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June 2015
FY2014/15 Annual Results
This presentation has been prepared by China Huishan Dairy Holdings Company Limited ("Huishan“ or the
“Company") and is solely for the purpose of corporate communication and general reference only. The presentation
is not intended as an invitation, offer, recommendation or solicitation for you to buy or sell securities or to engage in
any investment activities whatsoever, or to form any basis of investment decision for any securities (whether or not
in relation to the Company) in any jurisdiction. All such information should not be used or relied on without
professional advice. The presentation is a brief summary in nature and does not purport to be a complete
description of the Company, its business, its current or historical operating results or its future business prospects.
This presentation material may contain forward-looking statements. These forward-looking statements are based on
a number of assumptions about the future, some of which are beyond the Company’s control. The Company does
not undertake any obligation to update any information contained in this presentation (including but not limited to the
forward-looking statements) to reflect events that occur or circumstances that arise after the date of this
presentation. Potential investors should bear in mind that actual financial results may differ materially from the
forward-looking statements contained herein. The information contained in this presentation is not verified by any
independent third party. No warranty or representation of any kind, whether express or implied, is made as to, and
no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information contained
herein. The information contained in this presentation should be interpreted under the prevailing circumstances.
There will be no update of matters in the presentation to reflect any significant change in the development. The
Company, its directors, management, employees, agents or advisers specifically disclaim all responsibilities in
respect of any use or reliance of any information, whether financial or otherwise, contained in this presentation, and
shall not be liable for any and all losses incurred (whether directly or indirectly, financial or otherwise) by any person
in reliance on any information contained in this presentation.
2
Disclaimer
• Industry Opportunities and Challenges
• Financial Overview
• Business Highlights and Strategies
• Dairy Farming Business
• Liquid Milk Business
• Milk Powder Business
3
Table of contents
Industry Opportunities and Challenges
Industry opportunities
Consumption upgrade:
• Literacy of Chinese consumers, their acceptance of new information and health consciousness are rising
• As China’s disposable income per capital increases, consumers demand and are willing to spend more on reliable and
high-quality dairy products. High-quality dairy products require premium milk source
• Sales of high-end liquid milk in China recorded a CAGR of 22.1% from 2009 to 2014
• Growth of pasteurized milk market exceeded expectations, especially in tier-1 and tier-2 cities
• Liaoning Province’s pasteurized milk sales grew from RMB550 million in 2009 to RMB1.28 billion in 2014, with a CAGR
of 18.5%. Growth is expected to speed up in the future*
Industry transformation: • Pasteurized milk gains increasing popularity; dairy enterprises realized that raw milk source is the key to development
• As the price of raw milk dropped in 2014, many small-scale farms have exited the market. China’s dairy farming market
development trend is towards intensive farming
• A safe and continues supply of forage grass and feed, on-going improvement of feed formula and the healthy
development of cattle have gained more attention within the industry
5
Consumption upgrade and industry transformation are two key themes
Consumers prefer large dairy companies with self-owned milk sources
and comprehensive management operations
*Source: Frost & Sullivan industry report
Industry challenges
From “milk shortage” to “overcapacity”:
• Imported base powder are selling at a low price in China
• Production volume of reconstituted milk products have increased significantly
• More Chinese dairy companies are executing M&As and forming partnership with foreign dairy farms, causing raw milk
demand to relocate overseas
• Supply-demand of raw milk has reversed from “milk shortage” to “overcapacity” in a year, leading to a “price-cut trend”
• Many farmers are tipping milk on the ground and culling cows; more farms have shut down
Weak market demand with pressure from imported products: • Chinese dairy retail sales remained stagnant in 2014
• Imported dairy products, especially liquid milk products (mainly UHT milk) have increased in tier-1 and tier-2 cities,
putting further pressure on the local high-end dairy market
• Imported milk powder occupies 50% market share in the Chinese milk powder market
• The convenience and low-cost business model of E-commerce has allowed international dairy companies to speed up
development in China
6
China’s dairy market implemented numerous policies in 2014, moving towards the next stage of development.
However, Chinese dairy companies have faced a “winter period”.
