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UBS Australian Financial Services Conference
Snowball /Shadforth proposed merger
23 June 2011
Jointly issued by Snowball Financial Group Limited ACN 006 490 259 and Shadforth Financial Group Holdings Limited ACN 128 202 308
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Important Notice and DisclaimerThis presentation is for general information purposes only and should be read in conjunction with the ASX Release lodged by Snowball Group Limited (“Snowball”) with the ASX on 26 May 2011 and the subsequent Bid and Target Statements released by the parties. It does not purport to provide recommendations or opinions in relation to specific investments or securities.
The presentation has been prepared in good faith and with reasonable care. Some of the information contained in this presentation may constitute forward-looking statements that are subject to various risks and uncertainties. Statements or assumptions in thispresentation as to future matters may prove to be incorrect and should not be relied on in making an investment decision. Neither Snowball nor Shadforth Financial Group Holdings Limited (“Shadforth”) make any representation or warranty as to the accuracy,completeness, likelihood of achievement or reasonableness of any forward-looking statements contained in this presentation. It is not intended that it be relied upon and the information in this presentation does not take into account your financial objectives, situations or needs. Investors should consult with their own legal, tax, business and/or financial advisers in connection with any investment decision.
Each of Snowball and Shadforth have provided information for this presentation and is responsible only for the information it has provided.
Defined Terms:1. Funds Under Advice (“FUA”) includes all client funds under advice and third party funds, including FUAd and FUM2. Funds On Platform (“FUAd”) include client funds on an administration platform controlled by Snowball or Shadforth entities via
supplier contracts, including third party adviser FUA3. Funds Under Management (“FUM”) include client funds under management controlled by Snowball or Shadforth entities via supplier
contracts Note: Unless indicated otherwise all figures are as at 31 December 2010.
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Overview
Transformational transaction for Snowball and Shadforth
Materially enhances scale, earnings, market position, capitalisation and free float
Unique combination creates Australia’s leading dedicated non-aligned financial advice and wealth management groups
Experienced team ready for changes to environment
Positioned for future growth
Snowball and Shadforth merger creates a new force in Australian financial advice and wealth management
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Merger outline• Friendly merger between Snowball Group Limited (Snowball) and Shadforth Financial Group Holdings Limited (Shadforth)
• All scrip takeover offer by Snowball to Shadforth shareholders
• Merger has the unanimous recommendation of all Snowball and Shadforth Directors. Shadforth Directors have already accepted the offer and in total, holders of 61% of Shadforth shares have accepted the offer, as at 17 June 2011
• Details of the offer1:
– 2.15 Snowball shares for every 1 Shadforth share, based on underlying earnings adjusted for a net debt formula
– Shadforth shareholders will own 71% of the merged group on completion
– Offer conditional on minimum 90% acceptance by Shadforth shareholders
– 33% of the shares issued to Shadforth shareholders will be free from escrow on completion
– A structured sell down post FY11 results is planned to enhance liquidity
– The balance of the remaining shares issued to Shadforth (67%) will be escrowed and released over two years
• Expected to be 6–8% EPS dilutive to Snowball shareholders in FY12 (before one-off transaction and integration costs). Cost and potential migration synergies expected to be moderate in 2012 and growing to $5m in 2013
• The merged group will be well positioned with a stronger balance sheet to pursue EPS accretive acquisitions, with several transactions at term sheet or due diligence stage
• Merged group positioned for further transformational transaction(s)
• Future dividend payout ratio planned to be in the range 60-70% of net profit after tax
• Tony Fenning from Shadforth will be Managing Director of the merged group and Tony McDonald from Snowball an Executive Director and Group CEO
1. Full details of the offer are contained in the Bidder’s and Target’s statements released by the parties.4
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Advice business models & dealer services$4.7bn in FUA
• Outlook: Employed, salaried adviser model: 10 offices and 40 advisers across NSW, VIC, QLD, SA and WA
• SMSF, corporate superannuation, accounting and tax capability• Affinity partner model• Corporatised advice infrastructure
• WPFG: ‘Franchise’ dealer group, principal adviser owner-operators• 19 practices and 51 advisers across NSW, VIC, QLD, WA and SA• In-built adviser retention mechanisms
Portfolio administration$1.9bn in FUAd1
• Leveraging scale to facilitate margin benefits: margin and revenue rights • Basis for Snowball’s new managed portfolio service (MDA)
Portfolio management$0.7bn in FUM2
• Portfolio construction and fund-of-funds management business 100% owned by Snowball
• Will manage future MDA investment portfolios
Revenue drivers • Financial advice fees• Portfolio construction and funds management• Portfolio administration• Accounting, tax and SMSF
