A2 Corp talks up Chinese infant formula potential, shares climb 6.6%

BUSINESSDESK: A2 Corp, which markets milk products with a protein variant claimed to have health benefits, says a distribution deal it has done in China should generate $US50 million of revenue in four years' time. The shares rose to a month-high.

The alternative-market listed company has appointed China State Farm Holding Shanghai Company, a subsidiary of state-owned China National Agriculture Development Group Corp, as the exclusive distributor of its a2 brand infant formula in China.

A2 Corp will sell a2 brand infant formula to the Chinese distributor with first sales expected by June 2013.

The shares climbed 6.6% to 65 cents, the highest level since September 24, and have surged 154% this year.

The company outlined supply chain arrangements, saying the infant formula will be sourced in New Zealand and packaged in a form that is shelf-ready to ensure quality is maintained through the supply chain.

New Zealand dairy exporters have been cautious when entering China since Fonterra's joint venture partner was embroiled in an infant formula scandal there in 2008. Babies died after melamine was added to the formula.

Even after the scandal the $US6 billion a year market for infant formula in China is growing at 12% a year.

The distribution agreement is for three consecutive three-year terms. Marketing will be funded by contributions from both parties.

A2 Corp says it can fund the $US5 million required for administration, initial marketing and working capital for the arrangement in 2013-14 from cashflow.

It sources its milk from accredited New Zealand dairy farms and processes it at Synlait Milk's factory in Dunsandel.

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