Edited Transcript of 2319.HK earnings conference call or presentation 25-Aug-22 1:30am GMT

Full Year 2022 China Mengniu Dairy Co Ltd and Yashili International Holdings Ltd Earnings Call Wanchai Aug 25, 2022 (Thomson StreetEvents) -- Edited Transcript of China Mengniu Dairy Co Ltd earnings conference call or presentation Thursday, August 25, 2022 at 1:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Fei Gao China Mengniu Dairy Company Limited - Senior VP & Head of Room Temperature Product Business Unit * Minfang Lu China Mengniu Dairy Company Limited - CEO & Executive Director * Ping Zhang China Mengniu Dairy Company Limited - VP, CFO & Executive Director * Willow Wu China Mengniu Dairy Company Limited - IR Contact * Yan Luo China Mengniu Dairy Company Limited - VP & Head of Developing Business Unit * Zhiyuan Yan Yashili International Holdings Ltd - CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Frank Su Crédit Suisse AG, Research Division - Research Analyst * Kin Man Wong China Merchants Securities (HK) Co., Ltd, Research Division - Research Analyst * Mark Yuan UBS Investment Bank, Research Division - Analyst * Wendan Wang China International Capital Corporation Limited, Research Division - Research Analyst * Xiaopo Wei Citigroup Inc. Exchange Research - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Willow Wu, China Mengniu Dairy Company Limited - IR Contact [1] -------------------------------------------------------------------------------- Investors, good morning. Welcome to the 2022 Interim Results Announcement of Mengniu and Yashili online. This meeting is going to be conducted in Mandarin, and I am from the Investor Relations department. I'm going to introduce to you members of the management in attendance. We have CEO and Executive Director, Mr. Lu Minfang; Vice President and Executive Director, Mr. Wang Yan; CFO, Mr. Zhang Ping; Senior Vice President, Gao Fei, Vice President; Mr. Wen Yongping, Vice President, Mr. Li Pengcheng; Financial Controller and Company Secretary, Mr. Chris Kwok. And from Yashili, we have CEO and Executive Director, Mr. Yan Zhiyuan; and CFO, Mr. Chen Limin. First of all, Mengniu will introduce to you the 2022 interim results. After that, Mr. Yan of Yashili is going to make a presentation of the first half results. After that, there will be a Q&A session. You are most welcome to ask questions. Now I will pass the floor to Mr. Lu to talk about the 2022 first half results. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [2] -------------------------------------------------------------------------------- Okay. Investors, good morning, welcome to the 2022 Interim Results Presentation of Mengniu and Yashili. Due to epidemic prevention and control, we are once again holding this presentation online. And we are pleased to have today's presentation, hoping to have adequate communication with you. First of all, let me briefly review the results of the first half of the year. Concerning the first half of the year you may be interested in the impact of COVID-19, and there was impact on the overall consumption given this overall metro environment I think our performance is still very strong. So under the pandemic result, we still achieved double-digit growth. So overall speaking, in the first half, -- so our overall revenue rose RMB 47.72 billion, up 4% year-on-year from a relatively high base last year. So under the pandemic impact we are still able to enhance our position in the global ranking. So this is a historical high situation. So we are happy with our revenue results and my second point in terms of net profit -- I would like to say that the audio signal for me is very broken. Once I speak, I can hear no so from the management. So overall speaking, we are very happy and content. And of course, I would like to say a few words in a few major categories. And you can see that perhaps you are very concerned about the gross margin. And for the first half of this year is about roughly 32% and now 38% and now it's going down to 36.6% and which is down by 1.6%, and this is because of a few reasons, and one is for the raw material and especially for milk powder, and we can see that in terms of the inflation going on around the world in terms of the cost going up is very obvious. And secondly, in terms of the gross margin impact and in 2020 and 2021 with a high growth and with the new factory build as well as the investment and depreciation. So this is -- these are such cost. And of course -- and I believe that when we move on going forward, -- and secondly, in terms of Q2, we had invested in some of the promotion activities and especially for our yogurts and drink products, and this has helped with our shop sales and to make sure that we are having a healthy inventory -- and overall speaking, and we can see that in terms of the milk price and overall speaking, and the structure is improving. And one is that for our Q2 investment and the second is in terms of the production. And this is an offset, and we can see this on the gross margin. And in terms of the net margin, we can see that in terms of the operations, especially in terms of -- later on, I will talk about the going down in terms of the overall operation, we have not really yet seen a big impact. And if we take away the one-off incentives. And if we take that away and compared with the first half of last year, and we can see that we are about 20 bps difference from last year. I'd like to mention this point because there's quite a big one-off expenses. And for this time, this is the first time for our allocated expense is quite big and it's roughly about 40%. So therefore, in terms of the impact on the profit for the first half of this year is quite obvious and roughly about 40 basis points. So -- this is a one-off expense. And in terms of -- the net adjustable profit is CNY 3.75 billion and up 27.3% year-on-year. This includes the net fair value gain on the financial liabilities. And if we look at this in a normal fashion and look at our net attributable profit and should be CNY 2.98 billion. So overall speaking, in terms of the financial performance and for the moment, we are quite satisfactory, especially for the first half of this year. So now I'll take a look at the various categories. And the first one is for liquid milk, and this would include the UHT as well as fresh milk. I think what's good what was positive is that for our high end and as our question, we can see that they have grown very well. And I will go into details later on. However, in terms of the main impact, and we can see is that for the UHT as well as the dairy drinks. And these are the ones that have not performed variable if it's only UHT and fresh milk and it's actually growing by double digit, actually over 20%. And for ice cream, we can see that it has performed very well in the first half with revenue and this is -- this is because we can see that for the first rate decline, and that there is a very obvious impact, and we are also launching -- we are also launching other business, and we can see that they are growing very well. In addition, we also have a cheese in the key growth. Overall speaking, there is no impact on our operation. We only made reserve on our bulk powder. So for second half of this year and also Q1 next year, we just ensured a good supply of our new formula and reasonable cost in relation to CapEx. So Comparing with first half 2021, there was a decline by around almost CNY 700 million. This is because there was impact from the pandemic. And so we slowed down our CapEx investment. So this is the situation about CapEx in relation to administrative expenses, well, in the past, you have been concerned about our selling expense ratio. It is coming down from 2020 to 2021 to 2022, every year, it comes down. So this is because we have done digital transformation and we dug deep into our channels. So as a result, we are able to lower our S&D expenses ratio. And then in the first half of the year, we did advertising investment. We made adjustments to our advertising expenses to ensure our overall supply. And then for administrative expenses, as I said just now this year, there is a slight increase from 3.6% to 4.2%. This is mainly because of the SBC one-off CB noncash equity incentive expenses. So for this expense, well, it will come down year after year, starting the year after next. And then in relation to inventory turnover days, 38 days. So there is an increase from 34 to 38 days. This is mainly because of our stockpiling of bulk powder and our strategic reserves for receivables because we increased the vertical business, and then there is also increase in e-commerce new retail. So as a result, the turnover is lengthened. And now our share of direct retail accounts for 45% and some of the customers had led to an increase in our receivables. So that is because of an increase in the percentage of