The A2 Milk Co. has signalled a muted revenue and margin performance in the new fiscal year due to ongoing challenges in China’s infant-formula market.
Presenting results for the 2024 financial year to 30 June, the Auckland, New Zealand-headquartered dairy group also reiterated its longer-term goal to achieve NZ$2bn ($1.2bn) in revenue was in doubt, although the company did not rule out meeting the target.
After reporting revenue growth of 5.2% to NZ$1.68bn in fiscal 2024, A2 Milk said the new year was likely to deliver a similar print in the “mid-single-digit” area.
Meanwhile, the EBITDA margin, which rose 20 basis points to 14%, is expected to come in “broadly similar” to what was achieved over the 12 months just closed in June. The margin would be pressured in the first half before recovering in the final six months of fiscal 2025, the company said.
A2 Milk said in its results commentary that “conditions” in the infant-milk formula (IMF) market in China “remain challenging and the company expects a further market value decline in FY-25”.
Birth rates in China have been dropping for a number of years, an element cited by global formula manufacturers as pressuring sales, allied with the disruptions to trade during the pandemic.
While A2 Milk said the number of newborns dropped 5.6% in China during the 2023 calendar year to nine million, it noted there has been an “improvement in trajectory over the past several years with a positive outlook for CY-24 but with longer-term decline expected due to socio-demographic trends”.
The Australia and New Zealand-listed business added: “The market decline reflected the cumulative impact of fewer newborns, increased competitive intensity and challenging macroeconomic conditions.”
Elsewhere in the 2024 results, A2 Milk reported a 6.9% increase in EBITDA to NZ$234.3m, while net profit after tax rose 7.7% to NZ$167.6m.
Gross margin, however, dropped 60 basis points to 45.8%. The company said the fiscal 2025 print is again likely to be “broadly similar” to 2024, with downside in the first half linked to airfreight costs and an uptick in the back half.
Looking ahead, and based on a longer-term revenue forecast outlined in 2021 to get to NZ$2bn in sales by fiscal 2026 “or later”, A2 Milk repeated its observation presented in an update in February.
Namely, that “whilst it remains possible for the company to achieve its medium-term revenue ambition of approximately $2bn by FY26 or later, at this stage it is likely to be achieved by FY27 or later”.
A2 Milk added: “The company’s execution of its growth strategy has been in line with its expectations, and it is well positioned to achieve future growth, despite the China IMF market having contracted significantly more than expected at the time it set its ambition.”
The EBITDA margin outlook remains in the “teens” region, “with year-on-year improvement”.
CEO and managing director David Bortolussi said of the latest results: “We continued to execute well against our growth strategy, primarily focused on the China market, delivering positive FY-24 results with strong revenue and EBITDA growth.
“The A2 brand continued to increase market share in the China IMF market and is now a top-five brand. We grew IMF sales despite the China IMF market being down double-digits.”
