Its important to understand the baseline of any analysis. To...

Its important to understand the baseline of any analysis. To your point above, this is now "organic" growth rather than acquisition based growth. It is completely understandable that if you buy a business to double your revenue, initially your cost base is going to increase... significantly. The business you buy will have ongoing fixed costs that can't be immediately disposed of. Long run, sure it will lead to factories and economies of scale playing a part but initially it won't. So historical revenue growths are less relevant to assessing the impacts of future, organic growth against the cost base.

Also bear in mind, its a rough model. I'm trying to come up with a rough guage for what scale this business needs to achieve to become viable and profitable, and then make a decision whether I think they can achieve that, and in what timeframe.

Also because I'm looking at what it takes to become viable at this stage I'm not assessing runway or any of the other really important cash flow elements - that comes next if I decide the business has potential legs. Again a simple model so theres 4 fields I'm looking at. Cash in from customers. Cash out from Product. Cash out from Labour. Other Cash out.



So taking your initial comment about labour costs : production. Q1 & Q4 have similar receipts, Q2 & Q3 are also similar. However labour costs in Q1,Q2, & Q4 are similar whilst Q3 was ~ 30% more.That seems anomolous - am curious why there's a temporary increase in what appears to be an otherwise relatively static labour cost.

In short from that review I can't immediately justify any direct correlation between production and labour, so whilst I accept that it will go up if production significantly increases, for my simple model it probably isn't going to be relevant.

Having said that, I probably should have started with more data points for my analysis because now I can see that my method of determining ~50% incremental margin is inaccurate because comparing Q1 to Q2 I get a -36.5%, and then Q3 is close to 400%.

A brief google search suggests typical food processing margins are about 10%, but as we are going for a higher quality premium product here, I would expect they would be aiming for closer to 25/30% margin to make up for lower turnover.

In either case I think the business viability point comes in when we have tripled in size. So the next question is how do we get there?

Last years annual report had:
Tasmanian Pate ~ 47% of Business Revenue
Woodbridge ~ 25% of Business Revenue
Daly ~ 22%
Lauds ~ 5%
Cashew Creamer ~2%

Tasmanian Pate seems to have a pretty consistent 10-15% growth rate based on last years annual report and this 4c.
Woodbridge seems to have about a 25% based on extrapolated QoQ results increase.
Daly Potato did about $1.8M last year. This quarter it did $465K. Roughly speaking we might be looking at a touch over 2 - 2.2M which would be about 25% increase?
Whilst Lauds and Cashew growth rates are much higher, their impact on group revenue is negligible.

In short, I think we will see not much more than 33% growth rate which has a 4.5 year rate to organically become profitable. This suggests the entire business model seems baked into there being a gamechanging event like the Woolworths deal coming through and delivering on expectations.

Coming back to your point, I don't think either is particularly indicative. I'd argue this is probably due to the relatively low volume. Ie it doesn't take a huge event - to have a significant impact on the cashflow. Eg a new packaging project could impact this analysis and knock it all out of whack. I don't see any evidence of bringing in more management to solve the problem, but I do question what current management are doing to bring about profitability. Latest news suggests they are diversifying further, but I'm not confident that what they are doing can drive the 3-4 group wide growth multiple needed over the next 12-24 months to avoid going under.