Text: Wu Yuzhen

Edit/Daifeng

On July 31, the Securities Regulatory Commission officially approved Nongfu Spring to issue no more than 1.38 billion foreign-listed foreign shares. After the issuance is completed, Nongfu Spring will be able to enter the Hong Kong Stock Main Board market, with a capital raising scale of 1 billion US dollars.

According to Nongfu Spring's prospectus, Nongfu Spring's earnings in 2018 and 2019 were 17.1% and 17.3%, respectively. From 2017 to 2019, Nongfu Spring's annual revenue was 17.941 billion yuan, 20.475 billion yuan, and 24.021 billion yuan, respectively, and net profit was 3.386 billion yuan, 3.612 billion yuan, and 4.954 billion yuan, respectively.

What is most astonishing is the gross profit margin of Nongfu Spring's products. According to the 2019 financial report, the gross profit margin of Nongfu Spring's packaged drinking water is 60.2%; tea drinks have a gross margin of 59.7%; energy drinks have a gross margin of 50.9%; and juice drinks have a gross profit margin of 34.7%. In contrast, Nongfu Spring's gross margin is still higher than the industry average.

There seems to be no shortage of money, so why is there a rush to go public?

Whether it's overall revenue and net profit or gross profit margin, Nongfu Spring doesn't seem like a “poor” company, but why is it so anxious to go public now?

In fact, although revenue and profit are very high, Nongfu Spring itself is under heavy debt pressure. Judging from the prospectus data, in 2017-2019, Nongfu Spring's total debt was 5.458 billion yuan, 6.534 billion yuan and 7.914 billion yuan, respectively, and the balance ratio was 32.83%, 31.19%, and 44.47%, respectively.

In addition, Nongfu Spring's structured deposits declined by $3.4 billion and cash and bank balances by $681 million. The reason why Nongfu Spring is heavily indebted is that in 2019, before the company applied for listing, it suddenly paid dividends of 9.598 billion yuan in profits for the past three years. This has also led to a reduction in structured deposits and cash and bank balances.

In addition, the increase in Nongfu Spring's deposits, employee wages and benefits payable in 2019, and logistics expenses not yet settled in 2019 also led to an increase of 251 million yuan in other payables and accrued expenses.

Under the combination of heavy debt and expenses, Nongfu Spring is not as rich as it seems on the surface.

Image source network

The number of entrants continues to increase, and market competition is once again escalating

Currently, every segment of the beverage industry has competitors that pose a threat to Nongfu Spring. In the field of bottled water, two major brands, Yibao and Jingtian, and Nongfu Spring originally occupied the main market share.

Analyze it,HuarunBottled water brands such as Yibao, and Jingtian are also gradually growing and expanding in the market through publicity, centralized large-scale production, and certain regional effects, and their share is steadily increasing.

And similarMaster KongThe more central purpose of products such as ice cream is to help its parent company expand channels for its products, or increase channel stickiness, without relying on the product itself for profit.

However, Nongfu Spring, which is also a beverage giant, did not put “all eggs in the same basket.” Beginning in 2003, Nongfu Spring launched its own “Farmer's Orchard” juice brand, and also launched “Scream” in the field of functional drinks. It won market recognition with its innovative packaging and “jet” bottle design.

Nongfu Spring's beverage product image source network

Subsequent products such as “water soluble,” “oriental leaves,” “vitamin water,” and “tea pi” once again expanded Nongfu Spring's beverage market, but in the face of the new product strategies of domestic brands and the large-scale product layout of foreign giants such as Delicious and Pepsi, Nongfu Spring's struggles with other brands in various market segments also intensified.

To build a global brand, capital help is essential

For Nongfu Spring, it is difficult to take it one step further by simply transporting “natural water” domestically. Although its current beverage layout has made few achievements domestically, it looks at the international level. Compared to Coca Cola, the world's leading beverage brand with over 160 beverage brands, it looks very “thin” compared to Coca Cola, the world's leading beverage brand, which has over 160 beverage brands.

In addition, Coca Cola's brand promotion plan has always been a model in the industry. Through extensive promotion and professional production of beautiful and creative advertisements for advertising teams, and cooperation in the form of title sponsorship for a large number of radio and television programs, its products can be simultaneously changed in front of people within a very short period of time after launch.

It is not easy to build a world-class beverage company. Although the Coca Cola brand is known to everyone, the investment budget given by Coca Cola in the 2019 global advertising plan is as high as 5 billion US dollars.

Rather than promotion, it is better to call it “brushing presence”. In highly alternative products such as beverages, it is very important to deepen the consumer impression. This also causes major beverage manufacturers to spend a lot of money on product promotion.

Nongfu Spring is far inferior to leading companies in the global beverage industry in terms of product line and advertising volume. If you want to get involved, finding money to “burn” is the key.

At the same time, leading companies such as Coco have evolved from beverage companies to investment companies. Their brands are changing rapidly. They invest more as commercial strategies, and trade after their operations are mature, with the intention of better monopolizing the industry market.

Nongfu Spring currently occupies the first place in the domestic pure water drinking industry, but other beverage segments are not enough to support its leading position. Increased debt pressure, the need to expand product development, and the increase in investment budgets have all made Nongfu Spring's demand for capital volume continue to increase, and raising capital to go public can solve this problem very well.

However, listing transactions can only alleviate the capital problem. After the scale is expanded, the market's focus will be more on the product strength of Nongfu Spring's products. The efficiency of marketing and promotion, and whether they can adapt to the needs of the market and customers is the key to Nongfu Spring's internationalization.

Nongfu Spring once advertised its products as being “a little sweet”. After the launch, can Nongfu Spring still allow consumers to drink “natural water” and investors to taste “the sweetness of Nongfu Spring”? Exclusive channel for opening an account in 3 minutes, low commissions and many benefits. Click here to open an account online>>