China seems to be the hot spot for infant milk formula companies, as Clover Corporation(ASX: CLV) becomes yet another Aussie company to launch its product there successfully. As international borders reopened, the Company delivered nearly $41 million as sales rebounded and key infant milk manufacturers order volumes lifted.

In FY22, the Company saw a revenue increase of 16.8% to $70.7 million, largely thanks to its growing presence in China and Europe.

Clover has supported Chinese and Western infant formula manufacturers in their application for a SAMR Chinese License which will be required from February 2023 to their products through the retail channel in China. In China, the new license requirements demand that the formula have a minimum level of DHA (docosahexaenoic acid) at 15mg/100Kcal.

Managing Director & CEO, Peter Davey, detailed, “Clover pursues three key growth platforms for its business; new product development, focus on infant formula and new market development.”

In March 2022, Clover announced the successful outcome of a five-year long clinical trial with preterm infants being given Clover’s unique Omega 3 emulsion. The trial found that babies who consumed this emulsion had an improved IQ. The Company has branded this product as Premneo, and it is aiming at marketing it as a product that can help families with their child’s development. It has also introduced Gelphorm, which is a product that allows customers to fortify ultra-heat treatment (UHT) drinks with Omega 3.

The Company’s Chairman, Rupert Harrington, added, “The Board and Management have a strong focus on seeking to drive growth by accelerating commercialisation of R&D, expanding international sales support, identifying market adjacency opportunities, including licensing and possible strategic acquisitions.”

Even though demand for its infant formula increased, challenging supply chain and trading concerns threw a spanner in the works, resulting in a net loss of approximately $700k. Inflationary pressure on milk proteins, freight costs and other ingredients impacted margins. To deal with that, the business has been cutting costs and increasing its prices.

What’s more is that Clover expects these inflationary pressures to continue, which is resulting in pricing negotiations with both contracted and non-contracted customers. Recovery of these cost increases will be lagged by movements in price and cost out programs due to long term customer contracts.

Besides its existing raw material reserves, the Company has its eyes set on securing more raw materials to ensure customers are well serviced as demand picks up. The drive for growth will be supported by vertical integration into its supply chain, establishing partners in supply and logistics.

Clover has only recently entered the infant milk formula market, with its core focus being all-round natural foods. The new product launch appears to be working well as the Company expects FY23 to further improve its partnerships with strong forecasted demand, more efficient production, reopening of borders and the easing of supply chain congestion.