The Zhitong Finance App learned that on March 26, Hyundai Animal Husbandry (01117) held an online 2023 annual results conference. Group President Sun Yugang and Chief Financial Officer Zhu Xiaohui attended the meeting. According to President Zhu, as of December 31, 2023, the Group has invested in the establishment of 42 ranching companies in 13 provinces and autonomous regions across the country. The number of dairy cows kept reached 451,000 heads, raw milk production reached 2.59 million tons, an increase of 9.5% over the previous year, and the annual yield of adult dairy cows reached 12.6 tons, an increase of 3.3% over the previous year, all setting new historical records. In response to the rise in commodity prices, the Group adopted a series of cost reduction and efficiency measures, such as increasing the cost of diluted feed per unit, optimizing feed formulations to save costs, and strengthening management to reduce costs, reducing the sales cost of kilogram milk to 2.92 yuan, and cost control is in a leading position in the industry.
At the press conference, Zhu Xiaohui, Chief Financial Officer of Hyundai Animal Husbandry, gave participants a detailed introduction to the main tasks of 2023.
In 2023, in the face of many adverse factors and difficulties of slowing economic growth, slow recovery in consumption, loss of demographic dividends, high costs, and falling milk prices, the modern animal husbandry industry firmly implemented the cost-leading strategy, expanded the scale of the main business, played the role of the whole industry chain, accelerated the pace of green transformation, overcame many difficulties and obstacles, achieved steady development, and achieved the encouraging results of “two liters, two reductions, two increases and one optimization”. Two liters: raw milk yield and production reached record highs; two declines: year-on-year decline in costs and steady decline in financial leverage; two increases: a sharp increase in operating cash flow and a sharp correction in free cash flow; one optimization: the debt structure was significantly optimized and the share of long-term loans increased. Leading the industry in all major indicators.
The scale reached a record high
Expand the size of the herd, mainly endogenous breeding, and strive to increase total production and yield. As of December 31, 2023, 42 ranching companies have been invested and established in 13 provinces and autonomous regions across the country. The number of dairy cows kept reached 451,000 heads, raw milk production reached 2.59 million tons, an increase of 9.5% over the previous year, and the annual yield of adult dairy cows reached 12.6 tons, an increase of 3.3% over the previous year, all setting new records in history.
Low cost industry leader
In response to the rise in commodity prices, a series of cost reduction and efficiency measures have been adopted, such as increasing the cost of diluted feed yield, optimizing feed formulations to save costs, and strengthening management to reduce costs, reducing the sales cost of kilogram milk to 2.92 yuan, and cost control is in a leading position in the industry.
In-depth development of the industrial chain
On the basis of improving the industrial chain in recent years, diversified operations have been further developed. The Liangyuan Technology business is in a leading position in the industry, contributing more than 2.5 billion yuan in revenue; the digital intelligence platform business scale has steadily increased, contributing about 700 million yuan in revenue. The share of new business in the company's total revenue increased to 24% from 19% in the same period last year.
Debt structure continues to improve
In terms of financial leverage and cash flow, the net interest-bearing debt ratio fell to 42.7% from 46.0% at the end of 2022. In the rating update released in June, S&P received a BBB investment grade credit rating for three consecutive years, and the rating outlook is stable.
Do a good job in green development articles
The Group's global CSA score in S&P increased by 19% over the previous year, surpassing 89% of global peers; obtained management levels in all three areas of CDP climate change, water safety, and forest risk; and was selected for COP28's “2023 Corporate Climate Action Case Collection” based on pioneering practices in the recycling of manure resources. Paying attention to humanistic care, it became the only animal husbandry group in the industry to win the “2023 DEI Employer Brand Award”.
In addition, Group President Sun Yugang gave an in-depth explanation of the domestic and foreign dairy industry situation and the Group's development strategy.
Mr. Sun pointed out that the growth rate of domestic raw milk supply will slow down, and consumer demand for natural, less processed foods will rise, prompting the industry to promote the use of fresh dairy products. The revision of the national standard for “Sterilized Milk” will improve the quality of dairy products, and the “Student Drinking Milk Program” introduced by the state will benefit more than 37 million students. These all indicate that the dairy industry is moving in a more steady and sustainable direction. Moreover, from a long-term perspective, it is normal for milk prices to stabilize; every downward cycle is an opportunity for large-scale enterprises to grow. As society gradually withdraws from inefficient ranches, large-scale animal husbandry can win great development by taking advantage of scale, seizing opportunities, and increasing market share.
General Manager Sun said that modern animal husbandry will make accurate judgments, grasp the positive development trend of the dairy industry, take “herding healthy cows and protecting every drop of good milk”, and have firm confidence. Next, he introduced the “five core initiatives” of the Group's development: one is to optimize the dairy structure and increase the proportion of specialty milk; second, to continue to lead costs, increase yield, reduce the cost of kilogram milk, and strengthen management to reduce other costs; third, to upgrade the quality and safety system to pursue excellent quality; fourth, to lay out the entire industry chain to focus deeply on strengthening animal husbandry, expanding forage, efficient breeding, and deep-processing to add value; the fifth is to implement sustainable ESG development, adhere to the path of green and low-carbon development, and set industry benchmarks. Keep integrity and innovate, forge ahead, and open up a new situation in the dairy industry and modern animal husbandry.
During the Q&A session, company leaders gave detailed answers to the participants' concerns and concerns.
Regarding the feed cost issue that the market is concerned about, Mr. Sun said that the group will continue to control costs through various methods such as increasing yield, purchasing, and adjusting feed formulations. In 2023, the Group's feed costs and sales costs remained at the lowest level in the industry. Regarding cost control in 2024, Mr. Sun pointed out that commodity prices have been declining sequentially since the beginning of 2023, and further articles should be written on exploiting the advantages of scale and increasing yield to further reduce costs. The cost of a single kilogram of milk feed is expected to drop below 2.05 yuan in 2024, and other cash costs will be further reduced to less than 0.45 yuan from what was already low in 2023.
Regarding leverage and cash flow issues that the market is generally concerned about, Mr. Zhu said that during the downturn in the industry, it is necessary to ensure cash flow as much as possible, reduce debt ratios, and reduce risk. Beginning in the second half of 2022, the Group gradually slowed down the pace of expansion, mainly through self-breeding to expand the size of herds, cooperate with leasing ranches to accommodate new herds, and reduce capital expenses for biological assets and fixed assets. This year, we will continue to achieve continuous growth in operating cash flow and free cash flow through optimized cash flow management, strict control of capital expenditure and prudent investment.
Regarding the development of modern animal husbandry this year and the future, the company will continue to focus on the six levels of national, social, win-win partners, employees, shareholders and technology; deeply cultivate the five major businesses of strengthening animal husbandry, expanding forage, efficient platforms, breeding and refining, and deep processing and value-added; focus on profit and quality upgrading, adhere to the main tone of “building a clean party style as a model, unify entry and unify as a model, and organizational performance management as a benchmark” to accelerate the construction of a new development pattern to contribute to the high-quality development of the dairy industry.