MVM struggles
OPINION: Nearly four years after buying a 75% stake in Southland processor Mataura Valley Milk (MVM), A2 Milk is still struggling to take the plant to profitability.
Sales totalled $1.1 billion for the year – an increase of 46.9%, says Jayne Hrdlicka, managing director and chief executive.
This was driven by gains in China and Australia.
The liquid milk businesses achieved “pleasing” results particularly in Australia and the US with total fresh milk growth of 22.9% for the year.
The company grew sales of other nutritional milk products by 17.3%, driven by milk powders and supported by new product launches.
Total revenue was $1304.5 million, an increase of 41.4%. Earnings before tax were up 46.1% to $413.6m and net profit after tax was up 47% to $287.7m.
“Our core markets, Australia and New Zealand (ANZ), Greater China and the US, represent our most significant growth opportunities in the medium term,” Hrdlicka said.
“The growth will come from both our existing product ranges and innovation within these markets. For example, the launch of a2 Smart Nutrition, a fortified milk drink targeting children 4-12 years of age, enables us to ‘migrate’ consumers when they grow out of infant nutrition in China.”
Also, new market exploration prompted more consumer research and in-market activity in Vietnam, Korea and Hong Kong city.
“Alongside the ongoing work we are doing with Fonterra, the focus continues to be milk powder products in Vietnam, testing a fresh milk presence in Singapore and Korea, and infant formula in the city of Hong Kong.”
Hrdlicka says the company has spent more on building brand value to accelerate brand awareness and trials in China and the US. It spent $135.3m (up 83.7%) on marketing, chiefly on advertising in China and the US.
R&D remains a priority, including independent clinical studies.
A clinical trial amongst children aged 5-6 in China was published in July 2019. The study analysed results from 75 Chinese children with mild to moderate milk discomfort or lactose intolerance (confirmed via a urinary galactose test) and reported that replacing conventional milk with a2 Milk “reduced gastrointestinal symptoms associated with milk intolerance” in many subjects and led to “corresponding improvements in aspects of cognitive performance”.
During the year the company spent more on internal and external capability, Hrdlicka says.
In April, Xiao Li joined the company as chief executive of Greater China. The China team now represents at least 20% of the company’s global team.
The company now sources direct ingredients from Fonterra, with the supply increasing during the second half of calendar 2019.
“The relationship with Fonterra remains strong. Our joint teams are actively working together to commercialise the next wave of opportunities which will come from our partnership. We continue to be encouraged by the potential.”