Snowball: OverviewSnowball is a non-aligned, ASX listed financial advice business with $5.7bn in funds under advice,
administration and management and 91 financial advisers
1. Portfolio Administration includes client FUAd of $1.0bn and third party funds in the Symetry Portfolio Service of $0.9bn2. Portfolio Management includes client FUM of $0.6bn and third party funds invested in Officium funds of $0.1bn
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Shadforth: Overview
Queensland• Brisbane
New South Wales• North Sydney
• Wagga Wagga
Tasmania• Hobart
• Launceston
• Devonport
Western Australia• West Perth
Victoria• Melbourne
(Southbank)
• Bairnsdale
• Horsham
• Wodonga
• Geelong
South Australia• Mount Gambier
• Largest non-aligned employee model advice business in Australia created through the integration of 13 selected long established, quality financial advice businesses
• 141 salaried financial advisers, professional staff and general insurance specialists and 13 offices
• $8.6bn in FUA1 including $5.6bn on badged wrap2 (FUAd) of which $2.5bn in 3 strategic core trusts3 (FUM)
• High net worth (HNW) client focus – 6,000+ core client families, with an average balance of c. $800k invested
• Over 17,000 client groups in total
• Provider of the full spectrum of financial advice, portfolio and investment management, life insurance, general insurance, mortgage broking and lending services, corporate superannuation and stockbroking
• Proven management team, together from inception
• Aligned interests across management, board, employee advisers (and former employees) and their associated entities own 100% of Shadforth
1. Funds under advice (FUA) includes client funds under advice of $7.9bn and third party funds invested through the wrap platform via the group of $0.7bn2. Funds on platform (FUAd) includes clients funds controlled by Shadforth entities via supplier contracts, includes approximately $0.7bn noted in Note 1 above3. Funds under management (FUM) controlled by Shadforth entities via supplier contracts
Shadforth is a national, unlisted, non-aligned financial advice business with a profitable, corporatised business model
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Shadforth: Background
• Local practices
• Inevitable industry reform
• Increased wealth demographics
“New World Coming” (2006)
• Equity swap between 12 privately-owned groups
• Grant of employee options1
Legal Merger (2008)
• Project “Best Advice” (operational improvements)
• Project “East West” (business value & competitive position focus)
Blueprint for Change (2007)
• Single brand and advice licence
• Central core platform and funds
• Further “Project Best Advice” operational improvements
One Brand, One Structure (2009)
“Individual” practices
Present day SFG
Creation of Group
One Brand
• Roles are clarified & single Remuneration Scheme
• Client segmentation
• Bolt-on practices
One Approach (2010)
One Business
• Implementing national teamwork framework and improve systems support
• More client segmentation / client value
One Team (2011)
• Merger & acquisitions
• Response to regulatory changes expected by mid-2012
• Project “Best Advice” ready for third party rollout
Next... New World (2012)
Shadforth has been progressing a plan to a listing since 2006 and sees the merger as a way to accelerate its plans
1. Fully vested and fully exercised as at 28 February 20117
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Current internal Advice communities
Third party advisers
On-line central corporate services‘Best Advice’
Plus ‘ImplementationInfrastructure’
• Adviser support services: Research, compliance, and software
• Infrastructure:Portfolio construction, management & administration, stockbroking, lending, SMSF and insurance
97 advisers 40 advisers51 franchised
advisers
HNWClients
Mass AffluentClients
Integration will be focused on enhancing client and shareholder outcomes, utilising the best services and offers from both groups
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Merged group business modelF
or p
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Industry contextOverall, Snowball and Shadforth are independently well positioned, enhancing the attractiveness of
the merger
• The industry is complex and crowded with more and more participants aiming to operate across the value chain in a bid to control their destiny and end clients – but ability to do this is mixed
• The industry is under the spotlight: GFC, media focus/political reviews but remains attractive to investors with underlying mandated superannuation fundamentals
• Perceived value of advice is being tested & client preferences have changed
• Preparation and readiness for change – ability to adapt to changing client needs and the Henry, Cooper and Ripoll reports is mission critical focus for incumbents
• Consolidation set to continue post GFC in a “bar-bell” shaped industry and momentum will build for the mid-tier M&A – there will be few “independent” players of scale left standing outside the banks and industry funds
• Successful advice businesses in the future will need to significantly:
• Re-fresh their offer (and pricing/approach) by client segment
• Provide the appropriate pricing for each segment offer, so as to deliver value
• Augment their ability to implement their advice offer via infrastructure that delivers the benefits of scale to clients (and shareholders)
• Client flows in “deep winter” but underlying wealth demographics are highly favourable in the medium term.
