VV Group was founded in 1988. In 2000, its subsidiary VV Co., Ltd. was listed on the Shanghai Stock Exchange. The company is mainly engaged in the production and sales of soy milk powder, plant protein beverages, dairy products, liquor, tea and other series of products, as well as grain warehousing and processing industries. The main products are "VV" brand soy milk powder and plant protein beverage series products, "VV Liuchaosong" flour series products, "Tianshan Snow" dairy products series, "Zhijiang" wine series products and "Yiqingyuan" tea series products.
Many financial reporting problems led to a loss of 86 million yuan from stock trading
Let’s look specifically at the eight major questions in the inquiry letter. The first is its operating conditions. According to the annual report, the company achieved revenue of 5.033 billion yuan in 2018, a year-on-year increase of 8.32%; net profit attributable to the parent company was 64.72 million yuan, a year-on-year decrease of 29.28%; non-net profit after deduction was -28.74 million yuan, a year-on-year increase of 66.53%.
Looking at the quarterly situation, the revenue in the third and fourth quarters of 2018 was 985 million yuan and 1.305 billion yuan respectively, and the net profit attributable to the parent after deducting non-profit items was -35.05 million yuan and -128.02 million yuan respectively. In addition, it is worth noting that in the first quarter of 2019, the company’s net profit attributable to the parent company after non-deductions was 20.6562 million yuan, a year-on-year decrease of 71.24%.
Source: Company financial report
Regarding the off-season sales in the third quarter, VV explained that the company's main product is soy milk powder, and the third quarter is the traditional off-season for sales. The company's other main product, liquor, is in a similar situation. People drink more liquor in winter than in summer.
Regarding the sharp decline in net profit in the first quarter, the company also stated that the products have the attributes of holiday gifts, and holiday consumption accounts for a large proportion. Distributors will prepare sufficient supplies before the Spring Festival every year. After the Spring Festival, the market needs to digest large quantities of inventory before the Spring Festival. The sales market will have a 1 to 2-month sales off-season. Therefore, the sales revenue and gross profit of the company's leading products, soy milk powder, liquor and dairy beverages, have declined.
The annual report disclosed that the net cash flow generated from investment activities during the reporting period was -423 million yuan, a significant decrease from 888 million yuan in 2017. Among them, 606 million yuan was paid in cash for investments and 354 million yuan was paid in cash related to other investment activities. The two largest investments in 2018 were RMB 434 million for stock purchases and RMB 354 million for the construction of grain silos.
Source: Company announcement
Among the items measured by fair value, the opening balance of stocks was 0 yuan and the ending balance was 264 million yuan; the opening balance of futures was 18.04 million yuan and the ending balance was 44.45 million yuan. During the reporting period, the company purchased 920 million yuan of stocks and sold 600 million yuan of stocks.
During the reporting period, the transaction amount of stocks disposed of was 570 million yuan, the stock cost amount was 599 million yuan, the investment income generated during the period was -28.8366 million yuan, and the gain and loss from changes in fair value was -57.353 million yuan. In summary, the impact of the company's stock trading and fair value changes on the company's profits and losses during the reporting period was -86.1896 million yuan. In other words, the company suffered a huge loss of 86 million yuan from stock trading. Looking at the overall income situation, VV Holdings suffered a loss of 70.8178 million yuan in 2018.
Source: Company announcement
As of the end of the 2018 reporting period, the company's book balance of monetary funds was 2.028 billion yuan. However, during the reporting period, the company incurred financial expenses of 202 million yuan and only generated interest income of 11.856 million yuan. Financial expenses have a greater impact on the company's performance. In addition, the company's ending balance of monetary funds in the first quarter of 2019 was 1.665 billion yuan, a decrease from 2018.
As for the reasons for the decline in the first quarter, the company said that firstly, before the Spring Festival is the peak period for payments, various payments to suppliers increased compared with usual; secondly, it repaid some loans from financial institutions.
Regarding prepayments, as of the end of the 2018 reporting period, the company's book balance of prepayments was 309 million yuan, a year-on-year increase of 31.45%. Among them, the proportion of advance payments to the first and second prepayment recipients reached 32.92% and 30.55%.
In the reply letter, VV revealed that the top company in terms of advance payments was Mishan Jinyuan Oils and Fats Co., Ltd., which was the same company that the exchange focused on when questioned in 2016. The company stated that it paid Mishan Jinyuan 101 million yuan in advance at the end of 2018 for the purchase of soybeans and douban. The company has been purchasing soybeans from Mishan Jinyuan since April 2000 and is a long-term supplier.
In addition, the company also provided responses and supplementary disclosures on issues such as inventory, related transactions and capital occupation.
Guizhou Chun was sold at a loss of 110 million yuan to "get rid of the burden of losses"
On June 5, the company announced that it had received arrears of 198 million yuan and interest of 3.675 million yuan from its controlling shareholder Weiwei Group on behalf of Guizhou Chun Liquor Industry. At this point, all matters related to the equity transfer have been completed.
Going back to July 2018, the company transferred its 55% stake in Guizhou Chun Liquor Industry to the company's controlling shareholder VV Group for a price of 275 million yuan. In December of the same year, the two parties signed an agreement, and the company's proceeds will be used to supplement VV's liquidity. VV Group promised that after the acquisition is completed, Guizhou Chun's claims and debts will be repaid within 6 months. VV Group has no debt repayment risk or other risks. It is worth noting that the value-added rate of this transaction is 27.58%.
In fact, Guizhou Chun Liquor Industry was an early move by VV Group to cross-border and expand into the liquor industry. As early as 2012, the company invested 357 million yuan to acquire 51% of Guizhou Chun Liquor Industry. In 2016, the company spent another 28 million yuan to acquire 4% of Guizhou Chun's shares. After the two acquisitions, VV held a 55% stake in Guizhou Chun, costing a total of 385 million yuan.
However, the performance of Guizhou Chun Liquor Industry after the acquisition was a bit embarrassing. From 2015 to 2017, the revenue was 72.44 million yuan, 66.06 million yuan, and 63.63 million yuan respectively, and the net profits were -49.2 million yuan, -49.07 million yuan, and -51.51 million yuan respectively. In 2018, Guizhou Chun's income statement was included in the company's consolidation scope, and an operating loss of 21.4228 million yuan was formed.
This transaction was also subject to inquiries from the Shanghai Stock Exchange, requiring the company to explain the reasons for the impairment of Guizhou Alcohol's assets, determine the impact of this transaction on the annual performance, and explain whether there was a surprise profit creation at the end of the year.
In addition, the performance of Zhijiang Winery, which is still in the company's business segment, is not optimistic. Its revenue has declined since 2012. In the first quarter of 2019, Zhijiang Winery's profit dropped by 39.57 million yuan.
Controlling shareholders pledge shares for working capital loans
In addition to selling assets to replenish working capital, the company's controlling shareholders also pledged their shares for working capital loans.
On the evening of May 27, VV Group issued an announcement stating that the company’s controlling shareholder VV Group Co., Ltd. had recently pledged 1.5% of its shares for working capital loans. It is worth noting that as of now, VV Group holds approximately 550 million VV shares, accounting for 32.91% of the company’s total share capital. VV Group Co., Ltd. has pledged a total of approximately 487 million shares of the company's shares held by it, accounting for 88.48% of its total shareholding and 29.12% of the company's total share capital.
