Earnings Call: H1 2015

Aug 27, 2015

Our respected friends from the investment industry, good morning. Welcome to the China Mengniu Dairy Company Limited and Yashili International Holdings Limited 2015 interim results announcement. Before we start, allow me to introduce the management to you. They are from Mengniu, Ms. Sun Yiping, Chief Executive Officer and Executive Director. Mr. Bai Ying, Chief Operating Officer and Executive Director. Mr. Zhang Ping, Chief Financial Officer. Mr. Liu Shengli, Vice President of Sales. Mr. Thibault Harris, General Manager of Mengniu Danone JV. Ms. Chai Mei, Assistant Vice President of Public Relations. Mr. Chris Kwok, Financial Controller and Company Secretary. From Yashili, we have Mr. Lu Minfang, Chief Executive Officer and Executive Director. Mr. Li Dong Ming, Vice President and Executive Director, as well as Ms. Wen Jie Ping, Chief Financial Officer. Our session would include Ms. Sun talking about the first half performance, and Mr. Lu will then talk about the financials, and then we will go into Q&A. Ms. Sun, please. Respected friends, old friends, and friends from the investment industry, good morning. I am delighted and happy to be here to share with you interim results announcement. I see many of you here, and you seem to pay a lot of attention to Mengniu, and also to look at how does an FMCG product performs in such an economic environment. Let's look at our interim results first. As you can see, in the first half of this year, our overall revenue has dropped slightly, and this drop is in line with my anticipation at the earlier half of the year. Excluding Yashili, we have a 0.5% growth. As a matter of fact, in this process, I would say that this is basically performing in the same. For the Yashili piece, including that, we have a negative 2.9% of gross profit decline, and gross profit margin increases by 1.8%, and EBITDA increased by 13.4%. EBITDA margin, excluding Yashili, is 39.9% and including is 7.9%. Overall top line, I think the overall trend is not as good as the budget that we had earlier, and we will have measures tackling that. In the process, we place a lot of importance into the optimization of products and also our sales channels. When we look at the overall infant formula market changes and also consulting the results of other competitors, the Mengniu results, of course, is impacted by the overall market situation. However, we do have our own considerations and factors. Jeffrey will be walking you through some of these. As far as breakdown of segments, our liquid milk takes up 85.8%. Of which, it mainly consists of UHT products and chilled products. We have an overall 1.6 percentage point increase. For ice cream, there is a small decline. For milk formula, there is also a 7.8% decline. As for other segments, there is a 31.5% increase. As for overall, this is the overall breakdown by segment. As for liquid milk, it has all along been this centerpiece of our business. As far as UHT is concerned, we have a negative growth of 13.4%, mainly because of several reasons. As you can see, the high-end premium pure milk, our UHT, as well as a chilled yogurt, and our probiotic drinks and premium milk beverages. All these actually has seen increased sales. Now, for UHT and our room temperature yogurt, as well as our Star brand, in the first half of the year, we did have some very good results. Why is it that we have a decline in UHT products? Basically, it is our premium pure milk. There has been a huge competition for raw materials in the market. Despite Mengniu has been putting in measures to tackle these market changes, our fundamental pure milk production has declined. For basic pure milk I have seen some reports this morning comparing other competitors with a heavy portion of this type of product. They have also experienced some decline in business. That points us to think of what kind of innovation, as far as product mix, is needed in the next half of the year. Our kids milk has also seen some decline. However, there are some new products, including our room temperature yogurt, as well as some other milk products. Those, we have seen some very good potentials. As far as our market share is concerned, we have been able to keep our market share stable. For UHT, we have been able to keep it unchanged, and there is a small growth for chilled products. That goes to say that in market competition, we have to enhance our UHT products. As for this product, the other companies are also doing good. Mengniu has to work harder as to how to differentiate ourselves from other competitions. As far as brand breakdown is concerned, Mengniu has always been working on optimizing our product mix and also to bring forth opportunities from that. As you can see, our star brands is growing as far as revenue is concerned. Like Telunsu, we have been doing good. Also our UHT yogurt, that has also seen some very good growth at the first half of the year. It is beyond our expectation. As you can see, our backbone brands, as I have explained before, that has been negatively impacted by the basic pure milk. Despite that this is not as profitable, but it contributes a larger part of our business. Our strategy is on how to optimize the product mix, especially as it relates to how do we introduce more star brands revenue. Overall, not being very happy about our performance. However, we have been able to perform a satisfactory EBITDA and margin performance. Our cash flow and CapEx has been improved. That is because of our improvements in profits and in product mix. As far as capital expenditures is concerned, we have been able to keep it quite flat versus last year. In our future investments, we will focus on our star brands and also those products that could grow relatively quickly. As for SG&A expenses, compared to the same period last year, we have seen some decline, and this is because of our strict cost control. There has been some rooms for doing that. For G&A, there has been some increase this year. In order to enhance the initiative of our frontline staff, we have given some remuneration increases. Under such an economic challenge, this is a very important