Challenger Acquisitions Plc

Initiation of coverage Partner to the giants

The , now in its sixteenth year of operation is 14 September 2016 still the benchmark standard for successful Giant Observation Wheels (GOW). By 2010, it was turning over Key Statistics £59m with operating profits of over £30.5m. Challenger’s Code : CHAL.L Starneth Group has shown it can generate significant Listing : LSE Main Market Sector : Travel & Leisure revenue from its unparalleled expertise in the design and Market Cap : £3.84m engineering of GOWs. Starneth grossed €11.4m at a pre- Share in issue : 21.18m tax profit margin of nearly 10% in 2014, driven by project Current Price : 18.13 work on the Dubai-I and the . This work is 12 mnth High/Low : 45.5p/18.13p now substantially complete. Stock Performance

50 The pipeline is strong including a conditional contract for 45 turnkey project management services to build a Giant 40 Observation Wheel in Jakarta likely to generate revenues 35 over three years of close to $100m. However until a major 30 project is confirmed trading at Starneth will be 25

20 challenging. In the medium term, Challenger can look

15 forward to the opening of the New York Wheel in early 10 2018, in which it has invested $3m for an equity stake Dec/2015 Jan/2016 Feb/2016 Mar/2016 Apr/2016 May/2016 Jun/2016 Jul/2016 Aug/2016 likely to represent circa 2% of the completed project.

Starneth is actively pursuing a further 24 projects for Giant Source: Fidessa Observation Wheels worldwide. This includes negotiations for Financials Turnkey Projects in the Americas, Europe and the Middle East. Its Pre-Acquisition Starneth Group Summary P&L Challenger Acquisitions Y/e Dec-13 Dec-14 H1 Jun 15 H1 Jun 16 management does not foresee the total market size higher than €m €m €m £m 8-12 new iconic-type projects over the next 10 years. However, Revenue 4.4 11.4 6.0 2.0 the Board believes that this market represents a potential PBT 0 1.1 1.6 (1.5) Source: Company results and re -admission of at least US$1 billion in revenues. document

Company description The New York Wheel, set to be one of the largest in the world, Challenger Acquisitions is a leader in the Giant Observation Wheel (GOW) industry. Its fully owned will be significantly bigger than the London eye with each rotation Starneth Group specialises in the design and capable of carrying 1,440 vs 800 passengers for London. Its engineering of GOWs and structures with key team members having been behind the design and location on the soon to be regenerated Staten Island waterfront construction of the wheel and drive system for the benefits from the 12m tourists who annually use New York ferry London Eye, the drive and control system for the Las boats, and an estimated annual footfall of 6m to the soon to open Vegas High Roller and the design and engineering for the wheels in Dubai and New York, due to open in Empire Outlets retail park. Our 3.5m annual passenger assumption early 2018. The Company is reviewing a pipeline of is arguably conservative, but our model still suggests annual cash 25 potential GOW projects worldwide. The Company also has a US$3m stake in the New York Wheel which flows of over $50m once debt of circa $416m has been paid off, is expected to be the world’s largest GOW and attract and suggests an NPV of $6.5m attributable to Challenger, upwards of 3.5m visitors per year. more than double its original investment.

The current market cap reflects delays in getting Jakarta over the HYBRIDAN LLP line, and the debt within Challenger. The signing of a major 20 Ironmonger Lane, London, EC2V 8EP Website: www.hybridan.com project is the catalyst that would get the shares moving from these levels. Given the pipeline and calibre of the team this could Derren Nathan Tel: 020 3764 2344 be delivered over the next six months, potentially sooner, at Email: [email protected] which point our investment case suggests an equity valuation of £11.6m three times the current value. For analyst certification and other important disclosures, refer to the Disclosure Section Challenger Acquisitions Plc

Contents

1. Background ...... 3 2. Investment case ...... 5 2.1. Team and track record of underlying business ...... 5 2.2. Big ticket engineering projects ...... 5 2.2.1. The New York Wheel ...... 6 2.2.2. The Southeast Asian Wheel, Jakarta ...... 8 2.2.3. Extended Pipeline ...... 9 2.3. Equity investment strategy ...... 10 2.3.1. London Eye validates economic model and the world has followed .... 10 2.3.2. Well run GOWs generate long term stable high margins ...... 11 2.3.3. Aiming to build portfolio of dividend paying profit streams ...... 11 2.4. Valuation ...... 11 3. Recent financials ...... 12 4. Financial Tables ...... 13 5. Board of Directors and management ...... 17 6. Significant shareholders and loan notes ...... 21 7. Research Disclaimer ...... 22

