Refile: UPDATE 1-Yashili warns of 2014 profit slump on slowing China baby formula demand

Yashili International Holdings

14/01/2015 06:59

(Refiles to fix spelling of "formula" in headline) 
    * Milk formula maker Yashili issues profit warning 
    * Says 2014 profit likely to drop 40 pct y/y 
    * China global No. 1 infant milk formula market 
 
    By Donny Kwok and Adam Jourdan 
    HONG KONG/SHANGHAI, Jan 14 (Reuters) - Chinese milk powder 
maker Yashili International Holdings Ltd  1230.HK  said on 
Wednesday it expects its 2014 net profit to fall about 40 
percent, hit by slowing demand for baby formula and higher 
marketing and compliance costs. 
    The profit warning by Yashili, owned by China Mengniu Dairy 
Co Ltd  2319.HK  and French dairy Danone SA  DANO.PA , 
highlights the challenges local and foreign firms face as 
intense competition makes growth more elusive in the world's 
largest infant formula market. 
    Yashili is one of China's top ten infant formula makers by 
sales. Chairman Sun Yiping said there were still challenges 
ahead for the "overall operation and financial position" of the 
company, which also blamed its poor performance on a lack of new 
product launches. 
    "The decrease in profit of the group is primarily due to a 
slowdown in the growth of the paediatric milk powder industry," 
Sun said in a filing to the Hong Kong exchange. 
    Yashili, due to announce its annual 2014 results in March, 
saw its net profit slide 28.7 percent in the first half of 2014 
against a year earlier. Euromonitor said its 2014 market share 
also fell to 4.6 percent from 5.1 percent a year earlier. 
    The firm's shares plunged 6 percent on Wednesday before 
reversing to be up 0.9 percent. The Hang Seng Index  .HSI  was 
down 0.2 percent.  
    "Consumption was still increasing in 2014, just not quite at 
the pace that everyone was anticipating," said Con Williams, 
Wellington-based agriculture economist with ANZ, adding that 
high product prices had dampened some consumer demand. 
    "What it (Yashili's profit warning) highlights is that the 
dairy story, or any demand story, doesn't occur at any price 
point, it still has to be affordable."  
    China's infant formula market is set to grow from $17.8 
billion last year to $43.3 billion in 2019, according to 
Euromonitor. 
    Analysts said competition between foreign and local brands 
for market share was hitting profits as companies spend more on 
marketing. Tougher manufacturing regulations for the sector that 
took effect in 2013 and 2014 also raised costs. 
    Yashili's rivals have felt the pinch too. 
    Beingmate Baby & Child Food Co Ltd  002570.SZ  said in its 
half year report that adapting to sector reform had slowed sales 
and it was spending more to stave off market rivals. The firm 
saw profit in the first half of the year drop 72.1 percent. 
    Slower demand for infant formula is also likely to hit milk 
powder imports to China, the U.S. Department of Agriculture said 
in December. Key whole milk powder imports are likely to dip in 
2015, it added. 
 
 (Reporting by Donny Kwok in HONG KONG, Adam Jourdan in SHANGHAI 
and Naomi Tajitsu in WELLINGTON; Editing by Miral Fahmy) 
 ((donny.kwok@thomsonreuters.com; +852 2843 6470; Reuters 
Messaging: donny.kwok.reuters.com@reuters.net)) 
 
Keywords: YASHILI OUTLOOK/