customers. payable turnover is stable. Right now, it's 53.2 days. So it is the same or more less flat as last year. Now let me talk about the situation in 2022, the overall situation. So I believe from the overall situation, you can see quite clearly, first of all, in Q1, we're strong. But for Q2, there was impact from COVID-19. And regarding the impact from the pandemic, there is some lagging behind effect. So recovery is not as fast as expected. This is because -- well, that's the situation in the first half of the year. So a point to note about the first half is that we did a good job in Winter Olympics. So -- and also women's Asian Cup. So in the first half of the year, our marketing effort was very smooth and successful besides in Q2 under the pandemic. For a lot of our categories, for example, UHT and fresh milk, when there was epidemic control and prevention work, our sales recovery started in May, all the way to June. And then in July, we already achieved double-digit growth. So this is very good. So if you look at our marketing and sales, I think we have done a good job in mastering the rhythm. And then regarding channel cultivation, we attached much importance to the new retail channels and also home delivery. So right for home delivery and also e-commerce, we have a number of new channel categories in which we are leading. And we are #1 in the market. So when we talk about channels and also channel structure optimization, you can see our moves and initiatives we have put in place. We have confidence in our categories because if you take a look at our Shiny Meadow, Milk Deluxe and also Mengniu Pure milk, for all these brands, growth was very strong. And in the whole Battlefield, we have not missed out any of the field with strong growth. And in these areas and segments, we are leading for Shiny Meadow and also Milk Deluxe and Mengniu Pure milk, where they all enjoyed fast growth. And then we also made layout in cheese -- so basically, in the dairy product categories for those categories with high growth potential, our layout has been very effective, and our work has been very effective. So we are confident. We have strong confidence in our development. Now I will turn to digital transformation. So even though there is impact from the pandemic -- we accelerated our digital transformation from factory, supply chain, consumption and also channels. So we are happy with our work. And later on, I will elaborate more on our digital transformation and also our enhancement of our management of the channels. Overall speaking, in the first half of the year, if you look at our results in terms of sales and profit and our strategic moves and implementation in relation to various categories, I think -- the implementation of our plan from 2021 to 2022 was satisfactory to us. Of course, in Q2, there was anti-epidemic work. So that post challenge on us. And the situation is different from 2020. Of course, in 2020, there was a process of recovery after the big outbreak. But then in 2022, there were multiple outbreaks in different places. So there was quite a big impact on our operation. And then there was store closure and also decrease in footfall in various retail outlets. This is a rather widespread, not only in a particular province, for example, Hubei. So this is quite a big challenge for us in the first half. So when we developed new products and when we expand the channels, the pace was affected the pace slowed down. Of course, we reacted quickly and proactively. So when it comes to community group purchases and so on during the pandemic, if you look at Shiny Meadow and Milk Deluxe in Shanghai, -- for Milk Deluxe, we immediately --these are work in relation to community group purchases and delivery. And for Shiny Meadow, home delivery market share reached almost 50%. And overall speaking, in the whole country, our e-commerce home delivery market share reached almost 50%. So this shows our ability to react to the pandemic. And then we seized the business rhythm, and we manage the channels effectively. So even under the pandemic, we did not increase the burden on the channels. We reacted fast. At the end of June, all our inventory in all business segments were at a healthy level. And our product mix is very good. Of course, we need to seize the opportunities in Q3 and also World Cup. So I think World Cup is going to be very important to us, and we are going to do a lot of important work, both online and offline. So that's our reactions and responses under the pandemic. Now I will present the highlights of each business segment. Later on, you may have a lot of questions to ask, and we have our senior executives responsible for various business segments they can communicate with you. Now let me talk about UHT. For Milk Deluxe, we still achieved double-digit growth -- so driving overall growth of 10% for the whole brand. And Mengniu Pure Milk continues to perform strongly, growing 22% in the period. And for Milk Deluxe, UHT, it is very successful. And for organic milk, we are already #1 in the market. Besides for innovation, this year for Just Yoghurt and Yummy Yoghurt, in these 2 categories, we have been innovating and all the production lines have been commissioned. And even though the impact -- even though there is impact from COVID-19 on our new products, but we are strong in innovative capability and our product capability is strong. We hope that Just Yoghurt can be real yogurt. It is not just ordinary milk beverage. So if you look at nutrition and new scenarios of consumers and product quality, we have put in a lot of efforts, of course, for UHT and also milk beverage under the pandemic, they were impacted. And if you look at our channel structure, we are optimizing it. We are stronger in managing our channels. So for UHT in the first half, the overall situation was very good. Now let me turn to the other 2 business segments, which have performed well. Fresh milk up 25% year-on-year, Shiny Meadow achieved an even higher growth. So online, for fresh milk, -- we are already #1 brand in China of Fresh milk strong online and for high-end fresh milk, again, we are #1. So in only 4 years' time, we have done well. In terms of product innovation, we have not stopped our work. So this year, we have Shiny Meadow 4.0 low fat fresh milk and also the liquid Shiny Meadow, which are well received. So we continued our product innovation. So if you look at our online investment for fresh milk, we have invested a lot. If you look at our growth rate and also enhancement of brand strength. That's because of our superior product quality and our innovative capability. And we also invested in the brands. So basically, for the high-end segment. So for example, in Sam's Club, Yonghui and Sun Art and other channels, we maintained #1 sales share. So basically, in the high-end area, we don't really have competitors. And for ice cream business, this year, we did quite a good job because in the past few years, we went back to the fundamentals. We improved our channel work, and we also did a good job with our products for our ice cream. So it is doing well. And of course, we attach importance to cross border innovation together with Moutai. We introduced an ice cream product jointly, and we experienced a shortage of supply, and there was constraints on our production capacity. But then I think ice cream can deliver sustainable profits. We only need to do a good job with all our core work. At the same time, there are businesses which faced a challenge for chilled product business is actually pose a challenge. So for Chilled yogurt, the impact was even bigger. But for our overall strategic adjustment, Well, yogurt is being packed to rigid demand. So that can drive the development of Yoyi C and also quality enhancement of our yogurt. We expanded retail and home delivery business, and we enhance our product mix to improve our profit margin. So for Chilled product business, profitability improved a lot. Revenue growth came down for Yoyi C and also Champion brand, while the products are very good. So later on, we are going to focus on sustainable profits. I think we are the best in the industry in this regard. Well, most companies in the chilled product area are not profitable. But for us, we still have a very valuable business. So we want to achieve value marketing and the return of value. That's about chilled product business. And that new formula for infants new formula, it is one of our weaknesses. And under the macro environment, there was a lot of challenge on us. There is Yashili, infant milk formula and Bellamy. So for these 2 businesses, they are under pressure. However, we have found a way to achieve growth for Yashili. So by means of the new national standard products, we need to enhance our product quality and product formula. And for our sales systems and other fundamental work, we have to improve our work -- so when everybody is trying to promote sales in a quick way, we have to make sure that there is good value allocation along the whole chain so that each link can be profitable. Of course, we also need to enhance investment in our products. For adult milk formula, the business trend is good. But then this year for adult milk formula, in terms of cost, well that was increase in cost of bulk powder. So we spent less on adult milk formula. But then in July, we can see quite obvious recovery of this segment. For Bellamy I think we have completed the adjustment in terms of channels and the team and so on. So -- within this year, we hope all our work will be completed. And on Daigou and Kuaisho and other live streaming new channels, we are making our layout as well. Another most important reason is we have got the organic children's growth milk powder. We are optimistic about that. So we introduced some baby noodles, sprouted rice puffs and so on. So all these will be launched in order to enhance the organic brand equity and also business growth for Bellamy. That's about Bellamy. And then we hope for brand building, Well, we attach much importance to long-termism. At present, Mengniu has already moved on from the Olympics, all the way to FIFA World Cup. Our execution capability is well realized during the Winter Olympics. Our innovation and our marketing capabilities have been proven. So what I want to say is that by means of brands and IP, continuous accumulation Well, we will cooperate with the National Olympic Committee to 2026, and we have long-term cooperation with FIFA. In this way, we're able to enhance our brand strength and enhance our investment so that the return on investment will be better. So I think this is a big thing I need to elaborate. So I think this is very effective and valuable for our brand. And in the second half of this year, I think FIFA World Cup is going to be a big, big thing, focus of the world because after 3 years of the pandemic, we really need this big event. So the Qatar World Cup is going to be our main Battlefield. In terms of our brand and our marketing work, we will try our best to do a good job and then -- we have Mengniu and Yashili, the 2 together. So I think -- this is really a good opportunity for us in the second half. And it will also drive the CNY business next year. So it is going to be a peak season for sales during the period. And then now I would like to talk about our ESG strategy. In our last annual report, we already stated some important work under this category. So our long-term vision is to protect the common health of people and the planet. Our mission is to create more nutritious products, a better life and more sustainable planet. I think this is based on our sustainability and ESG strategy. These are also our sustainability targets and our work plan, we will focus on 5 main areas. So governance, sustainability, responsibility, collaborative prosperity, environment, carbon net-zero, responsible development, carbon, an ecosystem collaborative and accountable, Nutrition, supreme inclusive. These are very important. So I think consumer goods will be moving towards quality and nutrition. That shouldn't be excessive marketing. So that's the right direction. We will continue our work in ESG, besides there is one thing very important, and that's a dual-carbon. We have announced a very realistic dual-carbon goals, which are also based on science. So that is about carbon neutrality and also carbon peaking. So we have hired BCG, and we are working with them and looking at all our products and to look at all the carbon emission analysis as well as our footprint. So all of these, they are very broad out. And in terms of the tools that we have talked about, they are based on facts. So in 2030, we will realize a Phase I and Phase II target. And in terms of our per ton of dairy product, the emission intensity will be within 160kgCO2e/t in 2030 and in 2050, then still our increasing portion of the renewable energy as well as for the carbon footprint of the product, it will be decreasing year-by-year, so as to achieve carbon neutrality for Scope 1, 2 and 3 in 2050. And here, you can see that we have a very detailed analysis as well as the methodology that would be adopted for the carbon emission reduction process. And we believe that this is something that we will adhere to and we will also go ahead and push forward for the scope 1,2, 3 of the carbon neutrality and realize our dual carbon roles. Just now we also talked about our ESG strategy and especially that our focus on dual carbon. In addition, we have also achieved quite a lot. I'm not going to go into details. For instance, the ESG management, the responsible supply chain, production products and packaging environment. So for all of this, we have a very clear achievement. And so I am now sharing with you all there. And for Mengniu ESG,this is a ESG strategy that we are very capable to implement -- perhaps for our overall industry and where we are going forward, you may have some questions. So very quickly for the whole industry development, but there are a lot of potentials and how do we make sure that there is high-quality growth. And this is for the second half of the year and some of the important work that we need to look at and including, for instance, for the consumers, they pay more attention to health and very recently, we have seen that in the market, whether it is one of for instance, whether it is the spreading of the word and people pay more attention to this and how do we make sure that we can grab this opportunity? And secondly, I'd like to talk about the silver economy. We are now planning for the silver economy. And I believe that next year, we will be in a better position to inform you in detail about our plans for the silver economy. And thirdly, in terms of the macroeconomy and the macro environment that we are looking at, for instance, the consumption of cheese, et cetera, and we have a dedicated empowered team, and we will be grasping this opportunity for sure. And finally, we also faced some challenges. For instance, in terms of raw material price going up and in terms of the milk price, we are able to stabilize this and we also have some measures to carry out cost control and to make sure that our profitability can continue to grow. And finally I'd like to talk to you about the building up of the core competence. For instance, in terms of brand power, R&D innovation, RTM, digital transformation, milk source control, M&A integration, organization assurance and to make sure that we have the cost investment, the management in place and all of these measures are things that we will be focusing on. I don't think that a short-term pandemic was the volatility in the consumption market will actually affect our future or will affect that -- how we are going to realize our targets. So we don't think so. We will adhere to those pathways that we have laid out, and we do believe that they will come to fluctuation at one point. And finally, this will come back to our stated strategic vision, creating a new Mengniu 5 years and dear investors today, we are sharing and announcing our first half of interim results with you. And again, we will stand a very great to face up to the short-term challenges as well as future type challenges ahead of us, and we will be grasping all these opportunities in different sectors and to make sure that we can create a new Mengniu in 5 years with our first vision and to make sure that all our implementation will be fully access to and to help us to build a better, more international and more responsible in the digital Mengniu, and we continue to work towards this goal and with a strong core DNA. Thank you, everyone. And perhaps I have talked for a long time today, and I also look forward to further communication with our investors during the Q&A session. And I believe that you probably have a lot of questions in the current environment. So I'll now pass the floor to Yashili and of course, during the privatization process for Yashili and in terms of the performance and in terms of the forward-looking prospects and we will be combined with our enaction guidance. And so I have Zhiyuan to talk to you about the Yashili. -------------------------------------------------------------------------------- Zhiyuan Yan, Yashili International Holdings Ltd - CEO & Executive Director [3] -------------------------------------------------------------------------------- Okay great to thank you, Mr. Lu and dear investors. Very quickly, I'd like to talk to you about Yashili. So first of all, if we look at the net revenue, we have seen about CNY 1.8 billion revenue, it is down by 12.5%. This is because of the first decline as well as the shrinking of the market. And the second or first half of this year, we had repeated the pandemic lockdown and which has affected the logistics