MF analysis today, page-48

Lakota

NIHL was passed on to SGH for zero payment and a 50% net profits earnout. ( QPP had spent $144M at May 2015)
You dont get $300m near income for zero payment. So income not very near.
I am assuming/guessing 2 things

A.NIHL 52000 cases were put on slow burn from feb - may 2015 and kept there with a huge office move in the offing post transfer. Therefore case cycle much more likely to be 24 months than 18 months.

B. QPP may have had inadequate legal expertise to effectively handle the Hearing loss issues and Lawyers opposing QPP might have been able to make mincemeat of QPP efforts to do process. SGH on the other hand can deal with legal complications well.

SGH has reported $30 m spend on the NIHL cases ( 6 months to Dec15) [ Total Spend $174 ]
I assume by June 17 SGH spend will be $90M.
At Dec 15 the NIHL WIP valued in SGH BS at near zero but 300 staff dedicated to progressing.

So the P/L acc ( zero paid fro NIHL) to June 17

Income indications $300- +/- 20% M ( depends on success rate)
WIP from QPP (90)
SGH Fix /int ohds (50)
QPP share (80)
NIHL profit $160

+ ve cash flow from May 15- June 17 $300 - 50 - 80 = $170m

NB this depends upon the 300 working on cases achieving good success and so wide error margins required.
These figs are my guess work and can not be relied upon.

AND that is part of the point. Because this is new trade you can not use past data to apply statistical method to provide valid proof in advance that the NIHL cases will provide any profit or cash flow. ( With motor ins cases you can prove within 95%confidence).

I believe it will be possible to form a view on actual range of NIHL outcomes in feb 17 at interims . That coincides with banking arrangement trigger point. There is a lot riding on NIHL success and it appears clear that $300m gross income is what it says on the tin. If it pans out as above, that would make a material hole in the debt.

Bear Mike cant see it. I can. NOBODY should rely on either view until we see the evidence of success or otherwise

It is also true that slowdown and WIP milking should generate cash ( while fixed overheads stay the same)

Financial engineering of some sort IS needed because SGH needs to get on frontfoot like Redde and the current debt is too high. I have noted on a no of occasions that AG is spot on in noting QPP PSD is a great business model and that we havent seen what it can do.

GO's Tort cancellation for the Poor - Toast? Probably . Brexit = GO = toast. ...Yup.

Incidentally since Brexit is big bananas deal .....how would Ozzies react to unelected beaurocrat foreigners fixing your economy
and trading rules ( and a lot more)? BrexIn is no shoe in. Brexit = fall in £.

Mel