measure. We have decided to improve the remuneration of our frontline employees. As the inventory turnover, that we have seen some increase versus last year. That is basically because of the low base mark of the 2014 H1 figure. We will continue to improve on our inventory turnover. Receivables turnovers has also increased. That is because of the measures that we have taken with our subsidiaries and our key clients. Payables turnover, we have also increased that. This would be the main financial data. I like to explain to you. I think that you have your own analysis to make. In the next two days or so of roadshow, I hope that we can have the opportunity to exchange in better details. Our IR department would also communicate with you, especially as it relates to some figures and some details. I would like to talk about the company's strategy and some review. In 2015, as you can see, we have both challenges and opportunities. Externally, we discover that there have been changes in the consumer market. As you can see, our high-end products have been rising. Our basic products, despite marketing efforts, the growth is not very evident. Demand is moving towards the high-end products. This is a challenge making us working better on product innovation. The supply of raw material is in excess of demand. In China, as you can see from the milk market, the competition is keen. Apart from traditional companies like us, there are also some new companies who are wanting to venture into this industry from other industries. As I have discovered that Coca-Cola is also wanting a piece of the milk market, and also our white milk market. We have seen a lot of international brands wanting to come in. Chinese markets have become a target point for various players in the world, and everyone wants to find their piece within the quickly growing Chinese markets. As far as internal challenge is concerned, I think our brand is also moving well. Despite our efforts, I think we have to further enhance the Mengniu brand equity. As it relates to the investment in brands in the last couple of years, how do we enhance the awareness and the build, and the brand experience amongst our consumers? This is an area that we will have to work on in the future. Also with our control of the endpoint, I think there is still a lot of room for improvement. Especially, apart from the traditional channels, we have to break through into these different channels. Also, there are a lot of opportunities with high-end products. There is a very strong demand in high-end healthy products, including our UHT yogurt and children's yogurt. There is a huge demand for these products, and the trend is changing for high-end products. The premium milk is also growing as far as demand is concerned, despite there has been more and more imported brands going for the same market share. However, for this product, we still see very good growth potentials. Of course, this also relies on the brand equity of Milk Deluxe. Despite that we have 16 years of history, and we have done very well in the domestic market, there is still a lot of work to be done with the international market. Especially as it relates to how do we deepen our market share in the C and D cities. Now, despite the Internet Plus and the internet sales channels growing so rapidly, how we further enhance our brand share continues to be our main challenge, and we do see a lot of opportunities here. When we compare ourselves to our peers, as you know, we have still a lot of work to do. Also our efficiency. There is a lot of room to improve our internal efficiency. Since we have the opportunity to work with international partners, and we have access to a lot of data and a lot of performance comparisons with our international counterparts. We have challenges both from externally and from internally. However, we do see a lot of opportunities in the future. Now, how do we perform well? Basically, this has been something that I would need to do since the 20 years of my career with FMCG products. We have always been talking about doing it, however, we have not been very fully practicing it. However, with the highly competitive market today, we still have to go back to basics. Starting the first half of the year, we have to step up on execution route to market initiatives. First of all, we have to work on better management of our sales channels and also for our subsidiaries. We have our own subsidiaries in 30 plus countries, companies that we own. We should optimize this company structure and manage the network better. Our core business units have to be developed as well in the B and C types of cities where we do not have sufficient distribution power. We will have to build our own teams in order to deliver, in order to sell directly to our customers. Now, in the past, we have not been very good in our performance in this part. It is because, of course, we want to have tens of thousands of sell points, but our information system had not caught up, and therefore, a lot of data had been hand input, and therefore, in accuracy, in speed, we have lagged behind. But this year, there has been a change. That is in February of 2015, we have the SAP, ERP, and CRM systems, and this will be able to directly access into our distributors. In February or January of the year, we were able to access WSP, that is micro sell through hand phones. We have been able to therefore, build up our data system with regard to connecting up with our sales points. This is on one point. In terms of the planning in the future, 2016 to 2018, we will be able to control and have better coordination with our sales points. That is the first point. Coca-Cola had been doing this for some time, but how do we actually very accurately get that data and be able to link up with our sales points? That is one area. The other, as I mentioned, is through the SAP system and our own WSP system. We will be able to link up the entire sales system and also be able to get the information in a timely and accurate manner. Well, it seems like very broad strokes, but actually this is very precise and very specific in the work. This is how we are going to increase