China Food

Suddenly, Fonterra China ranch sold! Yili’s Youran animal husbandry and shounong’s three way connection

In China’s current round of long holiday, Chinese and foreign dairy giants are obviously not idle.


At about 3:00 a.m. Beijing time, Fonterra, a New Zealand dairy cooperative, announced that it had agreed to sell its ranch in China for NZ $555 million (equivalent to about RMB 2.5 billion) for two well-known enterprises, Youran animal husbandry Co., Ltd. of Yili Group, and three yuan of capital agricultural investment.


This also means that after more than one year’s strategic review, Fonterra has finally ended its 10-year history of raising cattle in China, thus giving up this piece of “heavy assets” in foreign countries. At the same time, it also means that Youran animal husbandry, which is rumored to go to Hong Kong for IPO, will quickly acquire foreign ranch assets through trading, which is one of the company’s recent ambitious expansion Points.

You ran bought “big head”


Let’s take a look at the details of the two deals.


According to Fonterra, Inner Mongolia Youran animal husbandry Co., Ltd., a subsidiary of China Youran Dairy Group Limited, has agreed to acquire two farms of Fonterra in Yingxian County, Shanxi Province and Yutian, Hebei Province, at a price of NZ $513 million (equivalent to about RMB 2.31 billion).


In addition, Fonterra has agreed to sell 85% of its interest in Hangu farm to Beijing Sanyuan Venture Capital Co., Ltd. (hereinafter referred to as “Sanyuan”) for NZ $42 million (equivalent to about RMB 190 million). Sanyuan has already owned 15% minority equity in the ranch before, and this time it has exercised its priority to purchase Fonterra’s rights and interests.


The deal is expected to be completed within Fonterra’s current financial year, subject to the approval of China’s antitrust authorities and other regulatory authorities.


Xiaoshidai found that Inner Mongolia Youran animal husbandry Co., Ltd. was established in 2007 with a registered capital of 4.778.5 billion yuan. The company is headquartered in Hohhot, formerly Yili Animal Husbandry Development Co., Ltd., which covers three major industries of animal husbandry, feed and grass industry, with nearly 30 foreign investments.


The legal representative and chairman of Youran animal husbandry Co., Ltd. is Zhang Yujun. He joined Yili as early as 1995. Before that, he served as assistant to the president and general manager of liquid milk business department of Yili.


As for Beijing Sanyuan Venture Capital Co., Ltd., it was established in 2002 with a registered capital of 11 million yuan. Beijing shounong Food Group Co., Ltd. holds about 32% of the company’s shares. Prior to this, it had two foreign investments, namely Tangshan hengran ranch Co., Ltd. and Nonggang Holding Co., Ltd.


According to the data, the raw milk production of Fonterra China in 2017 accounted for about 1% of the total domestic raw milk production. The company has said that its Chinese ranch is the first farm group in China that has been recognized by the global food safety initiative (GFSI) as the third level “highest certification” of SQF (safe and quality food). According to the data provided by the company in 2018, there are more than 60000 dairy cows in China, producing more than 350 million liters of milk each year.


“No challenge evaded”


In a briefing today, Fonterra’s chief executive officer, miles Hurrell, said in a briefing that Fonterra had demonstrated its commitment to the development of China’s dairy industry at the beginning of the establishment of the farm.

“We have worked closely with local enterprises to share our expertise in animal husbandry technology and animal husbandry and contribute to the development of the industry.” He said.


“We have not shied away from the challenge of building ranches from scratch in China.” However, he stressed that Fonterra’s team “has successfully developed” production demonstration farms and provided “high-quality fresh milk” to the local consumer market. Now is the time to hand over the baton to Youran and Sanyuan to continue developing these farms.


Miles Hurrell also revealed that Fonterra has been reviewing all parts of its business over the past 18 months to ensure that its assets and investments meet the needs of today’s cooperatives, while the sale of Chinese ranches is in line with Fonterra’s decision to focus on the milk produced by dairy farmers in New Zealand.


“China is still one of Fonterra’s most important strategic markets, and about a quarter of our production is supplied to China.”. He said the sale of farms in China would make Fonterra more focused on strengthening its catering services business, consumer brand business and raw materials business in China.


Miles Hurrell also said in the above-mentioned circular that Fonterra will “Bring New Zealand milk to Chinese customers in an innovative way” in the future, and will continue to cooperate with local Chinese companies to achieve the above objectives, and Fonterra’s earlier investment in China’s R & D and application centers will support this direction.


According to the data, Fonterra announced that it set foot in China 10 years ago, which can be traced back to the lesson of melamine involved in the joint venture. As early as 2011, Theo Spiegel, then CEO of Fonterra, said frankly that one of the lessons Fonterra learned was that the integrated business model from pasture to end-user could control the whole value chain more completely. At the same time, the then management believed that cattle farming was an important trend in localization in China.

But time has changed. With the change of Fonterra’s strategy in recent years, and the fact that the ranch in China is always on the verge of profit, the company finally decided to sell it.


