(A$000s) FY11 FY12 change %
eBItdA 17,369 24,082 38.6%
Movement in trail commission receivable (23,230) (29,979) 29.1%
Movement in other net working capital items 1,944 4,978 156.1%
Other non-cash items 658 557 (15.3 %)
Income tax paid – – –
operating cash flow (3,259) (362) 88.9%
Capital expenditure (4,007) (13,404) 234.5%
Acquisition of business (net of cash acquired) – (31,348) n.m.
net cash flows before financing (7,266) (45,114) 520.9%
Net interest (paid) / received 841 (550) n.m.
Net proceeds from borrowings – 35,000 n.m.
Net proceeds from the issuance of Shares 16,486 13,177 (20.1%)
net cash flow 10,061 2,513 (75.0%)
EBITDA to operating cash flow conversion (18.8%) (1.5%)
4.6.4.2.4 Net cash flow
Operating cash flow
Operating cash flow improved by $2.9 million from ($3.3 million) in FY11 to ($0.4 million) in FY12, as upfront fee revenue growth (64.6% growth in FY12), outstripped growth in trail commission revenue (45.1% growth in FY12), driven by the increased contribution of new businesses such as Broadband and Home Loans, in addition to the contribution of the newly acquired InfoChoice business. This is reflected in the improvement in EBITDA to operating cash flow conversion from (18.8%) in FY11 to (1.5%) in FY12.
The movement in net working capital in FY12 was driven primarily by the growth in upfront receivables, which increased approximately $10.2 million, reflecting strong upfront fee revenue growth of 64.6%, which includes the contribution of the newly acquired InfoChoice business. In addition the current portion of the trail commission receivable increased by $6.3 million, reflecting continued growth in trail commission revenue (up 45.1% on FY11). This increase in net working capital was partially offset by an increase in trade payables of approximately $11.7 million, reflecting the strong growth in marketing activity and headcount, as well as timing of payments.
Capital expenditure
In FY12, capital software development costs increased to approximately $4.9 million, consisting of further investments for the Energy, Money and Home Loans business units as well as the new generation of the iConnect platform. The majority of the remaining increase in capital expenditure comprised leasehold improvements of $6.6 million and computer and office equipment of $1.4 million relating to the move to the new Cheltenham campus.
Acquisition of business
In November 2011, the Company acquired InfoChoice Limited for $33.5 million. At the date of acquisition, InfoChoice had $2.2 million of cash, which was included in the net assets acquired in the transaction.
Financing cash flow
Financing cash flow increased as a result of the draw down of $35.0 million from debt facilities for the purpose of acquiring InfoChoice Limited. In addition to the draw down of financing facilities, approximately $13.2 million of options were exercised in FY12.
4.6.5 Forecast Financial Information
The Forecast Financial Information has been prepared on the basis of the significant accounting policies adopted by iSelect, which are in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. An extract of these policies is disclosed in Appendix 1. It is assumed that there will be no changes to Accounting Standards, the Corporations Act 2001 or other financial reporting requirements that may have a material effect on iSelect’s accounting policies during the forecast period.
The Forecast Financial Information is based on a large number of best estimate assumptions concerning future events as set out below. iSelect believes that it has prepared the Forecast Financial Information with due care and attention and considers all assumptions when taken as a whole to be reasonable at the time of preparing this Prospectus, including each of the general assumptions set out in Section 4.6.5.1 and specific assumptions set out in Section 4.6.5.2. The Forecast Financial Information in this Section 4 should be read in conjunction with the risk factors set out in Section 5 and the other information contained in this Prospectus. However, the actual results are likely to vary from those forecast and any variation may be materially positive or materially negative. The assumptions on which the Forecast Financial Information is based are by their nature subject to significant uncertainties and contingencies, many of which are outside the control of iSelect and its Directors, and cannot be reliably predicted.
Accordingly, none of iSelect, its Directors or any other person can give any assurance that the Forecast Financial Information or any prospective statement contained in this Prospectus will be achieved. Events and outcomes might differ in quantum and timing from the assumptions, with a material consequential impact on the Forecast Financial Information.
Investors are advised to review the best-estimate assumptions set out below in conjunction with the description of the basis of preparation of the Forecast Financial Information above, and the sensitivity analysis in Section 4.7 and they should be read in conjunction with the risk factors set out in Section 5 and other information in this Prospectus.
