a2 Milk meets full-year guidance but warns on China

afr.com:

The a2 Milk Company has met its lower end of guidance for double-digit revenue and earnings growth, but warns the key China market will be more challenging this year with fewer children born.

The infant formula producer, listed on the ASX and in New Zealand, also flagged that prices will remain under pressure due to an increase in competition, excess manufacturing capacity, and challenging macroeconomic conditions in the world’s biggest formula market valued at about $28 billion.

A2 Milk chief executive David Bortolussi says the China market remains very challenging due to a falling birth rate. Adam Firth

David Bortolussi, a2 Milk’s chief executive, said on Monday that despite the Chinese market shrinking in value this year, he expected to increase market share and achieve low single-digit group revenue growth and an EBITDA margin in line with last year’s 13.8 per cent.

A2 Milk posted full-year sales growth of 10.1 per cent in the year to June 30 of $NZ1.59 billion ($1.47 billion). But sales in Australia and New Zealand fell 30.2 per cent due to a change in its distribution strategy.

Group EBITDA gained 11.8 per cent to $NZ219.3 million with an EBITDA to sales margin of 13.8 per cent – virtually flat on a year ago’s 13.6 per cent.

Margins held despite an increase in marketing by 13 per cent to $NZ260 million in China, and higher administrative costs. Net profit after tax was up 26.2 per cent to $NZ155.6 million.

Mr Bortolussi warned in April that full-year revenue growth was likely to be at the low end of guidance of low double-digits, although he held firm on its profit forecasts for EBITDA margin as a percentage of sales to be flat.

He said economic conditions in China remained challenging, with the birth rate falling