Revenue reached 3.4 billion yuan, and net profit attributable to shareholders exceeded 100 million yuan again. If only revenue is considered, VV Group appears to have achieved its best performance for the first three quarters in four years. However, a closer look at its financial data reveals that the rosy results may not be normal. Net cash flow from operating activities turned negative again, dropping from 246 million yuan in the first three quarters of 2016 to -287 million yuan in the same period this year. The company attributes this significant change to increased cash payments for grain acquisitions. Further analysis shows that the cash flow deficit is largely due to the acquisitions of Zhijiang Liquor and Guizhou Chun in previous years. This explains why VV Group has been frequently selling assets in recent months. It is worth noting that with the latest pledge of over 22 million VV Group shares by the controlling shareholder, the cumulative pledged shares exceed 480 million, accounting for 92.28% of its total holdings. Soy Milk King Starts Selling Spree On December 6, the board of VV Group (600300.SH) passed a resolution to transfer the shares of Hubei Bank held by subsidiary Zhijiang Liquor, with a total transfer price of 110 million yuan. Zhijiang Liquor holds nearly 36 million shares of Hubei Bank, an investment made in 2006. The counterparty in this transaction is Yichang Jiuxin Investment, whose shareholders include Jiang Hongxing, Yang Jiafa, Cao Shengwu, Tan Chongyao, Xue Chuanquan, and other veterans of Zhijiang Liquor, as well as Zhijiang Jinrunyuan Construction Investment Holding Group controlled by Zhijiang state-owned assets. Among them, Jiang Hongxing is the largest shareholder. Currently, Jiang and Jinrunyuan still hold 10% and 19% of Zhijiang Liquor, respectively. In other words, after all these years, the Hubei Bank shares have returned to the hands of the veterans of Zhijiang Liquor. Through this asset transfer, Zhijiang Liquor can generate income of 104 million yuan and net profit of 77.7 million yuan, increasing VV Group's net profit by 55 million yuan. Just four months ago, VV Group also sold land assets of subsidiary Guizhou Chun. These are two parcels of land totaling 464 mu under Guizhou Chun's name, acquired in November 2012 and left idle since. The counterparty in this transaction was also the former major shareholder of Guizhou Chun—Guizhou Xingyi Sunshine Asset Company. The transaction price was 83 million yuan, generating income of 22 million yuan and increasing the listed company's net profit by 12 million yuan. In September this year, VV Group's subsidiary VV Innovation Investment transferred a 10% stake in Wuxi Chaoke Food Company for 64 million yuan. This transaction generated income of 38 million yuan and increased the listed company's net profit by 28 million yuan. Earlier, at the end of 2016, the company transferred the equity of three real estate companies to the controlling shareholder VV Group for 198 million yuan. Operating Cash Flow Deficit Filled by Selling Subsidiaries In the past few years, the Soy Milk King VV Group frequently crossed borders and made large-scale acquisitions, performing quite prominently in the capital market. Why the sudden change in style and such high frequency of asset sales? In the final analysis, it comes down to two words: lack of money! As mentioned earlier, both revenue and net profit in the first three quarters of this year are the best for VV Group in the past four years. However, Zebra Consumption also notes that this is the first time in four years that net cash flow from operating activities has been negative. In the first three quarters of this year, net cash flow from operating activities was -287 million yuan, compared with 246 million yuan in the same period last year. In this year's semi-annual report, this indicator was -181 million yuan, indicating a widening deficit. In the semi-annual report, the company explained the change as due to increased cash payments for grain acquisitions. Now let's look at the financial status of important holding and participating companies in VV Group's semi-annual report: During the same period, Zhijiang Liquor and Guizhou Chun had operating cash flows of -101 million yuan and -90 million yuan, respectively. In the same period last year, these two subsidiaries had indicators of 26.49 million yuan and 1.75 million yuan, respectively. Comparing these data sets, it is clear that the two liquor subsidiaries have dragged down VV Group's cash flow. This also explains why Zhijiang Liquor, once sold across the country, has become less prominent in the market in recent years. However, VV Group seems to intend to revitalize Zhijiang Liquor, otherwise it would not be worthy of this old brand that just celebrated its 200th birthday. The funds from the sale of Hubei Bank shares are mainly used to supplement Zhijiang Liquor's working capital. Among them, 30 million yuan is for upgrading the operating system, and 80 million yuan is for building an e-commerce self-operated platform and advertising. Cross-Border Ventures into Liquor and Tea Not Smooth In previous years, the company aggressively entered the liquor and refined tea sectors, hoping to solve the ceiling problem of its soy milk main business. It successively acquired Zhijiang Liquor, Guizhou Chun, and Yi Qingyuan Tea. Zhijiang Liquor once gave VV Group a taste of success in cross-border liquor. In 2011, Zhijiang Liquor reached its peak, with annual revenue of nearly 2 billion yuan and net profit of 140 million yuan. After that, it began to decline sharply. By 2016, Zhijiang Liquor's revenue had fallen to 845 million yuan, with net profit just over 22 million yuan. There is no sign of relief from Zhijiang Liquor's decline. In the first half of this year, the company's revenue was 380 million yuan, a direct drop of 100 million yuan compared with the same period in 2016. VV Group's third-quarter operating data shows that sales revenue of its liquor products (mainly Zhijiang Liquor) fell by more than 20% for both low-end and mid-to-high-end products. It is worth noting that the Central China region, where Zhijiang Liquor is located, was originally the company's advantageous market, but in the first three quarters of this year, it declined by more than 45%. The decline in sales has also led to severe underutilization of Zhijiang Liquor's production capacity. The company's commercial liquor production capacity is 120,000 tons, but market sales are around 60,000 tons. Not only Zhijiang Liquor, but also Guizhou Chun, acquired in 2012, has been shrinking and losing money for years. In 2016, it recorded revenue of 66 million yuan and a net loss of 49 million yuan. Judging from the first half of this year, unless something unexpected happens, Guizhou Chun's losses are likely to increase further. Entering the refined tea industry has caused VV Group even more pain. In 2013, VV Group's subsidiary VV Innovation Investment acquired 51% of Yi Qingyuan Tea and signed a performance betting agreement with the transferor Jian Bohua. In 2013 and 2014, Yi Qingyuan Tea exceeded its net profit commitments of 18 million yuan and 20 million yuan, respectively. In 2015, Yi Qingyuan's performance suddenly changed, with a net loss of 16 million yuan that year. According to the performance betting agreement, Jian Bohua needed to compensate for the profit shortfall of 38 million yuan. It is normal to accept the consequences of a bet, but VV Group has been anxious about receiving this compensation. According to the agreement, this performance compensation should have been paid in cash by April 2016. Until now, Jian Bohua has only compensated with company equity and tea valued at over 10 million yuan, leaving a gap of 27.58 million yuan. Jian Bohua promised to repay by December 31 this year, but with only a dozen days left, it is uncertain whether the money can be recovered. Source: Zebra Consumption (ID: banmaxiaofei) -END-