Text: Financial detective source: Lilly Holmes
Once again, Mengniu missed the 100 billion target.
According to Mengniu Dairy's 2022 financial report, Mengniu achieved a total revenue of 92.59 billion yuan in 2022, a year-on-year increase of 5.1%; Operating profit was RMB5.42 billion, up 11.6% year-on-year, and profit attributable to shareholders was RMB5.303 billion, up 5.5% year-on-year.
For such results, Mengniu President Lu Min said at the performance meeting: We are very satisfied with the overall performance, everyone sees more from the report the improvement of our operation, I think we are more relaxed now.
However, secondary market investors do not seem to recognize Mengniu Dairy's performance in 2022. On March 30, the day after the earnings report, Mengniu Dairy's share price fell sharply, falling as much as 5% during the session. As of the close of the latest trading day, Mengniu Dairy's latest market value was HK$127.1 billion, down significantly from last year's high.
Although Mengniu's revenue scale will hit a record high in 2022 and is only one step away from the 100 billion revenue mark, it has been about 3 years since Lu Minfang proposed to achieve the goal of 100 billion yuan in 2020. According to the five-year goal of "building another Mengniu" proposed by Lu Minfang at the end of 2020, Mengniu's performance should also exceed 100 billion in 2022, otherwise it will be more difficult to achieve the goal of 150 billion yuan in 2025.
Behind the repeated missed hundreds of billions is Mengniu's lack of growth, which can be seen very clearly from the comparison of Mengniu and Yili's data.
From 2011 to 2019, the compound revenue growth rates of Mengniu and Yili were 9.81% and 11.62%, respectively. In 2018, the revenue of Yili and Mengniu was 79.553 billion yuan and 68.977 billion yuan respectively, a difference of about 10.576 billion yuan. By 2022, Mengniu's revenue will be 92.59 billion yuan, Yili's revenue will reach 123.171 billion yuan, and the revenue gap between Mengniu and Yili will widen to 30.5 billion yuan.
Overall, although Mengniu's revenue and net profit in 2022 hit a new high, the company's weak growth in revenue and the decline in gross profit margin are still the focus of market attention. In addition, because Mengniu's growth in recent years has relied more on epitaxial acquisitions, some projects have hidden thunderstorm risks.
1
The 100 billion goal that has not been achieved
In September 2016, Sun Yiping, the former president of Mengniu, announced his resignation, and Lu Minfang, then president of Yashili, became the fourth president in Mengniu's history.
In 2017, the second year after Lu Minfang took office, he set the first three-year goal in office, which is to achieve a "double hundred billion" with revenue and market value of more than 100 billion yuan in 2020, but after three years of verification, this goal has obviously not been achieved.
In 2020, when the three-year target expires, Mengniu's revenue was only 76.035 billion yuan, a rare year-on-year decline. The net profit was 3.525 billion yuan (4.105 billion yuan in 2019), a decline of 14.14%.
In the financial report, Mengniu attributed the decline in revenue in 2020 to the impact of Junlebao's departure. Excluding business income from the disposal of Shijiazhuang Junlebao Dairy in 2019 and Bellamys Australia Limited ("Bellamy") acquired in 2019, the Group's comparable business revenue was RMB75,003.1 million, representing a year-on-year increase of 10.6%.
As Mengniu's "cash cow", Junlebao's sales revenue has reached 13 billion yuan in 2018, accounting for nearly 20% of Mengniu's revenue, and its milk powder business sales have exceeded 5 billion yuan. In 2019, Junlebao's revenue was 16.3 billion yuan, a year-on-year increase of 25%, and the production and sales of milk powder were 75,000 tons. During the consolidation with Mengniu, the milk powder revenue reached 4.458 billion yuan, a year-on-year increase of 48.3%, providing 56.6% of the revenue for the Mengniu milk powder business.
After selling Junlebao, Mengniu's position on the milk powder front plummeted, and this impact was not only that the 2020 financial report was not good, but spread to 2022, and the milk powder business is still the short board of Mengniu Dairy. In 2022, the revenue of Meng's milk powder fell by 22% from 4.949 billion yuan in 2021 to 3.86 billion yuan. Therefore, many people shouted at that time that they could not understand the commotion of Mengniu's management.
Compared with the 469 million yuan spent by Mengniu to acquire Junlebao in 2010, the price of 4.011 billion looks like a lot of money. However, considering the potential financial impact of Junlebao on Mengniu since 2020, Mengniu has obviously "picked up sesame seeds and lost watermelons".
The goal of 100 billion yuan failed, Lu Minfang said that he should pay less attention to the number of "100 billion", "I will not deliberately do a sales of 100.1 billion to make everyone feel very satisfied, quality development is more important." ”
At the end of 2020, when the first three-year plan failed to be realized, Lu Minfang announced with a high profile that he would "build another Mengniu" in the next five years, that is, based on a revenue of 76.035 billion yuan in 2020, which means that Mengniu's total revenue will exceed 150 billion yuan in 2025.
