Business

New Zealand milk firm shares soar 30% on profit forecast

The a2 Milk Company Image copyright The a2 Milk Company

Shares in New Zealand dairy firm - The a2 Milk Company (A2) - were up more than 30% in Sydney on Friday after the firm raised its full-year earnings forecast on demand for its infant formula in China and Australia.

It is the second time since November the company has raised its guidance.

A2 said group revenue could reach 315m New Zealand dollars ($211.1m; £141.5m) for the period, up from NZ$285m.

The firm's shares have soared close to 140% in the year to date.

Imported baby milk powder is now the preferred product in China. A deadly tainted milk scandal in 2008 that led to at least six children dying and some 300,000 falling ill has seen wary Chinese consumers switch to products made in Australia or New Zealand.

The a2 Milk Company told the BBC that China's level of faith in imported products is so strong - they did not need to change their packaging for sale on the mainland.

"Chinese buyers want to know the products are from Australia or New Zealand, so we don't have to repackage or use Chinese language on the products," a spokesman for the firm said.

A tin of the firm's infant baby milk powder sells for US$23.50 in Australia and close to US$40 in China.

A2's chief executive Geoffrey Babidge said the firm's latest guidance provided further evidence of the increasing appeal of the firm's infant formula in Australia and China "and the growth potential in additional markets in the future".

However, demand from Chinese consumers has resulted in shortages of infant milk formula supplies at a domestic level.

Milk shortages

Image copyright Reuters
Image caption Imported infant milk powder products are highly sought after in China

In November, rival milk production company Bellamy's Australia apologised to its customers after many of them were unable to find cans of formula in their local supermarket.

The Tasmania-based firm, which makes Australia's only certified organic infant formula, blamed "unprecedented demand" for its products and said that "purchases of products solely for the practice of on‐selling in overseas markets has led to limited stocks of [its] products on the shelves of Australian retailers".

Soon afterwards, the firm raised its prices for its popular organic infant forumula, blaming "global demand over recent years".

"The cost of organic milk is now three times the cost of conventional milk and regrettably we are no longer in a position where we can maintain our current pricing," Bellamy's said on its website.

The move has upset consumers in Australia and has led to supermarket giant Coles posting an apology in its stores for the price hike.

Image copyright Martin Hunter
Image caption Dairy products from Australia and New Zealand, especially infant formula, are highly sought after in China

Coles has restricted sales of Australian-made baby milk formula to four units per customer, while rival Woolworths has an eight can per customer limit.

However, Australian consumer lobby group Choice said there had been numerous reports of empty shelves or of retailers failing to enforce sales limits.

Choice has called on the Australian government to guarantee the supply of infant formula - particularly for children under the age of one.

"We need to collect national information about the shortages and find out exactly where and why they are happening," Choice's Kate Brown said.

"We'll use any insights to help strengthen our hypothesis that the government and retailers need to act to ensure parents and carers have access to a reliable formula supply," she said.

The group has asked parents to report infant milk shortages to them via their website.

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