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Huishan Dairy Delivers Stellar Performance in 1H2014-15
???????? [2014-11-25]

Huishan Dairy Delivers Stellar Performance in 1H2014/15
* * * *
Turnover and Profit Surged 30% and 53% Respectively
Gross Profit Margin Maintained at a Optimum Level of 57%

Continues to Optimize Product Portfolio;
Tapping into East China Market


(Hong Kong, 25 November 2014) ?C China Huishan Dairy Holdings Company Limited (??Huishan Dairy?? or ??the Group??) (stock code: 6863) today announced its interim results for the six months ended 30 September 2014 (??1H2015??).

In 1H2015, the turnover of the Group increased 30.0% to RMB1,994.8 million, achieved primarily due to the growth of the herd size, product mix enhancement and market expansion, which resulted in the significant increase in sales volume and average selling price of the Group??s products. Leveraging on Huishan Dairy??s ??fully vertically integrated value chain?? business model, each area along the dairy value chain is integrated effectively, enabling the Group to enjoy a maximum profit in the dairy product industry. After biological fair value adjustments, profit for the period increased by 53.0% to RMB789.3 million. During the review period, the Group has recorded a gain of RMB380 million arising from initial recognition of unconsumed agricultural products (including raw milk, alfalfa and corn silage) at fair value, which proved the Group's success in its strategy of controlling the cost of raw milk from the source through leasing of feed crops plantation fields. It has also reflected the potential profit gained from Huishan Dairy??s plantation of alfalfa and corn silage in the earlier years, and also further realizing the intrinsic value of the Group??s fully vertically integrated business model. Overall gross profit margin was 22.2%, improved 6 percentage points compared to the corresponding period last year. Earnings per share increased to RMB0.05 from RMB0.04 in the same period last year.

Chairman and Chief Executive Officer of Huishan Dairy, Mr. Yang Kai, said, ??We are delighted that Huishan Dairy has delivered stellar performance within the period. As the only company in China capable of satisfying 100% of raw milk produced by our self-operated farms required for the production of liquid milk and milk powder products, we have continued to strengthen our upstream operations and resources advantages by continuing import of quality dairy cows, optimizing the production rate of plantation of feeds for dairy cows and increasing total production of raw milk while maintaining cost advantage. Leveraging ourown high quality raw milk resources, we were able to introduce new downstream products based on consumers?? preferences, upgrade product mix and produce higher value-added products with high gross margins.??

Dairy Farming Business
During the review period, turnover from the dairy farming business increased 30.6% to RMB553.9 million, accounting for 27.8% of the Group??s total turnover. The substantial growth was primarily due to the continuous growth of the size of the Group??s cow herd, enhancement of milk yield and inadequate supply of high quality raw milk in the market, which resulted in the increase in average selling price of the Group??s quality raw milk. As at 30 September 2014, the Group operated the largest number of dairy farms in China with 63 standardized dairy farms in Liaoning Province (as at 31 March 2014: 59 dairy farms). The Group??s total herd size (includes Holsteins and Jerseys) increased from 144,191 dairy cows as of 31 March 2014 to 162,394 heads, of which 65,312 heads are milkable cows. With the increase in the number of milkable cows and more advanced and effective herd management, Huishan Dairy produced a total of 289,116 tonnes of raw milk in the review period, an increase of 25.5% from the corresponding period last year, average milk yield per milkable cow per annum also increased 5.8% to 9.1 tonnes. The average selling price of raw milk amounted to RMB5,033 per tonne (1H2014: RMB4,823 per tonne).

Feed is a crucial element in determining the cost and quality of raw milk. During the review period, the area of the Group??s feeds plantation fields exceeded 480,000 mu, including alfalfa and corn silage plantation fields. It was significant that approximately 20,000 mu of the land was put under two-harvest trial cross cultivation of oats and corn silage, which turned out to be a breakthrough in such plantation in the agricultural industry in Northern China. This success will contribute to the Group??s control over feeds plantation cost in the future and bring greater profitability to Huishan Dairy??s fully vertically integrated business model from the upstream sector.

Liquid Milk Business
During the review period, the Group??s sales of liquid milk products reached RMB1,177.9 million, representing an increase of 17.5%, which accounted for 59.0% of the Group??s total sales. Sales growth was primarily driven by liquid milk product mix enhancement and significant increase in the unit selling price. Gross margin after internal raw milk supply elimination for the liquid milk business increased to 61.5%. The Group stepped up the marketing efforts for pasteurized milk with a higher nutritional value and stronger market competitiveness, so as to boost the sales proportion of higher-valued pasteurized milk in the overall liquid milk product series. The average selling price of each type of liquid milk products was significantly higher than that in the corresponding period last year, average selling price increased to RMB8,500 per tonne in 1H2015 from last year??s RMB7,222 per tonne

Despite the fierce competition in the market of domestic dairy products in 2014, especially liquid milk products, the Group continued to optimize the Group??s product mix, by leveraging the advantages of having milk sources produced by the Group??s self-operated farms, launching quality dairy products with high protein level such as the ??Jersey Farm?? series and fresh pasteurized dairy products, thus strengthening the Group??s competitive differentiation. The Group will continue to strengthen its position as the No.1 brand in the liquid milk market in Northeast China and advance its expansion into the Northern China market through different penetration and marketing strategies. As of 30 September 2014, the Group??s liquid milk business was extended to markets outside the Northeast China region, and intensified the initial layout for new regional markets in Shandong, Hebei, Sichuan, etc. The Group??s distribution network comprised 450 distributors and 416 supermarkets.

