A2 Milk meets guidance with return to profit, 127% jump in revenue

A2 Milk [NZX: ATM], which markets milk based on the supposed health benefits of the A2 milk protein, met its June guidance with a return to full-year profit and a 127% jump in revenue that was driven by infant formula sales in Australia and China.

Profit was $30.4 million in the 12 months ended June 30, from a loss of $2.1 million a year earlier. Earnings before interest, tax, depreciation and amortisation rose to $54.6 million, just above the $52 million-to-$54 million forecast it gave in June, from $4.8 million. Sales climbed to $352.8 million, within its guidance range, from $154.8 million a year earlier.

The company sank into the red in the previous year as it invested in offshore expansion to drive sales of its A2 Platinum infant formula. The shares dipped to a six-month low in June amid concerns about increased food safety rules in China and the emergence of rivals in the Australian market selling milk based on the same A2 milk protein claims. Since then the stock has resumed its ascent after the company forecast a surge in sales, bringing its five-year gains to more than 1000%.

A2 said it expects "continued growth in the 2017 financial year, in particular from infant formula and milk powders in Australia and China and improved momentum in the US business."

"Whilst there are changing regulatory dynamics in the China market, the company remains confident in the medium term opportunities and its ability to adapt to the evolving market circumstances," it said.

It plans to give firmer guidance for 2017 at its annual meeting in November.

In the latest year, the company recorded "exceptional growth" in sales of its A2 Platinum infant formula, which jumped 414% to $214.4 million. Fresh milk sales in Australia rose 4%, it said.

Infant formula has become the boom product for A2, making up 61% of revenue in 2016 and projected to account for a larger share of sales in the 2017 year.

For the 2016 financial year, infant nutrition products represented 61% of total revenue and a higher proportion of earnings. These proportions are anticipated to increase further in the 2017 financial year. The biggest proportion of sales was via the Australian grocery and pharmacy channels, although direct sales to China "increased significantly and are expected to continue to do so," it said.

A geographic breakdown of earnings shows ebitda for the ANZ region jumped 182% to $84.7 million, while China ebitda turned to a profit of $9.2 million from a loss of $3.1 million. The US and the UK combined recorded a loss of $20.5 million, reflecting investment in those markets, it said.

In the US, progress is behind the company's schedule, which it attributed to delays in achieving distribution with a number of larger retailers. US operations also had to cope with serious health issues for US chief executive Jeffrey O'Neill in the first half, who was replaced by Blake Waltrip, the company said. A2's US strategy now assumed further investment in that market of US$20-25 million over the next two-to-three years before it will achieve positive monthly ebitda, it said.

(BusinessDesk)

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