Australian (ASX) Stock Market Forum

A2M - The A2 Milk Company

Jump to new
A2M is still in deep wood??
1645337780925.png
 
A2M share action in New Zealand this morning at about 10:30 AM


1645393924187.png


ASX ANNOUNCEMENTS TODAY

1645394194222.png


A2 Milk share price on watch after posting big earnings decline​


  • Revenue down 2.5% over the prior corresponding period to NZ$661 million
  • EBITDA down 45.3% to NZ$98 million
  • Net profit after tax down 53.3% to NZ$56 million
  • Net cash of NZ$667 million

What happened during the first half?​


For the six months ended 31 December, A2 Milk reported a 2.5% decline in revenue to NZ$661 million. This was driven by a 10.5% reduction in infant nutrition revenue to NZ$471 million, a 0.2% lift in Liquid milk revenue to NZ$125 million, and a 143.3% jump in other revenue to NZ$65 million. Other revenue includes revenue from its Mataura Valley Milk (MVM) business, which was acquired at the end of FY 2021. MVM revenue was down 8.2% year on year.

Management advised that its first half revenue was impacted by a number of factors, including the lower birth rate and rapidly changing market dynamics in China.


As was widely expected, A2 Milk’s margins were crunched during the period. Management advised that this reflects gross margin pressures, such as adverse product mix and cost headwinds, together with higher marketing investments. The latter ultimately led to the company’s EBITDA margin falling to a lowly 14.8%.


As a result, the company posted a 53.3% decline in net profit after tax to NZ$56.1 million. This has fallen short of the market consensus estimate of NZ$60 million, which may not bode well for the A2 Milk share price today.


Management commentary​


Despite this poor result, A2 Milk Company’s Managing Director and CEO, David Bortolussi, believes the company is making progress:


He said: “Despite challenging market conditions in China and COVID-19 volatility, we are making good progress stabilising the business. The growth strategy we announced in October last year to respond to a rapidly changing China market has been completed and implementation is underway with good early progress across a range of initiatives.”


“We remain confident in the long-term China infant milk formula market, and we are growing share in our China label business in-store and online with strong consumer offtake and share growth. The actions we took to address excess infant milk formula inventory last year are proving effective, and we are seeing improvements in English label channel inventory levels, market pricing and product freshness.”


While English label sales were down during the half, we have seen an improvement in trajectory in the ANZ reseller / daigou channel. Our brand health is strong, and we will continue to increase brand investment, content generation, and activation to drive awareness and conversion,” Bortolussi concluded.


Outlook​


Due to the uncertainty the company is facing, it is not providing any guidance for FY 2022. However, it has provided observations on key drivers and important issues that may impact its results.


And while management believes that its revenue could be stronger in the second half, this won’t necessarily translate into stronger earnings.


It explained: “The Company’s outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with growth now expected on 1H22 and for FY22, ahead of initial expectations due mainly to growth in China label and English label IMF. However, this revenue improvement is not expected to translate into higher earnings as the Company significantly increases brand and other reinvestment consistent with its growth strategy.”


FY 2022’s marketing investment is now expected to be in the order of NZ$220 million, which is higher than FY 2020 peak levels. This is being done to drive the execution of its growth strategy.
 
bigdog said:
A2M share action in New Zealand this morning at about 10:30 AM


View attachment 137867

ASX ANNOUNCEMENTS TODAY

View attachment 137868

A2 Milk share price on watch after posting big earnings decline​


  • Revenue down 2.5% over the prior corresponding period to NZ$661 million
  • EBITDA down 45.3% to NZ$98 million
  • Net profit after tax down 53.3% to NZ$56 million
  • Net cash of NZ$667 million

What happened during the first half?​


For the six months ended 31 December, A2 Milk reported a 2.5% decline in revenue to NZ$661 million. This was driven by a 10.5% reduction in infant nutrition revenue to NZ$471 million, a 0.2% lift in Liquid milk revenue to NZ$125 million, and a 143.3% jump in other revenue to NZ$65 million. Other revenue includes revenue from its Mataura Valley Milk (MVM) business, which was acquired at the end of FY 2021. MVM revenue was down 8.2% year on year.

