A2 profit surges on China demand for infant formula

A2 Milk recorded buoyant sales in China during ‘Singles day’.Unlike some key local competitors, A2 Milk has boasted of “strong growth in demand” for its infant milk formula in China as it posted a 290 per cent surge in interim earnings. Its result also benefited from buoyant demand for its milk products as it pushes into new markets in the US and UK.

Net profit surged to $NZ39.38 million ($36.8 million) in the December half, from $NZ10.1 million a year earlier, the dairy products maker said in a statement to the ASX today.

The company pointed to rising sales in China in the December quarter, indicating strong sales during so-called ‘singles day’ when online Chinese retailer Alibaba fosters a popular sales event.

“Whilst the growth in demand was evident across the half-year, there was a marked increase in infant formula sales in the second quarter corresponding with the phasing of key sales events in China and an increase in market share in both Australia and China,” A2 Milk’s managing director Geoffrey Babidge said.

“This was achieved whilst maintaining a prudent approach to the management of production and inventory in recognition of foreshadowed changes in regulations for infant formula sold in China.”

Revenues for A2’s infant formula product increased by 62 per cent and 348 per cent in Australia and China, respectively, and with the operating EBITDA doubling and soaring by 1021 per cent, respectively. Investors though were not impressed chipping 2.5 per cent off the company’s share price which closed at $2.36.

The rate of growth in part reflects inventory shortages experienced during the year-earlier period, it said.

Total sales from infant milk formula in the half reached $NZ184.5 million, compared with full-year sales of $NZ214.4 million in the year to June 2016.

Discussing the results, Mr Babidge re-iterated the close monitoring of sales channels in China to ensure inventory levels are held in check.

“We have been conservative in our approach to infant milk formula inventory.”

A concern in the future is the evolving regulatory climate in China, which could hurt the flow of product from China, Mr Babidge said.

“We are growing the business (in China) but in a very measured way and not just monitoring our business, but also the supply chain. We continue to develop the daigou channel. What we are doing is working.”

Daigou – pronounced dye-goo – are shopping agents who buy things for residents on mainland China that are unavailable or hard to find there – often students who are studying overseas, or people who have migrated from China to another country who want to help friends and family, or earn extra money.

A2 Milk chief executive Peter Nathan said there was a view in some parts of the market that “all you needed was to have a product” to win sales in China.

“We are by far the exception, not the norm. You need a significant investment in the business to succeed. We always knew it was a challenging market; only a few succeed,” he said.

The company said it has also had some success in expanding its footprint in the US, where its product is now carried in around 1800 outlets, mostly in the south west. It’s also won access to an estimated 1100 outlets in the south east of the US.

Analysts with Citi warned that risks continue to be skewed to the downside for A2 Milk, due to the risky transition period in China ahead of the new regulatory regime from 2018, rising dairy costs and potential adverse effects from Bellamy’s woes.

CEOs divided on civic impact of globalisation as trade war fears rise

Their businesses may rely on it, and most support it, but one in two Australian chief executives surveyed by PwC reject the assertion that globalisation has helped reduce income inequality.

The findings come from PwC’s CEO survey, which polls 1379 CEOs globally about their thinking once a year. The Australian results, to be released on Thursday, show local bosses grappling with the impact of globalisation at a time of rising protectionist rhetoric from the United States and Europe.

On the question of whether globalisation had helped close the gap between rich and poor, 49 per cent choose the “not at all” option. Almost all CEOs agreed globalisation had, to at least some extent, fostered global connectivity. And a majority (57 per cent) agreed their global ambitions were becoming trickier to balance with rising protectionist trends.

By bringing jobs from first-world corporations to third-world nations, globalisation has lifted the incomes of millions of people. But PwC Asia practice leader Andrew Parker said he wasn’t surprised to see CEOs highly divided when it came to globalisation’s impact on inequality.

“While it’s very true that the opening up of trade and investment is responsible for lifting hundreds of millions of people out of poverty in emerging markets … the gap between rich and poor in those countries is pretty significant. In China, hundreds of millions of people are still living on one or two dollars a day,” he said.

