A2M (ASX) A2 boss says not to worry

Originally posted by Mark06 ↑

The Australasian boss of the booming a2 Milk business says Australians have nothing to fear from Chinese tourists buying up infant formula products from local supermarket shelves, claiming the burgeoning “grey’’ market for selling Australian produce into China has been fundamentally misunderstood.

A2 Australia and New Zealand boss Peter Nathan said the company was comfortable it could manage any regulatory changes imposed by the Chinese authorities after some local fund managers and analysts warned about the risks for Australian firms exposed to the grey market.

The market allows goods that come into one of 14 free trade zones across China to be purchased via websites.

Demand on the grey market late last year saw Australian supermarket shelves cleared of infant formula products by Chinese tourists, students, migrants and middlemen who took them back to China for family members or made big profits by selling them on the internet.

The buying prompted a backlash from Australian parents, who feared they would not be able to source enough product for their children.

“The grey market I think is one that has been misunderstood and one that we should be really encouraging. The reality is that if the US prevented our tourists from buying Levis in America and bringing them home we would find it very strange and we should equally find it strange if we restrict the purchase of infant formula,’’ Mr Nathan told The Australian.

“We see it as very positive for the retail sector, very positive for the farm gate and we think it is a really big opportunity as tourism from China will grow. We will encourage Chinese people to bring products back home in all shapes and sizes that we can manufacture here.’’

He stressed that the supply issues that dogged Australian infant formula producers late last year had been addressed in the first quarter of the year.

Australian retailers of a2’s flagship Platinum infant formula product have almost tripled supplies for the most recent six months compared with the previous six-month period. Currently, all of a2’s Platinum infant formula is produced by Synlait in New Zealand.

Last month, a2 implemented a modest price rise for its Platinum product following a cost review. Woolworths carried labels on its shelves apologising to customers for the price increase.

Mr Nathan described the booming trend of Chinese buying Australian brands as “the dawn of a new era”. “What we are seeing now is unprecedented in the commercial scene in Australia. Never before have we been able to boast that brands produced in Australia have such purchase aspirations from the biggest growing market in the world,’’ he said.

The Chinese authorities recently announced plans to levy a new tax of 11.9 per cent on goods bought via foreign websites, which could make Australian infant formula products more expensive.

The law, which comes into effect on April 8, is designed to level the playing field between offshore and domestic websites as well as traditional Chinese retailers.

But it does stop goods being mailed to China by personal shoppers in places like Australia or Hong Kong. Fear of counterfeit products is driving more and more Chinese mothers to buy formula from offshore.

“We believe we are very well positioned to cope with any regulatory change that might occur. One must be aware that the regulatory environment is dynamic. It always will be dynamic. That is the nature of the beast,’’ Mr Nathan said, noting a2 was still assessing the impact of the latest changes.

A2 and other Australian players were actually helped by new Chinese food safety laws that limit manufacturers to selling only three brands in China in an effort to tighten supply chains and improve food safety.

A2 is also expecting significant growth in direct sales of its Platinum infant formula to China after announcing its third profit upgrade in a year in February.

In the past three to six months it has signed deals with the likes of TMall, VIP.com and JD.com internet platforms to sell infant formula direct to Chinese consumers over the internet.

“Our fastest-growing channel is online — 25 per cent of the market is online for infant formula,’’ Mr Nathan said. The other 25 per cent of the Chinese market is sales through mother and baby stores that operate throughout China.

“Our distribution is growing in that channel all the time. It is a China-labelled product rather than an ANZ label,’’ he said.

“Chinese mothers spend a higher proportion of their income on infant formula than we would in Australia. They also do far more research. “So brands like a2 Platinum — because of its point of difference — are doing well against other brands that struggle to have that point of difference.’’

Infant formula now accounts for 53 per cent of a2’s overall revenue and Mr Nathan said it would go beyond 60 per cent during the second half.

The group is now forecasting Ebitda of $NZ45m to $NZ49m.

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Thanks mark.very reassuring

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