Nanjing Iron and Steel Co., Ltd. spends 1.5 billion in cash to buy Wansheng shares Q4 profit than halving the working capital pressure.

After a year of planning, after four revisions to the initial public offering plan, and even once suspended because of the investigation of intermediaries, 600282.SH still bought 603010.SH shares, which also means that compound Galaxy will usher in the eighth A-share listed company.

On the evening of March 31st, Wansheng announced a non-public offering of 104 million shares to Nangang shares, while Nangang shares needed to invest 1.493 billion yuan in cash. According to the final plan, after the completion of this non-public offering, the controlling shareholder of Wansheng shares will be changed to Nangang shares, and the actual controller will be changed to Guo Guangchang.

The deal extends the industrial chain between Nanjing Iron and Steel Co., Ltd. and Fosun Group into the field of new energy vehicle battery materials. However, according to the annual report disclosed by Nanjing Iron and Steel Co., Ltd., the company showed some pressure on cash flow, and the performance index declined significantly in the fourth quarter. Some professionals told the Financial Associated Press that after expanding the industrial layout, they also put forward higher requirements for the risk management ability of the relevant companies, and it is necessary to guard against problems in the capital chain.

Expand the industrial layout by Wansheng shares

Wansheng shares and Nanjing Iron and Steel shares hand in hand, can be traced back to a year ago. On January 27, 2021, Wansheng announced that Linhai Wansheng Investment Co., Ltd., the company's controlling shareholder, signed a "share transfer agreement" with Nanjing Iron and Steel Co., Ltd. agreed to transfer 50 million shares of Wansheng shares (14.42% of the total share capital) to Nangang shares, the transaction consideration is 1.187 billion yuan.

Nanjing Iron and Steel Co., Ltd. also announced on January 28, 2021 that it would take a 29.98% stake in Wansheng shares at a price of no more than 2.823 billion yuan (including a price premium of 63.5 million yuan). The investment was contributed in cash. The company said that the purpose of this investment is to achieve the company's "industrial operation + industrial investment" development strategy by obtaining the control of Wansheng shares.

On March 17 this year, Wansheng announced that the company's recent non-public offering of shares had been approved by the CSRC. On the evening of March 31st, Wansheng shares disclosed the "report on the issuance of non-public shares". Nanjing Iron and Steel shares subscribed for the non-public offering shares in cash, and the total amount of funds raised in this issue was about 1.493 billion yuan. the actual net funds raised is about 1.475 billion yuan, and the net funds raised will be used to build an "integrated production project with an annual production capacity of 319300 tons of functional new materials" and supplement liquidity.

After the completion of the agreement transfer and fixed increase, Nanjing Iron and Steel Co., Ltd. will hold a total of 174 million shares of Wansheng shares, thus becoming the controlling shareholder of Wansheng shares. Guo Guangchang will also replace the members of the Gao Xianguo family to become the new actual controller of Wansheng shares.

A reporter from the Financial Associated Press learned that Wansheng focuses on the production, R & D and sales of functional fine chemicals and is the world's leading producer and supplier of phosphorus flame retardants. According to Wansheng's 2020 report, flame retardant products accounted for 76.51% of the main income, amine auxiliaries and catalyst products accounted for 20.88%, and paint auxiliaries accounted for only 2.5%. From the perspective of product application, flame retardants can be used in automotive, electronic and electrical appliances, network communication equipment, construction and furniture and other industries; amine promoters and catalysts can be used in personal care, electronic chemicals, water treatment and fungicides and other industries.

In the lithium power industry, the compound galaxy has a layout for a long time, but its advantages are not obvious. Industry insiders said that by taking ownership of Wansheng shares, compound galaxy is expected to occupy a position in the flammable and explosive track of the new energy vehicle industry.

