Luzhou Laojiao and Yanghe sacrificed the equity incentive killer, and the sword pointed to the flower

Image source @ Visual China

Text | Wine Weekly Chronicles

"Mao Wu" ranks in the top two in the liquor industry, and the competition for the position of "Tanhua" is extremely fierce.

In the first half of this year, Luzhou Laojiao (000568. SZ's revenue has slipped to the fifth in the industry, and Yanghe Shares (002304. SZ), Shanxi Fenjiu (600809. SH) has thrown off its big gap in revenue. Although Luzhou Laojiao surpassed Shanxi Fenjiu in net profit to win back a round, the revenue fell from Tanhua to the fifth, which also made the old forces of the past more or less not tasteful.

Shanxi Fenjiu's surge has led many industry insiders to attribute one of the reasons to its equity incentives in 2018.

In April this year, the first lifting of the restriction period of the Shanxi Fenjiu Restricted Stock Incentive Plan came, and the core employees gained a lot, and the performance and nationalization effect of Shanxi Fenjiu were also obvious to all.

At the same time, Luzhou Laojiao and Yanghe shares also sacrificed the "killing weapon" of equity incentives, the former trying to return to the throne of the top three in revenue, and the latter or launching a "defense war" in the revenue position.

Is equity incentive the excitement of the future creativity of the liquor industry?

<h2>What is the "Golden Handcuffs"</h2>

On September 27, Luzhou Laojiao threw out 9 announcements in one go, the most important content of which was a 2021 restricted stock incentive plan (draft) approved by the board of directors.

According to the announcement, the number of restricted shares to be granted in the plan does not exceed 8.8346 million shares, and the grant price is 92.71 yuan per share. For the first time, the plan will award no more than 521 incentive recipients, including directors, senior management, middle management and core backbone personnel.

For the equity incentive assessment conditions, the announcement mentioned that the performance appraisal conditions for the first lifting of the restriction period are that the return on net assets in 2021 is not less than 22%, and not less than the 75th quartile value of the benchmark enterprise; compared with 2019, the net profit growth rate in 2021 is not less than the 75th quartile value of the benchmark enterprise; and the proportion of cost expenses to operating income in 2021 is not higher than 65%. The performance appraisal conditions for the other two release periods are basically the same as those mentioned above.

Equity incentives are known as "golden handcuffs", as a veteran liquor force, luzhou old cellar unlocking "golden handcuffs" conditions are not very harsh. BOC Securities issued a research report to give Luzhou Laojiao a buy rating, and the reasons for the rating included equity incentives: "The assessment targets are reasonably formulated and the achievement rate is high".

Coincidentally, after Zhang Liandong took office, Yanghe also accelerated the launch of the first phase of the core backbone shareholding plan, which completed the non-transaction transfer on September 11.

According to the draft plan in July, the share holding plan takes "shares" as the subscription unit, each share is 1 yuan, and the total subscription share does not exceed 1.002 billion shares, and the source of the shares is the A-share common shares of Yanghe shares repurchased by the company in the special account for repurchase, and the price of the repurchased shares purchased by the stock holding plan is 103.73 yuan per share of the average price of the repurchased shares by the company.

Yanghe shares unlocked the performance appraisal of "golden handcuffs", requiring that the operating income in 2021 increase by no less than 15% compared with 2020, and the operating income in 2022 should increase by no less than 15% compared with 2021 (subject to the results of the accountant's audit).

Public information shows that in 2020, Yanghe's operating income was 21.101 billion yuan, down 8.76% year-on-year. Based on this estimate, the revenue targets for 2021 and 2022 are 24.266 billion yuan and 27.9 billion yuan. In the industry's view, this goal should not be too challenging for Yanghe, which has a stable market.

<h2>New bottle of old wine</h2>

Why are Chinese liquor companies keen on equity incentives?

Cai Xuefei, a liquor expert and general manager of Zhiqu Consulting, told Lujiu Finance that at present, China's liquor sales methods are still relatively traditional, relying heavily on the integration of regional resources, and also highly require relevant business personnel and regional distributors to be able to carry out effective collaboration.

"Especially now, with the upgrading of the consumption structure, the products sold are relatively high-end, which is a great test for channel business personnel and dealers to develop and realize personal resources." Cai Xuefei said that equity incentives effectively solve the enthusiasm of business personnel to open up the market and improve their treatment.

This is particularly evident in the luzhou old cellar. As an "old driver" of equity incentives, Luzhou Laojiao is not the first time to apply this capital tool to expand the high-end market.

In November 2006, Luzhou Laojiao issued 30 million shares to 10 specific investors, including Shandong Guojiao Wine Sales Co., Ltd., by way of a non-public offering of shares. This round of equity incentives is mainly for dealers, and the direct purpose is to bind with the interests of dealers, maximize the enthusiasm of large dealers, and help the newly launched National Cellar 1573 brand to "go out of the circle".

At that time, Luzhou was called Luzhou Old Cellar everywhere, and the unit price of each bottle was less than 20 yuan in the market environment, and the national cellar 1573 achieved a high-end breakthrough with equity incentives.

On February 10, 2010, Luzhou Laojiao released the second round of equity incentive plan, which included a large number of core backbone employees in the equity incentive list. This equity incentive is valid for 5 years and the waiting period is 2 years. The exercise condition is that the net profit after deducting non-recurring gains and losses in 2011-2013 is not less than 12% of the previous year's growth rate. In July of the same year, the exercise shares were listed, when the Shanghai and Shenzhen markets were still in a bear market, but the stock price performance of Luzhou Laojiao was remarkable.

