Bubs breaks into the US baby-formula market – here’s hoping a2 Milk and Fonterra can latch on to the opportunities

A   report  that  an Australian outfit,  the  aptly  named  Bubs company, is planning to ship at least 1.25m cans of its baby formula to the US to help ease a nationwide shortage saw a  spike  in  the  a2 Milk  company’s shareprice  on  Monday  this  week.

US  president  Joe  Biden announced  the  deal in  a tweet  at the  weekend, saying  the  company would  deliver 27.5m bottles, the  equivalent of the  1.25m  cans  reported  by  Bubs.

“We’re doing everything in our power to get more formula on shelves as soon as possible,” he said.

The  NZ  Herald  reported the  news  that  Bubs  had  found  a  way  to  enter  the notoriously  difficult  American market “was well received”  by dual-listed infant  formula  exporter  a2 Milk investors  who  bid the   stock up 10.2%.

The  Herald  explained  that both  Fonterra  and a2 Milk  have  also applied to  the  US Food  and  Drug Administration for  approval  to  supply infant  formula to the  nation. Continue reading “Bubs breaks into the US baby-formula market – here’s hoping a2 Milk and Fonterra can latch on to the opportunities”

Synlait is confident it is back on the path to pre-2021 profitability levels

ANZ  reports widespread autumn rain has devastated many arable and fruit crops, but has been welcomed by pastoral farmers.

Food commodities are in short supply globally.  New Zealand will  export less produce than normal this season as production of most  export commodities is impacted for varying reasons including delays with the processing of livestock and the impacts of labour shortages.

So it  was  something of  a  surprise,  but  a  welcome  one,  when Synlait Milk reported  its net profit (excluding the sale of an Auckland property) had risen 128% to $14.5m in the first half.

The  dairy  processing company said it was also on the way to reporting previous levels of profitability in the 2023 financial year after posting a $28.5m loss in 2021.

And  as  ANZ reported, the  wet weather in  some regions  will  not  have worried  dairy farmers. Continue reading “Synlait is confident it is back on the path to pre-2021 profitability levels”

Investors see promising signs of recovery in infant formula sales in China

After  a  rough  ride  since  Covid-19  struck, the New Zealand economy  is  in   better   shape   than might  have been  predicted  at the  onset  of the  pandemic.  Yet labour  shortages,  an energy crisis  in Europe  and  China, and  massive  inflationary  pressures suggest  that  the  passage  ahead   will  be  anything  but  smooth.

With  the  government abandoning  the  elimination  strategy  and  moving  towards  living  with  endemic  Covid, the  country  is adjusting  to  the  prospect  of  a  new  normal.  But  without  any  sign of  the  number of  cases  of the Delta  variant  diminishing, restrictions  may  persist  for  longer  than  might  have been  imagined  just  weeks  ago.

It’s  a  blow  to  industries  looking  to  inflows  of  workers  to ease  labour  shortages, particularly  in the  rural  regions,  which  last  season  sustained  the  economy  with  the  production of  commodities  that  were  in  relatively  tight  supply  in  world markets,  fetching excellent  returns. Continue reading “Investors see promising signs of recovery in infant formula sales in China”

A2 Milk has lost  some of its sharemarket  gloss but has  become a formidable  dairy player with a bright outlook

Two  encouraging signals from the  dairy industry this week underlined  its strength  as  the backbone   of the  NZ  export  economy, all the  more vital since  the  Covid-driven collapse  of the international tourist  industry.

First  came  news that prices  strengthened  at the  latest  Fonterra  global dairy  trade  auction, with  the  average price reaching  $US3157  a  tonne. Prices for other products sold were mixed, with gains for butter and skim milk powder, but falls for cheese and other products.

Analysts  said  it  was  positive  to see  good, strong  demand  from   China. The  price  of  wholemilk powder  which  strongly  influences the  level of  payout to Fonterra’s  suppliers  moved  up  1.8% to $US3037  a tonne.

 ANZ agri-economist Susan Kilsby said there had been some concerns that stocks may be building in China, so it was really positive to see good, strong demand from that market for the dairy industry. Continue reading “A2 Milk has lost  some of its sharemarket  gloss but has  become a formidable  dairy player with a bright outlook”

It’s the beta-casein and premium product that makes a big difference between a2 Milk and Fonterra

Investors  this week took  the  phenomenal result  for a2 Milk   in  their  stride, but  it  may have produced  a few blinks  round   the   nation’s  dairy farms,  particularly  with  the  farmer-suppliers  of  Fonterra. 

