Ann: Organic Market Update, page-4

Key comments:
1/
The Camperdown Dairy factory at Camperdown is already certified to receive organic milk and process it into organic products such as butter, yoghurt and bottled milk.

This refers to the JV facilities which terminated 2/7/18. So, yes, they have this capacity in place.

2/
In March 2018, all of the Group’s dairy farms completed applications to convert to certified organic dairy milk production, which is a three-year process.

This does not refer to anything approved. Rather, applications have been filed as part of "a three-year process". So, until approved, the milk supply will be coming from external third party farmers and not from AHF's own farms. This then calls into question the farm gate pricing referred to last week (of $6.00 spread across all farms) as this now seems to refer solely to white milk, not to organic milk. Equally, it would appear from today's announcement that presently there are nil supplies of organic milk into CDC from AHF's own farms (and it will be some time yet before this occurs). Instead, the organic milk supply will be coming in from already certified, third party, external dairy farm producers (not from AHF's own farms).

So, putting this into context:
1/
AHF's farms will essentially be selling white milk to the external market rather than internally utilising much of this supply. As such, a lock-in price for this of $6.00 at the farm gate is not margin growing (but rather, either maintaining the status quo or treading the surface). This also caps any foreseeable EBITDA (or better) margin results for the farms segment in F19.
2/
The F19 organic supply opening price elsewhere is >$8. Silence however on this from AHF suggests that they are likely paying higher than this in order to lock in credible third party source supplies. This is especially so considering that ODFC's exit has effectively left AHF bereft of access to a substantial portion of the SW organic supply segment. If however this were otherwise, then likely this would have been announced or referenced as part of the ODFC JV exit announcement of 2/7/18.
3/
Whenever an announcement comes out with pictures, graphs and tables of the industry /segment as a whole, rather than of the opportunity specifically (or of the definite financial benefits of the opportunity to AHF), then it is, becomes and remains, aspirational rather than either financial or specific.
4/
Today's announcement (beyond some further aspirational thinking, no outlook, no financials, no solid benefits yet being stated) presents nothing new from a fundamentalist perspective and certainly nothing new in terms of any future, financial trends.
5/
If anything, today's announcement reads more ominously than this from a financial outlook perspective. This is especially so in what it is not saying:
- higher priced organic milk supply commitments;
- impacting against prospective margin;
- time required to build up (multi-year time frame required);
- continued margin challenge; and
- a long term road yet to be fully traveled in relation to the organic farm switch).