A2 cheese, butter flagged amidst 'game-changing' deal

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A2 cheese, butter flagged amidst 'game-changing' deal

By Darren Gray

The a2 Milk company has confirmed it will consider the possibility of developing other a2 branded dairy products such as cheese and butter that could be sold in Australia and overseas, as it revealed a sharp lift in net profit.

Infant formula sales have propelled a2's profit up sharply.

Infant formula sales have propelled a2's profit up sharply.Credit: Kylie Pickett

A2 confirmed the potential move would be evaluated on a busy day for the market darling as it revealed a new "strategic relationship" with New Zealand dairy giant Fonterra, and as it released bumper first half results.

The relationship with Fonterra could, the company said, eventually lead to the establishment of cow herds in China producing a1 protein free fresh milk.

In an interview with Fairfax Media a2 Asia Pacific chief executive officer Peter Nathan said the new relationship was "a game changer" for the company, that would give it more diversification and security of supply.

Surging sales of infant formula in Australia and China have pushed the company's first-half net profit up by 150 per cent to $NZ98.5 million ($88.8 million).

In results released before the Australian sharemarket opened on Wednesday, the dual New Zealand and Australian-listed company reported a 70 per cent jump in total revenue to $NZ434.7 million for the six months through December.

Earnings before interest, tax, depreciation and amortisation more than doubled in the December half from a year earlier, rising by 123 per cent to $NZ143 million.

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Investors lapped up the news sending a2's shares soaring upwards more than 22 per cent. Shortly after 11am, the stock was trading at $10.66, after rising $1.95 in morning trade.

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The fast growing company also revealed how it continues to penetrate the Australian and Chinese dairy markets. And it announced that it will soon enter the New Zealand fresh milk market for the first time.

A2 said its share of the massive infant formula market in China by value had grown strongly in the first half of fiscal 2018, from 3.5 per cent at the end of June 2017 to 5.4 per cent at the end of December.

The company's share of the Australian infant formula market also grew strongly, with the company now holding 30 per cent market share in this country. A2 said its share of fresh milk sales in Australia was now at 9.5 per cent.

A2 said its strategic relationship with Fonterra would cover a wide range of supply, distribution, sales and marketing arrangements in some markets, and was a "significant development" for the company.

Mr Nathan said the relationship with Fonterra was "entirely complementary" to the company's existing relationship with Synlait, and gave a2 a "more diversified supply base".

It gave a2 the capacity to get bulk powder from a facility at Darnum in Gippsland, in order to supply new initiatives into South East Asia and the Middle East, he said.

We now have a 30 per cent market share in infant formula in Australia, which is easily the fastest growing brand in Australia

Peter Nathan

Mr Nathan said the company had delivered "a stunning result" in the December half that was the culmination of years of hard work.

"We've invested very heavily in consumer marketing. We've got a very strong, differentiated brand and that has resulted in us being able to deliver an extraordinary result," he said.

"We now have a 30 per cent market share in infant formula in Australia, which is easily the fastest growing brand in Australia," he said.

Managing Director Geoffrey Babidge said he was particularly pleased with a2's continued growth in market share and sales of its infant formula in China.

“Consumer interest in the benefits of dairy-based products free of the A1 beta-casein protein type continues to grow," he said. "We invest strategically in this aspect of the business through marketing, promotion and education programs in each market."

Mr Babidge said a2's distribution networks grew strongly in the December half, particularly in China and America.

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