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Public company info - China Mengniu Dairy Co. Ltd. , 02319.HK

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China Mengniu Dairy Co. Ltd., 02319.HK - Company Profile
Chairman Chen Lang
Share Issued (share) 3,948,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Dairy Products
Corporate Profile Business Summary: 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. Performance for the year: For the year ended 31 December 2019, the Group made revenue of RMB79,029.9 million (2018: RMB68,977.1million), representing an increase of 14.6% year-on-year. Profit attributable to owners of the Company increased by 34.9% to RMB4,105.4 million (2018: RMB3,043.0 million). Basic earnings per share increased by 34.7% to RMB1.049 (2018: RMB0.779). Business Review Business Division Performance Room Temperature Product Business The room temperature product business maintained strong growth in 2019, with a double-digit increase in revenue and high-end brands were top performers in terms of sales growth. The product structure has also been further enhanced. Mengniu continued to focus on star products, such as Milk Deluxe , Just Yoghurt , Fruit Milk Drink , and pure milk. The Group accelerated the innovation and upgrading of key products and further expanded its market share as well as brand influence. In addition, through continuous optimization of its RTM strategy, our room temperature product business accelerated its penetration in lower-tier markets via the “Penetration into Towns and Villages” project and continued to pursue the implementation of its digitalized B2B strategy, all of which contributed to the satisfactory performance of the business. During the year, the Milk Deluxe pure milk series strengthened its positioning as a high-end brand. Through improved taste and product quality and the launch of the new “DreamCapTM” packaging, Milk Deluxe was able to significantly increase its brand strength and accelerate sales growth, which have enhanced its position as a market leader. By rejuvenating and upgrading its logo, brand ambassadors and taste, the Just Yoghurt brand successfully launched a number of products and maintained its strength. Fruit Milk Drink has also achieved notable growth by upgrading its brand image through the launch of new products, engaging new brand ambassadors as well as strengthening distribution channels in campuses, retail execution and market penetration. Furthermore, the Mengniu pure milk successfully improved its gross profit margin by adjusting its structure with the Prime and the Premium series. Chilled Product Business During the year, sales of Mengniu’s chilled products grew at a high single-digit rate, ranking first in the industry for the 15th consecutive year despite the unfavourable market condition. Mengniu has implemented the strategic objectives of focusing on product and marketing innovation, and vigorously developing important sales channels and enhancing channel management. In addition, Mengniu has taken innovation as its core competency, continuously enhancing product differentiation and premiumization, and continuing to promote the functional values of chilled yogurt and chilled probiotics drinks. Mengniu has also reinforced its RTM strategy and further expanded its market share of chilled products during the year. In 2019, Mengniu continued to develop its star products, such as Champion , Yoyi C and Mengniu yogurt while launching a number of new products to create new momentum for the chilled products business. The new products, Mengniu Nordic cheese flavor yogurt and Yoyi C passion fruit flavor probiotic drink, performed strongly in terms of sales after their launch. Mengniu has also launched the first Chinese nourishing yogurt, Mengniu Chinese Nourishing Nuan Yan yogurt, a pioneer in the new nourishing yogurt category. The functional yogurt Champion has set new industry standards through the inclusion of ground-breaking breast milk probiotic, Probi-M8, into the new product Blue Cap Vigor Bottle series, which has been well received by consumers. The Danone Bio line has also launched Smoothie Français and the first Chinese “light meal bottled yogurt” product. Fresh Milk Business In 2019, Mengniu’s fresh milk business continued to focus on two brands: Shiny Meadow and Modern Meadow . Shiny Meadow has quickly become the no. 1 brand in the high-end fresh milk segment. Modern Meadow’s share of the medium-range market has also skyrocketed, thus fully demonstrating “the speed of Mengniu”. Revenue from the fresh milk business achieved triple-digit growth. The sales volumes of Mengniu’s fresh milk products in each retail store and the repurchase rate were remarkably enhanced by reinforcing the brand image and actively interacting with consumers. In order to optimize the supply chain of the fresh milk business, Mengniu continued its long-term program of integrating production, supply and sales. Factories in Qingyuan and Tianjin started operation in the first half of 2019, which significantly enhanced the Group’s production capacity and market responsiveness. As for the expansion of sales, the number of new customers for the year exceeded expectations and the number of sales points and penetration rate through major channels have significantly increased, which effectively boosted sales volume growth. As of the end of 2019, Mengniu’s fresh milk products covered 24 provinces and 50 major cities in Eastern, Southern, Northern, Central and Northeast China. Milk Formula Business As for the milk formula business, Mengniu holds approximately 51% stake of Yashili International Holdings