Convertible Notes Amended May 2020 Convertible Notes
Maturity The earlier of 31 December 2020 or when 31 March 2023.
date the Senior Debt has been repaid, unless
otherwise agreed.
Interest 9% per annum, calculated from 15 May The higher of 8% per annum and the interest
2020. rate of the remaining Senior Debt, to be
calculated from 15 May 2020 to the Maturity
Date, and may be satisfied in cash or AU1
Shares upon agreement by the Company and
Peters Investments.
Conversion The lower of $0.04 and a 20% discount The lower of $0.027 and the issue price of
price to the 15-day volume weighted average AU1 Shares offered under any subsequent
price (“VWAP”) prior to the conversion capital raising to raise over $1 million
date. completed on or before the Maturity Date.
Suspension (None) Upon the announcement of a trade sale,
of scheme of arrangement or takeover (each, a
Conversion “Takeover Event”) by the Company, to the
Right upon extent required by the ASX Listing Rules
Takeover and/or the Corporations Act, Peters
Event Investments’ right to convert the convertible
note will be suspended until the earlier of the
completion or the termination of the
Takeover Event.
Source: Draft NoM and Company announcement on 15 May 2020.
The amendment of the terms as detailed above is subject to shareholder approval, being the subject of
Resolution 5 of the NoM. For the purposes of this Report, it has been assumed that Resolution 5 will be
approved by AU1’s shareholders.
page | 6
The funds for the May 2020 Convertible Notes is currently held in trust (see section 5.6.2, notes 2 and 5c),
pending shareholder approval of the Proposed Transaction. If the Proposed Transaction does not proceed,
the funds from the May 2020 Convertible Notes will not be released to AU1. The requirement to repay Peters
Investments if the Proposed Transaction does not proceed (as detailed in section 1.3) will also apply to the
terms of the Amended May 2020 Convertible Notes. As such, if the Proposed Transaction does not proceed,
the Company will also be required to repay to Peters Investments, in cash, any fees and interest accrued on
the May 2020 Convertible Notes up to the repayment date. For the purposes of the Report, we have estimated
the interest accrued on the Amended May 2020 Convertible Notes, up to the date of the Report, to be $38,370
(see section 9.1.1).
The May 2020 Options that were issued with the May 2020 Convertible Notes are each exercisable at the
lower of $0.04 or at a 20% discount to a 15-day VWAP prior to the date of issue of the options, and expire
2 years from the date of issue. The options were issued on 25 May 2020, and on that date, AU1 Shares had
a VWAP of $0.042285 and a discounted VWAP of $0.033828. As such, the May 2020 Options are exercisable
at $0.033828 each and expire on 25 May 2022.
1.3. October 2020 Convertible Notes and Options
Full details of the terms of the agreement related to the October 2020 Convertible Notes (“October 2020
Convertible Notes Agreement”) is provided in the NoM, however, a summary of the material terms of the
October 2020 Convertible Notes Agreement are set out below:
Terms October 2020 Convertible Notes
Principal $5,000,000 (excluding Facilitation Fee).
Maturity Date 31 March 2023.
Facilitation $150,000, which is to be capitalised and added to the face value of the October 2020
Fee Convertible Notes.
Interest The higher of 8% per annum and the interest rate of the remaining Senior Debt, to be
calculated from 1 October 2020 to the Maturity Date, and may be satisfied in cash or
AU1 Shares upon agreement by the Company and Peters Investments.
Conversion The lower of $0.027 and the issue price of AU1 Shares offered under any subsequent
Price capital raising to raise over $1 million completed on or before the Maturity Date.
Suspension of Upon the announcement of a Takeover Event by the Company, to the extent required
Conversion by the ASX Listing Rules and/or the Corporations Act, Peters Investments’ right to
Right upon convert the convertible note will be suspended until the earlier of the completion or the
Takeover termination of the Takeover Event.
Event
Source: Draft NoM and October 2020 Convertible Note Agreement.
Also indicated in the NoM, on the basis that the funds received from the October 2020 Convertible Notes are
intended to be applied towards reducing the Senior Debt, there will ultimately be a corresponding reduction
in the joint and several guarantee provided by the Guarantors.
The funds for the October 2020 Convertible Notes was advanced by Peters Investments at the beginning of
October 2020, and is currently held in trust pending shareholder approval of the Proposed Transaction. If
the Proposed Transaction does not proceed, the funds from the October 2020 Convertible Notes will not be
released to AU1.
In addition, under the terms of the October 2020 Convertible Notes Agreement, if the Proposed Transaction
is not approved, the Company is required to repay to Peters Investments, in cash, the facilitation fee (being
$150,000), as well as any other fees and interest accrued on the October 2020 Convertible Notes up to the
repayment date. For the purposes of the Report, we have estimated the interest accrued on the October 2020
Convertible Notes, up to the date of the Report, to be $38,928 (see section 9.1.1).
page | 7
The October 2020 Options, which is part of the October 2020 Convertible Notes Agreement, is made up of:
8,829,559 AU1 Options, which were issued on 4 November 2020 (“Upfront Options”); and
the remainder, being 3,170,441 AU1 Options (“Remainder Options”), which have not yet been issued (as
detailed in the NoM).
Under the terms of the October 2020 Convertible Note Agreement, if the Remainder Options are not approved
by AU1’s shareholders at the AGM, the Company is also required to pay Peters Investments an amount equal
to the Black-Scholes valuation amount (as defined) of the Remainder Options (valued as at the time of the
AGM), within 5 business days of the AGM date. For the purposes of the Report, we have estimated the
amount repayable on this basis to be $89,475 at the date of the Report.
The October 2020 Options are exercisable at $0.027 each and will expire on 31 March 2023.
1.4. Potential Impact of the Proposed Transaction on the Company’s Shareholdings
At the date of this Report, Peters Investments holds a 0% interest in the issued shares of the Company, as
well as the 2,000,000 May 2020 Options and the 8,829,559 Upfront Options. If the Proposed Transaction
goes ahead, Peters Investments will have the right to:
convert the amount of the Convertible Notes, being:
o the total principal of $6,150,000 (being $1 million from the May 2020 Convertible Notes, $5 million
from the October 2020 Convertible Notes, and the $150,000 facilitation fee); and
o the accrued interest on the Convertible Notes, estimated at $77,299 at the date of the Report,
assuming an interest rate of 8% (see section 9.1.1).
exercise the 2,000,000 May 2020 Options; and
exercise a total of 12,000,000 October 2020 Options (being the 8,829,559 Upfront Options and the
3,170,441 Remainder Options).
As an indication of the likely impact that the conversion of the Convertible Notes and the potential exercise
of the Peters Investments Options may have on The Agency Group’s existing shareholders as a collective
group, the table below summarises the position if the Convertible Notes are converted at $0.027 per share.
The analysis also assumes that the Company issues no other shares between the date of this Report and the
date of conversion and/or exercise and that Peters Investments makes no change to its equity interest in the
Company other than conversion of the Convertible Notes and the exercise of the Peters Investments Options.
Existing Peters
Total Shares Shareholders Investments
Current number of AU1 Shares 298,954,431 298,954,431 -
Current shareholding 100.00% 100.00% 0.00%
Potential issue of AU1 Shares from conversion of
face value of Convertible Notes (including facilitation 227,777,778 - 227,777,778
fee)
Potential issue of AU1 Shares from conversion of
2,862,912 - 2,862,912
interest accrued on Convertible Notes
Potential issue of AU1 Shares from exercise of
2,000,000 - 2,000,000
May 2020 Options
Potential issue of AU1 Shares from exercise of
12,000,000 - 12,000,000
October 2020 Options
Number of AU1 Shares Outstanding after the
543,595,121 298,954,431 244,640,690
Proposed Transaction
Potential Shareholding after Conversion and
100.00% 55.00% 45.00%
Exercise
Source: Nexia analysis.
The above analysis shows that ‘all other things being equal’, on the conversion of the Convertible Notes and
the exercise of the Peters Investments Options, Peters Investments’ interest in AU1 would increase from 0%
to 45.00% and the existing shareholders’ collective interest would decrease from 100.00% to 55.00%.
page | 8
The above analysis assumes that the Convertible Notes are converted at the date of the Report. As an
illustrative example, the following table summarises the position if the Convertible Notes are not converted
until just before their maturity date (31 March 2023), and assuming no repayments are made until that date.
Existing Peters
Total Shares Shareholders Investments
Current number of AU1 Shares 298,954,431 298,954,431 -
Current shareholding 100.00% 100.00% 0.00%
Potential issue of AU1 Shares from conversion of
face value of Convertible Notes (including facilitation 227,777,778 - 227,777,778
fee)
Potential issue of AU1 Shares from conversion of
51,628,480 - 51,628,480
interest accrued on Convertible Notes
Potential issue of AU1 Shares from exercise of
2,000,000 - 2,000,000
May 2020 Options
Potential issue of AU1 Shares from exercise of
12,000,000 - 12,000,000
October 2020 Options
Number of AU1 Shares Outstanding after the
592,360,689 298,954,431 293,406,258
Proposed Transaction
Potential Shareholding after Conversion and
100.00% 50.47% 49.53%
Exercise
Source: Nexia analysis.
This indicative analysis indicates that the additional shares to be issued due to the Convertible Notes being
converted just before maturity will increase Peters Investments’ interest in the Company from 0% to 49.53%.
Consequently, the existing shareholders’ collective shareholding in AU1 would reduce from 100.00% to
50.47%.
The above analyses also do not take into account any additional AU1 Shares issued as a result of the
following:
an increase of the interest on the Convertible Notes resulting from an increase of the Senior Debt interest
beyond 8%; and
a reduction in the conversion price of the Convertible Notes due to a subsequent capital raising completed
by the Company (as detailed in section 1.3) before the maturity date of the Convertible Notes.
Should one or more of the above events occur, this could result in a further increase in Peters Investments’
interest in the Company and further dilute the holdings of the existing shareholders.
2. PURPOSE OF REPORT
The purpose of this Report is to advise the non-associated shareholders of The Agency Group (i.e. those not
associated with Peters Investments, or “Non-Associated Shareholders”) on the fairness and reasonableness
of the Proposed Transaction.
Under section 606 of the Corporations Act 2001 (Cth) (“Corporations Act”), a transaction that would result in
an entity and its associates increasing their voting power in an entity from:
• 20% or below to greater than 20%; or
• a position above 20% and below 90%
is prohibited without making a takeover offer to all shareholders unless an exemption applies.
Item 7 of section 611 of the Corporations Act provides an exemption from the above if the transaction is
approved by shareholders in a general meeting.
page | 9
Peters Investments does not currently hold any AU1 Shares and therefore has 0% voting power in the
Company at present. The Proposed Transaction would result in Peters Investments’ entitlements to AU1
Shares and resulting voting power in the Company to be greater than 20% (being 45.00 and potentially up
to 49.53%, as illustrated in section 1.4).
As Peters Investments’ voting power in the Company will increase from 0% to a position of greater than
20%, the Proposed Transaction requires shareholder approval (being the subject of Resolution 6 of the NoM
issued on or about 23 November 2020 to The Agency Group’s shareholders).
The Australian Securities and Investments Commission (“ASIC”) has issued Regulatory Guide 74: Acquisitions
approved by members (“RG 74”) and Regulatory Guide 111: Content of expert reports (“RG 111”) which set
out the material disclosure requirements to shareholders when seeking their approval under item 7 of
section 611 of the Corporations Act. As part of the disclosure requirements, ASIC requires a detailed analysis
of the transaction that complies with RG 111, which can either be undertaken by the directors, if they believe
they have sufficient skill and expertise, or by an independent expert. ASIC also requires that the independent
expert’s report comply with ASIC’s issued Regulatory Guide 112: Independence of experts (“RG 112”).
Consistent with the guidance in RG 74, RG 111 and RG 112 the Directors of The Agency Group have requested
NPCF to prepare an independent expert’s report, the purpose of which is to provide an independent opinion
as to whether or not the Proposed Transaction is fair and reasonable to the Non-Associated Shareholders.
3. SUMMARY AND OPINION
This section is a summary of our opinion and cannot substitute for a complete reading of this Report. Our
opinion is based solely on information available as at the date of this Report.
The principal factors that we have considered in forming our opinion are summarised below.
3.1 Assessment of Fairness
As discussed in section 4, in determining whether the Proposed Transaction is fair to the Non-Associated
Shareholders, we have compared the fair value of a share in AU1 on a control basis prior to the Proposed
Transaction to the fair value of a share in AU1 on a minority basis after the Proposed Transaction.
This is summarised below:
Low Preferred High
Fair value of an AU1 Share on a control basis
$0.044 $0.055 $0.067
before the Proposed Transaction
Fair value of an AU1 Share on a minority basis
$0.028 $0.033 $0.039
after the Proposed Transaction
Source: Nexia analysis.
The above values indicate that, in the absence of any other relevant information, the Proposed Transaction
is not fair to the Non-Associated Shareholders.
Therefore, we have concluded that the Proposed Transaction is not fair.
page | 10
3.2 Assessment of Reasonableness
In accordance with RG 111, a control transaction is reasonable if:
the transaction is fair; or
despite not being fair, but considering other significant factors, there are sufficient reasons for security
holders to accept the offer in the absence of a higher bid before the close of an offer.
In forming our opinion we have considered the following relevant factors (also see section 11):
Advantages Disadvantages
The Proposed Transaction will significantly Peters Investments will hold a significant
reduce the risk of AU1 defaulting on its loan interest in AU1 (45.00% or up to 49.53%)
from Macquarie Bank; which could result in a change of control, and
severely dilute existing shareholders’ collective
The Proposed Transaction may be AU1’s only
interest in AU1; and
option for funding in the near future;
The Proposed Transaction could reduce the
The terms of the Convertible Notes allow the
liquidity of AU1 Shares.
Company to reserve its cash balances in the
short-term;
The Proposed Transaction will allow AU1 to
continue to operate and achieve its strategic
goals and business objectives;
The conversion of the Convertible Notes will
improve AU1’s solvency in the long-term; and
The exercise of the Peters Investments Options
will enable the Company to raise an additional
$391,656.
The Directors have advised us that they do not currently have any alternatives to the Proposed Transaction.
If the Proposed Transaction is not approved, the Funding Package will not be secured and as such, AU1 will
need to raise additional funds or find alternative sources of funding in order to meet Macquarie Bank’s
repayment requirements as previously negotiated by the Group’s Board of Directors. This could be challenging
under the current circumstances, given the uncertain market environment and market volatility associated
with the global COVID-19 pandemic. As such, this will significantly increase the risk of the Group’s loan from
Macquarie Bank defaulting and consequently significantly increase the risk of Macquarie Bank exercising its
rights to appoint an administrator to wind-up the assets of the Group.
In addition, if the Proposed Transaction does not proceed, the funds from the Convertible Notes (currently
held in trust) will not be released to AU1, and approximately $316,774 (as estimated on the date of the
Report) would need to be repaid to Peters Investments in cash. This amount includes the facilitation fee,
interest accrued on the Convertible Notes, and the Black-Scholes valuation amount of the Remainder Options.
The portion relating to the Remainder Options would need to be repaid within 5 business days of the AGM.
This will also increase the risk of the Group defaulting on its loan with Macquarie Bank.
Although the Proposed Transaction is not fair, taking into account other significant factors (including the
consideration of the matters above and in the absence of higher offers for current AU1 Shares), we have
concluded that the Proposed Transaction is reasonable to the Non-Associated Shareholders.
page | 11
3.3 Opinion
Accordingly, in our opinion, the Proposed Transaction is not fair but reasonable to the Non-
Associated Shareholders.
The ultimate decision on whether to approve the Proposed Transaction should be based on shareholders’
own assessment of their circumstances. We strongly recommend that shareholders consult their own
professional advisers, carefully read all relevant documentation provided, including the NoM, and consider
their own specific circumstances before voting in favour of or against the Proposed Transaction.
Yours faithfully
Nexia Perth Corporate Finance Pty Ltd (AFSL 289358)
Muranda Janse van Nieuwenhuizen CA RCA
Authorised Representative
page | 12
STRUCTURE OF REPORT
Our Report is set out under the following headings:
3. SUMMARY AND OPINION ...........................................................................................................10
4. BASIS OF EVALUATION ..............................................................................................................14
5. OVERVIEW OF THE AGENCY GROUP ...........................................................................................15
6. INDUSTRY ANALYSIS AND MARKET OUTLOOK ............................................................................34
7. VALUATION METHODOLOGIES ...................................................................................................37
8. VALUE OF THE AGENCY GROUP ON A CONTROL BASIS BEFORE THE PROPOSED TRANSACTION ...39
9. VALUE OF THE AGENCY GROUP ON A MINORITY BASIS AFTER THE PROPOSED TRANSACTION ....43
10. ASSESSMENT OF FAIRNESS .......................................................................................................46
11. ASSESSMENT OF REASONABLENESS...........................................................................................46
12. OPINION ...................................................................................................................................49
APPENDICES
APPENDIX A – GLOSSARY..................................................................................................................50
APPENDIX B – SOURCES OF INFORMATION .......................................................................................53
APPENDIX C – STATEMENT OF DECLARATION & QUALIFICATIONS .....................................................54
APPENDIX D – VALUATION METHODOLOGIES ....................................................................................56
page | 13
4. BASIS OF EVALUATION
RG 74 and RG 111 provide guidance as to matters that should be considered in determining whether a
transaction is fair and reasonable in a range of circumstances.