Discussion in Western countries has recently focused on the impact of globalisation on Western workers. Mr Parker said in China and many other developing nations, the discussion has been happening for a long time.

“I think Australian CEOs are very aware of the issues and risks that this presents,” he said. “While they’re generally positive about the environment, they do have concerns about how governments and society more broadly will address the gap between rich and poor.”

“The data says that Australian CEOs are still positive on globalisation,” said PwC Australia CEO Luke Sayers, adding that the results were similar to those of other country cohorts in the survey.

“But they’re also very cognisant of the wealth divide, and how do they also drive inclusive growth. Each CEO and business is very much looking at that … how do you drive inclusive growth and make sure everyone benefits?”

Australia’s open economy is highly reliant on trade, making it particularly vulnerable to protectionism. In the United States, President Donald Trump has made higher tariffs a key part of his economic agenda, while in Europe, Britain’s coming departure from the EU and the strong support of nationalist presidential candidate Marine Le Pen have made many economists fearful of the possibility of global trade wars.

Despite the risks posted by rising protectionism, the 81 Australian CEOs surveyed – most of whom worked for listed companies and a clear majority (70 per cent) of whom had previously worked outside Australia – were unusually bullish by global standards, with 42 per cent saying they were “very confident” of seeing revenue growth in the next 12 months. This is above the global average of 38 per cent. A majority were planning both M&A activity and nearly one in two said they planned to increase their organisation’s headcount this year.

When it came to international outlook, for the first time since PwC began asking the question seven years ago, the United States and China were tied when CEOs were asked to nominate the top offshore market for growth. “There’s obviously some turbulence at the moment in China as it transitions from very high levels of growth to more sustainable levels,” Mr Sayers said. “There are also some organisations that haven’t been overly successful in China, which spreads wide and far with corporate Australia.”

A majority of Australian CEOs surveyed nominated one of the three Western markets of the United States, Britain or New Zealand as the country where they saw the most potential for oversees growth. Such markets have far lower GDP growth than many others in our region, but they are viewed as “safe”, Mr Parker said.

Vicinity Centres remix tenants for success

Chadstone shopping centre renovations will include the new Legoland Discovery Centre. Photo: Joe Armao John Gandel, Chris Kearney, Rob Smith and Angus McNaughton at the launch of Legoland at Chadstone Shopping Centre on October 25, 2016. Photo: Eddie Jim

Keeping new tenants moving through its mega shopping centres and a large development platform helped Vicinity Centres report a statutory net profit of $908.8 million for the half year to December 30.

After the extensive asset sale and reinvestment program over the past year, the underlying earnings were $376 million or 9.5¢ on a per security basis, down 0.4 per cent.

Vicinity’s chief executive Angus McNaughton said while there have been many retailers facing troubles – 16 in the past few months – it has given the group the opportunity to change the tenants across the portfolio, which includes the mammoth Chadstone in Melbourne’s south-east and Chatswood in Sydney’s upper north shore.

The opening of the first LEGOLAND Discovery Centre in the southern hemisphere in April would also add to the visitor numbers at Chadstone.

He added the changes to the Pharmaceutical Benefits Scheme, which aim to save the federal government $835 million over four four years, have hit local chemists leading to some store closures.

“Some of the closures of retailers in the past few months has helped our team look at opportunities to rework the tenancy mix, such as at Emporium Melbourne, which has proved successful,” Mr McNaughton said.

“Since January 2016, including Dick Smith, we have had a total of 138 stores go into administration across our directly owned portfolio of 7900 tenancies, representing just over 1 per cent of gross lettable area.

“To date, 88 stores have been handed back and we have successfully re-leased over 80 per cent of these, which includes stores handed back within the past few weeks. For the remaining stores expected to be handed back, a number have already been re-leased.”

Over the course of the past six months, total moving annual turnover (MAT) growth was 1.3 per cent, at the end of December, compared to 2.1 per cent at June 30, 2016. Specialty store MAT growth was 2.2 per cent, compared to 3 per cent at June 30 2016. Excluding the impact of Dick Smith store closures in early 2016, specialty store MAT growth was 2.7 per cent.

