Posting some excerpts and highlighting a few comments from DB that are not mentioned in the report (as far as i can see).
Investors dump A2 Milk on profit miss, China woes (The Australian)
A2 Milk’s smaller than expected profit growth has triggered a major share sell-off, as the infant formula company warned its cornerstone Chinese market is facing increased competition and challenging macroeconomic conditions.
The New Zealand-based company’s outlook was less than market expectations, as it cautioned that growth would be affected by infant milk formula supply constraints in China and further value declines in that market.
Shares in A2 Milk plunged nearly 18 per cent in early trade to $5.76 on Monday on the back of the earnings miss, but also concern about its outlook for the 2025 financial year, which Citi analysts said appeared to be conservative and less than the 9 per cent markets had forecasted.
“The FY25 guidance was marginally softer than the market expected, but given the company’s history of underpromising and overdelivering combined with an improving CY24 birthrate outlook, we are of the view that the company continues to track along nicely,” Citi said.
Chief executive David Bortolussi said while China would still have 40 per cent of the world’s infant market in one country despite the falling birthrate, the company was now looking to expand elsewhere and become more relevant to families over their life cycle.
“We’re increasingly focusing on our other Nutritionals category, and that’s fresh milk, UHT milk, powdered products, fortified products for the family, for kids, adults and seniors,” he said.
“That’s an important focus of us going forward and then outside China, we’re also starting to explore other markets. We’ve gone into Vietnam; we’re arranging fresh milk in Singapore, and over time we will expand into the other nutritional category and explore other Asian markets.”
Mr Bortolussi said the company saw scope to further its reach in the US, and that the Middle East was also appealing as a new frontier.
A2 Milk was able to grow total IMF sales by 4.6 per cent, despite the overall China IMF market down 10.7 per cent in value in the period. Its China label IMF saw sales lift 9.5 per cent, while English label sales stabilised in the second half as it increased market share to 20.2 per cent on growth in emerging channels including Douyin/TikTok and Red.
Mr Bortolussi said A2 Milk had been more successful than other brands in transitioning its China label business following a change in standards last year and benefited from increasing its market investment behind the brand from $260m to $280m.
(DB comments about Synlait)
“This agreement provides us with flexibility in the future, so the removal of our exclusivity commitment to Synlait and confirmation of our IP ownership of the products specifications enables us to be free in the future to either to continue to source from Synlait, to source from third parties, or to insource into our own facilities as well,” he said.
“Our supply chain transformation strategy is focused on building nutritional capability, and improving our market access to China. So that’s partly through Synlait, but also we need to own, control and develop ourselves in the future.”
It will also enable the company to further its reach after Synlait agreed to enable it to access a second China production slot at its Dunsandel factory.
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