The a2 Milk Company (ATM), having seen earnings slashed by about 80% in the year just finished, is not providing any specific financial guidance for the year to June 2022, but says the outlook "remains challenging and uncertain and it will take time to recover".
After riding high during 2020 in both share price and profit performance the company had a horror 2021 - and downgraded its earnings expectations no less than four times. Its share price, having hit the dizzying heights of $20 has been slashed by about two-thirds. The early reaction to release of its annual results saw the share price marked down 8% to about $6.50.
The results announced on Thursday were about in line with the most recent downgrade in May.
Detail of the results included:
- 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)
In the year ahead the company says although the business will continue to make significant progress on many fronts, "FY22 is expected to continue to be a challenging and volatile year".
Due to the actions taken in the fourth quarter of the 2021 financial year to address channel inventory and improve product freshness, coupled with strong brand health, the business is "well-placed to adapt its strategy and execution to drive growth in the longer term".
"However, recovery in English label channels is expected to be slow and market growth in China will be subdued for some time."
The company noted "a rapidly changing China infant nutrition market" in the financial year just gone.
"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," the company said.
The a2 Milk Company’s Managing Director and CEO, David Bortolussi said he remained "confident in the long-term opportunity that the infant nutrition market in China represents".
"We recognise that the China market and channel structure is changing rapidly and we are undertaking a comprehensive process to review our growth strategy and executional plans to respond to this new environment."
16 Comments
I wouldn't be surprised to se this happening more and more in NZ, or people will just leaving Housing is now ridiculous, and young people don't want to live in NZ and also live in high density boxes which they have to pay a million plus for. They want a bit of land and a house for the kids. There is a reason why NZ isn't having as many children. On top of high housing costs, children are also expensive in NZ as is almost everything to do with living.
The one commercial positive looking forward is that about $75 million of post tax value of inventory write-down (pre tax 109 million) , booked to 2021, was really due to over-exuberance in relation to the 2020 booked profit. Also about 7.5 million was acquisition costs relating to Mataura Valley booked as operating expenses.
But the real issue is that A2M/ATM has essentially become a brand led by marketers, rather than a category-leader of health-related A2 products.
KeithW
But the real issue is that A2M/ATM has essentially become a brand led by marketers, rather than a category-leader of health-related A2 products
Are you suggesting that A2M is focusing less emphasis on bringing needs-based innovations to market than mental availability in the consumer's mind? I don't see marketing and driving innovation in a category as mutually exclusive, but perhaps I'm not interpreting what you mean here.
J.C.,
From my perspective, the weakness in A2M/ATM is that they placed far too little emphasis on the need for ongoing relevant research and development. None of their directors since about 2008 has had a science background. They became a marketing company rather than a science-led nutriceuticals company. And they ended up with the wrong company culture with insufficient science focus for a nutriceuticals company.
KeithW
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