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New Zealand's a2 Milk says Chinese demand remains strong despite coronavirus fears

27 February 2020

New Zealand's a2 Milk Co Ltd on Thursday posted a 21 percent rise in half-year profit and said the coronavirus outbreak has so far had little impact on "strong" demand for its infant products in China, sending its shares soaring.

According to reporting from Reuters, the dairy producer's assessment comes at a time when companies exposed to China are flagging significant financial impact due to supply chain and logistical disruptions in the world's second-largest economy where the outbreak began at the end of last year.

The Auckland-headquartered company said revenue from its products in China exceeded expectations in the first two months of the second half of its financial year ending June.

Its half-year net profit of NZ$184.9 million ($116.73 million) was driven by doubling sales in China of infant nutrition products marketed under its own brand, while expansion in the United States likewise led to a doubling in milk revenue there.

It said there was uncertainty about the impact of the coronavirus outbreak on supply chains and consumer demand in China, but nevertheless kept its forecast for full-year earnings before interest, taxes, depreciation and amortisation margin, announced in November, unchanged in the range of 29 percent to 30 percent.

"(New Zealand peer) Fonterra has said that China's customs is clearing all its products and it provides ingredients to a2 Milk. With that agreement with Fonterra in place, that is probably the reason why a2 Milk is not impacted much like many others," said Jeremy Sullivan, investment advisor at Christchurch-based advisor firm Hamilton Hindin Greene.

In contrast, New Zealand's Synlait Milk Ltd and Australian vitamin maker Blackmores Ltd, which have major operations in China, have flagged potential hits to earnings from the epidemic.

"There is this brand perception in China that a2Milk coming from New Zealand is a quality product and having spent a decent amount of money for marketing, there is still a lot of room for a2 Milk to grow there," Sullivan said.

a2 Milk's sales from China, the world's biggest market for formula milk, and other Asian markets grew about 77 percent in the first half of its financial year.

The company, New Zealand's fifth-largest, said total revenue for the six months rose about 32 percent to NZ$806.7 million.

Shares of a2 Milk were up 7.4 percent after the announcement, reaching a six-month high.

Read the original story from Reuters here



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