u r missing the point, page-10

Extract from revised Deferred Consideration Agreement in Sept 2008

Photon has also agreed with the Deferred Consideration Beneficiaries not to pay a dividend until the earlier of five years from the date when the final Tranche 1 Payments are due under the Original Acquisition Agreements (expected to be September 2013) or when all Tranche 3A and Tranche 3B Payments have been made or have otherwise
been guaranteed.

Therefore on the face of it no dividends can be paid till at least 1 September 2018 unless Tranche 3A and 3B have been extinguished.

Originally the payment was structured as follows:

Tranche 3A – 50% of the Tranche 3 Payment will be paid in cash when Group EBITDA for the last 12 months is greater than $85 million and Photon’s leverage ratio (calculated consistently with its banking facilities referred to in Section 11.8) is less than 2.25 times (“3A Trigger”).

Tranche 3B – 50% of the Tranche 3 Payment will be paid in cash when Group EBITDA for the last 12 months is greater than $95 million and Photon’s leverage ratio (calculated consistently with its banking facilities referred to in Section 11.8) is less than 2.25 times (“3B Trigger”).

However, it has now been revised such that 3A trigger is EBITDA $54.1 million and 3B is $64.1 million.

The company has not booked this contingent liability as it is extremely unlikely that their EBITDA will be anywhere near these figures. EBITDA was $13.9 million for 30 June 2012. I welcome the company extinguishing these payments, however, it would be extremely unlikely that the company would be paying out 50%!

Firstly, there is a reason why they have not been included as part of Non-Current liabilities, this is because they are not likely to be incurred (hence it is only a note to the accounts. If the company can come to some agreement, then with a small portion of the excess cash they can make a payment to get rid of this contingent (even though very unlikely) liability.

This would then free up the ability of the company to make a payment of dividends (although just as inlikely for a while), which would in turn attract investors rather than short term punters to the stock.

I welcome the company having an EBITDA of $50 million - $60 million. Based on what the company sold the last round of businesses this equates to $350m - $400m of value. Given the company is trading at $35m, this would be a ten fold increase in shareholder value. The chances of this happening.....well the auditors excluded it from the balance sheet and signed off, so pretty remote in my view.