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Chairman Update 2016

Dear Shareholder,

Less than 2 years ago the Board embarked on a growth strategy for eStar.   The initial steps were to appoint Andrew Buxton as CEO, with a remit to grow eStar into a scalable international technology business.   The last year has seen major investments in that growth with the key elements being the appointment of a senior leadership team and the re-establishment of the Melbourne office, which now employs 11 people.

The 2016 financial year results reflect the investment for growth with the additional costs incurred resulting in a pre-tax loss of $1,879,187.    In addition an interest cost of $ 52,666 was incurred. Total sales grew from $5,467,189 to $5,667,285 (3.7%). Revenue growth was still significant, principally driven from the existing client base. On a like for like basis, growth with existing clients was 34% year on year. This is when the loss of income from Ezibuy is adjusted for.

The eStar team has been working through a sale process for the past four months with a major tier one client in Australia.   This process will come to a conclusion in early August. We are the leading vendor and are currently completing a due diligence process with a professional services firm out of Australia.   In significance, this deal is far in excess of any eStar has signed historically. The business is in the position to be successful in winning this client due to the work on the growth strategy. The impact of this transaction in FY17 and FY18 would be to confirm the establishment of eStar in the e-commerce sector.

The due diligence report did highlight the small size of our business relative to the prospective client, and more particularly the two multinational companies that we were competing against. They identified that there was some key personnel risk, given our number of employees. The Board has formed the opinion that as Andrew Buxton is wishing to invest further in eStar, by way of ownership, that it is in the company’s interest to issue shares to Andrew. There is a resolution to that effect for shareholders to consider and approve in the AGM agenda.

The Board of eStar has adopted two forecasts budget scenario’s for 2017, one with this prospect and one without.   Should eStar be successful the expectation is that revenue growth in F17 would be over 50% and it has a significant impact on profitability, if eStar does not win this major contract then the expectation is that growth would be 15-25% in 2017.

Given the scenarios’ outlined above the Board thought it prudent to ensure there was finance available for either.  eStar has entered into a loan agreement with Staley Holdings providing working capital of up to $2,000,000. The loan agreement documentation has been completed and Staley Holdings has registered a General Security Agreement (GSA) over the company. Staley Holdings is a company owned and controlled by the chairman of eStar.

In summary, the past financial year was a watershed year for the company. We have announced a significant loss, in part funded by an under-written rights issue. This loss reflects a conscious investment in people and processes that the Board believe are likely to reward shareholders with future growth in value. We look forward to the current year with real optimism.

I look forward to further updating you with confirmation of positive news at the company’s AGM on Monday 8th August.

 

Best Regards,

Stuart Nattrass

Chairman Estaronline Limited

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