Hongxing Erke'S Financial Position Is Too High To Be Replaced

China Sports listed in Singapore Clothes & Accessories Brand "Hongxing Erke". The recent situation is worrying. Not only are the financial data falsely high, the inventory is high, and the cash flow is tight. The internal management is also very chaotic. Its shares have not been resumed.

Since February 28 last year, Hongxing Erke Shares The brand has been over 16 months. On February 25, 2011 last year, the company announced that Ernst&Young, the external auditor, pointed out that China Hongxing's 2010 financial report had problems. In the accounts of two Chinese subsidiaries of China Hongxing Sports, Ernst&Young found that cash and bank balances, accounts receivable, accounts payable and other expenditure accounts were "unconventional".

So on March 1 last year, the company appointed nTan Enterprise Consulting Company as the "special auditor" to conduct an independent investigation.

After more than a year of investigation, Hongxingerke's numerous and complicated deep level problems have gradually been exposed. and Erke There is no specific timetable for how long Hung Sing Erke can enjoy the nourishment of the capital market. Many problems tell the managers of Hongxingerke that compared with the resumption of stock trading, the key is to solve internal problems and cultivate internal skills with a down-to-earth view.

On July 20 this year, nTan Enterprise Consulting Co., Ltd. submitted its "independent investigation report" on China Hongxing's 2010 financial report to the Audit Committee of the Board of Directors of China Hongxing and the Singapore Exchange. At the beginning of August, Hongxing Erke released the summary of the "Independent Investigation Report".

The independent investigation report shows that in FY2010, the cash and bank deposits in the financial statements of Hongxing Sports were 1.417 billion yuan, but the audit found that the actual amount was only 263 million yuan, and the false increase in cash and bank deposits reached 1.154 billion yuan.

The report explained that in fiscal year 2010, in order to avoid the dealers in Beijing, Shanghai and Tianjin closing their stores and stimulate the opening of more new stores, Hongxing Sports spent 335 million yuan to dealers; In addition, Hongxing Sports paid 467 million yuan of interest free short-term loans to dealers in six provinces, including Anhui and Fujian. Hongxing Sports also added 212 million yuan in inventory and 140 million yuan in other expenses. Excluding these expenses, the cash and bank deposits of Hongxing Sports in fiscal year 2010 were only 263 million yuan.

For example, in fiscal years 2010 and 2011, some important subsidiaries of Hongxing Sports spent 887 million yuan in market expansion activities, far exceeding the upper limit of 750 million yuan set by the board of directors of the company. As early as 2009, the board of directors of Hongxing Sports has banned the issuance of interest free loans to dealers, which shows that there are still many loopholes in the implementation of the company's internal resolutions.

At the same time, the report also shows that Hongxingerke is facing increasing pressure on cash flow and inventory. According to the "nTan" report, in fiscal year 2010, the inventory amount of Hongxing Sports reached 469 million yuan, the accounts receivable was 893 million yuan, and the total amount of other receivables was 475 million yuan; In FY2009, the inventory amount, accounts receivable and other accounts receivable of Hongxing Sports were 166 million yuan, 363 million yuan and 115 million yuan respectively, and the figure in FY2010 was more than double that in FY2009.

In order to digest the inventory, Hongxing Erke provided credit support and other expenses for dealers, which made Hongxing's sports expenses soar. It eventually leads to losses. In fiscal year 2010, the operating expenses of Hongxing Sports reached 2.243 billion yuan, resulting in a net profit loss of 1.635 billion yuan in the current year. In the previous fiscal year 2009 and 2008, the net profits of Hongxing Sports were 131 million yuan and 449 million yuan respectively.

It is worth noting that the report did not explain why the group's cash and bank balance at the end of the year would be "missing" 1.154 billion yuan.

Hongxingerke's explanation for the appealed financial data is that the financial statements of the whole company are based on the relevant data submitted by each subsidiary, and the financial aspect assumes that the data submitted by the subsidiary is true and accurate.

It is worth mentioning that in February this year, China Hongxing appointed Puhua Cooper to conduct an independent review of its financial situation. Up to now, Puhua Cooper has not released its review report. At the same time, the Singapore Stock Exchange has not yet made clear what kind of treatment it will make for the appeal report.

The problem of Hongxingerke is not only the false high financial data. There are also internal management problems, as well as the drawbacks and quality problems of the self run store model, which are ultimately reflected in the inflated financial data and huge losses.

In the appeal report, "nTan" pointed out that in order to expand market share, Hongxing Sports opened branches in many regions and built direct stores belonging to Hongxing Sports. However, the pace of self-supporting was too fast, which caused great pressure on the company's cash flow. In addition, the goods turnover of direct stores was slow, and the inventory amount increased; The rapid expansion of direct stores also dampened the enthusiasm of franchisees, which did not give enough power and eventually worsened the inventory.

The data shows that at the end of 2009, Hongxingerke had about 4003 retail outlets, while the number at the end of 2008 was 3824, an increase of only 179. Compared with the four digit outlets of other major sporting goods brands every year, it is not good enough; In the first quarter of this year, Hongxingerke only opened 27 new stores, less than one sixth of the number of new stores opened in 2009.

