CHINA MENGNIU DAIRY COMPANY LIMITED (2319.HK) 2016 ANNUAL RESULTS MARCH 2017
Legal 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. 2
Management Team Mengniu Lu Minfang, Chief Executive Officer & Executive Director Bai Ying, Chief Operation Officer & Executive Director Wu Wenting, Vice President & Executive Director Zhang Ping, Chief Financial Officer Liu Shengli, Vice President Gao Fei, Vice President Shi Dongwei, Vice President Chris Kwok, Financial Controller & Company Secretary Yashili Chopin Zhang, Chief Executive Officer & Executive Director Hua Li, Chief Operation Officer & Executive Director Wen Jieping, Chief Financial Officer 3
Financial Overview
Financial Highlights RMB Million 2015 2016 +/- Revenue 49,026.5 53,779.3 +9.7% Gross Profit 15,375.5 17,635.4 +14.7% Gross Profit Margin 31.4% 32.8% +1.4ppt EBITDA 4,229.9 956.0-77.4% EBITDA Margin Profit Attributable to Owners of the Company Net Profit Margin Basic EPS (RMB) 8.6% 2,367.3 4.8% 0.609 1.8% -6.8ppt -751.2-131.7% -1.4% -6.2ppt -0.193-131.7% 5
Financial Highlights Excluding One-off Items in 2016 RMB Million 2015 2016 +/- Revenue (1) 49,026.5 53,558.3 +9.2% Gross Profit (1) 15,375.5 18,188.4 +18.3% Gross Profit Margin (1) Goodwill Impairment on Yashili EBITDA (2) 31.4% - 4,229.9 34.0% +2.6ppt 2,253.8-100% 3,841.6-9.2% EBITDA Margin (2) 8.6% 7.2% -1.4ppt Profit Attributable to Owners of the Company (2) 2,367.3 2,039.6-13.8% Net Profit Margin (2) 4.8% 3.8% -1.0ppt (1) Excluding the impact of sales of milk powder to third parties in 2016 (2) Excluding the impact of sales of milk powder to third parties and goodwill impairment on Yashili in 2016 6
Revenue Breakdown by Segment RMB Million 2015 2016 +/- (%) % of Revenue +/- (ppt) Liquid Milk 43,326.6 48,102.9 +11.0% 89.4% +1.1ppt Ice Cream 2,141.2 2,179.9 +1.8% 4.1% -0.3ppt Milk Formula 3,228.8 3,150.9-2.4% 5.9% -0.7ppt Others (1) 329.9 345.6 +4.8 % 0.6% -0.1ppt Total 49,026.5 53,779.3 +9.7% 100.0% / (1) Others refers to cheese, plant-based nutritional food business,.etc. 7
Stable Market Share Performance Liquid Milk Chilled Products 30.9% 32.0% 7.6% 8.5% 6.2% 7.6% 25.7% 26.8% 27.3% 27.4% 2015 2016 UHT Products 30.7% 32.7% 8.7% 9.0% 15.3% 15.6% 16.9% 15.1% 28.4% 27.6% 2015 2016 Chilled Yogurt 26.5% 26.8% 6.4% 5.6% 10.2% 8.4% 29.6% 31.3% 27.3% 27.9% 2015 2016 Mengniu A B C Others 25.0% 26.1% 7.8% 8.5% 15.7% 13.6% 19.5% 20.4% 32.0% 31.4% 2015 2016 Source: AC Nielsen Retail Research 8
Key Categories Maintained Strong Growth Mengniu Sales Growth 2016 Industry Growth at Retail End 200% 170.4% 100% 150% 80% 100% 74.1% 60% 40% 43.9% 50% 35.5% 0% 10.2% 0.7% 17.7% 5.3% 16.1% 3.3% -10.7% 20% 0% 3.8% 12.6% 11.2% -2.3% -50% Liquid Milk UHT Yogurt Premium UHT Chilled Yogurt Basic UHT -20% Liquid Milk UHT Yogurt Premium UHT Chilled Yogurt Basic UHT 2015 2016 Source: Company data, AC Nielsen Retail Research 9
Continuous Improvement of Product Mix Brand Clusters (1) 2015 2016 + / - (ppt) Star Brands + Opportunity Brands 43.2% 44.8% +1.6ppt 1.6ppt Profit Contributor Brands 5.1% 4.8% -0.3ppt Backbone Brands 38.2% 36.1% -2.1ppt (1) Only states major brand clusters as a percentage of Mengniu standalone revenue (excluding Yashili) 10
Cashflow and CAPEX Net Cash Inflows from Operating Activities Capital Expenditure (RMB Million) 4,512.9 (RMB Million) 3,026.9 4,352.5 1,084.2 152.5 230.8 1,909.2 2,874.4 3,037.5 2015 2016 2015 2016 Plant & equipment Biological assets Equity investment 11
SG&A Expenses S&D G&A (RMB Million) 25.0% (RMB Million) 4.6% 22.4% 13,435.2 3.8% 2,471.4 10,985.0 1,871.3 2015 2016 2015 2016 Expense % of revenue Expense % of revenue 12
Operating Efficiency Index Inventory Turnover Receivables Turnover (1) Payables Turnover (2) (Days) (Days) (Days) 52.3 50.8 47.1 38.6 10.3 13.4 2015 2016 2015 2016 2015 2016 (1) Receivables Turnover = (Average Balance of Trade and Bills Receivables / Revenue) x Number of Days (2) Payable Turnover = (Average Balance of Trade and Bills Payables / Cost of Sales) x Numbers of Days 13
Business Review and Prospect
2016 Overview Optimized product mix and improved branding strategies Improved quality, launched new products and strengthened product competitiveness Optimized product structure and continuously focused on star brands Promoted brand internationalization with strong marketing efforts Remarkable growth versus industry, laid solid foundation for reaching 2020 strategic target Realized substantial progress for Route to Market Advanced transformation of regional offices to P&L entities Further implemented the strategy of enhance distributors, solidify sales companies & develop CBUs Reinforced channel execution, implemented sales strategy, improved penetration and strengthened control over POS Reached consensus with strategic shareholders on future development strategies Strengthened ties with upstream partners increased shareholding of China Modern Dairy Deepened cooperation with Danone and made clear development direction of milk formula business with the target of improving Yashili s operation 15
