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 30-06-2021 amounted to RMB 2.95 billion, an increase of 143.2% compared with previous corresponding period. Basic earnings per share was RMB 0.7478. No dividend declared. Turnover amounted to RMB 45.91 billion, an increase of 22.3% over the same period last year, gross profit margin down 0.8% to 38.2%. (Announcement Date: 25 Aug 2021)
Business Review - For the six months ended June 30, 2021
Liquid Milk Business
The dairy industry was temporarily affected by the outbreak of COVID-19 epidemic in early 2020. However, the formation and development of greater national health awareness accelerated with the promotion from the Chinese government and authoritative organizations. Consumption of dairy products, in particular liquid milk, increased as consumers began to realize the importance of consuming high-quality milk protein to supplement nutrition and enhance immunity, which became a driving factor for the strong recovery and transformation of the dairy industry.
Following the containment of the epidemic, consumers continued to maintain great awareness of nutrition and health. During the first half of 2021, consumption of dairy products in China sustained a healthy growth on top of the strong recovery in the post- epidemic period in 2020. According to industry data, the sales of liquid milk in China grew by 9.5% in the first half of the year. The sales volume of liquid milk products, in particular room temperature pure milk and fresh milk, demonstrated rapid growth. The growth rate of mid- to high-end products was higher than the industry average. Products including active probiotic chilled yogurt and chilled probiotic drinks which support intestinal well-being also showed recovery.
Due to the above factors, the growth of dairy consumption demand, in particular pure milk resulted in an increase in demand of raw milk. From a supply perspective, the price of corn, wheat and soybean meal in China has recorded year-on-year growth in the first half of the year whilst the feed cost of dairy cattle remained elevated. In the face of rising cost of raw milk, the Group continued to restructure its milk sources in order to fulfill the demand of high-quality fresh milk of Mengniu. In addition, following the trend of product premiumisation in the market, we have continued improving our product portfolio. The sales of high-end products, including Milk Deluxe and Shiny Meadow , grew rapidly in the first half of the year.
With respect to sales channels, all offline sales channels demonstrated growth in the first half of the year, driven by the growth of room temperature liquid milk. In particular, sales in convenience stores and grocery stores recorded double-digit growth. For online sales channel, room temperature and chilled liquid milk both demonstrated good performance. As in-home consumption has been surging, online to offline (“O2O”) home delivery sales channel grew rapidly.
The Chinese government released the Decision on Optimizing the Fertility Policy and Promoting the Long-term Balanced Development of the Population (關於優化生育政策促進人口長期均衡發展的決定) on 31 May 2021 to further optimize the fertility policy by allowing a couple to have three children and rolling out support measures for parents. It is expected that the implementation of three-child policy will create opportunities for development of the dairy industry. The Group will pay close attention to any changes in market structure resulting from the implementation of the policy and put efforts in fulfilling customers’needs in order to achieve sustainable and high-quality growth.
Room Temperature Product Business
In the first half of 2021, our room temperature business demonstrated industry leading performance with market share increasing by 0.7 percentage point to 28.8%. All of our room temperature business segments demonstrated growth. In particular, with our product portfolio shifting towards mid- to high-end products underpinned by the trend of consumption upgrade, the growth of Milk Deluxe and Mengniu pure milk products were significantly higher than that of the industry.
During the first half of the year, the product portfolio of Milk Deluxe was further optimized through product innovation and brand upgrade, including the introduction of“better organic”desert pure milk which is sourced from Ulan Buh Desert oasis and contains 3.8g of protein per 100 ml, and CBP high-calcium pure milk which contains 135mg of high-quality milk source calcium per 100 ml and abundant of vitamin D for better calcium absorption. Mengniu pure milk also introduced the Nutritious and Mellow Enjoyment pure milk series and other new products. In the first half of the year, the Just Yoghurt brand introduced a new protein-rich and low-sugar product, yellow peach quinoa drink, providing consumers with healthier and delicious pure yogurt. The brand also introduced light buttermilk, its first light meal replacement yogurt, allowing consumers to enjoy delicious food while controlling calorie intake scientifically. Fruit Milk Drink , Suan Suan Ru (酸酸乳) and other milk beverage brands introduced a variety of new products in the first half of the year, such as red grapefruit Sijichun (紅柚四季春), Ruciqizhi (乳此汽質), a zero-sugar milk beverage sparkling water, and Suan Suan Ru lemon tea (酸酸乳沏個檸檬), upgrading the brand image to attract young consumers and lead the innovation and trend of the industry.
