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Specialty dairy company a2 Milk increased its full year profit on the back of an improved Chinese market.
Key numbers for the year ended June compared with a year ago:
- Net profit $167.6m vs $155.6m
- Revenue $1.67b vs $1.59b
- Operating earnings $234.3m vs $219.3m
- Cash position $969m vs $757.2m
- No dividend
a2 Milk benefited from rising sales on its infant milk formula (IMF) in China despite a falling birth rate and tougher economic conditions.
Overall revenue was up 5 percent, as the improvement in China offset falls in Australia-New Zealand earnings, continued losses in the US market and for its Southland based company Mataura Valley Milk.
Chief executive David Bortolussi said its strategy remained primarily focused on the China market to get positive growth in a challenging market.
"The a2 brand continued to increase market share in the China IMF market and is now a top-5 brand. We grew IMF sales despite the China IMF market being down double-digits."
The company's China infant formula sales increased by 4.6 percent, although the overall market was close to 11 percent lower. It sells English and Chinese language labelled products with increases in both types.
"A major highlight for the year was the successful launch of our upgraded China label infant milk formula [IMF] product," he said.
Its New Zealand and Australian earnings fell as infant formula products previously sold in those markets that was sent back to China, known as the daigou channel, were now moving through direct Chinese market sales.
Its US earnings improved as it spent more on marketing, which helped to reduce its losses, and the company said getting into the black in the US was a priority.
Its Mataura Valley MIlk factory broadened its product range and was supplying major brand customers, which helped to reduce its loss by 22 percent, with a move in to profitability also a priority.
Looking ahead, a2 said it expected modest revenue growth and steady margins.
The company, which has never paid a dividend, had $969m in cash which it said would be used to "de-risk" its supply chain and fund growth, but some form of payout to shareholders was possible.
"Once the company's supply chain transformation is further developed and other investment opportunities are considered ... the board
will make a disciplined assessment of the potential to return capital to shareholders and the most appropriate option to do so."
a2 Milk last week settled a dispute with its major infant formula maker Synlait Milk, which ended their exclusive manufacturing arrangement, but saw a2 agreeing to take part in Synlait's capital raising. https://www.rnz.co.nz/news/business/525361/a2-milk-synlait-settle-year-long-dispute-over-infant-formula