a2 Milk's net profit surges nearly 200pc, flags buyback (I)

Published on 2017-08-25

The a2 Milk Company chief executive Geoffrey Babidge says the market darling can continue to grow this year after profits surged in 2017 due to booming demand for its baby formula in Australia and China.

Under Mr Babidge's leadership the New Zealand-based company has grown from a market minnow to a company valued at $3.2 billion.

Mr Babidge said the company's continued growth reflects increasing consumer acceptance of the a2 brand and the benefits of dairy-based products free from the A1 beta casein protein type.

"We are the fastest growing brand by value in Australia," he said. "This was clearly an exceptional performance for FY17.

"China is a key focus on how we are taking this business forward. Our direct sales continue to grow."

A2 revealed net profit surged nearly 200 per cent to $NZ90.6 million ($82.9 million) in the year to June 30. Group revenue was up more than 55 per cent to $NZ549.5 million with a2 Platinum infant formula revenue up 84 per cent and sales to China more than doubling. Infant formula sales now makes up 71 per cent of total revenue.

A2 also announced on-market buyback of up to a $40 million over the next 12 months and is considering a special dividend.

Shares Wednesday rallied 7 per cent higher to $4.82. The infant formula and milk group is the fourth best performer in the S&P/ASX 200 over the past 12 months.

CEO keen to stay

Mr Babidge, 64, was the subject of speculation he was set to leave the company this week, forcing the company to make the unusual move to put out a statement to the ASX saying that  no management changes were being considered.

Mr Babidge said he was fit and healthy and keen to stay on with a2.

"I've been involved in the establishment of this company over the past 10 years and I want to continue to contribute actively," Mr Babidge told The Australian Financial Review.

"Some people were starting to question given my age. As I said, I'm fully engaged and the company is powering along. Obviously the board has indicated that issues of succession has to continuously be focused on. [But] there is no plan at this point and time [to exit]."

A2 said in February that it expected sales in the second half would be lower than those of the first, but by April it upgraded full year sales guidance, and by June it said group revenue was tipped to be about $NZ545 million for the year bolstered by Chinese demand for baby formula.

In Australia, a2 Milk branded fresh milk achieved further growth in sales, while a2 Milk branded whole milk powder, introduced in the previous year, showed strong growth.

A2 continued to build brand presence in the US, focusing on California and expansion to the south-east through a premier retailer, Publix (which has 1100 stores), and with Amazon-owned Whole Foods Market.  A2 plans on investing $US25 million ($31.7 million) over the next two years in the US market and estimates to be churning positive monthly earnings by fiscal 2020.