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Sharemarket darling a2 Milk Company has increased its profits by 34% and is expressing confidence about prospects in the year ahead

Sharemarket darling a2 Milk Company has increased its profits by 34% and is expressing confidence about prospects in the year ahead

One of New Zealand's big success stories, a2 Milk Company has delivered on its expectations in the past year and is eying the future year with confidence, notwithstanding the impacts of the global pandemic.

In the year to June 2020 a2 reaped an after-tax profit of $385.6 million, which was up 34.1% on the profit for 2019. Revenue jumped 32.8% to $1.73 billion.

The company said globally, there continues to be uncertainty resulting from Covid-19, and the potential for moderation of economic activity.

"This could impact consumer behaviour in our core markets, as well as participants within the supply chain, most notably in China," it said.

"Notwithstanding these uncertainties, overall for FY21, we anticipate continued strong revenue growth supported by our continued investment in marketing and organisational capability."

The company expects its operating profit (EBITDA) margin is expected to be in the order of 30% to 31% reflecting:

  • Higher raw and packaging material costs partially offset by price increases
  • Increase of marketing investment
  • The foreign exchange benefit of prior year not expected to be replicated
  • Third quarter 2020 Covid-19 "benefits" not replicated
  • FY21 Capex is currently expected to be $50 million due to the company's ERP investment and capital projects supporting fresh milk processing in Australia.

"As previously announced, the board considers it appropriate that the Company target an EBITDA margin in the order of 30% in the medium-term. This assumes the market performance and mix of our products remains broadly consistent and the competitive environment evolves as anticipated. We will keep the balance between growth and investment under constant review," the company said. 

Results highlights for the full year ended 30 June 2020 (NZ$)

• Total revenue of $1.73 billion, an increase of 32.8%

• EBITDA of $549.7 million, an increase of 32.9%

• Net profit after tax of $385.8 million, an increase of 34.1%

• Basic earnings per share (EPS) of 52.39 cents, an increase of 33.5%

• EBITDA to sales margin of 31.7%

• Operating cash flow of $427.4 million and a closing cash balance of $854.2 million

• Marketing investment of $194.3 million targeting opportunities in China and the USA, an increase of 45.1%

• Group infant nutrition revenue of $1.42 billion, up 33.8%

• Strong growth in China label infant nutrition, with sales more than doubling to $337.7 million and distribution expanded to ~19.1k stores

• USA milk revenue growth of 91.2% and distribution expanded to ~20.3k stores

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Little know fact is that David Parker was one of the original employees of A2 milk and was heavily involved in the startup...not bad for a party that apparently has no business experience...

Seems like an interesting guy and good to know about the A2 Milk experience

Sounds conflicted. Why the hell is he Environment Minister with a background like that?

Are you after a Greenpeace activist?

A2 milk was on the brink of insolvency until Cliff Cook became an investor "....NZ Rich Lister who bought A2 on the brink of insolvency."

David Parker has been in politics since 2002 - but has had experience in business failure, which he acknowledges.
"I went broke," Parker says simply. "I over-extended myself. I remember at one stage I was doing eight different GST returns at once. I had a lot of things that went wrong at the same time, and I ended up cleaned out."

David Parker was also involved in the early days of BLIS Technologies which in 2019 "reported a maiden profit, almost 18 years since listing, and the probiotic maker expects to chalk up a bigger profit in the coming year on growing international demand for its probiotic products."

Not sure if his business experience is a glowing recommendation for a politician. ;-)

Wonder why they are still not paying any dividend ?

we use A2 full cream milk powder and it's very good.

Well done a2, great going for a rather ubiquitous product. Interesting to note net profit is equivalent to $80 for every dairy cow in NZ.

Northland is probably the only large dairy region in NZ to not have had a competitor to Fonterra establish a new processing site. We have the lowest cost year round milk production, proximity to Auckland, potential world class port and desperate for employment and economic growth.
Are you out there A2? Hello? Hello? Anyone?

A2 doesn't seem interested in owning stainless steel Wilco, and I wonder how much of its success is in part related to that.

Agreed. I was more focused on any primary processor with a successful business model looking this way. With no competition up here we don't even get the option of supplying A2 milk or pretty much any high end niche product. The innovations in milk and meat are happening down south. Unfortunately for us. We have much more to give than blue top milk and boner cows.

Does Fonterra pay a premium for A2 milk to suppliers? I'm looking forward to the 'equal opportunities' Peter McBride has mentioned in the past in relation to Fonterra. As a Southern farmer, given our farm size our options for supplying value add are limited to winter milk and organics. We cut our teeth in the industry as town milk farmers in the North Island, and not interested in it due to smallish herd size down south. As we employ 50/50s organics isn't really an option for us either.But if they talk of paying a true grass fed premium, I'll have to be in for that boots and all. We did colostrum one year, only for Fonterra to pull the plug the following year.
As to changing processor, Fonterra still sets the milk price, though we have West Coast friends farming there and they love the new arrangement there.

With a stake in Synlait and now looking at Mataura Dairy A2 ARE now buying stainless steel. Is this new strategy because their competitor suppliers to China are increasing their production capacity in NZ and forming positive farmer relations and so risk cutting A2 out of the game completely?

Or is it the new China rules around infant formula sellers in China required to have vertical integration, and or Synlait and Fonterra contract conditions? Mataura Valley is small uses urban owned (Gore District Council) waster water treatment facilities. So none of the usual hassles processors have of disposing of waste and needing to apply for consents for disposal.