REVIEW OF OPERATIONS just out. Looks interesting. Some might say, quite promising.
But ..... wait.......wait there just a minute.......that was from last year......That's right. From this time last year except that back then the PFR16 came out earlier than what today's will be. Right here, right now, this year's report is going to go right down to the wire (and then some). So much for being pro-active. So much for confidence and belief (now and to the future).
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The following extracts are from the 2016 REVIEW OF OPERATIONS (from the preliminary Financial report of 31/8/16):
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The financial year ending 30 June 2016 (FY2016) has been a transformational year for the Group, which, will be seen in the future as instrumental in establishing the success and profitability of the Group.
The Group commenced FY2016 after completing a successful Institutional and Share Purchase Plan capital raising in May and June 2015 based on the proposed acquisition of new farms and livestock to increase milk production.
Since then, several events intervened to change the strategic direction of the Group and position it to become the first ASX listed vertically integrated dairy farming and milk product manufacturer, with the emphasis moving from milk production to milk processing and sales of value added milk products. The Group has also increased its securityholder base from approximately 900 holders to 4,500 holders at FY2016 end.
In July and August 2015, the Bureau of Meteorology (BOM) raised awareness of an increasing threat of an El Nino weather effect developing for the late spring and summer. An El Nino event in 2012 had produced very severe dry weather conditions in spring,
summer and autumn with the normal rainfall virtually ceasing in mid-September instead of as late as December and early January in an average year. The result of the 2012 seasonal event was a combination of failed on farm production of grass and silage and very high prices for purchased hay and grain with a reduction in quality.
Additionally, there was considerable industry discussion at the time, about the expectations of weakness in milk prices globally and questions about the sustainability of local Victorian farmgate prices, which in April 2016, eventuated in announcements from major processors to retrospectively reduce prices.
After analysing pasture growth budgets and other farm scenarios, the directors made a conscious and concerned decision that it was of greater benefit to the Group to withhold from acquiring further farms and conserve cash resources – on the basis that there
was no advantage in producing additional milk when input costs were likely to exceed revenues.
Forward contracts were negotiated with hay and fodder suppliers at fixed prices based on expected consumption levels to manage existing herds. Ultimately, the summer and autumn seasons were far worse than expectations in terms of lack of rain and greater heat, and hay and fodder suppliers were themselves hit by materially lower production. This then resulted in increased purchase requirements and significantly increased prices driven by exported hay and fodder demand, while on farm fodder production dried off months earlier than average.
Directors undertook a detailed assessment of the existing farms and the level of development work that could be undertaken to viably protect or mitigate the impact of adverse weather such as improving the drainage and water storage on farms, the installation of irrigation and additional or increase volumes of surface water storage facilities.
A comprehensive program of development work and irrigation was compiled for each of the farms for implementation during the dry summer so that new water storage would be in place when the autumn rains and wetter winter expectations eventuated. The extensive planned upgrades to each farm were costed and undertaken with internal project management to limit overheads.
The beneficial results of that work can be seen currently through very strong pasture growth, full dams, well-drained pastures and irrigation in place.
This work should have positive affects year after year in more reliable and greater volume grass production, with lower cost and lower volumes of purchased feed.
At the same time, the directors were actively considering ways to change the sole focus from simply supplying conventional milk to large milk processing factories, which priced their purchases on global markets. This included investigations into conversion to
specialty milk production, such as organic and acquisition of existing organic or already converting farms.
In the second quarter of FY2016, the opportunity presented to acquire Camperdown Dairy Company Pty Ltd (CDC) to provide the potential to vertically integrate the dairy farming and milk production operation with milk processing and product marketing and capture the benefits of value adding to the milk produced.
After assessment and negotiation, a contract was executed two days before Christmas 2015, with a view to completion in early February 2016, using an extension of available CBA banking facilities and the security of the farm assets. Incumbent management was to be retained and the contract was conditional on several small matters relating to change of control of leases and agreement.
These relatively minor matters delayed the completion until mid-April 2016 and final adjustments were not signed off by the vendor and buyer until 29 June 2016.
One month after completion the directors and CDC management met for two consecutive days to plan the strategies for the Group going forward and to identify and prioritise the most valuable opportunities for the Group, in terms of potential for growth and profitability.
Shortly after settlement, the milk industry in Victoria was impacted by announcements from major milk processors regarding the retrospective reduction in milk prices paid to farmers for the 2015/16 financial year. This had a positive flow on effect of focusing consumer awareness on the narrow margins that most Australian dairy farmers work on and resulted in a consumer driven move to purchase premium milk.
This changed the marketplace for CDC in June and July 2016, with the expected introduction of Camperdown milk and other products into major retailers expedited resulting in significant increases in sales volumes.
During this period, the Loyalty Options that were on issue to original investors in the Group were due to be exercised or expire.
From January to April 2016, there was strong take-up of the Loyalty Options and member take-up combined with an underwriting of the balance saw approximately $6.1m of new capital raised for the Group.
At the end of FY2016, the structure and future of the Group is one of good quality farms with very strong pasture cover and infrastructure that is materially protected from other than the worst of adverse seasonal conditions.
There is continued focus on integration of the milk produced and milk process to develop the provenance and traceability of product source so valuable in the dairy and other agricultural products.
Management is working with major retailers and boutique outlets to develop premium products, which are ideally branded under the Camperdown label although also under retailer-associated brands with the advantage of being a company that is small enough to
be flexible and innovative and large enough to be able to produce substantial volumes.
The Group has a pipeline of potentially very viable and profitable products and partnerships, which capitalise on the ability of the Group to be adaptive to market changes.
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Looking back, not too much was actually achieved during F17, with most metrics going backwards. For a year where, for example, feed costs should have been well down, they went up significantly (ie: $1.5M by H17 and counting).
Supplies into major retailers appears to have been well overstated as between the hype and the reality.
And as for the pipeline of opportunity, so little of this has come to fruition that perhaps the Company should consider hiring that guy who can turn water into wine.
For a business which presented with so much opportunity and optimism back in the early days of 2016, the current mid /late 2017 profile is one of lost opportunity, a business gone wrong, and sub-utlisation across the board. Not even the former CDC management could be persuaded into saying anything good about the CDC experience last week when, instead, he hyped up the Farms performance (although even this went backwards during 2H17, according to his commentary of 25/8/17, when for example compared to the experience of H17).
Did anything really go forwards during F17 (except for the amount being paid in management fees to TAU (now Jimmy Chook), the directors' fees being paid to a 2 person board and the executive benefits paid to a management team that has taken the operations south, not north? On the strength of all that has been said to date (and then, some more), it's doubtful.
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never has been with this bunch
(20min delay)