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3.1¢ australian dairy nutritionals limited

You are definitely onto something Grant. Management have gone...

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joshcar

548 Posts.

2

09/05/17

20:58

Post #: 24580428

Originally posted by Grant62 ↑

If you look at the DAIRY RELATED COSTS, you will see that these are increasing, rather than moderating despite the existence of a more controlled, codified and /or efficient herd. The costs summary below is in reference to each 6 monthly reporting period since first being listed. The Dec14 results however have also been normalised in order to reflect like for like.

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7

1 DAIRY RELATED COSTS

2 Item

Dec-14

Dec-14 Norm

Jun-15

Dec-15

Jun-16

Dec-16

3 Feed costs

227,831

631,713

1,176,931

1,029,728

2,409,529

1,498,302

4 Repairs, maintenance and vehicle costs

11,557

32,044

98,616

95,910

174,957

140,832

5 Animal health costs

15,103

41,877

59,680

71,170

143,137

80,011

6 Land holding and lease costs

18,404

51,029

48,027

32,569

45,743

45,320

7 Breeding and herd testing expenses

40,248

111,597

22,152

83,686

72,797

107,985

8 Dairy shed expenses

17,045

47,261

30,381

49,111

42,070

62,142

9 Electricity

5,878

16,298

37,723

76,772

52,311

75,113

10 Other dairy related costs

67,337

186,707

138,209

333,821

221,761

732,704

11 Total

403,403

1,118,527

1,611,719

1,772,767

3,162,305

2,742,409

12 12M progressive

Normalised

2,730,246

3,384,486

4,935,072

5,904,714

Year on Year DAIRY RELATED COSTS appear to be rising by $1M+ on average, without there being any appreciable increase in herd size.

The biggest blowout in costs relates however to the undisclosed “other” category of DAIRY RELATED COSTS.

Through to Jun16, these costs were averaging in the low to mid-$200K range. However, in H17, these costs blew out by >3x average and by > 3½ times PCP Jun16 result, to >$732,000. On a full blown averaging (with everything in), these costs should be <$333,000, but with outliers applied, the cost range should be sub-$230,000.

Something is seriously wrong with management when the “other” category better than triples in 6 months, is your second largest cost component after feed costs, and is effectively half the feed cost, in circumstances where it should be somewhere between 20 – 30% of feed costs (at most).

The farm management responsibility is farmed out here to “elsewhere”, so arguably there is some serious explaining to be done here. This is all the more evident given that most other cost categories have all been relatively stable over the period (ie: within a broad range of each other).

Given then that the Company has a committed executive in charge, with formal CFO /financial accounting arrangements in place, and with a proper audit function in effect, it should zbe quite easy to provide all shareholders with the required explanation for these cost blowouts. They certainly haven’t been on account of:

an increased herd size (it reduced in size during H17),

other substantial work being done (other cost categories were muted to stable in comparison),

a dramatic change in direction (perhaps, but the new transportation and logistics framework commenced 1/2/17, not during H17),

a different herd structure being put in place;

the allocation of CAPEX (given particularly that significant CAPEX had been ongoing since F14 and none of this had led to a similar sort of blowout).

The likely explanation for this though quite simply boggles the mind and so therefore what needs to be explained here should be quite illuminating, if indeed it is ever explained to shareholders,

The DAIRY RELATED COSTS argument however becomes even more streamlined once you start to do some comparisons such as average ng, applying outliers, normalising, etc, as well as applying herd adjustment ratios. Examples of all these can be seen below.

In essence, what is, should not have been, and what should have been has not been occurring, especially so since the acquisition of CDC was first announced. In essence, it seems that the acquisition of the CDC operations has masked what is really going on down at the farm level (ie: nothing to see here; instead you should be over there looking at the really big numbers).

Trouble is, DAIRY RELATED COSTS blew completely out of proportion during F16, jumping effectively by $1.55M+ YoY, and have then continued on further increasing, by another +$1M, despite their having been a subsequent reduction in herd size by 150+ during H17, although as between Dec15 and Dec16, the herd size effectively increased by 500+.

Calibrating for this though, has resulted in looked at what the normalised position should be (ie: outliers applied).

