AHF dairy farm sell down, page-28

The North, South splits were the old, original names given to each of the farm acquisitions. ASX 14/7/15.

In AR17, Brucknell 1 had a carrying value of $4,126,837. This however was after several different impairments along the way. Originally acquired in October 2014, Brucknell 1 cost $4.460M, comprising a $4.395M purchase price and $245K in acquisition costs. Refer PDS @p49. This however was contradicted by H15 @p19 which referred to Brucknell 1 in reverse to Brucknell 2:
The cost of land and buildings is comprised of $4,637,343 inclusive of transaction costs for the acquisition of the Brucknell No 2 farm at 463 Moreys Road on 22 October 2014 and $4,224,422 inclusive of transaction costs for the acquisition of the Brucknell No 1 farm at 417 Moreys Road held by the Australian Dairy Farms Trust at stapling date, plus capitalised development costs on both farms since acquisition of $221,400.

Page 49 of the PDS makes clear this error in judgement:
Record dairy farms at fair value – The independent valuation of the combined dairy farms, assuming completion of the laneway improvements, assessed by Roger Cussen at $8,057,000 (see note 7.3(f)). The net loss on revaluation of the combined dairy farms has been calculated, for proforma purposes, as follows:
Note $’000
Brucknell No 2 Farm – at valuation 7.3(f) 4,203
Acquisition of Brucknell No 1 Farm – at cost 7.3(a)(ix) 4,640
= 8,843
Independent valuation of combined dairy farms 7.3(f) (8,057)
Net loss on fair value adjustment 786

Further, in AR15, the farms were described in the following way:
The cost of land and buildings is comprised of $4,637,343 inclusive of transaction costs for the acquisition of the Brucknell No 2 farm at 463 Moreys Road on 22 October 2014 and $4,224,422 inclusive of transaction costs for the acquisition of the Brucknell No 1 farm at 417 Moreys Road held by the Australian Dairy Farms Trust at stapling date, plus capitalised development costs on both farms since acquisition of $221,400.

So:

• in the PDS, B1 had a AQC (acquisition cost) of $4.640M and B2, an AQC of $4.203M;
• in H15, B2’s AQC was put at $4.637M and B1’s at $4.224M;
• AR15 held the same line as for H15;
• The ASX 14/7/15 release including aerials and graphics, described North as 2 and South as 1;
• Since AR15, the line has been held.

The resulting confusion in all this however shows no bounds.

That said, the most that we can assume is that management, valuers, the board and the auditors have since gone about and simply rebranded themselves along the way such that the 1 and 2 of 2014 (and indeed, the reverse of this in 2015), now hold no substance. As such, we can only work with AR17’s proclamation that B1 (which is South according to the 2015 graphics) had an AQC of $4.224M.

Now, by AR17, B1’s CRV was $4,126,837.

Through the years, B1’s carrying value has progressively changed over time:

	Column 1	Column 2	Column 3	Column 4
0	Entity	Date	AQC /CRV	Source
1	B1	Oc14	4.224m	PDS, H15, AR15, depending on version
2	B1	H16	4.285m	HYR16
3	B1	F16	4.140m	AR16
4	B1	F17	4.126m	AR17
5	B1	H18	4.116m	HYR18

Currently, B1 (if all is as is being said) is on the market (XOI, albeit since closed, so now an open listing?), for $3.9M albeit with no bites /interest happening. If however this is correct, then the resulting impairment risk is at least $216K (or -5.25% since AR17). Mind you, no re-valuation was carried out at H18.

At the time of H18, AHF had the following to say about the farms generally:
With an effective date at 30 June 2016, registered valuer Mr Roger Cussen provided an independent valuation of all farms in light of recent sales evidence at the time, assessing the fair value of the combined properties at $19,508,692.

At H18, the farm CRV was $19,417,456, arguably reduced from Cussen’s 6/16 valuation on account of depreciation but not any further valuation adjustments.

According to AR17, in F16, this resulted in the BOD:
Adjusting the carrying cost on the basis of the independent valuation resulted in an impairment of $1,809,399 for the year ended 30 June 2016. (For F18 the) directors have adopted the same valuation for the year ended 30 June 2017, less depreciation.

In light of these trends, the suggestion now is that the H18 farm CRV (depreciation only adjusted), has potentially been impaired by at least 5.25% across the board. If so, then F18, PF18 and AR18 are all shaping up as likely attracting a CRV 17 to 18 impairment of $1.02M (rounded to $1.0+M), judging by the difference between the H18 B1 and “for sale, current offering” values.

Add to this:

1. the clear and apparent impairment likely to be made to CDC;
2. the H18 operational loss of $865,000;
3. H18 repeating /deteriorating into 2H18 (particularly given the marked 3Q18 CF deterioration);
4. the likely charging of Skene’s performance bonus of $420,000+ (settled in shares), announced to the ASX in very early July; and
5. factoring for the likely CRV farms impairment (as outlined above), of $1.0+M,

suggests that if the B1 value is to be believed and if the listing in question is actually for B1, then, the likely /probable operating loss for F18 could well be (865 + 865 or worse + 420 Skene + CRV farm impairment of $1.0+M + CDC impairment ???) >$3.15M+ (not including any probable CDC impairment or the ODFC exit).

The ODFC exit however may well add back $737K of this, depending on how this is accounted for, and the timing of payments, etc. If so, then the probable F18 impact (exc any CDC impairment) could be upwards of $2.413m (c$2.4m).

So, the suggestion of B1 being no longer required, whilst quite probable, will also likely come at significant extraction cost to the Company as it traverses this long dated transition to organics. This therefore suggests another reason for the B1 exit à a need for cash, and very likely, a need to repay /pay down the $10.0M CBA facility which itself is now current, as it falls due for repayment on 15Apr19.

This all still points to a further CR happening within the near term (c<12m)) – quite arguably at a discount (not premium) to market (then prevailing, whether actual or as VWAPO adjusted, etc).

A continued tortured, transitioning, transformational exercise of changed origins and uncertain futures. This is AHF’s present story assuming, for example, that the farm being advertised is actually South, or is B1 (whether as now rebranded, etc). Time, will tell.