The principal activities of the Group are manufacturing and distribution of quality dairy products including liquid milk products (such as UHT milk, milk beverages and yogurt), ice cream, milk formula and other dairy products (such as cheese) in China.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to RMB 2.08 billion, an increase of 33.0% compared with previous corresponding period. Basic earnings per share was RMB 0.5314. No dividend declared. Turnover amounted to RMB 39.86 billion, an increase of 15.6% over the same period last year, gross profit margin down 0.1% to 39.1%. (Announcement Date: 28 Aug 2019)
Business Review - For the six months ended June 30, 2019
In the first half of 2019, Mengniu’s four business divisions, namely room temperature, chilled, milk formula and ice cream products, advanced in steady strides together with the new business divisions such as cheese, fresh milk and overseas business. While reinforcing the advantages of its traditional businesses, the Group also exerted in stimulating their growth potential. Through the construction of stronger brand, launching of quality new products, as well as strengthening of channel distribution power, Mengniu continued to obtain stable high-quality growth as its growth in revenue was higher than industry average and its net profit margin continued to grow during the period.
During the period, Mengniu’s room temperature product business actively focused on such star brands as Milk Deluxe, Just Yoghurt and Fruit Milk Drink, continuing to reinforce and enhance their high-end brand image while steadily pushing up its market share. The chilled product business focused on the two star brands Champion and Yoyi C, developed functional products and launched various new products, fostering growth of the business, maintaining and expanding the leading market share of the products. The infant milk formula business of Yashili International Holdings Ltd (“Yashili”: stock code: 1230) focuses on the mother-and-baby store channels, while the adult milk formula and nutritional products focus on the KA channels with all-out efforts, along with gradual fadeout of products with low output value and gross profit and increased efforts in publicity through different channels, such that the growth in sales volume of milk formula is facilitated. For ice cream products, efforts were devoted to the flagship brand Suibian. By integrating all marketing resources and leveraging the brand ambassadors’ vast fan base, and complemented with a series of marketing events, the brand’s image was reinforced.
In addition, the Group continued to upgrade its quality and safety system following international and national standards. Via projects such as “Dairy Cattle Research Institute” and “Aiyangniu” integrated procurement platform, it was able to improve milk source management and operating capability. Mengniu also actively implemented its corporate digitalization strategy, promoting projects such as the digital milk source project, intelligent supply chain project and consumer Big Data project, and also strategic channel building initiatives such as Route to Market (“RTM”) and “Penetration into Towns and Villages” project. Efforts were also made to expand e-commerce business. As such, Mengniu managed to continue to enhance product quality, operating efficiency as well as sales capability.
The Group continued to reinforce its international brand image. Apart from being the sole representative of the Chinese dairy industry attending the World Economic Forum Annual Meeting in Davos, it also became an official partner of the 14th National Winter Games in 2020 during the period.
The market position of Mengniu has kept climbing thanks to its premium product quality and international brand image. In 2019, Mengniu was named on the “Global Dairy Top 20” list published by Rabobank for the eleventh consecutive year and to be among top 10 for the third consecutive year. Mengniu for the fifth consecutive year made it on BrandZ.’s list of top 100 most valuable Chinese brands (placing 27th), plus retained the top spot on the list of brand contribution, and was named for the first time the Most Trend-setting Brand. Also, for the ninth consecutive year, Mengniu scored top ranking in the yogurt industry on the China Brand Power Index (C-BPI) list 2019 published by the Ministry of Industry and Information Technology of the PRC and Yoyi C retained its champion title in the probiotics drinks industry on the C-BPI list. Besides, Mengniu continued to top the list for ice cream brands for the second consecutive year.
According to the Asia Brand Footprint 2019 published by Kantar Worldpanel, Mengniu again was placed second on the list of “Top 10 Most Chosen Brands in China”. In addition, for the first time, Mengniu was named among the Brand Finance Global 500.
Room Temperature Product Business
During the first half of 2019, Mengniu’s room temperature product business continued to focus on its star brands such as Milk Deluxe, Just Yoghurt and Fruit Milk Drink to strengthen precise brand marketing, aiming to continuously consolidate and enhance the high-end brand image of the products. In addition, it pushed to effectively boost Point of Sales (“POS”) coverage and control, as well as sales efficiency by continuing to cultivate RTM and implement the “Penetration into Towns and Villages” and “Smart Network Action” projects. During the period, the market share of room temperature products increased steadily, with satisfactory sales revenue growth achieved by various product brands such as Milk Deluxe high-end pure milk, Mengniu pure milk, Just Yoghurt room temperature yogurt and Fruit Milk Drink milk beverage.
