China Mengniu Dairy Company Limited (2319.HK)
2015 Interim Results
August 2015
2
Disclaimer
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.
Mengniu
Sun Yiping, Chief Executive Officer & Executive Director
Bai Ying, Chief Operation Officer & Executive Director
Zhang Ping, Chief Financial Officer
Liu Shengli, Vice President of Sales
Zhai Mei, Assistant Vice President of Public Relations
Thibault Helleputte, General Manager of Mengniu Danone JV
Chris Kwok, Financial Controller & Company Secretary
Yashili
Lu Minfang, Chief Executive Officer & Executive Director
Li Dongming, Vice President & Executive Director
Wen Jieping, Chief Financial Officer
Management Team
2015 Interim Results
5 5
Financial Highlights
RMB Million
Gross Profit
Gross Profit Margin
EBITDA
EBITDA Margin
Net Profit Margin
Profit Attributable to
Owners of the Company
Basic EPS
(RMB)
Revenue
For the Six Months Ended June 30
2014 Consolidated
2015 Consolidated
+/-
25,835.8 25,564.4 -1.1%
8,381.8 8,142.8 -2.9%
32.44% 31.85% -0.59ppt
2,041.9 2,315.6 +13.4%
7.90% 9.06% +1.16ppt
1,048.6 1,338.7 +27.7%
4.06% 5.24% +1.18ppt
0.540 0.689 +27.6%
2015 Excluding
Yashili
Vs. 2014 Excluding
Yashili
24,402.9 +0.5%
7,573.3 +0.3%
31.03% -0.04ppt
2,289.3 +27.8%
9.38% +2.00ppt
1,296.9 +39.3%
5.31% +1.48ppt
0.667 +39.1%
6 6
Revenue Breakdown by Segment
2014 +/- (%) % of Total
Revenue +/- (ppt)
Ice Cream
Milk Formula
Others
Liquid Milk
RMB Million
Total
2015
21,940.9 +0.8%
1,664.3 -17.3%
1,783.5 -7.8%
195.7 +31.5%
85.8% +1.6ppt
6.4% -1.3ppt
7.0% -0.5ppt
0.8% +0.2ppt
25,564.4 -1.1% 100.0% /
21,764.8
1,988.4
1,933.8
148.8
25,835.8
For the Six Months Ended June 30
Note: Others refer to cheese and plant-based food business, etc.
7 7
Revenue Breakdown of Liquid Milk Segment
Milk Beverage
Yogurt
UHT
RMB Million
2014 +/- (%) % of
Liquid Milk
Revenue +/- (ppt) 2015
Total
10,710.4 -13.4%
5,657.8 -2.9%
5,572.7 +56.0%
48.8% -8.0ppt
25.8% -1.0ppt
25.4% +9.0ppt
12,365.3
5,826.2
3,573.3
21,940.9 +0.8% 100.0% / 21,764.8
For the Six Months Ended June 30
UHT Milk Beverage Yogurt
Premium Pure Milk Pro-biotic Drink Room Temperature Yogurt
Premium Milk Beverage Chilled Yogurt
Flavored Milk Basic Milk Beverage
Kids’ Milk
Basic Pure Milk
8 8
Note: (1) Mengniu’s market share includes the market share of Mengniu, Danone and Junlebao brands
(2) Source: Nielsen Retail Research
Market Share
Liquid Milk
UHT Products
Chilled Products
9
Revenue Breakdown by Brand Cluster
9
(1) Revenue of Mengniu’s four major brand clusters as a percentage of revenue of Mengniu – excluding Yashili.
