Failure in Input Price Forecast
At the end of Q3, Vinamilk achieved a gross revenue of VND 15.636 trillion, a 2.8% decrease due to declining milk consumption. However, the gross profit margin reached 41.9%, a 2.4 percentage point increase, attributed to a sharp decrease in milk powder prices that continued to stay low. Consequently, Vinamilk's after-tax profit reached VND 2.533 trillion, a 9.1% increase—the most positive figure since Q3-2021.
Previously, Vinamilk faced extremely challenging circumstances, contending with both decreased consumption and peaking input prices of milk powder in Q2-2022 (a 23% increase from the beginning of the year). Specifically, as per the 2022 financial report, gross revenue decreased by 1.6% (reaching VND 60.075 trillion), while after-tax profit plummeted by 19.3% (reaching VND 8.578 trillion). Factors contributing to this situation included the restructuring of the distribution system, reduced consumption due to increased selling prices, intensifying competition, and inflationary pressures affecting consumer spending habits. Notably, the most significant factor was the increase in milk material prices since late 2021, leading to declining profits despite the company proactively cutting various costs like sales, management, and advertising.
Sharing insights at the 2023 Annual General Meeting held in April, Ms. Mai Kieu Lien, the CEO, acknowledged that in the company's 47-year history, she had never witnessed such a significant surge in material prices in 2022—ranging from 37-50%—due to conflicts and inflation, adversely impacting profits. Although material prices started to decline rapidly since the beginning of 2023, Ms. Lien admitted that input prices fluctuated rapidly and were challenging to predict.
In reality, despite a sharp decline in input prices from the second half of 2022, Vinamilk's gross profit margin for 2022 still decreased by 3.7 percentage points due to the company maintaining high-priced raw material inventory. The fact that high-priced raw material inventory still exists somewhat indicates a failure in price forecasting by Vinamilk's leadership. This unpredictability in input prices, as shared by Ms. Lien, is the reason Vinamilk's Board of Directors planned its 2023 business operations with caution. Specifically, estimated revenue is VND 63.380 trillion (a 5.5% increase compared to 2022), and after-tax profit is projected at VND 8.622 trillion (a 0.5% increase compared to 2022).
Sustaining Expectations or Letting Go?
Recent years have witnessed a "step back" that prompted Vinamilk's Board of Directors to embark on a comprehensive transformation, starting with a rebranding strategy. In July, Vinamilk unveiled its new brand identity, embodying characteristics of "boldness, determination, always being oneself," with the message "we change for you." According to CEO Mai Kieu Lien, the rebranding effort is an endeavor to reposition the company, marking the first step in modernizing the user experience to pave the way for breakthroughs in the future. This initiative aims to enhance brand value, better connect with younger customer groups, and establish a new perception of Vinamilk as a globally-classed brand with quality and value for the Vietnamese.
After introducing the new brand identity, Vinamilk will initiate a series of changes in digital transformation, human resources recruitment, and management processes, with the goal of reaching consumers faster and more efficiently.
The new brand identity was developed in collaboration with over 55 leading experts from both domestic and international fields. However, the reception of Vinamilk's new brand identity sparked mixed reactions on media and social platforms immediately after its launch. Many opined that Vinamilk spent a significant amount to invite over 55 leading experts to build a brand identity less friendly than the familiar one, which had become ingrained with multiple generations of customers.
Following the announcement of the new brand identity, Vinamilk disclosed positive business results, which some attributed to the rebranding strategy, overlooking the fact that this outcome was largely influenced by the decrease in input material prices. Additionally, many overlooked the "downside" of implementing the new brand identity campaign, which involves a series of increased expenses, such as sales and management, set to rise from the second half of 2023.
Notably, after unveiling the new brand identity, the major shareholder, State Capital Investment Corporation (SCIC), registered to sell over 1 million shares in Vinamilk. SCIC cited portfolio restructuring as the reason. However, the most suspicious aspect is the major shareholder's pattern of registering to buy and subsequently announcing the inability to purchase, as seen with F&N Dairy Investments PTE.LTD. Recently, this investment fund declared it would not acquire 20.9 million shares in Vinamilk, as previously registered. Since 2022, this organization has registered to buy over ten times but has not made any purchases, consistently citing "unfavorable market conditions." This is also the reason given by Platium Victory Pte. Ptd when repeatedly registering to buy 20.9 million shares of Vinamilk but later declining the purchase.