Take – for example – a2 Milk’s  earnings  per share  of  52.39c  and contrast them with Fonterra’s 17c per share  in 2019,  or  its  net  profit  of $385.8m   versus  Fonterra’s loss  of $605m.

There  are  other  mind-blowing  figures  from  a2 Milk: total revenue  of  $1.73bn, up  32.8%; ebitda of $549.7m, a  rise of 32.9%;  and operating cash flow of $427.4m. Not to  mention  a  cash  mountain  it has  built up of  $854.2m.

As  one commentator has  put it, a2 Milk with its record growth intrinsically linked to the China market, is a success story   New Zealanders should both celebrate and learn from.

Even  its  Dunedin founders through its  early  years  from 2000,  Dr  Corrin McLachlan  and  Howard  Paterson, might be  astonished  at  its  latest  result.

Continue reading “It’s the beta-casein and premium product that makes a big difference between a2 Milk and Fonterra”

A2 Milk continues to experience strong revenue growth as consumers change behaviour

At  a  time  when  the  Covid-19 pandemic  is wreaking  havoc on lives and livelihoods,   and  sage   economists are telling us  the economic slump underway is “truly enormous”,  it is   almost  impossible   to  find   any  chinks of  light in  the encircling gloom.

ANZ economists  say the  pandemic has

 “  … stopped the global  economy   in its tracks  and the impacts of this crisis will be with us in months and years to come”.

Not  good  news  for  an  economy  which  is  already  feeling the effects of the  crash of  two  its  main export-earning  props.

But, wait,  what  about  the  bulletin   from    A2  Milk  on  Wednesday?

The company  which last provided  an update on  its trading performance on  February 27 reported  that, since then,  it has continued to experience strong revenue growth across all key regions, particularly for infant nutrition products sold in China and Australia.

We are now able to confirm that our revenue for the three months to  March 31 (3Q20) was above expectations. This primarily reflected the impact of changes in consumer purchase behaviour arising from the Covid-19 situation and included an increase in pantry stocking of our products particularly via online and reseller channels. We are unable to estimate the timing and extent to which pantry stocking may unwind. Continue reading “A2 Milk continues to experience strong revenue growth as consumers change behaviour”

Dairy industry profits are a bright spot in an economy headed for recession

NZ’s  dairy  industry, under constant  fire from critics for its methane emissions,  pollution of  waterways  and  intensive farming practices in recent years, almost  overnight  is shaping up   to be one of the  country’s  saviours  as the economy dives into  recession.

While  other   key export sectors — tourism, forestry, education — are jack-knifed by the  coronavirus  pandemic,  the dairy industry’s earnings  more than ever before are proving it to be  what the  critics  have scorned:  “ the backbone of the economy”.

The  much  maligned Fonterra Co-op  this week  reported total group sales revenue in  the  six months to  January 31 increased by 7% or $678m to $10.4bn, mainly due to improved pricing and the product mix  sold.  That  compared with  $9,745bn  in the  January  2019  half.

And  Fonterra  is  keeping its  farmgate  milkprice  forecast   in the $7-$7.60 /kg  range.  That  means  more than $11bn  being paid to  its suppliers. Continue reading “Dairy industry profits are a bright spot in an economy headed for recession”

The challenge for NZ food production is keeping up with the science while Fonterra restores its financial health

Technology  is  opening  a  whole  new direction for  food production, reports  The  Guardian.

Robotics   and drones are reducing   the need for humans to be on the  land,  while  vertical  farming,  in which  vegetables  can be grown in sunless  warehouses using  LED  lighting, gene editing and metagenics are delivering new definitions of  food.

According to a  recent  report  by the think tank  RethinkX, within  15  years  the rise of  cell-based meat – made  of animal cells  grown in a bioreactor – will bankrupt  the US’s  huge  beef industry,  at the same time  removing the  need to grow soya  and maize  for   feed.

New Zealand  farmers   who  think  there  is  an  unlimited  demand for the food  they  produce   could be in  for a  rude  shock.

