Under the circumstances that the epidemic has impacted cross-border trade this year, multinational milk powder giant Mead Johnson hopes to “hold its position” in the Chinese market.
This afternoon, Mead Johnson’s parent company, Ligee, released its third quarter 2020 results. According to the financial report of snack food agents, during the period, the nutriment business of Lijie group increased by 4.1% year-on-year, reaching 806 million pounds; among them, infant nutrition products (IFCN, namely Mead Johnson milk powder business) was flat year-on-year, improved compared with the first half of the year.
Xiaoshidai learned that at the subsequent performance meeting, Laxman Narasimhan, CEO of P & G, and Jeff Carr, CFO of P & G, further talked about the performance of Mead Johnson in China, the expectation and trend of milk powder development, as well as the medium and long-term development goals.
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Narasimhan said at the meeting that people’s home and social distance measures have had a significant impact on some of the company’s brands. For example, some cross-border sales are restricted, including the cross-border trade of infant formula between the mainland of China and Hong Kong, and the export of some U.S. dietary supplement products to Asia.
This also makes the performance of milk powder in mainland China and Hong Kong different under the epidemic situation.
“Strong growth in North America (infant nutrition) helped offset the weakness in cross-border sales in Hong Kong, thanks to increased inventories.” Hong Kong’s cross-border trade is still full of challenges in today’s cross-border trade with mainland China.
However, the company also pointed out: “in mainland China itself, in spite of fierce market competition and slowing down of high-end, we still maintain our share among multinational (milk powder enterprises) peers. The Greater China business remains the focus of the group as we seek to improve our business performance. “
“In China, sales of the nutrition business declined due to the continued closure of the Hong Kong border crossings; however, in the mainland, sales were stable and flat with the same period last year.” Carr added at the meeting.
Mr. Narasimhan later added in response to analysts’ questions that Mead Johnson “maintains market share in the entire market, both offline and online,” not only compared with its multinational counterparts.
Narasimhan believes that this is also due to the good implementation of previous plans in the mainland market.
In February this year, Laxman explained to analysts in detail the huge changes in China’s milk powder market, including strengthening policy supervision, seizing market share by local competitors, etc. In addition to the external environment, he also talked about the impact on Mead Johnson’s large-scale business in Hong Kong due to the reduction of tourism caused by social events and epidemic situation, and expressed his intention to invest in e-commerce and business competitiveness.
“Since then, the epidemic has had a further impact on the overall development of the nutrition business, as evidenced by the decline in the birth rate and the slowing trend towards high-end products.” Narasimhan said today, “in this context, our plan is well executed.”
Laxman Narasimhan, global chief executive officer of LG Group
He said that since this year, the market performance of Mead Johnson’s offline and online channels has improved in mainland China. “It can be seen from our market share in mainland China that we have maintained our market share (Note: during the epidemic period, some foreign milk powder brands did not respond as quickly as local brands, resulting in some share loss),”
For example, on-line channels, Mead Johnson has developed social e-commerce and live broadcasting to interact more effectively with consumers, while continuing to improve the execution of its offline channels, Narasimhan said.
Birth rate and high end
Although successful in “holding the share” during the epidemic period, Mead Johnson’s external pressure is not small in the post epidemic period.
“There is evidence that the birth rate will decrease in the next few quarters due to some behavioral changes associated with the epidemic. This is expected to have an impact on the market growth of our infant nutrition business in 2021. ” Carr said at the meeting today.
As for the trend of “slowing down of high-end” in China’s milk powder market, Narasimhan later said in response to analysts’ questions that “price competition in different channels has become more intense”.
This has also affected the profitability of the nutrition business.
“In the first half of 2020, the profit margin of the nutrition business was 17.5%, 410 basis points lower than the same period last year.” “We want to see profit margins and revenue growth return to their previous levels in the medium term,” Carr said at the meeting today
He pointed out that the decline in profit margins was due to “a large amount of price investment made at the beginning of the year, specifically in China’s milk powder business”; and additional investment in building capacity, such as improved quality control processes. At the same time, due to the reduction of cross-border trading volume in Hong Kong, this has a great impact on the profit margin.
In addition, he said the upgrading of the drying tower in Mexico in the second quarter, as well as the cost of the epidemic in the first half of the year, also had an impact.
So, in the trend of high-end slowdown, how to restore profit margin?
Carr says there are two key aspects. “First, obviously we need to rely on category growth. We believe that the impact of the epidemic on the birth rate is not necessarily long-term, and the current declining birth rate does put pressure on the overall market growth. ” “In addition, we expect to see cross-border business in Hong Kong reopen again. It’s only a matter of time, but it’s hard to predict,” he said
“Although we expect the overall growth of this category to return to 3%, there is still some uncertainty about this long-term target that we have set, which really depends on the development of the epidemic.” Narasimhan said.
“Chinese infant formula is still a very important business area for us, and the management has invested time in it. I think the reopening of border crossings in Hong Kong will be the driving factor. ” He then added in response to analysts’ questions.
According to the introduction of snack agents, in February this year, Lijie set a long-term development goal for infant formula milk powder business. “We said before that we hope the growth of this business can return to 3% – 5%, and we still think so.” Narasimhan said today that the outbreak has had some negative effects on the infant formula business, including the birth rate and the closure of Hong Kong ports, which has an impact on Mead Johnson and other multinational milk powder companies.
“Therefore, in the short term, the infant formula business is certainly not at the level we want, but in the medium term, we do believe that this category will grow by about 3% to 4% He said.
According to the introduction of snack food agency, in February this year, Lijie was re divided into three global business divisions. Among them, nutrition business includes infant nutrition products, vitamins, minerals and supplements, and its main brands include Mead Johnson, airborn, move free, etc. This new operation organization structure has been formally implemented since July 1, 2020.
Third quarter results of Regency nutrition business unit
Therefore, this is the first time that Li Jie disclosed its performance according to the new business unit framework. In the third quarter, the nutrition sector accounted for 23% of clean’s net income. Today, the company raised its full year performance forecast, expecting net income growth in 2020 to be “double-digit” from a year earlier.
“In addressing the major challenges of the epidemic, we have proven that we are becoming a stronger and more agile company. We are successfully moving forward with the first phase of our strategic plan as part of our medium-term goal of achieving single digit revenue growth. Our further enhanced execution, as well as our investment in capacity and growth, will enable us to achieve our revenue growth target one year ahead of schedule and with greater certainty. ” Narasimhan said today.