Australian milk market share could increase 'north of 10%': a2 Milk Company


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Australian milk market share could increase 'north of 10%': a2 Milk

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The a2 Milk Company believes its share of the Australian fresh milk market could increase “north of 10%” in the next 12 months.

In its financial results for the year ended June 30 2014, the a2 Milk Company estimated its Australia fresh milk market share at 9% by value - an increase on the 8% announced by the firm in December 2013.

The Auckland, New Zealand-based firm attributed the aforementioned increase to growing consumer awareness of the benefits of a2 milk.

a2 brand products are rich in A2 beta casein protein, but contain no A1 beta casein protein, which has been linked to digestive discomfort.

Speaking with, Geoffrey Babidge, CEO, the a2 Milk Company, said it expects to meet, if not exceed, the 10% target it set itself in 2012.

“We’re ahead of that plan,”​ said Babidge. “We can achieve that 10% market share."

"Optimistically, we can achieve something north of 10%, maybe between 12% and 15%. Only time will tell.”

Given its growth, Babidge said its was "probably fair to say" ​that efforts to discredit the a2 brand in the last year "really didn't gain any traction."

Currency impact

The a2 Milk Company reported total group revenue - the combination of sales from Australia, China, and the UK - of NZ$111.3m (US$93.3m, €70.8m) for the year ended June 30 2014 – a 17% increase on last year.

Net profit meanwhile tumbled to NZ$10,000 (US$8,400, €6,400) from NZ$4.1m (US$3.4m, €2.6m).

It attributed this results, in part, to the appreciation of the New Zealand Dollar to the Australian Dollar, which it said impacted revenue by approximately NZ$14m (US$11.7m, €8.9m) and EBITDA by around NZ$2.7m (US$2.3m, €1.7m).

“Modest sales”​ in UK and China also contributed, it said.

"Modest sales"

a2 Platinum infant formula was officially launched in China in October 2013. Shipments to the country were, however, disrupted between May 1 and mid-July following the revision of Chinese legislation.

“That slowed our momentum,”​ said Babidge.

“But we remain positive about the opportunities that lie in China.”

In the hope of strengthening the a2 brand in Asia, the a2 Milk Company is also pursing opportunities for both UHT and fresh milk in the dairy-hungry region.

The a2 Milk Company also acknowledged that its progression in the UK was slower than projected.

In January 2014, it revised the terms of its UK joint venture, which was agreed with Robert Wiseman Dairies prior to its acquisition by German dairy Muller.

The change in ownership, and subsequent change in priorities, meant the British JV “hasn't moved forward as quick as expected,”​ said Babidge.

“As a result, our growth in the UK has been slower than first anticipated.”

International expansion

Despite the challenges faced by the a2 Milk Company in the last year, it continues to boast NZ$16m (US$13.4m, €10.2m) cash on hand and no debt – leaving it primed for further expansion.

In February 2014, the a2 Milk Company announced plans to launch a2 milk in the US.

It has dedicated around US$20m (NZ$23.8m, €15.2m) over the next three years to support its US launch.

“There is genuine interest in the proposition. We do see a very positive opportunity for a2 milk in the US. We’ve been developing a strategy over the last 12 months with high-caliber professionals to take the initiative forward,”​ said Babidge.

For the time being, the a2 Milk Company has no further expansion plans. Its US ambition

Its US ambitions, along with its interests in the UK, Australia, and China, are “sufficient,”​ he said.

“There are plenty of exciting things to do with these initiatives. We’re pretty upbeat about the opportunities moving forward.”

“We have good funding capability to take these initiatives forward," ​he added.

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