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Public company info - Ausnutria Dairy Corporation Ltd. , 01717.HK
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Ausnutria Dairy Corporation Ltd., 01717.HK - Company Profile
Chairman Yan Weibin
Share Issued (share) 1,719,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Dairy Products
Corporate Profile Business Summary: The Group is principally engaged in the research and development (“R&D”), production, marketing and distribution of dairy and related products and nutrition products to its worldwide customers, particularly in the PRC. Performance for the year: Revenue increased by RMB1,249.6 million or 18.6%, among which revenue derived from own-branded business increased by 15.0% to RMB6,926.4 million. Gross profit increased by RMB448.7 million or 12.7%. Adjusted EBITDA increased by RMB199.3 million or 14.7%. Adjusted profit attributable to equity holders of the Company increased by RMB141.3 million or 15.0%. Business Review The Year 2020 is a year of challenges to many people. Unexpected events, including the outbreak of the coronavirus disease (COVID-19) (the “Pandemic”), have been casting uncertainty over the global economy, market sentiment and consumption behaviour. These unexpected events have caused some short-term interruptions in the business development of the Group, particularly: (i) the Group’s own-branded formula milk powder business (both in the PRC and the overseas) due to lockdowns, resulting in fewer marketing and promotional activities conducted for the concerned period; and (ii) the dairy commodities trading business due to lower dairy related commodity prices. Nevertheless, the Group successfully contained the negative impact of these challenges to the Group’s operations at a manageable level by rapidly adjusting its strategies (mainly on the marketing aspects) and by leveraging on its global network (particularly on the supply chain) to minimise the interruption to the lowest level. For the Year 2020, the Group recorded a revenue of RMB7,985.8 million (Year 2019: RMB6,736.2 million), representing a year-on-year (“YoY”) increase of RMB1,249.6 million or 18.6%. Among which, the performance of the own-branded formula milk powder business (being the Group’s core operations) recorded revenue of RMB6,926.4 million (Year 2019: RMB6,023.4 million), representing a YoY increase of RMB903.0 million or 15.0%, and accounted for 86.7% (Year 2019: 89.4%) of the total revenue of the Group. In order to accommodate the change and the accelerated market consolidation of the formula milk powder business in the PRC, the Group undertook a BUs integration exercise in mid-2020 by merging and integrating some of its BUs for better resource allocation and management. The Group recognised one-off expenses of approximately RMB48.3 million (net of tax of RMB36.2 million) for such exercise, which included the integration of the sales team and clearance sales of the slow-moving products of the relevant BUs. Further, considering sales growth of the Group’s own-branded formula milk powder products slowed down during the year due to lockdowns, the Group assessed the impact of the slower-than-projected sales on the Group’s inventory and, accordingly, made provision for products that are not expected to be sold as scheduled. As a result, the Group’s inventory write-down for the Year 2020 amounted to RMB174.6 million, representing 4.4% of the Group’s cost of inventories sold. Apart from the above, the Group strategically increased its intake of fresh goat milk to marginally in excess of the Group’s production needs since the second quarter of 2020 to ensure the stable supply of certain key ingredients for the production of goat milk formula powder products. The fresh goat milk in excess, after processing and extracting relevant ingredients, was sold to the market in the form of goat milk powder and cream at spot price. Due to the Pandemic and the decrease in dairy-related commodity prices in the second half of 2020, operating losses derived from the trading of these products amounted to approximately RMB63.2 million, resulting a decrease in gross profit margin by 0.7 percentage points. According to the Group’s initial business plan, part of the by-products are to be further processed into higher value-added materials such as goat or cheese protein powder for other nutrition products use, such plan has been delayed as a result of the lockdowns. As a result of the one-off expenses derived from the BUs integration exercise, the additional stock provision made and the trading loss derived as mentioned above, the gross profit margin, and hence the net profit margin of the Group, decreased for the Year 2020. Excluding the aforementioned factors, the Group’s gross profit and net profit margins remained fairly stable when compared with the Year 2019. The Company believes that it will continue to benefit from the product premiumisation trend in the PRC and, with the continuous effort in streamlining its internal structure and enhancing the upstream operational efficiency, the overall profit margin of the Group will improve progressively. During the Year 2020, the Group recorded an accounting loss of RMB43.0 million (Year 2019: RMB63.6 million) in respect of the fair value change of a derivative financial instrument (the “HNC FV Loss”), which represents a contingent consideration liability for the Subsequent HNC Consideration in the HNC Group Acquisition in 2018. On 27 August 2020, the Subsequent HNC Consideration was settled and a loss of RMB43.0 million (Year 