　　 Sporting Goods Market Observer Ma Gang believes that Hongxing Erke has opened its own flagship stores in many provincial cities in China, which occupies a considerable part of the capital; The idea of self support also delayed the enthusiasm and speed of its franchisees to open stores. The slow expansion of stores led to sales failure, which became the main reason for its poor performance. At the same time, the enthusiasm of franchisees is not high, which forces Hongxingerke to issue huge interest free loans to stimulate the enthusiasm of dealers. To quickly digest the inventory. {page_break}

Some analysts pointed out that after its listing in Singapore, Hon Sing Erke once expanded blindly and rushed too hard. Some stores worth only 1 million yuan were bought at a price of 2 million to 3 million yuan, and the number of stores was expanded regardless of the cost; In addition, a large amount of money is invested in advertising. As a result, Hongxingerke suffered huge losses.

According to the data, from 2009 to 2010, when the whole sportswear industry experienced high growth, only Hon Sing Erke suffered huge losses in succession.

According to the first quarter report of Hongxingerke in 2010, as of March 31 this year, the company's revenue in the first quarter was 491 million yuan (RMB, the same below), a year-on-year decrease of 13.5%; The gross profit was 155 million yuan, a year-on-year decrease of 31.9%. At the same time, in each business unit of Hongxingerke, in the first quarter of this year, Hongxingerke Clothing realized revenue of 157 million yuan, a year-on-year decrease of 45.9%;

Although sports shoes And accessories revenue increased by 18.2% and 78.1% year on year respectively, which is still unhelpful, leading to a year-on-year decline in overall revenue, and the overall gross profit margin has also declined from 40.2% in the same period last year to 31.6% at present. This performance report also continued the decline of 2008.

The 2009 annual report disclosed that Hongxingerke's revenue decreased by 30.8% to 2 billion yuan compared with 2008, and its revenue in the three segments of sports shoes, clothing and sports accessories decreased by 40.2%, 8.3% and 68.2% year on year respectively. In contrast, other major domestic sports brands achieved an annual growth of more than 20% year on year in 2009.

It can be seen that Hongxing Erke missed the golden development stage.

As for the decline in performance, Hon Sing Erke explained that the domestic market demand was weakening. In addition, the excess inventory of the dealers led Hon Sing Erke to reduce the price of the dealers' goods so that the dealers could digest the inventory.

Hung Sing Erke's problems are not only reflected in the distortion of financial data, but also in the quality of products. According to information, last April, Harbin Administration for Industry and Commerce issued a sampling inspection report. The bureau focused on the detection of safety indicators such as formaldehyde content, pH value, signs and instructions for use, fiber content, color fastness, bullet bursting strength, washing size change rate and other physical and chemical indicators of clothing commodities on the market. The test result is clothing 76 batches of knitwear are qualified, 80 batches are unqualified, and the qualification rate is 48.7%.

Among them, Hongxingerke, Yage Shidan, Kanudi Road (002656, Guba), Hengyuanxiang and other well-known brands were on the list.

In March this year, the Changchun Administration for Industry and Commerce released the Monitoring Information of Commodity Quality in Circulation Field in the First Quarter of 2012. After testing, the total qualified rate of clothing in Changchun market exceeded 92%. Among the 15 unqualified products, pH value, color fastness and formaldehyde content are the main unqualified items.

Among them, the unqualified items of the Hongxingerke brand pullover sweater produced by Fujian Hongxingerke Sports Goods Co., Ltd. are the unqualified color fastness to water and sweat stains. Unqualified products have been required to stop selling immediately and be delisted from the market.

The appearance of quality problems is a precursor to the decline of Hongxing Erke's brand influence and brand reputation.

After Hon Sing Erke's audit report exposed huge errors in sports finance, Hon Sing Erke had a new situation. In August this year, the company announced that Wu Rongzhao, CEO of the company, would resign as CEO and Wu Rongguang would take over. The reason for resignation is unknown.

It is understood that after Wu Rongzhao left his post, Wu Rongguang was regarded as the best candidate because he had served as the CEO of Hongxing Sports before. Therefore, Wu Rongzhao's resignation did not affect the governance structure of Hongxing Sports. Hongxing Sports said that Hongxing Sports decided to appoint a new CEO, and Wu Rongguang would act as his deputy until the candidate was determined. Before the new CEO arrived, Wu Rongzhao would participate in the company's affairs as Wu Rongguang's adviser, and would continue to act as an adviser for the new CEO for about three months to ensure the smooth transition of the company.

At the same time, Hongxing Sports also announced a number of rectification measures, including: appointing a new internal auditor to conduct a rigorous and thorough review of the group's internal control procedures, evaluating the company's financial and accounting functional departments and reporting processes, giving suggestions for improvement and modification, and finding possible omissions in the internal control process.

However, in the face of many deep-seated problems, it still needs time to test whether the change of manager will lead to new signs and a new situation.

Wang Qiang, an analyst of the First Agricultural Economy, believes that at present spin The industrial chain is in the severe winter, and there are many problems in Hongxingerke. It is expected that the recession will continue throughout 2012. When will the troubled Hong Xing Erke stock resume trading? There is no clear timetable. Considering that Hon Sing Erke's stock has been suspended for more than 16 months and there is no capital injection, Hon Sing Erke's capital chain will remain tense for a long time. The pace of expansion will remain low at present.