RG 74 and RG 111 state that in deciding an appropriate form of analysis, the expert needs to consider that
the main purpose of the Report is to deal with the concerns that could reasonable be anticipated by those
persons affected by the transaction. An expert should focus on the purpose and outcome of the transaction;
that is the substance of the transaction, rather than the legal mechanism used to effect the transaction.
RG 111 requires analysis of a transaction under two distinct criteria being:
is the offer ‘fair’?; and
is it reasonable?
That is the opinion of fair and reasonable is not considered as a compound phrase.
In determining what is fair and reasonable for a control transaction, RG 111 states that:
an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the
securities the subject of the offer. This comparison should be made
o assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but
not anxious, seller acting at arm’s length; and
o assuming a 100% ownership of the target and irrespective of whether consideration is cash or scrip;
and
an offer is reasonable if it is fair, or if the offer is not fair, the expert believes that there are sufficient
reasons for security holders to accept the offer in the absence of a higher bid before the close of an
offer.
When considering the value of the securities subject of the offer in a control transaction, it is inappropriate
for the expert to apply a discount on the basis that the shares being acquired represent a minority or portfolio
interest and so the expert should consider this value inclusive of a control premium.
For the purpose of considering whether or not the Proposed Transaction is fair to the Non-Associated
Shareholders, we have compared the fair value of a share in AU1 on a control basis prior to the Proposed
Transaction to the fair value of a share in AU1 on a minority basis after the Proposed Transaction.
In our assessment of the reasonableness of the Proposed Transaction, our consideration has included the
following matters:
Peters Investments’ pre-existing voting power in securities in AU1;
other significant security holding blocks in AU1;
the liquidity of the market in AU1’s securities;
any special value of AU1 to Peters Investments, such the potential to write-off outstanding loans from
AU1, etc.;
the likely market price if the Proposed Transaction does not proceed;
the value to an alternate bidder and the likelihood of an alternative offer being made;
other significant matters set out in section 11.
page | 14
4.1 Individual Shareholders’ Circumstances
The ultimate decision whether to approve the Proposed Transaction should be based on each shareholder’s
assessment of the Proposed Transaction, including their own risk profile, liquidity preference, tax position
and expectations as to value and future market conditions. If in doubt about the Proposed Transaction or
matters dealt with in this Report, shareholders should seek independent professional advice.
4.2 Limitations on Reliance on Information
The documents and information relied on for the purposes of this Report are set out in Appendix B. We have
considered and relied upon this information and believe that the information provided is reliable, complete
and not misleading and we have no reason to believe that documents and material facts have been withheld.
The information provided was evaluated through analysis, enquiry and review for the purpose of forming an
opinion as to whether the Proposed Transaction is fair and reasonable to the shareholders. However, we do
not warrant that our enquiries have identified or verified all of the matters which an audit or extensive
examination might disclose.
We understand the accounting and other financial information that was provided to us has been prepared in
accordance with generally accepted accounting principles.
An important part of the information used in forming an opinion of the kind expressed in this Report is the
opinions and judgement of Directors and management. This type of information has also been evaluated
through analysis, enquiry and review to the extent practical. However, it must be recognised that such
information is not always capable of external verification or validation.
NPCF are not the auditors of The Agency Group. We have analysed and reviewed information provided by
the Directors and management of The Agency Group and made further enquiries where appropriate.
Preparation of this Report does not imply that we have in any way audited the accounts or records of The
Agency Group.
In forming our opinion we have assumed:
matters such as title, compliance with laws and regulations and contracts in place are in good standing
and will remain so and that there are no material legal proceedings, other than as publicly disclosed;
the information set out in the NoM to be sent to shareholders is complete, accurate and fairly represented
in all material respects; and
the publicly available information relied upon by NPCF in its analysis was accurate and not misleading.
This Report has been prepared after taking into consideration the current economic and market climate. We
take no responsibility for events occurring after the date of this Report which may impact upon this Report
or which may impact upon the assumptions referred to in the Report.
5. OVERVIEW OF THE AGENCY GROUP
5.1 Corporate History
The Agency Group (previously Ausnet Financial Services Ltd, or “Ausnet”) is a public listed company
headquartered in Perth, Australia (ASX code: AU1).
Ausnet originally commenced operating as a real estate agency in Western Australia in 1996 and completed
a reverse acquisition of Namibian Copper Ltd to become listed on the ASX on 28 December 2016. The
Company was renamed from Ausnet Financial Services Ltd to The Agency Group Australia Ltd on
12 December 2017.
Since the Company’s renaming on 12 December 2017, The Agency Group has acquired the assets of several
companies including those of Sell Lease Property Pty Ltd, Value Finance Pty Ltd and Complete Settlements
Pty Ltd (on 21 February 2018) and Inglewood Estate Agency (on 12 June 2018).
page | 15
On 11 January 2019, the Company also completed the acquisition of Top Level Real Estate (“TLRE”) and
acquired the residential sales and management division of The Vicus Property Group, taking the total number
of properties under the Company’s management to 4,200.
Other than The Agency Group’s head office in Western Australia, it also has 6 offices in New South Wales
and two offices in Victoria.
The Agency Group’s current group structure includes the following entities:
Source: Management information.
* At the date of the Report, The Agency Property Management WA Pty Ltd (“TAPM”) is no longer part of The
Agency Group’s current group structure as this entity was sold to Managex Funds Management Pty Ltd
(“Managex”). See section 5.3 for further details.
page | 16
5.2 Business Activities and Operations
The Agency Group and its subsidiaries (the “Group”) is a real estate group that provides real estate services,
mortgage broking, settlement services, property management and project marketing services to the real
estate sectors in Western Australia, New South Wales, Queensland and Victoria.
The Agency as a brand entered the market in 2017, aiming to disrupt the market with its innovative structure.
The Group has been on a rapid growth trajectory growing from $9.57 million revenue during the year ended
30 June 2017 (“FY 2017”) to $28.5 million for the year ended 30 June 2019 (“FY 2019”). The growth was
achieved organically and via a number of acquisitions, including the acquisition of Top Level Real Estate
(“TLRE”) in January 2019. The growth from FY 2019 to the following year was even more significant,
increasing to $42.9 million for the year ended 30 June 2020 (“FY 2020”). This was due to an increase in the
number and value of property sales during the year, driven by growth in combined gross commission income
from 3,153 sales and $2.9 billion worth of property sold across the Group.
The Group has three main operating divisions, including property sales, property management and ancillary
services, as follows:
5.2.1 Property Sales
This division operates an agent recruitment model, conducting sales of residential properties on behalf of
property vendors under The Agency and the Sell Lease Property (“SLP”) brands.
The Group has grown from 8 agents in January 2017 to its National Real Estate network of 281 agents
operating under The Agency and SLP brands as at September 2020. For September 2020, the Group had
listings with an estimated value of $420.6 million and achieved 422 exchanges for the month.
5.2.2 Property Management
This division manages residential and commercial properties on behalf of property owners. The division
operates an agent incentive model and operates under The Agency brand, growing from no properties under
management in January 2017 to 4,838 as at 30 June 2020.
The Group recently sold its West Coast rent roll business and entered into a strategic partnership with
Managex. See section 5.3 for further details.
As at September 2020 (and after the sale of the Group’s west coast rent roll), the Group had the following
portfolio of properties under management:
Portfolio Properties Annual
Under Management
Management Fees
New South Wales 3,457 $5,844,078
Victoria 100 $195,516
Queensland 26 $44,186
Total 3,583 $6,083,780
Source: Management information.
5.2.3 Ancillary Services
This division’s ancillary services include mortgage broking, conveyancing and settlement services, and
provides cross-sell opportunities for the rest of the business. As at 31 March 2020 the Group had a mortgage
loan book with approximately 4,300 loans and $1.9 million in annualised trail income ($2 million in annualised
trail income at September 2020).
page | 17
5.3 Sale of West Coast Rent Roll and Strategic Partnership with Managex
As announced by the Company on 9 September 2020, the Group recently sold its west coast rent roll business
to Managex for approximately $3.6 million (before adjustments). The sale was effectuated through the sale
of TAPM. As part of the sale agreement, the Group formed a strategic partnership with Managex, whereby
Managex licences The Agency brand in Western Australia for its property management business and refer
sales leads to the Group, and with the Group referring property management leads in Western Australia to
Managex.
Under the licence agreement, Managex will use The Agency brand in WA with a focus on retaining property
management staff. The Group has agreed to accommodate Managex at its Perth office.
As part of the transaction, a reciprocal referral agreement will be entered into by both parties whereby all
sales leads that come from Managex be referred in first instance to the Group while all WA property
management leads from the Group will be referred to Managex.
So far, proceeds of $2.7 million (representing 85% of an adjusted sale price of $3.26 million) for the sale of
the Group’s West Coast rent roll business was received at the beginning of October 2020, which was used to
partially reduce the Group’s debt with Macquarie Bank. The remaining retention amount (up to $0.485 million)
will be received by the Company 6 months after the finalisation of the sale (approximately April 2021).
5.4 Impact of Coronavirus (COVID-19)1
On 11 March 2020, the World Health Organization declared the spread of the Coronavirus Disease (“COVID-
19”) a worldwide pandemic. The COVID-19 pandemic is having significant effects on global markets, supply
chains, businesses, and communities. Specifically, ‘Stage 2’ of the Australian government’s measures and
restrictions to limit and/or contain the spread of COVID-19 was announced and implemented on
24 March 2020. The aim of the COVID-19-induced government lockdown measures, was to reduce gatherings
of multiple people. The measures included a restriction on public auctions and open houses, which affected
the real estate sector, particularly in the area of property sales.
As shown in the charts below, the fall-out of COVID-19 generally had an impact on the Group’s turnover,
particularly on the Group’s commission income generated from property sales, which was noticeable during
April and May 2020.
Source: AU1’s announcement lodged with the ASX on 31 July 2020
1
Source: AU1 announcements lodged with the ASX on 30 April 2019, 31 July 2019, 30 January 2020,
25 March 2020, 30 April 2020 and 31 July 2020.
page | 18
Source: AU1’s announcement lodged with the ASX on 31 July 2020
During this period, the Group already developed and had in operation a number of alternative products and
processes for its buyers and sellers to use other means, such as digital platforms, to enable auctions, home
opens and sales to occur. In anticipation of the government’s measures being introduced the Company had
been expanding the rollout of these across the business in the first few weeks of March 2020, including
moving all client communications on-line. During the period of the Stage 2 restrictions the Company also
employed innovative solutions including digital viewings and auctions.
At the time of the Stage 2 announcement, the Group had successfully sold two properties in New South
Wales under auction using alternative products and processes, including a combination of an online platform
and telephone bidding. At the time, the Group’s agents had also been proactively engaging with owners
regarding the use of these tools and other alternatives to ensure sales campaigns proceed based upon
owners’ wishes, buyer interest and minimising the health risk for all parties.
In addition, the Group generated the majority of its revenue in Western Australia and New South Wales
where the government related lock downs were less intrusive than in Victoria. Western Australia, in particular,
which accounts for more than 50% of sales volume, does not traditionally sell by auction and therefore was
less impacted by the Stage 2 and other government measures and restrictions. This, together with the
Group’s initiatives as described above, and the relaxation of restrictions in June (particularly in Western
Australia), contributed towards the increase of the Group’s commission income to pre COVID-19 levels in the
month of June.
As such, the Group’s overall gross commission income during the March and June 2020 quarters was higher
than the gross commission income during previous quarters (with the exception of the December 2019
quarter), despite the fallout from COVID-19, as shown in the tables below.
Key Metrics of The Agency Group Sep19 Qtr Dec19 Qtr Mar20 Qtr Jun20 Qtr
Gross Commission Income ($’000,000) $10.7 $14.2 $12.1 $11.0
Number of properties sold 703 888 804 756
Value of Properties Sold ($’000,000) $632.6 $884.4 $747.0 $678.8
Listings 883 1,072 1,001 1,001
Source: AU1 announcements lodged with the ASX on 30 January 2020, 30 April 2020 and 31 July 2020.
Key Metrics of The Agency Group Mar19 Qtr Jun19 Qtr
Gross Commission Income ($’000,000) $10.3 $10.0
No. of Properties Sold 616 674
Value of Properties Sold ($’000,000) $613.4 $600.8
Listings 1,040 800
Source: AU1 announcements lodged with the ASX on 30 April 2019 and 31 July 2019.
page | 19
Source: AU1’s announcement lodged with the ASX on 31 July 2020
As shown in the chart above the Group’s property management business, on the other hand, continued to
grow despite the onset of the COVID-19 pandemic and government imposed restrictions. The Group’s east
coast and west coast operations reported a total management portfolio of 4,737 properties under
management as at 31 March 2020, which rose to 4,763 properties under management as at 21st April 2020
and 4,838 as at 30 June 2020. The Group also had limited requests from tenants for rent relief, due to the
Group’s proactive management of rent deferral programs in Western Australia, New South Wales and Victoria,
which meant that the Group’s property management income was not materially affected by COVID-19.
The Group implemented a range of initiatives in the third quarter of the year ended 30 June 2020 to deal
with the fallout from COVID-19 and to proactively managing its cost base. One of the initiatives included a
transition of its workforce to remote working using the Company’s “remote ready” cloud-based platform. The
Company also reduced working hours of all staff (including management and board) temporarily in line with
reduced workloads as well as a small number of redundancies. This resulted in a cost saving of approximately
$600,000 and enabled the Company to retain the majority of its staff, moving all staff back to full working
hours and full salaries in June 2020.
The Group also benefitted from the Australian government’s cash flow management initiatives such as the
JobKeeper (for which $1,080,000 was granted during the quarter ended 30 June 2020 and $1,392,000 during
the quarter ended 30 September 2020, granted based on actual reduction in turnover during the months of
March and/or April 2020 for some of the Group’s entities) and the Cash Flow Boost payments. See further
details at note 6 of section 5.6.1.
Overall, despite the impact of the COVID-19 pandemic, the Group achieved their first ever full year EBITDA
profit and positive operating cash flows during FY 2020, with strong year-on-year revenue growth and growth
across key metrics, adding to the sustained growth the business has achieved over the past three years.
page | 20
5.5 Directors and Key Management
The following is a table of the Directors and Key Management Personnel of The Agency Group:
Director / Key
Management Personnel Position
Andrew Jensen Executive Chairman and Chief Operations Officer1
Paul Niardone Managing Director (appointed 19 December 2016)
Matthew LaHood Executive Director (appointed 17 January 2019)
Adam Davey Non-executive Director (appointed 19 December 2016)
Arjan van Ameyde Chief Financial Officer (appointed 1 February 2020)
Stuart Usher Company Secretary (appointed 28 December 2016)
Source: AU1’s 30 June 2020 audited financial statements.
1
Andrew Jensen was appointed as a Non-Executive Director on 18 February 2019. His role as Non-Executive
Director changed on 1 February 2020 when he became the Group’s Executive Chairman and Chief Operations
Officer.
5.6 Financial Information
Set out in sections 5.6.1, 5.6.2 and 5.6.3 are the audited consolidated financial statements of the Group for
the years ended 30 June 2018, 2019 and 2020 (“FY 2018”, “FY 2019” and “FY 2020” respectively), as included
in the annual reports lodged by the Company for those years.
