a2 Milk’s Supply Chain Shift: Can It Sustain Margin Gains Amid Costs?
The a2 Milk Company has reported robust half-year results with strong revenue and earnings growth, driven by gains in infant formula and liquid milk segments, alongside a strategic supply chain transformation. The company has upgraded its full-year outlook and announced a substantial special dividend, signalling confidence in its growth trajectory.
- Revenue up 18.8% to NZ$993.5 million in 1H26
- Underlying EBITDA rises 25.9% despite a2 Pokeno integration costs
- Infant Milk Formula sales grow 13.6%, led by English label products
- a2 Pokeno acquisition completed, advancing supply chain control
- FY26 outlook upgraded with mid double-digit revenue growth expected
Strong Half-Year Performance
The a2 Milk Company Limited has delivered a compelling set of interim results for the six months ending December 2025, showcasing an 18.8% increase in revenue to NZ$993.5 million and an 18.4% rise in EBITDA to NZ$155 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA), which exclude losses related to the recent a2 Pokeno acquisition, surged 25.9%, reflecting operational strength across its core segments.
Infant Milk Formula (IMF) sales were a key driver, growing 13.6% overall, with English label IMF expanding by 20.9%. This growth was supported by the a2 Genesis brand and expansion into new markets. Meanwhile, China label IMF sales increased by 6.5%, achieving record market share in key channels, underscoring the company’s strong foothold in its largest market.
Supply Chain Transformation and Strategic Acquisitions
The completion of the a2 Pokeno acquisition marks a significant milestone in a2 Milk’s supply chain transformation. This move provides the company with greater control over manufacturing and access to the lucrative China label IMF market, valued at approximately NZ$23 billion. Although a2 Pokeno incurred an EBITDA loss of $9.8 million in 1H26 due to low production volumes ahead of a product transition, the acquisition is expected to enhance profitability and operational efficiency over the medium term.
Alongside this, the divestment of Mataura Valley Milk and a new milk supply agreement with Fonterra further streamline operations, positioning the company for sustainable growth. Capital investment is underway to upgrade the Pokeno facility, supporting increased capacity and innovation.
Market Expansion and Innovation
Beyond China, a2 Milk is accelerating growth in emerging markets such as Vietnam, where revenue more than doubled in the half-year, driven by expanded distribution and product portfolio. The company is also innovating with new product launches in paediatric supplements and fortified milk powders for kids and seniors, tapping into adjacent nutrition categories.
In Australia and New Zealand, liquid milk sales grew 11.9%, buoyed by lactose-free and grassfed product innovations. The USA segment posted a 29.1% revenue increase, with improved profitability and growing market share in premium milk categories, despite ongoing regulatory reviews of infant formula products.
Upgraded Outlook and Shareholder Returns
Reflecting the strong momentum, a2 Milk has upgraded its full-year 2026 guidance, now targeting mid double-digit revenue growth and an EBITDA margin between 15.5% and 16.0%. Net profit after tax is expected to exceed the prior year’s results, supported by solid cash conversion and disciplined capital expenditure.
The company also announced plans for a $300 million special dividend, contingent on regulatory approvals related to China label registration amendments. This move signals management’s confidence in the business’s cash flow generation and long-term value creation for shareholders.
Bottom Line?
With a2 Milk accelerating growth and supply chain control, investors will watch closely as regulatory approvals and market expansions unfold.
Questions in the middle?
- How will the a2 Pokeno integration impact profitability beyond FY26?
- What are the risks and timelines associated with China label registration amendments?
- Can emerging markets like Vietnam sustain their rapid growth trajectory?
