The new dairy industry gets rid of “a yogurt cow”

Wen| Zebra Consumption Chen Xiaojing

Last week, New Dairy received valuation compensation from a yogurt cow compensation obligor, and the dispute that lasted for more than a year finally came to an end.

Four years ago, when New Dairy purchased a yogurt cow, the existing yogurt track was hot. This acquisition once gave the outside world unlimited associations.

However, a yogurt cow ultimately failed to meet its performance target. Due to the impact of the past three special years and differences in business models, New Dairy has had to temporarily stop in trying to expand new business formats.

The new dairy industry, which has expanded to become a 10 billion dairy industry through mergers and acquisitions, has turned to focus on its main business and sought endogenous growth in recent years. It is expected that it will be possible to divest its drag.

As a new force in the rise of low-temperature milk tracks in recent years, the new dairy industry is gaining momentum in the last battle of the dairy industry. For the company, this was a critical battle and the cruelest battle.

Get rid of a yogurt cow”

On February 8, the valuation compensation dispute between New Dairy (002946.SZ) and a yogurt cow came to an end. On the same day, the company announced that it had received all valuation compensation paid by compensation obligors Hua Changming, Wu Yuanxue and Hua Zili totaling 44.6005 million yuan. The company deducted the originally confirmed contingent income of 22 million yuan and increased investment income of 22.6005 million yuan.

At the beginning of 2021, New Dairy invested 231 million yuan to acquire a 60% stake in Chongqing Xinniu Hanhong, obtained a yogurt cow brand and other related rights and resources, and officially set foot in the existing yogurt track.

At that time, freshly made tea drinks became popular, and freshly made yogurt became popular with its milk characteristics. It was also a popular outlet in the market. The new dairy industry was very excited to expand new consumption formats outside the dairy industry. At its first board meeting after completing the acquisition, the company launched a high-profile plan to open 3000 stores and challenge 5000 stores in three years, giving the outside world unlimited imagination for a while.

However, limited by the operating model of the current track and the influence of factors such as the special three-year period, this plan has not been fully realized.

In terms of performance commitment, Chongqing Xinniu Hanhong, a yogurt cow operator, has promised that a cumulative net profit over three years will not be less than 127 million yuan. Data shows that from March to December 2021 and from 2022 to the first three quarters of 2023, the company’s net profit was 8.6811 million yuan,-9.9178 million yuan and-4.1629 million yuan respectively, triggering a gambling agreement.

In November 2023, New Dairy transferred its 45% stake in Chongqing Xinniu Hanhong to Grassroots Zhiben controlled by Liu Yonghao, reducing its shareholding to 15%.

In December 2023, the company filed arbitration against Hua Changming, Wu Yuanxue and Hua Zili, the original shareholders of Chongqing Xinniu Hanhong.

In March 2024, the company received an award from the Chongqing Arbitration Commission, and finally ruled that New Dairy should receive the above-mentioned three-party valuation compensation of 44.6005 million yuan and performance compensation of 200,000 yuan.

Why divest after the acquisition? The statement from New Dairy is that the existing yogurt track is no longer the focus of the company’s strategic development.

The rise of mergers and acquisitions

New Dairy has quickly entered the camp of tens of billions of dairy companies, making full use of mergers and acquisitions.

In October 2001, New Hope Group invested in the acquisition of Sichuan Yangping Dairy, completing its first show of mergers and acquisitions. After that, after three rounds of mergers and acquisitions, the business scale of the new dairy industry was established, and the wolf gene of this regional dairy company was also demonstrated.

Usually, when building a dairy company, it is indispensable to build pastures, factories, brands and channels. Each link requires a long construction and cultivation cycle. Through the help of capital, the new dairy industry has achieved overtaking in corners.

Preliminary statistics show that from 2021 to 2003, the company implemented the first round of mergers and acquisitions, instantly attracting 10 local dairy companies. At the end of 2003, through mergers and acquisitions or equity participation, the company had 12 local leading dairy companies, with an annual sales volume of 680 million yuan.

