Edited Transcript of 2319.HK earnings conference call or presentation 27-Aug-20 1:30am GMT

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Half 12 months 2020 China Mengniu Dairy Co Ltd and Yashili Worldwide Holdings Ltd Earnings Name

Wanchai Aug 27, 2020 (Thomson StreetEvents) — Edited Transcript of China Mengniu Dairy Co Ltd earnings convention name or presentation Thursday, August 27, 2020 at 1:30:00am GMT

Expensive buyers, good morning. Welcome to our assembly. Welcome to our outcomes announcement this morning. This assembly will likely be performed in mandarin. Within the meantime, we’ve got English — to start with, please enable me to introduce the administration staff. Now we have Lu Minfang, Chief Government Officer; Meng Fanjie, Vice President and Government Director; Mr. Zhang Ping, Chief Monetary Officer; Gao Fei, Senior Vice President; Wen Yongping, Vice President; Chris Kwok, Monetary Controller and Firm Secretary; [Ling Shou Tong], Vice President; we’ve got Yan Zhiyuan, Chief Government Officer; Wen Jieping, CFO.

I will discuss to you concerning the agenda. Initially, we’ve got Mr. Lu Minfang to speak us concerning the 2020 efficiency. After which we’ve got Mr. Meng Fanjie. Mr. — we’ve got Gao Fei, Mr. Yan Zhiyuan and Mr. — and Yan Zhiyuan. Zhang Ping, the CFO.

Okay. Thanks. Traders, pals, good morning. It has been a very long time that we’ve got not been in a position to meet one another, principally. Thanks very a lot for becoming a member of our 2020 interim outcomes presentation.

Right this moment, I feel the association is a bit totally different. Please flip to Web page 1 of our PPC. Within the first half — effectively, really, this yr, there’s the pandemic. So we wish to do a quick overview. So wanting again into first half 2020, the pandemic has led to enormous stress to us whereas shoppers have been dealt a heavy blow. After the outbreak of the pandemic, on the first occasion, we laid set as much as improve the work main group. And we organized for all items on the planet to anti-infection work and we actively slowed our supplies, enhancing loss and because the protecting interval to guard worker security.

So amongst our 40,000 staff, there’s — nobody has been laid off or skilled pay lower due to the pandemic. Most manufacturing foundation proceed the operation. So we’re an enterprise, effectively trusted by Chinese language shoppers. So throughout the pandemic, we actively took up our social duty, and we donated supplies and money within the quantity of RMB 740 million. And in Wuhan, we additionally donated some provides. And along with various organizations, we began rescue materials switch works. And in Wuhan, we accomplished the transport of RMB 40-odd million supplies for our merchandise. And inside 2 weeks, all these provides had been despatched to the frontline and saved pandemic personnel.

So we’re happy with what we’ve got performed as a result of, as you recognize, on the finish of January and early February, the pandemic was nonetheless very extreme. So we didn’t solely donate supplies price RMB 740 million, really, throughout the interval, our staff and our working companions, personally despatched the fabric to the medical p.o. field inside 2 weeks. So this reveals some robust execution functionality. We’re very proud. Moreover what we’re happy with is that we protected the entire industrial chain. As you recognize, throughout that interval, principally, on daily basis, the excess shares amounted to 9,000 odd tons, and that is enormous stress. And underneath this stress, we didn’t reject the exceptions of anymore, and we cooperated with our working companions. We helped the upstream industrial chain to experience out the difficulties. Due to the pandemic, the channel stock was not digested and most channels had been affected. In February, we spent more money to clear stock. And we actively developed e-commerce and in addition dwelling supply enterprise, in order that the entire provide chain has resumed regular. Due to all these measures, you’ll be able to see that on the finish of April, for our room temperature liquid milk channel stock is resumed regular. And there’s double-digit progress for Mengniu comparable enterprise. And all channels resumes or recovered virtually fully.

After which in Might and June, the expansion was even stronger. On the similar time as a result of we discharged our social duty, the model fame and word-of-mouth was drastically enhanced throughout the pandemic. So I wish to take this chance to thank all people who has helped us line our companies throughout the pandemic, particularly the frontline medical employees. And we have to thank our 40-odd thousand staff as a result of they persist with their place. So thanks, all working companions, in order that we will proceed to provide our merchandise to finish shoppers, so that individuals can profit from meals diet.

Now subsequent web page, please. If we glance again, there are a number of essential factors. Our decision-making was quick and our execution was very quick throughout the pandemic, due to our resolution, then in Q2, our enterprise restoration had robust basis. For our room temperature premium manufacturers our progress exceeded the friends. Market share continues to rise. So it was enhanced by 1.1 share factors to 28.2%.