quickly the penetration and coverage of our products, and also to increase our management capabilities. Further, we have innovation in packaging. This is rather exciting. In the past couple of years, we have been able to innovate in our products and our packaging. In the first half of the year, as I have mentioned, for children's milk, there had been a negative impact on the overall performance, but in the second half, we wanted to be positive. The trend has been showing us that this is attainable. So for UHT yogurt children's products, in terms of packaging, in terms of taste, and in terms appealing to children, we are in a good position. Further, in terms of Miao Miao, the children's milk, this will provide another choice for children's milk and the reception had been good. As for chilled products, 100 ML yogurt and fruit-taste yogurt, these are the new products, so as to extend our appeal to a wider market. Also our Huang Tao and Guanyi brands. These are very interesting brands with special taste, including oatmeal and also yellow peach and walnut taste. They have been received very well, especially for the younger groups and the fashionable groups. In ice cream, we also have come up with new products. Frozen yogurt is one of them, and it is very appealing in taste, and it has been selling well. Next, it will depend on how we build our channel and how we manage the sales. Then there is a new high-end milk, which is Hi. This is a B2C2C capability. That is, we are able to directly come into contact with the end consumer. So this may be a new business model. It is an innovation. Of course, we have the new packaging, which is a box with one size and a crate with one size. So this is another innovation in terms of packaging. So through product innovation, package innovation, and in particular, getting to know consumer tastes and new trends, these are very important. Product is the very important focus for Mengniu. For our star products, as with before, our Gold brand, our Milk Deluxe, had been doing well. It has still been a leading position. Very importantly with our milk source situation as it is in China, how do we utilize it to the best of our abilities? For Milk Deluxe, apart from pure milk, we have also innovated, that is through New Zealand at 3.8 content. We have been able to excel in that as well. Next year, we will have new and better plans as well. While drinking the milk, there would be a satisfying feeling. For Gold Brand Milk Deluxe, we will be building up to a premium brand. This is the 10th year anniversary for our Gold brand, and we will be reflecting on that success. How does Milk Deluxe continue with that high-end appeal? It is through innovation. I think it is through brand innovation. This is how it will be able to continue to be in the leading position. Innovation, product innovation, and we are thinking deeply about that. Apart from Milk Deluxe, we have the UHT yogurt. These are no additives, and the taste is excellent. Early this year, we have come up with the new product, the children's UHT yogurt, and it had been received very well. For the high-end products, this will be a very important product. We will be focusing on our star products and on these new products, including the children's products, as I've mentioned, for the UHT yogurt. These will have to be integrated with the pure milk sales because we have to leverage on our network and our channels. We will have to build our market share and maintain our leading position, and we have to pick up pace on that, especially for chilled products. There are a lot of regional brands and products coming up as well, and they have taken up the market share locally and regionally. We, as a nationwide brand, have to have a nationwide strategy. In face of this huge market of China, we will have to find out what are some of the regional appeals and also be able to have better market penetration and market share through regional operations in channels and also in product delivery. Yes, we have been doing well in our market share, but we have to, on a regional basis, increase our share. As I mentioned, the children's yogurt and also the 100 ML package and also Danone products, no additives, and also the taste of oatmeal and walnuts, et cetera, we will have to take these to the market to increase our market share through these innovations and new products. We definitely would want to attain a regional better penetration. Not too long ago, I was at a conference with all the milk operators. I really realized that there are a lot of local or regional operators, and they've been doing well too. This is what we are facing. Our cooperation with Danone had been good. We have been deepening our restructuring of our factories and our production in terms of safety, and in particular, in terms of safety and quality. Also in terms of quality control, in terms of talents, bringing into Mengniu through the help of Danone, we have been able to do so. This will be an increase in professionalism and enhancement in the quality of our production. Through Danone, there have been dozens of items or projects where we have experienced enhancement and improvements. We will continue to do so. In terms of formula, Jeffrey will give you more information later on. Basically, it is about focusing of our resources, building up of our brands, and also innovation. Well, everybody knows that, but it depends on who will be able to execute, who will be able to overcome the traditional ways of doing things, the ruts. That is plain for all to see. For us, Mengniu, we will have the execution power, and we will lead the pack. For innovation or transformation for Yashili, we are seeing how we can change from the traditional channels to e-commerce and also to mother and child shops, away from the channel of supermarkets before. Now, in raising our standards, Arla, this will be a very important brand for us. Also in our focus groups for our consumers, we found that for Yashili Gold brand, the brand share had been high. So we will continue to build on that. On the 6th of November in New Zealand, we will have an opening of our factory. That is to say, Yashili Gold is