Wednesday, August 29, 2012
Thursday, August 16, 2012
Random Comment On Genneva Business Model
My personal view on
Genneva’s business model is based solely on the appreciation of gold price and
new sales of gold
Genneva has never revealed the real working mechanisms behind on how it go about making its profits or sustaining its business. Based on information received from past and present Genneva agents, Genneva did present a complicated model on how gold is traded between various parties internally and externally. However, that model seems to show only floating profit which is wiped out when client sells back, hence the assumption above.
- Genneva’s sale hit about 5,000kg 12 months back
Genneva started business since January 2008 and has been operating for about 4.5 years. The information received on the total gold portfolio that Genneva’s clients are holding ranges from 5,000kg to 12,000kg. For conservatism, we take the lower figure of 5,000kg.
- Margins from sale of 5,000kg has been wiped out through giving out discounts and commissions in the last 12 months
Genneva’s selling price for 1kg bar has been stagnant at $95,000 for the last 10-12 months. UOB’s selling price has been ranging from as low as $65,000 to as high as $75,000 during this period. We will use an average figure of $70/g for this study. Each 1kg bar will yield Genneva a margin of $25,000. The total payout by Genneva to its clients and agents averages about 3.3% of $95,000 every month which works out to $3,135.
Since gold price did not go up in the last 12 months, the margin of $25,000 from each kg sold is likely to have been wiped out within 8 months ($25,000/$3,135).
As Genneva owe its agents commission for 5 months, let’s assume the total payout by Genneva to its clients averages about 2.5% of $95,000 every month instead. This works out to $2,375 a month. Given this scenario, the time taken for the margin of $25,000 to be wiped out is about 11 months ($25,000/$2,375). Not enough to last the full 12 months even without paying its agents any commissions for 12 months.
- There were no new sales and hence no increase in the 5,000kg in the last 12 months and assuming no sellbacks in the coming months
There has been some sellbacks by Genneva’s clients such that any new sales were negated as the new clients took over the old clients’’ portfolio. For the analysis later, it will also be assumed that there will be no sellbacks.
- Genneva has zero cash and zero gold reserves
Extrapolating from the assumption that the margins of $25,000 for each of the 5,000kg were wiped out within 8 months, Genneva would not have any cash and gold reserves. Also Genneva owes its agents’ commissions for 5-6 months. Total owed commissions work out to $19mil ($95,000*5,000kg*0.8%*5months).
Genneva has never revealed the real working mechanisms behind on how it go about making its profits or sustaining its business. Based on information received from past and present Genneva agents, Genneva did present a complicated model on how gold is traded between various parties internally and externally. However, that model seems to show only floating profit which is wiped out when client sells back, hence the assumption above.
- Genneva’s sale hit about 5,000kg 12 months back
Genneva started business since January 2008 and has been operating for about 4.5 years. The information received on the total gold portfolio that Genneva’s clients are holding ranges from 5,000kg to 12,000kg. For conservatism, we take the lower figure of 5,000kg.
- Margins from sale of 5,000kg has been wiped out through giving out discounts and commissions in the last 12 months
Genneva’s selling price for 1kg bar has been stagnant at $95,000 for the last 10-12 months. UOB’s selling price has been ranging from as low as $65,000 to as high as $75,000 during this period. We will use an average figure of $70/g for this study. Each 1kg bar will yield Genneva a margin of $25,000. The total payout by Genneva to its clients and agents averages about 3.3% of $95,000 every month which works out to $3,135.
Since gold price did not go up in the last 12 months, the margin of $25,000 from each kg sold is likely to have been wiped out within 8 months ($25,000/$3,135).
As Genneva owe its agents commission for 5 months, let’s assume the total payout by Genneva to its clients averages about 2.5% of $95,000 every month instead. This works out to $2,375 a month. Given this scenario, the time taken for the margin of $25,000 to be wiped out is about 11 months ($25,000/$2,375). Not enough to last the full 12 months even without paying its agents any commissions for 12 months.
- There were no new sales and hence no increase in the 5,000kg in the last 12 months and assuming no sellbacks in the coming months
There has been some sellbacks by Genneva’s clients such that any new sales were negated as the new clients took over the old clients’’ portfolio. For the analysis later, it will also be assumed that there will be no sellbacks.
- Genneva has zero cash and zero gold reserves
Extrapolating from the assumption that the margins of $25,000 for each of the 5,000kg were wiped out within 8 months, Genneva would not have any cash and gold reserves. Also Genneva owes its agents’ commissions for 5-6 months. Total owed commissions work out to $19mil ($95,000*5,000kg*0.8%*5months).
