Tuesday, July 3, 2012

Key Processors’ Performance in Q1

Several key Chinese dairy processors have recently released their financial reports for Q1, showing mixed performances in the period, according to CCM International’s May issue of Dairy Products China News.

Yili performed well with sales of USD1.6 billion (RMB10 billion) and a net profit of USD73.0 million (RMB460 million): these figures showed growth of 13.2% and 68.5% respectively over Q1 2011.
These trends are attributed to its good product mix as well as strong sales. A positive factor was the Chinese Spring Festival (in late January) which gave a significant boost to the consumption of dairy products, and its increased sales prices also played a part. Recently Yili has developed some new products:
In mid-April it launched a premium lactobacillus milk drink – Meiyitian – claimed to be the result of investing USD31.75 million (RMB200 million) on 3 years’ research
In late April it launched CPP Shuhua, a variant in the Shuhua range which includes CPP (Casein Phosphopeptide) as well as Vitamin D to help the absorption of calcium (CPP binds/solubilises minerals such as calcium, so aiding bioavailability of calcium from milk; it also binds calcium to plaque, so combating dental caries)

Bright Dairy saw a similar situation in Q1. Its sales rose 16.1% year on year to USD481.4 million (RMB3,033 million) and the company’s net profit of USD8.6 million (RMB54 million) represented an increase of 49.2% over the same period in 2011. However it’s noteworthy that Bright Dairy’s operating costs increased by 21.1% to USD191.7 million (RMB1,208 million) in Q1, acting as a brake on its profitability to some extent.

This high operating cost seems likely to reflect the ongoing costs related to the company’s major acquisitions abroad. It acquired a 51% stake in New Zealand’s Synlait Milk in July 2010 at a cost of USD56.3 million and invested USD562 million in buying a 75% interest in Australia’s Manassen Foods in August 2011. However, ultimately such acquisitions are expected to enhance the company’s prospects and profitability of course. For instance, Bright Dairy launched a premium infant formula product called Pure Canterbury in late 2011, which is produced by Synlait Milk. Opportunities may also arise from the activities of the wider group. Recently, on 3 May, Bright Food – the largest shareholder in Bright Dairy – signed an acquisition contract with the UK breakfast cereal business Weetabix Food Company to purchase 60% stake in that firm.

Beijing Sanyuan enjoyed more mixed fortunes. Although its revenues in Q1 increased by 12.7% to USD132.4 million (RMB834 million), it recorded a loss of USD240,000 (RMB1.5 million). This is believed to stem from the ongoing problems encountered after its acquisition of Sanlu Group in 2009. Since then it has endured ongoing losses, and its increased revenues are mainly non-operating revenues. Nevertheless a positive feature for the company has been Hunan Taizinai Group, which it acquired in cooperation with Macrolink Group in September 2011 (please see Dairy Products China News Vol.4 October issue, p8). Hunan Taizinai Group is performing well at present and is likely to provide a boost to Beijing Sanyuan’s figures in the future.

When we look at the smaller regional player, Royal Dairy, we can see that it has also seen both ups and downs in this period. In Q1 its sales rose to USD24.1 million (RMB152 million) – a growth rate of 61.7% – but its net profit fell by 46.1% compared with USD2.1 million (RMB13 million) in Q1 2011.

Royal Dairy’s problems result primarily from its acquisition of Yunnan-based Dali Laisier Dairy Co., Ltd. (Laisier Dairy) and the high costs which the company is incurring in its expansion outside Guangxi. The latter include substantial advertising costs as it seeks to build its profile in northern China. Although Laisier Dairy has contributed significant topline sales, the acquisition has led to considerable management fees and financial costs according to Royal Dairy’s financial report. Another issue is provided by Laisier Dairy’s product positioning at the low-end of the market.

The figures highlight that whilst growth through acquisition can build the business it can also exert quite a knockon effect upon ongoing operations, especially for regional dairy enterprises with less capacity to absorb shocks, such as Royal Dairy and Beijing Sanyuan. It is critical for China’s 2nd and 3rd tier dairy processors to make the right decisions as they work to maintain their expansion.

Source: Dairy Products China News  1205

Content of Dairy Products China News 1205:
Key Processors’ Performance in Q1
Children’s Milk Products Provide Marketing Opportunities
Online Sales: An Essential Challenge?
Government Strengthens Controls on Imported Food
Mengniu Builds Up Its Dairy Business in Hunan
Yili Secures Financial Support
Junlebao Dairy’s Acquisition
M&S Trade Targets Imported Dairy Sales
Xuedun Yak Milk Develops Its Yak Milk Business
Hubei to Build Buffalo Milk Park
Hero Group Focuses Further on Infant Formula
Scient Targets Premium Infant Formula

Dairy Products China News, a monthly publication issued by CCM International on the 30th/31st of every month, brings you the latest information on new market dynamics, company dynamics, new dairy products and consumption trend, new legislations and policies and raw milk supply dynamics that are shaping the market.

About CCM International
CCM International is dedicated to market research in China, Asia-Pacific Rim and global market. With a staff of more than 150 dedicated highly-educated professionals. CCM International offers Market Data, Analysis, Reports, Newsletters, Buyer-Trader Information, Import/Export Analysis all through its new proprietary product ValoTracer.
For more information, please visit http://www.cnchemicals.com.
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