The Group’s auditor’s reports for FY 2018, FY 2019 and FY 2020 were unmodified, however they each
contained an emphasis of matter in relation to the material uncertainty regarding the Group's ability to
continue as a going concern. It was noted in the Group’s annual report for FY 2020 that the Directors were
satisfied the going concern basis of preparation was appropriate, based on the following:
the Group reduced its borrowings from $21.1 million at 30 June 2019 to $13.8 million at 30 June 2020
(see note 5 in section 5.6.2 for further details);
with regards to the Group’s Senior Debt with Macquarie Bank (which made up the majority of working
capital deficit as at 30 June 2020), originally due for repayment on 30 September 2020, the Group
effectuated an option to renew for a further 3 months to 31 December 2020;
at the time of lodgement of the annual report, the Group was actively negotiating the extension of its
financing arrangements with Macquarie Bank, and expected to have its facilities refinanced imminently
(as indicated in section 1.1, the extension of the Group’s financing arrangements is part of the $11 million
Funding Package as announced on 29 October 2020);
the Group had entered into a binding sales agreement for the sale of the Group’s west coast rent roll
business (as detailed in section 5.3); and
the Directors had prepared a cash flow forecast, which indicated at the time that the Group will have
sufficient cash flows to meet commitments and working capital requirements for the 12-month period
from the date of signing the FY 2020 financial report.
page | 21
5.6.1 Financial Performance
Set out in the table below is the summary of the audited consolidated profit and loss accounts of the Group
for FY 2018, FY 2019 and FY 2020:
($’000) Notes FY 2018 FY 2019 FY 2020
Audited Audited Audited
Revenue 2 16,768 28,338 41,862
Other income 46 165 994
Total revenue and other income 2 16,814 28,503 42,856
Gain on acquisition 78 - -
Advertising and promotion expenses (479) (670) (1,242)
Computers and information technology expenses (432) (1,006) (1,330)
Consultancy, legal and professional fees (2,406) (3,103) (2,917)
Occupancy costs 4 (516) (2,178) (984)
Salaries and employment costs 6 (14,608) (24,024) (31,070)
Share-based payments expense - (134) -
Other expenses (1,422) (1,768) (2,649)
EBITDA 1, 2, 3 (2,971) (4,381) 2,663
Depreciation and amortisation (495) (2,267) (6,039)
Impairment (200) (1,378) (5,230)
EBIT 1 (3,666) (8,026) (8,606)
Interest income 9 13 18
Interest and finance costs 4, 5 (224) (1,243) (1,769)
Net loss from ordinary activities before
1 (3,881) (9,255) (10,357)
income tax expense
Income tax benefit/(expense) 139 1,425 1,292
Net loss from ordinary activities 1 (3,742) (7,831) (9,065)
Key Ratios (%)
Revenue and other income growth from prior year 2 75.78% 69.51% 50.36%
Increase in salaries and employment costs 6 73.09% 64.46% 29.33%
EBITDA margin 1, 2 (17.67%) (15.37%) 6.21%
EBIT margin 1 (21.80%) (28.16%) (20.08%)
Net loss before tax margin 1 (23.08%) (32.47%) (24.17%)
Net loss after tax margin 1 (22.26%) (27.47%) (21.15%)
Source: Nexia analysis and AU1’s 30 June 2018, 2019 and 2020 audited financial statements.
Notes:
1. Other than the Group’s positive EBITDA result for FY 2020, the Group had been operating at a loss with
negative EBIT and EBITDA in the last few years. The Group’s prior negative EBTIDA levels were mainly
due to the Group’s rapid growth, especially through the acquisition of TLRE on 11 January 2019 (refer
to note 17 in section 5.6.2). During the period from 11 January to 30 June 2019, TLRE’s business
contributed $2,818,080 to the Group’s net loss (as mentioned in note 2 below).
However, the Group’s continued growth over the years has enabled the Group to achieve a positive
EBITDA level for FY 2020 and for the quarter ended 30 September 2020 (see note 2 below).
2. The Group has been on a rapid growth trajectory since The Agency as a brand entered in 2017, growing
via acquisitions including TLRE (during FY 2019, as per note 17 in section 5.6.2), which contributed
revenues of $10,155,115 and a net loss of $2,818,080 during the period from 11 January to
30 June 2019), as well as through increasing the number of its agents over the years, as shown in the
table below:
Key Metrics of The Agency Group At 30 Jun At 30 Jun At 30 Jun At 30 Jun
2017 2018 2019 2020
Number of agents 50 185 272 283
Number of properties sold 366 1,326 2,419 3,153
Gross commission income ($’000,000) 3.8 28.8 37.9 47.9
Value of exchanges ($’000,000,000) 0.2 1.8 2.4 2.9
Number of new listings 639 1,776 3,430 3,957
Source: AU1’s 30 June 2017, 2018, 2019 and 2020 audited financial statements.
page | 22
The table above shows that the growth in the Group’s revenue over the years has also been driven by
the Group’s growth in combined gross commission income over the years. Particularly in FY 2020, despite
the effects of government imposed COVID-19 restrictions (see section 5.4 for more details on this), the
Group achieved a positive EBITDA for FY 2020, which was driven by growth in combined gross
commission income from 3,153 sales and $2.9 billion worth of property sold across the Group, as
mentioned in section 5.2.
We also note that since 30 June 2020, the Company has released the results for the quarter ended
30 September 2020:
Key Metrics of The Agency Group At 30 Sep
2020
Number of agents 281 (see section 5.2.1)
Number of properties sold 1,117
Gross commission income ($’000,000) 16.6
Value of exchanges ($’000,000,000) 0.9
Number of new listings 1,240
Source: Nexia analysis and AU1’s announcement lodged with the ASX on 29 October 2020
3. As announced by the Company on 9 September 2020, the Group recently sold its west coast rent roll
business to Managex for approximately $3.6 million (before adjustments), with an adjusted sale price of
$3.26 million (see section 5.3 for further details). The west coast rent roll business contributed
approximately $0.49 million to the Group’s net EBITDA for FY 2020.
4. The accounting standard AASB 16 Leases came into effect on 1 July 2019, replacing the old
AASB 117 Leases accounting standard. This resulted in the Company’s property and printing equipment
lease liabilities, and their associated right-of-use assets, being capitalised and recognised on the balance
sheet on 1 July 2019. This consequently resulted in about $1,951,373 (as disclosed in The Agency Group’s
annual report for FY 2020, which would previously have been classified as occupancy costs under the
old standard), to be classified as interest, depreciation and amortisation during FY 2020.
5. The increase in interest in FY 2019 compared to FY 2018 was also due to the Group’s acquisition of TLRE
during that year, which resulted in the Group acquiring additional borrowings during that year (see note
9 of section 5.6.2).
6. On 30 August 2019 (in the first quarter of FY 2020), the Company announced that it had identified and
begun implementing $2.8 million in cost savings, which was achieved during the year. The Group also
implemented a range of initiatives in the third quarter of FY 2020 to deal with the fallout from COVID-19
and to proactively manage its cost base. This included reducing working hours of all staff (including
management and the Board of Directors) temporarily in line with reduced workloads as well as a small
number of redundancies. This lasted from about mid-April 2020 to mid-June 2020 and resulted in a cost
saving of approximately $600,000, which enabled the Group to retain the vast majority of its staff during
this period.
In addition, according to the Group’s annual report for FY 2020, the Group received $1,080,000 in
government grants from the Australian Government's JobKeeper Payment scheme, which was
represented as a deduction to the Group’s salaries and employment costs during FY 2020. The amount
was granted based on actual reduction in turnover during the months of March and/or April 2020 for
some of the Group’s entities. $390,000 of this amount was accrued for the month of June 2020 and paid
in July 2020.
After 30 June 2020, the Group received into their bank accounts additional JobKeeper payments totalling
$1,377,000 during the quarter ended 30 September 2020 (which includes the $390,000 as mentioned
above) and $405,000 during October (related to the month of September 2020).
page | 23
5.6.2 Financial Position
Set out in the table below is the summary of the audited consolidated balance sheets of AU1 as at
30 June 2018, 2019 and 2020 (“FY 2018”, “FY 2019” and “FY 2020” respectively):
($’000) Notes FY 2018 FY 2019 FY 2020
Audited Audited Audited
Current Assets
Cash and cash equivalents 1,022 2,597 2,724
Trade and other receivables 1 2,743 4,080 4,601
Financial assets 2 - - 1,600
Current tax asset 191 - -
Other current assets 3 254 413 550
Total Current Assets 4,210 7,091 9,476
Current Liabilities
Trade and other payables 4 7,379 13,556 9,773
Borrowings 5 1,100 21,127 13,843
Provisions 4 388 1,113 2,287
Leases 7 - - 1,980
Total Current Liabilities 8,867 35,795 27,883
Net Current Liabilities
5 (4,657) (28,704) (18,407)
(Net Working Capital Deficit)
Non-Current Assets
Trade and other receivables 1 - 283 270
Financial assets 8 408 1,142 170
Property, plant, and equipment 4 521 2,578 2,040
Right of use asset 7 - - 4,645
Intangible assets 9, 10 4,648 39,036 30,376
Total Non-Current Assets 5,577 43,039 37,502
Non-Current Liabilities
Trade and other payables - 35 -
Provisions 64 600 337
Leases 7 - - 3,895
Deferred tax liabilities 11 296 4,668 3,251
Total Non-Current Liabilities 360 5,304 7,483
Net Non-Current Assets 5,217 37,735 30,019
Total assets 9,787 50,130 46,977
Less: Total liabilities (9,227) (41,099) (35,366)
Net Assets 560 9,031 11,611
Equity
Issued capital 12, 13 11,480 27,765 39,396
Reserves 566 583 929
Accumulated losses (11,487) (19,317) (28,713)
Total Equity 560 9,031 11,611
Net cash and financial assets / (borrowings) 5d 330 (17,387) (8,806)
Source: Nexia analysis and AU1’s 30 June 2018, 2019 and 2020 audited financial statements.
Notes:
1. The majority of the Group’s receivables are commission due on property sales. This balance increased
significantly in FY 2019 due to the acquisition of TLRE (see note 17 for further details).
2. This balance represents restricted cash, which at FY 2020 is made up of $1,000,000 received from Peters
Investments for the May 2020 Convertible Notes during FY 2020 (and currently held in trust) and
$600,000 which Macquarie Bank has not yet given access to AU1.
page | 24
3. The balance of $550,476 at FY 2020 is mainly made up of $481,716 of current bank guarantees and
$61,124 of rental deposits.
4. The increase of the balances for trade and other payables, provisions, and property, plant, and equipment
from FY 2018 to FY 2019, were mainly due to the acquisition of TLRE on 11 January 2019 (see note 17
for further details).
5. The Group’s net working capital deficit position and net borrowings position, particularly at FY 2019 and
FY 2020 is mainly due to the Group’s borrowings (the majority of which is the Senior Debt with Macquarie
Bank), which was assumed through the Group’s acquisition of TLRE on 11 January 2019 (see note 17 for
further details).
During FY 2020, the Group reduced its borrowings (excluding leases) during the year from $21,126,603
at FY 2019 to $13,843,235, assisted by the conversion of $5,798,388 of debt to equity.
The balance of the Group’s borrowings at 30 June 2020 was made up of the following:
($’000) FY 2020
Senior Debt (see notes 5a and 5b) 12,093
Convertible (see note 5c) 1,000
Other loans 750
Total Borrowings at 30 June 2020 13,843
Source: Nexia analysis and AU1’s 30 June 2020 audited financial statements.
a. The Senior Debt has a first ranking change over all the assets of the Group. Up to the 12 months
prior to the Report date, the facility’s interest rate ranged between 8.64% and 9.60%, with a closing
rate of 8.59% per annum before the announcement of the Group’s Funding Package on
29 October 2020 (refer to section 1.1).
b. As noted in sections 1.1 and 1.3, the Guarantors provided a joint and several guarantee to Macquarie
Bank in relation to the Senior Debt. The Guarantors include the following shareholders of AU1:
i. Teldar Real Estate Pty Ltd <MJ Lahood Family A/C>, an entity controlled by one of AU1’s
directors, Matthew Lahood;
ii. MAC Property Group Pty Ltd <MAC A/C>;
iii. SEMC 2 Pty Ltd <The Chen Asset A/C>;
iv. Ben Collier Investments Pty Ltd; and
v. Daring Investments Pty Ltd.
The Proposed Transaction will effectively reduce each of the Guarantors’ joint and several guarantee
to Macquarie Bank down from $8,716,071 to $3,716,071 respectively.
c. The above amount relates to the May 2020 Convertible Notes. The proceeds from the convertible
note is currently in trust and has not been released to AU1 (see note 2).
d. The amount of borrowings (net of cash) as at 30 June 2020 is calculated as follows:
($’000) FY 2020
Borrowings 13,843
Less: Cash and cash equivalents (2,724)
Less: Financial assets (non-current) (see notes 2 and 8 above) (1,770)
Less: Other current assets (current bank guarantees and rental deposits) (543)
Total Borrowings (Net of Cash) 8,806
Source: Nexia analysis and AU1’s 30 June 2020 audited financial statements.
6. Following from the above note, since 30 June 2020, during the quarter ended 30 September 2020, the
Group’s cash and cash equivalents increased by $2.062 million.
This was mainly due to the Group’s strong performance during the quarter (see note 2 of section 5.6.1)
as well as receiving an additional $1,377,000 for the JobKeeper Payment scheme during the quarter (see
note 6 of section 5.6.1).
In addition, as announced by the Company on 9 September 2020, the proceeds on sale of the Group’s
west coast rent roll business was received at the beginning of October 2020. The proceeds received by
the Group was $2.7 million (85% of the adjusted sale price) and was used to reduce the Senior Debt
(see section 5.3 for more details).
page | 25
Taking into account the above factors, the borrowings of the Group (net of cash) as at the date of the
Report is estimated as follows:
($’000) FY 2020
Borrowings (net of cash) as at 30 June 2020 (as per note 5d above) 8,806
Less: Increase of cash and cash equivalents during the quarter ended 30 Sep 2020 (2,062)
Less: Proceeds received on sale of the Group’s west coast rent roll business (Oct 2020) (2,747)
Estimated Borrowings (Net of Cash) at the Date of the Report 3,997
7. The accounting standard AASB 16 Leases came into effect on 1 July 2019 and as a result, the Company’s
property and printing equipment lease liabilities and their associated right-of-use assets were capitalised
and recognised on the balance sheet during FY 2020.
8. This balance includes bank guarantees and other restricted cash.
9. The significant increase in intangible assets from FY 2018 to FY 2019, was mainly due to the Group’s
acquisitions of Vicus Residential (see note 16) and TLRE (see note 17) on 11 January 2019.
Also see notes 14 and 15 for details of the Group’s acquisitions of Sell Lease Property, Complete
Settlements and Value Finance on 21 February 2018 (note 14) and Inglewood Estate Agency on
12 June 2018 (note 15), which contributed to the increase of intangible assets from $3.2 million at
FY 2017 to $4.6 million at FY 2018.
10. The majority of the Company’s intangible assets balance at FY 2020 consists of goodwill from the
acquisition of subsidiaries (net of impairment) of $11,773,237 and the Company’s rent roll and trail book
value (net of accumulated amortisation) of $18,417,546. According to The Agency Group’s management,
this is broken down as follows:
($’000) FY 2020
Goodwill from the acquisition of TAPM, net of impairment (see note 10a) 1,069
Goodwill from the acquisition of other subsidiaries, net of impairment 10,704
Goodwill from the acquisition of subsidiaries, net of impairment 11,773
AU1’s east coast rent roll book value, net of accumulated amortisation 16,267
AU1’s west coast rent roll book value, net of accumulated amortisation (see note 10b) 1,964
AU1’s trail book value, net of accumulated amortisation 186
Rent roll and trail book value, net of accumulated amortisation 18,418
Other intangible assets, net of accumulated amortisation 186
Total net intangible assets 30,376
Source: Management information.
a. The sale of the Group’s west coast rent roll business to Managex (see section 5.3) was effectuated
through the sale of TAPM.
b. This amount reflects the net book value of the Group’s west coast rent roll as at 30 June 2020, which
was part of the west coast rent roll business sold to Managex. As noted in section 5.3, the proceeds
for the sale of the business was received at the beginning of October 2020.
11. The deferred tax liabilities mainly relate to the Company’s rent roll balances. We also note that as at
30 June 2020, the Group had unrecognised unused tax losses of $3,315,284.
12. The significant increase in issued capital during FY 2019 was mainly due to:
a. shares issued for the acquisition of Vicus Residential (valued at $453,333, as per note 16);
b. shares issued for the acquisition of TLRE (valued at $2,566,667, as per note 17);
c. shares issued to repay TLRE’s borrowings (valued at $5 million); and
d. capital raising undertaken during the year (totalling $8.4 million).
13. The increase in issued capital during FY 2020 was due to:
a. capital raised during the year (totalling $5,584,398); and
b. approximately $5.8 million of loans which were settled by issuing shares.
page | 26
14. During FY 2018, on 21 February 2018, the Group acquired Sell Lease Property, Complete Settlements
and Value Finance Pty Ltd and assumed 100% of those entities’ assets and liabilities. The fair value of
the consideration for all entities was $950,000, which was paid in cash. The details of the transaction,
including the allocation of the consideration across all entities, the fair values of assets and liabilities
acquired and the goodwill and/or bargain on purchase for each entity are detailed below:
Sell Lease Property $
Total consideration 800,000
Less: Fair value of assets and liabilities acquired (28,375)
Goodwill (Recognised under Intangible Assets) 771,625
Source: AU1’s 30 June 2019 audited financial statements.
