Text: Watching the tide and new consumption, author | Zhang Jing, ed Eucommia
In recent years, Yurun Food's revenue has continued to decline. According to its annual results announcement announced on April 26, in 2023, Yurun Food's total revenue will be HK $1.411 billion (equivalent to about RMB 1.242 billion), a year-on-year decrease of 29.10%. In contrast, Shuanghui Development's revenue in 2023 will be stable at 60 billion yuan, which is about 60 times that of Yurun Food.
In terms of net profit, Yurun Food's loss will increase significantly in 2023, with an after-tax loss of about HK $201 million, which is 7 times larger than the loss of HK $25.329 million in 2022.
In addition, in 2023, Yurun Food's inventory and accounts receivable will both expand, with an asset-liability ratio as high as 168.12%, and a large amount of bank loans are overdue.
For the 2024 plan, Yurun Food said that it will go hand in hand with "Harbin Meat Union" online and offline to improve brand awareness and market share; With the "Harbin Meat Union Franchise Store" as the core of channel construction, it focuses on store optimization and distribution encryption in Northeast China, and focuses on the "hot brine and fresh smoke" model in the Northeast, North China, Northwest and East China markets, and radiates to the South China and Southwest markets, forming a basic pattern of radiating to the six major regions of the country with the Northeast as the center.
From Nanjing's beginnings to the current "abdication" of the Northeast, the highlight that once belonged to the pork king Zhu Yicai is long gone.
It is difficult to improve the performance, and the debt pressure is obvious
Yurun Food's main business includes two major sectors: chilled and frozen meat and deep-processed meat products.
In 2023, the overall sales revenue of Yurun's chilled and frozen meat business decreased by 41.3% year-on-year to HK$966 million. Yurun explained in the financial report that this was affected by the unsatisfactory sales market, the average purchase price of live pigs decreased by 14.5% compared with 2022, and the slaughter volume decreased by 19.8% compared with 2022 to about 500,000 heads.
On the other hand, Yurun's sales of deep-processed meat products in 2023 will be HK$445 million, a slight decrease from HK$496 million in 2022. From the product structure from 2019 to the present, it can be seen that the overall sales proportion of the deep-processed meat products segment in Yurun has gradually expanded, from 13.51% in 2019 to 31.51% in 2023. This is due to the higher gross profit of Yurun's "Harbin Meat Union" brand.
According to the financial report, the overall gross profit margin of chilled meat and frozen meat is about 1.2%, while the overall gross profit margin of deep-processed meat products can reach 24.9%. Driven by the increase in gross profit of low-temperature meat products, Yurun's overall gross profit margin increased by 2.8 percentage points to 8.0% in 2023 from 5.2% in the previous year.
"Deep processing is more profitable than cold fresh", this is the consensus of the meat products industry, which can also be seen from the changes in Shuanghui's product structure. In 2023, Shuanghui's revenue from packaged meat products will be 26.414 billion yuan, accounting for 44.1%, an increase of six percentage points from 2020.
Compared with Shuanghui's gross profit margin, Yurun still has room for improvement. In 2023, the gross profit margin of Shuanghui Development's packaged meat products will be 31.66%, and that of fresh products will be 5.7%, both higher than those of Yurun.
Despite the increase in gross profit, Yurun is also difficult to change the trend of loss. In 2023, Yurun Food's net profit margin will be -14.27%, a decrease of about 13 percentage points from -1.17% in 2022.
Yurun's operating expenses include distribution expenses and administrative and other operating expenses. In 2023, Yurun's operating expenses will be HK$177 million, accounting for 12.6% of revenue; Operating expenses in 2022 were HK$121 million, accounting for only 5.6%. It is worth noting that Yurun's administrative and other operating expenses in 2023 will be HK$132 million, nearly double the HK$73.107 million in 2022. As for the substantial increase in this expenditure, Yurun did not explain much in the financial report.
(Source: Yurun Food 2023 Annual Report)
As Yurun continues to lose money, its debt ratio remains high. According to public data, since 2015, Yurun Food's asset-liability ratio has increased year by year, and in 2019, the asset-liability ratio exceeded 100% for the first time, reaching 113.60%; The asset-liability ratio in 2023 is as high as 168.12%.
Judging from the data of the past five years, except for a short profit in 2021, the rest of the time has been in a state of loss, and the loss has been expanding in the past two years. Although the net profit attributable to the parent company of Shuanghui has fluctuated in the past five years, it still remains at the level of 5 billion yuan.
As of the end of 2023, Yurun Food's current and non-current bank borrowings were HK$446 million and HK$22.029 million, respectively, while the company only maintained cash and cash equivalents of HK$3,929.80, which was not enough to cover the borrowings. At the same time, the annual report disclosed that Yurun's bank borrowings of HK$437 million together with interest payable of HK$263 million were overdue.
It is difficult for performance to improve, debt pressure increases, and the headache of Yurun Food has not yet been answered.
