Ann: Appendix 4C - quarterly, page-6

The second-quarter expenditure estimate was $5.978 million. The actual expenditure quarter was $7.074 million. This was a negative variance of $1.096 million. Whilst the significant portion of this was accounted for in higher admin and corporate costs, (basically, the Board, RE and management taking costs out of the business), the reality was that manufacturing costs were up $737,000 over estimate whilst staff course were down $96,000 from estimate.

From a strict margin perspective, collections for the second quarter came in at $6.355 million as against manufacturing/staff cost of 6.256 million leaving a “free“ margin of $99,000. This was a clear deterioration over First-quarter where the “free” margin was $233,000.

Pairing this year on year, the relative position is that in 1H17, collections were $15.056 million as against an M/S cost of $14.073 million. The effective “free” margin was $983,000. In contrast, some 12 months later, in reference to the just finished 1H18, collections fell by >$2.55m to $12.505m whilst the M/S cost fell from $14.073m to $12.173m, representing a reduction of $1.9m. In other words, an effective “free” margin deterioration of $650,000 YoY.

As a result of this deterioration, both YoY and more recently, QoQ, the Company’s cash position fell heavily during Q2. Adding further to this, significant management and admin fees were also taken out during Q2 which had earlier been deferred from end JunQ and /or 1Q18, but no further than this.

Altogether, this had left the Company in a deteriorating position operationally with CDC continuing to perform on a sub par basis and with the farms arguably taking up the slack (assuming the correctness of management’s recent comments concerning the farms). But then for the September $5m placement the Company would have been in a parlous position at Dec31. As it is, AHF ended with Dec31 cash of $5.038m. Adjusted however for the September raising, December ending cash would have been $38,000. In other words, the September raising became a necessity rather than an opportunity.

Presently, the cash performance results point ominously to a H18 operating cash loss. Presently, the cash loss for the half was ($845,000). Add to this depreciation and amortisation and the first half business loss is likely to be double this (minimum) through to $2m+.

Offsetting this could be a revaluationnof the carrying value of the dairy herd (non cash). That is, the biological assets and a possible devaluation of the farm held assets. Conversely, it is questionable whether CDC’s carrying value can be maintained on an impairment basis.

At best then, perhaps AHF can scratch out a passable profit but only if there are significant revaluations done for the farms as well as for the biological assets whilst resisting any impairment testing of CDC’s carrying value.

With how this is heading, Q3 ending cash will be sub $5m and heading further south. They need to arrest this but clearly, as things are presently progressing, CDC is sub performing and the farms are marginally performing whilst cash is leaking clearly from the business and, if anything, is accelerating.

Not a good result, then - not by any stretch of the imagination.