Sino Grandness

[portuser]

In Sino Grandness' 2014 annual report, reference to adjusted profit was made thrice, in page 6, 8 and 14.

In page 6 and 14, adjusted profit was defined as the sum of:
(a) net profit attributable to shareholders,
(b) changes in fair value of the option derivatives in relation to convertible bonds, and
© non-cash interest expenses of convertible bonds.

In every subsequent press release accompanying quarterly results announcement, adjusted profit was disclosed, and the management has said that adjusted profit is the profitability measure for Sino Grandness as well as Garden Fresh.

An assertion has been made in this forum that the true profitability measure should be the sum of (a) and (b) only; and © ought to be excluded.

At first glance, this alternative measure, which excludes non-cash interest expenses, will give rise to lower numbers. 

But not so in 3Q 15, when Sino Grandness reported huge 'positive' finance costs of RMB 187.12m, which would be counter-intuitive to us (table A below).

The strange result came from the valuer (table B below). Note that liability component decreased as much as RMB 188m, whereas option derivatives rose by RMB 244m. How the valuer arrived at these, we do not know. I was told that assumptions are made to a large array of data before they are fed into the computer to churn out the results. Adjusted profit ignores the valuation results altogether. 

The following table compares the adjusted profit (adopted by Sino Grandness) and the alternative measure (advocated in this forum) for 3Q 15 and 9-month 15:


................Adjusted profit (RMB m)..........Alternative measure
3Q 15.............................133.0..............................321.2
3Q 14.............................209.6...............................201.3

9-month 15.....................423.2...............................448.0
9-month 14.....................448.3...............................380.9

The 'positive' interest costs in 3Q 15 gave rise to higher profits under the alternative measure.

It will be good to attend the EGM to find out more.   


  
Table A (RMB m)


..................................................3Q 15.......3Q 14
Revenue...................................949.60...1,030.51
Gross profit...............................385.31......410.18
..............................................................................
Distribution &
selling expenses......................(190.87)...(102.62)
Finance costs..........................187.12......(22.71)..........strange 'positive' RMB 187.12m finance costs

Profit before tax & change
in fair value of the option 
derivatives in relation to CBs.....371.21......271.41

Change in fair value of 
the option derivatives
in relation to CBs......................(244.38).....(15.14)

Profit before tax..........................126.83......256.27

Attributable profit..........................76.85......186.12




Table B

................................................................................................RMB m

.................................................................end-June 15.......end-Sep 15.......Variance
Liability component at amortised cost...............647.86...............459.61........(188.25)
Option derivatives at fair value..........................130.11...............374.49.........244.38
Total..................................................................777.97...............834.10...........56.13

Hi portuser,

In determining the aggregate conversion proportion of CB1 and CB2, 

who told me that FY2014 reference net profit was out of scope?

Who told me that FY2012 Reference Net Profit was irrelevant?

Who told me that the Reference Net Profit financial year was FY2013 ? 

So what is the relevance of FY2015 numbers?

You can define net profit in any other way you like and for any other purposes but for the purpose for determining the aggregate conversion proportion of CB1 and CB2, there is contract that one has to adhere by.

http://www.valuebuddies.com/thread-3371-...#pid125702

Hahaha!
_________________________________________________________________________________________________________________________________


Reference profit is for 2013 profit:

"The Projected Net Profit (or if available, the Net Profit) for the financial year of the HK Issuer commencing on 1 January 2013, provided that such Projected Net Profit is as disclosed in the
prospectus relating to the QIPO or has been approved by an Extraordinary Resolution. For the avoidance of doubt, Reference Net Profit shall exclude any one time fees arising directly from the QIPO and any Fair Value Change"

Reference profit was used to determine aggregate conversion proportion.  

The purpose of showing 3Q 15 numbers is to let readers know that in that quarter, there was a huge unusual 'positive' finance costs of RMB 187.12m; which resulted in profit determined by alternative measure higher than adjusted profit.

See you at EGM. 



See 

[Boon]

Hi CityFarmer,

I agree with you and will not be commenting on this issue until after the EGM as the debate has turned unproductive. But I would like to type this last post on the issue to explain the logic behind the arguments that have taken place to address your idea of it "spinning"

As Portuser has mentioned in post #1325, "An assertion has been made in this forum that the true profitability measure should be the sum of (a) and (b) only; and © ought to be excluded."