Limited (“Yashili”, stock code: 1230), which has enhanced its development in two major businesses, namely infant milk formula and health and nutritional products. By the end of December 2019, Yashili had completed registration of 54 infant milk formulas in 18 product series under its own brands and Arla , the cooperative brand. During the year, Yashili has the brand strategy of “Equal Emphasis on Cow Milk and Goat Milk”, and fully covering all market tiers: mid-range, high-end and super high-end. As products with low output values and low gross profits have been phased out in order to align with the market trend, and the industry growth is slowing down, Yashili’s milk formula products only achieved high single-digit growth during the year. There was a robust growth in the sales of adult milk powder due to the launching of new products catering the nutritional needs of middle-age and elderly. During the year, Yashili continued to enrich its product portfolio, adopt innovative brand strategy, increase R&D investment, enhance differentiated product layout and innovative marketing, and strengthen digitalized management. Yashili actively developed new products. For example, it launched Reeborne series of organic milk powder for children’s growth, organic teenage milk powder, organic adult milk powder and organic maternal milk formula, and developed a series of adult milk powders catering different needs. In addition, Yashili comprehensively enhanced its brand image by appointing new brand ambassador and increasing investment in CCTV and other online and offline promotion channels. Yashili also adjusted its channel strategy, with infant milk formula business focused on the mother-and-baby store channels, while adult milk powder and nutritional product business focused on Key Account (“KA”) channels, and rapidly developed e-Commerce and new retail channels. This has built a solid foundation for the sustainable development of the milk powder business. Looking forward, Yashili has, at the end of 2019, reformulated its medium- and long-term development strategy for the next five years to further enhance its business capability in light of market changes. Ice Cream Business In 2019, the ice cream business maintained stable development with a focus on enhancing brand value and sales. Aiming to be more focused on brand development, the ice cream business thoroughly re-arranged its brand structure, laying emphasis on developing the two star brands-Suibian and Deluxe . The brands were rejuvenated by a comprehensive upgrade of products, packaging, ambassadors and marketing activities with a view to effectively enhance brand power and market exposure. To lay a structural foundation for the synergistic development of multiple channels, the business consolidated its regional organizational structures, enhanced the authority and responsibility of regional management and improved its market responsiveness. In addition, the sales management department continued to implement the RTM strategy with a focus on key markets, vigorously developed markets in counties and increased both the number and scale of sales outlets to achieve the synergistic development of traditional, modern and special channels. Cheese business To grasp the new momentum in cheese consumption in China and explore the immense potential of the domestic market, Mengniu and Arla Foods co-founded the cheese business Arla Dairy Products Import & Export Co., Ltd. to leverage the strength of both parties in terms of products and channels and jointly develop the cheese market in China. During the year, Mengniu’s cheese business division was led by consumer demand, which led to the intensive development of kid-friendly cheeses, the exploration and expansion of catering channels and the improvement in production, supply and marketing efficiencies. Mengniu emphasized the development and innovation of new products and successfully launched the kids cheese cup, upgraded Mengniu’s breakfast cheese and kids cheese sticks to constantly enhance product power. By creating products for both health and enjoyment, further increasing the flavors of kids cheese sticks, launching small-package mozzarella cheese and introducing Lurpak butter, Mengniu deepened the functionality of cheese products and expanded the possibilities for family consumption. During the year, the cheese business maintained steady growth in sales revenue. Overseas Business During the year, Mengniu further expanded its overseas business coverage to speed up the implementation of the international business plan. Based on consumer demand and the characteristics of various channels, Mengniu rapidly launched new products. As of the end of 2019, market deployment expanded gradually with various kinds of room-temperature and chilled probiotics drinks, chilled yogurt and ice cream products launched. Since its first overseas liquid milk factory in Indonesia commenced operation in November 2018, Mengniu has been actively developing the Southeast Asian markets, which have the highest potential. The penetration of Yoyic brand products has increased rapidly in a short period of time with Yoyic acting as the major brand to sell chilled yogurt and probiotics drink products. Through timely product replacement, precise digital marketing and in-depth cultural integration, the brand awareness of Yoyic in the Indonesian market has been significantly enhanced. In addition, Mengniu strived to develop overseas trade markets and expand overseas sales points, which currently cover various countries and regions including Hong Kong, Macau, Singapore, Malaysia, Indonesia, Myanmar, the