Mengniu Dairy, a listed Chinese dairy company that is partly state-owned, has issued a profit warning for the past calendar year, as the surplus of milk on the Chinese domestic market is playing tricks on the company.
The company, number 8 in the Global Dairy Top 20 of Rabobank, expects to present a net profit of between 2024 million and 50 million yuan in 250. Compared to the sloppy 4,8 billion yuan that was brought in profit last year, this is a significant drop. The company will present the final figures in March, but has already issued a profit warning to inform investors.
Imbalance in the market
The company points to an imbalance in the Chinese dairy market as the main reason for the decline in results. In addition to a surplus of milk, consumption is under pressure due to the faltering Chinese economy. In addition, an Australian and a Chinese subsidiary have problems that also negatively affect the result. The gross margin did improve last year, due to the lower milk prices in China.
The consequence of the negative market developments is that significant write-downs will have to be made on the balance sheet on assets that could amount to 2,3 billion yuan, partly because the company's own cash cows have become considerably less valuable.
The stock price has barely reacted to the news, but has already been devalued by 17% since last year.
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