Why is Octavium Capital Investments (OCI) nominating two...

Why is Octavium Capital Investments (OCI) nominating two directors to the Ignite Limited (IGN) board at its November 2022 AGM?

It is OCI’s belief that:
1. IGN shares are currently well below their intrinsic value at approx. 8c per share (down from over 20c per share earlier in 2022).
2. The 2022 FYE financials results, which demonstrate another statutory loss for shareholders, and the Sept 2022 4C cashflow report, is continued evidence that the 3-year Growth plan is not working despite recruitment sector conditions booming.
3. This is now the ninth straight year in a row of statutory and operational losses of over $35m on total revenue for the period of over $1.2 Billion dollars.
4. Competitors in the sector are recording record revenue growth, but more importantly record net profits, for their shareholders. IGN is not and has not been for nine straight years.
5. There have been some recent changes in the board structure, yet the board leadership and approach of the last nine years and in our opinion now outdated “Growth” plan remains.

Octavium Capital Investment asks:

- When is IGN going to be net profitable?

- Why is it that IGN is unable to achieve a relatively low hurdle net profit of between $2.5 – 3 million (2-3%) as a starting point on revenue of $115m? (IGN has approx. $76m tax losses/$25m in deferred tax assets so little income tax to pay for the foreseeable future)

- When is the true intrinsic value of IGN going to be realised for IGN shareholders?

- Specifically, when is there going to be a pivot in the strategy, away from the current growth plan? How bad do the financial results need to be before IGN takes a different strategy?

- Now with a potential slowdown in the economy, the need to urgently focus on materially reducing costs and generating net profitable revenue is, in OCI’s view, even more paramount and to refuse or delay doing so may jeopardise IGN further.

- When will the Board think that a material change in approach is warranted?

OCI considers that a material change is required in the best interests of the company and shareholders as a whole, has put its concerns to the Board and asked that they be seriously considered by the directors in the discharge of their duties.
* Why do the current independent Board directors (all of which have no shares or less than 1% shareholding in IGN) recommend shareholders vote against the director nominees proposed by Octavium Capital Investments (a 24.7% shareholder), particularly when one of the nominees has deep recruitment sector experience with a profitable track record?
* Why is a proposed shareholder board representation so resisted by the IGN independent directors?
* What would it take for the Board to recommend the shareholders vote in favour of a director nominated by a material shareholder?
* Why do other major shareholders who have supported the existing Board structure and leadership to date, especially Sandon Capital (a specialist activist fund), continue to support a Board and management plan that has resulted in nine straight years of losses?
* Recognising that OCI may not have all the answers, OCI has previously reached out to Sandon Capital and advised that it will support any activist initiative they would propose that would genuinely rectify the issues with IGN. To date, OCI has received no response and to our knowledge no other shareholder has proposed any initiatives in this regard.
We have requested IGN to consider and advise IGN shareholders of the following:
- Why is it that IGN gross margin continues to languish around 12% when their direct competitor/s are above 14%? On revenue of over $115m, this is significant to bottom line profitability. The IGN Gross Margin is down from over 16% only a couple of years ago. The Board cites loss of Permanent business as the cause of reduced gross margins, but Permanent has been booming the last 18 months with no material change in IGNs Gross Margin % demonstrated in the 2022 FYE financial results.
- Is it because in a push for ‘growth’ (i.e. higher revenue), contracts are being retained or obtained at margins below what IGN’s competitors have been able to negotiate? Should low margin revenue be retained for the sake of revenue at the expense of profitability?
- IGN is meant to be in the “transformational” stage of the 3-year growth plan. What does this specifically mean and how does this relate in dollars and cents to net profitability for IGN shareholders?
- Why is it that employment and overall overhead expenses remain very high when compared to IGN’s competitors?
- Why are the two perennially underperforming IGN divisions - On demand IT services and the TTS – which represent less than 10% of IGN’s revenue continuing to absorb IGN overhead expense, capital, management bandwidth and appear to be subsidised by the 90% of revenue Temp contract division.
- What is the cost and capital investment and return on that investment of the National Resource Centre?
- When are IGN shareholders going to see the benefit of that investment?
- Why has IGN not pivoted harder and beefed up its Permanent side of its business much earlier to take advantage of the bounce back and higher margins?
- Why does IGN’s diamond in the rough – the ACT Govt IT sector business – appear to be continuing to subsidise the underperforming other divisions in the company for the sake of growth and the appearance of scale /size?
- After nine years, how and when will IGN provide its shareholders with an adequate return of at least $3m net profit on their investment and realise the intrinsic value in the IGN business.With the right plan and the right objective & focus on net profitability – it is not unreasonable for IGN shareholders to expect a return on their investment.
This is why Octavium Capital Investment has nominated two directors to the IGN Board at the 2022 AGM.

The abovementioned is not legal, financial or any other type of advice. It is the belief and opinion of Octavium Capital Investment Pty Ltd only and each investor should do their own research and due diligence and seek their own advice specific to their circumstances.

Regards – Daniel Altiok Brown. Octavium Capital Investment Pty Ltd 18th November 2022