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A2 more than doubles FY profit as Australian sales surge

Tuesday 4th September 2012

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A2 Corp, which claims a health benefit from the protein variant in its milk, more than doubled annual profit by expanding in Australia and is looking at building its footprint in China and the UK for its next stage of growth.

Net profit climbed to $4.4 million, or 0.74 cents per share, in the 12 months ended June 30, from $2.1 million, or 0.4 cents, a year earlier, the company said in a statement. Revenue jumped 44 percent to $64 million, with Australian sales accounting for about 98 percent of that. A2 increased its market share to 5.8 percent by value of fresh milk sales.

"The first two months (of trading) continue to be positive in respect of sales and we'll look for more market share growth to come," managing director Geoff Babidge told BusinessDesk. "It will be interesting to see whether the momentum we've have in the past can be maintained - obviously it's been an extremely strong rate of sales growth and we're optimistic it can continue."

Last week A2 opened a new production facility in Sydney to cope with its growing Australian demand and as it prepares to launch New Zealand-produced infant formula into China and expand into the UK through a joint venture with Robert Wiseman Dairies.

The UK "trading environment is challenging, but we have a unique offering," Babidge said. "The operating environment in Australia has been a challenge and there have been milk price wars, but we certainly haven't been impacted by that, so we're optimistic in respect of the UK."

A2 expects its first production of infant formula, supplied by Synlait Milk, in December, and is well-advanced in talks with a partner in the Chinese market, Babidge said.

"It's a very big market, particularly for New Zealand-sourced infant formula," he said.

Babidge said the strategic review of its business will be considering A2's domicile after shareholders last year agreed to a new constitution that allows for the NZAX listed stock to be transferred to the New Zealand stock exchange's main board or to the ASX.

The shares rose 2.2 percent to 47 cents and have surged 100 percent this year.

The review is still underway, and A2 will update the market when it's completed, he said.

The board didn't declare a dividend, and Babidge said it probably won't make a return to shareholders for the "foreseeable future" as it seeks to grow.

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