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416
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291 282
244
206184
151 144118
104 9681
6545 41
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Listed market position
Market Capitalisation as at 31 May 2011, $m • #1 non-aligned financial advice & wealth management group in Australia
• Ability to further expand involvement/margin across the wealth management value chain
• Expanded capability to invest and solidify the merged group’s competitive advantages in the market
• Further growth will deliver additional scale benefits
• The merged groups’ scale and market position is likely to attract domestic and overseas attention creating new opportunities for shareholders and clients
The merged groups’ size and proactive strategy as industry consolidator will offer opportunities to enhance growth and shareholder value
10Source: Bloomberg, 31 May 2011.1. Combined Entity implied market capitalisation based on Snowball share price as at 31 May 2011 ($0.40) and the estimated shares outstanding following completion (including shares issued on vesting of performance rights) of the Snowball offer (726.6m)2. Implied market capitalisation based on the Snowball share price as at 31 May 2011 ($0.40) and the number of Snowball shares that will be issued to Shadforth shareholders following completion of the offer (515.7m)
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Merged group revenue drivers
FUAd margin FUM marginAdvice Fees –FUA margin
‘Owned’ infrastructure & best
of breed suppliers
‘Owned’ infrastructure & best
of breed suppliers
Advice business model
+ +
Merged group key revenue drivers 1H11 pro forma FUMAA of $14.3bn
0.6 2.5 3.1 2.8
2.4
5.2
1.3
3.0
4.3
0.9
0.7
1.6
0.1
0.1
$5.7bn
$8.6bn
$14.3bn
Snowball Shadforth Merged group
Client FUMAA Client FUAA Client FUAdvice
Third Party FUAdmin Third Party FUM
$8.3bn
$12.6bn
11 Please note the Merged group key revenue drivers diagram has been corrected from the Investor Presentation lodged with ASX on 26 May 2011.
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Financial strength
• Significantly enhanced business: profit, cashflow and balance sheet
• 1H11 Normalised pro forma EBITDA of $20.1m
• Cost and potential migration synergies, expected to be moderate in 2012, then growing to c. $5.0m (pre-tax, excluding integration costs) by 2013
• Expected integration costs to exceed synergy benefits in the first year
• The combined balance sheet is expected to provide greater access to capital/debt to support growth
• Expected to be 6–8% EPS dilutive to Snowball shareholders in FY12 (before one-off transaction and integration costs)
• A stronger balance sheet to pursue EPS accretive acquisitions, with several transactions at term sheet or due diligence stage
• Merged Group positioned for further transformational and other M&A transaction(s)
• Future dividend payout ratio planned to be in the range 60-70% of net profit after tax
Pro forma Normalised EBITDA
1. Normalisations include one-off non-operational items and full period impact of acquisitions. Please refer to the Bidder’s and Target’s Statements for full details of 1HFY11 and FY10 normalisations
$9.1m $9.1m$5.5m
$26.2m
$11.8m
$4.0m
$2.8m
$9.1m
$39.3m
$20.1m
$0m
$10m
$20m
$30m
$40m
$50m
Snowball FY10 Merged Group Pro Forma Normalised
FY10
Merged Group Pro Forma Normalised
1HFY11
Normalisations¹ Shadforth Snowball
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New Holding Company Brand
• Combine Shadforth and Outlook into a single focused two segment (HNW & Mass Affluent) tight operating model, releasing synergies
• Combine the two ‘Best Advice’ adviser support, administration & funds management capabilities and expand franchise and third party adviser capability
• Implement merged group regulatory reform plans to protect / enhance margins and attack market with upgraded segmented services value propositions for clients and advisers
Integration Benefits
• Launch of Strategic Fixed Interest Portfolio (June 2011) to Shadforths clients
• Extend Managed Portfolio Service (MPS) to all advice channels
• Become RE of Shadforth core product issuance funds and if necessary of Snowball and Shadforth’s super and ordinary money wrap and other administration vehicles (await Government policy clarification)
