A2 Milk shares have soared after the company more than doubled its first-half profit and entered into an alliance with global dairy giant Fonterra to produce new products and expand into new markets.
Net profit for the six months to December 31 increased to $NZ98.47 million ($A91.8 million) on the back of strong growth in A2’s infant formula business and higher liquid milk sales in core markets.
A2’s ASX-listed shares gained $2.59, or 30 per cent, to a record high of $11.30.
The New Zealand-based company has secured an alliance with Fonterra under which Fonterra will exclusively supply A1 protein-free milk products in bulk powder and packaged form to A2 Milk.
A2 Milk says A1 and A2 proteins affect digestion differently, and its products may benefit people who experience discomfort from drinking cow’s milk.
Under the deal, Fonterra will have exclusive supply rights for some nutritional products to be sold in new priority markets in south-east Asia and the Middle East up to a specified volume.
A2 Milk in turn has been allocated production capacity at some Fonterra manufacturing facilities as volume grows.
Fonterra will also have an exclusive license for the production and sale of A2-branded fresh milk in New Zealand, while a new A1 protein-free milk pool will be developed in Australia and New Zealand.
Additionally, A2 Milk and Fonterra will evaluate opportunities to sell A1 protein-free butter and cheese in Australia, New Zealand and China.
“This is a significant development for A2 Milk given the wide-ranging nature of the relationship,” A2 said in a statement.
“The arrangements expand A2 Milk’s ability to build its business in new priority markets and beyond, providing exciting growth initiatives.”
First-half sales of its A2 Platinum infant formula grew substantially in China and Australia, while the company increased brand awareness and expanded in the US.
Sales of fresh milk in the United Kingdom continued to build.
A2 Milk said it continues to consider opportunities to invest in blending and canning, the potential for a share buyback and the implementation of a dividend policy.
Lucas Review market strategist Evan Lucas said A2 Milk’s financial results had well surpassed the market’s expectations, the company was sitting on a wad of cash, and the Fonterra alliance would boost A2 Milk’s market strength, especially in China.
“It’s just a beautiful scenario,” Mr Lucas said.
BIG LIFT IN REVENUE, PROFIT FOR A2 MILK
* First-half net profit of $NZ98.5m vs $NZ39.4m
* Revenue up 70pct to $NZ434.7m
* No interim interim dividend, unchanged