Philippines and Cambodia. In the future, the overseas business division will focus on enhancing product competitiveness and the integrated marketing capabilities of the Yoyic brand while increasing sales volume at individual stores and strengthening deployment through traditional channels, as well as improving the quality of customer services and enhancing the efficiency of precision management. Strategic Acquisition In 2019, Mengniu conducted two strategic acquisitions to implement overseas strategic layout and realize long-term strategies. Mengniu entered into an agreement on 15 September 2019 to acquire all shares of Bellamy’s, a world-famous Australian organic infant formula and baby food producer, for a scheme consideration of AUD1.46 billion (equivalent to approximately RMB6.93 billion) in total and AUD12.65 (equivalent to approximately RMB60.04) per share. The acquisition was completed in December 2019 and Bellamy’s has become an indirect wholly-owned subsidiary of Mengniu. Bellamy’s offers Australian-made and certified organic products made with non-genetically modified ingredients, with essential vitamins and minerals that are tailored to the needs of babies and toddlers. Its businesses cover Australia, New Zealand, China and Southeast Asia. The acquisition is in line with Mengniu’s strategies of achieving break-through growth in the premium infant milk formula segment and expanding into overseas markets with a focus on Southeast Asia and Australia. The acquisition is expected to mutually benefit Mengniu and Bellamy’s operations, enabling Mengniu to capture the huge potential in the organic infant milk formula and baby food market in China and achieve business growth and margin expansion. At the same time, Mengniu will also leverage its own strengths to unlock Bellamy’s brand potential so as to develop overseas markets including China and Southeast Asia. In addition, Mengniu entered into an agreement on 24 November 2019 for the proposed acquisition of 100% shares of Lion-Dairy & Drinks Pty Ltd (“LDD”), an Australia-based branded dairy and beverage company, at a consideration of AUD0.6 billion (equivalent to approximately RMB2.931 billion). Upon the fulfilment of all acquisition conditions and the completion of acquisition, LDD will become an indirect wholly-owned subsidiary of Mengniu. LDD is principally engaged in the production and sale of milk based beverages, yogurt, white milk, chilled juice and drinks, ambient juice and drinks, water ice, and culinary and plant-based products. It has a portfolio of iconic dairy brands that hold the No.1 market position in milk based beverages, yogurt, chilled juice and plant-based beverages in Australia. Its yogurt products also have a presence in international markets including South East Asia and China. LDD is a leading dairy enterprise in Australia that has access to a significant volume of the high quality Australian milk sources and owns 13 large-scale manufacturing facilities across Australia and an extensive cold chain distribution network that serves 35,000 customers. Through the acquisition, Mengniu will obtain control of LDD’s high-quality assets, which represents another important milestone for Mengniu in establishing itself as a complete regionally integrated player with a multi-category, multi-brand portfolio to serve consumers in the Asia Pacific region. Moreover, LDD’s iconic brand portfolio with strong Australian heritage is highly attractive to consumers in the Belt and Road markets, and therefore provides significant market opportunities for Mengniu to unlock. The acquisition further opens up potential raw milk and other ingredient sourcing opportunities, which will help Mengniu to develop high-end UHT milk. From a supply chain perspective, the collaboration between LDD, Burra Foods Pty Ltd, an associate of Mengniu engaging in dairy ingredient processing in Australia, and Bellamy’s will generate even greater synergies while providing better products to consumers across the Asia-Pacific region. Prospects: Since mid to late January 2020, the Group has been facing challenges in epidemic prevention and control, production and operation, sales channels and milk source management as a result of the outbreak and spread of the Coronavirus Disease 2019 (“COVID-19”) pneumonia. During the key stage of epidemic control in China, Mengniu implemented measures for the prevention and control of COVID-19 in accordance with Chinese government guidelines. While ensuring the safety of its employees, Mengniu actively fulfilled its corporate social responsibility and continued to provide consumers across China with high-quality dairy products. Mengniu swiftly activated the Level 1 response mechanism, formulated emergency plans and established an emergency working group on the epidemic to ensure various programs were carried out. Mengniu puts the highest priority on the safety and health of its employees. The Group quickly and continuously procures the necessary protective gear both domestically and from overseas to ensure that staff who have returned to work are protected. Random tests and verifications on epidemic prevention and control measures at factories are conducted every day to safeguard production standards and the safety of employees. Employees from functional departments who do not need to work on site have been asked to work online from home. Mengniu strengthened its collaboration with both upstream and downstream partners to go through this challenging time together to secure a healthy and sustainable industrial chain. In addition, during the prevalence of the epidemic, Mengniu actively donated cash and