A2 Milk boss says China formula market in steep decline

afr.com:

A2 Milk Co boss David Bortolussi has warned that China’s infant formula market is in a steep decline and will be a more challenging place to do business this year.

The dual-listed company is heavily reliant on the Chinese market, which fell by double-digits in 2023 due to fewer newborns and lower shelf prices.

Chief executive David Bortolussi expects the China formula market to remain more challenging this year. Adam Firth

Even so, a2 Milk is still expecting low, single-digit group revenue growth, with earnings before interest, tax, depreciation and amortisation margins in-line with last year.

Mr Bortolussi told shareholders at a2 Milk’s annual meeting in New Zealand on Thursday that the Chinese market was headed for “a further double-digit decline in market value”.

A2 Milk’s share price has been dragged down by the deterioration in China, macroeconomic conditions, and global geopolitical concerns, he told investors. A2 Milk’s ASX-traded shares are down 43 per cent to $3.80 year-to-date.

However, he noted the infant formula and fresh milk player was on track to grow sales to $2 billion and improve EBITDA margins in the “teens” over the medium term, and aiming for profitability from its New Zealand-based plant within three years. A2 is counting on increasing market share.

A2 Milk only has a 5 per cent to 6 per cent share of the $30 billion formula category in China, which remains the company’s biggest growth opportunity.

New products including in kids, adult and seniors’ nutrition and liquid milk will improve the bottom line, and a2 Milk aims to expand in new markets such as the United States.

Mr Bortolussi said a2 Milk has an “incredibly strong brand in China” and is winning share in both mother and baby stores and