The a2Milk Company surprised yesterday with a solid result and update that made it clear the company is getting benefits from the COVID-19 crisis in China.
a2 shares ended up more than 5% at $15.79 as investors digested the results and positive outlook, especially given the impact of the COVID-19 crisis.
The company revealed in its interim results that revenue generated in the first two months of the June half is ahead of expectations, partly due to stronger demand from Chinese families in the wake of the coronavirus outbreak.
“The reality is that those increased sales are a result of the impact of the coronavirus on a product such as ours, which is not discretionary. Where we clearly have a strong brand franchise, where people have a view as to the high quality of the product,” said a2Milk chief executive Geoff Babidge.
The company could respond to the demand spike and sell its products direct into China and other channels such as the online and daigou channels, he said.
“We’re also air-freighting product in to ensure we can meet demand,” he said.
Mr. Babidge would not say by how much sales were exceeding expectations for the first two months of the year.
“But clearly the fact that we’ve called out that it’s above expectations, it obviously is meaningful to us at this point in time. But what we’re also saying is it’s clearly very difficult as we speak today to determine whether that trend will continue, or be offset in months to come.
“And therefore we’ve said look it’s hard to say whether the impact of the virus will be either positive or negative to our half results,” he said.
In a statement to the NZ and Australian stock exchanges, a2 said that “given the essential nature of our products for many Chinese families, demand is strong, particularly through online and reseller channels”.
The company said the coronavirus was a “dynamic situation and at this stage, we are unable to quantify the impact, either positively or negatively, for the full year”.
The company revealed a 21.1% jump in first-half net profit to $NZ184.9 million ($A177.2 million).
Revenue for the six months rose almost 32% to $NZ806.7 million, which was well ahead of market forecasts around $NZ773 million.
Most of the company’s revenue was generated by sales in the infant nutrition category, which rose 33.1% to total of $NZ659.2 million.
Underlying profit was $NZ188.19 million which was a bit ahead of market estimates
The company saw six months of strong demand in China from consumers for its infant products before the coronavirus erupted in January.
Sales of China label infant formula products to doubled $NZ146.7 million. Total revenue from China and other Asian regions also surged, by 76.7% to $NZ317.2 million.
The company also reported higher results in other markets and categories, with infant nutrition sales in Australia up 9.5% to $NZ352 million.
“We are pleased with the results of our strategy execution and continue to be energised about our key products, core markets, and growth outlook,” the company said.
Away from the fast-growing Chinese market a2 more than doubled its sales in the United States, reaching total sales of $28 million as the company doubled its distribution to 17,500 stores across the country.
