In its third year actively in the market it now has 9000 sales outlets in the target areas, up from 6000 at the end of June, a 50% growth rate.
“We’re shaking up the categories and taking market share in all categories and we’re looking to be playing a big role there,” she said in a presentation ahead of Tuesday’s annual meeting in Melbourne.
In her address to the meeting Hrdlicka said the US research data looks a lot like the firm’s experience with fresh milk in Australia.
That was where A2 became established as a major industry player, using cashflow to expand into China and beyond. It now has a 10%-share in the Australian fresh milk market.
A2 has come under pressure from the big US dairy lobby but Hrdlicka said the business is dogged and a disruptor and is confident of its future there.
It worked through a similar response from major Australian players in the early days there.
“Consumers and regulators in the US like our business and the US industry is nervous.
“We have always had a long-term focus and every month we see the benefit of that.”
The rate of sales velocity is growing steadily. New stores are showing a greater initial velocity than the earlier stores.
A2 is very much a growth business with a lot of reinvestment of cashflow but returns are flowing through into earnings with a six to 12-month time lag, she said.
Sales and earnings growth continue at very strong levels across the business, shareholders were told.
In the first four months of the financial year to October 31 revenue was $368.4 million, a rise of 40% over last year, operating earnings (Ebitda) rose 58% to $124.2m, pre-tax profits went up 60% to $124.9m and after-tax profit was up 64% to $86m, Hrdlicka said.
That is an excellent result but timing was a factor in the operating earnings and margins are expected to come back to 2018-year levels as costs come through. A2 is making significant investment in China and the US on top of the ongoing market spend, she said.
The quarterly result followed big gains in last year’s full result, in which bottom-line profits and operating cashflow increased by more than 100% and revenue by nearly 70%.
A2’s fresh milk business continued to gain market share in the core Australia market. As well as fresh milk reaching 10% of the total fresh milk category, A2 Platinum infant formula is the market leader with a 33% share.
Momentum continues to build in China with store numbers up by 2000 to 12,000 on top of e-commerce sales. Total sales were up by 75% over the four months.
A2 has also launched its A2 fresh milk offering in New Zealand through its supply agreement with Fonterra. It now has national distribution and sales are performing well.
Hrdlicka met Fonterra executives in the week before the meeting to discuss market development.
She told shareholders the group is confident in the regulatory outlook in China, having anticipated the major changes being made affecting e-commerce trade and the daigou supply channel.
The latter, which includes buyers of A2 Platinum infant formula in Australia reselling into China, is important for A2 but still just one channel.
The A2 brands and the Synlait Milk blending and canning facilities used to produce the Platinum infant formula are registered.
“We are in a good position relative to many other international companies and will invest heavily in-market to ensure we are building a China-based business that is very respectful of the regulatory framework,” she said.
A2 is well placed to benefit from the three major macro-trends in the world market.
Consumers are increasingly focused on products enhancing their health and wellness, including the long-term benefits of digestive health, there is a growing focus on food safety, naturalness, and the provenance of food and the third is the growing middle class in Asia and China, in particular.
Chairman David Hearn paid tribute to former managing director Geoff Babidge, who retired towards the end of the last financial year, for his extraordinary contribution and the immense value created for shareholders.
Shareholders voted decisively but nowhere near unanimously, by 67.4% to 32.59%, to increase director payments to a total $1.365m from the current $950,000, excluding Hrdlicka as managing director and chief executive.
