Chief executive David Bortolussi Photo: Supplied
Infant formula maker A2 Milk has posted a higher first half profit on improved sales to its key China market offsetting softness in other markets.
Key numbers for the six months ended December compared with a year ago:
- Net profit $78.6m vs $68.4m
- Sales Revenue $812.1m vs $783.3m
- Margin 46.7% vs 46.5%
- Full year outlook - low to middle single digit % revenue growth on FY23's $1.59b
- Interim dividend - nil (unchanged)
Chief executive David Bortolussi said sales of its infant milk formula (IMF) had increased despite the overall market shrinking and market disruptions such as Covid lockdowns.
"We continued to execute against our growth strategy, primarily focused on the China market which now represents approximately 80 percent of our total branded sales."
He said there had been significant growth for its Chinese language labelled product, while demand for English branded product and sales through online platforms and the third-party daigou channels had stabilised.
Business in the New Zealand and Australian markets was lower as a result of reduced daigou sales - purchases made by New Zealand residents, and Chinese students, and travellers, which are sent back privately to China.
The IMF sales drop was partly offset by increased sales of A2 fresh milk and other products, and Bortolussi said it has started to sell new products produced by its Mataura Valley Milk (MVM), which had an increased operating loss of $15.3m.
A2 Milk's US operations posted a reduced half year loss, as it lowered costs and lifted its margins, while introducing its IMF into the US market after official approval from US food authorities.
Chinese market conditions were expected to remain challenging with market demand declining as birth rates remained low.
"Beyond IMF, we are investing in growth in other nutritional products for kids, adults and seniors, and we are also pursuing growth in new markets," Bortolussi said.
However, the company pushed out its medium term ambition of $2b annual sales by a year to 2027, saying the previous target was not feasible in current market conditions.
Bortolussi gave no update on its various disputes with major supplier Synlait Milk other than the resolution process was under way.
He said Synlait's problems were more about its financial strength and structure and not its dispute with A2 Milk, with the operational relationship between the two remaining strong. A2 Milk's accounts showed the value of its 19.8 percent stake in Synlait had fallen by $31m, reflecting the slide in Synlait's share price.
Forsyth Barr analyst Matt Montgomerie called the result solid across the board and above expectations.
"Pleasingly, the revenue mix was strong relative to consensus forecasts ... There were brewing fears in the market on ATM's China Label print and this number should be taken positively, particularly with store numbers flat showing ATM continues to solidly grow revenue per store."