Revenue for the a2 Milk Company fell 16 per cent in the first half of FY21 to $677.4 million, causing its share price to trade down by more than 16 per cent to $8.76 each. But new CEO David Bortolussi remains upbeat, saying the fundamentals of the company are really strong.
The collapse of the daigou and cross-border ecommerce (CBEC) was largely to blame, while other aspects of the business performed well. China label infant nutrition product sales increased 45 per cent to 4213.1 million.
Snapshot (all figures in this article are in New Zealand dollars)
- total revenue of $677.4 million was down 16.0% and EBITDA of $178.5 million was down 32.2% resulting in EBITDA margin of 26.4% (27.0% excluding Mataura Valley Milk acquisition costs);
- challenges resulting from COVID-19 disruption experienced in the daigou/reseller channel with a flow on impact to the cross-border e-commerce (CBEC) channel – steps taken to re-activate these channels;
- strong performance in China label infant nutrition, with revenue growth of 45.2%, an increase in market value share to 2.4%, increasing in-store velocities as well as increasing distribution to 22.0k mother and baby stores (MBS);
- solid performance in liquid milk in Australia with 16.3% revenue growth driven by higher levels of in-home consumption and a record value share of 11.7%;
- changes in USA execution approach resulted in revenue growth of 22.3%, higher average velocities in key stores, distribution increasing to 22.3k stores and an improvement in EBITDA;
- continued strong investment behind the brand with $67.4 million of marketing investment in the half, building on record investment in 2H20 and supporting strong brand health metrics in key markets;
- responded to challenges by appropriately managing discretionary costs while continuing important capability investment in people, technology and infrastructure; and
- finalised binding agreements for the proposed acquisition of a 75% interest in Mataura Valley Milk (MVM), which will provide supply diversification, further strengthen relationships with key strategic partners in China, and offer access to manufacturing margins over time
Milk sales in Australia grew 16 per cent to $87 million and a change in approach in the US saw sales up 22 per cent. The company moved to more affordable pricing, in-store activation and an expanded store footprint in the US for the good result. However sales of infant formula in Australia and New Zealand fell 40.5 per cent.
A stock provision of $23.3 million, higher costs of goods sold for China label infant nutrition (including lactoferrin and tamper evident lids) and a product mix shift to liquid milk over infant nutrition caused the company’s gross margin percentage to drop to 50.3 per cent.
Its inventory was $198.6 million, $51 million higher than at the end of FY20 because of COVID-19 impacting supply chains. The collapse of daigou and CBEC channels meant the rundown of that stock was slower than expected, so the stock provision was booked in the half. It anticipates a return to normal levels in 2H21.
The company said its balance sheet remained strong, with no debt and a closing cash position of $774.6 million.
Bortolussi, who has been at the helm for two weeks, said the fundamentals of the business remain strong. He said brand health metrics were strong, there was significant growth potential in core markets, and the business had a robust balance sheet to invest in growth.
