New Zealand’s A2 Milk Co. has pushed back a target to achieve revenue of NZ$2bn ($1.2bn) by its fiscal 2026 year.

The publicly-listed dairy and infant-formula manufacturer today (19 February) reported first-half revenue of NZ$812.1m for the six months to 31 December, its 2024 financial year.

While that was up 3.7% from a year earlier, A2 Milk cited constraints in achieving its longer-term target related to declining birth rates in the key infant-milk formula (IMF) market of China

“Whilst the company’s execution of its growth strategy overall has been in line with its expectations, and it is well positioned to achieve future growth, the China IMF market has contracted significantly more than expected at the time it set its ambition,” A2 Milk said in the results commentary, referring to October 2021 when the goal was set out.

In a filing with both the New Zealand and Australia stock exchanges, the company explained further: “The annual China birth rate has declined by 25%, which has driven the China IMF market value to decline by 23.6%.

“Covid-19 impacted cross-border channels significantly, resulting in a decline of 55.2% in the daigou channel, which was a key channel for the company in the past. This has resulted in the English label market not recovering at the speed and to the extent initially assumed.

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“Whilst the China IMF market is now showing early signs of stabilisation, it will take longer for the market to recover than initially expected due to the cumulative impact of fewer newborns and challenging market conditions.”

A2 Milk added that the revenue growth outlook for the whole of 2024 is now better than previously anticipated as it provided low-to-mid-single-digit guidance but with a downgrade to the longer-term objective.

“Whilst it remains possible for the company to achieve its medium-term revenue ambition of ~$2 billion by FY26, at this stage it is likely to be achieved by FY27 or later,” A2 Milk said.

It added: “Achieving the company’s medium-term revenue ambition of ~$2 billion by FY26 would require an additional ~$380 million in revenue growth on CY23 over the next 2.5 years. This growth would represent a compound annual growth rate of approximately 9% with higher growth required in FY25 and FY26 based on the company’s revenue guidance for FY24. which is low-to-mid single-digit percent growth.”

Elsewhere in the first-half results, A2 Milk reported EBITDA increased 5% to NZ$113.2m and net profit after tax rose 15.6% to NZ$85.3m.

A2 Milk, which has been embroiled in a contract spat with New Zealand’s Synlait Milk, said revenue growth was driven by a 16.5% increase in the China and Asia region but that was offset by a 24.1% decline in the Australia and New Zealand segment.

Revenue from the US grew 8.6% while its Mataura Valley Milk (MVM) business saw a decline of 4.7%.

By segment, IMF sales improved by 1.5%, with China labelled products up 10.4% but with English labels down 6.9%.

A2 Milk said it was “accelerating” a plan to make the formula and milk powders business MVM profitable by fiscal 2026. That company delivered a first-half EBITDA loss of NZ$15.3m, wider than NZ$13.4m a year earlier, based on revenue of NZ$43.5m.

The loss, A2 Milk said, was “due to the timing of sales in a volatile commodity and foreign-exchange environment, reduced demand from third-party customers in China, increased investment in capability (including management changes), product development trials, and investment to support future nutritional powder production”.