Chinese demand boosts A2 sales expectations

Milk company lifts sales guidance again

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Wellington
A2 Milk Co has lifted annual sales guidance for the second time in as many months as it beefed up production to meet sweltering Chinese demand for infant formula.
The Auckland-based, Sydney-headquartered milk marketer says revenue is expected to be
$545 million in the 12 months ending June 30, a $20 million increase from its April update which was itself an upgrade. A2 reported annual revenue of
$352.8 million in 2016.
In the April update, A2 said it was working with Synlait Milk it has an 8.2% stake to increase supply for the rest of the financial year to meet rising demand for its Platinum infant formula product.
After reviewing the financial results to May and Platinum production the company believed it was appropriate to revise its full-year outlook upwards, managing director Geoffrey Babidge said.
In February, the company scaled back its expected growth for infant formula sales as Chinese regulators looked to tighten regulations for sales through on-line grey market channels.
While that weighed on rivals such as ASX-listed Bellamy’s, A2 managed to navigate the changes with little impact on sales so far.
The company has boosted marketing, primarily in China where demand for its product has been strong, and had previously predicted its marketing costs in the six months ending June 30 would be up to $15m higher than the $16m it spent in the first half of the financial year.
A2 yesterday said it changed the timing of that increase and marketing will be about $10m higher, implying the company will spend about $26m in the half.
A2 shares last traded at $3.56 and have jumped 67% so far this year, outpacing the 9.2% increase on the Standard and Poor’s NZX 50 index over the same period. NZN

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