A2 Milk says strong growth continued in first 4 months of FY19

Tuesday 20th November 2018

A2 Milk Co said strong growth continued in the past four months and it remains sanguine on regulatory changes in China.

Revenue in the four months through October rose to $368.4 million, up 40.5 percent on the same period a year ago, while earnings before interest, tax, depreciation and amortisation rose 58.5 percent to $124.2 million. Net profit was $86 million, up 64.5 percent, the company said in a trading update for its annual meeting in Melbourne.

"We have had a great year and we are off to a strong start in FY19. We have a strong brand, special culture and unique proposition, the combination of which positions us very well for the future," said chief executive Jayne Hrdlicka.

She underscored the company is not concerned about the current regulatory dynamic in China and elsewhere in the world. In China, the company operates a multi-channel approach to selling its products, using online platforms such as Kaola.com, JD.com and Alibaba's T-mall, alongside bricks and mortar stores. In the first four months of the current financial year, it lifted distribution from 10,000 to 12,000 stores.

For infant formula, there are two registrations required for China label product, Hrdlicka said. One is for individual products and the other is for the blending and canning facilities used to produce the product. The registration of A2's infant formula products was secured a year ago and the Synlait Milk manufacturing facility that produces its products in the South Island of New Zealand is also registered.

"We believe we are in a good position relative to many other international companies, particularly those with smaller brands and we will invest heavily in-market to ensure we are building a China-based business that is very respectful of the regulatory framework," she said.

In August the Chinese Government passed a new law providing a framework in respect of all activities relating to e-commerce in China, both domestic and cross-border.

"We expect this legislation to require that all CBEC platforms and daigou retailers be registered as an import retailer into China, abide by basic consumer protections and pay the full taxable amount," Hrdlicka said.

"The a2 Milk Company and our well-managed daigou network have been anticipating and preparing for these changes for some time."

Looking ahead, she reiterated the company expects revenue growth to continue but at a slightly more moderate rate than the 33.7 percent experienced in the past four months.

The company is forecasting the ebitda-to-sales ratio to be "broadly consistent" with the prior year. It expects a higher gross margin percentage to be offset by increased marketing expenditure as a percentage of sales and further investment in greater resourcing. The first four months of the year were also favorably impacted by the exchange rate, something that is forecast to reverse during the balance of the year.

A2 Milk's ebitda to sales margin was 30.7 percent in the year to June, up from 25.7 percent the year before

The stock last traded at $10.47 and is up 29.7 percent so far this year.

(BusinessDesk)

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