A2 back in profit as formula sales soar

A2 Milk, 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 per cent 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 $2.1m a year earlier. Earnings before interest, tax, depreciation and amortisation rose to $54.6m, just above the $52m-$54m forecast it gave in June. Sales climbed to $352.8m, within its guidance range, from $154.8m a year earlier.

The company sank into the red in the previous year as it invested in overseas 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 per cent.

The company’s shares closed down 20c at $2.10 yesterday.

A2 said it expected “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”.

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 per cent to $214.4m. Fresh milk sales in Australia rose 4 per cent, it said.

Infant formula has become the boom product for A2, making up 61 per cent of revenue in 2016. A geographic breakdown of earnings shows ebitda for the ANZ region jumped 182 per cent to $84.7m, while China ebitda turned to a profit of $9.2m from a loss of $3.1m. The US and the UK combined recorded a loss of $20.5m, reflecting investment in those markets, it said.