Ann: Market Update CEO Announcement and General Law Review, page-38

Where the business failed and where the former management were complicit were in terms of trying to declare that the Company was in compliance of its covenants at times when it wasn't. Or that there were not nay relevant covenants to be had. As table 17 of KPMG's Expert's Report (27/10) stated - there was (at the time) an EBITDA, minimum interest coverage ratio of 2.75x.

There was also a maximum leverage ratio under the SFA:
• a maximum leverage ratio (Net debt / EBITDA) no greater than 2.95x at the commencement
of the facility, reducing to 2.25x after three years.

Both of these ratios, SGH fell apart on during F17 and clearly so, going into F18.

At H17, they reported EBITDAW of ($11.2M) - normalised at $7.8M.

At H16, EBITDAW was ($58.3M) - normalised at ($14.8M).

Nowhere however were they reporting EBITDA which was the SFA required /standard measurement. EBITDAW was a fudging instrument used to fumble their way through and to fudge the underlying, true or actual position.

This then is why the Banks (original SFA syndicate members) sold out of their positions shortly following the release of the H17 results. despite all of what Grech & Co had ever said, they (SGH) were not in compliance of their covenants as at the relevant reporting dates and the banking syndicate had had enough.

It also explains why they had started capitalising interest at the time as this was another technical way of bypassing the SFA covenant requirement. Such financial trickery, re-engineering or accounting wizardry whilst possibly providing a technical veneer to what was truly happening on the inside actually performed as a disservice to the Company going forward. As the Titanic sailed on through the night, even with the scouts posted high above, the fateful iceberg challenge lurked ahead, in silence, gathering force and effect. When it struck, the ship's fate was sealed but not as if it was the iceberg that caused the disaster. The Titanic sailed on into that moment of history blissfully ignorant of its own imminent demise just ahead. Here however, the shareholders were blissfully unaware of what was truly happening even though the then Board /management fudged on the information.

Technical re-engineering /patches to the system can only work for so long before a radical reboot is required. That re-boot ha snow occurred and the consequences of the failings of 2015 through 2017 are still washing their way through.

Of itself, the SFA compliance to the covenants was never going to be achieved. The big syndicate banks bailed and the vulture pack swooped in. Now however they are going to cut through and complete what it was that Grech and co should have delivered against but earnestly failed to follow. Table 17 of the KPMG expert's report says it all in this regard, as does pages 80 - 83 of the report. The forward looking near final blood letting is therefore likely to be quite telling. Hence the very blunt, forward, referencing statements of the ASX release announcing SGH's 3rd CEO so far this financial year.

SGH is still on life support and its doubtful that it is even remotely anywhere near delivering any type oc cash contribution (net +ve CF) in support of the business. Very likely therefore, this will be borne out in the H18 report as the new board continues with purging anyone associated with the old guard.

I would therefore not like to be one of the GL inner practices however with whatever deal that might be offered making then a deal with the Devil being that much more preferable. At least the thermostat setting there would be set, stable and constant (no risk there of brown outs or eventual fading to black).