China Mengniu Dairy

Mengniu Dairy taps into rising demand

Industry leader boosts first-half profit 16pc but acquisitions see capital expenditure quadruple, while Modern Dairy changes herd strategy

PUBLISHED : Thursday, 29 August, 2013, 12:00am
UPDATED : Thursday, 29 August, 2013, 5:03am

First-half net profit at China Mengniu Dairy jumped 16.3 per cent to 749.5 million yuan (HK$950 million) as demand for its products grew steadily.

The mainland's biggest maker of dairy products has been busy partnering with other firms and streamlining its products in response to Beijing's plan to reform and consolidate the industry in light of a plethora of scandals in recent years.

In the first half, the firm initiated the acquisition of milk formula maker Yashili, completed the acquisition of a further 26.92 per cent of raw milk producer Modern Dairy for a total stake of 28 per cent, and agreed to form a joint venture with Danone to produce yogurt and related products on the mainland.

Production capacity stayed flat at 7.59 million tonnes over the six-month period. The series of acquisitions helped to quadruple the firm's capital expenditure to 3.72 billion yuan year on year. The company's interest-bearing bank loans soared to 3.96 billion yuan from 573.8 million yuan in late December.

Meanwhile, raw milk producer China Modern Dairy, which supplies most of its milk to Mengniu, says it has stopped importing cows from Australia, New Zealand and Uruguay this year and will focus on nurturing its own dairy herds and improving average annual milk yield per cow.

Modern Dairy said that it aimed to increase average annual milk yield to more than nine tonnes this year, up from 8.23 tonnes in the fiscal year that ended in June.

"In some of our mature farms, the average annual milk yield has reached 9.5 tonnes, compared with the average of 9.3 tonnes in the United States," chief financial officer Sun Yugang said yesterday. Gao Lina, Modern Dairy's deputy chairman and chief executive, said it now operated 22 farms on the mainland and planned to establish one or two new farms every year.

Modern Dairy, the mainland's largest dairy farming firm in terms of herd size, has 177,921 head of cattle, up from 159,347 at the end of June last year.

"Since January … the group ceased to import heifers and relied on organic growth," the company said in a filing with the Hong Kong stock exchange.

That helped Modern Dairy reduce capital expenditure on dairy cows and enhance its herd mix, the company said.

During the financial year that ended in June, 83.7 per cent of Modern Dairy's milk was sold to Mengniu, compared with 97.8 per cent the previous fiscal year.

Growth in herd size drove a 47.9 per cent increase in total sales of milk to 2.48 billion yuan, up from 1.68 billion in the previous fiscal year. It sold 567,021 tonnes of milk, a rise of 31.4 per cent from the previous year.

Net profit during the period fell 18.7 per cent to 323.8 million yuan, owing to losses from the revaluation of assets.