Current situation:
- Genneva recently launched and sold 500kg of SKR (Safe Keeping Receipt)
SKR seems to be a scheme whereby clients do not receive any gold and the gold is assumed to be kept with Genneva. The actual working of SKR is still a mystery. There have been previously reported sales of SKR and it was told to the agents that one of its staffs ran away with $20mil of the money that clients put in SKR. The clients were not informed of the situation and the matter was covered up because the agents continued to pay the clients their discounts from the agents’ own pocket. Clients who wanted to redeem their SKR were persuaded not to or the agents had to look for new clients to replace existing clients who wanted to exit.
For the purpose of this analysis, past SKRs are excluded. From the sale of the latest 500kg of SKR, Genneva would have raised $47.5mil ($95,000*500). The monthly payout on the SKR is about 6%, which works out to be $2.85mil a month ($47.5mil*6%).
- Clients who want to sell back will have to surrender their gold in exchange for a 7 days post-dated check
Once the client surrender the gold to Genneva, Genneva has 7 days to sell it off to another client to get the cash to pay off the client who want to sell back. However should Genneva not be able to sell to another client, it will default and the check will bounce causing a credit situation. This client will be severely disadvantage as he or she will be considered an unsecured creditor should Genneva go into liquidation. If Genneva after paying off other creditors rank higher has no more cash, then this client will not receive a single cent.
- Clients who want to recontract will have to leave their gold overnight with Genneva and collect it the next day after 2pm
Apparently this policy has been announced but the implementation date has not been set. Once implemented, this policy will free up more gold for Genneva to sell and roll its cashflow. Currently most of Genneva’s contract is 3 months. There are 22 to 23 working days in a month. For simplicity, we assume there are 67 working days in 3 months and the 5,000kg are spread out equally throughout the 67 working days. Therefore this policy will free up about 75 kg of gold for Genneva to roll (5,000kg/67working days). 75kg of gold is worth $5.25mil in market price ($70,000*75kg) or $7.125mil if Genneva is able to sell to new clients. However if it can’t, in the event that Genneva defaults and go into liquidation, these clients will also end up as unsecured creditors likely to be ranked last in the queue.
- Genneva owes its agents 5 months’ worth of commissions
As mentioned in the assumptions above, assuming a 5,000kg portfolio, Genneva owes its agents about $19mil (5,000kg*$95,000*0.8%*5 months). Genneva is planning to pay the agents commission outstanding in January and February such that only 3 months of commission is being owed. Thus that will result in a payment of $7.6mil (5,000kg*$95,000*0.8%*2 months) and reduce commission owing to $11.4mil (5,000kg*$95,000*0.8%*2 months).
- Genneva recently launched and sold 500kg of SKR (Safe Keeping Receipt)
SKR seems to be a scheme whereby clients do not receive any gold and the gold is assumed to be kept with Genneva. The actual working of SKR is still a mystery. There have been previously reported sales of SKR and it was told to the agents that one of its staffs ran away with $20mil of the money that clients put in SKR. The clients were not informed of the situation and the matter was covered up because the agents continued to pay the clients their discounts from the agents’ own pocket. Clients who wanted to redeem their SKR were persuaded not to or the agents had to look for new clients to replace existing clients who wanted to exit.
For the purpose of this analysis, past SKRs are excluded. From the sale of the latest 500kg of SKR, Genneva would have raised $47.5mil ($95,000*500). The monthly payout on the SKR is about 6%, which works out to be $2.85mil a month ($47.5mil*6%).
- Clients who want to sell back will have to surrender their gold in exchange for a 7 days post-dated check
Once the client surrender the gold to Genneva, Genneva has 7 days to sell it off to another client to get the cash to pay off the client who want to sell back. However should Genneva not be able to sell to another client, it will default and the check will bounce causing a credit situation. This client will be severely disadvantage as he or she will be considered an unsecured creditor should Genneva go into liquidation. If Genneva after paying off other creditors rank higher has no more cash, then this client will not receive a single cent.
- Clients who want to recontract will have to leave their gold overnight with Genneva and collect it the next day after 2pm
Apparently this policy has been announced but the implementation date has not been set. Once implemented, this policy will free up more gold for Genneva to sell and roll its cashflow. Currently most of Genneva’s contract is 3 months. There are 22 to 23 working days in a month. For simplicity, we assume there are 67 working days in 3 months and the 5,000kg are spread out equally throughout the 67 working days. Therefore this policy will free up about 75 kg of gold for Genneva to roll (5,000kg/67working days). 75kg of gold is worth $5.25mil in market price ($70,000*75kg) or $7.125mil if Genneva is able to sell to new clients. However if it can’t, in the event that Genneva defaults and go into liquidation, these clients will also end up as unsecured creditors likely to be ranked last in the queue.
- Genneva owes its agents 5 months’ worth of commissions
As mentioned in the assumptions above, assuming a 5,000kg portfolio, Genneva owes its agents about $19mil (5,000kg*$95,000*0.8%*5 months). Genneva is planning to pay the agents commission outstanding in January and February such that only 3 months of commission is being owed. Thus that will result in a payment of $7.6mil (5,000kg*$95,000*0.8%*2 months) and reduce commission owing to $11.4mil (5,000kg*$95,000*0.8%*2 months).