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1. Background In terms of design and engineering, Challenger Acquisitions is the leading creator of Giant Observation Wheels (GOWs). Leading is a term we use sparingly, but these are iconic The Challenger team engineering projects of which only four have been constructed ever, with a further two under has a strong track record of specialist way, and in total the Challenger Team has been significantly involved with four of these. Of project delivery the two where Starneth has not been significantly involved is included a wheel which has been beset by operational issues, The Melbourne Flyer. This is indicative of the level of complexity that these major engineering projects encompass and the importance of employing a technical team with the rare and valuable expertise required to get these massive undertakings delivered on time and on budget. Barely a month after opening in December 2008, following a two-year delay, the Melbourne Flyer was closed not to be reopened again until 2013; after a nearly complete rebuild. The re-opening of the renamed was plagued by a number of further safety incidents.

Originally listed as an investment vehicle for acquisitions in the ‘Attractions’ sector, Challenger delivered on this promise via the reverse acquisition of the Starneth Group in July The Group as it stands 2015, plus a direct investment in the New York Wheel project in May 2015. The total today is the result of acquisitions and consideration for Starneth comes to €7.2m plus a variable component equivalent to 30% of investments made in December 2015 the amount by which Starneth exceeds EBITDA of €1.267m annually in the three years following the deal. Of the fixed consideration there remains €2.5m of cash consideration and 1.1m shares. Following the deferral of €1.25m that was originally due 15 July 2016, this will now be paid on the earlier of the financial closing of the Jakarta project or 50% of the balance on 15 January 2017 and the remaining 50% of the balance on 15 April 2017. The payment is secured by a 33.3% share of Challenger’s investment in the New York Wheel Project. A further €1.25m cash payment is due in July 2017, as is the final tranche of 1.1m consideration shares.

The market capitalisation of Challenger at £3.84m is currently below the acquisition price of its operating business, and only slightly above the carrying value of its equity stake in the New York Wheel Project.

It is important to draw a distinction between Ferris Wheels and Giant Observation Wheels. Giant Observation Whilst an imposing size is obviously a characteristic of GOWs there exists some very large Wheels are complex structures and the Ferris Wheels too, such as the 160-meter in . It is primarily the size consequences of engaging non and design of the capsule that defines a GOW. Most Ferris wheels cannot take more than 8 specialists can be passengers per capsule (which can be open or closed) whereas the London Eye carries 25 disastrous people per capsule and offers genuine 360 degree views. Rather than just hanging there like a gondola cabin, the capsules rotate individually as the wheel turns. They also have separate mechanical and electrical systems such as audio broadcasts and climate control. These factors plus the extra weight of these capsules present significant engineering challenges.

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Starneth’s recently In July this year Challenger announced that Netherlands based Starneth had opened a new opened manufacturing facility will open up UL Certified manufacturing facility to design, manufacture and test the critically important opportunities in new product areas control systems, which are used to direct and manage the operating systems for Giant Observation Wheels. This will enable Starneth to bring in-house an activity that was previously outsourced. We understand this will help the Company to charge additional high margin fees on future GOW projects. The Company sees this as an opportunity to offer its drive and control system capabilities to a multitude of projects, not just GOWs.

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2. Investment case

2.1. Team and track record of underlying business The Starneth team’s involvement in GOWs dates back as far as the London Eye, completed Starneth has previously in 2000, which is still considered to be the Gold Standard in terms of Giant Observation won multi million dollar contracts for GOW Wheels. The contracts are large and rare by nature but Starneth is the ‘goto’ name in the projects Sector. The Pre-Acquisition Starneth Group demonstrated the attractive profits it can generate through its FYDec2014 results which enjoyed the benefits of the Dubai-I contract that had been identified during 2013. This was for the design of a wheel and supply of a drive-system. The Dubai- I is likely to be completed by 2018 and is currently expected to be the largest GOW in operation at 200+m high.

2014 was its record trading year with Pre-Acquisition, Starneth Group reported 2014 revenues of €11.4m up 160% due largely to €11.4m of revenues the Dubai-I project. The company recorded a pretax profit of €1.1m. The acquired Group and €1.1m PBT has no ongoing work commitments in respect of the Dubai-I, with all contingent liabilities and assets relating to an arbitration Starneth brought against Hyundai Engineering being held in a separate entity outside of the Group.