Brand 1H2014 1H2015 +/- (ppt)
Star
Brands
34.2% 39.6% +5.4ppt
Opportunity
Brands
4.7% 3.1%
-1.6ppt
Profit Contributor
Brands
8.7% 7.1%
-1.6ppt
Backbone
Brands
41.9% 36.6%
-5.3ppt
Continuous optimization of product mix and brand portfolio management
improved profitability
3.8ppt
Cash Flow & CAPEX
(RMB Million)
Net Cash Inflow from
Operating Activities Capital Expenditure
(RMB Million)
10
1H2014 1H2015
1,439.7
1H2014 1H2015
1,485.1
SG&A Expenses
(RMB Million) (RMB Million)
Expenses % of revenue
S&D G&A
1H2014 1H2015 1H2014 1H2015
11
5,897.1
5,565.3
962.0
1,093.7
12 12
Operating Efficiency Index
(Days) (Days) (Days)
Inventory Turnover Receivables Turnover(1) Payables Turnover(2)
(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
1H2014 1H2015 1H2014 1H2015 1H2014 1H2015
51.2 52.7
7.1 10.7
36.5
44.8
2015: Review and Prospects
14
Challenges and Opportunities in 2015
Challenges Opportunities
External External
Internal Internal
Changing consumer demand
Oversupply of raw milk
Intensified market
competition
Consumption premiumization:
strong consumer demand for
premium nutritious and
healthy products
Room for market penetration
remains huge
Operational efficiency is yet
to further improve
Further improvement in
brand power
Controlling force over retail
end
15
Stronger Route-to-Market
Coverage Penetration Efficiency
Completed information infrastructure setup covering Mengniu to retail outlets
SAP — ERP
SAP — CRM
WSP — Wei Sales Platform
Speeding up execution of route-to-market initiatives
Launch of information systems like SAP make effective and
efficient channel management become achievable
To increase number of directly-controlled retail outlets and their
sales contribution
Strengthen distributors
Substantialize sales companies
Develop CBUs
16
Continuous Product and Packaging Innovation
Ice Cream
4-packed
Minion Latte
Suan Suan Ru
100ml Flavored Pro-biotic
Drinks and
340ml Low-sugar
Yoyi C
Flavored Milk Beverages
and RT Yogurt
Future Star
Yellow Peach Oat and
Walnut Oat Flavors
Champion
Customized
premium
Hi·Milk
Prime Ranch Pure Milk
of 2.0 version – full chain traceable
One QR code
for each box
One QR code
for single pack
Awarded
“The Best
Innovation
Commercial
Brand”
17
Room Temperature Business Strategy: Focus on
Star Brands, Increase Market Share of Backbone Brands
Milk Deluxe: Maintained leading
position among high-end milk products
UHT Yoghurt: Quickly seized market
shares in both UHT yoghurt and children
UHT Yoghurt markets
Marketing theme: 10th Anniversary
Achieved steady growth
Robust sales growth performance
Significant growth in market share and
distribution rate
RT Yogurt:
Quickly gain RT yogurt market share, first mover in
kids’ RT yogurt
Milk Deluxe:
Strengthen leading position in premium
UHT milk
18
Chilled Business Strategy: Strengthen Leading
Position in Chilled Product Market
Breakthrough
Focus
Three high gross margin brands:Yoyi C,
Champion and Bio
Improvement of operational efficiency
Market share gain in key markets
Innovation
New SKU launch through strict consumer
test
100ml pro-biotic drink market
Market performance of Future Star kids’
yogurt
2015:Sustainable Growth
Revenue&
profitability
Ideal factory Cost out,
value in
Champion Oats Flavor
Launched in June
Champion Ready-to-Drink
Launched in July
Bio “Additive-free”
Launched in June
19
Milk Formula Business Strategy: Upgrade and
Transformation
Focus
Brand
Distribution channel transformation: Online
channel, maternity store channel
Based on a clearer brand positioning,
focusing on key products
e
Milk sources from New Zealand and
Europe
Endorsements by Danone’s and Arla’s
management and quality expertise
Strengthen brand promotion
Align and integrate resources with
Danone, Arla etc and enhance strategic
alliances
Integrate professional management
teams of Yashili and Danone to enhance
quality control, improve customer service
and organizational capability
Cooperate with international research
institutes to enhance innovation / R&D
capability
Channel Transformation
Brand Upgrade
Resources Integration
20
Promoting Brand Power through Enhanced
Marketing strategy
A Focused Strategy Build Corporate Brand
Reinforce Synergies between
Mother Brand and Sub-brands
Marketing resources continuously
focus on star brands
Strengthen brand building of
mother brand and ensure
continuous media investment
Establish shared phenomenon
marketing platforms by consolidating
marketing resources of mother brand
and sub-brands
Digital Innovation
Marketing renovation driven by
digital innovation to build up digital
assets
Digitalized products
21
Establish R&D plan in focus areas
Set up cross-functional teams e.g.
marketing, R&D and operation
Higher headcount than Arla, esp.