*Source: Frost & Sullivan industry report
Financial Overview
FY2015 vs. FY2014
• Revenue increased 11.1% to RMB 3,923 million
• Gross profit margin of 57.6%*, compared to 62.4% of FY2014
• Net profit decreased 29.8% to RMB 877 million
• The total dividend amounted to approximately RMB 219 million; with a dividend payout ratio of 25%
Main reasons for profit decrease:
• The decline of raw milk price as a result of the change in industry dynamics, overall weak market
sentiment and the impact from imported dairy products
• Delay of the commencement of additional production capacity
• Increased distribution and selling expense for the purpose of distribution network expansion
• Increased finance cost as a result of the additional bank loan for lease prepayment of 240k mu
plantation land
* Before biological fair value adjustments
8
Financial review
62.0% 65.5%
36.2%
56.1% 60.6%
45.7%
Dairy Farming Liquid Milk Milk Powders
Upstream business
• Considering the decline of raw milk price, overall consumer
demand weakness and the impact from imported base
powder reconstituted milk, we adopted a prudent approach to
avoid over-aggressive growth on our raw milk production
volume to minimize the inventory risk
• We shifted more of our focus to cost control
‒ Expansion of grass plantation field to total over 480k
mu
‒ Successful trial two-harvest plantation for oats and
corn silage, an important agriculture breakthrough, to
be further implemented to all of our plantation fields
and various kinds of feed grass
‒ Optimization of feed constitution mix, continuous feed
cost saving and seeking the best economic balance
between feed cost and production volume in order to
maximize our profit
Downstream business
• Commencement of addition of production capacity delayed by
6 months, therefore, slowed down the volume growth of our
liquid milk
• Although the capacity delay and overall market weakness, we
have successfully maintained a stable growth on both volume
and ASP
Against the backdrop of weak market sentiment,
we have maintained healthy and stable growth on our revenue while keeping gross profit margin at a relatively high level
Segment profit margin
after elimination
Segment profit margin
before elimination
Gross profit before biological
fair value adjustments
989
2,288
254
3,530
1,028.3
2,421.7
473.3
3,923.3
0
1,000
2,000
3,000
4,000
5,000
Dairy Farming Liquid Milk Milk Powders Total
FY14 FY15 Revenue
(RMB’m )
62.1%
28.5% 18.9%
55.7%
29.6% 29.8%
Dairy Farming Liquid Milk Milk Powders
Gross profit after biological
fair value adjustments
20.1% 22.7%
FY14 FY15
62.4% 57.6%
FY14 FY15
9
Revenue and gross profit margin
Labour
• Increase of sales and related staff, especially outside of
Northeastern market to promote our liquid and IMF products
• Recruited more experienced sales
• An overall salary raise for all sales during the fiscal year
Advertisement
• Shooting and broadcasting of our “Jersey Farm” video on CCTV
• Sponsored CCTV show “Power of Chinese Kids少年中國强” in
order to promote our brand awareness
Channels promotion
• Increasing number of supermarkets and related store entry fees
We increased our selling and distribution expense for the purpose of future network expansion
Our distribution network expanded rapidly thanks to the increasing investment in marketing activities
Liquid milk
• 373 distributors and 408 direct sales stores at the end of reporting period
• Liquid milk market share in Northeastern region increased to 20.9% in 2014 from 19.5% in 2013, ranked No. 1
• Ranked #5 by sales of liquid milk in China
Milk powder
• 1,049 distributors (FY2014: 418), 8,785 POS, 621 mom-and-baby shops with “Huishan Red Label” products
• Completed establishment of mobile terminal “Wechat Shop” and commenced online operation
10
344
595
9.74%
15.17%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
FY14 FY15
Distribution cost Distribution cost to revenue %
(RMB’ m )
Distribution cost
266
424
0 50
100 150 200 250 300 350 400 450
FY14 FY15
(RMB’ m )
Finance cost vs. feed cost saving
• The increase of finance cost from RMB266 million in FY2014 to RMB424 million in FY2015 was mainly
due to the additional bank loan for lease prepayment of 240k mu plantation land
• The saving of feed cost was much bigger than the increase of the related interest expense
Finance cost Feed cost saving <
Profit contribution
Cash flow saving
Finance cost
11
Business Highlights & Strategies
Business highlights
13
China’s Leading Vertically-Integrated Dairy Company
