Interface News Reporter | Guo Jingjing
On June 28, METRO Supply Chain Co., Ltd. (hereinafter referred to as "METRO Supply Chain") disclosed its Hong Kong IPO listing application materials for the second time. According to the prospectus, the company had applied for listing on the main board of the Hong Kong Stock Exchange in March 2021.
This is the "father of China's supermarket" Zhang Wenzhong's second company to sprint to the Hong Kong stock IPO this year, after Zhang Wenzhong held more than 58% of the multi-point intelligence Co., Ltd. (hereinafter referred to as "multi-point intelligence") submitted listing application materials to the Hong Kong Stock Exchange for the third time on April 30.
At this point, Zhang Wenzhong's capital system territory is now in rudiment.
The second largest food FMCG supply chain solution service provider
METRO Supply Chain claims to be "China's leading food FMCG supply chain solution provider", mainly engaged in food service and delivery solutions, welfare gift solutions and retailer delivery solutions (including product sales to retailers and supply chain services). As of the Latest Practicable Date, METRO Supply Chain's logistics network consists of two central distribution centers, 16 regional distribution centers, four fresh processing centers and 100 local fulfillment centers, with a total gross floor area of approximately 501,600 square meters. According to METRO Supply Chain, its growth strategy includes opening and operating distribution centers in desirable and suitable locations.
During the Track Record Period, the Company provided food service and delivery solutions and welfare gift solutions to over 52,000 and more than 88,000 customers respectively. As of December 31, 2023, the Company provided retailer delivery solutions for 100 METRO stores, 366 Wumart supermarket stores and 304 Wumart convenience stores of Wumart Group in China. The company revealed that it has established business relationships with regional retailers in Hunan and Hubei (which are independent third parties) for retailer delivery solutions, and entered into a strategic alliance with CP Group, a multinational conglomerate operating in industries such as agriculture and e-commerce, in 2024.
According to Frost & Sullivan, the market size of China's food FMCG supply chain industry increased from RMB7,036.6 billion in 2018 to RMB9,900.7 billion in 2023, at a CAGR of 7.1%, and is expected to grow at a CAGR of 7.4% between 2023 and 2028, with the market size expected to reach RMB 141497 billion by 2028.
China's food FMCG supply chain industry is currently highly fragmented. According to Frost & Sullivan, the market share of the top five food FMCG supply chain solution service providers in terms of revenue in 2023 is 0.8%. In terms of revenue in 2023, METRO Supply Chain is the second largest food FMCG supply chain solution provider, the second largest retail supply chain solution provider, the fifth largest catering supply chain solution provider, the largest group meal supply chain solution service provider, and the second largest commercial welfare and gift solution service provider.
According to the financial data, in 2021, 2022 and 2023, METRO Supply Chain achieved annual revenue of RMB27.82 billion, RMB27.102 billion and RMB24.858 billion, gross profit of RMB2.519 billion, RMB2.633 billion and RMB2.656 billion respectively, and gross profit margin of 9.1%, 9.7% and 10.7% respectively.
Specifically, the majority of the company's revenue comes from retailer delivery solutions, which will be 16.634 billion yuan, 16.414 billion yuan and 14.932 billion yuan in 2021, 2022 and 2023, respectively, accounting for 59.8%, 60.6% and 60.1% of the total revenue in the same period. From 2021 to 2023, the revenue generated by the company's food service and delivery solutions was 4.16 billion yuan, 3.592 billion yuan and 3.52 billion yuan, respectively, accounting for 15%, 13.3% and 14.2% of the total revenue during these periods; Its revenue from welfare gift solutions was $3,477 million, $3,936 million and $3,498 million respectively, accounting for 12.5%, 14.5% and 14.1% of the total revenue for the period.
As for the reason for the 9% year-on-year decrease in its retailer distribution solution revenue in 2023, METRO Supply Chain explained that it was due to the company's reduced product sales to Wumart Group. "The main reason is that the number of its stores has decreased by about 15%, reflecting its network optimization efforts; The strategic adoption of membership mechanisms has temporarily influenced the purchase of consumers who have not yet become members and the general downward trend in consumer demand as the public health event gradually subsides. ”
More than 60% of the revenue comes from the related party Wumart Group
In recent years, the profitability of METRO's supply chain has been unstable. The company recorded a net profit of $332 million and $253 million in 2021 and 2023, respectively, and a net loss of $471 million in 2022.
In addition, the company has been highly indebted in recent years. As of December 31, 2023, METRO's total liabilities were RMB30.812 billion. As of December 31, 2021, 2022 and 2023 and April 30, 2024, the Company's total borrowings (including spot and non-spot portions) were $6,295 million, $6,088 million, $4,777 million and $4,369 million, respectively, all of which were secured bank loans.
As of December 31, 2021, 2022 and 2023 and April 30, 2024, the company recorded net current liabilities of $679 million, $1,897 million, $4,375 million and $8,231 million, respectively. "We may continue to have significant debt." METRO Supply Chain admits that the company's debt could have significant consequences for its business and operations.
