A2 Milk rallies sharply after profit beats forecasts

A2 Milk chief executive and managing director David Bortolussi.

Shares in a2 Milk rallied sharply after reporting a better-than-expected 15.6 per cent increase in first-half net profit to $85.3 million, which took place amid a double-digit decline in China’s infant formula market.

By midday, the company’s shares had rallied by 50c, or 9.2 per cent, to $5.90.

The dual-listed infant formula company said its strong performance in China was supported by record levels of marketing.

A2 said it had stabilised English-label infant formula sales in the second half of 2023 after several periods of decline, and had new products on the way.

The company’s earnings before interest, tax and amortisation (Ebitda) were up 5.0 per cent to $113.2m with an Ebitda margin of 13.9 per cent.

A2 finished the half with a cash position of $792.1m, up $34.9m on the June 2023 figure.

In its outlook, a2 said its full-year revenue growth guidance increased from low, to low-to-mid single-digit per cent on the prior year.

“Ebitda margin [is] expected to be broadly in line with FY23.”

A2 Milk chief executive and managing director David Bortolussi said the company continued to execute its growth strategy, primarily focused on the China market, which now represented about 80 per cent of its total branded sales.

“After several years of Covid-19-related disruption and market decline, we are pleased that our ‘a2 Platinum’ sales and the English-label market have stabilised compared to the second half of 2023,” he said.

Jarden analysts, in a research note, said the market was likely to be encouraged by the “top-line beat” of market expectations and upgrade to full-year guidance, particularly against the backdrop of a difficult end-market and a period which contained high execution risk as the new Chinese-label product was introduced.

The broker said at a net profit level, the larger beat was attributable to materially higher net interest income.

Jarden had forecast a net profit of $73m.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.