A2 Milk boosts annual net profit by 34%, Covid a 'modest positive'

A2 Milk chief executive Geoff Babidge. Photo / NZ Herald.

A2 Milk said its net profit hit a record $385.8 million in the June year, driven by a 34 per cent lift in infant formula sales.

The result was in broadly in line with market expectations but slightly lower than market consensus at the revenue level.

A2 Milk estimated that Covid-19 had a "modest positive impact on revenue and earnings" for the June year.

The company - New Zealand's second biggest by market capitalisation - said its operating ebitda shot up by 32.9 per cent to 549.7m, compared with market expectations of $527m to $560m.

Total revenue came to $1.73 billion, up 32.8 per cent, compared with a previously advised range of $1.70b to $1.75b.

In the opening minutes of trading, a2 Milk shares were down 70c or 3.3 per cent at $20.80, reflecting a "marginal miss" at the revenue line, Mark Lister, head of private wealth research at Craigs IP said.

"It wasn't too bad. It's just that consensus expectations were a little bit higher than where it came in," Lister said.

A2 Milk's previous guidance implied ebitda of $527m-$560m.

The company said its ebita to sales margin came to 31.7 per cent, from a previous forecast of 31 to 32 per cent.

Despite Covid-19 uncertainties, a2 Milk expected to see continued strong revenue growth in the current year.

A2 Milk said it had demonstrated "significant resilience" in the second half managing the business in the face of the Covid-19 global pandemic.

"Through these unprecedented times, we have been fortunate to continue experiencing strengthening levels of consumer demand and worked closely with our strategic partners and customers to ensure supply chains remained open and consumer needs continued to be met," it said.

Group infant nutrition revenue came to $1.42b, up 33.8 per cent.

There was strong growth in China label infant nutrition, with sales more than doubling to $337.7m.

A2 Milk benefited from pantry stocking of infant formula during the lockdown in the third quarter, but a proportion of that unwound over the fourth quarter.

In the United States, where the company is making a big push, a2 Milk's revenue grew 91.2 per cent and its distribution expanded to just over 20,000 stores.

The company said there continued to be uncertainty resulting from Covid-19, and the potential for moderation of economic activity.

"This could impact consumer behaviour in our core markets, as well as participants within the supply chain, most notably in China," it said.

"Notwithstanding these uncertainties, overall for 2021, we anticipate continued strong revenue growth supported by our continued investment in marketing and organisational capability," the company said.

A2 Milk said its ebitda margin was expected to be in the order of 30 to 31 per cent, reflecting in part higher raw and packaging material costs.

With $854.2m in the bank, A2 Milk said its balance sheet remained "robust".

A2 Milk shares last traded at $21.50, having gained 32 per cent over the last 12 months.