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UPDATE 2-New Zealand's A2 Milk says half-year profits jump on China sales
February 14, 2017 / 8:59 PM / 7 months ago

UPDATE 2-New Zealand's A2 Milk says half-year profits jump on China sales

* A2 says baby formula demand in China stoked profits

* Says broad distribution system helped China sales

* Shares hit record high after profit announcement (Adds comment, detail)

WELLINGTON, Feb 15 (Reuters) - New Zealand dairy firm A2 Milk Company Ltd on Wednesday said its half-year profits jumped nearly 300 percent, boosted by sales of baby formula in the hotly-contested China market.

A2 shares rose more than 5 percent to a record high of NZ$2.68 after it posted a net profit after tax for the six months to Dec. 31 of NZ$39.4 million ($28.2 million). That compared to about NZ$10 million in the same period last year.

“The outstanding aspect of our half-year performance was the continuing growth in a2 Platinum infant formula through a multi-channel strategy involving a combination of local distribution, e-commerce, and overseas shopping traders,” Managing Director Geoffrey Babidge said in a statement.

The company said the use of so-called ‘daigou’ was a growing sales channel to China. Meaning ‘buy on behalf of’ in Chinese, daigou buyers are individuals based abroad who ship sought-after products to buyers back home.

A2’s results contrast with rival Australian baby formula company Bellamy‘s, which cut its revenue forecast in January, sending shares plummeting 40 percent.

A survey published last week by brokerage firm UBS showed A2’s online brand recognition among Chinese parents and expectant mothers was just over 40 percent, double that of Bellamy‘s.

“You’ve got to keep all the channels open where China is concerned ... the daigou is the best at one stage, the direct sales, the internet sales at another,” said Bryan Gaynor director of investment firm Milford Asset Management, which owns A2 shares.

A2, which produces milk free from a protein that it says causes gut problems in some milk drinkers, has recently expanded in major U.S. supermarkets and has focused heavily on the Chinese market, where revenues increased by 348 percent to NZ$37.7 million.

The company expects infant formula profits in the next six-month period to drop from the previous half, partly because there are less major Chinese sales events scheduled.

A2 said its board planned to adopt a dividend policy at the end of full-year 2017. ($1 = 1.3965 New Zealand dollars) (Reporting by Charlotte Greenfield; Editing by Hugh Lawson and Joseph Radford)

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