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A2 Milk shares climb to a record after profit jump

Xu Jun, Chairman China State Farms Holdings Shanghai and Geoff Babidge Chief Executive Officer of A2 Corporation. Photo / Chris Miller
Xu Jun, Chairman China State Farms Holdings Shanghai and Geoff Babidge Chief Executive Officer of A2 Corporation. Photo / Chris Miller

A2 Milk shares soared to a record after the specialty milk marketer boosted first-half profit and raised its estimate for full-year earnings on a surge in demand for its infant formula in Australia, New Zealand, and China.

Profit jumped to $10.1 million in the six months ending December 31, from $125,000 in the same period last year, the New Zealand-founded and Australian-based company said in a statement. The shares increased 26 percent to $2.55, after earlier touching a record $2.60.

Substantial growth in sales of a2 Platinum formula and a 5 percent rise in fresh milk sales in Australia, the category that launched the brand across the Tasman, boosted total revenue 86 percent to $139.1 million. Australia and New Zealand still dominate revenue at $127 million.

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Managing director Geoff Babidge said following a period of development a2 Platinum infant formula had become a significant contributor to growth and earnings, accounting for 53 percent of revenue now compared to just 47 percent in November.

"It's growing fast and we see that continuing," Babidge said. "In addition, we see positive prospects for growth of a2 Milk whole milk powder, which was first launched late last financial year."

A2 increased its guidance for full-year earnings, saying it now expects earnings before income, tax, depreciation, and amortisation of $45 million to $49 million, up $12 million on the previous outlook. It expects annual revenue of $335 million to $350 million, up $35 million from its previous forecast.

That's despite the risk of regulatory changes in China where there is talk of infant formula manufacturers being limited to selling just three brands in market. Babidge said the company believes it's well-positioned to meet any changes and the regulatory threat should be concluded within the next six to nine months.

In the first half, ebitda rose 472 percent to $18.7 million, despite expensing establishment costs of $8.1 million in the US and UK markets.

The company reports both the US and UK revenue together, which showed it increased to $2.89 million in the first half compared to $892,000 the year prior.

The UK business is on track to achieve breakeven ebit by year end, a quarter earlier than originally forecast, following a repositioning of its fresh milk offering into the premium specialty milk segment and distribution growing to around 1,200 stores. UHT long life milk was launched in September and infant formula is on trial.

In the US, a2 milk was extended from southern California into northern California in September despite the rate of growth in store numbers and sales being slower than forecast.

Most of the infant formula sales have been through Australian grocery and pharmacy channels, with a2 Platinum the fastest-growing infant formula brand in Australia in the past year. Direct sales into China and sales through China-based e-commerce sites also had strong growth.

A2 said it won't be paying a dividend as it continues to invest in international expansion and broadening its portfolio.


- BusinessDesk

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