Ann: 1H25 Results Announcement Date and Webcast Notification, page-38

On February 13, Nestle Group released 2024 financial results.
https://mp.weixin.qq.com/s/g0SdepgC3wusRYsuAg8zWg

How This Relates to A2 Milk (A2M)

1.China’s IMF Market Growth & Competition

•Nestlé’s high single-digit growth in baby nutrition (led by Nestlé Nene and Wyeth) signals a resilient but highly competitive Chinese IMF market.

•A2M’s performance in China depends on its ability to maintain premium positioning amid strong competitors like Nestlé and Feihe.

2.Distribution & Channel Strategies

•Nestlé’s success in China was partly due to refined distribution and channel strategies.

•A2M has been working on similar strategies (China label expansion, Daigou adjustments), but execution remains key.

3.Marketing & Margin Pressure

•Nestlé’s 40bps operating margin decline in China highlights rising marketing costs.

•A2M’s record marketing spend (~$137M) reflects similar pressures. Efficient allocation will be critical to driving sustainable growth.

4.Organic Growth & Industry Trends

•Nestlé’s global baby nutrition growth was low single-digit, indicating broader industry challenges.

•A2M’s growth (+2% YOY in China) aligns with this trend, reinforcing the need for strategic differentiation.

5.Cost-Cutting Initiatives & Market Positioning

•Nestlé’s three-year cost-cutting plan ($2.5B in savings by 2027) suggests margin defense strategies.

•A2M must balance cost efficiency with brand investment to maintain its premium appeal in China.

Key Takeaway for A2M Investors

•China remains a growth driver, but competition is intensifying.

•A2M must continue refining its distribution, pricing, and marketing strategies.

•Rising costs could pressure margins, making disciplined capital allocation crucial.

•Nestlé’s cost-cutting focus may shift competitive dynamics in the premium IMF space.

•A2M’s ability to sustain long-term value depends on execution, innovation, and market adaptation.

Further Deductions for A2M’s Upcoming Reports

1.China IMF Growth Context

•Nestlé’s high single-digit growth in baby nutrition suggests some resilience in the Chinese IMF market, despite weak consumer demand.

•A2M’s growth in China has been more modest (+2% YOY), meaning it may not have captured as much of the market expansion.

•A2M’s upcoming report could show low-to-mid single-digit China growth, but any acceleration would depend on execution.

2.Marketing & Cost Pressures

•Nestlé’s operating margin in China declined by 40bps due to higher marketing expenses, which aligns with A2M’s record $137M marketing spend.

•Expect continued margin pressure in A2M’s results, especially if marketing spend remains elevated.

•If A2M hasn’t achieved strong revenue growth to offset these costs, EBITDA margin may remain flat or decline slightly.

3.Price Competition & Channel Adjustments

•Nestlé cited intense price competition and distribution strategy refinements as key to their growth.

•A2M has been shifting focus from Daigou to direct China label sales—if executed well, this could reflect in a more stable revenue mix.

•However, if A2M has struggled with pricing power, there could be revenue pressure despite marketing efforts.

4.Sector-Wide Consumer Demand Trends

•Nestlé’s results show that Chinese consumers are still spending on premium IMF products, but the growth is modest.

•If A2M has been able to hold or grow market share, it should at least maintain its revenue trajectory.

•If consumer demand has softened further in the IMF category, A2M’s sales could be flat or slightly negative.

5.Cost Efficiency & Strategic Reinvestment

•Nestlé is launching a 3-year cost-cutting plan, signaling that big players are focusing on profitability rather than just sales growth.

•If A2M follows a similar path, we might see initiatives to improve margins and operational efficiency.

•However, if A2M continues aggressive spending, NPAT could be pressured despite revenue growth.

Final Outlook for A2M’s Next Report

•China revenue growth: Likely low single-digit to mid-single-digit, but competition could limit upside.

•Margins: Under pressure due to high marketing spend. Any decline over ~50bps in gross margin could be a red flag.

•EBITDA & NPAT: Will depend on cost management. If marketing costs remain high without strong revenue growth, expect flat or lower NPAT.

•Key Watch Areas: Revenue mix shift (China label vs. English label), price discounting trends, and any strategic cost-saving measures.

A2M needs to show evidence of revenue acceleration and operational discipline—otherwise, the market could react negatively to weaker profitability.