Mengniu Dairy issues profit warning as impairments weigh on earnings

CHINA – China Mengniu Dairy has issued a profit warning for 2024, citing declining sales and impairments within its business units. 

According to a stock exchange filing, the Hong Kong-listed dairy company expects to record a profit between 50 million yuan and 250 million yuan for the year, a steep decline from 4.8 billion yuan in 2023. 

The drop is attributed to impairment provisions at its subsidiary Bellamy’s Australia and asset devaluation at China Modern Dairy.

Mengniu stated that an imbalance in the supply and demand for raw milk, coupled with lower-than-expected consumer demand, has also weighed on earnings. 

The company, which acquired Bellamy’s in 2019, said it had assessed the subsidiary’s financial position and market outlook, leading to an expected impairment provision on goodwill and intangible assets. 

This, along with deferred tax effects, is projected to impact the group’s financial performance by approximately 3.8 billion to 4 billion yuan. Bellamy’s is expected to report a loss for 2024.

China Modern Dairy, in which Mengniu holds a stake, is anticipated to report a net loss of 1.35 billion yuan to 1.55 billion yuan for the year, mainly due to fair value adjustments on dairy cows and a goodwill impairment totaling between 1.9 billion and 2.3 billion yuan. 

Mengniu reported that its share of these losses will range between 790 million yuan and 900 million yuan.

Despite the expected impairments, Mengniu emphasized that these are non-cash accounting adjustments and are “not expected to have any material adverse effect on the current and future operations or cash flow of the company.” 

The company also assured investors that its operating cash flow is projected to remain stable year-on-year. 

“If the impact of anticipated impairments is disregarded, the profit attributable to owners of the company remains stable year-on-year,” the company stated.

The group pointed to lower raw milk prices, cost management strategies, and operational improvements as factors that are expected to enhance its gross profit and operating profit margins. 

Mengniu also highlighted ongoing efforts to navigate market challenges and sustain its financial position.

The profit warning follows leadership changes at the company, with Jeffrey Minfang Lu, its vice chairman and former CEO, stepping down from his role in October. 

Lu also resigned from the company’s strategy and development committee as well as its sustainability committee.