Vicinity said department stores and discount department stores category sales were down marginally in the period, while at mini majors such as Cotton On and larger H&M stores sales remained robust with 3.3 per cent MAT growth despite the Dick Smith impact.

The expansion of the DFO malls has also proved a bonanza with some stores selling over $430,000 of goods on Boxing Day alone last year. The group recently bought the remaining 25 per cent it did not own of the DFO South Wharf Melbourne.

International retailers remain the strongest performers, taking over space in new centres and are fast replacing department stores as the anchors for a mall.

Expanded food courts and retail services such as beauty and cosmetic retailers and mobile device outlets are also gaining traction as the key tenants in a shopping centre.

After the sale of about $1.4 billion worth of assets, the group bought five new malls and is also working on its $1.4 billion development pipeline which includes completing the Chadstone project, significantly progressing the Mandurah Forum and DFO Perth Airport projects, and commencing $490 million The Glen, Melbourne redevelopment.

For the half year, the group’s distribution was 8.7¢ per security and the full-year guidance for underlying earnings remains unchanged at 18.6 to 18.8¢ per security.

The Marly Pub Newtown on the market

Investors and other pub operators are likely to take an interest in the property.One of Sydney’s well-known watering holes, The Marlborough Hotel in King Street, Newtown, is on the market as owners and good mates Geoff Dixon and John Singleton look to reshape their pub portfolio.

Owned by Riversdale Group, which was founded by Paddy Coughlan and is managed by Mr Dixon, Mr Singleton and another partner, Mark Carnegie, the Marly, as called by the locals, is expected to reap as much as $35 million.

It is being sold by Ray White Asia Pacific director Andrew Jolliffe, who said with upside in all departments, none more apparent than operational improvements in the gaming room, and the activation of the development-approved rooftop terrace, investors and other pub operators would be taking an interest in the property.

The potential sale comes as the pub sector is having a golden year of high demand.

In the past year up to $500 million of pubs have changed hands including 16 from the Lantern Group, the Clovelly in Sydney’s eastern suburbs, and three by Mr Dixon and Mr Singleton’s Australian Pub Fund, part of Riversdale Group.

Mr Dixon, the former chief executive of Qantas, confirmed the sales, saying it was the “right time” in the cycle to sell the two pubs.

Riversdale’s Australian Pub Fund bought the Marlborough for $12.17 million in 2012.

Mr Dixon told Fairfax Media last year when he started the sale process, that the time was right to take advantage of the strong pub market.

He said it was the group’s decision to focus on other pubs and divest the well-known hotels to keen buyers.

“However, we are not liquidating, as we are also keen buyers, as always, at the right price. These pubs are big gaming pubs which are well patronised for a certain demographic,” Mr Dixon said last year.

Pub operators that don’t have a presence in Newtown, which is outside the lockout drinking zones and so can open until late, include Justin Hemmes of Merivale, Mauricio Terzini, Patrick Gallagher, Andrew Lazarus and the Ryan family.

“The Marlborough is the most significant freehold hotel currently on the market nationally in Australia, and not surprisingly following over 20 A-grade freehold hotel sales in the most recent six months, we’ve been commensurately inundated by high-quality domestic and international inquiry,” Mr Jolliffe said.

“Fundamentally, this is a landmark hotel, and for generations has drawn robust patronage from the local residents, proximate Sydney University campus constituents as well as the large shift-worker base at Royal Prince Alfred Hospital just down the road.”

Mr Jolliffe said that during the past few years the hotel had also benefited noticeably from the increased popularity of Newtown as an entertaining and dining precinct, given it was beyond Sydney’s lockout zone.

“We’ve sold a number of Newtown Hotels before, and many to tier 1 and particularly well-known hospitality operators, but not all such operators are currently represented in Newtown; and that’s been the exciting revelation for us in terms of the commencement of the campaign, with strong interest from key parties representing hugely successful hospitality and property-based businesses,” he said.

“Apart from the sheer size of the corner block, of about 1000 square metres and over multiple levels, is the potential for huge upside in the form of the DA-approved rooftop area.