• Leading milk production and premium raw milk, cost efficient and high nutrition feeds
• Employs self-produced raw milk for scale production of liquid milk and IMF products
• Long-term lease of 480,000mu of arable land
• Owns the largest commercial alfalfa plantation field in China
• Second largest cow herd in China with over 180,000 dairy cows and 69 farms
Reliable Premium
Milk Source
• Milk powder and liquid milk production facilities have all been “GMP” certified
• IMP products are tracing its first test unit
• Certified as a 5A enterprise with “Transparent Supply Chain” by the logistics
committee of the China National Food Industry Association
• “Gold Queen Label” products have passed quality inspection tests for 10
consecutive months, and it was awarded the “2014 Quality Excellence Award” by
the China Dairy Industry Association
Quality Control in
Production
• Large-scale feed plantation
• Plantation land has a fixed lease which allows us to maintain long-term low rents
• Implemented trial two-harvest plantation in oats and corn silage fields
• Successfully employed Mexican corn silage plantation methods to guarantee quality
and boost our low-cost advantage
• Adjust and develop new feed formula to boost feed efficiency and maximize profit
Cost Control
• Capture consumption upgrade and the growth of low-temperature dairy products
• Leveraging our premium milk source advantage, we will boost the sales of pasteurized
milk and yogurt with comprehensive cold chain logistics development
• Enhanced customer royalty through “Freshness Delivery”, delivering products to
customers’ doorstep
Quality
Low-temperature
Dairy Products
Business highlights
14
China’s Leading Vertically-Integrated Dairy Company
• According to Frost & Sullivan’s report, Huishan was ranked as No.1 by market share in the liquid milk
market in the three provinces in Northeastern China with a 20.9% market share, among which its
pasteurized milk and yogurt products are industry leaders with market share of 44.3% and 28.7%
• China Statistical Information Services Center (CSISC) published the “2014 China IMF Brand
Reputation Report”
Among the 274 brands included in the China Food and Drug Association’s “List of IMF
Enterprise and Product (second batch inclusive)”, Huishan’s milk powder brand reputation,
quality and brand favorite has been ranked among the top ten
In terms of overall rating, “Huishan” milk powder is ranked as “Top Ten China IMF Brand in
2014”
Brand Reputation
and Recognition
• Huishan’s sales network is based in Northeastern China, and it is expanding into Northern and
Eastern China. Its sales channels include:
Distributors, direct-sale supermarket, traditional retail and special channels
Liquid milk sales are also available through milk stations and “Freshness Home Delivery”
program
IMF products are sold through special channel, mother-and-baby stores, mother’s club, etc
• Huishan has accumulated over 100,000 active members
• Completed the construction of its desktop and mobile “Wechat Mall” e-commerce platform, allowing
consumers to place orders on their computers and mobile phones, trace orders and proceed online
payment for their preferred products
Diversified
Sales Channel
Our strategies
15
Maximize shareholder value: • Increase promotions of low-temperature products (pasteurized milk and yogurt) and UHT milk
• Stringent control on cost saving through innovative technology, sophisticated management and scale operation
• Prudent investment and catch the best timing to realize our potential value
Upstream: • Increase production yield of arable land
‒ Implement the successful two-harvest plantation technology across the entire 340,000mu of corn silage
and other feed fields
‒ Fully promote the Mexican corn silage plantation method to guarantee quality and maintain low-cost
advantage
• Adjust and develop new feed formula to boost feed efficiency and maximize profit
• Implement large sprinkling irritation system across its plantation fields to extend growing season and combat
droughts
Downstream: • In April 2015, the Shenbei liquid milk processing plant has commenced operations with planned liquid milk
production capacity of 620ktpa, strengthening the Northeastern market, laying a strong foundation for the
expansion of “Huishan” liquid milk products nationwide
• Expand its business from Northeast China across other liquid milk markets (especially Shandong, Henan, Hebei,
