After acquiring emerging snack brand Baicaowei for 960 million yuan, Haoxiangni, China's leading jujube brand, reported a performance forecast yesterday showing that despite a 14.4% increase in revenue for 2015, net profit fell by 92.99% year-on-year. The increased focus on supermarket channels has raised costs, and the company is experiencing the pains of transformation.

According to the performance report released by Haoxiangni yesterday, the company achieved operating revenue of 1.131 billion yuan from January to December 2015, a year-on-year increase of 14.4%; net profit attributable to shareholders of the listed company was 3.76 million yuan, a year-on-year decrease of 92.99%. Notably, the net profit decline of over 90% far exceeded the company's two previous forecasts. In October and December 2015, Haoxiangni issued performance forecasts twice. The October forecast indicated a change in net profit attributable to shareholders of the listed company of -40% to -10%. In December, the company revised this to "a change of -75% to -65% compared with the same period last year."

Now, with net profit ultimately declining by 90%, Haoxiangni explained in its announcement: "Part of the company's annual production of 50,000 tons of red dates and related products deep-processing project (Phase I) reached a usable state, and fixed assets were temporarily transferred and accumulated depreciation was provided; the company's supermarket and other channel costs were higher than previously expected and were included in the current period; the company's 2015 non-public issuance of shares intermediary fees were included in the current period."

It is worth noting that the increase in Haoxiangni's supermarket channel costs had a certain impact on reducing net profit. Haoxiangni further explained that last year, operating revenue from supermarkets increased by 63.76 million yuan year-on-year, a growth of 26.28%, but channel expansion also increased sales expenses by 85.0759 million yuan year-on-year, a growth of 32.57%. "Sales expenses increased by 85.07 million yuan, while the revenue brought by supermarkets increased by only 63.76 million yuan, clearly not covering costs," an industry insider summarized.

A comparison by Beijing Business Today reporters found that 2015 was also Haoxiangni's worst year in recent times. In 2014, Haoxiangni recorded a net profit of 53 million yuan, a year-on-year decrease of 47.37%, while in 2013, net profit was over 100 million yuan, a year-on-year increase of 1.57%. Although net profit in 2012 fell by 10.74% year-on-year, it still exceeded 100 million yuan. In other words, Haoxiangni's net profit last year fell to its lowest point in recent years.

Industry insiders analyzed that Haoxiangni is in a transition period, which is inevitable for this traditional food company. As early as 2012, Haoxiangni launched a transformation plan, which included repositioning its products from business gifts to mass leisure snacks, and shifting from a single specialty store sales channel to four channels: specialty stores, supermarkets, e-commerce, and distribution.

However, based on the performance released yesterday, neither product nor channel changes have contributed significantly, but instead have brought the company into a trough. "Now Haoxiangni is also fighting for the market. For example, the 960 million yuan acquisition of Baicaowei is to enrich the product line and strengthen e-commerce channels. In 2014, Baicaowei's operating revenue growth rate reached 167.51%, with operating revenue of 612 million yuan, close to half of Haoxiangni's 2015 operating revenue. Therefore, this acquisition will play a key role in boosting Haoxiangni's performance," a person familiar with Haoxiangni analyzed. Although the acquisition of Baicaowei has positive significance, the transformation of supermarket channels is still a money-burning move. As consumers increasingly rely on e-commerce channels, the uncertainty of whether Haoxiangni's investment in supermarket channels will pay off is growing.

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