able to completely to be imported from New Zealand. So this is the first Chinese factory in the area. Also we have Arla Merla, and this is an improvement of our brand as well. Also we have other consolidations and integrations as well. Integration of resources is important. We would want to be able to focus all our resources for formula into one place so that we have a concerted effort in bringing the products to the front. In quality control, in production management, in our farms management, and also in our product R&D, these will be integrated so that we will have a concerted effort to support our products and frontline. You can see here for wherever there is milk source, whoever has some milk source, they would want to access the formula market. This is a very hot market. How do we win in that market? Well, channel control and product excellence. I think those are key. There will be challenges in the future. How do we raise even further the quality or the appeal of our brand, Mengniu? In the future, therefore, we have to focus our resources. In particular, for our profitability, we do have certain pressure. We will have to invest into the brands and also our main brand, that is Mengniu. We have to invest into this. In the past, we have been investing into products, but we have not been focusing so much into brand investments, and we will have to be doing that. Also our mother and child brand, we would want to be able to coordinate that into our back-end resources as well. Also in terms of innovations, our systems, our data and digitization, automation. All these will have to be stepped up. In fact, we have been doing well. Everybody's enthused within the company in terms of these innovations. The channel and our unit sales, these are important. In our sales points and our connecting up directly with our end users, consumers, this is important. We will be putting more resources into those as well. Now, also, how do we manage our JV partners, our cooperative partners? This is also important because they come from all over the world. What is important is we have the data. This is important so that we can have best practice sharing within the company. The best people, the Arla team, which is helping us with their management, they have come into our group. Danone, they have a dedicated team to come work in our company at each of the factories, providing sample products so as to raise our capabilities. Also we have certain plans that as many people will be sent to Arla and Danone, et cetera, we would want there to be more exchange and training for the people. This is not about bookish learning. It is about really building up an internationally capable team. You have to know what your partners have, what you can get from your partners. Also, you have to know what can be brought back to China in terms of operation. This is to build up our team and our capabilities. There will be more integration in this part. In the future, I hope that Mengniu will have an excellent team for management and operations. Whatever the market brings, however big the competition, we will have our relevant measures because our people will be good. In terms of operations, we still have a lot of room to improve on. This closes my introduction to you about review and forward-looking. I would now like to talk about my past three years. I have been here for three years. Our strategy had been very consistent. Our execution had been consistent. There have been market changes, of course. In 2013, there was the yogurt and there had been other impacts, and this is very specific to the milk industry. But for ourselves, our strategy and our tactics have been very consistent, and we have been executing that very consistently. If we are able to increase our execution capabilities, in particular in our frontline and also our direct contact with our end users, that would be good. To recap, we want to be able to digitize even better. That is to say, we will be able to see immediately the results of our execution. Secondly, as you know, we have been, in terms of structure, we have made it more flat so that we have direct access to our regions and our market so that we have top speed to market. These are some of the changes that we have made. In face of the challenges and the competition in the market, on the one hand, we will have to be even more swift in our reaction time. Secondly, through systems and tools, we will increase our competitiveness. Still, I would want to tell you that our international resources, our strategy, and our digitization, these will bring our innovation to a new level. Yes, internationalization, digitization, that is in management, in our systems, and therefore connect up with our end users. Thirdly, innovation, so that we differentiate ourselves from our peers. These are the main points. Investors, if you can give us more suggestions to Mengniu, especially for the end market. Well, actually, I am very happy that where you see that there is no Mengniu product on offer at whatever city, whatever sales point, you text me. I thank you for that. I thank you for the investor support over the many years and in the past few years in our strategy, in our innovation, and our execution, you have given us your full support. I would welcome you to participate into our operation supervision and monitoring. Help me monitor our operations. Thank you very much. Ladies and gentlemen, friends of the media, investors, good morning to you. Next, I will talk about Yashili and its review. I've been to Yashili seven months in total by now. People have been asking me, how has it been different from seven months ago? Well, I can only say this, and that is, for this company, I know it so much better. I now know very well what the company has, what it doesn't have, what has to be done. In my presentation, I hope you'll be able to get to know Yashili even better and what we are going to do in the future. I'm fully confident that through this presentation that I'm going to give, that you will know what Yashili will be doing and needs to be doing. First of all, on the figures in the first half of the year, as you know, for Chinese