August 21, 2018 / 9:33 PM / 3 months ago

UPDATE 1-New Zealand's a2 Milk annual profit doubles on China demand

(Adds details from earnings, background on company)

Aug 22 (Reuters) - New Zealand’s a2 Milk Company said its annual profit more than doubled on Wednesday, above market expectations and supported by rising demand in dairy-hungry China, but it flagged higher costs ahead as it seeks to stay competitive.

A2 reported a net profit after tax of NZ$195.7 million ($129.9 million) for the year ended June 30, soaring 116 percent from the previous year. It surpassed the NZ$189.3 million average forecast of analysts polled by Thomson Reuters I/B/E/S.

Its namesake products lack the A1 protein that most other milk contains, which the company says makes them easier to digest for some people. Their success has caught the attention of rivals, including the world’s biggest infant formula maker Nestle SA, which has moved to sell its own brand of A2-only milk powder in China.

Revenue skyrocketed 163 percent to NZ$233.6 million in Asia, and the company said it wanted to expand in the region in the 2019 financial year.

In recent weeks, a2 has extended a supply deal with Synlait Milk by two years, and raised its stake in the milk supplier to nearly 18 percent.

Earlier in the year, it also teamed with Fonterra, allowing the world’s biggest dairy producer exclusive licensing in New Zealand and to supply products in growing markets in Southeast Asia and the Middle East.

The recent slew of deals allows the company to expand in new and growing markets, but will also mean higher overhead costs and marketing expenses as a percentage of sales in 2019, the company said on Wednesday.

New Chief Executive Jayne Hrdlicka, presiding over her first earnings in the role, said “significant progress has been achieved in Australia, China and the USA and important emerging market opportunities are starting to materialise.”

Shares of a2 Milk have risen from NZ$1 several years ago to over NZ$11, turning it into one of New Zealand’s largest companies by market cap. ($1 = 1.5069 New Zealand dollars) (Reporting by Nikhil Kurian Nainan in Bengaluru Editing by Mark Heinrich and Rosalba O’Brien)

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