Complete Settlements $
Total consideration 50,000
Less: Fair value of assets and liabilities acquired (3,520)
Goodwill (Recognised under Intangible Assets) 46,480
Source: AU1’s 30 June 2019 audited financial statements.
Value Finance Pty Ltd $ $
Total consideration 100,000
Less: Identifiable intangible assets (rent roll) (285,587)
Deferred tax liability 78,536 (207,051)
Bargain purchase to be recognised in profit and loss (107,051)
Less deferred tax on bargain price 29,439
Credit to Profit and Loss for Bargain Price (77,612)
Source: Nexia analysis and AU1’s 30 June 2019 audited financial statements.
All of the above was included in the Group’s balance sheet and results on 21 February 2018.
15. During FY 2018, on 12 June 2018, the Group acquired the real estate assets and rent roll of Inglewood
Estate Agency. The fair value of the consideration was $436,180, of which $348,944 was paid upfront
and the remaining $87,236 was retained and paid in June 2019. The fair value of the net identifiable
assets and liabilities assumed at acquisition and recognised in the Group’s balance sheet from
12 June 2018 was $279,909, which was made up of the following:
Inglewood Estate Agency $
Rent rolls acquired (recognised under intangible assets) 386,082
Less: Deferred tax liability (106,173)
Net Fair Value of Identifiable Assets Acquired 279,909
This resulted in goodwill of $156,271 being recognised on acquisition, which was also recognised in the
Group’s intangible assets from 12 June 2018.
16. During FY 2019, on 11 January 2019, the Group acquired Vicus Residential, the residential sales and
management division of The Vicus Property Group. The fair value of the consideration was $535,833,
comprising $67,500 which was paid in cash and $453,333 which was satisfied by the issue of 2,666,667
AU1 Shares at $0.17 per share. The fair value of the rent roll in the Vicus Residential business amounted
to $535,833, and was recognised in the Group’s intangible assets from 11 January 2019.
page | 27
17. During FY 2019, on 11 January 2019, the Group acquired TLRE and assumed 100% of TLRE’s assets and
liabilities. The fair value of the consideration was $2,566,667, which was satisfied by the issue of
18,333,333 AU1 Shares at $0.14 per share. The fair value of the net identifiable assets and liabilities
assumed at acquisition was negative $13,395,469, which was made up of the following:
TLRE $
Cash and cash equivalents 594,258
Trade and other receivables 2,831,759
Property, plant, and equipment 2,155,716
Rent rolls acquired (recognised under intangible assets) 20,692,117
Trade and other payables (6,767,664)
Borrowings (25,553,559)
Provisions (1,234,080)
Deferred tax liability (5,690,332)
Other assets (net of other liabilities) (423,684)
Net Fair Value of Identifiable Assets (Net of Liabilities) Assumed (13,395,469)
Source: Nexia analysis and AU1’s 30 June 2020 audited financial statements.
This resulted in goodwill of $15,962,136 being recognised on acquisition, which was also recognised in
the Group’s intangible assets from 11 January 2019.
page | 28
5.6.3 Cash Flow Statements
Set out in the table below is the summary of the audited consolidated cash flow statements of the Group for
FY 2018, FY 2019 and FY 2020:
($’000) Ref / FY 2018 FY 2019 FY 2020
Notes Audited Audited Audited
Cash Flows from Operating Activities
EBITDA 5.6.1 (2,971) (4,381) 2,663
Less: Net interest and finance costs paid 1 (216) (1,230) (1,385)
Other non-cash flows:
Share-based payments expensed 5.6.1 - 134 -
Gain on acquisition 5.6.1 (78) - -
Movements in working capital and other assets
and liabilities (net of acquisitions):
(Increase)/Decrease in trade and other
(1,553) 1,014 (609)
receivables
(Increase)/Decrease in financial assets (408) (626) 372
Increase/(Decrease) in trade and other payables 2,840 (653) (1,617)
Increase/(Decrease) in provisions 48 (689) 911
Net Cash (Used in)/Generated by
2 (2,336) (6,431) 335
Operating Activities
Cash Flows from Investing Activities
Purchase of property, plant, and equipment (218) (241) (283)
Advancement of bank guarantee (408) (600) (481)
Return of bank guarantee - - 346
Purchase of intangibles 3, 4 (892) - (193)
Deferred purchase consideration paid (200) (75) (15)
Purchase of subsidiary, net of cash acquired 4 - 594 -
Net Cash Used in Investing Activities 2 (1,718) (322) (626)
Cash Flows from Financing Activities
Proceeds from issue of shares 2 1,920 8,400 5,612
Share issue costs (146) (277) (398)
Repayments of borrowings - (44) (2,732)
Proceeds from borrowings 1,100 250 -
Leases payments - - (2,065)
Net Cash Provided by Financing Activities 2,874 8,328 418
Net increase in cash and cash equivalents held (1,181) 1,575 127
Cash and cash equivalents at the beginning of
2,203 1,022 2,597
the year
Cash and Cash Equivalents at the End of
1,022 2,597 2,724
the Year
Source: Nexia analysis and AU1’s 30 June 2018, 2019 and 2020 audited financial statements.
Notes:
1. As per notes 4 and 17 in section 5.6.2, the level of net borrowings increased significantly during FY 2019
due to the acquisition of TLRE on 11 January 2019, thereby increasing the level of interest paid by the
Group during FY 2019 and FY 2020.
page | 29
2. The Group has been operating at negative operating and investing cash flows in the last few years (with
the exception of a positive operating cash flows for FY 2020). In particular, the dramatic increase of net
cash used in operating activities during FY 2019 was due to the acquisition of TLRE on 11 January 2019
(see note 17 in section 5.6.2). The Group’s rapid growth and expansion during FY 2018 and FY 2019 also
contributed to the Group’s negative operating and investing cash flows during these years.
The Group have funded these negative cash flows by means of raising capital and settling loans through
the issue of shares in the last few years. Also refer note 12 in section 5.6.2 with regards to share capital
raised in the last few years.
3. The purchase of intangibles during FY 2018 include rent rolls and goodwill recognised upon the
acquisition of Sell Lease Property, Complete Settlements and Value Finance Pty Ltd on 21 February 2018
(see note 14 of section 5.6.2), and the acquisition of Inglewood Estate Agency on 12 June 2018 (see
note 15 of section 5.6.2).
4. As per note 17 in section 5.6.2, during FY 2019, on 11 January 2019, the Group acquired TLRE via an
issue of ordinary shares. As such, there was no cash outflow recorded for the purchase of intangibles or
other net assets and liabilities related to the acquisition of TLRE, except for TLRE’s cash balance of
$594,258 at 11 January 2019.
5.7 Capital Structure and Ownership
The Group’s capital structure as at 5 November 2020 comprised issued capital of 298,954,431 fully paid
ordinary shares, 113,011,319 options and 5 incentive performance shares, as shown below:
298,954,431 fully paid ordinary shares (see section 5.7.1);
101,515,093 listed options (see section 5.7.2);
11,496,226 unlisted options (see section 5.7.3); and
5 incentive performance shares (see section 5.7.4).
5.7.1 Fully Paid Ordinary Shares
The top 10 AU1 shareholders as at 5 November 2020 held 69.38% of AU1’s issued capital and are set out
below:
Shareholder Shareholding % Total
Magnolia Equities III Pty Ltd 49,969,507 16.71%
Ben Collier Investments Pty Ltd <Ben Collier Investments P/L> 27,060,515 9.05%
MAK Property Group Pty Ltd <MAK A/C> 25,690,547 8.59%
SEMC 2 Pty Limited <The Chen Asset A/C> 24,475,530 8.19%
Teldar Real Estate Pty Ltd <MJ Lahood Family A/C> 24,349,790 8.14%
Hanzheng KSW Pty Ltd <Hanzheng KSW Unit A/C> 16,666,667 5.57%
Daring Investments Pty Ltd 13,770,150 4.61%
Daring Investments Pty Ltd <Kolenda Family A/C> 10,979,394 3.67%
Honan Insurance Group Pty Ltd 7,692,308 2.57%
Nutsville Pty Ltd <Indust Electric Co S/F A/C> 6,763,230 2.26%
Top ten shareholders 207,417,638 69.38%
Other 91,536,793 30.62%
Total shares 298,954,431 100.00%
Source: AU1’s share registry as at 5 November 2020.
The table below summarises AU1 shareholders by size of shareholding at 5 November 2020:
Range No. of holders Shares % Total
1 – 1,000 221 36,127 0.01%
1,001 – 5,000 124 347,216 0.12%
5,001 – 10,000 107 790,246 0.26%
10,001 – 100,000 332 12,435,669 4.16%
100,001 and over 137 285,345,173 95.45%
Total 921 298,954,431 100.00%
Source: AU1’s share registry as at 5 November 2020.
As at the date of the Report, Peters Investments does not currently hold any shares in AU1.
page | 30
5.7.2 Listed Options
The top 10 listed optionholders as at 5 November 2020 held 85.57% of AU1’s listed options and are set out
below:
Optionholder Optionholding % Total
Magnolia Equities III Pty Ltd 29,811,994 29.37%
Teldar Real Estate Pty Ltd <MJ Lahood Family A/C> 9,622,044 9.48%
SEMC 2 Pty Limited <The Chen Asset A/C> 9,622,044 9.48%
Ben Collier Investments Pty Ltd <Ben Collier Investments P/L> 9,481,654 9.34%
MAK Property Group Pty Ltd <MAK A/C> 9,481,653 9.34%
Aura Principal Investments Pty Ltd 4,162,103 4.1%
Kalonda Pty Ltd <Leibowitz Super Fund A/C> 4,000,000 3.94%
Nutsville Pty Ltd <Indust Electric Co S/F A/C> 3,949,461 3.89%
Honan Insurance Group Pty Ltd 3,846,154 3.79%
Daring Investments Pty Ltd 2,891,275 2.85%
Top ten optionholders 86,868,382 85.57%
Other 14,646,711 14.43%
Total listed options 101,515,093 100.00%
Source: AU1’s listed option registry as at 5 November 2020.
AU1’s 101,515,093 listed options are exercisable at $0.065 and expire on 31 December 2020.
The table below summarises AU1’s listed optionholders by size of optionholding at 5 November 2020:
Range No. of holders Options % Total
1 – 1,000 12 4,796 0.00%
1,001 – 5,000 18 49,247 0.05%
5,001 – 10,000 6 45,485 0.04%
10,001 – 100,000 32 1,360,741 1.34%
100,001 and over 34 100,054,824 98.56%
Total 102 101,515,093 100.00%
Source: AU1’s listed options registry as at 5 November 2020.
As at the date of the Report, Peters Investments does not currently hold any listed options in AU1.
5.7.3 Unlisted Options
The details of AU1’s unlisted options and optionholders as at 5 November 2020 are set out below:
Optionholder Exercise Price Expiry Date Optionholding
PAC Partners Pty Ltd $0.750 20 December 2020 266,667
PAC Partners Pty Ltd $1.200 20 December 2020 66,667
Mr Adam Stuart Davey <Shenton Park $0.300 11 January 2022 333,333
Investment A/C>
Peters Investments Pty Ltd (see Note 1) $0.0341 25 May 2022 2,000,000
Peters Investments Pty Ltd (see Note 2) $0.027 31 March 2023 8,829,559
Total unlisted options 11,496,226
Source: AU1’s unlisted option registry as at 5 November 2020 and recent ASX announcements.
Notes:
1. These are the May 2020 Options as referred to in sections 1.1 and 1.2. The May 2020 Options are
exercisable at $0.033828 as per section 1.2.
2. These are the Upfront Options as referred to in section 1.3.
page | 31
5.7.4 Incentive Performance Shares
The details of the holders of the incentive performance shares and their holdings as at 5 November 2020 are
as follows:
Incentive Performance Share Holder Holding
Adam Davey (current director) 1
Paul Niardone (current director) 1
John Kolenda (previous director) 1
Philip Re (previous director) 1
Ross Cotton (previous director) 1
Total incentive performance shares 5
Source: AU1’s FY 2020 annual financial report.
5.8 Share Price and Volume Trading Analysis
The following chart provides a summary of the trading volumes and prices for AU1 Shares from
30 September 2019 to 30 September 2020 (the last full day of trading prior the trading halt and voluntary
suspension as requested by the Company on 1 October 2020 and 5 October 2020 respectively, and which
was in place until 29 October 2020, the date on which the Funding Package was announced (see
section 1.1)). The chart below does not include the effects that the announcement of the Funding Package
may have had on AU1’s share price:
Source: Yahoo! Finance and Nexia analysis
The prices and volumes for the last 180 days prior to 30 September 2020 are summarised in the table below:
Period to Trading as a %
30 September 2020 Share Share Cumulative of current issued
Price Low Price High Volume Traded VWAP capital
1 day $0.035 $0.035 - N/A 0.00%
7 days $0.033 $0.035 185,000 $0.035 0.06%
30 days $0.028 $0.043 1,662,376 $0.037 0.56%
60 days $0.028 $0.043 3,315,642 $0.033 1.11%
90 days $0.028 $0.043 7,008,759 $0.033 2.34%
180 days $0.028 $0.058 8,860,229 $0.034 2.96%
Source: Yahoo! Finance and Nexia analysis
page | 32
The following table also provides the values and volumes of AU1 Shares being transacted on ASX from
30 September 2019 to 30 September 2020, detailed on a monthly basis:
Trading as a %
Share Share Cumulative of current issued
Month Price Low Price High Volume Traded VWAP capital
October 2019 $0.052 $0.067 2,584,560 $0.060 0.87%
November 2019 $0.056 $0.076 2,270,799 $0.065 0.76%
December 2019 $0.058 $0.072 571,615 $0.060 0.19%
January 2020 $0.044 $0.065 1,605,277 $0.050 0.54%
February 2020 $0.050 $0.060 758,047 $0.050 0.25%
March 2020 $0.038 $0.060 619,647 $0.050 0.21%
April 2020 $0.035 $0.058 952,882 $0.040 0.32%
May 2020 $0.030 $0.040 225,641 $0.039 0.08%
June 2020 $0.035 $0.047 892,292 $0.043 0.30%
July 2020 $0.028 $0.043 3,693,117 $0.030 1.24%
August 2020 $0.028 $0.043 1,927,458 $0.043 0.64%
September 2020 $0.033 $0.043 1,388,184 $0.035 0.46%
Source: Yahoo! Finance and Nexia analysis
The chart and tables above indicates that AU1’s share price has fluctuated over the period since
30 September 2019. During this period the closing share price of AU1 Shares has traded within a range of
$0.028 and $0.075 over the 12 months with a closing price of $0.035 at 30 September 2020. The volume
weighted average price of AU1 Shares over the 12 months to 30 September 2020 is calculated at $0.047.
During the first few months of the period since 30 September 2019 (up to January 2020), AU1’s closing share
price ranged between $0.044 and $0.076, and AU1’s monthly VWAP ranged from $0.050 to $0.065. There
was a notable drop in share prices during February 2020 to June 2020 (being the approximate periods when
the COVID-19 related lockdowns were in place for most Australian states), however, this seems to have
stabilised again from July 2020. Since July 2020 the closing share price of AU1 Shares traded within a range
of $0.028 and $0.043. The volume weighted average price of AU1 Shares over the 3 months to 30 September
2020 is calculated at $0.033.
Although less than 3% of the Company’s capital were traded in the last 90 and 180 days, AU1 Shares have
a moderate level of liquidity with relatively free flow of trading in the shares during the year (including the
last 3 months) to 30 September 2020. There was also a notable reduction in trading volumes during February
2020 to June 2020, however this increased since July 2020 to near pre COVID-19 levels, with the highest
single day trading volume (excluding insider trading) recorded on 4 August 2020 when 1,007,586 AU1 Shares
were traded.
page | 33
6. INDUSTRY ANALYSIS AND MARKET OUTLOOK
The Group mainly operates within the real estate services industry in Australia.
6.1 Industry Analysis – Real Estate Services2
6.1.1 Industry Definition
Businesses in the real estate services industry primarily appraise, purchase, sell (by auction or private treaty),
manage or rent residential property, commercial property, or a combination of the two.
6.1.2 Industry Life Cycle
The real estate services industry is in the mature stage of its life cycle. The key factors contributing to the
industry being in the mature stage are as follows:
demand for industry services is mainly influenced by economic activity and interest rates;
industry establishment numbers have fallen slightly over the past five years; and
the industry’s products and services have largely remained the same over the long term.
