--- title: "China Shengmu's Loss Narrows in H1 After Mengniu 'Blood Transfusion', Organic Business Continues to Shrink" description: "China Shengmu, the 'largest organic dairy company in China', saw its H1 2019 revenue rise 1.5% to RMB 1.421 billion and its loss narrow to RMB 20.8 million from RMB 1.278 billion a year earlier, aided by strategic investor Mengniu. However, the company's organic strategy continues to contract, and its downstream liquid milk business remains loss-making." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2019-08-31" categories: "Capital, Earnings & M&A, Management & Methods" language: "en" canonical: "https://xinjignxiao.com/en/articles/china-shengmu-s-loss-narrows-in-h1-after-mengniu-blood-transfusion-organ-3e7842c8/" markdown: "https://xinjignxiao.com/en/articles/china-shengmu-s-loss-narrows-in-h1-after-mengniu-blood-transfusion-organ-3e7842c8.md" original_source: "https://mp.weixin.qq.com/s/QKUuZLrGfwbZiOnz76aCxw" translation: "https://xinjignxiao.com/zh/articles/%E8%92%99%E7%89%9B-%E8%BE%93%E8%A1%80-%E5%90%8E%E4%B8%AD%E5%9B%BD%E5%9C%A3%E7%89%A7%E4%B8%8A%E5%8D%8A%E5%B9%B4%E5%87%8F%E4%BA%8F-%E6%9C%89%E6%9C%BA%E4%B8%9A%E5%8A%A1%E6%8C%81%E7%BB%AD%E6%94%B6%E7%BC%A9-3e7842c8.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/china-shengmu-s-loss-narrows-in-h1-after-mengniu-blood-transfusion-organ-3e7842c8/" citation: "New Distribution. “China Shengmu's Loss Narrows in H1 After Mengniu 'Blood Transfusion', Organic Business Continues to Shrink.” New Distribution, 2019-08-31. https://xinjignxiao.com/en/articles/china-shengmu-s-loss-narrows-in-h1-after-mengniu-blood-transfusion-organ-3e7842c8/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # China Shengmu's Loss Narrows in H1 After Mengniu 'Blood Transfusion', Organic Business Continues to Shrink > China Shengmu, the 'largest organic dairy company in China', saw its H1 2019 revenue rise 1.5% to RMB 1.421 billion and its loss narrow to RMB 20.8 million from RMB 1.278 billion a year earlier, aided by strategic investor Mengniu. However, the company's organic strategy continues to contract, and its downstream liquid milk business remains loss-making. **From the financial report, China Shengmu's organic strategy continues to shrink, and its downstream liquid milk business remains loss-making.** "China's largest organic dairy company" China Shengmu released its 2019 interim report. Affected by the introduction of strategic investor Mengniu, in the first half of the year, China Shengmu's raw milk sales were stable, and the "burden" of downstream liquid milk was reduced, achieving revenue of RMB 1.421 billion, a year-on-year increase of 1.5%; the loss also narrowed from RMB 1.278 billion in the same period last year to RMB 20.8 million. However, from the financial report, China Shengmu's organic strategy continues to shrink, and the downstream liquid milk business continues to lose money. **Organic raw milk sales volume dropped by 40%** The interim report shows that the introduction of Mengniu as a strategic investor ensured the stability of China Shengmu's raw milk sales volume and price. In the first half of the year, China Shengmu's dairy cow breeding business achieved a net profit of RMB 32.2 million, turning losses into profits; external sales amounted to RMB 1.159 billion, a year-on-year increase of 26%; the raw milk price was RMB 4/kg, a year-on-year increase of 18.3%. However, from the specific data, China Shengmu continues its strategy of shrinking its organic business. In the first half of the year, China Shengmu produced a total of 134,000 tons of organic raw milk, while non-organic raw milk increased to 189,000 tons; external sales of organic raw milk were 110,600 tons, a year-on-year decrease of 41.7%; external sales of non-organic raw milk were 180,800 tons, an increase of 108.9%. In the 2018 interim report, China Shengmu sold some organic raw milk to customers at non-organic raw milk prices, already showing signs of shrinking its organic raw milk business. On September 10 of the same year, China Shengmu announced that it would no longer apply for organic certification for some of its pastures whose certification had expired, citing reasons such as "catering to changing market demands, improving operational efficiency, and bringing better returns to its shareholders." Public data shows that China Shengmu had 23 organic pastures at the time of its listing in 2014, and set a goal of adding 18 more organic pastures and increasing the number of organic dairy cows to 120,000 within three years. However, as of the end of 2017, Shengmu had not achieved its goal. By June 2019, the number of organic pastures had been reduced to 11, and the number of organic dairy cows had dropped to 47,054. Dou Ming, editor-in-chief of the dairy industry upstream magazine "Holstein", previously told a Beijing News reporter that China Shengmu's layout was driven by capital rather than market demand. In Guangdong and Fujian regions, raw milk prices are high and cattle farming is profitable, because the local development mainly focuses on low-temperature products such as pasteurized milk, which has market demand. In contrast, China Shengmu's raw milk can only be used as raw material for room-temperature milk, and has no advantage compared with international market prices. **Downstream liquid milk continues to lose money** After China Shengmu transferred its downstream liquid milk assets to Mengniu, it obtained investment income of RMB 85.8 million during the reporting period. The related assets have appeared in Shengmu's financial report as "discontinued operations", which in the long term helps to reduce Shengmu's downstream liquid milk "burden". However, the interim report shows that the downstream assets had revenue of RMB 220 million in the first half of the year, a year-on-year decrease of 48.97%, and still lost RMB 52.991 million. On December 24, 2018, China Shengmu announced that its wholly-owned subsidiaries Shengmu Holdings and Shengmu Hi-Tech planned to sell a total of 51% equity of Inner Mongolia Shengmu Hi-Tech Dairy Co., Ltd. to Inner Mongolia Mengniu Dairy (Group) Co., Ltd., and establish a new joint venture. As a precondition for the transaction, China Shengmu needed to transfer all its downstream dairy business chains and related assets to the target company. The sale was completed at the end of April 2019. Public data shows that China Shengmu further expanded its business to its own liquid milk brand in 2012. In 2018, China Shengmu continued to implement the "production-based sales" price stabilization strategy for its liquid milk business, but sales fell by 41.2% year-on-year, and its share of the group's total revenue also dropped from 52.7% in 2017 to 29.1%. It is worth noting that 2019 is the third year that Shao Genhuo, chairman of Dabeinong Group, personally controls Shengmu. Unlike the founder Yao Tongshan era, when production lines were continuously added and discount promotions were used, now Shengmu focuses more on price stability and maintaining a high-end image in the downstream market. Judging from the operating losses of Shengmu Hi-Tech Dairy in the first six months, the optimization and adjustment of Shengmu's liquid milk business still needs time. Source: Beijing News If the tip is adopted, a reward of 400-2000 yuan will be paid. **China FMCG + Internet Professional New Media** **Committed to FMCG manufacturers' transformation and upgrading and channel digital solutions** --- ## Citation metadata - Publisher: New Distribution - Author: New Distribution - Published: 2019-08-31 - Canonical: https://xinjignxiao.com/en/articles/china-shengmu-s-loss-narrows-in-h1-after-mengniu-blood-transfusion-organ-3e7842c8/ - Original source: https://mp.weixin.qq.com/s/QKUuZLrGfwbZiOnz76aCxw ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671