Investors, analysts, reporters, good morning. 2024 Annual Results Announcement of China Mengniu Dairy Company Limited begins now. I am Willow Ying from IR Department of Mengniu. I am the moderator for this session. On behalf of China Mengniu, I would like to welcome you all to this event. At the same time, we would like to thank you for your long-term interest, care, and investment into Mengniu. First of all, please refer to the disclaimer on the screen. Now let me introduce to you our management in attendance. They are Chief Executive Officer and Executive Director Mr. Gao Fei, Chief Financial Officer Mr. Zhang Ping, Vice President Mr. Chen Yiyi, Vice President Mr. Li Pengcheng, Company Secretary Mr. Chris Kwok. In today's event, Mr.
Gao Fei will first review Mengniu's 2024 full-year financial and business results, and he will also talk about the outlook for 2025, followed by a Q&A session. We expect that this session will end at 10:50. Mr. Gao Fei, please.
Investors, analysts, media friends, good morning. Welcome to China Mengniu's 2024 Annual Results Announcement. Now, I'm going to briefly walk you through our 2024 financial performance. For the whole year, our revenue was RMB 88.675 billion, down 10.1% year-on-year, and there was a bigger decline in volume. There is also a price decline in 2024 for the original price. Consumption declined, where there was a downtrend, especially for the top companies. They have faced a lot of destocking pressure. In Q2, the pressure was the biggest. During the interim results, we communicated with you. After CNY, we made the initiative to adjust the shipment rhythm and volume to adjust inventory level in the channels. Now in the market, inventory pressure is relatively small. There was a big impact on sales volume.
However, we can see that after the active adjustment in the first half year, in the second half, inventory health was enhanced. If you look at the overall situation, there is some improvement. In the year for raw milk price decline and also improvement to the product mix, we can see that GP margin in 2023 was 37.2%. It rose to 39.6%, up 2.4 percentage points. Operating margin expanded as well by 190 basis points. It has reached 8.2%. For 8.2%, it is actually the best operating profit in Mengniu's history. I would like to point out that behind this number, on one hand, you can see that milk price and demand are in a fast decline trend. That is a special cycle, so there was some impact.
Besides, for our company, in relation to the demand and supply changes in the industry, given such challenge, we focused on refined management, and we also did our best to lower cost and improve efficiency. We optimized our overall layout, and we also improved supply chain efficiency. With all such efforts, we have achieved good results. Besides, because of Bellamy's goodwill and intangible asset impairment, the result is that for the associated companies, loss for CNY 1 billion for attributable net profit, it is CNY 105 million. If Bellamy's impairment is excluded and also deferred tax back provision, the impact is CNY 3.98 billion together with Modern Dairy's goodwill impairment. The impact of profits on affiliates will be CNY 350 million. Overall speaking, attributable profit would be CNY 4.435 billion. That is the foundation for our dividend payments.
If you look at various segments and categories, in 2024, there was challenge to the revenue by segments. In the past, there were segments with good growth, for example, white milk and ice cream. There was pressure in growth, but we can also see some positive trends. In the past few years, for chilled products, to see segments and also our overall yogurt industry, this segment performs better and better. There was fast growth. For these two categories, we believe that they actually led the industry. When it comes to profitability, they're rising. For formula milk revenue, it came down. However, we have excluded Bellamy's impairment impact. As a result, there was profit for cheese business. After adjustment right now, basically it has stabilized, especially on the profit side. There was much improvement. It has entered a very virtuous development trend.
Last year, actually, there is a major change in demand and supply balance. There was overall challenge in relation to expenses for the whole year. We improved efficiency, and in the second half, we strengthened our expense control. No matter whether you talk about CapEx or some selective expenses and also supply chain adjustment in terms of efficiency improvements, we have seen some good change. On administrative expenses, again, you can see some clear decline. For expense ratio, it rose 50 basis points year-on-year to 26%. If you look at our operational efficiency, all metrics are on healthy level. Inventory turnover days and receivables turnover days continued to improve. If you look at cash flow, in 2024 for cash flow, RMB 8.33 billion. It is a stable cash flow performance. Last year, CapEx was lowered to RMB 38.7 million.