A generation of pork kings has changed from the richest man to the "first loser"
Rome was not built in a day, and the problem faced by Yurun was not a day's cold.
In 1989, Zhu Yicai, who graduated from Hefei University of Technology, left his original job with 200 yuan and started his own business. In 1991, Zhu Yicai entered the meat processing industry and established Yurun Meat Food Processing Factory, and in 1993, Nanjing Yurun Meat Food Company was established.
In 1996, the restructuring of state-owned enterprises was in full swing. Zhu Yicai seized this opportunity and acquired Nanjing Canning Factory, a state-owned enterprise with total assets of 70 million yuan, and since then the chassis strength has undergone qualitative changes.
From 2002 to 2003, Zhu Yicai acquired as many as 20 state-owned enterprises in one year, known as "state-owned enterprise professional households", and Zhu Yicai also ranked 27th on the Forbes China Rich List in 2003, becoming the richest man in Jiangsu.
In 2005, Yurun Food was listed on the Hong Kong Stock Exchange. At the same time, Zhu Yicai became the actual controller of the listed company Nanjing Zhongshang (the predecessor of Central Shopping Mall, 600280.SH) through continuous signing. In one fell swoop, the "Yurun system" was formally formed.
It was also in this year that Zhu Yicai once again became the richest man in Jiangsu and became a veritable "pork king".
Zhu Yicai waved his arms, and Yurun's diversified expansion road continued to deepen. In 2006, Yurun Group was established and has entered many fields such as real estate, logistics, tourism, and finance, ushering in the peak of Yurun Empire.
There is no doubt that Yurun's success comes from Zhu Yicai's "big gamble", and his series of bold mergers and acquisitions in the early stage have expanded the assets and income scale of Yurun Group, and further expanded his ambitions, but at the same time, it has also laid the groundwork for the subsequent collapse.
During this period, the meat products industry experienced a melee era in the past few years, and the pattern gradually stabilized, and Yurun, Shuanghui and Jinluo were equally famous, and were known as the "Three Musketeers" of the industry. Different from Yurun's ferocious expansion, Shuanghui and Jinluo are the main business, constantly strengthening the competitiveness of the company's supply chain and other aspects.
In 2000, Shuanghui Group learned from the development model of developed countries and introduced the first modern slaughtering cold segmentation production line in China, officially entering the era of cold fresh meat. Subsequently, a cold chain production, cold chain sales, cold chain logistics distribution (Shuanghui logistics), and national chain operation (Shuanghui chain store) cold fresh meat sales model was established.
As a rising star in the ham sausage market, Zhou Liankui, the founder of Jinluo, established a total of 12 production bases in many places across the country in the six years from 1997 to 2003, and purchased cold fresh meat equipment, opening the era of cold fresh meat.
In 2000, the Jinluo cold fresh meat store opened, officially opened the chain retail model, and launched innovative products such as "Calcium-added Jinluo King" to further segment the market and compete for the market through differentiated products.
The expansion model is too radical and the extensive Yurun slowly ushered in the "backlash".
In 2010, Yurun Food announced the "333" strategy in the country: to build a global procurement center for Yurun agricultural and sideline products in 30 provincial capitals across the country, to build a logistics and distribution center for Yurun agricultural and sideline products in 300 prefecture-level cities, and to build a planting and breeding production base for Yurun agricultural and sideline products in 3,000 counties.
In order to achieve this goal, the company spent 4.8 billion Hong Kong dollars (about 4.005 billion yuan) in 2011 to build factories, invest in factories and buy equipment. As a direct result of this investment, the company's net cash and cash equivalents turned negative. Net cash in 2011 was -$1,109 million, compared to $3,345 million in 2010.
At the same time, Yurun's other industries performed poorly, and the main business was dragged down by the side business, and the losses continued to increase.
In 2011, the 315 "Clenbuterol" incident had a great impact on the overall market, and the performance of Yurun and Shuanghui declined.
In 2012, Yurun suffered the "Hejiang County Ham Sausage" incident again - a number of students in Hejiang County, Sichuan Province suffered abdominal pain after eating Yurun ham sausage and sent to the hospital, and Yurun's performance was pushed to the trough again.
In contrast, Shuanghui's response speed is much faster. After the "Clenbuterol" incident, Shuanghui proposed to change from speed and efficiency to safety and scale, and the product from high, medium and low-end to mid-to-high-end. In 2013, Shuanghui spent $7.1 billion to acquire the world's largest pork company, Smithfield Company, and it was precisely because of this merger and acquisition that Shuanghui was minimized in the three-year "pig cycle".
In the five years from 2010 to 2014, Shuanghui's net profit increased from 1.159 billion yuan to 4.256 billion yuan, while Yurun Food's performance continued to decline until 2014, when the decline stopped and improved slightly.