2019: RMB63.6 million) was recognised for the Year 2020. With the settlement of the Subsequent HNC Consideration, the significant accounting impact of the derivative financial instrument arising from the Subsequent HNC Consideration has ceased. The Group’s profit attributable to equity holders of the Company for the Year 2020 amounted to RMB1,004.1 million (Year 2019: RMB878.4 million), representing a YoY increase of RMB125.7 million or 14.3%. Excluding the accounting loss and the one-off after tax BUs integration expenses mentioned above, the Group recorded an adjusted profit attributable to equity holders of the Company of RMB1,083.3 million (Year 2019: RMB942.0 million), representing a YoY increase of RMB141.3 million or 15.0%. Formula Milk Powder Business In 2020, the core business of the Group, namely the own-branded formula milk powder business, maintained a healthy growth with overall sales of RMB6,926.4 million, representing a YoY increase of RMB903.0 million or 15.0%. The Group believes that this increase was mainly attributable to: (i) the implementation of the Group’s effective strategic plans, the constant refinement of its business chain and the continuous improvement in its upstream operational efficiency and product quality; (ii) the constant enhancement in its product mix in accordance with its well-established multiple-brand strategy that caters to the rising market demand for high-end products; and (iii) the synergies between its brands and channels resulting from its unremitting efforts to develop mama and baby store channels by high-frequency and high-quality marketing activities. (a)Own-branded Cow Milk Formulas In 2020, sales of own-branded cow milk formulas amounted to RMB3,820.2 million, representing a YoY increase of RMB653.0 million or 20.6%. Subsequent to the integration of its BUs in mid-2020, the Group has three BUs, namely Hyproca 1897, Allnutria and Puredo, with each product being developed with different formulas, milk sources, price ranges, and target consumer groups. Each BU has its unique vision and marketing strategy. Amongst these BUs, Hyproca 1897 BU (which comprises the brands of Hyproca Hollary, Hyproca Hypure and Neolac (the “Hyproca 1897 Series”)), focuses on the super premium market and was the fastest-growing BU in the Group recording sales for 2020 of RMB2,697.6 million, representing a YoY increase of RMB931.4 million or 52.7%. During the year under review, both Allnutria and Puredo BUs introduced maternal mothers’ and a children’s milk powder formulas (Stage 4) imported directly from the Netherlands and New Zealand respectively, to broaden their formula milk powder product portfolios and target consumer groups. In September 2020, Neolac, an organic infant formula, was revamped and upgraded and a summit with strategic partners across the country was held. Through such efforts, all of the Group’s own-branded cow milk formulas have successfully raised their brand influence and awareness among the consumers, thereby laying the foundation for the steady and rapid growth of the Group’s cow milk formula business in the future. (b)Own-branded Goat Milk Formulas In 2020, sales of own-branded goat milk formulas amounted to RMB3,106.2 million, representing a YoY increase of RMB250.0 million or 8.8%. Sales in the PRC and overseas markets amounted to RMB2,818.4 million and RMB287.8 million, accounting for 90.7% and 9.3%, respectively. The Group’s own-branded goat milk formulas are all produced in the Netherlands and marketed globally in 66 countries and regions. According to the data from Nielsen, sales of the Group’s goat milk formulas accounted for more than sixty percent of all imported infant goat milk formulas in the PRC three years in a row (2018-2020). The Group’s own-branded goat milk formulas in the PRC are all operated by Kabrita BU, brands under which included infant formulas Kabrita Yuebai and Kabrita Youzhuang, toddler formula Kabrita JingYing, prenatal and postnatal formula Kabrita Mama（佳貝艾特媽媽粉）, and formulas for 3-year-old and above and adult Kabrita Yingjia Goat Milk Powder Formulas. The PRC Market Affected by the Pandemic, channels of the Group’s goat milk formula powder products experienced some disruption during the year under review. This was caused by irregular pricing in the retail market, particularly during the period of lockdowns when some of the mama and baby stores had to temporarily close down, and difficulties in the development of new customers, due to limitations in the implementation of its marketing activities and the provision of face to face education services to the customers. In response to the challenge in the retail market, Kabrita BU swiftly adjusted its strategies and restructured its channels in mid-2020. On one hand, it enhanced its product tracing system by strengthening the protection of the product internal identity code and established a market inspection team to prevent vicious pricing and crossregion sales of its products. On the other hand, it actively cooperated with its distributors to optimise their inventories and implemented stringent award and punishment systems to strengthen its channel management capability. As at the date of this announcement, the channel reform yielded concrete results with pricing gradually stabilising in the market and inventory level returning to normal and, ultimately, sales at the retail level. Facing the increasing competition of the industry, Kabrita BU rolled out a cloud-based digitalisation project （數字化雲碼項目） at the end of 2020, in order to more effectively develop new customers