Since the beginning of this year, due to the oversupply of raw milk and the sluggish consumer demand, domestic dairy enterprises have generally encountered greater performance pressure, and Yili is no exception.
According to the financial report, in the first half of 2024, Yili's revenue will be 59.696 billion yuan, a year-on-year decrease of 9.53%, the first decline in the same period in nearly nine years. At the performance briefing, Yili said that from the second half of 2021, the price of raw milk began to enter a downward range. Due to the increase in the proportion of large-scale pastures and the enhancement of risk resistance, the downward cycle of milk prices in this round is longer than in the past.
Zhu Danpeng, an analyst of China's food industry, said in an interview that in the first half of the year, the domestic dairy industry fell into a relatively sluggish node due to the oversupply and demand of upstream and the sluggish consumption of downstream.
Erie's anxiety doesn't stop there, though. (Yili and Yili shares in the article refer to the A-share listed company "Yili shares")
Revenues are in contraction territory
Earnings have actually increased?
According to the financial report, in the first half of 2024, Yili's revenue will be 59.696 billion yuan, a year-on-year decrease of 9.53%; The net profit attributable to the parent company was 7.531 billion yuan, a year-on-year increase of 19.44%.
Judging from the above two data alone, Yili's net profit attributable to the parent company has achieved double-digit growth in the case of shrinking revenue scale, which seems to show the enhancement of the company's profitability.
However, another financial indicator, the net profit attributable to the parent after deducting non-profits, has exposed the true situation of Yili.
Image source: 2024 Semi-Annual Report
In the first half of the year, Yili achieved a net profit of 5.324 billion yuan after deducting non-profits, a year-on-year decrease of 12.81%. The difference between the net profit attributable to the parent company and the net profit attributable to the parent after deducting non-profits is more than 2.2 billion yuan. This difference is the non-recurring profit or loss.
As the name suggests, non-recurring gains and losses refer to one-time or occasional income or expenses that are not related to the day-to-day operations of a company. Only by separating the company's net income can it better reflect the performance of the company's underlying business activities. And it is the investment income of 2.2 billion yuan that directly makes Yili's net profit attributable to the parent "turn from negative to positive"!
So, where does this part of the income come from? According to the financial report, it is mainly the income from the disposal of illiquid assets. According to the announcement issued on January 6 this year, Yili transferred the equity of its holding subsidiary, Changji Shengxin Industrial Co., Ltd., for a transaction consideration of 2.6474 billion yuan.
Image source: Announcement
In fact, even if you only look at the revenue, you can feel the performance pressure that Yili is facing. According to Flush iFinD, Yili's revenue declined in the first half of this year, for the first time in the same period in nearly nine years.
Image source: Straight Flush iFinD
Needless to say, the financial reporter learned that another important factor affecting dairy enterprises is the cyclical surplus of upstream raw milk supply.
According to the monthly report on the analysis of the supply and demand situation of agricultural products released by the Ministry of Agriculture and Rural Affairs on August 20, due to the growth of supply inertia, the price of fresh milk is still running at a low level, and the price of domestic fresh milk has declined year-on-year for 29 consecutive months. In July, the purchase price of fresh milk in the dairy producing province was 3.24 yuan per kilogram, down 1.8% month-on-month and 13.8% year-on-year. The purchase price of domestic fresh milk remains low, and the excessively low price has even led to the inversion of production.
Then the question arises, the oversupply of raw milk will lead to lower prices, shouldn't the production costs of dairy companies be lower?
It is worth noting that in order to stabilize output and ensure quality, large dairy enterprises have a relatively high milk source feeding rate (self-built pastures). There are clear benefits to this self-sufficiency strategy, but there are also costs when raw milk prices enter a downward cycle.
Screenshot source: Yili's official website
In order to help the farms under their control tide over the difficulties, large dairy companies not only have to adjust the structure of their herds, but the price of milk is generally higher than the market price. In addition, large enterprises pay more attention to credibility and will fulfill the previously signed milk collection contracts, which will also increase the comprehensive milk collection cost of large dairy enterprises.
Short-term borrowings have crossed the 40 billion mark
7.5 billion net profit or just "paper riches"
The liquid milk business is the pillar business of Yili, but the slowdown in the development of Yili's liquid milk business can be seen from the revenue data.
From 2021 to 2023, Yili's liquid milk business revenue will reach 84.91 billion yuan, 84.93 billion yuan and 85.54 billion yuan respectively, an increase of only 630 million yuan in three years.
In terms of business proportion, Yili's liquid milk business revenue accounted for about 77% of the total revenue in 2020, and although it declined in 2021 and 2022, it can also account for about 68% of the total revenue. However, in the first half of this year, this share fell again to 61%.
With the sluggish market and intensified competition, Yili can only increase its marketing efforts in this environment. In the first half of this year, Yili's marketing expenses amounted to 11.629 billion yuan, and the marketing expenses increased by 10.77 million yuan over the same period last year while the total revenue fell by 9.53%.
Image source: 2024 Semi-Annual Report
If you don't think there is much difference in this data, then the sales expense ratio (sales expenses/revenue x 100%) is enough to prove Yili's efforts in marketing investment. In the first half of the year, Yili's sales expense ratio was 19.41%, the first time in the same period in nearly seven years, while from the first half of 2018 to the first half of 2023, Yili's sales expense ratio has dropped for six consecutive years.
Image source: Straight Flush iFinD
Unfortunately, the huge marketing investment has not replaced the growth momentum of the domestic brand. On the contrary, the pressure on the company to operate is increasing day by day.
For example, as of the middle of this year, Yili's accounts receivable increased by 13.04% from the end of 2023 to 3.487 billion yuan, which is not based on the expansion of sales scale, but due to changes in market position caused by market factors.
As a reservoir of future income, Yili's contractual liabilities have not been able to avoid a decline. As of the middle of this year, Yili's contract liabilities were 4.430 billion yuan, a decrease of 415 million yuan from the same period last year.
Image source: Straight Flush iFinD
To a certain extent, these data indicate the uncertainty of the company's future performance.
At the same time, Yili's capital chain has been significantly under pressure.
In the past few years, Yili has continued to expand its business scale by borrowing money. From 2020 to 2023, the company's short-term borrowing balances were 6.957 billion yuan, 12.596 billion yuan, 26.799 billion yuan, and 39.755 billion yuan respectively, and in the first half of this year, short-term borrowings expanded again to 48.237 billion yuan. It has crossed the 10 billion mark for four consecutive years.
Image source: Straight Flush iFinD
As of the first half of this year, Yili's monetary funds were 46.119 billion yuan, non-current liabilities due within one year were 5.839 billion yuan, and short-term borrowings were 48.237 billion yuan.
In contrast, Yili's net profit attributable to the parent company in the same period was only 7.531 billion yuan, which was smaller than the short-term funding gap.
(Popular News · Fengkou Financial Reporter Zhang Tingwang)