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China Mengniu Dairy targets RMB 100 bln revenue, acquisition spree continues amid global pandemic and Olympic’s sponsorship halted

CKN
minutes 2020/03/27 06:48:13
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China Mengniu Dairy, Olympic’s sponsorship, Junlebao Dairy, acquisition

Mar 27, 2020 (China Knowledge) - China’s second largest diary companies by sales Mengniu Diary (2319) has set RMB 100 billion sales target for 2020, a 25% increment from last year’s.

Until March 25, China's dairy industry giant, Mengniu, announced its 2019 results reporting revenue of slightly less than RMB 80 bln, and about RMB 20 bln to reach this year’s sales target. Its net profit was an impressive RMB 4.11 bln, increases 34.9% year on year.

But, a major extraordinary item’s income was due from proceed of RMB 4 bln on the sale of Junlebao Dairy which Mengniu acquired in 2010. With on-going pandemic and the postponement of Tokyo Olympics, Mengniu may face serious challenges in achieving an aggressive target of 25% increment in sales this year.

Earlier, Mengniu and Coca-Cola (KO) have announced a joint-partnership to sponsor Olympic from 2020 to 2032. It is reported that this contract is worth up to USD 3 bln, a 50:50 sponsorship from each party. Given the pandemic situation, the Tokyo Olympics will need to be rescheduled to the summer of 2021. This could clearly disrupt the publicity and global branding of Mengniu, which it has already placed big betting on the games.

A consolation on the postponement is sponsors can still use the games to boost their marketing without being affected. On its cash flow, the sponsorship fee need not be paid in a lump sum; thus, a delay dragging the company’s war chest. This is especially important for Mengniu's recent acquisitions, which will have the monies reallocated for deals financing and put less pressure on the company's cash flow in current capital market.

Though Mengniu divested local diary brand Junlebao, it also seeks overseas target that include Australia’s infant formula Bellamy (BAL.AX) and Lion Dairy & Drinks. On the home ground, it has earlier this year acquired China’s first cheese-making listed company, Milkground Food Tech Co., Ltd. (600882).

Industry insiders have divulged that Mengniu is likely to look for targets inside China, and could be in the pasteurized milk businesses. The diary giant is seeking to expand through mergers and acquisitions, in order to rapidly increase its size and improve financial performance.

With these aggressive moves it may be possible for Mengniu to reach its RMB 100 bln sales mark. The intense competition in domestic dairy industry will drive Mengniu focus more on the international market with tentacles reaching deeply into the Australia’s region. Meantime, riding on the "Belt and Road Initiative" it definitely make inroad into Southeast Asia.

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