Ann: Letter to Shareholders - Farm Update, page-6

Not quite so.

Today's announcement is certainly +ve, having regard to last year's comparison position:
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"Directors are pleased to confirm the positive progress being made on the farms with EBITDA for the 2018 financial year now expected to be in the range of $800,000 – $1,000,000, representing an 18% to 48% increase from the 2017 EBITDA of $673K."

The other +ve comments from today's announcement are these:
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"Operationally the farms are generally performing at budget expectations, with on farm livestock valuations based on current market prices the only variance."
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"The farms are physically in the best condition since they were acquired between 2012-2014, with capital expenditure on drainage and water conservation as well as paddock, laneway and expansion of storage upgrades all combining to deliver proceeds to the bottom line on a longterm basis."

But, what is not explained is the difference now in expectations compared to that back in August 2017.

Back then, the following was stated (ASX, 25/8/17):
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"Directors are pleased to confirm the positive EBITDA performance of the Group’s dairy farms in FY 2017 of approximately $700,000, with operational budgets for FY 2018 on track for a material increase to a range of $1,750,000 to $2,200,000."

So, the comparative drop in EBITDA expectations between late Aug17 and now varies between $950,000 - $1.2M.

That's a material variation in anyone's eyes and quite likely could trigger a please explain from the ASX.

As for the remainder of the 25 August announcement, note these words:
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"The budgets have been carefully formulated based on seasonal and weather forecasts, grain prices, silage production, milk price and volume expectations with detailed input from the Farms Operations Manager, each Farm Manager and the consultant agronomist in conjunction with an experienced external modelling consultant.

The farms are physically in the best condition since they were acquired between 2012-2014, with capital expenditure on drainage and water conservation as well as paddock, laneway and expansion of storage upgrades all combining to deliver proceeds to the bottom line on a long term basis."

Then compare and contrast these words (from Aug17) to today's words:
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"The farms are being carefully managed based on seasonal and weather forecasts, grain prices, silage production, milk price and volume expectations with detailed input from the Farms Operations Manager, each Farm Manager and the consultant agronomist in conjunction with an experienced external modelling consultant.

The farms are physically in the best condition since they were acquired between 2012-2014, with capital expenditure on drainage and water conservation as well as paddock, laneway and expansion of storage upgrades all combining to deliver proceeds to the bottom line on a longterm basis."

The underlined, bolded words are new in comparison to Aug17 otherwise, they are the same.

So, yes, in some ways +ve, but this doesn't really explain the deterioration now evident from the Aug17 stated expectations(also at /from director level).

Perhaps, the explanation could be due to this:
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"Excluding changes in livestock valuations, the underlying farms EBITDA this year is expected to exceed the previous year’s underlying EBITDA by between $800,000 and $1,000,000. This is a great credit to our farm staff."

However, at the H18 mark, livestock sales were $225,000, livestock disposal costs were $357,000, so therefore a loss on this metric at the 1/2 mark of ($132,000), and livestock valuation changes was ($13,000). So, this doesn't really explain the now evident variation between Aug17 and May18.

As for negativity, perhaps then shareholders should really query why they were being told one thing <9 months ago, yet now something entirely different <9 months later (albeit up on the YoY metric). Both the Aug17 and the May18 announcements are mutually exclusive to each other without further clarification provided of the material variations that have occurred.