In the past few years, we made investment last year in terms of CapEx. There was a 30% decline because of our control work. In the future, we will continue to strictly control CapEx because now there is still excessive capacity. In the future, we will exercise strict control over CapEx and the rhythm of CapEx. You can say that in the past three years, all CapEx items and also capacity layouts have been completed. Now we have entered a new development stage. We have to remove some unnecessary CapEx items. With stable cash flow and decline in CapEx, free cash flow has increased significantly. Because of continuous improvement in free cash flow, in terms of our capital, we are able to increase our return to shareholders in terms of dividend. For dividend payouts, it rose to 45% in 2024.
Total dividend was almost RMB 2 billion. We hope that in the past, we mentioned share buyback and also dividend. With these moves, we can create better shareholder value and return consistently. Next, I would like to turn to our business performance. Last year, during interim results announcement, we said that there was a new environment, new challenges. We need to focus on the conflict between demand and supply and refine management to improve efficiency. We need to innovate in our product categories, and we need to achieve upgrades. For CapEx and some critical directions, we communicated with investors during that time. This time, again, our refined management has borne fruits. For free cash flow, it is stabilizing. As a result, we are able to live up to our promise to improve shareholder return. Investors are very interested in the industry at this development stage.
Given such circumstances, for our strategic direction, how should it be? Last year, during interim results announcement, I already mentioned that I talked about Mengniu strategic upgrade, so one core two wings strategy. With this strategy, I think it is a very good interpretation of our mission, and it is also an in-depth focus of our strategies. Basically, here you can see one core two wings. This strategy is such that this year is an in-depth implementation year. Last year is, or this year is the first year, beginning year. We have to maintain our strong focus on the strategy, and we need to strengthen the core and extend the two wing strategies. We want to solidify one core. First of all, we have to strengthen and improve our core businesses. Core business is room temperature chilled products and fresh milk.
These are our core businesses. In various segments, basically, we can take a look at them. In 2024, for room temperature products, they are affected by price decline of raw milk in terms of demand expectations, where the challenge is the biggest in this segment. There was channel adjustment earlier. For room temperature products, the decline half on half has improved. Given this consumption environment, can we continue our upgrade in the dairy industry? For Milk Deluxe, for the whole year, it performed better than basic white milk. Milk Deluxe is the biggest single item in the FMCG industry. It is able to withstand pressure, and also it is resilient. Today, for happy lives and high-quality lives, consumers still have a lot of aspirations. We attach much importance to this segment. We hope that consumers can be given good milk to drink.
For Milk Deluxe, especially Milk Deluxe Desert Organic Pure Milk, we use the industrial chain logic to make deployments. We made a lot of improvements in order to grab more market share to achieve good growth. At the same time, of course, consumers look for better value for money. Basically, we have to achieve cost advantage. How can we deliver better value for money? We have to do a better job with the downstream markets. At the same time, we want to create a broader space. For UHT milk and also Suan Suan Ru, they have stabilized. For channels, we have developed new channels in order to dig deeper into lower tier markets. That is a core point. At the same time, we are doing a lot in B2B business.
In the future, for room temperature products, how can we achieve high-quality development and focus on whole chain growth? How can we continue to better our structure? In terms of resources, how can we be more focused in our investment and digitalization? How can we do more so that there is healthy development for room temperature products to achieve profit improvement? For chilled products, in the past 20 years, market share was number one in chilled products. We understand that we have to go back to nutrition, function, and taste. How can we innovate on values? I think we have achieved very good achievements. Today, we can see very fast growth in Yale Fine Dairy Yogurt, and our operating efficiency has improved as well. Overall utilization rate for chilled products, comparing with the past few years, had seen big improvement.
For yogurts, I think it is a very good development segment. We are very positive about it. In the past, when it comes to yogurt growth, which was good with overall adjustment, we are able to further strengthen our competitive advantage with this segment. Next, fresh milk. Fresh milk faces challenge in the overall downturn in the industry. Competition of this segment is very intense. For high-end brand, there was 20% growth for Shiny Meadow, and market share is number one among premium brands. We have to thank the strong brand influence and market development. As a result, for fresh milk, overall structure has improved and operating profits grew. In terms of channels, we seized the To C member stores and also the To B channels, for example, Starbucks and also milk tea brands and so on. We worked with coffee and milk tea brands.
