china mengniu dairy company limited (2319.hk) - TodayIR.com

CHINA MENGNIU DAIRY COMPANY LIMITED

(2319.HK)

2019 ANNUAL RESULTS

March 2020

Legal Disclaimer

2

The presentation is prepared by China Mengniu Dairy Company Limited (the “Company”) and is

solely for the purpose of corporate communication and general reference only. The presentation is

not intended as an offer to sell, or to solicit an offer to buy or to form any basis of investment

decision for any class of securities of the Company in any jurisdiction. All such information should

not be used or relied on without professional advice. The presentation is a brief summary in

nature and does not purport to be a complete description of the Company, its business, its current

or historical operating results or its future business prospects. This presentation contains

projections and forward looking statements that may reflect the Company’s current views with

respect to future events and financial performance.

This presentation is provided without any warranty or representation of any kind, either expressed

or implied. The Company specifically disclaims all responsibilities in respect of any use or reliance

of any information, whether financial or otherwise, contained in this presentation. The Company

undertakes no obligation to publicly update or revise any forward-looking statements, whether as

a result of new information, future events or otherwise.

Management Team

3

Mengniu

Lu Minfang Chief Executive Officer & Executive Director

Meng Fanjie Vice President & Executive Director

Zhang Ping Chief Financial Officer

Gao Fei Vice President

Wen Yongping Vice President

Li Pengcheng Vice President

Chris Kwok Financial Controller & Company Secretary

Yashili

Yan Zhiyuan Chief Executive Officer & Executive Director

Wen Jieping Chief Financial Officer

Financial Overview

Financial Highlights

5

(RMB Million) 2018 2019 +/-

Revenue 68,977.1 79,029.9 +14.6%

Gross Profit 25,783.6 29,678.6 +15.1%

Gross Margin 37.4% 37.6% +0.2ppt

Operating Profit 3,544.3 4,345.5 +22.6%

Operating Margin 5.1% 5.5% +0.4ppt

EBITDA 5,373.6 7,404.8 +37.8%

EBITDA Margin 7.8% 9.4% +1.6ppt

Profit Attributable to

Owners of the

Company

3,043.0 4,105.4 +34.9%

Net Profit Margin 4.4% 5.2% +0.8ppt

Profit Excluding One-

off Gain and Loss3,043.0 3,866.8 +27.1%

Basic EPS (RMB) 0.779 1.049 +34.7%

Note: 2019 financial results include the financials of Junlebao as of November 19, 2019 and December 2019 monthly financials of Bellamy’s.

Revenue Breakdown by Segments

6

(1) Others refer to cheese, plant-based nutritional food business, etc.

(RMB Million)

2018 2019 +/- (%)% of

Revenue+/- (ppt)

Liquid Milk 59,388.6 67,877.8 14.3% 85.9% -0.2ppt

Ice Cream 2,723.4 2,561.4 -5.9% 3.2% - 0.8ppt

Milk Formula 6,017.4 7,869.7 30.8% 10.0% +1.3ppt

Others (1) 847.7 721.0 -14.9% 0.9% - 0.3ppt

Total 68,977.1 79,029.9 14.6% 100.0% /

Market Share Increased Steadily

7

24.6% 26.7%

21.1% 23.4%6.1% 5.3%4.5% 3.6%

43.7% 41.0%

2018 2019

3.1% 7.1%

42.5% 41.6%

8.3% 8.2%7.7% 8.1%

38.4% 35.0%

2018 2019

Source: (1) Nielsen offline retail data; (2) Nielsen online retail research

26.4% 27.2%

36.5% 37.8%

8.4% 8.2%5.6% 5.5%

23.1% 21.3%

2018 2019

8

22.9% 23.5%

20.7% 20.1%

11.5% 12.3%9.6% 9.2%

35.3% 34.9%

2018 2019

UHT Products(1) Chilled Yogurt(1)

Fresh Milk(1) E-commerce (Liquid Milk)(2)

Mengniu A B OthersC

Cash Flow and CAPEX

8

2018 2019

6,363.5 6,307.2

2018 2019

3,203.8 4,318.3

Net Cash Inflows from

Operating Activities

Capital Expenditure -

Property, Plant & Equipment

(RMB Million) (RMB Million)

