Success - A2 Milk more than doubles its profit
- By: "Farm Tender" News
- Regenerative Ag & Carbon Farming News
- Aug 22, 2018
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Overview for the year ended 30 June 2018 (NZ$):
* Total revenue of $922.7 million – an increase of 68% over the prior corresponding period (pcp)
* EBITDA[1] of $283.0 million – up 101% on pcp
* Net profit after tax of $195.7 million – 116% ahead of the pcp
* Strong cash conversion with operating cash flow of $231.1 million – up 131% on pcp
* EBITDA to sales margin of 31% – up from 26% in the pcp
* Basic earnings per share (EPS) of 27.0 cents – up from 12.7 cents in the pcp
* Infant formula share strengthening to 5.1% in China[2] and 32% in Australia[3]
* Substantial physical distribution growth to ~10,000 stores in China and ~6,000 stores in the US
* Enhanced strategic partnerships with Synlait and Fonterra
Summary of financial performance
The Company delivered another very strong financial performance, with substantial improvements in revenue, earnings and cash generation. Increased investment in brand and market development resulted in rapid growth of infant formula and the expansion of the liquid milk business in each of the Company’s established markets.
Continued impressive sales growth and trajectory
Sales of a2 Platinum® infant formula again grew substantially in Australia and China, with continued growth in market share. a2 Platinum® sales revenue was $724.2 million, an increase of 84% on the previous year.
Investment continued in building brand awareness and consumer engagement, expanding distribution in priority channels and adapting to new regulatory requirements in China.
In Australia, a2 Milk™ branded fresh milk value share grew strongly from 9.3% to 9.8% by year end4. The United States business continued to grow sales velocities in key accounts, alongside a distribution footprint which increased to 6,000 stores, following expansion into the Northeast and in the natural channel. In the United Kingdom, improvement in rates of sale and expanding distribution brought gains in revenue.
The Company advanced its growth strategy through multiple initiatives – launching three new products (a2 Platinum® Stage 4 milk powder, a2 Platinum® pregnancy formula and a2 Milk™ powder blended with Mānuka honey); entering new markets in South East Asia; and establishing a strategic relationship with Fonterra Cooperative Group Limited and an exclusive distribution agreement with Yuhan Corporation for the South Korea market.
Margin improvement and investment to deliver growth
Gross margin percentage benefited from the increased proportion of infant formula sales, currency movements and favourable net selling prices.
Investment in brand building and marketing grew by $31.6 million to $73.6 million, with increases across all markets. Due to the timing of key marketing programs in China and USA, this investment was more heavily weighted to the second half.
SG&A spend increased broadly in line with underlying revenue, reflecting a commitment to support continued growth. Corporate costs rose by $8.3 million, reflecting investment in people and associated costs to support global growth opportunities.
Strong balance sheet position
The cash position continued to improve along with revenue, earnings and working capital efficiencies. Net operating cash flow was $231.1 million, compared with $99.9 million in the previous year. Cash on hand at the end of the year was $340.5 million, compared with $121.0 million for the pcp.
Working capital benefited from improved terms with a number of customers. This was partially offset by a planned increase in infant formula inventory of $35.7 million as the Company built progressively to more sustainable levels during the year.
Enhanced strategic supply partnerships
The Company’s supply base was enhanced by the extension of the comprehensive manufacturing and supply agreement for infant formula with Synlait Milk Limited (Synlait) and the establishment of a new comprehensive strategic relationship with Fonterra.
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