According to METRO Supply Chain, these consequences may include limiting or impairing the company's ability to obtain financing, refinance any debt, obtain equity or debt financing on commercially reasonable terms, or not be able to obtain equity or debt financing at all; limiting or hindering the Company's ability to access capital markets at attractive interest rates and increase the cost of future borrowing; reduce the Company's flexibility to respond to changing business and economic conditions or to take advantage of business opportunities that may arise; Companies are required to use the vast majority of their operating cash flow to pay the principal and interest on their debts, etc.
As of December 31, 2021, 2022 and 2023, METRO Supply Chain recorded contractual liabilities of RMB936 million, RMB0.99 billion and RMB1,022 million respectively. The Company's contractual liabilities mainly consist of prepaid cards, which mainly refer to the prepayment of goods purchased by the customer, while the prepaid card balance refers to the unused prepaid cards that are expected to be redeemed in the future, and the prepaid card revenue is recognized when the customer accepts the product or redeems the prepaid card in proportion to the customer's exercise of rights; and advance payment from customers, mainly referring to wholesale customers. As of April 30, 2024, approximately $402 million, or 32%, of the contractual liabilities as of December 31, 2023, had been settled.
It should be noted that more than 60% of METRO's supply chain revenue comes from its largest customer and related party, Wumart Group. According to the prospectus, during the track record period, the company's customers included corporate and institutional customers as well as retailers. The revenue of the top five customers in 2021, 2022 and 2023 will be 17.724 billion yuan, 17.53 billion yuan and 15.904 billion yuan respectively, accounting for 63.7%, 64.7% and 64.0% of the company's total revenue in the same year. During the reporting period, the revenue from Wumart Group, its largest customer, was 17.097 billion yuan, 16.887 billion yuan and 15.405 billion yuan respectively, accounting for 61.5%, 62.3% and 62.0% of the total revenue of the same year.
In addition, during the Reporting Period, METRO Supply Chain's trade receivables (net of provisions for credit losses) were RMB590 million, RMB628 million and RMB526 million, respectively. The Company's trade receivables refer to payments receivable from third-party customers, mainly including welfare gifts, food service and delivery, and commodity wholesale customers. In 2021, 2022 and 2023, the Company's trade receivables turnover days were 20.1 days, 23.1 days and 24.0 days, respectively. During the Track Record Period, the Company has generally granted credit terms to customers ranging from 0 to 60 days and may adjust their credit tenors based on their payment and credit history.
METRO Supply Chain said that if the company's customers delay or default on their payment obligations, the company's collection period will be extended, which will lead to an increase in the company's trade receivables cycle. There can be no assurance that the Company's customers will meet their payment obligations to the Company on time or in full. Failure to do so will increase the Company's trade receivables cycle and the Company may need to obtain financing to fund its day-to-day operations, which may result in a decrease in revenue, an increase in operating costs and an impairment of trade receivables, and may negatively affect the Company's cash flow and liquidity available for operations. As a result, any delay or default in payment by the Company's customers may adversely affect our business, financial condition and results of operations.
According to the prospectus, according to the company's strategy, METRO Supply Chain intends to use the raised funds to strengthen the company's supply chain capabilities, develop new and differentiated products, maintain and expand customer base, strengthen digitalization, seize potential investment or acquisition opportunities to enhance our supply chain network, and use it for working capital and general corporate purposes.
Among them, the company intends to upgrade and expand the company's logistics network, acquire OEM manufacturers, and establish or acquire four additional fresh processing centers. In particular, the company plans to set up fresh processing centers in strategic locations such as Qingdao, Wuhan, Xi'an and Shenyang in the next five years. The cost of setting up a fresh processing center is estimated at 30 million yuan. During the Track Record Period, the average annual utilization rate of the Company's distribution centres exceeded 88%. The company will also spend the next five years upgrading and consolidating its distribution center and regional fulfillment center facilities. In particular, the company plans to upgrade its cold chain warehouse and purchase automatic equipment for product sorting and picking to improve warehousing and logistics efficiency and save costs.
METRO Supply Chain also pointed out that it expects to use the funds raised in the Hong Kong stock IPO to set up a multi-tier procurement infrastructure to enhance its direct procurement capabilities and expand its direct procurement product portfolio. The company plans to establish a new procurement center and expand the procurement team, according to customer needs, to develop centralized direct procurement capabilities and localized procurement capabilities. The company will also upgrade its own brand products, and plans to invest in the development of new products and enhance food processing capacity, flavor and packaging through partnerships with strategic OEM partners and suppliers in China and overseas.
"The Father of Chinese Supermarkets" Zhang Wenzhong has another IPO for Hong Kong stocks
In retrospect, in 2020, Wumart Group acquired the METRO China entity to operate the retail business and food FMCG supply chain business under the METRO China brand, and acquired 100% equity interest in the METRO China entity from Metro AG and their other respective shareholders through its subsidiary WMHolding HK at a consideration of RMB4.711 billion and EUR 1.593 billion. On 23 April 2020, MetroAG acquired a 20.04% equity interest in WM Holding HK at a consideration of $1.997 billion.
