China Mengniu Dairy will market some new products that have a higher profit margin to offset the rise in prices of milk and sugar.
Products such as Milk Deluxe OMP, Milk Deluxe 100% Pure Milk and Milk Supreme have already hit the mainland's first-tier cities, the CEO of the country's largest dairy product manufacturer, Niu Gensheng, said yesterday.
All of them have been developed by Mengniu and have a gross profit margin of 40-60 per cent against 20-30 per cent for its older products, Niu said.
Unlike its peers, Mengniu did not increase the retail prices of its liquid milk products. But its new liquid milk product such as Milk Supreme costs 7 yuan (87.5 US cents) to 8 yuan (US$1) a carton, more than double that of rival brands.
"Though the price of our new liquid milk is higher than the average, it's very high value-added. Therefore we believe domestic consumers will accept it," Niu said, hoping the move would help the company reap the benefits in future.
An ABN AMRO report had suggested Mengniu could offset the rising cost of raw materials through a bigger profit margin on its new products by pricing them higher. Hence, despite the increasing prices of milk and sugar in the first half of 2006, Mengniu's growth rate in the first quarter exceed 20 per cent, the average of the mainland's dairy industry.
"Prices of milk and sugar are not likely to keep going up in the second half of the year," Mengniu's CFO Yao Tongshan said. "We'll also take measures to contain our production cost while maximizing our profit margin," he said.
Mengniu's capital expenditure is expected to rise to about 1.3 billion yuan (US$162.5 million) in 2006 as it boosts its overall production capacity to about 3.9 million tons a year. But Yao said the company's future production capacity would be decided by "the market demand then".
On the global front, Mengniu's joint venture with Denmark's Arla Foods is going according to plan. With an investment of 540 million yuan (US$67.5 million), the new company will focus on production of dried dairy products such as milk powder.
"Already in the company's pipeline are six to eight products contributed mainly by Arla Foods," Mengniu executive director Yang Wenjun said.
The company will continue its campaigns in overseas markets. It's last successful campaign was in April when it became the dairy product sponsor of and supplier to Hong Kong Disneyland and two of its affiliated hotels.
"We'll have more marketing campaigns and promotions like this to strengthen our brand image in overseas markets further," Yang said.
Mengniu has been the No. 1 milk seller in Hong Kong for the last two consecutive years.
Its turnover jumped by 50.1 per cent to reach 10.8 billion yuan (US$1.35 billion) in 2005 and its net profit rose to 456.8 million yuan (US$57.1 million), 43 per cent up from 2004.
Mengniu's shares rose by 1.03 per cent to close at HK$9.75 yesterday.
(HK Edition 06/24/2006 page3)
