Accounting Analysis About Inner Mongolia Mengniu Dairy

Company Overview

Inner Mongolia Mengniu Dairy (Group) Co., Ltd. (Mengniu Dairy Group) has a total asset of RMB 8 billion and 30,000 employees, and the production capacity of dairy products reaches 5 million metric tons per year. It owned 5 major series of products which are liquid milk, yogurt, ice cream, dry milk and cheese in which are incorporated over 200 categories. Mengniu officially went on the main market of Stock Exchange of Hong Kong (shares code 2319 HK) on June 10th, 2004, became the first Mainland dairy public company in Hong Kong.

So far Mengniu has established over 20 production bases in 15 provinces of China, mainly located in North, East and Central China. Its products sell in supermarkets, convenient stores, canteens, restaurants and other channels. Mengniu has a strong bargain power with its distributors and channels. Among its products, liquid milk makes the most part of Mengniu’s revenue (88.3% in 2008), followed with ice cream (11.0% in 2008). Inside the revenue from liquid milk, UHT milk makes the most part (65.0% in 2008), followed with milk beverage (26.6% in 2008), and yogurt makes up the rest (8.4% in 2008). Currently, it is the largest dairy food company in China (in revenues), and its the leader in UHT and milk beverage market and among the top 3 in yogurt market (followed by Bright Dairy).

I. Industry Overview and Performance

In China, urban market is the major part of liquid milk industry, given the currently limited contribution from the rural market, despite it has significant growth. From 1997 to 2004, China’s liquid milk market had been growing dramatically. Urban per capita fresh milk consumption grew at about 20% per year. Since 2005 growth slowed down significantly, because of the saturated consumption in urban market.

The liquid milk market was controlled by a small group of firms. Before the Scandal of Melamine, Mengniu, Yili, Bright Dairy and Sanlu are major players, accounting for 65% of the liquid milk...