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New Zealand’s a2 Milk says revenue jumps nearly 70 pct, but flags higher costs

* A2 announces unaudited FY18 revenues of NZ$922 mln ($623 mln)

* But says marketing, staff costs to be higher in FY19

* Shares pare most losses after initially dropping 2.4 pct (Recasts, adds broker comment)

New Zealand’s a2 Milk Company on Thursday said its annual revenue had jumped nearly 70 percent, but flagged higher costs in the year ahead as it ramps up its business in the dairy-hungry markets of China.

The firm, one of New Zealand’s largest by market capitalisation, said in a statement to the local stock exchange that its fiscal 2018 unaudited group revenue had grown about 68 percent to around NZ$922 million ($623 million).

However, its shares fell as much as 2.38 percent to NZ$11.49, before paring most of those losses to trade 0.3-percent down on the day at NZ$11.73.

That came as the company said it would have to spend more on marketing as a percentage of sales in the 2019 financial year as well as incurring higher overhead costs due to increasing headcount in China.

“The 2019 financial year outlook and the added expenses have probably put one or two investors off,” said Grant Williamson, investment advisor at Christchurch brokerage Hamilton Hindin Greene.

Chinese buyers purchasing in New Zealand through informal personal shopper channels known as daigou have fanned a2’s stratospheric success in recent years, but competition has been heating up and the company faces the challenge of developing a stronger physical retail presence in China.

A number of firms including Nestle are launching similar infant formula and child-oriented dairy products free from the A1 protein, a tweak a2 Milk says aids digestion compared to traditional milk.

The company announced previously that it is also investing in increased marketing in Australia and the United States.


Source: Reuters

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