With respect to brand strategy, Milk Deluxe organized a series of themed marketing campaigns, such as“Better 2021 (更好二零二一)”,“Better Youth (更好青春)”and“Better Childhood (更好的童年)”during Chinese New Year, May 4th Youth day and June 1st Children’s Day, respectively, emphasising the“Better”series brand proposition.Adhering to brand proposition of“Nurture Your Greatness (營養你的要強)”, the Mengniu branded series products continue to communicate taglines like“pure nutrition with aerospace quality (濃純營養，航天品質)”to our consumers.
As for sales management, our room temperature product business continued to increase the coverage of offline stores, achieving both growth in number of POS and sales volume. In addition, we pushed for development of the new retail model, accelerated the development of the e-commerce O2O platform business and promoted the integration of online and offline business. Through in-depth cooperation with O2O platforms, such as JD Daojia, Ele.me, Meituan, Taoxianda (淘鮮達) and Duodian (多點), our home delivery business achieved a three-digit year-on-year growth in the first half of the year. During the 618 Shopping Festival, Mengniu ranked first in the sales of liquid milk on JD.com and Tmall platforms. On 18 June, the total online sales exceeded RMB100 million. The total number of online members of Mengniu exceeded 26 million, with the number of active members leading the industry. Regarding the channel penetration in towns and villages, Mengniu continued to expand and develop the markets in towns and villages through its“Penetration into Towns and Villages”initiative. Through the establishment of a digital management platform, systematic and visualized management of personnel and outlets are realized, the penetration of products and services has been accelerated, and the market share of Mengniu’s room temperature milk in the rural market has been further increased. As of 30 June 2021, the number of outlets in towns and villages directly controlled under the“Penetration into Towns and Villages”initiative exceeded 600,000, achieving growth in both number of outlets and sales volume.
Chilled Product Business
During the period, Mengniu has grasped the changes in consumption trends, sales channels and consumption habits, and continued to drive the value marketing, product innovation and Route-to-Market (“RTM”) channels establishment for chilled yogurt and chilled probiotic drinks. Our chilled products have ranked first in the industry for the 17th consecutive year in terms of market share and sales of chilled products continue to be industry leading.
To support the“Three Reductions & Three Kinds of Health (三減三健)”campaigns launched by the Chinese government and fulfill the increasing demand of lower sugar intake of consumers, Champion introduced zero sucrose and concise formula products in the first half of the year. In order to satisfy the fast-growing demand of mid- to high-end yogurt of households, we launched 1-liter packaged silky concise yogurt. Yoyi C focused on the development of small-bottle LC-37 product and launched low-sugar, zero-fat and calcium-rich LC-37 products which contain 50 billion active probiotics per bottle.
In the first half of the year, Yoyi C focused on the marketing in key cities. Through placing advertisements in outdoor media, we promoted Yoyi C products to more than 3 million households. Targeting at key consumers of Yoyi C , we promoted our products to 2.8 billion consumers with 72% of ad reach rate, far exceeding the industry average. Yoyi C cooperated with Xiaohongshu (小紅書) and organized a marketing campaign with a theme of“Everything is digestible with good luck in the Year of Ox (牛運到家，萬物皆可消化)”. The co-branded promotion was more effective than expected.
As for sales management, our chilled product business unit continued to deepen its RTM strategy and put great efforts in developing e-commerce platforms and new retail channels. In the first half of the year, we ranked first in terms of comprehensive market share on O2O home delivery services and community fresh food shopping platforms. In addition, leveraging big data, smart internet and other emerging technologies and platforms, we were able to achieve refined and visualization of the management of offline channels, allowing us to further expand our network coverage and our ability to manage end consumers.
Furthermore, our chilled product business unit collaborated for the first time with Sam’s Club (山姆會員店) during the first half of the year to provide new customized yogurt products, developing our business model of exclusive supply for direct sales. In addition, we launched a series of dairy products tailored for students which was exclusively supplied through campus sales channels. In order to expand our business to lower-tier cities, the Group introduced Mengniu Ahmoule Flavor Yogurt , a customized product with a nutritious, healthy and delicious product positioning. Ahmoule rapidly penetrated and captured markets in tier 3 and 4 cities, attracting an increasing number of consumers pursuing trendy and convenient lifestyle.
