Outlook Special Edition – Industrial Integration of Smart New Economy: From Lotus MSG to Lotus Health

2016-03-09 Posted by:admin Categor:Project cooperation
RECON, based on the concept of smart new economy, has tookover the A-share listed company--- Lotus MSG. RECON will transform this state-owned agricultural enterprise and allow it to march into the smart agriculture and general health industry.

 
On January 8, 2016, Lotus Health Industry Holding Group Company announced that the company has considered and approved the “Proposal of Changing Ticker Symbol.” Since the company’s name has been changed from “Henan Lotus MSG Co., Ltd” to “Lotus Health Industry Holding Group Company”, the company’s ticker symbol is changed from “Lotus MSG” to “Lotus Health” to better meet the needs of the company’s strategic development.
 
So far, Lotus Health has officially replaced Lotus MSG as an A-share listed company.
 
As an established listed company in Henan, Lotus MSG used to lead China’s MSG industry. It was considered as a symbol of Henan Province and was once the financial pillar of Xiangcheng. In recent years, however, this local state-owned agricultural enterprise suffered setbacks due to various reasons and after struggling for years, was unable to get out of the difficulties by transforming and restructuring.
 
In early 2015, RECON Investment began to acquire Lotus MSG. As some analysts pointed out, by acquiring and reorganizing Lotus MSG, RECON is able to kill two birds with one stone. On one hand, RECON can put its concept of smart new economy into practice, make the smart agriculture and general health industry bigger and stronger, and complete the industry chain. On the other hand, RECON can take advantage of the platform provided by the listed company to further enhance its own strength in the financial capital sector.
 
According to RECON’s Chairman of the Board Xia Jiantong, after the acquisition of Lotus MSG, RECON is committed to helping this local state-owned agricultural enterprise transform and restructure itself. RECON redirected the development of Lotus and identified the development strategy for Lotus MSG to enter the smart agriculture and general health industry. After a series of changes, Lotus’s production and operation have gradually been rejuvenated. In the third quarter of 2015, all of Lotus’s business lines began to turn losses into gains in their production and operation, laying a solid foundation for the company’s further development.
 
It was learned in the interview that RECON did make great progress in the acquisition and reorganization of Lotus, but it has also gave itself a heavy burden and a lot of pressure. However, RECON has received support from local government at all levels for some common problems encountered by state-owned enterprises in their reform. RECON believes that there will be good solutions to these problems.
 
RECON’s Acquisition of Lotus MSG
 
Lotus MSG, founded in 1983, mainly produced seasonings. In the 15 years from 1983 to 1997, its annual output of seasonings rose from 400 tons to 120,000 tons, an increase of 300 times, and its output value also increased from RMB 9.45 million to RMB 2.23 billion. In August 1998, Lotus MSG was listed in Shanghai Stock Exchange.
 
When it was first listed, Lotus MSG achieved great success. Its MSG products occupied over 40 percent of the Chinese domestic consumer market and were exported to more than 20 countries and regions. It exports of MSG accounted for more than 80 percent of the national total, ranking first among domestic industry peers. There was a time when every four out of ten bags of MSG consumed by Chinese people were Lotus MSG, and every eight out of ten exported bags of MSG were also Lotus MSG.
 
However, after its great performance at the early stage, Lotus MSG’s situation went from bad to worse and began to lose money. Among other reasons, it was mainly due to the fact that it failed to transform and upgrade its products in a timely manner and the market demand declined. Although Lotus MSG accelerated expansion by actively financing through the capital market, it still delivered a lackluster performance. After 2000, the company faced even more problems, including disordered management and huge debts. These problems had accumulated over the years and could not be resolved in a short time. At one point, the company was on the verge of bankruptcy.
 
 
As a local state-owned agricultural enterprise in Central China’s Henan Province, Lotus MSG is of great significance for promoting local agriculture, employment, and economic development. Therefore, government at all levels of Henan Province made various attempts to save Lotus MSG. In 2009, Agricultural Comprehensive Development Company of Henan Province, a Henan-based state-owned agricultural policy investment institution, became its controlling shareholder and conducted asset reorganization. In the five years that followed, the Agricultural Comprehensive Development Company of Henan Province carried out a substantial reform of Lotus MSG but still could not turn things around. In 2013 and 2014, Lotus MSG continued to lose money.
 
In October 2014, Lotus MSG’s three shareholders, Dongfang RECON Investment, Shanghai Haoxi Investment, and Tian’an Technology signed an action protocol agreement. According to the agreement, the Agricultural Comprehensive Development Company of Henan Province only held 11.90 percent of the company’s stake, while each of the three parties held 11.92 percent of Lotus MSG’s stake and became the company’s new controlling shareholder.
 
On January 12, 2015, Xia Jiantong was elected Lotus MSG’s Chairman of the Board, marking RECON’s official control of Lotus MSG. RECON has established six industrial sectors, covering smart cities, smart agriculture and health, smart new energy and transportation, smart tourism, smart logistics, and innovative finance. The acquisition of Lotus MSG is in line with RECON’s strategic conception of making the smart agriculture and health sector bigger and stronger.
 
