“Transformative Year” Sees A2 Milk Double Profit

The shares in the a2 Milk company have been one of the best performers on the ASX in the past year or more, jumping 122% in the past year (and more earlier in the year when the shares were above $13).

Yesterday it again justified the surge with record earnings for another year.

The company in fact more than doubled its net profit after tax to a record $NZ195.7 million ($178.5 million) for 2017-18.

That followed a 116% rise in net profit for the 2016-17 financial year. Directors said continued growth in infant formula sales and market share, combined with higher sales of liquid milk helped.

Revenue for the year leapt 67% to $NZ922.7 million.

Once again there is no dividend, but the shares rose more than 5% to $10.63, a three month high. Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 101% to $NZ283 million. The company’s gross profit margin jumped to 31% from 26% the previous year.

The company’s new chief executive officer, Jayne Hrdlicka, said yesterday the 2017-18 fiscal 2018 had been a “transformative year” for the business.

"Our brand and unique approach are working across multiple products and markets and we are seeing real momentum building in China and the US,” she said.

“Significant progress has been achieved in Australia, China and the USA and important emerging market opportunities are starting to materialise,” she said.

With the company’s future growth prospects closely linked to China, a2 said its share of the infant formula market in China had grown from about 2.8 per cent to about 5.1 per cent, she said.

The distribution system in China of a2’s infant formula product expanded in in the year to June, with it now available in about 10,000 mother and baby stores. a2 said its direct sales into China via so-called ‘’cross-border e-commerce channels" also increased significantly.

In Australia, a2 said its share of the infant formula market was 32 per cent.

On its outlook for 2018-19, a2 said it was forecasting further revenue growth from its Australia and New Zealand operations, “particularly in respect of nutritional products”. It also forecast higher revenue from sales of liquid milk in the United States.

The company said costs would rise (normally news that panics jumpy investors, but not yesterday) with marketing expenditure as a percentage of sales expected to be higher, because of continued investment in the Australian market and investment to support the company’s expansion in the US market.

Overhead costs were also expected to be higher, thanks “primarily due to increasing headcount for China and the corporate office to support continued growth and organisational development”. That warning has been issued several times this year in updates and presentations and has seen the shares sold off, but not yesterday.

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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