6.1.3 Industry Performance and Outlook
The real estate services industry has faced volatile operating conditions over the past five years. Government
incentives and falling interest rates have supported growth in housing prices over the period, despite
turbulent economic conditions. However, a decline in the number of housing transfers over the past five
years has constrained industry revenue. Government limits on foreign property investment have constrained
demand for residential real estate over the past five years. However, commercial property markets have
benefited from more robust demand over the period, supporting demand for industry services. House prices
fell in 2018-19, and while industry conditions had been improving over 2019-20, the outbreak of COVID-19
in early 2020 created significant headwinds for industry operators. As a result, industry revenue is expected
to fall at an annualised 0.1% over the five years through 2020-21, to $26.5 billion. This includes an anticipated
decline of 8.1% in 2020-21, as economic conditions weaken following the outbreak of COVID-19.
Industry profitability has fallen over the past five years, due to intense industry competition and an
increasingly saturated market. Small, self-employed agents and property managers continue to dominate the
industry. However, some players have expanded their operations over the period. The property management
segment has faced growing competition from the residential property operators industry over the past five
years, due to an increasing share of owner-lessors managing property themselves rather than employing an
agent.
2 Source: Real Estate Services in Australia, Industry Report L6720 by James Thomson, IBISWorld, published on
August 2020. Accessed at https://my.ibisworld.com/au/en/industry/l6720/about on 12 October 2020.
page | 34
More high-density residential properties are anticipated to
become available over the next five years, as governments and
the construction division respond to increased urbanisation and
population growth. As economic conditions stabilise in the
wake of the COVID-19 pandemic, population growth and
positive consumer sentiment are projected to support rising
property prices and demand for real estate services over the
next five years. Industry revenue is forecast to grow at an
annualised 1.9% over the five years through 2025-26, to total
$29.2 billion. However, competition from technological
alternatives that allow buyers and renters to circumvent
industry operators is projected to limit industry growth. Owner-
lessors bypassing real estate agents in favour of online
channels poses a significant threat to the industry over the next
five years.
6.2 Market Outlook3
During the first half of the year, the COVID-19 pandemic led to the most severe contraction in global and
domestic economic activity in decades. Since around May, economic conditions have started to recover as
containment measures have been eased and fiscal and monetary policies have provided significant support.
But a high degree of uncertainty surrounds the outlook domestically and abroad. The main source of
uncertainty is the evolution of the pandemic and medical developments. Indeed, a resurgence in new cases
has already led to the reinstatement of containment measures in some economies, which has slowed their
recoveries, including in Australia. Beyond the direct effects from reinstated containment measures, there is
also considerable uncertainty over the voluntary response from households and businesses. Inflationary
pressures are likely to remain subdued globally for some time because of considerable spare capacity, though
in the longer term there is more uncertainty over the inflation profile given supply will also be lower.
Assuming a widespread and synchronised global resurgence in infections is avoided, GDP of Australia’s major
trading partners is expected to contract by around 3 per cent (in year-average terms) in 2020, with the
trough in activity in the June quarter, followed by an increase of around 6 per cent in 2021. This would leave
the level of major trading partner GDP around 3 per cent below what was expected before the outbreak.
3 Source: Statement of Monetary Policy August 2020 (Section 6. Economic Outlook) by Reserve Bank of Australia,
published on 6 August 2020. Accessed at https://www.rba.gov.au/publications/smp/2020/aug/ on 12 October 2020.
page | 35
Domestically, a gradual recovery in GDP is now underway across much of the country, following the largest
shock to growth since the 1930s. Employment and hours worked are also expected to increase slightly over
the second half of the year in most of the country. However, the effects of the heightened activity restrictions
in Victoria are likely to offset the pick-up in GDP growth in other parts of the economy in the September
quarter. The restrictions in Victoria, alongside some job losses occurring as a result of the JobKeeper program
beginning to be tapered nationally after September, will weigh on labour market outcomes in the September
and December quarters; this is likely to more than offset any employment growth elsewhere. The
unemployment rate is expected to continue to rise over this period as a result of employment losses in
Victoria, as well as increased labour force participation elsewhere in Australia. After a sharp fall in the June
quarter, headline inflation is expected to rebound in the second half of the year following the end of the free
child care program and a pick-up in fuel prices. However, underlying inflation is expected to remain subdued
over the forecast period, given low wages growth and substantial spare capacity in the economy.
Further outbreaks of the virus and associated restrictions on activity are the key risks to the outlook. For
example, the recent outbreak of the virus in Victoria and the associated introduction of restrictions on activity
are likely to reduce national GDP growth in the September quarter by at least 2 percentage points, relative
to the situation if the outbreak had not occurred. Other considerations include how long uncertainty and
diminished confidence weigh on household spending and businesses’ hiring and investment plans.
Given the high degree of uncertainty for the outlook, a number of scenarios are considered, with different
assumptions about the outbreak and restrictions, and their effects on household and business confidence. In
all scenarios, fiscal policy settings are assumed to be in line with current public guidance:
The baseline scenario assumes the heightened restrictions in Victoria are in place for the announced six
weeks and then gradually lifted. In other parts of the country, restrictions continue to be gradually lifted
or are only tightened modestly for a limited time, although restrictions on international departures and
arrivals are assumed to stay in place until mid-2021. Under this scenario: GDP is expected to contract by
around 6 per cent over the year to December 2020, but then grow by around 5 per cent over 2021; the
unemployment rate is expected to rise to almost 10 per cent over the next six months and gradually
decline to around 7 per cent over the latter part of the forecast period; and underlying inflation is
expected to remain below 2 per cent over the next couple of years;
A stronger economic recovery is possible if faster progress in controlling the virus is achieved in the near
term. A series of positive health outcomes would help limit the damage to consumer and business
confidence and support a more rapid economic recovery. In this scenario, the virus is assumed to be
rapidly controlled domestically (but not overseas) and activity restrictions are lifted (with the exception
of international travel), leading to a faster recovery in consumption, investment and employment. The
unemployment rate would peak at a lower level and decline faster than in the baseline scenario; and
However, a plausible downside scenario is where Australia faces further periods of outbreaks and
heightened restrictions in certain areas, and the world experiences a widespread resurgence in infections
in the near term. In this scenario, it is likely that the recovery in service exports would be delayed further
and consumer spending would continue to fall through the second half of 2020, despite continued policy
stimulus and income support measures. Business investment would also decline sharply. Domestic
activity would take much longer to recover in this scenario, resulting in the unemployment rate remaining
close to its peak throughout 2021.
page | 36
7. VALUATION METHODOLOGIES
7.1 Definition of Market Value
In forming our opinion as to whether or not the Proposed Transaction is fair and reasonable to AU1’s existing
shareholders, we have assessed the value of the issued AU1 Shares on a fair value basis. RG 111 defines fair
value as the amount:
“assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not
anxious, seller acting at arm’s length...”.
7.2 Selection of Methodology
RG 111 provides guidance on the valuation methods that an independent expert should consider. These
methods include:
the discounted cash flow method (“DCF”) and the estimated realisable value of any surplus assets;
the application of earnings multiples (appropriate to the business or industry in which the entity operates)
to the estimated future maintainable earnings or cash flows of the entity, added to the estimated
realisable value of any surplus assets (the capitalisation of earnings method);
the amount that would be available for distribution to security holders on an orderly realisation of assets
(asset based method);
the quoted price for listed securities, when there is a liquid and active market and allowing for the fact
that the quoted price may not reflect their value, should 100% of the securities be available for sale
(quoted market price or “QMP” methodology);
any recent genuine offers received by the target for the entire business, or any business units or assets
as a basis for valuation of those business units or assets; and
the amount that an alternative bidder might be willing to offer if all the securities in the target were
available for purchase.
The above are covered in more detail in Appendix D to this Report. Each methodology is appropriate in
certain circumstances. The decision as to which methodology to apply generally depends on the nature of
the asset being valued, the methodology most commonly applied in valuing such an asset and the availability
of appropriate information.
It is possible for a combination of different methodologies to be used together to determine an overall value
where separate assets and liabilities are valued using different methodologies.
7.3 Valuation Methodology Applied
In our assessment of the value of AU1, we have employed the following methodologies:
the capitalisation of earnings method, which estimates the market value of a company by determining a
future maintainable earnings figure for the company’s business and multiplying that figure by an
appropriate capitalisation multiple. The value of any surplus assets or liabilities are then added to this
and any net debt is then deducted, to determine the equity value; and
the QMP methodology, as this represents the value that a shareholder may receive for a share if it were
sold on market.
An equal weighting has been applied to both approaches in determining the fair value of AU1.
page | 37
We have chosen the above methodologies for the following reasons:
Although the Group does not appear to have a recent history of sustainable profitability (especially when
considering the Group’s negative EBIT and EBITDA results in FY 2018 and FY 2019), this is mainly due
to the Group’s rapid growth during those years. As such, we have considered that the Group’s negative
results for the financial periods before FY 2020 do not reflect the Group’s sustainable (non-)profitability
at the date of the Report.
As noted in section 5.6.1 (see note 2), the Group’s continued growth has enabled it to achieve positive
EBITDA and operating cash flow levels since FY 2020. As such, we consider that the positive EBITDA
result for FY 2020 is indicative of the Group’s ongoing earnings potential. This allows for a comparison
to be made against the earnings of similar companies and therefore the capitalisation of earnings method
can be applied; and
The QMP basis is a relevant methodology to consider because AU1 shares are listed on the ASX, therefore
reflecting the value that a shareholder will receive for a share sold on the market. This means that there
is a regulated and observable market where AU1’s shares can be traded. However, in order for the QMP
method to be considered appropriate, the Company’s shares should be liquid and the market should be
fully informed on the Company’s activities.
In this case, AU1 Shares have a moderate level of liquidity, with relatively free flow of trade of AU1
Shares, and with trading volumes increasing again after July to near pre COVID-19 levels (as detailed in
section 5.8). Therefore, we consider that the value that could be achieved through a market sale should
be reflected in our overall valuation. As such, we considered it appropriate to apply the QMP basis as
part of our valuation approach.
The valuation calculation for AU1 Shares before and after the Proposed Transaction are set out respectively
in sections 8 and 9 of this Report.
page | 38
8. VALUE OF THE AGENCY GROUP ON A CONTROL BASIS BEFORE THE PROPOSED
TRANSACTION
As discussed in section 4, in evaluating the Proposed Transaction we are first considering the fair value of an
AU1 Share on a control basis in accordance with RG 111.
As indicated in sections 7.2 and 7.3, we have employed the following methodologies:
capitalisation of earnings (see section 8.1); and
QMP (see section 8.2);
applying an equal weighting to both approaches in determining the fair value of AU1.
8.1 Fair Value Calculation – Capitalisation of Earnings
The calculation of the fair value of AU1 Shares using the capitalisation of earnings method is summarised
below:
($’000) Ref Low Preferred High
Maintainable EBITDA 8.1.1 2,173 2,357 2,541
Multiple applied 8.1.2 6.35x 6.88x 7.43x
Enterprise Value 13,792 16,211 18,866
Adjustments:
Borrowings (net of cash) at the date of the
8.1.3 (3,997) (3,997) (3,997)
Report
Equity Value of AU1 on a Control Basis 9,795 12,214 14,869
Number of AU1 Shares outstanding 8.1.4 298,954,431 298,954,431 298,954,431
Value per AU1 Share on a Control Basis $0.033 $0.041 $0.050
Source: Nexia analysis.
8.1.1 Maintainable EBITDA
As discussed in section 7.3, we have calculated the Group’s maintainable EBITDA by reference to the Group’s
EBITDA’s result for FY 2020. This has been adjusted to remove the net earnings that were generated from
the Group’s west coast rent roll business, as follows:
($’000) Ref Low Preferred High
FY 2020 EBITDA 5.6.1 2,663 2,663 2,663
Normalisation Adjustment:
Less: EBITDA generated from the Group’s
note 1 (490) (306) (123)
west coast rent roll business during the year
Total Adjustments (490) (306) (123)
Normalised EBITDA 2,173 2,357 2,541
Source: AU1’s 30 June 2020 audited financial statements and Nexia analysis.
Notes:
1. As per section 5.6.1, note 3, the Group’s west coast rent roll business contributed approximately
$0.49 million to the Group’s net EBITDA for FY 2020. As the business was sold after year end, these
amounts needs to be adjusted as it is not representative of the Group’s ongoing maintainable earnings.
In this case, we have deducted 100% of the west coast rent roll business’s EBITDA in the low scenario,
25% of the EBITDA in the high scenario, and 62.5% in the preferred scenario.
We have deducted 25% and 62.5% of the EBITDA in the high and preferred scenarios (instead of the
full amount of the EBITDA), as the sale agreement included a strategic partnership which includes cross-
referrals between the Group and Managex. As such, the low and the preferred scenarios take into account
that a portion of the EBITDA would still be maintainable into the future, given the strategic partnership.
page | 39
No other adjustments have been made to the Group’s financial performance for FY 2020, as there were no
other material one-off and/or non-recurring expenses.
In making this assessment we have considered the following:
the Group’s negative EBIT and EBITDA results in FY 2018 and FY 2019 is mainly due to the Group’s rapid
growth during those years (see notes 1 and 2 in section 5.6.1). As such, we have considered that the
Group’s negative results for the financial periods before FY 2020 do not reflect the Group’s sustainable
(non-)profitability at the date of the Report;
As noted in section 5.6.1 (see note 2), the Group’s continued growth has enabled it to achieve positive
EBITDA and operating cash flow levels since FY 2020. As such, we consider that the positive EBITDA
result for FY 2020 is indicative of the Group’s ongoing earnings potential;
Although the Group applied AASB 16 Leases during FY 2020 (see section 5.6.1, note 4), this has not
been taken up as a “normalisation adjustment” as data from comparable listed companies for FY 2020
do not include this adjustment; and
Although the Company saved approximately $600,000 in salaries and employment costs and received
$1 million from the JobKeeper Payment scheme during FY 2020 (see section 5.6.1, note 6), this is related
to the fallout from COVID-19. COVID-19 also had an impact on the Company’s revenues, however, this
is unquantifiable, although would probably at least offset the salaries and employment cost savings and
the receipt from the JobKeeper Payment scheme. As such, no adjustment has been made to the result
for FY 2020 with regards to this.
Based on the above, we have considered that the Group’s maintainable EBITDA to be between $2.2 million
and $2.5 million, with a preferred maintainable EBITDA of $2.4 million.
8.1.2 Capitalisation Multiple
The capitalisation multiple has been determined with reference to identified listed companies. In determining
comparable listed companies, consideration has been given to the companies that operate and/or are
involved in the real estate services industry.
Details of the most comparable companies and their EBITDA multiples are set out below:
($’000,000) EBITDA
Enterprise Market EBITDA Multiple
Value Capitalisation Revenue EBITDA Margin (Trailing)
McGrath Limited 52.8 45.9 91.6 4.8 5% 5.65x
Savills plc 2,627.8 2,139.0 3,361.5 265.4 8% 7.04x
Mean 1,340.3 1,092.4 1,726.6 135.1 7% 6.35x
Source: S&P Capital at 27 October 2020.
The descriptions of the companies identified above are set out below:
Comparable Description
Companies
McGrath McGrath Limited operates as an integrated residential real estate services company
Limited in Australia.
(ASX: MEA)
Savills plc Savills plc, together with its subsidiaries, provides real estate services in the Americas,
(LSE: SVS) the United Kingdom, Continental Europe, the Asia Pacific, Africa, and the Middle East.
The company advises on commercial, residential, rural, and leisure properties; and
offers corporate finance advisory, investment management, and a range of property-
related financial services.
Source: S&P Capital at 27 October 2020.
page | 40
In determining an appropriate multiple we have considered:
The Agency Group has a much smaller market capitalisation rate when compared to the listed comparable
companies above. As a result, consideration must be had to the size and diversification of the Group’s
services when compared to the listed comparable companies above;
Other factors such as the Group’s size, geographical location, diversification of services and growth
profile, especially when compared to companies like Savills plc; and
As a result of the above factors, we have applied a discount of 10% to 20% to the comparable company
multiples identified above.
Finally, as the valuation of the AU1 Shares is on a control basis, we have adjusted the average implied
multiple for listed companies, where the share price reflects a minority interest, for a control premium of
between 25% and 30%.
In determining the control premium to apply we have considered academic research on long term approaches
to size premium, surveys on market practice and other analysis of the market on recent risk premiums. This
shows a long term average of 20% to 30% and recent analysis tending towards 30% particularly for 100%
transactions. Therefore, we have applied a control premium at the higher end of the long term range at 25%
to 30%.