Column 1 Column 2 Column 3

1 DAIRY RELATED COSTS

2 Item

Ave

Outliers

3 Feed costs

1,349,241

1,234,987

4 Repairs, maintenance and vehicle costs

108,472

111,786

5 Animal health costs

79,175

70,287

6 Land holding and lease costs

44,538

41,972

7 Breeding and herd testing expenses

79,643

59,545

8 Dairy shed expenses

46,193

46,147

9 Electricity

51,643

55,049

10 Other dairy related costs

322,640

231,264

11 Total

2,081,545

1,851,037

12 12M progressive

4,163,090

3,702,074

What this shows is that, all things being equal, the HY DAIRY RELATED COSTS equation should be ranging around the $1.85M+ mark. Adding 10% to this equation however provides a circa $2M forward, or somewhere between $3.7M à $4.0M, on an annualised basis.

The actual costs however are a further $1.9M à $2.2M above this. In other words, the DAIRY RELATED COSTS are considered way out of proportion with where they should be, even if there were to be further adjustments made on account of trying to normalise for herd size, etc.

Simply put, whether considered as being $1.9M à $2.2M overstated, or even considered at half these number rates, the financial position of AHF would have been substantially different, both at the F16 and the H17 junctures. It isn’t and it wasn’t and much of this comes down to what AHF has failed to disclose or be transparent about.

There is no point in AHF trying to suggest that they have been misunderstood, or maligned in the process when, for example, the “other” category is its second largest DAIRY RELATED COSTS expense, and upwards of >½ the corresponding costs for feed.

Even on a normalised basis, the H17 blow out in “other” costs is >2¼x what its corresponding 6M average suggests, and >3½x what the outlier estimates are suggesting. This isn’t right à not by any stretch of the imagination. So, what have the farms been up to? And more particularly, what have the Board, executive management, and the “family” all been up to?

At a time when this company is calling for increased transparency, the opaqueness of it all is simply quite thundering in all its resonating impact.

If this Company were being followed by investment analysts, or by financial or business journalists, or if financial results’ conference calls were being held, some serious questioning would be under way.

Indeed, as the following demonstrates, the argument of “the herd ate my costs” also doesn’t quite stack up once the herd figures are included as part of the equation. For instance:

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7

1 DAIRY HERD RATIOS

2 Item

Dec-14

Dec-12 Norm

Jun-15

Dec-15

Jun-16

Dec-16

3 Herd size

1,468

1,468

1,625

2,657

3,302

3,159

4 Dairy Related Costs

403,403

1,118,527

1,611,719

1,772,767

3,162,305

2,742,409

5 Ave cost per period
(the Cow Cost Ratio)

275

762

992

667

958

868

6 2MVA

878

830

813

913

7 3MVA

439

569

840

852

What this suggests is that the average cow cost is rising rapidly despite all of that home grown pasture being in place. So, whilst they may all be “happy, contented cows … with smiling faces …. and fully bellies”, the reality is that they are costing more, rather than the same or less, whilst producing less. And for this having occurred, despite the fact that Peter Skene is the CEO (but essentially, CEO of CDC and non communicado /banned from going down to or seeing things, insofar as the farms are concerned), he has nonetheless put his name to the “happy contented cows” argument and so therefore stands right there, at the front of the line of responsibility.

Now, if for any reason, this were to be considered differently, then once again, we should not have seen a blow out in costs during H17, by a factor of >25% as the following otherwise suggests:

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7

1 DAIRY HERD RATIOS (12M prog)

2 Item

Dec-14

01/06/2015 (N)

Jun-15 Act

Dec-15

Jun-16

Dec-16

3 Herd size

1,468

1,625

1,625

2,657

3,302

3,159

4 12M progressive dairy related costs

2,730,246

2,015,122

3,384,486

4,935,072

5,904,714

5 Dairy Related Costs /per cow

0

1,680

1,240

1,274

1,495

1,869

AHF is not a bad company. Indeed, it isn’t even an awful company. It is however a good company, run by bad management, a bad board and an even worse executive.

For all the accountability that exists out there in the world, very little of it shows up in relation to AHF.

This is therefore a very strong reason why the SP is performing as it currently is because shareholders realise that there is something wrong in respect of an otherwise good company, with a sensible or responsible business model in place, but they can’t however quite put their finger on just exactly what it is that they don’t like about the company, or more the point, its management, its board and its executive.

In times like these, real boards and real management knuckle down, get on with the job, explain things and get things sorted out. With this board, this management and this executive however, this rates as a ZERO in the context of their ongoing compliance with corporate governance, their own board guidelines, and the Listing Rules. Simply put, bad companies don’t exist, but bad management and bad boards do, and therein lies the difference à the good, the bad and the ugly.

Expand

You are definitely onto something Grant. Management have gone very quiet since you started looking into their figures. You are all over them. Happy reading Michael and Adrian. hehehe

AHF Price at posting: 11.0¢ Sentiment: Hold Disclosure: Held

0 Great analysis

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