“support/ administration” and
“inspection/ control” functions
Enhance employees’ productivity
Consolidating Global Resources
— Excellence Management and Benchmarking Strategy House
Route to Excellency
Partners Benchmarking
Mengniu KPI & Analysis
Improvement Advices and Recommendation
Benchmark with global partners to realize excellence management
in R&D and operations
Join Hands
with Global
Leading
Players
Leverage
Global
Resources
Global
Technology
Innovation
Center
Ranch
Management
Quality
Control
Product
R&D
Production
&
Operation
Disclaimer
This document is prepared by Yashili International Holdings Ltd (the “Company”)for corporate communications and general reference only. The document does not constitute an offer to sell or subscribe for any securities of the Company in any jurisdiction or serve as the basis of related investment decisions. All information included herein should not be used or relied on before obtaining professional advices. This document is a brief overview of the Company and does not constitute a complete description of the Company and its business activities, current and historical operating results and future operating prospects. Any information contained herein is provided without any express or implied representation or warranty. The Company disclaim any liability for any loss or damages howsoever arising from the use of this document or reliance upon any financial or other information in this document.
Agenda
II. 2H Business Strategies
III. Q & A
I. 1H Results Review
H1 Results Review
Financial Highlights
RMB million 1H2014 2H2014 1H2015 Percentage change
Y-o-Y H-o-H
Revenue 1,545.7 1,270.7 1,161.5 -24.9% -8.6%
Gross profit 819.9 625.1 563.5 -31.3% -9.9%
Gross profit margin 53.0% 49.2% 48.5% -4.5% -0.7%
Profit attributable to equity shareholders of the Company
209.4 39.4 75.6 -63.9% 91.9%
Net profit margin 13.5% 3.1% 6.5% -7.0% 3.4%
Basic earnings per share (RMB cents):
5.9 1.1 1.7 -71.2% 54.5%
Yashily pediatric milk power Revenue amounted to RMB774.4 million, decreased Y-
o-Y by 24.8% Percentage to total revenue increased by 0.1 percentage
point from last year
Scient pediatric milk power Revenue amounted to RMB112.7 million, decreased Y-o-Y by
58.8% Percentage to total revenue decreased by 8 percentage point from
last year
Nutrition food and others Revenue amounted to RMB274.5 million, increased Y-
o-Y by 13.4% Percentage to total revenue increased by 8 percentage
point from last year
Breakdown Of Sales Revenue
66.7% 9.7%
23.6%
66.6% 17.7%
15.7%
雅士利婴幼儿 施恩婴幼儿 营养食品及其他
1H2014 Sales revenue: RMB1,545.7 million
Yashily Pediatric
Scient Pediatric
Nutrition food and others
1H2015 Sales revenue: RMB1,161.5 million
Selling and distribution
Administrative expenses
Income tax charges
Sales, Administrative Expenses And
Income Tax Charges
572.0 523.6
37.0% 45.1%
2014H1 2015H1
101.3
71.0
29.3
14.1
15.7%
6.6% 6.1%
12.3%
(RMB million) (RMB million) (RMB million)
1H2014 1H2015 1H2014 1H2015 1H2014 1H2015
Operation Efficiency Indicators
(1)Balance of inventory at the end of the year divided by costs of sales in the year, then multiplied by 180 days. (2)Balance of receivables at the end of the year and bill receivables at the end of the year divided by turnover during the
year, then multiplied by 180 days. (3)Balance of payables at the end of the year and bill payables at the end of the year divided by procurement amount
during the year, then multiplied by 180 days.