Based on the above we have determined that an appropriate capitalisation multiple for AU1 is between 6.35
and 7.43 times, with a preferred capitalisation multiple of 6.88 times.
8.1.3 Net Debt at the Date of the Report
As detailed in section 5.6.2, notes 5 and 6, the Group’s borrowings (net of cash) as at 30 June 2020 was
$8.806 million, and decreased to an estimated $3.997 million at the date of the Report, after adjusting for
the following:
the increase of cash and cash equivalents during the quarter ended 30 Sep 2020 ($2.062 million); and
the receipt of proceeds on sale of the Group’s west coast rent roll business at the beginning of
October 2020, which was used to reduce the Senior Debt ($2.747 million).
8.1.4 Number of AU1 Shares Outstanding before the Proposed Transaction
As detailed in section 5.7, the number of shares on issue as at the date of our Report is 298,954,431. Also
as per section 5.7, we note that the Company has 101,515,093 listed options (exercisable at $0.065 and
expiring on 31 December 2020); 11,496,226 unlisted options (including 666,667 of which do not belong to
Peters Investments and are exercisable at between $0.30 and $1.20 each, expiring between 20 December
2020 and 11 January 2022); and 5 incentive performance shares.
The closing share price of AU1 Shares traded within a range of $0.028 and $0.058 over the 180 days to
30 September 2020, with a general downward trend over the period and with a closing price of $0.035 (see
section 5.8 for further details). As such, it is considered that the listed options, as well as the unlisted options
not owned by Peters Investments, are unlikely to be exercised in the near future as those options are unlikely
to be in-the-money (as defined) in the near future.
The May 2020 Options and the Upfront Options are in-the-money as they are currently exercisable at $0.028
or at $0.027 at 30 September 2020 (see section 5.7.3 for further details). However, given the Proposed
Transaction includes the exercise of all of the AU1 Options belonging to Peters Investments, we do not
consider it appropriate to present the diluted value of a AU1 Share before the Proposed Transaction.
The 5 incentive performance shares have also not been considered as part of a dilutary value of each AU1
Share before the Proposed Transaction, as we have considered that the impact of the conversion of each
incentive performance share would not be significant.
Given the factors above, our valuation of each AU1 Share prior to the Proposed Transaction has been
calculated on an undiluted basis i.e. based on the total number of 298,954,431 AU1 Shares.
page | 41
8.2 Fair Value Calculation – QMP
As noted in section 5.8, AU1’s share price and trading volumes has fluctuated over the period since
30 September 2019, with a particular drop during February 2020 to June 2020 (being the approximate
periods when the COVID-19 related lockdowns were in place for most Australian states). However, as noted
in section 5.8, AU1’s share price and trading volumes have stabilised since July 2020. Prior to the onset of
COVID-19, during the months up to January 2020, the share price ranged between $0.044 and $0.076, and
AU1’s monthly VWAP ranged from $0.050 to $0.065.
To remove any effects that the uncertainty around COVID-19 would have had on the quoted market price,
we have used the following as our references for the purposes of this calculation:
the lowest share price during the months up to January 2020, being $0.044, as our ‘low’ quoted market
price;
the highest VWAP during the months up to January 2020, being $0.065, as our ‘high’ quoted market
price; and
the mid-point between $0.044 and $0.065, being $0.055, as our ‘preferred’ quoted market price.
In the calculation below we have also applied a control premium range from 25% to 30% with the midpoint
at 27.5% to reflect the value of the Company on a control basis. This reflects an interest where a shareholder
has advantages such as the ability to exert influence over the strategic direction and cash flow of a company,
amongst other areas.
This results in the following QMP valuation of AU1 on a control basis:
($’000) Ref Low Preferred High
Total AU1 Shares on issue 8.1.4 298,954,431 298,954,431 298,954,431
QMP per AU1 Share $0.044 $0.055 $0.065
Value of AU1 on a minority basis 13,154 16,293 19,432
Add: Control premium
3,288 4,481 5,830
(25%, 27.5% and 30%)
Total value of AU1 on a control basis 16,442 20,774 25,262
Value per AU1 Share on a control
$0.055 $0.069 $0.085
basis
Source: Nexia analysis.
8.3 Conclusion on Fair Value of AU1 Shares on a Control Basis before the Proposed
Transaction
As discussed in section 4, in evaluating the Proposed Transaction we are first considering the fair value of an
AU1 Share on a control basis.
To determine the fair value of an AU1 Share on a control basis, we have used the mid-point value determined
under each of the valuation methods in sections 8.1 and 8.2 above. Each valuation approach has been given
equal weighting.
Based on this, we have concluded the fair value of an AU1 Share on a control basis before the Proposed
Transaction to be as follows:
Low Preferred High
Fair value of an AU1 Share on a control
$0.044 $0.055 $0.067
basis before the Proposed Transaction
Source: Nexia analysis.
Based on the results above we consider the value of an AU1 Share prior to the Proposed Transaction on a
control basis to be between $0.044 and $0.067, with a preferred value of $0.055.
page | 42
9. VALUE OF THE AGENCY GROUP ON A MINORITY BASIS AFTER THE PROPOSED
TRANSACTION
As discussed in section 4, in evaluating the Proposed Transaction we are considering the fair value of an AU1
Share on a minority basis after the Proposed Transaction in accordance with RG 111.
9.1 Fair Value Calculation
To determine the fair value of a minority interest per share after the Proposed Transaction, we have
considered the fair value determined in section 8, adjusted by the Proposed Transaction.
($’000) Ref Low Preferred High
Fair value of an AU1 Share on a control
8.3 $0.044 $0.055 $0.067
basis before the Proposed Transaction
Number of AU1 Shares on issue before the
8.1.4 298,954,431 298,954,431 298,954,431
Proposed Transaction
Total value of AU1 on a control basis
13,119 16,494 20,065
before the Proposed Transaction
Proposed Transaction:
Interest accrued and to be capitalised onto
9.1.1 (77) (77) (77)
the Convertible Notes
Increase in equity from the conversion of
the face value and interest portion of both 9.1.2 6,227 6,227 6,227
Convertible Notes
Proceeds to be received upon the exercise
9.1.3 68 68 68
of May 2020 Options
Proceeds to be received upon the exercise
9.1.4 324 324 324
of October 2020 Options
Total value of AU1 on a control basis after
19,660 23,036 26,607
the Proposed Transaction
Less: Minority discount
(4,537) (4,968) (5,321)
(30%, 27.5% and 25%)
Total Value of AU1 on a Minority
15,123 18,067 21,286
Basis after the Proposed Transaction
Number of Shares
Number of AU1 Shares on issue before the
8.1.4 298,954,431 298,954,431 298,954,431
Proposed Transaction
Potential Issue of AU1 Shares to Peters
Investments under the Proposed 9.1.5 244,640,690 244,640,690 244,640,690
Transaction
Number of AU1 Shares outstanding
543,595,121 543,595,121 543,595,121
after the Proposed Transaction
Value per AU1 Share
$0.028 $0.033 $0.039
on a Minority Basis
Source: Nexia analysis.
page | 43
9.1.1 Interest Accrued and to be Capitalised onto the Convertible Notes
As indicated in section 1.4, we have estimated the interest accrued on the Convertible Notes, up to the date
of the Report, to be $77,299. This has been calculated as follows:
Note
Amended May 2020 Convertible Notes
Issue date 1 15-May-2020
Principal amount 1 $1,000,000
Interest rate 3 8.00%
Date of conversion 5-Nov-2020
Term (months) 5.67
Interest on Amended May 2020 Convertible Notes $38,370
October 2020 Convertible Notes
Deemed issue date 2 1-Oct-2020
Principal amount 2 $5,150,000
Interest rate 3 8.00%
Date of conversion 5-Nov-2020
Term (months) 1.13
Interest on October 2020 Convertible Notes $38,928
Total Interest Accrued on Convertible Notes $77,299
Source: Nexia analysis.
Notes:
1. As per the terms of the Amended May 2020 Convertible Notes as detailed in section 1.2, which includes
a principal value of $1,000,000 and interest to be calculated from 15 May 2020.
2. As per the terms of the October 2020 Convertible Notes as detailed in section 1.3, which includes a
principal value of $5,150,000 (including facilitation fee) and interest to be calculated from
1 October 2020.
3. According to the terms of the Convertible Notes (detailed in sections 1.2 and 1.3), the interest is at the
higher of 8% and the interest rate of the Senior Debt. As per note 5 of section 5.6.2, the interest on the
Senior Debt just prior to the announcement of the Funding Package was 8.59% per annum. For the
purposes of this Report, we have assumed an interest rate of 8%.
9.1.2 Dollar Amount of Convertible Notes to be Converted into AU1 Shares
Following the above calculation of interest accrued on Convertible Notes in section 9.1.1, we have detailed
below the calculation of the estimated dollar amount of Convertible Notes to be converted into AU1 Shares
at the date of the Report:
Note Principal Interest Total
Amounts to be Converted from
Convertible Notes
Amended May 2020 Convertible Notes 1 $1,000,000 $38,370 $1,038,370
October 2020 Convertible Notes 2 $5,150,000 $38,928 $5,188,928
Total Amounts to be Converted $6,150,000 $77,299 $6,227,299
Notes:
1. See details of principal and interest calculations as set out in notes 1 and 3 of section 9.1.1 above.
2. See details of principal and interest calculations as set out in notes 2 and 3 of section 9.1.1 above.
9.1.3 Proceeds to be Received Upon the Exercise of May 2020 Options
According to section 1.2, the 2 million May 2020 Options are exercisable at $0.033828 each.
9.1.4 Proceeds to be Received Upon the Exercise of October 2020 Options
According to section 1.3, the 12 million October 2020 Options are exercisable at $0.027 each.
page | 44
9.1.5 Potential Issue of AU1 Shares Issued to Peters Investments under the Proposed Transaction
Following the above notes in sections 9.1.1, 9.1.2, 9.1.3 and 9.1.4, we have detailed below the calculation
of the potential number of AU1 Shares to be issued upon conversion of the Convertible Notes (including
interest accrued) and upon the exercise of the Peters Investments Options:
Ref /
Note Principal Interest Total
Conversion of Convertible Notes
Total amount to be converted from
9.1.2 $6,150,000 $77,299 $6,227,299
Convertible Notes
Conversion price note 1 $0.027 $0.027 $0.027
Potential Number of AU1 Shares to be
Issued from Conversion of Convertible 227,777,778 2,862,912 230,640,690
Notes
Exercise of Peters Investment Options
Potential Number of AU1 Shares to be
9.1.3 2,000,000
Issued from Exercise of May 2020 Options
Potential Number of AU1 Shares to be
Issued from Exercise of October 2020 9.1.4 12,000,000
Options
Potential Number of AU1 Shares to be
Issued from Exercise of Peters 14,000,000
Investments Options
Total Potential Number of AU1 Shares
244,640,690
to be Issued to Peters Investments
Source: Nexia analysis.
Notes:
1. According to the terms of the Convertible Notes, the conversion price is the lower of $0.027 and the
issue price of AU1 Shares offered under any subsequent capital raising to raise over $1 million. Due to
the uncertainty of issue prices the Company may offer under any future capital raising, we have assumed
a conversion price of $0.027 per AU1 Share for the purposes of this calculation.
9.2
9.2
9.2 Conclusion on Fair Value of AU1 Shares on a Minority Basis after the Proposed
Transaction
As discussed in section 4, in evaluating the Proposed Transaction we are considering the fair value of an AU1
Share on a minority basis.
Based on this we have concluded the fair value of an AU1 Share on a minority basis after the Proposed
Transaction to be as follows:
Ref Low Preferred High
Fair value of an AU1 Share on a minority
9.1 $0.028 $0.033 $0.039
basis after the Proposed Transaction
Source: Nexia analysis.
Based on the results above we consider the value of an AU1 Share after the Proposed Transaction on a
minority basis to be between $0.028 and $0.039, with a preferred value of $0.033.
page | 45
10. ASSESSMENT OF FAIRNESS
As discussed in section 4, in determining whether the Proposed Transaction is fair to the Non-Associated
Shareholders, we have compared the fair value of a share in AU1 on a control basis prior to the Proposed
Transaction to the fair value of a share in AU1 on a minority basis after the Proposed Transaction.
This is summarised below:
Ref Low Preferred High
Fair value of an AU1 Share on a control basis
8.3 $0.044 $0.055 $0.067
before the Proposed Transaction
Fair value of an AU1 Share on a
minority basis after the Proposed 9.2 $0.028 $0.033 $0.039
Transaction
Source: Nexia analysis.
The above values indicate that, in the absence of any other relevant information, the Proposed Transaction
is not fair to the Non-Associated Shareholders.
Therefore, we have concluded that the Proposed Transaction is not fair.
11. ASSESSMENT OF REASONABLENESS
11.1 Approach to Assessing Reasonableness
In forming our conclusions in this Report, we have compared the advantages and disadvantages to the Non-
Associated Shareholders if the Proposed Transaction proceeds.
11.2 Advantages of the Proposed Transaction
We have outlined the potential advantages of the Proposed Transaction in the following table:
Advantage Explanation
The Proposed As indicated in section 1.1, the Funding Package, which includes the extension
Transaction will of the $5 million primary secured debt facility from Macquarie Bank, is
significantly reduce contingent on the Proposed Transaction proceeding. If the Proposed
the risk of AU1 Transaction does not proceed, the Funding Package will not be secured and as
defaulting on its loan such AU1 will need to raise additional funds in order to meet Macquarie Bank’s
from Macquarie repayment requirements as previously negotiated by the Group’s Board of
Bank. Directors.
If the Group is unsuccessful in raising additional funds, this will significantly
increase the risk of the Group’s loan from Macquarie Bank defaulting and
consequently increase the risk of Macquarie Bank exercising its rights to
appoint an administrator to wind-up the assets of the Group.*
If this happens, this will decrease AU1’s shareholders’ chances of realising any
value for their shares.
* Even though the Senior Debt has a joint and several guarantee from the Guarantors,
the Company will still be liable for these funds.
The Proposed The Proposed Transaction may be the only opportunity that AU1 has to raise a
Transaction may be significant amount of funds currently or in the near future, especially when
AU1’s only option for taking into account the current uncertain market environment and market
funding in the near volatility associated with the global COVID-19 pandemic.
future.
This may result in challenges for the Company to raise funds from more
traditional means such as equity raisings, or to find any other alternative
sources of funding.
page | 46
Advantage Explanation
The terms of the The Group’s current net deficit working capital and net current liabilities as at
Convertible Notes 30 June 2020 was $18.4 million. The Convertible Notes do not require interest
allow the Company or repayments to be made in cash, and also allows for the facilitation fee and
to reserve its cash any interest accrued to be capitalised. As such, the Proposed Transaction will
balances in the short- enable the Group to increase its solvency in the short-term by enabling the
term. Company to reserve its level of cash.
The Proposed If the Proposed Transaction proceeds, AU1 will not need to raise additional
Transaction will funds (as per above) and AU1 will be able to continue to operate and focus on
allow AU1 to achieving its strategic goals, business objectives and growth.
continue to operate This in turn will increase AU1’s shareholders’ chances of realising the value of
and achieve its their shares.
strategic goals and
business objectives.
The conversion of the Upon conversion of the Convertible Notes into equity, the Group’s long-term
Convertible Notes solvency will improve as the Group’s obligation to repay the Convertible Notes
will improve AU1’s is terminated. Therefore the Proposed Transaction places the Group in a better
solvency in the long- financial position.
term.
The exercise of the If the Peters Investments Options are exercised, this will enable the Company
Peters Investments to raise $391,656 ($67,656 from the exercise of the May 2020 Options and
Options will enable $324,000 from the exercise of the October 2020 Options), further improving
the Company to raise the Group’s financial position.
an additional
$391,656.
Source: Nexia analysis.
11.3 Disadvantages of the Proposed Transaction
We have outlined the potential disadvantages of the Proposed Transaction in the following table:
Disadvantage Explanation
Peters Investments If the Proposed Transaction goes ahead, Peters Investments’ holdings in AU1
and its related will increase from 0% to 45.00%*, resulting in Peters Investments having a
parties will hold a significant interest in the Company, which could result in a change in control.
significant interest in However, as indicated in the NoM, Peters Investments has no intention of
AU1, which could influencing the operational and financing decisions of the Company.
result in a change of
Conversely, the existing shareholders’ collective interest in AU1 will reduce
control and severely from 100% to 55.00%*, representing a severe dilution of the existing
dilute existing
shareholders’ collective interest in AU1.
shareholders’
collective interest in
AU1.
page | 47
Disadvantage Explanation
The Proposed The Proposed Transaction will result in an additional 244,640,690 AU1 Shares
Transaction could being issued to Peters Investments, bringing the total of AU1 Shares
reduce the liquidity outstanding and on the market to 543,595,121 (refer to section 1.4)**.
of AU1 Shares.
