Warren Buffett said, "If you don't want to hold a ** for ten years, don't hold it for even a minute". For enterprises that intend to hold for a long time, stress testing of various extreme conditions in advance is the premise of being able to share the growth dividends of the enterprise for a long time without fear of frequent fluctuations in stock prices.
As one of the leading A-share consumer white horses with the highest compound growth rate of market value since listing, Yili shares are undoubtedly in the spotlight, advantages and disadvantages will be repeatedly demonstrated and disseminated, the weakness of human nature will often emphasize the advantages of the enterprise when the stock price is weak, and worry about the disadvantages of the enterprise when the stock price is weak, therefore, in China, even for Yili shares such a well-known consumer white dragon horse, can be held for more than ten years is like the morning star - because in the long and bleak bear market, People will always magnify the disadvantages of the enterprise into all kinds of ghost stories, and they are so scared that they dare not hold it on the way, let alone buy it more and more.
The issue of management equity incentive is one of the so-called "disadvantages" or "hidden worries" that have been haunting Yili's development history. Even though Yili shares have become a state-recognized private enterprise in 2012, until the 2019 Yili equity incentive turmoil, the voices of denouncing the management for "embezzlement of state-owned assets", "greed" and "eating too ugly" are still surging, and there are also old shareholders on the snowball, so they publicly document the liquidation of Yili.
In fact, no matter from the historical restoration of the specific operation mode, or the comparison with the incentive range of comparable enterprises in the same period, in terms of equity incentives, Yili has taken a road of gradual privatization in compliance and moderation, which can withstand any stress test, not only does not constitute a hidden worry about investing in Yili shares, but can become one of Yili's core competitive advantages.
1. The historical background of Yili's management equity incentive - Zheng Junhuai's "conspiracy" and Yili's dilemma
1. The first-mover share reform made Yili the first stock in China's dairy industry, but it also buried the root cause of the lack of incentives for meritorious management
Before the reopening, dairy enterprises were all state-owned enterprises, and the predecessor of Yili shares, Hohhot Huimin Milk Food Factory, was also a nationally owned enterprise under the supervision of Hohhot Animal Husbandry and Industry Joint Enterprise Company. In 1983, when Zheng Junhuai became the director of the factory, the factory only had more than 80 employees, 410,000 yuan in assets, and less than 50,000 yuan in profits and taxes.
After Zheng Junhuai became the director of the factory, he drove the rapid development and growth of Yili by implementing the internal management contract responsibility system, promoting the reform of the personnel and distribution system, and taking the lead in implementing brand management, and was listed as a pilot enterprise for joint-stock reform by Hohhot City in 1992, forming a national shareholding of 385%, 51 corporate shares5%, 10% of the equity structure of internal employee shares, so that Yili shares in 1996 became the first share of China's dairy industry, 6 years before Bright Dairy landed on the A** field, and through 1997, 1998, 2002 three times of private placement, raising 13500 million yuan, so as to be able to quickly stake the land in the country, in 2003 to surpass Guangming, become the national dairy overlord. It can be said that in the capital-heavy milk industry, if Yili does not go public to raise funds first, it will not be able to quickly become the leader of the national dairy industry; At the same time, without Zheng Junhuai's reform courage and management ability, Yili would not have become the first stock in China's dairy industry!
The listing in 1996 also further diluted Yili's national stock to 2532% (33 per cent of corporate shares.)64%, 41% of the public shares04%, internal employee shares 515%), after three private placements, the national stock was further diluted to 1871%, officially laying the foundation for the dispersion of Yili's equity.
