A2 Milk Company share price on watch after strong trading update

James Mickleboro | November 19, 2019 7:28am | More on: A2M

How has a2 Milk Company performed in FY 2020?

The fast-growing company has continued its positive form during FY 2020.

CEO Jayne Hrdlicka revealed that she expects a2 Milk to deliver revenue in the range of NZ$780 million to NZ$800 million during the first half of the financial year. This compares to NZ$613.1 million in the prior corresponding period. Which implies year on year growth of 27.2% to 30.5%.

Once again, the China market is the key driver of this growth. China label infant nutrition sales are forecast to be approximately NZ$135 million, representing a growth rate of ~84%. CBEC infant nutrition sales are forecast to be approximately NZ$155 million, representing a growth rate of ~54%

The company’s ANZ English label infant nutrition sales are growing, but at a much slower rate. These sales are forecast to be approximately NZ$350 million, which represents a growth rate of ~9%.

Also supporting its growth is its Fresh Milk business. Fresh Milk sales in the United States are expected to more than double to NZ$27 million. Whereas Australian fresh milk sales are forecast to come in at NZ$75 million, representing a growth rate of ~12%.

Margins.

There have been a lot of concerns over a2 Milk’s margins due to its increased spend on sales and marketing activities.

The good news is that margins are anticipated to be better than expected. In the first half its EBITDA margin is expected to be in the range of 31% to 32%. And while the full year EBITDA margin will be softer than this, it is also expected to be stronger than previously communicated.

This is the result of its strategic gross margin improved price yield, cost of goods sold reduction, favourable foreign exchange.

No concrete guidance has been given for the full year, but the CEO appears confident that the positive form can continue.

She said: “Overall, for FY20 we anticipate continued strong revenue growth across our key regions supported by brand and marketing investment in China and the US and the development of both capability and infrastructure to support in-market execution.”

“While we have only just begun our journey in both Greater China and the US, the results of strategic focus and investment are starting to come through. Competitive intensity will continue to increase in China and thus far we have been well prepared. Our investments are strategic and designed to build the brand, deepen our capability and create further organisational depth and resilience to thrive in this environment. This is strongly enabled by our deep sense of purpose, the passion that backs that up and importantly, our growth mindset as a team,” concluded Ms Hrdlicka