Matt Montgomerie: Forsyth Barr Senior Analyst on A2's profit increase, purchase of the Pokeno plant

Another dairy sector shake-up. 

Infant formula and dairy company a2 Milk is buying the Yashili plant in Pokeno and selling its majority stake in the Mataura Valley plant in Gore to Open Country Dairy. 

A2 Milk's announcement comes as it reports a 21% rise in profit, off the back of a 9.3% rise in revenue. 

Forsyth Barr Senior Analyst Matt Montgomerie told Ryan Bridge a2 has stood out over the last couple of years, consistently exceeding expectations despite operating in a relatively tough formula market in China. 

He says the decision to acquire the plant in Pokeno is quite a big step in continuing that growth pathway. 

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Episode Transcript

Speaker 1 (00:00):
Good day for A two milks shareholders. Company posts two
hundred million dollar profit for twenty five announced they're getting
ready to turbocharge production. This is the purchase of a
plant in Polcino. This is for three hundred million bucks.
Pocono plant has two registrations to sell infant formula in China.
This isn't clearly an area that A two sees as
a growth market. Matt's Montgomery is Forsith Bar analyst with

(00:22):
me this morning. Matt, good morning, Good morning Roan. Thanks
having great to have you here, this market reaction, some
strong results for them, and also a lot of trust
in their management here obviously.

Speaker 2 (00:34):
Yeah, that's right. I think in the context of numerous
New Yealand corporates over the last couple of years, A
two it has stood out, I mean, consistently exceeding expectations
despite your operating in what is a relatively tough formula
market in China. And you know, the decision is today
to acquire the plants in Pocono sort of one quite

(00:58):
big step in continuing that growth pathway.

Speaker 1 (01:01):
You said, it's a tough market for infant formula in China.
They've got an aging population. Is this a growth market.

Speaker 2 (01:09):
Well, the market itself is flat to slightly down at
the present time, but birth rates did increase last year,
so you're seeing a little bit of an air pocket
of growth in the very short term. But Eights have
been taking markets share consistently across both their Chinese and
English label formula products. So the market itself is relatively challenging,

(01:33):
but their execution has been very impressive for a few years. Now.

Speaker 1 (01:37):
Can you sell milk to the old aging population?

Speaker 2 (01:43):
Well, they have been diversifying the business. So if you
think back five years ago, it was principally an formula
play in China, but they have been diversifying the business
into other nutritionals. So this is selling senior milk powers
and that's been and growing at sort of thirty percent plus.
So you're trying to stretch the brand, I guess if

(02:04):
you will into other skews smaller today, but you know
another small growth angle for their business.

Speaker 1 (02:13):
Chunk of change they paid for Pocono.

Speaker 2 (02:16):
Yeah, two eighty two as it value was around two
point fifty. But you know the company reported net cash
of just over a billion dollars yesterday, so they haven't
been short of change. And that's allowed them to return
a three hundred million dollars special dividend to shareholders yesterday,
and we see the scope for more distributions to shareholders

(02:38):
over the next few years. So yeah, the free cancelor
generation and the business over a long time has allowed
them to be in this position.

Speaker 1 (02:45):
Good to seeing ambitious company well run.

Speaker 2 (02:48):
Yes, indeed management's doing a good job.

Speaker 1 (02:50):
Matt, appreciate your time. Matt Montgomery for sith Bar Senior
arounds with me on A two this mornth For more
from early edition with Ryan Bridge.

Speaker 2 (02:58):
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