A2 Milk heads for record result
Revenue for Kiwi company hits $922m
A2 Milk looks on track to achieve another record net annual profit next month after reporting a 68 per cent lift in revenue for 2017/18.
New Zealand’s biggest company by market capitalisation said in a trading update that revenue for the June year came to about $922 million, a little over its previously advised range of $900m-$920m, and up from $549.5m a year earlier.
The update backs up market expectations of a net profit of $188m, more than double last year’s profit of $90.6m.
Looking ahead, the alternative a2 beta protein milk company said it had completed its planning cycle for the 2019 year and, assuming general trading conditions did not change materially, the company expected to see further growth in revenue, particularly in respect of nutritional products.
It also saw marketing expenditure, as a percentage of sales, higher than 2018 given continuing investment in Australia, relabelling activities in China in the second half just passed, and elevated investment to support its expansion in the United States.
Overhead costs would be higher in the year ahead, due to an increasing headcount for China and the corporate office to support the increasing scale of the company.
There were one-off costs associated with the transition to a new chief executive, Jayne Hrdlicka, who was starting in the role on Monday. Analysts said there was little in the update on the financial performance for 2017/18 that was new.
Further, the 2018/19 outlook appeared a little vague, which may have explained the volatility in the share price over the day, the stock trading in a $11.34 to $11.80 range before ending at $11.36, down 41 cents on the day.
Daniel Kieser, managing director at Shareclarity, said the earnings outlook was not as clear as previous guidance statements.
“It therefore was not surprising to see it (the share price) jump around early on, but I think investors then started to look at the strong supply side — from Synlait and Fonterra — and realised the expected revenue growth is probably no different to what they had previously thought,” he said.
Harbour Assert Management portfolio manager Shane Solly said the 30 per cent margin, revealed in the update, was healthy, but might have been lower than some expected.
He said extra spending outlined showed it was prepared to invest for future growth.
Mark Lister, head of private wealth research at Craigs Investment Partners, said 68 per cent revenue growth was exceptional for any company, but uncertainty lay in whether a2 Milk’s extraordinary growth trajectory could be maintained.