As recently as August 2017, AHF spoke in terms of forecast EBITDA for the farms (etc). Refer, ASX 25/8/17. Nothing however was spoken of CDC.
Previously, when CDC was first contracted (refer, ASX, 29/12/15), AHF spoke of the then proposed acquisition doubling EBITDA (in F17).
More recent announcements however have avoided making any reference to forward EBITDA prospects. In doing so, what AHF is really suggesting is that today’s announcement is all about revenue and not about margin, profit or shareholder gains. Eventually, all companies have to become profit generating as otherwise there is little inherent value in what they offer. Until AHF releases more relevant details such as prospective impact on future profitability, etc, then only three conclusions are presently possible:
- This is about revenue replenishment (not profit);
- At some stage, this might be about profit, but CDC’s current utilisation situation is such that the imperative of replacing revenue in order to slow down the operational losses being generated is considered the greater priority;
- Of itself, CDC is loss making and even with the award of this anonymous contract, it will continue to be loss making, albeit at a potentially lower bleeding rate.
Elsewhere, this also suggests that the farms are continuing to prop up the overall fabric of the business such that drastic action in respect of CDC’s operations was considered necessary. It also suggests that the OFDC exit has left a significant revenue gap in the existing CDC operations.
That said, even if one were to hazard a guess, then at $7.5M annually, the likely EBITDA(EC) margin would not exceed $1.5M on the contract.
CDC had a net loss of $455,000 in H18 which after allocation of bank charges ballooned out to >$600,000 (assuming a 2/3 share of bank charges allocated to CDC – this is likely conservative given that almost 100% of the bank charges actually related to the CDC acquisition). That loss appears to have deteriorated further into C19, with the progressive losses of (*) Aussie Farmers Direct, (*) OFDC, and (*) other. In the meantime, judging by the quarterly CF reports, the manufacturing costs regime has been steadily rising (but without revenue being in synch). As such, it is presently had to see how this new announcement (as opaque as what it is) actually stems any of the red ink currently flowing from CDC. It is therefore plugging a revenue gap but in order to turn things around, a number of other contracts are also considered necessary in order to bring the capacity utilisation back above 70-75%. Absent being at or above this mark, CDC’s profitability will arguably remain break even to marginal at best.
So, a relevant step, but the absence of profit figures etc being similarly advised at this time (as had been past done by practice) doesn’t quite infer CDC being profitable any time soon, or at all, inside of the F19 reporting period. Perhaps sometime in C20 (or H20) but not likely before then. The farms will therefore continue to do the heavy lifting work for the Company over what will now be 2 years of rough terrain to navigate (ie: until today’s announcement prospectively comes into its own).
Perhaps AHF is turning the corner and will go on to achieve things but to do so, they need to own the announcement, not just headline it. Presently, the announcement is all about star billing (revenue of $30M) but will it be a box office hit (or flop, as many so called, promised "blockbusters" of the past have been).
If they had gone with fuller disclosure (profitability, customer, nature of activities, etc), then this could very quickly have become a sustained buy instead of what it presently risks which is a stalled take-off.
Next step however will be the upcoming of the quarterly CF report (still likely slated for just after market close, next Monday). If the report here was going to be good, then they would have gone with the old "one, two" release, especially as they held a board meeting last Friday:
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"A formal contract was approved and executed by the AHF board
following its board meeting late on
Friday afternoon 20 April 2018."
Usually, CF reports are released promptly upon their approval at a relevant board meeting. This is in order for companies to meet their continuous disclosure requirements. It is also doubtful that the Company would hold one board meeting last Friday, and another one within a further 7-10 days. If so, then that's poor governance at work, not smart management. So, the question again begs itself - if the CF report for March Q is +ve, then why wasn't it simply released at the same time as this announcement? Such a move would have been strongly interpreted on a +ve basis by shareholders, prospective investors and observers. But instead of this, the present cloak and dagger continues.
Still, there is some possible time left for an after market announcement today although this isn't likely.
(20min delay)