The acquired Starneth Group does not directly hold a contract for the design, manufacture and construction of the New York Wheel. Rather post acquisition it has entered into a collaboration agreement with Starneth LLC, a non-Group company to provide procurement and project management services in respect of the New York Wheel project. At the time of admission, Starneth had received €1.3 million under the collaboration agreement and expected approximately €1.1 million in the three months to 31 December 2015 and less than €0.5 million in 2016.

2.2. Big ticket engineering projects

What is interesting about the Dubai-I contract is that it represented a relatively small part of By offering a full turnkey project the overall offering that Starneth is equipped to fulfill in terms of services to developers of management service, GOWs. These are high profile big ticket engineering projects. The New York Wheel is significantly higher project revenues can budgeted at US$500m. Starneth has the capabilities to provide turnkey project management be generated services, whereby Starneth would be contracted to manage the entire construction of the project including all design, engineering, procurement, construction, testing and project management. In such a project, the Starneth team is compensated as the project manager with responsibility to hire and manage multiple subcontractors to assist in the construction of the project.

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Starneth is already For example, in 2015, Starneth entered into a conditional agreement to turnkey project conditionally engaged to deliver one project management services for the design, procurement, fabrication, assembly, erection and for over $90m commissioning of an observation wheel to be built in Jakarta, Indonesia. The project still requires a bank financing structure to be finalized, but the original contract terms initially envisaged the payment of $89 million over the life of the two-year contract, plus further amounts for specified items.

2.2.1. The New York Wheel

Challenger’s final stake in the $590m New York Starneth’s technical involvement with the completion of the New York Wheel is coming to an Wheel is likely to be in the region of 2% end. However, in May 2015, Challenger invested $3m for a 2.463% interest in New York Wheel Investor LLC, the company setup to fund the equity component for the New York Wheel Project. By the time the wheel is complete, we understand that Challenger’s stake is likely to be diluted to circa 2%. Circa $275m has been spent on the wheel so far with the total budget now standing at $590m. Currently, $121m has been equity funded with the balance of debt funding being either drawn or committed.

Artist’s impression of the completed project

Source: http://newyorkwheel.com/

The New York Wheel is The New York Wheel is intended to become one of New York City’s great landmark intended to become attractions, alongside the Statue of Liberty and the Empire State Building. Located on eight one of New York City’s great landmark acres on the northeastern side of Staten Island (St. George), the 630-foot attraction (nearly attractions, alongside the Statue of Liberty 50% taller than the London Eye) will be one of the tallest observation wheels in the world. and the Empire State More than three million tourists already ride the free Staten Island Ferry every year to get a Building. closer view of the Statue of Liberty. The New York Wheel will give them a reason to stay and spend more time on the island before returning to Manhattan. In relation to the current

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tourism traffic, attractions on the island are extremely limited. Alongside the wheel another major development is underway on the Staten Island waterfront which will serve to further swell visitor numbers which can only help traffic to the wheel. Empire Outlets is set to open in late 2017, alongside the ferry terminal and the New York Wheel. Covering 350,000 sq ft of retail space, it will be New York City’s first designer outlet destination, comprising over 100 shops, a 190 room boutique hotel and entertainment facilities. Empire Outlets has estimated that 6 million visitors will shop at this development annually.

The New York Wheel is expected to open in early 2018. The Project includes a 630ft observation wheel, a 68,000 sq ft terminal and retail building, a 950 space parking garage and a 5,000-person capacity green roof for events.

