After a turbulent couple of years, The A2 Milk Company reported double digit growth in FY22 and announced a $150 million share buyback. (All figures are in NZ dollars.)
In the last calendar year, the company managed to resolve its excess infant milk formula (IMF) inventory, a situation that cost AU$109 million in stock writedowns.
Snapshot
- Revenue: $1.4bn, up 19.8%
- Earnings before interest, tax, depreciation, and amortisation (EBITDA): $196.2m, up 59%
- Net profit after tax (NPAT): $114.7m, up 42.3%
- China label IMF sales: up 12.2%
- English label IMF sales: up 11.6%
Managing director and CEO David Bortolssi said it was a good result despite significant headwinds and he was pleased with the progress in stabilising the business.
Revenue was up 19.8 per cent due to strong growth in China & Other Asia and USA markets, along with the first-time inclusion of incremental sales from Mataura Valley Milk (MVM). Lower IMF sales in ANZ were due to deliberate changes by the company to shift focus to China & Other Asia.
EBITDA increased 59 per cent despite a 36.3 per cent increase in marketing spend and a 15.6 per cent uptick in Administrative and Other expenses. Covid negatively impacted in-market freight rates and distribution costs, particularly in the US. This all played a part in the EBITDA margin of 13.6 per cent.
A 36 per cent increase in marketing spend in China saw a five per cent increase in spontaneous brand awareness to 21 percent.
Bertolussi said the company had also embarked on a deliberate shift for its English label IMF to more transparent, performance-based, exclusive partners, resulting in a “significantly improved” share of voice in the daigou channel.
The collapse of the daigou market due to Covid was a major source of pain to a2 Milk. Data from Kantar found consumer sales in the daigou channel were down 17 percent in FY22, and that a2's market share dropped 18.7 per cent at the end of June 2022 versus previous corresponding period (pcp).
While US revenue was up 30 per cent to $82.7 million, EBITDA fell 9.4 per cent resulting in a $36.7 million loss. Significant increases in freight costs, fuel surcharges and higher raw milk costs were largely to blame.
The acquisition of Mataura Valley Milk with China Animal Husbandry Group was finalised, and a2 Milk powder manufacturing was underway. MVMrecorded an EBITDA loss of $18.8 million due to the current production mix and selling lower value milk powders on the commodity market.
This is a long game for a2 Milk, with the acquisition of 75 per cent of the business providing strategic opportunities to develop nutritional products and more channels into the China market. The goal is to be profitable by FY26.
Meanwhile, the company announced it was seeking a capital return of up to $150 million through an on-market buyback, which could run for up to 12 months. It said the buyback was considered the most appropriate form of capital management at this time.
For FY23, the company forecast high single digit revenue growth and an improved EBITDA margin.
