In the past year or so, core message private group Hoang Anh Gia Lai has revealed its intentions of financial restructuring to investors and declared shifting focus to the fruit segment. The group (ticker: HAG) earned VND1.26 trillion ($57 million) in gross profit in the first nine months of this year. Investors, however, wonder when the group will actually get rid of difficulties.
From 2018, the fruit segment is expected to make bigger contributions to HAG, with an annual production output surpassing 334,000 tonnes
Nine-month business results: profit or loss?
According to HAG’s latest consolidated financial statement, the group registered nearly VND4 trillion ($182 million) in net revenue in the first nine months of this year, down 18 per cent on-year, but sharply declining capital costs helped the group post over VND1.26 trillion ($57 million) in cumulative profit during the period, a 65 per cent jump on-year.
In the nine-month period, HAG posted more than VND1.6 trillion ($73 million) in financial earnings, but interest payment pressure was mounting with VND1.1 trillion ($50 million) in interest expenses.
Sales expenses shed VND30 trillion ($1.3 million), business management expenses amounted to VND492 billion ($223 million), and other expenses came to nearly VND203 billion ($9.2 million).
Consequently, the group posted more than VND1.19 trillion ($54 million) in pre-tax profit during the period, a very positive result compared to the minus VND1.18 trillion ($54 million) incurred in the corresponding period last year 2016.
If financial earnings were excluded, HAG, however, incurred a net loss of more than VND400 billion ($18 million) in business activities.
At a meeting with investors on October 31, 2017 at the Ho Chi Minh City Stock Exchange (HoSE), where the HAG ticker is listed, one investor straight-out asked HAG’s leader whether the group’s nine-month business results had ended with profit or loss.
According to Vo Truong Son, HAG’s general director and board member, with VND1.19 trillion in pre-tax profit during the period, if excluding the VND950 billion ($43 million) income from liquidating the sugar production arm to Thanh Thanh Cong Group, HAG was about VND200-300 billion ($9-13.6 million) in profit.
“Though the price of rubber has recovered, creating money flows for us, the profit margin remains low on account of interest payments. Besides, our beef cattle segment is temporarily being narrowed and the fruit production segment is in its initial stages, therefore the group’s ability to cover interest and management costs to reach the break-even point means a success,” Son said.
Will fruit production help HAG to take off?
At the recent meeting with investors, Son said that although only a part of HAG’s fruit growing areas has generated harvests, the group reaped $50 million in revenue from selling 50,000 tonnes of fruit.
The money flows from selling fruit helped the company to slash debts by about VND1 trillion ($45 million).
According to HAG Management Board Resolution dated October 23, 2017, by the end of 2017’s third quarter, HAG has been cultivating more than 17,000 hectares with 20 types of fruits and spices in Laos, Cambodia, and Vietnam.
All the areas follow GlobalGAP standards and HAG has been cooperating with Bureau Veritas, a global leader in certification services, on the acquisition of the GlobalGAP certification for its fruit tree projects.
As of now, 2,000 hectares generated harvest, and 1,364 hectares either have or are going to receive the GlobalGAP certification.
According to Son, this year the group would sell 180,000 tonnes of fruit, gaining a revenue of VND2.1 trillion ($95 million) and VND1 trillion ($45 million) in earnings before interest, taxes, depreciation and amortisation (EBITDA).
From 2018, the fruit segment is expected to make bigger contributions to the group’s development with an annual production output surpassing 334,000 tonnes, generating more than VND7.5 trillion ($341 million) in annual revenue and more than VND4.09 trillion ($186 million) in EBITDA.
A HAG representative said that with the advantages of large-scale production, adherence to GlobalGAP standards, and good infrastructure (83 cold storage facilities in four countries), HAG is in a position to sell directly to wholesalers to save costs.
According to HAG’s management, their core fruit export market is China as this country accounts for 40 per cent of global fruit consumption. The demand for fruit in China is sharply increasing by virtue of the fast-increasing medium-income households, speedy urbanisation, and modern supply chains.
When the financial restructuring become a success?
By the end of September 2017, HAG’s total debt volume came to VND34.6 trillion ($1.57 billion), down more than VND4 trillion ($182 million) compared to the beginning of the year. Short-term loans shed nearly VND3 trillion ($136 million) to stand around VND2.8 trillion ($127 million) and long-term loans dropped VND1.3 trillion ($59 million), to VND20.3 trillion ($926 million).
Son said that this year HAG is set to pay out about VND5 trillion ($227 million) in debts. Next year, as negotiated with the lenders, HAG only needs to pay interest, but will try to pay an additional VND1 trillion ($45 million) in principal. The principal payment will be gradually increasing from 2019.
This means that if the money flows from fruit production are favourable, HAG would see far less liquidity pressure, as the fruit segment’s EBITDA was estimated at more than VND4 trillion ($182 million) from 2018.
How does HAG plan to tackle more than VND23 trillion ($1.04 billion) in loans?
Capital divestment from its properties in Myanmar and selling the rubber arm were reported as two remedies.
Regarding the rubber arm, a HAG source once said that they used to decide on selling the rubber business, and the business partner would have willingly paid VND8 trillion ($364 million) to buy it, but eventually they decided to stop.
The best asset that could be sold in HAG’s capital divestment plan is its property project in Myanmar.
“If we could divest the 30 per cent investment at the current price level, HAG could reduce its debts by an additional VND3 trillion ($136 million). But we may not necessarily be able to sell it because the investment has been basically completed,” Son said.
If the group’s 30 per cent investment capital in Myanmar could be divested as planned, and if fruit production turned beneficial, next year could create a cornerstone in HAG’s development.