The unusually high receivables should have set the alarm bell ringing from the very beginning. Really poor governance. It shows the management doesnt care about the shareholders. Maybe the money isn't there to begin with. I am glad I exited and made a little profit (though i regret exiting a little too early). pity those who bought around 15 cents
I was about to point out that the sales incentive was a big portion of the placement fees
From the cash flow statement, they had 61.5mil RMB from placement.
Some interesting calculations:
Net cash generated from operations: 14.764 mil
Net cash from investments: 0.638 mil
Net cash from financing: 47.313 mil
So net cash from all these activities is 62.715 mil (under net increase in cash/cash equivalents)
Of which the majority came from the placements net of dividends.
Eratat is so generous to their distributors that they would distribute 51.744 mil RMB to them as sales incentive (reminder: most of these cash are from the placements). So nice of them! But shareholders?
Do not forget that they are still planning on renovation subsidies for their distributors. What a generous and caring supplier they are!
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[ethan999 28-02-2012]:
Something can only be an incentive if it's offered and stated clearly before the fact - that if you meet a certain target, you get rewarded, in order to motivate you. That is the definition of an incentive.
When offered after the fact, and especially when it is used to offset receivables, it just smacks of being an excuse to offset receivables that distributors couldn't pay, presumably due to slow sales.
51 million for sales incentives. How much for renovation subsidies?
You know what's funny? I remember the Eratat management repeating many times during its meeting with shareholders, the reason why they pursue this strategy of extending receivables to distributors is because they do not want to subsidize distributors or offer them discounts as this would affect bottom-line. Well look what happened now?
If you take away the 65 million rmb they got from the placement, free cash flow for FY 2011 was almost negligible, while their working capital needs remain very high and soon a big chunk of that cash in the bank is going into the receivables cycle again.
No regrets about exiting this one last November, I did take a loss, but other stocks have helped me more than recover this loss, while I have learned a lot from this investment error with Eratat.
ERATAT kena queried by SGX. The reply pertaining to sales incentive has been well-ventilated but the reply on reno subsidy has some new info.
Based on 1 billion rmb revenue (2011 figure), the 5% subsidy is about 50 m RMB.
b. How much would the aggregate renovation subsidy cost? Please quantify the impact on the Group’s profitability going forward;
Currently the subsidy amount is still being finalized, but it is not expected to be more than 5% of the projected revenue in FY2012. Notwithstanding the renovation subsidy, the Group remains optimistic of its financial performance in FY2012 as mentioned in the Results Announcement.
c. How would the recipients of the renovation subsidy be identified?
Each distributor would identify shops that need to be renovated, prioritizing key strategic
locations. The list of shops (with details of renovation to be carried out) would have to be
submitted, which would then be used to determine the subsidy amount.
when the share price goes up 50% , no one knows why. but when the share price goes down, so many people came out with their 2c worth.....the usual receivables, etc etc.... i wonder if the share price continues to go up, what do they have to say.... probably none.
for those not vested, should simply move on and pick on other stocks to Analyse. is eratat such an intersting stock that people who are not vested have to keep analysing it ???
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