A2 milk increased its net profit by 26% to $144.8 million in the 2023 financial year – as the Chinese infant formula market declined because of fewer babies and lower product prices.
China accounts for 70% of a2 Milk’s sales and revenue, which was up 10% to $1.592 billion.
The outlook for FY2024 is a double-digit decline in the China infant formula (IMF) market but a2 Milk expects to deliver a low single-digit revenue growth and a gross margin similar to last year.
The alternative dairy company is still recovering from the covid lockdowns between 2021 and 2023 when IMF sales slumped and the parcel-post “daigou” sales channel from Australia and New Zealand to China collapsed.
Managing director and chief executive David Bortolussi said he is proud of the team effort behind 10% sales growth when the core market, IMF in China, declined by 14%.
China-label sales exceeded English-label sales for the first time and total IMF sales were $1.1bn.
The daigou sales of English-label IMF fell by 40% and a2 Milk has turned to channels over which it has more control.
“The China IMF market has become increasingly challenging as a result of lower birth rates and increased competitive intensity.
“Notwithstanding, we are well positioned to continue to invest and grow share in FY24 to emerge in a stronger position when the market recovers.”
The Mataura Valley Milk processing subsidiary made a larger earnings loss of $26.5m, compared with $18.8m in FY22, with revenue of $114m.
The a2 share price dropped nearly 50c after the results were published, now down in the range $4.80 to $4.90, the lowest level since early 2022, when the full covid impacts first became apparent.
In recent times the price peak has been around $7.40, so clearly the share market is not yet convinced that the a2 pathway to profitability is sustainable.
Pre-covid a2 Milk had peak revenue of $1.7bn and peak profit of $386m.
