Tuesday, 26 November 2019 06:55

A2 eyes higher sales, profits

Written by  Pam Tipa
A2 Milk chief executive Jayne Hrdlicka. A2 Milk chief executive Jayne Hrdlicka.

A2 Milk expects strong first half sales supported by brand and marketing investment in China and the United States.

The company anticipates the annual operating profit margin full year 2020 will be 29-30% which is greater than expected. It previously expected profit to align with the 28.2% increase during the second half of 2019.

Chief executive and managing director Jayne Hrdlicka says Greater China and the US are significant markets with sizeable and growing premium categories.

“High consumer loyalty with relatively low awareness indicates significant growth opportunity,” she said at the annual general meeting last week.

This requires stepping up to serve Chinese consumers well through all channels. 

A2 will look to broaden its product portfolio in core markets, she said.

“Our core markets have sizeable adjacent categories, once meaningful brand awareness is achieved.”

 The company will leverage its existing infrastructure, channels and proprietary knowhow but investment in new capability will also be required.

Market testing continues in South East Asia and the Korean range is being extended to include infant nutrition with Korean company Yuhan. 

“Exiting the UK will allow further focus on our existing core markets and over time more attractive new markets,” Hrdlcka said.

Overall, for the full year 2020 revenue growth is expected to remain strong in key regions, supported by brand and marketing investment in China and the US. Greater capability and infrastructure will be needed. 

First half revenue is expected to be $780 million to $800 million. 

 China label infant nutrition sales are forecast to be about $135 million -- a growth rate of 84%. Cross border e-commerce infant nutrition sales are forecast to be about $155m (+54%). 

ANZ English label infant nutrition sales are forecast to be about $350m (+9%). 

US sales are forecast to be about $27m (+110%). Australia fresh milk sales are tipped to reach $75m (+12%).

Synlait deal extended

A2 Milk has extended its supply agreement with Synlait Milk.

The new agreement is a key part of a2 Milk’s global supply strategy.

The supply agreement for a2 Platinum and other nutritional products, announced on July 3, 2018, provided for a minimum term of five years, with a rolling three-year term from August 1, 2020. This is now extended by two years for a new minimum term to, at the earliest, July 31, 2025.

The volume of nutritional products over which Synlait already has exclusive supply rights has been increased. Synlait will raise its production capacity.

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