Yangyuan, the producer of Six Walnut, is again on the road to listing, facing the 10-billion-yuan threshold and market challenges. Yangyuan also needs a 'brain boost'.

Seeking listing again At the end of 2016, Hebei Yangyuan ZhiHui Beverage Co., Ltd. (hereinafter referred to as Yangyuan) submitted a prospectus to the China Securities Regulatory Commission, bringing this 'low-key' company that produces walnut beverages back into the public eye.

"Previously, I only knew about Six Walnut beverage, but knew nothing about the manufacturer," a fan of the beverage told reporters.

In his view, because its advertisements repeatedly emphasize 'Six Walnut', it is normal for ordinary consumers to be somewhat unfamiliar with Yangyuan. The reason he became a fan of Yangyuan is that Yangyuan has a good story.

In 2013, the liquor industry experienced a 'cold winter' due to various bans. Yangyuan, which shares the same roots with Hengshui Laobaigan (at the end of 2005, Yangyuan was divested from the state-owned Laobaigan Group due to poor asset quality, and was acquired by 58 executives for 3.0949 million yuan), set its sales target at 10 billion yuan that year.

At an industry gathering in July of that year, Yangyuan's senior management expressed deep feelings: "Even the executives of Laobaigan Group did not expect that Yangyuan, which had nearly been dissolved several times, would perform better than Laobaigan."

However, before being divested, Yangyuan's business was particularly poor, with annual sales never exceeding 4 million yuan. On a winter night in 2001, several key members gathered for a 'farewell dinner' before going their separate ways. But in the end, their reluctance and unwillingness to give up made them persist and get to where they are today.

In industry training classes, this story of 'from farewell dinner to industry giant' is frequently mentioned.

Of course, breakthroughs and development did not happen overnight. Yangyuan's story during this period has been full of ups and downs. "Although Six Walnut has not yet unified the northern and southern markets, it has ultimately carved out its own development path," the aforementioned fan said. If this listing succeeds, Yangyuan will have a new story to tell.

Performance questioned In fact, this is not the first time Yangyuan has sought to go public. In 2011, Yangyuan's IPO application was announced as 'cancelled' by the issuance examination committee the day before the hearing, with the reason given as 'certain matters still need further verification'.

Although the specific reasons were not disclosed, the media at the time focused on the issue of 'advertisements suspected of false advertising'.

Now, in addition to using the raised funds for two investment projects (the 'marketing network construction and market development project' and the 'Hengshui headquarters annual production of 200,000 tons of nutritious plant protein beverage project'), Yangyuan hopes that through listing, it can 'further consolidate and strengthen its competitive advantages and industry position, and not be overtaken by competitors,' as disclosed in its prospectus.

The disclosed data shows: for the full years of 2013-2015 and the first half of 2016, Yangyuan's comprehensive gross margins were 38.40%, 39.04%, 46.30%, and 51.54%, respectively. In terms of net profit, for 2013, 2014, 2015, and the first half of 2016, Yangyuan's net profits were 1.582 billion yuan, 1.831 billion yuan, 2.62 billion yuan, and 1.3 billion yuan, respectively, with year-on-year growth rates of 16% and 43% in 2014 and 2015. Among these, Yangyuan's sales performance in 2015 was 9.117 billion yuan.

Behind these seemingly impressive figures lie deep 'doubts'. "With such high profits, how much real material is actually in Six Walnut?" "With such abundant cash flow, is it still necessary to go public?" "Yangyuan's product range is single, and it has already encountered development bottlenecks. Can listing improve things?" ... With the disclosure of Yangyuan's prospectus, questions within the industry have also arisen one after another.

"The key is that in 2015 and 2016, everyone knows the current situation of the food and beverage industry. Yangyuan has had growth of over ten percent, but compared to its disclosed data, it is somewhat 'exaggerated'," two beverage industry professional managers expressed similar views to reporters.

"Not to mention anything else, in one of its key markets, Henan, the production of year-end gift bags (handbags used to pack boxed products) declined by 25% compared to 2015," a professional manager from Henan said.

Coincidentally. "In 2016, Yangyuan's performance decline has reached 30%," another senior insider in the FMCG industry said. Among these, besides the obvious peak and off-peak seasons of the product, there is excessive reliance on holiday promotions, to the extent that some distributors can achieve 80% of their annual sales during the Chinese New Year period, and have to do other things for the rest of the time.

Many risks Worse, in recent years, Six Walnut has been greatly affected by 'knockoff' products, so that while Yangyuan opens up the market in front, many small enterprises encroach on the market behind. At the same time, southern coconut juice from Coconut Palm, northern Lulu, and other new brands will increase Yangyuan's competitive costs.

Another hidden danger is the trademark. Although Six Walnut is well-known, its trademark application has been pending. Trademark 5127315 is currently in the status of 'invalid declaration'; trademark 21515294 shows 'application waiting for acceptance'; the trademark 'Use your brain often, drink more Six Walnut' is invalid...

Worse than that, Six Walnut, which sponsored 'The Brain', cannot prove that the product actually helps 'brain nourishment'.

A test report from Beijing Youke Technology Co., Ltd. shows that among 10 plant protein beverages, Yangyuan's refined Six Walnut low-sugar plant protein beverage was rated B (good), with 'slightly poor performance'.

"In the same test, 4 products still received A (excellent). As a result, the claim of brain nourishment is obviously greatly compromised," the aforementioned insider said.

More importantly, the current situation of Yangyuan's distributors is not as perfect as described in the prospectus.

According to interviews, in the past two years, the number of distributors who have run away due to financial pressure has increased, and in its key market of Henan, five or six have run away. "Because some distributors had already collected payment for goods, it is difficult for subsequent distributors to carry out work. Although Yangyuan has also done some aftermath, it is not thorough, which will directly affect Yangyuan's future sales in the Henan market," the aforementioned professional manager said.

There have been media reports that at the beginning of 2016, distributors in Shandong also ran away. Regardless of whether the aftermath is handled properly, it will affect Yangyuan's reputation.

Although its prospectus also details the 'risks' that may be encountered in the future, Yangyuan has not responded positively to the solutions, only telling reporters: "The pre-disclosed prospectus shall prevail."

Source: New Financial Observation -END-

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