a2 Milk Company to expand nutritional range amid soaring infant formula sales

By Gary Scattergood

- Last updated on GMT

MD Geoffrey Babidge, left, said the firm was placed to benefit from China's new infant formula laws.
MD Geoffrey Babidge, left, said the firm was placed to benefit from China's new infant formula laws.

Related tags Infant formula Milk China

New Zealand’s a2 Milk Company has signalled its intention to branch out from infant formula into a broader range of dairy-based nutritional products – with the burgeoning China market very much in its sights.

The announcement follows the release of its full-year results to June, which showed a NZ$30.4m profit after tax on the back of 127.8% rise in revenues to NZ$352.8m.

Over the past year, infant nutrition sales accounted for 61% of total revenue, with Australia and China its top markets.

“These proportions are anticipated to increase further in FY17,”​ said the company. “While the largest proportion of sales was within the Australian grocery and pharmacy channels, direct sales into China increased significantly and are expected to continue to do so.

“Sales of a2 Platinum infant formula in China grew strongly, and the China and other Asia business delivered positive operating earnings for the first time since the company entered the China market,” ​it added.

Looking ahead, the firm vowed to explore the viability of additional nutritional and supplement products.

“The company is focused on building a portfolio of dairy-based nutritional products centred on the unique strengths of the a1 protein-free proposition. The broader nutritional strategy, from infant through to adult products, represents a natural evolution that the company expects to be more attractive in the medium term than one based purely on traditional dairy. In the coming year we will also begin to explore growth initiatives in other priority Asian markets,”​ it added.

China regulations

Managing Director Geoffrey Babidge said the 2016 financial year heralded the company’s evolution from a branded dairy products company to one increasingly focused on a broader nutrition platform.

“In conjunction with those developments the company maintained a strong focus on understanding and adapting to changes in the regulatory environment for infant formula products in China," he said. “As a result of that focus, the company considers itself well placed to respond to other potential changes over time."

The key change is that infant formula manufacturers will need to be registered with the China Food and Drug Administration by 2017, a process that a2 will begin in October.

Babidge also conceded the increase in demand for a2 Platinum infant formula in Australia and China during the first half of the financial year had created challenges in balancing supply, production and logistics.

But he said this had been resolved in conjunction with its manufacturing partner Synlait Milk Limited, and with an expansion of milk supply from affiliated farms in New Zealand.

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