A2 Milk’s revenue grew 10.1% to $893.8m compared with a market consensus of $870m.
Total infant formula sales were up 7.2%, with Chinese-label product gaining 2.0% and English-label rising by 13.0%.
The company’s share price rallied sharply on the result, trading in the afternoon at $7.52, up 94c or 14.3%, after sinking as low as $5.33 late last year.
The share price of A2’s closely allied formula supplier, Synlait Milk, also rallied, gaining 16c or 20% to 93c, reflecting relief last year’s supply problems are now well behind it.
Forsyth Barr senior analyst Matt Montgomerie said the strength of the English-label formula category in China caught analysts by surprise.
“I think that caught everyone out, and it’s clearly a very, very good result,” he said.
As a category, English-label product – typically marketed through various online channels – is cheaper than Chinese-label product.
“English-label is in growth at the moment compared with the broader market, and a2 Milk is executing well within that,” Montgomerie said.
“As we know, the macro economic environment is reasonably challenged in China, so it feels like consumers are trading down to lower price-point products,” he said.
Added to the popularity of English-label product was the ongoing shift to online buying, and the broader suite of products available across all brands within the category, he said.
A2 Milk chief executive and managing director David Bortolussi said one of the result’s key drivers was the big lift in demand for English-label formula, particularly from the “Double 11″ shopping festival from last November to Chinese New Year in January.
There were also strong performances in the US (up 13.4%) and the Australian (up 11.2%) liquid milk markets, and the beneficial impact on the profit and loss account from a sharply weaker New Zealand dollar.
English-label formula – a high-margin part of the business – had been hit hard during the Covid-19 era.
The company’s full-year 2025 revenue forecast increased from mid to high single-digit to low to mid double-digit percentage growth on the previous year’s.
Elephant in the room
Analysts are keen to know what a2 Milk plans to do with its cash mountain.
Bortolussi told the Herald the company hoped to make an announcement on its spending plans this year.
“We will ask for shareholder patience while we work through that.”
A2 Milk has a majority stake in a dairy factory, Southland’s Mataura Valley Milk, and wants to develop its supply chain.
In its announcement to the NZX, the company said: “As we look ahead, obtaining access to additional China-label infant milk formula registrations to support future growth and developing our own nutritional manufacturing capability remain critical to the company’s supply chain transformation strategy.”
In terms of capital management, Bortolussi said the company’s preference was to pay a special dividend or dividends and not a share buyback such as the one it undertook in 2022-23.
Commenting on conditions in China – a2 Milk’s biggest market – Bortolussi said consumer sentiment there was lower than it had been in the past.
“And there is a degree of trading down in the market as consumers look for value.”
Looking ahead, he said meeting the company’s “lower to mid” guidance would require a significant step up in the second half.
“And we are confident of that.”
The informal “daigou” trade channel – also known as the “suitcase” trade, as tourists bring back product to China for resale – was once an important part of a2 Milk’s story.
It now represents less than 5% of the company’s infant milk formula business.
The company has diversified its product mix and just launched “a2 Genesis”, which is aimed at the toddler milk market.
It has also expanded its fortified milk powder range, targeting the growing seniors and kids’ segments.
A2 had started selling formula into Vietnam and had gained market share in Australia’s liquid milk market.
The company has applied to the Food and Drug Administration to gain access to America’s infant formula market.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
