---
title: "H1 Profit Plunges Nearly 50%? Here's What Mengniu Did!"
description: "On the morning of June 9, Mengniu Dairy announced that due to the COVID-19 pandemic, it expects positive revenue growth in comparable existing businesses (excluding Junlebao and Bellamy's) for the first half of the year. Despite the expected revenue growth, the company anticipates a 45% to 60% year-on-year decline in profit attributable to owners for H1 2020. Notably, following the announcement, Mengniu's share price surged, rising over 8% at the open and closing up 5.48% the previous day. Why did Mengniu see increased revenue but not profit? The expected profit decline is due to..."
author: "New Distribution"
publisher: "New Distribution"
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published: "2020-06-10"
language: "en"
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# H1 Profit Plunges Nearly 50%? Here's What Mengniu Did!

> On the morning of June 9, Mengniu Dairy announced that due to the COVID-19 pandemic, it expects positive revenue growth in comparable existing businesses (excluding Junlebao and Bellamy's) for the first half of the year. Despite the expected revenue growth, the company anticipates a 45% to 60% year-on-year decline in profit attributable to owners for H1 2020. Notably, following the announcement, Mengniu's share price surged, rising over 8% at the open and closing up 5.48% the previous day. Why did Mengniu see increased revenue but not profit? The expected profit decline is due to...

On the morning of June 9, Mengniu Dairy announced that due to the impact of the COVID-19 pandemic, it expects positive revenue growth in comparable existing businesses (excluding Junlebao and Bellamy's) for the first half of the year compared to the same period last year. Despite the expected revenue growth, the company anticipates a 45% to 60% year-on-year decline in profit attributable to owners for H1 2020. Notably, following the announcement, Mengniu's share price surged, rising over 8% at the open and closing up 5.48% the previous day. Why did Mengniu see increased revenue but not profit? Why did the share price rise despite such a significant expected profit decline?

**-01-**
## **Three Factors Led to Profit Decline, but Operations Are Sound**
Based on Mengniu's 2019 performance, H1 2019 revenue was 39.857 billion yuan, with net profit of 2.077 billion yuan. If Mengniu's H1 2020 profit meets expectations, it would mean net profit of only 830 million to 1.14 billion yuan, less than the 1.56 billion yuan in 2018. So what caused Mengniu's increased revenue but not profit in H1 this year? Mengniu stated that the expected profit decline is due to additional costs from multiple measures during the pandemic, mainly including epidemic prevention costs, extra marketing expenses, and donations of money and goods. Let's look at what Mengniu actually did during the six months of the pandemic.

**1. Invested in additional epidemic prevention costs to ensure employee health and safety and resume work and production normally.**
It is understood that under the pandemic, Mengniu achieved the industry's first resumption of work and production, without layoffs, salary cuts, or benefit reductions due to the pandemic, ensuring stable supply of dairy products and maintaining employment stability. In February, when the epidemic was severe, production had already recovered to over 70% of January's level, and capacity utilization in February reached about 80% of January's capacity. Moreover, Mengniu also proposed measures to "boost confidence and protect the upstream" during the pandemic, committing to "collect all milk" from upstream sources, bearing some losses for upstream dairy farming enterprises with lower risk resistance, and fully safeguarding the interests of cooperative pastures. Mengniu President Lu Minfang stated that sufficient cash flow is a prerequisite for small enterprises to cope with the pandemic's impact. To this end, Mengniu urgently allocated 3 billion yuan in interest-free funds to cooperative pastures nationwide, with an expected total credit line of 10 billion yuan for the year, ensuring the sustainable development of pastures.

**2. Invested in additional marketing expenses to quickly reduce channel inventory.**
Since the outbreak, Mengniu has taken measures to increase promotional efforts, including through e-commerce, O2O home delivery, and close cooperation with fresh food e-commerce, to cope with the impact of the pandemic, quickly reduce channel inventory, and accelerate the recovery of normal sales rhythm. This move is beneficial to sales performance and also provides significant support to channel partners. It is precisely due to these measures that Mengniu's overall business recovered well from April to May, leading to the expected positive revenue growth. It is reported that as of now, all production bases across the country have fully resumed work and production, and overall operational recovery continues to improve.

