Challenger Acquisitions (CHAL.L)

Home , Great Wheel, Great Wheel Corporation, Peeking Heights, Star of Nanchang

7 December 2015

LeisureChallenger & Attractions was formed as a vehicle to undertakeAcquisition acquisitions of ofStarneth highly prospective completed companies within the “attractions” sector of the leisure market. The company recently acquired the Starneth Group which specialises in the design and engineering of large observation wheels and structures. Starneth is currently a providerChallenger of technical was support formed services as a to vehicle the New to undertakeYork Wheel acquisitions project, a development of highly prospective in which Challenger also has a direct equity interest. Part ofcompanies Challenger’s within core the strategy “attractions” is to acquiresector ofsignificant the leisure equity market. interests The company in additional recently iconic giant observation wheel projects around the world.acquired the Starneth Group which specialises in the design and engineering of giant observation wheels. Starneth currently provides technical support services to the New York Wheel project, a development in which Challenger has a direct equity interest. We believe that Starneth’s activities coupled with a very exciting project pipeline are highly complemented by Challenger’s strategy to acquire equity interests in additional iconic giant observation wheel projects around the world.

Source: LSE  Challenger raised £1.1m upon admission to the LSE in February 2015 and a further £3.0m through the issue of convertible notes in April. The company subsequently Market data invested US$3.0m for a 2.463% equity stake in the New York Wheel Project which is Price (p) 38.0 expected to open in mid-2017. 12m High (p) 78.5 12m Low (p) 13.0  Challenger completed the acquisition of the Starneth Group for €7.2m in July 2015. We Shares (m) 13.3 believe that Starneth is the only global provider of turnkey design and engineering Market Cap. (£m) 5.1 solutions in the highly specialised giant observation wheel sector. EV (£m) 4.5  The acquisition excluded two subsidiaries; Starneth B.V. and Starneth LLC. Starneth B.V. EPIC CHAL is currently engaged in legal arbitration in Singapore with a substantial claim against Free Float (%) 45% Hyundai related to the Dubai-I project. Starneth LLC is part of the joint venture which Market LSE has been contracted to design, engineer and supply the giant observation wheel for the New York Wheel Project and could not be acquired for contractual reasons. Challenger Description retains its involvement in this project through the provision of technical services to Challenger is an investment vehicle Starneth LLC from a wholly owned subsidiary. formed to undertake value adding  The iconic observation wheel market is characterised by a small number of high value acquisitons in the 'attractions' sector of the leisure market. The company is contracts. Challenger believes that a major project is completed every 2-3 years and currently focused on the global market the market could consist of up to 10 such projects over the next 10 years with a for giant observation wheels. potential value of at least US$1.0bn. With at least 25 opportunities in Starneth’s project pipeline and discussions regarding several major projects close to fruition, we believe that the potential for winning exciting new mandates is huge. Directors and Company information Mark Gustafson Chairman  The company is in advanced discussions to provide turnkey project management Markus Dieter Kameisis CFO services for a US$121m iconic wheel project in Jakarta in Indonesia. The group is also Gert Rieder Non-Exec conducting negotiations with regards to 24 other potential giant observation wheel +1 604 454 8677 projects. www.challengeracquisitions.com  These projects provide the prospect for near term revenue generation. However, highly leveraged upside will be derived from direct equity ownership in major projects Analyst through which Challenger has the potential to derive highly significant long term Barney Gray income streams. +44 (0)207 186 9950 At its core, we believe that Challenger represents a highly attractive management play. In particular, the group has retained Starneth’s founder, Chiel Smits, who has unrivalled experience in the sector and is the architect of Starneth’s growth. This expertise is complemented hugely by the existing Challenger team which has wide experience in the acquisition of funding for major industrial and commercial projects.

Year end Dec (£000) Dec-15E Dec-16E Dec-17E Dec-18E Revenue 3,250 36,724 63,954 82,067 EBITDA -386 4,191 7,991 11,313 Profit (loss) before tax -638 3,942 8,003 11,421 EPS fully diluted (p) - 17.8 29.4 37.8 Net cash 594 5,946 13,960 24,763

7 December 2015

Introduction to Challenger Challenger Acquisitions Limited (LSE: CHAL) is a holding company for the recently acquired Starneth Group which specialises in the design and engineering of giant observation wheels and structures. Prime examples of these include the London Eye which opened in 2000 and the upcoming New York Wheel which, when completed in mid-2017, should be the tallest of its kind in the world. Challenger also has a 2.463% equity interest in the New York Wheel. This investment of US$3.0m was completed in May 2015. The New York Wheel Project which is located on Staten Island includes a 630 foot high observation wheel with 36 viewing capsules. In addition, the wider project includes 68,000 square feet of retail and leisure space and a large parking garage for 950 vehicles.

Recent landmarks Challenger was incorporated in November 2014 as an investment vehicle with a clearly stated aim of making acquisitions in the leisure and entertainment sectors. At this stage, the company outlined its intention to focus specifically on acquiring business in the “Attractions” sector. Challenger was admitted to trading on LSE in February 2015 raising initial capital of £1.1m before expenses.

Co-operation agreement with Starneth In March 2015, Challenger announced the landmark step of signing a cooperation agreement with Starneth Holding B.V. As outlined previously, Starneth and its subsidiaries specialise in the design and engineering of giant observation wheels and structures. Of particular interest to Challenger was the fact that the Starneth team is comprised of several people who were involved in the design and construction of the London Eye. In particular, the Starneth CEO, Chiel Smits was the project manager for the London Eye project. Mr Smits’ detailed biography and those of his colleagues on the Challenger management team can be found in Appendix B.

Initial funding At the end of April, Challenger raised approximately £3.0m through the issue of convertible notes. These funds were earmarked for the purposes of future acquisitions. An initial tranche of approximately £2.2m was received in early May and the balance of £850,000 was received by July 2015. These notes accrue interest of 12% per annum payable quarterly or upon conversion in cash or ordinary Challenger shares. The shares can be converted at either a fixed price of 50p or the market price at the time less 7.5%. Challenger has the option to redeem the notes at any time at a 10% premium anytime that the market price is below the fixed conversion price of 50p.

Investment in the New York Wheel As a result of the funding conducted in the previous months, Challenger was able to participate as an investor in the New York Wheel project. The company invested US$3.0m for a 2.463% interest in New York Wheel Investor LLC at the end of May 2015. Under the terms of the investment, Challenger may be required to make further capital contributions in the event of a cash shortfall during the construction phase of the project. However, given the comparatively modest initial interest that Challenger has acquired, we would not expect this to be a significant contribution.

7 December 2015

Acquisition of Starneth Challenger completed the acquisition of the principal operating businesses of Starneth in mid-July. On 15 July 2015, Challenger entered into a Share Purchase Agreement (SPA) with the sellers:  Smits International B.V.  Yamapro Trading - F.Z.E.  Systems Engineering International, Inc. The SPA related primarily to the acquisition of all the shares in Starneth Holding B.V., and its subsidiary companies. These are outlined in the pre-acquisition group structure below. At this stage, it should be noted that the post-acquisition group has several significant differences to the model below.

