Eratat Lifestyle

Reward incentive and renovation subsidy are not the same thing. Read carefully. They are still finalizing the renovation subsidy. Not vested and no regrets

oops... ya. u rite, greenrockie. i read wrongly. If give longer credit terms, i wonder why is there a sales incentive award? omg... Ken Ho better explain this clearly.

I must be behind in my reading cos I have just come across news that the SG govt is contributing S$1.1 billion to buy 550 new buses and pay for their operating costs for 10 years. This is a positive surprise to commuters like me but there are people who ask : Why can't the SBS Transit and SMRT take care of the bill? So, this is how it really works in reality. The govt wants the bus system to improve fast and recognises that the bus divisions of SBS and SMRT lost money last year or are not able to pay for the 550 buses.

This is a win-win partnership using one-off injection of $. My guess is this is what Eratat has in mind when it decided to pay sales incentive to its 'surviving' distributors so that both the company & they can grow together. Just my 2 yuan worth

Eratat seems to be struggling with its distributors. Unlikely to have better result for next few qtrs. I have divested all my holding near its recent height. Foreland could be a much better alternative to invest for 2012. Let's see how strong its result is.

Hi garl,
In your example, I believe you are equating Eratat with the SG govt and its distributors, as SBS/Bus Operators. It is a flawed equation. One of the reason is that Eratat announced this cash outflow only after the fact (after results were announced), where as the SG govt announced it before the event occurring (at Budget).
And by your own admission, if the Singapore govt doesn't pump money into the Operators, the latter will keep bleeding money. By the same argument, would the shareholders of Eratat have to see their possible dividends flow to a shrinking pool of distributors? Profit went up for FY11 but dividend on a per share basis fell 17% year-on-year
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[garl 26-02-2012]:

I must be behind in my reading cos I have just come across news that the SG govt is contributing S$1.1 billion to buy 550 new buses and pay for their operating costs for 10 years. This is a positive surprise to commuters like me but there are people who ask : Why can't the SBS Transit and SMRT take care of the bill? So, this is how it really works in reality. The govt wants the bus system to improve fast and recognises that the bus divisions of SBS and SMRT lost money last year or are not able to pay for the 550 buses.

This is a win-win partnership using one-off injection of $. My guess is this is what Eratat has in mind when it decided to pay sales incentive to its 'surviving' distributors so that both the company & they can grow together. Just my 2 yuan worth

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.