A2 Milk doubles profit in 2018 on strong formula sales

The upward trajectory of A2 Milk continues. Photo/123RF.

Alternative milk company A2 Milk said its annual net profit shot up by 116 per cent to $195.7 million for the June 30 year, driven by a big leap in infant formula sales into China and Australia.

Revenue came to $922.7m – an increase of 68 per cent over the prior corresponding period.

A2 said its infant formula share strengthened to 5.1 per cent in China and 32 per cent in Australia.

There was substantial physical distribution growth to about 10,000 stores in China and 6000 stores in the US, it said.

A2 Milk chief executive Jayne Hrdlicka. Photo/NZ Herald.

Increased investment in brand and market development resulted in rapid growth of infant formula and the expansion of the liquid milk business in each of the company's established markets.

Sales of a2 Platinum infant formula again grew substantially in Australia and China, with continued growth in market share. a2 Platinum sales revenue was $724.2m, an increase of 84 per cent on the previous year.

In Australia, a2 Milk's (branded Fresh Milk) value share grew strongly from 9.3 per cent to 9.8 per cent by year's end.

The United States business continued to grow sales in key accounts, alongside a distribution footprint which increased to 6,000 stores following expansion into the Northeast and in the natural products stores.

In the United Kingdom, improvement in rates of sale and expanding distribution brought gains in revenue.

Looking ahead, chief executive Jayne Hrdlicka said the company anticipates further growth in revenue, particularly in nutritional products in Australia and New Zealand, China, and liquid milk in the United States.

Marketing expenditure as a percentage of sales in 2019 is expected to be higher than 2018, given continued investment in the Australian market, "re-phasing" of second-half activities in China, and investment to support US market expansion.

Overhead costs are also expected to be higher than in 2018, primarily due to increasing headcount for China and the corporate office to support continued growth and organisational development.

A2 Milk said it would continue to review its use of capital and would look at opprtunities to invest in blending and canning capability as part of its longer-term nutritional products sourcing arrangements.