This could result in the Company’s trading percentage of issued capital to
reduce from 2.96% (as per section 5.8) to 1.63%** (assuming the same levels
of trading as the trading volumes recorded over the last 180 days to
30 September 2020).
As noted in section 5.8 however, despite the Company’s low trading
percentage, AU1 Shares had a moderate level of liquidity with relatively free
flow of trading.
Source: Nexia analysis.
* This is based on the assumption that the Convertible Notes are exercised immediately as at the date of the Report and
that no repayments are made by the Company to Peters Investments before conversion. If the Convertible Notes are
exercised just before the maturity date, Peters Investments’ holdings in AU1 could increase from 0.00% to 49.53% and
existing shareholders’ collective interest in AU1 will reduce from 100% to 50.47% (refer to section 1.4 for further details).
** This is based on the assumption that the Convertible Notes are exercised immediately as at the date of the Report
and that no repayments are made by the Company to Peters Investments before conversion. If the Convertible Notes
are exercised just before the maturity date, an additional 293,406,258 AU1 Shares would be issued to Peters Investments
resulting in a total of 592,360,689 AU1 Shares outstanding and on the market. This could result in the Company’s trading
percentage of issued capital to reduce to 1.50%.
11.4 Alternatives to the Proposed Transaction
The Directors have advised us that they do not currently have any alternatives to the Proposed Transaction.
11.5 Implications of the Proposed Transaction Not Proceeding
As mentioned in section 11.2, if the Proposed Transaction does not proceed the Funding Package as
announced by the Company on 29 October 2020 (see section 1.1) will not be secured, resulting in AU1
needing to raise additional funds in order to meet Macquarie Bank’s repayment requirements as recently
negotiated by the Group’s Board of Directors. Taking into account the current uncertain market environment
and market volatility associated with the global COVID-19 pandemic, it may be difficult, even challenging for
the Company to raise from more traditional means such as equity raisings, or to find any other alternative
sources of funding.
This will in turn increase the risk of the Group’s loan from Macquarie Bank defaulting and consequently
increase the risk of Macquarie Bank exercising its rights to appoint an administrator to wind-up the assets of
the Group. This may result in AU1’s shareholders’ not being able to realise realising any value for their shares
in AU1.
In addition, if the Proposed Transaction does not proceed, the funds from the Convertible Notes (currently
held in trust) will not be released to AU1, and approximately $316,774 will need to be repaid to Peters
Investments in cash. The amounts that have to be repaid to Peters Investments are made up of the following:
the facilitation fee for the October 2020 Convertible Notes (being $150,000);
the total interest accrued up to the date of repayment (estimated at $77,299 at the date of the Report,
see sections 1.2 and 1.3); and
the Black-Scholes valuation amount of the Remainder Options (estimated to be approximately $89,475
at the date of the Report, see section 1.3). This amount is required to be repaid within 5 business days
of the AGM.
The above factors will put additional pressure on the Group’s financial position and further increase the risk
of the Group defaulting on its loan with Macquarie Bank.
page | 48
11.6 Conclusion as to Reasonableness
In accordance with RG 111, a transaction is reasonable if:
the transaction is fair; or
despite not being fair, but considering other significant factors, there are sufficient reasons for security
holders to accept the offer in the absence of a higher bid before the close of an offer.
In our consideration of the advantages and disadvantages of the Proposed Transaction (as set out in sections
11.2 and 11.3), the alternatives to and the implications of the Proposed Transaction not proceeding (as
described in sections 11.4 and 11.5), and, in the absence of higher offers for AU1 Shares currently, we have
concluded that there are sufficient reasons for the Non-Associated Shareholders to vote in favour of the
Proposed Transaction.
As such, although the Proposed Transaction is not fair, considering and taking into account other significant
factors, we have concluded that the Proposed Transaction is reasonable to the Non-Associated
Shareholders.
12. OPINION
Taking into consideration the matters above (including those set out in sections 10 and 11), we have
concluded that, in our opinion, the Proposed Transaction is not fair but reasonable to the Non-
Associated Shareholders.
The ultimate decision on whether to approve the Proposed Transaction should be based on shareholders’
own assessment of their circumstances. We strongly recommend that shareholders consult their own
professional advisers, carefully read all relevant documentation provided, including the NoM, and consider
their own specific circumstances before voting in favour of or against the Proposed Transaction.
page | 49
APPENDIX A – GLOSSARY
Term Definition
Denotes that all figures in the table are stated in thousands of dollars
($’000)
(unless otherwise indicated).
Denotes that all figures in the table are stated in millions of dollars (unless
($’000,000)
otherwise indicated).
Denotes that all figures in the table are stated in billions of dollars (unless
($’000,000,000)
otherwise indicated).
AFCA Australian Financial Complaints Authority
AFSL Australian Financial Services Licence
AGM Annual General Meeting to be held by AU1 on 23 December 2020.
Amended May 2020 Refers to the May 2020 Convertible Notes, updated to reflect the terms of
Convertible Notes the October 2020 Convertible Notes (see section 1.2 for further detail).
ASIC Australia Securities and Investment Commission
ASX Australian Securities Exchange
AU1, Client, Company, or The Agency Group Australia Ltd (ACN: 118 913 232)
The Agency Group
AU1 Option(s) Option(s) in AU1.
AU1 Share(s) Fully paid ordinary share(s) in AU1.
Ausnet “Ausnet Financial Services Ltd”, being the previous name of AU1.
The Black-Scholes Valuation Model, also known as the Black-Scholes-
Merton Valuation Model, is a mathematical model for pricing an options
contract. In particular, the model estimates the variation over time of
Black-Scholes Valuation
financial instruments. It assumes these instruments (such as stocks or
Model
futures) will have a lognormal distribution of prices. Using this assumption
and factoring in other important variables, the equation derives the price
of a call option.
CAANZ Chartered Accountants Australia and New Zealand
Refers collectively to the (Amended) May 2020 Convertible Notes and the
Convertible Notes
October 2020 Convertible Notes.
Corporations Act Corporations Act 2001 (Cth)
A family of viruses that include COVID-19 (see below) and other respiratory
Coronavirus illnesses. The terms “coronavirus” and “COVID-19” are used
interchangeably in this Report to denote the current global pandemic.
COVID-19 COVID-19 is the respiratory illness related to the current global pandemic.
DCF Discounted Cash Flow methodology.
EBIT Earnings Before Interest and Tax
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
FSG Financial Services Guide
Refers to a $11 million funding package, as announced by the Company on
29 October 2020, which includes:
the Amended May 2020 Convertible Notes and the October 2020
Convertible Notes, which will be used to pay down the Group’s debt
with Macquarie Bank; and
Funding Package an extended $5 million primary secured debt facility with Macquarie
Bank, which is subject to shareholder approval of the Proposed
Transaction.
Further details of the funding package as announced is set out in
section 1.1.
FY 2017 The financial year ended or as at 30 June 2017.
FY 2018 The financial year ended or as at 30 June 2018.
FY 2019 The financial year ended or as at 30 June 2019.
FY 2020 The financial year ended or as at 30 June 2020.
page | 50
Term Definition
The Guarantors include the following shareholders of AU1 who provided a
joint and several guarantee to Macquarie Bank in relation to the Senior
Debt:
Teldar Real Estate Pty Ltd <MJ Lahood Family A/C>, an entity
controlled by one of AU1’s directors, Matthew Lahood;
Guarantors MAC Property Group Pty Ltd <MAC A/C>;
SEMC 2 Pty Ltd <The Chen Asset A/C>;
Ben Collier Investments Pty Ltd; and
Daring Investments Pty Ltd.
See further details in note 5b of section 5.6.2.
Group AU1 and its subsidiaries.
GST Goods and Services Tax
In-the-Money or Deep- The term for when the strike price of a call option is lower than the current
in-the-Money underlying share price.
Macquarie Bank Macquarie Bank Limited
Managex Managex Funds Management Pty Ltd
Refers to the maturity date of the Amended May 2020 Convertible Notes
Maturity Date
and the October 2020 Convertible Notes, being 31 March 2023.
Refers to the convertible notes issued by AU1 on 15 May 2020 to Peters
May 2020 Convertible
Investments to raise $1 million (see sections 1.1 and 1.2 for further
Notes
details).
May 2020 Convertible Refers collectively to both the (Amended) May 2020 Convertible Notes and
Notes and Options the May 2020 Options.
Refers to the 2 million AU1 Options which was issued to Peters Investments
together with the May 2020 Convertible Notes. The options were issued on
May 2020 Options
25 May 2020, are exercisable at $0.033828 each and expire on
25 May 2022 (see section 1.2 for further details).
Nexia Entities or Nexia
Nexia Perth Pty Ltd and its related entities.
Perth Entity
Non-Associated Shareholders of AU1 who are not associated with Peters Investments or its
Shareholders associates.
Notice of Meeting, NoM Document to be sent to shareholders on or about the date of this Report
or Document in which this Report is included.
NPCF Nexia Perth Corporate Finance Pty Ltd (AFSL 289358)
Refers to the convertible notes to be issued by the Company to Peters
Investments to raise $5 million under the October 2020 Convertible Note
October 2020 Agreement.
Convertible Notes The issue of the October 2020 Convertible Notes is subject to shareholder
approval as outlined in section 1.1.
The terms of the convertible notes are outlined in section 1.3.
Refers to the convertible note agreement the Company entered into with
October 2020 Peters Investments to raise $5 million.
Convertible Note As part of the agreement, the Company also agreed to issue 12 million AU1
Agreement Options (“October 2020 Options”) to Peters Investments.
See further details in section 1.3.
October 2020
Refers collectively to both the October 2020 Convertible Notes and the
Convertible Notes and
October 2020 Options.
Options
page | 51
Term Definition
Refers to the 12 million AU1 Options related to the October 2020
Convertible Note Agreement, which is made up of:
8,829,559 AU1 Options which were issued on 4 November 2020
(“Upfront Options”); and
October 2020 Options 3,170,441 AU1 Options which has not yet been issued and is part of
the Proposed Transaction (“Remainder Options”, see sections 1.1 and
1.3).
Each of the October 2020 Options are (or will be) exercisable at $0.027
each and (will) expire on 31 March 2023.
The term for when the strike price of a call option exceeds the current
Out-of-the-Money
underlying share price.
Peters Investments Peters Investments Pty Ltd and its associates.
Peters Investments Refers collectively to the May 2020 Options and the October 2020 Options
Options issued to Peters Investments.
Refers to the proposed potential issue of AU1 Shares to Peters Investments
upon Peters Investments’ conversion of the Convertible Notes and/or upon
Proposed Transaction Peters Investments’ exercise of the Peters Investments Options, which is
subject to shareholder approval and is the subject of Resolution 6 of the
NoM for the AGM which will be held on or around 23 December 2020.
QMP Quoted Market Price methodology.
Refers to the 3,170,441 of the October 2020 Options which are yet to be
Remainder Options issued and part of the Proposed Transaction (see details in sections 1.1
and 1.3).
Report Independent Expert’s Report
RG 74 ASIC Regulatory Guide 74: Acquisitions approved by members
RG 111 ASIC Regulatory Guide 111: Content of expert reports
RG 112 ASIC Regulatory Guide 112: Independence of experts
Refers to the Group’s loan and related borrowing facilities with Macquarie
Senior Debt
Bank.
SLP Sell Lease Property
Takeover Event A trade sale, scheme of arrangement or takeover
TAPM The Agency Property Management WA Pty Ltd
The Agency Refers to one of the Group’s brands.
TLRE Top Level Real Estate
Refers to the 8,829,559 of the October 2020 Options which were issued on
Upfront Options
4 November 2020 (see details in sections 1.1 and 1.3).
VWAP Volume Weighted Average Price of AU1 Shares.
page | 52
APPENDIX B – SOURCES OF INFORMATION
In making our assessment as to whether the Proposed Transaction is fair and reasonable to the Non-
Associated Shareholders, we have reviewed relevant published available information and other unpublished
information of the Company which is relevant in the circumstances. In addition, we have held discussions
with representatives of the Company's Board. Information we have received includes, but is not limited to
the following:
APES 225 Valuation Services
ASIC and ASX databases
Reserve Bank of Australia database
Recent ASX announcements lodged by AU1
Audited financial statements of The Agency Group for FY 2017, FY 2018, FY 2019 and FY 2020 (as
included in the annual reports lodged by AU1 for those years).
Unaudited income statement of AU1 for the 3 months ended 30 September 2020
Unaudited balance sheet of AU1 as at 30 September 2020
Real Estate Services in Australia, Industry Report by IBISWorld (published on August 2020)
AU1’s share and option registries at 4 November 2020
The Agency Group’s website at https://investors.theagency.com.au/
AU1’s group structure a provided by management.
Draft October 2020 Convertible Note Agreement
Draft Notice of Annual General Meeting and Explanatory Memorandum prepared by The Agency Group
ASIC Regulatory Guide 74: Acquisitions approved by members
ASIC Regulatory Guide 111: Content of expert reports
ASIC Regulatory Guide 112: Independence of experts
Intelligent Investor database
Yahoo! Finance database
Real Estate Services in Australia, Industry Report by IBISWorld (published on August 2020)
S&P Capital IQ
Management information
page | 53
APPENDIX C – STATEMENT OF DECLARATION & QUALIFICATIONS
Confirmation of Independence
Prior to accepting this engagement Nexia Perth Corporate Finance Pty Ltd (“NPCF”) determined its
independence with respect to The Agency Group Australia Limited (“The Agency Group”), Peters Investments
Pty Ltd (“Peters Investments”), and their associates with reference to ASIC Regulatory Guide 112:
Independence of experts (“RG 112”). NPCF considers that it meets the requirements of RG 112 and that it is
independent of The Agency Group, Peters Investments, and their associates.
Also, in accordance with section 648(2) of the Corporations Act we confirm we are not aware of any business
relationship or financial interest of a material nature with The Agency Group, Peters Investments, and their
related parties or associates that would compromise our impartiality.
Mrs Muranda Janse Van Nieuwenhuizen, authorised representative of NPCF, has prepared this Report. Neither
she nor any related entities of NPCF have any interest in the promotion of the Proposed Transaction nor will
NPCF receive any benefits, other than normal professional fees, directly or indirectly, for or in connection
with the preparation of this Report. Our fee is not contingent upon the success or failure of the Proposed
Transaction, and has been calculated with reference to time spent on the engagement at normal professional fee
rates for work of this type. Accordingly, NPCF does not have any pecuniary interests that could reasonably be
regarded as being capable of affecting our ability to give an unbiased opinion under this engagement.
NPCF provided a draft copy of this Report to the Directors and management of The Agency Group for their
comment as to factual accuracy, as opposed to opinions, which are the responsibility of NPCF alone. Changes
made to this Report, as a result of the review by the Directors and management of The Agency Group, have
not changed the methodology or conclusions reached by NPCF.
Reliance on Information
The statements and opinions given in this Report are given in good faith and in the belief that such statements
and opinions are not false or misleading. In the preparation of this Report NPCF has relied upon information
provided on the basis it was reliable and accurate. NPCF has no reason to believe that any information
supplied to it was false or that any material information (that a reasonable person would expect to be disclosed)
has been withheld from it. NPCF evaluated the information provided to it by The Agency Group as well as
other parties, through enquiry, analysis and review, and nothing has come to its attention to indicate the
information provided was materially misstated or would not afford reasonable grounds upon which to base
its Report. Accordingly, we have taken no further steps to verify the accuracy, completeness or fairness of the data
provided.
Our procedures and enquiries do not include verification work, nor constitute an audit or review in accordance
with Australian Auditing Standards. NPCF does not imply and it should not be construed that it has audited
or in any way verified any of the information provided to it, or that its enquiries could have verified any
matter which a more extensive examination might disclose.
The sources of information that we relied upon are outlined in Appendix B of this Report.
Qualifications
NPCF carries on business at Level 3, 88 William Street, Perth WA 6000. NPCF holds Australian Financial
Services Licence No 289358 authorising it to provide financial product advice on securities to retail and
wholesale clients. NPCF’s representatives are therefore qualified to provide this Report.
Mrs Muranda Janse Van Nieuwenhuizen specifically was involved in the preparing and reviewing this Report.
