On 29/7/16, Michael presented to the XGM which had been called to approve BOD’s and XMAN’s new performance arrangements, etc. Remember, these were the performance rights with the low strike prices (at least, they were, back then). At the same XGM, Michael also had the strike price on his convertible notes reduced from 20c to 18c (and then equally applied this to the CVN interest component which he should not have done).
The presentation given at that XGM explained CDC’s “then, now and forever” (to take a WWE turn of phrase) capacity utilisation rates. They were impressive and showed strong, future leading promise. For example, the CDC “target” (so, read actual where express in relation to the here and now, or the past and before) capacity utilisation rates were:
Q1F16 (ie: Sep Q, 2015) - 40%;
Current run rate (Jul16) - >60% (on the chart, it looked like circa 62%); and
End Jun17 target run rate - >80% (on the chart, it looked like 82+%).
At the time, the key observation being made was è “At end of current financial year, we will have moved towards optimum asset utilization.”
“Optimum Asset Utilization”, what is that? In commercial, business and operational terms, it means that operational plant functionality will either be at, or very rapidly approaching its peak performance capability, so in the context of processing functionality, for example, it would mean processing through >29.5M/L, or >81,000/L per day.
In yesterday’s announcement however, AHF disclosed that, far from reaching that CAU /peak performance attribute, they have so far missed the mark by >60%. Consider for example, the following observation from yesterday:
…
“A modern, computerised, purpose built in 2010, manufacturing plant with a processing capacity of 100,000 litres per day of fresh milk plus yoghurt and butter operating below 50% capacity.”
So, far from processing through >81,000/L per day, they have actually (ie: going into end June and continuing currently so through July) been processing at <50,000/L per day. Most likely however, they are operating at somewhere between 40-46% of CAU capacity, meaning that they are processing somewhere between 40,000 à 46,000/L per day or 14.6M/L à 16.8M/L per annum. This is well short of the 29.5M/L per annum, plus, processing throughput that they represented back at the Jul16 XGM.
Taking this however in another way, and considering some of the information provided to the AGM. In Jul16, CDC income (revenue) was $1.532M. The Aug16 revenue was $1.552M. Taking the relative mean between the two suggests that, at a 62% CAU rating, the expected CDC revenue performance would likely have been $1.54M. So, at 82% CAU rating, the expected CDC revenue performance should have been $2.04M. Instead of this however, it is likely to have been at somewhere between 42à46% of rated CAU performance, or $1.045Mà$1.145M (call it at $1.1M for transparency purposes).
In the first 4 months of F17, the CAU rating was, in effect the following:
Column 1
Column 2
Column 3
1
Month
CDC Rev
CAU rating
2
Jul16
1.532M
61.7%
3
Aug16
1.552M
62.5%
4
Sep16
1.769M
71.2%
5
Oct16
1.318M
53.1%
6
Then YTD
6.171M
62.1%
During H17, the CAU rating was, in effect the following:
Column 1
Column 2
Column 3
1
Month
CDC Rev
CAU rating
2
Q1
4.853M
65.1%
3
Q2
4.208M
56.5%
4
H17
9.061M
60.8%
5
So
6
- Oct16
1.318M
53.1%
7
- Nov Dec16
2.890M
58.2%
8
- 2Q17
4.208M
56.5%
Now, however, the CDC CAU rating is <50% and most likely, somewhere between 42à46%, but for argument sake, at upwards of $1.1M in monthly recurring revenue.
Going back to the 3Q17 operational cashflow report, the forward projected operating costs for CDC in Q4 were:
Product manufacturing and operating costs - $4.713M
Staff costs (not certain what share of these belong to CDC) $1.085M
Just looking however at the PROMOC costs of $4.713M, this suggests that on a sub-50% CAU rating, the CDC facility would likely be bleeding cash of >$600,000 quarterly, even if all the high end processing, only, was occurring.
At best, through to Oct16, CDC was operating on an 8% net margin basis, but this was with the CAU rating at upwards of 62%. Recalibrated to <50% means, at best, that CDC is producing a net margin breakeven position (at best) through to a 10%+ net margin loss (at worst), absent any corrective actions having been taken such as cutting staff, reducing shift runs, closing down one of the shift lines, etc.
However, even if some of the calibrated figures are potentially wide of the mark, it is difficult to see how CDC would have generated revenue >$4M during Q4, or more the point, receipts of >$4.7M which is the minimum that would have been required in order to cover the PROMOC costs.
Considered in another way, there is no other words for it other than “loss making” which is exactly where the CDC processing functionality presently sits on the back of a sub-50% CAU rating.
No wonder then that quite recently Peter was talking about the raw milk price, etc. He needed to because (*) CDC is not utilising all of AHF’s in-house milk production, and (*) CDC is presently bleeding cash, whilst AHF is losing money NWS all the other shenanigans that are going on. Talking yesterday then of doing the farm re-capitalisation really then is code for the fact that AHF’s cash reserves have very likely dwindled considerably during Q4 which then explains the recent SP rises (etc). They are about to do a private placement, not for strategic purposes, but for reasons best associated with having to shore up the cash reserves.
CDC’s prospects therefore have become lumbered by having three albatrosses wrung around its neck à (*) TAU’s ongoing cash grab arrangements, (*) a derelict and totally inept board, and (*) having a misguided, uneducated, and morally bereft strategy process sin place which smacks of illusion, rather than delusion; failure rather than success. Since early 2016, this is about the 4th or 5th strategy intervention that Michael and his team have engaged in, all of which have been about smoke, puffery and nothing of essence. It will however be Michael’s last strategic hurrah as the hull has now been breached and very shortly the Q4 operational cashflow statement will likely affirm this (remembering however that the CDC customer receipts flow is +30-45 days, whilst the milk customer receipts flow is +14-30 days).
All in all, with what yesterday disclosed, Michael should have pre-announced. The fact that he hasn’t doesn’t therefore mean that there is something better to be announced very soon, but rather that both the operational quarterly and the full year interims are likely to toss up some further surprises.