**3. Actively assumed social responsibility by donating money and goods to society.**
In addition to investments related to production, upstream protection, and channel inventory reduction, Mengniu demonstrated its responsibility as a large enterprise during the pandemic. During the pandemic, Mengniu quickly organized support efforts, with tens of thousands of employees working with the Blue Sky Rescue Team and the China Charity Federation to continuously transport donated goods, including milk, to over 10,000 hospitals and other anti-epidemic institutions nationwide. It also donated the "China Charity Federation Epidemic Prevention and Control Emergency Material Center" in Wuhan to solve logistics difficulties in the early stage of the pandemic. As the domestic epidemic prevention and control situation continued to improve, Mengniu donated a year's supply of Telunsu milk, with free delivery to home, to 42,600 medical staff who aided Hubei. After the pandemic, Mengniu's cumulative charitable donations reached 740 million yuan.

It can be seen that although the pandemic led to significant extra costs from Mengniu's three major measures, resulting in profit decline, its operations themselves have no problems. Whether it is actively resuming work and production, protecting upstream dairy enterprises, or actively reducing channel inventory, ensuring business recovery, and improving operations, all are extremely beneficial to Mengniu's future development. Donations for anti-epidemic efforts have further enhanced brand image and reputation, demonstrating the responsibility of a national enterprise. Overall, Mengniu's business has recovered to a certain level, production is guaranteed, inventory is basically cleared, and coupled with the awakening of consumer health awareness under the pandemic, which is beneficial to the dairy industry, the overall operating situation is improving, which has maintained capital market confidence in Mengniu's long-term development.

**-02-**
## **What Will Mengniu Be Like After the Pandemic? Listen to the President**
At the recent media communication meeting during the Two Sessions, Mengniu President Lu Minfang publicly stated that business had basically recovered in March, with double-digit growth in April compared to the same period last year. Among them, fresh milk sales grew by over 100%, and room-temperature white milk growth reached 20%-30%. According to information disclosed at the first Yogurt Culture Festival held by Mengniu on June 8, its low-temperature products now cover more than 1,200 county-level cities nationwide, selling about 8 billion cups of fresh yogurt annually. Lu Minfang said the company's requirement for fresh milk is to double every year, and it has already broken into double-digit market share, ranking second.

"With the upgrading of consumption trends and the continuous increase in consumer attention to nutrition and health, consumer demand for dairy products will further grow, benefiting the dairy industry and our group's business development." In Lu Minfang's view, although Mengniu's profit suffered during the pandemic, in the long run, the awakening of public awareness of nutrition and health will create new development space for health industries, including the dairy industry. Now that the domestic epidemic is nearing its end, under strong pressure, brand concentration in various industries has further increased. If the dairy industry truly expands as expected, leading dairy companies like Mengniu and Yili will inevitably be the biggest beneficiaries.

**-03-**
## **Mengniu, with Many Resources, Has a Promising Future**
Before that, there is another point worth noting: Mengniu's multiple large-scale acquisitions. Mengniu has made numerous acquisitions in the past 10 years. In 2010, it acquired Junlebao; in 2013, it took control of Yashili International; in 2016, it acquired Dumex; in 2017, it took control of Modern Dairy; and in 2018, it acquired China Shengmu. In 2019, Mengniu Dairy completed the acquisition of Australian organic brand Bellamy's for nearly 7 billion yuan. When the announcement of the Bellamy's acquisition was made, Mengniu's share price fell by 2.92%, indicating that the capital market was not optimistic about the acquisition. However, Mengniu did not stop there. In 2020, Mengniu Dairy launched a new round of acquisitions. It acquired Miaokelanuo for 740 million yuan; the Mengniu Europe Innovation Center quietly landed in the Netherlands in May; in addition, Mengniu acquired Dutch company SieveCorp for a total of 1.3 million euros (approximately 10.4672 million yuan), which is active in innovative food technology and holds filtration technology applicable to dairy and beverage products. If the market improves and Mengniu can integrate these resources well, it may usher in a new round of growth, which is worth continuous attention.


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