China Mengniu Dairy Co has posted an 18% net profit decrease for the first half of 2012 - citing a slowdown in Chinese dairy industry growth and the impact of its increased investment in scale farms as a milk source.
The firm, which is China’s biggest dairy processor, reported sales revenue of RMB18.36bn (€2.3bn, $2.89bn)for the first six months of 2012. Net profit for the period was RMB644.7m (€83.3m, $104.6m) – an 18% decrease on the RMB789.75m (€98.9m, $124.3m) reported in H1 2011.
The Hong Kong-based company’s Liquid Milk segment, which includes UHT milk, milk beverages and yogurt, drove revenue sales – accounting for more than 85% of the firm’s H1 revenue.
Mengniu has attributed the net profit decrease to an overall economic growth slowdown in the country and an increase in the cost of its milk sources following its recent quality management restructuring efforts.
It also revealed that sales volumes have been negatively impacted by quality and safety-related press reports.
Despite a so-far “challenging” 2012, Mengniu expects things to pick up in the second half of the year.
Dairy growth decrease
“During the period, there was a decrease in the growth of the dairy industry, and industry regulations tightened and developed in a solid and stable manner. Affected by the M1 incident and other media reports, the sales volume was once reduced,” said a statement from Mengniu.
The Chinese dairy industry is no stranger to scandal. Domestically manufactured dairy products – particularly liquid milk and infant formula – have been the subject of numerous recalls in recent years.
Mengniu has not been immune to this.
In an effort to improve the reputation of its products, Mengniu has taken a series of steps including entering into a strategic agreement with Danish dairy giant Arla.
The firm has also increased its investment in scaled farms and ranches as a source of milk. The move – part of an effort to ensure the quality and safety of its finished products – has inevitably led to an increase in the cost of its milk supply.
“As China’s economy grows, consumers have stronger demand for products with higher quality,” said Mengniu.
Liquid milk sales
Mengniu’s Liquid Milk division, which incorporates UHT milk products, milk beverages and yogurt, reported revenue of RMB15.94bn (€2bn, $2.5bn) for the first six months of the year – accounting for 86.8% of the Group’s overall revenue for the period.
The firm’s Ice Cream segment accounted for 11.8% of the group’s total revenue for the period, hitting RMB2.15bn (€270m, $340m).
Mengniu’s Other Dairy Products segment, which includes products marketed under the Mengniu Arla brand, reported revenue of RMB261.5m (€32m, $41m) – accounting for 1.4% of the Group’s revenue.
Despite what it has called an “extremely challenging year”, Mengniu sees great potential for the development of the Chinese dairy market.
“During the second half of 2012, the dairy industry in China will continue to grow and become more standardised under the influence of state policies,” said the firm.
“The year 2012 is an extremely challenging year for Mengniu. It is the vision of the Group to become a dairy enterprise that delivers products of the best quality and in the most professional and devoted manner.”
“In face of the challenges and opportunities arising in the dairy products industry, the Group will continue to improve and enhance its quality control system,” it added.