Ann: Results Announcement Half Year, page-51

OK, accounting 101 time.

1) If the trees are less productive, SHV's costs don't go down, therefore they are fixed relative to tree productivity. That's really, really simple.  If you look at the cash flow statement, then payments to suppliers and employees were 167.4m in FY14 and 170.3m in FY15.

2) 74.7m is the half year number, excluding the revenue from the almonds sold to the food division - which, shock horreur, sells almonds. So the half year number is actually $94.8m. They don't seem to carry much inventory - the entry in the balance sheet for inventory is largely the almonds in the orchard accd to AASB 141, not finished goods - and of course it's the almonds in the orchard which will be sold at harvest time that we're worried about. Clearly the important number is the full year, so let's just use Morgans's estimates for simplicity.

They forecast 14,500t @ $9.73/kg implying $141m of almond division revs.
So 13,700t @ 9/kg is $123m - that's $18m of revenue lost that will fall straight through to EBITDA, EBIT and PTP, so that would be 22% off EBITDA, 26% off EBIT and 27% off PTP and NPAT (NPAT and tax are both proportional to PTP - it's not a ratio of EBIT).


See how the effect of a percentage reduction in revenue increases as it flows down the income statement? The effect down to EBIT is called operational leverage, then the effect from EBIT to PTP is called financial leverage. Combined, that's total leverage.

Now obviously some of that is due to the pricing reduction, but even backing out 65 of 141m is still 8.5m, which translates to 10% of EBITDA, 12% of EBIT and 13% of PTP/NPAT - the production cut is significant.

HTH.