The a2 Milk Company reported an annual net profit of $113.6 million on Monday, down 44 percent on the $202.9 million it made a year earlier, in a result the company said was distorted by the sale of one New Zealand processing plant and the purchase of another.
Revenue for the year to 30 June rose 12.4 percent to about $1.97 billion, the highest in the company’s history and the first time it has come within touching distance of the $2 billion mark that has been its stated ambition for several years. Strip out the one-off items and the picture is a good deal brighter than the headline number suggests. Underlying earnings before interest, tax, depreciation and amortisation rose 5.4 percent to $307.6 million, and underlying net profit rose 7 percent to $235.8 million. Net profit from continuing operations came in at $207.5 million, against $220.3 million the year before.
Chief executive David Bortolussi said the bottom line reflected the pluses and minuses of two large transactions that landed in the same financial year. a2 Milk sold its majority stake in Mataura Valley Milk near Gore early in the year, booking a net loss of $96 million on the way out, and completed the purchase of a large plant at Pōkeno, south of Auckland, which it now trades as a2 Pōkeno and expects to turn profitable in the current year.
“So I appreciate it’s a complicated result to explain this year, but the underlying fundamentals and underlying results of the business are still very strong,” Bortolussi told reporters, in comments reported by RNZ.
Shareholders will collect ordinary dividends of 21 cents a share for the year, up from 20 cents. That sits on top of the special dividend of 41.36 cents a share, worth roughly $300 million, that the company declared in late June after Chinese regulators approved the transfer of two infant formula registrations to a2 branded products, and paid out in July.
The softer parts of the result were where the market had been told to expect them. Sales of China label infant formula, the highest margin part of the business, fell during the year after supply problems in the fourth quarter left shelves short and pushed some Chinese shoppers towards rival brands or towards a2’s own English label tins. The company told the market in July that those problems had largely been fixed and stock levels were back near target. Growth in English label formula, in other nutritional products and in liquid milk in Australia and New Zealand more than covered the gap. Revenue in the United States, a market a2 Milk has been grinding away at for years, rose by close to 29 percent and the American business broke even in the second half.
Bortolussi framed the Pōkeno purchase as the fix for the supply weakness that hurt the company this year. “The successful acquisition and transformation of a2 Pōkeno is a significant step in strengthening our supply chain and enabling growth with the launch of two new China label infant milk formula products planned for the first half of FY27,” he said.
On the year ahead, he said revenue and underlying earnings were both expected to grow, “supported by increased contribution from product innovation and new markets, continued momentum in Other Nutritionals and Liquid Milk, and a2 Pōkeno profitability improvement”. The company warned that the recovery in China would be gradual and that growth would be weighted heavily to the second half of the year, and it listed a long run of risks around that forecast, from competitive intensity and cross border trade to currency movements, the farmgate milk price and the conflict in the Middle East.
Investors took the cautious tone badly. a2 Milk shares fell as low as $7.39 during Monday morning, more than 10 percent below Friday’s close of $8.23, before clawing back some ground to trade around $7.89 by mid afternoon, still down about 4 percent on the day.
Sitting behind the numbers was a second story the company would not discuss. Reports published on Monday, originating with The Australian, suggested a2 Milk and Fonterra were working together on a plan to take Synlait Milk private. Synlait, which has had several rough years, responded with a statement to the New Zealand Exchange saying it was “not involved in any discussions with The a2 Milk Company or Fonterra regarding the matters referred to in those reports”, according to RNZ. Fonterra and a2 Milk both declined to comment on market speculation.
Asked about it at the results briefing, Bortolussi said only that “we have a great relationship with both companies, with Fonterra and Synlait”, and pointed instead at the plant his company has just bought. “Also I would add that our acquisition of the a2 Pōkeno facility in the North Island of New Zealand and the hundreds of millions of dollars that we’re investing in that facility and its capital upgrade program is indicative of our strategy going forward,” he said.
The two companies are already tied together. a2 Milk owns just under 20 percent of Synlait, and Synlait’s Dunsandel plant in Canterbury holds the Chinese registration that allows a2’s China label formula to be made and sold there. Synlait reported a loss of $80.6 million for the six months to late January with debt of $472.1 million, and last year sold its North Island operations for $307 million to take pressure off its balance sheet.
For a company that sells almost all of its product offshore and makes most of it here, the year’s two plant deals matter more than the wobble in the profit line. a2 Milk has swapped a Southland plant it did not need for a bigger northern one it says it does, and it now owns the capacity to make the formula that earns it the most money. Whether that removes its dependence on Synlait, or simply makes the case for buying the rest of it, is the question the market will spend the next year answering. The full result is available on the company’s results and reports page.
What do you make of a2 Milk’s year, and should New Zealand’s biggest formula exporter own more of its own processing? Leave a comment below and tell us what you think.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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