This should be conducive to the improvement of the corporate governance structure, but in the early 90s of the last century, the "big pot rice" style of share reform extremely ignored the value of meritorious entrepreneurs, accounting for 515% of the internal employee shares are almost evenly distributed, and the annual salary of chairman and general manager Zheng Junhuai in 1996 was only 3770,000 yuan, **9,366 shares, accounting for only 036%, while the vice president Niu Gensheng has an annual salary of 3530,000 yuan, 8,873 shares, and 6,901 shares; Until 2004, the total annual salary of the top three highest-paid executives in Yili was only 5160,000 yuan! For a perfectly competitive industry such as milk, which is highly dependent on the ability of entrepreneurs, it is impossible to achieve a positive incentive for the management in this big pot of rice distribution, which will inevitably make its mentality unbalanced and lay the root cause for the sustainable and healthy growth of the enterprise.
2. ParanoiaThe implicit MBO led to the fall of Zheng Junhuai and other core teams, which plunged Yili into a crisis in 2005
It should be said that Yili's large-pot rice share reform reflects the caution and feelings of the early explorers of state-owned enterprise reform (although Vanke, which was reformed four years earlier than Yili, was in Shenzhen, a special economic zone, the management with Wang Shi as the core also took the initiative to give up the equity requirement), which is a product of a specific historical stage. For example, in 1995, the first share reform of Haitian Flavor Industry was purchased by 749 employees with a loan of 26.89 million yuan to buy 70% of the equity, and Leng Youbin and others borrowed 7.4 million yuan to buy out 100% of the equity of Heilongjiang Feihe before 2001. Later, Yanghe, which was absolutely controlled by state-owned assets, also became 30 shares held by the management in 20067% of mixed-ownership companies.
Zheng Junhuai, who was known as the "godfather of China's dairy industry" at that time, had greater social influence and control over the enterprise than the above-mentioned entrepreneurs, as long as he could unite the core team to fight for reason, he could win the results that were not worse than the management of the above-mentioned enterprises in an open and honest manner. Especially in 1999, when Niu Gensheng left to found Mengniu and successively pulled away more than 300 Yili backbones with equity as an incentive, the State-owned Assets Supervision and Administration Bureau of Hohhot also strongly supported Yili's promotion of MBO, not only supporting Zheng Junhuai's establishment of Huashi Commerce and Trade and Qiyuan Company to promote MBO, but also became the top four shareholders (holding 216% and 438% of the shares) and even in July 2003 put the holding of 1433% of Yili's shares were emptied and all were sold to Zheng Junhuai's third shareholding channel, Zhejiang Jinxin Trust. But Zheng Junhuai didn't take the right path and took the dark road, instead of working together openly, but first forced away Niu Gensheng and other Mengniu veterans, and then even the then president Pan Gang was also given a vacancy, and even major matters such as national bond investment and the establishment of MBO holding company were not discussed with the board of directors, and they were discussed with the finance, board secretary and other secret rooms, and as a result, they were publicly questioned and reported by Yu Bowei and other independent directors, resulting in imprisonment with other 4 core executives at the end of December 2004! (Later, the judge who handled Zheng Junhuai's case admitted that in the context of promoting the reform of state-owned enterprises at that time, Zheng Junhuai would not end up like this no matter what form of MBO he adopted, as long as he obtained the consent of the board of directors.)
It's all the fault of equity! Zheng Junhuai's paranoid failure to advance the implicit MBO was not only his personal tragedy, but also caused Yili in 2005 to fall into a crisis greater than Niu Gensheng took away more than 300 backbones, because at that time, Mengniu, which was established by the old Yili people five years ago, was attacking Yili at a rocket-like speed.
II. II. IIThe process of equity incentive for Yili's management - Pan Gang's "yang scheme" is compliant and restrained
1. Yili's management equity incentive is a "conspiracy" in accordance with laws and regulations, and laid the foundation for privatization in 2006
As shown in Table 1, Yili's management shareholding involved a total of 5 events, the key being the first two in 2006, a total of 33 core management granted more than 111% equity, which means that after the expiration of the exercise, the management will hold more than 10 at the end of 2006In fact, since the 2011 annual report, Yili shares have declared that they have "no controlling shareholder, no actual controller", taken off the hat of state-owned enterprises, and Pan Gang was elected vice chairman of the All-China Federation of Industry and Commerce on December 10, 2012 as a symbol, officially becoming a state-recognized private enterprise.
