a2 Milk's Supply Chain Shock Threatens a Decade of Growth
Despite double-digit revenue growth, a Q4 supply chain disruption sent China label sales down 33% and forced a cautious FY27 outlook.
ATM.NZ · Earnings Call · 2026-08-16
The FY26 Shock
The a2 Milk Company delivered its FY26 results on August 16, 2026, and the headline numbers masked a deeper problem. Revenue grew 12.4% to $1.95 billion, but the fourth quarter supply chain disruption hit China label IMF hard. CEO David Bortolussi said: “Supply chain disruption had a material impact on China IMF product availability, performance and supply chain costs, which impacted our second half group sales and earnings.” — David Bortolussi · 2026-08-16 This is a classic supply chain issue, but for a company that had been gaining share consistently, the setback is significant.
China Label: The Core Issue
The China label market share fell to 5.2% on an MAT basis by year-end, down from March levels. Li Xiao explained: “This was very much a story of 2 halves, with revenue up 6.5% in the first half and down 33% in the second half as a result of the fourth quarter supply chain disruption.” — Li Xiao · 2026-08-16 The disruption forced existing users to switch brands, and the recovery will be gradual. As David Bortolussi acknowledged, the company now operates at about 40% of its pre-disruption offtake run rate:
So to even be at 40% offtake at the moment or thereabouts, that's already a significant return in the brand, and that's improving every week.
Recovery Plan and New Products
The recovery plan is built around rebuilding trust, with a traceability tool, endorsements, and a wave of marketing. David Bortolussi noted: “Our new traceability tool has been very well received by consumers. Brand sentiment is recovering and new user recruitment conversion rates are back to or above historical levels.” — David Bortolussi · 2026-08-16 The company is investing heavily in user recruitment and new products, including two new China label products (Zhi Chu Qi Run and Zhi Chu Zhi Chun) launching in H1 FY27. These are positioned in the ultra-premium segment and will be manufactured at the a2 Pokeno facility, adding to the A2 Platinum refresh.
Financial Guidance and Margin Outlook
For FY27, the company guides for mid-single-digit revenue growth, with first-half revenue broadly flat and EBITDA margin around 15%. CFO Dave Muscat provided the building blocks: “If you think about the fact that we've called IMF to be broadly flat for next year and strong growth in the other nutritionals and liquid milk, there's quite a reasonable amount of mix dilution coming through.” — David Muscat · 2026-08-16 The first half will be materially down on PCP before improving in the second half as marketing investment ramps.
The contrast with prior calls is stark. In the February 2026 call, David Bortolussi had said: “If you have a look at our MBS share, you'll see that it took a bit of a dip during the partway through the half, but then as we came out the back end of that share returned to almost historical highs.” — David Bortolussi, Managing Director and CEO · 2025-02-17 That recovery now looks premature. The company also had previously touted its new user recruitment momentum, but the disruption has set that back.
In conclusion, a2 Milk has faced a significant operational setback, but the long-term strategy remains intact. The key question is how quickly the company can win back the lost users and whether the new products can accelerate growth. The market will be watching the AGM update in a few months for signs of progress.