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A2 Milk reported a 27% increase in full-year profit.
The a2 Milk Company has gained market share in China’s shrinking baby formula market and reported a 27% increase in annual profit, but warned that the next year would be “tougher”.
Net income for the year ended June increased to $155.6 million from $122.6 million a year earlier. Revenue increased 10% to $1.59 billion, and the company expects revenue growth to be in the “low single digits” this year.
A2 Milk increased its infant formula sales by 8.4% in its main market, China, the world’s largest, despite an overall market decline of 14%. In China, declining birth rates, increased competition and a slowing economy are weighing on sales of infant formula (IMF).
“The IMF market in China is becoming increasingly difficult as a result of declining birth rates and increasing competition,” managing director David Bortorsi said in a statement.
“While IMF market conditions in China are uncertain, they are likely to become more difficult in FY24, with market values expected to experience another double-digit decline.”
Still, he said a2 Milk is well-positioned to continue investing this year to grow its market share and position itself stronger when the market recovers.
Market conditions in 2021-2023 were more difficult than expected, with UK labeled infant milk market values down 25% and China labeled market values down 16%.
Finance and Expenditure Committee
Reserve Bank Governor Adrian Orr talks about the risks of a Chinese economic slowdown.
The company’s profit margin before interest, taxes, depreciation and amortization increased slightly to 13.8% from 13.6%, and it expects the profit margin to remain about the same this year at 13.8%.
The company is targeting improved annual profit margins, but warned that it was unlikely to achieve more than a “10x” profit margin given market conditions and outlook.
A2 Milk needed to spend more on marketing to support its growth in China, with the rise of consumer and digital marketing driving marketing expenses up 13% to $260.2 million.
Revenue from the “China and Rest of Asia” market reached $1 billion for the first time, accounting for 63% of total revenue.