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a2 Milk UK establishment costs offset A2 Corporation H1 sales increase

By Mark Astley+

Last updated on 06-Mar-2013 at 16:52 GMT2013-03-06T16:52:53Z

a2 Milk UK establishment costs offset A2 Corporation H1 sales increase

Costs relating to the establishment of the a2 Milk UK joint venture contributed to a H1 profits decrease for Australasian dairy processor A2 Corporation (A2C), the company has revealed.

For the six months ended 31 December 2012, the Auckland-based company reported sales of A$44.28m – a 57% increase on the A$28.28m reported for the same period last year.

Despite the sales increase, A2C achieved group profits after tax of just A$554,000 – a decrease on the A$3.1m profit reported in the last corresponding period. According to the company, its sales increase was “in part offset by the Company’s share of UK establishment costs and the final component of strategic review costs.”

In November 2011, A2C established a joint venture in the UK and Ireland with Robert Wiseman Dairies to market its a2 brand milk.

a2 milk comes from cows specially selected to produce milk containing A2 beta-casein protein, but not the A1 beta-casein protein which has been linked with digestion and health issues.

A2C reported costs associated with the joint venture of A$1.48m for the period – money spent on completing its establishment phase and product launch.

Slow build, raising consumer awareness

Commenting on the company’s results, A2C managing director Geoffrey Babidge said that the company expected a slow, progressive build in the UK.

“As advised during the strategic review, the launch in the UK is expected to follow the approach in Australia – a slow build based on progressively raising consumer’s awareness of the unique product attributes driven by PR, consumer marketing and engagement with health care professionals and through broadening distribution,” said Babidge.

“Our sales are growing from a small base and the focus is on building rate of sale within existing distribution and achieving retailer support to further broaden distribution.”

Speaking with earlier this year, a2 Milk UK said it was confident that in time it would mirror the achievements of its Australian sister unit.

Sales in Australia continued to grow in the first half of the financial year – a result the company attributed to “on-going investment in marketing and communications.”

According to Babidge, a2 brand fresh milk’s share of the Australian market stood at 6.9% in December 2012.

Sales “well ahead of corresponding period”

Despite the profits drop, A2C chairman Clifford Cook praised the company’s overall performance in H1.

“During the period, the Company continued to progress its key strategic initiatives,” he said.

“The Australian business performed very strongly with sales and operational profit well ahead of the corresponding period last year with continued investment in support of the brand. The launch of a2 brand fresh milk in the UK commenced from October 2012 in association with our joint venture partner, Muller Wiseman Dairies.”

"Management continues to progress the initiative to launch a2 brand infant formula into China during this calendar year in conjunction with our distribution and supply partners,” Cook added.

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