However, from the revenue data of 2021 and 2022, Mengniu has increased by a total of 16 billion in two years, and if it is to achieve the goal of "creating another Mengniu", it needs to grow by 19.1 billion per year in the next three years. It can be said that such a goal is not a small pressure for Mengniu.
Whether Lu Minfang will be slapped in the face again is worth paying attention to.
2
Lack of stamina, and Yili went further and further
As an industry that has been developing for decades, China's dairy industry has long bid farewell to rapid growth and entered the "stagflation" stage. In 2022, the dairy industry will encounter multiple challenges such as adjusting the operating environment, declining customer flow in terminal stores, and high costs. According to the National Bureau of Statistics, in 2022, domestic dairy production will be 31.17 million tons, an increase of 2% year-on-year, a sharp slowdown from the growth rate of the same period in 2021 (9.4%). Mengniu wants to earn more in this largely stable market, and it is essential to develop new growth.
From the perspective of revenue composition, Mengniu Milk's owner-operated business is divided into four parts: liquid milk, milk powder, ice cream, cheese and other products.
Among them, liquid milk is the basic plate of Mengniu Group, but in recent years, the ceiling has loomed, and the performance growth is weak, and there is a significant gap compared with Yili.
For the whole year of 2022, Mengniu's liquid milk business achieved revenue of 78.269 billion yuan, a slight increase of 2.3% year-on-year, accounting for 84.5% of revenue. Yili's liquid milk business achieved operating income of 84.926 billion yuan in 2022, a year-on-year increase of 0.02%, and the overall market share of retail sales continued to rank first in the industry.
From the perspective of milk powder business, Mengniu's milk powder and dairy products revenue in 2022 was 8,671.6 million yuan, of which milk powder revenue was 3,862.0 million yuan, accounting for 4.2% of the total revenue, down nearly 22% year-on-year, and it was also the only business with a declining growth rate. The revenue of Meng's milk powder business mainly came from Yashili and Bellamy's business, and Yashili's revenue in 2022 was 3,738.2 million yuan, a year-on-year decrease of 15.7%, which was the main reason for the collapse of the segment's performance.
During the reporting period, Yili's milk powder and dairy products business achieved an operating income of 26.260 billion yuan, a year-on-year increase of 62.01%, more than three times that of Mengniu. Among them, the share of retail sales of infant formula milk powder increased by 5% year-on-year, and adult milk powder increased by 1.1% year-on-year. In the milk powder business, Yili occupies a clear advantage.
Mengniu's newly developed ice cream business has many highlights. In May 2022, Mengniu United Moutai launched three Moutai ice creams with a price range of 59 yuan to 66 yuan, and sold 262 million yuan in 7 months after launching. In 2022, Mengniu relied on ice cream to achieve revenue of 5.652 billion yuan, a year-on-year increase of 33.3%. However, the ice cream business does not account for a high proportion, accounting for about 6.1% of revenue, which obviously cannot support the new growth points of the entire company. And combined with Zhongxuegao's experience of being boycotted by young people, the majority of consumers are currently pursuing "consumption downgrade", and it is still unknown whether Mengniu's high-end ice cream can continue to capture the market.
There is also a new segment, cheese, and at the end of November 2022, Mengniu completed a tender offer for Miaokolanduo, holding a 35.01% stake in the latter. In 2022, cheese and other products contributed 4.81 billion yuan to Mengniu's revenue, a year-on-year increase of nearly 100%, and the proportion of revenue in this business also increased from 2.8% in the same period of the previous year to 5.2%. But it's still the same problem, and the proportion is not high. The new growth pole ice cream and cheese businesses combined are only 11%, which is not a big task. And Yili is desperately chasing, intending to buy Bajifoe, or will directly threaten Miaokolando.
As the "double star" of the domestic dairy industry, Mengniu and Yili have a high degree of similarity in business and products, and the competition is very fierce. Before 2011, Mengniu won the Chinese dairy champion for four consecutive years, and then Mengniu was acquired by COFCO, Mengniu and Yili, the once indistinguishable dairy double stars, began to widen the gap, whether in terms of market value or performance, Mengniu was obviously inferior to Yili, and gradually showed "fatigue".
Compared with the lack of growth, what makes Mengniu more anxious may be the decline in gross profit margin caused by rising costs. According to the financial report, due to the decline in milk powder and milk beverage business, the average price increase of raw and auxiliary materials, and the increase in depreciation expenses caused by the increase in plant and production equipment, Mengniu's gross profit margin in 2022 was only 35.3%, down 1.4pct year-on-year, the lowest record since 2018.
