The principal activities of the Group are manufacturing and distribution of quality dairy products including liquid milk, ice cream, milk formula and cheese in China.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2020 amounted to RMB 1.21 billion, a decrease of 41.7% compared with previous corresponding period. Basic earnings per share was RMB 0.3089. No dividend declared. Turnover amounted to RMB 37.53 billion, a decrease of 5.8% over the same period last year, gross profit margin down 0.0% to 39.0%. (Announcement Date: 26 Aug 2020)
Business Review - For the six months ended June 30, 2020
Room Temperature Product Business
In the first half of 2020, benefiting from increased awareness of health and nutrition among consumers, the revenue growth of Mengniu’s basic pure milk has further increased. After the launch of new products like Milk Deluxe “DreamCapTM” package series, Just Yoghurt Xiaomanyao series and Fruit Milk Drink floral and fruity flavor light lactobacillus drink series, Mengniu achieved a break-through in sales volume growth, and effectively seized market shares. After the outbreak of the Epidemic, new retail sales channels like e-commerce, home delivery and community group marketing realized significant growth due to offline sales obstructions.
During the period, Milk Deluxe “DreamCapTM” package series launched upgraded organic milk and pure milk products with 3.8 g of protein and 125 mg of original calcium content per 100 ml, which has consolidated Milk Deluxe’s position as a premium brand and facilitated a steady enhancement in its market share. In addition, Just Yoghurt launched the white peach and pomegranate Xiaomanyao product, which has been welcomed by young consumers since its launch. Also, Fruit Milk Drink launched the first floral and fruity flavor light lactobacillus drink series, which include two flavors, namely, sakura and peach, and rose and strawberry. The floral and fruity flavor light lactobacillus drink has been welcomed by consumer groups that pursue high quality lifestyle since its launch, including urban white-collar workers and university students, resulting in several sell outs via e-commerce platform.
Chilled Product Business
Since the Epidemic, consumers have gained greater awareness of the immunity enhancement properties of yogurt and probiotics drinks, which has stimulated the demand for relevant products. During the period, Mengniu has promptly seized market opportunities by continuously launching new chilled products with high quality and high added value, focusing on value marketing and consumer education, as well as by capitalizing on changes in online consumption trends while deepening its RTM strategy. The sales performance of the Group’s chilled product led the industry in the first half year.
During the period, being the only yogurt that passed “healthy food” certification, Champion gained tremendous attention from consumers. In May, Champion launched the new Qingheng product series, which, based on science, advocates the daily intake of probiotics＋prebiotics to realize better intestinal wellbeing. Furthermore, through its Blue Cap package series, Probio-M8 series and Qingheng product series, the Champion brand has thus formed a comprehensive multi-function product portfolio spanning immunity enhancement, intestinal comfort and constipation relief, raising the competitiveness of its products in terms of functionality and value. In addition, in focusing on satisfying demand for natural, low-sugar and fresh yoghurt from Chinese consumers, new products for the Yoyi C brand was launched in April. Featuring a sugar control and zero fat formula with white peach oolong and grapefruit flavors, the healthy live bacteria drinks have been welcomed by young consumers since their launch.
Fresh Milk Business
In the first half of 2020, with robust demand for fresh milk products, the consumer penetration rate was significantly and rapidly enhanced. Mengniu’s Shiny Meadow and Modern Meadow brands led the growth of the fresh milk product categories, with overall market share jumping to the second in the fresh milk product category in June (Source: Nielsen). The Shiny Meadow brand continued to focus on high quality and launched the desert organic fresh milk and new roof box package product, which achieved breakthrough growth since their launch, helping the Shiny Meadow brand to achieve triple-digit growth in sales and consolidating its No. 1 position among high-end fresh milk brands. With respect to the Modern Meadow brand, it launched new upgraded product packaging during the period and its market share jumped to the second among basic fresh milk brands.
Fresh Milk Business has continued to focus on maintaining “freshness” in the supply chain. In the first half year, the branded fresh milk T+0 products of Shiny Meadow and Modern Meadow captured 80% of fresh milk sales. Following continuous enhancements in product power, brand power, channel power and “freshness” power with respect to each of Mengniu’s star fresh milk brands, sales from the fresh milk business has nearly doubled year-on-year.
Yashili Milk Formula Business
As for the milk formula business, Mengniu holds approximately 51% stake in Yashili International Holdings Limited (“Yashili”, stock code: 1230), which has continued to maintain its development in the business of two major categories, namely infant milk formula and health and nutritional products. In the first half of 2020, Yashili initiated various rebranding projects and relaunched the brand matrixes of two high-end functional and nutritional milk formula for adults, namely Mengniu “Yourui” series and Topconic, which laid a solid foundation for the further enhancement of its business. Reeborne, a milk formula brand of the Group, was relaunched at the end of June with the new series mainly focused on the concept of “A Breast Milk-like Formula”, providing a better diet with more nutrient contents and lighter flavors to the Chinese babies. Currently, Reeborne has developed a comprehensive brand matrix from milk, organic milk to goat milk by launching seven products under three series, namely Reeborne “Breast Milk-like” milk formula, Reeborne “Breast Milk-like” organic milk formula and Reeborne “Breast Milk-like” goat milk formula.