During the period, Milk Deluxe kept strengthening its high-end product image. Leveraging the popular “Super Vocal” and “Back to Field Season 3” programs produced by Hunan Television, it launched fully revamped packaging and the “Scan the Code to Win a Field Trip” activity, which bolstered sales. To satisfy consumers’ needs for products of diversified flavors, Just Yoghurt added to its series the salted caramel, chocolate, red jujube and medlar flavors in the first half year, which performed satisfactorily since launch. Sustainable efforts were devoted to promoting the grapefruit flavor of Just Yoghurt Xiaomanyao launched in end of last year, which were tied in with brand marketing as well as online and offline promotion including “Produce Camp 2019”, and the new flavor quickly become a popular new product. Just Yoghurt fruit pulp flavor yogurt introduced the yellow peach and oat flavor, bringing a new growth driver to the room temperature yogurt category. The Fruit Milk Drink milk beverage series developed new mango flavor and launched new mango and passion fruit flavor product for the high-end colorful fruit pulp series, zesting up the brand.
Chilled Product Business
During the period, Mengniu’s chilled product business delivered remarkable performance in product innovation, cultivating RTM and operating efficiency. The market share of chilled products continued to grow and lead, with sales growing faster than the industry average. With consumer demand for healthy products increasing, the chilled product business focused on two star brands, namely Champion and Yoyi C, to develop functional products, and enhancing product categories, tastes and packaging, as well as strengthening related consumer education. Through sponsoring the popular TV program “Sing! China” produced by Zhejiang Television, the functional yogurt Champion increased its brand awareness and maintained steady growth during the period. All Yoyi C series took on new packaging to emphasize the “live bacteria” concept and packaging with ambassadors’ images was launched, aiming to strengthen the market leadership of the brand.
During the period, a variety of new chilled products of Mengniu achieved good performance, contributing to the growth of the chilled product business. Among them, Yoyi C introduced a new passion fruit flavor in its offerings, which has rapidly seized market share since launch. In addition, the Yoyi C LC-37 series was dressed in new packaging that focuses on “Enhance Digestive System Health in 14 Days”, aiming to develop a professional and functional image and strengthen value marketing. Since its launch in February, Mengniu Nordic cheese flavor yogurt was widely accepted by consumers. The chilled product business enhanced its premium value via multi-dimensional value marketing module such as vivid and standardized displays and diverse means for marketing, which rapidly expanded the beverage market.
Milk Formula Business
For milk formula business, Yashili, in which Mengniu holds approximately 51% stake, owns brands including Yashily, Reeborne, Dumex, Doraler and Arla Baby & Me, which are positioned in agreement with its comprehensive product strategies and are managed to cover all-tier markets: mid-range, high-end and super high-end. By the end of June 2019, Yashili had completed registration of 54 formulas in 18 product series, including its cooperative brand Arla. With the progressive introduction of industry upgrade policies by the government this year, it is expected that the industry concentration will be enhanced and Yashili will continue to be benefited as an outstanding milk formula enterprise.
During the period under review, Yashili has adjusted its channel strategy, with focus of the infant milk formula business placed on the mother-and-baby store channels and focus of adult milk formula and nutritional products placed on the KA channels with all-out efforts. In addition, Yashili continued to adjust its product strategy and gradually fade out products with low production value and gross profit. In addition, with comprehensive upgrade of brand image, appointment of new brand ambassador as well as the advantage from being named “Craftsmanship Brand” by CCTV last year and the implementation of omni-media marketing plan this year that more efforts are put in promoting through CCTV and other online and offline marketing channels, leading to the increase in brand awareness and the growth in sales volume accordingly.
Ice Cream Business
Ice cream business focused on its flagship brand Suibian, aiming to consolidate marketing resources to reinforce the positioning of chocolate ice cream. By adopting brand ambassadors’ images on the packaging, the chic image of the brand reached the fan base of the ambassadors. It also made efforts in title sponsoring variety shows, advertising at top sports events and mounting large-scale promotions. In addition, to expand traditional channels, the business continued to implement RTM strategy, aiming to develop markets of low-tier cities and quickly increase POS number. There was a key breakthrough for modern channels in 2019, focusing on five aspects, which were developing sales points, deploying exclusive customers, expanding systematic direct sales, focusing on star products and carrying out innovative project promotion, in the bid to enlarge sales share of modern channels. As for specialty channels, by focusing on customer deployment, increasing the proportion of exclusive customers and stepping up cooperation with theme parks, such channel sales were enhanced.
The cheese market in China has rich development potential. To capture the huge market opportunities, Mengniu and Arla Foods, which is the largest dairy enterprise in Europe, have jointly set up a cheese company to facilitate in-depth cooperation on several aspects, including production techniques, raw materials and product lines, so as to expedite deployment of the Arla and Mengniu cheese brands and increase market share effectively. In the first half of 2019, the sales revenue of Mengniu cheese showed robust growth, with sales revenue of children cheese products surged significantly. Mengniu also upgraded its key products during the period, in which Golden Cheese Bar for Children’s Growth introduced a new vanilla ice cream flavor to meet the consumers’ need for various flavors, which is expected to become a sales growth driver in the second half year. In addition, the professional catering brand Arla Pro under Arla Foods introduced two new products, namely the shredded mozzarella and UHT cream (frozen). In addition, a full range of customized blended mozzarella cheeses will be launched in the second half year to satisfy the demand of various consumption scenarios so as to further demonstrate the advantages of the products.
