Yurun Food's losses widened and debt overdue intensified

Wen | Li Zhenxing

On the evening of August 18, Yurun Food released its 2023 interim results showing that the company's revenue in the first half of the year declined and its losses expanded.

In addition, the company still has total liabilities of HK$1,640 million, which far exceeds its total assets of HK$1,139 million. At present, there are HK$241 million overdue debt, an increase of nearly HK$10 million compared with the end of 2022.

After a year of restructuring, Yurun Food did not quickly get out of the quagmire, and the road ahead is long.

01 The business suffered a total setback

In the first half of 2023, Yurun Food's revenue was about HK $770 million, down 21.35% year-on-year; The profit attributable to equity holders was a loss of HK$20.197 million, an increase of nearly 90%.

Specifically, the revenue of all types of Yurun Food products declined.

According to the report, the number of chilled and frozen meat was affected by the unsatisfactory sales market, the increase in positive people after the lifting of the new crown epidemic-related control measures, and then the suffocation of production, and the slaughter volume decreased by about 16.9% compared with the same period last year to about 300,000 head. As a result, the overall sales revenue of the Company's upstream business (before offset internal sales) decreased by 23.9% year-on-year to HK$549 million.

The Company's sales of deep-processed meat products (before internal sales) were HK$232 million, a decrease of approximately 10.2% compared to the same period last year.

Regarding the decline in sales of deep processing business, Yurun Food said in the report that the group continued to adjust its product structure with the goal of maintaining maximum profit, focusing on high gross profit products, and made appropriate compromises in sales growth, so the overall sales revenue of the deep processed meat products business was lowered.

In addition, revenue from low-temperature meat products was HK$140 million, a decrease of approximately 3.1% from the same period last year, accounting for approximately 18% of the Group's total revenue before offsetting internal sales and approximately 61% of the total revenue of the deep processing business, continuing to be the main source of income for the deep processing business. Revenue from high-temperature meat products decreased by 18.58% to HK$92 million.

As mentioned earlier, in order to maintain maximum profit, Yurun Food made a compromise in sales volume and maintained a high gross profit in the deep processing part of the business.

According to the report, Yurun Food's concentration on promoting higher-priced gift box products in downstream deep-processed meat products, coupled with the decline in the price of major raw materials, increased the gross profit margin of low-temperature meat products by 14.4 percentage points from 17.6% in the same period last year to 32%. However, only the gross profit margin of low-temperature meat products has improved, and the gross profit margin of high-temperature meat products decreased by 4.2 percentage points to 16.3% from 20.5% in the same period last year.

In the upstream business, the gross profit margin of chilled meat and frozen meat was 1.0% and 1.1% respectively, and the two figures in the first half of 2022 were 1.8% and -3.7% respectively, which increased the sales unit price of frozen meat and significantly increased its gross profit margin.

Overall, the overall gross margin of Yurun Food upstream was 1.1%, down 0.1 percentage points from 1.2% in the same period last year. The overall gross profit margin of downstream business was 25.8%, an increase of 6.9 percentage points from 18.9% in the same period last year. The overall gross profit margin of Yurun Food increased by 2.2 percentage points to 9% from 6.8% in the same period last year.

Chinese food industry analyst Zhu Danpeng believes that although Zhu Yicai, the actual controller of Yurun Food, has recovered his freedom, the entire market, competitive environment and business model on the supply side have changed, and the consumption thinking and habits on the consumer side have also changed accordingly. In this case, the interior of Yurun Food has not been completely straightened out, and the top-level design is not reasonable.

02 Losses widen and debts are overdue

The improvement of the overall gross profit margin failed to turn around the loss of Yurun Food.

In the first half of this year, Yurun Food's operating business lost about HK$28 million. The increase was mainly due to the impairment loss on non-current assets of approximately HK$36 million during the period under review.

Taking into account the above factors, the loss attributable to equity holders of the Company during the period under review was approximately HK$20 million.

Regarding the impairment loss of HK$36 million, the report stated that on June 30, 2023, Yurun Food Appraisal Group's non-current assets process took into account that the sales channels in some regions did not improve at a satisfactory rate after the epidemic, resulting in a decline in slaughter volume, which negatively affected the performance of individual subsidiaries of the Group's chilled and frozen meat segment, and caused individual companies in the upstream slaughtering business to lag behind previous forecasts, and these factors are expected to continue.

As a result of the above external factors, the Board has updated the assumptions used in the upstream slaughtering business cash flow forecast in assessing the recoverable amount of each cash generating unit. Accordingly, Yurun Food recorded an impairment loss of approximately HK$36 million on property, plant and equipment and prepaid lease payments during the period under review.

In addition to the loss accrued, Yurun Food's debt problem is still high.

According to the report, as of the first half of the year, Yurun Food's total assets were HK$1.139 billion, a decrease of HK$38 million from December 31, 2022.

However, Yurun Food's total liabilities as at 30 June 2023 were HK$1.64 billion, a decrease of only HK$32 million from 31 December 2022.

Total assets remain well below total liabilities.

According to Zhu Yi, associate professor of the College of Food Science and Nutritional Engineering of China Agricultural University, Yurun Group once had a good start, but then once declined, should be attributed to insufficient focus, too large plate, cross-border business became a burden, dragged down the food industry, after the restructuring and then force, there are fluctuations, within the acceptable range, this decline will not affect the general trend, Yurun Group can come out.

In the first half of this year, a number of banks in China filed a lawsuit against a subsidiary of Yurun Foods, seeking to guarantee immediate repayment of about HK$430 million of bank loans, and Yurun Foods is in discussions with the relevant banks to resolve the lawsuit.

According to the report, Yurun Food failed to meet certain borrowing covenants totalling HK$430 million from certain banks. These bank borrowings together with related withholding interest of HK$241 million are overdue, which represents an increase of nearly HK$10 million in overdue debt compared to HK$232 million as at 31 December 2022.

At the beginning of 2023, Yurun Food said in its financial report that it will continue to promote the implementation of the restructuring plan in the new year, continue to improve the Group's debt structure, enhance the Group's profitability, and continue to advance the restructuring plan. It is believed that Yurun, which travels lightly, will enter a new stage of development, return shareholders and creditors with better performance, and create more value for the society.

Half a year has passed, the company's restructuring has been more than a year, Yurun Food has not quickly extricated itself, but it seems to be sinking deeper and deeper, with revenue declining, losses expanding, and debt overdue expanding.

However, Zhu Danpeng believes that Yurun will recover soon. He believes that after the restructuring, the overall effect of Yurun Food has not yet been fully manifested, and it is expected that it will take about a year to turn around.

If it recovers as a leading company in the industry, Zhu Yi believes it may take longer. Zhu Yi said that the brand influence of Yurun Food is still there, the national degree is high enough, it can be regarded as an industry leader, as long as it does not forget its original intention and maintains quality, the product appeal will become stronger and stronger, and it is estimated that it can restore its position as the industry leader within three or five years.

As of 10:40 a.m. on August 21, 2023, the share price of Yurun Food was only HK$0.24, although it rose by 1.28%, but the market value of Yurun Food has evaporated by 99% from the share price of HK$33.98 in 2010.

This article is from Chinanet Finance