A2 Milk profits drop as pandemic impacts sales

The major hit has come from a decrease in sales of infant formula.
The major hit has come from a decrease in sales of infant formula. Photo credit: Getty

Dairy company A2 Milk has reported a sharp fall in its half-year profit because of significant disruption to its infant formula sales.

The company profit dropped 35 percent to $120 million compared with $185m the previous year, as revenue fell 16 percent to $677m in line with forecasts it made before Christmas.

The major hit has come from a decrease in sales of infant formula to Chinese students, tourists and unofficial buyers sent back to China, known as the daigou channel, and e-commerce sales through third parties to China, because of COVID-19 disruptions.

"COVID has had a lot of impact on the business. It's caused a lot of volatility which we're working our way through, but the fundamentals of the business remain really strong, and the health of the brand, the product innovation potential and the growth opportunities in core markets is really encouraging," chief executive David Bortolussi said.

He said some offset to the weaker sales channels was seen from the strong growth of its Chinese produced and labelled products.

The markets most affected were A2's core New Zealand and Australia, which were hit by the disruption to daigou sales because of closed borders.

Bortolussi said the company would look to lift the e-commerce and domestic Chinese sales, while it would maintain strong spending on marketing.

"The main priority for us is to reactivate the daigou channel and related to that the cross-border e-commerce channel and both of those channels sell our English language products and that's the main concern for us."

He said the company expected to complete the acquisition of a 75 percent stake in MatauraValley Milk (MVM) by May, but it now expected the company to run at a small loss in the short term before getting into the black.

The company forecast revenue of about $1.4 billion for the full year compared with $1.7bn the previous year.

Shares in A2 Milk's, once the most valuable company on the stock exchange, fell as much as 17 percent as a result. They have fallen more than 50 percent from their record high of August last year.