Whereby, "In page 6 and 14, adjusted profit was defined as the sum of:
(a) net profit attributable to shareholders,
(b) changes in fair value of the option derivatives in relation to convertible bonds, and
© non-cash interest expenses of convertible bonds."

This revolves around the claimant's reasoning that © does not fall under the definition of "extraordinary"

Defining what constitutes "extraordinary" is important because as stated in the 2012 circular, "For the avoidance of doubt, costs and expenses incurred in connection with the Qualifying IPO and any extraordinary items shall not be taken into account in determining “Net Profit”."

The issue started with a debate on what is "extraordinary" but yielded no results.

As such, giving the claimant the benefit of doubt, forumers have been trying to seek more clarification on the logic behind the assertion which includes pointing out that the application of the claimant's assertion have produced very confusing and unexplainable outcomes.

As all attempts to obtain some clarity have failed, the discussion has turned unproductive.

Discussion has turned unproductive because:
 
Debate on “Reference Net Profit (RNP) of Listco in FY2013 for determining aggregate conversion proportion of CB1 and CB2, according to 04 July 2012 circular” has been spun into “true profitability of the group for other periods.”
 
The debate on “extraordinary item” in determining RNP of Listco for FY2013, and hence the aggregate conversion proportion of CB1 and CB2 has been spun into “making money out of borrowing money” beyond the expired period of CB1 and CB2. (Note: CB1 and CB2 expired in June/July 2015 with no clear definite outcome)
 
Will not comment further until after EGM.
 
oldman9, thanks for the lunch, but will not be joining you.

[CityFarmer]

Thank you, Boon and Crubs.

Let's do as the 1992 Consensus of China/Taiwan, till further inputs. 

"Both sides recognize there is only one "truth", but both sides agree to interpret that "truth" according to their own individual definition" as of now.

Regards
Moderator

(Pardon me for the cheeky statement, as life is short, be happy, and healthy)

[xlandjy]

Thank you, Boon and Crubs.

Let's do as the 1992 Consensus of China/Taiwan, till further inputs. 

"Both sides recognize there is only one "truth", but both sides agree to interpret that "truth" according to their own individual definition" as of now.

Regards
Moderator

(Pardon me for the cheeky statement, as life is short, be happy, and healthy)

好一个 就二共识。

[crubs]

http://infopub.sgx.com/FileOpen/release%...eID=389630

Result briefing on the 26th. The briefing is open to non-shareholders too.

For those who are interested to attend

Date: 26th Feb
Time: 5:00pm
Venue: Six Battery Road #10-01 Singapore 049909 (at RHT Corporate Office)

See you there.

[Lich]

Ok. Thanks for the information.

[drunkdunker]

Any views on the egm being held before the release of end year result?

[Oldman9]

Hi All

Oldman managed to get this from a friend who attended.
[Image: 6c787c5.png]

[Image: 6cc006a.png]

Now we know who is right and who is wrong. To those who are right, you are good. To others, try harder, you may win next round.

Congrats to those vested, price seems to be going up. More action expected nearer to IPO.

Cheers
Oldman9

Note to Admin : Seems like the image upload function does not work. Can you help? Thank you.

[chan99]

Thank you Sir!

This was exactly my point - when the interest was not paid (Non Cash) to the bond holders then how can we adjust it to arrive at the earnings? More so because the form of the CB is non-interest bearing!

Cheers!

Hi All

Oldman managed to get this from a friend who attended.

[Image: 6c787c5.png]

[Image: 6cc006a.png]

Now we know who is right and who is wrong. To those who are right, you are good. To others, try harder, you may win next round.

Congrats to those vested, price seems to be going up. More action expected nearer to IPO.

Cheers
Oldman9

Note to Admin : Seems like the image upload function does not work. Can you help? Thank you.

[butcher]

Seems that IPO of Garden Fresh seems highly probable. My guess is the IPO is a near certainty which is the reason for the EGM to be held. But there is always a likelihood that IPO may be called off although this is a rare instance but happened before.

Take for example, the 'TransCab' IPO in late 2014 which have already been launched and accepting public subscription but called off in the eleventh hour due to some accounting issues.

Just my neutral view. However, the share price is climbing and bodes well to those vested.