Modern Dairy’s 2021 annual report announced that it achieved revenue of CNY 7.078 billion (USD 1.12 billion) in 2021, up 18% year-on-year. Cash EBITDA was CNY 2.43 billion (USD 382.39 million), up 7% year-over-year. Net profit increased by 32% year-on-year to CNY 1.033 billion (USD 162.29 million).”
Through the integration of mergers and acquisitions, Modern Dairy’s dairy cattle inventory has grown significantly. Raw milk production has also increased considerably while raw milk prices are running at a high level. Thus, Modern Dairy has delivered a good result with record-high revenue.
It is worth mentioning that in 2021, the pandemic and rising commodity prices put double pressure on challenging the livestock industry.
According to the annual report data, Zhu Xiaohui, the CFO of Modern Dairy, answered investors’ questions.
“The company took measures to improve operational efficiency. Its performance grew steadily and continued to outperform the competitors,” he explained. “In 2021, the number of cows increased rapidly; the yield rose steadily, and raw milk sales reached a record high. The sales and administrative expense ratio was well-controlled, and financial expenses were significantly cut, which further highlight the advantages of large scale and internal efficiency.”
The financial report shows that in 2021, Modern Dairy completed the acquisition of 100% equity interests in Zhongyuan Dairy and Fuyuan International, 52% in Aoyuan Dairy, and 90% in Ningxia Fuminfeng, respectively, adding a total of approximately 90,000 dairy cows.
In addition, Modern Dairy has also adopted a “renting a farm instead of building” operation model, launching the Linger large-scale farm with 10,000 dairy cattle in Inner Mongolia as the strategic cooperation project of the Chinese Dairy Industrial Park, and planned Modern Dairy’s first large-scale farm in Xinjiang. By 2021, Modern Dairy’s dairy cattle inventory reached 354,000 head, increasing 43% year on year.
By stabilizing the impact of high feed prices through various measures, Modern Dairy also strengthened its internal management and explored the potential to save resources and reduce costs. In addition, the company issued overseas US dollar bonds to develop overseas financing channels to improve its debt structure, significantly reducing financing costs and financial expenses. In 2021, Modern Dairy received an S&P BBB investment grade rating, becoming the first dairy farming company globally to receive an international credit rating of investment grade.
Will Modern Dairy achieve expansion through outward mergers and acquisitions in the future? Zhu Xiaohui answered that Modern Dairy might find the chance of low-cost expansion soon since the farming cost restricts small and medium-sized farms. However, this year, the company’s strategy is not in asset-heavy mergers and acquisitions but rather to adopt the model of equity participation, shareholding, or entrusted operations to manage the farms.
Modern Dairy’s proposed five-year target of doubling raw milk production and cattle numbers are expected to be achieved in advance by the end of 2024 or the first half of 2025, based on the company’s current development. Meanwhile, Modern Dairy diversifies into the feed and beef cattle businesses.
“In the next four years, Modern Dairy will further improve cow comfort, dairy health and continuously raise the level of yields, resulting in a 9% dairy CAGR and a 22% yield CAGR; yields will increase from 11.3 tons now to 13 tons in 2025, with a CAGR of 3.6% needed to reach the five-year plan,” said Zhu Xiaohui, the CFO of Modern Dairy.
