Revenue up 68%, profit up 116% , cash on hand up 280% …
Those annual results are the sort most companies’ bosses dream of. They are certainly are the kind of results Fonterra’s farmer-suppliers are not likely to hear from the co-op’s board in this lifetime.
But for A2 Milk’s shareholders they are real. Reporting to shareholders (who indeed have had a dream run this year), the company this week said revenue reached $922.7m, annual profit $195.7m, and the sales margin was 31%, up from 26%
Other key statistics included strong cash conversion with operating cash flow of $231.1m – up 131%, and basic earnings per share of 27c – up from 12.7c.
A2 Milk has come a long way in a short time.
Back in 2000, it was founded in Dunedin by Dr Corran McLachlan on the strength of a scientific discovery: while studying at Cambridge University, Corran learned that proteins in milk affect people differently. Cows produce milk with different beta-casein proteins type, called A1 and A2.
He then discovered there was a safe and simple way to identify cows who produced milk that was naturally A1 protein free. From there The a2 Milk Company was born.
Research over the years demonstrates that many people who have digestive discomfort when drinking ordinary cows’ milk find a2 Milk™ easier on digestion. That’s because a2 Milk™ contains only the A2 protein and no A1.
For long enough Fonterra preferred to play down the health benefits A2 claimed— but recently , a2 Milk™ branded fresh milk was launched in NZ under Fonterra’s Anchor™ brand – the first meaningful in-market joint activity between Fonterra and the company.
This week Stuff reported Professor David Cameron-Smith, an expert on the latest A2 milk research, as saying there’s “strong smoke, well a lot of smoke” around A2 milk creating less tummy upset.
He works for AgResearch and is director of The Liggins Institute at Auckland University.
Cameron-Smith says early research by others drew correlations between ordinary A1 milk and diabetes and cardiovascular disease.
“It’s still out there and hasn’t been disproved in any way shape or form.But equally it hasn’t been proven how A1 milk can increase your risk of diabetes or cardiovascular disease.”
So that remains in the wait-and-see basket.
But that research led to studies in differences in digestion between A1 and A2 milk, which both have lactose. One study using rats showed more bowel inflammation when they drank A1 milk.
Cameron-Smith’s follow-up research included two studies in China of 600 people and 45 people. Most Asians struggle with cow’s milk, but the blind tests revealed they felt better with A2 milk.
Last year a group of 30 confirmed lactose-intolerant women were studied in NZ. They were given a big dose of lactose – 750ml of milk – which left them “moaning and groaning” in discomfort.
Taking away lactose took away the problem. So lactose-free milk was fine.
But Cameron-Smith says there was a profound positive difference when they drank A2 milk instead of A1 milk. It eased some nausea, stomach pain and bloating symptoms, but didn’t reduce flatulence and gastric reflux levels.
In its latest report A2 Milk said its infant formula share strengthened to 5.1% in China and 32% in Australia. There was substantial physical distribution growth to about 10,000 stores in China and 6000 stores in the US.
Increased investment in brand and market development resulted in rapid growth of infant formula and the expansion of the liquid milk business in each of the company’s established markets.
Sales of a2 Platinum infant formula again grew substantially in Australia and China, with continued growth in market share. a2 Platinum sales revenue was $724.2m, an increase of 84% on the previous year.
In Australia, a2 Milk’s (branded Fresh Milk) value share grew strongly from 9.3% to 9.8% by year’s end. The US business continued to grow sales in key accounts, alongside a distribution footprint which increased to 6,000 stores following expansion into the Northeast and in the natural products stores.
In the UK, improvement in rates of sale and expanding distribution brought gains in revenue.
Looking ahead, CEO Jayne Hrdlicka said the company anticipates further growth in revenue, particularly in nutritional products in Aust and NZ, China, and liquid milk in the US.
Arrangements were also put in place for four new markets:
Hong Kong – Launch of a2 Platinum® Stages 1, 2 and 3 in September 2017
Singapore – a2 Milk™ branded fresh milk was launched in August 2017
Vietnam – A small test market for a2 Milk™ branded whole milk powder
South Korea – An exclusive sales and distribution agreement was completed with Yuhan Corporation in April 2018
The company advanced its growth strategy through multiple initiatives – launching three new products (a2 Platinum® Stage 4 milk powder, a2 Platinum® pregnancy formula and a2 Milk™ powder blended with Mānuka honey); entering new markets in South East Asia; and establishing a strategic relationship with Fonterra Co-operative Group Limited and an exclusive distribution agreement with Yuhan Corporation for the South Korea market.
Clearly Hrdlicka was not overstating it when she said 2018 “has been a transformative year. Our brand and unique approach are working across multiple products and markets and we are seeing real momentum building in China and the US.”