china huishan dairy holdings company limited
TRANSCRIPT
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175 CHINA HUISHAN DAIRY HOLDINGS COMPANY LIMITED
2014 INTERIM RESULTS
NOVEMBER 2013
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Disclaimer
1
This presentation has been prepared by China Huishan Dairy Holdings Company Limited ("Huishan" or the
"Company") and is solely for the purpose of corporate communication and general reference only. The presentation
is not intended as an invitation, offer, recommendation or solicitation for you to buy or sell securities or to engage in
any investment activities whatsoever, or to form any basis of investment decision for any securities (whether or not in
relation to the Company) in any jurisdiction. All such information should not be used or relied on without professional
advice. The presentation is a brief summary in nature and do not purport to be a complete description of the
Company, its business, its current or historical operating results or its future business prospects.
This presentation material may contain forward-looking statements. These forward-looking statements are based on
a number of assumptions about the future, some of which are beyond the Company’s control. The Company does
not undertake any obligation to update any information contained in this presentation (including but not limited to the
forward-looking statements) to reflect events that occur or circumstances that arises after the date of this
presentation. Potential investors should bear in mind that actual financial results may differ materially from the
forward-looking statements contained herein.
The information contained in this presentation is not verified by any independent third party. No warranty or
representation of any kind, whether express or implied, is made as to, and no reliance should be placed on, the
fairness, accuracy, completeness or correctness of the information contained herein. The information contained in
this presentation should be interpreted under the prevailing circumstances. There will be no update of matters in the
presentation to reflect any significant change in the development. The Company, its directors, management,
employees, agents or advisers specifically disclaim all responsibilities in respect of any use or reliance of any
information, whether financial or otherwise, contained in this presentation, and shall not be liable for any and all
losses incurred (whether directly or indirectly, financial or otherwise) by any person in reliance on any information
contained in this presentation.
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2
Management Team
Mr. YANG Kai
Chairman and CEO
Ms. GE Kun
Senior
Vice President
Mr. SO Eddie
CFO
Mr. XU Guangyi
Senior
Vice President
Mr. KWOK Patrick
Vice
President
Mr. CHOU Michael
Head of
Corporate Finance
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3
Contents
Index
Company Overview #1
Outlook and Strategies #4
Results Overview #3
Update on Operation #2
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Company Overview
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Golden Corn Belt
5
Business Overview Grass to Glass
Suitable weather,
particularly precipitation
Dairy cow farm
Alfalfa/other feeds plantation
Liquid milk/milk powder
production facility
Largest commercial alfalfa fields in China (140,000
mu1 of land, approximately the size of Hong Kong
Island)
Rapidly expanding plantation base. 100,000 mu of
land for supplementary feeds and in the advance stage
of securing another 200,000 mu of land
Significant cost benefits and feeds with higher
nutritional value
Scaled plantations with fixed rents and
strategically located in the Golden Corn Belt
No.1 Market Share in
Northeastern China
Only major dairy company in China
using solely self-produced raw
milk for production
#1 player and #1 brand
satisfaction in Northeastern China
Brand well known in Northeastern
China for its quality and safety
assurance
Only IMF brand in China using solely
self-produced raw milk for production
Only company in China with official
approval for production and sales of
D90 whey powder
Faku milk powder facility GMP certified.