Jiangsu), expand sales network and launch differentiated products to satisfy the changing consumer demand
• Huishan and Zongyi Investment’s Alpha Spring have invested to establish a vertically-integrated dairy value. The
joint venture has been established on 18 May 2015, and officially launched the East China business operations to
expand its pasteurized milk market into provinces including Jiangsu, Shanghai, Zhejiang, Shandong and Anhui
• Establishment of JV with FrieslandCampina has been completed by obtaining the approval from the Ministry of
Commerce, and will launch new IMF brand in China
Dairy Farming Business
• 69 standardised dairy farms in
Liaoning Province, China
• A herd size of 180,331
Holstein and Jersey cows as
by 31 March 2015
• Herd size growing organically
at around10% pa
• 480,000mu of leased land with
an average lease of 15 years,
which includes 140,000mu of
alfalfa plantations
• 500ktpa of concentrated feed
processing capacity
• Successful trial for two-harvest
of oats and corn silage and
will be fully promoted in the
future
• 601,604 tonnes of premium
quality raw milk production in
FY2015 with average realised
raw milk prices of RMB4,873
/tonne
• A yield of 9.1t per milkable cow
• 63.3% of raw milk sales are for
internal use
• Yili is our largest external raw
milk buyers
Largely self-sufficient in feed A rapidly growing dairy herd Premium raw milk production
Self-sufficiency in
alfalfa gives us a
material cost
advantage versus
peers
Our ability to
secure sufficient
arable land is a
key competitive
advantage
We will consume
more raw milk
internally as our
liquid milk
products sales
increase
Our raw milk is
high-quality and
realises a
premium to the
industry average
17
Dairy farming business
Revenue
Segment profit1 (adjusted EBITDA)
Gross profit
Margins
(1) Segment profit is “adjusted EBITDA” adjusted for items not specifically attributed to individual segments and before changes in fair value to biological assets (see our
financial statements for a complete definition)
488
973
1,483 1,548
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY12 FY13 FY14 FY15
(RMB’m)
48.0%
59.8% 62.1%
55.7%
0%
10%
20%
30%
40%
50%
60%
70%
FY12 FY13 FY14 FY15
GP margin
326 399 614 577 132 553
891 988 458
952
1,504 1,565
FY12 FY13 FY14 FY15
External sales
Internal sales (RMB’m)
Decrease of dairy farming gross profit margin was mainly due to the decline of raw milk price
Financial overview
18
672 681 989 1,028
281 910
1,432 1,784
953
1,591
2,421
2,812
0
500
1,000
1,500
2,000
2,500
3,000
FY12 FY13 FY14 FY15
Internal Revenue
External Revenue (RMB’m)
• We have a herd size of 180,331 cows, of which
74,389 are milkable cows
• We now have 69 standardised dairy farms in
Liaoning province
• We expect the herd size to continue growing rapidly
based on an organic growth rate of c.10% (of total
herd size), consistent with historical growth rates
• The percentage of milkable cows to total herd size
is expected to remain relatively flat in FY2015
(42.5% in FY2014) as we slow down the pace to
import younger heifers. The percentage of milkable
cows will increase towards a longer-term
sustainable ratio of c.50% as the herd matures
Herd size and %‘milkable cows
31/3/13 30/9/13 31/3/14 30/9/14 31/3/15
Milkable cows 49,889 57,040 61,286 65,312 74,389
Heifers and
Calves 62,962 71,312 82,905 97,082 105,942
112,851 128,352 144,191 162,394 180,331
% of Milkable
cows 44.21% 44.44% 42.50% 40.22% 41.25%
-68,433
-449,865
FY14 FY15
Loss arising from changes in fair value less costs to sell of biological assets
Loss arising from changes in fair value increased
• Mainly due to the increase of culled cows
• Economic value of milkable cows is the major consideration
of our culling policy. As the price of raw milk declined, we
seek for higher efficiency to the culling strategy
• The costs of culling a cow is still less than the costs to breed
one
19
Rapidly growing dairy herd
Huishan’s raw milk sales
Yield per milkable cow
9.0
9.1
FY14 FY15
• Annual yield is 9.1 tonnes
• Culling rate increased while the proportion of
Jersey cows increased
• In FY2015, the annual yield per milkable cow was 9.1
tonnes, a slight increase compared to the production
in the same period last year
• The company aims to sustain high yields through:
• Culling of low yield cows
• Ongoing purchases of heifers with superior
genetics
• Optimization of the feed mix
• Management of milking schedules and cow
welfare
20
Maintaining high milk yield
196,119 211,769
286,309 365,302
FY14 FY15
External sales
Internal sales
