a2 Milk Company Limited Unsponsored ADR

Net sales revenue increased 12.4% to $1.972 billion, with gross margin at 47.7%, down 3.4 percentage points. Reported EBITDA was $284.4 million, down 2.5%, while underlying EBITDA excluding a2 Pokeno losses and transformation costs increased to $307.6 million; underlying EBITDA margin was 15.6%. NPAT from continuing operations was $208 million, or $235.8 million on an underlying basis, and underlying EPS was up approximately 7%. FY26 China label IMF revenue declined 14% to $544 million, English label IMF revenue rose 23% to $788 million, other nutritionals grew nearly 60% to $216 million, ANZ liquid milk rose 17% to $245 million, and U.S. revenue increased 29% to $179 million. For FY27, management expects mid-single-digit revenue growth, EBITDA growth, EBITDA margin of approximately 15%, first-half revenue broadly in line with last year, and materially second-half-weighted results as China IMF recovers and marketing steps up.

David Bortolussi emphasized that FY26 was broadly in line with updated guidance despite the China supply chain disruption, and he framed the year as one of broad-based growth, innovation, and supply chain transformation. He said the company remains focused on China IMF, product innovation, new markets, and supply chain execution, and highlighted that the portfolio has expanded from 8 products/markets in FY21 to a planned 36 by the end of FY27. His tone was constructive but measured, repeatedly stressing a gradual recovery in China label and a careful, trust-preserving approach to rebuilding distribution and consumer demand.

Dave Muscat broke down the margin pressure: gross margin was 47.7%, down 3.4 percentage points, driven by a2 Pokeno losses, lower China label mix, supply chain disruption costs, and higher milk and ingredient costs. He said marketing investment was $325 million and SG&A was higher due to capability build and Pokeno transformation, but noted SG&A as a percentage of sales would have been lower excluding FX losses from the New Zealand dollar devaluation. Cash flow remained solid at $133.1 million with 68% cash conversion, and the company ended with $784.5 million in cash and term deposits and no external debt. He also noted the final dividend of $0.095 per share and a payout ratio of around 74%.

Analysts pressed for more detail on FY27 margin phasing, pricing, China label recovery timing, and whether the new China label launches and supply issues would change the earnings profile. Management said most of the FY27 EBITDA margin decline versus FY25’s 16.6% would come from gross margin, mainly mix dilution and some COGS pressure, with marketing also higher in the first half; they said pricing is being taken in some areas but is not fully offsetting margin pressure. On China label, management said July offtake was around 40% of the prior run rate, recovery should be gradual through the year, and reported sales may not return to pre-crisis levels until 1H FY28; they also said winning back lapsed users is possible but takes time, especially for early-stage consumers. They added that supply-chain controls, inventory consistency, and the new Pokeno manufacturing base are key lessons and mitigants going forward.