In process of having all facilities GMP
certified
Feeds Growing and Processing Liquid Milk
Milk Powder and Dairy Ingredients
A leading
F&B brand
from Taiwan
A China-
based major
IMF brand
Note: 1. 1 mu ≈ 666.7 m2
Unique “Grass to Glass”
Business Model
Shenyang
Faku
Yixian
Fushun
Zhangwu
Dairy Farming
Second largest herd in China with
128,352 dairy cows
54 dairy farms in operation and 12
under construction
Industry leading milk yield
Premium quality raw milk with high
nutritional value
Transportation cost savings from
strategic layout of production base
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Our History Vertical Integration Journey
6
China’s Most
Trusted Dairy Brand
by Consumers
Established dairy
products processing
facilities
Commenced dairy
farming operations 2010
2011
“辉山 (Huishan)”
brand was first
used in
association with
dairy products
2013
Liaoning Huishan
Holdings
established
2009
1950’s
2002
Commenced
production and sales
of infant milk
formula and D90
whey powder Commenced
operation of alfalfa
plantation
Commenced liquid
milk production and
sales
2012
Mr. YANG began to
be involved in the
dairy business and
had since
envisioned the
vertically integrated
business model
Issued US$290mm
EB to financial
investors led by
Dr. Cheng Yu-
Tung
IPO on HKSE in
September 2013
Hero Group
became a minority
shareholder
Mr. YANG
established an
infant formula JV
with Hero Group
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Update on Operation
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Feeds Growing and Processing
8
Continue to secure upstream resources for expanding planation of alfalfa and supplementary feeds
(‘000 mu)
June 2013 – Ministry of Agriculture of China (农业部) organized a national
alfalfa conference at Huishan’s alfalfa plantation field in Jinzhou, Liaoning
Highly favorable remarks for Huishan’s unique vertically-integrated dairy
business model
August 2013 – Huishan alfalfa awarded “Premium” rating and obtained the
highest score in a competition held at China’s Alfalfa Development
Convention(中国苜蓿发展大会) organized by China Animal Agriculture
Association (中国畜牧协会)
120140
100
200
0
100
200
300
400
500
1H2012-2013 1H2013-2014
Alfalfa fields Supplementary feed fields
Advanced stage of securing land
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Dairy Farming
9
Average milk yield Average selling price of raw milk
Herd size Total raw milk production
8.6 8.6
0
1
2
3
4
5
6
7
8
9
10
1H2012-2013 1H2013-2014
4,461
4,838
4,355
4,801
4,100
4,200
4,300
4,400
4,500
4,600
4,700
4,800
4,900
1H2012-2013 1H2013-2014
Internal sales External sales
(tonnes)
(tonnes) (RMB / tonne)
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Liquid Milk
10
Enhancing Liquid Milk Product Mix Expanding retail network coverage
retail network coverage by Mar 31, 2013
retail network coverage by Sep 30, 2013
330 distributors and 341 supermarkets as at Sep 30, 2013
150% growth rate from customer base as at Mar 31, 2013,
approximately 100,000 households under a new initiative
“Freshness Delivery”(新鲜送)
Developing differentiated products which leveraged on our
industry-leading upstream resources
Jersey Farm series(“杰茜牧场”) - exclusive series of
ultra-premium UHT products
Protein level at 3.6%
We have the largest Jersey
cow herd in China
Sharing Global Flavors(“全球甄享”) - a series of premium
yoghurt products
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Milk Powder and Dairy Ingredients
11
Milk Powder: Expanding distribution network Dairy Ingredients: Launching new products
Increased to 207 distributors from only 69 as at Mar 31, 2013
retail network coverage as of Mar 31, 2013
retail network coverage as of now
D90
whey
powder
Non-
dairy
creamer
Whole-
milk
powder
IMF
base
powder
Internally
used
Industrial
customers
A leading F&B
brand from
Taiwan
A China-based
major IMF brand
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Brand Building
12
“New Safety Power in China’s Dairy Industry” (中国乳业安全新力量) Advertisements on TV and other media platforms
Sole Title Sponsor of Reality Programme
“Miracle Audition”(奇迹梦工厂)
Innovative advertising campaign featuring popular
TV anchors Acting enthusiasts audition before a panel of popular actors and directors
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Results Overview
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Notes:
1. Operating profit before biological fair value adjustments represents profit for the period before biological fair value adjustments, share option expenses and IPO expenses.
Biological fair value adjustments and share option expenses are non-cash in nature and IPO expenses are non-recurring in nature
2. After inter-segment elimination
Highlights
14
Compared with the corresponding period last year:
Turnover increased by 47.6%
Total raw milk production increased by 49.5%
Operating profit before biological fair value adjustments(1) increased by 41.8%
Liquid milk segment – 65.3% of the Company’s total turnover
Turnover increased by 40.1%
Total volume sold increased by 30.3%
ASP increased to RMB7,222 /tonne from RMB6,712 /tonne
Gross margin(2) improved to 60.9% from 52.2%
2.45x net cash generated from operating activities
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545
890
52.4% 58.0%
0
400
800
1,200
1,600
2,000
1H2012-13 1H2013-14
Gross profit Gross margin
1,039
1,534
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1H2012-13 1H2013-14
(RMB m) (RMB m)
Consolidated Financial Performance Overview
15
Turnover Gross profit and gross margin
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
1,600
2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rateTurnover
406
575
0
100
200
300
400
500
600
700
1H2012-13 1H2013-14
(RMB m)
Operating Profit(1)
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
1,600
2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rateOperating Profit
Notes:
1. Operating profit before biological fair value adjustments represents profit for the period before biological fair value adjustments, share option expenses and IPO expenses.
