China marketing blitz pays dividends for A2 Milk

“It was starting to show signs of stabilisation, but it did decline,” Bortolussi said. The company has ramped up engagement with daigou resellers and has created a dedicated marketing team.

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“We’re absolutely fully engaged in supporting [them] and it’s still an important channel for us. It’s just at a market level for the reasons we’ve discussed, there’s a lot of change and shift going on … We’re considering ways that we can kind of change the model for them as well.”

China is the Auckland-headquartered company’s most important market, representing nearly half of A2’s total revenue. However, birth rates in China have been declining for several years, meaning the business will have to fight for a greater slice of a shrinking infant formula pie.

“It’s really a share game because there’s no volume growth in the market,” Bortolussi said. A2 Milk holds just 5 per cent of the China market.

“When you look at where we play in the market and how well we are positioned with that brand and execution, I think there is still significant opportunity for us to grow over time. But in essence, it’s a share game … because the market is not growing.”

E&P Financial retail analyst Phillip Kimber said that A2 Milk’s business turnaround was “on track” after swinging back to profit late last year, but said investors expected more from the company.

“Given a strong share price and only modest consensus upgrades – we expect the share price to be flat (maybe down little) post the result,” he wrote in a note to clients.

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