Eurocontrol Technics Ord EUCTF

RE:The (widely misunderstood) 5% Royalty

[RE38]

kidl2 thanks for this post. If you're a representative from EUO or have been speaking directly to them in the making of this post you should just come clean and tell us so. Becauae there's no way an outside shareholder should read into this much detail based off this one line you pointed out in the NR. If they are using you to help clarify the NR that's fine, though I think an update to this recent investor presentation that clearly outlines the details of the deal is needed:

https://www.eurocontrol.ca/data/presentation/files/EUO-Presentation-August-2015.pdf

kidl2 wrote: I’m sure I wasn’t the only one who was a little “confused” by the somewhat low royalty rate vis-a-vis the annual guarantee of $1.5 Mil which translates to minimum sales of $30 Mil requiring a 5-fold increase based on current sales ($8 Mil less `25% Xenemetrix). Certainly not inconceivable given SICPA’s “might” but still a pretty tall order especially short term.

Well, as it turns out, the order isn’t nearly as tall as it appears to be once we pay attention to this line in the NR:
“5-per-cent royalty payment on all future GFI contracts, inclusive of both marker and logistics”

“Logistics” refers to the on-location services of adding and monitoring the “marker”. This service is NOT part of current contracts as it’s supplied by 3rd parties and thus NOT reflected in EUO’s (GFI’s) current revenues but WILL BE part of future contracts thanks to SICPA’s already existing infrastructure (3,000 employees in 200 countries).

Here comes the best part ... Logistics services typically run 2 to 3 times GFI’s current contract value and can go as high as 5 times depending on type of product marked, size or country etc.

So, if we apply a conservative factor of 2.5, GFI’s “real” current contract value is not some $6 Mil. It’s actually somewhere around $21 Mil (for the purpose of projecting future contract value).

Not suggesting that the current contracts will be re-written but it sheds a completely different light on future contract values and the $30 Mil required for the minimum royalty goes from “lofty” to “low hanging fruit”.

Happy trading, investing, whatever ...

PS: This little bit of due diligence was a co-production. Many thanks to R and A.