“Several examples of which, including the Republic Hotel in Pitt St and The Glenmore Hotel in Sydney’s Rocks precinct, are illustrative of the potency of evocative al fresco spaces in densely populated suburbs; a phenomenon originating from New York’s progressive boroughs such as Manhattan, Brooklyn and Queens.”

Police arrest alleged drugs ‘queenpin’ linked to Assyrian crime gang

Alina Antal, 29, was arrested in Cabramatta in Sydney’s west on Wednesday. Photo: Facebook Ms Antal is accused of being involved in a cannabis supply syndicate. Photo: Facebook

A woman argues with police as her home is raided in Fairfield Heights. Photo: Nick Moir

A raid in Fairfield on Wednesday morning. Photo: Nick Moir

Oleen Merza, the sister of Oliver Merza, who was charged after police raids. Photo: Nick Moir

With her sleek black blazer, long blonde hair and inner-city office job, Alina Antal did not fit the stereotype of a drug ring director.

But, from within her humble brick home in Sydney’s western suburbs, that is exactly what police allege she was, alongside her on-again-off-again boyfriend, an accused Assyrian gang associate.

While alleged DLASTHR gang figure Oliver Merza, 26, was doing his bit from within Silverwater prison, Ms Antal is accused of directing the operations of a cannabis syndicate.

Among those under her direction were youths, including a 15-year-old boy, police will allege.

On Wednesday morning Ms Antal became one of 10 people arrested in a Middle Eastern Organised Crime Squad-led crackdown on Assyrian organised crime in the greater Fairfield area.

Police believe a fierce battle over drug turf in the area has fuelled a string of violent incidents, including shootings, fire-bombings and standover tactics. While tit-for-tat violence between such groups has been largely confined to the south-west area, police suspect it may have crept into other parts of the city.

A luxury Audi Q7 linked to one Assyrian gang target was thought to have been used in the fatal shooting of former bikie Adrian Buxton in Colyton in the north-west suburbs last May.

Police suspect that Audi was in the possession of Antonio Hermiz, 20, who may have been hiding it, before he was killed in a shooting in Wetherill Park last December.

Wednesday’s operation was primarily focused on those allegedly involved in cannabis supply, but was also aimed at disrupting the activities of the organised crime groups that have survived in Sydney for decades.

Just before 7am Ms Antal was handcuffed and walked out of her Cabramatta home while several officers waited to search the property.

The 29-year-old, who is understood to work for a telemarketing firm in the city, was charged with directing a criminal group, recruiting a child to carry out criminal activity, drug supply and other offences.

Police will allege she and Mr Merza directed the group involved in cannabis supply and recruited youths, aged 15 and 17, to help.

Appearing in Liverpool Local Court briefly on Wednesday afternoon, Ms Antal initially indicated she wanted to represent herself in a bail application.

“Your honour, I have no choice,” she said from the dock.

However, after getting advice from Legal Aid Ms Antal opted against applying for bail. She is expected to make an application next week in Campbelltown Local Court.

Mr Merza was charged with similar offences and issued a court attendance notice in prison on Wednesday.

His parents’ house at Fairfield Heights was also raided, with his mother visibly upset at the presence of police in their home.

Despite police alleging Mr Merza has strong ties to DLASTHR, his family deny it, stating the group no longer operates.

“That hasn’t existed since the ’90s,” Mr Merza’s sister, Oleen, told Fairfax Media while police searched her parents’ home on Wednesday. “The members are all doing time in jail or they are out in their 40s, married and with kids. They [police] keep associating these kids with groups like that.

“Our family got here in 1995 and the group died out in 1998. We were in primary school when the group separated.”

She said her brother – who was charged with firearm offences after police found guns at a home he was at last year – had no gang tattoos.

“We understand they [police] are doing their job, but we need someone to turn to as well, and we feel like they are the enemy and we can’t turn to them,” she said.

Ronaldo Odisho, 18, who was shot but survived the shooting in Wetherill Park, was also charged on Wednesday with drug and criminal group offences.