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June 9, 2020

China Mengniu Dairy issues Covid-linked profit warning

Chinese dairy giant Mengniu has issued an updated profit forecast as a result of factors linked to the Covid-19 outbreak.

By Leonie Barrie

Chinese dairy giant Mengniu has issued a profit warning, blaming increased costs linked to the Covid-19 outbreak.

In a stock exchange filing today (9 June), the company, one of Asia’s largest dairy groups, said for the first half of 2020, it expects revenue to be higher than the same period in 2019 but added it anticipates it will “record a decrease of between 45% to 60% in profit” compared to the same period in 2019.

In the first half of 2019, Mengniu recorded gross profits of CNY15.57bn (US$2.19bn).

The company said the predicted drop in profits is due to measures taken in the first quarter of this year to combat Covid-19.

It said it has incurred “additional expenses on epidemic prevention and control to safeguard the health and safety of employees and to ensure the resumption of work and production”.

Mengniu said it had also incurred additional marketing expenses to accelerate its sales efforts, with a view to reducing inventories in its distribution channels, and had made cash and supply donations to those in need.

In an announcement on 25 March, the company said its sales between February and March 2020 had been affected by the outbreak of coronavirus.

But today it said that measure taken since then, such as accelerating the resumption of sales through e-commerce, home delivery and close cooperation with fresh food e-commerce platforms, has meant that “the overall business operations of the group” had recovered in April and May and it had recorded double-digit revenue growth compared to the same period in 2019.

Mengniu said all production bases of the group have resumed normal operation and production.

The company said: “Despite the impact of the outbreak on the dairy industry, the epidemic has led to growing consumer desire to focus on health, and in particular, boosting the immune system. 

“In light of the continuing focus by consumers on health and nutrition, the board expects an increasing demand for high quality dairy products, which the board believes will benefit the development of China’s dairy industry and the group’s business.”

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