Our share was enhanced. We’re #1 within the business. On the similar time, our pure milk additionally grew 25%. And in Q2, our web revenue margin elevated considerably. In Q1, premium milk was affected. Then sooner or later, for those who have a look at Deluxe progress, it is vitally robust in Might. Deluxe dream cap was additional upgraded, so it was upgraded from 3.6 grams of dairy protein to three.Eight grams, evaluating with 2019. In 2019, Deluxe progress was 25%. In Q2 this yr, the expansion exceeded 30%. So we’ve got to thank, or really, it is a show of name competitiveness. After which for those who have a look at our low-temperature merchandise, throughout the pandemic, the [LTES 3 seal] was launched, and that is within the low-temperature class. The third level is that for our contemporary milk enterprise, it grew virtually 100% year-on-year. After which if we don’t consider Wuhan, which was drastically affected by the pandemic, the expansion was even stronger. Market share continued to rise. After which in June, our market share was already #2 within the business. For contemporary milk by way of channels, there’s robust progress, each on-line and off-line.

Our on-line progress in Tmall, JD and so forth, we achieved progress greater than 600%. After which there are a selection of dwelling supply corporations and companies on which we achieved robust progress. Our provide chain freshness continued to rise [T plus 0] milk merchandise was enhanced by 10 share factors to 80%.

Subsequent web page. Our ice cream enterprise, this yr within the first half, we needed to regulate our model positioning and to enhance product construction in order that promoting channel may be strengthened. Our working revenue margin elevated by 5.7 share factors. After which for the cheese merchandise, there’s progress. Retail was very excellent. Each income and web revenue achieved 3-digit progress. After which for our future technique, really, within the first quarter, we made changes to product construction and model positioning of components milk. In Q2, we recovered by way of revenue margin, after which for Yashili enterprise, there was 25% progress. And throughout the interval, we’ve got robust progress in Mengniu as a complete.

So we had been courageous in preventing the pandemic, and we’ve got raised change. We lead the business in restoration. We continued our high-quality improvement. In order that high-quality of life for shoppers. So for the primary half, I feel our staff may be very, very assured in what we’ve got performed.

Now I wish to speak about our monetary highlights. Yesterday, after the announcement — you might have learn the info already. So wanting on the first half, operations and monetary efficiency. Our monetary information included Junlebao that was the dispose off in November final yr. Final yr, in December, there was additionally the acquisition of Lion the info included. So in first half, income was RMB 37.53 billion, together with Junlebao, down 5.8% year-on-year. And web revenue attributable to dad or mum firm, $1.21 billion, down 41.7% year-on-year.

In an effort to allow you to have higher understanding of our enterprise progress, let’s flip to the following web page. So right here, you’ll be able to see monetary highlights for comparable enterprise. Within the first half, we achieved income of RMB 36.89 billion, so up 9.4% year-on-year, and gross sales volumes elevated 8.2% construction and value optimistic contribution, 1.2%. This progress price is best than our expectations in March. On the similar time, it’s anticipated that for comparable enterprise within the first half, income barely declined or remained flat. GP margin within the first half was down 30 foundation factors to 38.9%. So within the first quarter, we cleared stock and on the similar time, there was influence from value construction on value reductions. Our working revenue margin down 2.5 share factors as a result of in Q1, we spent more money to deal with — settle for channel stock. In order that’s a one-off influence. However then the pandemic, throughout the Chinese language New 12 months, which was the busy interval, so we hoped that we’d have the ability to clear stock, and we’ve got accomplished the work and the end result was a lot better than our expectations.

In first half, comparable enterprise, web revenue was RMB 1.158 billion, down 42.1% till the attributable web revenue — web revenue was $1.211 billion, down $41.7 million. As a result of in early June, after we gave earnings warning, however at the moment, attributable revenue was down 45% to 60%. And in June, our income grew very strongly in Q2. Revenue margin additionally improved on a year-on-year foundation. And likewise the principle three way partnership corporations, for instance, Fashionable Dairy and so forth, was higher than expectations.

And so we’ve got procured some antivirus supplies. And all of the — effectively, the sum of money, the influence arising from that exceeded $1.Four billion. So principally, our efficiency was higher than our expectation at the start of the yr. In an effort to allow you to have higher understanding of the influence of the pandemic, let’s take look right here.

In Q1, regardless of the pandemic, we’re nonetheless in a position to obtain a fats enterprise from — in Q2, there was 19.2% progress. So that is progress in gross sales income. And for those who have a look at working revenue margin, in Q1, there was a slight pause, nonetheless, in Q2, working revenue margin reached 6.7% evaluating with the identical interval of final yr. That was a progress of two.7 share factors.