We have modelled a discounted cash flow based on some broad brush assumptions. We have estimated that 3.5m visitors per year should generate circa $150m of revenue annually, split 2/3 ticket revenues (3.5 million at $30/ticket) and 1/3 naming rights and ancillary revenues (events, car park, on site facilities etc.). In the first year we have limited total revenue expectations to $100m. We are assuming no inflation until the fifth year of operation at which point we are assuming 1% per annum. We are assuming that the $195m of senior debt is paid as soon as possible from initial cash flows with the remaining debt being paid off evenly over the following six years. We assume that all funding is now committed and therefore model cash flows from 2018 (deemed year 2) as the first year of operation. Our other key assumptions are listed below. • Year one operating margin : 40% • Operating margin thereafter: 52% (London eye reached circa 50%. Additional scale of NYW should enable at least slightly higher margins) • Interest rate 9% • Tax rate kicking in first debt free year of 35% • Discount rate 9% • Life of wheel is designed for at least 50 years with $100m decommissioning costs net of scrap value. It is indeed possible that with relevant maintenance the Our model shows annual project wheel could operate well beyond this horizon. Vienna’s Iconic ‘Riesenrad’ Ferris cashflow’s of over wheel has been operating since 1897! $50m once the debt has been repaid Material project cash flows start to materialise once the senior debt is paid off with $24.5m in year 7 rising to $54.9m by year 13, the first debt free year. The total project NPV comes out at $323m of which $6.47m is attributable to Challenger based on a 2% stake.

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New York Wheel Project NPV

Years Revenues $m Opex $m Op Profit Interest $m Tax $m Debt repayment $m Net Cashflow $m NPV 2 100.0 (60.0) 40.0 (37.3) 0.0 (2.6) 0.1 0.1 3 150.0 (72.0) 78.0 (35.3) 0.0 (42.8) (0.1) (0.1) 4 150.0 (72.0) 78.0 (31.2) 0.0 (46.8) (0.0) (0.0) 5 150.0 (72.0) 78.0 (26.8) 0.0 (51.1) 0.1 0.0 6 151.5 (72.7) 78.8 (22.2) 0.0 (51.7) 4.9 2.9 7 153.0 (73.4) 79.6 (18.2) 0.0 (36.8) 24.5 13.4 8 154.5 (74.2) 80.4 (14.9) 0.0 (36.8) 28.6 14.4 9 156.1 (74.9) 81.2 (11.6) 0.0 (36.8) 32.7 15.1 10 157.7 (75.7) 82.0 (8.3) 0.0 (36.8) 36.9 15.6 11 159.2 (76.4) 82.8 (5.0) 0.0 (36.8) 41.0 15.9 12 160.8 (77.2) 83.6 (1.7) 0.0 (36.8) 45.1 16.0 13 162.4 (78.0) 84.5 0.0 (29.6) 0.0 54.9 17.9 14 through 51 7,538.7 (3,618.6) 3,920.1 0.0 (1,372.0) 0.0 2,548.1 213.6 52 0.0 0.0 0.0 0.0 0.0 0.0 (100.0) (1.13) Total 9,344.0 (4,497.1) 4,846.9 (212.6) (1,401.6) (416.0) 2,716.7 323.6

Challenger Share at 2% $m 6.47 Source: Hybridan LLP Model

The regeneration of Staten island and Given the capacity of the wheel and the regeneration of Staten Island delivering a solid flow natural foot flow to the of potential passengers the wheel has a good chance of bettering London numbers. Our area gives the project a good chance of beating model assumes a utilisation rate of only 25%. If from the second year of operation the wheel our expectations generated 4m visitors before at an average price of $30 that would generate a further $15m per annum of ticket sales alone. Assuming no extra ancillary revenue and a percentage point improvement to operating margin and plugging that into our model increases Challenger’s share of the net present value of cash flows to $8.08m an improvement of 25%. There of course remains significant execution in the already delayed completion of the wheel, and its operation, but in our opinion it is well primed to become a major attraction in one of the world’s most visited cities. We understand the operating team in place has an exemplary record of running major tourist attractions. Discussions are underway with river taxis and the operators of harbour cruises which between them carry over seven million visitors a year.

2.2.2. The Southeast Asian Wheel, Jakarta The Jakarta wheel could ultimately serve as a template for the provision of Starneth’s specialist engineering services to the pipeline of GOW projects it is assessing, as well as being Challenger’s next equity holding in a GOW operation. In June 2015, Starneth signed an agreement to deliver a Turnkey project for the erection of an Iconic Wheel in the Indonesian capital Jakarta. The 125m wheel is envisaged to comprise eighteen capsules each Should financial close be reached, Jakarta carrying forty passengers. 15% of headline figure is payable on financial completion of should generate revenues of over the project with the remainder being paid over the expected two-year delivery timetable. An $100m in project estimated further $27m is payable for specified items, based on actual cost plus a fixed profit management fees margin of net 10 per cent. The contract provides that all capital purchases are pre-funded by the developer. Starneth is set to receive a minority stake in the project which would give

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the Group its second holding in an operational Giant Observation Wheel after New York. This provides the potential for long term dividend income to Challenger with no capital outlay.

