By Stephen Wright
WELLINGTON, New Zealand – Infant formula company a2 Milk Ltd. said its first-half profits had halved as pandemic disruptions and China’s declining birth rate upended its growth plans.
The company said on Monday it could not give an accurate forecast for full-year revenue and profit, but warned that the expected improvement in revenue would not translate into higher profits as it would spend heavily more to strengthen its brand.
It had a cash position of NZ$747 million ($500 million) at the end of December, down from NZ$875 million in mid-2021, as directors pursue a strategy of trying to resurrect the company’s growth fortunes rather than returning money to shareholders.
A2 Milk’s July-December net profit of NZ$59.6 million was down 50.3% from a year earlier and revenue of NZ$660.5 million -Zealanders was 2.5% lower.
He said China’s infant formula market fell 3.3 percent in value in the first half due to the country’s declining birth rate.
A2 Milk in October had reported a prolonged period of reduced profitability after its business was affected by the Covid-19 pandemic and changes in its crucial market in China.
On Monday, the company said it would spend NZ$220 million in its current financial year on marketing and other brand investments “to drive execution of the company’s growth strategy.”
Shares of a2 Milk have fallen more than 70% since August 2020 following a series of downward earnings revisions as the pandemic caused a slump in formula sales via surrogate Chinese buyers. Its growth prospects in China have also become less certain due to a declining birth rate and the loss of appeal of foreign brands.
The company buys much of its powdered milk from New Zealand producer Synlait Milk Ltd., but last year bought a 75% stake in Mataura Valley Milk for NZ$268.5 million to to have its own production capacity.
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