ccf business model, page-4

To make it easier to understand. Let's say CCF plant 1 hectare and get 1 year of management fees and see how it effects the P&L account vs the cash account. You need to know some algebra.

P&L account

Revenue = (e + 800) + (m + 15)
Expenses = e + m
Gross profit = 815
NPAT = $570.5

e = establishment expenses
m = management expenses

Looks good plant 10000 hectares you get an NPAT of >5m, there is corporate overhead so they are forecasting 3.5m.

Cashflow account

Cash inflow = x + y
Cash outflow = e + m + 244.5 (tax you can lower this, $150 would be appropriate for their NPAT forecast)

x = establishment fee. e > x as they require debt financing.
y = management fee y > m as the report says it covers costs of land acquistion and maintaing the trees.

Carbon credits are disregarded as come into play after 15 years but will be a valuable source of future revenue.

To be self sustaining they need to be cashflow positive therefore

x + y - e - m - 244.5) > 0 to be cashflow positive

we know e - x > 0
y - m = 15

management expenses could have cash components (cm) non cash componenets (ncm).

y - cm - ncm = 15

Rearrange the equation to add the ncm as it does not decrease cashflow

x + y + ncm - e - cm - 244.5 > 0 for positive cashflow

Rearrange again

y + ncm > 244.5 + (e - x) + cm

Analyst report says Carbon credits created per hectare are around 200-450 per year. So I think that would give a reference range as to what they could charge as a management fee.

Taking the mid range number $325 as what they charge for the management fee which should be higher than what they cahrge.

$325 + ncm > $244.5 + (e - x) + cm

Rearrange again

$80.5 + ncm > (e - x ) + cm

e - x is a positive number and is the degree to which they need to debt finance their project.

So to be cashflow positive the amount of debt financing they require needs to be low or the amount of non cash management expenses very high i.e. they are capitalising a lot of their establishment expenses.

The numbers are a lot worse if you take a lower figure for management fees. Take the low end of $200 and the equation becomes

ncm > 44.5 + (e - x) + cm

From this I don't see how they could be cashflow postive.