China Mengniu Dairy Co., Ltd. Aktie

Welcome to all of you. And also thank you to all your support to Mengniu [indiscernible]. Please note that we have a disclaimer for today's event. Now I will introduce to you the management team today. They are Chief Executive Officer and Executive Director, Mr. Gao Fei; our CFO and Executive Director, Mr. Shen Xinwen; Vice President, Mr. Mr. Chen Yiyi; Vice President, Mr. Li Pengcheng; Company Secretary, Chris Kwok. We will have Mr. Gao present to us the 2025 financials and business performance and also the outlook section.

And then followed, we will have the Q&A session and the event is estimated to commend at 10:50. Now let's welcome Mr. Gao.

Dear investors, analysts and media friends, good morning. Thank you so much for taking the time out of your busy schedule to attend Mengniu's 2025 full year results announcement. First, I will walk you through the key financials for Mengniu for 2025. Over the past year, Mengniu has faced due challenges of the macroeconomic environment and industry cycles, but we adhere to long-term perspective and maintain strategically grounded.

The company has navigated these cycles and through value creation, delivering a set of results and demonstrated its resilience. For the full year, the company's total revenue stood at RMB 82.24 billion, a year-on-year decrease of 7.3%, which was broadly in line with the company's expectations. But if we break down by volume and price, the overall sales volume fell by around 4%, while the average selling price declined by around 3%.

The impact of the decline in sales volume on revenue was slightly more pronounced, benefiting from lower raw milk prices and continued lean operations, the company's gross profit margin reached a record high of 39.9%, an increase of 0.3 percentage points from 39.6% in 2024.

The operating profit for the full year was RMB 6.56 billion, with the operating profit margin remaining at 8.0%, a slight decrease of 0.2 percentage over last year. But compared with the years prior to 2024, there has been a very big improvement. Excluding the impact of nonrecurring impairments in 2025 and the impairment of Shengmu's idle lands, the company's profit attributable to owners on an adjusted basis was RMB 3.96 billion.

At the end of August last year, also during the result announcement, I said that in the face of the changes, people, products and venues, all our business categories were innovating and adapting, actively embracing new trends. Today, we can say that many of these innovative and adaptive measures have yielded tangible results.

And also, we adhere to the fundamental principle of creating value through value and we have decisively steered clear of the trap of low price evolution and driving high-quality development through innovation to navigate economic cycles and enhance resilience. Although the liquid milk business remained under pressure overall in 2025, but the second half of the year showed signs of stabilization and improvement compared to the first half.

The diversification of product categories and the optimization and upgrading of the product mix have maintained a positive trends among these segments such as fresh milk, infant milk formula and adult milk formula all achieved double-digit growth and with cheese growth exceeding 20%, further expanding our market leadership. And we believe that the China's consumer industry has shifted to a long-term growth.

So we need to shift from competition more to creating long-term value for the consumers. In terms of expenses, we have continued to refine our expense management and enhance the efficiency of our expenditure. Selling expenses fell by 6.5% to RMB 21.59 billion. However, due to the negative operating leverage effect resulting from the decline in revenue, both the selling expense ratio and the administrative expenses ratio rose slightly year-on-year. In terms of operational efficiency, all key indicators remain at healthy levels.

Under our ongoing lean operational management, Inventory turnover days and receivables turnover days have improved further year-on-year. Thanks to robust operating profit performance during the year as well as continued improvements in inventory turnover and receivables, full year operating cash flow reached RMB 8.75 billion, setting a record high. In recent years, we have tightened our control over CapEx, which has fallen further to RMB 2.45 billion. Consequently, free cash flow for '25 reached RMB 6.3 billion, also reaching a record high. Our robust operational and cash flow performance provides a solid foundation for Mengniu to create long-term value for our investors, the supply chain and the societies.

The company will continue to focus on and continuously enhance its cash generation capabilities. Our robust operating profit and operating cash flow performance give us the confidence to increase shareholder returns. We have formulated a 3-year shareholder return plan for 2025 to 2027, which sets out a steady increase in dividends per share over the next three years and maintain the share buyback pace for 2024 and 2025.

Through a combination of dividends and share buybacks, we will continue to enhance shareholder returns. Consequently, for this year's dividend, we have set a very lucky number, a dividend of RMB 0.520 per share, representing a steady increase from the 2024 dividend of RMB 0.509 per share. So that was about the operation.

And now I will explain more on each business segment. In terms of strengthening the One Core, we have stabilized our core businesses, accelerated the development of niche categories and further optimized our product portfolio. Specifically, over the past two years, the room temperature business has faced the most acute challenges in terms of supply-demand, dynamics and channel fragmentation.

