NZ-based milk group, The a2 Milk Company rode the backlash against the big retailer’s $1 a litre milk deal and the desire from customers for their type of milk (especially from China) to report a dramatic surge in sales and profits for the year to June 30.
The company said yesterday that its full year after tax net profit was $30.4 million,up from a $2.1 million loss last financial year.
A2’s revenue more than doubled (up 127% according to yesterday’s statement) to $352.8 million in the full year to June 30.
A2’s experience in 2015-16 was vastly different in tone and outcome to the troubles that Australian dairy rivals, such as Murray Goulburn themselves in.
The shares sold off, losing 6.4% to $2.05 at the close yesterday.
While the company says it benefited from the consumer revolt against the cheap milk offer from Coles and Woolworths, and the problems that beset Bega and Murray Goulburn, A2 chief executive Geoffrey Babidge would not quantify the impact of the those campaigns on its sales.
“Our revenue from fresh milk in Australia is up 4 per cent and our market share is reasonably stable at about 9.3 per cent and that reflects quite strong growth in the past couple of months," Mr Babidge said yesterday. But retail milk sales are not the main game for a2 – its big mover is the baby formula market and Asian,especially Chinese demand for clean and green product.
Like Blackmores and other vitamin companies, demand for a2’s infant formula from Asian buyers, especially Chinese, was the major driver of sales momentum and earnings growth in 2015-16.
Babidge revealed that more than half of its sales come from Chinese shoppers through direct channels as well as via the important local entrepreneurs who sweep up shelf stock in Australia and either ship it or take it back to China.
Revenue from sales of a2 Platinum infant formula across its key markets hit $214.4 million in the full year, up a massive 414% on the previous year.
Mr Babidge said he was confident Chinese demand for a2 product was sustainable as the company works through Chinese government regulatory changes announced in April and repositions the business to expand its product range into new “nutritional” products.
He said the growth of the a2 brand and shopper awareness of it in Australia underpinned its success in China.
"Chinese consumers look for confidence in respect to consumer engagement, success in ones home market and that’s a key," Mr Babidge said.
"We announced yesterday an enhancement to our supply chain arrangements with Synlait Milk (which produces a2’s Platinum infant formula) which is important in maintaining integrity and quality of supply.
“That relationship also further supports the activities we are undertaking, the regulatory changes occurring in China…we are working through the registration of the China label brands and that kicks off from October to be in place by January 2018,”he said.
Chairman David Hearn revealed the board would "continue to review its capital management strategy" amid mounting speculation the business will announce a dividend later this year
"The board will reflect on its capital management strategy over coming months with the intention of providing further information in that regard at the general meeting in November," Mr Babidge said.
“It will be something both shareholders and the board need to think about,obviously our cash position continues to strengthen we have no debt on the balance sheet and $69 million cash in the bank and I think some shareholders would say when are you going to start to consider a dividend,” Mr Babidge said.