With regard to the acquisition of Wansheng shares, Yu Qiangwei, an expert in civil and commercial law, told the Financial Associated Press that Fosun's expansion of new business sectors through mergers and acquisitions is an important part of the group's strategic investment. It is expected to further improve the group's strategic ecology with the help of new business, and continue to optimize and enhance internal synergy. In this process, the change of the actual controller of the merged listed company will not only bring the adjustment of the company's business direction and focus, but also bring new growth opportunities to the listed company.

However, he also cautioned that it should be noted that the problems in the capital chain of many collectivized companies in history are often closely related to the company's business philosophy of diversifying its unrelated businesses. If the risk management ability can not keep up with the strategic pace of the group, blind mergers and acquisitions into new industries will sometimes become the last straw to overwhelm camels.

Capital expenditure continues to rise

Nanjing Iron and Steel Co., Ltd., founded in 1958, is mainly engaged in ferrous metal smelting and Calendering processing and the sales of steel, billet and other metal materials. It is one of the 18 backbone enterprises in China's metallurgical industry approved by the State Council at that time.

In July 2003, Nanjing Iron and Steel United Co., Ltd., jointly formed by three subsidiaries of Fosi Galaxy and Nanjing Iron and Steel Group, formally completed the acquisition of 70.95% of Nangang's shares. At present, Guo Guangchang, the real controller, holds 21.55% of Nanjing Iron and Steel's shares.

The 2021 annual report of Nanjing Iron and Steel Co., Ltd. shows that the company's main income is 75.674 billion yuan, up 42.45% from the same period last year; the net profit is 4.091 billion yuan, up 43.75% from the same period last year; and the non-net profit is 3.69 billion yuan, up 49.84% from the same period last year.

In terms of production and sales, the company's steel product output in 2021 was 10.6 million tons, an increase of 3.87% over the same period last year, and sales volume was 10.4037 million tons, an increase of 2.11% over the same period last year.

However, the company's performance was poor in the fourth quarter of 2021, with main revenue of 16.519 billion yuan per quarter, down 19.69% from the previous quarter, up 14.21% from the same period last year, and net profit of 622 million yuan per quarter, down 48.51% from the previous quarter and 25.86% from the same period last year.

As for the reasons for the decline in the fourth quarter, a person from Nanjing Iron and Steel Co., Ltd. explained to the Financial Associated Press that since mid-September, the iron and steel industry has been affected by power cuts. The company made a choice on production projects. "We have no way to vigorously produce some high value-added products and choose products with lower energy consumption targets." However, it said that the company's production capacity has not been affected and is re-producing high value-added products.

A reporter from the Financial Associated Press also noted that the company's net cash increase in 2021 was-464 million yuan, and the cash flow was negative for the first time in recent years, especially the net cash flow of investment activities was-5.391 billion yuan. In this regard, the above-mentioned company told the Financial Associated Press that the decrease in working capital was mainly due to the increase in current liabilities, the company increased short-term borrowing according to financing arrangements, and increased settlement and payment of bills.

In addition, the annual report shows that Nanjing Iron and Steel Co., Ltd. is increasing the layout of the upstream and downstream of the industrial chain. In addition to acquiring Wansheng shares to extend the industry into the field of new materials, the company's Indonesian coke project is also under way. The company plans to build an overseas coke production base in Indonesia's Qingshan Industrial Park, and jointly set up Indonesia Jinrui New Energy and Indonesia Jinxiang New Energy Technology, with an annual output of 2.6 million tons and 3.9 million tons of coke respectively.

With regard to the expansion of the investment layout of shares in Nanjing Iron and Steel Co., Ltd., a market analyst told the Financial Associated Press that the expansion of coke projects overseas is related to stricter environmental control in China, which is expected to strengthen the company's raw material supply stability and cost control ability. However, due to the aggravation of the epidemic in some parts of the country this month, affecting steel consumption, steel fundamentals will face a weak pattern of supply and demand in the short term, which may cause a tight capital chain as the company's capital expenditure continues to rise.