The A2 Milk Company has indicated a modest outlook for revenue and profit margins in the upcoming fiscal year, primarily due to persistent challenges within China’s infant formula market.
When presenting results for the fiscal year ending June 30, 2024, the Auckland-based dairy firm also expressed doubts about its long-term target of achieving NZ$2 billion (approximately $1.2 billion) in revenue. However, it has not completely dismissed the possibility of reaching this objective.
Despite reporting revenue growth of 5.2%, totaling NZ$1.68 billion, A2 Milk anticipates a future growth pattern that will likely align with “mid-single-digit” increases.
Furthermore, the EBITDA margin, which saw a 20 basis point increase to 14%, is expected to remain “broadly similar” to the previous 12 months. The margin may face downward pressure in the first half of fiscal 2025 but is projected to recover in the latter half.
In its results summary, A2 Milk remarked that “conditions” in the infant milk formula (IMF) sector in China “remain challenging,” predicting a further market value decline in FY-25.
The decline in birth rates in China—having decreased for several consecutive years—has significantly pressured sales for global formula manufacturers, an issue compounded by pandemic-related trade disruptions.
In the fiscal year 2024, A2 Milk noted that the number of newborns decreased by 5.6% in China, dropping to nine million. Yet, the company pointed out a positive improvement in trajectory over the past several years, suggesting a more favorable outlook for calendar year 2024. Unfortunately, longer-term projections indicate a continuing decline due to socio-demographic trends.
The Australian and New Zealand-listed company highlighted that the market downturn was influenced by a combination of fewer newborns, increased competition, and unfavorable macroeconomic conditions.
In broader fiscal results, A2 Milk reported a 6.9% increase in EBITDA, reaching NZ$234.3 million, while net profit after tax surged by 7.7% to NZ$167.6 million. Conversely, the gross margin fell by 60 basis points to 45.8%. The 2025 outlook for gross margins is also expected to be “broadly similar” to that of 2024, with initial pressures tied to airfreight costs, but an uptick anticipated in the latter half of the year.
Looking ahead, A2 Milk reiterated its long-term revenue goal established in 2021, aiming for NZ$2 billion in sales by fiscal 2026, although it suggests that this target may be more realistically achieved by FY27 or later.
The firm asserts that its growth strategy is on track, positioning A2 Milk favorably for future growth, despite the greater than expected contraction in the China IMF market. Additionally, the EBITDA margin outlook remains in the “teens,” projecting year-on-year improvement.
CEO David Bortolussi commented on the recent performance: “We continued to execute well against our growth strategy, primarily focused on the China market, delivering positive FY-24 results with strong revenue and EBITDA growth.” He also noted the A2 brand’s increased market share in the China IMF market, now ranking as a top-five brand. Despite the overall downturn in the China IMF market, A2 Milk successfully grew IMF sales.
As the food and beverage industry evolves, A2 Milk’s trajectory illustrates key trends in the food and drink business landscape. Analyzing consumer demands and challenges can provide valuable insights into future strategies in light of changing food and drink consumer trends.