However, to address these challenges, breakthrough bottlenecks and grow the pie, we cannot rely on low price evolution and downgrading our products. Instead, we must break the deadlock through innovation and tapping into incremental market. Mengniu has redefined value around the concept of drinking milk, drinking good milk and drinking the right milk, accelerating the adjustment of product structure, vigorously promoting new products, strengthening the alignment between products and channels and expanding consumption scenarios.

Let me give a few examples. You can see in the -- for year outside, we have launched the lactose-free soft milk series. Statistics show that the number of lactose-intolerant people in China reached 660 million. Therefore, through soft milk, lactose-free milk, more people will be able to drink milk, further expanding the base of consumers.

At the same time, with a full industry chain mindset and higher quality positioning, Mengniu strives to ensure consumers drink good milk. Last year marked the 20th anniversary for Deluxe. We leveraged the scarcity of the desert organic industry chain to further deepen our value moat, launching top of the range product, which is called Shajin Tohoi. So these are the products for us to drink milk and drink good milk. And in the dairy beverage sector, Mengniu is focused on expanding consumption scenarios and accelerating product innovation. At the beginning of the year, fruit milk drink positioned itself at the premium end of the market, launching the Dream Cap fresh coconut milk beverage. In March, we launched the industry's first Mengniu calcium electrolyte beverage targeted at people who do sports, meeting the due demands of hydration and calcium supplementation.

In the face of channel diversification, we must not only consolidate our strength in the RTM channel, but also actively embracing high potential channels to expand our omnichannel operational capabilities. We will accelerate the expansion of our coverage in lower-tier markets and increase the penetration of our product categories, ensuring high-quality nutrition is made accessible to a wider range of consumers.

In the chilled sector, in 2025, Mengniu outperformed the industry against the trend, maintaining its position as top one market leader for 21 consecutive years. The Champion has deepened its focus on the functional segments, continuously amplifying its exclusive advantages in Jianzihao, achieving exponential growth in the second half of the year and retained its position as the sales champion at Sam's Club.

The new Super Vitality Jar product launched in early 2026 meets the triple demand for product emotion and function, breaking the record for first day sales of a new product. In terms of channels, we have strengthened our presence in emerging sectors, including membership stores, instant retail, snack specialty stores and vertical fresh produce outlets.

In particular, the range of customized products we have developed for Sam's Club and Hema have quickly become best sellers following their launch. And for the fresh milk business, it achieved double-digit growth in 2025 with market share increasing further. Shiny Meadow achieved high double-digit growth while it's continuing to strengthen the 4.0 protein product range, adapting to niche demands through new products such as lactose-free double protein lines, effectively expanding the consumer base for fresh milk.

In terms of channels, we lead in market share within membership stores, instant retail and e-commerce platforms. We're absolute leaders. And also, we partner with those 2B businesses, including Starbucks and [indiscernible] driving breakthrough in sales. It is particularly worth noting that Shiny Meadow achieved rapid growth in the Hong Kong and the Macau markets last year with coverage now exceeding 1,000 outlets, receiving widespread recognition from the public.

For the ice cream business, we also achieved double-digit growth in 2025 with profitability increasing as well. We focused on Suibian plus Mood for Green dual brand strategy, stepping up innovation centered on quality and health to create several best-selling products. For the milk formula business, it achieved high single-digit growth for the full year. And for the second half, we reached to high double-digit growth.

For the infant formula, the growth trend was very obvious through continuous strengthening of its research and development capabilities, Reeborne significantly enhanced its product competitiveness with full year revenue growth exceeding 20%. Yourui continued to focus on nutrition pivots for the middle-aged and elderly concentrating on functional niche products and capitalizing on opportunities in channels such as interest-based e-commerce and securing the top online market share in the fourth quarter.

Bellamy's achieved growth of over 20% for the year with its premium platinum organic A2 range accelerating expansion. And in the Southeast Asia market, especially in Vietnam, the performing was particularly well. Cheese. Cheese represents a key strategic move in our drive to promote both drinking and eating milk. In 2025, the Mengniu Cheese segment demonstrated robust growth with annual growth exceeding 20%.

The group further strengthened synergies with Milkground, deepening comprehensive empowerment across supply chain, marketing and channel resources, capitalizing on growth momentum in both 2C and 2B sectors to consolidate its absolute leadership position in the industry. Building on a strong core Mengniu's Two Wings are taking flight, injecting new momentum into the company's development.

