ATM
20/08/2015 08:43
FLLYR
PRICE SENSITIVE
REL: 0843 HRS The a2 Milk Company Limited
FLLYR: ATM: Full Year results for period ending 30 June 2015
20 August 2015
NZX/ASX Market Release
Above expectation performance in Australia continues to provide a platform
for the Company's strategic growth initiatives
Overview - financial results for the year ended 30 June 2015
o Total revenue of $155.109 million, an increase of 40% over the prior
corresponding period (pcp)
o Net loss after tax of $2.091 million after absorbing costs associated with
the ASX listing and employee share scheme expenses (non-cash), both
non-deductible for tax
o Group operating EBITDA of $4.810 million before non-recurring costs,
representing a 35% increase on pcp. Result reflects record operating
performance in Australia and New Zealand (ANZ), complemented by investments
in growth markets in the rest of the world and corporate costs to support the
growth strategy
o Substantial growth in sales of a2 Platinum(R) infant formula across ANZ and
China with total revenue of $41.671 million, up 445% on pcp
o Increased liquid milk market share in Australia with fresh milk sales up
10% in AUD over the pcp
o International business growth continued with the launch of the a2 Milk(TM)
brand in the USA and successful repositioning into the specialty milk segment
in the UK
The a2 Milk Company (a2MC) performed ahead of plan in FY15 with the Company's
growth initiatives continuing to progress positively. The ANZ business
continued to perform very strongly with growth in both revenue and operating
earnings which was supported by a broader portfolio of products. The Company
achieved exceptional growth in a2 Platinum(R) infant formula across both ANZ
and China and, as a result, this product is emerging as a significant growth
driver for the Company. Further highlights were the launch of a2 Milk(TM) in
the State of California, USA from April 2015 and the repositioning of fresh
milk into the specialty milk segment in the UK.
Managing Director Geoffrey Babidge says, "The Company's growth initiatives
continue to progress in a very positive manner and the results of this are
now evident in the FY15 trading results. The Australian business continued to
perform very strongly and returned a record result for the region. The growth
in a2 Platinum(R) infant formula in ANZ and China was exceptional and
provides a potentially significant earnings contributor for the future. We
were also pleased with the commencement of sales activities in the USA milk
market and repositioning our product offering in the UK market."
Chairman David Hearn says, "The Company has had another successful year with
a strong underlying trading result and achievement of a dual listing on the
ASX. The achievements in FY15 have laid the foundation for continued strong
growth in both revenue and operating earnings in the year ahead."
The full year result included:
o EBITDA before inter-company charges for the ANZ operations of $30.006
million, an increase of 60% on the pcp;
o EBITDA before inter-company charges for China and other Asia totalling
($3.103) million;
o EBITDA before inter-company charges for UK and USA totalling ($12.062)
million;
o Employee share scheme expenses (non-cash) of $1.083 million;
o Non-recurring ASX listing costs of $1.681 million;
o Corporate and other costs before inter-company charges of $10.032 million;
o Income tax charge of $3.372 million
o Basic earnings per share (EPS) of (0.33c); and diluted EPS of (0.32c)
Cash on hand at year end was $6.092 million with cash outflow during the year
primarily reflecting investment in working capital to fund growth in the ANZ
business and infant formula.
As previously advised, the Board was at an advanced stage of planning an
equity raising in June 2015, to maintain the conservative approach to
managing the Company's capital position. In the context of receiving an
Expression of Interest and consistent with ASX listing rules, the Company
deferred its plans for raising additional equity. However, the Board
continues to monitor market developments with a view to maintaining an
appropriate and conservative capital structure. We have had no further
communication with either Freedom Foods Group Limited or Dean Foods Company
since we advised that the proposal in the Expression of Interest was not
compelling.
