CHINA MENGNIU DAIRY COMPANY LIMITED (2319.HK) - Mengniu to acquire Lion Dairy & Drinks business in Australia November 2019
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CHINA MENGNIU DAIRY
COMPANY LIMITED
(2319.HK)
Mengniu to acquire Lion Dairy & Drinks
business in Australia
November 2019
Legal disclaimer
The presentation is prepared by China Mengniu Dairy Company Limited (the “Company”) and is solely for the purpose of
corporate communication and general reference only. The presentation is not intended as an offer to sell, or to solicit an
offer to buy or to for many basis of investment decision for any class of securities of 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 does 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 contains projections and forward looking statements that may reflect the
Company’s current views with respect to future events and financial performance.
This presentation is provided without any warranty or representation of any kind, either expressed or implied. The Company
specifically disclaims all responsibilities in respect of any use or reliance of any information, whether financial or otherwise,
contained in this presentation. The Company undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
2
Proposed acquisition of Lion Dairy & Drinks
100% of the shares in Lion Dairy & Drinks Pty Limited (“Dairy & Drinks” or “D&D”)1, a leading
Target
Australia-based branded dairy and beverage company
Share sale and purchase agreement with Kirin Foods Australia Holdings Pty Ltd, a wholly-owned
Acquisition Method
subsidiary of Japan-based Kirin Holdings Co.
Cash consideration of A$600 million (equivalent to approximately RMB 2,868 million or HKD 3,187
Consideration
million2), subject to completion adjustments
Subject to Australian regulatory approvals (Foreign Investment Review Board and Australian
Conditions
Competition and Consumer Commission)
Execution of share sale and purchase agreement: 24 November 2019
Timetable
Completion expected in 1H CY2020, subject to timing of receipt of Australian regulatory approvals
Note: 1. Excluding the Specialty Cheese business which was recently sold to Saputo Dairy Australia, a subsidiary of Saputo Inc. (a Canada-based manufacturer
of dairy products) (completed October 2019). 2. Based on AUD/RMB exchange rate of 4.78 and AUD/HKD exchange rate of 5.31 (as at 22 November 2019).
3
A highly attractive acquisition for Mengniu
Quality
assets Iconic household brands, access to highly regarded Australian milk pool and
support Asia extensive manufacturing and cold chain networks provide a strong foundation
Pacific for Mengniu to unlock tremendous potential in the Asia Pacific markets
strategy
An important milestone, post-Bellamy’s, in formulating an integrated regional
Regional
player with a multi-category / multi-brand portfolio to serve consumers in
integration
Australia, China and South East Asia (“SEA”)
Dairy & Drinks
Considerable Anticipated realisation of meaningful synergy benefits as Mengniu builds and
synergy consolidates regional supply chain networks and direct sourcing from
potential Australia
4
Iconic household brand portfolio
♦ D&D’s range of iconic Australian household dairy brands have a strong Australian heritage, history and reputation for quality.
Together with the Bellamy’s brand, Mengniu will have an impressive suite of Australian brands with strong market recognition.
♦ Mengniu plans to continue building D&D’s brands to unlock their full potential in Australia, China and SEA through:
̶ Continued investment to strengthen heritage brands and develop emerging brands in Australia, through capacity and capability
enhancements as well as a continued focus on product innovation
̶ Assisting D&D to access international markets via Mengniu’s extensive platform
Selection of D&D’s brands, by category1
Milk Beverages Yoghurt White Milk Juice & Drinks Water Ice Plant-based 3
10+ years 35+ years 115+ years 10+ years 45+ years
40 years 120 years 4 years 1 year
2 years 2 years ~30 years
Market
position2 #1 #1 #2 #1 #1 #1
Source: D&D information. Note: 1. Years denote number of years brand has been in existence. 2. Market share for Juice & Drinks represents Chilled
Juice only. 3. A joint venture between D&D and Vitasoy International Holding Limited.
