Produced by Radar Finance Text | Edited by Xiao Sa | Deep Sea
In the eyes of many investors, investing means investing in people. Therefore, a company's move of "changing coaches and sending generals" has always been worthy of attention.
At around 10pm on March 26, dairy giant Mengniu announced that in accordance with the group's strategic arrangements, Lu Minfang was promoted to vice chairman, resigned as president of the company and continued to serve as executive director. Gao Fei, the former senior vice president and head of the normal temperature business unit, took over as president of the company and served as executive director. In addition, Mengniu Chief Financial Officer Zhang Ping resigned as executive director.
On the same day as the news of personnel changes was disclosed, Mengniu Dairy also disclosed its 2023 full-year performance report. The 9.3% year-on-year drop in net profit attributable to shareholders was equally eye-catching. A Morgan Stanley research report pointed out that Mengniu Dairy's net profit fell 9.3% to 4.8 billion yuan in 2023, which was 7% and 12% lower than Morgan Stanley and market forecasts respectively.
had poor performance and changed the person in charge. Such operations are not uncommon in the market. From the perspective of the industry, Mengniu is struggling because its revenue is highly dependent on its liquid milk business, while its milk powder, ice cream, cheese and other business segments are relatively weak.
Serving as president also means that Gao Fei, a sales veteran, needs to face the issue of how to find new growth points in the liquid milk business and make breakthroughs in the cheese and milk powder businesses. Judging from the latest financial report, the revenue of Mengniu Milk Powder business has declined slightly last year. There is still a big question mark as to whether a coaching change alone can reverse the decline in performance.
55-year-old veteran Lu Minfang stepped down as president
html On March 27, at the Mengniu performance meeting held in Hong Kong, Gao Fei and Lu Minfang stood in the center of the podium. The former hosted the investor Q&A session as president, and the latter as The vice chairman of the group introduced the company's performance in 2023.According to public media reports, Lu Minfang, who was born in 1969, graduated from the Department of Biochemistry at Fudan University. Before joining Mengniu, Lu Minfang was the president of Yashili Group, a subsidiary of Mengniu Dairy. Before joining Yashili, he served as the vice president of Greater China for Danone Early Life Nutrition Company. He served for many years at Danone Group and Dumex Baby Food Co., Ltd. .
In addition, before joining Danone Group, Lu Minfang worked for Johnson & Johnson (China) Co., Ltd. for 9 years and worked for General Electric (China) of the United States for nearly 4 years.
In September 2016, 47-year-old Lu Minfang "parachuted" into Mengniu Group and became the new president, and was considered to play the role of "firefighting captain." The reason behind this starts with the history of the company Mengniu.
In July 2009, COFCO and Hopu Investment jointly acquired 20% of Mengniu's equity for HK$6.1 billion, becoming Mengniu's largest shareholder. Then from 2010 to 2012, Ning Gaoning and Sun Yiping from COFCO became the core management of Mengniu.
At that time, with the swarm of overseas dairy giants, China's dairy market entered a situation of competition among the top players. However, the market share and revenue of the two leading local dairy companies, Mengniu and Yili, were almost the same.
However, by 2015, Yili’s profit was twice that of Mengniu, and there was a huge gap between the two revenue. In 2016, Mengniu Dairy suffered a performance loss for the first time in its history, further widening the gap with Yili.
Lu Minfang, who was appointed at the critical moment, issued a "military order" to the board of directors. The first task was to ensure the continued growth of Mengniu. After some market visits and research, at the annual meeting at the end of 2016, Lu Minfang announced two major reform measures: first, organizational structure adjustment and new business unit reform; second, focusing on advantageous brands.
changed the organizational model to a bu system (business unit system), allowing the business unit leaders who can "hear the sound of cannons" to be responsible for everything on the front and back ends. At the same time, resources focus on advantageous brands and regain growth momentum.
After several measures such as the reform of the business unit system, Mengniu's revenue has also improved. According to ifind data, Mengniu Dairy's revenue increased from 60.156 billion yuan in 2017 to 98.624 billion yuan in 2023; its net profit increased from 2.048 billion yuan in 2017 to 4.809 billion yuan in 2023.
