Friday, March 29, 2024

A2 ends boom year with $464m cash

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Australia continues as the cash driver for A2 Milk Co even while it labels China and the United States as the most important regions.
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Market share gains in infant nutrition in China and Australia were key aspects in the sharp growth in revenue and profit in the year ended June 30.

The British fresh milk market will be exited but otherwise A2’s momentum remains at remarkable levels with what chief executive Jayne Hrdlicka describes as step-changing investment in brand and capability for further growth.

Revenue, market-share and earnings continue to set new records.

Total revenue jumped 41% to $1.3 billion from $922.7 million a year earlier and operating earnings (Ebitda) rose at a slightly better rate of 46% to $413.6m from $283m. The after-tax profit rose 47% to $287.7m from $195.6m.

Group operating cashflow was $289m, leading to a whopping $464.8m of cash and no borrowings on the balance sheet at year-end. The money will be reinvested in the business, meaning still no dividend for shareholders.

Results were underpinned by growing brand awareness, expanding product distribution and strengthening in-market execution in the important Chinese and United States markets, where A2 focused “on really getting to know our consumers and sales channels”, Hrdlicka said.

Strongest growth was made in infant nutrition sales, up 47% to $1.1b.

Australia and New Zealand (overwhelmingly the Australian market) revenues were $842.7m, nearly 65% of the group total. On that sales growth, Ebitda jumped 48%  to $388.2m, more than 93% of the group total. Australian cashflows have paid for the market development in other regions and that shows no sign of changing.

The results of that are Chinese sales up 74% to $405.7m and Ebitda up 52% to $123.9m.

A2 now has 13,100 stores across the US selling its fresh milk, more than double the figure of a year earlier. Revenue rose to $34.6m from $13.3m and the costs of developing the market showed up in the Ebitda loss of $44m. Research shows brand development is progressing well and consumer loyalty is high, Hrdlicka said.

British sales rose and the business had positive Ebitda but the market remains challenging so the company has decided it is not of sufficient enough scale to continue, allowing resources to focus on the core regions.

Hrdlicka said A2 Platinum infant formula producer Synlait met increased demand in Australia and China during the year and the two teams are working closely together. A2 continues to have a 17.4% shareholding in Synlait.

A2 has also formed a strategic relationship with Fonterra for NZ and new markets. A2 has started taking ingredients from Fonterra and the groups are working to commercialise the next wave of opportunities.

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