China infant formula firm Yashili signs series of agreements with Mengniu, Danone and Burra

By Cheryl Tay contact

- Last updated on GMT

Yashili is confident these agreements will help to drive business and strengthen its relationships with Mengniu, Danone and Burra.
Yashili is confident these agreements will help to drive business and strengthen its relationships with Mengniu, Danone and Burra.

Related tags: China, Dairy, Supply chain

Yashili has announced deals in China and New Zealand to strengthen supply and service agreements with two of its biggest shareholders, Mengniu and Danone, while also bolstering its relationship with Australia's Burra Foods.

Mengniu International

The company signed two agreements with major shareholder Mengniu International (a subsidiary of Mengniu Dairy), which owns 51.04% of Yashili's shares.

These concern the shares to be awarded to employees under the company's RSA (restricted share award) scheme, as well as the options granted to participants in its share option scheme.

These options — benefits given to employees to buy shares in Yashili at a discount or stated fixed price — are to be determined based on an appraisal conducted by an independent third party.

According to Yashili, the agreements were drawn up based on its directors view that they would provide its core team with incentives and help to retain it, resulting in stable long-term business development.

Yashili has also entered into a three-year agreement with Mengniu Dairy for goods purchases and service provision between both companies.

The goods in question include raw materials for dairy products and food, food additives (such as whole and skimmed milk powder, and white sugar), auxiliary products, packing materials, semi-finished goods and finished goods by produced by both parties.

Yashili said in a statement that the list of goods may be updated from time to time, according to the business needs of either company.

Under the agreement, Mengniu Group will provide services including testing, storage and leasing, marketing and sales, IT, labour, advise and management to Yashili. Yashili will provide the same services to Mengniu Group, in addition to processing services for skim and whole milk powder and other products.

The scope of services, Yashili said, may also be updated from time to time, according to the business needs of either company.

The firm's directors believe the agreement will afford it “greater synergies” ​with Mengniu, with the purchase of goods and services from the latter expected to lead to stable, quality sourcing and lower purchase costs.

At the same time, Yashili's provision of goods and services to Mengniu is expected to diversify and increase its income and improve its capacity utilisation.

Danone

Meanwhile, Yashili New Zealand has also extended the term of its strategic cooperation supply agreement with Danone by one year.

The agreement, which was first entered into in August 2016, entails the sale of base powder products by Yashili NZ to Danone. Since then, the transaction value recorded under the agreement has increased, from RMB32m in the August-December 2016 period to RMB158m in the January-May 2018 period.

Yashili's directors are confident the extension will enable Yashili NZ to continue improving its utilisation rate and in turn, the cooperation between itself and Danone.

Back in 2014, Danone acquired a 25% stake​ in Yashili for RMB3.75bn. Most recently, in May this year, Yashili announced the impending sale of 49% of Yashili NZ's share capital​ to Danone Asia Pacific Holdings.

Burra Foods

Finally, Newou, a wholly-owned subsidiary of Yashili, entered into an agreement with Australia's Burra Foods to buy its base powder products until the end of the year, with a price range of RMB56,950 to RMB65,040 per metric tonne of product.

This follows earlier similar agreements, the first from 12 May to 31 December last year, under which Newou had purchased base powder products from Burra to the tune of RMB16.54m. The second lasted from 26 April to 27 June 2018, when the transaction value totalled RMB16.49m.

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