The Contract Agreement envisages the payment of US$98.7 million over the life of the two-year plus contract plus further amounts for specified items, based on actual cost plus a fixed profit margin of net 10 per cent., excluding VAT. These additional amounts are estimated with a total of US$27 million. Starneth has been able to negotiate an uplift to the original fee structure on the back of financing delays. The landsite has been secured but financing delays continue. Initially the project was expected to go live in early to mid 2016. We understand the company is confident financing will complete but until such time Starneth lands a significant project it is likely to remain loss making. We would expect the final terms of the deal to be altered somewhat given the delay. However, the size of these projects should mean that even one would enable profitable trading across their duration.

2.2.3. Extended Pipeline In addition to Jakarta, Starneth is actively pursuing a further 24 projects for Giant It is the company’s Observation Wheels worldwide. This includes negotiations for Turnkey Projects in the objective to secure at least one major project Americas, Europe and the Middle East. Given the scale of the projects it is likely that a per year significant number will not come to fruition, but we believe that there is no competitor in the market with comparable expertise. It is the company’s objective to secure at least one major project per year. This would go a long way to reducing the volatility of financial results and give the company visibility on multimillion dollar revenue streams, and an opportunity to generate annual operating profits from engineering services of over $1m.

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2.3. Equity investment strategy

2.3.1. London Eye validates economic model and the world has followed Having completed its first commercial revolution in 2000, the London Eye quickly became as The iconic status of GOWs is attractive to much a part of the London skyline as the Eiffel Tower is to Paris. The London Eye has also blue chip sponsors been a great success financially as can be seen from the historical operating performance below particularly in the light of the £70m development cost. Since 2010 Merlin Entertainments no longer reports the performance of the London Eye separately. The London Eye is such a success due to the right combination of natural footfall, attractions, and views of key London sites, characteristics which we believe the New York Wheel shares. The Eye’s iconic status has attracted Blue Chip Investors and Sponsors alike, having started life as the British Airways London Eye, before becoming Merlin Entertainments London Eye following the acquisition of Tussauds, then the EDF Energy London Eye and latterly the Coca- Cola London Eye.

London Eye Operating History Year Turnover Operating Profit Margin £000 £000 % 2007 49,062 21,424 43.7% 2008 52,043 24,682 47.4% 2009 56,438 29,087 51.5% 2010 59,577 30,531 51.2% Source: Challenger Acquisitions Presentation.

The man behind Starneth was the The success of the London Eye has generated considerable interest worldwide to emulate it, project manager for the London Eye and the Starneth Team contains much of the Human Capital that can make it happen. The construction CEO of the Starneth Group, Chiel Smits, was the Project Manager for the London Eye project and several members of the former London Eye engineering, construction and erection team are either permanent employees of the Starneth Group or working as consultants on specific projects when required.

We understand that many projects were set back following the 2008 credit crunch. Nonetheless five further GOWs have been completed or commissioned since then with members of the current Starneth team having some involvement with all bar the ill-fated Melbourne Star. Starneth’s pipeline of 25 projects shows the depth of demand for these landmark structures, and we believe the team has the experience to align itself with the projects likely to generate the most favourable returns.

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2.3.2. Well run GOWs generate long term stable high margins

Giant Observation Wheels have long lives potentially way in excess of 50 years and if run GOW’s are long duration assets which well can have operating margins in excess of 50%. There is something innate about Man’s could conceivably operate long beyond desire to view the world from on high. 85 years after opening the Empire State Building the 50 year headline observation decks still generate more than $80m per annum. Given the early age of the lifespan of the New York Wheel wheels, once they reach a stable operating status, they can almost be viewed as an annuity for investors. However, this is contingent on the right location, a competent operating team, and a creative marketing strategy.

2.3.3. Aiming to build portfolio of dividend paying profit streams Challenger’s equity As well as to deliver a pipeline of engineering projects, the Group’s strategy is to build a investment strategy portfolio of select stakes in GOWs around the globe. This may be through stakes allocated aims to build a portfolio of dividend paying as part of Starneth’s project management services, or through the reinvestment of future income streams over the long term profits and shareholder’s capital. As our modelling of the New York Wheel shows GOWs have the potential to generate strong profits with relatively quick pay back times. In the long term, therefore, Challenger could be in receipt of multiple dividend streams which would help to smooth the Group’s cash flows from the relatively lumpy engineering side.

