No "token dividends" becoz the company needs to conserve all the cash it is able to garner (although it is not likely to be enough). Not only is there CNY650.3m of convertible bonds due 30 Jun 2015, it also has CNY508.4m of contracted capital commitments for its Anhui expansion up to FY2016.
Although the results came as a shock, it is not that bad if one takes a closer look at the details. Loss for 4Q2014 is mainly due to
- Higher distribution and selling expense (+CNY46.6m);
- Change in fair value of derivative component of CBs (+CNY31.6m);
- Higher finance charge (+CNY26.7m);
- Higher admin expenses (+CNY7.1m); and
- income tax (CNY17.6m).
It is quite natural for the company to incur more distribution and selling expenses as it expands its geographical reach for its beverage business.
As for the fair value change and higher interest cost, it is mainly due to the zero-coupon convertible bonds coming due on 30 Jun 2015. I do not expect the company to be able to pay off the CBs on its own. It will have to list its beverage arm (as per original plan) or bring in investors for its beverage business. I believe the recent incorporation of subsidiaries in HK and Cayman islands is part of the preparatory work for that to happen.
The 4Q2014 income tax charge of CNY17.6m despite incurring a loss shows that the fair value charge and imputed interest cost of the zero-coupon CBs are not tax-deductible in China.
Furthermore, the announcement only provide the Beverage segment's gross profit as CNY805.7m. If we take the segment's FY2013 gross profit of CNY579.5m and segment's PBIT from 2013 annual report of CNY384.7m, we get the FY2013 operating expense of CNY194.7m. Then, add the increase in distribution and selling expenses, admin expenses during FY2014 (assuming all the increase is allocated to the beverage segment), we will get the segment's FY2014 operating expense of CNY357m. Subtract from the GP, we will get the FY2014 PBIT of the Beverage segment at CNY448.3m, which represents an increase of CNY63.6m over FY2013.
So, moral of the story is: If the beverage business performance is real, it will continue to be viable and profitable and will not be affected by the interest cost and fair value charge of the Zero-Coupon Convertible Bonds.
Thank you ZAD. The selling could subside, giving the share price a good chance of recovery this week. I think so becos the huge vol during a spike up in price last Tues would have caught some buyers who can't hold on -- & so had to sell.
Then the results' impact this week added to the "noise". Today, could subside. If not, tomorrow.... ???