[Press Release] Mengniu Maintains High Revenue Growth of 8.1% for Interim 2017 Operating Profit Notably Improves 2017 Interim Results Highlights (Unaudited): For the six months ended 30 June Change 2017 2016 % RMB 000 RMB 000 Revenue 29,465,755 27,257,154 8.1% Gross Profit 10,502,573 9,181,405 14.4% Operating Profit 1,805,604 1,525,468 18.4% Profit Attributable to Owners of the Company 1,127,900 1,077,290 4.7% Earnings per Share (RMB) - Basic 0.290 0.277 4.7% - Diluted 0.290 0.277 4.7% Mengniu was included in the Global Dairy Top 20 list published by Rabobank for the ninth consecutive year. In 2017, for the first time, Mengniu climbed into the top 10, attaining a new height in this prestigious global dairy industry ranking. With the spirit of Craftsman of Milk, Mengniu focuses on providing nutritious and healthy products to consumers. During the period, Mengniu s liquid milk has maintained market leadership, while its low temperature dairy products continued to claim the largest share in the chilled fresh dairy products market in China. Mengniu has achieved significant advances in its chilled product category. Building on the established brand position of Milk Deluxe, Mengniu has launched Milk Deluxe Yogurt, the first yogurt product in the growing Milk Deluxe family. In addition, Yoyi C has launched LC-37 to target and build a strong brand in the probiotic drink market. Mengniu continued to consolidate upstream resources within its supply chain by increasing its stake in China Modern Dairy Holdings Ltd. ( Modern Dairy ; stock code: 1117) to assure the high quality and stable supply of raw milk sources. At the same time, it has actively expanded its milk sources overseas in order to achieve greater diversification in suppliers. Mengniu has actively advanced digitalization, building the unique Mengniu Cloud, the digitalized Real-time Food Safety and Quality Monitoring and Control Platform and Big Data base of consumer behaviour in order to generate more accurate data for managing and operating its factories, constructing milk sources, assuring product quality and improving marketing activities. At the same time, Mengniu constantly and diligently strives to advance its research and development capabilities in order to achieve breakthroughs. ~ More ~ Page 1 of 6
(Hong Kong, ) China Mengniu Dairy Company Limited and its subsidiaries (together as Mengniu or the Group, Stock Code: 2319), a leading dairy product manufacturer in China, announced its unaudited interim results for the six months ended 30 June 2017. In the first half of 2017, revenue of the Group increased by 8.1% year-on-year to RMB29,465.8 million, attributable to sales volume growth driven by the Group s active efforts in product innovation, optimizing business deployment and marketing. Milk Deluxe and Just Yoghurt, in particular, were the biggest contributors to the revenue growth. With raw milk price lingering low, the Group s product mix continuing to optimize as well as the significant improvement of cost control resulted from the strengthened centralized procurement after the organizational restructuring, the Group s gross profit rose by 14.4% to RMB10,502.6 million with gross profit margin increased by 1.9 percentage points to 35.6%. Given the above reasons and the effective control over expenses by the Group, operating profit significantly increased by 18.4% to RMB1,805.6 million and profit attributable to owners of the company increased 4.7% to RMB1,127.9 million. Basic earnings per share were RMB0.290, representing a year-on-year increase of 4.7%. Mr. Jeffrey, Minfang Lu, Chief Executive Officer of Mengniu, said, During the period, with consumption continuing to recover, overall growth of the dairy product industry in China improved, and new consumption habits emerging gave demand for dairy products a push. To satisfy Chinese consumers growing crave for higher-end and more nutritious products, Mengniu continued to focus on high-end product research and development and innovation, as well as strengthening up and downstream cooperation to the end of providing aeronautic quality products to consumers. During the period, breakthroughs were made in innovation of chilled and ice cream product categories and the market responded positively. Moreover, Mengniu continued to adjust its organizational structure and adopted the new business division system constituting four independent product divisions, aiming to achieve balanced and coordinated development of the business segments. And, through optimizing channels and integrating resources, Mengniu was able to improve operational efficiency and better control product quality and business growth. Business performance in the first half of 2017 1. Liquid Milk (Revenue: RMB25,372.1 million, accounting for 86.1% of Mengniu s total revenue) UHT milk, milk