A2 gives market reassurance on continued strong Chinese sales

A2 MILK’s share plunge since last week has prompted it to reassure the market its China sales can continue to strengthen.

The company’s shares, which remain up more than 300% on a year ago, have plunged more than 12% since food giant Nestle announced it, too, was entering the A2 milk marketplace, with a brand Atwo to be launched in China.

A2 Milk has been the NZX’s top performer in the past year, clinching large sales increases into the expanding Chinese market, sealing a distribution deal with Fonterra and more than doubling its halfyear profit to $99 million.

A year ago, its shares were $3.04. They hit a record $14.10 on March 22, but yesterday retraced some early losses to trade up around $12.36.

Chief executive Geoffrey Babidge said the company had noted recent media commentary around competitor activity in the China market.

‘‘The a2 Milk Company considers it is uniquely positioned to benefit from expansion of the category over time,’’ he said in a market statement.

Those positions include being the creator and pioneer of the A1 proteinfree milk, its strong brand, ongoing research and development and suite of intellectual property, including patents, trade marks and proprietary processes.

‘‘The infant formula market in China is vast with an estimated retail value in the order of $US20 billion ($NZ27.7 billion) and volume exceeding one million metric tonnes,’’ Mr Babidge said.

He said a2 Milk was the only company engaged in the sourcing, processing and marketing of solely A1 proteinfree dairy and nutritional products in global markets.

‘‘The company [a2 Milk] con tinues to perform strongly in each of its key markets and in particular has not seen any change in the growth of its China business,’’ Mr Babidge said.

He said new entrants, without naming Nestle, now had to communicate consumers the benefits of offering a new A1 proteinfree variant, while at the same time their traditional range of products continued to include A1 milk proteins.

In the February firsthalf results commentary, Mr Babidge said he expected continued revenue growth in nutritional products in Australia, New Zealand and China in the second half, along with further growth in fresh milk in the United States, BusinessDesk reported.

He said gross margin would be broadly consistent with the first half’s 49.8%, and secondhalf earnings growth would be in the range of $35 million to $40 million.