Vinamilk grasps market share rather than profits

Intellasia | VIR | Mon, May 5, 2014 03:07:00 PM Share this on

Vinamilk expects to post 2014 revenues of almost VND36.3 trillion ($1.7 billion), up 14.9 per cent from a year earlier, but will accept lower profits to maintain its market share.

Vietnam’s largest dairy and second biggest listed firm in terms of market capitalisation obtained shareholder approval at its annual general meeting held on April 25 to raise its 2013 dividend rate to 48 per cent, up from a previous 34 per cent and issue bonus shares at a rate of 20 per cent.

Contrary to expected revenue growth, the dairy product maker announced it expected a 2014 post-tax profit of almost VND6 trillion ($285 million), down 8.28 per cent on 2013.

Answering a shareholder at the meeting, Vinamilk chairwoman and CEO Mai Kieu Lien explained the lower profit target aimed to maintain reasonable prices based on declining consumer purchasing power.

“When purchasing power falls, competition becomes fiercer. In such an instance, maintaining market share instead of eyeing higher profits is the correct thing to do,” she said. Lien added that if the results were better than expected, Vinamilk would revise the company’s profit target in the second half of the year.

She claimed the company’s liquid milk products currently held a 48-49 per cent market share. Kantar World Panel’s research issued in May 2013 revealed that 94 per cent of Vietnamese families surveyed used at least one Vinamilk product.

Lien highlighted 2013′s profit performance had surpassed its target by 5 per cent and the profits accumulated by last year already accounted for 95 per cent of the target identified for 2016.

Vinamilk estimates a net profit of VND6.18 trillion for 2015, a little higher than this year but still lower than its 2013 result of VND6.53 trillion ($311 million).

The company has earmarked VND2.508 trillion ($119 million) for this year’s investment which would go to the parent company itself, and its members and associate firms, including the Miraka company in New Zealand, where Vinamilk holds a 19 per cent stake, and Driftwood in the US.

Vinamilk is working on the establishment of a $3 million subsidiary in Poland as part of its overseas expansion drive to more than double annual revenues to $3 billion by 2017. CEO Lien is the company’s legal representative in Poland. The new project will serve as a trader of farm produce and cattle to support Vinamilk’s core production of dairy products, beverages and food.

This year’s investment will also be earmarked for the firm’s new Cambodian project. Vinamilk received a license to build a $23 million dairy plant joint venture in Phnom Penh earlier this year. The facility is scheduled to start production in the third quarter of 2015, with annual revenue predicted to reach $35 million. It will be Vinamilk’s second plant outside Vietnam after Miraka, where Vinamilk produces Twin Cows fresh milk, which is already sold in Vietnam and China.

Last December, Vinamilk invested $7 million in the California-based Driftwood Dairy Holding Corp. to hold a 70 per cent stake. The American firm supplies a range of dairy lines, as well as other products including bread and salads to schools, hospitals and restaurants.

If the firm succeeds in topping $3 billion in revenue by 2017 it would propel Vinamilk into becoming one of the world’s top 50 milk producers.

Source: Intellasia | VIR