Australian Natural Proteins

Question: Discuss about theAustralian Natural Proteins. Answer: Introduction Australian Natural Proteins (AYB) is a company down under focused on the animal husbandry segment. The prime activity of this company used to be sheep and crop production. However, these activities seem to have been discontinued over the past few years and in the Year ended 30 June 2016 and Year ended 30 June 2015, the peak revenue of the company was $2.5k. Now the company is trying to venture into a new activity in the dairy industry and is looking to undertake a project in the Murray River region of Australia in dairy farming. The milk generated is expected to be sold in domestic and international markets. The strategy for entering into this sector seems to be through the acquisition of dairy farms and for auctioning this inorganic strategy of acquitting 5 dairy farms, it has appointed the lead manager for managing its fund raising and issued a prospectus. Of the 5 farms, 3 are in Finley of South New Wales and the other 2 are in Murray River basin. The Farm 1 has an estimated produ ction of 3.7 mn liters of milk and can be sold to generate revenue of$2.1 mn translating to an income per liter of 54 cents. The average milk output per cow in this farm is expected to be 12,000 liters per annum. The farm is 210 hectares (or 519 acres) with 411 milking cows, 189 R2 and 175 H2 Reifers. The Farm 2 has an estimated production of 3.9 mn liters of milk and can be sold to generate revenue of$2.1 mn translating to an income per liter of 54 cents. The average milk output per cow in this farm is expected to be 8,390 liters per annum. The farm is 220 hectares (or 544 acres) with 461 milking cows, 200 R2 and 75 H2 Reifers. The Farm 3 has an estimated production of 7.4 mn liters of milk and can be sold to generate revenue of$3.8 mn translating to an income per liter of 51 cents. The average milk output per cow in this farm is expected to be 8,173 liters per annum. The farm is 398 hectares (or 984 acres) with 980 milking cows, 140 R1 and 15 bulls. The Farm 4 has an estimated pro duction of 5.8 mn liters of milk and can be sold to generate revenue of$3.2 mn translating to an income per liter of 55 cents. The average milk output per cow in this farm is expected to be 7,647 liters per annum. The farm is 518 hectares (or 1,280 acres) with 850 milking cows, 320 R2 and 220 R2 Heifers. The Farm 5 has an estimated production of 3.7 mn liters of milk and can be sold to generate revenue of $ 2.1 mn translating to an income per liter of 58 cents. The average milk output per cow in this farm is expected to be 7,646 liters per annum. The farm is 388 hectares (or 959 acres) with 700 milking cows, 200 R2 Heifers. Overall, all the 5 farms will have an aggregate estimated production of 24.4 mn liters of milk and can be sold to generate revenue of$13.2 mn translating to an average income per liter of 584cents. The average milk output per cow in this farm is expected to be 8,863 liters per annum. In all the company will have 1,734 hectares (around 4,286 acres) with 3.4k adult milking cows, 900 R2 Heifers, 535 R1 Heifers. (Reuters, 2016) (Asx.com.au, 2011) The company was listed on the Australian Stock Exchange with outstanding shares of 3.15 mn. However, the trading has been suspended for some reason for the past few months. The last traded price was$0.29 which translates to a market cap of$8-9 mn. The company has secured agreements to buy the first farm of GRS Foods and is under negotiation to secure long term contracts of acquisition for the remaining as well. In line with this strategy, the company has appointed the lead manager. (Anon, 2016) Statement of Financial Position The items in the Statement of Financial Position analyzed are a) Total Current assets, b) Total non current assets , Total Current Liabilities, Total Stock Holder' equity. Total Current assets of the company for year ended 30 June 2016 is $ 535, 916. In comparison to the previous financial year ended 30 June 2015, the Current Assets have decreased from $1, 045, 766 to $ 535, 916. This represents a decrease of 49%. Current Assets in year ended 30 June 2016 comprises of cash cash equivalents of $ 535, 916 which is 100% of the Current Assets. For the previous year, mix of Current Assets was 17% in cash cash equivalents ($ 175, 341), loans 83% ($868, 259) and other current assets comprised of less than 1% ($2, 166). The company seems to be liquidating its current assets and converting it to cash. Hence all other Current Assets for year ended 30 June 2016 was probably the liquidation of the Current Assets in year ended 30 June 2015 and conversion to cash. This is because the company does not have any operations and have generated sales of only $ 2, 825 in year ended 30 June 2016 and $68 for year ended 30 June 2015 Total non current assets for year ended 30 June 2016 of $ 99, 428 comprising primarily of Property, Plant Equipment ($ 29, 756) and investments ($69, 672) in the mix of 30% and 70% respectively represented an increase of 1.22 x over the previous year ended 30 June 2015. In year ended 30 June 2015, non Current Assets were primarily represented by Property, Plant Equipment of $44, 676 (nearly 100%). Property, Plant Equipment has decreased by 33% for year ended 30 June 2016 compared to year ended 30 June 2015. This could be due to the depreciation charge. The company seems to be parking its current assets liquidated into cash and putting into investments due to the stall in operations Total Current Liabilities droProperty, Plant Equipmentd by 36% for year ended 30 June 2016 compared to the previous year ended 30 June 2015 from $814, 048 to $ 519, 511 respectively. This was mainly on account of 64% decrease in loans borrowings which represented 89% of the mix of Current Liabilities for the year ended 30 June 2015. Property, Plant Equipment decreased from $ 726, 468 to $ 263, 792. In year ended 30 June 2016, the Loans Borrowings comprised of 51% of the Current Liabilities. 