So you’ll be able to see that our Q2 enterprise restoration was fairly passable. Simply now I mentioned that every one the influence throughout Q1 was one off. I am not going to repeat the purpose. However for Q2, our enterprise progress and our promoting bills ratio is such that our value management is sweet and all the prices and bills are on an inexpensive degree. In order that’s why there’s important enchancment in our working revenue margin. If you happen to check out our numerous classes, that’s liquid milk, ice cream, milk components and cheese. You possibly can see that liquid milk grew strongly. Ice cream within the first half, there was some adjustment. So progress in income solely 2% for combine components however this contains wage. In 2019, there was no Junlebao.

So right here, you’ll be able to see the general gross sales. So there is a rise by 29.8% in a while. There can be a presentation on Yashili enterprise as effectively for different merchandise and cheese, up 41%. Retail cheese was very robust for pasturing cheese. There was some influence. So it is a income breakdown by section.

Then for those who check out our money circulation and CapEx. Right here, you’ll be able to see that we’ve got set out Q1 and Q2 with out Q2. Web money from working actions grew strongly in Q2. There may be the RMB 3.Eight billion working money within the first half. There may be robust progress in working money circulation. And this contains all of the one-off influence. So total talking, our working money circulation loved good progress, 32% progress. This is superb. This reveals that our operation may be very wholesome. After which CapEx, throughout the pandemic, aside from the constructing of the Wuhan fund, which was affected in all different locations, our mounted asset funding and capability enlargement was virtually according to our authentic plan for 2020. So CapEx was RMB 1.68 billion. That is within the quarter with our plan at the start of 2020.

Subsequent web page, SG&A bills. So right here, you’ll be able to see Q1 and Q2 information. In Q2, SSD bills resumes regular. So it was down 1.9 share level. And for those who embody the one-off funding, the SSD ratio was 30.6%. G&A bills, it continues to return down by 30 share factors to three.8%. In the course of the pandemic, we minimized enterprise journey or touring bills. So right here you’ll be able to see a reasonably wholesome degree.

Subsequent web page, I will discuss to you concerning the operational effectivity influence. And as you’ll be able to see that is all excellent. When it comes to our turnover, stock has elevated. It’s because in starting of the yr, we’ve got accrued imported powder in addition to for the Chinese language New 12 months. And to this point, for all of the milk powder, we’ve got divested most of that to a wholesome degree.

As well as, for our stock degree by finish of June, it has returned to a traditional degree. So I’ve merely walked you thru the monetary scenario. And now I feel it is nonetheless crucial so that you can perceive about our 2020 strategic priorities. When the pandemic began throughout our dialogue, we’ve got additionally fashioned our technique even when the pandemic has an influence on our technique, however we additionally hope that we’re going to persist with our 2020 priorities and for the 2020 to 2025 interval. So we’ve got 6 essential facets. The primary one is the upgrading of the model proposition. And second is to proceed to construct a RTM revolution; quantity three, strengthen uncooked milk sourcing; quantity 4, value saving; and quantity 5, our digital capacity; and quantity six, what we’re going to do after the acquisition.

So now I will stroll you thru them one after the other and in addition to our achievements. Primary, by way of our donation, our donation in addition to the retail that we’re carrying with, you’ll be able to see that has really helped with our gross sales. And through our procurement, you’ll be able to see due to our glorious efficiency in donation, our model has loved an excellent fame.

Within the meantime, we’ve got our Chinese language characterised advertising and marketing, and it has really precipitated loads of dialogue on-line and once more, rejuvenated the model among the many younger folks.

When it comes to our revolution or reform by way of channels, we proceed to push ahead our work on this space, for instance, we proceed to enhance the protection of the liquid milk. When it comes to empowering the distributors, we proceed to advertise good community programs that refine channel administration.

One other spotlight is that we — our earlier mannequin of penetration into cities and villages, we’ve got already seen nice leads to Hunan and Anhui provinces. We have already got elevated 150,000 level of gross sales inside the first half of 2020. And once more, it is a new mannequin that has assisted us securing with the web assist, and it is a mannequin that we want to promote to the entire of the nation.

Equally, within the new retail, right here, we’ve got additionally obtained good outcomes for e-commerce. You possibly can see, we’ve got seen good outcomes, #1 gross sales, on 618 Buying Pageant, O2O dwelling supply throughout the pandemic. Now we have created over 100,000 retail teams, throughout the pandemic, to drive neighborhood gross sales. So all these new channels have additionally helped to advertise our gross sales within the first half of the yr.

Quantity 3. Truly, throughout the pandemic, by way of the choices that we’ve got made and to proceed to develop. You possibly can see that at the moment, there was loads of stress, however now wanting again, these had been all the correct choices by way of we proceed to exert extra management of the supply of milk. And now this, in each China and abroad by way of the protection of milk sourcing in addition to in Mongolia, in Hubei, Shandong, in Heilongjiang Province, we’ve got already efficiently established new milk farms and proceed to exert our affect on this space. And you recognize that trendy farming, we’ve got already change into the biggest shareholder of Shengmu, and they’re additionally the biggest natural milk, uncooked milk sourcing. As well as, we proceed to enhance our enterprise effectivity. So these farms for the primary half of this yr, they’ve seen nice operations, and so they have additionally elevated the uncooked milk provide to Mengniu.