On its website, RECON states that its vision is to act as the one who theoretically completes, perfects, and puts technology into practice in the smart new economy (second economy) industry. It has committed itself to building the new economic ecosystem from smart production to smart life with “smart+” technologies and ideas, and become a new economy enterprise leading the industrial development of second economy (smart economy).
 
“Smart new economy” relies on big data, IoT, and other emerging technologies. It fully combines bricks-and-mortar industries with the virtual economy to cover production, circulation, consumption and living, forming a smart and upgraded new system.
 
The track of RECON’s industrial development shows that the smart information technology is just an engine, while the capital finance drives the integration of industrial resources. The two must be effectively combined before we can gradually draw a systematic blueprint for the “second economic body.”
 
As some analysts pointed out, by acquiring and reorganizing Lotus MSG, RECON can kill two birds with one stone. On one hand, RECON can put its concept of the smart new economy into practice, make the smart agriculture and general health industry bigger and stronger, and complete the industry chain. On the other hand, RECON can take advantage of the platform provided by the listed company to further enhance its own strength in the financial capital sector.
 
It was learned through the interview that RECON received strong support from the local government in its acquisition of Lotus MSG. According to an executive of RECON, the local government understands RECON’s development ideas, international vision, as well as financial and technical strengths, and expects RECON to help the state-owned enterprise Lotus MSG complete its restructuring and overcome difficulties, increase local employment, and promote the transformation and upgrading of agriculture and other local industries.
 
Marching into the Smart Agriculture and General Health Industry
 
RECON’s latest development strategy for the smart agriculture and health sector is to integrate global agricultural resources with food, health and nutrition resources, expand the biotechnology and product development network, establish the systems of “food nutrition spectrums” and “human health spectrums”, set up a large personalized smart health service platform, implement smart agriculture and smart food production and achieve their goal of personalized human health services.
 
In line with the group’s overall development strategy, RECON also made adjustments to Lotus MSG’s development strategy. On November 17, 2015, Lotus MSG announced that it would raise 3.1 billion yuan, with which it would maintain its MSG business and continue to expand its production capacity while marching into general health, smart agriculture, modern C2B and other fields.
 
On November 28, Lotus MSG made another announcement concerning the change of its name to “Lotus Health.” Meanwhile, Lotus Health’s new Board of Directors made major adjustments to its strategy. While maintaining its MSG business, Lotus Health will fully tap its advantages in MSG and amino acid technology and expand its condiment business. On this basis, it will strive to build the smart agriculture industry chain and the big health industry ecosystem centered on seven areas, including the sources of health products, the food safety and nutrition detection management system, soil and plant nutrition, integrated smart agriculture, innovative finance, modern C2B, and health service solutions.
 
Breaking free of the rut of the MSG industry, RECON tries to identify the future development direction for Lotus Health from the perspective of economic globalization. To march into the smart agriculture and general health industry is a strategic decision that RECON made for Lotus Health’s future development in accordance with the concept of smart new economy, the current macroeconomic situation, national policies, and Lotus’s current conditions. Lotus Health will extend the industry chain from producing health products to providing health services until the ecosystem of the smart agriculture and big health industry chain is completed.
 
Data shows that over the past 50 years, eight to ten percent of the world’s economic development was attributable to the health industry. The growth of health industry was faster than the GDP growth of most countries in the world. In Western countries, the health industry contributed more than 10 percent of their GDP, while China’s health industry accounted for only four to five percent of its GDP, leaving much room for further development.
 
After years of development, Lotus has built a strong brand effect and is endowed with unique advantages to develop the health industry.
 
Lotus’s strategic entry into the health industry refuted the rumor that Lotus was going to retreat from the MSG industry. Lotus will rely on its original MSG business and continue to extend in four directions: first, to develop the fourth generation seasonings based on amino acid fermentation and refining technology as well as other core technologies; second, to increase investment in the food production technology and gradually build and enrich the source of health product system; third, to strengthen the construction of the brand channel and terminal service system and improve the health product and services marketing system; fourth, to complete the technological shift from organic fertilizer to organic plant nutrition.
 
Besides the acquisition and reorganization of Lotus, in order to improve its smart agriculture and general health industry chain, RECON has accumulated millions of mu of land reserves in places like Australia, Central Asia, Xinjiang, and Ningxia as production demonstration bases. RECON has introduced the modern agricultural production methods and quality control system to provide consumers with better targeted and safer agricultural products. Meanwhile, by connecting e-commerce operators with the terminal distribution system and introducing mobile Internet and IoT technology, RECON will deliver agricultural and other health products to consumers’ kitchens. The whole process from the place of origin to the kitchen will be incorporated into management, thus completing the closed loop of the industry chain from customized production to consumption.
 
