Mengniu, Australia'S Strategy, Another Son: HK $3 Billion 100 Million Acquisition Of Dairy Enterprises LDD

Following the sale of Australian organic milk powder by Bellamy after a 1 billion 460 million Australian dollar throw, Mengniu shot again.

In November 25th, the 2319.HK announced that it would acquire a 100% stake in Australian brand dairy and beverage company Lion-Dairy & Drinks Pty Ltd (hereinafter referred to as LDD) at a cash price of 600 million Australian dollars (HK $3 billion 187 million).

After the transaction is completed, LDD will become an indirect wholly-owned Affiliated Companies of Mengniu, and its financial results will be incorporated into Mengniu's financial statements. Mengniu will have all tangible and intangible assets of LDD.

"China's traditional consumption has become saturated, and the growth of performance is more difficult. At present, the fastest growth of dairy industry is actually Southeast Asia, and the layout of Australia is good for Mengniu to increase its delivery to the Southeast Asian market." In an interview with the twenty-first Century economic report, Song Liang, a dairy expert, said that the acquisition of LDD by Mengniu actually used overseas resources to open up the international market, so as to speed up its entry into the 100 billion club next year.

Buy and buy in Australia

Prior to this, Mengniu has acquired Burra Foods and Bellamy in Australia. The acquisition of Lion-Dairy & Drinks Pty Ltd of Australian dairy enterprises is another major move in the layout of Mengniu international business. Insiders pointed out that the acquisition has milestone significance, marking Mengniu has basically completed the strategic layout of Australia.

The announcement shows that Lion-Dairy & Drinks Pty Ltd is a private limited company incorporated in Australia, an indirect Affiliated Companies of Kirin Holdings Company Limited (Japan's listed company, stock code: 25030). The company is mainly engaged in the production and sale of iconic famous brands of dairy and beverage combinations (including milk drinks, yogurt, white milk, low temperature fruit juice and beverages, fruit juice and beverages at normal temperature, sand ice, cooking and plant based products), and some of its products have a leading market position in Australia.

According to the announcement, through about 280 dairy farmers and 85 fruit growers, LDD purchase about 825 million litres of milk equivalent and 50 million kilograms of fresh fruit every year. In Australia, there are 13 plant facilities (including two facilities operated by joint venture) and a cold chain distribution network that can reach 35000 customers.

According to the earnings data from the announcement, LDD's profits in 2018 declined, and the pre tax profits in 2017 and 2018 were 69 million Australian dollars and 65 million 500 thousand Australian dollars respectively.

People familiar with the matter told the twenty-first Century business news reporter that LDD's parent company invested in the hope that the product could penetrate into the Japanese market, while further developing Hongkong, Taiwan and even Southeast Asian markets. However, in recent years, Japanese enterprises have been more difficult in their business process, operating conditions are not ideal, and even there are some losses, so they eventually sell LDD to Mengniu.

For Mengniu, the company accelerated its overseas layout in recent years. In September 2013, Mengniu's Yashi Li invested 220 million New Zealand to build factories. This is an important step for Mengniu to lay out overseas milk sources and markets, and add a strong color to its internationalization process. In January 2014, Mengniu jointly established a joint venture with White Wave Foods, a North American food giant, to launch the strategic layout of Mengniu in the field of plant protein.

Then, with the strategic cooperation with Danish Arla Foods, France Danone (Danone) and New Zealand Asure Quality, Mengniu quickly realized the integration with the advanced management level of the international dairy industry, and formed a large-scale dairy industry chain with milk collection construction, research and development, production and sales.

In 2016, Mengniu bought Burra Foods, an Australian dairy company. Last November 29th, the Mengniu YoyiC factory, located in Cikarang, West Java, Indonesia, was officially opened. It is the second overseas factory built by Mengniu after the New Zealand Ashley plant. It will achieve local production and local sales.

Mengniu said in the announcement that the acquisition can get the right to control the quality assets of LDD. "It is another important milestone in building regional market integrators. It can serve consumers in the Asia Pacific region through a combination of multi category and multi brands". In addition, Mengniu also mentioned that LDD is very attractive to consumers in the whole market, thus providing considerable market opportunities for Mengniu.

"This acquisition will contribute to the development opportunities of high-end UHT milk and the synergy of supply chain." In addition, Mengniu said in the announcement that from the perspective of supply chain, cooperation between LDD, Burra Foods and Bellamy 's will bring greater synergy.

In Song Liang's opinion, Mengniu's timing is good. "At present, the relationship between Australia and China is relatively good, and the Aussie dollar is also in a state of devaluation. At this time, Mengniu spends money on investment is more appropriate."

Next year sprint billion goals

Last year, Mengniu earned 68 billion 977 million yuan a year, and its old rival, Erie, achieved 79 billion 600 million yuan in revenue. In the first half of this year, Mengniu earned 39 billion 857 million yuan, and Erie realized a total revenue of 45 billion 71 million yuan. The annual revenue is expected to exceed 90 billion yuan.

"If we add the real income of Bellamy and LDD, Mengniu and Yili can basically reach 90 billion yuan this year, laying the foundation for the two hundred billion next year." According to Song Liang analysis, Mengniu after the sale of Jun Le Bao needs to be supplemented by strong performance.

It is reported that Mengniu before the acquisition of Burra Foods is Australia's largest dairy raw materials processing enterprise, and Bellamy is a world-renowned organic infant formula milk powder enterprise, has a very competitive brand, formula and rich product line, and the acquisition of LDD has high quality milk source and products. With the help of the three acquisitions, Mengniu basically set up an industrial system from source to brand in Australia.

In view of the question of whether the Mengniu, which has just completed Bellamy's acquisition, will encounter financial problems, Song Liang believes that there will be some pressure. But the sale of Chun Lok Bao can get a cash, plus the large shareholder grain will provide certain financing for Mengniu. In general, Mengniu still has relatively abundant funds.

Data show that in the middle of 2019, Mengniu liabilities reached 57.06%, up by 10 percentage points compared to 47.82% in the middle of 2016. In terms of cash flow, Mengniu's cash and cash equivalents dropped sharply, from 7 billion 298 million in the middle of 2018 to 4 billion 731 million yuan at present, while operating cash flow also decreased by 22.4% to 2 billion 640 million yuan.

"In terms of 100 billion target plans, Mengniu actually need not buy it again, but it may not stop the pace of mergers and acquisitions." Song Liang estimated that Mengniu might then integrate domestic pasteurized milk enterprises to strengthen their layout in low-temperature pasteurized milk.

It is worth noting that, including Mengniu, Erie and other dairy companies, they are currently concentrating on one place for overseas investment. This method has advantages and disadvantages, which can save costs and bring about scale effect. At the same time, there is also a certain risk. "If there is systemic risk, there may be some losses." Song Liang said.

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