Starneth: Pre-acquisition structure

Source: Challenger Acquisitions

Consideration The total consideration under the SPA was equivalent to €7.2m in cash and shares plus a variable component. As the table below depicts, €1.25m was paid in cash upon closing and two further cash payments of €1.25m will be made on the first and second anniversary of the initial closing date. The balance of the fixed consideration will be settled in Challenger shares. A total of 1,100,000 Challenger shares were issued to the sellers upon closing and two identical instalments will be made on the first and second anniversary of closing. It should be noted that all the Challenger shares already issued and those to be issued to the sellers are valued at 75p per share, a significant premium to the share price prior to suspension. Applying a Euro/Sterling exchange rate of approximately €1.40 to the Sterling valuation of £2.475m for the equity component of the acquisition implies a valuation of €3.45m for the shares. This brings the aggregate total up to €7.2m as per the original news release.

7 December 2015

Summary of the SPA terms

Item Consideration Notes Total consideration (€) 7,200,000 Cash instalment (€) 1,250,000 Cash paid on closing (paid) Cash instalment (€) 1,250,000 1st anniversary (c. 16 July 2016) Cash instalment (€) 1,250,000 2nd anniversary (c.16 July 2017) Total cash component (€) 3,750,000 Cash component Shares component 1,100,000 Shares issued on closing (paid) Shares component 1,100,000 1st anniversary Shares component 1,100,000 2nd anniversary Share value (GBp) 75p Value of equity component (£) 2,475,000

Source: Challenger Acquisitions, RNS

Variable component provides leverage to the sellers The deal incentivises Starneth significantly given that 30% of the consolidated EBITDA of the acquired companies in excess of €1,267,000 is payable to the sellers over the next three financial years. This variable component will be paid in Challenger shares valued at 75p per share after the end of each twelve month period.

Current equity structure of Challenger At publication of this report, Challenger has approximately 13.3 million shares in issue. The company also has 1.345 million options in issue of which 615,000 are held by employees and consultants to the company and the balance is held by Directors of the company. We have included the further tranches of shares payable for the Starneth acquisition in our table. However, the notional diluted equity number is likely to be fluid over the coming years given that Challenger is likely to issue shares as part of the variable component of the Starneth acquisition consideration, further acquisitions as yet unnamed and also for the conversion of outstanding convertible notes. Assuming that this tranche of equity amounts to 6,134,400 additional shares (assuming a conversion price of 50p per share), the existing diluted equity structure of the company is outlined below

Equity structure of Challenger (2015)

Item Equity Notes Number of shares currently outstanding 13,325,681 Options outstanding 1,345,000 Strike price of 40p Current diluted equity 14,670,681 Starneth Tranche 2 (1st anniversary) 1,100,000 Implied value of 75p Starneth Tranche 3 (2nd anniversary) 1,100,000 Implied value of 75p Convertible notes (Convert within 12 months) 6,134,400 Notes convert at 50p Fully diluted equity 23,005,081

Source: Challenger Acquisitions, RNS

7 December 2015

Equity structure forecasts Our forecast EPS numbers are based on the equity structure outlined below. We have made a number of assumptions with regards to the growth of Challenger’s equity base. These are:  Tranche 2 of the equity components of the Starneth acquisition cost is paid on or around 16 July 2016  Tranche 3 of the equity components of the Starneth acquisition cost is paid on or around 16 July 2017  The convertible notes amounting to £3,067,200 convert prior to May 2016 at 50p implying the issue of 6,134,000 new shares  Starneth EBITDA exceeds the earn-out threshold of €1,267,000 (assume £905,000 at €1.40/£1.00) for the duration of the three year agreement. Please note the period for which the earn-out is applicable runs over the twelve months ended July. As such, we expect that the shares payable in regard to the 1 July 2015 – 30 June 2016 period will be issued in Q4 2016. Shares for the 2016/17 period will be issued in Q4 2017 and so forth for the final year of the agreement in 2018.

Forecast equity structure

Item 2015 2016 2017 2018 Average no. shares 13,325,681 17,688,256 21,754,487 24,171,000 Options 1,345,000 1,345,000 1,345,000 1,345,000 Starneth tranche 2 1,100,000 1,100,000 0 0 Starneth tranche 3 1,100,000 1,100,000 1,100,000 0 Convertible note 6,134,400 6,134,400 0 0 Starneth earn out 0 299,178 1,555,706 2,624,137 Year-end basic 13,325,681 20,859,259 23,514,965 26,139,103 Year-end fully diluted 23,005,081 23,304,259 24,859,965 27,484,103

Source: Challenger Acquisitions, Shard estimates

Based on the current 13.3 million shares in issue, the current shareholder base of Challenger is outlined below.

Major shareholders in Challenger

Shareholder Holding GSC Global Fund 27.8% YA Global Master Ltd 9.9% Smits International B.V. 6.6% Quadrum Strategic AG 6.5% Mark Gustafson 3.8% Gert Rieder 0.8% Markus Kameisis 0.8%

Source: Challenger Acquisitions

7 December 2015

Evolution of Starneth Starneth (Star + Netherlands) was formed as Starneth Ltd in 2007 in order to provide design and engineering services for the giant observation wheel planned by Dubai Land. Starneth Ltd was incorporated in Dubai at the time with two owners, Theo Jansen and Chiel Smits. However, Messrs Jansen and Smits left the company in 2008 as the global financial crash halted the project. Starneth Ltd ceased trading in 2008 and has been dormant ever since. Although still owned by Mr Jansen, it does not form part of the pre or post-acquisition Starneth Group. In December 2008, an existing dormant company called Hydrospex Engineering B.V. owned by Dutch entity Shining Star B.V. was renamed Starneth B.V. At this time all the shares were owned by Shining Star with the beneficial owner being Mr Tjerko Jurgens. Starneth B.V. was engaged on a new project called Dubai-I which was a project to construct a giant wheel on the Bluewaters Island in Dubai. Project agreements for this were signed in 2013. Mr Jurgens funded Starneth B.V through Shining Star until April 2012 when the shares owned by Shining Star were exchanged for debt and distributed between three shareholders:  Smits International B.V. (60%)  Mr Rijinders (20%)  Mr Karssen (20%)

In December 2012, Mr Rijinders transferred a 15% interest to Smits International and the balance of 5% to Karppa B.V., a company controlled by Mr Karssen. Karppa was acquired by a business owned by the Smits family in February 2014 and by 25 November 2014, all Starneth shares were owned and controlled by Smits International.

Significant structural changes to the Starneth Group Starneth B.V. demerged Prior to Challenger’s acquisition of Starneth in July, Starneth B.V. was demerged into two legal and separate entities under Dutch law. These were Starneth B.V. and Starneth Europe B.V. It is very important to note that Starneth Europe B.V. along with its employees and pipeline of business associated with the original Starneth B.V. formed part of the acquisition. However, Starneth B.V., which was excluded from the acquisition, retains all the potential legal benefits and liabilities associated with the Dubai-I arbitration proceedings (See Appendix A).

Incorporation of Starneth America LLC Starneth America LLC is a newly formed US entity set up specifically to explore and develop new projects in North, Central and South America. The entity was set up specifically to provide technical and support services to Starneth LLC, which was also excluded from the acquisition. Starneth LLC is a 100% owned subsidiary of Starneth B.V. Due to a requirement from the City of New York to provide a financial guarantee for the complete design, procurement, construction, testing and start-up of the New York Wheel, the pre-acquisition Starneth Group entered into a joint venture (JV) with the considerably larger and financially substantive global engineering company, Mammoet USA North Inc. Starneth LLC was incorporated in March 2013 to undertake the Starneth Group’s remit on the New York Wheel through the JV Company, Mammoet-Starneth LLC which in turn was awarded the contract for the design, manufacture and construction of the New York Wheel.