2.4. Valuation

Challenger is at an early stage on the road to executing its strategy, of executing a pipeline of turnkey project management operations for Giant Observation Wheels globally, and building up a portfolio of select stakes in operational wheels. However, in terms of the team Starneth could conceivably generate in place and the discussions underway there is, in our opinion, no entity better equipped to circa $20-$40m of annual revenues per reach this goal. The engineering business is difficult to put a value on at this juncture. There annum based on is little in the way of guaranteed revenue, with much being dependent in the short term, on running one to two projects concurrently. financial completion in Jakarta, and in the medium to long term execution of the wider pipeline. However, over time, based on the Jakarta contract, and previous work done on the New York and Dubai, Starneth could conceivably generate circa $20-$40m of annual revenues per annum based on running one to two projects concurrently.

The pipeline suggests that this could indeed be the case within the next 12 to 18 months At the bottom end of but this is by no means guaranteed. However, we feel the capabilities and track record of this range Starneth could be worth £14.8m Starneth merit some value despite the current lack of revenue visibility. Taking the bottom end of this range, applying 1x revenue multiple and then applying a 75% risk weighting for the current uncertainty gives us a GBP value of £3.7m. However, if Jakarta is financed

However Challenger before the year end, that ought to underpin $20m plus of revenue annually for needs to deliver on the next three years. This would enable us to remove our risk discount and contracts and plug its funding deficit correspondingly quadruple the valuation of the specialist engineering division to £14.8m. There would still be scope for upside from additional pipeline conversions. Our

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valuation of the New York Wheel investment is currently £4.8m but in a scenario where visitor numbers exceed 3.5m annually we can see this going above £6m. The base case suggests a total enterprise value of £8.6m against a current market cap of £3.84m. However, Challenger currently has borrowings of circa £6.9m leaving an equity value of just £1.7m.

Delivery of Jakarta or a similar project could The Company’s immediate future is highly dependent on the completion of the Jakarta unlock significant value contract or one of the other potential major contracts in its pipeline. Based on the above a multiple of the current market price logic such an event could take our valuation up to an equity value of 11.6m, three times the current market value. This does not account for the value of any equity stake granted in Jakarta or the other Giant Observation Projects being discussed. However, if significant revenues are not secured before the year end the, Company will require further funding. There are clearly material short term risks involved in an investment in Challenger, but the potential upside on successful execution of the strategy is a multiple of the current market value. The recent dismissal of a legal claim by Madison Markets removes one worry that has been concerning investors. Commercial and financial progress is now what the market wants to see.

3. Recent financials

Challenger recently reported H1Jun2016 results. It recorded revenues of £2m and a loss of £1.5m with trading being impaired by the delay in Jakarta. The balance sheet showed a net current liability position of £4.2m. Within that would be the second anniversary payment to Starneth (now deferred) and £2.8m of convertible notes meaning that it is not all cash liabilities. With fixed costs of circa £250k/month and approximately $800k in revenue left to claim on the NYW project, it is clear that without a commercial launch of Jakarta or one of its pipeline projects this year, the Company will require further financing before the year end.

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4. Financial Tables

Pre-Acquisition Starneth Group Summary P&L

Audited Audited Audited Unaudited year year year 6 months ended ended ended ended 31-Dec 31-Dec 31-Dec 30-Jun 2012 2013 2014 2015 €’000 €’000 €’000 €’000 Continuing operations 60 4,393 11,420 5,980 Revenue - (3,059) (7,291) (2,588) Cost of sales 60 1,334 4,129 3,392 Gross profit (87) (1,284) (3,043) (1,754) Administrative expenses (27) 50 1,086 1,638 Operating (loss)/profit - 3 29 22 Finance income Finance costs - (51) (6) (13) (Loss)/profit on ordinary activities before taxation (27) 2 1,109 1,647 Income tax expense - - - - (Loss)/profit after taxation (27) 2 1,109 1,647 Other comprehensive income - - (1) (7) Total comprehensive (loss)/income attributable to equity shareholders of the Pre-Acquisition Starneth Group (27) 2 1,108 1,640 Pro forma loss/earnings per share attributable to owners of the Parent: Basic and diluted (cents) (0.21) 0.02 8.48 12.59

