a2 Milk Shares Slip As Revenue Jumps 68%

By Glenn Dyer | More Articles by Glenn Dyer

Shares in A2 Milk Company eased nearly 3% yesterday despite the company reporting revenue at the top of its guidance range.

The company told the NZX and ASX in a statement that full-year revenue grew about 68% to around NZ$922 million ($A846 million).

That was just above the top of the May guidance range for revenue of NZ$900 million to NZ$920 million for the year to June.

Despite that the shares lost 3% to close the session at $10.50.

The dual-listed New Zealand-based dairy firm said its ratio of underlying earnings to sales for the 12 months to June 30 is expected to be about 30% when it announces its results next month.

The company says the ratio is expected to remain about the same in 2018/19 despite higher expected overhead costs related to a rising headcount for China and its corporate office.

A2 said it expects to spend a greater portion of its revenue on marketing than in FY18 to continue investing in Australia and to support its expansion in the United States.

The firm announced its expansion into the north east region of the US in January, which it said at the time would increase its products’ reach to potentially 5,000 retail stores across the country.

That news saw the shares sold off (some greedy investors do not like the fact that solidly performing companies have to continue investing to grow).

A2 remembered that over reaction yesterday and added in its statement that it is expecting the sales profit to sales ration (30%) will be maintained in 2018-19.

“Notwithstanding the higher expenditure referred to above, the EBITDA to Sales ratio for FY2019 is assumed to be broadly consistent with the Company’s expectations for FY2018,” the company said in its statement..

"The Company has completed its planning cycle for FY2019 and, assuming general trading conditions do not change materially, the Company’s expectations in respect of FY2019 include:

  • further growth in revenue particularly in respect of nutritional products;
  • marketing expenditure, as a percentage of sales, higher than FY2018 given continuing investment in Australia, re-phasing of 2H FY2018 activities in China and elevated investment to support the US market expansion;
  • overhead costs higher than FY2018, primarily due to an increasing headcount for China and the Corporate office to support the increasing scale of the Company;
  • one-off costs associated with the transition to a new CEO as recently advised.”
Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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