China Dairy Industry 2017 Challenges and Opportunities Challenges Pressure of cost inflation across industry Demand for dairy products not yet significantly accelerated Near-term market disturbance before the full roll-out of infant milk formula registration policy as well as continuous competition from overseas brands Much work to be done for market penetration in lower-tier areas given great potential for dairy product consumption in China Product mix upgrade being the focus of industry growth Market competition expected to be gradually eased as raw milk supply & demand tends to be balanced Milk source deployment is of increasing strategic importance to maintain industry leading position Opportunities 16
Mengniu 2020 Strategies Mission Focus on nutrition and health, deliver a drop of happiness for every moment and every day to more people Vision To become a century-old, consumercentric and innovation-led health and nutrition food company Goal To grow into the most dynamic and internationalized Chinese company targeting at one hundred billion revenue scale 17
Five Key Themes of Strategy Implementation in 2017 Adjust strategic initiatives based on industry and market dynamics to realize 2020 strategic goals 1 Take organization restructuring and enhance head-quarter competitiveness Improve operational efficiency and strengthen profitability 2 3 Deploy upstream resources at home and abroad with a forwardlooking vision and build an efficient and integrated enterprise Focus on star brands and promote full upgrade across all categories 4 5 Continue Route to Market initiative and strengthen competitiveness in sales channels 18
1 Take Organization Restructuring and Enhance Head-quarter Competitiveness Function-based system to new division-based system Focus on UHT/chilled segments Chilled products UHT products Others (plant-based, cheese,.etc.) Develop high-potential businesses Stabilize ice cream business Ice cream Milk formula Accelerate milk formula business Build a professional and high-efficiency functional team at head-quarter Serve, support and monitor business divisions Group level R&D Consumer insight Brand building Quality & regulatory monitoring Public affairs administration Talent training 19
2 Improve Operational Efficiency and Strengthen Profitability Establish centralized procurement system and operation flow Continuously improve public bidding practice Proactively work out cost-saving plans Public bidding & centralized procurement Set up specific plans to improve quality & efficiency of supply chain based on different business formats Leverage experience of Danone and Arla to rigorously promote supply chain cost reduction plans Enhance quality & efficiency along supply chain Benchmark merchandising efficiency with industry peers, while develop and implement corrective actions Improve merchandising efficiency 20
3 Deploy Upstream Resources at Home & Abroad with A Forward-looking Vision & 7 Build An Efficient and Integrated Enterprise Establish milk sourcing division to ensure effective implementation of milk sourcing strategies Centralized procurement & management of raw milk and milk powder Exert overall control and procurement planning of raw milk and milk powder to effectively control cost Control premium raw milk sourcing in domestic market Ensure stable & high quality raw milk supply to develop premium UHT products and low temperature category Develop China Modern Dairy s downstream business and drive performance improvement of Mengniu s mid-to-high end products Deploy upstream milk source and other milk-related materials globally Balance prices, effectively manage cost and secure high quality & stable supply of raw materials Europe Australia / New Zealand 21
4 Focus on Star Brands and Promote Full Upgrade across All Categories Strengthen cooperation with world-class brands and promote brand internationalization Exclusive partner of dairy products for Universal Beijing Resort Increase investment in brand building and enhance long-term brand influence Implantation into popular TV shows and other high quality entertainment resources Implantation into and joint promotion with Hollywood movies Brand Building R&D on nutrition and products in complement Make full use of three R&D platforms, actively develop new products and upgrade existing products Promote overall long-term & sustainable growth through high value-added products R&D/ Innovation Product Screening Sort out product lines and carry out premiumization strategies Optimize product mix and focus on star brands 22
5 Continue Route to Market Initiative and Strengthen Competitiveness in Sales Channels Strategies Continuously promote and enhance transformation of regional offices to P&L entities, implement responsibility system and management mechanism Stabilize distributor system while develop direct sales capability to strengthen control over POS Actions Specify development paths of distributors, sales companies and CBUs, and balance the roles of the three Expand market share and enhance penetration in lower tier cities Improve Key Account management framework and strengthen cooperation through various means Data analysis, differentiated marketing strategies, strategic alliance with retailers Continue to build advantages over special channels Convenience store sales improvement project Full application of Wei Sales Platform for more sophisticated POS management Improve layout of E-commerce platforms and maintain leading position 23
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