Unit: tonnes
• Raw milk prices in China, as reported by the Ministry of Agriculture national raw milk price index, have stabilised after
falling since 2014
• Our average raw milk sales price was RMB4,873/tonne in FY2015
• Our realised price is only loosely correlated to the raw milk price index due to:
• Our realisation of significant price premiums that reflect the higher quality of our raw milk and the more positive
supply and demand trends in the premium raw milk segment
• Significant regional raw milk price differences that are obfuscated in the national index
• Longstanding relationships with external customers
• Demand growth for premium raw milk remains strong
Our realised raw milk price versus national index price
Source: Ministry of Agriculture
3,000
3,500
4,000
4,500
5,000
5,500
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15
Huishan Ministry of Agriculture national raw milk price index
(RMB/tonne)
21
Premium realised raw milk prices
• We believe our raw milk production costs
advantage is primarily due to:
• The lower cost of self-produced feed,
particularly alfalfa, versus purchasing feed in
the market
• Higher milk yields from better quality nutrition
due to usage of self produced feeds
• Lower transportation costs
• The proximity of a number of our farms to each
other and the resulting synergies
• Take alfalfa for example, our production costs is
about 107 USD/tonne. However, CIF price of
imported alfalfa is 400 USD/tonne and delivery
to farm price even reached 3,247 USD/tonne
• Our lower feed costs have required a significant
investment in arable land
Breakdown of Huishan’s raw milk production costs, FY2015
Feed (including plantation lease amortisation)
75.9%
Labour5.1%
Veterinary expense5.7%
Utilities3.7%
Others6.9%
Depreciation2.7%
Feed comprises the majority of raw milk production costs
22
Huishan’s leased land, mu
* 15mu = 1 hectare
• Our ability to grow low cost, high nutrition value feeds
requires us to secure sufficient arable land
• Today, our feeds plantation fields exceeded
480,000 mu
• About 20,000 mu of land was put under two-
harvest trial cultivation of oat and corn silage
and turned out to be a breakthrough in such
plantation in the agricultural industry in
Northern China
• Successfully implemented Mexican corn silage
plantation technology to ensure the cost
advantage and quality
• Continue to save cost for breeding cows, adjust
and innovate new feeds mix. To maximize
economic interest, we are also looking for the
best marginal effect between breeding costs
and milk yield
23
Securing sufficient arable land
Unit: mu*
140,000 140,000
100,000
340,000
-
100,000
200,000
300,000
400,000
500,000
600,000
FY14 FY15
Alfalfa land
Other feeds land
• We have an inspection center and over 200 staff
ensuring the health of our dairy herd
• Routine health inspections are carried out and any sick
cows are immediately quarantined by our veterinarians
• Each farm implements a standardised immunisation
program, and farm-wide disinfection and immunisation is
carried out if there is a concern of substantial infection
risk
• A cow’s vaccination history is tracked by our ERP
system
• The size of our dairy farms, c.3,000 cows per farm,
reduces the risk of disease versus super large-scale
dairy farms
Milk yields are better in healthier herds
Source: Company
24
Managing our cow’s health
Liquid Milk Business
• The Huishan brand is
renowned for its quality and
safety assurance
• 2014, Huishan ranked No.1 in
Northeastern China with a
20.9% market share. For the
pasteurised milk and yogurt
market, Liaoning with the
largest market share, reached
50.2% and 47.9% respectively
• We are in the early stage of
expanding the brand outside
of Northeastern China
Increasing capacity Established premium brands With expanding distribution
A new 360ktpa liquid milk production facility commenced operations
c. 63.3% of our raw
milk production was
processed internally
in FY2015
We have a well
established brand
in Northeastern
China
We are gradually
expanding into
other provinces in
Eastern China
• Current liquid milk products production capacity is 375ktpa at the 31 March 2015
• Operations are currently at 70-80% utilisation rates
• A new 360ktpa liquid milk production facility was put to use. removing the growth bottleneck. c. 115ktpa of this new capacity will replace existing outdated capacity
• Sales of 293kt of liquid milk
products in FY2015 across
four product categories
(pasteurised milk, UHT milk,