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The JV was conducted on the following basis:  Starneth LLC would be responsible for the design of the wheel portion, including the supply of the drive system;  Mammoet USA would generally undertake the erection of the New York Wheel;  All remaining activities including management and all procurement are to be undertaken by both members of the JV. As outlined previously, Challenger was not permitted to acquire Starneth LLC as a consequence of contractual arrangements in the Mammoet-Starneth LLC JV. As such, Challenger does not have access to the agreements in place between the Mammoet- Starneth LLC JV and Starneth LLC regarding the New York Wheel. The Collaboration Agreement between Starneth LLC and Starneth America LLC allows Starneth LLC access, if required, to additional technical and support services in order to meet its own contractual obligations with respect to the New York Wheel. As the majority of engineering and design work has already been completed and billed to the joint venture, the ongoing work is likely to relate predominantly to the procurement of items such as the drive system and the capsules and other project management services which could be provided by Starneth America LLC under the Collaboration Agreement on a typical charge-out basis. Madison Capital Markets LLC has the right to take Starneth LLC to arbitration proceedings in the US (See Appendix A). However, this will not impact Challenger given that Starneth LLC is not owned by Challenger Acquisitions.

Starneth LLC wound up after the project is completed It has been agreed in the Collaboration Agreement that Starneth LLC will remain active only for as long as its outstanding commitments on the New York Wheel will require and will not be used for any current or future projects. As of 15 July, the post-acquisition Starneth Group as wholly owned by Challenger Acquisitions is now represented by the chart below.

7 December 2015

Post-acquisition group structure

Source: Challenger Acquisitions

*Note that Starneth retains its involvement in the New York Wheel Project through the provision of technical services to Starneth LLC from Starneth America LLC.

7 December 2015

The Starneth business Starneth and its subsidiaries, now under the Challenger umbrella, provide a range of services to developers of giant observation wheels and structures. Depending on the specific characteristics of a project, Starneth’s services include: Predevelopment services: For projects that are being advanced by a local developer, the Starneth team provides initial conceptual ideas on the scope and requirements for a potential project. The Starneth team gets involved in discussions with the land owner or leaseholder on the site where the wheel would be located. In some cases, engagement with local political leaders and special interest groups is also required. A Starneth Group representative may also be asked to attend meetings with potential funding sources. Technical and support services: For a fully funded project with an already appointed project manager in place, Starneth will act as a subcontractor for the design and engineering element of a major project. Services provided would include providing technical expertise in relation to the design, engineering and procurement of a giant observation wheel or structure. Turnkey project management services: Starneth will also act as project manager for fully funded projects in order to oversee the entire construction of the project. This role will include all design, engineering and construction services. In such a role, Starneth is compensated as the project manager with the responsibility to appoint and manage multiple sub-contractors over the life of the project. Project manager and equity owner in the project: In this particular role, Starneth is appointed project manager and also partakes as a partner in the equity financing for the project. This role provides Challenger with specific opportunities to participate in future projects as an equity partner and Starneth is also compensated for its role as project manager.

Starneth wheel designs Starneth’s clients are represented by companies specifically formed to develop giant wheel projects in addition to local municipalities’ intent on providing a significant revenue generating attraction for tourists and local residents. Starneth provides a core range of giant wheel designs which include: Iconic Wheel: A design with a transparent structure with cable spokes and ovoid glass enclosed viewing capsules. This is the primary choice for many developers and sizes are available from 100 metres diameter and larger. Bravo Wheel: Different from the Iconic Wheel in that the spokes are tubular and the capsules are smaller and round in shape. This choice ranges from sizes between 90 and 135 metres. Spider Wheel: A design without an outer rim. It also includes round mechanically driven capsules smaller than those of the Bravo Wheel. The Spider is available from 80 metres upwards. Free Form Wheels: This is a concept design which can take any form to suit the clients’ specifications. The sizes compare with the Iconic Wheel but with smaller capacity capsules. Challenger notes that the basic giant wheel concept is based on long standing designs available in the public domain and is not capable of being patented. However, depending on clients’ specific requirements, Starneth’s designs are often unique.

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Revenue streams As is evident from the suite of services that Starneth offer, the group has the potential to generate several income streams from future projects. For turnkey project management provision, it is typical that Starneth would receive 10-15% of the value of a contract as a stage one payment with later staged payments received as the project progresses to completion. Similarly, Starneth would be contractually remunerated by third party project managers in the event that the company provided subcontracted design and engineering services to other qualified project managers. The equity participant stakes in major projects represent considerably longer term revenue generation opportunities but with significant potential upside. It is likely to be at least five years before Challenger receives income from its equity stake in the New York Wheel as the senior debt component of the financing of the wheel must be repaid first. However, if visitor numbers of the New York wheel are in line with projections, it is likely that Challenger will be the recipient of a highly attractive annual revenue stream with considerable longevity.

Historical financials The income statement relating to the Starneth Group prior to acquisition by Challenger provides a stark example of the income growth available from participation in only a small number of projects. It should be noted clearly that the revenues generated between 2012 and 2014 relate to the Dubai-I and New York Wheel projects which were operated by Starneth B.V. and Starneth LLC (through a JV with Mammoet) respectively. As outlined in Appendix A, both parties are, or may become, involved in legal disputes and are not part of the Challenger group as of July 2015. As it stands, payments from Hyundai to Starneth B.V. were terminated at the end of 2014 pending legal arbitrage in Singapore. However, Starneth LLC continues its involvement with the New York Wheel and Starneth America LLC provides technical services to Starneth LLC through a contractual agreement. As outlined previously, all future projects in the Americas will be developed through Starneth America LLC which remains part of the Challenger Group. Please note that the pre-acquisition Starneth income statement, balance sheet and cash flow statements can be found in Appendix C at the end of this report.

7 December 2015

Current activities - the New York Wheel Challenger, through its subsidiary Starneth America LLC, is currently providing technical and support services to Starneth LLC with regards to the New York Wheel Project. This project which is currently under construction is located on an eight acre site on the northeast side of Staten Island with views of Manhattan and the Statue of Liberty. The Staten Island ferry is a tourist attraction in its own right and currently has three million annual tourists. It also has significant capacity (currently at 16% utilisation) to transport higher numbers of visitors to the Island when the project is complete.

The New York Wheel (concept graphic)

Source: newyorkwheel.com

Key statistics of the New York Wheel The wheel will be 630 feet high (192 metres) and represent one of the tallest observation wheels in the world. With 36 capsules each expected to carry 40 passengers during a 38 minute rotation, the wheel will have the capacity to carry up to 1,440 people per revolution. Assuming that the wheel is operating for 14 hours per day in the summer months, full capacity could be nearly 32,000 visitors per day falling to approximately 27,000 in the darker autumn and winter months where the wheel is expected to be operating for 12 hours a day. Powered by clean energy, the wheel will remain in constant motion much like the London Eye, rotating at approximately 10 inches per second allowing passengers to embark and disembark safely. On present assumptions, the New York Wheel is expected to be open and operational in mid-2017.

