Business / Covid 19

A2 Milk facing 80% sdrop in net profit in year battered by Covid-19 disruption

13:55 pm on 26 August 2021

Specialty dairy company A2 Milk has had a major slump in full year profit caused by pandemic related disruptions to key markets.

Chief executive David Bortolussi. Photo: Supplied

A2 Milk's net profit dropped by 79 percent as excess stock and a slide in sales of infant formula in the key Chinese market battered its earnings.

The company issued numerous earnings downgrades over the past 12 months as Covid-19 closed borders and put an end to the previously lucrative "backdoor" daegou sales channels, while a falling birth rate in China also reduced demand.

Key results for the year ended June vs year ago:

  • Net profit $80.7m vs $386m
  • Revenue $1.2b vs $1.73b
  • No dividend
  • Possible capital return put on hold

Chief executive David Bortolussi called the year "very challenging" with high levels of uncertainty and volatility.

"Over the past year China market growth has reduced significantly from globally high rates to be flat, and cross-border trade has been disrupted significantly which has had a profound impact on the Company's results," Bortolussi said.

"While certain areas of the business performed well, with market share gains in China label infant nutrition and Australian fresh milk, the company was impacted by a significant decline in cross-border English label infant nutrition and other nutritional sales through daigou/reseller and e-commerce channels," Bortolussi said.

There was modest growth in sales of Chinese produced product, but English-language labelled products usually sold through the daigou and e-commerce channels were halved.

Sales of product in Australia and New Zealand, including fresh milk and other dairy products, rose, while there was a slight dip in US sales.

Its operating earnings were further hit by $109m write down in excess stock, and $10m in costs of acquiring the Southland based Mataura Valley Milk.

Bortolussi said the company was rethinking its strategy and how to regain growth in China.

"The scope of this review includes the company's approach to driving infant nutrition growth in both China label and English label channels, its infant nutrition product portfolio and innovation strategy."

A2 had put aside any ideas of a possible return of excess capital to shareholders to concentrate on further investment in the company, he said.