A2 Milk profit halves on China slowdown but sees sales pick-up

New Zealand’s A2 Milk said on Monday its first-half profit halved as sales of its infant milk formula product continued to fall in China, but forecast second-half revenue to be significantly higher than a year ago.

The firm reported a first-half net profit after tax of NZ$56.1 million ($37.54 million), down from NZ$120 million a year ago.

The hit to its Chinese market stems from coronavirus-induced supply disruptions to its “daigou” channel, a reseller network where people outside China buy A2’s products and ship them to Chinese consumers informally.

That, along with contracting market share in China owing to declining birth rates, has caused A2 Milk shares to plunge more than 60 percent from pre-Covid-19 levels, reportedly making it a target for Canadian dairy firm Saputo Inc.

A2 said it expects sales of its Chinese label and English label infant milk formula products to pick up in the second half of the year, with inventory levels expected to improve, driving revenue growth.

However, it said it does not expect this sales growth to translate into higher profit, as it plans to spend more on its expansion strategy and it is also battling rising costs.