The a2 Milk Company’s struggles in China were clearly outlined by its 79% fall in profit and 30% fall in revenue in the 2021 financial year ended June 30.
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While China market growth is now flat, a2 Milk says sales of its China-Iabel infant formula increased 15% to $390 million.

After the numbers were announced, its share price fell 8% to $6.50, having retreated all the way from $20-plus over the past 12 months.

The dairy company vowed to keep faith in the underlying fundamentals of the business but decided not to make a share market guidance for the current financial year.

The extended fall in share price was caused by four separate downgrades of revenue and earnings guidance between September and May.

Revenue was down from $1.731 billion to $1.206b and net profit after tax fell from $386 million to $80.7m.

Earnings before interest, tax, depreciation and amortisation (Ebitda) was down 77.6% to $123m, inclusive of $109m in stock write-downs and $10m in Mataura Valley Milk (MVM) acquisition costs.

Inventory reduction had improved product freshness and increased market prices.

A strategy review was under way to respond to the changing China market dynamics and results will be presented at an investor strategy day in October.

The board decided not to return any capital to shareholders at this time to preserve the strength of the balance sheet – $875m cash on hand at balance date.

China market growth is now flat, a2 Milk said, although sales of its China-label infant formula increased 15% to $390m, to replace English label cans.

The contribution of liquid milk sales to gross margin increased from 18% to 22% and liquid milk sales in Australia were $169m, up 11%.

The daigou and reseller share of sales, from Australia and New Zealand into China by third parties, has shrunk to 43% of infant nutrition, having been 75% five years ago.

Last month, 14 of our dairy farms in Maine, as well as dozens of dairy farms across northern New England, got an unexpected and disappointing notice from Danone of North America saying that they were discontinuing their contracts with our organic dairy farmers in Maine, New Hampshire, Vermont and elsewhere.

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