‘Turning a corner’: A2 Milk retargets Chinese daigous amid $134m share buyback

The dual-listed company’s share buyback is slated to start at the end of September and run for 12 months across the ASX and NSX, the New Zealand bourse.

Bortolussi said the buyback came as a result of assessing its net cash balance of $NZ817 million and determining that it had more than enough of a buffer for investment and market volatility and was left with “excess capital”.

“[We have] about $NZ150 million in surplus to our needs at the moment and going forward, we reviewed alternative ways to return that capital to shareholders, and we decided that the most appropriate means at this point in time – and it could be different in the future – is to execute an on-market buyback … which is a real sign of confidence in our outlook,” he said.

Revenue from its Australia and New Zealand markets slid by 4.8 per cent to $533 million as a “direct consequence” of a restructured sales strategy while US market revenue rose 30 per cent to $83 million.

A2 Milk, which has been pipped by smaller player Bubs Australia in supplying infant formula to the US and had its own application “deferred” by the US Food and Drug Administration (FDA), is still open to the market opportunity, but Bortolussi played down its significance. He said it would have been unlikely to have made a material difference to the company’s outlook.

“It’s a very big market and profitable, but it’s very concentrated and highly competitive … when you look at others that have entered the category over there, they’ve really struggled to gain any significant share and develop a profitable sustainable business,” Bortolussi said.

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The $NZ3.62 billion company stands by ready to support “mostly from a humanitarian basis” to ensure mothers and babies have access to infant formula.

“If we ever get that opportunity in the future, and there’s a commercial opportunity in the longer term, then we’d explore that. It’s not a big deal,” Bortolussi said.

“Even if we had have received FDA approval, I doubt whether that would have changed our outlook. It would be significant to our US business, but not to the a2 Milk company overall.”

The company will be forced to raise prices on its products amid significant increases in global dairy commodity prices, as well as cost pressure across the supply chain, including logistics, freight warehousing and employee costs.

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