The background to this critical step is as follows:
Pan Gang and other new teams who took office in June 2005 achieved sales revenue of 39 year-on-year when the company faced a crisis4% growth beyond expectations, proving their ability; At the same time, Yili, which has suffered even twists and turns, can no longer withstand the toss of core management changes;
Mengniu Dairy, which is more than 50% owned by the management, has been listed on the Hong Kong stock market in June 2004 and has brought strong competitive pressure to Yili with its super-rapid growth. Including former colleagues in Mengniu, they have become tens of millions or even billionaires, and the impact on Yili's core team.
The one-year reform of the division of shares of listed companies made it mandatory to divide the old and the new in April 2006, and most of the A-share listed companies have completed the share reform.
** On December 19, 25, the General Office issued the "Implementation Opinions on Further Standardizing the Restructuring of State-owned Enterprises", which clearly stipulates that "in order to explore the implementation of incentive and restraint mechanisms. The members of the management who have made significant contributions to the development of the enterprise may hold the equity of the enterprise through capital increase and share expansion". On January 4, 2006, the China Securities Regulatory Commission (CSRC) promulgated the Measures for the Administration of Equity Incentives of Listed Companies (for Trial Implementation), allowing listed companies that have completed the reform of equity division to implement equity incentives.
Based on the above 4 points, and approved by the competent authorities, the board of directors and the general meeting of shareholders and other procedures, on March 8, 2006, the "Inner Mongolia Yili Industrial Group Co., Ltd. *** Equity Separation Reform Manual" confirmed the first transfer to the management of 23% stake; Thereafter, on December 28, 2006, the second extraordinary general meeting of shareholders in 2006 deliberated and passed the "Proposal on the Option Incentive Plan (Draft) of Inner Mongolia Yili Industrial Group after the China Securities Regulatory Commission expressed no objection", and granted 968% of options with a strike price of 1333 yuan.
These two events, which laid the foundation for the privatization of Yili, were completely in response to the general trend of the state to promote the reform of state-owned enterprises from top to bottom at that time. What's more, at that time, Pan Gang had been the chairman of Yili for less than a year, and his foundation in Yili was not stable, even if he had a thief's heart and courage, he had no ability to promote the MBO's conspiracy like Zheng Junhuai!
The background of the third management increase is that July 4, 2014 is the date when the shares of the 2006 management equity incentive can be listed and circulated. Pan Gang and four other people borrowed 12100 million, an increase of 1 from the secondary market59% of the shares, in the case of the downturn at that time, this increase in holdings is a market behavior that the national policy encourages legal protection, but this move also further consolidates the overall equity advantage of the management in Yili shares (vs state-owned assets 12.).7%vs9.3) It has strengthened the position of Yili's private enterprises.
The 4th and 5th are both regular equity incentives carried out in accordance with the law, and there is no flaw in the law, and the market has a large opinion on the incentives in 2019, focusing on the low grant conditions and the specific distribution of equity, and questioning whether the management is "greedy" and "ugly". Yili's subsequent responses and revisions have maintained an open operation under the sun, and there is no conspiracy! However, all of them have objectively increased the management's control over the equity of the enterprise, making Yili's privatization more successful.
Yili's management equity incentives are relatively restrained as a whole, and they are not "ugly" or "greedy".
To sum up, Yili's gradual privatization since 2006 is an open conspiracy, which can legally withstand the stress test from entity to procedure; At the same time, the proportion of shares held by the management, the consideration paid and the setting of the conditions for exercising the rights are relatively restrained, and there is no such thing as the so-called "ugly" or "greedy" of the management. Manifested in:
The overall shareholding ratio of the management is relatively low.