As the first wing, the innovation segment achieved breakthrough progress in 2025. We're focusing on the nutrition and health, continuously increasing R&D investment, striving to create differentiated value and driving a leap forward in the value chain. In the area of deep processing, we now have the products such as lactoferrin, Micellar, casein and demineralized whey powder D90. And all these products have met national -- international standards, while products such as mascarpone and natural mozzarella have successfully rolled off the production line, gradually overcoming technical bottlenecks and reducing reliance on imports.

In the professional dairy sector, we have launched over 10 new products, including new national standard whipped cream and accelerated B2B collaborations with tea, bakery and food service brands. In the professional nutrition sector, M-ACTION's sports nutrition product portfolio is growing increasingly diverse, shining in fields such as marathons and [ trail ] running.

Last year, M-ACTION also secured nearly RMB 100 million in Series A funding with our forward-looking strategies gaining broader market validation. In the international or globalized segment, it represents another vast frontier for Mengniu. Over the past year, we have achieved growth and enhanced returns simultaneously.

Building on our existing footprint, we are continuously expanding and deepening our presence in the Southeast Asian market, starting with the leading brand ice cream to expand into more categories such as infant formula and cheese. We're strengthening our broadening and broadening our Australia and New Zealand base, enhancing the development of Bellamy's 2C and [indiscernible] 2B platforms.

Bellamy is currently experiencing strong growth momentum in the Southeast Asian market, as I said just now. In the Vietnam market, through a dual-pronged approach of driving sales via retail outlets and focusing on social media influencer marketing, sales have doubled within the year. Moving forward, Bellamy will accelerate its expansion into Indonesia and the Philippines, secure infant formula registrations in more markets and build momentum for the next phase of growth, [indiscernible] will strengthen the development of its flagship products, building on our existing operations will fully integrate and collaborate with Mengniu's domestic cheese and deep processed businesses.

So we have quite strong foundation in Middle East, Southeast Asia and so on. So we will strengthen and intensify expansion in key global markets, including China. So that is the overall One Core -- Two Wings business development initiatives.

Next, I will talk about ESG. In 2025, Mengniu continued to implement our Green Sustainability Strategy, making solid progress on key ESG issues. Notably, in relation to the dual carbon initiative, we established our first Scope 3 carbon emissions calculation model, thereby strengthening the foundation for carbon management across the supply chain.

Our efforts have garnered high recognition from authoritative bodies. We have been a constituent of the Hang Seng Sustainable Development Enterprise Index for 5 consecutive years. And our MSCI ESG rating has remained at AA level. As the only comprehensive dairy enterprise in China, we have been included in S&P Global's Sustainability Yearbook.

Looking ahead, Mengniu will remain committed to advancing our sustainability strategy, creating social value through industrial value and safeguarding the shared health of humanity and the planet. So that's about ESG. Now let me talk about future outlook. As we enter -- the spring of 2026, the dairy industry is benefiting from a double boost from both policy and market factors.

Firstly, intensive policy dividends have been released, providing a comprehensive boost to industry confidence. I guess you have already noticed that this year's central document # 1 explicitly calls for multiple measures to promote dairy consumption, sending a strong policy signal to support the industry stabilization and recovery.

So during the two sessions, the Minister of Agriculture and Rural Affairs even called on the public to drink more milk. The minister pointed out that China's per capita milk consumption is nearly 1/3 of the global average. The U.S. stands at 220 kilograms, EU, 240 kilograms, whilst China's figure is only 42 kilogram. So there's a significant gap. Clearly, the role of dairy products in the Chinese diet has not yet been fully realized and the potential for growth remains immense.

We firmly believe that China's dairy industry remains a sector full of imagination and worth investing in. So overall speaking, the industry has bottomed out and stabilized with a clear trend towards recovery. Since the second half of last year, both raw milk prices and retail prices have stabilized.

For functional dairy products and solid dairy products, they are growing rapidly and the structure of dairy consumption continues to diversify and upgrade. Seizing the opportunities presented by favorable policy environment and industry recovery, Mengniu will continuously enhance its value creation capabilities through the evolution of four core competencies: digital intelligence transformation, R&D innovation, channel upgrading and brand lab, thereby leading the industry into a new cycle of high-quality development.

Digital intelligence transformation is key to achieving high-quality development. Mengniu remains committed to the deep integration of digitalization and intelligent technologies with the industry, implementing systematic initiatives across supply chain channels, logistics, marketing and management to drive quality improvements and efficiency gains throughout the entire value chain, thereby creating business value through digital intelligence.

Everyone is saying that we must cater to the most diversified and most discerning consumers in history, who demand quality, value for money and emotional value. However, the mission of a consumer goods company is to meet the diverse and personalized needs of consumers in a better way. In response, we must return to the fundamentals of business.

