Dairy producers expect better gross profit margin in second half

Dairy producers faced lower profit in the second quarter of 2022 due to weaker demand and high materials prices.
Dairy producers expect better gross profit margin in second half ảnh 1A worker checking products at a processing plant of Vinamilk. (Photo courtesy of Vinamilk)
Hanoi (VNS/VNA) - Dairy producers faced lower profit inthe second quarter of 2022 due to weaker demand and high materials prices.

However recent falls in raw milk prices and increases in product prices in thefirst half of the year are likely to help the companies improve their grossprofit margin over the rest of the year.

Dairy consumption remained low, said SSI Research. After staying flat in thefirst quarter, dairy consumption inched up slightly in the second quarter, datafrom AC Nielsen showed.

In the fast moving consumer goods' structure, milk continuously grew at aslower pace compared to other commodities. Of which, consumption growth of milkwas positive in the rural market, while vice versa in the urban market.

Moreover, competitiveness among dairy producers becomes more and more intense.The Executive Board of Vinamilk confirmed that it has faced rising competitionfrom rivals, including domestic and imported brands, resulting in declines inrevenues in all product categories since the beginning of the year, except forcondensed milk.

The war between Russia and Ukraine also weighed on the market, causingcommodities and oil prices to surge since February. According to SSI Research,the main materials of dairy companies all jumped, such as powdered milk priceswere up 30-40% on-year and sugar prices rose by 30%.

Higher costs have affectedtheir gross profit margin despite hikes to selling prices by 2-5% to pass theextra costs to consumers.

Rising selling expenses due tohigher fuel prices driving up transportation fees are another pressure dairyproducers face, while fierce competition significantly increases promotioncosts and sales support to maintain market share.

Most businesses posted decreases in profits in the second quarter and the firsthalf of the year. Of which, Vinamilk reported a dip of 5% in revenue to 14.93trillion VND (637.4 million USD). Its profit after tax for shareholders of theholding company dropped by 26% to nearly 2.1 trillion VND, the lowest in 5years due to a lower gross profit margin but higher selling expenses. For thefirst six months of the year, Vinamilk's revenue was flat at 28.8 trillion VND,with net profit of 4.3 trillion VND, down 20%.

Similarly, Seed Moc Chau Dairy Cattle Corporation JSC's revenue in the second quarterstill advanced by 6% to 839 billion VND but profit after tax was almost flat at90 billion VND. In the first months of 2022, its profit added up 28% to 175billion VND thanks to outstanding growth in the first quarter.

International Dairy Products JSC announced that its revenue in the secondquarter reached over 1.5 trillion VND, up 23%. Gross profit margin declinedfrom 44% to 39% while selling expenses increased, causing profit after tax togo down 5% to 216 billion VND. In the first six months, the company's revenueand profit edged up by 17% and 11.5% year-on-year, respectively.

SSI Research believes that milk demand will grow stronger in the second half of2022. In the first half of 2023, trade channels are expected to completelyrecover as hotels, restaurants and cafes are fully reopened and an increase inforeign tourists boosts demand. Therefore, growth would normalise from thesecond half of 2023.

Meanwhile, prices for whole milk powder (WMP), skimmed milk powder (SMP) andanhydrous milk fat (AMF) have been adjusted down starting in March, accordingto the global dairy trade organisation.

Regarding sugar prices, as of June, the global sugar price reached 0.185 USD/pound,up 20% over the beginning of the year and 7% on-year. The supply shortage willcontinue to support sugar prices for the rest of 2022.

However, in Vietnam, the average price of refined sugar was unchanged over thesame period of 2021 in the first half of the year, hovering in the range of 16,500-17,500VND per kg. SSI Research said that domestic sugar prices were under pressuredue to the amount of smuggled sugar and Thai sugar transiting through ASEANcountries and then into Vietnam.

With higher average selling prices in the first half of 2022, SSI Researchbelieves that the gross profit margin of dairy companies may improve from thefourth quarter./.
VNA

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