and which then affected our sales. And second, in terms of the profit, we have a loss of CNY 159 million, and this is mainly because of the raw material prices going up and has led to this. And if we look at the segment revenue in terms of milk powder products, it is down by 17.4% and other milk powder products up by 57.1%. And for dissolvable products, down by 6.5% and others down by 46% and 49%. And these are the other businesses such as the spraying of powder, the converged milk, et cetera, -- and in terms of SG&A, and we can see that there is an uptick from 30.7% to 32.8%. -- administrative expenses from 5.6% to 6.2%. In terms of the actual amount occurred is actually lower than the same period of last year and the uptick in such expenses is because of the sales base for this year has declined and has led to the expenses going up. And in terms of the expenses and mainly the marketing department and those expenses that have gone up and the other remaining the same. In terms of operating efficiency indicators, and we can see that for inventory turnover, inventory turnover is 143 days. So there is a slight uptick. And -- this is because we have some warehouse inventory stocking up. And for receivables, the turnover and in terms of receivables, it has increased to 41 base, and this is because of our distributors, et cetera, and they are also experiencing lower receivables. And in terms of payables, and we do not have any risk of collecting our cash. So there's no risk in that regard. And in terms of our procurement terms and the provisions there have not been any changes. And now in terms of cash flow and capital expenditures for this year for cash flow, and there is a net cash flow from operating activities of CNY 822.5 million. As I said, this is for the restocking of the warehouse and inventory. And in terms of a net capital expenditure, there is a big decline for this year. And this is because last year, we had already had spent quite a lot of capital in this year, there is a big cost. And so these are the situations of the first half of this year's or financial. And even if we have faced some pressure. However, in terms of our core key products, and we continue to-- they achieve growth and higher contribution. And for instance, with the Reeborne and the Yoyi we have been able to realize a healthy ecosystem with the distributors and the consumers and the realize a 50% and 30% growth, respectively. And in addition, for Arla Baby & Me and this is an organic A2. And this brand has realized a 10% growth. In addition, in terms of RMB for Reeborne has been awarded IS Global Food Innovation award and the top 100 brands and for MA is short listed for best children's dairy product at Global Food Innovation Reward. And we can see that with all the hard work and we have been able to be assisted by the academics and expert. And thanks to them, we are now currently ahead of our peers there. Internationally, we are a leading brand. And in terms of quality, apart from our world-class policy with craftsmanship, we continue to improve our quality of our products. Last year, we had started our EU product certification process. Our first infant formula milk powder has already will receive the EU Food Standards assessment certification in China in the second half of the year in addition we would also be able to update EU certification, and we will be the first one in China to receive such specification from the EU. So this is very quickly and introduction from me. -------------------------------------------------------------------------------- Willow Wu, China Mengniu Dairy Company Limited - IR Contact [4] -------------------------------------------------------------------------------- Thank you, Mr. Lu and Mr. Yan for the presentation. We will move on to Q&A now. We will first take Chinese questions followed by English questions. (Operator Instructions). ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) First of all, Wei Xiaopo of Citi will ask the first question. -------------------------------------------------------------------------------- Xiaopo Wei, Citigroup Inc. Exchange Research - Research Analyst [2] -------------------------------------------------------------------------------- Greetings management. Can you hear me? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [3] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Xiaopo Wei, Citigroup Inc. Exchange Research - Research Analyst [4] -------------------------------------------------------------------------------- I have 2 questions. First question, is about the prospect of your company. Well, usually, people are most interested in 2 points of Mengniu. First, high-end strategy that will determine your gross profit margin; and secondly, SG&A control. So these 2 factors will determine your EBIT margin. In the first half of the year, there was impact from the pandemic. And just now Mr. Lu said that some are about the supply side, some from about the demand side. For the factors on the demand side, they do not represent the long-term demand for the whole product category. In July and August, if you look at the situation during this period, regarding the second half and in the coming few years, would there be a change in your high-end strategy? In the first half, if you look at expense control, you have done a good job. In the first half, there are some major events, especially World Cup in the second half. So for the whole year, how high will be the expense ratio for the whole year sales target? And also for Yashili, what is your target on the sales and margin as long as allowable, can you share the data with us? That's my first question. Second question, is that I would like to have a chance to communicate with Mr. Lu. Mr. Lu joined Mengniu in 2016, so almost 6 years already. And in fact, you have led Mengniu to go up a number of milestones and you are actually a sole figure. And so I would like Mr. Lu to share with us about the coming 1 to 2 years or even longer period. What would be your work plan? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [5] -------------------------------------------------------------------------------- Thank you for your questions, Xiaopo. Let me first talk about the guidance. We cannot give guidance on Yashili, but for Mengniu, for us, Well, our guidance is quite clear. First of all, in the second half of the year, our business can achieve double-digit growth. So for the whole year, we should see a high single-digit or double-digit range. In the second half of the year, we hope that there won't be resurgence of the pandemic, so we can follow this rhythm to do our business. So this is regarding sales. I think the overall consumption market has seen impact, but we do have some ways and methods to face up to the situation. That is about sales. If you talk about profits, we want to raise our profit margins. So we hope to achieve 20 to 30 basis points profit margin increase for the whole year, OP margin 20 to 30 points improvement. So that is about the overall guidance. This guidance is actually based on our expectations and forecasts of a few major metrics. So you asked a question about high-end strategy. Well, the growth of Milk Deluxe, Shiny Meadow and also cheese is very good. So -- and also ice cream. So these are areas with higher than the group gross profit margin. These are categories in which we have confidence. So that's about high-end development. Besides, we need to be aware that in terms of the overall categories, last year, I already said that in the Chinese market, there will be polarization. So in other words, when the economy is under pressure, that would be polarization. So we have to do a good job with our foundation level profitability. So for example, our basic pure milk and also our basic yogurt, these are some basic fundamental categories and products. We have to improve the profitability. We have to attach importance to these categories and products as well. So we will continue our high-end strategy. And we do have our own expectation. In terms of expense ratio, in these years, it has been improving. You may still think that overall speaking, the expense ratio is still slightly higher than our competitors. Now we are doing channel reforms. And in this process, we need to make investments. So I think this is a gradual process. Secondly, if you look from a broader perspective, well, when it comes to World Cup, we do have anticipation already. So it is within our normal investment range. So this year, we did Winter Olympics, and we are going to do FIFA World Cup. There won't be any major change in relation to that. We will be focused in our work. So there won't be excessive expenses or investments. We think that investment of World Cup can support our Q1 next year results. So our investment and expenses will be within a reasonable range. So that's my question to your first -- that's my answer to your first question. For your second question, so in the past years, some people asked me the same question. What I'm going to do in Mengniu in the days to come. Mengniu is a very good platform and company. And we said that we wanted to create a new Mengniu. So I will insist on this plan. This is very important and very often, for our company, if we look at a 10-year time period, a lot of things can be done. And I am only halfway through this period. So in the future, there are still a lot of things that we can look forward to. So we are going to create a new Mengniu and there are some strategies to be implemented. So I have a strong belief in those. So please don't worry. I think you are worried over more things than I am. -------------------------------------------------------------------------------- Xiaopo Wei, Citigroup Inc. Exchange Research - Research Analyst [6] -------------------------------------------------------------------------------- Thank you, Mr. Lu. A quick follow-up. You gave an EBIT margin guidance. This includes the amortization expenses as well, yes. And also provision, yes. Now Mr. Lu, you also made a lot of investment personally according to some public information. So when it comes to your future work plan, I would like you to share more, but I can hear your confidence already. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Next Mark of UBS. -------------------------------------------------------------------------------- Mark Yuan, UBS Investment Bank, Research Division - Analyst [8] -------------------------------------------------------------------------------- I have 3 questions. First, I want to ask about the first half of the year. In first half, for liquid milk, you are rather flat in your results. So what is the growth in volume and price for liquid milk in the first half? Second question for UHT yogurt. For UHT yogurt, there are some changes among consumers. Some consumers changed from UHT yogurt to cheese beverage. So what is the future positioning and product innovation for this category in order to face up to changes among consumers? Is this still a focal growth driver for your company? My third question is your expectation about long-term profit margin. In the past 5 years, you raised from the 3-odd percentage points by some margin. So in the coming 3 to 5 years, in terms of profit margin, how big is the room for increase and where will be the main growth driver? Would it be from product mix or expense ratio, expense or cost control? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [9] -------------------------------------------------------------------------------- Okay. Let me answer the last 2 questions, and then Mr. Zhang can take the first question. For UHT yogurt, I believe that UHT yogurt is still yogurt. So we have to go back to the basics of yogurt. So if you look at Just Yoghurt strategy, all along that has not changed. Of course, in the process, we did not grow that fast despite the opportunities. This is 1 issue. Why is there such a situation now in the market? It is true that consumers are thinking of why they should consume UHT yogurt. So there has been a lot of discussion. So this year, for Just Yoghurt new product launch, but it is really related to yogurt. For Just Yoghurt, we are trying to deliver good yogurt, good taste and good nutrition. So we are improving our products. So for Just Yogurt and Yummy Yogurt, after their launch, the trend has been very good. So I think for UHT yogurt, we have to go back to the basics of yogurts to do more work. So there is too much leverage orientation and marketing. But then I think that is really a trend in the market. And later on, perhaps we can also listen to my colleague's view about yogurt. For long-term trend of profit margin, well, we would like to reinforce the confidence in the capital market. We will continue to improve our net profit margin and OP margins. So we want to improve it by 30 to 50 basis points. That is our long-term direction, which won't change. As regards the main drivers, they are the core ones. So for instance, high-end strategy, it is not simple. We're talking about high-end categories. We have to do a good job with those. And in the future, we have to be able to master them. For example, high-end fresh milk, white milk and also cheese and also high-end new formula and nutritional products. We have to improve the structure of all these categories. And within categories, for example, ice cream, the structure of ice cream products has changed a lot. For Shiny Meadow, its share has risen and for Milk Deluxe, well, we have also improved the product structure. So product structure has to improve for every category. And later on, we will launch a lot of innovative products to be focused on health and nutrition. And this is to enhance our gross profit margin. Secondly, we will continue to enhance our marketing channel structure and our strategy. Later on, we will invest more in digitalization, especially the digitalization of supply chain and now to B2C digitalization. So there would be improvements in all these. And such improvement will give us room for improvement in our profitability. So in the coming 2 to 3 years, there won't be increase in milk price. I think there would be a balance of supply and demand, and we need to enhance our operational efficiency. Yesterday, we already announced that price -- milk price is now stable or there may be slight decline. So we are able to enhance our operational efficiency. So for the whole industrial chain, I think the improvement of operation capability is most important. We can enhance our overall value by means of that, and then our profits can be insured. So given these trends, I believe that our profit targets can be achieved. Mr. Zhang will take your other question, and I'll see whether there is any supplement in relation to Just Yogurt. -------------------------------------------------------------------------------- Ping Zhang, China Mengniu Dairy Company Limited - VP, CFO & Executive Director [10] -------------------------------------------------------------------------------- For the first half of the year, there is 4% growth in our net revenue. For our organic business, there is growth by 1%. For this 1% growth, volume growth contributed 2% for ASP. There is a negative 1% impact. So it is a negative impact. For the negative impact of ASP, this happened in March and April, that's because of lockdown under the pandemic and so we had to very quickly clear inventory in the channels. So for 2 months, we offered price discounts. So as a result, there was this negative impact in the first half arising from ASP. That's the situation. Okay. Let's see whether Mr. Gao Fei has anything to add about yogurts. -------------------------------------------------------------------------------- Fei Gao, China Mengniu Dairy Company Limited - Senior VP & Head of Room Temperature Product Business Unit [11] -------------------------------------------------------------------------------- Okay. Let me supplement. In fact, just now Mr. Lu has made his point quite clearly. For UHT yogurt, if you look at the attributes of this category, I think it is more of a beverage nature. And this year, it will definitely see impact from COVID-19, because of outdoor consumption or outdoor consumption scenarios. There is decline in scenario demand. So as a result, there is overall decline in this category. Secondly, in the consumption process under the pandemic, consumers' perception and awareness has changed. So with these 2 factors, the result is that this year for this category, there is a decline trend. In the future, we are still full of expectations on this category. So we will upgrade our products. And we hope that things will be technology driven. We will do more innovation work. And we have launched 2 new products this year. After they are launched, the trend has been very good. In the first half, there was impact from COVID-19 on Yoyi C and there was disruption in the supply chain. So in the future, for our 2 new products in the second half of the year, I believe there would be considerable income from the growth. These are my two points. