Chinese Dairy Giant Sees Profits Curdle

What’s new: Dairy products provider China Mengniu Dairy Co. Ltd. saw declines in both revenue and profit last year, as its supply chain was adversely hit by Covid-19, after it sold its once lucrative milk powder subsidiary.

China Mengniu posted a profit of 3.5 billion yuan ($535 million), down 14.1% year-on-year, on a revenue of 76 billion yuan, representing a decline of 3.8%. Industry experts attributed the uninspired results to impacts from the pandemic on supply chains.

The financial report also came after it sold Shijiazhuang Junlebao Dairy Co. Ltd. in 2019, which contributed 11.1 billion yuan in revenue to the company that year.

Its biggest source of revenue — sales of its branded milk — made 67.75 billion yuan, slightly down from the previous year by 0.2%.

More Background: China Mengniu’s second largest shareholder, the dairy giant Danone, plans to sell its stake in the company this year by converting its investment into a direct holding. The world’s largest yogurt-maker currently holds a 9.8% in China Mengniu indirectly, which has a book value of 850 million euros ($1.03 billion).

China Mengniu announced in December last year that its plans to increase its stake in cheese-producer Shanghai Milkground Food Tech Co. Ltd. from 5% to 23.8% by subscribing to new stock insurance worth 3 billion yuan.

The Shanghai-listed cheesemaker has secured a nearly one-fifth market share in the country as of the first half of 2020, according to report from Guotai Junan Securities.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full Caixin article in Chinese, click here.

Contact reporter Anniek Bao (yunxinbao@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)

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