As a result, we achieved a very good revenue. At the same time, for Shiny Meadow, last year, after entering the Hong Kong market, there was also fast growth in the Macau market. In the Hong Kong market, we can see that growth was very, very satisfactory. Ice cream, overall speaking, declined. The industry experienced destocking pressure, especially in 2024. In 2025, in January and February, we saw some positive trend. Channel inventory went back to normal. Channel inventory has improved. Based on consumers' diversified consumption scenarios, we created many new products so that this is a very major focus of our business development. For formula milk, for infant milk formula in China, after the past few years' adjustment, it went back to a growth track. We achieved double-digit growth for our brands. Actually, it has doubled. We worked with Nezha too.
As a result, there was a lot of attention being given to our brand, and there was very good consumption conversion last year during Q4 and also Q1 this year. There was very good growth. We are positive about future growth. Besides, market potential and opportunities are being created, especially in face of the aging population. For example, for reborn development, I think it is good for the elders and also for the middle-aged skeleton protection. A lot of work has been done. For cheese, we saw very good improvement trend, especially on products. We are improving our product matrix. Today, no matter whether you talk about two C or two B, actually, these two wheels are driving the growth on brands. There is strategic upgrade. The Mengniu cheese and Yaohai cheese were very well integrated, and we have significantly improved the profit.
In the cheese market, Mengniu has built a very solid leading position, expanding our share. Right now, it is over 49.5% market share. For our future development of cheese, we have full confidence, and we will further continue to educate the consumers, educating them from drinking milk to eating milk and to fully drive the growth of this segment, using the Chinese milk to make the Chinese cheese. We do see huge potential going forward, and we'll further diversify this segment to drive the growth of the whole segment. We have to drive inward and also expand outward as well. We would expect a new development momentum driving us. For the 200 million, for part of it, 50% of it is on the nutrition and health platforms.
I often tell our team for the dairy industry and also all these industries in Inner Mongolia, right now, we have really developed, come a long way. If we look at the coal industry in Inner Mongolia, we can really draw a lesson. In the past, the coal industry was perceived by people saying huge mines and also trucks driving around the mines. If we look at today, the coal industry in Inner Mongolia, there has been strategic changes in the whole industry. There has been a very deep processing of coal, really generating high-value added products. Same with the dairy industry in the past two decades, from the farming of the cows and processing and selling, covering liquid milk and also yogurt and some other core segments. The dairy industry also has to transform.
If we look at all the top dairy companies around the world, they are doing much more in-depth processing. Right now, for us, we're still at early stage, not in-depth yet when it comes to processing.
Especially with milk powder, a high-value added segment, we need to really go deep to identify more value and also to solve the raw material supply issues and try to develop and sell more high-value products so that we could navigate the future possible negative cycles. We want to accelerate the development of nutrition and health products. We have incubated and developed the Sports Nutrition brand, which is M-Action. It's been less than two years since the launch of this brand, and we have built a very good product matrix. It is developing very rapidly within this vertical.
Going forward, in terms of the nutrition and the professional functional nutrition products, we will accelerate the commercialization. Just like last year, the HMO, the key ingredients of our product, we want to further tap into that and yield commercial value. This is very important for us to upgrade the traditional business and also incubate these cross-sector products. The other wing is the overseas platforms, and Mengniu is driving our international business expansion and integrating and optimizing our overseas brand assets. In Southeast Asia, ice cream has been really successful, and we are now the number one Indonesian ice cream brand and number two in the Philippines. We are expanding into more Southeast Asia countries. For the Australia assets, we have Burra Foods and Bellamy's, and we will use the best B2B and B2C brands and products to serve consumers in the APAC market.
We will further expand our business overseas to build more driving engines for the whole business. That is the two wings. For the Chinese New Year marketing campaigns, the consumers are saying that Mengniu was really a winner. We collaborated with Nurja IP, and it has really outperformed. We have been thinking about the collaborations behind this campaign. Nurja has this sense of value. We need to really rely on ourselves to build our strengths. That is very much in line with the values we uphold at Mengniu. When we collaborate with the director of Nurja, we had a lot of discussions, and the director put a lot of effort into the creation of this movie. It is a movie with a very good sense of humor, and it travels really fast among consumers.