It is worth noting that in 2017, Lu Minfang also proposed a "double 100 billion" goal, that is, revenue and market value will reach 100 billion in 2020. In 2020, it also proposed to achieve the goal of "creating a new Mengniu" by 2025.
Unfortunately, as of now, Mengniu Dairy has a market value of approximately HK$66.1 billion and revenue of less than 100 billion. It has failed to achieve Lu Min's "double 100 billion" goal, and is further away from "creating a new Mengniu".
With Lu Minfang stepping down as president, the pressure has come to Gao Fei's side.
Gao Fei, 47, previously served as senior vice president of Mengniu Group and head of the normal temperature business unit.
's resume shows that Gao Fei graduated from Shandong University and Tsinghua University, and received a master's degree in business administration from Tsinghua University. He joined Mengniu in 1999 and has served as regional manager, center manager, sales general manager, and marketing general manager of the sales and marketing department.
In the view of senior dairy analyst Song Liang, Gao Fei is a veteran of Mengniu, especially with rich marketing and sales experience, and also has very rich experience in brand operation, making him a suitable candidate to succeed Lu Minfang as president.
The burden on Gao Fei's shoulders is not light
From the outside, the intention of announcing the coaching change on the day of the results release is self-evident. Mengniu hopes to achieve a breakthrough under the leadership of the new president.
However, judging from Mengniu’s current performance, Gao Fei’s task is not easy.
's financial report shows that the company's revenue increased by 6.5% to 98.624 billion yuan in 2023; net profit attributable to equity shareholders was 4.809 billion yuan, a year-on-year decrease of 9.31%. After the disclosure of
's financial report, Mengniu Dairy's share price fell by 9.92% and 1.64% respectively in two trading days. Obviously, the market is not satisfied with this "report card".
In this regard, CLSA issued a research report stating that Mengniu’s stock price fell after disclosing last year’s results. The bank expected that this was mainly due to the company’s net profit in the second half of last year and last year being lower than expected, and the company’s weak outlook for this year.
Lyon believes that Mengniu still has to face the challenge of weak demand, and changes in the competitive landscape may be one of the key factors worthy of attention in the company's gross profit expansion journey. The bank lowered its net profit forecast for this year and next by 14% to 15%, and lowered the target price from HK$28 to HK$24.
Morgan Stanley also pointed out in the report that Mengniu Dairy's annual net profit fell 9.3% to 4.8 billion yuan, 7% and 12% lower than Morgan Stanley and market forecasts respectively; core operating profit rose 14% year-on-year, lower than the bank's expectations 3%, affected by the increase in sales and marketing expenses.
In the view of Lu Haojiang, an analyst at Bank of Communications International, Mengniu’s revenue increased last year but its net profit declined, mainly due to non-operating expenses (such as RMB 323 million in milk powder inventory write-offs) and a 78% year-on-year decline in profits from associated companies (China Modern Dairy) , Shengmu’s net profit in 2023 fell by 68% and 79% year-on-year) and impairment. According to
data, the above two companies were acquired by Mengniu during Lu Minfang’s period. In February 2017, Mengniu increased its stake in Modern Dairy by 16.7% for HK$1.873 billion, and became the actual controller of Modern Dairy after this increase.
In 2018, Mengniu acquired 51% of the equity of Inner Mongolia Shengmu High-Tech Dairy Co., Ltd., a subsidiary of China Shengmu, and officially acquired it; in 2020, Mengniu spent a huge amount of money to acquire the cheese leader Mioclanduo.
However, these assets currently do not add much to Mengniu’s performance. In 2023, Modern Dairy's revenue was 13.458 billion yuan, a year-on-year increase of 9.5%, and its profit during the year was approximately 185 million yuan, a year-on-year decrease of 68.1%. During the same period, China Shengmu achieved revenue of approximately 3.52 billion yuan, a year-on-year increase of 5.5%; the parent company Profit attributable to owners was approximately 86.076 million yuan, a year-on-year decrease of 79.3%.
