The annual production of milk from the farms is forecast at 16.5M litres. Of this amount there is some production going to Fonterra and we do not know what this volume is. CDC as we understand processes organic milk for others and earns an income from processing. This leave CDC with a capacity of 36M litres to process. Hence we can safely assume that CDC is now under capacity by about 50%.
To purchase CDC, a term loan was taken with Commonwealth Bank for $10M which matures in April 2019. Interest is paid monthly which amounts to approximately $53K or approximately $690K annually. I gather from the annual report that out of $10.9M paid for CDC, $6+M was goodwill and the balance was Property, Plant and Equipment. In my view if CDC is going to be operating at under capacity how could it generate enough income over the coming years to make any appreciable profits and repay the loan when it is due.
CDC as I understand at this stage cannot be fully utilised due to lack of storage space and refrigeration equipment. Milk and milk products are perishables and refrigeration is of utmost importance. Hence although the farms may be producing to capacity, CDC cannot do likewise. With small production there is a limit to the revenue from CDC even selling branded products is not going to achieve mega dollars.
These are a few of the issues that need to be on top of the agenda of Directors and to come up with a solutions with advice to shareholders to instil confidence and hope that AHF is a viable venture and will reap rewards.
On the JV with Australian Lian He, as the information released is far to vague it would be inappropriate for me to comment on.
This is my reading of the situation from the various announcements and information provided by HC members. If I am wrong on the facts, then correct me (and I will apologise) as getting as information is limited and makes it difficult to form a view of where AHF is heading.
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