Ann: AHF Farm Update and Outlook, page-3

Today’s announcement of just a few minutes ago, concerning the farm outlook and improved EBITDA performance of +$700,000 is all the more intriguing for what it doesn’t day à what is the current state of CDC?

Clearly, the absence of this also being updated suggests that there will be a –ve material impact happening in relation to CDC which they are hoping like anything will be offset by the farms. Trouble is, without the resulting cash also being generated, it is hard to see how AHF grows from here (clearly, absent there being significant capital raisings).

When the announcement was about to go up, I was already in the process of finishing the following. Now, with the announcement made, the following comments appear even more applicable than they might have been, before.

Happy cows, indeed. Trouble is, sour cream is also spilling out of the vats. That's the problem. Peter's not in control, and the directors are not interested about being in control except for purposes of extracting their fees.

The trading of yesterday and again this morning suggests that someone might have known in advance about the farms announcement. Hopefully, this will not prove to be the case. But if it is, then all that this reaffirms is that there is a world of difference between what this Company is, what it was promised to be, and what it should be. Both management and the board simply don't get it - Happy cows don't cut it. Results, do.

These were my (at the time) near on completed cash flow comments:
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Cashflow for TAU was a disaster through end Jun17. –ve operating CF of ($300,000). –ve investing CF of ($206,000). With beginning cash of $497,000, TAU ended up with ending cash of $600,000, largely aided by $660,000 in proceeds from a related party.

The inability therefore to extract out some of the so called amounts apparently owed by AHF to TAU and which TAU tripped over in their forward quarterly forecasts for each of March, and June, is what then largely led to AHF reporting a slightly improved cash position at end June. This however directly hurt TAU , given its over reliance on extracting cash from AHF in order to prop up its own operations. What will they do now, that Jimmy crow is on the scene? After all, Jimmy Crow lacks its own expertise to provide the so called back office, administrative, CFO and secretarial to AHF.

Given then the recent de-merger, it is totally inappropriate for these services (in indeed appropriate at all) to continue to be provided by TAU. Accordingly, there should have bene a clear cut statement made by Jimmy Crow as to how these services (for which >$340,000pa have routinely been extracted) are going to be provided going forward.

The fact that there has been no such statement /disclosure to date suggests that the present situation remains unchanged. That is, that TAU are continuing to provide the “apparent” services, yet who is going to be paid?

By trying to sever the connection, all that Michael has done has been to further muddy the waters, and by this, to set up the scene, for double dipping on the extraction of costs from out of AHF.

No wonder, then, as a starting point, that the forward cost estimates for SepQ pointed to admin + corporate costs of $121,000 which is way over what it should be given that Adrian is paid $50,000 + super, and Michael, $70,000 + super). That's about $33,000 per quarter. So, what’s the rest of the forward expenses ($88,000) for? It can’t be for Peter’s salary as this is already accounted for under staff costs, etc, as he is an executive employee of the group.

As for AHF itself, one has to wonder about what the final F17 results are going to produce. Given the sub50 utilisation of CDC and the clear /apparent failure eto date in terms of profitability (generally, and CDC, specifically), what comes to mind is that there is a serious risk of impairment to CDC. How much this might be is anyone’s guess. However, given the continuing impact of the half year loss, continuing strain /stress on the group business during H2, and who knows what they are doing in terms of current farming valuations, it is hard to see how they will realise a full year profit, even without any CDC impairment.

If though there is a CDC impairment, then the question begs itself as to by how much this will be? Again, this could be for any amount, but the reality is that as between what they promised /represented at the beginning (including doubling EBITDA etc in F17), vs where they are now, an impairment of portion of CDC’s carrying value is not just a possibility, but very likely also a probability. If so, then by now they should have pre-announced this. After all, the TAU AR17 was released to the market on 15Aug17, so what were they doing beforehand, to this occurring, and what have they been doing since?

To therefore put it quite bluntly and quite directly, there had better not now be any impairment of the CDC investment, as to now do so would surely then mean that they have failed to disclose this on a timely basis. Continuous disclosure is perhaps the most serious of all obligations imposed on listed companies. It is also the one most fraught with unexpected risk or danger arising. Given then that they have already had several opportunities to do so, then any surprises arising from the upcoming AHF results (whether up or, as is far more likely, down) will very likely be met with either a please explain from ASX itself, or far more likely, from the shareholders. After all, it is the shareholders who own AHF, or do they? Nothing would surprise here anymore, especially will how AHF has been used to date as a shute, funnelling money out of the Company ostensibly on the basis of admin, corporate and payment of overworked and stretched directors.

If however there is any doubt as to the fortunes of AHF, then consider this from a CF perspective:

	Column 1	Column 2	Column 3	Column 4
0	Item	H1	H2	FY
1
2	Receipts	15.056M	10.991M	26.047M
3	Expenses	14.823M	10.918M	25.741M
4	Closing Cash	0.233M	0.073M	0.306M
5
6	Investing Cash (net)	(0.873M)	(0.138M)	(1.011M)
7
8	Financing Cash (net)	(0.212M)	0.022M	(0.190M)
9
10	Cash effort	(0.852M)	(0.043M)
11
12	Opening Cash	2.472M	1.620M	2.472M
13	Ending Cash	1.620M	1.577M	1.577M
14	Net change - Cash	(0.852M)	(0.043M)	(0.895M)
15
16	Open Debtors	3.607M	2.453M	3.607M
17	Close Debtors	2.453M	????	????
18	Net change - Debtors	(1.154M)

For a business that is meant to be humming along, the reality is that it still lost net cash in the second half and made 1/3 the operating cash of the first half. In other words, it went backwards. Mind you, there is a counterpoint argument here in that the H1 results were artificially boosted by the opening receivables which at Jul16 were $3.607M but by Jan17, were $2.453M, down $1.154M. This might well be the case, but even if argued, it only gets you so far through the mire.

The reality is and remains that the full year receipts profile of $26M was artificially boosted throughout meaning that the forward positioning for F18 (absent there being some serious growth happening, not just mere talk and puffery) is much more likely to be seen in the H2 receipts profile repeating itself, with some minor bias (perhaps 55/45 to the first half), and the expenses profile being similarly biased (55/45 although a 57/43 bias would not surprise).

If these biases were to result, then the positions would be:

	Column 1	Column 2	Column 3	Column 4
0	Item	H1	H2	FY
1
2	Receipts	13.43M	10.99M	24.42M
3	Expenses	13.35M	10.92M	24.27M
4	Closing Cash	0.080M	0.070M	0.150M
5

In other words, barely breaking even on an operating cash flow basis, yet with sizeable amounts yet to be paid out in respect of TAU /Jimmy Crow.

The next required capital raising (just in order to get cash into the bank) cannot therefore be too far away.