China Mengniu posts profit as sales recover

China Mengniu Dairy Co. has returned to profit last year after sales and margins recovered from a scandal involving tainted dairy products in 2008.

The dairy company's profit dropped in 2008 after melamine contamination of milk products in China that year was linked to the deaths of at least six infants and the sickening of 300,000 more. Mengniu was among 22 dairy companies found to have sold products containing the toxic chemical, used to make plastics and found to be linked to kidney stones in infants.

Dairy sales in China have almost returned to pre-melamine scandal levels, chief financial officer Wu Jingshui told reporters in Hong Kong.

"The China dairy industry experienced a full recovery and growth in 2009," Mengniu said. The industry "continued to implement stringent quality control procedures in concert with national laws and regulations and strived to ensure the safety of dairy products."

The company's first-quarter sales were in line with Mengniu's growth expectations, Wu said. The dairy products maker is not facing cost pressures and expects capital expenditure to be about the same level as last year, he said. Mengniu's capital spending last year was RMB670 million (US$98 million).

Sales from liquid milk, which accounts for 88% of total revenue in 2009, rose 7.9% to RMB22.7 billion (US$3.3 billion), Mengniu said. Sales of ultra-high-temperature, long-life milk products rose 3.6% to RMB14.2 billion (US$2 billion), while revenue from milk beverages rose 14.2% to RMB6.4 billion (US$938 million).

Cofco (Hong Kong) Ltd., a unit of China's biggest grain trader, and Hopu Investment Management Co. became the biggest stakeholders in Mengniu last year after they spent HK$6.12 billion (US$788 million) for a 20% stake.