Analysis:
- Based on sale of 500kg SKR and implementation of overnight holding of gold which frees up 75kg, Genneva raised a cash and gold reserve of $52.75mil ($47.5mil + $5.25mil).
- Genneva can use part of the $47.5mil to pay the 2 months of the outstanding of $7.6mil leaving a balance of $39.9mil ($47.5mil – $7.6mil).
- It can then use the balance $39.9mil to purchase another 570kg gold from the market ($39.9mil/$75,000) giving it a total of 645kg to sell (570kg + 75kg).
- The sale of this 645kg and assuming it is sold within a month will yield Genneva $61.275mil which it can use to purchase more gold to sell to the clients.
- With the new 645kg sales, total portfolio is now 5,645kg (5,000kg + 645kg).
- Monthly cash payout based on 5,645kg is $17,697,075 (5,645kg*$95,000*3.3%).
- Total monthly cash payout including SKR is $20,547,075 ($17,697,075 + $2.85mil).
- Based on sale of 500kg SKR and implementation of overnight holding of gold which frees up 75kg, Genneva raised a cash and gold reserve of $52.75mil ($47.5mil + $5.25mil).
- Genneva can use part of the $47.5mil to pay the 2 months of the outstanding of $7.6mil leaving a balance of $39.9mil ($47.5mil – $7.6mil).
- It can then use the balance $39.9mil to purchase another 570kg gold from the market ($39.9mil/$75,000) giving it a total of 645kg to sell (570kg + 75kg).
- The sale of this 645kg and assuming it is sold within a month will yield Genneva $61.275mil which it can use to purchase more gold to sell to the clients.
- With the new 645kg sales, total portfolio is now 5,645kg (5,000kg + 645kg).
- Monthly cash payout based on 5,645kg is $17,697,075 (5,645kg*$95,000*3.3%).
- Total monthly cash payout including SKR is $20,547,075 ($17,697,075 + $2.85mil).
Conclusion:
Without any new sales after this sale of 645kg, Genneva’s cash and gold reserves will be back to zero in less than 3 months ($52.75mil/$20,547,075).
Without selling another 645kg, with the $52.75mil raised, Genneva’s cash and gold reserves will be back to zero in less than 4 months [$52.75mil/(5,000kg*$95,000*3.3%)].
In order to preserve its cash and gold position, it needs to ensure its cash inflow every month must be at least equal to cash outflow.
New sales needed to cover commitment of 5,645kg are 822kg ($20,547,075/$25,000).
New sales needed to cover commitment of 5,000kg are 627kg (5,000*$95,000*3.3%/$25,000).
New sales will add onto following month’s cash outflow. Thus, new sales every month got to be increasing or else the cash and gold reserves position will continue to dwindle to zero over time.
Therefore in order for Genneva to be sustainable, it needs to be able to sustain this new level of sales with no sellbacks. What is the likelihood? It’s anyone’s guess.
Without any new sales after this sale of 645kg, Genneva’s cash and gold reserves will be back to zero in less than 3 months ($52.75mil/$20,547,075).
Without selling another 645kg, with the $52.75mil raised, Genneva’s cash and gold reserves will be back to zero in less than 4 months [$52.75mil/(5,000kg*$95,000*3.3%)].
In order to preserve its cash and gold position, it needs to ensure its cash inflow every month must be at least equal to cash outflow.
New sales needed to cover commitment of 5,645kg are 822kg ($20,547,075/$25,000).
New sales needed to cover commitment of 5,000kg are 627kg (5,000*$95,000*3.3%/$25,000).
New sales will add onto following month’s cash outflow. Thus, new sales every month got to be increasing or else the cash and gold reserves position will continue to dwindle to zero over time.
Therefore in order for Genneva to be sustainable, it needs to be able to sustain this new level of sales with no sellbacks. What is the likelihood? It’s anyone’s guess.
Wednesday, August 15, 2012
genneva genneva genneva
I heard Genneva, the gold trading company is on the verge of collapse ...customers are now unable to do sell backs, i am more perturbed that the senior sales people in the company did not inform the newly joined sales people that this is happening. I heard from a lady who was a new agent recently that she was shocked to know that now genneva cannot do sell back. She is very afraid and is praying very hard for her monies.
In Genneva Malaysia, the syariah license that they claimed to have seems to be fabricated and have mis-led many Msia customers and sales people in the trade. This is really baddd.
This blog is dedicated to those who need to know what is really happening to Genneva in Msia and Singapore. Peace out.
In Genneva Malaysia, the syariah license that they claimed to have seems to be fabricated and have mis-led many Msia customers and sales people in the trade. This is really baddd.
This blog is dedicated to those who need to know what is really happening to Genneva in Msia and Singapore. Peace out.
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