Source: Challenger Acquisitions Prospectus, 2 December 2015

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Challenger Acquisitions P&L

Period ended Period ended 30-Jun 30-Jun 2016 2015 (unaudited) (unaudited) £'000 £'000 Revenue 2,029 - Cost of sales -1,553 - Gross profit 476 -

Personnel expenses -498 -18 Administrative expenses -966 -669 Operating loss on ordinary -988 -687 activities before taxation

Finance costs -521 -68 Loss before income taxes -1,509 -754

Income tax expense - - Loss after taxation -1,509 -754

Loss for the period -1,509 -754

Other comprehensive expense -20 -

Total comprehensive loss attributable to owners of the -1,529 -754 parent

Loss per share: Basic & diluted -0.11 -0.09

Source: Challenger acquisitions interim results statement, 30 August 2016

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Challenger Acquisitions Cash Flow

Period ended Period ended 30-Jun 30-Jun 2016 2015 unaudited unaudited

£'000 £'000 Net cash used in operating activities Loss for the period before taxation -1,509 -754 Depreciation and amortisation 39 - Share option charge 5 - Finance cost 521 - Operating cash flows before movements -944 -754 in working capital Increase in receivables -508 -5 Increase in accounts payable and 88 263 accrued liabilities Net cash used in operating activities -1,364 -496 Investment in property, plant and -16 - equipment Investment in available for sale financial -805 -1,976 asset Net cash outflow from investing -821 -1,976 activities Issue of ordinary shares net of issue - 1,020 costs Issue of convertible loan notes net of 2,402 2,532 issue costs Finance Cost -108 -

Net cash inflow from financing activities 2,294 3,552

Net increase in cash and cash 109 1,080 equivalents

Cash and cash equivalent at beginning of 325 - period Cash and cash equivalent at end of 434 1,080 period

Source: Challenger acquisitions interim results statement, 30 August 2016

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Challenger Acquisitions Balance Sheet As at 30 June As at 31 December 2016 2015 unaudited audited £'000 £'000 Assets Current assets Cash and cash 434 325 equivalents Trade and other 699 202 receivables Total current assets 1,133 527 Non-current assets Property, plant and 144 140 equipment Intangible assets 4,811 4,817 Available-for-sale 2,781 1,976 financial assets Total non-current 7,735 6,933 assets

Total assets 8,869 7,460 Equity and liabilities Capital and reserves Share capital 149 133 Share premium 2,508 2,080 Shares to be issued 1,650 1,650 Translation reserve -23 -3 Reserve options 583 9 Accumulated deficit -4,110 -2,601 Total equity attributable to equity 756 1,268 holders

Current liabilities Borrowings 4,243 4,374 Trade and other 1,134 1,046 payables

Total current liabilities 5,377 5,420

Non-current liabilities Borrowings 2,736 772 Total non-current 2,736 772 liabilities Total equity and 8,869 7,460 liabilities Source: Challenger acquisitions interim results statement, 30 August 2016

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5. Board of Directors and management

Mark Gustafson Chief Executive Officer Mark 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 totaling over 200 million Canadian dollars (CAD).

After qualifying as a Chartered Accountant with Price Waterhouse, Mr Gustafson 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 CAD 229 million 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 CAD 25 million. He also served as Chairman and Chief Executive Officer of Triangle Petroleum Corporation where he helped to lead active exploration shale plays in North America and to raise over USD 84 million in convertible and equity instruments. More recently, Mr Gustafson held the position of President and Chief Executive Officer of Euromax Resources Ltd. where he was responsible for securing funding of CAD 18 million 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 CAD 50 million in private equity funding to advance this project. Mr Gustafson is experienced in successfully developing and growing start-up businesses through focused acquisitions into commercially viable companies.

Markus Kameisis Chief Financial Officer 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, Germany, Mr Kameisis joined UBS in Luxembourg and following promotion to Associate Director, he moved to UBS in Switzerland where he worked on a finance IT platform project 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.

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In 2013, Mr Kameisis was recruited by Gutenberg Group AG, a FINMA regulated financial services group with a banking license, 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 Mr Kameisis agreed to support the Group during this transition as the CFO. In August 2014, Mr Kameisis founded an outsourcing and advisory firm for SME companies called Icelia AG, for which Mr. Kameisis 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.