• Refinement of multi- and single sector portfolios for group
FY12 Enhanced Offers
• Employee model acquisitions nationally (tuck ins)
• New advice communities / franchises (add-ons)
• Develop strategic services including review of:
– SMSF
– Portfolio construction
– Lending / broking
– Accounting & tax services
• Larger scale mergers
M&A
Develop non-aligned advice leadership Broaden services Drive industry consolidation
Merged group FY12 strategic initiatives
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Enhanced capacity for growth• Organic Advice
– Drive through current ‘bearish’ market where prospects have their hands in their pockets with targeted, segmented client-getting strategy and adviser training programmes
– Use capability of the merged group to profitably service multiple client segments, extending reach and effectiveness of current referrals, affinity relationships and marketing to centres of influence
– Benefit from upswing in flows from stronger performing equity markets
• Organic Products and Services
– Continue path of creating diversified revenue streams that capture margin across the value chain – increasing, capital effective returns from further scale
• Administration platforms
• Funds management (e.g. new global fixed interest strategic core fund)
• Other services (e.g. SMSF, tax and accounting)
• Multiple advice business models to attract new advisers, organically and inorganically, and provide effective succession solutions to advisers
• Focused and disciplined acquisition strategy to utilise scale and integrated reach
– Stronger balance sheet and experience to drive strategic and value accretive add-on and tuck-in acquisitions within risk appetite from current pipeline
– Proactively pursue larger scale, strategic and further transformational acquisitions
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Merged group board
Eric Dodd(Chairman, Independent, Non-Executive Director)
Over 35 years in the insurance and financial sectors. Former Managing Director of NRMA Insurance Limited and Chief Executive Officer of NRMA Limited. He also held senior positions within the financial services industry including CEO of MBF. He is currently Chairman of First American Title Insurance and Director of The Credit Corp Group
Sam Gannon(Non-Executive Director, Deputy Chairman)
40 years of industry experience, the founder and ex-Chairman of Shadforths and Gannon Growden Schonell Group. Former Australian Test cricket player
Graham Maloney (Independent, Non-Executive Director)
Over 35 years industry experience with various blue chip organisations across a wide range of financial disciplines. Last executive role was with Macquarie Group Limited where he provided capital and funding advice to some of Australia’s largest financial companies. Before that Group Treasurer for NAB
Peter Promnitz (Independent, Non-Executive Director)
Asia Pacific Region Head for Mercer. 37 years of industry experience
Jim Kilkenny (Executive Director)
Over 20 years industry experience. Former partner major accounting firm, leading adviser in Shadforths, QLD and founder of Kilkenny Rose
Tony Fenning (Managing Director)
20 years industry experience, ex-CEO Tynan Mackenzie, Godfrey Pembroke and Head of Retail Strategy & Private Bank at St George Bank. Led the merger and integration of Shadforth
Tony McDonald (Executive Director, Group CEO)
Over 20 years experience in financial services including in Australia and overseas; previously a lawyer with international firms. Director of the Investment Funds Association (forerunner to FSC). Joined Snowball in 2000
Our experienced board will support management in identifying and securing relevant opportunities to enhance the future value of Snowball
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Employees8%
HNW / Retail17%
Institutional10%
Management13%Outlook Advisers
1%
Shadforth Advisers40%
WPFG Advisers11%
Share register
• Enhanced free float and liquidity through planned sell down in 1H12 and staged release from escrow over 2 years
• Snowball’s current 8.6m performance rights will vest on completion of the transaction
• Post completion, there will be 727 million shares on issue and c. 1,155 shareholders
• Top 20 shareholders will hold 43.7% of shares
• The largest associated holding will be 8.7%
