The a2 Milk Company has flagged China’s poor economic conditions as a major dampener on the company’s future performance. Despite FY24 being a good year, it told the market its pace of revenue growth would be halved, and that its timeline to reach NZ$2 billion was now 2027. The market didn’t hide its feelings, with the share price dropping 17 per cent.
Snapshot (all figures are in NZ$)
- Revenue: $1.7b, up 5.2% on prior corresponding period (pop);
- EBITDA: $243m, up 6.9%;
- NPAT: $167, up 7.7 per cent;
- Basic earnings per snare: 23c, up 9.2%; and
- Net cash: $969m, up 28%.
The China & Other Asia market segment grew 14.1 per cent ($1.1 billion revenue, $290 million EBITDA - up 14.2 per cent\), but that was offset but a 14.6 per cent decrease in the ANZ segment due to a change in distribution strategy with more formal being directed to China & Other Asia. The company joined the top five infant milk formula (IMF) companies in China while its US revenue grew 8.2 per cent.
The China market
China’s birthrate continued to decline, with CY23 recording a drop of 5.6 per cent to 9 million babies. That’s a smaller drop that previous years, but in FY24 the China IMF market declined 8.6 per cent in volume and 10.7 per cent in value.
A2MC said the decline in Key&A cities exceeded BCD cities, decreasing 11.9 per cent and 9.4 per cent respectively.
“The market decline reflected the cumulative impact of fewer newborns, increased competitive intensity, and challenging macroeconomic conditions,” the company said.
In China label channels there was “significant pricing pressure” because of volume pressure from fewer newborns, the market-wide transition to new GB registered products with clearance of old GB registered products, and challenging macroeconomic conditions.
For a2MC, in that context, it had a “strong performance overall”. CEO and MD, David Bortolussi, said, “The a2 brand continued to increase market share in the China IMF market and is now a top-5 brand. We grew IMF sales despite the China IMA market being down double-digits.”
He said a highlight for the company was the launch of tis upgraded China label IMF product, recording 9.5 per cent sales growth pcp. He was also pleased to see English label IMF sales stabilise in 1H24 and grow 6.9 per cent in 2H24.
In the US, while it’s taking longer to become profitable, Bortolussi said the market’s performance improved “significantly”. Its long-term IMF approval with the FDA is on track for FY26.
The recently resolved disputes with Synlait will see the pair work to gain access to additional China label IMF product registration slot by December 2029, subject to SAMR approval. Bortolussi said the company remains focused on securing more China label registrations and other investment opportunities in New Zealand and China.
The company is working to improve and invest heavily in its commercial supply chain partnerships, and has expanded its English label IMF deal with Yashili NZ (Mengniu subsidiary) and New Zealand New Milk (Lactalis subsidiary) while producing new products with MVM.
“Beyond IMF, we are investing in growth in liquid milk and other nutritional products for kids, adults, and seniors, and pursuing growth in new markets. We launched new products in FY24 with more to come next year.”
