A2 Milk away to a ‘strong’ start
THE a2 Milk Co says strong growth continued in the past four months and it remains sanguine about regulatory changes in China.
Revenue in the four months through October rose to $368.4 million, up 40.5% on the same period a year ago, while earnings before interest, tax, depreciation and amortisation rose 58.5% to $124.2 million. Net profit was $86 million, up 64.5%, the company said in a trading update for its annual meeting in Melbourne.
‘‘We have had a great year and we are off to a strong start in FY19. We have a strong brand, special culture and unique proposition, the combination of which positions us very well for the future,’’ chief executive Jayne Hrdlicka said.
Forsyth Barr broker Damian Foster said the fourmonth result was ‘‘strong’’ and its recent online Singles Day sales in China, on November 11, had tripled from a year ago.
It ranked overall second on the crossborder ecommerce infant formula sales across four major platforms.
US distribution had risen from 8000 stores earlier in the financial year to 9000, and from 10,000 to 12,000 in China.
‘‘A2 Milk’s full year 2019 outlook commentary points to strong revenue growth for the remainder of the full year, albeit at a slightly more moderate rate,’’ Mr Foster said.
Possible regulatory change in China posed some risk, with any disruptions short term, and otherwise remained at ‘‘key unknown’’ at present.
Craigs Investment Partners broker Chris Timms also said it was a ‘‘strong start’’ to a2 Milk’s year, underpinned by its infant formula sales.
He said earnings before interest, tax depreciation and amortisation, up 59% to $124 million, was ahead of expectations, reflecting favourable foreign exchange rates timing and lower marketing investment.
‘‘Both of which are forecast to reverse over the balance of the year,’’ Mr Timms said.
Mrs Hrdlicka underscored the company was not concerned about the current regulatory dynamic in China and elsewhere in the world.
In China, the company operated a multichannel approach to selling its products, using online platforms such as Kaola.com, JD.com and Alibaba’s Tmall, alongside bricks and mortar stores. In the first four months of the current financial year, it increased distribution from 10,000 to 12,000 stores.
For infant formula, there were two registrations required for China label product, Mrs Hrdlicka said. One was for individual products and the other was for the blending and canning facilities used to produce the product. The registration of a2’s infant formula products was secured a year ago and the Synlait Milk manufacturing facility that produced its products in the South Island of New Zealand was also registered.
‘‘We believe we are in a good position relative to many other international companies, particularly those with smaller brands and we will invest heavily inmarket to ensure we are building a Chinabased business that is very respectful of the regulatory framework,’’ she said.
In August, the Chinese Government passed a new law providing a framework in respect of all activities relating to ecommerce in China, both domestic and crossborder.
‘‘We expect this legislation to require that all CBEC platforms and daigou retailers be registered as an import retailer into China, abide by basic consumer protections and pay the full taxable amount,’’ Mrs Hrdlicka said.
‘‘The a2 Milk Co and our wellmanaged daigou network have been anticipating and preparing for these changes for some time.’’
Looking ahead, she reiterated the company expected revenue growth to continue but at a slightly more moderate rate than the 33.7% experienced in the past four months.
The a2 Milk stock last traded at $10.47 and is up 29.7% so far this year.