Tuesday, October 4, 2022

Point of Order: a2 Milk strikes a distribution deal with Chinese partner

Sets sights on $2bn annual revenue

While the big co-op Fonterra is the dominant force in the NZ dairy industry, injecting nearly $14bn into regional economies through its payout to farmers, some of the smaller companies have become spectacular performers.

Point of Order last week drew attention to how the specialist Waikato processing company Tatua had outstripped Fonterra with its 2021-22 payout.

This week a2 Milk grabbed a headline by telling the market it had renewed exclusive import and distribution arrangements with a Chinese company for five years. This triggered fresh interest in the company, which is sitting on a cash pile of $816.5m It plans to spend $150m of this in a share buy-back

China State Farm Agribusiness has been a2 Milk’s strategic distribution partner in China since 2013 and is the exclusive import agent for its China label products, including a2’s China label infant milk formula.

CSFA is a wholly owned unit of China National Agriculture Development Group Co (CNADC), which is also the parent company of China Animal Husbandry Group (CAHG), which holds a 25% stake in Mataura Valley Milk, which operates a specialist processing plant in Gore, Southland.

a2 Milk owns the rest of Mataura Valley.

“The extension of arrangements with China State Farm confirms the strength of our relationship with key partners in China and our shared confidence in the future,” a2’s CEO David Bortolussi said.

Bortolussi said China State Farm’s support would be critical for joint success in China.

In August, a2 Milk reported a 42% jump in annual net profit to $114.7m, driven by strong growth in its infant formula business.

Revenue in the June year grew 19.8% to $1.44bn. A2 Milk said it was on the way to reaching revenue of $2bn in five years’ time.

The company said last week the weaker NZ dollar made for a positive start to the current financial year, with first quarter sales expected to be marginally ahead of plan.

A2 said it faced a positive outlook for 2023 with high single-digit revenue growth and ebitda margin improvement expected. This follows what Bortolussi described as a “successful year”, with the company returning to double-digit growth in revenue and earnings despite significant headwinds.

“We are pleased with the progress that has been made in stabilising the business, refreshing our strategy and improving our execution,” he said in August.

China-label and English-label infant formula sales were up 12.2% and 11.6%, respectively.

Australia-New Zealand, and US liquid milk sales were up 1.8% and 30.2%, respectively.

”Our significant increase in marketing investment has driven further gains in brand health metrics and record market shares delivering strong growth in our China infant milk formula business,” Bortolussi said.

The company remained committed to the unofficial daigou channel and had increased its direct engagement and marketing support, he added.

Analysts said at the time a2 Milk had shown strong “execution” of its strategy in a difficult macro- environment.

It underlines how a2 Milk has progressed from its origin in Dunedin nearly 20 years ago to be a dynamic element in NZ’s dairy industry, marketing its milk product, which it claims delivers health benefits.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton

No comments: