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Huishan Dairy’s Turnover Increased 7.1% in 1H2015/16 Gross Profit Margin Maintained at an Optimum Level of 53.6%

(Hong Kong, 30 November 2015) – China Huishan Dairy Holdings Company Limited (“Huishan Dairy” or “the Group”) (stock code: 6863) today announced its interim results for the six months ended 30 September 2015 (“the Review Period”). During the Review Period, the Group’s revenue has increased 7.1% to 2,137.4 million (the corresponding period in 2014: RMB1,994.8 million), while the sales volume of liquid milk products has increased by 31.6%. The Group’s core advantages brought by industrial consolidation have enhanced its competitiveness, as it has achieved an overall gross profit margin of 53.6%, far exceeding the industry average. After biological fair value adjustments, profit for the year under review is RMB753.5 million. Earnings per share are RMB0.05.

Chairman and Chief Executive Officer of Huishan Dairy, Mr. Yang Kai, said, “In the past half year, the domestic dairy industry experienced dramatic changes. In response to these market conditions, we continued to broaden the scale of our fully vertically integrated value chain business model and maintained stable growth. With industrial integration as the core, we pursued in-depth vertical development and continued to innovate on the basis of the existing agricultural planting, processing of concentrated feeds, large-scale dairy farming and processing of dairy products and sales resulting in further extension of our industry chain to renewable energy segments.” 

Dairy Farming Business

During the Review Period, turnover from the dairy farming business was RMB505.9 million (the corresponding period in 2014: RMB553.9 million). As at 30 September 2015, the Group operated the largest number of dairy farms in China with 78 standardised dairy farms in Liaoning Province (As at 31 March 2015: 69 dairy farms). The Group’s total herd size (including Holsteins and Jerseys) increased from 180,331 dairy cows as at 31 March 2015 to 190,911 heads, of which 86,801 are milkable cows. With the increase in the number of milkable cows and more advanced and effective herd management, Huishan Dairy produced a total of 356,200 tonnes of raw milk in the Review Period, an increase of 23.2% over the corresponding period last year, and average milk yield per milkable cow per annum was 8.7 tonnes. The cost of raw milk dropped from RMB2,193 per tonne for the corresponding period of last year to RMB2,138 per tonne for the Review Period, which effectively mitigated the decline in the domestic market price of raw milk and brought about bigger room for profit. During the Review Period, the average selling price of our raw milk reached RMB4,483 per tonne, higher than the average market price.

Looking ahead, by leveraging modern cultivation methods, Huishan Dairy will extend the area for annual two-harvest trials and increase unit output volume by adopting two cultivate methods, so as to improve land management efficiency. The Group will also successively reduce the proportion of purchased coarse fodder in order to enhance the cost competitiveness of raw milk at the source and provide a stronger guarantee for the safety and high quality of raw milk.

Liquid Milk Business

During the Review Period, the Group’s sales of liquid milk business reached RMB1,347.5 million, representing an increase of 14.4%.  

With the Group’s liquid milk processing plant in Shenbei new district, Shenyang commencing production in April 2015, the overall capacity of liquid milk has been raised to 620,000 tonnes. Besides, the sales of pasteurised milk products are increasing steadily as well. As a result of the adjustment in enhancing product structure and market expansion, for the six months ended 30 September 2015, the overall sales volume of our liquid milk products reached 182,403 tons, representing a growth of 31.6%.

During the Review Period, Huishan Dairy has continued to enhance the initial roll-out to new regional markets in Jiangsu, Shandong, Hebei, Henan, etc. As at 30 September 2015, the Group’s distribution network has comprised 469 distributors, 400 direct-sale supermarkets and the number of milk delivery households increased from approximately 100,000 as at 31 March 2015 to 157,000. In the future, the Group is gradually increasing the number of key cities and supermarkets to boost its market share in these new regions. In the meantime, to consolidate its leading position in the Northeast market, the Group continues to raise the proportion of pasteurised milk in the sales of liquid milk overall and to implement an industrial upgrade by end-product adjustment. Furthermore, the Group is focusing on producing pasteurised milk under the brand “Dr. Fresh” (鮮博士) using high quality raw milk with a standard higher than that of Europe, while the Jersey milk product series, which contains 3.6 grams of premium protein, is believed to provide a new definition for the quality of high-end domestic milk.  

