A2 Milk, the New Zealand-based dairy company, announced that it has achieved its annual revenue guidance. However, the company remains cautious as it navigates the increasingly challenging Chinese market for infant formula and struggles with weak sales through daigou, or surrogate shopping.
In the 12 months through June, A2 Milk reported a 10% increase in revenue, amounting to NZ$1.59 billion (US$943.7 million), which aligns with its guidance. The sales of China label infant milk formula saw an impressive rise of 28%, in contrast to a decline of 6.1% in English label sales.
The company’s annual net profit also experienced growth, rising by 27% to NZ$155.6 million from NZ$122.6 million. Additionally, its Earnings before interest, tax, depreciation, and amortization (Ebitda) increased by 12% to NZ$219.3 million.
Despite these positive figures, the company’s directors did not declare a final dividend.
Chief Executive David Bortolussi commented on the sales performance, stating, “Our China label infant milk formula sales exceeded English label sales for the first time, and our total infant milk formula sales surpassed NZ$1.1 billion, establishing us as a top-3 share gainer in the market overall.”
Looking forward, A2 Milk anticipates a double-digit decline in the China infant milk formula market in FY 2024. Nevertheless, the company aims to increase its market share and achieve low single-digit revenue growth in FY 2024, with an Ebitda margin similar to that of FY 2023.
Bortolussi acknowledged the challenges faced by the company, particularly in the daigou market for English label infant milk formula, which experienced a sharp decline of nearly 40% this year. However, the company has successfully shifted its focus to more controlled distribution channels, which have yielded better results and allowed for continued market share growth. Bortolussi attributed the increasing difficulty in the Chinese infant milk formula market to declining birth rates and heightened competition.
Analysts at Forsyth Barr, a leading investment bank, had anticipated a solid annual result. However, they also predicted a challenging fiscal year 2024 due to weakening macro trends and indicators pointing to sluggish daigou sales. The consensus revenue and Ebitda expectations for fiscal year 2024 are projected to be NZ$1.75 billion and NZ$259 million, respectively.
In conclusion, A2 Milk has met its revenue guidance despite the obstacles it faces in the Chinese market. The company remains focused on expanding its market share and achieving sustainable growth in the coming years.
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