Highlights

  • Strong demand continues across China and global IMF segments, led by premium products and marketing success
  • Supply chain disruptions—including freight, production, and regulatory delays—impact product availability
  • FY26 guidance downgraded with lower margins, weaker cash conversion, and delayed sales timing

The a2 Milk Company (NZX:ATM) has reported resilient demand across its infant milk formula (IMF) portfolio, particularly in China, but ongoing supply chain disruptions are weighing on near-term performance. Growth in China-labelled products has been supported by improved user acquisition and strong brand campaigns, while English-labelled products continue to perform well through cross-border e-commerce channels. However, a combination of freight constraints linked to geopolitical tensions, production backlogs from Synlait Milk, stricter quality testing, and extended customs clearance timelines have resulted in product shortages. These challenges are expected to impact availability through the final quarter of FY26. While largely temporary, the disruptions have forced the company to revise its full-year outlook, with weaker revenue growth, lower margins, and delayed cash flows. Despite this, a2 Milk remains committed to investing in long-term brand strength and supply chain improvements.

Why Are Supply Chain Issues Disrupting Growth? 

The company’s supply chain has come under pressure due to a convergence of external and internal challenges. Strong demand for IMF products—partly driven by competitor product recalls—has strained inventory levels. At the same time, logistics disruptions, including higher air freight costs and inconsistent sea freight capacity linked to Middle East tensions, have slowed product movement into China. Production has also been impacted by earlier manufacturing constraints at Synlait Milk, leaving a backlog of orders despite recent recovery in output. Additionally, new regulatory requirements, such as enhanced cereulide testing, have extended product release timelines. Increased customs inspections and sampling rates are further delaying distribution. These combined factors are expected to significantly affect China-labelled IMF availability, particularly in April and May, limiting the company’s ability to fully meet demand.

What Does the Revised FY26 Outlook Signal?

The a2 Milk Company has lowered its FY26 expectations as supply disruptions begin to materially affect financial performance. Revenue growth is now forecast in the low to mid double-digit range, while EBITDA margins are expected to decline to around 14.0%–14.5%. Net profit is likely to be flat or slightly lower compared to FY25, reversing earlier expectations of growth. Cash conversion has also been sharply reduced to approximately 50%, reflecting delays in product sales and receipts. While these impacts are largely timing-related, they are difficult to offset in the short term due to long supply chain lead times and proximity to year-end. The company, however, continues to invest in marketing and operational improvements, positioning itself for recovery and growth in FY27 as supply conditions stabilise.