A2 Milk's share price has been under downward pressure for over a year.
A2 Milk's share price has been under downward pressure for over a year.
A2 Milk’s share price has kicked back into life despite there being no change to its earnings outlook.
Managing director and chief executive David Bortolussi told the annual meeting the company is still on track to reach its sales target of $2 billion by 2026, but said there had beenno change to its 2024 earnings outlook.
Bortolussi told the annual meeting the dairy and infant milk formula marketer was also on track to improve medium-term Ebitda (earnings before interest, tax, depreciation and amortisation) margin to the “teens”.
In the June year just finished, a2 Milk’s net profit jumped by 26.2 per cent to $144.8 million.
And after an on-market share buyback of $149.1m, the company still had $757.2m in the bank.
A2 Milk’s share price, which had been trading at its lowest point since 2017, jumped to $4.35- up seven per cent - despite the company’s earnings outlook containing little fresh information. The stock lost some of its gloss later in the day, closing at $4.15, up 9c or 2.2 per cent.
In its outlook for 2024, the company reiterated the guidance issued at the release of its annual result.
“We expect China’s IMF [infant milk formula] market conditions to be more challenging in FY24 compared to FY23 with a further double-digit decline in market value.
“Despite these headwinds, we expect to continue to gain market share in infant milk formula.
“At the group level, we are expecting low single-digit revenue growth, Ebitda margins to be similar to 2023 and an improvement in cash flow,” Bortolussi said.
While there had been no material change to the 2024 outlook, Bortolussi said the launch of a2 Milk’s new China label product was progressing well.
Secondly, a2 Milk’s “Double 11″ Chinese shopping festival performance had overall been in line with its plan.
Forsyth Barr analyst Matt Montgomerie said the market had been nervous heading into today’s trading update.
“Most recent data sources suggested a2 Milk’s growth was below what the company indicated today,” he said.
Montgomerie said the company had “executed” well against the backdrop of a challenging market in China.
“The [forecast] number requires significant market share gains, and the company remains confident in doing so,” he said.
Bortolussi said the key challenge for a2 Milk and its competitors was the infant formula market in China declining, down double digits in 2023 due to the cumulative impact of fewer newborns and lower market pricing.
Shoppers at a mall in Shanghai. China's declining birth rate is impacting infant formula prospects. Photo / 123RF
“These category issues – coupled with challenging macroeconomic conditions, global geopolitical concerns and capital market dynamics – have weighed heavily on our share price over time,” he said.
However, he said there was an opportunity to grow the business and create shareholder value in the future.
“The infant milk formula (IMF) category in China is still over $30b in retail sales, we only have a 5-6 per cent share and it is our biggest growth opportunity.
“We have an exciting pipeline of innovation projects in our core IMF business; in kids’, adult and seniors’ nutrition; liquid milk ... and we have growth opportunities in other markets that we are working on which would ideally leverage existing products into new markets,” he said.
Outgoing chairman David Hearn, in his address, acknowledged the weakness in the company’s share price.
“I also want to acknowledge up-front that we understand how our recent share price decline has caused frustration amongst shareholders, as it has for us as well,” he said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
