LA Private

A2 Milk reports strong first-half profit growth despite challenges in Chinese market

Kiwi dairy group A2 Milk (ASX:A2M) announced on Monday that its first-half profit surged by a solid 15.6%, driven by increased demand in China, other Asian markets, and the US.

The company has revised its full-year revenue growth forecast slightly upward, attributing it to sustained growth in China, which now constitutes about 80% of its sales, despite a projected decline in Chinese births for the year 2024.

However, investors and analysts may be disappointed to learn that the company plans to prioritize seeking further growth opportunities over returning cash to shareholders. Consequently, despite holding nearly $NZ800 million in cash by the end of December, A2 Milk will not be offering dividends or buybacks.

Revenue for the first half increased by 4% to $NZ812, with a profit of $NZ78.6 million.

A2 Milk noted that its growth in China persisted despite a contracting market, largely due to declining birth rates. The rise in revenue was driven by continued expansion in the China & Other Asia segment, offsetting a decrease in the ANZ segment, primarily caused by a shift in distribution strategy.

The company’s EBITDA increased by 5.0% to $NZ113.2 million, supported by revenue growth and cost-saving measures.

A2 Milk reaffirmed its commitment to maintaining a strong balance sheet, ending the period with a net cash balance of $NZ792.1 million. It emphasized prioritizing investments in growth opportunities, particularly in supply chain transformation, over returning capital to shareholders for now.

Inventory at the end of the half-year increased by 1.6% compared to the previous year, primarily due to the timing of product launches and transitions.