Here’s  another  example  of   what  global  media  are reporting:

Scientists  at Ghent University in  Belgium  are experimenting  with larva fat to replace butter,  saying that using grease from insects is more  sustainable  than  dairy  produce. Continue reading “The challenge for NZ food production is keeping up with the science while Fonterra restores its financial health”

Farm confidence – already bruised by the effects of drought – becomes a victim of Covid-19

As the country’s  front-line export  sector,  NZ agriculture  is  bearing  the brunt of the global  trade slowdown.  ANZ Bank’s chief  economist  Sharon Zollner says  the  human and  economic damage from the  Covid-19 outbreak is taking a  heavy toll on sentiment in the agriculture  sector.

“Our  best  hope is that the  disruption proves  short-lived but there is not   question the export-oriented  sector is  reeling”.

Authorities   such  as  Keith Woodford  believe NZ, as well as most of the world,  will head into recession.  Woodford contends the key issue becomes rapid support for those who lose their employment.

He  sees  a  “considerable  risk” that the government and Reserve Bank will use the wrong macro tools.

Adjusting interest rates looks like the wrong medicine. The priority should be to get cash into the hands of those who currently live week-to-week”. Continue reading “Farm confidence – already bruised by the effects of drought – becomes a victim of Covid-19”

Dairy exporters remain sanguine while other sectors (and investors) take a hit from coronavirus

Finance Minister  Grant  Robertson insists  NZ  is in a  strong position to weather  the fallout  from   coronavirus, even  though  Australia  has  declared it a  pandemic.

He underlines the  Crown accounts are  buoyant, the fundamentals of the economy are strong and  careful management has seen the economy continue to grow in the face of constant headwinds like international trade disputes and uncertainty over Brexit.

But he concedes there might be a need for fiscal stimulus.

We  are preparing for  multiple scenarios”.

He  says  the government is carefully monitoring the impact of coronavirus on all sectors.

 “We are ready to support our people and our businesses through any eventuality.

 “We believe it is sensible and responsible to plan for every possible scenario, but that does not mean we are predicting them. We are also at a stage in the 2020 Budget process where we can consider the policies required if we need them”.

Robertson’s aplomb might have a hollow ring for investors taking a thrashing in the sharemarket.

Clearly some sectors are  suffering  more than others  and  Westpac  bank  economists  have talked of  a  “significant blow”  to  the  NZ  economy from  the  coronavirus impact. Sectors such as  tourism, education and the logging industry  in  particular  are  under the  pump.

But for the country’s biggest export  sector  there has  been some  reassurance  this  week   with   reports  from  Fonterra  and  A2 Milk  on the state  of  their  sales to   China.

Fonterra confirmed   it is not  revising its forecast farmgate milk price range at $7.00-7.60kg/MS. The co-op reported it has signed deals with suppliers in China, which should offset the impact of the coronavirus.

CEO  Miles Hurrell  said the current situation is very fluid and uncertain.

“However, we have already contracted a high percentage of our 2020 financial year’s milk supply and this is helping us manage the impact of coronavirus. While there had been a slowdown in container processing at ports, products were continuing to be cleared by customs and quarantine officials.

The momentum we saw in the first three months of the financial year has continued, and as we approach the interim results our underlying earnings are tracking well.  However, given the potential significant risks that could arise from coronavirus in the second half, we are taking ant approach and maintaining our full-year forecast earnings range”.

ASB analyst Nathan Penny described it as a “reassuring and comforting” announcement, considering the speculation around coronavirus.

Meanwhile A2 Milk has reported a big jump in interim profit, boosted by strong growth in the Chinese infant nutrition market.  The company’s net profit climbed  21% to $184.9m in the December  half and revenue rose 31% to $806.7m. Chinese label infant nutrition sales doubled to $146.7m, and distribution expanded to 18,300 stores.

Acting CEO Geoff Babidge said the company expected strong revenue growth to continue, but he acknowledged the potential for the Covid-19 coronavirus to impact on supply chains and Chinese consumer demand.

A2’s products were “essential” for many Chinese families and revenue for the first two months of the second half is likely to be above expectations.

However, this is a dynamic situation and at this stage we are unable to quantify the impact, either positively or negatively, for the full year.”

One forecast A2 did make was a medium-term target for its operating profit margin, of around 30%.

This was lower than the first half due to a number of factors, including increased marketing costs, possible supply chain costs resulting from the virus in China, and the potential for “unfavourable” foreign exchange rate movements.

“Given the Covid-19 situation, we are assessing the level of discretionary marketing investment and trade marketing activation that can be effectively deployed in China for the remainder of the fiscal year,” Babidge said.