Global Food Forum: China proving a winning formula

A2 Milk chief executive Jayne Hrdlicka at the Global Food Forum in Sydney. Picture: Hollie Adams

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A2 Milk chief executive Jayne Hrdlicka has revealed the company’s inaugural strategy day will be in China later this year, saying it would not return capital to shareholders any time soon as it focuses on growth.

Speaking at the 2019 Global Food Forum, she said A2 was a growth company and that “the investment requirements for us to deliver on our potential are significant and dividends and buybacks aren’t on the near-term horizon.”

“I’m sure at some point in our history — or our future — they’ll be relevant, but they’re not today and it’s not in shareholders’ best interests to even contemplate that, given the opportunities we have,’’ she said.

Ms Hrdlicka said China was the “right place” to hold the firm’s first strategy day “because that is really the heart of the brand today”.

A2 Milk has become the poster child for success in China, as rivals such as Blackmores and Bellamy’s have stumbled in the world’s fastest-growing economy.

A2’s China segment revenue rose to $NZ171.7 million ($164m) in the six months to December 31, up 50.1 per cent, with earnings before interest, tax, depreciation and amortisation up 41.6 per cent to $NZ68.4m as a result of strong distribution and market share gains.

Ms Hrdlicka has made several visits to China since taking over from long-serving chief executive Geoff Babidge in July. She was previously CEO of Qantas’s budget carrier, Jetstar.

In October, she attended the Special Food International Conference in Beijing during which she was one of 14 global chief executives invited to a CEO forum hosted by China’s new state regulator, the State Administration for Market Regulation.

While A2 has traditionally grown its China business via the cross-border e-commerce channel, it now has a presence in more than 12,250 Mother and Baby stores compared with the 10,000 reported at last year’s annual results, which drove an 83 per cent increase in China-label revenue from the same period last year.

“We spent the first half of the financial year really understanding consumers, talking to mothers, talking to parents, talking to grandparents, really understanding the decisions that they we remaking, why they were making them, where they like to shop, what they look to see in the experience that we provide and our retailers provide,” Ms Hrdlicka said.

“And that’s given us quite a lot of clarity on how to continue to build the brand and how to leverage our multichannel strategy.’’

Some analysts have speculated that A2’s reliance on infant formula in China has made the company vulnerable as infertility rates rise. But Ms Hrdlicka dismissed the threat.

“We don’t really see it as a threat at all. We think that demographics evolve, the economy will evolve,’’ she said.