John Le Poidevin Non-Executive Chairman John Le Poidevin, aged 45, 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.

Richard Marin Non-Executive Director Richard is currently President and CEO of The New York Wheel, LLC. He is a finance industry executive with 37 years' experience with previous positions including Chairman and CEO of AFI (USA) Inc, a major commercial property developer, former Chairman and CEO of Bear Stearns Asset Management, a member of the Management Committee of Bankers Trust Company, and Chairman and CEO of Deutsche Asset Management, Inc. He is a Founder and Partner of Beehive Ventures LLC, and is a General Partner of Green Visor Capital LLC. Mr. Marin was CEO of Ironwood Global LLC, a hedge fund, when it was self-liquidated in 2012.

Mr. Marin is a member of the faculty of the Johnson School at Cornell University where he is a Clinical Professor. He is Chairman Emeritus of the Johnson School's Advisory Council and was elected to the Johnson School Hall of Honor in 2001. A 1975 graduate of Cornell University with a BA in economics and government, Mr. Marin received an MBA in finance

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from the Johnson School in 1976. He is also an adviser to Penbridge Advisers and is a director of CARE, the global relief and development agency.

Gert Rieder Non-Executive Director Mr Rieder has over 20 years of experience as a 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, Mr Rieder joined leading telecom provider Tele Danmark where he took on a series of commercial roles finally becoming a Product Director. 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 the Executive Board, focusing on restructuring the organisation with an emphasis on strengthening the customer service and sales operations.

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. Mr Rieder 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.

Machiel (“Chiel”) Smits CEO of Starneth Group Chiel Smits, aged 57, is a native Dutchman with an engineering degree from Dordrecht Hogere Techniche School. Before founding Starneth in 2007, he was a core founder and board member of the Corporation acting as the Chief Technical Officer and working on start-up development of wheels in , Orlando and . 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 Chief Executive Officer 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.

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Leonardus (“Leon”) Heijkoop Senior Manager Leon Heijkoop, aged 49, a native Dutchman with an engineering background, has been based in the Middle East since early 2005. Prior to joining Starneth in 2013 he worked as regional manager in the Middle East for the and as a project manager on various construction and fabrication contracts for amongst others Hollandia B.V., the steel construction company, and Lamprell Energy Ltd. Leon has more than 20 years of experience in project management and construction services in the oil and gas industry as well as leisure and entertainment. At Starneth Group, he is the Managing Director of SME Engineering JLT, with a regional office in Dubai. Under Leon’s leadership, the Starneth Middle East’s project management team worked as a subcontractor on the Dubai-I, the giant observation wheel which if completed will be the largest observation wheel development in the world. Leon’s main focus is now on expanding the Starneth Group’s business in the Middle East and India.

Wil Armstrong, President Starneth America

Qualified engineer with over 30 years operational and management experience in the amusement and attraction industry Previously Vice President and General Manager of the Corporation with responsibility for managing a team of independent consultants, architects, engineers, accounting and legal advisors Responsible for all new GOW’s in North America, South America and Latin America.

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6. Significant shareholders and loan notes

Shareholders GSC Global Fund – 17.5% Smits International ( Controlled by Chiel Smits) – 8.3% Mark Gustafson, CEO – 4.7%

Loan notes Quantum £ Due Coupon Conversion price 1,970,431 06-May-17 12% in cash or shares Lower of 50p or 3 day VWAP less 7.5% 1,030,331 30-Jun-19 8% (1% shares/7% new notes) 80p at holders' option 500,000 02-Mar-17 5% in cash or shares 25p at Company option 500,000 22-Apr-18 8% in cash or shares Lower of 25p and lowest 10 day VWAP 500,000 10-Jun-18 8% in cash or shares Lower of 25p and lowest 10 day VWAP 4,500,762 Source: Challenger Acquisitions internal records as at 12 September

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7. Research Disclaimer

This document should not be relied upon as being an impartial or objective assessment of the subject matter and is not deemed to be “independent research” for the purposes of the Financial Conduct Authority rules. As a consequence the research (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research (although Hybridan does impose restrictions on personal account dealing in the run up to publishing research as set out in our Conflicts of Interest Policy).

Hybridan LLP is involved in providing other financial services to Challenger Acquisitions Plc (the “Company”) and as a result Hybridan LLP may have responsibilities that conflict with the interests of the persons who receive this document.

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