• A total of c. 60% of shares in the merged group will initially be subject to escrow2
• c. 12% of the merged group shares will be released from escrow in March / April 2012
• Shadforth shares released from escrow in mid 2012 and 2013 with planned structured sell down of Shadforth non-escrowed shares in 1H123
Merged group register compositionEnhancing liquidity
• Key advisers interests are aligned with the merged group through their direct shareholding and escrow arrangements, as well as restraints
Maintaining alignment
Free float profile
1. Free float calculated as a percentage of total shares outstanding2. Subject to ASIC relief3. Subject to regulatory approval
Shadforth171.9
Snowball124.5
Snowball86.3
Shadforth171.9
Shadforth171.9
726.6
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
At merger March / April 2012 Year 1 Year 2 Year 3
296.4
41% free float¹ 53% free float¹ 76% free float¹ 100% free float¹
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Understanding & managing the risksSpecific transaction risks• Execution – friendly, unanimously recommended merger, effected through a takeover; 61% acceptances as at 17 June 2011• Integration – plan in motion, experienced management teams and like business models – focus on maintaining business
momentum throughout this period
Operational risks• Key personnel – retention of key management and advisers. Strong management and adviser retention mechanisms across all
channels including culture, contractual restraints, equity ownership and escrow• Operational – long standing, strong compliance and risk management regime• Regulatory reform – both groups have several effective options to respond to spirit and letter of regulatory reforms (once
Government policy is clarified):– Multi-layered strategy: strong client relationships and regular touch, transparency of fees, grandfathering of
arrangements, resetting volume payments to fixed, renewable contracts, adopting responsible entity / trustee / operator status
Market risks• Earnings leveraged to market performance (up and down)
– Diversification of revenue streams– Approximately 81% of the merged group revenue is asset based revenue
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Merger update and timetable
Key events Date
Offer announced 26 May 2011
Bidder’s statement lodged with ASIC 3 June 2011
Bidder’s statement and Target’s statement despatched 6 June 2011
Offer opens 6 June 2011
Offer closes (Snowball reserves the right to extend) 8 July 2011
Expected completion (if 100% accept in Offer period) June/July 2011
Compulsory acquisition period if required July 2011
FY11 Results Announcement August 2011
Planned managed sell down September 2011
• As at the close of business 17 June 2011, the holders of 61% of Shadforth shares had accepted the Snowball offer to acquire all of the ordinary shares in Shadforth
• Shadforth Directors have accepted the offer, accounting for 13.2% of the total Shadforth shares on issue
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Summary
Transformational transaction for Snowball and Shadforth
Materially enhances scale, earnings, market position, capitalisation and free float
Unique combination creates one of Australia’s leading non-aligned financial advice and wealth management groups
Experienced team ready for changes to environment
Positioned for future growth
A unique investment opportunity
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APPENDIX
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Head of Group Portfolio Management
John Nunan
Head of Services / Products (“ServiceCo”)Carl Scarcella
CFO & Corporate ServicesLinda Fox
Head of Snowball Advice Groups
Sally Manion
Head of Shadforth Financial Group
Nick Bedding
Managing DirectorTony Fenning
Group Board of Directors
Group CEOTony McDonald
Audit & RiskCommittee
Remuneration Committee
Board and Management Team Structure
The merged group has a fully fledged and experienced team to operate across the value chain
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Shadforth: Key financial informationHistorical balance sheet
• Solid 1H11 profit and cashflow generation:− Revenue of $43.3m− Operating EBITDA of $11.8m
• Significant embedded spend on transformational M&A, preparation for M&A and generational transition in adviser remuneration scheme
