Mengniu splashes out to improve milk quality

Mainland dairy giant Mengniu, which boasted a 27.6 per cent gain in net profit in the first six months of 2011, has pledged 700 million yuan (HK$854 million) to ensure the quality of its milk supply.

Mengniu yesterday reported earning 789.8 million yuan in the first half of this year up from 618.8 million yuan during the same period last year. Its revenue increased 28.7 per cent from 14.4 billion yuan to 18.6 billion yuan.

Executive director and chief financial officer Wu Jingshui said the company had budgeted 700 million yuan in 2011 to improve its milk sources. Up to 300 million of that would be directly invested in small- and mid-sized ranches and dairy farms. The rest would go to providing loans to farmers or prepaying for raw milk.

More than 80 per cent of the company's milk comes from ranches and scaled farms compared with an average of 30 per cent in the industry.

Wu (pictured) said better milk sources would help increase revenue as the company launched premium products and expanded into the global dairy market.

The company was one of several hurt by product-contamination fears in recent years.

The milk segment accounted for 87.7 per cent of the group's revenue. It recorded 16.3 billion yuan of revenue in the first half of 2011, up 30.8 per cent from 12.5 billion yuan last year.

Ultra-high-temperature-processed milk generated most of the revenue in the segment, recording 9.8 billion yuan of sales, up 28.8 per cent from last year. Yogurt is the fastest growing product, with revenue climbing 73.9 per cent.

The dairy industry on the mainland is expected to grow 15 to 18 per cent this year and analysts are optimistic about Mengniu's outlook given it is set to benefit from the consolidation of the dairy sector.

Mengniu shares closed up HK$1.25, or 4.93 per cent, to HK$26.6 yesterday.