The essence of milk is good quality protein. People consume dairy products precisely for high-quality nutrients such as protein. Therefore, the dairy industry must create health benefits for consumers through high-quality nutrition. So products should drive experience and then experience will lead to functionality and then with more penetration and finally, better and high-quality growth. That is our core.

So every drop of nutrition nurturing every life, this is Mengniu's corporate mission. We have always anchored ourselves in the core value of nutrition, focusing on three key areas: basic nutrition, functional nutrition and medical nutrition, whilst continuously enhancing our capacity for value creation. In basic nutrition, we must tap into potential and expand the market.

Through product innovation, we will address consumer pain points and broaden consumer base and unlock incremental markets. Secondly, through channel innovation, we will expand coverage in lower-tier and untapped markets to increase the market penetration of basic dairy products. Thirdly, we'll intensify product development and channel expansion for the [ two oils ] and one cheese, enabling consumers to both drink and eat milk.

Fourthly, we'll strengthen nutrition outreach and category education to drive both volume and quality growth in dairy consumption. So in conclusion, in our industry in the past, there was too much focus on the existing market competition and also price competition. But how can we expand demand or increase demand so that we can see a better situation. So today, we have to consider product innovation.

At the same time, we need to see how we can expand the pie. In the fields of functional nutrition and medical nutrition, we must plan proactively and seize the initiative. Judging by global industry trends, once per capita GDP crosses the USD 13,000 threshold, functional nutrition market enters a period of explosive growth. Our country has exceeded this threshold for three consecutive years, and the functional nutrition market is now poised for takeoff.

In response, Mengniu has already established a foundation for research and development across six key functional nutrition areas, bone, joints, muscle health, cardiovascular health, immune system, neurocognitive function, gut health, beauty, anti-aging and weight management. We have also launched the [indiscernible] specializing in medical food project.

So [indiscernible] is a specialized medical food project dedicated to the research, development and production of specialized medical foods for infants. The registered formula is in place. So Mengniu is strengthening the deep integration of industry academia, research and application to accelerate commercialization of research outcomes. Last year, our self-developed Sugar-Control Probiotic LC19 was featured in a top-tier international academic journal.

Just a few months later, [indiscernible], the first product utilizing this strain was launched, demonstrating how scientific value is rapidly being transformed into product value that consumers can experience. So we have received much recognition from consumers. As I mentioned earlier, the core value of milk lies in providing high-quality protein.

Currently, Chinese consumers have become increasingly aware of the need for high-quality protein, yet the market still lacks truly excellent products to lead this trend. So I would like to give you a sneak preview today. For high-quality protein product, we have made a lot of plans and leveraging our exclusive leading domestic technology, we have independently developed a high-protein milk that will be launched very soon.

This technology and product will meet consumer-specific functional needs and will extend to more product categories and usage scenarios. continuously raising the bar for how Chinese people drink and eat milk, thereby injecting new momentum into health. At the same time, consumers are changing and so are the channels. Scenarios are becoming increasingly diverse and borderless.

Therefore, we must break free from conventional thinking and upgrade from deep distribution to value-driven cultivation, ensuring that every high-quality product reaches the most suitable consumers and creating value -- market value through channel value. We must strengthen digital and intelligent empowerment to achieve precise allocation of channel expenditure and enhanced execution, ensuring that every penny invested is converted into growth momentum.

We must deepen cooperation with incremental channels such as membership stores, snack specialty stores, content, e-commerce and instant retail to build an omnichannel competitive advantage. That is also a focus of us from bespoke offerings for high-precision membership channels to exclusive new product development for the snack system, we must accelerate our response to customized channel requirements, strengthen product channel alignments and expand into scenario-based diversified consumer markets.

We must fully tap into the potential of lower-tier markets, achieving deep penetration from county-level areas to rural villages, ensuring nutrition inclusion, reaching all demographics and regions. Today, consumption scenarios are undergoing profound changes and channels are evolving more rapidly.

Our brand communications must resonate with these shifts and evolve in tandem. In 2026, with both the Olympics and the World Cup on the horizon, Mengniu is set to take center stage. This presents a unique marketing opportunity and serves as a testing ground for our marketing capabilities.

In Q1, we capitalized on the window of opportunity presented by the convergence of the Winter Olympics and CNY, deeply integrating the bond to be strong spirit with a passion for winter sports and the festive spirit of family reunion. During the Spring Festival, we achieved a harmonious integration of brand exposure and sales conversion.

Authoritative third-party data shows that Mengniu topped the digital brand asset rankings for the Milan Winter Olympics. Strong brand visibility directly drove sales conversion, helping us achieve a strong start to the year and laying the foundation for our development throughout the year.