During the year the Company continued the process of Board renewal. Mr Perry
Gunner resigned as a director at the General Meeting in November, 2014. Mr
Cliff Cook, Chairman and Director since 2004, retired after 11 years with the
Company, and Mr David Mair, a Director since 2008, stepped down after 7
years. The Company has expressed its appreciation for the substantial
contribution made by those now retired directors, in particular Mr Cook who
was a driving force as Chairman from 2004. Mr David Hearn replaced Mr Cook as
Chairman, and Ms Julia Hoare was appointed Deputy Chairman.
On 31 March 2015 the Company was admitted to the Official List of the
Australian Securities Exchange (ASX), which allowed for broader investor
participation alongside the existing NZX Main Board listing. The Company has
been pleased to see an additional ~1,800 Australian investors added since
admission to the ASX, representing ~38% of shares on issue.
On the basis of the FY15 performance, and assuming current trading conditions
and trends in infant formula are sustained, the Company is forecasting strong
growth in both revenue and operating earnings in FY16. Group revenue is
forecast to increase to $267 million in FY16 (a 72% increase over the pcp)
and Group operating EBITDA to $12 million (a ~150% increase over the pcp
before non-recurring items).
Preliminary audit clearance has been obtained for these full year results
pending finalisation of the 2015 annual report.
Strategic Agenda
The Company continues to execute on its strategy of growing and broadening
the ANZ business and developing international growth opportunities in the
rest of the world. This strategy is resulting in an expansion of the product
portfolio across an increasingly global distribution framework.
Infant formula is emerging as a significant and meaningful growth driver for
the Company. This was demonstrated in the current year with revenue of
NZ$41.7 million across ANZ and China, now accounting for 27% of total
business turnover within 2 years of launch. The majority of sales occurred
within the Australian grocery and pharmacy channels, although the Company
believes a proportion may relate to products which were on-sold into China,
as is the case with other premium infant formula brands sold in domestic
markets. To foster further growth in infant formula, the Company is
broadening the portfolio and distribution of the a2 Platinum(R) brand. This
includes launching new infant formula based products and expanding
distribution routes into China by combining cross border and e-commerce
platforms with the existing Mother Baby channel to maximise consumer
accessibility in the region. Furthermore, the Company is considering a
product launch in the UK in the short to medium term.
The Company has commented previously on its intention to broaden the product
portfolio in Australia. New offerings are underway, with the introduction of
a2 Milk(TM) whole milk powder in June 2015. This is expected to have a
broader distribution rollout throughout FY16. In addition the Australian
business recently launched a2 Ice Cream(TM) in early August 2015. The Company
is optimistic about the growth prospects for these new products in Australia
and potentially in other markets over time.
The Company also expanded the a2 Milk(TM) brand into new markets during FY15.
The China business began selling a2 Milk(TM) fresh milk sourced from
Australia in August 2014 and will launch a2 Milk(TM) whole milk powder
through e-commerce and cross border distribution channels during FY16.
With the initial launch of a2 Milk(TM) into the California market in the USA
underway, the Company is looking to extend distribution into additional
states over the next 12 months.
Having successfully repositioned the UK a2 Milk(TM) brand within the premium
specialty milk segment, the Company is focussed on broadening the product
portfolio with the potential introduction of UHT milk and a2 Platinum(R)
infant formula.
Furthermore, the Company is investigating further opportunities in relation
to dairy and infant formula products, including the sale of liquid milk in
New Zealand.
ANZ
The ANZ business continued to deliver very strong revenue and earnings growth
on the prior year, with FY15 returning a record result for the region. Total
gross revenue in AUD across all product categories increased by 45% on the
pcp to $148.4 million, and Operating EBITDA before intercompany charges
totalled NZ$30.0 million. This result reflects the continued strong
performance of fresh milk combined with the exceptional growth of a2
Platinum(R) infant formula.
Australian fresh milk sales continued to achieve solid growth of 10% in AUD
on the pcp, notwithstanding increased competitor activity. This is a pleasing
growth rate driven by growing consumer awareness of the benefits of the
product, and the breadth of distribution in the retail trade. Importantly,
during FY15, gross sales for Australian fresh milk exceeded AU$100 million
for the first time - a significant achievement for the business. Grocery
channel market share now approximates 9.3% (Australian Grocery Weighted Scan
MAT as at 30 June 2015) for fresh milk in Australia.