Management advised that its first half revenue was impacted by a number of factors, including the lower birth rate and rapidly changing market dynamics in China.


As was widely expected, A2 Milk’s margins were crunched during the period. Management advised that this reflects gross margin pressures, such as adverse product mix and cost headwinds, together with higher marketing investments. The latter ultimately led to the company’s EBITDA margin falling to a lowly 14.8%.


As a result, the company posted a 53.3% decline in net profit after tax to NZ$56.1 million. This has fallen short of the market consensus estimate of NZ$60 million, which may not bode well for the A2 Milk share price today.


Management commentary​


Despite this poor result, A2 Milk Company’s Managing Director and CEO, David Bortolussi, believes the company is making progress:


He said: “Despite challenging market conditions in China and COVID-19 volatility, we are making good progress stabilising the business. The growth strategy we announced in October last year to respond to a rapidly changing China market has been completed and implementation is underway with good early progress across a range of initiatives.”


“We remain confident in the long-term China infant milk formula market, and we are growing share in our China label business in-store and online with strong consumer offtake and share growth. The actions we took to address excess infant milk formula inventory last year are proving effective, and we are seeing improvements in English label channel inventory levels, market pricing and product freshness.”


While English label sales were down during the half, we have seen an improvement in trajectory in the ANZ reseller / daigou channel. Our brand health is strong, and we will continue to increase brand investment, content generation, and activation to drive awareness and conversion,” Bortolussi concluded.


Outlook​


Due to the uncertainty the company is facing, it is not providing any guidance for FY 2022. However, it has provided observations on key drivers and important issues that may impact its results.


And while management believes that its revenue could be stronger in the second half, this won’t necessarily translate into stronger earnings.


It explained: “The Company’s outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with growth now expected on 1H22 and for FY22, ahead of initial expectations due mainly to growth in China label and English label IMF. However, this revenue improvement is not expected to translate into higher earnings as the Company significantly increases brand and other reinvestment consistent with its growth strategy.”


FY 2022’s marketing investment is now expected to be in the order of NZ$220 million, which is higher than FY 2020 peak levels. This is being done to drive the execution of its growth strategy.
Click to expand...
So is it becoming a buy? The company appears ripe for takeover by a Chinese company.
 
What about takeover by Saputo?

Established in 1888. Canadian dairy giant Saputo acquired an 88% stake in Jan 2014, and the remaining shares in Mar 2017

Saputo has been operating in Australia since 2014, carrying on the rich heritage and expertise we welcomed through our acquisitions. We are now the country's largest dairy processor, offering a wide variety of products like cheeses, spreads, and nutritional ingredients. Starting with the dedication and care of our patron farmers, we produce some of Australia’s best known dairy brands, including Cracker Barrel*, Devondale, King Island Dairy, Liddells, South Cape and Sungold.
 
Back to $4.37 today. The breakdown through support at $5 was not good and now that level will act as resistance. Hard to believe the share price has fallen more than $15 in less than two years.

It will have to bottom out eventually, but it is difficult to predict how low it could potentially go.

big.chart-A2M.gif
 
Opportunity or disaster?


A baby-formula shortage feeds criticism of corporate heft and price gouging
The former is a valid concern. The latter is a misleading distraction

Throughout the pandemic shoppers have learned again and again about the fragility of supply chains. In America the latest product missing from supermarket shelves is infant formula. Whereas previous shortages, affecting everything from cars to couches, presented an inconvenience to consumers, a lack of nourishment for babies creates serious health risks. So the Biden administration has swung into action. On May 16th the Food and Drug Administration (fda) announced that America would loosen restrictions on imports of formula from other countries and take steps to increase domestic production.

There are several overlapping explanations for the shortage. The biggest single
www.economist.com

A baby-formula shortage feeds criticism of corporate heft and price gouging

The former is a valid concern. The latter is a misleading distraction
www.economist.com www.economist.com
Click to expand...

Third class action launched against A2 Milk after share price crash

Trans-Tasman dairy company A2 Milk says it will “vigorously defend” an investor class action that alleges it gave misleading guidance ahead of a spectacular share price crash.

