Despite all the shade being thrown to management - I think credit needs to be given where it's due. The last few quarterly have delivered improvements in costs and have delivered some important information regarding the protein bars, and related expansion plans for FY22 and beyond.
With this announcement, barring any significant late cash flow, I am expecting the next quarterly to show improvement due to a number of factors: 1. Based on the past quarterly I have assumed that we have a margin of approximately 8% for our dairy sales. I think this is quite conservative. Workings: Receipts (without protein bar) = 13,270. Manufacturing costs (which included Protein bar costs; I've just assumed spending equal to 500k as we delivered 25% of 2m and had "bought extra inventory") = 12,270. I.e. GP Margin for manufacturing is approx. = 12,270/13,270 = 7.5% Accordingly, the 1.5m in this deal for November would mean around an increase of 110k in GP.
2. If we assume that the Bar Lines had a slightly higher margin at 10% (I would argue this is impossibly low given the high prices of protein bars we see - I imagine it may be at least 20% with the expensive $3 a bar price some have quoted). Nevertheless, we would be receipting additional receipts of + 100k-150k in net cash. I have assumed timing differences for these protein bars to not really impact the cash flow as the cost uptake would have occurred last quarter. Assumptions: - We were told in the last Quarterly that it did not yet include the 25% delivered bar line sales of 2m. This probably meant that the sales had a term of 30days or more. - With 25% delivered in September and the rest to be delivered through to December - I expect sales receipts from this to equal 50-75% of the contract (1-1.5m) depending on terms of trade. - I also expect costs to equal the 50-75% not yet delivered. (i.e. perhaps a break-even assumption).
3. Lower Investment costs: was approx. 850,000 per quarter. These costs while depressing the cash flow further, were well placed given some of the tax benefits provided for plants that can run pre June 30 2022. This is set to end with plants completed as per their last quarterly. Additionally, an extra +120k in Government Grant is expected in relation to this.
4. Last quarterly saw 300k in redundancy payments which were once off. Barring any other once-off costs this should show up as a saving of 300k in the next quarterly.
If everything stays on track we will not be +ve cash flow yet but we will see around +650k cash flow - I know timing differences and many other things can happen to impact cash flow - but we should be well below -ve 1m in the cash flow department - unless something changes.
I don't think these guys are lying or pumping - however, I think we do need to start seeing dividends in those plants and acquisitions made to get to EBITDA and Cash Flow +ve. From reading past announcements it seems that these guys should now finish setting up the infrastructure in terms of plants and operational costs, but let's see if they deliver - so far they have in terms of getting in protein bar sales, and contract sales (as per their announcements prior to each of them).
I think many here have grown frustrated because the SP has completely and utterly nose-dived, whilst management had such high remuneration. I completely understand how unfair and disgusting that is. But I think the cost savings and the contract wins suggest that there could be light at the end of the tunnel.
From what I can see the strategy is simply to pivot away from just contract manufacturing where margins are low (7.5%) to other niche products - hence the change of name and the investments into protein bars, and other wellness products where margins are typically higher. I.e. Contract Manufacturing is there to give support and base for them to then pivot and break through into these other higher margins, niche markets.
We'll need a little more to get to Cash Flow +ve but I think we're not too far away.
Just my two cents.
HLF Price at posting:
13.5¢ Sentiment: Buy Disclosure: Held
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