Ann: AHF Strategy Overview Presentation, page-23

If you look at p8 and the SWOT analysis, you will see the Opportunity reference to - Recapitalise via Farm Asset restructure. This is code for the need to do a restructure /capital raising as otherwise, the business will be $, capital and revenue constrained. Perhaps there has been too much milking of the cows.

Then on p9 at 9., in reference to "market capitalisation in excess $250m and strong earnings and shareholder distribution history", this is misleading because:

1. There has been no shareholder distribution history, to date.

2. The only way to get to $250M mcap in 5 years time will be via significant capital raisings which is what the SWOT is pointing to. Having a $250M mcap does not mean the same thing when there are 700M shares on issue, as opposed to 192M shares. The 500m variation in shares on issue is my way of suggesting that, even if done @20c, this would only raise $100M in fresh capital (or, if done @15c, $75M; or if done @12c, 60M).

3. The "big picture" (which must have been written for a Y9 school project) calls for 30+ farms (presumably, within 5 years) - refer p12 - under a structure where AHF maintains a 10 - 20% "tangible interest" and "long term supply commitments". Trying however to get something going akin to what Costa and Macquarie have done is doubtful. Hvaing already eaten the shareholders alive, they themselves will then likely be eaten alive. But even if done, using Heywood #1 (Sep15) as a guide, the following are likely to be the typical farm acquisition numbers, going forward:
* 1000 acre farm = $4.75M.
* stamp duty = regardless of any concessions on offer - heaps. It is unlikely however that there will be any concessions available in this type of scenario, meaning that rates of up to 6% ad valorem could well apply.
* CAPEX requirements = $750K per farm.
* herd costs = 600/700 minimum requirement, so at circa $800/head = $500,000+.
* costs of acquisition, etc = $30 - 50,000.
* conservative cost estimate per acquisition (including to get up to quick functional operation) of - $6.05M + stamp duty (so, anything up to or around $6.4M). Call it, $6.5M on a standard operating basis.

So, 24 farms minimum required, within 5 years, at an effective cost of $6.5M on a standard operating basis, using however Sep15 settlement closing as the price base. To make this current, add arguably 15% to the pricing equation which then gets you to - $5.45M + all the added extras, so upwards of $7.35M (call it, $7.5M for safety of margin purposes).

This suggests therefore the need to acquire 24 properties at an operational ready cost of circa $7.5M each, in current Jul17 $ terms), or $180M+, of which the BOD expects to then retain a 10 - 20% "tangible interest", so circa $18 - $36M in effective farmhold value.

To get to this, they will likely have to also sell the existing farms into the equation, at a current cost of probably sub-$20M. After all, they have been relentlessly knocking down the value of the farms ever since having first acquired them back in 2014. Just ask their annual valuer.

So, even to participate (and assuming $20M in realised sales value -let's be generous here, with this being the amount after the 10 - 20% "tangible interest" retention amount has been built in), they will likely have to raise a very significant amount indeed.

The likely required amount, after first paying CBA back the $10.5M that it is owed, would be (20 - 10.5 - 36 =) $26.5M in new, required funding support (just to have a 20% "tangible interest" in each new farm). None of this interest however is likely to be supported by any form of future bank funding, so therefore would require future CR efforts. Right now, however, AHF's SP is @14c which effectively values the Company at $27M.

So, to contribute, AHF under this "Big Picture" arrangement would have to raise 100%+ of its current market capital (assuming nil discount to market) and that's without doing anything else in the form of plant, processing, product development, distribution, etc.

Considered in another way, just the "tangible" participation, will likely require (under current SP conditions) for AHF to go above 400M shares on issue whilst actually losing its existing farms in the process.

Now, if 6 farms (including the feeders) are going to produce 17M/L, 30+ farms will likely produce 85M/L although it seems that their milking target here is 100M/L or more.

With however a processing capacity of only 36M/L, it is likely that a future processing capability of +3x will be required, suggesting that another $30 - $40M (minimum) in required future investment will be necessary. That's a further 1x - 1.5x the current mcap, so another 200M - 300M in required shares to be issued (ie: at current SPs).

So, now, we are suddenly at 600M - 700M shares in circumstances where AHF might own $36M in supporting farm assets, after having spent upwards of $40M on a new processing facility.

In many circumstances, this would be fine, apt even, but in circumstances where (@p9) they talk about a future mcap (in 5 years time) of >$250M, what they are really talking about is a future heralded SP of 36c - 42c maximum (range bound). That's nowhere near as exciting for shareholders (including any continuing BP shareholders) who have held or maintained a buying average at circa 25c, or indeed, any of those shareholders who originally bought in @20c. And so there lies the problem - management and the board still don't get it, if if they do, they have already lost it. Pity. The Company had every potential of going somewhere, but not under this leaching pack of parasitic larvae. And to think that CDC's processing utilisation was higher 12 months ago than what it is today (<50%). A serious, retrograde step, that.