Just when people thought that Yurun still had hope to get back on track, in 2015, the Central Shopping Mall announced that Zhu Yicai's family had been notified that the procuratorate had imposed compulsory measures on the chairman of the board, Zhu Yicai, under residential surveillance at a designated location.
This major negative brought a new round of heavy losses to Yurun, with a net loss of 2.976 billion Hong Kong dollars (equivalent to about 2.381 billion yuan) in 2015.
In the four years since it was investigated by the regulators, Yurun Food's net profit attributable to the parent company continued to be negative, and the central shopping mall was even put on delisting risk warning.
In January 2019, Zhu Yicai regained his freedom and carried out a series of corporate adjustments to help him get out of trouble, including the adjustment of the company's management, the resignation of many "veterans" including the chairman of the board of directors, chief executive officer and executive director of Yurun, and Zhu Yuan, the daughter of Zhu Yicai, was pushed to the forefront; Promote anti-corruption measures within the company, etc.
However, Yurun Group, which had long been heavily in debt, did not regain its footing with the return of the founder. In January 2021, ST China Commercial announced that its wholly-owned subsidiary, Shuyang Shopping Plaza, planned to sell assets to Shuyang Jinyuan to repay debts; On April 29 of the same year, the Nanjing Intermediate People's Court ruled in accordance with the law to carry out substantive merger and reorganization of 122 "Yurun Group" companies.
According to the data of previous public reports, in 2012, Yurun Holdings' operating income reached 106.1 billion yuan, and in 2014, it entered the fifth place in the top 500 private enterprises in China, and its revenue scale increased to 150 billion yuan, making it one of the most beautiful private enterprises in China at that time.
According to the Draft Reorganization Plan for 78 Companies including Yurun Holdings, as of November 16, 2020, 482 companies were included in the reorganization plan as a whole, with a total asset market value of RMB 127.3 billion and total book liabilities of RMB 117.8 billion.
From 100 billion in revenue to 100 billion in debt, Zhu Yicai returned to freedom, but the outside world has long been turned upside down.
The meat market is volatile
Not only Yurun, in 2023, the life of domestic meat product listed companies will not be easy.
According to the 2023 performance data of 9 listed meat products companies compiled by the Guanchao Research Institute, in addition to the increase in the performance of Sunner Development, the performance of Wen's shares, WH Group, Longda Food, Delisi, Chunxue Food and other enterprises has declined.
The low price of live pigs is also one of the main problems faced by many meat product companies. In its financial report, Longda Gourmet used "the sales price of woolly pigs and the market price of pork continued to fall, and the impact of the epidemic was superimposed" to explain the reason for the decline in its performance; Shuanghui Development also mentioned in the annual report: "The supply of live pigs in the meat industry is sufficient, the price of pigs is relatively low, the market has more pigs and more meat, and the competition is fierce; The overall consumption of the meat products industry is sluggish. ”
From the perspective of the overall market, whether it is the slaughtering industry or deep processing, the industry is constantly concentrated and full of new variables.
The slaughtering industry itself has the characteristics of cyclical risks and regulatory risks, and the proportion of fixed assets is high, and the gross profit is low. Under the cruel competition, prices are constantly being depressed, it is very difficult for small and medium-sized enterprises to survive, and the concentration of the industry will only continue to increase. At present, Shuanghui is the dominant company in the mainland slaughtering industry, and it is very difficult to grab market share from it.
In terms of deep processing, the meat products market is showing a pattern of "supply and demand". According to the data, the scale of the mainland meat products market will exceed 2 trillion yuan in 2022 and maintain a relatively steady development trend.
The market is growing steadily, but the competitive environment is becoming increasingly complex. Shuanghui, Jinluo, New Hope, Wen's shares, Shennong Group, Tianbang Food and other listed pig enterprises are further extending from slaughtering business to food deep processing.
In addition, with the rise of young consumers, emerging meat product companies focusing on health, zero additives, high protein, low fat and low calories have been born and opened up new markets.
Coupled with the continuous improvement of food processing technology, meat deep-processed products will further transform into customized products, pre-products and cooked products combining meat, eggs, milk and vegetables, with more innovative categories and richer types.
Internally, the profitability is not as good as before, and the top debt makes it difficult for Yurun to breathe; Externally, Yurun's opponents are not only Shuanghui, Jinluo and other opponents.
On January 28, 2022, the reorganization plan of 44 companies including Nanjing Yurun was voted and approved by creditors with a high vote rate of 99.72%. According to the restructuring plan, Yurun will solve the debt problem through Yurun Select, a securitization platform it has built. Yurun Select promises to achieve a net profit of no less than RMB 5 billion in 2026 and submit a listing application in 2027. After the objectives of the reorganization plan are achieved, the creditors who have converted their shares will withdraw from the securitization platform.
Listing in 2027 is not only the key to Yurun's reorganization, but also Zhu Yicai's expectations for the future of the company, but the efforts of the past three years may only be a drizzle for Yurun today.