NZ's a2 Milk annual profit beats; positive on FY23 as China demand rebounds

(Reuters) - New Zealand’s a2 Milk Co posted a better-than-expected annual profit on Monday and forecast a positive 2023, as the dairy producer benefited from a recovery in demand for its China and English label products, sending its shares nearly 8% higher.

FILE PHOTO: A2 milk is seen on a supermarket shelf in Singapore April 16, 2018. Picture taken April 16, 2018. REUTERS/Thomas White/File Photo

A2 Milk, which saw its top revenue stream from China dry up over the past couple of years due to COVID-19 restrictions and decreasing birth rates, now looks to be on the verge of turning around its biggest market as it spends more on marketing and increasing its household penetration.

Sales of infant milk formula (IMF) products in China are expected to grow significantly in fiscal 2023, with growth skewed towards the first-half, thereby boosting the dairy producer’s earnings outlook as well.

For fiscal 2023, a2 Milk expects a high single-digit revenue growth, and also sees its operating earnings growing next year with improvement in margins as well.

“The company’s most critical business development focus is to ensure it delivers its full potential in China IMF,” the dairy producer said.

“With the marketing plan weighted to 1H23, the company expects a slightly higher EBITDA margin in 2H23 versus 1H23,” it added.

a2 Milk’s China & Other Asia - its major money making segment - recorded a revenue of NZ$726.5 million ($444.33 million) for the year, nearly 25% higher from a year ago.

The company further announced an on-market share buy-back of up to NZ$150 million.

The dairy producer reported a net profit of NZ$122.6 million for the 12 months ended June 30, compared with NZ$80.7 million a year ago. That beat a Refinitiv estimate of NZ$114.8 million.

Shares of a2 Milk rose as much as 7.9%, their highest level since March 30 in their fourth straight session of gains.

($1 = 1.6351 New Zealand dollars)

(This story corrects to add ‘million’ in second bullet)

Reporting by Jaskiran Singh, Sameer Manekar and Archishma Iyer in Bengaluru; Editing by Sandra Maler and Rashmi Aich