A2 Chinese milk sales strong

A2 Milk CEO Geoff Babidge says the company continues to enjoy strong sales through the “grey channel” into China.

A2 Milk Company CEO Geoff Babidge.

A2 Milk chief executive Geoff Babidge says the company continues to enjoy strong sales of its flagship products through the “grey channel” into China as more buyers purchase its products through Australian pharmacies rather than supermarkets.

Australian vitamin producers Blackmores and Swisse Wellness have been hit hard by Chinese regulatory changes looking to reduce so-called “daigou” or “grey” cross-border e-commerce sales — that is, items bought by Chinese entrepreneurs in Australia to ship back to China.

But Mr Babidge said the company remained a strong supporter of the daigou channel.

“There is a consumer need. And it is a legitimate channel,” he told The Australian yesterday.

“While grocery sales in totality have been lower this year, it is because there has been a shift in purchase patterns by the daigou from grocery. So our business has been able to benefit from that. We say daigou is very valid — it is a clear channel direct to a customer.”

A2 Milk shares closed almost 9 per cent higher yesterday after the company moved to reassure investors about its burgeoning China business following recent downbeat commentary from its key rivals. In a market update to the ASX following a presentation at a UBS conference in Sydney, A2 said its first-quarter revenue was in line with expectations at $NZ112.5 million ($107m), up 40 per cent on a year ago.

Importantly, it said Chinese demand was growing as consumers became more aware of its flagship A2 Platinum infant formula and A2 Milk brands and that it was progressing towards registering its infant formula product in China.

Two weeks ago broker Citi put sell recommendations on A2 and its rival Bellamy’s Australia after claiming both could be facing a sales “hole’’ in China over the next year due to higher than expected inventory levels, competition and regulatory risks covering the sale of formula and milk powders. Shares of both companies were hit.

Listed dairy company Bega Cheese also suffered a double-digit decline in its share price after revealing its infant formula milk powder joint venture with vitamins maker Blackmores was struggling to achieve predicted sales in China and its inventory had been written down by $7m. Mr Babidge said the company's chief financial officer and its investor relations head “have been in dialogue” with the analyst who wrote the report.

“That particular report was flagging some risks. We have a more positive view,” he said.

The company revealed yesterday that it had engaged a China-based consultancy to help it better understand the Chinese market and its competitors