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A2 profit dented by UK joint venture, affirms $11.2m annual earnings target

A2 Corp, which markets milk products with a protein variant claimed to have health benefits, reported an 82 percent slide in first-half profit as the cost of setting up its UK joint venture eroded the bottom line. The shares gained 1.9 percent as it affirmed its annual earnings forecast.

Net profit dropped to $554,000, or 0.09 cents per share, in the six months ended December 31 from $3.4 million, or 0.53 cents, a year earlier, the Sydney-based company says in a statement. That came from a $1.5 million loss on establishing its UK joint venture with Robert Wiseman Dairies, which only started selling product in October last year.

"Our first priority (for the UK venture) is to build our rate of sales–  we need to justify our shelf space," managing director Geoff Babidge told BusinessDesk. "Then we need to have a plan to achieve break-even."

Earnings before interest, tax, depreciation and amortisation jumped 54 percent to $3.5 million, on a 57 percent gain in sales to $44.3 million. The company affirmed ebitda guidance of $11.2 million before intercompany charges from its Australasian businesses.

The company more than doubled its Australian segment profit to $3.8 million in the period and now makes up some 6.9 percent of supermarket sales of fresh milk by value and is targeting 10 percent.

"We're continuing to be very strong in moving toward that number, and I am confident we should exceed it," Mr Babidge says.

A2 is still looking at options to develop the brand in New Zealand in conjunction with the existing licensee.

The shares rose 1 cent to 53 cents, and have climbed 70 percent in the past 12 months. The board did not declare an interim dividend.

In December, A2's three cornerstone shareholders – ASX-listed Freedom Foods Group, Mountain Road Investments, associated with chairman Cliff Cook and Equity Group Investments – sold down their stakes as part of a $20 million capital raising and shift to the NZX main board.

Mr Babidge says A2's sales of infant formula into China are expected to start in June and it is still looking at other potential opportunities, such as entering North America, Europe or expanding its range to include ultra-heat treated products.

(BusinessDesk)