Triyards Holdings

[karlmarx]

With regards to Triyards, how can their auditors be satisfied that revenues were booked when there is no invoice issued to customer?

I went through the FY2016 annual report again. Under Note 2.16 "Construction Contracts" it is disclosed that:

"Contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (the percentage of completion method), when the outcome of a construction contract can be estimated reliably."

In other words, Triyards' revenue depends on the speed of its construction work, and has nothing to do with customer invoicing. It is easy to imagine scenarios where this revenue recognition policy fails miserably at approximating reality e.g. the contract is a "1+99" arrangement where the customer puts up 1% as a deposit, with 99% due upon completion. Don't laugh, many Chinese yards did this in order to secure orders.

So what happens is that Triyards can take the 1% deposit, then merrily build the vessel, bleeding cash but recognizing revenue and profits along the way, until the vessel is complete, and then finally hand over the vessel and invoice the client for the balance 99% payment. But it should be obvious to anyone with half a brain that the "1+99" customer is actually just gambling on vessel values. If the vessel has gone up in value, the customer takes delivery and re-sells for a profit. If the vessel has fallen in value, the customer abandons the deposit, leaving Triyards stuck with the vessel and having to reverse out the entire contract.

If Triyards wants to avoid facing up to reality it can slow down the pace of work, delaying the day when the vessel is finished and it has to invoice the customer. So the vessel could be 99% finished and the customer has not been invoiced, but 99% of the revenue and profit has already been recognized. In today's poor market for offshore oil and gas vessels, there is no incentive to complete the vessel. So in the extreme case, Triyards could stop construction one screw short of completion, to avoid having to ever invoice the client and thus write off the whole contract when the client refuses to pay.

Again, YMMV.

This is a very good lesson for me. I always assumed that cash is paid, or credit is extended, when revenues are booked. I am aghast that such accounting principles/practices are accepted. I now make an effort to check the companies' revenue recognition policy when doing research.

With regards to the low downpayment and lack of any progressive payment, it seems to be a highly speculative move by Triyards (and the other aggressive yards) by assuming 99% (1% deposit and no progressive payment) of the risk. Such a credit policy can only be sustained by rising vessel values. Triyards should have been a purchaser, and not a builder, if it wishes to engage in speculative activities.

[chialc88]

I don't know about you but until recently, d.o.g.'s post is always about avoiding these fake companies.

If you just scan thru d.o.g.'s posts, you'll be more aware of the type of companies to avoid.

This had costed me a lot of $$$ (by not practising d.o.g.'s advise).

This had also saved me many times (by practising).

And, of course, this had caused me to lost out in many opportunities (by practising too).

My verdict is definitely die-die must do.

I rather missed out a good opportunity than kanna catch once for not listening.

Thank you d.o.g.

I'm still trying to understand my temperament and your input is always very much appreciated.

Gratitude.