A2 Milk Company Limited · NZX:ATM
A2 Milk — The a2 Milk Company — H1 2021 Earnings Presentation
34 slides from A2 Milk's earnings presentation, Feb 25, 2021
Slide 1: Interim Results 2021
For personal use only INTERIM RESULTS 2021 Half year interim results – 25 February 2021 The a2 Milk Company Limited
Slide 2: Disclaimer
Disclaimer This presentation dated 25 February 2021 provides additional comment on the Interim Report for the 6 months ended 31 December 2020 of The a2 Milk For personal use only Company Limited (the “Company” or “a2MC”) and accompanying information released to the market on the same date. As such,
Slide 3: Agenda
For personal use only AGENDA Introduction 4 Results overview 5 Financials overview 6 Regional performance 11 Group updates 23 Outlook 26 Appendix 29
Slide 4: Managing Director and CEO David Bortolussi
MANAGING DIRECTOR AND CEO For personal use only David Bortolussi
Slide 5: Fundamentals remain strong despite significant COVID-19 disruption
Fundamentals remain strong despite significant COVID-19 disruption 1H21 challenging For personal use only • Total revenue of $677.4 million down 16.0% and EBITDA of $178.5 million down 32.2% • EBITDA margin of 26.4% (27.0% excluding MVM acquisition costs) • Challenges resulting from COVID-19 disrupt
Slide 6: Financial Overview
For personal use only FINANCIAL OVERVIEW
Slide 7: Key financials
Key financials(1) NZ$ million 1H21 1H20 % change For personal use only Revenue 677.4 805.3 (16%) • Revenue decline driven by challenges in daigou / reseller and CBEC channels, partially offset by growth in China label infant nutrition and growth in liquid milk Gross margin 340.5 460.7 (26%) • GM of
Slide 8: Decline in revenue due to daigou/reseller and CBEC challenges
Decline in revenue due to challenges in daigou/reseller and CBEC channels, partially offset by growth in China label infant nutrition and liquid milk For personal use only China & Other Asia ANZ USA segment revenue segment revenue segment revenue NZ$ millions NZ$ millions NZ$ millions Challenges in
Slide 9: Gross margin decreased to 50.3%
Gross margin decreased to 50.3% mostly reflects English-label disruption For personal use only 1H21 adverse product mix 1H21 higher proportion of 1H21 gross margin drivers higher proportion liquid milk China-label infant nutrition • Stock provision of $23.3m 5% 5% 5% 4% 2% 6% 12% 13% 13% 13% 16% 18%
Slide 10: Robust balance sheet, investment in strategic assets
Robust balance sheet, investment in strategic assets For personal use only ($79.6) million +120.0 +17.8 (147.0) (6.3) (24.3) (39.8) 854.2 774.6 Cash on hand Group NPAT Working capital Investments in Investment in Depreciation, Cash holdings Cash on hand (Jun-20) PPE & intangibles Synlait amortisatio
Slide 11: Regional Performance
For personal use only REGIONAL PERFORMANCE
Slide 12: Asia Pacific – infant nutrition: growing in largest channel
Asia Pacific – infant nutrition We are growing in the largest infant nutrition channel in China Revenue composition across infant nutrition channels China label proportion of total sales increasing For personal use only NZ$ millions 12% 11% 764.7 15% 17% 22% 25% 659.2 191.0 21% 40% 23% 20% 568.3 146
Slide 13: Strong China label infant nutrition growth
Asia Pacific – infant nutrition Strong China label infant nutrition growth in line with strategy Performance For personal use only China-label revenue growth • Sales of a2 至初® China label infant nutrition of $213.1 million; +45.2% NZ$ millions • Expanded store footprint to ~22.0k stores, up from ~19
Slide 14: Investing in brand and consumer engagement in China
Asia Pacific – infant nutrition We are continuing to invest in our brand and engage with consumers in China For personal use only Social media advertising campaign Investment in mama classes and Roadshows and in-store activations to engage in-store promotional people and build brand connection with
Slide 15: Investment in brand driving footprint and share in MBS
Asia Pacific – infant nutrition Investment in the brand driving increases in footprint and share in MBS For personal use only Expanding footprint Market value share increasing China distribution (store count ‘000) MBS value share (%)1 22.0 19.1 18.3 2.4% 16.4 2.0% 12.3 1.7% 10.0 1.3% 6.7 3.8 Jun-17
Slide 16: Challenging 1H21 for English label infant nutrition
Asia Pacific – infant nutrition Challenging 1H21 for English label infant nutrition Australian daigou/resellers and retailers English and other label infant nutrition revenue For personal use only $NZ millions 573.7 • Sales of a2 Platinum® English label infant nutrition of $209.5 million, down 40.5%
Slide 17: Plan to re-activate English label channels in 2H21
Asia Pacific – infant nutrition Plan in place for 2H21 to re-activate English label infant nutrition channels For personal use only 2H21 plan to re-activate English label channels Continuing corporate daigou incentive program and investment behind the brand Australian daigou/resellers and retailers