Moving forward, we'll continue to deeply connect with all scenario consumer demand, drive implementation of integrated brand efficiency and sales strategies and through the dual engine drive of brand visibility and business growth, sustain the strong start and secure a successful year.

Finally, investors, friends, 2026 marks the start of the 15th 5-year plan and will be a pivotal year for Mengniu as we drive the implementation of our strategy and upgrade our management. Standing at this new starting point, we'll adhere to long-termism, focus on our nutritional mission and accelerate our comprehensive transformation from a traditional dairy manufacturer to a comprehensive nutrition and health solutions provider.

Looking ahead, we'll use the value of our products to create health value for consumers throughout their entire life cycle, use innovation value to create ecological value for high-quality development for the industry chain, use operational value to generate long-term stable returns value for investors, use industry value to create social value that safeguards the shared health of humanity and the planet. Finally, we would like to thank you all for your continued trust and support over the year. Mengniu looks forward to continuing to work hand-in-hand with you as we build a journey towards a brighter future. Thank you.

[Statements in English on this transcript were spoken by a interpreter present on the live call.]

Investors, analysts, media friends, good morning. China Mengniu Dairy Company Limited 2025 Interim Results Announcement will begin now. On behalf of China Mengniu, I would like to welcome all of you for coming. And I would like to also thank you for your long-term interest, support and investment into Mengniu.

So please take a look at the disclaimer on the screen. Now let me introduce to you our management team. They are Mr. Gao Fei, Chief Executive Officer and Executive Director; Mr. Zhang Ping, Chief Financial Officer; Mr. Shen Xianwen, Chief Financial Officer and Executive Director, incoming; Mr. Chen Yiyi, Vice President; Mr. Li Pengcheng, Vice President; Mr. Chris Kwok, Company Secretary.

In today's meeting, Mr. Gao Fei will do a review of the 2025 interim results and business performance and also outlook followed by a Q&A session. So we expect to conclude this event at 10:50. Mr. Gao Fei, please.

Investors, analysts and media friends, good morning. First of all, on behalf of Mengniu's management and all employees, I would like to express our sincere gratitude for taking time out of your busy schedules to attend China Mengniu's 2025 Interim Results Presentation. We would also like to extend a warm welcome to Mr. Shen Xinwen as he is a new member of Mengniu's management team. Last night, we already released the company's financial report for the first half of the year.

Currently, the industry continues to face significant supply-demand imbalances compounded by evolving consumer demands and shifting retail channels. These factors collectively create substantial pressure on the sector. So in today's presentation, I don't want to focus too much on pressure and problems. Instead, I'd like to engage in a deeper discussion with you all, how we view the industry under these pressures, how we embrace change and how we see Mengniu's future development and change.

So first of all, I would like to give you a report on the financial data for the first half of the year. The company achieved total revenue of RMB 41.57 billion in the first half, a year-on-year decrease of 6.9%. Both sales volume and average selling price saw a low single-digit decline as raw milk price remained lower year-on-year during the period.

Gross profit margin increased by 1.5 percentage points to 41.7%. We confronted market shifts head on, focused on lean management and further enhanced operational efficiency and core profitability. Operating profit margin increased by 1.5 percentage point year-on-year to 8.5%. Operating profit grew 13.4% year-on-year to RMB 3.54 billion, with profit margin improving across all business segments, including Liquid Milk, Ice Cream, Milk Formula and Cheese.

Net profit attributable to shareholders reached RMB 2.05 billion, a 16.4% year-on-year decrease. This was primarily due to Modern Dairy recording a loss of RMB 910 million after significant biological asset impairment charges in the first half with Mengniu accordingly recognizing a loss of RMB 540 million from its associate company investment.

This investment loss increased by RMB 400 million compared to the same period last year. Excluding the impact of this change, net profit attributable to shareholders remained largely unchanged from the same period last year. Facing changes in consumers' products and retail environments, every category is innovating and adapting to actively embrace new trends. However, our core Liquid Milk business, particularly room temperature milk, still faces significant growth pressure and a full recovery will take time.

Meanwhile, efforts to diversify our product portfolio and optimize category structure are beginning to show results. So subsegments, including Fresh Milk, Ice Cream, Cheese and Infant Milk Formula all achieved double-digit growth. Regarding expenses, through refined management of sales expenses and continuous efforts to enhance expenditure efficiency, the ratio of sales and distribution expenses decreased 0.5 percentage point year-on-year to 27.9% Administrative expenses remained stable compared to the previous year.

While focusing on quality improvement and efficiency gains, we increased investments in scientific research, innovation and digitalization. These represent not only critical strategic investments, but also build momentum for long-term development. In terms of operational efficiency, all key metrics remained at healthy levels. Inventory turnover days decreased by 4.3 days, primarily due to year-on-year reduction in both finished goods and bulk powder inventories.

