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A2 Milk triples annual profit, mulls special dividend; stock jumps to record

Wednesday 23rd August 2017

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A2 Milk, which markets milk with a protein variant said to have health benefits, tripled its annual profit and said it would use some of its accumulated cash to buy back shares, and may pay a special dividend.

Net income soared to $90.6 million, or 12.29 cents per share, in the 12 months ended June 30, from $30.4 million, or 4.31 cents per share, in the year-earlier period, the Auckland-based company said in a statement. Revenue rose 56 percent to $549.5 million, ahead of the $545 million it forecast in June, which was its second lift in sales guidance.

Its shares touched a record $5.16 shortly after the market opened at 10am, and were recently up 4.9 percent to $5.15.

A2 Milk is the best performing stock on the benchmark S&P/NZX 50 Index this year as it benefits from increased global demand for its infant formula, which generated 72 percent of its sales in the year, up from 61 percent in the previous year. The niche milk marketer migrated to the NZX's main board in late 2012 and is now the 11th largest New Zealand stock on the benchmark with a market value of $3.57 billion. 

The company ended the financial year with net operating cash flow of $99.9 million, up from $21.5 million a year earlier, as it benefited from lower-than-expected infant formula inventory due to strong demand. It closed the year with $121 million of cash on hand and no debt even after investing $48.7 million for an 8.2 percent stake in its manufacturing and supply partner Synlait Milk. That's prompted the board to flag plans for an on-market buyback of its shares over the next 12 months, worth up to $40 million, and indicate that it is considering the merits of a special dividend.

"The company made further strong gains in revenue and earnings in the 2017 financial year (FY17), with outstanding performance in infant formula, and continued growth in liquid milk in each of its core markets," a2 said in a statement. "Continuing earnings momentum has led to a further strong increase in the cash position. With a strong cash position and no debt the company is in a robust position to continue the implementation of its growth strategy."

In the Australian and New Zealand markets, earnings before interest, tax, depreciation and amortisation jumped 84 percent to $155.3 million as revenue increased 48 percent to $439.6 million. The company said its a2 branded fresh milk achieved further growth in sales in Australia, while its a2 branded whole milk powder introduced in the previous year showed strong growth. 

In its China and other Asian markets, ebitda soared to $32.7 million from $9.2 million as revenue rose to $88.9 million from $38.2 million. The company said it is confident Synlait's application to register its a2 Platinum infant formula with Chinese authorities as part of new regulations would progress as expected, ahead of the Jan. 1, 2018 deadline. It said it's working on new security and authenticity systems for its Chinese infant formula that will be implemented in the 2018 financial year.

Meanwhile, the company's loss widened in its UK and US markets to $22.5 million from $20.5 million as revenue advanced 15 percent to $21 million. A2 said further progress was made in building its US business as brand awareness and rates of sale improved as it continued to focus on California with expansion to the South East through a premier retailer in that region and in the natural grocery channel. In the UK, fresh milk sales grew strongly as it invested in marketing and expanded distribution, delivering operating profits for the first time.

Total Infant formula sales jumped 84 percent to $394 million, while liquid milk sales edged up 4.6 percent to $125.9 million.

"A2MC expects continued growth in the 2018 financial year, in particular from infant formula and milk powder products in Australia and China and improved momentum in the US and UK businesses," the company said. "We are also positive around opportunities to broaden the nutritional products portfolio."

A2 said it plans several product launches in the 2018 financial year, including the launch this month of an a2 Platinum Stage 4 infant formula for children aged three years and above. It also plans to extend its milk powder range and will continue to build a broader portfolio of dairy-based nutritional products free of the A1 protein.

It will update its financial performance at its annual meeting in November.


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