With minimum investment, we managed to get really good results. IP collaborations, brand ambassadors have been very successful for us. Gu Ailing, the sports athlete, and also actress Jia Ling, we've worked with all of them. The reason why we've had successful collaborations is because we share very much the same sense of value. It is very important for us to choose the right IP and use the IP in the right way so that we can really make our communications resonating with the consumers. This national and Chinese movie and cartoon have been helpful and empower us to communicate our sense of value. This has helped very well in brand building. Investors often ask us what we think about investing in branding. I think branding is a very important core capability that we have and will continue to build in this area.
98% of our brand is in culture. We need to leverage culture and leverage the connotation of our brand and the spirit and further build the breadth and depth of our brand. We put 98% of the resources in the integration to really build an ecosystem that can resonate and to build our strength of the brand. Right now, in the market, we have to invest long-term in brand building. We believe the brand will help us go through the cycles and to drive our brand to grow further. Olympic Games, the World Cup, the marathon events, these are all our long-term commitments into brand building. For the long-term branding and also short-term growth. Lastly, we want to use our industry approach to shape the development.
How can we build the brand in a way that it is stronger, it has higher value? We really need to adopt an industry approach to build our brand. A lot of brands, especially food-related brands, are highly dependent on the location. The better the location, the better the brand you could have. It is milk, but the milk differs hugely in the north and the south. In Mongolia and also the Desert Organic brand, they all have their unique local characteristics. We have to build a brand leveraging the locality. This is highly important. It is not just an agricultural product. We need to look at the whole industry chain when we build the brand. Deluxe, which is a super brand that we possess, is the single largest product we have.
With years of investment and huge commitment, we managed to grow the brand and also improve the local ecosystem. We need to further build on our good quality and leverage the quality of the product to strengthen the brand. With our long-term approach in brand building, I believe we can build successfully the moat for our brand. That is for the marketing. In terms of ESG and the green strategy, we believe that this is highly important as well. I will now share with you our work in ESG. In the year 2024, we have been advancing our green strategy, and specifically the green packaging, the Dual Carbon Initiative, Zero Deforest. We adopt practical measures to drive the green strategy. In terms of the corporate information and disclosure, we have done a lot as well.
We have issued the first TCFD report of Mengniu and also the first green packaging value report in China's dairy industry. This way, we can further increase the transparency and also disclosure quality. Going forward, we will continue to uplift the ESG report quality so that to keep the market informed of our progress in ESG. Our efforts in ESG at Mengniu have been very well recognized by the authoritative institutions and rating institutions around the world. This is also a very important driving force for us. Next part, it is the 2025 outlook. In the past years, we have been proactively responding to the macroeconomic cycle and also industry cycle challenges. We have reviewed and implemented the One Core Two Wins strategy.
We continue to strengthen our R&D capabilities, brand building capabilities, and with a series of lean management and also the adoption of lean supply chain, we can further improve the operation efficiency. Looking at the current dairy industry, we are still facing the largest challenge since 2008. At the Dairy Annual Association Conference, it is also mentioned that there are some difficulties right now, which is the supply-demand imbalances, industry supply chain resilience, and the product category diversification. These are the three major issues right now with this industry. The macro environment now being the consumption is very weak, and that just makes these challenges even more difficult.
We need to think further and go back to the principle of development, go back to the essence of the development of this industry. I always talk about this fundamental principle. What is the fundamental principle of milk?
That is premium protein. Premium protein is one of the three critical nutrients for human beings. It is the perfect natural food that is closest to breast milk for humans. We have to use protein as the core value for our category, satisfying consumers' nutrition needs. I have been thinking long and hard. The industry we are in today, it is developing very slowly, very minimum growth. How should we look at our industry and how should we look at the businesses? We have to go back to the fundamentals. I keep saying, drink more, drink good, and drink right. These are critical for the industry and company development going forward. The first one is drink more from necessity to indispensable demands. There are still huge opportunities here.