Thorn Law launched proceedings in the Auckland High Court on Wednesday on behalf of investors who are seeking compensation after suffering losses from a “significant decline” in the value of A2 Milk shares between August 19, 2020 and May 9, 2021.

During that time, A2’s shares more than halved to about $7. They have since plummeted further to $4.15 at Wednesday’s close – far off their peak of almost $20 in July 2020.

It is the third class action lobbed against the company, which has maintained it complied with its disclosure obligations “at all times”.

A2 has been struggling to recover from the Covid-fuelled collapse of the lucrative Chinese daigou – or reseller market.

At the same time, it has had significant management changes, with three chief executives in the past three years. Senior executives including its chief financial officer, Asia Pacific boss, chief technology officer and corporate affairs director have also left the company

Click to expand...




​

 
suddenly, the negativity goes away !?

A2M posted strong full-year, double-digit sales and earnings growth, met its market guidance, and plans to return $NZ150 million ($133.6 million) to shareholders in a share buyback.

up 10%. .... to $5.40

  1. Inventory management actions taken last calendar year to address excess infant milk formula (IMF) inventory have proven effective with channel inventory at target levels, product freshness amongst the best in the industry and improved market pricing
  2. Refreshed growth strategy communicated to the market in October 2021 which focused on capturing the full potential of the China market opportunity is having an impact achieving new highs in brand health metrics and record market shares
  3. Full year result for FY22 is in line with the Company’s expectations as outlined on 21 February 2022, delivering double digit revenue and earnings growth despite challenging market conditions driven by the refreshed growth strategy and improved execution
  4. Outlook for the business in FY23 is positive with continued revenue and earnings growth expected, and the Company is on track to deliver on its medium-term financial and non-financial ambitions communicated to the market at its Investor Day in October 2021 .
 
Remarkable turn around this new CEO has done a fantastic job. Big fan of him.

Bit of a noobish question but how much will a 133.6 million dollar buy back actually have on the share price in your opinion?
 
Yeah, but.
Highly variable market and time wise.

"The buyback programme is expected to commence towards the end of September 2022 and may run for up to 12 months.
The Company may acquire shares through the NZX and ASX at the prevailing market price from time to
time in that period."

BossMan. said:
Bit of a noobish question but how much will a 133.6 million dollar buy back actually have on the share price in your opinion?
Click to expand...
Not alot unless it's done at savvy occasions.
General up draught.
To me, the wording is "positive".

The SP rise "how much" in reality can't be quantified, only the representative "yield" as per io'boy post.
 
I think a dividend payout would of been appreciated, I’m not super familiar with the laws and regulations behind buy backs but they could use it conveniently to try and hold a the sp above a certain level? I.e hold it above $5 a share. I’m not fully familiar with how they work, is that a possibility?
frugal.rock said:
Yeah, but.
Highly variable market and time wise.

"The buyback programme is expected to commence towards the end of September 2022 and may run for up to 12 months.
The Company may acquire shares through the NZX and ASX at the prevailing market price from time to
time in that period."


Not alot unless it's done at savvy occasions.
General up draught.
To me, the wording is "positive".

The SP rise "how much" in reality can't be quantified, only the representative "yield" as per io'boy post.
Click to expand...
 
Sure, it's possible. Wouldn't rely on it though.
If they stage their buys when the price is depressed, they get it cheaper and might bring the price up a bit.
Catch the weak hands.

I wouldn't think they would be planning price manipulation though.
 
A2M has never paid a dividend - its highly unlikely they are about to start.

The stock was already on the way down, but IMHO the loss of the daigou channel was seen as a catalyst for the stock to fall from grace significantly. This was exacerbated by their decision to write off a heap of their formula stocks to ensure its freshness and suitability, which reinforces their brand image but was a big pill to swallow and investors didn't like it. This trend has continued until their latest data was released.

I picked up on Motley Fool today that Bell Potter upgraded the price target to 6.35 - this is a decent guide. I think it'll nudge a little higher than that, I'm thinking around 10 is a sensible 3-5 year outlook.
 
