A2 Milk has exceeded expectations by raising its annual revenue guidance following a 16% increase in its first-half net profit. The company managed to navigate a challenging market in China and saw growth in its infant formula sales.
Strong Financial Performance
The six months through December saw A2 Milk report a net profit of NZ$85.3 million, up from NZ$73.8 million in the previous year. Revenue for the half-year period totaled NZ$812.1 million, compared to NZ$783.3 million in the same period a year earlier. Despite the positive numbers, the company’s directors chose not to declare an interim dividend.
At the end of December, A2 Milk’s net cash stood at NZ$792.1 million, showcasing improved financial health for the company.
Navigating Challenges
In a time described as the most challenging period for the dairy industry, A2 Milk has shown resilience. The infant milk formula market in China has been on the decline due to factors such as fewer newborns and weakening pricing. Additionally, global economic slowdowns and cost-of-living pressures have impacted consumers in key markets.
Dispute with Synlait Milk
A2 Milk has been involved in a dispute with Synlait Milk, its exclusive manufacturing and supply partner. A2 indicated its intention to cancel Synlait’s exclusivity rights for certain infant milk formula products, citing Synlait’s failure to meet key targets during the 2023 fiscal year. Synlait, on the other hand, disputes A2’s right to cancel these arrangements and is seeking resolution through arbitration.
Potential Business Shift
With Synlait facing financial strain and potential debt concerns, there is speculation that it may sell its blending and canning facility at Dunsandel, New Zealand, to A2 Milk. This move could signal a shift in the partnership between the two companies.
A2 Milk Reports Strong Sales Growth Amid Market Challenges
CEO Optimistic Despite Market Downturn
“We grew our IMF sales in a market that was down double-digits with China label sales up significantly, and launched our new GB registered China label IMF product which is progressing well,” said Chief Executive David Bortolussi.
Stabilized Sales and Positive Outlook for A2 Platinum
“After several years of Covid-19 related disruption and market decline, we are pleased that our a2 Platinum sales and the English label market have stabilized compared to 2H of FY 2023.”
Positive Revenue Growth Expected
A2 Milk said it now expects low-to-mid single-digit revenue growth in the current fiscal year. That represents an improvement on prior guidance for low single-digit growth. It continues to expect an earnings before interest, tax, depreciation and amortization margin that is broadly similar to the 13.8% achieved in the 2023 fiscal year.
Long-Term Revenue Ambitions
However, a2 pushed out a target for achieving NZ$2 billion of revenue to FY 2027 or later.
“Achieving the company’s medium-term revenue ambition of NZ$2 billion by FY 2026 would require an additional NZ$380 million in revenue growth on 2023 over the next 2.5 years,” a2 said. “This growth would represent a compound annual growth rate of approximately 9% with higher growth required in FY 2025 and FY 2026 based on the company’s revenue guidance for FY 2024 which is low-to-mid single digit percent growth.”