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- We invite the third question from Morgan Sander from JPMorgan. -------------------------------------------------------------------------------- Unidentified Analyst, [13] -------------------------------------------------------------------------------- So my question, again, is about UHT yogurt. For first half of this year for your liquid milk is about 0.6% growth. And Mr. Lu mentioned for fresh milk in the high end doing very well over 20%. And therefore, for the UHT yogurt as well as milk drinks, they have declined quite a lot. So Mr. Zhang Ping, can you please let us know in terms of yogurt and milk drinks, what's their percentage in liquid milk and how big of a decline are they? And Mr. Lu mentioned that in July is a double-digit growth, and this is on a group level or it improves everything or you are simply talking about some of the products. And does this mean that for UHT yogurt, you have already turned positive and is doing very well. And therefore, for the second half of you would be able to see double-digit growth. And so I want to understand in terms of the double-digit growth for the second half of the year, what are the growth drivers? Is it because the people can leave their home, no more quarantine or no more lockdown? Or is it because of new packaging and the new flavors? And in terms of the UHT yogurt, it is declining and for the whole industry, I believe, that it's the decline. Demand has been replaced by which products in the second half of the year, if they are turning positive, if they are being replaced by fresh milk, et cetera, and will they then slow down their growth? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [14] -------------------------------------------------------------------------------- And I'll have Mr. Zhang Ping answer this question. -------------------------------------------------------------------------------- Ping Zhang, China Mengniu Dairy Company Limited - VP, CFO & Executive Director [15] -------------------------------------------------------------------------------- In terms of milk beverages as well as yogurt, and they account for about 11% to 12% in our liquid milk. So for these 2, the first half of the year is the decline is about 20%, close to 20%. Just now Mr. Lu has also talked about this. And for the second half of this year -- generally speaking, for second half of the year and the impact from first half and the figures are way bigger than white milk. And in terms of the scenario, is because, for instance, in the various setting scenarios in shopping malls and there's a lot of decline in footfall and the traffic. But for the second half of the year, I think that with the easing of the lockdown and the pandemic control, there will be more people going back to the shops. In addition, in terms of the milk drinks, generally speaking in second half of the year would always outperform the first half of the year. And in terms of double-digit growth for the second half of the year. First of all, we have our white milk sector, and they are still there. And for the second half of the year, we know what the trend is in the meantime. For UHT yogurt, as well as milk drink in the second half of the year, they generally performed better. In the second half of the year in terms of the growth for last year, -- and it's because the first half had a higher base. And let me take a look at this. Sorry, I can't think of the words, while in July, when we talked about July for the double-digit growth, it is for the whole group. So that growth is quite a whole group. -------------------------------------------------------------------------------- Unidentified Analyst, [16] -------------------------------------------------------------------------------- So I'd like to follow up. And Mr. Lu you said second half of the year, Mengniu's revenue it will be double digit. And does this include the betterment and for better means, is it possible that it will turn positive for the second half of the year? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [17] -------------------------------------------------------------------------------- It would include all. This is for all the group at the group level. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Next [Xia Zhang] from Citi. -------------------------------------------------------------------------------- Unidentified Analyst, [19] -------------------------------------------------------------------------------- I have 2 questions for the management. First, I would like to talk about Bellamy, because it is a very highlight product in the first half. So under the pandemic, why is it that in the first half, it can still perform so well and what will be your future expectation or outlook in the coming 2 to 3 years? How much will be its growth rate? So in the first half of the year, when it comes to EBIT margin, there was some decline. What are the reasons? And then you cooperated with Moutai. So right now, the demand for the product is very good. How are you going to recognize revenue? And how big will be the overall revenue scale? That's my first question. Second, regarding your milk formula business. In the first half of this year, infant milk formula experienced channel inventory pressure and then there is also impact of lower footfall on adult milk formula. So there is pressure on the overall segment. For Yashili, in July and August, how is business recovering in terms of your milk formula product? And how much is your inventory? When it comes to improvement of market share of Yashili, will there be better opportunities in the second half of the year? These are my questions. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [20] -------------------------------------------------------------------------------- For ice cream, I will comment. And for milk formula, I will ask Zhiyuan to comment. It is true that regarding the ice cream category, there are 3 main driving forces based on our analysis. Consumption volume has gone up for this particular category. Of course, it is mainly because of product innovation and quality improvements. That's one drive. And secondly, I think there is also impact in relation to the weather and first, channel building. Channel building has been effective in the past 2 years. It is true that crowd channels, we have been doing a rather good job as compared to competitors. So these 3 factors in the future, I think they will continue, they sustainable. In the market, there are a lot of sayings or comments about ice cream, for example, new retail stimulus and also household expenses on ice cream, these will continue. Regarding our cooperation with Moutai, well, the technology or the partnership is not as simple. So in terms of product capacity -- production capacity, well, in 2.5 months, CNY 600 million was sold in two stores. So all our products were basically sold out. So in Q3 for this year, we will build more production capacity hoping to make contribution to next year. So basically we are recognizing or booking revenue based on supply price. So that's our arrangement with Moutai. So in the future, if you look at marketing, expenses and logistics building and development, store development, those will be paid by Moutai. So to us, we will be focusing on technology, added value, production, joint branding and so on. And then for infant and adult milk formula, I will ask Zhiyuan to comment. -------------------------------------------------------------------------------- Zhiyuan Yan, Yashili International Holdings Ltd - CEO & Executive Director [21] -------------------------------------------------------------------------------- Yes. I will talk about adult and infant milk formula. In July and August, actually, in August and September on a quarter-on-quarter basis, Q3 is much, much better than Q2. If you look at inventory, especially channel inventory. Well, I think the quantity is actually matched. We are not trying to surpass inventory as in the past. So if you look at infant and adult milk formula comparing with same period last year, I think inventory accounted for 50% on the channel. There is a decline in channel inventory. So there is a return of price in relation to infant milk formula. For channels, if you look at overall big trends for the national standard new products, I think this is a most important profit and loss indicator. For some small companies, they may not capitalize on this new opportunity. And in the product, well, if you look at this new national standard products, there is high requirement on product quality. So of course, we have already enhanced our products. We will also strengthen our strategic cooperation with channels. So we hope that next year, we are able to deliver good performance. -------------------------------------------------------------------------------- Unidentified Analyst, [22] -------------------------------------------------------------------------------- Thank you very much. Finally, I would like to congratulate you on your very good results despite the huge pressure and challenge. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [23] -------------------------------------------------------------------------------- Thank you for other questions. I would like to remind everyone is now we discussed about the very detailed gross margin of the company for this year and -- for the first half of this year. And I would also like to emphasize that in terms of the profit forecast as well as the target and the future development of the company, this is a direction that we are aiming for. It does not mean that it's a perfect forecast, because for Yashili, we still have the potential privatization, which has not been completed. And due to regulations, we are not in a position to discuss further details. Thank you for your understanding. