A2 Milk targets M&A opportunities after better-than-expected first half

A2 Milk has declared its first-ever dividend after a better-than-expected first half, as the company eyes new M&A and joint venture opportunities.

A2 Milk CEO David Bortolussi says the company will look to expand to M&A this year. Picture: David Rowland/One-Image.com

A2 Milk has upgraded its annual revenue guidance after a better-than-expected first half, as the dairy producer capitalises on surging demand in China and executes its broader expansion strategy.

The company declared its maiden dividend on Monday, with chief executive David Bortolussi flagging M&A opportunities in the second half of the 2025 financial year, alongside expansion into new markets following its successful entry into Vietnam.

“We’ve got an opportunity to expand our portfolio, but within that we’re also looking at M&A and joint venture opportunities to accelerate that, which is still work in progress, and I’m hopeful of making meaningful progress and having something to announce during the course,” he said.

A2 Milk declared an interim dividend of NZ8.5c per share, representing a payout of 67 per cent of net profit after tax. Mr Bortolussi said while the company remained focused on growth, it was now able to return capital to shareholders for the first time, with the potential for special dividends down the track.

“We’re still a growth company in many ways, but the business has matured a lot in terms of its scale and operating model, capability and predictability going forward,” he said.

“We have over a billion dollars on the balance sheet now, which we are mindful of. That’s been held in reserve to enable our supply chain transformation strategy.”

A 14 per cent uplift in A2 Milk’s share price to $6.78 in early trade was also driven by an increase in its full-year revenue guidance, supported by stronger-than-expected demand for English label IMF in China’s cross-border e-commerce and online-to-offline channels, as well as increased liquid milk sales in the US.

The company now expects revenue growth in the low- to mid-double-digit range, up from previous guidance of mid- to high-single digits.

China remains the centrepiece of A2 Milk’s growth strategy, with Mr Bortolussi pointing to the company’s relatively small market share in the world’s largest infant formula category.

“We still only have 7.7 per cent share of the total China infant category at retail. It’s over a $25bn market. Even though it has been declining, it’s starting to show signs of stabilising,” he said.

China is one of A2 Milk’s most important markets.

“We compete as an ultra-premium brand in the China market. We benefited from premiumisation in the category for many years. There was then devaluation in the category during the last couple of years, but we’re seeing that come back now.”

Sales of A2’s China-label formula grew despite ongoing pricing pressure in the category.

While China remains the company’s largest opportunity, A2 Milk is stepping up its international expansion, particularly in Southeast Asia and the Middle East.

The company expanded the reach of its English label to build on A2 Milk’s existing presence in emerging markets, with sales commencing for A2 Platinum IMF in Vietnam during the half, alongside the Vietnam registration of A2 Gentle Gold for launch this half, which Mr Bortolussi said would allow the group to access 60 per cent of the market.

“In the half, we entered Vietnam,” Mr Bortolussi said. “It represents many of the characteristics of the China market, obviously smaller, but there are still over a million births in Vietnam a year.”

Beyond Vietnam, A2 Milk has begun selling fresh milk in Singapore and is assessing entry points into Thailand, the Philippines and Malaysia. Mr Bortolussi said the Middle East was another horizon for the group, particularly in the infant and fortified milk powder markets.

A2 Milk has also continued to invest heavily in its supply chain, recently spending $25m on facility upgrades in partnership with High Valley. The company is also assessing additional manufacturing capacity in Australia to support future growth.

“We’re investing heavily in the facility in partnership with High Valley. It’s been a big investment,” Bortolussi said. “To enable future growth in Australia, we might need to access or develop additional manufacturing capability.”

Mr Bortolussi says it is the perfect time to return capital to shareholders in the form of a dividend.

A2 Milk posted a 10.1 per cent rise in revenue to $NZ893.8m ($805.9m) for the first half of the financial year, with English-label infant formula sales surging 13 per cent, reinforcing its growing presence in key markets.

The group reported a 7.6 per cent uplift in profit after tax of $NZ91.7m, excluding a $NZ7.7m loss from its non-controlling interest in Mataura Valley Milk. Citi analyst Sam Teeger said the result was about 10 per cent ahead of market expectations, driven by A2 Milk being the third-highest share gainer overall in the China IMF market behind Yili and Nestle.

“The result demonstrates excellent execution across the business,” Mr Teeger said.

“This is a high-quality beat, with revenue exceeding consensus by 7 per cent, excellent cash conversion, and strong execution reducing losses from the US and Mataura Valley Milk.”

Earnings before interest, taxes, depreciation, and amortisation rose by 5 per cent to $NZ118.9m on a margin of 13.3 per cent, which A2 Milk said was weighed down by $NZ8m of non-recurring incremental airfreight costs to address temporary supply constraints.

A2M shares surged in the first hour of trading on Monday to $6.90, up 16 per cent.