Slide 18: Liquid milk growing strongly
Asia Pacific – liquid milk Liquid milk growing strongly • ANZ liquid milk revenue +16.3% to $86.9 million Liquid milk revenue (Australia & China) For personal use only • Australia achieved a record market share of 11.7%1 Revenue $NZ millions • The a2 Milk™ brand continues to be the only fresh milk b
Slide 19: Other nutritional segment impacted by daigou/reseller challenges
Asia Pacific – other nutrition Other nutritional segment impacted by challenges in daigou/reseller channel For personal use only • The most significant proportion of the Company’s other nutritional products segment remains a2 Milk™ whole milk and skim milk powders, available in ANZ and China • Overa
Slide 20: USA result driven by change in execution approach
North America USA result driven by change in execution approach Chart Title For personal use only Impact of COVID-19 in the USA market overall has been significant Significantly improved EBITDA • During 2020, it was observed that consumers were becoming more value conscious • Proactively responded w
Slide 21: USA pricing at more affordable premium and in-store activation
North America USA plan positioning pricing at a more affordable premium level and stepping up in-store activation For personal use only More affordable premium pricing In-store activation Supported by digital activation 21 | 2021 Interim Results
Slide 22: Broad national distribution in over 22k stores in USA
North America Broad national distribution in over 22k stores in USA For personal use only USA distribution over time (store count) 22.3k 20.3k 17.5k 13.1k 10.0k 6.0k 3.6k 3.0k Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 22 | 2021 Interim Results
Slide 23: Group Updates
G R O U P U P D AT E S For personal use only
Slide 24: Strengthening supply chain capability with MVM investment
Continuing to strengthen our supply chain capability with MVM investment Overview For personal use only • In August, we made a non-binding indicative offer to acquire 75% of MVM for approximately $270 million, based on an enterprise value of $385 million • In December, we agreed the terms of the pro
Slide 25: Building a sustainable business for the future
Building a sustainable business for the future For personal use only • Progress establishing The a2 Impact FundTM • Working towards setting targets and metrics across our six capitals • Commenced research relationship with Sea Forest – Asparagopsis research project, aiming to reduce methane producti
Slide 26: 2H21 Plan & Outlook
For personal use only 2H21 PLAN & OUTLOOK
Slide 27: Summary of 2H21 plan
Summary of 2H21 plan Grow China label infant nutrition For personal use only • Continue to invest behind the brand and in-market capability to gain share Re-activate Australian daigou/resellers and retailers • Rebalancing inventory levels and improving traceability through the channel • Providing te
Slide 28: FY21 Outlook
FY21 Outlook • Globally there continues to be unprecedented levels of uncertainty and volatility due to COVID-19. For personal use only • The Company remains confident in the underlying fundamentals of the business and will continue to invest behind the brand and in its capability to drive long term
Slide 29: Appendix
For personal use only APPENDIX
Slide 30: Reconciliation of non-GAAP measures
Reconciliation of non-GAAP measures NZ$ million 1H21 1H20 For personal use only Australia & New Zealand EBITDA 117.5 227.9 China & Other Asia segment EBITDA 94.4 117.5 USA segment EBITDA (11.6) (30.0) Corporate EBITDA (21.7) (48.9) UK EBITDA - (3.2) EBITDA1 178.5 263.2 Depreciation/amortisation (3.2
Slide 31: Geographic segment revenue & EBITDA and product segment revenue
Strong performance in China-label and liquid milk, offset by challenges in English label and other nutritional products For personal use only Geographic segment revenue & EBITDA Product segment revenue1 China & UK Total Liquid Infant Other NZ$ million ANZ USA (Discontinued Corporate Other Asia Ops)
Slide 32: Geographic and product segment revenue performance
Geographic and product segment revenue performance UK For personal use only Revenue China & Other Total ANZ USA (discontinued (NZ$ million) Asia Group operations) Liquid milk 86.9 3.7 34.1 124.7 - Infant nutrition 209.5 316.6 - 526.1 - 1H21 Other nutritional 20.8 5.7 0.1 26.6 - TOTAL 317.2 326.0 34.
Slide 33: Capital allocation framework prioritises investment in growth
Capital allocation framework prioritises investment in growth initiatives ahead of returning capital to shareholders For personal use only Operating cash flow generation Capital funding Grow the core business in existing markets Expand the boundaries Balance sheet strength & flexibility • Investment
Slide 34: For personal use only
For personal use only www.thea2milkcompany.com