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China milk scandal drags Yili Group into losses
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14:29, January 23, 2009

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China's Yili Industrial Group reported a net loss last year as a result of the baby formula milk scandal, according to its statement to the Shanghai Stock Exchange Market Friday.

The company did not disclose the size of loss. Net loss for the producer stood at 20.6 million yuan (3.01 million U.S. dollars) in2007. The first three quarters last year saw a net loss of 109 million yuan.

A report from Morgan Stanley expected the company's 2008 loss at 2.3 billion yuan. Chen Lianfang, a senior dairy analyst with Beijing Orient Agribusiness Consultant, agreed with the figure.

Yili was more affected by the scandal than the domestic rivals Mengniu Dairy Co and the Bright Group, as Yili took a bigger domestic market share of milk power at 8 percent. The company at the heart of the scandal, the now bankrupt Sanlu Group, had a 17 percent share.

Mengniu Dairy was expected to record a net loss of 900 million yuan despite earnings in the first half of last year.

The Bright Group posted a third quarter loss at 271 million yuan last year and was expected to experience a full year loss. No specific figure was disclosed.

The milk scandal shook domestic dairy market and hurt consumers.

An unnamed analyst said gloomy dairy market sentiments also lead the companies to destroy dairy products in inventory, which lead to huge losses.

Chen estimated the current sales of these companies have recovered gradually to 70 percent of pre-scandal conditions. He added they would reverse the results when the percentage moves up to 80 percent to 90 percent this year.

The Sanlu Group, whose bankruptcy petition was accepted by the Shijiazhuang Intermediate People's Court last month, was fined 49.37 million yuan.

Two men were sentenced to death Thursday for producing and selling large amounts of melamine-laced "protein powder." The former board chairwoman of dairy firm Sanlu Group, Tian Wenhua, was sentenced to life imprisonment.


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