Replies to post #95181 on Sino Agro Food Inc (fka SIAF)

[Carog]

A commente on receivables and cash flow:

This is very possible the way of running the business by giving credit to his customers of sometimes over a year.So in the end they get rich and we end up with profits on paper that unfortunately are in the receivables column or row.And we don't know if there are any guarantees from these customers or they may just one day say that they just can't pay.We never asked this on the CC.And perhaps this is the RED FLAG that has made Nasdaq and and FN refuse to list SIAF-selling on credit with no guarantees.Imagine a bank operating like that!
Some on this board say that we will be cash flow positive once the Mega Farm starts operations.What will change?
And as I said before, instead of at least ending up with more cash after the last quarter's fall in revenue, we ended up with more receivables again!Why?

As long as the relation beteween sales and account receivalbles are prette stable over time I wouldn´t worry about it. When sales increase so does receivables, nothing strange about that.

SIAF´s business model, which is the very foundation of the business, is build on the fact that they are financing their different partners in many different ways. Its not a perfect situation of course but financing is working different in China then in other parts of the world. Just look at the Agricultural loans that Siaf has. You have to repay the loan within one year and thereafter you can ask for another bigger loan. Its of course impossible to base your investment decisions on loans that only run one year. This is of course one of the reasons for Solomons dillution over the yrs. He has dilluted the shareholders in order to grow the business. In doing that he has been financing his partners aswell. On the good side, I could recognize very good realations with his partners. Since we have an option to buy up to 75 percent of their business their are mutual incitaments for the business to continue to grow. Our cost of capital will decide what will be the best course of action going forward. The opportunity to buy and establish JV´s are there all the time other opportunities might have higher ROI for the moment though.

Looking at cashflow going forward, most of our cash flow comes from CA. If you look at the existing business excluding the MF and excluding the import and excluding any productivity measuers from Dr Ostrowski. Organically I think we can expect between 10-20 percent growth topline. Given the fact that eels probably are going to be a lot better 2016 those numbers can come up a bit. I dont know how much productivity growth Dr Ostrowski will have time to implement going into next year. But he made it clear that he had the opportunity to increase density in the tanks quite a lot giving us potentially much better production numbers. Its to early to have any opinion on that though, at least for me.

The MF will of course bring us great cashflow when its up to speed. This stage gives us 5 000 tons at full capacity. I dont think these first 36 APM´s will run at full speed the whole 2016 though, it will take some time to ramp up production. Nice to know though is that those numbers aren´t considered optimal by Dr Ostrowski.

On those 5 000 tons I believe we earn arround 3 dollars per kg. Giving us 15 million dollars in positive cash flow. I do believe it will take some time to get to full production and I dont expect that from those 36 APM´s for the full year 2016 but than again we cant forget that we have the next 5000 tons that will be under construction, and they should be good to go sometime in 2016 aswell if I understand it right.

When it comes to the import I dont think it will contribute with any cashflow since they will reinvest all gross profit back into increased volume..... But they will have a great impact on earnings.
Looking at the import business, the growth rate pretty much depends on if and when we get additional working capital for that segment. Given the turn arround rate and credit terms I do believe that the import business can grow more than 100 percent without any additional financing solutions. Solomons projections are apparently based on additional financing or capital that are directed into this business though.

To summarize, I think we will have good groth next year but that a lot of the cashflow will be directed back into SJAP´s business. Building SJAP volume is also great from a break up case perspective.