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Huge revenue potential If we apply some of our internal calculations to the suggested standard fare of US$35 per person, we believe that maximum daily revenue could be between US$0.9m and US$1.1m depending on the time of year. If we assume that the wheel is fully operational for 330 days of the year to allow for essential maintenance over the rest of the year, we calculate that annual revenue could be US$315m to US$365m assuming full capacity utilisation of the capsules. This is likely to be reduced to an extent by concession fares and lower capacity utilisation during off season periods and poor weather. However, given that we estimate that the cost of the wheel alone will be approximately US$150 - US$170m, based on the cost of historical projects; we believe that the equity holders will be looking at substantial annual returns after the project finance has been repaid.

Empire Outlets retail project In addition to the New York Wheel project (on eight acres of land) the Empire Outlet project (on a separate six acres of land) is the second major project in the redevelopment of Staten Island. This retail project features 350,000 square feet of enclosed retail space which will be New York's first and only shopping outlet mall. This attraction will have approximately 100 shops, a wide range of restaurants and a boutique hotel with rooftop views of Manhattan. As Empire Outlets’ site is located at the base of the Staten Island Ferry Terminal, only a 20 minute free ferry ride from Manhattan, we are confident that a significant proportion of the estimated six million visitors to the retail site will also visit the New York Wheel as part of their overall experience of the development.

New York Wheel project cost It is estimated that the entire site development including the wheel will cost close to US$500m. Of the total cost of the wider project, US$486m of funding has been secured to date. Total equity in the project raised to date is US$121m with a further US$365m of debt finance. This number excludes the significant funds that would be expected from the sale of naming rights to the wheel. For reference, EDF Energy paid approximately £8m (c.US$12.2m) for the naming rights to the London Eye over a three year period from 2011. These naming rights have since been transferred to Coca Cola since the beginning of 2015 indicating strongly the calibre of companies that are keen to be involved in high profile attraction projects.

Challenger’s investment in the New York Wheel Prior to the acquisition of Starneth, Challenger invested a total of US$3.0m for a 2.463% interest in the New York Wheel Investor LLC, the company set up to fund the equity component of the project. It should be noted that Challenger, as with all the equity holders, may be called upon to make further capital contributions should the project require additional funds for construction costs or other funding obligations. Such potential cost overruns are not likely to be particularly significant for Challenger given its modest equity stake. However, if the company is unable to contribute its share of further capital contributions, the other unit holders in New York Wheel would contribute Challenger’s capital deficiency which would be treated as a loan bearing a compound interest rate of 18% per annum. Should Challenger be unable to repay the loan with accumulated interest within 180 days, the managing member and other unit holders would terminate the loan and Challenger’s interest would be diluted by the value of the outstanding loan and interest. This could leave Challenger with a negligible interest in the project.

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The giant observation wheel market It started in London Although the concept and design of large Ferris wheels has been in existence since the Victorian era, Challenger argues that the giant observation wheel industry began with the London Eye which was completed in March in 2000. The London Eye represents the first iconic style observation wheel and differs from traditional Ferris wheels primarily due to the use of mechanically driven observation capsules. The London Eye is 443 feet (135 metres) in diameter with 32 continually moving capsules each capable of holding 25 people. A complete revolution takes approximately 30 minutes and a standard ticket to ride a full revolution currently costs £23 (c. US$35) although considerably more expensive, fast track entry tickets are available. It should be noted that the build cost of the London Eye was approximately £70m. If we apply 15 years of price inflation to this amount, we arrive at a cost of approximately £108.5m, equivalent to US$164m which is almost identical to our estimated cost for the construction of the New York Wheel. We believe that it is valid to argue that the economics of the London Eye have set a considerable precedent in the calculation of the commercial case for the New York Wheel project.

The London Eye observation wheel

Source: Open

7 December 2015

The Asian experience The Singapore Flyer The Flyer, which was opened in April 2008, is 541 feet (165 metres) in diameter and has 28 capsules, each with a capacity of 28 passengers (784 passengers per revolution). This attraction was the tallest of its type in the world until the opening of the Las Vegas High Roller in 2014. The Flyer cost approximately S$260m (US$180m) to construct. However, it has experienced a number of high profile breakdowns which have led to passengers being trapped for long periods. Back up mechanical drive systems have been installed at appreciable cost. However, the wheel has suffered financial difficulties since 2010 and was sold to Straco Leisure in August 2014 for S$140m (c. US$112m at the exchange rate of the time).

The Singapore Flyer

Source: Open sources

The US – High Roller in Las Vegas Until the New York Wheel is completed, the Las Vegas High Roller is the world’s highest wheel at 550 feet (167.6 metres). The High Roller opened in March 2014 and is part of a similar attraction development structure to that planned in New York. The High Roller forms the centre piece of a wider US$550m development called The LINQ which also includes a hotel and casino in addition to retail outlets. The wheel comprises 28 capsules each with a capacity of 40 passengers equating to a capacity of 1,120 people per revolution and an hourly capacity of 2,240 people (based on two revolutions per hour). Tickets for the attraction are US$26.95 for a single 30 minute ride although the cost rises to US$36.95 at night as the Las Vegas strip can be observed in all its neon glory.

7 December 2015

The Las Vegas High Roller

Source: Vitalvegas.com

Dubai – the next big wheel The Dubai-I wheel which we have outlined during this report is part of the Bluewaters Island development in Dubai Marina in the United Arab Emirates. The whole project has an expected cost of US$1.6bn of which only part of this represents the Dubai-I wheel. The Dubai-I is expected to cost US$270m to construct and when completed in early 2017 will be 689 feet tall (210 metres). The wheel will provide panoramic views of Dubai Marina and other Dubai landmarks such as the Burj Khalifa skyscraper.

7 December 2015

The Dubai-I Wheel (conceptual and in construction)

Source: Arabian Business

The market today Starneth estimates that an iconic observation wheel project is completed every two and a half years and as such, the management do not foresee the market being greater than 8-12 such projects over the next ten years. Although the numbers of projects are small, the market value is large and has a potential value of at least US$1 billion with comparatively few players involved.

Starneth has a large project pipeline The company estimates that there are 10-15 ideal sites globally with the potential to locate and operate profitably a giant observation wheel at the current time. It is very important to note that Starneth are currently working with local developers in approximately 25 sites worldwide as part of an extensive project pipeline. The initial phases in the origination of any project can take several years to complete as many factors need to be addressed including leasing of a site, project funding, local support and environmental issues. Although many projects will prove unfeasible at some point in the development process, it is very pertinent to recognise that there are likely to be very few projects globally in which Starneth is not involved at some point. The first table below is illustrative of a selection of major observation wheels completed since the London Eye was opened in 2000 including major projects currently under construction. With the inclusion of giant Ferris wheels completed over the last 15 years* (see overleaf), we believe that Challenger’s estimate of 8-12 world class projects every ten years is representative of the current market.

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Pent up demand We believe that the market could easily expand given the impact of the substantial hiatus in activity after 2008 as the global financial crisis effectively mothballed projects due to a marked reduction in available capital and a generally poor demand outlook. The period after 2008 is littered with projects that remained at the proposal stage and were delayed or cancelled during the ‘Great Recession’. For example, projects in Moscow, Beijing, Bangkok, Berlin and Jeddah were all mooted but foundered at some stage between 2008 and 2011. However, the post financial crisis world provides fuel for the market to expand as more recent projects have firmly established the commercial model required to run a profitable attraction. We believe that there is pent up demand in the global market. This is exemplified by the second table below which is dominated by Asian countries. Although this market is huge and likely to grow with the inclusion of potential projects in Malaysia and Indonesia, we believe that there will be additional opportunities in Europe, the US and the Middle East over the long term.

