L100 : Economics Assignment

June 5, 2018

By Ryan Clarkson-Ledward

At this stage, a2 Milk Limited [ASX:A2M] is known for its consistent share increases.

Its 3.50% growth surge is nothing out of the ordinary, as results have been nothing but positive all year.

In its half year report, a2 pointed out the factors which contributed to its shares increasing on such a consistent basis.

The company has been focusing on distribution growth and expansion in emerging markets.

Revenue from China has also helped growth take place.

Exceptional performance across Asian regions

a2 has had success in China with its multi-channel infant formula strategy.

While sales and distribution have been strong in the Asian regions, brand awareness has also been growing at a consistent rate.

While being driven by new investments in sales and marketing, a new brand campaign, which features live streaming events and TV media segments, has helped the brand stay relevant in Asia.

a2 Platinum infant formula was also released in Hong Kong and was distributed through 350 high end pharmacy outlets.

With its marketing focus and new release, China sales have helped a2 turn over positive results.

a2 has improved its figures across the span of almost a year.

TheSydney Morning Heraldreported in its article:

a2 Milk said revenue for the nine months ended March 31 was $NZ660 million, up about 70 percent from last year on the back of strong sales growth in its nutritional products and liquid milk.’

The strong sales figures reflect China’s increased need in Australasian products, like the various milk formulas which a2 can provide.

a2 Milk is aware of this opportunity and has undertaken the necessary procedures required to secure market opportunities.

The future’s looking positive for a2 milk, as it’s potentially more than likely to capitalise from further sales.

Regards,

Ryan Clarkson-Ledward,
For Markets & Money

Analysis:

One of the most important factors that influence the cost of the share of a company is the financial performance. The performance for a2 Milk has been positive in the past. Apart from that, the company has also distributed the overall growth in order to benefit all the parts of the business. Economists have stated that, the demand for share of a company increases significantly due to the future investment which has been available to a2 Milk. The management of the company attracted investment for marketing and sales in many parts of the world especially in the Asian markets. The growth of the company in the Asian market has improved over the years as well. Furthermore, the revenue growth from china has also strengthened the financial performance of the company. The increased revenue has implications for higher profitability which in turn increases the demand for the share of the company. Another important factor is the future investment and their profitability. The company invested in Hong Kong and expanded the business through more outlets. Studies have highlighted that, expanded business uses the economics of scale in order to reduce the cost of operation further thereby increasing the profitability of the company. Thus, the stability of the performance of a2 Milk, the sales and revenue in case of the Chinese market and the future investment to expand the operation in other countries like Hong Kong has increased the value of the organisation which reflected in the share price through the increase in the demand for the stock in the share market.  

Reference:

Clarkson-Ledward, R., Clarkson-Ledward, R., Editorial, M., Clarkson-Ledward, R., Clarkson-Ledward, R., Dinse, R. and Clarkson-Ledward, R. (2018). How a2 Milk Share Price Shot up by 3.50% Today. [online] Markets and Money. Available at: https://www.marketsandmoney.com.au/how-a2-milk-share-price-shot-up-by-3-50-today-asxu/2018/06/05/ [Accessed 8 Jun. 2018].

Cziehso, G.P., Schaefer, T. and Kukar-Kinney, M., 2017, May. Switching from Free to Fee: More than Just a Price Increase? An Abstract. In Academy of Marketing Science Annual Conference (pp. 617-617). Springer, Cham.

Idawati, W. and Wahyudi, A., 2015. Effect of earning per shares (EPS) and return on assets (ROA) against share price on coal mining company listed in Indonesia stock exchange. Journal of Resources Development and Management, 7, pp.79-91.