formula market, there have been rapid changes. There have been a number of changes due to the channel. In the past, Yashili's had been good in the supermarket channel. Now in China, for formula milk, this is already the most unimportant channel. Out of the three channels, this is the lowest, 23%. It's lower than e-commerce even. This is the biggest change in the market in the past year. Another, which is a big change as well, and that is for formula milk, in the past 10 years till now, the most challenging year was in more competitors coming into the market and also in pricing war. Also for food safety and the relevant policies, we have been thinking that there will be less competitors, there'll be less coming to the market. Having said that, in the SKU and also the brands coming into the market in the past year and the first half of the year, there have been more. That is to say, despite the policies coming out from the government, there have been more competitors and more entrants. So competition is very, very keen, and I do not see it decreasing in the future. In the next 12 months or in the future, this competition and its keenness will continue. That is the market situation. As for the results in the first half, our revenue had dropped by some 25% almost, same period last year, even though the decrease year-on-year had been 8% or so, but overall, it's been lowering also for gross margin, gross profit, 30% drop. This is because of our meeting the challenges presented by the market. We had to have some sales efforts and campaigns. Yep. You can also see some changes in our product mix. Our pure milk composition has been rising, and that has an impact on our GP. Our net profit year-on-year has decreased by 60% plus. However, last year, our overall profit, as you can see, materialized in the first half of the year. So year-on-year, we have 90% increase. This was caused by some financial income. Overall, our finances are actually very stable, and I like to walk you through some of these figures. As far as revenue is concerned, income is concerned, we have three parts to our business. One is our infant formula. For this part, the contribution has been stabilized at around 67%. Also the Scient infant formula. This part, we have seen a close to 60% of decline, and that's the Scient brand. I think that as looking at the current situation of Yashili, it is more important for us to focus on the Star brand. Also, the last part would be the nutrients, including some concentrated products. We have a 13% of increase. AC Nielsen's data shows that we have increased our market share here, and our growth was 60%, exceeding many of our peers in the same segment. As far as our overall cost, SG&A, is concerned, the sales and marketing cost has declined. This, of course, has to do with the increase in our top-line revenue. However, our fixed sales cost has increased. This has to do with our fixed commitment to the endpoints sales channels. Also, our overall integration has had a very good impact on both our administration and our sales cost structure. Many of these savings have been able to be reapplied or redeployed in marketing and sales efforts. Our payable tax is, of course, declined because of our overall performance. We believe that overall operation is still very healthy because our turnover days has improved. It has come down. Our anticipation of our frontline sales is quite accurate, and therefore, it has helped us to reduce our inventory. Also with accounts Receivables, there has been an increase that has to do with our bundling efforts. Also accounts payable has improved, because in last November and December, would be the main months for account receivables, so this is a seasonal impact. Basically, operating cash flow in the first half has remained stable when compared to the same period last year. Capital expenditure, there has been a major decline, a decrease. We have basically completed all of our capital expenditure deployment. In December this year, our plant would go into operation officially and providing to China. This could possibly be the first world-class China-owned and China-built plant of its own. After three years of hard work, this plant has already achieved a very comprehensive production capability and will soon be supplying to China. Just now we have walked through some financial data. Perhaps you would all the more want to know what are our strategies in such competitive markets. In the first half of the year, we have set that overall strategy, and we have not deviated from that. All the more, we see clearly that we must respond to challenges quicker and better. As far as opportunities and challenges are concerned, I think both of these are present in the next half of the year. What are our opportunities? Well, maybe it's because of the keen competition or the channel restructuring, I think the brands must consolidate, and integration would definitely take place. I hope that in this process, Yashili can become strong and come up even a better and stronger brand. So that makes a good opportunity, despite that it is also a challenge. Given the macro market, we have to improve on our cost structure and our profitability. Opportunity also comes from integration with Danone or with Arla. After the first half of the year, we are seeing more and more clearly that there's a need for this, and we are implementing on it step by step. Mother and child channel, as well as e-commerce channel, were teams that we have built previously, and some of the high caliber people have joined us. E-commerce took only 2% of our sales last year, and this where we expect at least a threefold or even fourfold increase. So this will be very helpful for our restructuring of our channels. Also, when we work with international partners, we have come to more clearly what are our product mix strategy. Originally, we have been focused very much on the same price band. However, we have smoothened that out since May or June this year, and we will be presenting ourselves or making a presence in the different price bands and different price segments. We will attach a lot more focus on the Star brands. Our new