49% of Current Liabilities at $255, 719 was represented by trade payables. Total Stock Holder' equity is $ 115, 833 in year ended 30 June 2016 compared to $ 276, 493 for year ended 30 June 2015. This represents a decrease of 58% over year ended 30 June 2015. The company has an accumulated loss of $ (19, 180, 961) compared to $ (17, 624, 768) for year ended 30 June 2015. This represents a 9% increase. The company has been accumulating losses due to stalled operations and spending costs. Hence the accumulated loss has increased by $2 mn for year ended 30 June 2016 over year ended 30 June 2015. The company has also been pumping equity to remain afloat over the period of time. In year ended 30 June 2016, the equity holders have pumped $1.2 mn for the year ended 30 June 2016 Stockholder Equity Total Stock Holder' equity is $ 115, 833 in year ended 30 June 2016 compared to $ 276, 493 for year ended 30 June 2015. This represents a decrease of 58% over year ended 30 June 2015. The company has an accumulated loss of $ (19, 180, 961) compared to $ (17, 624, 768) for year ended 30 June 2015. This represents a 9% increase. The company has been accumulating losses due to stalled operations and spending costs. Hence the accumulated loss has increased by $2 mn for year ended 30 June 2016 over year ended 30 June 2015. The company has also been pumping equity to remain afloat over the period of time. In year ended 30 June 2016, the equity holders have pumped $1, 395, 533 mn for the year ended 30 June 2016. However, given the situation, there is an increasing chance that the company cannot be classified as a Going Concern as per the Accounting Standards Board (Bloomberg.com, 2016) Statement of Profit and Loss The items in the Statement of Profit and Loss analyzed are Total (operating) revenues, Cost of Goods Sold, Total expenses (before income taxes), Any non-operating (or extraordinary) gains and losses, Earnings per share (EPS). Total (operating) revenues The company does not have any operations. Hence the operating revenues are close to negligible. For year ended 30 June 2016, the company had revenue of $ 2, 825 compared to that of $ 68 for year ended 30 June 2015. Cost of Goods Sold (if relevant) There is neither cost of manufacturing operations nor cost of goods sold since the operations have been discontinued. Total expenses (before income taxes) Inspite of no operations, the company still incurs fixed costs with respect to employees, contractor pay and other expenses. In addition there are financing expenses especially on working capitals spend. Total Operating expenses on Continuing activities of the company for YE2016 is $ 690, 759. In comparison to the previous financial year YE2015, the Operating expenses on Continuing activities have increased from $ 328, 597 to $ 690, 759. This represents an increase 1.1x. Operating expenses on Continuing activities in YE2106 comprises of other expenses of $ 325, 075 which is 47% of the Operating expenses on Continuing activities. 45% of the mix comprises of expenses for Consultant Contractor expenses. For the previous year ended 30 June 2015, 40% of the mix comprises of expenses for Consultant Contractor expenses mix of Operating expenses on Continuing activities while other expenses constituted another 40%. The employee benefit expenses halved from $40, 484 to $20, 883 from year ended 30 June 2015 to year ended 30 June 2016 while the financing expenses became 2x from $5, 593 in year ended 30 June 2015 to $17, 433 in year ended 30 June 2016. Financing expenses roughly constitutes 2-3% of the Operating expenses on Continuing activities. It is obvious that employees have been pruned from year ended 30 June 2015 to year ended 30 June 2016 and hence the expenses corresponding to them have reduced by 48%. This is in line with the fact that operations have been curbed and sales are on the diminishing side. This is because the company does not have any operations and have generated sales of only $ 2, 825 in year ended 30 June 2016 and $68 for year ended 30 June 2015 Any non-operating (or extraordinary) gains and losses There is a Loan write off by $(1, 668, 052) in YE 16. The revenue from discontinued operations has posted a loss of $858, 259 in year ended 30 June 2016. In year ended 30 June 2015, the loan writes off was $2, 526, 311. Due to the operations being discontinued progressively loan which has been part of the Current Assets has been becoming non performing and the company has been taking continuous write offs in the past 2 years of year ended 30 June 2015 and year ended 30 June 2016. In all, in the past 2 years, there has been a write off of $3.4 mn. This is also evident in the analysis of