Published: Wed, February 21, 2018
Money | By Armando Alvarado

New Zealand's a2 Milk posts record H1 profit on China demand

New Zealand's a2 Milk posts record H1 profit on China demand

A2 Milk Company managing director Geoff Babidge and Fonterra chief executive Theo Spierings said the new strategic relationship included access to Fonterra's global milk pool and supply chain, manufacturing, sales and distribution.

"It was a pretty significant announcement for a2 and shows their growth can move by a lot quicker than past opportunities with Synlait Milk", said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch.

They'll set up an A1 protein free milk pool in Australia and Fonterra also gets exclusive supply rights for some products in new markets for a2 in South East Asia and the Middle East up to a specified volume.

Net profit after tax was NZ$98.5 million ($72.3 million) for the six months to December 31, up about 150 percent from a year earlier, the company said.

The A2 milk will be processed at the Fonterra factory in Darnum on a segregated processing line separate to the rest of the production facilities.

He said it would also give Fonterra an exclusive licence to produce and sell A2 branded liquid milk in New Zealand.

New Zealand, leveraging its fresh milk capabilities to establish distribution across the country.

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"It's the start of a journey moving forward, and a number of these things will take time to flow through", Babidge said.

Despite this, Synlait's shares dropped 6.7 percent to $6.58 in the first four minutes of trading, while Fonterra Shareholders Fund units were up 0.3 percent to $6.02.

As part of the partnership, Fonterra will now begin conversations with its farmers to source an A2 milk pool for A2MC products in New Zealand, which is meant to significantly expand over time to help meet the growing demand for A2MC products.

"We continue to see a strong future for dairy based on our existing range of products, including recent additions such as organic, low-lactose and high-protein milk choices that consumers seek out for a premium".

Babidge said the geographic diversification of production Fonterra can offer was seen to be a benefit, though said the company doesn't have an issue of limitation by supply in any of its markets.

"Sales of a2 Platinum infant formula again grew substantially in Australia and China supported by an increase in market share in those regions", the company said.

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