Blossoming trans-Tasman dairy business, A2 Milk Company, says the near tripling of its full-year profit was largely fuelled by soaring demand for infant formula products in China.
Net profit after tax (NPAT) jumped to $83.4 million (NZ$90.6m) for the year to June 30.
Last financial year NPAT was $27.8m
While sales of fresh milk in Australia grew about five per cent on 2015-16 results, it was the company’s A2 Platinum infant formula which accounted for 72pc of total revenue, after sales increased 56pc to $502m.
The starring performance by the infant formula business follows last year’s 61pc contribution to total revenue.
A2 Milk had originally predicted a likely sales dip in the second half of the year, but continuing Chinese demand saw the firm to reverse its forecast and raise its revenue outlook.
The specialist dairy processor, which is headquartered in Australia, but originally from New Zealand, has avoided the sales carnage felt by rival Bellamy's which had its infant formula exports blocked by Chinese regulators.
Sales to China have climbed in part because of to the company's close relationship with informal Chinese expatriates and travelling shopping agents, the "daigou" trade, which send a steady stream of tinned formula back home via the mail.
Managing director, Geoffrey Babidge, said A2’s continued growth reflected increasing consumer acceptance of the brand and the benefits of dairy-based products free from the A1 beta casein protein type.
We have been able to respond progressively to the supply challenges arising from growth in demand for A2 Platinum infant formula which exceeded our previous expectations
- Geoffrey Babidge, A2 Milk Company
“We have continued to support and expand our brand proposition through effective marketing and promotional activities in each of our markets,” he said.
“It is particularly pleasing we have been able to respond progressively to the supply challenges arising from growth in demand for A2 Platinum infant formula over the year which exceeded our previous expectations.”
A key factor in meeting the growing demand was a long-term supply agreement with New Zealand-based manufacturing partner Synlait, which is part owned by A2.
In Australia the company had also extended milk supply arrangements with the big NSW-based Leppington Pastoral Company and Moxey Farms dairy farming business, which have farms in central and southern NSW and near A2’s southern Sydney milk processing plant.
“We have also been successful in adapting to shifts in demand for infant formula between the major retail, e-commerce and personal shopper (“Daigou”) channels, recognising this is an important dynamic for continuing growth,” Mr Babidge said.
“The company is also strongly focused on China’s evolving regulatory regime, in particular the requirement for registration of infant formula brands by China’s Food and Drug Administration from January 2018.
“We have a number of initiatives under way to progress portfolio growth in nutritional products and to extend its business into emerging markets, without loss of focus on current initiatives.
Meanwhile, progress was being made in the US, with a continued focus on California expanding into southern states and lifting brand awareness and rates of sale.
Fresh milk sales in the UK showed strong growth in 1600 supermarkets as continued marketing investment and improved customer engagement delivered profits for the first time.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