The Company experienced a marginal decline in fresh milk gross margin, driven
by increased farm-gate raw milk prices. However, the majority of cost
increases were offset by efficiency gains at its Smeaton Grange processing
facility. The Company continues to focus on achieving processing efficiencies
with the objective of maintaining attractive gross margins.
As indicated, sales of a2 Platinum(R) infant formula in Australia exceeded
expectations in the current year. a2 Platinum(R) has recently been the
fastest growing infant formula brand in the Australian market with an
estimated 12% grocery market share for the 13 weeks ending 11 August 2015 by
value, notwithstanding only achieving ranging in a second major retailer from
November 2014. This rapid growth in demand led to stock shortages, which
impacted total sales and market share for the year. In addition, and in
response to the growing demand for a2 Platinum(R) infant formula, the Company
extended the existing range of three variants to include a fourth product in
July 2015.
Further revenue growth was achieved from new products including a full year's
revenue from a2 Cream(TM) and the launch of a2 Milk(TM) whole milk powder in
limited release within one major retailer in June 2015. The Company
experienced a positive initial consumer response to the launch of whole milk
powder, and is optimistic about future growth prospects for this product.
In response to the increasing demand for infant formula and whole milk powder
products, the Company has been active in securing new long term milk supply
contracts in New Zealand, with annual milk supply doubling to over 100
million litres.
On the basis of the strong performance in the current year, and assuming
current trading conditions and trends in infant formula are sustained, the
Company is forecasting further significant growth in revenue and EBITDA for
FY16.
China
As previously advised, the growth of a2 Platinum(R) infant formula within
China was impacted by changes in access arrangements for manufacturers and
brand owners from ANZ into China during calendar 2014. The Company's
manufacturing partner Synlait Milk achieved the new form of registration in
late September 2014 and shipments of a2 Platinum(R) infant formula to China
recommenced from December. The Company continued to invest in marketing
activity and sales support for distributors during the FY15 year in order to
build a solid foundation for future growth.
In November 2014, the Company announced changes to its supply and
distribution arrangements with China State Farm Holding Shanghai Company
(CSF). Under the revised arrangements, CSF has become the exclusive import
agent and government relations partner for a2 Platinum(R). The Company has
now assumed direct responsibility for distribution of a2 Platinum(R) in China
with an experienced local team of eight, based in Shanghai. a2 Platinum(R)
was showcased at the annual Children Baby Mother Expo (CBME) in Shanghai in
July 2015, attracting significant interest from local distributors. The
network of local distributors has grown to 25 as at August 2015 with strength
emerging across East and West China. As a direct result of these changes and
the increased exposure of the a2 Platinum(R) brand on digital platforms in
China, the Company remains very positive regarding the growth prospects in
this market.
a2 Milk(TM) fresh milk sourced from Australia was launched in China in August
2014 in premium supermarkets, through consumer subscriptions and also with
JD.com, China's largest online direct sales platform. Whilst the immediate
direct sales impact of fresh milk and also UHT milk is modest, these
initiatives will help establish the a2 Milk(TM) brand in China and broaden
the trial base.
To take further advantage of the growing e-commerce and cross-border
platforms, the Company also recently launched "The a2 Milk Company" store on
T-mall Global during July selling Australasian label a2 Platinum(R) infant
formula direct to Chinese consumers. Within its first 4 weeks of operation
there were approximately 60,000 unique visitors to the online store. It is
anticipated that further e-commerce initiatives will follow.
UK
During the financial year, the Company repositioned the a2 Milk(TM) brand in
the UK into the premium specialty milk segment away from mainstream dairy.
The strategy draws on the experiences in Australia and focuses on three key
elements - building distribution in existing accounts; increasing awareness
of the unique attributes of the product in a targeted manner; and enhancing
price positioning through new packaging formats to improve margins.
