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Mengniu stepping up the ante

By Diao Ying (China Daily)
Updated: 2009-01-16 07:45

Mengniu-branded dairy products at a supermarket in Changchun, Jilin province. [CFP]

The country's top milk producer is slowly recovering from the devastation of the melamine scandal last year that has thrown the entire dairy industry into disarray.

It has been a rough process, forcing, at one time, the flamboyant chairman of Mengniu Dairy, Niu Gensheng, to go hat in hand asking for financial handouts from his powerful friends and corporate peers. Part of that money was spent on mounting a huge publicity campaign to regain consumers' confidence in the company's products.

Mengniu's stock price has stayed at around HK$9 per share since December after plunging to around HK$6 at the end of October 2008 after the scandal broke. In better days, the company was a darling on the Hong Kong stock exchange favored by powerful US investment banks as well as the punters in teahouses. At the peak in 2007, its stock was priced at over HK$35.8 apiece.

Related readings:  Dairy veteran returns to roots  China's dairy giants take oath to uphold ethics  Mengniu, Yili pledge stringent milk tests  Melamine scandal costs major Chinese dairy maker millions

The company said in an announcement that it estimated a loss of 900 million yuan for 2008 arising largely from inventory write-offs, a plunge in sales and extra expenditure on damage control.

It also said it was looking for opportunities to strengthen its financial status, including talking with many third parties.

China's dairy industry has been rocked by disclosures about the use of industrial chemical melamine in milk products.

After the scandal, Mengniu's advertisements have been frequently seen in prime time on CCTV, the country's largest TV station, and on outdoor billboards in major cities. It also invited consumers from all over the country to visit its farms and observe the milking process to regain trust.

Niu wrote a 10,000-word public letter to express his regrets. He said in the letter that the company has gained much support from other Chinese companies, including Lenovo, which has lent 200 million yuan to Mengniu.

It was also reported that Kohlberg Kravis Roberts & Co, a US private-equity firm, will invest $100 million in Mengniu Modern Animal Husbandry (Group) Co, a 3-year-old business with expansion plans that hope to offer a scaled-up alternative to the mom-and-pop farms currently providing much of China's milk.

However, Chen Yu, an independent industry analyst, said the market recovery would not happen soon. Chen said the scandal would have a deep and long-term impact on the psychology of consumers.

"It won't end in a short time because the victims are too special - they are babies," said Chen, who predicts the first quarter of 2009 will continue to be a painful period for major milk enterprises.