Shares in A2Milk bounded ahead by more than 7% yesterday in the wake of a bullish trading update at the company’s AGM in Melbourne from newish CEO, Jayne Hrdlicka.
But they quickly ran out of puff as the wider market got caught up in another negative reaction to a sell-off on Wall Street and by the close, the shares were down 1.2% at $9.68 after touching that high in the morning of $10.49.
Not helping sentiment though was the mention of the 100-pound gorilla in the back of the room for A2 and other companies trading with China – Donald Trump’s capricious trade policies.
The meeting was told that A2 management and the board is banking on demand from Chinese consumers, along with its carefully managed relationship with government, to safeguard its access to its most vital growth market.
Ms. Hrdlicka said she did not see trade barriers as a “particular risk” to its future access to China, where direct sales of its fresh, long-life and infant formula milk products more than doubled last year to account for a quarter of its business.
“We have had no issues with respect to trade wars and dynamics at any level because I think we just focus on building our brand for the long term,” she said.
“What we have been really good at as a company is listening, learning and adapting, and making sure we are on the right side of government.”
A2 said its total sales jumped 40% to $NZ368 million ($A354 million) for the four months to October 31, while its net profit grew 64% to $86 million.
That came off the back of it growing its share of China’s baby formula market from 5.1 to 5.6 percent, and as the number of US retailers stocking its products grew 50 percent to 9000.
Ms. Hrdlicka cautioned though that the impressive growth rate would cool as margins shrink under higher spending pressures.
“This is an excellent result. It is important to note, however, that the EBITDA margin of 33.7% is a timing issue and FY19 is expected to come back in line with FY18 EBITDA margin. We are making a significant investment in China and the USA and this will increase both marketing costs and SG&A for the full year,” she told the meeting.
“(W)e are also reconfirming our outlook statements for FY19 made at the end of the full year, namely: Expect strong revenue growth to continue but at a slightly more moderate rate than in the first four months
“Expect EBITDA to sales ratio to be broadly consistent with FY18 reflecting a higher gross margin percentage; offset by:
“Increased marketing expenditure as a percentage of sales given continued investment in the Australian market and an increased investment to support China and US market expansion – phasing will be higher in 2H1.
“Further investment in greater resourcing to support continued growth. First, four months favorably impacted by FX, forecast to reverse during the balance of the year. Underpinning this strong result in the first four months and the outlook for FY19 is a strong performance in each core market,” she added.