*Important distinction It is important to make a clear distinction between giant observation wheels and traditional Ferris wheels. Although very similar in appearance and usually treated as one and the same in the wider media, one should note that observation wheels primarily incorporate mechanically driven observation capsules in their design and Ferris wheel cabins are kept upright by gravity as the wheel rotates. Although the scale of these projects and the overall experience to the passenger will be largely the same, there is a more complex design specification involved in construction of giant observation wheels.

Giant observation wheel projects since 2000

Attraction Country Completed Height Height Location (metres) (feet) London Eye UK 2000 135 443 London Singapore Flyer Singapore 2008 165 541 Singapore Melbourne Star Australia 2008 120 394 Docklands, Melbourne High Roller USA 2014 168 550 Las Vegas, Nevada The New York Wheel USA 2017* 192 630 Staten Island, New York The Dubai-I Dubai 2017* 210 689 Dubai Marina

Source: Wikipedia *Scheduled completion date

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Giant Ferris wheel projects completed since 2000

Attraction Country Completed Height Height Location (metres) (feet) Diamond and Flower Ferris Wheel Japan 2001 117 384 Tokyo Sky Dream Fukuoka Japan 2002 120 394 Fukuoka Shanghai Ferris Wheel China 2002 108 354 Shanghai Zhengzhou Ferris Wheel China 2003 120 394 Henan Harbin Ferris Wheel China 2003 110 361 Harbin Changsha Ferris Wheel China 2004 120 394 Hunan Star of Nanchang China 2006 160 525 Nanchang, Jiangxi Suzhou Ferris Wheel China 2006 120 394 Suzhou, Jiangsu Tianjin Star China 2008 120 394 Yongle Bridge, Tianjin Star of Lake Tai China 2008 115 377 Wuxi, Jiangsu Sun Wheel Vietnam 2014 115 377 Da Nang Orlando Eye USA 2015 122 400 Orlando, Florida

Source: Wikipedia

Competition The company faces competition from large corporations which already own giant wheels and may decide to add additional locations using existing design blueprints at the exclusion of players like Starneth. Alternatively, markets such as China may be inaccessible as State owned corporations decide to enter the market backed by the Chinese government. As it stands, we believe that this is looking less likely as China experiences mounting economic difficulties in core industrial sectors of the economy where government support is likely to be directed at the expense of the leisure sector. Lastly, there is the prospect of the large engineering and contracting companies taking the design and engineering elements of the projects in-house at the exclusion of Starneth. Nevertheless, Starneth currently believes that it is the only global provider of turnkey solutions that cover the highly specialised giant observation wheel sector that is operating at the current time.

Risks to the business Generic risks We believe that several of the key risks to Challenger’s business are largely generic and would affect the majority of commercial operations. Core risks include the impact of global economic slowdown as was witnessed starkly in 2008, contributing significantly to the postponement and cancellation of several ‘attraction’ projects worldwide. As such, further global economic turmoil would likely have a similar impact on the sector as expenditure on high profile leisure projects is usually vulnerable in times of economic downturn.

Competition We have already addressed the issue of the potential emergence of competitors in the market which will always be a factor in Starneth’s risk profile. Additionally, given Starneth’s status as the only turnkey provider of observation wheel solutions, we also see the potential loss or defection to competitors of key employees and management as a major potential risk to the future success of the business, particularly as senior members of staff retain the ability to transfer substantial levels of experience and knowhow to competitors.

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In addition, there are three companies using the name ‘Starneth’ that were excluded from the acquisition, specifically; Starneth B.V, Starneth LLC and Starneth Construction B.V. As there is no obligation for these entities to change their names or desist in the use of such names, there are no assurances that individuals within these companies will not engage in competitive business or potentially damage the brands or reputations of Challenger’s Starneth subsidiaries. As outlined previously, Starneth’s technology and intellectual property is not suited for patenting or other registered protection and the business relies on technological knowhow protected by business secrets and non-disclosure agreements. As such, no assurances can be provided that a loss of this knowhow will not impact the business adversely.

Specific risks As outlined in previous ‘the market today’ section of this report, Challenger relies on a market characterised by a small number of large contracts. This characteristic of the market is unlikely to change for the foreseeable future. However, as outlined earlier, we believe that there is an element of pent up demand in the market and we argue that every successful project in the post-recession world helps develop the blueprint for avoiding unprofitable or ‘white elephant’ type projects. Challenger’s business model will, for the foreseeable future, be reliant on a small number of large and long term contracts. Consequently, it is likely that revenue and earnings will be lumpy and difficult to forecast. In adverse market conditions, this could impact the company’s ability to raise financing through both debt and equity.

Financial risk At the project level, certain cities or municipalities may require substantial financial guarantees in the form of performance bonds in order to award contracts for new observation wheels. In this situation, Starneth may not be in a position to provide sufficient financial guarantees and therefore be unable to secure contracts. Additionally, should Starneth enter a joint venture with a considerably larger partner in order to secure a large contract, the company would likely lose operational control of the project and disputes with the controlling partner may emerge.

Location, location, location Observation wheels achieve commercial success due to a combination of factors including primarily location and the attractiveness of the area as a place that tourists in their millions are keen to visit. The London Eye is a prime example of a successful combination of these factors. Building a giant observation wheel in a poor location with associated problems such as accessibility and disappointing tourist footfall implies that such a project is destined to be uncommercial. This is a paramount factor for the company to consider when deciding whether to make a substantial equity investment in a new project. We believe that this is less a concern in terms of providing design and engineering solutions during the construction phase of a project given that the company will generate revenue during this phase and will be considerably less exposed in the preliminary years when the wheel is operational. Nevertheless, a poorly considered project could impact the company over the long term given the potential negative impact on Challenger’s reputation by association with an uncommercial project and the potential adverse impact on the company ability to raise finance for new projects.

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Project risk Challenger is directly exposed to the potential for any defects in the design and construction of giant observation wheel projects. Product failure that would require financial reparation or repair or pose a danger to the lives of visitors would lead to significant financial liabilities, legal proceedings and reputational damage. Legal claims upon the company would also impair the ability of the group to conduct future business whether through loss of management time, financial penalties or loss of credibility in the market. Challenger relies on sub-contractors during the life of a turnkey project. Much of the risk associated with relying on third parties can be mitigated by using internationally recognised companies and businesses that Starneth has worked with previously. However, delegating of work poses a degree of risk under most circumstances as the company will have reduced control over the workforce and materials employed in the project. Any adverse site incidents will be covered by the group’s insurance. However, the company may be exposed in the event that issues are identified beyond Starneth’s standard one year warranty coverage for its work.

Legal For greater detail with regards to the characteristics of legal disputes with entities no longer within the Challenger group, please refer to the examples in Appendix A.