9

SG&A Expenses

27.30% 27.25%4.23% 4.20%

2018 2019

18,833.3 21,536.1

2018 2019

2,915.0 3,319.4

S&D G&A

(RMB Million)(RMB Million)

Expenses As a % of revenue Expenses As a % of revenue

10

Operational Efficiency Index (3)

2018 2019

31.4 34.7

2018 2019

15.3 16.3

2018 2019

51.4 51.9

Inventory Turnover Receivables Turnover (1) Payables Turnover (2)

(Days) (Days) (Days)

(1) Receivables Turnover = (Average Balance of Trade and Bills Receivables / Revenue) x Number of Days

(2) Payables Turnover = (Average Balance of Trade and Bills Payables / Cost of Sales) x Number of Days

(3) Above turnover days calculations exclude financials of Junlebao and Bellamy’s.

2019 Business Review

12

2019 Review

• Disposed of Junlebao due to weak

synergies

• Completed acquisition of Bellamy’s,

a leading Australian premium

organic IMF and baby food brand

• Announced acquisition of Lion Dairy

& Drinks, a leading Australian dairy

enterprise

• Strategically invested in Milkground,

a leading domestic cheese brand

Implemented long-term

strategy layout with

focus on dairy segment

• Improved quality, launched new

products and strengthened

product competitiveness

• Focused on “World-class Quality,

Born for Greatness” to upgrade

communication of mother brand

and facilitating progress of

brand internationalization

• Captured premiumization trend

through aggressive branding

efforts

Optimized product mix

and improved

branding strategies

• Deepened “ regional RTM

strategy”

• Launched Smart Network

Project, Room Temperature BU

realized 100% coverage by end

of 2019

• Strengthened omni-channel

execution, promoted LST.com

partnership and Penetration into

Towns and Villages program to

enhance POS control

“Route-to market”executions achieved

significant progress

Led Industry Growth;

