On May 20, China
Shengmu announced that Mengniu has completed acquiring China Shengmu Organic
Milk Limited, a subsidiary under Inner Mongolia Shengmu High-Tech Dairy Limited.
, and as a result holds 51% interest in Inner Mongolia Shengmu High-Tech Dairy.
At present, Mengniu has officially taken over the equity of the liquid dairy
business in China Shengmu Organic Milk, leaving the company itself to
concentrate on its cow-breeding business.
Mengniu becomes the biggest organic milk
enterprise in China
Having
suffered a constant deficit for two years, China Shengmu eventually sold its
equity of downstream dairy business, the trademark included. Mengniu will own all equity of China Shengmu’s
downstream dairy business, while China Shengmu will hold 100% interest in its
upstream breeding business. Meanwhile, in order to alleviate China Shengmu’s
difficulty in cash flows, Mengniu will provide a loan of RMB130 million for
China Shengmu as a financial support.
Holding the
controlling interest in Shengmu High-Tech Dairy with RMB303 million, Mengniu
ascends to the largest organic milk enterprise in China. Besides, the acquisition
enables Mengniu to indirectly possess the upstream high-quality organic milk
source of China Shengmu.
Upon the
acquisition, China Shengmu has transferred the business chain of its downstream
dairy products as well as the relevant equity to Mengniu. Not only is this beneficial
to the further development of Mengniu, such as improvement in raw milk of high
quality, and layouts of organic milk source, but it also helps promote Mengniu’s
organic dairy business to a new level. In the meanwhile, it enables Mengniu to fulfil
the synergy of supply chain management. Besides, Mengniu’s distribution network
of downstream products can also help China Shengmu expand the organic dairy
products in a faster way.
Shengmu High-Tech Dairy’s deficit of RMB 126
million to drag down Mengniu’s net profit by 21%
Previously
on December 24, 2018, China Shengmu already announced to sell its 51% of the
controlling interest in Shengmu High-Tech Dairy to Mengniu at the cost of RMB303
million. The premise was that China Shengmu should transfer its business chain
of downstream dairy products and relevant equity to Shengmu High-Tech Dairy, in
order to complete the whole business chain and equity of the company, as well
as to produce and distribute organic dairy products. After the completion of
transfer above, China Shengmu would only maintain the breeding business. Until now
it takes totally five months for the three parties to complete the final equity
deal.
As the
annual report of China Shengmu shows, Shengmu High-Tech Dairy earned an annual
revenue of RMB846 million in 2017 but the one in 2018 only reached RMB722
million, a decrease by 14.6%. Compared with the net profit loss of RMB105
million in 2017, the one in 2018 got to RMB126 million, a drop by 120%.
Based on Shengmu
High-Tech Dairy’s financial data of 2018, it is predicted that after the
business combination, Mengniu will suffer from a deduction of RMB643 million in
the net profit, while the net profit of Mengniu in 2018 totalled to RMB3.05 billion.
Hence, Shengmu High-Tech Dairy is likely to drag down Mengniu’s net profit by
about 21%.
For more information about China’s dairy market,
please have a look at our monthly newsletter Dairy Products China News.