beverages and yogurt recorded revenue of RMB11,797.2 million, RMB4,910.3 million and RMB8,664.6 million, accounting for 46.5%, 19.4% and 34.1% of the segmental revenue, respectively. In the UHT milk segment, Milk Deluxe upgraded its entire organic milk series, continuing to enhance its image as a high-end brand; Prime Ranch Pure Milk adopted One Pack, One Code that allows use of the barcode by customers to track product batch information, and Future Star Kid Growth Milk cooperated with Shanghai Disney Resort to launch limited-edition themed packaging. As for milk beverages, Yoyi C launched the LC-37 series that employs exclusive probiotics technology to guarantee high activity of the probiotics in the product, therefore boasts its functionality. Regarding yogurt, Milk Deluxe Yogurt was launched building on the advantage of the Milk Deluxe brand. Just Yoghurt and the Hollywood movie Transformers: The Last Knight jointly launched special edition packaging in complement with on and offline promotion activities to boost sales growth. ~ More ~ Page 2 of 6
2. Ice Cream business (Revenue: RMB1,985.3 million, accounting for 6.7% of Mengniu s total revenue) Mengniu placed much emphasis on promoting the high-end brand Deluxe. It embarked on upgrading the brand on multi-front including branding, products, packaging, marketing and communications. Mood for Green launched sticky rice red bean ice cream, and a new Russian Milk Ice Cream was also launched, both earning favorable market comments. 3. Milk Powder business (Revenue: RMB1,786.4 million, accounting for 6.1% of Mengniu s total revenue) Yashili International Holdings Ltd ( Yashili, stock code: 1230), a subsidiary of Mengniu, quickly increased the share of mother-and-baby store channel in its sales channel mix and enhanced e-commerce channel during the period. The sales channel transformation and better defined product mix saw its mid-range-to-high-end brands on stable footing and the overall revenue decline gradually narrow. Yashili rolled out its differentiated business model and business deployment step-by-step, with all its brands complementing each other in terms of price range and regional strategy. During the period, Yashili s research and development team completed the research and development of organic milk powder formula for pregnant women and the product has entered the final leg of preparation for launch. Yashili also actively responded to the infant milk formula registration system requirement. At present, 21 recipes of infant milk formulas (i.e. 7 product series) of Yashili have obtained approval from the China Food and Drug Administration. 4. Other Products business (Revenue: RMB322.0 million, accounting for 1.1% of Mengniu s total revenue) Apart from the existing walnut and almond flavor beverages, the plant-based protein beverage brand ZhiPuMoFang jointly developed by Mengniu and The WhiteWave Foods Company ( WhiteWave ) also launched the Mellow Soy Milk series, which was well-received by consumers. Integrated international resources and enhanced synergies Inner Mongolia Mengniu Danone Dairy Co., Ltd. ( Mengniu Danone ), a joint-equity company of Mengniu and Danone Group, was active in cultivating markets and building sales channels. Its products continued to pride the biggest share in the chilled product market in China. During the period, Mengniu, for the first time, employed the exclusive patented Ystral smoothening technique from Danone Group to launch the high-end Milk Deluxe Yogurt. Moreover, Danone Group completed the acquisition of WhiteWave in April 2017, giving Mengniu s plant protein drinks business more resources and new vigor to develop in the plant-based drinks market. With the support of the technology and talent from Arla Foods, Mengniu aligned the business with international standards and enhanced the management standard of its ranches. Mengniu and Arla Foods cooperated on in-depth research and development. They plan to pursue comprehensive research and development projects, including setting up pilot demonstration farms, a new technology validation base, research and development testing base, training base, etc. Furthermore, Mengniu and Arla Foods have formed a joint project team to drive research and development and production of cheeses. ~ More ~ Page 3 of 6
