Marketing spend propels a2 Milk to record

Australasian dairy powerhouse a2 Milk (ASX: A2M) boosted revenue and profit in the 2019 year by more than 40 per cent as increased marketing expenditure took effect.

The company spent 10 per cent of sales or NZ$135 million on marketing which helped China sales and pushed infant formula sales past $1 billion for the first time.

As a result a2 today reported revenue up 41 per cent to $1.3 billion with earnings before interest and tax (EBIT) up 46 per cent to $413 million.

CEO Jayne Hrdlica said the company was strong across its core markets of Australia, New Zealand, China and the United States.

“I have really enjoyed my first year as CEO.

“We are proud of all we have achieved but also conscious of how much there is yet to be done.”

Infant formula sales were particularly strong in China, the company licensed Fonterra to launch a2 milk in NZ, while better distribution to 13,100 stores saw US sales up 160 per cent to $34 million.

The company is now examining market entry strategies into Vietnam, Singapore, Korea and Hong Kong.

However a2 exited the UK liquid milk market, judging the opportunity too small compared to opportunity elsewhere.

While the company deepened management ranks during the year and streamlined logistics operations, it was an 84 per cent rise in marketing spend that was the stand-out in today’s results.

Hrdlicka said: “During the year we also invested in better understanding both Chinese and US consumer archetypes, channel dynamics, and ways to improve brand awareness.

“Using these insights, we stepped up the rate and quantum of marketing investment in the second half.

“These activities are an important part of delivering on our growth ambition.”

Marketing was complemented by R&D, with clinical research in China demonstrating fewer symptoms of milk intolerance with a2 milk over traditional milk powder.

The company ended the year in a strong position, predicting continued strong growth, and with $465 million cash on hand.

Note: all figures are in New Zealand dollars

Picture: a2 Milk

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