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The a2 Milk Company Limited (NZX: ATM) FY21 Results and Annual Report

Thursday 26th August 2021

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The a2 Milk Company experienced a very challenging year in FY21 impacted by unprecedented levels of uncertainty and volatility due to the prolonged impact of COVID-19 and a rapidly changing China infant nutrition market. Over the past year China market growth has reduced significantly from globally high rates to be flat, and cross-border trade has been disrupted significantly which has had a profound impact on the Company’s results.

While certain areas of the business performed well, with market share gains in China label infant nutrition and Australian fresh milk, the Company was impacted by a significant decline in cross-border English label infant nutrition and other nutritional sales through daigou/reseller and e-commerce channels. This created substantial demand and supply volatility, which caused material excess inventory issues that exacerbated the impact.

In response to the dramatic change in circumstances, the Company took significant action, particularly from 4Q21, to address excess inventory issues, rebuild the management team, increase brand investment to drive demand, commence a review of its growth strategy and review options to deploy available capital. These actions have put the Company in a far better position now than it would have been otherwise to navigate the challenges ahead and enable it to return to growth in the medium term.

The Board and management are confident in the underlying fundamentals of the business and that the growth opportunity in core markets remains strong. Coupled with opportunities for product innovation, category expansion and new markets, and supported by a healthy brand and strong balance sheet, the long-term outlook is positive. However, the outlook for FY22 remains challenging and uncertain and it will take time to recover.

Key points

• Revenue and EBITDA2 margin was within the guidance range provided in May

- Revenue down 30.3% to $1.21 billion

- Earnings before interest tax depreciation and amortisation (EBITDA) down 77.6% to $123 million inclusive of $109 million in stock write-downs and $10 million in Mataura Valley Milk (MVM) acquisition costs

- EBITDA to sales margin of 10.2% or 11.1% excluding MVM acquisition costs

• Net profit after tax down 79.1% to $80.7 million (including discontinued operations)

• Actions taken from 4Q21 to address excess inventory are proving effective with channel inventory levels reducing, product freshness improving and market pricing increasing – rebalancing of channel inventory is expected to continue through 1Q22

• Executive Leadership Team appointments and Asia Pacific division reorganisation to build capability and provide more dedicated management focus completed

• Brand health metrics remain strong overall with some improvements in recent tracking research following a significant 4Q21 marketing campaign in China

• MVM acquisition and strategic partnership with China Animal Husbandry Group completed in July

• Growth strategy review underway to respond to rapidly changing China market dynamics – update to be provided at the investor strategy day in October

• The Board has carefully considered capital management initiatives and has decided not to return capital to shareholders at this point in time, preferring instead to preserve balance sheet strength having regard to market volatility and potential opportunities to reinvest in growth and supply chain

Please see the links below for details

NZX Results Announcement

Results Commentary

Annual Report

Results Presentation

Corporate Governance Statement

ASX Appendix 4E

ASX Appendix 4G

Source: The a2 Milk Company Limited



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