Fresh Milk Business
During the period, the total sales revenue of fresh milk business saw breakthrough growth with market share increased significantly. Mengniu focused on two major brands, namely Shiny Meadow and Modern Meadow, which target the mid-range to high-end fresh milk markets, constantly improving product quality and supply chain efficiency to meet consumers’ demand for fresh and healthy products. The Shiny Meadow 720 ml medium-size packaged fresh milk and 0% fat fresh milk were added in the Shiny Meadow series. Modern Meadow also launched a new grain milk series and quickly grasped share in the mid-range to high-end fresh milk market.
As of the first half of 2019, Mengniu’s fresh milk products were sold in key cities in 16 provinces in the country, basically achieving comprehensive coverage of all the core cities in Eastern China. The factories of the Group in Qingyuan and Tianjin had also started operation in the first half year, currently enabling the fresh milk business to integrate production, supply and sales that covers key cities in Eastern, Central, Southern and Northern China.
Mengniu has been actively expanding its overseas business coverage. As of the first half of 2019, more than 30 kinds of its room temperature, chilled and ice cream products were sold in 11 countries and regions including Indonesia, Hong Kong, Macau, Singapore, Malaysia, Myanmar, the Philippines, Cambodia, Mongolia, Australia and Canada. And, after its Yoyi C factory in Indonesia commenced operation in November last year, sales of its low temperature probiotics and chilled yogurt products started in December last year and achieved satisfactory growth during the period. Currently, Mengniu is moving forward with selling room temperature probiotics and milk beverage products in the Indonesian market to increase market penetration, which will help enhance its competitiveness in the Southeast Asian market and execute its internationalization strategy.
Business Outlook - For the six months ended June 30, 2019
With the growing Chinese population, the people earning more income and healthier diet concepts taking root, the dairy consumption market has continued to manage solid growth, which not only has driven development of the dairy industry, but also created new consumer market demand. In addition, the Chinese government introduced various regulations and policies, all to the end of boosting high quality development of the dairy industry. With Mengniu’s heading for its 20th year of development, being the leading enterprise of the Chinese dairy industry, and leveraging its international standards, digital means, high standard of management and precise layout of product strategy, Mengniu has launched premium products and built a top dairy brand while making progress steadily along the path of sustainable, high-quality and international constructive development.
On the front of product strategy deployment, Mengniu has its focus on development of star dairy products. As at 30 June 2019, the Group had signed through its subsidiary a contract to dispose of all of its 51% equity interest in Shijiazhuang Junlebao Dairy Co., Ltd. (“Junlebao”), the aim of which is to optimize its brand portfolio and that it may put attention on the development of its core businesses and core brands. Thus, after the transaction is completed, Mengniu will have a more streamlined business and be able to gather resources to bolster star dairy products that boast high growth and strong profitability outlook, thereby allow it to cement the market position of its core brands.
In the future, the Group will devote major effort on developing high growth potential product types such as liquid milk, milk formula and cheese, and especially liquid milk products of star brands like Milk Deluxe and Just Yoghurt, etc. Chilled yogurt products, in particular of such star brands as Champion and Yoyi C, etc., will also be a main development focus of the Group. The Group will also continue to strengthen its research and development capability, seek to develop unique core techniques that it may constantly pursue dairy product innovation, and in turn develop leading brands for each of its product category.
In addition, Mengniu will continue to take to greater depth RTM transformation, channel penetration management, empowering distributors, improving its supply chain model, optimizing team organization structure and enhancing network coverage, so as to achieve more effective channel and POS control. It will also continue to seek to fully utilize consumer Big Data to gain better yet consumer related insights. By using B2B platform, it will strive for channel penetration, aiming for higher distribution rates at traditional POS, as well as expand e-commerce business and explore new retail development opportunities.
On overseas business development, since it has established the factory in Indonesia at the end of last year and for the first time named its star product brand Yoyi C as the parent brand for its overseas market, Mengniu will speed up business development in Southeast Asia and other overseas markets, pushing to build an Oceania Center to attain “dual overseas centers” deployment. The internationalization process of Mengniu will move onto another new stage.
Mengniu has been on the road to become a world-renowned brand in dairy industry in 2019, Looking forward, in the next 20 years, with the support of its three strategic shareholders COFCO, Danone Group and Arla Foods, Mengniu will hold fast to the belief of “Born for Greatness” and, with ever better quality, vision and ambitions, thereby promoting the construction of “Global Dairy Community” and striving to be the centermost on the stage of the global dairy industry.
Source: China Mengniu (02319) Interim Results Announcement