In 2003, Chinese dairy industry saw its continued development through cut-throat competition and its enormous attraction remained.  Exorbitant dairy market drew huge investments, state-owned assets, foreign-assets, non-governmental assets, capitals, funds, resources, brains and wits into the trade.  From 2002 to 2003, an aggregate of 10 billion RMB was poured into in forms of funds from other trades, investments from governmental sector, commercial loans and small self-owned assets.

Bright Dairy & Food Co., Ltd. (hereinafter referred to as the Company), under joint efforts from managing departments of various levels and all staffs, stably developed in 2003 at a prudent pace. The Company abided by principles drawn and passed by the Shareholder’s Meeting and the Board of Directors, and a structural reform and a positive asset allocation were adopted to advance various operations and managements. Thanks to advantages in brand, products, technology, talents, channels, markets, milk resources and thorough implementation of the operation concept “sustainable profit growth”, the Company saw 2003’s sales and profits grew for eighth consecutive year at a two-digit rate accordingly.

Revenue of the year 2003 was 6 billion RMB with a net profit amounted to 280 Million RMB, and those two numbers made 2003 the eighth year of consecutive and healthy two-digit growth of both sales and profits. From the revenue, 62% was from dairy products sold out of Shanghai, which made the Company a company of state-known brand.

I. Meet Customers’ Needs & Establish a Leading Brand of the Trade

The basic purpose of the Company’s efforts in forging core competence is to meeting customers’ needs. As for Bright the well-known brand over China, it comparatively differs from competitors for its long history and fame.

In 2003, the fame and credibility of the Brand further spread over as the Company combined quality products, good after-sales service and highly-qualified sales team with the products and brand of Bright through four major aspects, namely the strengthening of its diversification over high-value-added products and regions, the establishing of an omni-direction distribution system to “supply customers with products wherever they need”, the forming of customer service standard and checking of customer’s satisfaction, the establishing of a Bright sales team with its characters. The Bright brand currently reflects itself as “Urban, High-tech, Professional, Creditable” in customers’ minds with more than 90% of customer satisfaction on an over-all scale. Leaded by Bright the mother brand and strategic promotional regional activities, further developments were achieved in its series of sub-brands: Mini Bright, Xinde Yogurt Partners, Wheat-flavored Bright, Infant Milk Powder.  A stable company image is expected through a combination of mother brand and sub-brands, usage of sub-brands to separate products of different market targets, providing consumers with products of various levels, and meeting demands of numerous costumers. 

II. Firmly Adhere to the Principle of Building Core Competence through High-tech

The company clearly realized through process of development and competition that a long-term growth of a company could be secured only by core competence based on high-tech in aspect of traditional consumer goods.  Therefore high-tech based core competence is and will always be the principle of the Company. After years of development, the Bright Dairy Technology Center is graded as a state-level technology center and laboratory---the only state-level dairy technology R&D center in China, and publishes a state-level technology periodical Dairy Science and Technology. The Company carried out technological cooperation on developing bacteria with Rhodia Co., Ltd. from Europe, a joint scientific and technological exploration with New Zealand's Dairy Research Institute (NZDRI), and joint research projects over dairy active peptide and beneficial bacteria with several domestic Universities. 

After the technology center of the Company was granted to be a state-level technology center at the beginning of 2003, the center attached great efforts to develop high-value-added products, healthy products and updating original products in line with the center theme of developing new products of “Nutritious and Healthy” and the principle of developing new items while improving the existed, in the mean time notions like lowering production costs, updating technology used in production process, and improving basic researches were also adopted. In that year alone, there were over 107 projects including Beneficial-bacteria-added Milk, Sugar-free and Low-fat Yogurt, Xin Shuang Beverage, Look Aloe Yogurt, covering six new products categories---fermented milk, milk powder, liquid milk, ice-cream and etc. In year 2003, sales volume of new products was 1.3 billion RMB, counted for over 20% of total sales while costs of the same period were reduced by tens of millions. And major breakthroughs were made in projects like Safe Milk (also known as Antibiotic-free Milk) Project, Cold-chain (air-conditioned transportation) Logistics Project, Fresh Milk Project, Resources & Technology Projects, and HACCP Project thanks to the technology diversification and advantage in costs.  Formation of high-tech based core competence provided a powerful and strong technological base for the business operation and development of the Company.