goods to support those on the frontline of epidemic prevention. The Group donated in cash and supplies with the provision of milk supply to major medical institutions in Wuhan and nationwide, ranking it first among dairy enterprises. Furthermore, Mengniu collaborated with the China Charity Federation to establish the “China Charity Federation (Mengniu) Emergency Resources Center for Epidemic Prevention and Control” to ensure the smooth transport of donations, and that donated products quickly reach the frontlines, thus help address the issue of meeting nutrition-related supplies faced by hospitals across the country. Mengniu employees have also demonstrated fierce determination in fighting the epidemic, including high efficiency in organization and execution. The management of Mengniu believes that the impact brought by the epidemic to the business of Mengniu is temporary. Despite the fact that the epidemic has created challenges for the dairy product industry, it brought new momentums and opportunities to consumption upgrades of dairy products. In the process of combating the epidemic, immunity enhancement have become the key words. The “Nutrition and dietary advice on preventing and recovering from novel coronavirus infected pneumonia” issued by the National Health Commission of the PRC clearly states that the intake of sufficient dairy products can help in preventing and recovering from the COVID-19 pneumonia. In particular, chilled yogurt and chilled probiotic drinks that are rich in active bacteria can promote a healthy bacterial population in the gut which, in turn, enhances the immunity of the human body. The continuing trend of consumption upgrades, paired with the public’s increasing attention on nutrition and health as a result of the epidemic, will keep boosting the demand for dairy products. In addition, the government’s continuous endeavor to promote the policy on revitalizing the dairy industry will be conducive to the long-term healthy development of China’s dairy industry. Mengniu will increase its efforts in promoting the benefits of dairy products on improving immunity in order to guide consumers towards a healthy lifestyle. As for brand innovation, Mengniu promoted the “Born for Greatness” brand concept during the World Cup marketing campaign in 2018, which has resonated with consumers for the past two years. Mengniu will further integrate the core element of “nutrient” into its brand concept, and launch a new concept that is more closely relatable to consumers: “Nutrition for Greatness”. Mengniu strives to provide consumers and all Chinese people who want to be great with world-quality nutritious products and a strong physique to assist them in their pursuit of a happy life. As far as innovation and management upgrades are concerned, Mengniu will continue to adopt shrewd measures to drive the upgrade of the entire process, comprising dairy product research and development, raw material procurement, manufacturing, logistics and sales, in terms of intelligentization and networkization. In addition, as the overall supply of raw milk in the world is expected to remain tight, Mengniu will tackle the challenges proactively. The Group will further improve the industrial chain of dairy products and the scientific and technological strategies in milk source development in order to ensure a stable milk supply and lay a solid foundation for its business development. The Group has also officially launched the “Mengniu APP”, which allows for a comprehensive upgrade of Mengniu’s digital marketing capabilities and overall strengthening of the retail-end. Mengniu will continue to set a clear strategic direction and promote the high-quality growth of its business. During 2020, the Group will seek to mitigate the short-term negative impact of the coronavirus epidemic on operations and sales, and actively adjust itself to tap the new market opportunities from the changes in consumer habits and consumption scenarios since the epidemic outbreak. The Group will enhance promotion and education on the nutritional value of dairy products, and accelerate the development of e-commerce and new home-delivery retail businesses. Innovation in various fields such as products, brands and management will also be pushed forward, with a focus on developing high-potential product categories such as high-end pure milk, chilled yogurt, fresh milk, milk powder and cheese to build leading brands in more sub-categories. Mengniu will keep expanding its business coverage during 2020. Already, the Australian organic infant milk formula and baby food brand Bellamy’s have become members of the Mengniu family. The acquisition of Australian branded dairy and beverage company LDD is expected to be completed by the first half of 2020. Mengniu is in the process of achieving synergies in business, management and supply chain. The Group will fully utilize the integration effect and promote further development of its domestic and overseas business. This year, the Mengniu team, with its love for life and passion for career, will remain committed to the mission of “A Hundred Years of Mengniu, Revitalizing the Dairy Industry” and “500g of Milk a Day Keeps Chinese People Strong” as it continues to forge ahead and bravely tackle the market challenges brought by the epidemic. Mengniu will continue to care for its employees, clients and consumers, and create maximum value for its shareholders. The Mengniu team will demonstrate the “Born for Greatness, Achieving the TOP” spirit and build a stronger foundation for the long-term prosperity of Mengniu.

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