It is easy to discuss and comment on the AR in a company like SIAF. They have aging numbers on it and they disclose it properly in every Q report. You are worried about the increasing AR and that SIAF should not get the payment in the end – as you say, if they close the relationship with the co-op farmers!
Fact is that the co-op farmers is a vital part of the SIAF set-up. In that way SIAF get good credibility in the landscape where they are working. A lot of benefit to both SIAF and the co-op farmers and other farmers in those areas as well. It is some kind of symbios. Both are gaining from the cooperation.
During the investor tour in December, we visited 2 co-op farmers in the Xining area.
If you take a western company that has a high degree of growth, that company will have the same problem with the AR as SIAF have. You will then argue that the have several suppliers – well it could be, but not allways.
To deduct some of the AR does not seems to be a solution. In your own calculation you can expect a deduction/provision of X percent for AR but it seem really strange to expect that SIAF would deduct X % from the AR since they have a Business relationship with the farmers. If they expect a loss for AR they take a provision for that.
Regarding the revenues. What are you talking about! The revenue recognition that SIAF is using is Percentage of Compleation – I don´t like that method but there is no other alternative in this case. It is important that they do all the cost calculations correct and don’t overestimate the Revenue figures. Important in this MF-project.
Inflating the Revenue numbers! Yes, in the same way as other companies does when the consolidate companies that they own more that 50% in!
Are you doing that differently in US????
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