Even if all the incentives in 2019 are fulfilled as scheduled, by the end of 2024, Yili's employee shareholding ratio will be less than 162%, of which Chairman and President Pan Gang holds only 531%。This proportion of power in the consumer industry is not only not comparable to Haitian Flavor, which was 100% privatized before the listing, and China Feihe, which was held by Yanghe management in 20067% of the shares, also moderate;
At the time of the share reform in 2006, not to mention the light industry in which the state invested little, even the heavy industry in which the state invested in key industries, such as the management of Zoomlion, also obtained 30% of the shares, especially in 1983, the state finance took out 4600 million yuan (about 4/1000 of the national finance that year) to buy imported equipment Yantai Wanhua, also let employees hold 2013% of the shares, in comparison, Yili's management shareholding ratio is indeed not high, ** can be talked about "greed"? The above-mentioned enterprises have developed into industry leaders after the management holds shares, and the state-owned assets have also appreciated.
The consideration for the acquisition of equity by the management is reasonable.
Except for the March 2006 share split reform, which was conditionally transferred to the management 2Except for 3% of the shares, the rest of the shares are acquired for compensation. The increase in holdings in 2014 was directly purchased from the secondary market by Pan Gang and other 4 people with a loan of 1.2 billion yuan, and the incentive plan was exercised in December 2006 on the day of the draft announcement33 yuan is determined, all of which are accompanied by the market; 2016 Option 16The exercise price of 47 yuan is the average trading price of the previous 120 days, which is higher than the ** price on the day of announcement, which is also reasonable and compliant; 2016 Restrictive ***1533 yuan is only 96% off the ** price of the plan, which can be said to be expensive;
As for the 2019 restrictive incentive plan, which has received more online criticism, it was awarded **1546 yuan is 53% of the price of the day of the plan, which is also in line with the provisions of the "Measures for the Administration of Equity Incentives of Listed Companies", and 50% is the discount for the vast majority of listed companies to implement restrictive incentives, and the implementation of incentives in the same year is less than 40% of the Industrial Fortune Federation, and the UFIDA network is less than 25%, and Joyoung shares are granted at 1 yuan per share, less than 10% of the ** price on the same day. Comparatively speaking, Yili's equity grant in 2019** is very reasonable, and it is not ugly.
Equity incentives have all set exercise conditions, and the exercise conditions are becoming more and more challenging.
In March 2006, the conditions for the transfer of the equity division reform were that "the net profit growth rate of 2006 and 2007 was greater than or equal to 17% compared with the previous year", which was very challenging in the context of Yili just experiencing the turmoil of the core personnel and Mengniu soaring like a rocket, at least as one of the three giants of the dairy industry, Bright Dairy's profits did not increase during the period, and Sanyuan deducted non-profits or even losses in 2006.
In December 2006, the conditions for the exercise of the ** option incentive plan were: "When exercising the option in the first phase, the growth rate of non-net profit shall not be less than 17% and the growth rate of main business income shall not be less than 20%; When exercising in the following years, the compound growth rate of main business income is not less than 15% compared with 2005", it should be said that there is no profit target after 2008 to reduce the difficulty of exercising, but the goal of 15% compound growth of main business income for 8 years is also very challenging, at least Bright Dairy has not been completed, although Bright took the lead in launching the phenomenal product Moslian in 2008.
In the 2016 incentive plan, the acquisition conditions stipulated in the "return on net assets are not less than 12%" is indeed low, but at the same time, there is a limit of "based on the net profit in 2015, the net profit growth rate in 2017 is not less than 30%, and the net profit growth rate in 2018 is not less than 45%", and this profit target is not low, and Mengniu and Guangming have not completed it in the same period.
