A2 Milk Reports 16% Profit Growth in First Half of Fiscal Year
A2 Milk, a leading dairy company, has announced a net profit of 85.3 million New Zealand dollars in the six months through December, marking a 16% increase compared to the same period a year earlier. The company's strong performance in the first half has led to a revision of its annual revenue guidance.
Overcoming a challenging market in China, A2 Milk managed to grow its infant formula sales in the country. Despite the decline in the infant milk formula market due to fewer newborns and weaker pricing, the company's determination and innovative strategies have paid off.
During the first half of the fiscal year, A2 Milk's revenue reached NZ$812.1 million, surpassing the NZ$783.3 million it earned in the previous year. This positive development demonstrates the company's resilience and ability to thrive under difficult circumstances.
One noteworthy decision made by A2 Milk's directors was the choice to not declare an interim dividend, despite the improvement in net cash, which stood at NZ$792.1 million by the end of December. This decision reflects the challenging nature of the dairy industry and the cautious approach taken by the company amidst market uncertainties.
A2 Milk and Synlait Milk, another major player in the industry, have been engaged in a dispute. A2 Milk aims to cancel Synlait's exclusive manufacturing and supply rights for certain infant milk formula products due to Synlait's inability to meet key targets. Synlait, on the other hand, disputes A2 Milk's authority to terminate the exclusivity arrangements and seeks resolution through arbitration.
Despite the ongoing challenges in the market, A2 Milk's CEO, David Bortolussi, is positive about the company's performance. He attributes the growth in infant milk formula sales to the popularity of their China label products, which have seen significant success. Additionally, A2 Milk has successfully launched their new GB registered China label infant milk formula, which is performing well.
After experiencing several years of disruption and market decline due to the Covid-19 pandemic, A2 Platinum sales and the English label market have finally stabilized. As a result, A2 Milk has revised its revenue growth expectations for the current fiscal year. The company now anticipates low-to-mid single-digit revenue growth, an improvement from its previous guidance for low single-digit growth.
A2 Milk remains committed to achieving its long-term goals, which include reaching NZ$2 billion in revenue. However, the company has revised its target to achieve this milestone in fiscal year 2027 or later. To meet its medium-term revenue ambition of NZ$2 billion by fiscal year 2026, A2 Milk would need to generate an additional NZ$380 million in revenue growth over the next 2.5 years, representing a compound annual growth rate of approximately 9%.
Overall, A2 Milk's impressive profit growth in the first half of the fiscal year reflects the company's resilience in a challenging market. With innovative strategies and a focus on expanding its presence in China, A2 Milk is well-positioned to continue its upward trajectory in the dairy industry.
Analyst comment
Positive news: A2 Milk reported a net profit increase of 16% in the first half of the fiscal year, surpassing expectations despite a challenging market in China. The company raised its annual revenue guidance and its infant formula sales in China grew. However, A2 Milk postponed its target of achieving NZ$2 billion in revenue to FY 2027 or later, requiring additional growth over the next 2.5 years. The market is expected to see low-to-mid single-digit revenue growth and a similar EBITDA margin as the previous fiscal year.