In addition to exploiting new products, the Company also stresses research on senses, which is not only an important component of judging food quality but also a key discipline of food science. However in many enterprises the very judgment upon senses are carried out only by a not so scientific approach---senses of individuals. In view of this, the technology center set up a Sense Department to conduct scientific judgment for the products by those professionally and systematically trained inspectors. The Sense Department forms scientific criteria and standards for products R&D as well as quality tracing to make the science of senses better serve the Company.

In year 2003, the technology center issued 22 theses, published 5 books at Chemical Industry Publisher, achieved a major technological breakthrough for the tenth State “Five-year Plan”, applied for 12 patents--5 of them were for invention that created the Company’s own intellectual property rights and efficiently broadened social influences.

At the moment, under the Company’s guideline of forging a high-tech Bright, a group of excellent dairy (including food, biology, microbiology, chemistry) talents attended: 7 doctors, 24 masters and 35 university graduates, among those doctors & masters many are with overseas studying or working experience. Disciplines of talents cover five categories, namely dairy (including food), chemistry, microbiology, science of life and medicine, thus form a scientific research team mainly composes young and middle-aged researchers with proper knowledge composition and a wide coverage of disciplines.

Technology innovation, the advantage of the Company, creates a group of high-value-added product, contributes a technology & scientific contribution rate close to international practice, and is gradually realizing its purpose---to avoid market risk by taking technology risk. 

III. To Create an Image of a Quality Public Company in the Capital Market

It has been the Company’s unremitting pursuit to creak value for customers, shareholders, staffs, and the society. In 2003, the second year after it went public, the Company (600597) maintained a good profits-earning ability and momentum of growth, kept low debt rate and good ability for paying debts, and therefore was categorized by more than 50 investment institutions of the trade as one of “listed companies that deserve investment”. The stock 600597, just after one-year of listing, was selected as a sample stock for SSE Index 180, and later as a sample stock for SSE Index 50 for its medium-scale and good flow. The Company was applauded by the trade for “serving as a model in regulating Chinese listings’ information disclosure, and making grand positive contributions to the standardized development of the stock markets in China”.  Profit per share and net asset profit rate of the Company ascended continuously in the forth quarter of 2003, and in eyes of vast investors the Company represents a company with years of fast development with a proper stock value that basically reflected the high-profit and promising future growth momentum of a leading company.

IV. Strictly Adhere to the Competition Doctrine “Quality is life of a Corporate”

Under the notion of “Innovative Life & Common Health”, the Company for many years provides quality products of nutrition, health, freshness and safety for consumers with various consuming habits from different regions, and always works on satisfying consumers’ multi-level and multi-prospect demands.  The Company deems for long quality management as of strategic importance, which exemplifies itself in the pursuit to excellence in each and every joint of the whole chain and to dedicate only hygienic fresh and nutritious dairy products to the market.  “Wherever Health is, Wherever Bright is” and “Fresh Everyday” are more than promises to consumers but rather are symbols of good products quality.

The Company always advocates “100% Excellent Milk & Cow”, and is abided by various efforts started with milk source construction: adoption of the state biggest and most complete DHI system for dairy production quality & quantity evaluation, calculating breeding results by the advanced BLUP animal model method. The breeding center of the Company boosts for its excellent bulls, including TOP 6 bulls of 2002 according to evaluation from China Dairy Association, and a good milk resource for the Company is ensured. The Company vigorously promoted raising cows of scales in Shanghai, and 60,000 cows in Shanghai were automatically milked by December 2003. Efforts also include adoption of direct cooling milk tanks and instant cooling systems, putting number of microorganisms in raw milk below 500,000, making great endeavors to promote milking cows together in milk production base with a total investment of over 60 million RMB in Hei Longjiang Province for building milking halls, and milk from small-scale farmers was rejected in order to fully ensure quality of milk. The Company is the first in state to declare and promise all its products are antibiotic-free, a safety promise topped in China.