Shifting on, I might like to speak concerning the natural milk demand. It is extremely robust for the time being. So after exercising our shares’ proper and turning into the biggest shareholder, we are going to proceed to push ahead the event of natural milk. Within the meantime, by way of our full chain value financial savings, that is additionally a vital half for this yr, from design-to-value initiative. We will likely be pushed by shoppers and placing shoppers within the middle, in order that our merchandise are nearer to the shoppers, and our merchandise can replicate the true worth. So from this attitude, whether or not it’s from the product perspective or from the buyer’s perspective, for this reason we will see that our gross margin regardless of throughout the pandemic, we’ve got invested a lot, our gross margin remains to be at a really excessive degree and Q2 gross margin is even increased than that of Q1. Once more, this has solidified a fair more healthy improvement basis.

Quantity 5. When it comes to enhancing our digital functionality. Now we have a devoted digitalized staff. Now we have 6 areas to push ahead to the general group improvement. And this yr, we will likely be specializing in the digitalized and exact commercial, omnichannel consumer-centric operations. Quantity three, 1 pack 1 code. Now we have established a bridge to work together with our shoppers. And likewise, we will likely be utilizing the massive information and set up a giant information platform, going ahead, for all our communication with the shoppers and by way of enhancing our effectivity, it’ll change into very easy.

Quantity 6, final web page. That is concerning the integration and synergy. Since final December, Bellamy’s joined Mengniu household. Now we have carried out total integration of Bellamy’s and as a vital a part of the worldwide enterprise of ammonia, Bellamy’s proceed to attempt for pursuing an excessive natural and pure or natural model, we proceed to have our Chinese language administration staff to be strengthened and to construct a strong basis for the home enterprise. In Might, we’ve got launched the primary tremendous excessive A2 natural milk. And in June, we’ve got launched the tremendous high-end natural goat milk. Proper now, we’ve got additionally launched a Chinese language model of child rice in March this yr, and it’s being offered very effectively.

Within the meantime, Bellamy’s has already acquired the Chinese language components registration approval. And the primary Chinese language model of the newborn components milk will likely be launched effectively within the second half of August in China.

So once more, this has accomplished our omnichannel deployment of each on-line and offline. So we consider that with this new product within the second half of this yr, we are going to see even higher enlargement. As well as, I’d additionally like to say concerning the termination of Lion Dairy acquisition. And this I consider that you’ve got heard quite a bit concerning the reviews. Buying LDD, we hoped to construct a really full and aggressive pacific and Southeast Asia enterprise. And it was according to our technique. Even when ultimately, we didn’t succeed, we really feel very regretful about this. Nevertheless, by way of the provision chain, principally, it is as a result of LDD has their very own native enterprise and in Australia, by way of the provision chain preparations, we’ve got not stopped our work in these areas. So even whether it is — with remorse that we inform you this, however since we try to go abroad. And naturally, we are going to see the massive wins and waves coming our means. So we had been ready. However this yr, I can inform you that we nonetheless have very secure milk provide chain in Australia and New Zealand, and we are going to proceed on our path of willpower for internationalization. And we are going to work very onerous on the present enterprise that we’ve got and make the most of the home and abroad 2 markets, 2 sources and to assist the China and world milk to go on to a greater improvement position. And final however not least, I wish to point out this.

You possibly can see that Mengniu was chosen into the Grasp Seng Company Sustainability Index in Han Seng ESG 50 index. To this point, we’re the primary Chinese language milk firm that has been chosen, and that is effectively reflecting the previous Three years of our work in setting, social and economic system. And we’re working and been following — we’re following the United Nations 12 sustainable objectives in Mengniu. Now we have particularly allotted a committee for this. As well as, in Mengniu, we’ve got a devoted execution staff to be sure that they follow-up on the event on this regard. And I consider that sooner or later, we’d have the ability to implement all of this by way of our nationwide degree inexperienced factories and construct 2 good factories to embrace digital transformation. And I strongly consider that if we will roll out our technique plan, it’ll assist us with our long-term sustainable progress.

Nice. That is my easy introduction for the primary half of this yr. I now will cross the ground to the Yashili staff to speak to us concerning the Yashili efficiency. And final however not least, I wish to thanks all on your assist. Our administration staff are filled with confidence. We consider that the pandemic’s influence on our enterprise is proscribed. As well as, for the longer term outlook we’re very optimistic. Thanks.

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Operator [3]

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Thanks, Mr. Lu.

Ping Zeng you can begin.

[Statements in English on this transcript had been

spoken by an interpreter current on the dwell name.]

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