Post-Acquisition Integration
 
RECON also invested in the post-acquisition integration of Lotus in accordance with its strategic plan.
 
The specific integration is as follows. Associate thriftiness with the enterprise’s survival, and constantly take measures that work to the company’s potential and increase profits to reduce production and management costs. Carry out unified management of enterprise resources and gradually connect online and offline resources, improve and optimize Lotus’s supply chain system and production processes, and achieve in depth control of Lotus’s logistics and marketing links step by step. It will also conduct smart and comprehensive analysis of Lotus’s sales situation, identify the geographical distribution and consumption preferences of the target customers of Lotus’s products and set up a database so that Lotus can base its production on sales and achieve product innovation.
 
With the continuous integration of Lotus’s product system, RECON has also set up a financial service company, a logistics service company, and a C2B mobile commerce service platform. They are all affiliated to Lotus Health and form a financial and logistics service system to serve the agriculture and health industry.
 
After a series of changes, Lotus Health’s fertilizer business, flour business, and other production units achieved sustained profits in 2015. In the third quarter of 2015, all of Lotus’s business lines began to turn losses into gains in their production and operation.
 
The integration and restructuring was not smooth sailing and RECON also encountered great difficulties in the process. According to one of RECON’s executives, RECON acquired Lotus not only for economic benefits but for social benefits as well. RECON hopes to help the state-owned enterprise out of difficulties and increase local employment.
 
As a state-owned enterprise that is heavily burdened, the executive said, Lotus has more than 10,000 employees, for whom it would be hard to get reemployed locally. Therefore, after the acquisition of Lotus, RECON did not carry out the reform in a simple and crude manner. Instead, the reform was people-oriented. RECON tried to develop diversified businesses and adjust the organizational structure so that employees could be divided into different categories and every employee was given opportunities to fully exert their talents. RECON wishes to help every employee find a suitable job. However, it is not easy for RECON to find a suitable job for each of the more than 10,000 employees in the period of post-acquisition integration.
 
As was learned, the Henan provincial government also attached considerable importance to such problems and offered to provide Lotus Health with multiple assistance and support. On February 26, Governor of Henan Province Xie Fuzhan convened a meeting on the province’s capital market work. Lotus Health and other well-known enterprises in Henan Province attended the meeting by invitation. At the meeting, the Henan Securities Regulatory Bureau again expressed the intention to give intensive help to some enterprises in the province, including Lotus Health.
 
New Missions and Objectives
 
In 2015, RECON completed the acquisition of Lotus and began to reorganize Lotus’s various businesses. The year 2016 is crucial for Lotus’s transformation.
 
According to Lotus Health’s new strategic goal, Xia Jiantong defined specific objectives for the implementation of Lotus’s goal. These objectives can be summarized with numbers 1, 2, 3, 5 and 8. Lotus Health is expected to stop losing money in one year, begin to make profit in its operation in two years, and complete its strategic layout in three years. It will successfully transform itself into a world-class brand enterprise in the health industry in five years, and become a world-leading enterprise with health intellectual property (HIP) in eight to ten years.
 
It is reported that RECON expects to build Lotus Health into a scale enterprise in the next three years, achieve SKU management of its products, and complete the overall layout of Lotus’s industry chain from smart agriculture to smart big health. Lotus should enhance production, processing, and circulation links, make full use of its advantages in brand, technology, and channel, and seek diversified operations and improve its service quality.
 
According to Xia Jiantong, Lotus will consolidate and develop its MSG business to maintain Lotus MSG’s industry-leading position in the Chinese domestic consumer market. Meanwhile, Lotus will implement an export diversification strategy for seasonings, tailor products to consumer demands, explore international markets, and strive to win the trust of more consumers.
 
In order to fulfill the future strategic objectives of RECON’s agriculture and health sector, RECON Investment has set up a number of buyout funds to invest in two categories of target resources at home and abroad. One category is the daily consumer goods manufacturers in the health industry, and the other category is the enterprises with unique advantages in terminal channel delivery. So far, RECON has begun to integrate and acquire community supermarkets and other platforms, so as to solve the problem of the “last kilometer” terminal delivery of products and services. In the future, RECON will set up health testing and service companies and gradually improve the personalized custom service system.
 
Overseas mergers and acquisitions will be the main battlefield for RECON to secure the reserves of agriculture and health industry technologies and resources. RECON will integrate more high-quality product resources and advanced technology through overseas acquisitions, especially the acquisitions of enterprises in possession of new agricultural production methods and advanced biotechnology technologies, said Dr. Xia Jiantong.
 
It is reported that under RECON’s leadership, Lotus Health is seeking cooperation with foreign producers of condiments, health foods, and other products, such as Korea’s Daesang Group. In doing so, Lotus Health will be able to make better use of domestic and international market resources, make its presence known throughout the world, and explore overseas markets. (Text/Report: Zhong Zhiyuan and Liu Liang)