1667425912470.png


NZX Code: ATM
ASX Code: A2M

3 November 2022
NZX/ASX Market Release
FDA approval to supply infant milk formula to the United States

The a2 Milk Company (a2MC, the Company) advises that the United States (US) Food and Drug Administration (FDA) has notified the Company that it has exercised its discretion to allow a2MC to import infant milk formula (IMF) products into the US.

Following the onset of IMF supply disruption in the US, FDA Guidance was released on 16 May 2022 in relation to case-by-case consideration of enforcement discretion to be applied to companies with the goal of increasing IMF supplies. a2MC applied to the FDA on 26 May 2022 under its enforcement discretion to supply IMF to the US. As
announced by the Company on 10 August 2022, the FDA had deferred further consideration of a2MC’s application for enforcement discretion. However, the Company has continued to engage with the FDA to meet its requirements and to reconsider a2MC’s application.

Pleasingly the Company has today received confirmation from the FDA that its application for enforcement discretion to import, sell and distribute a2 Platinum® IMF product (Stages 1 and 2) from New Zealand into the US has been approved through to 6 January 2023. The Company is also able to supply Stage 3 toddler product in addition to this which does not require enforcement discretion.

New Zealand share price up 7.3% at 10:30 AM NZ time this morning
1667426174785.png
 
bigdog said:
View attachment 148768

NZX Code: ATM
ASX Code: A2M

3 November 2022
NZX/ASX Market Release
FDA approval to supply infant milk formula to the United States

The a2 Milk Company (a2MC, the Company) advises that the United States (US) Food and Drug Administration (FDA) has notified the Company that it has exercised its discretion to allow a2MC to import infant milk formula (IMF) products into the US.

Following the onset of IMF supply disruption in the US, FDA Guidance was released on 16 May 2022 in relation to case-by-case consideration of enforcement discretion to be applied to companies with the goal of increasing IMF supplies. a2MC applied to the FDA on 26 May 2022 under its enforcement discretion to supply IMF to the US. As
announced by the Company on 10 August 2022, the FDA had deferred further consideration of a2MC’s application for enforcement discretion. However, the Company has continued to engage with the FDA to meet its requirements and to reconsider a2MC’s application.

Pleasingly the Company has today received confirmation from the FDA that its application for enforcement discretion to import, sell and distribute a2 Platinum® IMF product (Stages 1 and 2) from New Zealand into the US has been approved through to 6 January 2023. The Company is also able to supply Stage 3 toddler product in addition to this which does not require enforcement discretion.

New Zealand share price up 7.3% at 10:30 AM NZ time this morning
View attachment 148769
Click to expand...
Thanks @bigdog for sharing the FDA approval news.
Market received with 7.2 % rise already.
I also read the details about increased airfreight , packaging and lower gross margin .
Is it really a gain?
US$ is going up.
General air fares from Australia to overseas have rocketed sky high.
I just paid three times airfare fare to Delhi than it was last year.
Just Google for LA from Sydney as well.
I am not a holder but a by stander.
 
Birth rate is increasing in Australia, more births, more formula, I also believe that Australia china trade relations are improving in the short term, hopefully we will see a further opening of the Daigou, I think it is also important to remember Nestle and others have looked at acquiring A2M in the past, no reason speculation couldn't start again in the next 12 months. A bit of a punt on this one.
 
BossMan. said:
Birth rate is increasing in Australia, more births, more formula, I also believe that Australia china trade relations are improving in the short term, hopefully we will see a further opening of the Daigou, I think it is also important to remember Nestle and others have looked at acquiring A2M in the past, no reason speculation couldn't start again in the next 12 months. A bit of a punt on this one.
Click to expand...
Opportunity to export to India- largest population
 

Similar threads

System
HVM - Happy Valley Nutrition
Replies
2
Views
2K
divs4ever
divs4ever
System
AN1 - Australian Nutrition & Sports
Replies
0
Views
2K
System
System
R
The 7 Moats of Quality Companies
Replies
7
Views
6K
divs4ever
divs4ever
R
The American use of War Pretext Incidents
Replies
6
Views
9K
sptrawler
sptrawler
Top