Financial Report 2024 | Once again caught in the dilemma of increasing revenue without increasing profit, Mengniu changes leadership to catch up with Yili

After repeatedly defaulting on investors, Lu Minfang has handed over the "baton".

On March 26, China Mengniu Dairy Co., Ltd. (2319.HK) disclosed its 2023 financial report, with annual revenue reaching 98.62 billion yuan, a year-on-year increase of 6.5%; achieving a net profit of 4.89 billion yuan, a year-on-year decrease of 5.7%.

Since 2020, Mengniu has once again fallen into the dilemma of increasing revenue without increasing profits.

In terms of products, Mengniu's core product, liquid milk, contributed revenue of 82.07 billion yuan, a year-on-year increase of 4.9%, accounting for 83.2% of revenue.

Ice cream products contributed revenue of 6.03 billion yuan, a year-on-year increase of 6.6%, with growth mainly coming from the Southeast Asia region, accounting for 6.1% of revenue.

Milk powder products contributed revenue of 3.8 billion yuan, a year-on-year decrease of 1.6%, accounting for 3.9% of revenue.

Including revenue from the production and distribution of dairy raw materials, it reached 3.49 billion yuan, a year-on-year decrease of 32.1%, accounting for 2.3%.

Due to the consolidation of the performance of China Modern Dairy Holdings Ltd. (600882.SH) in 2023, its cheese product revenue increased by 229.8% to 4.36 billion yuan, accounting for 4.4% of total revenue, of which 4.049 billion yuan was contributed by China Modern Dairy Holdings Ltd.

However, due to weak market consumer demand, China Modern Dairy Holdings Ltd. is also facing challenges. Its previously disclosed 2023 financial report showed a year-on-year decline of 16.16% and 53.95% in revenue and net profit, respectively.

During the performance briefing, Mengniu's management admitted that they observed a decrease in cheese consumption last year, mainly because cheese is not a necessity for most Chinese consumers. However, Mengniu will still expand its B2B business for cheese products.

The above-mentioned Mengniu management stated that under the stable operation of the current management team, they did not feel the pressure of impairment. Therefore, Mengniu holds an optimistic attitude towards the future of its cheese business.

In 2023, due to the oversupply of the main raw material for dairy products, raw milk, prices have fallen, driving Mengniu's gross profit margin to increase by 1.9 percentage points to 37.2% year-on-year.

However, Mengniu also made a provision of 300 million yuan for the impairment of raw milk.

During the performance briefing, Mengniu's management admitted that the oversupply of raw milk will continue in 2024, and compared to 2023, the degree of oversupply will be greater, possibly requiring further impairment provisions.

However, they also mentioned that in the future, they will package raw milk into bulk milk powder to address the issue, and the decrease in raw milk prices (resulting in income) can offset the loss from impairments.

Along with the financial report, a personnel adjustment announcement was also released:

Lu Minfang was promoted to Vice Chairman of the company, resigned as President, and continued to serve as an Executive Director. Gao Fei, former Senior Vice President and head of the Ambient Business Unit, was appointed as President and Executive Director.

In 2016, Lu Minfang joined Mengniu as President. In order to catch up with its old rival Yili, Lu Minfang once shouted the slogan "Double Billion in Three Years" in 2017, aiming to surpass the revenue of one trillion yuan by 2020, but has not been able to achieve it so far. Yili Group (600887.SH) had already exceeded one trillion yuan in revenue in 2021During Lu Minfang's eight years at the helm of Mengniu, he once attempted to "overtake on a bend" by expanding through acquisitions.

For example, in 2019, Mengniu acquired Australian organic infant formula manufacturer Bellamy's at a premium of 50%, with a price of 7.1 billion.

Interestingly, in the same year, Mengniu sold Junlebao. Today, Junlebao is one of the top three domestic milk powder brands, with a revenue of 20.1 billion yuan in 2021, equivalent to about one-fifth of Mengniu, and has begun listing counseling.

According to sources close to Mengniu who spoke to Xinfeng (ID: TradeWind01) about Lu Minfang's achievements and shortcomings during his tenure, it is believed that his "merit" lies in establishing a modern corporate governance and long-term development framework for Mengniu; however, the not-so-good aspect is that Mengniu failed to create synergies from the acquired businesses. In addition, more decisive investment should have been made in new brands, such as the low-temperature milk brand "Everyday Fresh Language."

On March 27, Mengniu opened down more than 7%, with an intraday decline of over 10%, and ultimately closed down 9.92% at HKD 17.08 per share