The Company has been pleased with the acceptance across the retail trade for
the new one litre pack format, with the product now represented in the
majority of supermarket accounts in the UK. The pack transition and the
associated pricing realignment have significantly improved unit gross
margins. The introduction of the new format and shift in shelf location was
dependent on the timing of retailer reviews and was completed during March
2015. New ranging in J Sainsbury stores commenced from November 2014 and
Harrods from May 2015. In addition, the Company's existing retail partners
Tesco, Waitrose, Ocado and Morrisons all progressively transitioned to the
new pack format.
The phased execution timings resulted in second half sales momentum below
expectation. Notwithstanding this, the Company is confident of achieving
positive growth in FY16 in fresh milk. Importantly, the Company has now
established a more solid brand platform for further product extensions.
The Company continues to be well supported by its supply partner M?ller
Wiseman Dairy, with packaged product consistently supplied to a high quality
standard.
USA
The a2 Milk(TM) brand launched into the Southern California region during
April 2015 and will commence its roll-out into Northern California from
September. The Company has made solid progress in building retailer
distribution and is on target to achieve approximately 65% of retail weighted
distribution in Southern California by late August. Overall initial retailer
acceptance has been high, with only one major retailer group presented to
being yet to place an order. The focus has now turned to achieving similar
distribution in Northern California.
After evaluating the early positive trends, the roll-out plans beyond
California are now focussed on building distribution across a number of
select national customers, which best align with the a2 Milk(TM) brand's
healthy and natural positioning. Already the brand is being distributed on a
nationwide basis by two of the largest natural food specialty chains in the
USA, Sprouts Farmers Market and The Fresh Market. Discussions with additional
national retailers are progressing.
In addition to expanding retail distribution with key customers, the Company
has been building internal capabilities and infrastructure to support the
roll-out plans. The Company is in the final stages of establishing national
broker relationships with an emphasis on key customer representation, along
with retail activation of the a2 Milk(TM) brand. The Company is also focussed
on building awareness and educating consumers about the digestive benefits of
a2 Milk(TM).
Pleasing progress has been made in establishing the product supply chain,
including engagement with a growing group of local farmers that fit well with
the Company's expansion plans. The Company has also established a strong
local management team based in Boulder, Colorado.
While it is early in the launch, feedback from retailers and consumers is
consistently favourable. Call centre and on-line interest continues to grow
weekly, reflecting growing consumer awareness for, and interest in, the a2
Milk(TM) brand in the USA.
Intellectual property (IP) and other matters
The Company continues to enhance and extend the scope of its comprehensive IP
portfolio and provide support for targeted research and development
associated with the benefits of the A2 protein and the absence of A1 protein.
During the final quarter of FY15, the Company filed four new provisional
patent applications relating to health benefits, physical properties and
testing methodologies for A1 protein free products. These have relevance for
both liquid and powder products.
During the year, the Company initiated a Federal court action against the
Australian Broadcasting Corporation for misleading and deceptive conduct in
relation to The Checkout program. A first directions hearing took place in
the Federal Court in mid July 2015 and the matter is proceeding according to
a Court ordered timetable.
In addition to the publication of the first human digestion trial conducted
by Curtin University (published in the European Journal of Clinical Nutrition
in August 2014), further scientific progress has been made. A US based study
published in Nutritional Biochemistry in October 2014 reports a parallel in
the intolerance effects of the A1 protein and gluten within the human gut.
Given the higher levels of dairy intolerance in China, the Company sponsored
a human clinical study in this market during the year. The results lend
further support around the digestive benefits of milk free of the A1 protein
and has been submitted for publication.
The Company continues to make progress in developing and applying its brands
consistently around the world across packaging, communication and digital
assets. Further, a number of trade mark applications achieved registration
during FY15 with a number of new filings being made across all markets.
For further information contact:
The a2 Milk Company Limited
Geoffrey Babidge
Managing Director and CEO
+61 2 9697 7000
End CA:00268725 For:ATM Type:FLLYR Time:2015-08-20 08:43:13
