Latest / Best of Business / Matt Montgomerie: Forsyth Barr analyst on A2 Milk's shares dropping following declining China birth rate

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Matt Montgomerie: Forsyth Barr analyst on A2 Milk's shares dropping following declining China birth rate · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks B Follow
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  Speaker 2: First, China's birth rate has slowed to a crawl. Basically,
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  Speaker 2: it's bad news for a two milk. Why because a
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  Speaker 2: two milk does a lot of business in China. When
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  Speaker 2: the news came out that their birth rate was now
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  Speaker 2: only six point six three per one thousand people, a
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  Speaker 2: two share price plummeted. In fact, the share price fall
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  Speaker 2: was so bad, so sudden, that the ACX actually paused
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  Speaker 2: trading for a bit and asked A two for a
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  Speaker 2: please explain? Is everything okay? Is there anything more you
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  Speaker 2: need to tell us? Matt Montgomery is a full size
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  Speaker 2: bar senior and listener's with me now, Matt, Good evening.
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  Speaker 3: Good evening, ryng, thanks having me.
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  Speaker 2: Good to have you. Why is this so bad for
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  Speaker 2: A two?
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  Speaker 3: Yeah? So, I mean I wouldn't go as far to
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  Speaker 3: say so bad, but if you think about the context
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  Speaker 3: of A two, about two thirds of their revenue as
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  Speaker 3: Chinese and formula, and it's the majority of their earning.
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  Speaker 3: So as you mentioned birth Chinese birth rates were out
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  Speaker 3: yesterday afternoon. They were down seventeen percent year on year
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  Speaker 3: and about ten percent below what we had expected and
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  Speaker 3: a similar magnitude relative to what A two had expected.
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  Speaker 3: So it's the key value driver for the business. But
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  Speaker 3: what I would emphasize is that you know, this has
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  Speaker 3: been a trend for some time in China, the declining
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  Speaker 3: birth rates, and that hasn't precluded A two from growing.
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  Speaker 3: So they've been able to take market share, and clearly
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  Speaker 3: looking forward for them to grow, they're going to have
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  Speaker 3: to continue to take market share in light of these trends.
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  Speaker 2: Yeah, it might be fewer babies, but they're still a
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  Speaker 2: hall of a lot of them, right.
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  Speaker 3: Yeah, So seven point nine two million was the number yesterday.
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  Speaker 3: That was down from nine point five to four million
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  Speaker 3: in the year prior. It's quite a skip change when
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  Speaker 3: you think about twenty sixteen twenty seventeen berths was sort
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  Speaker 3: of sixteen seventeen eighteen million a year, so it's been
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  Speaker 3: quite a sharp reduction versus less than a decade ago.
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  Speaker 3: But as you point out, it's still quite a big number.
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  Speaker 2: How's share price doing now? Is it recovered?
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  Speaker 3: Yeah? So share price fell about eleven percent yesterday on
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  Speaker 3: the insie x. It fell a further one percent today,
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  Speaker 3: So you know, meaningfully more muted reaction. And as you mentioned,
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  Speaker 3: it got put into holt on the Australian Stock Exchange
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  Speaker 3: yesterday as part of a regulation over there. When a
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  Speaker 3: stock falls by more than ten percent without an announcement
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  Speaker 3: by the company, it automatically goes into a halt.
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  Speaker 2: Where else are they looking to do business? Man, Well,
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  Speaker 2: I mean, obviously they're not just doing business in China,
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  Speaker 2: but where are the growth opportunities?
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  Speaker 3: Yeah? So, you know, two, as I mentioned, two thirds
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  Speaker 3: of the revenue as in formula in China. That still
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  Speaker 3: remains an area of growth for them, as I mentioned,
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  Speaker 3: because they are taking market shares. Outside of that, you've
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  Speaker 3: got value drivers through the liquid milk business in Australia
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  Speaker 3: and the US. And actually, I think more interestingly than
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  Speaker 3: both of those is that they're starting to expand into
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  Speaker 3: the Vietnamese market from an formula perspective, and they are
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  Speaker 3: expanding the product range within China, so going into the
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  Speaker 3: adults and senior powders market in China, which is growing
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  Speaker 3: sort of twenty to thirty percent perandom for them, and
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  Speaker 3: they have been launching sort of kids powders within China
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  Speaker 3: to try sort of prolonged the life cycle of their
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  Speaker 3: consumer base, transitioning from infant formula then into kids powder.
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  Speaker 3: So yes, the headline numbers week, but they are diversifying
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  Speaker 3: the business and having success and growing share, but also
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  Speaker 3: that divestification.
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  Speaker 2: Hey, have you done your big race yet? Matt?
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  Speaker 3: Yeah, I did a decent run a month until ago.
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  Speaker 2: So what was it again? Remind me?
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  Speaker 3: I was the Kefler Challenge down on the Keifler Track
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  Speaker 3: around Milford there. Yeah, one of four point fifties. I
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  Speaker 3: wasn't alone, but I wasn't exactly breaking course records like
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  Speaker 3: like some people.
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  Speaker 2: Where'd you place?
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  Speaker 3: Oh? I was sort of top top quart ale, let's say.
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  Speaker 2: And was it sixty k's if I got that?
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  Speaker 3: Yeah?
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  Speaker 2: Yeah, it was good on you. You haven't broken yourself.
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  Speaker 2: Well done, top quartile, he says.
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  Speaker 1: Matt.
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  Speaker 2: Think you met Montgomery for scithas senior analyst.
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