• Working capital of $10.3m – after special dividend of $3.0m in October 2010 and $13.7m share buyback in December 2010
• Regulatory capital requirement of $5.1m in Dec 2010, dropping to $0.2m following outsourcing of stockbroking back office to UBS, however plan to become Responsible Entity of strategic core funds in FY12 will likely bring regulatory capital back to the Dec 2010 level
$m 30 June
201031 December
2010
AssetsCash and cash equivalents 32.8 15.3Intangibles 45.8 44.9Other 15.0 14.5Total assets 93.6 74.8
LiabilitiesInterest-bearing loans - -Provisions 5.5 5.9Other 15.6 9.6Total liabilities 21.1 15.5
Net assets 72.5 59.3
$m FY10 1H11
FUA ($b) 8.0 8.6
Revenue 84.5 43.3
Operating expenses (58.3) (31.5)
Operating EBITDA 26.2 11.8
Interest Income 1.0 0.7
Depreciation (0.6) (0.3)
Amortisation (1.8) (0.9)
Net Profit before income tax 24.8 11.3
Income tax (7.6) (3.9)
Net Profit after income tax (“NPAT”) 17.2 7.3
Historical P&L
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Pro forma financials – 1H11 P&L
• 1H11 Normalised Pro Forma EBITDA of $20.1m
• Effective from 1 January 2011, Snowball acquired 100% of WPFG’s Cleveland practice, which is expected to deliver an EBITDA contribution of $0.3m in 2H11
• Included in Shadforth’s 1H11 expenses are reinvestments in the business totalling $0.3m, comprising external fees related to the response to the regulatory reforms and post-merger corporate simplification and integration
• Shadforth and Snowball both anticipate their 2H11 underlying earnings to be similar to 1H11 results
$’000 Snowball Shadforth Merged group
Revenue 18,350 43,288 61,638
Share of associates’ profits 252 - 252
Expenses (13,144) (31,464) (44,608)
EBITDA 5,458 11,824 17,282
One-off, non operational items1 1,260
Impact of Symetry acquisition2 1,024
Strategic restructure and integration costs 514
Normalised Pro Forma EBITDA 20,081
1. One-off and non-operational items include acquisition costs, loss on sale of assets and one-off make good costs incurred2. Symetry was acquired by Snowball on 1 October 2010. Had Symetry been owned by Snowball for the period between 1 July 2010 to 30 September 2010, its
additional contribution to EBITDA would have been $1.0m23
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Pro forma financials – 1H11 balance sheet
$’000 Snowball ShadforthPre-transaction
adjustmentsTransaction
adjustmentsMerged group
Cash and cash equivalents 13,769 15,297 (7,378)2 (4,657)3 17,031
Intangible Assets 87,458 44,944 - 1,7121 134,114
Other Assets 15,144 14,511 - - 29,655
Total Assets 116,371 74,752 (7,378) (2,945) 180,800
Borrowings 18,980 - - - 18,980
Other Liabilities 24,401 15,463 (932)2 - 38,932
Total Liabilities 43,381 15,463 (932) - 57,912
Contributed Equity 74,534 46,673 13,8202 (76,827)4 58,200
Equity issued on implementation of Merger - - - 69,5824 69,582
Reserves (4,543) 347 (42)2 4,3474 109
Retained Profits 2,999 12,269 (20,223)2 (47)3,4 (5,003)
Total Equity 72,990 59,289 (6,446) (2,945) 122,888
1. Merged group assumes a reverse acquisition whereby for accounting purposes, Shadforth is deemed to be the acquirer2. Pre-transaction adjustments predominantly relate to payment of interim dividends by Snowball and Shadforth, Shadforth share buyback and vesting of
performance rights by Snowball3. Costs relating to this transaction of $4.7m4. Acquisition-related accounting adjustments. Full details are included in the Bidder’s Statement released by Snowball24
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Supporting financial information
1H11, in $’000 Snowball Shadforth Merged group
EBITDA 5,458 11,824 17,282
Interest income 178 683 861
Interest expense (725) - (725)
Depreciation expense (150) (345) (495)
Amortisation expense (1,565) (900) (2,465)
Net Profit before income tax 3,196 11,262 14,458
Income tax (1,024) (3,929) (4,953)
Net Profit after Income Tax (“NPAT”) 2,172 7,333 9,505
One-off, non operational items 882
Impact of Symetry acquisition 717
Strategic restructure and integration costs 360
Normalised Pro Forma NPAT 11,464
• One-off and non-operational items include acquisition costs, one-off loss on sale of assets and one-off make good provisions
• Symetry contributed to Snowball’s earnings from 1 October 2010. For the period between 1 July 2010 to 30 September 2010, Symetry NPAT contribution would have been $0.7m
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