Mengniu expecting big drop in profits

By Jim Cornall

- Last updated on GMT

Mengniu said all its production bases have resumed normal operation and production.
Mengniu said all its production bases have resumed normal operation and production.

Related tags mengniu Dairy coronavirus COVID-19 pandemic

In March, China Mengniu Dairy Company Limited, said the group’s sales in February and March 2020 were affected by the coronavirus outbreak.

Since that time, Mengniu said it has taken measures to minimize the impact by increasing promotional efforts to help its distribution channels reduce their inventories, and accelerating the resumption of normal sales through e-commerce, home delivery and close cooperation with fresh food e-commerce platforms.

The company said these measures were effective, and the overall business operations of the group recovered in April and May 2020. It said revenue in April and May 2020 recovered to the point that double-digit growth was achieved compared to the same period in 2019, excluding the impact of Shijiazhuang Junlebao Dairy Co., Ltd., which was disposed of in 2019 and Bellamy’s Australia Limited, which was acquired in 2019.

Mengniu said all its production bases have now resumed normal operation and production, cash flow and inventory levels have returned to a healthy level, and overall operations have been continuously improving.

Based on the preliminary assessment of the group’s recent unaudited consolidated management accounts and the information currently available to the board of directors of the company for the first half of 2020, the group revenue is expected to record a growth compared to the same period in 2019 (excluding the impact of disposal of JLB and acquisition of Bellamy).

However, the group said it expects to record a decrease of between 45% and 60% in profit in the first half of 2020 compared to the same period in 2019.

The board said to its best knowledge, the decrease in profit is mainly attributed to an increase in the costs of the group due to measures taken in the first quarter of 2020.

These include additional expenses on epidemic prevention and control to safeguard the health and safety of employees and to ensure the resumption of work and production; additional marketing expenses to accelerate sales efforts, with a view to reducing inventories in its distribution channels; and due to fulfilling corporate social responsibilities by making cash and supply donations to those in need.

Mengniu said despite the impact of coronavirus on the dairy industry, the epidemic has led to growing consumer desire to focus on health and in particular, boosting the immune system. In light of the continuing focus by consumers on health and nutrition, the board said it expects increased demand for dairy products, which the board believes will benefit the development of China’s dairy industry and the group’s business.

Mengniu said it has also strengthened its efforts in upgrading its products, diversifying, digitalizing and internationalizing its operations in recent years, which the board believes has improved the company’s ability to control and manage its exposure to significant risks.

The company said detailed financial information will be disclosed in the announcement of the unaudited interim results for the six months ending on June 30, 2020 which is expected to be published by the end of August 2020.

Related topics Manufacturers COVID-19