5Availability of high quality milk supply, competitive pricing
and geographic proximity make Australia an ideal dairy
region for China and SEA
Australia is a source of high quality milk supply
♦ Strong reputation for high quality milk supply and dairy products, particularly
amongst consumers in China and SEA
♦ ~34% of Australia’s domestic dairy production is exported
Cost competitive nature of raw milk in Australia
♦ Raw milk in Australia is cost competitive relative to raw milk sourced in China
♦ Access to the Australian milk pool provides Mengniu with a sustainable long-term
path to alleviating cost pressures from domestic supply
Geographical and trade advantage in supplying China and SEA
♦ Australia is the closest scale raw milk production base to China and SEA
♦ Dairy export tariffs between Australia and China expected to gradually decrease to zero,
according to free trade agreements
Opportunities provided by dairy sector consolidation
♦ Whilst fragmented, the Australian dairy sector continues to consolidate, presenting opportunities for Mengniu
Australian and New Zealand farmgate milk price (cents / litre, in respective local currencies, and RMB / litre)1
2.64 2.91
2.40 2.44 2.45
2.30 2.20 2.32 2.32 2.20
RMB per litre 2.03
1.77
2.12 2.05 1.99 2.11 1.89 2.03
2.11 1.96 2.12
1.65 1.53 1.35 Australia
Australian / New New Zealand
Zealand cents per litre 42.5 36.5 37.1 46.9 42.8 58.5 41.6 46.8 39.5 44.9 50.2 64.6 48.2 33.8 44.2 30.0 41.0 47.1 46.0 51.5 48.5 48.8 51.0 54.2
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20F
Source: Australian Bureau of Agricultural and Resource Economics and Sciences. Note: 1. Conversion to RMB based on AUD/RMB exchange rate of
4.78 and NZD/RMB exchange rate of 4.51 (as at 22 November 2019). 2. New Zealand farmgate milk price should be considered illustrative only as it is 6
based on Fonterra’s farmgate milk price and has been converted from kg/MS to cents per litre by dividing by 13.Extensive supply chain networks provide strong foundation
Access to high quality Australian Large scale, well-invested, national Largest national cold chain
milk supply manufacturing capability distribution network
♦ D&D has a proven track record of ♦ Significant manufacturing capability in ♦ Significant scale and reach across
long-term and stable milk supply, even Australia, supported by material Australia which provides unrivalled
during Australian drought conditions investment in recent years advantages in bringing new products
to market
♦ Will help Mengniu to alleviate ̶ Best-in-class Milk Beverages
increasing milk supply costs in China facility ♦ Hard-to-replicate cold chain network
and unlock sustainable future growth
̶ One of the largest fruit procurement
♦ Mengniu will support D&D in operations in Australia
accessing the Chinese market via in-
market expertise and investment in ♦ Future international growth aspirations
to be supported through utilisation of
~150
depots / distribution centres
manufacturing capability and capacity (~50 owned)
significant available capacity and
additional investment by Mengniu
13 manufacturing facilities across Australia >35,000 customers across
multiple channels
Loyal supplier base
~280 dairy
farmers ~85 fruit
growers
2 facilities
Major
grocery
Independent
retail
Impulse
Long term and stable milk supply (p.a.) 1facility 1facility
5 facilities
~825 million
(milk equivalent litres)
3facilities
1facility
Source: D&D information.
7Consistent with Mengniu’s growth strategy
Roll out new Expand
Healthy growth Turn around Ice
businesses in into overseas markets
maintained for Room Cream and IMF
fresh milk, cheese with near-term focus
Temperature and business
etc. on SEA and
Chilled Business
Australia
♦ Recent and pending investments to secure milk supply ♦ Entry into Australian market through indirect investment in
(e.g. China Modern Dairy Holdings in 2017 and China Burra Foods in 2016
Shengmu Organic Milk Limited in 20181)
♦ Indonesia Yoyi C factory commenced operation in 2018
♦ Continued investment in both existing and new sites to
increase capacity to meet demand growth ♦ Expansion in sales network in SEA
♦ Enhancing route-to-market efficiency through channel ♦ Enhanced Australian presence through proposed
empowerment projects acquisition of Bellamy’s Organic in 2019
D&D acquisition provides a pathway for sustainable growth in both Room Temperature and Chilled Business
as well as Asia Pacific market expansion
Note: 1. Represents year of announcement.