Over the past 20 years of development at Mengniu, there have been different stages, high-speed development, stable, and then slow growth. Then we come across the COVID, which was another challenge for the industry. If you look at the cycles for this industry, before COVID, the industry growth already slowed down. With COVID, it drives the growth faster. That has a big impact on short-term investment for the layout of the whole chain, including the upstream and downstream. That leads to another problem. If we go back to the consumers, what is their understanding or perception of the milk or dairy category? On the national level, we have this Healthy China promotion campaign. Also at the Two Sessions a few days back, people were talking about weight management.
All of these are highly related to your diet structure with your weight management and health management. If you are overweight, that will lead to chronic disease, which will also trigger other health-related issues. People will have to go to hospitals more, and expenses will increase. All these are problems, and we have to go back to the source. We need to offer the best nutrition to achieve prevention. The best thing is to protect health at source. Management should start from nutrition. How can we further enhance nutrition? If you look at our categories, we think that the work that we have done is still not enough. Now, protein, we are a very important supplier of protein. Of course, there are three core nutrients, and protein is the most important of it.
When it comes to high-quality protein, it is even more important. If you look at Northern Chinese, in rural villages, people in the past did not drink milk. After six years old, you can see that people did not get a lot of muscles, especially when they aged. Northern Chinese usually eat potatoes and noodle. At the back of these foods, they are actually carbohydrates. They do not have much understanding about nutrition. They have not turned necessity into indispensable demands. I think this issue is getting more and more important. Today, we have so much good quality protein, milk. I think everything is about structure adjustment. During the Two Sessions , these points are made as well. I think this is the fundamental point. During COVID-19, this point was also discussed.
When it comes to the dietary mix or nutritional mix for people, I think we actually show the very important responsibility. There is a lot more that we need to do. We have to compare ourselves with global strong nations. There is still a big gap in terms of nutrition for consumers. We are only one half of Japan and Korean milk consumption and one third of global total. When it comes to milk and dairy products, we have to adhere to the recommendation of 300-500 grams and so on. We are talking about big population. In China, there are still like 400 million people who have not got the habit of drinking milk every day. There is also the lactose anti-resistance issue with 660 million people having such a problem.
In rural villages, this is still a blank segment. Today, when it comes to dairy products and also nutritional improvements, we need to play a bigger role. In other words, when it comes to core milk area, we have not done enough work. In the past years, I think you heard a lot about consumption upgrade, premiumization for most consumer products. Today, in our industry, we need to work on the demand side and also the indispensable demand of consumers. How can we deliver better nutritional supply? There is still a lot of room for us to work on. Okay, if you do not drink milk, then perhaps you can take yogurt. For those who are already drinking milk, they should drink more. I think this is a very critical issue. I think for basic nutrition, it is not about low price.
Our work is not to reduce price. I think what we need to do is to offer to consumers better products with better value for money. Then consumers have to be able to afford to drink milk. Overall speaking, on upstream and also supply chain, how can we further refine the supply chain so that it is lean? We can improve the efficiency of the supply chain. How can we do a better job with channels? How can we achieve better and faster integration with all the outlets and so on? The breadth and depth of our penetration needs to be improved. For consumers, channel of consumption, we also need to consider that so that more consumers can have milk available to drink. As the national team in the dairy industry, we need to discharge more social responsibilities.
I think more enterprises should respond to the national policies appeal. This also includes news media. They should do more to educate people concerning the nutrition value of milk and so on. Actually, right now, a lot of education work has been done. We have produced a video on Milk Deluxe some time ago. Milk Deluxe was featured in a lot of education work. As a result, the brand status of Milk Deluxe was enhanced. In the future, when it comes to basic nutrition, fundamental nutrition, especially in lower-tier markets, we still need to do more education and popularization work. With better marketing, we can achieve a closed loop with heightened consumer awareness. Then we can achieve indispensable demand for our milk products. That is my point. Drink more.
