COVID-19 hits Yili’s Q1 but firm remains bullish over full-year performance and investment strategy

By Guan Yu Lim contact

- Last updated on GMT

The company forecast its revenue to reach RMB97bn (USD13.6bn) this year © Yili
The company forecast its revenue to reach RMB97bn (USD13.6bn) this year © Yili

Related tags: Yili, China, Dairy, COVID-19

Chinese dairy giant Yili will increase production capacity and focus on online retail channels as part of its business outlook for this year.

This was announced during its Q1 2020 and FY19 results, where it was revealed the firm netted total revenues of RMB90.22bn (USD12bn) in FY19, an increase of 13.4% from RMB79.6bn (USD11bn) year-on-year.

Yili also reported a 12.3% annual growth in gross profit in FY19 of RMB33bn/USD4.6bn.

However, first quarter revenues and profit did not reflect similar growth. Revenue dropped 10.7% from RMB23bn (USD3.2bn) in Q1 2019 to RMB20bn (USD2.8bn) in Q1 2020.

Profit also dropped 16.9% from RMB9bn (USD1bn) in Q1 2019 to RMB7bn (USD988mn) in Q1 2020.

The results in part appear to be due to the impact of the Covid-19 pandemic, with Nestle and Danone also reporting slower demand for dairy during this time.

However, this might change after four of the country’s major dairy industry associations issued a guideline encouraging a daily intake of 300g of dairy​ to strengthen immune health.

Increased production

As part of its business strategy, Yili is building an organic dairy production base in the Hinggan League at the Inner Mongolia Autonomous Region, consisting of 20 demonstration ranches and a smart factory.

The RMB 30 billion (USD4billion) project will have a milk processing capacity of 4000 tonnes, and create jobs for about 60,000 people in farming, feed processing, logistics and packaging.

Yili is also building a production base in Henan Province, China, consisting of a demonstration ranch and a smart dairy processing factory.

The RMB 3 billion (USD400million) investment will create at least 20,000 jobs. Henan is largely an agriculture province, and produces forage grass, an advantage for dairy enterprises choosing to establish there.

In addition, Yili reported it was building more overseas production bases as it seeks to expand sales overseas, especially in South East Asia. Last year, it launched its ambient yoghurt brand Ambrosial in Singapore and Myanmar.

Its factory in Indonesia is currently under construction and expected to begin operations later this year. It is set to boost local employment and benefit to the local economy.

Last year, Yili acquired New Zealand's Westland Co-Operative Dairy Company Limited introducing dairy products such as Westpro and Westgold butter into China.

Outlook for online

In its earnings report, the company had seen higher growth of its dairy products on online channels.

Domestic retail sales of liquid dairy products and milk powder including online and offline channels increased by 6.8% year-on-year.

Among them, online channel retail sales of the above products increased by 22% year-on-year, and the offline channel retail sales increased by 5% year-on-year.

The company is planning to explore these online channels and home consumption models​ to drive sales as the country is graduating into the post-pandemic phase.

The company is also involved in creating a more sustainable business, and had since then reduced its energy and water consumption. Its carbon emission was also down to 213 kg/ton of production in 2019, compared to 377kg/ton of production in 2012.

The company estimates its revenue to reach RMB97bn (USD13.6bn) in 2020.

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