Biological fair value adjustments and share option expenses are non-cash in nature and IPO expenses are non-recurring in nature
2. Net cash generated from operating activities
(RMB m)
Operating Cashflow(2)
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
1,600
2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rateOperating Cashflow
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(RMB m) (RMB m)
Consolidated Financial Performance By Segment
16
Turnover breakdown by segment Gross profit breakdown(1) by segment
Grain Processing and Trading Grain Processing and Trading
Note:
1. After inter-segment elimination
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Turnover Raw milk sales volume
(RMB m) (tonnes)
Segment Overview: Dairy Farming
(RMB/tonne)
17
62,89388,341
85,772
133,289
0
100,000
200,000
300,000
1H2012-13 1H2013-14
Volume (internal) Volume (external)
148,665
221,630
Gross profit and gross margin(1)
(RMB m)
169241
61.5%56.7%
0
200
400
600
800
1,000
1H2012-13 1H2013-14
Gross profit Gross margin
4,355
4,801
4,461
4,838
4,100
4,200
4,300
4,400
4,500
4,600
4,700
4,800
4,900
1H2012-2013 1H2013-2014
ASP (external) ASP (internal)
Raw milk ASP
Note:
1. After inter-segment elimination
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Turnover Liquid milk sales volume and ASP
(RMB m)
(RMB m)
Segment Overview: Liquid Milk
Gross profit and gross profit margin(1)
374
611
52.2%
60.9%
0
200
400
600
800
1,000
1,200
1H2012-13 1H2013-14
Gross profit Gross margin
18
(tonnes) (RMB/tonne)
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
1,600
2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rateTurnover
1H2013-14 1H2012-13
Note:
1. After inter-segment elimination
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Segment Overview: Milk Powder
Note: We began to sell our milk powder products and dairy ingredients in January 2013
1. After inter-segment elimination
19
Turnover
(RMB m) (RMB m)
Gross profit and gross profit margin(1)
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
1,600
2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rate Turnover
Gross Margin(1)
119.9
549.6
1,378.2
32.0%
41.2%
54.0%
0%
20%
40%
60%
0
400
800
1,200
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2,000
FY2010-11 FY2011-12 FY2012-13
Gross profit Growth rate Gross Profit
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Outlook and Strategies
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Expand upstream operations and resources to
uphold highest standards of product safety and
quality
2
Strengthen brand recognition across China and
enhance consumer loyalty
4
Enhance distribution network and penetrate
additional geographical end-markets beyond
Northeastern China and expand industrial
customer base
1
Continuously expand product portfolio and offer
innovative products to improve profitability
3
21
Our Strategies
Most Trusted
Dairy Brand in
China
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Well Positioned to Capture Future Opportunities Full value chain business model brings an array of opportunities
As China’s most vertically-integrated dairy company with complete control over quality raw milk,
Huishan is uniquely best positioned to capture unprecedented market opportunities in China’s dairy industry
Huishan is well positioned to capture the benefits
Strong demand driving raw milk base price to RMB5,000 , RMB 5,500 & RMB 6,000 per tonne
Imported additional 9,754 heifers and another 16,000 contracted this year
Rapid feeds plantation expansion Upsize heifer importation in year ahead
Quality domestic producer with safety and quality assurance – GMP certified facility
Leading F&B brand from Taiwan as customer
Leading IMF brand from China as customer
Huishan has advantage of penetrating tier 2 and tier 3 cities markets
First IMF brand in Liaoning to distribute IMF products through pharmaceutical channels
Product mix enhancement lifting ASP of products
New ultra-premium UHT products – Jersey series
New premium yoghurt products – Share global taste
Further ads to promote products
Up
stre
am
D
ow
nstre
am
Event Opportunities
Demand for dairy products growing rapidly
Supply of raw milk stagnant
Government further relaxed “One Child” policy
Consumers demand for high value-added, high quality premium dairy products that guarantee food safety
Government toughened policies & supervisions on imported dairy ingredients
Demand and supply gap for raw milk to further widen
Demand for premium raw milk rising even faster
Market space growth for IMF brands
Stronger effects expected in tier 2 and tier 3 cities
High quality premium dairy products require premium raw milk
Market opportunity for dairy players with control over quality raw milk
Prices of imported dairy ingredients surge to all time high
Game –changing opportunity for domestic dairy ingredient player
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Q&A
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Thank you!