Some excerpts from AFR
A2 Milk shares surge on upgraded outlook
The a2 Milk Company has upped its annual sales guidance after posting solid first half revenue and earnings growth, and assuring shareholders that key infant formula market China is showing signs of stabilising.
Its ASX-traded shares rocketed to a 10-month high, advancing more than 11 per cent to $5.64 on Monday.
A2 Milk boosted its total infant formula sales 1.5 per cent despite a double-digit decline in volume and value in the China – the world’s largest infant milk formula market. A record level of marketing spend at $137 million in the half helped it achieve a top-five China market position.
Sales in China and other Asia markets climbed 16.5 per cent, helping offset a 24.1 per cent fall in Australia and New Zealand because of a change in distribution strategy.
Chief executive David Bortolussi said the group was still focused on China for growth, which now represents 80 per cent of total branded sales. Although revenue guidance was upgraded, a2’s EBITDA margin is expected to be broadly in line with last year.
“We have improved our guidance for revenue going from low single digits, to the low to mid-single digits over the full year. The reason that we’ve done that is partly associated with China label performance,” he told The Australian Financial Review.
China’s birth rate was better than expected in calendar 2023 even as the number of newborns fell 5.7 per cent to 9 million births, a record low. “We’re still of the belief that the 2024 birth rate will be higher than calendar 2023,” Mr Bortolussi said.
He said family planning had been delayed during COVID-19, and marriages were trending upwards.Mr Bortolussi is determined to gain access to more China label registrations, which will enable a2 Milk to grow its portfolio in China. Major players in the industry have between 10 and 20 registrations while a2 Milk has one.
In Australia and South-East Asia, a2 Milk will this half launch the first new English label formula product in 10 years, called a2 Gentle Gold, aimed at the premium segment. The range is developed at its Mataura Valley Milk processing plant and a new commercial supply chain partner, Yashili NZ, a subsidiary of China’s Mengniu Dairy.
Another key priority for a2 Milk is getting its Mataura Valley Milk processing plant profitable by 2026.
Synlait, a2 Milk’s manufacturing partner, suffered another poor trading update this month, but Mr Bortolussi said a2 Milk does not have any major operational concerns, nor is he aware of any pending capital need by the troubled New Zealand-based group in which it owns nearly 20 per cent.
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