Eratat Lifestyle

[momoeagle]

"false pride and hopes kept me waiting"
I'm guilty of this as well for a few counters which I'm still holding at great loss.

Fortunately, the amount is small, and I leave it as a small lesson, while collecting dividends, however tiny. And it was fortunate I learned from the lesson and sold China Sky earlier at a small loss at 23 cts. Looking back, lessons learned are priceless, and must forever be remembered.

[freedom]

50+ million sales incentive was making its ASP almost tripled.

wow.

[shanrui_91]

Inventory turnover every 7 days, but trade receivables collection is at average of 130 days.
If inventory will to turnover so fast, clothes must have been very popular. For a figure of such, perhaps we have macdonalds and Walmart. but distributor take forever to pay????

and they use a sales incentive to mask off another 52m of trade receivable. Counting this, receivables will be at a total of 430m, which is 150 days = 5 months.

Total cash flow will have been nearly 0 if not for $65m from issuance of new shares.

"In order to secure delivery of products, we are required to pay about 50-60% as trade deposits at the
time of placing order with them as our orders may not be sizeable to the manufacturers."

For working capital wise, the company will then need to have spare 230m for 5 months to be able to pay their supplier.

And distributor got cut from 29 to 12
"The discontinued distributors had been under-performing or could no longer align with our growth strategy."

But revenue increases 7%. If the product was so popular, why will so many distributors get cut off? Profit could easily double if distributors are not being cut.

This is the first stock that I bought when i was still pretty ignorant and it was a good lessons learnt. I sold it at 20% loss last quarter after its subsidies for renovation of stores.

[momoeagle]

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!

[Contrarian]

> 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?

Is this a real business, or begging distributors to continue with them?

[RBM]

Interesting to see that the SGX has asked some questions regarding Eratat's "Distributor Incentives". Personally speaking, I do not believe these incentives smell good at all. Good for the SGX I say ........... lets see if they follow up with a couple more questions having received these "answers"...........

+++++++++++++++++
ERATAT LIFESTYLE LIMITED
(Company Registration No: 200705552D)

RESPONSE TO SGX QUERY ON ANNOUNCEMENT OF RESULTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

With reference to the announcement of the “Results for the financial year ended 31 December 2011” released on 21 February 2012 (the “Results Announcement”), we wish to provide additional information in response to the following queries raised by the Singapore Exchange Limited (“SGX”) on
27 February 2012.

SGX's queries :
1. We note that selling and distribution expenses increased by 234%, from 7% of revenue for the fourth quarter ended 31 December 2010 to 27% of revenue for the fourth quarter ended 31 December 2011. The Company has disclosed on page 12 of the results announcement that the increase was mainly due to sales incentive award of RMB 51.7 million to reward its distributors who had performed well for FY2011. In respect of this, please provide the following information:

As mentioned in the Results Announcement, our 2011 sales to the current 12 distributors increased by more than 30% in aggregate. Individually, more than half of them improved by more than 50%, of whom a couple even doubled their sales. Their increase had more than compensated for the reduced sales due to discontinued distributors. With the transformation from sportswear to casual lifestyle wear company over the last 2-3 years, the marketing strategy adopted by the distributors (and retailers) would have to change accordingly. Such change would include change in advertising strategy (in distributors’ respective territory), big shift in target consumers from low to mid-high spending habits and power, change in product types and mix etc. During the transition, they would also invariably incur costs on their own to keep up with the change. Most importantly, they have made much effort to change their mindset and strategy to do well in the different consumer market with new products. Having considered that these current distributors have aligned well with our group’s transition and growth strategy, and have especially done well in 2011, we decided to give them the sales incentive award for their 2011 performance.

a. How many distributors were awarded the sales incentive?;

All the current 12 distributors were awarded the sales incentive, but in varying quantum.

b. What are the criteria for determining the recipients and the quantum of each award?

In determining the quantum of award for each distributor, we have considered important criteria such as the realized sales orders they have made with us (i.e. our revenue), years of cooperation, sales growth in 2011, as well as growth potential in the future.

c. Is there a limit to the award quantum for each distributor?

The sales incentive given to each distributor range from 2-7% of their respective total sales contribution in FY2011.

d. Has this resulted in any tangible benefits to the Company?

As explained above, the sales incentive was mainly given for their good performance in 2011. However, we believe that such incentive would also encourage them to grow with us and further expand their network in the future. The sales incentive is both a reward for past performance and an encouragement for future growth.

2. It is stated on page 14 of the results announcement that “As at the end of FY2011, the Group was in the process of finalizing the renovation subsidy to be given to distributors, which would affect the Group’s profitability in FY2012”. In respect of this, please provide the following information.

a. How extensive are these renovation subsidies?

The amount of subsidies would depend on the number of shops that have been identified for renovation by the distributors and the rate of subsidy (which is currently being negotiated).

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.

By order of the Board
Lin Jiancheng （林建程）
Executive Chairman and CEO
29 February 2012
+++++++++++++++++

Not vested,

[momoeagle]

> 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?

Is this a real business, or begging distributors to continue with them?

Well, we wouldn't know. As someone pointed out, if sales was that good, and products that popular, why would certain distributors perform sub-par?

Certainly, if a distributor is a good seller and advertiser for Eratat (and distributing solely Eratat products), I fail to see how such good advertising would not trickle down to help other "ailing" distributors within the same country to perform better, especially when you have 12 good distributors (the remaining ones).

[Qiaofeng]

Well, we wouldn't know. As someone pointed out, if sales was that good, and products that popular, why would certain distributors perform sub-par?

Certainly, if a distributor is a good seller and advertiser for Eratat (and distributing solely Eratat products), I fail to see how such good advertising would not trickle down to help other "ailing" distributors within the same country to perform better, especially when you have 12 good distributors (the remaining ones).

Hi Momo,
Have been following Ur posts on Sales incentive and renovation subsidy.
Your concern seems valid as essentially they could result in a form of "transfer" out of the company---- i.e. a leak (deluge?) in the biz model----- for taking/losing funds. Hence they are "red flags" so to speak for any regulatory bodies to prompt further investigations.
Wonder why SGX queries and then accepts the replies fait accompli?

[momoeagle]

Well, we wouldn't know. As someone pointed out, if sales was that good, and products that popular, why would certain distributors perform sub-par?

Certainly, if a distributor is a good seller and advertiser for Eratat (and distributing solely Eratat products), I fail to see how such good advertising would not trickle down to help other "ailing" distributors within the same country to perform better, especially when you have 12 good distributors (the remaining ones).

Hi Momo,
Have been following Ur posts on Sales incentive and renovation subsidy.
Your concern seems valid as essentially they could result in a form of "transfer" out of the company---- i.e. a leak (deluge?) in the biz model----- for taking/losing funds. Hence they are "red flags" so to speak for any regulatory bodies to prompt further investigations.
Wonder why SGX queries and then accepts the replies fait accompli?

I think SGX can only do so much. The ultimate decision to buy or sell still depends on us.

[dzwm87]

Clearing inventories?