Specific risks to the investment in the New York Wheel Many of the risks outlined in this section apply directly to Challenger’s investment in the New York Wheel. Although we have outlined the major characteristics of the company’s 2.463% investment in the project in this report, we believe that it is pertinent to summarise some of the dynamics which could impact the value of this investment. These include:  As outlined previously, there is the potential for Challenger’s investment to be diluted in the event that there are additional capital contributions from new investors or the group is unable to provide additional capital in the event of a cost overrun.  Primary revenues from the operation of the wheel will be used to repay project debt. As such, the equity holders will not receive income distributions until the debt is repaid.  The New York Wheel is a complex project particularly as a function of its size and integration into a wider leisure project. As such, the prospect for cost overruns or delays is a significant risk factor.  The project is also subject to all the general risks associated with major tourist attractions including adverse economic conditions, mechanical difficulties, terrorist/security activity, poor weather and rising operating costs. With a large fixed cost structure in place, revenue from the New York wheel could be disappointing in the event that visitor numbers are below forecast.

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Revenue generation It is important to note that the financial information outlined in Appendix C relates to the Starneth Group prior to acquisition and that a substantial proportion of the income, assets and liabilities are derived from Starneth LLC’s activities with regards to the New York Wheel. As this subsidiary of the Starneth Group was excluded from acquisition, the historical financials are for illustrative purposes only and do not provide an accurate representation of the likely future financial projections for Challenger.

Primary business: South East Asia As outlined under the section entitled ‘the market today’ we outlined that Starneth had a potential business pipeline amounting to approximately 25 opportunities. Within this portfolio of leads, there is substantial interest from developers in South East Asia for an iconic wheel project which has prompted Starneth to open a representative office in Singapore to support regional developers. Subsequent to this, Starneth has signed an initial project contract with Indonesian developer PT Cendana Emas Windu Investment for turnkey project management services which will include design, procurement, erection and commissioning of a giant wheel in Jakarta, Indonesia. As with most contracts, this agreement is subject to the developer’s ability to secure financing for the project and it should be noted that the neither the site nor construction funding have yet been secured.

Principal terms of the Jakarta project The initial project has been signed for a 125 metres tall Iconic Wheel design which will comprise 18 capsules, each with a capacity for 40 passengers. This would indicate a maximum hourly capacity of up to 1,440 customers. The wheel is expected to take 24 months to construct. This could be extended by up to 90 days for Starneth-caused delays. The turnkey valuation of the contract is expected to be US$121m out of which Starneth will be responsible for all the principal costs of the project relating to design, procurement, fabrication, assembly, erection and commissioning of the wheel. Of the total amount, it is anticipated that US$94m of the total contract value will be attributed directly to the wheel itself and include:  Design and engineering  Project management  Fabrication and erection of the steel structure  Electrical system  Capsules  Drive and control system  Testing and commissioning  Certification and Inspection The balance of US$27m will go towards related infrastructure and include:  Wheel foundation  Terminal building  LED lighting  Insurance  VAT  Other contingencies

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In terms of the payment structure, the initial payment of 15% of the US$94m for the wheel component will become payable within seven days of financial close. This date is represented by the juncture at which funding is officially secured by the developer. Thereafter, monthly invoices will be issued to the developer with payment delivered within seven days for all remaining wheel expenditures and infrastructure expenditures. All expenditures by Starneth will be paid for in advance by the developer and built into the payment schedule that is agreed with the developer.

Additional projects We are confident that there are several opportunities available to Starneth in South East Asia. Given that the company has a permanent presence in the region with its Singapore office, we are confident that the group will be able to secure additional projects in the future.

Europe Starneth has also been approached to provide turnkey project management services for a project in a European city. This deal would also include the company arranging financing for all the start-up costs of the project. This agreement is still subject to negotiation prior to a contract being signed. However, if it goes ahead, we expect that Challenger will be offered the opportunity to participate as an equity partner.

Americas Starneth recently commenced discussions with a developer in regard to turnkey project management services for a giant observation wheel. The company has also been approached with a proposal to provide turnkey project management services plus a portion of the start-up costs for his project. Although both of these projects are in the early stages of development, such is Starneth’s pedigree in the sector; the company’s potential participation is being leverage to advance this process.

Financial projections Assuming that Starneth acts as the primary contractor for an Iconic Wheel project in South East Asia as outlined in the previous section of this report excess, we expect that Starneth would receive approximately 15% of the contract value in upfront fees with the balance paid on a monthly basis over the following 24 months. We would expect that Starneth would operate on a cost plus basis whereby the company is paid for all of its expenses plus additional payments to allow for profit. With additional contingencies built into the contract structure, we believe that Staneth could generate gross margins of up to 20% assuming there are no serious cost overruns or unforeseen delays. With a contract underway, we anticipate that the company would incur general and administrative costs of between £300,000 and £400,000 per month. Although this would increase if the company took on more business assuming that the group would require regional office capabilities such as it does in Singapore, the increase in costs would not be as steep as the anticipated uplift in revenue and we would expect to see EBITDA margins increase. In our illustrative income statement, we have assumed that Challenger embarks on the initial project in South East Asia at the end of Q1 2016 for a duration of 24 months on the terms outlined above. In addition to this, we have layered an additional contract with a value of US$120m commencing in 2017 and a further contract valued in aggregate at US$150m commencing in 2018 in order to illustrate the growth potential of the Starneth business.

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Our revenue projections for 2015 represent the fees generated by the provision of contracted technical services to Starneth LLC of which we have also factored in an additional US$2.0m (£1.3m) in 2016.

Illustrative income statement for the consolidated group

Income statement (£000s) Dec-15E Dec-16E Dec-17E Dec-18E Revenue 3,250 36,724 63,954 82,067 Cost of sales -1,300 -28,333 -51,163 -65,654 Gross profit 1,950 8,391 12,791 16,413 Administration -2,336 -4,200 -4,800 -5,100 EBITDA -386 4,191 7,991 11,313 Amortisation 0 -20 -13 -9 Depreciation 0 -51 -34 -23 Profit before tax and interest -386 4,120 7,944 11,282 Finance income 0 6 59 140 Finance costs -252 -184 0 0 Profit before tax -638 3,942 8,003 11,421 Taxation 0 -788 -1,601 -2,284 Profit after tax -638 3,153 6,402 9,137 Other comprehensive income 0 0 0 0 Total comprehensive income -638 3,153 6,402 9,137 Average number of shares (000) 13,326 17,688 21,754 24,171 Fully diluted number of shares (000) 23,005 23,304 24,860 27,484 EPS basic (p) N/A 17.8 29.4 37.8 EPS fully diluted (p) N/A 13.5 25.8 33.2

Source: Shard estimates

It is important to note that the illustrative income statement does not constitute a financial forecast for Challenger given that the contract values outlined above have not been secured by the group. However, it does depict starkly the operational leverage that the company possesses upon embarking upon major contracts over the next three years. The three year time horizon also does not factor in the huge financial upside that the company possesses from the equity stakes in big wheel projects that it intends to take. These will provide very attractive longer term annuities which could be very significant but are beyond the timescale outlined in the financial projections above.

Cash flow and balance sheet We have outlined our illustrative cash flow and balance sheet tables below which relate to the previous income statement. A number of caveats should be noted at this juncture. Primary, we have not assumed any further equity investments in major projects over time as these are very difficult to forecast at this stage. Likewise, we have not factored in any issues of new shares to raise additional equity for the same reason. Our numbers also assume that the convertible is converted after one year in order to depict maximum equity dilution in regard to our EPS estimates. In addition, out model depicts a substantial accumulation of cash over the next three years. We would caution that this will actually be unlikely given that we anticipate that the management will use this cash make further acquisitions over the next three years. However, as yet these elements of expenditure are unknown to us and therefore cannot be factored into our assumptions.

