a2 Milk shares jumped to new all-time highs yesterday after the company revealed a very solid set of figures for the December half that showed no sign of any damage from the trade war between the US and China, or growing tensions between Australia and China.
Nor did they show any sign of weakness in sales to China from changing purchase patterns by Chinese consumers and resellers that emerged in the surprise downgrade and earnings statement from Blackmores on Tuesday.
As a result, a2Milk shares jumped 10.5% to $13.64 after touching a new all-time high during trading of $13.69.
Strongly growing markets in US and China, coupled with fresh milk sales growth in Australia powered the company to a record net profit in the six months to December 31 to $NZ153 million ($147 million), up 55%.
Revenue surged 41% to $NZ613 million while earnings before interest, tax, depreciation, and amortisation (EBITDA) jumped 53% to $NZ218 million.
Revenue in the second half is expected to grow broadly in line with the first half, but chief executive Jayne Hrdlicka says the company expects a softer EBITDA and net profit outcomes because of higher spending marketing campaigns and employee expenses.
“In the last six months we’ve spent considerable time deepening our understanding of consumers in China,” Ms Hrdlicka said.
“We know brand awareness in China still has scope for growth and that our consumers – once they’ve tried our products – are typically some of the most loyal and committed in the category.
“As a consequence, marketing investment in the second half of FY19 will be approximately double the first half, with the majority of that going to brand building activities in China.”
The Company said it is “accelerating its investment in building brand equity through enhanced marketing campaigns in its key markets of China, US, and Australia, alongside continued investments in R&D and further development of its intellectual property.”
“The Group’s investment in marketing in the first half increased by 75.0% to $45.5m primarily as a result of increases in brand building activities in China and the US. The rate of investment in marketing will increase further in the second half as we increase in- market brand building activities.”
Normally comments like that and the softer second half outcomes would have seen the company’s shares sold off by investors wary of this sort of investment.
But yesterday there was no such selling.
a2 said its total sales in the Australia-New Zealand market jumped 37% to $NZ418 million, (EBITDA in Australia was up 64.9% to $192 million, a rise that powered the entire performance of the company) .
In China and Asia sales grew by 33% to $NZ117 million (with EBITDA up 41.6% to $68.4 million), and in the UK and USA 30 percent to $NZ23 million.
Ms. Hrdlicka said the company was not expecting revenue in China to dip at all in the face of new e-commerce laws that were introduced to the country last month.
The new legislation will require e-commerce platforms to protect consumers’ personal information, their rights, and interests, and will force Chinese buyers operating in offshore markets to register as import retailers and pay tax.
“We’re actually really pleased with the new e-commerce laws,” Ms. Hrdlicka said yesterday.
“We think they bring important protection to consumers and they’re very consistent with laws for other markets around the world … it lifts confidence in consumer about the channel.”