yogurt, and milk beverages)
• The only large-scale dairy in
China to source all its raw milk
from own farms
26
Liquid milk products Business overview
Revenue
Segment profit1 (adjusted EBITDA)
Gross profit
Gross Profit Margins
(1) Segment profit is “adjusted EBITDA” adjusted for items not specifically attributed to individual segments and before changes in fair value to biological assets (see
our financial statements for a complete definition)
564
1,707
2,288 2,422
0
500
1,000
1,500
2,000
2,500
3,000
FY12 FY13 FY14 FY15
(RMB’m )
60
268
410 374
0
50
100
150
200
250
300
350
400
450
FY12 FY13 FY14 FY15
(RMB’m )
85
377
652 716
217
922
1,499 1,467
0
200
400
600
800
1,000
1,200
1,400
1,600
FY12 FY13 FY14 FY15
Before elimination
After elimination (RMB’m )
Gross profit margin before elimination slightly increased mainly due to
rise of ASP as a result of the upgrade of product mix
15.1% 22.1%
28.5% 29.6%
38.4%
54.0%
65.5% 60.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
FY12 FY13 FY14 FY15
GP Margin before elimination
GP Margin after elimination
27
Financial overview
Revenue
Volume
FY2015 FY2014
30.8%
32.7%
36.0%
0.5%
Fresh milk
UHT
Yogurt
Milk beverage
21.5%
40.7%
37.3%
0.4%
31.1%
42.2%
25.7%
1.1%
Fresh milk
UHT
Yogurt
Milk beverage
Increasing weight of fresh milk
Revenue and volume breakdown
FY2015
22.9%
48.1%
26.3%
0.7%
28
FY2014
91,244
123,707
75,257
3,129
66,654
141,374
77,097
2,404
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Fresh milk UHT Yogurt Milk beverage
FY15 Volume tonnes
FY14 Volume tonnes
Liquid milk product volumes and ASPs
(Units: tonnes)
8,176
6,406
11,568
4,027
7,392 6,595
11,061
4,149
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Fresh milk UHT Yogurt Milk beverage
FY15 Average selling price
FY14 Average selling price
(RMB/Tonne)
• Sales of liquid milk products reached RMB2,422m in
FY2015, an increase of 5.9% from RMB2,288m in
FY2014, gross margin after elimination was 60.6% as
compared with 65.5% in FY2014
• Products mix upgrade
• Increased production and sales of pasteurised
milk
• Raw milk production costs increased
• we continue to enhance our product mix with more
premium products including:
• “Jersey Dairy Farm” – ultra-premium UHT
products
• “心情工坊” –new yogurts products
• “10 Days for kids” – additive free yogurt with a
natural-taste
• Increasing sales of pasteurised milk versus UHT
29
Growing downstream volumes and margins
Distribution channels • According to Frost & Sullivan, Huishan is ranked No.1
by market share in the liquid milk market in the three
with market share of 20.9%, among which we are in
absolute leading position in pasteurised milk and
yogurt products with market share of 44.3% and
28.7%, respectively
• As at 31 March 2015, Huishan’s distribution network
comprised 373 distributors, 408 supermarkets and
over 10,000 subscribers for home milk delivery
• Huishan will continue to build its distribution channels
and network in Northeastern China through:
• Strengthen the publicity and promotion power,
organized the first international Milk Festival,
and continued to educate consumers
• Building a home delivery service
• Increasing sales of pasteurised milk and yogurt
products
Third-party
distributors
Modern
channels
Specialty
channels
Home delivery
Club
memberships
E-commerce
platforms
International
supermarkets
National
supermarkets
Regional
supermarkets
Convenience
stores
Department
stores
Consumers
Third-party
distributors
purchase our
products from
us directly
and
subsequently
sell our
products to
retailers
within a
designated
region
30
Market leader in Northeastern China
• Huishan is at an early stage of selectively expanding into other provinces including Jiangsu, Shandong, Hebei,
Henan and Sichuan with:
• An initial focus on 15 key provinces/areas
• Sales of primarily high-end products, such as “Jersey farm” products
• Aim at target group, enhance the interaction process and coordinate with products release and CCTV
advertising
• Select stores with active sales and high-end residential block as major sales channels
• On 30 November 2014, Huishan and a subsidiary of Nantong Zongyi Investment Co., Ltd named Alpha
Spring reached an agreement. Both parties decided to develop integrated dairy business. The joint venture
were officially established on 18 May 2015 and the Eastern China industry cluster commenced opeartions
• We will invest equity of up to RMB650m initially in the JV
• Help Huishan to replicate the business to Shanghai, Jiangsu, Zhejiang, Shandong, Anhui and other
