Ann: AHF Strategy Overview - Webinar Details, page-77

There were some parts that I almost fell asleep over as they were that vague or unrepresentative as to not make much sense. Mind you, since then I've had to do a conference with counsel in another matter and finalise a position paper for an upcoming mediation. Hence, the below has taken a few stops and starts /interruptions.

In broad terms:

Run rates
This has been explained explained or fobbed off by reference to changes in product mix, etc being processed through. One example given was in respect of one customer where the cream is not supplied for processing through as opposed to being processed in a raw state (ie: as milk, etc).

Sales
Confirmed that capacity is running at below 50%. This has not yet been arrested. No comment however as to whether this will cause impairment testing on the CDC business segment. Likely it will, or should, as the change is material to expectation especially as they confirmed that some time back, they were operating at >60% and originally they expected an F17 end RR of >80%.

They did however mention that CDC sales were up 9%, but this was on the comparables to 12m ago. As best then as this can be extrapolated (my spin on this) - At AGM16 the YTD financials were provided which showed Jul16 sales at $1.53M. They then rose to $1.55M in Aug16, and $1.768M in Sep16 before then falling back to $1.318M in Oct16. The 15/4/16 - end Jun16 sales position however was $3.162M spread over 2.5 months, for an average of $1.265M on a recurring monthly basis. As an extrapolation, I have therefore taken the midpoint of this and the Jul16 figures to arrive at a 12M ago baseline of $1.4M. Adjusting this by +9% gets me to $1.52M. Allow then for a 5% margin of error to the upside, and I then get to $1.6M. This then is where I believe that the current CDC sales position is sitting at.

Conversely, if we use the Jul16 figures (even though we are only 1/2 way through the month), we get to $1.667M. Take off then 5% of this for risk, and again we get back to $1.584M. Even however if we were to take 2.5% off for risk, we get back to $1.625M.

Yet, with the 3Q17 CF report, the forward forecast for Q4 was provided which put the CDC costs for Q4 at:
* Product manufacturing and operating costs = $4.713M
* + share of Staff costs = $1.085M.

This puts CDC's cost run rate at $1.6M + share of staff during Q4 which, even if we were to take the most optimistic of positions state din reference to the Jul16 comparison would suggest that CDC is currently in a loss making position (up to circa $500 - 600K per quarter) until such time as that RR gets back to well over the the 60% mark.

Measured in context, I heard nothing today that suggests that, at end June, CDC was operating profitably. It may well be heading back to this point (now or tomorrow) but it wasn't at end June.

Geelong office
There is no Geelong office. Don't know how this came about. No intention to have HQ in Geelong. Do however have an office in Laverton. Noted that they are only 12 months into "a 5 year plan" (first we knew of them already carrying out and executing their strategy plan). Time will therefore tell, but conscious of this.

Corporate trustee status
Application for an AFSL licence in with ASIC but there is a backlog there (their words - I don't agree with this. The backlog might be several months but certainly not 9-12 months). Once however the licence is in place, then TAU exits and the trustee process is internalised.

TAU's costs
Considered to be reasonable and well below comparable positions adopted elsewhere. Also, below what was set out in the IPO documents, etc. Done on a "cost recovery" basis only and is quite cost effective. Again, their words (well under what was advised to the market when at IPO).

Explained the costs thus:
* F14 - 18,000
* F15 - 256,000
* F16 - 338,000
* F17 - 275,000

Large proportion of the F17 costs not yet paid to date and still sit provisioned on Balance Sheet.

Directors' Fees
Very low by comparison. Significantly below what should be recovered for. Michael @75,000. Adrian @50,000. Approvals in place much higher than this. What was not said however was that the approvals are in place for a 5 person external board, not a two person board.

Farm business
All admin etc for the farms business is done by TAU, solely on a cost recovery basis.

Business
Considered the business to be sizeable and complex yet the fees charged by TAU are modest in comparison to what they could have been.

New opportunities
All vague here. Nothing too much explained. Advised that customers were approaching with interest in various areas. Some of these are being considered further and may well translate to new opportunities, etc.

UHT
Considered to be one area of activity that they are looking into, not necessarily for domestic but for export.
China
Not ignoring or given up on China, but considering new opportunities (etc). Not further explained. All rather too vague. Nothing of Lian He.

Growth
Suggesting that there has been new growth in processed output and that this is well up on comparable positions of last year (ie: seemingly suggesting higher margin products, rather than bulk, etc, but otherwise not further explained).

Farms
Discussed about unlocking the farming value but again here much of what was said was vague rather than enlightening. The primary suggestion seemed to be about taking some underlying interests in new farms etc, with supply etc contracts in place (maybe like, take or pay). But otherwise not further explained.

Past
Did not want to discuss anything concerning the past nor any of the questions raised relating to it. Only wanted to consider what was set out in the Update. Through extrapolation /interpretation, considered that the past was justified, etc.

Feed costs
Last year was circa $3.5M. This year, looking at it being $2.5M+. Could range up to $3M, but still significantly below comparable periods. Nothing however said about herd size. Nor about the "real" impact of all the pasture and farming improvement works which were meant to significantly reduce the feed costs going forward.

Personal note - at H17 - feed costs were put at $1.5M. So 2H17 costs appear to have been similar.

Other Dairy Related Costs
Noter explained. These were $733,000 at H17. None of this was explained either in H17 or in the Webinar. The H15 comparative however was $333,000.

Cash conservation
This was emphasised several times throughout the webinar, both in terms of reducing costs, or waiting for now before changing things. Otherwise this wasn't further explained. However, given that Q3 ending cash was $1.452M, it is fair to suggest that Q4 ending cash was considerably less than this and quite possibly, sub $1M.

This also seems to be why they emphasised that TAU has not yet been paid all of what it is or should be owed. The currently o/s figure here sounded liked $138,000 but I couldn't be sure of it.

Management costs.
Apart from working on internalising the trustee structure (ongoing now for ~12 months), they are now looking to reduce costs elsewhere.

Cash position
This suggests to me that they will soon need to do a private placement as the cash reserves are diminishing, not yet improving. They seem however to be intent on trying to hold off on this as long as is possible as seemingly they do not want to do any type of placement or raising at sub-20c. Trouble is, they also look hamstrung at their ability otherwise to do anything else including about taking on opportunities (assuming that they are there).

Camperdown
They mentioned the comparative name, etc confusion. Seemingly they tried to pin much of their woes on this.

Attendance
Adrian and Peter led the webinar. Michael was not in attendance or if he was, he was off-mic.

Board matters
Nothing mentioned about either adding to or refreshing the Board.

F17 outcomes
Nothing pre-announced. Not said or explained. Mind you, nothing either was said to suggest, engender or deliver confidence, nor for that matter, about how the H17 losses will be made up (ie: in reference to 2H17 and F17).

Farm valuations
Silence on this point.

In summary
Nothing new, edifying, interesting or innovative said. Quite mundane. No lifting of the fog which has fast enveloped this company and is showing no signs yet of burning off. In essence however, at end June (base don my interpretation of what was said):
* Q4 operating CF was likely -ve.
* 2H17 break even at best.
* F17, whole of year loss.
* Need to conserve cash. need to cut costs. Board doing far better however then what they have been given credit for and so obviously deserve more accolades, support and credit. Skene however still on a veyr tight lease.