Fresh Milk Business
In the first half of 2021, the fresh milk industry maintained rapid growth, Mengniu’s fresh milk business was under strong development momentum, through strategies including launching innovative products, enhancing brand marketing, strengthening supply chain development and expanding channels, we doubled its revenue and increased its market share significantly.
Through our insight of market demands, Shiny Meadow introduced Youhu A2 fresh milk product featuring“first fresh milk for babies (寶寶的第一口鮮奶)”in the first half of 2021. Shiny Meadow also introduced a new fresh milk product which is rich in original high-quality milk protein (4.0g/100ml) and original calcium (130mg/100ml). Shiny Meadow also introduced co-branded mini packaged milk tea to explore fresh milk+ category opportunities and to strengthen its leading position in high-end fresh milk market.
Our fresh milk business unit rapidly expanded its coverage to key and potential regions, underpinned by its strategic supply chain arrangement, which combines three core central factories and satellite factories. In addition, through establishing innovative digital supply chain, we were able to continue to integrate our cold chain business and improve our distribution system.
According to data from JD.com, Mengniu’s fresh milk products ranked first among all chilled dairy products in JD Live during the 618 Shopping Festival in terms of sales volume and accounted for 70% of sales volume of fresh milk products sold in JD.com.Mengniu’s fresh milk products ranked top among all fresh milk products sold in Sam’s Club and Yonghui Superstores in terms of sales volume and far surpassed other brands.In addition, driven by the trend of in-home consumption, the home delivery business achieved impressive results with three-digit year-on-year growth.
Milk formula business
On 18 March 2021, National Health Commission of the PRC Promulgated three standards, namely Food Safety National Standard for Infant Formula《(食品安全國家標準嬰兒配方食品》) (GB10765–2021), Food Safety National Standard for Older Infant Formula《(食品安全國家標準較大嬰兒配方食品》) (GB10766–2021) and Food Safety National Standard for Young Children Formula《(食品安全國家標準幼兒配方食品》) (GB10767–2021), which imposed stricter requirements on raw material purchase, supply chain, production processes, research and development and production stability, whereby promoting the industry upgrade and improvement in product quality.
The Politburo of Central Committee of the Communist Party of China released the Decision on Optimizing the Fertility Policy and Promoting the Long-term Balanced Development of the Population (關於優化生育政策促進人口長期均衡發展的決定) on 31 May 2021, to further optimize the fertility policy by allowing a couple to have three children and rolling out support measures for parents. It is expected that the implementation of three-child policy will further boost the sales of infant milk formula and the industry structure will be optimized continuously.
With respect to milk formula products for adults, the trend of aging population in China continues to intensify, as indicated by the latest census data. With the population in China improving their living standards and having greater awareness of health issues, milk formula products for middle-aged and elderly people have huge market potential.The adult formula market will trend towards strategically upgrading from simple nutritional supplements to formula and functional products.
Milk formula business of Yashili
The milk formula business of Yashili International Holdings Ltd (“Yashili”, stock code:1230.HK), in which Mengniu holds 51% equity interest, recorded steady increase in sales, mainly due to (i) the increasing penetration of adult milk powder and nutritional products, driven by development of new functional products shifting focus to high-end products while developing new market segments; (ii) optimization of product portfolio of infant formula products, and the satisfactory business growth after rebranding; and (iii) enhanced brand exposure and credibility through a variety of product and brand marketing efforts, which promoted online and offline sales volume growth.
In the first half of 2021, Yashili comprehensively upgraded the formulas of existing product lines and introduced various high-end functional adult milk formulas, capitalizing on the aging population trend, the rising living standards, and growing health awareness of consumers. Infant milk formula business focused on Reeborne with seven products covering mainstream milk formula, organic milk formula and goat milk formula. The Yourui series adult milk formula, which tailored five high-end products for the middle-aged and the elderly to address their physical characteristics and nutritional supplement needs, achieved strong growth through market segmentation and expansion of sales channels during the period. In addition, Yashili also developed products specifically targeting particular consumer groups, including M8 children’s growth milk formula.
