A2 Milk net profit rockets up 65 pct in first four months

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

A2 Milk said its net profit shot up by 64.5 per cent to $86 million in the first four months of its financial year, compared with the corresponding period last year, and that it was well prepared for any cross-border regulation changes in China.

The dual-listed alternative milk company, in a trading update before today's annual meeting in Melbourne, said revenue came to $368.4m, up 40.5 per cent over the same period last year.

The company's earnings before interest, tax and amortisation came to $124.9 million, up 60 per cent.

In speech notes issued before the meeting, chief executive and managing director Jayne Hrdlicka said the company had a well managed "daigou" unofficial trading network and had been anticipating rule changes governing the trade for some time.

She said a2 Milk's Australian business continued to strengthen.

The Australian fresh milk business continues to gain share of the category, with a record 10 per cent share of the total fresh milk category.

The company's a2 Platinum infant formula remained the market leader with 33 per cent share up from 32 per cent at the end of its last financial year.

Momentum in China continued to build. "Our multi-channel strategy to serve Chinese consumers continues in its development," she said.

The a2 Milk Co also added the distribution of another 2,000 stores in the Mother and Baby channel to a total now of 12,000 stores. Infant formula market share in China climbed to 5.6 per cent.

China label infant formula sales grew by 75 per cent on the same four months last year.

"And, we also recently achieved a record performance in the 11/11 sales festival with sales growth tripling over the prior year," Hrdlicka said.

An additional 3,000 stores have been added to the network since the end of FY18 taking the store count to around 9,000.

Potential difficulty on the China regulation front has troubled a2 Milk's share price from time to time, but Hrdlicka said the company continued to believe that the regulatory outlook was positive.

On August 31, the Chinese Government announced the legislation of a new e-commerce law to improve the development of the consumer channel.

For infant formula, there are two registrations required for China label product.
The registration of a2 Milk's infant formula products was secured a year ago and the Synlait Milk-manufacturing facility that produces a2 product in the South Island of New Zealand was 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 the 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 (CBEC).

This is not infant formula specific legislation but rather legislation that seeks to step up the development of this channel in China.

The legislation seeks to specifically ensure basic consumer protections are in place and that appropriate tax is paid.

As a part of the new e-commerce rules, January 1, 2019, will see the implementation of tighter compliance to tax rules for all goods through CBEC and daigou channels.

"As we have said on several occasions, the a2 Milk Company and our well-managed daigou network, have been anticipating and preparing for these changes for
some time," Hrdlicka said.

In the year to June 30, a2 Milk's net profit came to $195.7 million up 116 per cent over the previous year.

A2 Milk's share price has been on a roller coaster ride since its listing in 2004. This time last year, the stock traded at $7.84 before almost doubling to $14.10 in March.

By late morning the stock was trading at $11.01, up 54c or 5.16 per cent from Monday's close.