The construction of the Group’s liquid milk processing plants in Yancheng, Jiangsu with a designed production capacity of 180,000 tonnes per year is expected to commence operation in the middle of 2016. Along with the commencement of our Jiangsu Yancheng integrated dairy value chain project, the Group would then achieve comprehensive supply of pasteurised milk of consistent quality in areas such as Shanghai, Jiangsu, Zhejiang and Anhui in the future. 

Milk Powder Business

During the Review Period, turnover from the milk powder business increased by 8.0% to RMB284.0 million from RMB263.0 million for the corresponding period of 2014 mainly due to the significant increase in the sales volume of IMF products and adult milk powder.  

Huishan Dairy intends to develop the potential domestic IMF market, widen its distribution network and expand its product coverage. With the Northeast Region and Central China as its core geographical markets and through continuously bolstering its business presence in East China, South China and the Southwest Region, the number of distributors has increased to 999 from 825 during the corresponding period in 2014 while the number of distribution stores increased to 14,855 from 6,743 over the corresponding period in 2014. Currently, the Group has selected key cities and cooperated with major distributors across Henan, Shandong and Hebei provinces. In the coming years, Huishan Dairy plans to gradually increase the number of these cities and distributors so as to expand product coverage. 

On April 1, 2015, Huishan Dairy has completed the joint venture agreement with Royal FrieslandCampina N.V., and all businesses have been smoothly carried out in accordance with the predetermined development plan. Customised IMF powder for Chinese consumers, which is produced domestically according to international quality standards, is planned to be launched in 2016.  

Apart from IMF products, Huishan Dairy is also committed to providing domestic supply of bulk quality of processed dairy ingredients. Following the establishment of the Group’s bakery application research and development center in Shanghai, China, ‘‘Chun Xuan,” the new brand of its self-developed whipped cream products, which targets bakery, catering and food processing enterprises, has officially been launched for sale in May 2015, as the Group becomes the first domestic manufacturer of hypothermia, pure animal fat and long shelf-life whipped cream.

Tapping Renewable Energy Business

With its continuous business development, especially the expanded herd size, which in turn increases the waste volume, Huishan Dairy believes renewable energy from this waste can provide the Group with material and stable and steadily increasing revenue and profit, as well as to expand future revenue. To grasp this opportunity, the Group has extended its business to the renewable energy industry, and mainly engaged in cattle manure processing for compressed natural gas (‘‘CNG’’) and organic fertiliser byproducts production. Now, the first biogas plant with the annual production volume of 18.25 million cubic meters has been constructed in Faku, Liaoning, China and commenced test operation of gas supply in August 2015. In the coming two years, Huishan Dairy plans to expand the scale of the renewable energy business, and is committed to become thelargest renewable energy company and organic fertiliser producer in China.

Furthermore, the Group is conducting a feasibility analysis of developing an “agri-solar” energy project, an efficient and eco-friendly consolidation of dairy farming and solar energy, which can enhance the profitability of solar energy projects through the effective use of dairy farming resources, thereby, contributing significant and stable income to the Group.

Mr. Yang Kai, concluded, “The full implementation of the ‘Two-child Policy’ and the gradual increase of disposable income of consumers have laid a foundation for a steady demand in the domestic dairy product industry and offered remarkable growth potential for the consumption of dairy products. To capture these opportunities, we maintain our commitment to provide consumers with safe high quality dairy products and continue to broaden the scale of our fully vertically integrated value chain business model by optimising the synergies of each segment. To maintain our leading market position, we are also adjusting our product portfolio over time, as well as to exploring the in-depth market potential through our innovative marketing model. Last but not least, we are also dedicated to develop a diversified recycled economy by expanding our renewable energy business, so as to enhance our efficiency, utilisation of resources and to deliver stable income to our shareholders.”