During the period, Yashili continued to focus on the mother-and-baby channels for infant milk formula and supermarket channels for nutritional products. Yashili also accelerated the development of e-commerce channels as well as the development of new channels and new products. Home delivery service has become part of the regular services after the outbreak of the epidemic. Yashili also strengthened its cooperation with Alibaba, JD.com and other e-commerce platforms and further developed new retails channels, such as community group purchase and social e-commerce, to boost the steady development of its business.
Bellamy’s , an Australian organic infant milk formula and baby food provider, was acquired by the Group at the end of 2019. During the period, Bellamy’s launched the new brand positioning of“True Organic”and corresponding advertisements, to continuously increase exposure and popularity of the brand and create momentum.
With its key product, cross-border platinum organic A2, Bellamy’s was able to increase its market share in cross-border e-commerce channels.
We further expanded the offline sales network of Chinese-labelled Bellamy’s organic Equi-pure infant milk formula series. In addition to rapid distribution, we also focused on the co-creation with channels. We have launched“Bellamy’s Organic Kitchen (貝拉米有機廚房)”,“Bellamy’s Mother Yoga (貝拉米美媽瑜伽)”, Bellamy’s Organic Festival Roadshow and other themed IP consumer activities co-created with various channels and capitalized on community, live broadcast and other emerging digital marketing tools to encourage continuous innovation.
Ice Cream Business
In the first half of 2021, the ice cream business division continued to focus on its brands, such as Suibian, Deluxe and Mood for Green, to further improve innovation, branding and product capabilities. During the period, in order to bring brand-new experience to our customers, Suibian introduced caramel pearl and rum flowing core products, which successfully attracted young consumers. Adhering to its concept of“A Bite of Nature (一口大自然)”, Mood for Green introduced the herbal“Zhiqing (植輕)”ice cream series, offering more healthy product choices to our consumers. As a new generation brand of high-end ice cream, in line with its brand concept of“Less is More”, Deluxe introduced the“Qingchong (傾寵)”milk ice cream series. During the period, it also co-branded with Xiao Guan Cha (小罐茶) to launch the Chinese tea cup product series, leading the industry to launch ice cream products with new Chinese trend.
In respect of channels, the ice cream business division furthered RTM strategy by establishing“Qingxin (傾心)”ice cream flagship stores on various e-commerce platforms, so as to accelerate the deployment of modern and new retail channels. During the period, through measures such as further expanding its convenience store channels and accelerating the coverage of sales points, the ice cream business segment had effectively improved its product turnover rate and supply chain efficiency. In addition, benefiting from the rapid growth of home and online consumption after the epidemic, e-commerce and new retail channels of ice cream underwent diverse development with full coverage of home delivery business platforms, effectively achieving synergies in online and offline integration.
In the first half of 2021, with the increasing demand from consumers for healthy and nutritional high-end dairy products, and Mengniu’s proactive development of product innovation and digital marketing, the cheese business grew rapidly in the retail and food service sectors with continuous improvement in branding, channels and product quality.
During the period, with deep consumer insight, the cheese business introduced the additive-free children’s cheese sticks with no preservative, artificial flavors and color additives, leading to changes and innovation of children’s cheese products. The first organic cheese stick in China was also introduced. Three kinds of certified organic cheese, imported from Denmark and the European Union and sourced in China, were selected to offer higher standards of nutrition and health, and were popular among mothers and children. Moreover, Mengniu’s愛氏晨曦also introduced a series of new room temperature leisure cheese products, creating a new area of tasty, healthy and light room temperature cheese.
Cheese food service segment provides professional users with professional dairy products and solutions and strategically positions itself as a professional and digital brand. The cheese food service segment aims to promote its brand through organizing professional exhibitions and launching co-branding campaigns. In the first half of 2021, our cheese food service segment launched co-branding campaigns with Freshhema, Daselea and other brands. As for new products, in view of the popular trend of thick milk beverage, our cheese food service segment introduced Danish full-cream milk base with the concept of“Healthy and Pure, Rich and Thick (健康加純、濃郁加厚)”. As for key products, targeting the bakery market, we focused on the promotion of愛氏晨曦refrigerated whipping cream and愛氏晨曦cream cheese, so as to expand our business into bakery market with our concept of providing natural and healthy products.