Just now I mentioned those people with lactose resistance. They are not able to drink milk. When they drink milk, they will suffer from stomach problems or even diarrhea. That is a pain point. We have been trying to solve the problem in the industry in the past decades. The problem is still not resolved yet. Secondly, I think consumers need to drink good milk. They should drink and eat milk. Right now, social economy is developing fast. There are more than 400 million people in the middle-class sector. In the future, there may be 500 million, 600 million, 800 million medium-income earners. I'm sure growth potential is very big in this regard. For these medium-income earning households, they are moving the demand towards better products. When it comes to dairy product upgrade, our logic has not changed.
I think in the past few years, we made a lot of investment into premium categories like Milk Deluxe. Market share is expanding. It is profitable. We are developing other better products. Right now, consumers still strive for good lives, high-quality lives. They have this demand. Based on that, when it comes to drinking good milk, we still need to continue to strengthen our innovation-led development so that there will be better technology and industrial upgrades. I think we should adopt a full industrial chain mentality to develop premium products and categories so that people can have good milk to drink from source to the end. We have to get good grades of dairy cows. Also in our production and processing, how can we integrate with international standards?
From the farm all the way to dining table so that Chinese milk can become a synonym of international-grade milk. I think we should expedite our innovation of product categories and so on so then people can enjoy milk in both drinkable and edible forms. Today, I have been thinking of what is better quality milk. How can we satisfy consumers' need for dairy products? Based on researchers, we realize that many people are concerned about category development. We should not only consider milk quality, the regional source of the milk. We also need to look at ESG achievements and also value content. We have to integrate all these with our value enhancement work. The third point is that consumers should drink right milk. That is a very critical point.
Now, we have to ensure that we can identify and address health needs on a national level. Such work has already shifted its focus towards health. When it comes to Healthy China, in the past, we have also talked about various demands and diversified needs, personalized nutrition. I'm sure all these will become future consensus. We have to be very precise in making our moves. We need to identify and address diversified health needs of consumers. We need to do scientific research and product innovation to improve supply of nutritional products. Today, we have the silver economy, sports nutrition. Today, we also need to look at basic fundamental nutrition. There is huge room for development. We need to identify personalized needs, and we have to develop functional products and also value propositions and brands' portfolio.
We need to develop such products to meet market needs. There are many runners, especially marathon runners and so on. They need high-quality protein. They need to have precise, high-protein content food. No matter whether we talked about high-quality protein or liquid protein, we need to consider how we can deliver it in a convenient way. Only then will we be able to win consumers' preference. In terms of R&D, many companies are talking about R&D. We also invest into R&D. I think we are talking about an increase in R&D expenses by a few times, not only one time. In this way, we can tackle the issue of precise nutrition. I think we are talking about a huge market.
In the market, there is both money and leisure time, and people are also more and more conscious about nutrition improvement. In terms of product layouts, we need to do more refined work for liquid products or powder, milk powder, formula milk. We have done much preparation. Finally, the core of core or the fundamentals of fundamentals. We need to insist on investment into high-tech innovation. We also need to look at raw materials and also other disruptive technologies. R&D expenses cannot be compared to past R&D expenses with commercialization and also upgrade of traditional industries leading further enhancement. I think what we have done has been recognized by our country already. We have won the Class 2 Science and Technology Improvement Award. Overall speaking, HMO and other research findings of us are very important in terms of industrial upgrades and high-tech innovation.
For R&D and innovation, it is a core element of our one-core, two-wings business. It is our core capability. For investments and expenses, even though we have been a bit slow, we will continue to do it. Definitely, we are looking towards the whole world. We have to focus at present as well. I think the benefits to consumers, the benefits to the whole industry are dear to our heart. I think our mission is to deliver good nutrition so as to improve people's lives. Consumers should be able to drink more, drink good, and drink right. This is our opportunity and also our market observation and analysis. Based on such analysis, this is the way how we want to develop. I think this is our original intent in China in our business.
Finally, I think we need to insist on steady progress. We have to make sure that we can walk a long journey. During our staff meeting, our annual meeting, we communicated with all our staff on this theme. Right now, we definitely face some short-term volatility. I firmly believe that with crisis, if we are confident enough and we focus on our original intent, definitely we can ride out the difficulties. Definitely we can still achieve a lot of progress in the days to come. Thank you very much.