Current Assets, where loans of $ 868, 259 in year ended 30 June 2016 have become nil in year ended 30 June 2015. Earnings per common share (EPS) The EPS has marginally been better from -1.89 in Year ended 30 June 2015 to -0.49 in Year ended 30 June 2016. Owing to the loss of $2,860,866 in Year ended 30 June 2015 reducing to $1,556,193. The biggest contributor for the loss in Year ended 30 June 2015 was the loan write off of$2, 526, 311 which was 86% of the loss after tax for Year ended 30 June 2015 Statement of Cash Flow net cash inflow (outflow) from operating activities The receipts from customers, payments to suppliers / employees / others, interest received constitutes the CFO. The total CFO for Year ended 30 June 2015 was $462,064 compared to $502,710 for Year ended 30 June 2016. This also represents a 109% increase in the payments to suppliers / employees / others. Given the suppressed level of operations that company has received only $2,500 of its receivables from customers. net cash inflow (outflow) from investing activities The company has invested $69,572 in Year ended 30 June 2016 for CFI. In the previous year Year ended 30 June 2015, the company seems to have sold $27,300 of Property, Plant Equipment. This points to a scenario where the company is trying to change its business line by selling existing Property, Plant Equipment and buying new Property, Plant Equipment. This is in line with their announcement where they have appointed a lead manager investment banker for their fund raising activity. net cash inflow (outflow) from financing activities The company has been funding its new business model from issuing convertible instruments where convertible loans are converted into equity. This amount raised is $1,082,334in Year ended 30 June 2016 compared to $626,577 in Year ended 30 June 2015. The company has repaid $137,200for loans and $12,277 for hire purchase obligations for Year ended 30 June 2016. In the previous year of Year ended 30 June 2015, $32674 is repaid for hire purchase obligations. net increase (decrease) in cash during the year Overall, there has been an increase in CCE by $360,575 for Year ended 30 June 2016 compared to $159,139 for Year ended 30 June 2015. Thus the CCE has more than doubled. Primarily, the increase has been on account of infusion of cash from the convertible loans into equity of $1,082,334 in Year ended 30 June 2016. Thus the CCE at the end of the year in Year ended 30 June 2016 was $535,916 which represents a 4x of the CCE of $175,341 for Year ended 30 June 2015. Conclusion Thus it is clear that the company is in a phase where it is changing its business model from being a crop production company to a dairy farming company. The company is choosing an inorganic route to develop scale in this business by acquiring 5 farms for which definitive agreements seem to have been under negotiation. As a result, currently it has pumped equity in the company and is also raising money from the market by floating a prospectus. Currently, therefore, its cash flows are under strain. In undoing its earlier business, it has liquidated its working capital and sold its Property, Plant Equipment. It has used the cash available through this in addition to the equity infusion to buy Property, Plant Equipment and create a war chest for acquisitions of the 5 dairy farms. The amount to be raised from the market will add to the war chest. The company was listed in the Australian stock exchange earlier and it seems due to the change in the business plan, the company has got itsel f delisted. It is looking for a fresh listing by raising money from the market. (Australiannaturalproteins.com.au, 2016) Recommendation The company has very little track record of the dairy business. Moreover, the risk for the investors is enhanced since this is not a steady operating model with years of history. Moreover the company is substantially using investor money to commence this business which means that the skin of the company promoters in this game is limited who have invested from the returns they derived in the earlier business. The earlier business also does not seem to show any traction and year on year losses have been accumulated. Hence it is recommended that investors do not invest in this company until their operations are stabilised and the proof of the pudding is evident. References and Bibliography References Anon, (2016). [online] Available at: https://www.intelligentinvestor.com.au Home Companies AYB [Accessed 21 Sep. 2016]. Asx.com.au. (2011).Announcements Search Results. [online] Available at: https://www.asx.com.au/asx/statistics/announcements.do?by=asxCodeasxCode=aybtimeframe=Dperiod=M6 [Accessed 20 Sep. 2016]. Australian Natural Proteins. (2016).AProperty, Plant Equipmentndix 4E - Preliminary Final Report, ASX Listing rule 4.2A. Australiannaturalproteins.com.au. (2016).Home | Australian Natural Proteins. [online] Available at: https://www.australiannaturalproteins.com.au/ [Accessed 20 Sep. 2016]. Bloomberg.com. (2016).AYB:ASE Stock Quote - Australian Natural Proteins Ltd. [online] Available at: https://www.bloomberg.com/quote/AYB:AU [Accessed 21 Sep. 2016]. Reuters. (2016).${Instrument_CompanyName} ${Instrument_Ric} Analysts | Reuters.com. [online] Available at: https://www.reuters.com/finance/stocks/analyst?symbol=AYB.AX [Accessed 20 Sep. 2016].