A2 Milk lifts profit, buys Pōkeno assets, sells Mataura Valley Milk

A2 Milk has announced a lift in annual earnings and a shakeup of its assets that will see Open Country Dairy buy Mataura Valley Milk in Southland.

The cashed up infant formula company also announced a $300 million special dividend.

The company made a net profit of $202.9m, up 21.1%, ahead of market expectations ($192m).

Earnings before interest, tax, depreciation and amortisation (ebitda) came to $274.3m, up 17.1%, on an ebitda margin of 14.4%, up 0.4 percentage points (market expectations were for $271m).

A2 Milk said it had bought all the shares in the China-owned Yashili New Zealand Dairy Co from Yashili International Group Limited, a subsidiary of China Mengniu Dairy Group for $282m on a debt and cash free basis.

The company said it had sold its 75% China Animal Husbandry Group’s (CAHG) 25% shareholding in Mataura Valley Milk Limited (MVM) to Open Country Dairy Limited.

The transactions will give a2 Milk net proceeds of about $100m on a cash and debt free basis.

“MVM will be treated as discontinued operations and the company expects to recognise a loss on sale of MVM of approximately $130m,” it said.

A2 intends to invest $100m in a multi-year capital investment programme to increase capacity and enhance capability at the new a2 Pokeno site, with plans to employ more than 100 additional people over time, providing significant development opportunities to current and future team members.

The company declared an 11.5c final dividend, taking the final dividend to 20c.

A2 Milk’s share price has gone from $6.17 at the start of the year to around $8.70, as the market anticipated a strong result.

Chair Pip Greenwood said the company had made significant steps in its supply chain transformation, which opened up opportunities for future growth.

Chief executive and managing director David Bortolussi said the Yashili NZ deal would give a2 Milk access to two China Label formula product registrations.

The deal secures an opportunity for greater market access to the attractive $23 billion China Label infant formula registered market through control of two highly sought-after product registrations.

“The acquisition of the Pokeno manufacturing facility and related products represents a pivotal moment for The a2 Milk Company and the execution of our supply chain transformation strategy,” Bortolussi said.

“The transactions enable the company to build a better, higher growth, lower risk, end-to-end business and deliver substantial benefits to shareholders,” he said.

“MVM is an advanced nutritional powder drying facility that continues to have significant potential but is no longer the optimal asset and pathway to achieve our strategic objectives,” he said.

“We appreciate the commitment that MVM farmer suppliers, our team members, the local Gore community and CAHG have made over many years to develop the facility from a greenfield site in 2016 to what it is today, and we will remain a significant customer of MVM going forward,” he said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.