(days)
215
180
3
8
93
78
Inventory turnover days (1) Receivables turnover days (2) Payables turnover days (3)
(days) (days)
1H2014 1H2015 1H2014 1H2015 1H2014 1H2015
Cash Flow And Capital Expenses
(RMB million) (RMB million)
407.9
201.8
1H2014 1H2015
Net cash flow from operations Capital expenditure
1H2014 1H2015
H2 Business Strategies
Industrial policies keep changing, which affect the integration of the supply chain, rationalization of the product lines and launch of new products
The gradual shrinking of supermarket channel made enterprise transformation an important issue while the execution of new sales and marketing strategies requires time and cost input
In the face of increasingly intensified market competition, enterprises are subject to the challenge of stabilizing product price while maintaining market advantages
Op
po
rtunities
Ch
allenges
Non-compliance enterprise shall exit the market upon introduction of new policies to the milk powder industry
The rise of overseas direct purchase and haitao.com and the transformation towards cross-border e-commerce affects the competitive landscape of the industry
Future Opportunities And Challenges
Reform
Optimization
Upgrading
Integration
H2 Operating Strategies
Maternal and
child
Supermarket
E-commerce
Reform—Channel Transformation
To focus on maternal and child chain stores, with the channels serving as the driving force + the brand serving as the pulling force
To leverage on high-end brand name for materialization of brand transformation
To strengthen our terminal services so as to lay down a solid foundation for the channel
To adjust focus of product sales, step up efforts in exploration of high-end adult powder market
To rationalize market distribution structure and hold steady channel advantages
To step up efforts in respect of international hypermarket chains to enhance reputation of the brand in the high-end market
To accelerate BBC channel transformation and expansion
To enhance new user acquisition in mobile terminals, explore cross-border e-commerce business
To strengthen strategic cooperation with e-commerce platform, step up our efforts to tap on the resources presented by regional e-commerce operators
Reform—Sales Model We will conduct sales model reform for obtaining competitive strengths: by way of disintermediation, shortening value chain, defining clearly profit allocation, strengthening terminal implementation and system monitoring
Sales strategies
Supply models
Implementation system
Profit allocation
• Focus on maternal and child chain stores and key stores
• Direct supply of high-end products, disintermediation
• Focus on single store contributions
• To strengthen implementation of sales / sales guiding
• To monitor and manage procurement, sales and inventory
• Automated sales system
• Perfect product matrix • Effective sales policies • pulling force from the brand
+ driving force from the channels
• To uphold the principal of fairness
• Focus on gross profit from front office
• To stabilize channel profit
Logistic distributors
Brand Sales personnel
under systematic management
New direct supply model
Retailers
Brand Distributors Retailers
Product seller
Traditional distribution model
Optimization—Product Mix
Low-end
Mid-end
High-end
Pediatric formula milk powder
Ultra high-end
High-end adult milk powder
To define clearly the price positioning and consumer group of the sub-brand in the channel
Focus on the pediatric formula milk powder while stepping up efforts in exploration of high-end adult milk powder market
Optimization-organization
and structure
• To further strengthen the first
class organizational function
• To define clearly division of
labor
• To strengthen the building of
the sales team
Improving organizational
function
• To attach importance to the
connection between pioneer
team and front desk
• To enhance cost control of
the back office
• To emphasis on overall
synergy of the team
Integration of front and
back office
• To obtain target management
system certification
• To connect information
systems
• To integrate corporate
culture with internationalized
practices
Optimization in personnel
structure
Professionalism
--Brand marketing and
communication
--To support by
digitalized platform
--To share users’
experience
--To be endorsed by
international resources
--To present international
R&D results
--To produce in overseas
facilities
--PRC and new European
standards in various
countries
--Quality and safe milk
sources
--Comprehensive quality
system
Internationalization
High quality
Upgrading—Brand Reshaping Through the rationalization and reshaping of the brands, we will dedicate our efforts in the creation of “professionalism, internationalization, high quality” brand image of Yashily
LOREM
Integration—Resources Sharing We will integrate resources-rich platforms, including COFCO, Mengniu, Danone and Arla, enhancing the business connection and strategic alliance among all parties, so as to create an entire ecology chain within the diary industry.
To adapt from the international high-end R&D results, highly standardized quality assurance system, advanced production processes from (amongst others) Danone and Arla
To enhance R&D quality and production level
China factory New Zealand factory Dumex Shanghai factory
To optimize domestic and overseas production capacity allocation
New Zealand: To conduct production for Yashily brand while processing for Dumex
Europe: To conduct production for Scient and Arla Merla, further optimization of resources allocation
To integrate global back office supply chain system
Q & A