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The a2 Milk Company Limited (NZX: ATM) 1H21 Results and Interim Report

Thursday 25th February 2021

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Result overview for the half year ended 31 December 2020 (NZ$)

• Total revenue of $677.4 million was down 16.0% and EBITDA of $178.5 million was down 32.2% resulting in EBITDA margin of 26.4% (27.0% excluding Mataura Valley Milk acquisition costs)

• Challenges resulting from COVID-19 disruption experienced in the daigou/reseller channel with a flow on impact to the cross-border e-commerce (CBEC) channel – steps taken to re-activate these channels

• Strong performance in China label infant nutrition, with revenue growth of 45.2%, an increase in market value share to 2.4%, increasing in-store velocities as well as increasing distribution to 22.0k mother and baby stores (MBS)

• Solid performance in liquid milk in Australia with 16.3% revenue growth driven by higher levels of inhome consumption and a record value share of 11.7%

• Changes in USA execution approach resulted in revenue growth of 22.3%, higher average velocities in key stores, distribution increasing to 22.3k stores and an improvement in EBITDA

• Continued strong investment behind the brand with $67.4 million of marketing investment in the half, building on record investment in 2H20 and supporting strong brand health metrics in key markets

• Responded to challenges by appropriately managing discretionary costs while continuing important capability investment in people, technology and infrastructure

• Finalised binding agreements for the proposed acquisition of a 75% interest in Mataura Valley Milk (MVM), which will provide supply diversification, further strengthen relationships with key strategic partners in China, and offer access to manufacturing margins over time

The a2 Milk Company experienced a challenging first half with revenue for the Group declining 16.0% to $677.4 million. This was driven by performance through the daigou and cross-border e-commerce (CBEC) channels being significantly impacted due to disruption resulting primarily from COVID-19 related issues. This was partially offset by another period of strong growth for China label infant nutrition products, with sales of $213.1 million, an increase of 45.2%.

Further growth in the liquid milk businesses in both Australia and the USA was achieved. Australian sales were up 16.3% to $86.9 million. Changes in the execution approach in the USA, focusing more on affordable premium pricing and in-store activation resulted in sales increasing 22.0%, driven by improved in-store velocities in established stores as well as an expanded store footprint.

The Company’s gross margin percentage6 decreased to 50.3%. This was primarily due to recognising a stock provision of $23.3 million, higher cost of goods sold for China label infant nutrition (including lactoferrin and tamper evident lid) and an adverse product mix shift with a higher proportion of liquid milk to infant nutrition sales.

Historically, the gross margin percentage for infant nutrition sales between channels has been broadly similar. However, due to different channel pricing pressures, cost of goods sold differences and foreign exchange movements, a variance in gross margin percentages between channels has emerged. China label infant nutrition has a lower gross margin percentage than English label but has a higher absolute gross margin per unit in a higher cost-to-serve channel.

EBITDA margin of 26.4% was recorded, reflecting lower revenue, a stock provision and adverse mix, although this was partially offset by the management of non-essential discretionary costs whilst continuing to invest appropriately in brand support programmes and internal capability building. Excluding Mataura Valley Milk (MVM) acquisition costs, EBITDA margin was 27.0%.



Globally there continues to be unprecedented levels of uncertainty and volatility due to COVID-19.

The Company remains confident in the underlying fundamentals of the business and will continue to invest behind the brand and in its capability to drive long term growth.

However, the pace of recovery in the daigou/reseller channel and in the CBEC channel has been slower than previously anticipated and the Company now expects revenue to be at the lower end of the previous guidance range.

A lower EBITDA margin range is now expected due to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December.

Accordingly, the Company’s FY21 outlook is now as follows:

• Group revenue for FY21 in the order of $1.4 billion

• Group EBITDA margin for FY21 of 24% to 26% (excluding MVM acquisition costs)

The outlook for FY21 assumes the actions being taken to re-activate the daigou/reseller channel deliver a significant improvement in quarter-on-quarter growth from 3Q21 to 4Q21.

Please see the links below for details:

NZX Results Announcement

HY21 Results Commentary

Interim Report - 31 December 2020

HY21 Results Presentation

ASX Appendix 4D

Source: The a2 Milk Company Limited

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