the big cash burner * pierpont

A few Pierpontian comments upon the federal election result and then we will deal with higher matters:

* Labor has lost the 2007 election, too. It didn't lose many seats on Saturday night, but a lot of coalition marginals became much more comfortable.

If Labor were to get a 5 per cent swing next election (something it has never done in modern times) the party would win back a total of just five seats in NSW, Queensland and Victoria. So it's out until 2010, barring miracles.

* The Green vote is generally in inverse proportion to the number of kangaroos in the electorate. The Greens' heaviest polls were in Sydney (21.6 per cent), Grayndler (20.6 per cent), Melbourne (18.5 per cent) and Bennelong (16.6 per cent).

Admittedly Cunningham (Wollongong and the surrounding bush) scored 20.6 per cent for the Greens, but that was actually held by a Green candidate until Saturday night. The Greens also polled well in Richmond, but that is where the tree-dwelling Nimbin folk live.

* In the Queensland race for the Senate, the Democrats and Pauline Hanson each scored 0.1 of a quota. They're both history.

* The Howard government can fairly be accused of mendacity on a number of subjects, notably the Tampa affair, but the hoi polloi don't care whether a leader lies to them as long as they think he's in charge and doing a good job.

If Howard had been perceived as a weak leader doing a poor job, the porkies would have been an accelerant to his departure.

All of which is by the way. John's main problem now is to get rid of the $6 billion he promised to spend during the election campaign. In his usual helpful way, Pierpont suggests that he seek advice from the board of IC2, who can spend money faster than Mrs Pierpont at the milliner's during Cup Week.


Occasional watchers of The Bill are doubtless under the impression that an IC2 is a Spaniard fleeing from a smash-and-grab robbery. That's the case around Sunhill, but in Australia IC2 Global Ltd is the old Westel Group wearing false whiskers.

If John intends to follow Pierpont's advice, he'd better move quickly because Pierpont is none too sure how much longer IC2 is going to be around.

Back at the start of fiscal 2000, Westel had $4.7 million in the bank. Since then it has sold $19 million worth of gear and raised a further $31 million in share issues.

Those numbers add to the quite respectable total of $55 million, which would even cover Mrs Pierpont's millinery bill. Yet Westel/IC2 has burned through the lot and by last June 30 was down to its last $41,000. That's gold-medal spending.

Either it has been having some terrific lunches or else it's been pouring the money into some technology called Project 25. Given the group's declining cash flow, lunches may have been the better bet.

Even the auditors have noticed. The chaps from KPMG have raised doubt about whether the company will be able to continue as a going concern. They say IC2's ability to continue will depend upon (a) the successful completion of proposed equity raisings; (b) a conversion of debt to equity; (c) the successful sale of Project 25 products and software; and (d) the completion of proposed deals with Horizon Global Ltd and Smartlink Radio Networks Inc.

The difficulty with raising more equity is that IC2's share price has sunk to a nominal four-fifths of a cent. The only wood ducks who are prepared to invest serious money at those levels have already been plucked by the Nigerian letter writers.

The debt refers to a note for $600,000 issued to a Melbourne punter, which is convertible on or before November 30. The note is convertible into 7.5 million shares, worth $60,000 at IC2's current share price. If the IC2 boys can talk the punter into conversion, they should get a medal of some kind because the punter will be taking a 90 per cent haircut on the value of his loan.

The successful sale of Project 25 products and software has been going to happen for three years, but hasn't.

Project 25 comprises mobile radios and base stations for governments and security and emergency services. The technology was originally owned by Stanilite Pacific (hats off for a nanosecond of mourning), then was picked up by ADI Ltd which flicked it on to Westel in December 2000.

These radios should be ideal communications technology for the Australian Army, the Royal Flying Doctor and virtually everyone who needs communications out in the bush.

On the grounds that it was going to sell the technology worldwide, Westel paid ADI some $8 million. From the financial performance since then, Pierpont wonders whether it was worth $8. Indeed, the whisper around the Croesus Club is that the Project 25 technology was a tad short of perfection when it was bought.

When Westel/IC2 bought the technology, its only rival in this field was Motorola. But since then maybe a dozen competitors have entered the market with the result that while IC2 sold some Project 25 units, including a few to the US air force, it was not enough to make profits.

Receipts from customers totalled $6.6 million in 1999-2000 but had fallen to a mere $735,000 last financial year. The good news is that the company's losses have fallen at a similar rate, from $27 million in 2000-01 to $3 million in 2003-04. But they're still losses and IC2 is running out of cash.

The final going-concern point raised by KPMG was the successful completion of the Smartlink and Horizon deals.

The first of these is a proposal to set up a joint venture between IC2's wholly owned subsidiary Westel Wireless and Smartlink Radio Network Inc of the United States to market the Project 25 units.

Westel and Smartlink have a long relationship but this has been a slow negotiation. When last seen, Smartlink had agreed to buy $840,000 of base stations over the next year, but the joint-venture negotiations had been extended into the first quarter of 2005.

That joint venture is IC2's best hope of survival, because the Horizon deal is longer term. Horizon Global owns 51 per cent of Astrovision Australia Ltd.

A year ago IC2 lent $400,000 to Astrovision Australia via a convertible note. Given IC2's dire cash shortage, this was equivalent to a drowning man throwing his only lifebelt to someone else.

Astrovision Australia's only asset is a licence from Astrovision International of the US to launch a satellite into geostationary orbit. The proposed satellite will (hopefully) be able to transmit live images from space, making it useful for tracking weather, bushfires, armies and so forth. But until Astrovision drums up some customers to use the satellite, the rights are worth little more than a glint in the eye.

The launch is planned from either California or French Guiana. But it won't happen even under the most favourable auspices for three or four years, whereas IC2 needs cash now.

Six billion should keep them afloat for at least another year, John.

You can contact Pierpont at www.pierpont.com.au

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Cheers,

Fig Jam