Joshcar, if you go with the language and the optics, the following is apparent:
* Dec15 - initial announcement.
"production capacity at more than a single shift is currently only 50% utilised" = 50% at Dec15.
* 8Feb16 - investment presentation, pre expiry of the loyalty options.
"Capable of processing up to 36m litres pa – current utilisation of 50% provides capacity for growth" = 50% at Feb16.
* 22Apr16 - investor presentation, post CDC completion on 15Apr16.
"Capable of processing up to 36m litres pa – current utilisation of 50% provides capacity for growth" = 50% at settlement of CDC.
* 27May16 - AHF response to milk repricing by Murray Goulburn, etc.
"In the 2017 financial year, AHF will be a net buyer of raw milk to the extent that CDC’s capacity to process milk and sell finished milk products exceeds its owned farms’ current capacity to produce milk.
CDC also contract processes milk purchased directly from farmgate for a number of
customers. In this specific area of the business, CDC and therefore AHF has no exposure to the milk prices paid by the customer and therefore maintains its processing margin."
* 27May16 - AHF response to milk repricing by Murray Goulburn, etc.
Further on in that same announcement, the following was stated (ie: in reference to beginning Jun16):
"Next week will see a record production level from Camperdown increasing confidence in
management's sales forecasts in FY 17." = >50%.
* 25Jul16 - ASX announcement.
"From Sunday 24 July 2016, shoppers in Woolworths supermarkets throughout Victoria will be able to purchase Camperdown Dairy branded milk in 2 litre plastic bottles of Fresh Whole Milk (full cream) and Fresh Low Fat Milk varieties."
* 29Jul16 EGM presentation:
"FY 2017 processing results likely to benefit materially from substantially increased Q1 and Q2 sales." = >50%.
+
"From July 2016, CDC’s acquisition is vindicated with significantly increased CDC branded sales and Victoria wide retail distribution." = far >50%.
+
At slide 12:
"At end of current financial year, we will have moved towards optimum asset utilization."
Next to that slide was a bar chart showing CDC Target Capacity Utilisation rates at each of the following junctures:
--- 40% = Q1F16.
--- >60% = current run rate (at end Jul16). Bar Chart height suggests circa 61/62%.
--- >80% = target by end F17. Bar Chart height suggests circa 81/82%.
* 31Aug16 - commentary from the PFR16:
"The Group has a pipeline of potentially very viable and profitable products and partnerships, which capitalise on the ability of the Group to be adaptive to market changes." = trouble is, none of these have eventuated in the 11+ months since.
* 31Oct16 - Sep quarterly cash flow commentary.
"The above results are in line with budget expectations for the first full quarter of operations since completion of the transaction in mid-April 2016. With the current level of sales, stable margins and the sales pipeline growing in size and diversity, Q2 2016 is forecast to also show a further improved result notwithstanding generally lower fresh milk sales during the Christmas school holiday period."
So, between then and now, something's gone seriously awry.
Followed then by more commentary but seemingly little action since then through to Jul17:
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"Relationships with the major and independent retail supermarket groups are being actively developed as these groups realise the flexibility of CDC as a supplier of specialty product lines in that the company is small enough to be boutique and big enough to produce significant volumes which can supply a national supermarket product line.
Investors should note that these industry and retail relationships are commercially sensitive and competitive and it is not in the interests of any long-term stakeholders in AHF to foreshadow expected outcomes before they are in the market themselves.
Several significant achievements have been made during the first quarter with Camperdown branded milk being distributed in a wide variety of Woolworths stores in Victoria and further achievements will be advised as information becomes public.
Additionally, a distribution agreement is in advanced negotiation stages, which will see Camperdown yogurts and butters distributed to large numbers of independent supermarkets throughout Victoria with positive expectations on volumes and growth.
The Group has executed non-disclosure agreements with several retail, distribution and production companies about mutual plans for supply, joint venture production and expansion. It is in the commercial best interests of the Company and all stakeholders that these negotiations remain confidential until completed."
It really doesn't take from Oct16 - Jul17 for any of these projects to be advanced. It's not rocket science. Nor is it overly complex. What it is however is an inept board, management and lack of functional involvement, oversight or process execution, as is now evidenced by sales having sinc efallen away, not increased.
* 25Nov16 - 16AGM presentation
In reference to CDC at S5:
"FY 2017 processing results likely to benefit materially from:
o Substantially increased Q1 and Q2 sales.
o Diversification of customer base.
o Widening of product range."
Then again, at S
"• Sales Volumes, Customer Concentration, Product Margins:
o Strong growth in sales in the financial year to date – with significant sales pipeline."
Then, at S11 which contradicted the previous comments of 25Jul16:
"• Management are working to expand the distribution of Camperdown Dairy branded milk, yoghurt and butter in Woolworth’s stores. This will initially focus on Woolworth’s Western Victorian regional stores and then Victoria wide."
Then, at S12 which similarly contradicted the earlier made comments and observations,
"Entered new market channels
• CDC milk into Woolworths.