Digested raw milk volume & cost pressure,

continued to improve profitability

13

Established Sustainable Development Strategies and Management Structure

• Formulated sustainable development

strategic roadmap for 2020 - 2022

• Established sustainable development

committee under the Board, and set up

an organization structure covering

decision-making, monitoring and

execution for sustainable development

• Set up 10 sustainable development

commitments and 12 agendas by

benchmarking against the United

Nation’s SDGs

• Proactively engaged with MSCI, HKEx

and FAIRR sustainable indexes

• Published CSR/ESG reports since 2014

14

Premium Room Temperature Brands Achieved Beat – Industry Growth

• Driven by strong volume growth and product mix

upgrade, Room Temperature BU booked double-

digit growth

• Milk Deluxe grew over 20%, benefiting from

continuous product upgrade and structured pricing

strategy

• Just Yoghurt and Fruit Milk Drink grew over 20%

and 10% respectively, driven by focused brand

investment and new products launch

• Mengniu branded plain milk grew by double-digit,

benefited from continued brand equity upgrade

and strong channel penetration

• RTM strategies were well executed with POS

coverage, channel expense efficiency, and POS

control further improved

Milk Deluxe

Fruit Milk Drink

Key brands & products

Just Yoghurt

15

Low Temperature Brands Further Strengthened Leadership

• Low temperature yogurt and probiotic drinks

achieved high single-digit growth versus

industry’s low single-digit decline

• New products such as Nordic cheese series and

passion fruit flavored Yoyi C achieved strong

performance

• Launched Champion Yogurt Probio-M8, the first

probiotic self-developed intellectual property in

China

• Brand equity improved significantly driven by

focused marketing and communication on

category value and functions

• Stepped up omni-channel development leading

to increased market share and optimized channel

mix

Champion

Yogurt

Yoyi C

Mengniu

Key brands & products

16

Fresh Milk Business Achieved Breakthrough Growth

Shiny Meadow

High-end fresh milk brand

• Achieved triple-digit growth and over RMB700

million of sales

• Shiny Meadow booked 500% yoy sales growth

owing to strong brand building efforts – ranking

No.1 in the high-end fresh milk sub-category

• Fresh milk business covered China’s eastern,

southern, northern, central and northeast

regions

• “Fresh” supply chain capability improved

significantly

• Launched “TianXianPei” smart retail platform for

household milk purchasing, building a full cold

chain home delivery model via partnering with

Alibaba

Key brands & products

17

Yashili’s Sales Growth Weaker Than Company Expectations

• Sales grew by 13% + and OP margin turned positive

• IMF product structure optimized as expected,

organic and goat IMF sales as a % of total revenue

further increased

• IMF category sales was weak due to product

portfolio optimization and middle-to-low end product

streamline

• Launched new adult milk formula to capture

demands for specific nutritional needs, high-end

adult milk formula sales saw strong growth

• Reformulated next five-year strategies against the

market changes

Reeborne

Doraler

Yashily

Middle-aged

and elderly

milk powder:

Youyi, Yourui

Key brands & products

2020 Prospects

19

Lead the Industry in Undertaking SocialResponsibilities and Combating COVID-19

Brand reputation

improved significantly

leading industry during

the epidemic period

Took the lead in

donating cash and

dairy products

Provided free dairy

nutrition and became

the preferred brand of

the healthcare

professionals after the

COVID-19 outbreak

Supported healthy

development of upstream

and downstream player

of the industry

20

Changes and Opportunities: Consumption Habits, Scenarios and Brand Communication Bring Profound Changes Consumers pay more

attention to health, nutrition

and immunity improvement

E-commerce, O2O

platforms saw

strong growth,

community households

group buying boosted

Attracting online consumers

more relevant as marketing

model evolves

>2X

>50%

O2O home

delivery

E-commerce

platforms

Searches for “Immunity”

increased by 3 times after

COVID-19 outbreak

21

Adjust Proactively to Expedite Business Recovery

Empower the industry

value chain

Facilitate recovery of

sales channel

Adjust brand marketing

Raise management

efficiency

• Focus on “nutritional value” and

“function” in brand communication

and consumer education

• Cooperate with the government to

encourage an increase in daily

dairy intake on a national level

• Found “Mengniu National Nutrition

and Health Research Fund”

• Exploit internal potential in

achieving higher cost

efficiency

• Take the lead by implementing

five measures to “stabilize and

protect the upstream of dairy

industry”

• Leverage supply chain financial

platform so as to mitigate

distributors’ capital pressure

• Rapidly open up sales channel,

and strive to develop emerging

channels as E-commerce, O2O

and social community household

sales

• Clear channel inventory to recover

a healthy channel development as

early as possible

22

Firmly Execute Existing Strategies -2020 Strategic Priorities

Upgrade brand proposition

and continue to improve

brand reputation and loyalty

• Invested farms provide strategic sourcing

assurance

• Tactically increase sourcing volume

Reinforce raw milk sourcing

for long-term strategic

development

• Consumer fidelity to Mengniu brand

improved after the COVID-19 outbreak

Continue to build

RTM strength

• Execute by category/cross category

Design to Value initiatives

• Product design and innovation driven by

consumer insights

• Simplify packaging, formula and

streamline SKUs

Cost saving through

whole value chain

• Upgrade digital infrastructure for

stronger business insights and decision-

making

• Enhance to B’s digitalized management

efficiency

• Promote to C’s digitalized precise

marketing

Improve overall digital

capability to empower

business decision -making

• Bellamy’s

• Lion Dairy & Drinks

Rapidly implement post-

acquisition integration

Increase POS Coverage

Redesign RTM for

Future Growth

Improve

Supply

Chain

Model

Reinforce

Channel

Management

Empower

Distributors

Optimize

Sales Force

Structure

23

Push Forward Integration of Investments in

Australia and Business in Southeast Asia

Set up International Business Unit and the organization

structure overseeing overseas businesses

Lion Dairy & DrinksIndonesia/

Southeast Asia

Hired an experienced post-acquisition

integration advisory agency

Integrate back-office and

approval authorization system

To expedite supply chain integration/ business

synergies in Southeast Asia

To realize synergies in quality raw milk

sourcing and finished products

Lion Dairy & Drinks deal expected to close in 1H2020

Execute 2025 Overseas Strategic Layout

Q&A