During the period, Yashili actively adjusted its channel strategy, with infant milk formula products mainly focused on the mother-and-baby channels, while adult milk powder and nutritional products focused on KA modern trade channels and these were done with all-out efforts. At the same time, Yashili continued to adjust the product strategy by gradually fading out products with low production value and gross profit. The consolidation of product mix has partly offset the sales growth of products to a certain extent, leading to a slight decrease in Yashili’s income.
In the first half of 2020, Mengniu carried out comprehensive integration in Bellamy’s in terms of finance, human resource management and corporate governance. Bellamy’s, as a crucial member of Mengniu’s international business, adhered to the “Pursuing Organic, Naturally Organic” brand positioning strategy and continued to construct a matrix of quality organic products while expanding channels inside Australia as well as online. Both milk formula and baby food products of the Bellamy’s brand achieved good growth and profit margins were enhanced significantly during the period. Bellamy’s management team in China is continuously strengthened, building a sound foundation for exploring domestic market opportunities in the future.
In addition to the launch of its Chinese-labelled organic baby rice in March, Bellamy’s has reacted to the trend towards premiumization and segmentation of infant milk formula in recent years. There has been continuous growth in demands for organic milk formulas, goat milk and A2 milk, and Bellamy’s has taken the lead in grasping market opportunities. It launched the first super high-end A2 organic milk formula in Australia in May and a super high-end organic goat milk formula in Australia in June, thereby establishing a matrix of organic formulas. For the cross-border e-commerce channel, Bellamy’s products have covered diverse age groups, spanning infant, children and expectant mothers, and included the dual product lines comprising milk formula and baby food.
In addition, Bellamy’s has obtained the registration approval of the Chinese-labelled infant milk formula during the period. The first Chinese-labelled infant milk formula series has also been launched through offline channels in China in late August, thereby Bellamy’s will accelerate the expansion of key offline channels of the Chinese-labelled milk formula riding on the brand awareness and reputation accumulated over the years through online channels to expand brand awareness and offline distribution networks in first to third-tier cities.
Ice Cream Business
During the first half of 2020, the ice cream business has continued to focus on its star brands, such as Suibian, Deluxe and Mood for Green. Through a series of marketing activities, including collaborations with other products, celebrity endorsements and joint activities with well-known IPs, the brands were able to precisely target their consumer groups and enhance their brand image, facilitating sales. Among them, the Deluxe and Mood for Green brands realized double-digit growth. In addition, the newly launched black pineapple fruit pulp milk ice cream and the velvety yogurt milk ice cream of Deluxe and the new pearl red tea flavor, as well as cheese and green tea flavor of Mood for Green that promoted the concept of quality life have all performed exceptionally. Suibian also collaborated with the alcohol brand Jiangxiaobai and launched “ice cream for adults”, accurately targeting young consumer groups, which enhanced sales.
Through effective measures such as penetrating lower tier markets, prompting exploration of major cities, strengthening communications with customers and establishing greater number of point of sales, the ice cream business also realized further enhancement in point of sales management and quality of point of sales growth during the period. Moreover, the ice cream business division continued to promote development of its direct sales system, home delivery business and community group buying business, which resulted in satisfactory results.
Mengniu collaborated with Arla Foods in building the professional cheese brand Arla ASCX, which involved comprehensive planning in areas such as brand building, research and development, innovation and construction of factories. Mengniu’s significant advantage in channel distribution was leveraged as well in creating a leading Chinese cheese brand. During the period, Arla ASCX proactively promoted its innovation across various categories, with product lines spanning kids’ cheese, leisure cheese, cheese for complementing meals and high-end cheese products. In building brands such as Arla ASCX, the high-end cheese brand Castello, and the professional liquid butter brand Lurpak, the diverse needs of Chinese consumers have been addressed. In the first half of 2020, due to the growing consumer concern over health, nutrition and quality life in the wake of the Epidemic, Arla ASCX has succeeded in realizing high sales growth against adverse market trend and indicating promising prospects in the future.
