A2 raises annual sales guidance on new production, boosts Chinese marketing spend

A2 Milk Co lifted annual sales guidance for the second time in as many months as it beefed up production to meet sweltering Chinese demand for infant formula.

The Auckland-based, Sydney-headquartered milk marketer said revenue is expected to be $545 million in the 12 months ending June 30, a $20 million increase from its April update which was itself an upgrade. A2 reported annual revenue of $352.8 million in 2016.

In the April update, a2 said it was working with Synlait Milk to increase supply for the rest of the financial year to meet rising demand for its Platinum infant formula product. The milk marketer bought an 8.2 percent stake in Synlait earlier this year to deepen its tied with the milk processor, expanding a supply agreement which has been in place for five years.

"Based on a review of its unaudited financial results to 31 May, 2017 and production deliveries of a2 Platinum infant formula being achieved in June consistent with the revised production schedule, the company has determined it appropriate to further revise its full year outlook upwards," managing director Geoffrey Babidge said in a statement.

In February, the company scaled back its expected growth for infant formula sales as Chinese regulators looked to tighten regulations for sales through online grey market channels. While that weighed on rivals such as ASX-listed Bellamy's, a2 managed to navigate the changes with little impact on sales so far.

The company has boosted marketing, primarily in China where demand for its product has been strong, and had previously predicted its marketing costs in the six months ending June 30 would be up to $15 million higher than the $16 million it spent in the first half of the financial year. A2 today said it changed the timing of that increase and marketing will be about $10 million higher, implying the company will spend about $26 million in the half.

A2 shares last traded at $3.56 and have jumped 67 percent so far this year, outpacing the 9.2 percent increase on the S&P/NZX 50 index over the same period.

(BusinessDesk)