The following quote from the Q2 commentary:
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"The dairy farms by themselves have collectively produced an operating profit, reflecting the
strong capabilities of the dedicated farm management team and effective leadership along with the high quality of the farm portfolio generally."
The absence of reference to CDC therefore infers that CDC has produced an operating loss during the corresponding period.
Back in October 2017, the following was stated:
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"Camperdown Dairy commenced packing a value add milk product for a sizable new customer in August. ..... Additional new customers of value added packing are expected to start progressively of the period February to April 2018."
Today's commentary however now suggests that there has been a push back from April to July although commencement in February for one remains apparently unchanged.
Beyond this, the addition of the August 17 value add packing does not seem to have yet arrested the overall decline in CDC collections as the Q2 collections were down both YoY and QoQ.
YoY, the revenue collections were $15.05M in H17 vs $12.5M in H18. Even with the improving contribution of farms to the equation, the arrest in H1 collections was -ve $2.55M.
QoQ however, revenue collections were $7.277M in 2Q17 (1Q17 was ~$7.28M) vs $6.335M in 2Q18. The difference here is almost -ve $950K in relative terms.
Even as between the quarters, the revenue collections were static, going from $6.15M in Q1/18 to $6.355M in Q2/18.
Clearly the contract loss in respect of Aussie Farmers Direct has been significant (even material in nature).
Looking then at this closely, CDC is at risk of impairment testing given the significant decline in its operational, revenue and profitability metrics. To avoid this however, perhaps this is why (somewhat strangely) today's quarterly commentary was provided (missing from SepQ17). In that commentary, the following was stated:
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"Revenues / Margins from these projects are expected to more than replace those lost from the recent declines in bottled white milk sales with the first of the three due to commence February 2018 and the third due to progressively roll out from July this year. The sales which are at this stage expected to commence rollout in July and be nationally distributed, have the potential to exceed current factory capacity within the first 12 months and may necessitate some expansion of sections of the relevant processing areas."
So, without providing any supporting detail, they are trying to arrest a clear and apparent decline in CDC operational (etc) performance, whilst avoiding the risk of any impairment testing whilst providing a forward projection (without detail), promising a substantial boost between July 2018 and approx July 2019.
It will therefore be interesting what sort of H18 operating loss arises here given that clearly, on a cash operating basis, there was an overall operating loss in the first half. So, the question will be whether:
1) biological values will be boosted;
2) farm values will be upwardly revised; and
3) CDC values retained and not impaired to any degree (or at all).
If 1, 2 and 3 all occur, then perhaps they will get to a non-cash H18 profit outcome but if so, it will not have been built on substance, absent concrete, firm details of what the future is generating being provided.
Today's commentary offers little in either substance or certainty other than that CDC (without any arresting behaviour happening) being in terminal decline and the farms being the only profitable portion of the ongoing business enterprise (at the present time). Ordinarily speaking, then, this doesn't augur well for justifying an improved /replaced incentive scheme for the Board, not with all that they have lost on their existing watch. Remember, not so long ago, CDC was generating $25M+ in revenue and the farms >$6M+. Now, together, they are generating sub-$24M (if evenly spread out), but more likely, closer to $21-22M (at best, once seasonally adjusted).
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