Friday, March 29, 2024

A2 rejects takeover offer

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Very strong growth on the Australian market will continue to provide funding for A2 Milk’s ambitious international expansion. In mid-April, the company said it intended to seek new capital but would continue evaluating growth opportunities and the “funding implications” involved.
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A2 provided a bullish outlook at the same time as telling the NZX and ASX markets proposals made in expressions of interest in acquiring the company were not compelling enough for the board to recommend to shareholders.

Those expressions propelled the share price much higher in June after caution from shareholders about the possibility of a capital-raising at some point. 

That view might now be back on the table and the shares fell 2c to 75c in NZX trading after the update.

On funding the business plan, A2 said “in the first instance’’ the company intended to maintain a conservative approach, with growth funded from cashflows. 

“In addition, the company has short term debt facilities in place to support working capital requirements.”

In mid-April, the company said it intended to seek new capital but would continue evaluating growth opportunities and the “funding implications” involved.

A2 had just completed its latest June 30 full year, with unaudited figures of $154 million in group revenues, up from $111m a year earlier and operating earnings (Ebitda) of $4m, the same as in 2014.

Of the sales, $149m worth were in the Australia/New Zealand region (overwhelmingly in Australia), up from $107m. 

The record $30m of Ebitda from the Australia business was used to fund developments in China and other Asian markets and in the United States and United Kingdom.

For the June 2016 year, A2 was now forecasting group sales of $267m, up from previous expectations of $230m.  

Australian sales were expected to be $216m (up 45% year-on-year) with China sales at $13m (from $3m) and $38m in the US and UK (from $2m).

Australia was expected to provide $40m in Ebitda with the cost of the other market developments reducing the final group figure to $12m.

A2 Milk was continuing to get very strong fresh milk sales growth in Australia where at June 30 it had a grocery market share of 9.3%.

It also reported good growth in sales of A2 Platinum infant formula, made in Canterbury by Synlait Milk, in both the Australian and Chinese markets.

The two markets had $41m in sales of infant formula which, as a category, was now emerging as a significant growth driver for the company, managing director Geoff Babidge said. 

A2 Platinum was the fastest growing brand in the Australia grocery market in the trading quarter ending June 7.

Babidge was “very positive’’ about prospects for infant formula in the Chinese market.

The expression of interest A2 referred to was notable because the interested parties included its own 38% shareholder, the Freedom Foods Group in Australia so there might be more to come on that and there were also other confidential approaches it was evaluating, the company said.

Forsyth Barr’s latest research report, just ahead of the A2 trading update, had an 85c price tag on the shares and suggested potential earnings growth of 70% or so over the next three years. The shares were up 30% on the 58c level they started the year at.

 

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