By the end of 2016, Yurun Food's net cash outflow from operating activities was approximately HK$110 million, and its cash balance plus fixed deposits, pledged deposits, and restricted bank deposits totaled about HK$350 million, far short of the HK$1.09 billion in overdue debts. A year ago on March 23, prosecutors placed Yurun Food's founder and largest single shareholder, Zhu Yicai, under residential surveillance at a designated location in China. A year later, Yurun Food's operations have not improved much, with a full-year loss of HK$2.34 billion in 2016, but the accounting firm believes the loss is still understated. Zhu Yicai's investigation—what he did, whether he is guilty, and the severity of any crime—remains a mystery to the public. Yurun Food stated that it has not received any updates on the matter and has been unable to contact Zhu. Without its leader, Yurun Food's operational situation is deeply concerning to outsiders. Frequent cash flow crises have repeatedly dragged Yurun Food into debt disputes. In 2016, Yurun Food's core subsidiary, Nanjing Yurun, defaulted on debts twice: once on a short-term financing bond with a principal of RMB 500 million, and once on a medium-term note with a principal of RMB 1 billion, both failing to be repaid on time. Although they managed to repay later, the tight cash situation drew market attention. The inability to repay debts was not limited to these two cases. As of December 31, 2016, Yurun Food had approximately HK$1.09 billion in bank borrowings that were overdue; after negotiations with banks, some agreed to extend the maturity, but the pressure remained immense. By the end of 2016, Yurun Food's net cash outflow from operating activities was approximately HK$110 million, and its cash balance plus fixed deposits, pledged deposits, and restricted bank deposits totaled about HK$350 million, making it impossible to repay the overdue HK$1.09 billion. Moreover, with old debts unsettled, another HK$6.3 billion in debts would mature within 12 months, making the feeling of being hounded by creditors seem like a living hell. Some creditors have grown impatient and turned to litigation to recover their money. In 2016, banks, construction companies, and government entities filed lawsuits one after another against Yurun Food demanding repayment. On the banking side, several banks filed lawsuits demanding immediate repayment of approximately HK$310 million in bank loans or equivalent assets. After the courts accepted the cases, Yurun Food's corresponding assets and bank deposits were frozen. The good news is that the banks that filed lawsuits reached an agreement with Yurun Food to extend HK$290 million in loans to 2017 or later. Construction companies also filed lawsuits in 2016, demanding repayment of HK$220 million. Yurun Food has acknowledged this debt, and the amount has been accrued and included in "trade and other payables." It is not unusual for banks and construction companies to demand payment; however, it is relatively rare for government entities to become involved in debt disputes. According to public information, a government-related entity filed a lawsuit against a subsidiary and an affiliate of Yurun Food, demanding immediate repayment of approximately HK$120 million. Yurun Food has included this amount in the 2016 fiscal year's "provision for litigation losses in other net income/(loss)" and under "trade and other payables." In 2015, Sun Hongbin, the head of Sunac, was rumored to be acquiring Yurun, but the deal ultimately fell through. The larger Yurun Group, besides the listed Yurun Food, also has real estate, commercial, logistics, and other businesses. Given the strength of the larger Yurun Group, the meat company Yurun Food should not have sunk to such a low point. Eating meat is a rigid demand for Chinese consumers, and Yurun has been famous in this industry for a long time. The Yurun brand remains a national brand, with channels covering major consumer markets in China. Even after Zhu Yicai's investigation, if they could not attack and compete with Shuanghui for the top spot in market share, they could still contract and defend themselves, stabilizing the existing market. Unfortunately, in previous years, Yurun Food expanded excessively, acquiring a large amount of slaughtering capacity to scale up, which has now become a burden. Not only did it fail to generate revenue and profit, but it also became one of the sources of continuous impairment losses. In 2016, as of the end of December, Yurun Food recorded impairment losses of approximately HK$1.257 billion on property, plant and equipment, prepaid lease payments, and goodwill. The HK$1.257 billion impairment loss is already a huge figure, but the accounting firm believes this number is too optimistic. Moore Stephens CPA Limited believes that Yurun Food's impairment assessment does not comply with International Accounting Standard 36. In calculating the impairment amount, the discount rate used by Yurun Food caused the recoverable amount to be excessively overestimated. Yurun Food insists that the impairment loss estimate is reasonable, referencing relevant accounting standards, and using a discount rate based on the weighted average cost of capital plus the company's specific risk for cash flow projections. The discount rate was also reviewed by an external professional appraiser, who considered the rate used by the company to be appropriate. In 2016 and 2015, Yurun Food recorded losses of HK$2.34 billion and HK$2.98 billion, respectively. The losses over these two years have essentially offset the cumulative profits Yurun Food had accumulated since 2010. There is no end in sight to Yurun Food's losses. Who can save Yurun Food? There is no answer. Source: Sina Finance, etc. -END-