Fonterra Deal Sweetens a2 Milk Result

By Glenn Dyer | More Articles by Glenn Dyer

Shares in the New Zealand-based a2 Milk company soared yesterday on a record interim profit and a potentially major deal with NZ dairy industry giant, Fonterra.

a2’s Australian listed shares surged 30% to $11.30 in the wake of the half year result and Fonterra deal. Fonterra securities rose a more sedate 1.2% to $5.65. Surging sales of infant formula in Australia and China have not only boosted the a2 Milk company’s first-half net profit by 150% to $NZ98.5 million ($A88.8 million), but forced the giant Fonterra to do a deal to hop into the rapidly growing sector of the dairy business.

A2 revealed in its interim results release yesterday that it had formed a strategic relationship with Fonterra that would cover a wide range of supply, distribution, sales and marketing arrangements in some markets, saying it was a “significant development [for the company] given the wide-ranging nature of the relationship”, helping it build its business in new markets.

The deal means A2 Milk Company’s fresh products will become more available in New Zealand and Australian shops.

A2 Milk CEO Geoff Babidge and Fonterra chief executive Theo Spierings said in a statement yesterday the new strategic relationship included access to Fonterra’s global milk pool and supply chain, manufacturing, sales and distribution.

Under the new agreement, Fonterra will build a pool of farmer-suppliers in New Zealand and Australia, which will require genetic testing to identify the A2-producing cows.

The Fonterra-sourced A2 milk – and possibly butter and cheese – may also be sold in Australia, the US, UK and South east Asia. The aim is to build greater returns for both companies by growing demand locally and internationally using A2 Milk Company’s increasingly popular brand strength.

And looking at A2’s interim results yesterday it is no wonder In results released yesterday the dual-listed New Zealand and Australian company reported a 70% 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% to $NZ143 million.

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.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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