Yashili completed the acquisition of Dumex Baby Food Co., Ltd., which specializes in infant milk formula, from Danone Group last year. On the back of COFCO Group and Mengniu, and capitalizing on the resource support from its international strategic partners such as Danone Group and Arla Foods, Yashili shall work hard on achieving synergies in the aspect of production capacity and enhancing efficiency, as well as improving production line deployment and cost structure continuously. Mengniu increased its equity interest in Modern Dairy, which enabled it to have a more integrated up and downstream cooperation system, allowing it to better consolidate its advantages in channel expansion and branding with Modern Dairy s unique production model featured with the integration of forage planting, cow breeding and milk processing and high quality raw milk to boost operational efficiency of both parties. In July 2017, Mengniu and Modern Dairy together introduced the Modern Dairy Xianyu Pure Milk, which employs state-of-the-art production technique that makes Milking to Processing in Two Hours possible, hence meets consumers demand for healthy and nutritious products. Optimized sales channel and stepped up brand promotion At the end of 2016, Mengniu implemented a new business division system to facilitate formulation of more targeted sales strategy and effectively integrate resources in different sales regions, hence was able to markedly improve cost efficiency. During the period, Mengniu focused on launching new products, enhancing overall market coverage, deepening cooperation with distributors and strengthening control over sales terminals. By deploying new channels and new business model, such as experience store and e-commerce, it was able to unearth new sales growth drivers. At the same time, with front-line and back-office staff working closely, giving their best support to the sales arm in meeting market demand, overall sales performance improved significantly. Mengniu also strengthened its e-commerce sales channels. Currently, it has presence on all mainstream e-commerce platforms in China, including Tmall, JD, Suning.com and Womai.com. During the period, Mengniu ranked first in terms of dairy product sales on such platforms as Tmall, Suning.com and Womai.com. Pushed forward building of digitalized system with the support of Big Data Mengniu has used digital technology on milk source construction, factory management and operation, as well as quality management to raise overall quality management standard, thereby assure the quality and safety of its food products. With the help of Big Data, Mengniu is able to access accurate information of consumer demands and product positioning and can keep improving its research and development capability and achieve breakthroughs. Mr. Lu concluded, Looking forward, alive to the consumption trend geared towards high-end and customized dairy products, Mengniu will continue to step up effort on product development and innovation and integrate upstream supply chain resources, with the aim of providing customers with high-end, and more nutritious and tasty products, in other words, the perfect consumption experience, thereby raise their trust in the Mengniu brand. As one of the global top 10 enterprises, Mengniu will continue its pursuit of quality, innovation and internationalization and, via deploying a complete and internationalized industrial chain, build itself into a world-class dairy enterprise. ~ End ~ Page 4 of 6
About China Mengniu Dairy Company Limited China Mengniu Dairy Company Limited and its subsidiaries manufacture and distribute quality dairy products in China. It is one of the leading dairy product manufacturers in China, with MENGNIU as its core brand. Mengniu s diversified products range includes liquid milk products (such as UHT milk, milk beverages and yogurt), ice cream, milk formula and other dairy products (such as plant-based protein beverage and cheese). By the end of June 2017, the Group s annual production capacity reached 9 million tons. In March 2014, Mengniu became a Hang Seng Index constituent, making it the first blue chip Chinese dairy product manufacturer. For more information, please visit the website of www.mengniuir.com. For Enquiries: Strategic Financial Relations (China) Limited Janice Au Tel: +852 2864 4874 Karen Li Tel: +852 2864 4837 Email: sprg-mengniu@sprg.com.hk Page 5 of 6
China Mengniu Dairy Company Limited Consolidated Statement of Profit and Loss For the six months ended 30 June (unaudited) 2017 2016 RMB 000 RMB 000 Revenue 29,465,755 27,257,154 Cost of sales (18,963,182) (18,075,749) Gross profit 10,502,573 9,181,405 Other income and gains 127,073 169,963 Selling and distribution expenses (7,143,794) (6,448,888) Administrative expenses (1,087,499) (1,135,934) Other expenses (592,749) (241,078) Interest income 229,331 278,098 Finance costs (191,404) (151,460) Share of losses of associates (354,600) (154,555) Profit before tax 1,488,931 1,497,551 Income tax expense (373,846) (313,030) Profit for the period 1,115,085 1,184,521 Attributable to: Owners of the Company 1,127,900 1,077,290 Non-controlling interests (12,815) 107,231 1,115,085 1,184,521 Earnings per share attributable to ordinary equity holders of the Company (expressed in RMB per share) Basic 0.290 0.277 Diluted 0.290 0.277 Page 6 of 6