A2 on Covid watch despite strong profit growth
Sharemarket darling the A2 Milk dairy company has reported a big jump in interim profit, boosted by strong growth in the Chinese infant nutrition market.
The company’s net profit leapt 21 per cent to $184.9 million for the six months to December 31 last year and revenue rose 31 per cent to $806.7m.
Chinese label infant nutrition sales doubled to $146.7m, and distribution expanded to 18,300 stores.
Its United States milk revenue also more than doubled, with distribution in 17,500 stores, and its liquid fresh milk revenue in Australia grew 11 per cent.
Acting chief executive Geoff Babidge said that overall, the company expected strong revenue growth to continue, but he acknowledged the potential for the Covid-19 coronavirus to impact on supply chains and Chinese consumer demand.
A2’s products were ‘‘essential’’ for many Chinese families and revenue for the first two months of the second half were expected to be
above expectations.
‘‘However, this is a dynamic situation and at this stage we are unable to quantify the impact, either positively or negatively, for the full year.’’
The health of its staff in China was paramount and it was taking advice from authorities, he added.
Marketed as being beneficial for people who ‘‘have trouble drinking regular milk’’, A2 has enjoyed strong investor support because of its rapid growth.
In 2018, its net profit more than doubled to $195m off the back of a 68 per cent rise in revenue, and last year it reported another 47 per cent jump in profit to $287.7m, off the back of $1.3 billion in revenue.
One forecast A2 did make was a medium-term target for its operating profit margin, of around 30 per cent.
This was lower than the first half due to a number of factors, including increased marketing costs, possible supply chain costs resulting from the virus in China, and the potential for ‘‘unfavourable’’ foreign exchange rate movements.
‘‘Given the Covid-19 situation, we are assessing the level of discretionary marketing investment and trade marketing activation that can be effectively deployed in China for the remainder of the fiscal year,’’ Babidge said.
The company was donating NZ$3M in products and cash towards frontline medical teams and families, the Shanghai Red Cross, and research into a vaccine for the virus.
Babidge said there had been no material financial impacts from the previously flagged withdrawal of its fresh milk operations in Britain to focus on its core regions.
The company gave only a brief update on the unexpected departure of former chief executive Jayne Hrdlicka in December, saying a global search for her replacement was ongoing.
The Shareholders Association and others called for more accountability from the company after Hrdlicka resigned 18 months into the role, due to the demands of future travel.
Shares in A2 have risen 7 per cent in the past year and remained steady at $15.68 in early morning trading.
‘‘Given the Covid-19 situation, we are assessing the level of discretionary marketing investment and trade marketing activation that can be effectively deployed in China.’’ Geoff Babidge
A2 acting chief executive