A2's shares hit record on 1H results, Fonterra deal

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SM1) and The a2 Milk Company Limited (NZX: ATM;ASX: A2M) wish to clarify that the announcements made today by The a2 Milk Company and Fonterra do not change Synlait's exclusive infant formula supply arrangements to The a2 Milk Company.

a2MC will also gain access to the New Zealand market, giving Fonterra exclusive license for the production, distribution, sale and marketing of a2 Milk branded fresh milk for end sale in the New Zealand market.

The stock gained $2.31 to $11.60, valuing a2 Milk at $8.47 billion, toppling Auckland International Airport at $7.75b, Fisher & Paykel Healthcare at $7.37b and Meridian Energy at $7.29b.

"An especially pleasing aspect of our performance was the continuing strong growth in market share and sales of a2 Platinum infant formula in China, along with our success in adapting to the evolving regulatory environment in that market", Mr Babidge said.

The company's net profit for the six months ended December was $98.5 million, compared with last year's $39.4m.

Announcing the deal, Fonterra CEO Theo Spierings and A2MC managing director and CEO Geoffrey Babidge said the partnership is created to generate returns for both companies by growing demand in both local and worldwide markets for products using A2MC's brand strength and capabilities.

"We both remain committed to a positive, long-term partnership with The a2 Milk Company and are looking forward to continued growth for both organisations", said Mr Penno.

Despite this, Synlait's shares dropped 6.7 percent to $6.58 in the first four minutes of trading, while Fonterra Shareholders Fund units were up 0.3 percent to $6.02.

Over time, Babidge said he expects a2 fresh milk will take share from products such as almond milk because of nutritional benefits and naturalness of the product.

Managing director Geoffrey Babidge said growth in a2 Milk's distribution networks in China, as well as the United States, laid a strong foundation for further profit growth in FY18.

In the first half, a2 settled a court case in Australia with its rival Lion Group over the science behind health-related claims about its milk. "Subject to currency movements and realisation of throughput efficiencies, the company expects the gross margin percentage to be broadly consistent in the second half".

The new deal with Fonterra sent shares in a2's existing supplier Synlait Milk Ltd sliding 6 percent.

The board is also reviewing opportunities to invest directly in blending and canning capability as part of its longer-term nutritional products sourcing plan, it said.

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