Growth in infant formula sales and market share in Australia and China, combined with higher sales of liquid milk helped drive the fiscal 2018 profit result.
The increased availability of a2’s infant formula in China helped lift its market share from an estimated 2.8 per cent in fiscal 2017 to 5.1 per cent in fiscal 2018. a2 infant formula is now available in about 10,000 «mother and baby stores» in China, compared to about 3800 at the end of fiscal 2017, the company said.
a2’s new chief executive officer, Jayne Hrdlicka, said a2 was very pleased with its increased market share in China.
«It’s an impressive result. It’s difficult to find another company that’s performing quite as well as quickly. The underlying demand for our product is significant and that’s squarely how you attribute the growth,» she said.
In a later interview with Fairfax Media Ms Hrdlicka said a2 infant formula sales through China mother and baby stores were three times greater in fiscal 2018 than the previous year.
«All the underlying metrics in the business point to strong underlying consumer demand, a business that’s done a very good job in staying flexible and responsive to market demand and has continued to demonstrate good discipline with respect to how it feeds that demand,» she said.
It’s an impressive result. It’s difficult to find another company that’s performing quite as well as quickly.
Jayne Hrdlicka – a2 Milk CEO
Asked about the recent launch in China by a major international company of an A1 protein free infant formula in competition with a2 Milk’s infant formula, Ms Hrdlicka said it had had «no impact on our sales. It’s created no confusion in consumers’ minds, because we have quite a distinctive product with quite a strong brand.»
The company said its direct sales into China via so-called »cross-border e-commerce channels» increased significantly, while in Australia, its share of the infant formula market rose to 32 per cent.
The 2018 profit result beat analyst expectations by about three per cent and the company’s full year revenue ($NZ922.7 million) was in line with expectations.
Net profit after tax was up 116 per cent, while earnings before interest, tax, depreciation and amortisation (EBITDA) rose 101 per cent to $NZ283 million.
Investors welcomed a2’s results, with its Australian stock up 5.1 per cent to close at $10.60.
On its outlook for fiscal 2019, a2 said it was forecasting further revenue growth from its Australia and New Zealand operations, «particularly in respect of nutritional products». It also forecast higher revenue from milk sales in the US.
But on costs the company said marketing expenditure as a percentage of sales was expected to be higher. Overhead costs were also expected to be higher in fiscal 2019, with the company attributing this «primarily due to increasing headcount for China and the corporate office to support continued growth and organisational development».
In a note to clients UBS said: «Another strong result, broadly in line with expectations & likely to see modest upgrades to fiscal 2019 consensus. Commentary around new China label launch progressing well should alleviate some concerns on inventory while stronger margins in key markets of ANZ / China (US/UK softer & overheads higher) a positive.»
