A2 Milk FY20 Results (ASX: A2M)

A2 Milk FY20 Results (ASX: A2M)

A2 Milk (ASX: A2M) has reported its full-year results for FY20. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day.


Headline result

Earlier this morning, The a2 Milk Company reported a rise in revenue of 32.8% across FY20, bringing full-year revenue to NZ$1.73 billion.

The company’s EBITDA rose by a similar amount (up 32.9%) to reach a total of NZ$549.7 million. Meanwhile, net profit after tax jumped 34.1% to NZ$385.8 million.

No dividend has been declared by the company, which is in line with its historical and future pursuits to instead continue growing the business.

Trading in A2 Milk saw the company’s shares slump 6.4% on the back of its results.


Key commentary

Despite the prevalence of COVID-19 throughout A2M’s core markets, the company’s performance remained robust throughout the year. The company noted strengthening levels of consumer demand even in the midst of the pandemic, such that management believe there was a positive uplift in revenue and earnings as a result. This has been attributed to pantry stocking via online and reseller channels. Some moderation of this trend was observed in the fourth quarter of the financial year, which the company intends to monitor.

The infant nutrition segment headlined the resilience of the company’s results, with sales jumping 33.8% on the prior corresponding period to total NZ$1.42 billion. China label infant nutrition products underpinned this result, with sales roughly doubling to NZ$337.7 million. Sales of English label infant nutrition products grew at a more modest pace of 21.2%.

Sales in the liquid milk business raced higher by 29.7% to NZ$222 million across the Group. Whereas sales in the Australian market were up 14.1% to NZ$152.5 million, US sales almost doubled to NZ$66.1 million thanks to a greater brand presence across new stores and improved “sales velocity” in existing stores.

Gross margins increased to 56%, despite being constrained by a rise in the cost of goods sold (COGS) related to infant formula, and EBITDA margins across FY20 averaged 31.7%, in line with the company’s recent guidance.

Marketing expenditure came in slightly less than forecast, while net cash flow from operating activities totalled NZ$427.4 million, providing A2 Milk with a balance sheet that it describes as “robust”. There was, however, an increase in inventory on the company’s books at the end of FY20, the outcome of a decision from management to carry a “safety buffer” of stock in response to COVID-19.


Guidance outlook

Management has flagged some risk with respect to consumer behaviour in core markets, particularly if economic activity moderates further, or supply chain participants face difficulties. Nonetheless, the company expects strong revenue growth in FY21 to be driven by ongoing investment into marketing.

A2 Milk has guided for EBITDA margins in the order of 30% to 31% in FY21, which takes into account additional marketing expenditure, price increases offsetting higher raw materials and packaging costs, and the wind-back of upside from pantry stocking behaviour and foreign exchange benefits. FY21 capex has been flagged as NZ$50 million for the year ahead.

In keeping with the company’s prior medium-term target, the Board envisages EBITDA margins “in the order of 30% in the medium-term”.


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