Coronavirus: Pantry stockers a boon to dairy darling A2

Wednesday, 22 April 2020

a2 Milk chief executive Geoff Babidge says Covid-19 helped the company's sales in unexpected ways.

People rushing to stock up their pantries ahead of Covid-19 lockdowns have lifted the revenue forecast for dairy company a2 Milk.

The company – which exports infant formula and sells liquid milk to New Zealand, Australia and the US – said it was experiencing strong revenue growth, particularly in respect to its infant nutrition products in China and Australia.

A2 has a partnership with Fonterra but is listed separately on the NZX.

As a result, the company is expecting a full year revenue of between $1.7 billion to $1.75 billion.

It booked a first half net profit of $184m for the six months to December, a 21 per cent rise on the previous year, on revenue of $805m.

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The company did not give a profit forecast, but said its full year margins on earnings were now likely to be 31 to 32 per cent, up from its February guidance of 29 to 30 per cent.

Chief executive Geoff Babidge said key factors were a jump in revenue for higher-margin nutritional products, and a favourable exchange rate against the US dollar which lifted its earnings in China.

Covid-19 restrictions had also lowered its costs for travel, recruitment and other overheads.

Babidge said given the continued uncertainty from Covid-19, its outlook for revenue and earnings was still uncertain, particularly around supply chains and consumer demand.

He warned its forecast was medium-term as it was unlikely that the factors around the Covid-19 boost would be sustained 'as these unprecedented circumstances begin to unwind'.

Shares in the company closed at $19.45 on Tuesday, having hit a record $19.91 the day before. It followed the market down in March, touching $15.02 but quickly shrugged off the market's malaise.