8Fully integrated player to serve SEA and China markets
D&D has integrated capability from procurement to distribution
Procurement Processing Sales and marketing Cold chain distribution
Diverse product portfolio via combination of D&D1, Bellamy’s and Burra Foods
Functional
ingredients
Milk powder
2
Nutritional milk
powders
Milk Beverages & Yoghurt White Milk Chilled Juice Formula Food Bulk liquid
Alternatives
Note: 1. D&D portfolio also includes Ambient Juice and Water Ice. 2. D&D has the exclusive right to sell and distribute Yoplait branded products within defined territories,
in accordance with a master franchise agreement with Sodima. Defined territories include Australia, Singapore, Malaysia, the Philippines, Indonesia, Thailand, Vietnam,
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Hong Kong, Taiwan, Brunei and the Maldives. Specifically excluded territories include Mainland China, Japan, South Korea, New Zealand, PNG, New Caledonia and Fiji.Platform to drive growth in “One Belt, One Road” regions
♦ D&D’s market leading positions in Australia provide Mengniu
D&D’s yoghurt market position in SEA and China
with an immediate presence and established platform in the
Australian market
♦ D&D currently also distributes products internationally, into
SEA and China, with a core focus on yoghurt
̶ Number of market leading yoghurt positions in SEA, most Mainland China
notably in Singapore where D&D has a ~35% total market ~60% share of the imported
share and ~55% premium market share Australian yoghurt segment
Thailand
̶ Opportunity for Mengniu to continue to drive growth in #1 in imported yoghurt
D&D’s yoghurt positions in SEA
Vietnam Philippines
♦ Significant potential for launching other product categories #13 in yoghurt
Malaysia Top 5 in yoghurt
(such as milk based beverages) into the SEA markets
#1 in imported yoghurt
♦ Consistent with (and complementary to) Mengniu’s strategy
to grow in SEA and Australia Singapore Indonesia
#1 in yoghurt #5 in yoghurt
̶ Through disciplined investment in manufacturing capacity /
capability and new product development, Mengniu expects
to drive further growth in Australia as well as exports into
SEA and China D&D’s yoghurt brands in international markets
1
Source: D&D information. Note: 1. D&D has the exclusive right to sell and distribute Yoplait branded products within defined territories, in accordance with a
master franchise agreement with Sodima. Defined territories include Australia, Singapore, Malaysia, the Philippines, Indonesia, Thailand, Vietnam, Hong Kong,
10
Taiwan, Brunei and the Maldives. Specifically excluded territories include Mainland China, Japan, South Korea, New Zealand, PNG, New Caledonia and Fiji.Considerable synergy potential as Mengniu builds
and consolidates the supply chain
Ultra-high temperature (UHT)
Procurement efficiencies Other potential synergies
production
♦ Mengniu currently outsources the ♦ Supply chain efficiencies in the ♦ Potential benefits from complementary
production of some of its UHT milk sourcing of raw milk given increased base of operations in Australia across
operational scale and flexibility across D&D, Burra Foods and Bellamy’s to
♦ Preliminary analysis indicates that Mengniu’s Australian platform be explored
some D&D facilities may be potential
candidates for in-house UHT ♦ Procurement cost saving opportunities ̶ Shared distribution network /
processing for non-milk inputs increased product throughput
♦ In-house UHT processing has the ♦ Implementation of production ̶ Potential sharing of infrastructure
potential to realise material cost capabilities / technologies to facilitate and back office systems (e.g. IT
savings export of milk to Mengniu’s existing platforms, office occupancy)
markets overseas
♦ R&D efficiencies
̶ Ability to realise material cost
savings through in-sourcing (given ♦ Sales and marketing collaboration
some production is currently ♦ Cross-selling across brands and
outsourced) products, both in Australia and
internationally
Mengniu expects the impact of identified synergy opportunities to be meaningful over time
11Key financials and pro-forma analysis
D&D profit before tax (AUD m)1 D&D profit after tax (AUD m)1 D&D net assets (AUD m)2
69.0
65.5
596
48.3 45.8
FY17 FY18 FY17 FY18 Aug-19
Recent profitability (in particular, year-to-date FY19) Net asset value broadly equal to
impacted by ongoing drought conditions in Australia purchase consideration
which have resulted in higher milk input costs
Pro-forma combined analysis (FY18A)1,3
Revenue EBITDA EBITDA margin
10% 8%
7.8% 7.7%
6.6%
D&D
Mengniu
90%
92%
D&D Mengniu Combined
Upon realisation of identified synergies, Mengniu expects a material positive financial impact
Note: 1. Unaudited pro forma adjusted figures for the financial year ended 31 December. 2. Unaudited pro forma book value of net assets. As part of post-
acquisition purchase price accounting (as required by accounting standards), an independent valuer will assess the fair value of assets which may result in a step-
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up or step-down to book value. 3. Combination based on AUD/RMB exchange rate of 4.78 (as at 22 November 2019).Q&A
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