- Yili's commitment to maintaining low leverage while it pursues growth supports
  the upgrade of its outlook to stable. 
- Yili could achieve its 2025 growth target through organic growth alone.

S&P Global Ratings announced it has revised its rating outlook for Inner 
Mongolia Yili Industrial Group Co., Ltd. ("Yili") to stable and affirmed the 
"A-"long-term issuer credit rating on Yili and the "A-" issue rating on the 
senior unsecured notes that the company guarantees.

S&P said that the stable outlook reflects its view that Yili will have the 
ability and discipline to fulfill its growth targets. S&P also noted that with 
its disciplined financial policy, robust organic growth, and stable free cash 
flow, Yili could maintain its minimal leverage position as it pursues growth.

Yili, currently the fifth-largest dairy producer in the world, has unveiled its 
new mid- to long-term strategic goals. S&P said that the company would need to 
grow revenue at above 10% annually to become one of the top three global dairy 
players by 2025, adding that Yili could achieve this through organic growth 
alone.

Data shows that in the first three quarters of 2021, Yili registered gross 
revenue of RMB 85.007 billion and a net profit of RMB 7.967 billion, 
representing a year-on-year increase of 15.23% and 31.82%, respectively.

Significantly, S&P predicted that the size of other potential external 
acquisitions beyond the strategic acquisition of Ausnutria will not have a 
material impact on Yili's leverage ratios. Moreover, the company's healthy 
EBITDA growth and solid operating cash flow should support its low leverage, 
according to S&P.

On the one hand, Yili's good operating cost controls could better offset the 
impact of higher raw material prices. Yili also has better pricing, a premium 
product mix and a higher-margin layout for its powdered-milk business. S&P 
forecasted the company's EBITDA margin to rise incrementally to 11.2-12.0% in 
2021 and 2022, up from 11.1% in 2020.

On the other hand, Yili's advantage in liquidity has been further strengthened 
due to its strong operating cash flow, adequate cash reserves on its balance 
sheet and private placement. The company also enjoys strong capital market 
access as well as strong and longstanding relationships with banks, as 
indicated by its issuance of bonds with low coupon rates. S&P therefore 
estimated that Yili's free operating cash flow will remain at RMB 2.5 billion 
to RMB 4.0 billion in 2022 and that ample operating cash flow will aid rising 
capital expenditures in 2023.

At the end of 2021, Yili unveiled its New Vision for corporate value creation 
across key aspects, including high-quality development, exceptional business 
performance

Source: Yili Group