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.

 

A2 Milk’s sales prospects are looking good as the company builds its markets in China and US

Fonterra’s farmer shareholders   might have been stung  by pangs of envy  as  they  looked  into  the next    paddock,  and  discovered  how  another  company  in the  same industry is  racking up  huge revenue gains  from  the  same  markets  in  which their  co-op is  competing.

But A2  Milk,  a  company founded  in 2000 by  Dr  Corrie McLaughlan  and  Howard Paterson,   is  not  just  another  outfit  selling  milk  products.  The   company’s  founders had  the  aim of  doing good for  health  globally.

That  gives  it  the vital  point  of  difference   which  has ensured  its  market capitalisation is  close to  being the highest on the  NZX.

As  its  CEO  Jane Hrdlicka  told  the annual  meeting in  Auckland this week, the  company has  changed a lot  over the last two decades and is engaged now on the next phase of its evolution.

In FY19, we kicked off a journey to step up the role we play as a unique,premium and modern dairy nutritional company. This has led us to clarity on how much potential we have remaining in our core business in the two largest consumer markets in the world – Greater China and the US”. Continue reading “A2 Milk’s sales prospects are looking good as the company builds its markets in China and US”

Testing times for NZ’s dairy industry: Can its leaders find the right formula?

Dairy giant Fonterra has taken a hammering in the media in the wake of its disclosure it expects to report a full-year loss of as much as $675m and won’t pay a dividend as it slashes the value of global assets. It will be the second annual loss in a row.

Investment guru Brian Gaynor in the NZ Herald argued Fonterra’s farmers have drained the co-op almost dry in terms of milk prices and dividends and have left it in an extremely vulnerable position. Earlier another Herald columnist, Matthew Hooton, contended NZ has put all its milk in one pail – in a company with inadequate governance and capital to match its aspirations.

Continue reading “Testing times for NZ’s dairy industry: Can its leaders find the right formula?”

Forget about following the floundering fortunes of Fonterra – a2 Milk is the NZX’s fast-rising star

New Zealand  eyes  have been so  focussed  this  week  on  an event  20,000kms distant   that they  might  not have  noticed here  at  home another  extraordinary  event, taking  place  on the  NZX.

The market capitalisation of a company  which listed   as recently  as  2012  on the local sharemarket soared  past the  $12bn  mark and is hard on the heels of  Meridian Energy,  which has the  highest   valuation  of  NZ-based companies on the NZX  at $12.3bn.

The  challenger is a2 Milk,  which sells a  specialised  type of  milk  with what  it claims are health benefits.

A2 has had  a  chequered  history  but  its  market  valuation  keeps  climbing,  racing  ahead   of  blue chips  like  Auckland International  Airport  and  Fisher  & Paykel  Healthcare  and  leaving  in its dust some one-time  market  darlings  like Fletcher  Buildings  (market cap  $4.3bn)  and   Spark  ($7.2bn). Continue reading “Forget about following the floundering fortunes of Fonterra – a2 Milk is the NZX’s fast-rising star”