A2 moving its focus to US market

A2 managing director Geoffrey Babidge. Photo supplied.
A2 managing director Geoffrey Babidge. Photo supplied.
The launch of a2 milk in the United States had become a priority for the company A2, now the United Kingdom business was established and showing growth, managing director Geoffrey Babidge said yesterday.

Releasing the company's results for the six months ended December, Mr Babidge told the Otago Daily Times the board considered the US market should now be developed.

''The company has strong intellectual property rights and know-how in this market and consumer research confirms the attractiveness of the A2 proposition.''

The company, which started in Dunedin in the early 2000s and is now based in Australia, reported operating earnings of $2.6 million, down 26% on the previous corresponding period's $3.5 million.

Higher depreciation, lower associate earnings and a tax credit helped lift the reported profit by 16% to $643,000.

Revenue in the period was up 22% to $54 million. The appreciation of the New Zealand dollar to the Australian dollar reduced revenue by about $6.4 million.

Mr Babidge said the plan for the US would involve the company establishing its activities through a wholly owned US subsidiary and recruiting a small management team with in-market experience.

As part of the development, a2-branded milk would be showcased at a major natural foods exhibition to be held in California.

Asked about the demographic for a2 milk sales, Mr Babidge said the product appealed to a wide age range but in the UK, A2 had its milk range in 250 grocery stores in London within the M25 motorway, an area known as an early adopter for food products.

''Many people who thought they were intolerant to milk are actually intolerant to the A1 protein. A2 has appeal to families with young children who have not been able to drink milk.''

A2 was sold in about 800 supermarkets in the UK.

Brand sales in Australia continued to grow strongly with an increase on the pcp in Australian dollars of 28.3%. The company increased its marketing spend in the period to $5.4 million, up from the $3.2 million and the company considered itself to be a leader in marketing activities within the milk market in Australia.

''These activities, together with public relations, healthcare professional engagement and social media activity, continue to build awareness in the A2 proposition and brand.''

The estimated market share of a2-branded fresh milk in Australia was about 8% by value in the grocery ''channel'', according to the latest data available.

In September last year, the company started the distribution of a2 Platinum infant formula to grocery and pharmacy stores in Australia and New Zealand.

Early sales in Australia were positive but sales in New Zealand were modest given limited grocery distribution to date.

A second shipment of infant formula to China took place in November following the first shipment in June last year, Mr Babidge said.

The company was aware of the regulation changes being made to the sale of infant formula in China but remained focused on quality and its supply chain.

The milk powder was produced by Synlait from milk from A2 farms close to the Canterbury-based plant.

At a glance
• Group revenue up 22% to $54 million.
• Increased market share in Australia.
• New UK business structure in place.
• First sales of infant formula to China, Australia and New Zealand.
• Plans advancing for entry into the North American market.


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