pasteurised milk markets apart from Northeast region
• These moves show that Huishan begin to map out the countrywide market, enter into terminal sales
beyond Northeast region and become a nationwide dairy company from a regional brand
31
Expanding distribution beyond Northeastern China
Milk Powder Business
• In October 2014, we announced the formation of a joint
venture with FrieslandCampina
• We will receive c. RMB700m in cash and the milk
powder production plant in Shenyang will become part
of the JV company
• We will continue to produce and distribute our own IMF
brands in parallel with the JV
• Our milk powder and dairy ingredients products
business is still relatively new
• We currently have three milk powder production facilities: a 26ktpa milk powder production plant in Shenyang, a 12ktpa D90 whey powder plant in Fushun, and a 19.8ktpa milk powder plant in Jinzhou
• Sales of 15,925t of milk powder products in FY2015,
included infant milk formula (IMF) sales of 2,938t
• Other milk powder products include, whole milk powder, D90 whey powder, and non-dairy creamer
• Processing capacity is underutilised but will grow as marketing efforts intensify
Growth in our milk powder products segment
has been slower than anticipated
We are focusing on the higher margin IMF
segment with the FrieslandCampina JV
33
Milk powder products Business overview
Our milk powder products business remains in its infancy
Revenue
Segment profit1 (adjusted EBITDA)
Gross profit
Margins
(1) Segment profit is “adjusted EBITDA” adjusted for items not specifically attributed to individual segments and before changes in fair value to biological assets (see
our financial statements for a complete definition)
(Rmb m)
143 311 111
162 254
473
0
200
400
600
800
1,000
FY14 FY15
IMF Products (including Audlt Milk Powder)
Dairy Ingredients
51.8%
18.9%
29.8%
60.6%
36.2%
45.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
FY13 FY14 FY15
GP Margin before elimination
GP Margin after elimination
46 48
141
53
92
216
0
50
100
150
200
250
FY13 FY14 FY15
Before elimination
After elimination (Rmb m)
49
(44) (49)
-80
-60
-40
-20
0
20
40
60
FY13 FY14 FY15
(Rmb m)
34
Financial overview
Significant changes in product mix in the past two financial
years, comparability is not strong
• In FY2015, we sold 2,938 tonnes of IMF (1,417 tonnes in
FY2014), and produced 12,987 tonnes of dairy ingredients
(3,458 tonnes in FY2014), including non-dairy creamer, whole-
milk powder and clarified butter
• Gross margins in the powder milk products segment were
45.7% compared to last year’s 36.2% after elimination
• We will continue to develop our own IMF brands alongside the
JV with FrieslandCampina. Growth in IMF sales has been
helped by the launch of ‘Huishan Red Label’ in March 2014
• As the end of Financial Year, 1,049 distributors (FY2014: 418),
8,785 points of sales, 621 “Huishan Red” direct-sale mother-
and-baby stores
• Completed mobile “Wei Mall” set up and commenced operations
Still a relatively new business
Milk powder product volumes and ASPs
2015 2014
Sales Volume tonnes ASP Sales Volume tonnes ASP
rmb'000 tonne rmb/tonne rmb'000 tonne rmb/tonne
IMF Products (including Adult Milk Powder) 311,054 2,938 105,873 143,265 1,417 101,104
Dairy Ingredients 162,284 12,987 12,496 110,503 3,458 31,956
Total 473,338 15,925 29,723 253,768 4,875 52,055
1,417 2,938 3,458
12,987
0
5000
10000
15000
FY14 Volume tonnes FY15 Volume tonnes
IMF Products (including Audlt Milk Powder)
Dairy Ingredients (Unit: tonnes)
35
101,104 105,873
31,956 12,496
0
50,000
100,000
150,000
FY14 Average selling price FY15 Average selling price
IMF Products (including Audlt Milk Powder) Dairy Ingredients
RMB/tonne
Benefits of a JV with FrieslandCampina
• We announced on 8 October 2014 a proposed 50:50 JV with
FrieslandCampina to produce and sell IMF products in China under an
existing FrieslandCampina brand. Key terms of the proposed JV include:
• FrieslandCampina will pay c. RMB700m for its stake in the JV
• FrieslandCampina will acquire USD30m of Huishan shares
on-market within 6 months
• The JV does not restrict Huishan or FrieslandCampina from
continuing to develop their existing IMF businesses
• The primary benefits of the proposed JV include:
• Builds on the existing partnership in the production of non-dairy
creamers
• Secures additional demand for sales of premium raw milk
• Utilises FrieslandCampina’s existing brand, sales and distribution
networks
50%
50%
36
Q&A