On 9 July 2021, Mengniu became a substantial shareholder of Shanghai Milkground Food Tech Co., Ltd. (600882.SH), which is a leading cheese company in China and has the most excellent research and development team and largest production capacity in China. At present, its cheese products and children’s cheese stick rank top in terms of market share in China. Through cooperating with Milkground, both the Group and Milkground will be able to gain advantages through sharing resources. The Group aims to expand its business into the domestic and global cheese market with enormous potential together with Milkground through business cooperation in multiple aspects and dimensions, including co-establishing sales channel, co-sharing marketing resources, and improving production capacity.
Business Outlook - For the six months ended June 30, 2021
Since 2020, Mengniu has flexibly adjusted its business strategy, which enabled it to seize the increased market opportunities brought by post-epidemic changes in consumers’spending habits and evolution of sales channels in China. As such, the Group grew faster and managed higher quality development relative to before the epidemic hit. In addition, Mengniu upgraded its corporate culture system and laid down a five-year plan. Guided by the goal of“Creating a new Mengniu”, it will strive to become consumer’s first choice, a digitalized and internationalized Mengniu and a Mengniu with strong cultural gene and responsibility by 2025. Regarding product strategies, the Group will pay close attention to the needs of health-conscious consumers and the increasing demand for dairy products. It will continue to focus on developing product categories which are in demand in the market and have high growth potential. The Group will also work hard to create high-end products that are organic and functional, and low in fat and sugar.
Mengniu will adopt a customer-centric approach to help with swift product and technological innovation and meet diversified needs of consumers. With a brand that stands for safety, quality and nutritional value, Mengniu will be well received by the consumer mass, particularly the younger generation, who accept and recognize its value proposition. Mengniu will become a well-loved brand of consumers.
On the front of management upgrade, Mengniu has set up a Digitalization Strategy Management Committee and a Digitalization Strategy Project Team to speed up the transformation and upgrade of its digitalization strategy across the Group. In the future, Mengniu intends to restructure its supply chain, industrial chain, as well as its organizational and operation model, and also business model. Such efforts will equip the Group with digital intelligence, enabling its brand, products and services to reach target consumers. They will also give the Group’s industrial chain the ability to evolve and improve on its own and empower the Group to upgrade and become a platform-based ecological enterprise that affords high-quality development.
As for channel strategies, in addition to the vigorous development of online sales channels including traditional e-commerce, O2O home delivery and community group marketing, Mengniu will continue to push forward with strategies including targeting lower-tier markets and its“Penetration into Towns and Villages”initiative, and encourage its different businesses to further use the“Smart Network”system.
In addition, the Group targets to become an international brand. On top of global sourcing deployment, Mengniu also aspires to claim its share in the international market.With an aim to become an influential and international enterprise, Mengniu will strengthen its business in Southeast Asia and Oceania, groom a pool of high-caliber talent with international perspective and develop an internationalized dairy industry business model namely the“Mengniu model”. It is the hope of Mengniu that it can replicate its success in branding, product offerings and business operational mode in other countries and regions, to truly become a brand with global impact.
Mengniu has started enhancing its corporate culture, taking on the new mission of“Every drop of nutrition makes every life thrive”and the new vision of“From the grasslands across the world, Mengniu products nourish and are loved by over 2 billion consumers around the world”. Guided by its core values of“consumers are at the heart of all our decisions”,“creative solution wins the future”,“empower and inspire talents to succeed”and“our integrity and honesty support our continued success”and upholding the“born to excel, constantly strive for self-improving”spirit, the Group is advancing towards achieving the goals of its 2025 Strategy. Mengniu will promote its mission, vision and core values to all departments and branches around the world, instilling them into the heart and mind of every employee, that it may become an enterprise with a strong corporate culture, which will transform into impetuses for it to develop and grow.
Moving forward, Mengniu will continue to walk the quality development path in steadfast strides, at its best effort to ensure product and service quality, working by the management philosophy of no compromise on product quality, value and execution. It is committed to providing world-class products and services to consumers around the world.The Group will continue to develop a responsible supply chain and produce dairy products in an environmentally-friendly manner. The Group will make contribution to revitalize the dairy industry in China and facilitate the industry’s quality development.
Source: China Mengniu (02319) Interim Results Announcement