a2 Milk (ASX:A2M) reported what CEO and Managing Director David Bortolussi described as a “very positive” first half of fiscal 2026, citing significant revenue and EBITDA growth, improved underlying margins, and progress on the company’s supply chain transformation. Management also upgraded full-year guidance and declared an interim dividend at the high end of its policy range.
First-half financial performance and dividend
CFO Dave Muscat said the company delivered net sales revenue of NZD 992.6 million, up 18.8% year-over-year, and EBITDA growth of 18.4%. On a continuing operations basis (excluding the divested MVM business), EBITDA margin was consistent with the prior year. Management highlighted stronger “underlying” performance excluding a2 Pocono, a recently acquired manufacturing facility in the U.S. that is currently underutilized and generating manufacturing losses and transformation costs.
Muscat added that reported NPAT was NZD 8.4 million, which included a discontinued operations loss of NZD 103.7 million, “almost solely” due to a NZD 103 million non-cash divestment loss related to MVM. The interim dividend totals approximately NZD 83.4 million and represents a payout ratio of about 74% of NPAT. Muscat said it will be “fully franked and unimputed” and paid on April 2.
Drivers of margin changes and cost trends
Muscat said the group’s gross margin was 48.9%, down 1.1 percentage points, primarily due to manufacturing losses at a2 Pocono ahead of the planned transition of a2 Platinum production from Synlait in the first half of calendar 2027. Excluding the temporary a2 Pocono losses, he said gross margin was “slightly up,” reflecting lower infant formula ingredients costs and a net foreign exchange benefit.
Distribution costs rose on higher freight rates and greater liquid milk volumes. Marketing investment increased to support China growth initiatives, including campaigns behind newly launched products such as a2 Genesis and Kids and Seniors fortified powders. Muscat noted marketing spend is second-half weighted and the reinvestment rate was “slightly down” in the first half. SG&A was also higher as a2 invested in China capabilities and a2 Pocono-related transformation costs.
Category performance: IMF, other nutritionals, and liquid milk
Bortolussi said infant milk formula (IMF) revenue grew 13.6%, outperforming category growth. English label IMF revenue rose nearly 21%, supported by growth in cross-border e-commerce (CBEC) and online-to-offline (O2O) channels, contributions from the a2 Genesis product, and momentum from Vietnam. China label IMF revenue grew 6.5% and management cited record market share in both mother-and-baby store (MBS) and direct online (DOL) channels.
Other nutritionals revenue accelerated 43% on a like-for-like basis, driven by Kids and Seniors innovation. Management also highlighted entry into pediatric supplements and a new Kids UHT launch. In liquid milk, revenue grew 18.5%, driven by the core range and stronger growth in lactose-free and grass-fed innovations.
Bortolussi told investors that, adjusting for foreign exchange and the inclusion of a2 Pocono sales, underlying sales growth was closer to “15-ish%,” and said innovation contributed meaningfully to that growth. He later added that “over a third” of underlying core growth in the half was driven by innovation, led by Genesis, the Kids Advanced product in China label, and the Seniors range.
China market trends, share gains, and product initiatives
Management said the China IMF market returned to growth in the half, rising 3.6% (citing Kantar). Bortolussi attributed category support to a higher number of newborns during 2024, the “Year of the Dragon,” while noting newborns in 2025 are lower. He pointed to “positive indicators” for 2026, including an 11% rise in marriage registrations and government commentary that birth rate stabilization is a national priority.
On market share, the company said it remains a top four IMF brand in China and has grown share to 8.2%. It achieved record China label share of 5.6% and remains the second-largest player in English label with “just under 20%” market share.
China label leader Dee Shao said new user recruitment remains a focus and highlighted a mid-December marketing campaign with the My Little Pony franchise aimed at the “Year of the Horse.” She said the brand moved from ninth to first in search share on Little Red Book following the campaign and stage one new user recruitment increased versus pre-campaign levels. Shao said China label stage two delivered strong growth, stage three improved, and stage four declined, though the launch of Kids products supported combined performance.
Management also discussed new product activity in China beyond IMF:
- Kids and seniors products: Shao said kids milk powder supported a turnaround in China label stage four performance and is “leading international brands” in key channels, while senior nutrition is building share in the ultra-premium segment.
- China UHT: The company soft-launched a locally sourced “case modified” UHT product into Costco and select online platforms, describing it as improving freshness and addressing consumer interest.
- Pediatric supplements: Management described the pediatric supplement category as a rapidly growing market with approximately NZD 8 billion in retail sales value. A new China label range, a2 Zhiyi, will roll out progressively in the second half with four products aimed at functional benefits such as immunity and gut health. Management said near-term sales are not expected to be material but described long-term potential as “significant.”
Outlook: upgraded guidance, special dividend, and a2 Pocono transformation
Bortolussi said the company has had a “very good start” to FY2026, with revenue trending ahead of expectations across categories and markets. The company upgraded FY2026 guidance for revenue growth to “mid double-digit %” versus FY2025 continuing operations, from “low double-digit %” previously. It also tightened EBITDA margin guidance to approximately 15.5%–16%, which management said is at the higher end of prior guidance, and expects NPAT to be up on FY2025 reported.
As previously announced, the board intends to declare a NZD 300 million special dividend, subject to regulatory approvals related to amending two existing a2 Pocono China label registrations for use under the a2 brand. Bortolussi said the amendment process is underway and “progressing well.”
On a2 Pocono, management said a dedicated transformation office was established ahead of the acquisition and that key initiatives—including China regulatory approvals, blending and canning trials, capital investments, ERP implementation, and product development—are progressing as planned, with some areas ahead of expectation. In Q&A, management said a2 Pocono recorded an EBITDA loss of NZD 9.8 million in the first half, with roughly NZD 5 million related to transformation costs in SG&A. They also said underrecoveries are expected to worsen in the second half as the facility ramps capacity ahead of transition activities.
Muscat said the company ended the period with NZD 896.9 million in cash, down NZD 164.3 million from June 2025, primarily due to NZD 168.7 million of net outflows associated with the a2 Pocono acquisition and the MVM divestment. Operating cash conversion was 91%, reflecting an inventory rebuild following manufacturing challenges at Synlait late in FY2025.
Looking further out, Bortolussi said the upgraded revenue outlook implies a2 now expects to achieve its medium-term revenue ambition of NZD 2 billion in FY2026, a year ahead of the company’s amended plan and in line with timing expectations outlined at its 2021 Investor Day.
About a2 Milk (ASX:A2M)
The a2 Milk Company Limited, together with its subsidiaries, sells A2 protein type branded milk and related products in Australia, New Zealand, China, other Asian countries, and the United States. The company also engages in the manufacturing and sale of nutritional and commodity products. It offers its products under the a2 Milk and a2 Platinum brands. The company was formerly known as A2 Corporation Limited and changed its name to The a2 Milk Company Limited in April 2014. The a2 Milk Company Limited was incorporated in 2000 and is based in Auckland, New Zealand.