Mrs Janse Van Nieuwenhuizen is a member of both the Chartered Accountants Australia and New Zealand
(“CAANZ”) and the South African Institute of Chartered Accountants. She is also a Registered Company
Auditor and an AFSL Authorised Representative for NPCF.
page | 54
Consent and Disclaimers
The preparation of this Report has been undertaken at the request of the Directors of The Agency Group. It
also has regard to relevant ASIC Regulatory Guides. It is not intended that the Report should be used for
any other purpose than to accompany the Notice of Annual General Meeting (“NoM” or “Document”) to be
sent to The Agency Group shareholders. In particular, it is not intended that this Report should be used for
any purpose other than as an expression of NPCF’s opinion as to whether or not the Proposed Transaction is
fair and reasonable to The Agency Group shareholders.
NPCF consent to the issue of this Report in the form and context in which it is included in the NoM to be sent
to The Agency Group shareholders.
Shareholders should read all documents issued by The Agency Group that consider the Proposed Transaction
in its entirety, prior to proceeding with a decision. NPCF had no involvement in the preparation of these
documents, with the exception of our Report.
This Report has been prepared specifically for the Non-Associated Shareholders of The Agency Group. Neither
NPCF, nor any member or employee thereof undertakes responsibility to any person, other than a shareholder
of The Agency Group, in respect of this Report, including any errors or omissions howsoever caused. This
Report is "General Advice" and does not take into account any person's particular investment objectives, financial
situation and particular needs. Before making an investment decision based on this advice, you should consider,
with or without the assistance of a securities advisor, whether it is appropriate to your particular investment needs,
objectives and financial circumstances.
Our procedures and enquiries do not include verification work, nor constitute an audit or review in accordance
with Australian Auditing Standards.
Certain numbers included in tables throughout this Report have been rounded and therefore may not add
exactly and, unless stated otherwise, all amounts are in Australian dollars.
Our opinions are based on economic, market and other conditions prevailing at the date of this Report. Such
conditions can change significantly over relatively short periods of time. Furthermore, financial markets have
been particularly volatile in recent times. Accordingly, if circumstances change significantly, subsequent to
the issue of this Report, our conclusions and opinions may differ from those stated herein. There is no
requirement for NPCF to update this Report for information that may become available subsequent to its
date.
APES 225 Valuation Services
Our Report has been prepared in accordance with APES 225 Valuation Services.
page | 55
APPENDIX D – VALUATION METHODOLOGIES
In preparing this Report we have considered valuation methods commonly used in practice and those
recommended by RG 111. These methods include:
the discounted cash flow method;
the capitalisation of earnings method;
asset based methods; and
analysis of share market trading.
Discounted Cash Flow Method
Description
Of the various methods noted above, the discounted cash flow method has the strongest theoretical standing.
It is also widely used in practice by corporate acquirers and company analysts. The discounted cash flow
method estimates the value of a business by discounting expected future cash flows to a present value using
an appropriate discount rate. A discounted cash flow valuation requires:
a forecast of expected future cash flows;
an appropriate discount rate; and
an estimate of terminal value.
It is necessary to project cash flows over a suitable period of time (generally regarded as being at least five
years) to arrive at the net cash flow in each period. For a finite life project or asset this would need to be
done for the life of the project. This can be a difficult exercise requiring a significant number of assumptions
such as revenue growth, future margins, capital expenditure requirements, working capital movements and
taxation.
The discount rate used represents the risk of achieving the projected future cash flows and the time value
of money. The projected future cash flows are then valued in current day terms using the discount rate
selected.
A terminal value reflects the value of cash flows that will arise beyond the explicit forecast period. This is
commonly estimated using either a constant growth assumption or a multiple of earnings (as described under
capitalisation of future maintainable earnings below). This terminal value is then discounted to current day
terms and added to the net present value of the forecast cash flows.
The discounted cash flow method is often sensitive to a number of key assumptions such as revenue growth,
future margins, capital investment, terminal growth and the discount rate. All of these assumptions can be
highly subjective sometimes leading to a valuation conclusion presented as a range that is too wide to be
useful.
Use of the Discounted Cash Flow Method
A discounted cash flow approach is usually preferred when valuing:
early stage companies or projects;
limited life assets such as a mine or toll concession;
companies where significant growth is expected in future cash flows; or
projects with volatile earnings.
It may also be preferred if other methods are not suitable, for example if there is a lack of reliable evidence
to support a capitalisation of earnings approach. However, it may not be appropriate if reliable forecasts of
cash flow are not available and cannot be determined.
page | 56
Capitalisation of Earnings Method
Description
The capitalisation of earnings method is a commonly used valuation methodology that involves determining
a future maintainable earnings figure for a business and multiplying that figure by an appropriate
capitalisation multiple. This methodology is generally considered a short form of a discounted cash flow,
where a single representative earnings figure is capitalised, rather than a stream of individual cash flows
being discounted. The capitalisation of earnings methodology involves the determination of:
a level of future maintainable earnings; and
an appropriate capitalisation rate or multiple.
A multiple can be applied to any of the following measures of earnings:
Revenue – most commonly used for companies that do not make a positive EBITDA or as a cross-check of
a valuation conclusion derived using another method.
EBITDA - most appropriate where depreciation distorts earnings, for example in a company that has a
significant level of depreciating assets but little ongoing capital expenditure requirement.
EBIT - in most cases EBIT will be more reliable than EBITDA as it takes account of the capital intensity of
the business.
NPAT - relevant in valuing businesses where interest is a major part of the overall earnings of the group
(e.g. financial services businesses such as banks).
Multiples of EBITDA, EBITA and EBIT value the whole businesses, or its enterprise value irrespective of the
gearing structure. NPAT (or P/E) values the equity of a business
The multiple selected to apply to maintainable earnings reflects expectations about future growth, risk and
the time value of money all wrapped up in a single number. Multiples can be derived from three main sources.
Using the guideline public company method, market multiples are derived from the trading prices of stocks
of companies that are engaged in the same or similar lines of business and that are actively traded on a free
and open market, such as the ASX or the NSX. The merger and acquisition method is a method whereby
multiples are derived from transactions of significant interests in companies engaged in the same or similar
lines of business. In Australia this has been called the comparable transaction methodology.
Use of the Capitalisation of Earnings Method
The capitalisation of earnings method is widely used in practice. It is particularly appropriate for valuing
companies with a relatively stable historical earnings pattern which is expected to continue. This method is
less appropriate for valuing companies or assets if:
there are no suitable listed company or transaction benchmarks for comparison;
the asset has a limited life;
future earnings or cash flows are expected to be volatile; or
there are negative earnings or the earnings of a business are insufficient to justify a value exceeding the
value of the underlying net assets.
page | 57
Asset Based Methods
Description
Asset based valuation methods estimate the value of a company based on the realisable value of its net
assets, less its liabilities. There are a number of asset based methods including:
orderly realisation;
liquidation value;
net assets on a going concern basis;
replacement cost; and
reproduction cost.
The orderly realisation of assets method estimates Fair Market Value by determining the amount that would
be distributed to shareholders, after payment of all liabilities including realisation costs and taxation charges
that arise, assuming the company is wound up in an orderly manner. The liquidation method is similar to the
orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter
time frame.
Since wind up or liquidation of the company may not be contemplated, these methods in their strictest form
may not necessarily be appropriate. The net assets on a going concern basis method estimate the market
values of the net assets of a company but do not take account of realisation costs.
The asset / cost approach is generally used when the value of the business’s assets exceeds the present
value of the cash flows expected to be derived from the ongoing business operations, or the nature of the
business is to hold or invest in assets. It is important to note that the asset approach may still be the relevant
approach even if an asset is making a profit. If an asset is making less than an economic rate of return and
there is no realistic prospect of it making an economic return in the foreseeable future, an asset approach
would be the most appropriate method.
Use of Asset Based Methods
An asset-based approach is a suitable valuation method when:
an enterprise is loss making and is not expected to become profitable in the foreseeable future;
assets are employed profitably but earn less than the cost of capital;
a significant portion of the company’s assets are composed of liquid assets or other investments (such
as marketable securities and real estate investments); or
it is relatively easy to enter the industry (for example, small machine shops and retail establishments).
Asset based methods are not appropriate if:
the ownership interest being valued is not a controlling interest, has no ability to cause the sale of the
company’s assets and the major holders are not planning to sell the company’s assets; or
a business has (or is expected to have) an adequate return on capital, such that the value of its future
income stream exceeds the value of its assets.
Analysis of Share Trading
The most recent share trading history provides evidence of the Fair Market Value of the shares in a company
where they are publicly traded in an informed and liquid market. There should also be some similarity
between the size of the parcel of shares being valued and those being traded. Where a company’s shares
are publicly traded then an analysis of recent trading prices should be considered, at least as a cross-check
to other valuation methods.
page | 58
LODGE YOUR PROXY APPOINTMENT ONLINE
ONLINE PROXY APPOINTMENT
www.advancedshare.com.au/investor-login
MOBILE DEVICE PROXY APPOINTMENT
Lodge your proxy by scanning the QR code below, and enter
your registered postcode.
It is a fast, convenient and a secure way to lodge your vote.
2020 ANNUAL GENERAL MEETING PROXY FORM
I/We being shareholder(s) of The Agency Group Australia Ltd and entitled to attend and vote hereby:
APPOINT A PROXY
The Chair of the PLEASE NOTE: If you leave the section blank,
Meeting
OR the Chair of the Meeting will be your proxy.
or failing the individual(s) or body corporate(s) named, or if no individual(s) or body corporate(s) named, the Chair of the Meeting, as
my/our proxy to act generally at the Meeting on my/our behalf, including to vote in accordance with the following directions (or, if no
STEP 1
directions have been given, and to the extent permitted by law, as the proxy sees fit), at the Annual General Meeting of the Company to
be held at 68 Milligan Street, Perth WA 6000 on 23 December 2020 at 09.00am (WST) and at any adjournment or postponement of that
Meeting.
Chair’s voting intentions in relation to undirected proxies: The Chair intends to vote all undirected proxies in favour of all Resolutions. In
exceptional circumstances, the Chair may change his/her voting intentions on any Resolution. In the event this occurs, an ASX
announcement will be made immediately disclosing the reasons for the change.
Chair authorised to exercise undirected proxies on remuneration related resolutions: Where I/we have appointed the Chair of the
Meeting as my/our proxy (or the Chair becomes my/our proxy by default), I/we expressly authorise the Chair to exercise my/our proxy on
Resolution 1 (except where I/we have indicated a different voting intention below) even though this resolution is connected directly or
indirectly with the remuneration of a member(s) of key management personnel, which includes the Chair.
VOTING DIRECTIONS
Resolutions For Against Abstain*
1 Adoption of Remuneration Report ◼ ◼ ◼
2 Re-election of Director – Matthew Lahood ◼ ◼ ◼
◼ ◼ ◼
STEP 2
3 Ratification of Prior Issue of Options to Peters Investments - 2,000,000 Options
4 Ratification of Prior Issue of Options to Peters Investments - 8,829,559 Options ◼ ◼ ◼
5 Amendment of Existing Convertible Notes on Issue ◼ ◼ ◼
6 Approval for Issue of Conversion Notes, Options and Maximum Voting Powers to Peters Investments Pty Ltd ◼ ◼ ◼
7 Approval of 7.1A Mandate ◼ ◼ ◼
*orIf you mark the Abstain box for a particular Resolution, you are directing your proxy not to vote on your behalf on a show of hands
on a poll and your votes will not be counted in computing the required majority on a poll.
SIGNATURE OF SHAREHOLDERS – THIS MUST BE COMPLETED
Shareholder 1 (Individual) Joint Shareholder 2 (Individual) Joint Shareholder 3 (Individual)
STEP 3
Sole Director and Sole Company Secretary Director/Company Secretary (Delete one) Director
This form should be signed by the shareholder. If a joint holding, all the shareholders should sign. If signed by the shareholder’s attorney,
the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company,
the form must be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).
Email Address
Please tick here to agree to receive communications sent by the Company via email. This may include meeting notifications, dividend
remittance, and selected announcements.
HOW TO COMPLETE THIS SHAREHOLDER PROXY FORM
IF YOU WOULD LIKE TO ATTEND AND VOTE AT THE MEETING, PLEASE BRING THIS FORM WITH YOU.
THIS WILL ASSIST IN REGISTERING YOUR ATTENDANCE.
CHANGE OF ADDRESS CORPORATE REPRESENTATIVES
This form shows your address as it appears on Company’s share register. If this If a representative of a nominated corporation is to attend the Meeting the
information is incorrect, please make the correction on the form. Shareholders appropriate “Certificate of Appointment of Corporate Representative” should
sponsored by a broker should advise their broker of any changes. be produced prior to admission in accordance with the Notice of Meeting. A
Corporate Representative Form may be obtained from Advanced Share
APPOINTMENT OF A PROXY Registry.
If you wish to appoint the Chair as your proxy, mark the box in Step 1. If you
wish to appoint someone other than the Chair, please write that person’s name
SIGNING INSTRUCTIONS ON THE PROXY FORM
in the box in Step 1. A proxy need not be a shareholder of the Company. A proxy Individual:
may be an individual or a body corporate. Where the holding is in one name, the security holder must sign.
Joint Holding:
DEFAULT TO THE CHAIR OF THE MEETING Where the holding is in more than one name, all of the security holders
If you leave Step 1 blank, or if your appointed proxy does not attend the should sign.
Meeting, then the proxy appointment will automatically default to the Chair of Power of Attorney:
the Meeting. If you have not already lodged the Power of Attorney with Advanced Share
Registry, please attach the original or a certified photocopy of the Power of
VOTING DIRECTIONS – PROXY APPOINTMENT Attorney to this form when you return it.
You may direct your proxy on how to vote by placing a mark in one of the boxes Companies:
opposite each resolution of business. All your shares will be voted in Where the company has a Sole Director who is also the Sole Company
accordance with such a direction unless you indicate only a portion of voting Secretary, this form must be signed by that person. If the company (pursuant
rights are to be voted on any resolution by inserting the percentage or number to section 204A of the Corporations Act 2001) does not have a Company
of shares you wish to vote in the appropriate box or boxes. If you do not mark Secretary, a Sole Director can sign alone. Otherwise this form must be signed
any of the boxes on a given resolution, your proxy may vote as they choose to by a Director jointly with either another Director or a Company Secretary.
the extent they are permitted by law. If you mark more than one box on a Please sign in the appropriate place to indicate the office held.
resolution, your vote on that resolution will be invalid.
LODGE YOUR PROXY FORM
PROXY VOTING BY KEY MANAGEMENT PERSONNEL This Proxy Form (and any power of attorney under which it is
If you wish to appoint a Director (other than the Chair) or other member of the signed) must be received at an address given below by 09.00am
Company’s key management personnel, or their closely related parties, as your (WST) on 21 December 2020, being not later than 48 hours before
proxy, you must specify how they should vote on Resolution 1, by marking the the commencement of the Meeting. Proxy Forms received after
appropriate box. If you do not, your proxy will not be able to exercise your vote that time will not be valid for the scheduled Meeting.
for Resolution 1.
ONLINE PROXY APPOINTMENT
PLEASE NOTE: If you appoint the Chair as your proxy (or if they are appointed
www.advancedshare.com.au/investor-login
by default) but do not direct them how to vote on a resolution (that is, you do
not complete any of the boxes “For”, “Against” or “Abstain” opposite that BY MAIL
resolution), the Chair may vote as they see fit on that resolution. Advanced Share Registry Limited
110 Stirling Hwy, Nedlands WA 6009; or
APPOINTMENT OF A SECOND PROXY PO Box 1156, Nedlands WA 6909
You are entitled to appoint up to two persons as proxies to attend the Meeting
and vote on a poll. If you wish to appoint a second proxy, an additional Proxy BY FAX
Form may be obtained by telephoning Advanced Share Registry Limited or you +61 8 6370 4203
may copy this form and return them both together.
BY EMAIL
To appoint a second proxy you must:
admin@advancedshare.com.au
(a) on each Proxy Form state the percentage of your voting rights or number
of shares applicable to that form. If the appointments do not specify the IN PERSON
percentage or number of votes that each proxy may exercise, each proxy Advanced Share Registry Limited
may exercise half your votes. Fractions of votes will be disregarded; and 110 Stirling Hwy, Nedlands WA 6009
(b) return both forms together.
ALL ENQUIRIES TO
COMPLIANCE WITH LISTING RULE 14.11 Telephone: +61 8 9389 8033
In accordance to Listing Rule 14.11, if you hold shares on behalf of another
person(s) or entity/entities or you are a trustee, nominee, custodian or other
fiduciary holder of the shares, you are required to ensure that the person(s) or
entity/entities for which you hold the shares are not excluded from voting on
resolutions where there is a voting exclusion. Listing Rule 14.11 requires you to
receive written confirmation from the person or entity providing the voting
instruction to you and you must vote in accordance with the instruction
provided.
By lodging your proxy votes, you confirm to the company you a that you are in
compliance with Listing Rule 14.11.