NEW ZEALAND – Premium branded dairy nutritional company, A2 Milk, has warned of weak revenue growth and challenges in China’s infant milk formula (IFM) market in the fiscal year 2024.

According to the company infant formula market is shrinking and becoming increasingly competitive as the number of newborns declines.

The number of newborns in China declined by 10.0% in 2022 to 9.6 million which is likely to decline further in 2023 having regard to various factors and data points, including socio-demographics, prevailing youth unemployment rates, recent marriage numbers and pregnancy indicators.

“The China IMF market has become increasingly challenging as a result of lower birth rates and increased competitive intensity,” said David Bortolussi, managing director and CEO.

The dairy producer expects revenue growth in the low single digits in fiscal 2024, compared with 10.1% growth at NZ$1.59 billion (US$942.87 million) in the previous fiscal year.

The overall China IMF market declined 12.1% in volume and 14.4% in value in fiscal year 2023.

The decline in BCD cities exceeded Key&A cities particularly in the second half, with Key&A market value decreasing by 13.1% in the second half of 2023 and BCD market value decreasing by 18.3%.

The market decline reflected the decrease in newborns overall, socio-demographic differences between Key&A and BCD cities, challenging macroeconomic conditions impacting retail sales, increased competitive intensity and promotional activity driven by excess industry capacity and the commencement of the market-wide transition to new GB standards.

The company’s shares dropped 60% cents to a year low of US$4.75 in mid-afternoon trading on the NZX and were the most traded stock on the market.

The infant formula producer, listed on the ASX and in New Zealand, also flagged 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 US$28 billion.

However, Bortolussi said that despite the Chinese market shrinking, 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%.

Margins held despite an increase in marketing by 13% to US$1.5 million in China, and higher administrative costs. Net profit after tax was up 26.2 per cent to US$92.14 million.

“Our China label infant formula sales exceeded English label sales for the first time, and our total infant formula sales were over US$598.5 million making us a top-three share gainer in the market overall,” Mr Bortolussi said.

In June, a2 Milk’s manufacturing partner secured approval to sell China-label infant formula in China. This removed a major concern for investors and allowed the ASX-listed group to expand sales.

Mr Bortolussi noted that the re-registration was critical to maintaining access to the domestic market.

For all the latest food industry news from Africa and the World, subscribe to our NEWSLETTER, follow us on Twitter and LinkedIn, like us on Facebook and subscribe to our YouTube channel.