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Okay. We now welcome Kin Man Wong from China Merchant Securities. -------------------------------------------------------------------------------- Kin Man Wong, China Merchants Securities (HK) Co., Ltd, Research Division - Research Analyst [25] -------------------------------------------------------------------------------- Can you hear me? I would like to thank for giving me this opportunity to ask a question. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- We can't really hear you, Mr. Wong. You seem to have dropped off line. We can't hear me. He has canceled his call and we take the next question. -------------------------------------------------------------------------------- Unidentified Analyst, [27] -------------------------------------------------------------------------------- I would like to follow up with another question. And Mr. Lu and Mr. Zhang for the second quarter because of the pandemic, and you have taken some measures such as going through your inventory and destocking, et cetera, but we recently looking at the channels and the your products, you still have very heavily depended products. So for the short term, what do you think of the current competition and the for second half of this year? And in terms of your promotion and what is your strategy going forward? And what is the inventory at the moment for the company as a whole? In terms of second half of the year for profit, you hope that the profit can grow. And last year, the profit level is quite low. And so we want to understand that roughly, what do you think that the second half of the year, the profit growth could be? It doesn't have to be very accurate to the certain percentage points, but I think this generally as an idea and how much of the profit growth come from the improvement of the efficiency? And the second small question. Mr. Lu mentioned that you had already sort some converged milk and to help you with your inventory in the recently, we can see that the transportation from Mengniu and for milk powder and it has actually declined. So going forward, how would you control the milk powder price? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [28] -------------------------------------------------------------------------------- Okay, your first question. So again, this is about the second half of this year and the outlook. We had mentioned this just now. And perhaps, if you look at the promotions going on in different channels and looking at the moment for our whole group for the various categories. And in terms of the promotions and the discounts, we have not seen that rising. And perhaps this is the same as a normal situation. And because at the moment, our inventory is very healthy. So we can see that the inventory level for the chilled product as well as UHT they're all at a healthy level, and therefore, we do not have a lot of pressure to actually destocking and through our actions were taken in Q2 and our inventory level by end of June is quite healthy. So this is 1 question to answer you. And the second question is that for the whole of the second half of the year, and of course, the second half of the year for last year, we have some changes. But in terms of the trends that we are seeing and in terms of the different categories as well as the main brand, we do not yet see any key changes, whether it is, for instance, white milk or fresh milk, ice cream, et cetera, and the trend is actually here to stay and it is on the uptick trend. And therefore, we do not really think that we will need to take some extra actions to reach our targets. And we still hope for a high policy growth and to realize the profit growth, and this is for the second half of the year. Similarly, for various actions that we have taken for instance in the channel for the pandemic easing. One of the biggest impact for us is in terms of the new product of the launch, we can actually launch that may go ahead with the launch in a normal fashion and without restrictions. And in addition, for the second half of this year. And there are things that the first half of the year that we have not done well, but this is an opportunity to make sure that they are now on the right chart. And I believe that to the guidance that we give now is in line with our actual situation, including our cost control, et cetera. In terms of -- the price for milk powder is definitely cheaper than what is going on in the market. And otherwise, we would not look in that price. So in terms of some of the price coming down today, I don't really think that this will impact our strategy. And roughly speaking, we feel that for our whole year, and for the first half of this year, our cost is very well controlled, and we do still have optimization room. And for the second half of this year, for milk price, we do not see any uptick trend and with this precondition in mind and for us, the new product that should be launched as well as the operations for second half of the year, we have our expectations and we're quite confident. So this is roughly my answer. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Okay. Let's see whether there are questions on the English line. No questions so far on the English line. Thank you. Okay. So we can continue our Q&A. Next question, Wong Kin Man from China Merchant Securities. -------------------------------------------------------------------------------- Kin Man Wong, China Merchants Securities (HK) Co., Ltd, Research Division - Research Analyst [30] -------------------------------------------------------------------------------- My question is for liquid milk, Milk Deluxe and also on Mengniu high-end pure milk, how much are their share? And can you confirm that you're going to do marketing for FIFA World Cup in the second half? So comparing with first half this year, what would be the comparison? What will be the range basically in relation to marketing expenses? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [31] -------------------------------------------------------------------------------- From Milk Deluxe and also high-end white milk, growth has been very good in these few years. In our group's total revenue, its share is already up to 30%. So this is the biggest product, and it continues to grow. It is helpful to our improvement of future product mix and enhancement of profitability. This is the first point -- the first question. Secondly, in the second half, we'll do marketing on FIFA World Cup. As Mr. Lu said, in the second half, World Cup marketing will be the biggest focus in our marketing efforts. However, there won't be additional marketing expenses just because of World Cup. In the second half, this is about the content of marketing. Well, originally, we might be working on other IPs and other content. But now we will focus more on FIFA World Cup, but there won't be too much additional marketing expenses just for this particular purpose. -------------------------------------------------------------------------------- Kin Man Wong, China Merchants Securities (HK) Co., Ltd, Research Division - Research Analyst [32] -------------------------------------------------------------------------------- Right. Your answer is very clear. I don't have other questions. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Okay. We now will come from Su Frank from Credit Suisse. -------------------------------------------------------------------------------- Frank Su, Crédit Suisse AG, Research Division - Research Analyst [34] -------------------------------------------------------------------------------- I would like to ask the first half of the year, we can see that for your marketing expenses, you have saved about CNY 700 million to CNY 800 million. Can you please share with us in detail in which categories and which channels you were able to save such expenses? And in terms of products that the cost has saved and how is that growth going? And this is really just to help us understand about the sustainability of such expenses saved. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [35] -------------------------------------------------------------------------------- I do not really see the specific figure that you mentioned about the expense savings. But in terms of the percentage, I think that I mentioned about the percentage of the savings, and I talked about 2 factors and the first one is because of the pandemic. It's kind of the new product launches and the campaign for instance, in UHT or in drinks and beverages, they have been delayed. And some of which -- some of the other categories in terms of the ad placement, et cetera, we did not really go ahead with them because during the pandemic, the impact will not be that strong. And the second reason is that we have improved our efficiency. And for instance, with the Winter Olympics for Mengniu, what we are best at is to make sure that our creativity and our forward-looking. And for instance, with Eileen Gu, and we actually started planning this in 2019. And in 2022, and you can see that has shown that we are very forward looking. And Eileen Gu winning various gold medals in the Winter Olympics and we continue to build out our business. And for FIFA World Cup, it is the same. And of course, we will definitely to play out a very great marketing campaign. And in terms of the marketing channels, I don't think that we will be taking up a lot of marketing channels. And I think that we are focusing on our content, our new channel to spread the word in our various creative ideas and those are the ways to improve our efficiency of the marketing. And in terms of expenses, so what you have said in terms of the savings for first half of this year, which is a normal situation. -------------------------------------------------------------------------------- Frank Su, Crédit Suisse AG, Research Division - Research Analyst [36] -------------------------------------------------------------------------------- Okay. Great. Thank you, Mr. Lu. My second question is that earlier you talked about midterm plan for Mengniu and basically for some products that you will have forward-looking plans. And for instance, with some objective factors such as the declining of birth rate, and I think that the people have some changes in terms of their growth outlook. So Mr. Lu, can you please let us know about your main categories, the midterm growth trajectory? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [37] -------------------------------------------------------------------------------- So first of all, I think that for the industry, the general trend, we need to have an idea. And at the moment for our sales is about CNY 3.8 billion. And so let's say that we achieved at about average. And -- so at least this would be able to double in the midterm. And in addition, we also have the large rural area market in China and in addition for instance milk, yogurt and such other categories in the market that could continue to grow and the market is out there. In the meantime, in terms of the main categories and in terms of the opportunities, for instance, in cheese, or fresh milk, or the elderly health care products as well as for high-end products and the layout is also very straightforward and clear. And before 2025, I believe that we will also have some good products layout. And I hope that for next year, we would be able to with you in terms of our deployment. So given that we have a huge structural demand for dairy products and the market is in the meantime in terms of declining for our product is very clear. We are very clear, and we are very forward-looking in terms of the new categories that they are definitely going to be created. And we are actively working on this. And finally, in terms of the areas that we are not doing well, we need to bridge the gap, and we continue to do such work in the infant formula sector. And so adding everything together, we are very confident about the future. So it's the same as when we first mentioned about our double hundred billion target and some people said that, oh, you were 1 year behind your target, but actually, that's not something that we need to worry about. And it's more about whether we have been able to continuously improve our profit margin, to overtake our competitors. So going forward, I don't think that we are going to adjust our future targets. So that's it from me. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Next, let's invite the analyst from CICC, please. -------------------------------------------------------------------------------- Wendan Wang, China International Capital Corporation Limited, Research Division - Research Analyst [39] -------------------------------------------------------------------------------- Management, can you hear me? -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [40] -------------------------------------------------------------------------------- Yes, yes, we can hear you. -------------------------------------------------------------------------------- Wendan Wang, China International Capital Corporation Limited, Research Division - Research Analyst [41] -------------------------------------------------------------------------------- I'm Wang Wendan from CICC. I have 2 questions. First, regarding yogurt. In the first half, Mr. Lu, or fresh milk market share has achieved a very good target in the first half. So under the pandemic, that was increased by 25 points. So my question is, what is the whole year scale target for fresh milk? And how is your current profitability level? And then in the coming years, can you share with us your expectation about profit margin? That's about fresh milk. The second question is about cheese. So my question is, till 2025, you would like to achieve revenue target of CNY 10 billion. So for new ground, I have a question. What is your future consideration? These are my 2 questions. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [42] -------------------------------------------------------------------------------- Okay. For fresh milk, I will ask our executive in charge, Mr. Luo Yan to take your question. And later on, I will comment on cheese. Thank you for your questions. -------------------------------------------------------------------------------- Yan Luo, China Mengniu Dairy Company Limited - VP & Head of Developing Business Unit [43] -------------------------------------------------------------------------------- For fresh milk, in the first half, even though we were impacted by COVID-19, as such as now, our overall growth exceeded 20-odd percent. This is a high ratio. In fact, Fresh Milk has a rising share and for high end, it is more than half. And so the scale expansion is very fast. The growth contribution of Shiny Meadow is very good. It's almost 75%. I think it is because of its high-end positioning. So I think for high-end fresh milk growth, including Shiny Meadow, this is really about the enhancement of our overall product mix, and this helps a lot in improving our profit margins. For the whole year, for fresh milk category, we are confident in the trend. In the first half, there was impact from COVID-19. So the growth of this category is negative, but still we are confident because penetration rate is 41-point-something percent. So I think there is huge market potential comparing with other white milk. So if you look at this year and the coming few years, we are full of confidence and expectations. And regarding profitability in the first half of this year, we are flat. If you look at first half last year, the situation has improved a lot this year. For the whole year, we will achieve profit. And then the third point is regarding profit margin in the coming few years. I think this is worth expectation and looking forward to, because we are improving our product structure for Shiny Meadow. Gross profit structure is much better than the average. And there is now a deeper penetration of the category. We are expanding sales and our capacity utilization is improving. So I think this helps sharing of cost and our brand strength is also improving. Our sales capability is improving and our efficiency of selling expenses is improving. So for profitability in the coming few years, we are confident. We are confident about future growth and profitability. So I hope I have answered your questions. -------------------------------------------------------------------------------- Minfang Lu, China Mengniu Dairy Company Limited - CEO & Executive Director [44] -------------------------------------------------------------------------------- And then regarding cheese. Well, our point is the same. As you said in the first half, cheese is our very important strategic investment and strategic business layout plan. So when the conditions are mature for consolidation into our financial statement, we will do that. -------------------------------------------------------------------------------- Willow Wu, China Mengniu Dairy Company Limited - IR Contact [45] -------------------------------------------------------------------------------- Thank you. Thank you Mr. Luo Yan. Thank you very much for your questions. Today, because of time, we have to conclude our session here. Once again, thank you for your interest and support for Mengniu and Yashili. If you have further questions, are most welcome to contact Mengniu's Investor Relations department. Thank you once again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]