Fonterra Brands New Zealand acting sales director Grant Watson and A2 Milk chief executive Jayne Hrdlicka.
The seemingly unstoppable rise in fortunes for the A2 Milk Company continued to be driven by sales in China and the US, and alliances with New Zealand milk giant, Fonterra, and Canterbury-based independent Synlait.
Total revenue of the marketing company rose a whopping 68 per cent to $922 million and the profit after tax more than doubled to $195m in the 12 months ending June 2018.
New chief executive Jayne Hrdlicka expected more growth in China where the company has doubled it market share of nutritional baby formula from 2.8 per cent 5.1 per cent.
The number of outlets where Chinese buyers could purchase A2 milk had increased from 3800 stores to 10,000 stores and it could also be ordered online, she said.
Responding to queries from Stuff, chief financial officer Craig Louttit said the company held worldwide patents that had lifespans varying between five and 15 years. Some original patents from 20 years ago had expired and the testing patents for cow herds had “rolled off” two years ago.
He declined to go into details for “commercially sensitive” reasons but Hrdlicka said farmers were certified by the firms such as Fonterra and Synlait that supplied milk products to the A2 Milk Company. A2 had invested in a new “unifying brand trade mark applied across all products and markets”.
A2 Milk was minimising the risk of product substitution and counterfeit, particularly for infant formula in China, with improved security technology.
The company launched new three new milk powder products – including an A2 milk powder blended with mānuka honey packed by Fonterra.
Hrdlicka said the 2018 financial year had been “transformative”.
“Our brand and unique approach are working across multiple products and markets and we are seeing real momentum building in China and the US.”
She acknowledged the emergence of Nestle in the China market – “the first signs of competition from a major international company appeared in March 2018. There has been no apparent impact on our sales momentum as a consequence of this launch”.
A clinical trial in China involving 600 adults with self-reported lactose intolerance found consumption of milk containing the A2 protein type reduced acute gastro-intestinal symptoms.
A pilot study in New Zealand was being submitted for publication, and another clinical study in China of pre-school children examining digestive benefits has been submitted for publication
The comprehensive strategic relationship with Fonterra stuck earlier this year incorporated an exclusive nutritional powder agreement with Fonterra manufacturing A2 milk products in Australia, South East Asia and the Middle East.
It gave an exclusive licence to Fonterra for the production, distribution, sale and marketing of A2-branded branded liquid milk in New Zealand from July 2018), and joint evaluation of opportunities for butter and cheese sales in Australia, New Zealand and China.
Earlier this month A2 Milk invested $162.3 million in Synlait Milk shares, to lift its shareholding to 17.4 per cent.
“This investment is intended to provide further stability over Synlait’s capital position and ownership…the company has no plans to further increase its shareholding in Synlait.
“The extended arrangement with Synlait Milk and the new relationships with Fonterra and Yuhan Corporation are important steps in the development of our supply chain and capacity to develop new markets.
“The extended relationship with China State Farm is another important relationship, underpinning our platform for growth in China.”
The Company is also exploring possible ownership of blending and canning assets, in conjunction with its nutritional powder supply partners.
In Australia, A2 Milk-branded fresh milk market share by value grew from 9.3 per cent to 9.8 per cent.
The US business grew thanks to an increase in distribution through 6000 stores in California, the southeast, the northeast, the mid-Atlantic and through retail chains including Sprouts Farmers Market and Whole Foods Market. Sales also lifted in the UK but it remained a more challenging market to achieve scale.
The share price remained steady at $11.30, well ahead of the $5 price a year ago, but shy of the high of the $13.99 recorded in March.
Source: Stuff
