A2 Milk HY20 Results (ASX: A2M)

A2 Milk HY20 Results (ASX: A2M)

A2 Milk (ASX: A2M) has reported its first-half 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

Following the release of its mid-year results this morning, A2 Milk has announced a 31.6% rise in revenue to NZ$806.7m.

The company has also grown EBITDA by 20.5% to NZ$263.2m, with NPAT advancing 21.1% on last year’s comparable result to reach NZ$184.9m.

In keeping with its growth objectives, the company has not declared a dividend.


Key commentary

A2 Milk has seen strong growth across its key product segments, in addition to growth across its key geographic markets.

The infant nutrition segment of the business has underpinned the results, with sales increasing 33.1% to NZ$659.2m. Sales of China-labelled products from this division doubled, including approximately NZ$8m in orders brought forward into the half. Investment into the brand is ongoing as the company retains a leading cross-border sales position, plus a market-leading brand presence in Australia.

Elsewhere, the liquid milk division recorded sales growth of 28.7% to NZ$104.4m across both Australia and the US, with the latter contributing around one quarter of those sales. The US portion of revenue is more than double that reported in HY19. US operations are still building scale and therefore running at an EBITDA loss of NZ$30m.

Among other key metrics under the microscope, the company has delivered an EBITDA margin of 32.6%, while gross margins rose to 57.2% as improved price yields and a shift in the product mix towards infant formula both combine to underpin higher margins.

The business recorded NZ$160.6m in cash flow from operating activities, complemented by NZ$618.4m in cash and no debt. This balance sheet strength will be used to fund future growth, with the company’s distribution footprint in China and the US expanding rapidly throughout the half, and “manufacturing capacity and capability” presently being evaluated.


Guidance outlook

On the back of further investment, A2 Milk anticipates strong revenue growth across key regions. Revenue thus far in 2H20 has exceeded expectations, with demand remaining strong amid the Coronavirus.

Full-year EBITDA margin is forecast to be in the range of 29-30%, with the second-half weighing on the overall result as investment accelerates and COGS increase, while additional strategic marketing costs in China and potential supply-chain costs emerge in relation to the Coronavirus.

The Board is targeting an EBITDA margin “in the order of 30% in the medium-term”.


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