4.6.5.1 General assumptions
In preparing the Forecast Financial Information, the following general assumptions have been adopted for the forecast period:
• there is no material change to the competitive operating environment in which iSelect operates;
• there is no significant deviation from current market expectations of broader economic conditions and consumer sentiment relevant to the Australian e-commerce industry and online comparison sector;
• there is no material change in the legislative regimes (including taxation) and regulatory environment in the areas in which iSelect and its key Product Providers operate;
• there are no material amendments to any of iSelect’s key Product Provider contracts;
• there are no material terminations of agreements with Product Providers;
• there is no loss of key management personnel and iSelect maintains its ability to recruit and retain required personnel;
• there is no change in iSelect’s capital structure. The expected changes flowing directly from the Offer as set out in or contemplated by this Prospectus are presented within the Pro Forma Adjustments included in this Section 4 and are not included with the Forecast Financial Information;
• there are no material acquisitions or disposals, restructuring or investments;
• there will be no full year dividend paid in FY13F or interim dividend paid in 1H FY14F; and
• the Offer proceeds in accordance with the timetable set out on page 3 of this Prospectus.
4.6.5.2 Specific assumptions
The following Section presents a summary of specific assumptions applied when preparing the Forecast Financial Information for iSelect. Further detail on these assumptions is provided in Sections 4.6.1 Table 4.10 (Consolidated key operating metrics), 4.6.3 Table 4.15 (Segment financials), 4.6.5.3 (Management discussion and analysis for year ended 30 June 2013 compared to year ended 30 June 2012) and 4.6.5.4 (Management discussion and analysis for the six months ending 31 December 2013 compared to six months ended 31 December 2012). 4.6.5.2.1 Revenue assumptions
The Forecast Financial Information is based on the following key revenue assumptions:
• Leads growth is based on historical run-rates adjusted for known macroeconomic conditions, regulatory impacts (e.g. means testing for private health insurance), and expected return on forecast marketing spend;
• Conversion ratios (excluding Money) are based on historical run rates plus the expected improvements due to the maturity and/or implementation of operational initiatives over the forecast period;
• Gross annual premiums and/or product prices are based on historical run rates, adjusted for expected increases in underlying premiums and/or product prices and expected changes in product mix; and
• Revenue per sale is based on expected changes in gross annual premiums and/or product prices, adjusted for expected changes to Product Provider mix.
• No change in the present value of expected cash flows relating to the trail commission receivable has been forecast. The Company engaged Deloitte Actuaries & Consultants Limited to perform an expert valuation of the trail commission receivable portfolio at 31 December 2012. The expert valuation methodology includes anticipated future changes in the key input assumptions. Further detail on the expected sensitivity of changes to key revenue assumptions is provided in Section 4.7.
4.6.5.2.2 Margin and expense assumptions
The Forecast Financial Information is based on the following key margin and expense assumptions:
• Staff costs are built up in detail for each individual using known salary information and known wage increases (average increase of 3.0%);
• Direct marketing costs are forecast based on expected spend required to support the relevant lead forecasts, in line with run rates, adjusted for expected market demand;
• Overheads (excluding staff costs) are forecast based on the most recent run rate, with some items considered separately if there are any known changes;
• Incremental costs associated with being a company listed on the ASX (above those already incurred by iSelect as a non-listed public company) are estimated to be $0.5 million per annum, which has been applied to FY13F on a pro rata basis (from the estimated date of listing on the ASX to 30 June 2013). Incremental costs for 1H FY14F have been applied on a pro rata basis, except where the entire cost is expected to be incurred in that half (e.g. half year review fees and AGM). The annualised cost of these incremental costs are included within the Pro Forma Adjustments contained in this Section 4 and are not included in the Forecast Financial Information. For further detail on the composition of these costs, refer to Sections 4.3.1 and 4.5.2;
• Depreciation and amortisation are forecast based on existing depreciation and amortisation rates and expected capital expenditure for the forecast period; and
• CPI has been applied where appropriate at a rate of 3.0% per annum. 4.6.5.3 Year ending 30 June 2013 compared to year ended 30 June 2012