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Illustrative cash flow statement for the consolidated group

Cash flow statement (€000s) Dec-15E Dec-16E Dec-17E Dec-18E Profit after tax -638 3,153 6,402 9,137 Amortisation 0 20 13 9 Depreciation 0 51 34 23 Finance income 0 -6 -59 -140 Finance costs 252 184 0 0 Movement in working capital -1,066 3,020 2,457 1,634 Cash flow from operations -1,452 6,423 8,847 10,663 Purchase of intangible assets -1,976 0 0 0 Starneth acquisition tranches -893 -893 -893 0 Purchase of PPE 0 0 0 0 Net cash flow from investing activities -2,869 -893 -893 0 Issue of shares 1,020 0 0 0 Issue of convertible notes 3,067 0 0 0 Repayment of debt/convertible notes 0 0 0 0 Finance income 0 6 59 140 Finance costs -252 -184 0 0 Net cash flow from financing activities 3,835 -178 59 140 Net increase in cash -486 5,352 8,014 10,803 Cash at beginning of period 1,080 594 5,946 13,960 Forex movements 0 0 0 0 Cash at end of period 594 5,946 13,960 24,763

Source: Shard estimates

In our calculations at this stage, we have assumed that Challenger does not acquire any bank debt although this position would be subject to change as the group acquires new projects.

Illustrative balance sheet for the consolidated group

Balance sheet (£000s) Dec-15E Dec-16E Dec-17E Dec-18E Intangible fixed assets 60 40 27 18 Tangible fixed assets 154 103 69 46 Goodwill 3,377 3,377 3,377 3,377 Investments 1,976 1,976 1,976 1,976 Non-current assets 5,567 5,496 5,449 5,417 Receivables 2,150 24,297 42,312 54,296 Cash and cash equivalents 594 5,946 13,960 24,763 Total current assets 2,745 30,243 56,272 79,059 Total assets 8,312 35,739 61,721 84,476 Borrowings 0 0 0 0 Convertible loan notes 3,067 0 0 0 Accounts payable 2,443 27,610 48,083 61,701 Total current liabilities 5,510 27,610 48,083 61,701 Borrowings 0 0 0 0 Related party payables 1,277 1,277 1,277 1,277 Total non-current liabilities 1,277 1,277 1,277 1,277 Total liabilities 6,787 28,887 49,360 62,978 Net assets 1,524 6,852 12,361 21,498 Source: Shard estimates

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Appendix A Legal dispute between Starneth B.V. and Hyundai In June 2013, the pre-acquisition Starneth Group signed a contract in respect of the Dubai-I contract. Hyundai was appointed as principal contractor and performance bond guarantor and Starneth B.V. was appointed as a subcontractor to Hyundai for the design of the Dubai-I for a fixed fee of US$40m. A separate purchase order was given to Starneth B.V. for the provision of the drive-system for US$5.6m. Significant delays and disputes with Hyundai in relation to the design and construction of the Dubai-I resulted in legal arbitration between Starneth B.V. and Hyundai. This dispute is ongoing as at the date of this report. In particular, the US$5.6m purchase order for the drive-system was cancelled by Hyundai and all payments and activity in relation to the principal US$40m design contract were terminated during the year ended 31 December 2014. The arbitration procedure is ongoing in Singapore and the Starneth Directors are of the opinion that it may take until the end of 2016 before the legal arbitration process is concluded. As outlined in this report, a demerger of the trade and assets of Starneth B.V. took place between Starneth B.V. and Starneth Europe B.V. Following the Demerger, the contingent liabilities described above, as well as any gains arising from the legal arbitration involving Hyundai are now part of Starneth B.V., which does not form part of Challenger.

Claim from Madison Capital Markets LLC A U.S. broker dealer, Madison Capital Markets LLC, filed a complaint on 11 September 11 2015 demanding compensation for alleged services to Challenger and two of its wholly owned subsidiaries for advising and facilitating the Acquisition and the Investment. Madison Capital Markets claims that Starneth LLC has breached the Confidentiality and Non-Circumvention Agreement between Starneth LLC and Madison Capital Markets LLC dated 16 June 2014, in which Starneth LLC has agreed not to engage in business with its alleged contacts without the written consent of Madison Capital Markets LLC. Madison’s complaint requested an unquantified amount of monetary damages, including attorney fees and costs, as well as a request for equitable relief. However, in pre-litigation correspondence Madison Capital Markets requested approximately €375,000 in cash, 330,000 Ordinary Shares and 10% of the EBITDA of Starneth in excess of €1,267,000 for the next three financial years. On 17 November 2015, Challenger filed its response to the complaint, in which it denied all of the claims made by Madison Capital Markets and moved to have the complaint dismissed for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. The court will hear the motion to dismiss on 28 January 2016, although the decision of the court will likely take several months. The defence of this lawsuit and related legal proceedings may be costly and time-consuming and the outcome is uncertain. If the claim ultimately was successful, it could have a material adverse effect on the Group’s prospects, results of operation, business and financial condition.

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Appendix B: Management biographies Mark Garland Gustafson – Chairman (Aged 55) Mr Gustafson is a Canadian based Chartered Accountant with over 30 years of experience in building public and private companies and arranging financing either as a senior executive or through his personal consulting company, M.G.G. Consulting. Over the span of his career, he has been actively involved in numerous corporate acquisitions directly participating in debt and equity fundings totalling over C$200m. After qualifying as a Chartered Accountant with Price Waterhouse, Mark joined EnServ Corporation where he spent 6 years helping to build the company through various acquisitions into a sizable energy services company, which in 1996 was acquired for C$229m by Precision Drilling Corporation. Mr Gustafson then served as President and CEO of Total Energy Services Ltd, a Toronto Stock Exchange listed company providing oilfield rental services, for which he raised C$25m. He also served as Chairman and CEO of Triangle Petroleum Corporation where he helped to lead active exploration shale plays in North America and to raise over US$84m in convertible and equity instruments. More recently, Mr Gustafson held the position of President and CEO of Euromax Resources Ltd. where he was responsible for securing funding of C$18m to advance gold and base metal projects in Serbia, Macedonia and Bulgaria. Previously, Mr Gustafson served as Chairman of Tuzo Energy Corporation, overseeing an unconventional oil and gas company and helping to raise C$50m in private equity funding to advance this project. Mark is experienced in successfully developing and growing start-up businesses through focused acquisitions into commercially viable companies.

Markus Dieter Kameisis- Chief Financial Officer (Aged 36) Mr Kameisis is a Swiss-based German finance executive with over 10 years of experience in the banking and financial industry. After graduating with a “Diplom-Kaufmann” in Auditing and Controlling from the University of Trier in Germany, Markus joined UBS in Luxembourg. Following promotion to Associate Director, he moved to UBS in Switzerland where he worked on a finance IT platform project of UBS across Europe. Afterwards, Mr Kameisis took over as Head of Accounting of UBS Leasing AG where he was responsible for implementation of the Basel II internal rating based approach. He was then promoted to the CFO role within UBS Swiss Financial Advisers AG, a FINMA and SEC regulated broker serving US clients in Switzerland where he was, amongst other things, responsible for the implementation of a new software system, the regulatory reporting and all corporate tax filings. In 2013, Markus was recruited by Gutenberg Group AG, a FINMA regulated financial services group with a banking licence, specifically to oversee the Group’s finance and reporting function. Shortly after his assignment Gutenberg Group AG decided to give back its banking license and Markus agreed to support the Group during this transition as the CFO. In August 2014, Markus founded an outsourcing and advisory firm for SME companies called Icelia AG, for which he is the CEO and a director. He also serves as a senior finance executive at a Swiss based oil and gas company with a portfolio of oil and gas assets in Africa and Europe. Icelia AG provides accounting services to the Starneth Group.