The Company positively constructed a quality control and guarantee system with a strict procedure control, formed the product-centered and service-centered notion for business operation, and the consumers’ demands are deemed as guidelines while drafting specific principle governing quality. In 1998, the Company established ISO 9002 quality guarantee system, and was passed after inspection; in 2002, quality guarantee system was modified according to standards of ISO 9001 (2000); in 2003, HACCP was received to further improve and guarantee products quality.

By April of 2004, the Company’s 20 factories throughout China passed on-spot inspections by State Quality & Technology Monitor Bureau and received QS marks.  The Company was the first to have the Certificate of Measuring System from State Quality & Technology Monitor Bureau in 2003.  The Bright series dairy products satisfy consumers’ demand in aspects of both quality and quantity and truly become the “Creditable Food” in consumer’s minds.

As a dairy company with main production of fresh dairy, the Company understands the promise “Cold-chain Brings Fresh & Quality” to customers also places higher demand on corporate management.  And a whole set of “Cold Chain” System was built to ensure crude milk was cooled under 4℃ soon after being milked from machine, transported to factory by refrigerator channel trucks, processed in a totally closed environment under 4℃, stored at 4℃, transported directly from cold storage to refrigerator van and finally into the thermal-insulated box of a consumer.

During construction of the system, the Company also formed a quality guideline with Bright characteristics goes as “Excellent Cow, Excellent Milk, Wonderful Drop, Everyday Fresh, Everybody Trust”. From inspection and acceptance of crude milk to transportation and sales, every procedure is kept under strict and standard control to pride safe and delicious dairy products for consumers every single day.

V. Speed up the Strategic Growth of Domestic Layout

On September 3^rd 2003, Ministry of Commerce approved “Shanghai Bright Dairy & Food Co., Ltd” officially changed to “Bright Dairy & Food Co., Ltd”, a decision accelerated the Company’s advancing to whole China area. Since 1997, the Company started to build milk source base and production base out of Shanghai, for instance in Inner Mongolia Autonomous Region, He Longjiang Province, Beijing, Xi ‘An, Wu Han, Nanjing, Wuxi, Hangzhou, Qingdao, Jiangxi Province and other places as well.  New branches of the Company including Guangzhou Bright, Zhenzhou Bright Shanmeng Dairy & Food Co., Ltd., which is established after acquisition of Zhenzhou Shanmeng Dairy & Food Co., Ltd. A total of 19 factories and 21 milk source bases were founded out of Shanghai and further improved the strategic layout.  In the mean time, a relevant undertaking---Ke Di Convenient Store see more than 1,000 stores open, and continues to expand not only in Shanghai but East China as well, now begin at Guangzhou with local channels also.  In order to ensure the supply for whole China, the Company separated animal husbandry department and upgraded it into Shanghai Bright Holstein Co., Ltd., in which the managers are also shareholders so as to keep them better motivated.   Shanghai Bright Holstein Co., Ltd. is more than the crude milk organizer for the Company, but also a provider for husbandry technology and management.

Maintain leading position for long is a challenge to any corporate, and is especially true under a situation with drastic changing competition of the dairy trade, re-segmentation of market shares, M&As of dairy corporate, and cut-throat competition among leading dairy giants. All those factors forced the Company to stick to advancing with time, exploring new and making innovations, learning from others’ merits, so as to positively prepared for transformation or a re-start of the Company; keep carry out high-tech strategy and domestic market exploration strategy with a cool-head; take pains in improving inner capacities to face new challenges; further forward the transfer of economic growth method; continue improving comprehensive competence; accelerate the pace toward building a Chinese dairy corporate with international competence.