After the initial plan in 2019 was questioned, it was changed to achieve the three conditions of "dividend rate greater than 70%, ROE greater than 20%, and net profit compound growth greater than 8%" at the same time, even under normal conditions, few companies in A-share can meet such high requirements for 5 years, not to mention that the plan does not stipulate exceptions for force majeure such as new crown pneumonia, and it seems that despite such harsh conditions, Yili shares can still be achieved as agreed in 2023.
The fact that all of the above-mentioned increasingly challenging acquisition conditions can be achieved can only prove that Yili's management team is excellent and capable, and that the equity they have obtained is earned with wisdom and hard work, and they deserve it. It is believed that if Mengniu, Guangming, Sanyuan and other companies can meet the above performance indicators, their shareholders should be happy for the management to get the same equity incentives, because in contrast, excellent performance makes shareholders benefit more, and some is given to excellent and capable management, why not? How can it be said that the management is greedy or ugly?
3. The effect of Yili's management equity incentive - a stable and efficient governance mechanism to ensure the sustainable growth of the enterprise
The data proves that since 2006The gradual privatization of YiliIt activates the human capital with Pan Gang as the core, ensures the stability of the management with Pan Gang as the core and the coherence of Yili's development strategy
It has promoted the sustained and high-quality growth of YiliIt has consolidated the position of Yili Dairy as the hegemonFor 18 years-
Yili's sales revenue increased by 103 times by 2023 is expected to be more than 126 billion, with a compound annual growth rate of 139%；
Profit from 2900 million, a growth of 358 times is expected to be 10.5 billion by 2023, with a compound annual growth rate of 358%, diluted ROE from less than 13% in 2005 to more than 20% after 2011, operating efficiency has been greatly improved;
The company's market value also increased by 294 times to 170.3 billion at the end of 2003, with a compound annual growth rate of 207%，State-owned assets have been effectively maintained and increased
In the past 17 years, the proportion of state-owned equity has increased from 14 before the share reform in 200533% to 842%, but the equity attributable to shareholders of state-owned assets increased from 37.2 billion yuan, an increase of 122 times to 45 by the end of 2022500 million yuan, with a compound annual growth rate of 159%；The growth of Yili's market value has made the appreciation of state-owned assets even higher.
Since 2016, the average annual dividend amount of Hohhot state-owned assets has reached 39.1 billion, more than the capital in 2005; In 2022, the annual dividend will reach 58.7 billion yuan, which is 1. % of the capital in 200558 times; And the amount of dividends will most likely continue to increase in the future.
At present, the SASAC has made it clear that the direction of the next step of state-owned enterprise reform is to promote the development of mixed ownership, from the management of enterprises to the management of capital, and affirms the successful practice of Yili's gradual privatization from the political level, which directly slaps the face of the so-called "Yili's equity incentive has the management hollowing out state-owned assets".
It can effectively resist the "barbarian invasion" under the pattern of equity dispersion and ensure the realization of the company's long-term strategic goals.
Since 2015, China's capital market has generally entered the era of equity dispersion, and corporate governance events such as the bloodbath of CSG A board of directors and the recent Zhongju high-tech equity dispute show that the "barbarian invasion" will be a huge threat to Yili shares. As early as 2006 and 2008, Yili shares were rumored to be acquired by Danone and Bright, and on the evening of September 18, 2016, Yili shares were issued an emergency announcement by Sunshine Insurance and a series of countermeasures were taken.
Through gradual privatization, the shareholding ratio of the management will be gradually increased, and after the management and the state-owned assets of Hohhot City form a concerted action, the management can strengthen the control of the company and effectively resolve the risk of instability of the governance structure caused by the potential "barbarian invasion", so that Yili can better devote itself to the realization of the strategic goal of "No. 1 in the global dairy industry by 2030" and even longer-term goals.
From this point of view, Yili's management equity incentive can not only withstand the stress test, but also ensure the realization of its long-term strategic goals with a stable and efficient governance mechanism, thus forming Yili's core competitive advantage over traditional competitors such as Mengniu and Guangming.