and manage the lifecycle of the members. The project upgraded its channel operation and precise membership marketing system with the aim of lengthening the lifecycles and boosting the order size of its members with better digitalised services. The Group is confident that these measures will powerfully strengthen the channels and improve the overall operation of its retail outlets. Overseas Markets Other than the markets in the PRC, Europe, the United States of America, the Middle East, the Commonwealth of Independent States and Brazil, despite the development being challenged by the Pandemic for the Year 2020, the Group successfully extended its presence to other countries, particularly Mexico after about two years of preparation works. It is now available in both online and offline channels in Mexico. Kabrita is also available in South-Korea (launched in early 2020), Cambodia and South Africa through different distributors. Besides, there has been increasing recognition of Kabrita in overseas markets such as in the Middle East, where Kabrita was awarded the prestigious Product of the Year in 2020 in the Gulf region. After more than 10 years of efforts in this industry, Kabrita’s infant formulas have successfully captured the heart of the consumers and built up several core strengths. Kabrita has gathered powerful brand influence by integrating its strengths in terms of sourcing, products, marketing, services, operation and sales. Through multi-dimensional channel marketing, Kabrita is confident of realising sustainable long-term benefits while protecting the interests of its partners. Nutrition Business The Group’s vision is to become the most trustworthy formula, nutrition and healthcare enterprise in the world. Based on Ausnutria’s “Golden Decade” strategic plan, the Group has extended its business from infant formulas to nourishing nutrition for all age groups, and is steadily developing its layout in the nutrition and healthcare sector. As a result of the Pandemic, the general public has become increasing aware of the need to boost immune defence, which in turn drove the growth of the Group’s nutrition business and mitigated the impact brought by the decrease in sales from cross-border e-commerce channels and daigou in Australia. For the Year 2020, sales of nutrition products amounted to RMB142.3 million, representing an increase of RMB23.6 million or 19.9% as compared with the Year 2019. In the Year 2020, the Group launched a series of kid and adult nutritional products. Capitalising on its strengths in the scientific research and production of probiotics products, the Group successfully expanded its branded probiotics business in Australia and the PRC during the year. Nutrition Care (NC) formulated a new product marketing strategy, the scope of which includes NC Seasonal Biotic（NC舒鼻益生菌）and NC Flora Biotic（NC 蔓越莓益生菌）, which were rolled out during the year and achieved anticipated performance. In the first half of 2020, NC was invited again to set up an individual booth in the third China International Import Expo in Shanghai. Participating in this exhibition for the third consecutive year demonstrated that NC’s brand power is widely recognised by major e-commerce channels as well as the public. Furthermore, a product of AUNULIFE（愛益森）, the Australian probiotics brand acquired by the Group in 2019, was also launched in the PRC in the second half of 2020. Leveraging the Group’s strength in terms of dairy product related research and development (“R&D”) as well as raw materials capability, new nutritional products such as immune-boosters like UHOPS（優賀普）lactoferrin milk powder and Holisure（合力素）lactoferrin milk powder were rolled out in 2020. Amongst two registered healthcare food items, the registration renewal procedures of one item had completed while that of the other one were proceeding in accordance with the procedures. The R&D of food for special medical purposes (“FSMP”) progressed smoothly in 2020. The first of the Group’s nutritionally complete FSMP product was approved in Taiwan, while the first lactose-free infant FSMP developed by the Group in Hunan province, the PRC passed the on-site examination of the relevant national authorities. The R&D of goat milk FSMP and nutritional products for special medical purposes regarding specific illnesses based on the Group’s proprietary intellectual property also achieved breakthrough. In particular, applications for the registration of two general adult nutritional foods had been submitted. With respect to core raw materials, the Group invested in high-tech platforms, such as BioFlag International Corporation (formerly Genlac Biotech International Corporation) in 2019, that have the capacity to research, develop, produce and manufacture the raw materials of probiotics and nutritional products, and have secured and supported the Group’s supply chain. During the Year 2020, the Group stepped up its search for probiotics resources, built up probiotics culture series resources from different sources such as breastmilk of the Chinese, southern pastures and plant fermentation, and has initially identified several potential probiotics culture resources, thereby laying the foundations for the sustainable development of the Company’s probiotics business. The Group has also strengthened the strategic cooperation with Peking University, Jiangnan University, Central South University, the Wageningen University in the Netherlands and other tertiary institutions. In particular, Professor Chen Wei, an Academician of China Engineering Academy and the president