A plan by a2 Milk to buy Yashili New Zealand’s plant at Pōkeno will help pave the way for greater access to China’s $23 billion infant formula market, the company says.
The cashed-up infant formula marketer, in announcing its result, outlined plans to sell its majority-owned Mataura Valley Milk (MVM) in Southland to Open Country Dairy for $100 million, while picking up Yashili’s New Zealand plant at Pōkeno for $282m.
MVM – an advanced nutritional powder drying facility – is 75% owned by a2 Milk and 25% by China’s Animal Husbandry Group (CAHG).
The attraction of Yashili’s Pōkeno plant was that it has two product registrations for the sale of infant formula in China, which are hard to get.
“This is our most preferred asset in the world to develop our infant formula business going forward,” chief executive and managing director David Bortolussi said.
Yashili NZ is owned by Yashili International, a subsidiary of China’s Mengniu Dairy.
MVM will be treated as discontinued operations and a2 Milk expects to recognise a loss on the sale of about $130m.
In its result, the company made a net profit of $202.9m, up 21.1%, and 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: $271m).
And a2 Milk also announced plans to pay a $300m special dividend.
Bortolussi said a2 Milk has attained a top-four brand position in China – the world’s largest infant milk formula market.
“It has been an exceptional year for our infant milk formula business, growing 10% in the year driven by our English label business which was up 17%,” he said.
Looking ahead, the company expects high single-digit percentage revenue growth this year against 2025’s.
It also expects margins to be about 15% to 16%, with a net profit similar to the 2025 year.
“In the context of the range of outcomes, I think it’s a solid set of numbers,” Forsyth Barr senior analyst Matt Montgomerie said.
On the buy-and-sell transactions, Montgomerie said: “I’m reluctant to say it’s a game-changer, but clearly it’s quite a step change and transformational for the business.
“I think it makes a lot of sense.”
The addition of two licences should support a2 Milk’s China label growth story, he added.
Jarden analysts said the market would likely take time to digest the future “capital intensity” required to become a more vertically integrated infant formula player.
English-label formula, usually marketed through cross-border e-commerce channels, is cheaper than Chinese-label product, which uses more expensive ingredients and is sold in the more conventional mother-and-baby stores in China.
Double-digit sales growth in English-label sales was a key factor in a2 Milk’s profit improvement.
The company also said it had achieved record market share in the Chinese-label market.
Bortolussi said the decision to sell MVM and buy the plant at Pōkeno was part of a strategic initiative which had its origins in early 2021, soon after he started as CEO.
“For a long time, we have been focused on accelerating and expanding our market access in China and on development of our infant formula capability,” he told the Herald.
“The combined impact of these transactions deliver on that.”
As it stands, a2 Milk has access to only one China registration through its sole formula manufacturer, Synlait Milk.
Chinese regulations allow for just three formula registrations per factory.
Registrations are highly sought after, and the process to gain one can take several years to complete.
“It would have taken us another five years or more at MVM to get registration, which would have required more investment in blending and canning, on building capability throughout the process to get there, and with no certainty about the outcome,” Bortolussi said.
“What we have announced today allows us immediate access to a world-class facility at Pōkeno.”
Pōkeno has a milk-drying capability similar to MVM’s, making MVM surplus to requirements.
Bortolussi said there was potential for one more licence to be granted for Yashili NZ’s Pōkeno plant, and for another at Synlait further down the track.
In China, it’s common for a2 Milk’s competitors to have five to 20 product registrations.
“This will really open up the opportunity for us to expand our position in the China market,” Bortolussi said.
The company, which specialises in product containing just the a2 beta protein and not the a1/a2 combination found in regular milk, declared a final dividend of 11.5 cents, taking the total to 20c.
Shares in a2 Milk rallied on the news to a high of $9.29, but later eased to $8.83.
The stock started the year at $6.17.
Jamie Gray is an Auckland-based journalist, covering the financial markets,the primary sector and energy. He joined the Herald in 2011.