Operating cash flow for the first half of the year reached HKD 2.8 billion, a 46% year-on-year increase. This growth primarily resulted from core net profit expansion compared to the same period last year, excluding impact of noncash items such as increased losses from our livestock joint venture and asset disposal gains recorded in the first half of last year. CapEx totaled HKD 1 billion.

With current production capacity adequately aligned, we have strengthened CapEx control to continuously enhance free cash flow generation capabilities. The sustained improvement in free cash flow has also laid the foundation for enhancing shareholder returns. In June, we completed the cash dividend distribution for fiscal year 2024.

In late August last year, we announced a 1-year share repurchase program, during which we repurchased approximately HKD 500 million worth of shares, representing 0.7% of the average market cap during the repurchase period. Through the combination of cash dividend and share repurchase, the overall dividend yield exceeded 4%. Last night, we also announced a new share repurchase program aiming to continuously create better long-term value and returns for shareholders through the dividend plus repurchase approach.

Next, business review. Facing the new landscape and challenges in industry development, we maintain -- we actually, in August last year, we proposed our strategy of One Core Two Wings, and we have to maintain strategic resolve in this approach or strategy, and we should strengthen the core to solidify our foundation and expand the wings to foster innovative growth momentum. Regarding strengthening the core, we stabilized the foundation of our core business while accelerating development of niche categories, further optimizing our product portfolio.

Looking at each business segment specifically, for room temperature business, we faced challenges in the first half of the year due to supply-demand imbalances and channel fragmentation. We proactively embraced market shifts by focusing on product innovation and upgrading our RTM distribution channels. Amid the K-shaped consumption trends, we continue to lead consumers to drink good milk.

So Milk Deluxe remains committed to crafting premium milk through an end-to-end supply chain approach. Marking Milk Deluxe's 20th anniversary this year, we further deepened our value moat by leveraging the scarcity of our desert organic milk supply chain. We launched the premium flagship product, desert -- that is the Shajin Tohoi Desert Gold organic milk, continuously meeting consumers' pursuit of better high-quality options.

Of course, consumers also seek ultimate value for money. We have streamlined our product value chain, launching more pure milk products this year that offer both quality and affordability, better aligning with the needs at the base of the mass consumption pyramid. At the same time, by focusing on category innovation, and matching nutritional needs across different demographics, we're accelerating the launch of precision nutrition and functional new products, enabling more consumers to Drink More and Drink Right.

Facing diverse channel development, we must not only maintain our established RTM channel strength, but also actively embrace high potential channels to expand omnichannel capabilities. Since the beginning of the year, we have strengthened our online distributors and offline dealers, accelerated expansion into lower-tier markets and achieved breakthroughs in weaker regional markets.

At the same time, we deepened partnerships with emerging growth channels like membership warehouse stores, bulk snack retailers and on-demand retail. We are accelerating the development of customized products tailored to each channel's attributes. Several channel-specific new products have already been launched on platforms, including JD.com, TMall, Pinduoduo, Pangdonglai, Aldi, Costco and Yunmei.

Then for tube business, we have achieved notable results across 3 key focus areas: nutrition, taste and functionality. At the beginning of the year, our collaboration with the Movie NeZha 2 successfully attracted new customers and broke into new markets, driving sales of our large fruit-granule yogurt to record highs.

The premium brand, YO!FINE DIARY actively expanded into family consumption scenarios, continuously broadening growth potential, focusing on the functional segment, the immunity bottle of Champion achieved strong sales performance through the Sam's Club channel. The new product [indiscernible] co-created with Sam's Club became an instant hit upon launch and generated significant organic traffic on [ flavored ] milk.

In August this year, our Wuhan low-temperature factory or chilled business factory earned certification from Forbes for a smarter, greener and more flexible production, becoming the world's largest and most efficient single-site chilled yogurt facility. To date, Mengniu has established world-class lighthouse factory in 37 national level green factories.

And then Fresh Milk business. In the first half of the year, we achieved over 20% growth, significantly outperforming the industry. Shiny Meadow maintained robust sales growth and brand influence. Building on core products, it expanded coverage among zero lactose and precision nutrition consumers through lactose-free dual protein milk and HMO children's care nutrition milk.

So for channels, Fresh Milk continues to lead in both online and offline premium channels, holding top market shares in membership stores, on-demand retail and e-commerce platforms. Partnerships with leading coffee and tea brands like Starbucks and [indiscernible] have driven breakthrough sales. This year, for Shiny Meadow, well, more new products are launched in the Hong Kong and Macau markets. So outside, just now, you should have seen the new products for Hong Kong and overseas market.