At the same time, A-share listed Miaoke Landuo had operating income of approximately 4.049 billion yuan last year, a year-on-year decrease of 16.16%; the net profit attributable to shareholders of the listed company was approximately 63.4395 million yuan, a year-on-year decrease of 53.9%.
Faced with the problem of "increasing revenue without increasing profits", Gao Fei, who took office, said that Mengniu's strategy will not change. At present, the industry is encountering some challenges, and the company will actively respond to them.
But Gao Fei is not only faced with declining profits, but also future growth pressure. Lu Haojiang pointed out that Mengniu's management expects sales growth in 2024 to be "low to mid-single digits" year-on-year, which is lower than market expectations (2024 consensus expectation: year-on-year growth of 7.5%). This guidance is disappointing.
However, objectively speaking, as the liquid milk market becomes saturated, the growth of the entire industry is slowing down. Among them, since 2022, the development of my country's dairy industry has shown the characteristics of periodic surplus.Li Shengli, a professor at China Agricultural University and chief scientist of the National Dairy Industry Technology System, predicted in July 2023 that the surplus of raw milk in 2023 will exceed 1.1 million tons.
Regarding the lack of growth in the industry, Lu Minfang believes that the current industry is temporarily slowing down. The development of China's dairy industry has entered the second half. There are still opportunities in some subdivisions such as low sugar and low fat, zero additions, formula optimization, nutritional enhancement, etc. Huge growth potential.
A new growth curve is hard to find
In the first half of last year, Mengniu adjusted the company’s internal organizational structure and formed a total of five operating segments, namely liquid milk, ice cream, milk powder, cheese and other businesses (dairy raw material production and distribution trade ).
Among them, the liquid milk business is the main revenue pillar of Mengniu. In 2023, this segment achieved revenue of 82.071 billion yuan, a year-on-year increase of 4.86%, and the revenue accounted for as high as 83.22%.
Mengniu’s liquid milk product matrix is huge, including uht milk (Deluxe, Selected Ranch), room temperature yogurt (Pure Zhen), room temperature milk drinks (Zhenguoli, Sour Yoghurt), low-temperature yogurt (Mengniu0 Sucrose Pure Yoghurt) , Guanyi milk, daily fresh cheese), low-temperature milk drinks (youyi c), fresh milk (daily fresh language, small fresh language, modern ranch).
From the perspective of the industry, as a dairy giant with revenue close to 100 billion, Mengniu’s revenue structure that relies too much on a single segment is not healthy, especially in the context of the liquid milk market becoming saturated.
In contrast, Yili, also a giant, reduced its liquid milk business revenue to less than 70% in the first half of last year.
In addition to the basic liquid milk, Mengniu's ice cream business achieved revenue of 6.03 billion yuan in 2023, a year-on-year increase of 6.6%; the milk powder business achieved revenue of 3.8 billion yuan, a year-on-year decrease of 1.56%; the cheese business revenue was 4.36 billion yuan, a year-on-year increase of 230.3%, mainly affected by Miao Kelan has many concurrent effects.
Mengniu's milk powder business "does not advance but retreats", which is in sharp contrast to Lu Minfang's previous high hopes for this business. According to media reports, Lu Minfang, who was born in the milk powder industry, once said, "A CEO who has not developed infant milk powder is definitely not a good CEO."
Under his leadership, Mengniu has successively acquired milk powder brands Junlebao, Yashili. Similarly, Mengniu also relies on acquisitions in its diversified businesses such as ice cream and cheese, but so far it has not greatly contributed to the company's performance.
After calculation, the ice cream, milk powder and cheese business will account for only 14.4% of Mengniu's total revenue in 2023. Regardless of scale or growth rate, it is still difficult to shoulder the important task of the company's "second growth curve".
With the arrival of new CEO Gao Fei, Mengniu’s next move will be closely watched by the market. Can Gao Fei lead Mengniu to fly high? Radar Finance will also continue to pay attention to the development trends of Mengniu.
