The A2 Milk Company (A2M)

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25 February 2021

Results 

Half Year 2021

Half Year 2020

Change

Revenue (NZ$m)

677.4

806.7

-16%

Infant nutrition revenue (NZ$m)

526.1

659.2

-20.2%

Liquid milk revenue (NZ$m)

124.7

104.4

+19.4%

ANZ segment revenue (NZ$m)

317.2

460.2

-31.1%

EBITDA margin (%)

26.4

32.6

-19%

Net profit after tax (NZ$m)

120

184.9

-35%

Interim dividend (NZ$)

-

-

-

A2 Milk (A2M) profits slide as border closures hurt daigou channel         

What happened?

  • Dairy group A2 Milk (A2M) posted a 16% slump in revenue and 35% tumble in half-year earnings as COVID-19 restrictions continued to weigh on its key daigou channel. The results were slightly below the expectations of three analysts surveyed by Bloomberg. Revenue was largely in-line with the company’s own downwardly revised revenue guidance provided on 18 December, when it flagged revenue in the order of $670m and an EBITDA [earnings before interest, tax, depreciation and amortisation] margin of ~27%. 
  • As expected, no dividend was declared. The group is yet to pay investors a distribution since making its debut on the ASX in 2015. 
Why did it happen?
  • While A2M’s liquid milk products unit posted a near 18% lift in revenue—achieving a record market share in Australia of 11.7% and more than doubling milk revenue in China—the division only accounted for less than a fifth of the group’s total revenue.  
  • A2M generates close to 80% of its revenues from the sale of infant nutrition (formula) products. The division’s revenue and margins both fell ~20% over the half as border closures hurt its key daigou/reseller channel (cross border e-commerce). Daigou is a consumer-to-consumer channel which essentially connects Chinese customers with individuals or shopping agents who purchase product in Australia and ship it to China. This was reflected in the group’s 31% decline in ANZ revenue. On a positive note, sales of its China label infant nutrition products improved by a solid 45%, increasing its market share to 2.4%. 
  • Group profit margins declined to 26.4%, which were partly impacted by higher cost of goods sold for its China label. Distribution costs increased due to higher inventory levels and higher proportion of China label sales.

Where to now?

  • A2M has downgraded its outlook for the third time in five months due to continued “unprecedented levels of uncertainty and volatility due to COVID-19,” resulting in a slower recovery in the daigou/reseller channel. A2M expects its margins to take a hit thanks to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December. 
  • It now expects group FY21 revenue in the order of $1.4bn and an EBITDA margin of 24-26%, compared to the $1.8-$1.9bn revenue and EBITDA margin of 31% which it flagged in September 2020. This was subsequently downgraded further in December, when A2M estimated group revenue of $1.4-$1.6bn and EBITDA margin of between 26-29%. 
  • A2M shares slumped about 20% in the immediate aftermath of the company’s guidance downgrade. 
 

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A2M

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