a2 Milk Faces Supply Chain Risks Amid Major Transformation and Market Challenges
The a2 Milk Company reported a robust 21% rise in net profit for FY25, driven by strong growth in China and the USA, alongside a landmark full-year dividend declaration and major supply chain restructuring.
- FY25 revenue up 13.5% to NZ$1.9 billion
- Net profit after tax rises 21.1% to NZ$202.9 million
- First full-year dividend declared at 20 NZ cents per share
- Supply chain transformation includes Yashili NZ acquisition and Mataura Valley Milk divestment
- Sustainability progress with 97% reduction in Scope 1 emissions and 98% recyclable packaging
Strong Financial Performance
The a2 Milk Company has delivered a compelling FY25 financial performance, with group revenue climbing 13.5% to NZ$1.9 billion and net profit after tax (NPAT) increasing by 21.1% to NZ$202.9 million. This growth was primarily driven by the China & Other Asia segment, which expanded 13.9%, supported by a 22.5% increase in the USA segment and a remarkable 42.7% surge in Mataura Valley Milk (MVM) sales. The Australia and New Zealand (ANZ) segment remained flat, reflecting ongoing challenges in some channels.
Market Dynamics and Product Innovation
In China, despite a modest market decline, a2 Milk achieved record market share gains, particularly in infant milk formula (IMF) categories. The company’s English label IMF sales soared 24.9%, benefiting from growth in cross-border e-commerce and offline-to-online channels. New product launches, including the premium a2 Genesis™ infant formula and fortified milk powders for kids and seniors, have resonated well with consumers, underpinning the company’s innovation-led growth strategy.
In the USA, revenue grew 22.5%, with the company narrowing EBITDA losses and increasing market share in the premium milk category. Meanwhile, the ANZ segment saw liquid milk sales rise nearly 10%, driven by lactose-free products, even as IMF reseller sales declined amid channel shifts.
Supply Chain Transformation and Strategic Moves
A significant highlight of the year was the announcement of a major supply chain transformation. a2 Milk is acquiring Yashili New Zealand, a fully integrated nutritional manufacturing facility, while divesting its Mataura Valley Milk operations. These moves aim to optimise capacity, improve financial performance, and enhance supply chain resilience. The company is also upgrading its Kyabram fresh milk facility in Australia to increase production capacity.
Sustainability and Capital Management
Sustainability remains a core focus, with a2 Milk achieving a 97% reduction in Scope 1 emissions and operating MVM on 100% certified renewable energy. Packaging sustainability efforts have resulted in 98% recyclable packaging and recognition for leadership in circular packaging solutions. On capital management, the company declared its first full-year dividend of 20 NZ cents per share, reflecting a payout ratio of approximately 71%. Looking ahead, a special dividend of NZ$300 million is planned, subject to regulatory approvals and transaction completions.
Outlook and Risks
For FY26, a2 Milk expects high single-digit revenue growth and EBITDA margins between 15% and 16%, with net profit anticipated to remain stable. Capital expenditure is forecast between NZ$50 million and NZ$70 million. However, the company acknowledges risks including macroeconomic uncertainties, evolving China IMF market dynamics, supply chain challenges, and regulatory factors that could impact performance.
Bottom Line?
With strong momentum and strategic supply chain moves underway, a2 Milk is poised for growth but must navigate evolving market and regulatory landscapes carefully.
Questions in the middle?
- How will the acquisition of Yashili New Zealand and divestment of Mataura Valley Milk impact long-term supply chain efficiency and costs?
- What is the potential effect of China’s new childcare subsidies on infant formula demand and a2 Milk’s market share?
- How will ongoing regulatory reviews, including the US FDA infant formula approval, influence a2 Milk’s expansion in the USA?
