Mengniu goes high end to offset rising cost pressure

PUBLISHED : Wednesday, 09 April, 2008, 12:00am
UPDATED : Wednesday, 09 April, 2008, 12:00am

China Mengniu Dairy, the mainland's largest milk producer, will roll out more nutritious and high-end products to ease the pressure of rising raw material costs after reporting a better than expected 28.7 per cent profit growth last year.

The Hohhot, Inner Mongolia-based producer's net profit rose to 935.79 million yuan (HK$1.04 billion) or 66.4 fen a share for the 12 months to December, up from 727.35 million yuan or 53.2 fen a share a year earlier, the company said yesterday. Revenue climbed 31.2 per cent to 21.32 billion yuan.

However, gross profit margin was dragged down by more expensive raw milk to 22.5 per cent from 22.9 per cent a year earlier. Raw milk accounts for between 40 per cent and 45 per cent of Mengniu's costs.

Chief financial officer Yao Tongshan said the company aimed to keep gross profit margin at a stable range of between 22 per cent and 23 per cent.

Despite the slight drop, the current level was healthy, he said.

Mengniu would launch more value-added products amid growing appetite for healthier products by consumers and phase out products in the low-end market where cut-throat competition was prevalent, he said.

It will launch its first organic milk under the premium brand, 'Milk Deluxe', and low-lactose milk this year.

Smaller rival Inner Mongolia Yili Industrial Group launched organic milk in March last year.

Mengniu chief administration officer Lei Yongsheng admitted that moving to high-end products would not entirely offset the increases in the price of raw milk, which rose 30 per cent in the second half of last year.

Mr Yao did not say whether Mengniu would seek price increases after the central government approved such requests by rival Bright Dairy and Food, and Sanlu Group, the first approvals since Beijing capped prices on a range of products in January to battle record inflation.

In tackling the pressure of rising raw material prices, he said, 'we will not pin all our hopes on raising prices'.

The price of raw milk had stabilised in recent months and there was no sign of another 'explosive' price increase as what happened in the second half of last year, Mr Yao said.

According to Ministry of Agriculture figures, the price of domestic raw milk in February rose to 2.9 yuan per kilogram, up 4.7 per cent from the previous month.

'As an industry leader, Mengniu has the ability to digest a 10 per cent increase in the price of raw milk,' said ABN Amro analyst Yang Lei. 'But if the price grows 20 per cent this year and at the same time it cannot raise its selling price, Mengniu's outlook would not be that good.'

A final dividend of 13.15 fen per share was declared.