A2 Milk chief executive David Bortolussi said that while China’s infant formula market remains challenging, there is still “significant growth opportunity” for the company.
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The a2 Milk Company increased its annual profit by 52% and said its infant formula business had returned to growth after making the “difficult decision” to destroy excess inventory that had accumulated during the coronavirus pandemic. Covid-19.
Net profit rose to $166.2 million for the year to the end of June, from $80.7 million a year earlier, the company said in a statement to NZX. Revenue increased 20% to $1.45 billion.
The pandemic has hurt A2 Milk’s core Chinese infant formula business as border closures and shutdowns disrupted shipping, the birth rate plummeted and competition from local brands increased. He wrote down more than $100 million of older stocks and said the outlook for his business is now positive with continued growth in revenue and earnings expected this year.
“It was a successful year for The a2 Milk Company, returning to double-digit revenue and profit growth despite significant headwinds,” said Chief Executive David Bortolussi. “These tough inventory decisions we made last year worked and laid the foundation for this year’s bottom line.”
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The company noted that China’s infant formula market, the largest in the world, remained “challenging”, but said there was still “significant growth opportunity” for A2 Milk.
According to China’s National Bureau of Statistics, the number of births in China fell 11.5% to 10.6 million in 2021, and A2 Milk expects the decline to continue in 2022.
This led to an overall decline of 4.3% in the volume of the Chinese infant powder market in the year to the end of June. Overall market value slipped 3.1% while prices rose 1.3%.
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A2 Milk said its Chinese label business was benefiting from a shift to ultra-premium brands, faster growth in the A2 protein segment, increased focus on market-leading brands and a shift to online channels.
Sales of the company’s Chinese-branded infant formula rose 12.2% to $437.6 million, driven by record market shares at Mother and Baby stores, which rose from 2.2 % to 3%, and Chinese domestic online channels, which grew to 2.5% from 2%.
Meanwhile, a drop in English-label goods showed signs of leveling off, with overall market value down 9% in the year to June, from a 33% drop the previous year, it said. the society.
Sales of A2 Milk’s English-label formula jumped 11.6% to $584.6 million after improving private shipping of its products from Australia and Nova Scotia. Zealand to China.
Despite “challenging market dynamics”, A2 Milk said the growth of its Chinese and English language infant formula was “encouraging”.
“It’s been a really good year for us in China, the IFM category has had some headwinds, but we’re just getting stronger,” said Xiao Li, A2 Milk’s general manager for Greater China.
The company expects revenue to grow at both labels this year and said there is “significant opportunity” to increase market share from its current level of 4% to 5%.
Jarden senior analyst Adrian Allbon said the revenue boost was helped by a 36% increase in marketing spend in China to $230 million.
“The rise in revenue appears to have been supported by marketing spend significantly higher than our expectations and almost opposite to market expectations given the lockdowns in Shanghai during the period,” Allbon said.
The A2 Milk brand has reached new heights after a campaign in the last quarter of the fiscal year, and its brand loyalty has also increased, the company said.
Bortolussi said A2 Milk was one of the most popular brands in the market and benefited from the growth of the ultra-premium segment and the A2 protein category.
“We are in a very good position to continue our growth, despite what the market is doing,” he said.
Shares of the company were the biggest gainer on the NZX early Monday afternoon, jumping 9.5% to $5.99. The stock has lost about 57% of its value over the past three years.
A2 Milk ended the year with $816.5 million in net cash and plans to spend up to $150 million to buy back its shares over the next year.
The company does not pay dividends.