China Mengniu Dairy has issued a profit warning for 2024, pointing to falling sales and impairments on business units.
The Hong Kong-listed group expects to record a profit of approximately 50m yuan ($6.9m) to 250m yuan for 2024, a significant drop from 4.8bn yuan in 2023.
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According to a stock exchange filing, the slump stems from impairment provisions at its subsidiary Bellamy’s Australia and asset devaluation at China Modern Dairy.
Mengniu also pointed to an “imbalance between supply and demand in raw milk and lower-than-expected consumer demand” as factors impacting earnings.
Bellamy’s is anticipated to report a loss for 2024. Mengniu, which acquired Bellamy’s in 2019, said it had considered the subsidiary’s “operating condition and financial performance” in recent years and “the future market outlook”. The group expects to recognise an impairment provision on goodwill and intangible assets, along with deferred tax effects, which Mengniu estimates will impact its group financial performance by 3.8bn yuan to 4bn yuan.
China Modern Dairy, an “associated company”, is expected to report a net loss of 1.35bn yuan to 1.55bn yuan for 2024, Mengniu said.
The group attributed the loss to fair value adjustments on dairy cows and a goodwill impairment, totalling 1.9bn yuan to 2.3bn yuan.
Consequently, Mengniu anticipates recording a share of losses amounting to 790m yuan to 900m yuan from its stake in China Modern Dairy.
Mengniu clarified that the expected impairments are non-cash accounting items and are “not expected to have any material adverse effect on the current and future operations or cash flow of the company”.
The group said its operating cash flow is projected to remain “stable” year-on-year for 2024.
Mengniu also assured investors that if the impact of anticipated impairments is disregarded “the profit attributable to owners of the company remains stable year-on-year”.
Factors such as lower raw milk prices, cost management, and operational improvements are projected to enhance gross profit and operating profit margins, it added.
In October, Jeffrey Minfang Lu, Mengniu’s vice chairman and former CEO, resigned from his position.
He also stepped down from his roles on the company’s strategy and development committee, as well as its sustainability committee.