products would be launched very soon. The challenge and opportunities exist together. One challenge that I have not covered would be the influence of Haitao and overseas sales. This would greatly step up the competition in the market. How do we tackle the challenges? Despite that our overall direction would be the same, we have made some fine adjustments. We believe that reform would be the most important, because in such a fast-paced changing market, without adaptation, without change, we will be made obsolete. Also to optimize, because of the reform, we have to optimize our brand and our product mix, and also to enhance our product quality. The first one, the first reform would be the reform to channels. This is perhaps the biggest challenge that we have in our reform targets. How do we achieve a good placement or good arrangement for our mother and child channels? As of July, we already have 2,000 plus direct sales spots. Our coverage of this mother and child channel has also been growing very quickly. Our overall e-commerce is not only a channel, we are also promoting ourselves with the digital channels and connecting ourselves to the e-commerce channels. We have learned that our brand awareness and consumption, because of our brand value, has continued to rise. What is the core of the sales channels reform? That actually is to firmly get firm control of these end sales point. We all understand those long-term players in this segment, they are already aware of this importance. How do we quickly balance or align the interest of our channels with ourselves? That is something that we must quickly put in place and to turn them from agents into a distributor that have the same line of interest as ours. I am very thankful for our cooperation with Danone and other international partners. We have been able to introduce a specialized caliber, specialized personnel with the mother and child channels. They have been with us since April and May this year, and they would be very helpful in our reform of our agents and distributors. Secondly, a very important piece is, with such a keen competitive market as far as SKU is concerned, there are about 2,000 SKUs. That is an average number, and it is hugely amazing. With each price band or price range, who are our targets and who do we market to? What are our positioning and who would be our potential sales targets? These are very important issues. For Yashili, we have been able to put that together and follow it strictly, both on traditional as well as e-commerce channels. The first half of the year, we have been able to grow our high-end product marketing very quickly, and we will be launching new products in September. For adult formula, we will be launching this product next month, which is a functional formula, no longer a commodity, but something that can differentiate our brand from others. High-end adult formula milk has a huge market to offer. Also, we have to optimize and restructure our team. One important thing is that we have to integrate the front line and the back-end office, meaning the various plants and operations from New Zealand to China. These deployment are very clear already, and we just have to implement as planned. Also, our IT systems have to connect with each other so that we can be more efficient in management, because such efficiency would translate into competitiveness for us, and it will also help us compete in terms of price with our competitors. In this market, infant formula, the most important point comes back to brand. As we can see, several star companies and star brands continue to exist. In this segment, brand would be perhaps the only major entry barrier for new entrants. How do we make our brand more professional, more quality, higher quality, and more international? Our platform already has Arla and Danone, which would differentiate us as far as access or speed to market as well as quality. We have to look at our global resources. We will include the Arla sources in Europe and also Danone in New Zealand. We will be deploying all these systematically and reach an international production capacity. This will help us both in terms of cost and quality control to move towards a better direction. Another one would be quality. Another very important point would be the Europe, New Zealand, and China network. This deployment, this strategy would very soon be able to materialize as far as our product quality is concerned. So this would move towards our end of becoming a more international, more professional, and higher quality brand. Now, in our integration, one thing perhaps is very important. To line up quality and research so that our research results can quickly have access to the market. Now, lately, we have an acquisition that would include research and quality, and also our international production capacity. Our Yashili New Zealand plants and also our future plants, all these, we have a very clear consent to deploy this. Now, as far as supply chain is concerned, we have to incorporate all our suppliers on a global basis and also to enhance the efficiency in this global network. Now, with these platforms, regardless whether it is research or supply chain, I believe Yashili's overall efficiency, quality, and research would be enhanced. We are already seeing results, including in the next second half of the year, our speed to market for our new products. From the first half until now, we have not even a single quality incident. This is very rare for China, and I would say that Yashili has reached a new stage as far as quality control is concerned. Now, this would be my report to you, and I just provide you with a quick summary. Market is getting more competitive. Brands, more entrants are bound to be. The most important one would be the building of our brand, reform of our channels, and integration of our resources so that we can be more efficient, because efficiency is the only guarantee for us to win in competition. I am highly confident that we will continue to receive the support of our investors as well as the media, so that Yashili can be built into an international high quality and professional brand. Thank you.