Gert Rieder - Non-Executive Director (Aged 53) Mr Rieder has over 20 years of experience as senior executive and consultant building companies, markets and revenues globally while heading up start-ups, advising on board positions, and leading business development and growth for companies and customers in Scandinavia, Europe and the Middle East. After graduating from Aarthus School of Business, he joined leading telecom provider Tele Danmark where he took on a series of commercial roles finally becoming a Product Director.

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He then moved to a telecom start-up Sunrise Communications in Switzerland where he joined as Chief Commercial Officer and was later promoted to COO, leading the product roadmap activities and successfully developing the initial product launch plan. At Danish TDC Fixnet Nordic he served as Executive Vice President and Member of Executive Board focusing on restructuring the organisation with emphasis on strengthening customer service and sales operation. He was also responsible for optimisation of distribution channels by redefining a nationwide chain of retail shops and call centres. He was also a Deputy CEO of Vopium, a global VOIP player, helping to prepare the company for listing on Euronext Paris. Gert also served as CEO of Batelco in Bahrain, one of the leading telecom providers in the MEA region, and as CEO for Comendo Group, the leading provider of cloud-based IT-security solutions in Scandinavia - both publicly listed companies that focus on growing through extensive M&A activities. Mr Rieder is highly experienced in consumer marketing having built his career creating and selling products and services.

Senior Managers and Consultants CEO of Starneth Group - Machiel (“Chiel”) Smits Mr Smits is a native Dutchman with an engineering degree from Dordrecht Technical School. Before founding Starneth in 2007, he was a core founder and board member of the Great Wheel Corporation acting as the Chief Technical Officer and working on start- up development of wheels in Beijing, Orlando and Berlin. His experience in the construction of observation wheels stemmed from having been the lead designer and project manager of the British Airways “London Eye” for Hollandia B.V. Chiel is acting as CEO of the Starneth Group and is the Managing Director of Starneth Europe B.V. and Starneth Holding B.V. with particular focus on new developments, both in market size and technology.

Senior Manager – Leonardus (“Leon”) Heijkoop Leon has been based in the Middle East since early 2005. He is the Managing Director of SME Engineering JLT with a regional office in Dubai. Starneth Middle East’s project team has worked as a subcontractor on the Dubai-I on a reclaimed island off-coast of Dubai. In addition to this exciting project, Leon and his highly experienced team are aiming to expand the business in the Middle East and India. Leon has a strong engineering background from leading education institutes in The Netherlands and more than 20 years of experience in project management. He also has an excellent worldwide reputation in delivery of major construction projects in the oil and gas industry as well as leisure and entertainment. Besides working for major operators (i.e. Total, Elf Petroland, ExxonMobil, Shell, Encana), he has worked on senior management positions for steel fabrication contractors, Hollandia (London Eye), Mercon Steel Structures in the Netherlands and Lamprell Energy in the United Arab Emirates. Prior to joining Starneth, he worked for the Great Wheel Corporation, acting as the Regional Manager Middle East from 2005 to 2007.

Consultant – John Le Poidevin John Le Poidevin is an experienced independent consultant and non-executive who sits on several company and fund boards and advises companies across the leisure, hospitality and entertainment sector. Now Guernsey-based, he was a Partner at BDO LLP in London for many years, where he was Head of Consumer Markets, transforming BDO's practice into being a significant market player with a leading position in the leisure sector. John has significant experience of working with leisure and hospitality businesses in relation to their overall strategy, investment and financing decisions, M&A matters, corporate governance, risk and financial reporting. He has been involved in the successful flotations of a number of major leisure businesses, including 888 Holdings and Carluccios. John is a Fellow of the Institute of Chartered Accountants in England and Wales.

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Appendix C: Starneth pre-acquisition financials Income statement (December 2012 – June 2015)

Income statement (€000s) Dec-12 Dec-13 Dec-14 Jun-15 Dubai-I revenue 60 4,153 7,763 0 New York Wheel revenue 0 240 3,657 5,980 Total revenue 60 4,393 11,420 5,980 Cost of sales 0 -3,059 -7,291 -2,588 Gross profit 60 1,334 4,129 3,392 Administration -87 -1,238 -2,949 -1,705 EBITDA -27 96 1,180 1,638 Amortisation 0 -14 -27 -14 Depreciation 0 -32 -67 -35 Profit before tax and interest -27 50 1,086 1,638 Finance income 0 3 29 22 Finance costs 0 -51 -6 -13 Profit before tax -27 2 1,109 1,647 Taxation 0 0 0 0 Profit for period -27 2 1,109 1,647 Other comprehensive income 0 0 0 -7 Total comprehensive income -27 2 1,109 1,640

Source: Starneth, Challenger Acquisitions

Balance sheet (December 2012 – June 2015)

Balance sheet (€000s) Dec-12 Dec-13 Dec-14 June 15 Intangible fixed assets 0 124 97 83 Tangible fixed assets 10 285 247 215 Non-current assets 10 409 344 298 Receivables 1 906 312 1,646 Cash and cash equivalents 12 402 737 710 Total current assets 13 1,308 1,049 2,356 Total assets 23 1,717 1,393 2,654 Borrowings 0 0 0 0 Accounts payable and accrued liabilities 165 1,806 1,553 1,174 Total current liabilities 165 1,806 1,553 1,174 Net assets -142 -89 -160 1,480 Share capital 18 69 65 65 Translation reserve 0 0 -1 -8 Accumulated deficit -160 -158 -224 1,423 Total equity attributable to parent company -142 -89 -160 1,480

Source: Starneth, Challenger Acquisitions

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Cash flow (December 2012 – June 2015)

Cash flow statement (€000s) Dec-12 Dec-13 Dec-14 June 15 Profit from period before tax -27 2 1,109 1,647 Amortisation 0 14 27 14 Depreciation 0 32 67 35 Finance income 0 -3 -29 -22 Finance costs 0 51 6 13 Cash flow from operations before working capital -27 96 1,180 1,687 Change in receivables 18 -905 594 -1,334 Change in accounts payable and accrued liabilities 30 1,641 -253 -379 Cash generated from operating activities 21 832 1,521 -26 Purchase in intangible assets 0 -138 0 0 Purchase of PPE -10 -307 -28 0 Net cash flow from investing activities -10 -445 -28 0 Repurchase of shares 0 0 -975 0 Dividends 0 0 -200 0 Finance income 0 0 29 0 Finance costs 0 0 -6 -13 Net cash flow from financing activities 0 0 -1,152 -13 Net increase in cash 11 387 341 -39 Cash at beginning of period 1 12 402 737 Forex movements 0 3 -6 12 Cash at end of period 12 402 737 710

Source: Starneth, Challenger Acquisitions

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