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A2 Milk heading for a record result after big sales lift
12 Jul, 2018 6:02pm 3 minutes to read
Incoming a2 Milk chief executive Jayne Hrdlicka. Photo / SuppliedIncoming a2 Milk chief executive Jayne Hrdlicka. Photo / Supplied
Jamie Gray
By: Jamie Gray
Business reporter, NZ Herald
[email protected] @JamieGrayNZ

A2 Milk looks to be on track towards achieving 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-to-$920m, and up from $549.5m a year earlier.
The update backs up market expectations of a net profit of $188 million, more than double last years' 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 - infant formula.
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 starts in the role on Monday.
Analysts said there was little in the update on the company's financial performance for 2017/18 that was new.
Furthermore , the outlook for 2018/19 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 finishing at $11.41, down 36 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 that it may have been lower than some had expected.
But he said extra spending outlined by the company 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 the uncertainty lay in whether a2 Milk's extraordinary growth trajectory could be maintained.
Even at today's price - which was more than double where it was a year ago - reflected high expectations for future earnings.
The Bloomberg consensus of market expectations for a2's result is a net profit of $188m for 2017/18, ramping up to $273m in 2018/19, and $350m in 2019/20.
"It all comes down to whether they can deliver on that earnings growth that people are expecting over the next few years," Lister said.
"It's not too highly valued if it can delive

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