A2 Milk profit up by 7.7%, share price drops sharply

A2 Milk chief executive and managing director David Bortolussi. Photo / Supplied

Infant formula company a2 Milk increased its annual net profit by 7.7% to $167.6 million in the June year, driven by a strong performance in its main market - China.

Market expectations were for a2 Milk to report a net profit of about $172m for the year from $155.6m in the previous year.

Earnings before interest, tax, depreciation and amortisation (ebitda) rose by 6.9% to $234.3 million, with an ebitda margin of 14.0% - up 0.2 percentage points.

A2 Milk’s closing cash position was $968.9m, which was up $211.7m on the figure a year ago.

Revenue grew by 5.2% to $1.675 billion.

Looking ahead, a2 Milk said it expected revenue growth of mid-single digit per cent and ebitda margins to be broadly similar to those in 2024.

By late morning, a2 Milk’s share price - which was strong leading up to the result - had dropped by 86c or 11.13 per cent to $6.87.

While the result was in line with expectations, a2 Milk’s outlook for 2025 was not as strong as the market expected, one analyst said.

The company grew total infant formula sales by 4.6% despite a challenging China formula market that was down 10.7% in value.

“Conditions in the China IMF market remain difficult, impacted by the cumulative decline in China newborns over the past few years, increased competitive intensity, market-wide transition to new GB standard products and macroeconomic conditions,” the company said.

A2 achieved a top five brand position in the overall China IMF market, supported by increased marketing investment.

In its China label infant formula trade, there was growth of 9.5% and record market share in China-label IMF channels, with 3.5% market value share in mother and baby stores and 3.9% market value share in domestic online retail channels.

Chief executive and managing director David Bortolussi said the company continued to execute well against its growth strategy, primarily focused on the China market.

“A major highlight for the year was the successful launch of our upgraded China label infant milk formula [IMF] product,” he said.

“After several years of Covid-19-related disruption and market decline, we are pleased that our English label IMF sales stabilised in the first half and grew 6.9% in the second half.”

A2 Milk has arbitration disputes with its key supplier, Synlait, including Synlait’s acceptance of the validity of a2 Milk’s notice of cancellation of exclusivity, subject to Synlait completing its equity raise and the refinancing of its existing banking facilities.

Cash-strapped Synlait has been working on a capital raise which a2, which has a nearly 20% stake and has agreed to support.

Synlait’s main shareholder, China’s Bright Dairy, with 39 per cent, has also pledged its support.

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