Business Outlook - For the year ended June 30, 2020
In the first half of 2020, Mengniu flexibly adjusted its business strategy and succeeded in minimizing the short-term negative impact of the Epidemic on operations and sales. Looking ahead to the second half of the year, Mengniu will seize the new market opportunities brought by changes in the trends of the nation’s consumption habits and channels after the Epidemic, continue to strengthen the promotion and education of the nutritional value of dairy products, expedite the development and deployment of new retail modes such as e-commerce, O2O home-delivery, community marketing and WeChat sales. The Group will also foster improvements and innovations in various fields such as branding, products and management.
As for product innovation, Mengniu will continue to commit to improving the overall health level of the public, concentrating on product development and innovation, as well as focusing on providing higher-quality, more nutritious, healthier, and more diversified dairy products to consumers. Mengniu will continue to emphasize the development of high-potential product categories such as high-end pure milk, chilled yogurt, chilled milk beverages, fresh milk, milk formula and cheese, and to create star products that are organic, low-fat, and low-sugar in the nutritional and health food categories.
The Group strategically acquired Bellamy’s at the end of last year in order to implement the overseas strategic layout, thereby driving further upgrade and innovation for infant milk formula and baby food categories. Having obtained the world’s top milk sources, formulas, brands and research and development capabilities, along with opening up every sector in the production process from milk sources to production and sales; from research and development to quality control in Australia and New Zealand, this would benefit the Group in achieving full coverage of room temperature, chilled and milk formula products. Through a multi-category and multi-brand portfolio, Mengniu is committed to providing consumers in the Asia-Pacific region with better quality products and becoming a regional market integrator.
Regarding innovation in its channel deployment, Mengniu will continue to drive strategies such as the deepening of channel penetration and “Penetration into Towns and Villages,” vigorously developing online sales channels including e-commerce, O2O home delivery, WeChat sales and community group marketing. Moreover, it will further promote the use of the Smart Network in its various businesses, thereby enhancing the management of distributors and operational efficiency through the online management of display and personnel costs.
As far as management innovation and upgrades are concerned, Mengniu has established the Group’s Digitalization Strategy Management Committee and Digitalization Strategy Project Team this year in order to accelerate the overall implementation of the Group’s digitalization strategy. The Group is gaining in-depth insights into and accurately assessing and meeting consumer needs, achieving synergies in the value chain, opening up the entire marketing chain as well as completing the online and offline omni-channel integration, thereby creating the core competitive advantage driven by Mengniu’s digitalization.
Mengniu deeply understands that in order to become a commendable and honest enterprise, firstly, every Mengniu staff member should be an honest person. As a food enterprise and a dairy industry practitioner, the highest integrity is exerting the best effort to ensure product and service quality. Quality performance is not only the responsibility of the quality department, it is also the shared responsibility of all the employees and partners. Following up on the release of the “Quality Culture Manual” in March this year, Mengniu will continue to better live the quality culture and uphold the “Four Uncompromisings” management philosophy, which includes the product uncompromising, quality uncompromising, value uncompromising, and execution uncompromising in order to provide world-quality products and services for global consumers. Mengniu will utilize its unique 4Qs quality management system, which comprises the quality policy and objective system (QPOS) as the guidance; the quality assurance system (QAS) as the fundamental standard; the quality control system (QCS) as the systematic procedures; and the quality support system (QSS) as the resources for management support. These efforts are aimed at establishing a centennial nutritional and healthy food company driven by innovation, actively contributing to the revitalization and achieving the high-quality development of China’s dairy industry.
In the future, Mengniu will also fully implement the integration of the sustainable development strategy with the operational objectives of the Group, adhering to the vision of “Protecting the Health of Mankind and the Earth” and encompassing the three major aspects, namely the economy, society and the environment, to create sustainable competitiveness. The Group will continue to promote the “Inclusive Nutrition Plan” to improve the nutritional level of children in poverty-stricken areas, while improving the quality of business talents and protecting the rights and interests of employees, thereby paving the way for a better life. To achieve a win-win situation for the entire industrial chain, Mengniu will continue to pay attention to the animal welfare and ranch environmental work, while expanding the proportion of green energy and green packaging materials. On the basis of optimizing the efficiency of resource utilization, Mengniu is committed to establishing a green and sustainable ecosystem. In the future, the Group will continue to implement the concept of sustainable development in order to foster its high-quality development in the long run, thereby creating greater value for all of Mengniu’s stakeholders.
In order to further arouse Mengniu staff to forge ahead and drive for innovation, Mengniu has also initiated a new upgraded version of the corporate culture, formulating new corporate vision, mission and core values as well as culture. With the mission of “A Drop of Nutrition Blooms Every Single Life” and the vision of “Provide Prairie Cow’s Milk for Two Billion Consumers Worldwide,” the Group carries through the Mengniu spirit of “Born for Greatness, Outperforming Oneself” in inspiring the employees to work diligently, thereby guiding Mengniu to achieve the goals of the 2025 Strategy.
Source: China Mengniu (02319) Interim Results Announcement