Ann: 2012 Results Presentation , page-27

Hi Surandy and March09 ( Not sure of the significance of March 09 as a moniker)

This is what I did to get a handle on the future:

The big question is the maturing trees that we own outright.

I took the Octa Phillips presentation and slide 5 and 6 gives yields and the company owned orchards. The big jumps in yields occur years 4 , 5 , 6 - 34% of SHV owned orchards are in this 4 and 5 this year.

So I was trying to establish the yield improvement on company owned orchards - Given the problems recently I took the poor yield as the base and applied a 15% further reduction to yield to get the increased yield for SHV. This was as a result of SHV's tonnage on company orchards being 5830 mt which was close to 85% of the base calculated in my model. The actual can be worked backwards which shows there was an improved tonnage in 2012 so the gap narrowed but is still below the real base line of a bad year. Its very substantial in 2013 - That is supported by the chart on slide 16 which shows Australian tonnage has increased substantially in 2012 and is expected to again in 2013 from 55,000 tonnes to 76,000 odd.

I dropped the managed orchards income by 86% being the loss of the Olam orchards on 1 July. That puts a dent in EBIT of $12.5 million but added back half of that for the 2012 carry-over into 2013 for a net drop in EBIT of $6,25 million.

You have to than take into account the impact of OLam on the Food division - sorry but we don't have enough info so I had to guess but could not see that it would be more than $1million as we have the tonnage processed for this year and an increasing tonnage on our own orchards.

The increasing yield @ sales price yields an increase of $6,2 million.

I at the time of doing this upped the interest to $7million but the rate has dropped.

This suggested that in 2013 EBIT would drop $1,3million and NPBT by $2million to an amount of $11,378million The lower tax and a lower dividend to 6c meant that the company retained about $2.2 million. That in my mind was a stay in business amount of net profit and not really enough for expansion.

I could not get a good feel for what the depreciation vs capex would be and the WA event did not worry me as much as I initially understood. Having re-looked at the model only 350 tons of harvest was modelled for 2013. This was also a comfort - "The recoverable amount for the WA project is
determined on a value in use basis, using a 17% pre-tax discount rate" I think the hurdle rates for projects is still in the era when we generated higher returns - I think that 17% pre tax is far to high in a low growth low interest environment. Having in a former life been an auditor I can see some desktop calculation reviewing current yields and than saying the NPV is negative so we have to write it down. as you say the new CEO would jump at that as long as it did not impact future events. There is also a nice caveat in the AFS that suggests that a further adjustment may be necessary - IMO it could easily go the other way if yields rebound.

They have also not accrued for an estimated R&D tax break yet they did last year. It can be as high as $1,5 million.

They tightened up the debtors not provided for as well. This looks as you said Surandy a get the broom out and create a pristine house.

Surandy I think you are correct on the bank facility as they basically lost their acquisition facility in total and clawed a bit back into the general facility which is only up for review in 2016. I must say that I think they are battening down the hatches to ride out to 2016. My model shows a substantial jump in 2016 as WA matures.

An interesting point from the cash flow statement:

Again remember Olam must make an impact but I cannot really tell its impact. so just using what we have.

Net cash flow from operating activities was $22million. investing activities was negative $12.2 million Of which its a mix of things but the one factor is tree development costs which were $18,6 million. I presume that is the WA orchards as they are not yet in production. So in fact if my profit is down $2million assume the net cash flow effect is $2million so we can expect around $20 million from operating activities. However we received a large tax refund. I am assuming that we get R&D but we are still due some tax back per AFS so assume we lose another $2million because we wont get the same tax refund. That then drops the cash flow to $18 million. If we are to pay 6 cents a share dividend share dividends thats $5.75 million and that means to just stand still we only have roughly $12 million to spend on tree development. It should be dropping and any better crop performance will help but cash flow wise we are tight.

That is my biggest concern to grow this company you need something to give it more capital - Shareholders or debt. No debt as I see it so shareholders - I think they are trying to keep paying dividends just to keep the shareholders on side and support the sp. My view give us a big incentive to take up the DRP give us a 5% discount to weighted volume average or give us a rights issue - take the time and give it to existing shareholders - or can the dividend for 2 years. My feeling is that they need another $20 million and if we had a rights issue to holders and a dividend of 6 cents projected with a full franking that's a good return on a $1.00 issue price. I believe a 1 for 5 would do it and in fact the company can open itself up to buy back shares on market and just buy the shares if it dips below the issue price.

I would be happy because I think we will miss opportunities to buy any existing asset as we are so tight and I think I would rather we had flexibility.

Sorry for it being so long but its a complex transition.