Foreign logic


In fact, before this announcement, the industry was no stranger to the news that Fonterra was going to sell its ranches in China. However, the boots of this transaction did not fall quickly. Until this year, domestic giants have “enclosed” the ranch assets, and this transaction finally came true.


Looking back on the process of the sale, the original point may have started in March 2018. The former CEO of Fonterra for seven years announced that he would leave later in the year. The company earlier announced that it had made a rare loss due to compensation for Danone and investment in beingmei.

In August of the same year, Fonterra appointed miles Hurrell as the new coach. A month later, Fonterra said it would conduct a strategic assessment of its businesses, including Bain Mae’s stake, which has been repeatedly impaired.


In May 2019, miles Hurrell officially announced that it was conducting a strategic review of two wholly-owned farms in the Chinese market (above); at the same time, it was reviewing with its partner nestle the options for the future ownership of the Brazilian joint venture of the American Dairy partner (DPA); in addition, Fonterra will close its Dunnington plant in Australia.


At the time, miles Hurrell, who was struggling to improve its balance sheet and strengthen its commitment to domestic dairy farmers and shareholders, explained that the decisions involved Fonterra’s new strategy of strengthening the use of New Zealand’s milk sources and simplifying its global business portfolio.


It is understood that the fresh milk produced by Fonterra’s ranch in China is not only supplied to some well-known downstream food companies, but also has recently been supplied to Fonterra’s catering service business, such as coffee and tea, and some brand products of consumer goods. In April last year, Fonterra also officially entered the low-temperature fresh milk market in China. At that time, the products introduced used fresh milk from farms in China. It is estimated that in the three years from 2018, the category of low-temperature fresh milk in the Chinese market is expected to grow at a compound annual growth rate of 18.5%, and the market scale is expected to increase to more than 7 billion yuan by 2021.


According to the data, as of the first nine months of Fonterra’s fiscal year at that time, Fonterra’s farm sales in China were 192 million liters of liquid milk equivalent (LME, including inter segment sales), a year-on-year decrease of 3%; gross profit was negative of NZ $13 million, a loss of 7%; EBIT was negative of NZ $23 million.


In March this year, Fonterra said it had completed the strategic review of China’s ranch and Brazil’s DPA, and the sale process of the two assets was progressing smoothly. According to the review disclosed at that time, Fonterra made impairment of NZ $65 million to the joint venture ranch in China. It also pointed out that the book value of the entire Chinese ranch business at that time exceeded NZ $500 million.


Under the arrangement, Fonterra will use the proceeds from the sale of farms in China to reduce the company’s liabilities.


After China bid farewell to ranch assets, there are various signs that Fonterra will continue to strengthen its investment in China. Zhou Dehan, CEO of Fonterra Greater China region (above), told the snack generation earlier that Fonterra Greater China planned to release a number of new products, including cheese and probiotics, at the Expo to be held in November. He also described the Greater China region of Fonterra as “the largest, most important and fastest growing strategic market” of Fonterra.


Preparing for IPO?


In this transaction, the most prominent is the entry of Youran animal husbandry.


According to the IPO news last month, Inner Mongolia Youran animal husbandry Co., Ltd. is currently carrying out a new round of private financing, planning to raise $300 million to $400 million. After this round of pre IPO Financing, Youran animal husbandry will start listing in Hong Kong.


Mr. xiaoshidai noted that in June this year, the company reported on the financing plan, and said investors may give the company a valuation of about $2 billion. Private placement PAG (taimeng Investment Group) and Yili in Hong Kong respectively hold 41% and 40% equity of Youran animal husbandry, which will promote IPO after this financing.


According to Yili’s annual report, the revenue of Youran animal husbandry in 2019 is about 8 billion yuan, and the net profit is 500 million yuan. Last year, Youran also acquired a majority stake in another animal husbandry company, saikexing, at a cost of about 2.3 billion yuan. In January this year, saikexing announced that youranmu had completed the agreement to transfer 44.783% shares with 79 shareholders including Yang Wenjun, the shareholder of the company.


This round of ranch asset fever has long been traced.


In April this year, Japan’s largest acquisition bet on China’s dairy industry in Meiji history, with 1.8 billion yuan taking 25% of the shares of Australia and Asia. The latter has seven 10000 head farms in East China and North China, and its daily raw milk production exceeds 1000 tons.


In July 2020, Mengniu will become the largest shareholder of China’s Shengmu, with a capital of HK $395 million. After the completion of the transaction, the shareholding ratio of Mengniu Dairy will rise from 3.83% to 17.80%. By increasing its holdings in Shengmu, Mengniu, which has actually controlled modern animal husbandry, will also be able to consolidate its overall layout and advantages in terms of milk resources.


In September 2020, Feihe announced that it planned to spend HK $3 billion to purchase its closely related milk source supplier and the original ecological animal husbandry with an annual milk output of more than 340000 tons.


In August 2020, Yili announced that it would subscribe for 16.6% of the shares of Zhongdi dairy by 183 million yuan, and announced a week ago that it planned to make an offer of up to HK $1.66 billion. It also pointed out that this transaction will help to improve the company’s participation and control of large-scale upstream animal husbandry resources and consolidate its leading position in the dairy industry.

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