• Yoghurts, milks and butters in independent trade (21 November 2016).
• Yoghurts into Woolworths (21 November 2016).
• Regional distribution.
• Victoria wide and NSW Riverina distribution to independent supermarkets with strong take-up."
Then, on 31Jan17 in reference to the DecQ cashflow commentary:
"CDC sales YTD2016 have significantly increase from the YTD 2015 comparative (prior to acquisition by AHF) and while fresh milk is the largest sales item, the CDC product range has expanded and sales of yoghurts, butter and cream are gaining momentum are retailing arrangements are secured.
Total sales reached 92.7% of budgeted sales for the half year to December 2016, resulting primarily from later than expected commencement of ranging with retailers."
Presumably, this was still pointing to a capacity utilisation significantly >50% and indeed, far higher than the late Jul16 rate of >60%.
28Feb17 - commentary accompanying the H17 report:
"CDC has consolidated since completion of acquisition in mid-April 2016, with an expanded and growing customer base and company branded products in a large number of supermarkets and regional stores."
Then, in reference to the strategic update, the following was stated:
----
"As mentioned in the Review of Operations, the Board has been constantly reviewing the corporate strategy for the Group during the last nine months since the completion of the acquisition of CDC, in the context of how to best maximise the value of securityholders’ interests in the Group. The Board intends to complete the strategy prior to the end of the current financial year, taking into account the timing of continuing negotiations with potential business partners and publish a plan for the next two years in the life of the Group."
Note however that neither of these actions actually eventuated. The by year end planned release did not occur until well into July, and the Plan, when released, actually did not reflect the style or format of "a plan for the next two years in the life of the group."
Instead of this, they went with the brush-off 5 year plan, with neither detail, strategy, execution, prosecution, or commitment in place. Instead, platitudes were applied with superlative indifference as if to obfuscate rather than to educate.
The erudited arguments presented were mono-chromed in their expediency (indeed, haste to rush up and issue out) and tasteless in their mediocre offerings.
With no explanations provided for the dramatic deterioration in CDC's run rate (ie: below 50%) and references made to the concentration of customers, suggests that rather than building business, gaining new customer relationships, or in expanding product offerings, each of the business, the enterprise, the board and management, went backwards, not "To The Future" but to the rusted on past.
All in all, not a blockbuster release, and unlikely to spawn anything other than a B-grade sequel.
A change of cast may however have helped as some of the aged, long term actors seemingly no longer represent box office drawcards (as they may have in back in their "golden days").
And so, with that, came the Strategic Overview presentation of 11Jul17, with a sub-50% capacity utilisation run rate now evident, based on the following:
"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."
Given that the CDC run rate is now "below 50%" which means lower than at any time since it was first acquired, it is very likely indeed that the F17 results will now include an impairment rating as against the CDC acquisition. This may however be partially offset by a valuation re-rating in relation to the farms, but even if so, it is doubtful that the re-rating will exceed the resulting impairment charge. These are just a few of the hidden meanings contained in last week's release which was rushed, amateurish and childish in both its style, its content and its execution.
AHF should have pre-announced last week. They didn't which suggests that everything had better be OK with nothing whatsoever arising out of the ordinary in reference to:
* Jun17 cash run down;
* current /ongoing operational performance;
* likely F17 profitability (that is, actual loss making outcomes),
as otherwise, clear breaches of the Listing Rules will have occurred.
One very simple question therefore to ask Adrian Rowley is this:
----
With the clear and apparent backward fall in relation to CDC's production run rate which is now "below 50%" (so below the settlement run rate), to what extent will an impairment test now have to be done of the CDC business segment?
--- Note, there are two business segments (*) dairy farming and (*) dairy processing.
If asked, however, I doubt that he will answer it.
Another question would be:
----
1.
Why, in the past, have the farm properties been so severely revalued downwards in circumstances where the underlying, surrounding properties and prevailing market conditions supported either a status quo or lesser reduced re-valuation?
2.
Equally so, why then with the resulting changes in weather, market, business and enterprise conditions has the Company been so slow to revalue the farm properties concerned?
3.
With the various farm acquisitions, why wasn't it explained at the time that each farm price was recorded in the Balance Sheet inclusive of all acquisition costs (including transaction costs, stamp duty, etc)? Instead of this however, one measure of reporting was represented to shareholders by reference to direct farm acquisition cost whilst another (being the fully loaded cost) was represented in the accounts.
4.
Why was this done and why wasn't this explained to shareholders at the time?
Several other questions would also be the following:
1. At the July 2016 EGM, the Board’s presentation explained that by end F17, the CDC would be functioning at its optimal run rate of >80%. When did the Board first become aware of the fact that CDC would miss this expected result by>37.5% (ie: down from >80% to <50%)? How has this impacted the business going forward? What is being done to rectify this?
2. In Note 2(c)(ii) of the H17 results, can you explain the makeup of the following cost entry (this is a very large, incremental amount to go either unexplained, or simply lump summed as to amount):
Other dairy related costs $732,704 $333,821
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