Around 2016, foreign dairy brands poured into the country, market competition further intensified, and the living environment of regional dairy companies became more dangerous. New Dairy began its second round of mergers and acquisitions. Within three months, it won Suzhou Shuangxi Dairy, Hunan Nanshan, and Xichang Sanmu Dairy without bloodshed, and participated in Chongqing Tianyou Dairy, further strengthening its control over local leading dairy companies, moving from Sichuan to the whole country.

In January 2019, the company successfully landed in A-shares, and with the help of capital, it took advantage of the opportunity to launch the third round of mergers and acquisitions. It has successively acquired 55% equity in Fuzhou Aoniu Dairy, subscribed for 9.28% equity in Modern Animal Husbandry, and acquired 100% equity in Huanmei Dairy, the parent company of Xiajin Dairy. According to incomplete statistics, it spent more than 3.3 billion yuan on mergers and acquisitions in the three years after its listing.

At this time, the new dairy industry has achieved control over pastures, production capacity, products, channels and brands, and has also completed the layout of regional markets in Southwest, East China, Central China, North China, Northwest China and other regions. From 2019 to 2022, the company’s operating income increased from 5.675 billion yuan to 10.006 billion yuan.

As of the mid-year report of 2024, the company has 16 dairy factories and 12 self-owned ranches, with a total designed annual production capacity of 16 production entities of 1.58 million tons. In addition to the main brand of New Hope, it also owns 15 sub-brands such as Huaxi and Xuelan.

However, during the process of mergers and acquisitions, New Dairy’s rising debt was once criticized by outsiders outside the industry. Its asset-liability ratio increased from 63.64% in 2018 to 70.47% in 2023. However, Xi Gang, chairman of the company, once stated that the debt risk is controllable.

last battle

Although Xi Gang believes that the risk is not large, the pace is already being significantly adjusted within the New Dairy Industry. In May 2023, in the development strategic plan for the next five years, the company set the tone for future growth, that is, endogenous growth will be the main focus, investment and mergers will be supplemented, and plans to reduce the asset-liability ratio by 10 percentage points.

In other words, after years of scale expansion driven by mergers and acquisitions, the company has placed expansion in a secondary position, and reducing asset-liability ratios and seeking performance growth have become the main axis. As of the first three quarters of 2024, the company’s asset-liability ratio dropped to 66.25%, a decrease of 4.23 percentage points from the same period last year.

The core of the company’s strategic adjustment is to find opportunities in the process of changes in the external market and consumption environment. For a long time, the normal-temperature milk market has been dominated by Yili and Mengniu. The new dairy industry has used a fresh food strategy to compete differently and gradually emerged from the low-temperature milk track.

The company has successively launched 24 Hours and other brands, and continues to have a national matrix layout, achieving good results. In the first half of 2024, Hunan Nanshan, a wholly-owned subsidiary, listed its gold 24-hour products, with a year-on-year increase of more than 30% in the mid-to-high-end series; a year-on-year increase of approximately 15% in the high-end brand Asahi Vipshop Fresh Milk; and a year-on-year increase of 15% in the Huorun series driven by new products.

In addition to strengthening low-temperature fresh milk and yogurt products, the new dairy industry is relying on regional brands to carry out regional deep cultivation and strive to cover blank areas in the sinking market.

According to the company’s response to investors on the investor relations platform, low-temperature products contributed more than 50% to the main business revenue in the first three quarters of 2024. Among them, low-temperature fresh milk and low-temperature yogurt, which account for a relatively high proportion, maintained high single-digit growth.

Benefiting from this, in the first three quarters of 2024, New Dairy recorded operating income of 8.150 billion yuan and net profit attributable to the parent company of 474 million yuan, an increase of-0.54% and 24.37% respectively. With the continuous promotion of low-temperature products and cost optimization, the company’s gross profit margin in the first three quarters of last year was 29.09%, an increase of 1.66 percentage points over the same period last year.

The low-temperature milk market has great potential and high growth rate, but it has a short shelf life and limited sales radius. It is called the last battle in the dairy market. Today, this track is already crowded.

Almost all head dairy companies are accelerating the deployment of low-temperature milk, and the competition is no less than the room-temperature milk war many years ago. Among them, Mengniu’s Daily Fresh Language has ranked first in the market share of high-end low-temperature milk.

After the acquisition and acquisition have come to an end, the key to winning this war is the new dairy industry through internal integration and getting rid of its burdens.