So we expand into over 1,000 supermarkets and convenience stores to achieve strong market performance. Then for Ice Cream business, revenue and profits grew in tandem. We launched more innovative value-added products to meet consumers' diverse needs with several new offerings becoming best sellers this year, driving continuous brand and customer expansion. This summer, our Deluxe brand officially entered the Hong Kong and Macau markets, becoming the first premium ice cream brand from Mainland China to obtain a Hong Kong license. Currently, Deluxe has entered mainstream supermarket chains in Hong Kong and Macau, covering over 200 key retail outlets.

For the Milk Formula business, we have seen very good growth for both the revenue and profit. Reborn continued to strengthen its patented affinity formula R&D capabilities, launching the industry's first infant formula featuring DHA. And through the NeZha 2 IP collaboration and the Million Babies Worry-Free Nurturing initiative, the brand further enhanced the brand equity and achieved a robust growth.

And for the brand, Bellamy, for first half of the year, the growth reached -- of revenue reached to more than 20%. We are highly focused on the high-end product line, including the Bellamy Platinum Organic A2. We also expanded expansion in Southeast Asia and market performance was especially strong in Vietnam market. And for the Cheese product, it also shows very good growth momentum for both revenue and profit. We continue to strengthen synergy with the Milkground and also fully empower both the supply chain and also R&D.

We also focus a lot on both 2B and 2C and for Milkground. continue to create cheese brand for all. We also further enrich the scenarios of use for the casual, leisure and households tables and catering industry, et cetera. In terms of expanding the two wings, we continue to inject new develop momentum for Mengniu for H1 this year, we continue to do research and development.

And we have made breakthrough including various of key segments, including the professional dairy and raw materials and the senior market and sports nutrition, et cetera. We also see very strong growth of our sports nutrition brand, including M-ACTION. And we -- our influence in the marathon runners and other sports audiences continue to strengthen.

And our in-house developed HMO product is very well received by the market, and we have launched into the market HMO milk powder and also children's milk and the fresh milk. And this year, we also accelerated our progress in the deep processing business. Right now, products, including lactoferrin, D90, demineralised whey powder are already in the prelaunch stage.

We also expand our expansion overseas. For the brand Aice, we further grow our market in Southeast Asia region and also for the expanding to other new emerging markets. And right now, we have built the business structure for Aice in Africa and Latin America, a key step in our globalization strategy.

And we also continue to adhere to our green strategy. Green is the background color for the high growth development of Mengniu. We have the dual carbon initiative and also other strategic pillars, including the green packaging and the green operation, green supply chain, et cetera. We would like to leverage these pillars to build an absolutely leading position when it comes to ESG in this industry and also convert these advantages into tangible commercial value and so that we can become highly competitive for our channel customers and to be customers.

The last part is the outlook. So I would like to go back to the fundamentals for the industry. This round of cycle for the dairy industry is lasting longer and more challenging than we expected. So in multiple occasions, I have mentioned that for the dairy industry in China, there are three pain points, which is the imbalance between supply and demand, the lack of diversity of the categories and also the lack of tolerance and resilience for the whole industry.

And these pain points are further exacerbated given weak consumption, and this is shared challenges for the whole industry. And it is a challenge. It is also a very important transformation opportunity for us. For the mature markets like Europe and America, the cheese and butter and yogurt, these solid products consumption is around 50%. So we see a very highly diversified product structure for those markets. And some high value-added raw materials such as lactoferrin is very common in overseas market.

And the foreign companies are at an absolute advantage when it comes to the technologies and industry accumulation for these high value-added raw materials. But if you look at the China's dairy industry in the year 2024, the total import of dairy products was 2.7 and 7 million tonnes, and that was around 17 million tonnes of raw dairy materials and out of which the import volume of butter, condensed milk and lactoprotein continues to increase.

This shows that when it comes to this high value-added raw materials, we are still highly dependent on imports. And this is something we need to make further breakthroughs when we transform the whole industry. And if we look at the whole pattern of development for the global food and dairy industries, we need to further focus on R&D, accelerating product innovation and category upgrade to further expand user application scenarios.

And we think there's huge potential overall for China's dairy industry. Milk is the natural food that is closest to perfect. And we need to start from the essence of milk and also the fundamental consumer demands. And we need to treat the nutrition value and the functional value of milk as the core value of this whole category. At the end of March, I proposed the idea of helping consumers to drink milk, drink the good milk and drink right milk.

And we would like to have all these diversified dairy products to become a indispensable food for high-quality life. And I would like to introduce to you what kind of work we have done at Mengniu and how we embrace diversified demands and also the diversified channel needs.

