A2 Milk Outlook Dependant Upon Chinese Growth
- Large investment into US and Chinese Markets
- Positive overall outlook for FY21 dependant on growth
- Fresh Milk market share rises in Australia
In FY20, A2M performed well, with a total revenue increase of AUD1.73 billion, or a 32.8 per cent elevation. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 32.9 per cent, with net profit after tax up 34.1 per cent to AUD385.8 million.
Investments of AUD194.3 million spread across the US and China have been used in the pursuit of increased marketing to bolster the position of the company. This has helped with the increase in Group infant nutrition revenue, up by 33.8 per cent to AUD1.42 billion. Chinese infant nutrition sales have doubled to AUD337.78 million with distribution increased to around 19 000 stores. In the US, milk revenue has grown 91.2 per cent, with distribution reaching around 20 000 stores.
In the Asia-Pacific region, the ‘one brand, two labels’ product strategy continues across A2M retail and resellers to meet demand in China. This is positioned as super-premium, closely followed by the premium English label, and has become more accessible with online Chinese access. Chinese channels have attributed to 48 per cent of total infant nutrition sales in FY20.
In FY21, a challenge identified by A2M includes reseller impacts from COVID-19. Over the year, the impact is expected to lighten. There is a new incentive program that has been launching in the corporate daigou space which is forecast to stimulate demand across sales channels in the Asia-Pacific region, specifically in China. Fresh milk in Australia is performing well in Q1, with market share growing to 11.6 per cent in October, which is up 11.3 per cent in June.
Looking to the US in FY21, there has been an obvious impact on the market, with consumers becoming more value focused. This shift has seen A2 Milk broadcast advertising to focus upon in-store activation, with promotional activities speaking to this kind of market and generating gross revenue growth, with a forecast of improved EBITDA in FY21. The US is one of the largest global milk market and as such has a growing premium milk segment, continuing to provide prospects for future product innovations.
The overall outlook for FY21 is quite positive, yet the group reminds shareholders that the current conditions are marked with volatility and changing conditions may affect forecasts. The guidance in September detailed a 1H21 revenue coming to be between AUD725 and AUD775 million, with group revenue for FY21 expected to be within AUD1.80 billion and AUD1.90 billion.
The company as such has left this guidance as stated but has not reaffirmed or rescinded the figures, although they acknowledge that performance will rely upon improving the daigou channel and growth in the Chinese label business. Ultimately, Chinese growth continues and the business is fundamentally sound.
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