Strong growth in China but COVID-19 brings uncertainty to demand and supply chain: a2 Milk

By Tingmin Koe contact

- Last updated on GMT

The Chinese label of a2 infant formula sold on the company's Tmall flagship store.
The Chinese label of a2 infant formula sold on the company's Tmall flagship store.

Related tags: A great way to care, China, COVID-19

The a2 Milk Company said revenue from China was “above expectations” in Jan and Feb, but the ongoing COVID-19 outbreak had brought uncertainty to consumer demand and supply chain.

It believes that there is potential for increased supply chain costs due to the epidemic.

“This is a dynamic situation and at this stage, we are unable to quantify the impact, either positively or negatively, for the full year,”​ the company said in its financial statement for the first half of FY2020 released on Feb 26.

Other companies, such as Blackmores, has also pointed out how the epidemic has hit supply chains into China​, which worked against the higher demand for immunity products into the country. Lonza earlier on echoed the same view and foresaw that there would be disruption to shipments. ​ 

The a2 Milk said its total revenue went up 32% to NZD$806.7m and Net Profit after Tax (NPAT) grew 21.1% to $184.9m.

Out of its three key portfolios: infant nutrition, liquid milk, and other nutritional products, the greatest revenue growth was seen in the infant nutrition business, up 33% to $659.2m.

A further breakdown of the figure shows that the growth in infant nutrition revenue was largely driven by demand from China.

In China, sales of its Chinese label a2 Platinum infant nutrition grew 100% to hit $146.7m. Product distribution was also expanded to 18,300 stores as of Dec last year, which was 2,000 more than six months ago. The stores include mother-and-baby stores such as Kidswant.

Other than brick-and-mortar presence, the company also sells its English label a2 Platinum products into China via the cross-border e-commerce channel, including via JD.com and Tmall.

It said that sales in its English label product was up 57.8% to hit $158.7m.

In the double 11 sale last year, its a2 Platinum Stage 3 was the top selling infant nutrition product in JD.com. Whereas in Tmall, it took the number three spot for the infant nutrition category.

“Because of Chinese New Year, distributors also requested additional products in advance, which brought forward about $8m of sales,”​ the company added.

Elsewhere in Australia, the infant nutrition sales were up 9.5%, delivering $352m in revenue. 

Expansion in US

On the other side of the globe in the US, the company’s revenue was up 116% to $28m.

In contrast to other markets, the company only sell liquid milk in the US, in which revenue had grew more than 100%. Product distribution grew from 13,100 to 17,500 stores, including supermarkets such as Walmart and Costco.

“Operational highlights in the half included strong performance in Costco, increasing same store velocities in Walmart, increased penetration within Kroger through achieving national coverage; bringing the brand to shelf in Safeway in the Pacific Northwest; and new distribution points in Target, Giant Eagle and Fresh Thymes​,” the company said, adding that it was working towards an initial milestone of US$100m in annual sales.

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