For H1 this year, we focus more on building the value chain and launching more basic dairy products that are great value for the consumers so that more consumers can afford to have milk. And for the lactose intolerant audiences, we also launched the soft milk and zero lactose products so that more consumers can drink milk. And going forward, we'll continue to improve our supply chain efficiency and cover more lower-tier markets to service more consumers.

In addition to the product end, we also collaborate with industry associations, institutions, the media to further popularize the healthy drink of milk. And we would like to change dairy products into indispensable food for consumers. Mengniu is one of the first to the practitioner to help consumers drink good milk.

20 years ago, we launched the industry's very first high-end product, Deluxe, which is -- which was redefining the whole category. And since the birth in 2005, Deluxe continues to make progress. We had the classic one, now the slim version. And then in 2021, we created the desert organic milk, leveraging the full industry chain approach. And this is a great breakthrough when it comes to the protein nutrition.

And we continue to expand into regions and areas that are purer and with more rare resources. And in 2009, we started the project in Ulan Buh. It took us 16 years to cultivate the land of oasis in the desert. We created lakes and grass and we've rolled the grass and we pasteurize cows on this oasis in the desert. We further improved the industry chain source for Deluxe.

The organic matters for the soil increased from 0.1% to 2% in this area. This year marks the 20th anniversary for Deluxe and leveraging our 16 years of experience in this industry, we launched the top premium product, which was called Shajin Tohoi, this product, the source is originated from the core area where there are 5 legs in this Ulan Buh desert area.

And also it delivers a record level of protein, which is 4.3 gram. And this shows that we have made huge breakthroughs when it comes to nutrition. We also successfully managed to combine both natural resources together with industry wisdom. This product is unique and irreplicable. And we would like to provide superior experiences, both functionally and emotionally to the consumers through this product.

In the past 2 years, Deluxe invited a few thousands of consumers for a visit to Ulan Buh and for a visit to the grassland and pasture and the factories of Deluxe. And this piece of land we have been cultivating for more than a decade is finally seen by the industry. And here, I would like to do a bit of marketing. I would like to invite all the investors, media friends to pay a visit to Ulan Buh, which is our organic milk source in the desert.

It is indeed a very rare and precious piece of land. There is mountains and lakes, very great landscape, and it can very well demonstrate the huge efforts we put behind this good product. And based on the current categories, we also would like to further accelerate our R&D of new products and to create new application scenarios and meet consumers' diversified needs. And we would like the consumers to be able to drink milk and also eat milk. For drink the right milk, this is the future for this whole industry.

The Healthy China strategy is now promoting a new era, which looks at a more precise and tailor-made product. And Mengniu is committed to R&D and also to further take advantage through precise operation. And based on the insight we got from consumers and for first half of the year, we launched the products, including prebiotic and vitamin milks. These are the functional milk with precise nutrition, and they can very well satisfy the specific nutrition needs of different consumer segments.

As people are becoming more health conscious, we also see strong need for functional nutrition. Therefore, we incubated and launched the brand M-ACTION, which is a sports nutrition brand, and it is very well received by the sports audiences, because we have a very diversified product mix, including the liquid protein, energy gel and the protein bar.

We also have the elderly nutrition brand, Yourui, which are aiming at the elderly market. The product can help to build muscles and improve bone health for the elderly. And Mengniu also in-house developed HMOs, which help to address the industry pain point, and we're now already at the commercialization stage. So for both the children's milk and liquid milk and fresh milk, we are now providing precise nutrition for the whole industry.

In addition, we are also committed to our investment in deep processing business we have accelerated our research and launch of high value-added raw materials, including demineralized whey powder, cassava flour and lactoferrin, et cetera, so that we will become less dependent on imports. And through R&D, through product innovation, we would like to further upgrade the whole industry because we would like Mengniu products to really satisfy consumers' needs from the baby to the elderly segment.

Mengniu will face the cycle challenges of the whole industry, embracing the market challenge changes and also addressing the three pain points of the whole industry. We'll continue to make sure consumers can drink milk, drink good milk and drink the right milk. And through continuous brand building efforts, R&D and digital transformation channel upgrading efforts, we would like to further strengthen our core and expand the two wings.

The management team is very confident and is fully committed. And we believe that we're able to create history and the current challenges will help us to build our resilience and to write the new chapter for the whole industry. Nourishing the world of excellence is our vision, and we would like to reshape the whole value of the industry, and we would like to be a leader to a healthy future, and we would like to create better products to serve our consumers' needs.

And we also would like to empower the whole industry chain with our sustainable development, and we would like to bring high returns for our investors through robust growth. That's all I have. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]