At this stage, the second curve is almost non-existent where Mengniu can see: liquid milk has always been suppressed by Yili, and it is also facing the invasion of brands such as Maiquier and Adopt a Cow; In front of the milk powder market, there are not only Yili, but also Feihe and Junlebao; Ice cream revenue increased 33.3% last year, but only accounted for 6.1% of total revenue; Cheese is still just Mengniu's other business.
The businesses came together to piece together two drifting corporate financial reports. Revenue was 123.171 billion versus 92,593.3 million, and net profit was 9,318 million versus 5,300 million. Regardless of the size and growth rate, Mengniu lost to Yili.
For Mengniu, the basic plate in hand faces the ceiling, and the second growth curve is not effective, and creating another Mengniu may become another "painting cake". In contrast, Yili's goal is much more realistic, and it plans to achieve a total operating income of 135.5 billion yuan and a total profit of 12.5 billion yuan in 2023.
3
Overseas high-premium M&A contains hidden risks
In the past 10 years, "mergers and acquisitions" have been the biggest reliance on Mengniu's revenue expansion, but this strategy has not brought the desired results to Mengniu.
In 2013, Mengniu Dairy spent tens of billions to acquire Yashili, and Lu Minfang joined with him.
At that time, the goodwill value of the transaction exceeded $4.9 billion, with a premium rate of 100%. In May 2016, Yashili spent HK$1.23 billion to acquire Tomez's China business from Danone, Lu Minfang's old employer.
As a listed company that integrates Mengniu's milk powder brands, Yashili owns a number of formula milk brands, including Yashili and Ruihuien. However, since its acquisition by Mengniu Dairy in 2013, Yashili's performance has not been satisfactory. Industry insiders believe that high premiums and loss of goodwill value often go hand in hand, which is very easy to bring losses.
From 2013 to 2020, Yashili's revenue fell from RMB3.89 billion to RMB2.203 billion, and then recovered to RMB3.649 billion, but it still did not reach the original level. In 2021, the revenue increased to 4.435 billion yuan, but the net profit lost 81.363 million yuan. In 2022, Yashili's revenue continued to decline, reaching only 3,738.2 million yuan, a year-on-year decrease of 15.7%.
In March 2018, Mengniu completed the acquisition of 50% ownership of Modern Dairy's Feidong Plant and Bengbu Factory; On June 30 of the same year, Mengniu already held 60.76% of the shares of Modern Dairy. On July 28, 2020, Mengniu subscribed for 1.197 billion shares of China Shengmu for RMB356 million at an exercise price of HK$0.33 per share. After the completion of the subscription, Mengniu's shareholding increased from 3.83% to 17.80%, becoming the single largest shareholder of China Shengmu.
In 2019, Mengniu acquired Australian brand Bellamy's for a 52% premium of RMB6.93 billion, and Australian brand dairy and beverage company Lion-Dairy & DrinksPtyLt for RMB2.931 billion, while selling Junlebao.
As it turned out, this buy-and-sell was not cost-effective. In 2021, Bellamy's revenue was only 500 million yuan, which was significantly reduced from 1 billion yuan in 2020; Junlebao's revenue in 2021 has exceeded 20 billion yuan. Moreover, from public information, in recent years, Bellamy's has been plagued by bad luck in China, and products have been repeatedly removed or recalled due to quality problems. Moreover, Bellamy's has not yet obtained formula registration for infant milk powder in China. This also lays hidden dangers for the development of Mengniu in the milk powder market.
In terms of ice cream business, in 2021, in order to accelerate the expansion of the Southeast Asian market, Mengniu also acquired the Southeast Asian ice cream brand Ai Xue.
In the cheese business, Mengniu has also adopted an extension acquisition. Since 2020, Mengniu has continued to increase its stake in Miaokolanduo through transfer by agreement, secondary market increase and fixed increase, becoming the controlling shareholder of the latter. As of the end of 2022, Mengniu held a total of 181 million shares of Miaokolan, with a shareholding ratio of 35.01%.
Data show that since 2017, Mengniu's total M&A amount has exceeded 10 billion, and continuous M&A has made Mengniu's asset-liability ratio soar. As of the end of 2022, Mengniu's total debt reached 67.76 billion yuan, with an asset-liability ratio of 57.52%, of which interest-bearing liabilities accounted for about 50%, and the interest-bearing debt ratio was significantly higher than the average level of other dairy companies.
It is worth noting that in the past ten years, except for Junlebao, the "cash cow" that was sold, other generals who were included in Mengniu's seat did not persistently contribute military merits to the gold lord, but were riddled with problems. For example, in 2018, Yashili International lost 132 million yuan, and in 2022 it continued to lose 231 million yuan; Modern Dairy lost 496 million yuan, and China Shengmu lost 2.2 billion yuan, which directly dragged down Mengniu's overall net profit level.
Mengniu's M&A strategy, although it has successfully driven the growth of revenue scale, but it cannot curb the low level of net profit margin.
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