In the third round of equity incentives this time, with the common interest goals with the core personnel, Luzhou Old Cellar is also more confident to open a new round of old routines of controlling quantity and raising prices. At the end of September, some media learned from Luzhou Laojiao that the company stopped receiving orders for national cellar 1573, special qu series, and century-old cellar-age wine because the quota of these products had been implemented this year.

In recent years, Luzhou old cellar income growth, especially high-end wine revenue growth mainly rely on "price increase" and "volume control" to achieve, in the 2021 semi-annual report, Luzhou old cellar in the high-end wine production and inventory growth rate is extremely fierce, an increase of 163% and 60% respectively. This is also the reason why the revenue of Luzhou Old Cellar is not as good as Shanxi Fenjiu, but it has won back a round in the net profit dimension.

However, industry analysts believe that although the price increase and volume control have maintained revenue growth, they have also dragged down sales growth, and may even lead to a decline in the market share of high-end liquor. Luzhou Old Cellar wants to return to the third place in the industry, facing greater competitive pressure and certain uncertainties.

In the early stage of the development of the liquor industry, through equity incentives to stimulate business personnel and distributors to jointly become bigger and stronger market can be described as tried and tested, but in the current liquor enterprises collective sprint high-end and sub-high-end market, liquor jianghu has long had new changes - the "bottle" of the new market, loaded with old experience of "wine", how much strength can be, still needs to be reflected in the market response and observation.

<h2>Will the "strong medicine" collapse after that? </h2>

Luzhou Laojiao and Yanghe shares launched equity incentive policies at the same time this year, and it is difficult to say that it is not related to the stimulation of Shanxi Fenjiu.

As of October 20, the market value of Shanxi Fenjiu exceeded 400 billion yuan, and its revenue in the first half of the year ranked fourth among baijiu listed companies. The "Fen boss" of the past has returned to the first camp of liquor in the past two or three years, and it is impossible to avoid the topic of equity incentives in 2018.

On December 26, 2018, the State-owned Assets Supervision and Administration Commission of Shanxi Province issued a reply agreeing to the matters related to the Shanxi Fenjiu Incentive Plan. On March 11, 2019, the company published the list of incentive recipients on its internal website. On March 26, 2019, the Company determined that the grant price was 19.28 yuan per share, the number of grantees was 395, and the number of grants was 5.68 million shares.

The equity incentive adopts a double assessment, the company level: 19-21 years compared with 17 years of revenue growth rate of not less than 90%, 120%, 150%, and the three-year return on net assets is not less than 22%; the individual level also set up a performance appraisal system.

2021 coincides with a three-year engagement to unlock the "Golden Handcuffs". In April this year, the first lifting of the restriction period of the Shanxi Fenjiu Restricted Stock Incentive Plan came, the core employees harvested richly, and the performance and nationalization effect of Shanxi Fenjiu were also obvious to all. It can be said that in 3 years, the fragrant old wine that used to be in a corner has truly stepped out of the apricot blossom village and become a real national famous wine.

However, Shanxi Fenjiu's big opening and closing in the market in the first two years, as well as chairman Li Qiuxi's goal of "three steps and two steps, three years of task and two years", are also likened to the industry as the "Great Leap Forward". Even if it is now beyond the luzhou old cellar, in Cai Xuefei's view, fenjiu is a more radical expansion strategy, and the market strategy of the old cellar in Luzhou cannot be compared.

Looking back, compared with the market value and unlocking conditions of Shanxi Fenjiu at that time, it was still relatively harsh, which can be called a fierce medicine of "success is success and fame, and failure is a collapse". The fast-running Shanxi Fenjiu has been questioned by the industry from time to time.

In 2019, Fenjiu Group was exposed by the media to "develop wine" OEM chaos. Industry insiders believe that for manufacturers, although "OEM" can increase sales in a short period of time, it will lead to chaos in the price system and serious consumption of the value of the main brand and other sequelae that affect long-term development.

On December 26, 2020, the data mentioned by Li Qiuxi at the relevant meeting directly related to the 2020 annual operating results of Shanxi Fenjiu, which had not yet been disclosed, and the Shanghai Stock Exchange paid regulatory attention to it on the 31st. In this special year affected by the epidemic, Shanxi Fenjiu's performance has soared, its stock price has soared, and behind the seemingly eye-catching report card is the national battlefield paved through rising sales costs.

According to public data, nearly 60% of Shanxi Fenjiu's revenue in the first quarter of 2021 was contributed by the market outside the province, and for the first time, the proportion of sales revenue outside the province was structurally reversed.

An industry insider believes that the sharp rise in the performance of Shanxi Fenjiu is due to brand focus and national market investment, although the use of large sales fees can pry open the national market in a short period of time, but sales is a long-term work, investment can only represent short-term achievements, the actual effect is still to see the next step of the market sales work.

In other words, Shanxi Fenjiu had previously concentrated its firepower and used the "vigorous miracle" method to win the opening of the nationalization, and successfully completed the three-year contract of equity incentives. However, after various "strong drugs", whether Shanxi Fenjiu can continue to be recognized by the national market and whether it will usher in a period of collapse still needs to be verified by time.