On 24 February 2023, MCCI transferred a 20.04% equity interest in WM Holding HK to the Company through its subsidiaries at a consideration of $2,003 million pursuant to the put option granted to MCCI. Subsequently, the Company completed the business restructuring to dispose of the Group's retail business operated under the physical brands of Wumart and Metro in China.
According to METRO's supply chain prospectus, in order to streamline the group's business, the company acquired certain entities engaged in food FMCG supply chain business from the controlling shareholder, and sold certain entities engaged in business other than the main business to the controlling shareholder. Among them, on December 14, 2023 and December 19, 2023, Wumart General Supermarket agreed to transfer 100% of the equity interests of two subsidiaries engaged in the food FMCG supply chain business, namely Beijing Duodian Extreme Supply Chain Technology Co., Ltd. and Beijing Wumart Shangjia Fresh Products Business Management Service Co., Ltd., to Tongfu Trading at zero consideration.
Through a series of internal restructurings, employees, assets, contracts and intellectual property related to the retail business were reassigned to METRO Shanghai, a subsidiary of METRO Supply Chain. On June 20, 2024, Shanghai Topaco Management Consulting Co., Ltd., the sole shareholder of Shanghai METRO, transferred 100% of the equity interest in Shanghai METRO to Dimai Trading at a consideration of RMB546 million.
The retail business under the Wumart brand is carried out by a series of operating entities controlled by Runze Tonghui, Zhida Jiatai and Wumart Commercial Management. On 4 June 2024, WM Stores (HK) Limited transferred 100% of the equity interests in Runze Tonghui, Zhida Jiatai and Wumart Commercial Management to Wumei Controlling HK at a consideration of approximately $1.43 billion, and the employees, assets, contracts and intellectual property related to the Company's business have been transferred out of the entities of Runze Tonghui, Zhida Jiatai and Wumart Commercial Management.
According to the prospectus, before the IPO, METRO Supply Chain had received investment from Tencent's Image Framework Investment (Hong Kong) Co., Ltd., Lenovo's Ultimate Lenovo Limited, Everbright Limited's Yaoyi Limited, and Anbang Group's Mind Power Investments Limited.
As of the Latest Practicable Date, Zhang Wenzhong, one of the controlling shareholders and founder of METRO Supply Chain, had approximately 61.58% of the issued share capital of the Company through certain intermediary entities controlled by METRO (namely Beijing Jingxi Silicon Valley Technology Co., Ltd., Beijing Zhongsheng Huate Technology Co., Ltd., Wumart Technology, Wumart Southern Technology, etc.). In addition, the Company is 11.38% and 0.35% owned by DigitLab Limited (ultimately controlled by Zhang Wenzhong through AZ Global Limited) and Foremost Way Limited (wholly owned by Zhang Wenzhong). Therefore, as at the Latest Practicable Date, Zhang Wenzhong owned approximately 73.31% of the issued share capital of the Company through the above intermediary entities.
In the history of China's retail business, Zhang Wenzhong is an unavoidable link. In the "2024 Hurun Global Rich List" released on March 25, 2024, Zhang Wenzhong ranked 1274th on the list with a wealth of 20 billion yuan.
In 1994, Zhang Wenzhong founded Wumart Supermarket and built it into a national supermarket chain. In 2003, Wumart went public in Hong Kong, becoming the first private retail stock in the mainland, and once occupied 35% of the retail market share in Beijing. In 2006, Wumart had more than 500 stores, becoming the largest private retail enterprise in China. As a result, Zhang Wenzhong was once known as the "father of Chinese supermarkets" in the industry. Unfortunately, in 2009, Zhang Wenzhong was imprisoned on charges of fraud, bribery and misappropriation of funds, and was not released from prison until 2013, when he was acquitted by the Supreme People's Court in 2018. During this period, Wumart Supermarket gradually fell out of the first echelon of the domestic retail industry, and was finally privatized and delisted from the Hong Kong Stock Exchange in 2015.
Previously, on April 30, Zhang Wenzhong Holdings, more than 58% of Duodianzhi, also submitted IPO listing application materials to the Hong Kong Stock Exchange. Duodianzhi claims to be a retail digital solution provider in China and Asia, providing services ranging from procurement and supply chain management, store and headquarters management to marketing and omni-channel sales, and currently covers major retail formats such as convenience stores, department stores, supermarkets and specialty retailers. Seventy percent of the company's revenue comes from related parties such as Wumart Group and METRO China entities. According to the prospectus, from 2021 to 2023, the revenue of Multipoint Intelligence from its largest customer, Wumart Group, will be 473 million yuan, 662 million yuan, and 927 million yuan respectively, accounting for 45.3%, 44.1% and 53% of the total revenue, respectively; Revenue from METRO's Chinese entities accounted for 9.6%, 17.3% and 14.9% respectively.
According to METRO's supply chain prospectus, the company engages retail software service providers (such as Dmall's affiliates) to establish baseline IT design, software and application solutions, and any interruption, downtime or other problems caused by the company or Dmall's affiliates may render some or all of the company's systems or data unavailable, or make it impossible to effectively provide services or fulfill orders.