a2 Milk Company Posts 10.1% Revenue Growth, Boosts Dividend Amid Supply Chain Shifts

Robust Growth Despite Supply Challenges

The a2 Milk Company (ASX: A2M) reported a strong financial performance for the six months ended 31 December 2024, with group revenue climbing 10.1% to NZ$893.8 million. This growth was primarily driven by the China & Other Asia segment, which grew 11.8%, and the USA segment, up 13.2%. Mataura Valley Milk (MVM) also contributed with a 31.9% revenue increase. However, the Australia and New Zealand (ANZ) segment experienced a 2.7% revenue decline, largely due to ongoing weakness in the Daigou channel.

Net profit after tax attributable to owners rose 7.6% to NZ$91.7 million, reflecting the company’s ability to navigate supply constraints and increased costs. EBITDA increased 5.0% to NZ$118.9 million, though margins were slightly compressed due to airfreight expenses incurred to mitigate early 1Q25 infant milk formula (IMF) supply shortages.

Segment Highlights: China & Other Asia Lead the Charge

The China & Other Asia segment remains the cornerstone of a2 Milk’s growth story. Despite a challenging overall China IMF market, which declined 6.1% in value, a2 Milk’s English label IMF sales surged 22.7%, capitalising on strong demand in cross-border e-commerce (CBEC) and offline-to-online (O2O) channels. The company’s upgraded China label IMF product, a2 至初®, achieved a record market share of 5.3%, although growth was tempered by temporary supply constraints that have since been resolved.

Other nutritional products also performed well, with sales up 27.3%, driven by innovation and expanded product offerings targeting seniors and children. The launch of a2 Genesis™, the company’s first HMO-containing premium English label IMF product, is poised for a China market debut in the second half of FY25, signalling a strategic push into higher-margin segments.

ANZ and USA: Mixed Results but Positive Momentum

The ANZ segment faced headwinds with revenue down 2.7% and EBITDA falling 15.1%, reflecting the ongoing decline in the Daigou channel. However, the Australian liquid milk business showed resilience, with sales up 11.2% and market share gains for a2 Milk® Lactose Free. The Kyabram milk processing facility upgrade remains on track, supporting future capacity and efficiency improvements.

In the USA, revenue grew 13.2% to NZ$64.5 million, and EBITDA losses narrowed to NZ$4.9 million from NZ$8.3 million a year earlier. The company is advancing its infant formula ambitions, having submitted its New Infant Formula Notification to the FDA in 2Q25, with long-term approval targeted within the calendar year. This regulatory progress is critical for unlocking the large US market potential.

Supply Chain Transformation and Sustainability Initiatives

a2 Milk continues to transform its supply chain, including partnerships for China-based manufacturing and product innovation such as the HMO-containing a2 Genesis™. The cancellation of Synlait Milk Limited’s manufacturing exclusivity rights from January 2025 enhances supply flexibility. Sustainability efforts progressed with the commissioning of a high-pressure electrode boiler at MVM and increased recycled content in packaging.

Capital Management and Outlook

For the first time, a2 Milk established a dividend policy targeting a payout ratio of 60-80% of normalised NPAT, declaring an interim dividend of 8.5 NZ cents per share, payable in April 2025. The company’s balance sheet remains strong with net cash of NZ$1.014 billion.

FY25 guidance was upgraded, with expected revenue growth now in the low to mid double-digit range, EBITDA margin slightly improving, and operational cash conversion around 90%. The company remains cautious of risks including macroeconomic volatility, China market dynamics, and regulatory factors but is confident in its strategic trajectory.