After two tough years of travel restrictions and the collapse of its valuable Chinese diagou reseller trade, specialist milk and nutritional formula business A2 Milk Company has surprised all with a 20 per cent revenue leap and a 52pc profit rise.
The trans-Tasman dairy player's share price has only just begun to settle after leaping from $4.90 to almost $5.80 last week when it announced a full year net profit after tax of $110 million ($NZ122m).
Revenue for the year to June 30 grew 19.8pc to $1.3 billion.
In 2020-21 A2 Milk was forced to write off more than $100 million in unsold nutritional powder stocks because its lucrative Chinese market had deteriorated rapidly when coronavirus hit.
Travel bans effectively closed down the daigou customer channel which had directed big volumes of infant formula, sourced in Australia by tourists and expatriate Chinese, for resale back home to friends and family.
The daigou trade from Australia slumped 42pc in 2020-21 and a further 17pc in the past financial year.
However, after taking a spectacular revenue tumble and attracting shareholder class actions alleging A2 misled investors about sales expectations, the company has managed to resolve its excess infant milk formula inventory and rebuild its supply chain.
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The revenue jump reflected improved sales in China and strong growth elsewhere in Asia and US markets,
An important factor in A2's revival has been a deliberate market drive in China and development of its Chinese labelled infant formula product which contributed to a 12.2pc sales lift.
Without a strong Chinese tourist and daigou market to buy product here, English labelled product sales slumped by a third in 2021-22.
Now the dairy business is relying on distribution via more transparent, performance-based partners with exclusive ties to the dairy business which resulted in 11.6pc growth in English language branded formula sales.
Marketing spending in China had also increased by a third and had subsequently lifted consumer brand awareness to 21pc - a five percentage point rise.
Milk sales growth
Meanwhile, milk sales grew 30.2pc in the US, but more sedately at 1.8pc in Australia and New Zealand to $NZ172m.
Sales rises were recorded in all states except Western Australia.
Three A2 milk products now rate among the top 10 dairy lines in the Australian grocery segment, and were recently complemented by launches of new lactose-free, long-life and cream on top lines.
In the US a new Hershey's co-branded chocolate A2 milk and a half and half line helped revenue reach $NZ83m, but significant freight cost rises, fuel surcharges and higher raw milk prices meant the US market's earnings before interest, tax, depreciation and amortisation slipped to a $36.7m loss.
Accelerating the path to profitability in the USA by 2025-26 remained a key focus for the company, which has tipped it will achieve "meaningful progress" this year.
Stable despite headwinds
Managing director David Bortolssi was pleased with overall progress being made to stabilise the business.
He said A2's profit performance was a good result despite significant headwinds.
A2's purchase of a 75pc stake in NZ's dairy powder producer, Mataura Valley Milk, with China Animal Husbandry Group 11 months ago had provided a chance to pursue more label registration touchpoints in China and product innovation opportunities.
However, the Mataura business had posted a $NZ19m loss, which dragged A2's overall adjusted profit result to $NZ114m.
Meanwhile, A2 shareholders will get a chance to take advantage of the revived share price after Mr Bortolussi announced a $NZ150m share buyback plan to return capital to investors, which he said was as a sign of confidence from management in the outlook.
A2 Milk Company is tipping high single digit revenue growth and an improved EBITDA margin for this financial year.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
