NZ's a2 Milk warns of weak revenue growth

China headwinds in 2024
calendar icon 21 August 2023
clock icon 2 minute read

New Zealand a2 Milk Co on Monday warned of weak revenue growth and challenges in China's infant milk formula (IMF) market in fiscal year 2024, sending its shares sliding to over one-year lows, even as the dairy firm's annual profit rose 27%, reported Reuters.

The dairy producer expects revenue growth in the low single digits in fiscal 2024, compared with 10.1% growth at NZ$1.59 billion ($942.87 million) in the previous fiscal year.

"Outlook comments highlight a tough market expected in FY24," said E&P Capital analysts in a note.

The bearish forecast comes amid a broad slowdown in the global dairy market, with reduced demand from top consumer China also weighing on prices.

Last week, peer Fonterra Co-operative Group cut its farmgate milk price forecast for the second time this month amid weakness in international dairy prices.

Shares of a2 Milk tumbled 7.3 % to NZ$4.96 as at 2217 GMT, their lowest level since Aug 10 last year.

A2 Milk expects China's IMF market to decline by a further double-digit in FY24 on top of a 14% decline in FY23 citing the "rolling impact of fewer newborns in recent years" and "lower number of newborns expected in CY23 due to the lagged impact of COVID-19".

"The China IMF market has become increasingly challenging as a result of lower birth rates and increased competitive intensity," said David Bortolussi, managing director and CEO.

In fiscal 2023, a2 Milk's China sales jumped 27.8% to NZ$559.3 million, boosted by higher marketing investment and increasing household penetration in the country.

The firm's top money-making overseas markets - China and elsewhere in Asia - recorded revenue of NZ$1.00 billion, compared with NZ$726.5 million a year ago.

The dairy firm also expects gross margin in fiscal 2024 to remain flat from a year ago, with high costs offsetting price increases.

The dairy producer's net profit for the year ended June 30 came in at NZ$155.6 million, compared with NZ$122.6 million a year ago, and versus an average analysts' estimate of NZ$145.9 million, according to Refinitiv.

($1 = 1.6863 New Zealand dollars)

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