Ann: Preliminary Final Report, page-22

Fully agree.

Analysis of the CDC cost profile alone according to N3 makes for extraordinary reading. Consider, for example, the following analysis:

	Column 1	Column 2	Column 3	Column 4	Column 5
0		F16	F16 annualised*	F17	Variance
1	Revenue	3.163m	16.13m	16.14m	0.01m
2
3	COGS	2.000m	10.2m	10.1m	0.10m
4	Freight	0.223m	1.14m	1.16m	(0.02m)
5	Property	0.131m	0.66m	0.31m	0.35m
6	Other Dairy	0.123m	0.63m	1.15m	(0.52m)
7	Margin	0.686m	3.50m	3.42m	(0.04m)

*Taking the F16 results (from ~10+w of ownership) and directly extrapolating them to a 52w ownership period through applying a 5.1x ratio.

In essence, F17 effectively repeated F16 (annualised), that is during the period of AHF’s effective ownership without any YoY growth at all. More the point, the key expense indicators of COGS and Freight also tightly fitted the 5.1x ratio profile.

Property is the enigma as, all things considered, it would seem that portion of the F16 property costs were either in advance of their timing (ie: pre-paid) or that there were some one-off costs involved.

That said, Other Dairy should also have followed or bettered the 5.1x ratio. It didn’t. Instead, this great big grey area of murkiness, with zero accompanying explanation, not only (almost) doubled the annualised ratio of F16, but accounted as the single biggest, transformist item affecting CDC’s F17 profitability.

Considered in another way, whatever has been hidden away as part of Other Dairy should either have bene broken out and explained by separate line entries, or alternatively represent non-genuine costs which, for whatever reason, the BOD and management have decided to keep hidden at this time.

The reality of CDC from F17 therefore is one of:

• Flat line revenue, YoY (once properly assessed);
• in-line COGS and Freight costs (ie: more or less, as expected, YoY);
• disproportionate Other Dairy (ie: double what it should have been, but in reality should have reduced proportionately speaking, not doubled);
• reduced profitability (when properly compared YoY); and
• in no way justifying the impairment assumptions that were applied in order to avoid an impairment write down of the business.

A business which, for the whole year, produced profit of just $27,000 which was even less that the $36,000 (1/5) part way owned F16 comparison profit, is not a business which, when everything is considered, could reasonably have avoided an impairment write down in F17. The fact that it has however infers that management (which means Skene) and the BOD (which means Hackett and Rowley) have each embraced some pretty heroic assumptions in order to avoid having to impair CDC’s value.

Nexia (as the auditors) have also been pretty brave to have accepted this.

Collectively, management and the Board now have until just year’s end (Dec17) in which for the results to actually manifest themselves as such because otherwise the F17 escaped from impairment will come racing up against them faster than a speeding locomotive. Perhaps then that was the hidden message in Skene's comments of lats week regarding the farm properties likely being revalued at end 2017 (ie: to, at that time, offset against any potential impairment of CDC's value).

Heroic (and brave) therefore is all that I can use to describe them at this time.

And that’s before one separately considers that other great big unknown - Other dairy related costs which rose during F17 by ~$1M to $1,582,013 (from $555,582 in F16).

Extremely heroic (and extremely brave) is therefore an apt description of their collective behaviour during this now ended reporting season.