Ann: AHF Strategy Overview Presentation, page-73

Alway, not likely. at the H17 mark, AHF announced that it had lost $1.035M which included the dodgy Equity settled remuneration - securities and options expense of $871,000. Without this, the loss would have been -$164,000.

To make up the required ground therefore 2H17 profit would have to be >$1.035M.

Problem is, at the 1/2 way mark, operating CF was +$259,000. In 3Q17 however, it was -$152,000, at a time when it was expected to be +ve. Doubtful then that 4Q17 operating CF has performed any better than this. Remember however that at the time of the H17 outcomes being formulated, CDC's utilisation rate was 60.8%. In this regard, refer to my post concerning this from yesterday --> Post #:25814103. In Tuesday's strategy update, CDC's utilisation rate was put at "under 50%". In Post #:25814103 I then extrapolated this to suggest that CDC is functionally now operating at a loss. Indeed, any functional operation below 50% is very likely loss making, to break even, at best (but not profitable).

In this regard, it is very interesting indeed that >48 hours later, no WebnAir details have been provided. It is almost as if management and the Board have again gone to ground.

So, what does this all mean?

On paper, AHF is operationally not making a current profit, not with:
1. milk pricing having been down through until early July this year;
2. CDC functioning at <50% ("under 50%" was the language being used);
3. the loss of sales channel momentum (as for example compared to what was being suggested late last year); and
4. Q4 forward estimate operational cash costs of $6.231M in circumstances where CDC's utilisation rate was falling, not rising, and milk costs were still coming off their lows.

In rough terms, customer receipts at H17 totaled $14.435M (including GST) against revenue of $12.881M (excluding GST). Then, in Q3, customer receipts came in at $5.167M.

Progressively, since 1Jul16, customer receipts had come in at:
* SepQ - $7.779M
* DecQ - $7.277M
* MarQ - $5.167M

The drop in customer receipts alone, during MarQ, was by ~$2M. Though not explained by management in their parallel quarterly commentary, the drop in customer receipts also had a lot to do with reduced throughput in relation to CDC.

Considered in another way, it is very doubtful indeed that CDC would have contributed revenue anything greater 70% of the outcome, particularly as milk and livestock sales accounted for 30% of the H17 revenue profile (and equally would have been paid for on a much quicker basis than in relation to CDC product sales).

So, it's fair to suggest that milk and livestock sales may well have contributed 30% to the Q3 customer receipts meaning that, if so, then MKLV arguably contributed $1.55M whilst CDC contributed $3.617M. But even if we were to take this on an 80/20 split, the resulting contributions would have been - CDC = $4.137 and MKLV = $1.03M. Call it, $4.14M vs $1.0M.

On these sorts of numbers the Q4 projected position of $4.713M in product related costs (not counting salaries) and $6.231M in total costs for the quarter would, all things being equal, point to a contributing CDC loss of between $600,000 (difference between $4.713M and $4.14M) and $1.0M+ (once salaries were added in).

The point is that at a sub-50% utilisation rate, CDC is not making any money, to being breakeven (at best). So, to get to any sort of profitable position would either require:
1. substantial livestock sales to have occurred during 2H17 (which would be contrary to the "happy cows" imagery; or
2. substantial property revaluations taking place.

Clearly, the latter will have occurred, but some of it would not be considered pious given that they were so quick to write down in previous years, but stalled at writing back up at the H17 mark. Even so, livestock sales lost $200,000 during H17 (revenue of $609K vs deemed cost of sales of $810K) so there is unlikely to have been much respite to this beyond perhaps the breakeven mark being achieved during 2H17.

So, if:
* livestock sales are potentially -ve $200,000; and
* CDC operations (on sub-50% utilisation) are potentially -ve $600,000; then
* biological assets adjustment is potentially +ve $600,000 - $800,000 (H17 was +$764,000) --> call it, +ve $700,000;
* 2H17 depreciation is likely to be -ve $500,000 (H17 was -ve $481,000)
* with H17 losses already in place of -ve $1.035M,
the starting position for 2H17 (hence, F17) would be -ve $1.635M. Even if you were to cut livestock and CDC contributions by 1/2 (but allowing the livestock adjustment in full), the loss starting position would still be -ve $1.235M. If however the livestock adjustement was also cut in 1/2, the resulting loss starting position would be -ve $1.585M.

That being the case, the properties would need to be revalued upwards by between $1.25M - $1.65M in order for AHF to produce a breakeven position for F17 (ie: between 1/2 and 2/3 of the accumulation impairments to date). Whilst property values have improved during the course of F17, I doubt that they have improved by that much. That said, the property impairments to date would likely have to be all but wiped out in order to return a sub-$m profit of circa $700,000 - $800,000.

So, an F17 profit on the "real" numbers, very unlikely. But an F17 profit on some financially engineered numbers, entirely possible which is why we wait to see what exactly Michael's cohort will come up with. Could this however also be the reason why that web announcement is now also somewhat late in the making. Promises made that repeatedly have not been kept. This seems to be the BOD's approach to doing business.

So, I would say again, on the strength of the deteriorating series /sequence of presentations over the last 18 months, the many different shifts /changes in direction, the seeming loss of momentum, etc, and the out of proportion costs to income ratios that permeate all throughout the business, that the present board and executive management team possess neither the capabilities, nor the ability, to right size the AHF business proposition, or indeed to manage the business effectively.

This is why the announcement of Tuesday was crafted as it was, as a precursor to either a private placement being done very, very soon, indeed (likely, if Bell Potter are involved) at sharply raised rates, so circa to the 9/10c range, and why the placement will likely be done in order to replenish cash, as opposed to doing anything strategic with it. If however they don't do this, then it's equally likely that the cash float which stood at $1.452M at 31/3 will likely have reduced to <$1.0M at 30/6. The concerns here are real, the stories are real and the cash is real.

What however is not real is the genuineness with which the BOD and management are trying to build, craft, develop or evolve a business. So, under the existing board and executive management, loss making to breakeven, at best (all however by their own making). But under a different and altogether invigorated board and shifted executive management, very likely to be turning up, profitable, and positioned for future development.

After all, in 3+ years, Michael's team has taken both the Company and its business down, not up, so why would he now suddenly have had an epiphany of the type that could, would or should now turn this business around? Where the business is now at is due to the ineptness of the Board and, to some degree, executive management. What it will be sometime tomorrow will not be because of the incumbents presently in place, but because of those who come in after them and replace them.

In due course, the second strike will occur. This will then trigger the spill resolution which, if then, passed will then require a further /separate EGM to be called for the specific purpose of then voting on all director positions. However, as between the AGM and the resulting EGM, the existing board, albeit somewhat then compromised, would still then remain in place. But once a spill occurs, I doubt that some on the board will likely continue.