Milk Powder Business
During 1H2015, turnover from the Group??s milk powder business surged by 144.6% to RMB263.0 million, mainly due to the increase in sales volume from IMF products (including adult milk powder) and dairy ingredient products. At present, the Group has a distribution network of approximately 825 distributors spreading over 19 provinces and three municipalities and 6,743 distribution stores. Huishan Dairy is dedicated to developing the domestic IMF market and expanding the Group??s distribution network. The Group is expanding the initial footprint into in Hebei, Shandong, Henan, etc. While focusing on the establishment of distribution channels, the Group has also strived to diversify its product offerings. Apart from IMF products, the Group also developed ??customized?? dairy ingredient products to meet the demand from particular industrial customers, including non-dairy creamer, whole-milk powder and anhydrous milk fat. The Group produced a total of 7,998 tonnes of dairy ingredient products during the review period.

Strategic Partnership with FrieslandCampina
On 8 October 2014, the Group officially entered into a sale and purchase agreement with FrieslandCampina to establish a joint venture partnership for the manufacture, promotion and sale of IMF milk powder in China. Both parties are to hold a 50% stake in the joint venture. The principle operation of the joint venture is to produce IMF milk powder products from quality raw milk supplied by Huishan Dairy and such other products as agreed between both parties in China, Hong Kong and the Macau Special Administrative Region of China. According to the terms of the sale and purchase agreement, FrieslandCampina has also committed to purchase shares of Huishan Dairy in the Hong Kong stock market within six months from completion date of the agreement for an amount equal to at least US$30.00 million and such shares are subject to a six-year lock up period.

Replicate Success of ??Vertically Integrated Dairy Value Chain?? Model to East China
In August 2014, the Group also entered into a non-binding strategic framework agreement with the People??s Government of Sheyang County, Zhejiang Province, China to establish a fully vertically-integrated dairy value chain for feeds raising and processing, dairy farming, processing, sales and marketing of dairy products in Yancheng, Jiangsu Province, China for distributing consumer dairy products to East China markets. On 3 November 2014, the Group entered into a formal joint venture agreement with Nantong Zongyi Investment Co., Ltd. through its subsidiary Alpha Spring Limited (??Alpha Spring??) to implement the project mentioned above. The Group and Alpha Spring will hold 65% and 35% of the total equity interest, respectively.

By replication of the fully vertically integrated value chain business model in Jiangsu in developing the premium pasteurized milk market and further development of a joint venture project with FrieslandCampina, we will emphasize building brand awareness and brand repositioning in line with the Group??s escalated efforts to develop regional markets outside Northeast China. Looking forward, the Group will continue to leverage on the management strength brought by its fully vertically integrated value chain business model and its unique Jerseys, Huishan Dairy will further develop quality milk protein products with higher nutrients and safety level, and establish the premium brand image by stressing the new standard of ??3.6% protein in milk??. The Group will further pursue this strategy to develop the premium market. Furthermore, pasteurized milk consumption has returned to rational market behavior. The Group is capitalizing on this opportunity, as well as its established competitive strength in milk sources and cold chain transportation and the brand awareness of ??Fresh Milk?? across Northeast China, to establish the brand of milk delivery service ??Huishan Freshness Delivery?? and its professional delivery team, thereby expanding the Group??s market share in Northeast China.

Mr. Yang Kai, concluded, ??With China??s increasing disposable income per capita, urbanization and more lenient birth-control policy, there is vast room for the development of the dairy industry in China. We have formulated and implemented our core development strategies by constantly adhering to our operation philosophy of ??good cows, good grass and good milk?? and to maintain our obligation to provide consumers with safe and high quality dairy products, we will continue to broaden the scale of our fully vertically integrated value chain business model and reinforce strength in the comprehensive resources of this model. Business differentiation is our quality and fresh milk sources from our self-operated dairy farms which create our competitive advantage. We will grow our market share and enhance our brand value through our safe and high quality products. We will also leverage our competitive edge of unique Jerseys and resources to increase technical standards. For dairy product processing, we will advance our technological innovation and elevate key quality standards for large-scale milk sources as part of our role as a pioneer to upgrade the dairy industry in China, thus further enhancing our position amidst the keen competition in the industry.??

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About China Huishan Dairy Holdings Company Limited (Stock code: 6863)
China Huishan Dairy Holdings Company Limited is a leading and the most vertically-integrated dairy company in China. The Company??s business model covers the entire dairy industry value chain from growing and processing of alfalfa and supplementary feeds, processing of concentrated feed, dairy farming and manufacturing and sales of dairy products under the ??Huishan?? brand. Currently, Huishan Dairy is the only company in China capable of providing 100% of the raw milk required for the production of liquid milk and milk powder products based on raw milk produced by the self-operated farms. The Company??s impeccable product safety record and high quality products stand behind a brand worthy of the trust of consumers in China. Huishan Dairy is a company publicly listed on the Main Board of the Stock Exchange of Hong Kong Limited since 2013. For details, please visit

Enquiries:
China Huishan Dairy Holdings Company Limited
Michelle Chan Tel: (852) 2527 7974 Email:
michellechan@huishangroup.com
Media Enquiries:
Strategic Financial Relations Limited
Brenda Chan Tel: (852) 2864 4833 Email:
brenda.chan@sprg.com.hk
Lisa Dai Tel: (852) 2864 4870 Email: lisa.dai@sprg.com.hk
Hawaii He Tel: (852) 2864 4847 Email: hawaii.he@sprg.com.hk
Amelie Ng Tel: (852) 2114 4903 Email: amelie.ng@sprg.com.hk
Fax: (852) 2527 1196
Website:
www.sprg.com.hk

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