The stellar rise of a2 Milk took a hit yesterday, despite the company breaking the $1 billion revenue barrier for the first time.
The shares closed down $2.01 or 12 per cent, at $14.84 after the company reported a 47 per cent leap in net profit to a record $287.7m for the June year. At one stage the stock was down more than 15 per cent, hitting $14.10.
The consensus of market expectations was for a net profit of $297m.
The alternative milk and infant formula company's earnings before interest, tax, depreciation and amortisation (ebitda) jumped by 46.1 per cent to $413.6m, driven by a 41.4 per cent lift in turnover to $1.31 billion.
A key measure for a2 Milk - its ebitda to sales margin - came to 31.7 per cent in the year but supporting slides pointed to that figure dropping to 28 per cent for the year ahead, which caught the market by surprise.
"I think everyone's asking the same thing and that's whether the lower ebitda margin is 'the new normal'," Daniel Kieser, managing director at Shareclarity, said.
"We didn't see an escalation in second-half sales growth despite the higher marketing spend, so it feels like it could be," Kieser said.
A2 Milk said the lower ebitda to sales forecast reflected increased full-year marketing investment to about 12 per cent of sales, and continued investment in its capability to support future growth.
Sam Trethewey, portfolio manager at Milford Asset Management, said the "headline" profit was broadly in line with market expectations and that the standout performance was in the US, where there was a 200 per cent lift in sales over the second half.
"What the company was keen to emphasise was that the cost of revenue growth was going to be higher," he said.
"The Chinese and US market for fresh milk is large and they are going to go after it pretty aggressively.
"In doing so, they will spend more on marketing and building an organisation that is capable of achieving it - that was at odds with market expectations.
"The market had assumed ebitda to sales margin of 32 per cent going forward and not 28, which implies 10 per cent less in profitability, which was why the share price dropped."
In China, a2 Milk's infant nutrition market share strengthened to 6.4 per cent from 4.8 per cent a year earlier.
A2 Milk said revenue from the Australian fresh milk market revenue grew by 10.7 per cent and its market share there rose to 11.2 per cent.
Group infant formula revenue came to $1.06b, up 46.9 per cent.
At the same time, a2 Milk's balance sheet was in rude good health - with cash on hand totalling $464.8m.
Chief executive and managing director Jayne Hrdlicka - after her first full year in the job - said the business continued to build.
"The company's record financial and market share results for 2019 was enabled by strong revenue growth across our key product segments of liquid milk, infant nutrition and other nutritional milk products, and across each of our key regions.
"Results were underpinned by growing brand awareness, expanding product distribution and strengthening in-market execution in our two most important regions of Greater China and the US."
Hrdlicka said A2 Milk had focused on "really getting to know" its consumers and sales channels in our core markets of China and the US.
"In effect much of our effort in 2019 was spent balancing our dual priorities of sustaining our growth momentum in the year while at the same time deepening our local consumer and market knowledge, investing to build capability and creating detailed blueprints to deliver future growth."
There had been "pleasing growth" in a2 Milk's liquid milk businesses in particular within Australia and the US — with total fresh milk growth of 22.9 per cent and revenue of $174.9m across the group. A2 Milk's gross margin remained strong and had improved to 54.7 per cent.
A2 Milk, which specialises in milk carrying just the a2 beta protein compared with the a1 and a2 proteins contained in standard milk, has been a standout performer on the share market over the last few years.
The stock hit a record high of $18.02 in July, having started the year at just $10.75.