of Jiangnan University, relocated his only academician R&D station to the Group, which will enhance the Group’s overall comprehensive R&D ability in respect of probiotics and nutritional products and lay a solid groundwork for the future development of the Group. In the Year 2020, through cooperation with top-notch tertiary institutions and hospitals in Mainland China and Taiwan, the Group successfully developed PNA, a precise nutritional gene chip exclusively for the Chinese market based on the genome data of millions of Chinese people. Based on this chip, the Group has established personalised nutritional services and management platforms for the growth of children and weight management of pregnant women in order to empower the retail channels and provide better personalised nutrition solutions to the consumers. These operations are currently on trial. The Group believes the near future will be instrumental in the development of the nutrition industry in the PRC. Market concentration in the infant formula industry will continue to rise. The health food sectors, covering health foods and FSMP related products and will exhibit exponential growth. Nutritional and healthcare services will proliferate with better quality, will be more customised, more convenient and increasingly smart. The Company will continue to prudently foster the growth of its nutritional products and nutrition business by being scienceoriented, keeping abreast of the latest trends and expanding from infant nutritional products to kid and adult nutritional products in the future to further contribute to the growth and health of the consumers. Private Label and Other Businesses For the Year 2020, sales of formula milk powder products on an original equipment manufacturing basis (the “Private Label”) and other businesses, which represented 11.5% (Year 2019: 8.8%) of the total revenue of the Group, increased by 54.4% to RMB917.1 million. The increase in sales was mainly due to the increase in trading of commodities as a result of the increase in the intake of milk, particularly goat, for the processing of related ingredients in order to fulfil the internal production needs. The Private Label business also achieved an important business turnaround after approximately 2 years of business restructuring. This resulted in a 3.6% revenue growth (Year 2019: decrease by 40.3%) and an improvement in operating margins despite the business being also negatively affected by the Pandemic for the year under review. Prospects: With the continuous drops in the female population at childbearing age and the reduced willingness to marry and bear children, particularly in the PRC (the Company’s principal market), the number of newborns is anticipated to decrease in the coming years. Besides, it is expected that the Pandemic will continue to adversely affect the global economy and the general traveling and spending behaviours at least in 2021. Nevertheless, the Company is still reasonably optimistic about its future development given the strategies that it has formulated including the building of the world-class upstream facilities; its well-established distribution networks (particularly in the mama and baby store channels in the PRC); its strong R&D and the widely developed product portfolio to cover its consumers of all age; its unique position on the goat milk category with anticipated faster growth rate in the market; and most importantly a sound and solid management team with proven track records. The Company considers the capability of securing key raw materials to be one of the critical success factors in the formula milk products in the industry, in particular for the development of goat and organic related products. The Company will continue to formulate its long-term plan and strategies, including cooperation with industry pioneers and further investments to ensure that the Group’s products are always of the highest quality standard and that there are sufficient raw materials and resources to fulfil the demands from the market as well as to support its longterm growth. From the market perspective, the Company will continue to invest in the market and to further enhance the brand equity, particularly on Kabrita and Hyproca Hollary, the two superstar brands of the Group, by launching a combination of innovative high-frequency and high-quality offline and online marketing activities. Leveraging on its pull (from brands) and push (from channels) strategies, the Company will continue to provide its channels and end customers precise marketing, continued training and value-added services. This will enhance the Group’s brand recognition in the first-tier cities, while at the same time strengthen the growth momentum and market penetration in other tier cities. The Company will also continue to strengthen its channel management capability and to expand its point of sales in an orderly manner. The Pandemic has changed the spending behaviours and living lifestyle for many people, the Company will continue to explore different opportunities to enrich its distribution channels and, hence, to maintain its growth in the market share. In 2020, the Chinese government issued a consultation memorandum including various measures to further strengthen the regulations and quality standards of infant formula. Such standard is expected to become effective in 2023. The Company will endeavour to ensure proper planning and adequate resources will be put in place for the fulfilment of such new set of regulations.

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