https://www.stuff.co.nz/business/in...ntry-stocking-posts-record-386-million-profit
The A2 Milk Company has posted a record full year profit after tax of $386 million, an increase of 34 per cent on the previous year.
Revenue for the year to June 30 was $1.73 billion, an increase of 33 per cent.
The company said Covid-19 had a “modest positive impact” on revenue and profit for the year and the business had benefited from foreign exchange movements.
Revenue in the third quarter was well above expectations due to changes in customer buying habits arising from Covid-19, including an increase in “pantry stocking” particularly via online and reseller channels.
Some pantry stocking unwound in the fourth quarter, it said.
“However, this will remain a dynamic situation and we will continue to monitor changes in consumer behaviour moving forward.”
A2 Asia/Pacific chief executive Peter Nathan said the company also experienced an increase in sales due to cafes being closed and people spending more on groceries during Covid-19 lockdowns in Australia.
In 2019 the company posted an after-tax profit of $287.7m for the 2018 financial year.
A2 says its milk is different from conventional cows’ milk because it comes from cows selected that produce only the A2 protein type and no A1 and people who have difficulty tolerating conventional cows’ milk may experience benefits when they switch to A2 Milk.
The A2 properties could be extended to other product categories beyond milk and powder and the company was constantly looking at product innovation, Nathan said.
“We need to be careful about not signalling to our competitors that we’re launching anything before we go to market but rest assured that we are looking at product innovation as one of the platforms to continue to grow our business.”
The company said its 2020 full year performance was “robust” throughout the year and it demonstrated “significant resilience” in the face of Covid-19.
“Through these unprecedented times, we have been fortunate to continue experiencing strengthening levels of consumer demand and worked closely with our strategic partners and customers to ensure supply chains remained open and consumer needs continued to be met,” it said.
“We estimate that Covid-19 had a modest positive impact on revenue and earnings for the year. Additionally, our business was favourably impacted by foreign exchange movements.”
Infant nutrition sales were $1.42b for the year, an increase of 34 per cent.
Sales for its China label infant nutrition products effectively doubled to $338m. English label infant nutrition products sales grew 21 per cent.
Nathan said it had distribution in 19,000 stores in China and much of its $194m annual marketing budget was spent in China.
"That has been a real driver for our growth in China as we grow brand awareness."
China customers perceive A2 as an aspirational brand and believe A2 milk benefits their children, he said.
The majority of its business in China was infant powder but it had started to focus more on products targeted towards adults, he said.
In Australia A2 Milk would continue to be a major sponsor of the MasterChef Australia TV show because its brand aligned with the values of the show and its audience, he said.
A2 customers tended to value quality and nutritious food and its brand typically aligned with customers with higher disposable incomes, he said.
A2’s share price has increased by more than $5 over the past year to trade at $21.50, making it one of the most valuable companies on the NZX, with a market capitalisation of nearly $16b.
Its interim chief executive Geoffrey Babidgeas since December 2019 will be replaced by David Bortolussi in early 2021, the company announced last Tuesday.
A2 said future moderation of economic activity resulting from Covid-19 could impact customer behaviour in its core markets, as well as participants within the supply chain, most notably in China.
Overall it anticipated continued strong revenue growth for the 2021 financial year. Earnings before interest, taxes, depreciation and amortisation margin for the 2021 financial year was expected to be about 30 per cent, it said.
This reflected higher raw and packaging costs partially offset by price increases, increase of marketing investment, foreign exchange benefits of the prior year not expected to be replicated and third quarter Covid-19 benefits not replicated, it said.
Capital expenses for the coming year were expected to be $50m, it said.
Fisher Funds’ senior portfolio manager New Zealand shares, property and infrastructure Sam Dickie said the result was slightly below expectations, which were right at the top of the company’s guidance range.
This was because “pantry de-stocking” in the April to June quarter was more than expected, he said.
"To keep it in perspective though, 33 per cent revenue and profit growth is exceptional, especially as that was achieved during the teeth of the Covid-19 crisis."
A2's China label infant formula experienced 101 per cent growth but equated to just 2 per cent of the market, he said.
"This is the key growth engine for the business and it is delivering above expectations."
An increasing focus on launching new products to broaden the appeal of the brand to existing and new customers was encouraging, he said.
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