Speciality dairy company A2 Milk's full-year profit increased as a change in strategy started to deliver improved earnings, while it also announced a return of capital to shareholders.
Photo: 123RF
Key results for the year ended June vs year ago:
- Net profit $114.7m vs $80.7m
- Revenue $1.45b vs $1.2b
- Earnings to sales margin 13.6 percent vs 10.2 percent
- No dividend but maximum $150m share buyback
Chief executive David Bortolussi said the year had been successful with double-digit growth in revenue and earnings despite headwinds.
"We are pleased with the progress that has been made in stabilising the business, refreshing our strategy and improving our execution.
"Our significant increase in marketing investment has driven further gains in brand health metrics and record market shares delivering strong growth in our China infant milk formula business," Bortolussi said.
The company has been pressured over the past two years by disruption to its previously lucrative daigou sales - stock bought by third parties in Australia and New Zealand and sent back to China - as well as reduced sales of English-language labelled products, and an overhang of excess stock.
Bortolussi said a rethink of how it was doing business in China had been positive with better distribution through authorised sellers for its English label product, and more support for the daigo channel.
That had resulted in double-digit growth in infant formula sales despite a fall in the birthrate, and the company was looking to increase its market share from the current 4-5 percent level.
Sales in Australia and New Zealand, including fresh milk and other dairy products, fell nearly 5 percent as it changed its product mix, but earnings increased because of its previous year's stock write down, price increases, and favourable foreign exchange rate.
Its North American market reported a 30 percent rise in revenue, but earnings fell in part from higher freight costs resulting in an operating loss of $36.7m.
The Southland based Mataura Valley Milk subsidiary made an operating loss of $18.8m as it made mainly lower value milk powders.
A2 Milk has never paid a dividend to shareholders, instead reinvesting profits in market development.
However, it ended the financial year with $816.5m cash on its balance sheet and said it planned to return $150m to shareholders through an on-market share buyback.
"The company's balance sheet is in a strong position ... there is sufficient capital reserve to fund investment opportunities, maintain an appropriate cash buffer as well as return surplus capital to shareholders," the company said in a commentary.
The company said it expected "high single digit" revenue growth in the current year, with the first half likely to stronger than the second, with significant growth in infant formula sales in China, improved margins, further spending on marketing, but also an increase in overheads.
It did not comment on the class action claims brought by disgruntled investors regarding a fall in its share price between August 2020 and May 2021 following several earnings downgrades.