The a2 Milk Company will launch its first “adult nutrition” products next year as the high-profile dairy group pushes ahead with plans to harness the lucrative wellness trend and expand its brands profile in the US and the UK.
Speaking at its annual meeting, chief executive Geoff Babidge said a2 had about four new products in the pipeline and expected to roll out the first of these lines as early as next calendar year.
a2 won’t reveal any details about the new product lines, except to say that its infant formula would remain the biggest contributor to revenue in the short term.
“The reality is we see a further platform of growth that will start to come through in respect to these adult nutrition products,” Mr Babidge said.
“The opportunity in a variety of segments in adult nutrition could potentially be bigger than infant formula, hence we are looking at certain segments but the reality is it’s too early to say.”
a2 Milk Company is not giving anything away about the new lines but they were all based on the a2 beta-casein protein and leverage the group’s experience with powdered and liquid dairy products.
“Infant formula will continue to be the highest proportion of revenue for the immediate future,” Mr Babidge said.
“I’m reasonably conservative when I look out to the future but I am optimistic this area [adult nutrition] will become an important limb to our product portfolio.”
Chinese demand for a2’s milk formula remains the key revenue driver, with the recent “singles day” supporting a 96 per cent jump in revenue for the first four months of the 2017 financial year.
Revenue to the end of October jumped to $NZ155.2 million ($148.5 million) compared with $76 million in the same period last year.
The $27 billion market still accounts for about half the worldwide consumption of baby formula by volume but the outlook for this market is clouded, according to broker Citi.
Analyst Sam Teeger, who has a sell on a2 and listed rival Bellamy’s, has warned the imminent changes to the regulation of infant formula in China could weigh on sales.
Mr Teeger said market intelligence suggested the market for infant formula could be “challenging” for as long as the next 12 months and warned there were also geopolitical risks in the region.
a2 Milk Company claims it has engaged a Chinese consultancy to provide insight into the potential impact of known and anticipated regulatory changes and ensure it’s best positioned to react to any changes.
Mr Babidge said a2 was in the “best position it could be” to meet the regulatory changes in China ahead of the January 2018 deadline for registering infant formula brands with the China Food and Drug Administration.
“We have taken the approach to be agile and flexible and continue to access the appropriate channels of distribution and we’re doing that,” he said.
“We have a multi-channel, multi-brand approach and clearly at this stage it’s working and we continue to want to access further information about this market so we’ve engaged this consultancy group in China.”
Despite a2’s claim that each of its four business units are operating on or above plans for the first four months of the financial year, a proposal to increase non-executive director fees by $335,000 to $909,000 earned the company a significant protest vote.
The initial proxies suggested almost 29 per cent voted against the resolution, an outcome Mr Babidge blamed on a2’s New Zealand voters.
“Our understanding is a number of those proxies received against were skewed more towards New Zealand,” Mr Babidge said.
“Maybe some New Zealand shareholders are not quite as attuned to the comparative director fees that are required to be paid, particularly in the Australian context.
“We’ve now got a company with a market cap in excess of $NZ1.5 billion – we need to attract the appropriate directors with the international skills that are appropriate to the business.”
The resolution was passed.
Online Source: The Sydney Morning Herald.
