A2 Milk Company has reported good revenue and earnings results for FY24 despite difficult trading conditions in its biggest market for infant milk formula, China.
Revenue increased by 5% to $1675 million, including 9.5% growth in China-label infant milk formula (IMF), where a2 is now a top-five brand, despite a double-digit decline in China market value.
Earnings before interest, tax, depreciation and amortisation were up 6.9% to $234.3m
Net profit after tax was up 7.7% to $167.6m and basic earnings per share were up 9.2% to 23.2c. However, no dividend will be paid, as has been the company’s policy since inception.
The share price has improved by 70% since January this year, up from $4.40 to $7.
However, the pathway during 2023 was a long decline from $7 due to post-covid trading effects and the falling Chinese birth rate.
A2 Milk (ATM) has a market capitalisation of $5 billion, one of the biggest on the NZX exchange, and it is dual listed in Australia, where the head office is.
The immediate share market reaction to the results was a drop of 10% from $7.70 to $6.80.
A2 said the arbitration disputes with major IMF supplier Synlait have been settled, including Synlait’s acceptance of the validity of a2’s notice of cancellation of exclusivity.
A2 Milk owns 20% of Synlait shares.
The settlement is subject to Synlait completing its equity raise and the refinancing of its existing banking facilities, under a proposal to be announced this month.
A2 Milk Company has agreed to support and subscribe for shares under Synlait’s equity raise on terms to be agreed, as has Synlait’s major shareholder, Bright Dairy.
“China IMF market conditions remain challenging and we expect a further market value decline in FY25,” chief executive David Bortolussi said.
“At this stage, we are expecting mid single-digit revenue growth in FY25 versus FY24, with growth affected by IMF supply constraints which are expected to be resolved in the first half.”
Bortolussi said the company remains on track to deliver its medium-term growth strategy, which may include $2bn in annual revenue by FY26, more likely FY27.
Revenue has not yet recovered to the $1.73bn achieved in FY20 before covid-19 carved a swath through China markets and delivery channels.
Net cash on the balance sheet is approaching $1b, up 27% in the past financial year.
“Consistent with the capital allocation framework, priority is being given to transforming and de-risking a2’s supply chain to enable future growth focused on investment in NZ and China.
“[Afterwards], to the extent there is a capital surplus to achieving a2’s priorities, the board will make a disciplined assessment of the potential to return capital to shareholders and the most appropriate option to do so.”
