A2 Milk Company Limited · NZX:ATM
A2 Milk — The a2 Milk Company — H1 2024 Earnings Presentation
60 slides from A2 Milk's earnings presentation, Feb 19, 2024
Slide 1: 2024 Interim Results
For personal use only The a2 Milk Company Limited 2024 INTERIM RESULTS We pioneer the future of Dairy for good 19 February 2024
Slide 2: Disclaimer
Disclaimer 2 R E S U L T S This presentation dated 19 February 2024 provides additional factors, many of which are beyond the control of the Company and For personal use only I N T E R I M commentary on the financial results for the 6 months ended which may cause actual results, performance or achie
Slide 3: Agenda
For personal use only Agenda Results overview 4 and strategy update Financial overview 21 Regional and 29 product performance Appendix 57
Slide 4: Strong execution delivering positive interim result
Strong execution delivering positive interim result 4 R E S U L T S Delivered a positive interim result with 3.7% revenue growth 1 and 5.0% EBITDA1 growth For personal use only I N T E R I M Grew total IMF sales despite a double-digit decline in the 2 China IMF market 2 0 2 4 Achieved top-5 China IM
Slide 5: Revenue and earnings growth ahead of plan
Revenue and earnings growth ahead of plan 5 R E S U L T S Key financials • Interim result ahead of Company plan Revenue; $ millions - Revenue growth of 3.7% to $812.1 million For personal use only I N T E R I M - EBITDA up 5.0% to $113.2 million with an EBITDA margin of 13.9% (up 0.2ppts) - Net prof
Slide 6: Result underpinned by important operational achievements (1/2)
Result underpinned by important operational achievements (1/2) 6 R E S U L T S Total IMF For personal use only I N T E R I M • Delivered total IMF sales growth of 1.5% in a challenging China IMF market down 13.6% • Achieved top-5 brand position in China IMF market overall • Improved key business hea
Slide 7: Result underpinned by important operational achievements (2/2)
Result underpinned by important operational achievements (2/2) 7 R E S U L T S Other nutritionals For personal use only I N T E R I M • Accelerated growth in other nutritional products up 48.5% largely sourced from MVM • Developed new fortified EL adult milk powder products expected to launch in 2H2
Slide 8: New China label IMF product transition ahead of plan
New China label IMF product transition ahead of plan 8 R E S U L T S • Received approval from SAMR on 6 June 2023 for re-registration of the New a2 至初® product For personal use only I N T E R I M Company’s China label IMF product a2 至初® under new GB standard • SAMR approval allows Synlait to manufac
Slide 9: GB registration process has reduced the number of brands in market
GB registration process has reduced the number of brands in market by 9 R E S U L T S ~20% with a shift towards local brands, but less so by value Market structure by number of CL products1 MBS market structure by retail sales value For personal use only I N T E R I M Total = 100% 2 0 2 4 Dec-22 Tot
Slide 10: China IMF market challenging but showing early signs of stabilisation
China IMF market challenging but showing early signs of stabilisation 10 R E S U L T S • CY23 number of newborns in China1 reflects an improvement in trajectory over Newborns in China1 the past several years, positive outlook for CY24 but longer term uncertain. Stage 1 volume trend for the market ha
Slide 11: a2MC brand positioning and growth strategy driving strong performance
a2MC brand positioning and growth strategy driving strong 11 R E S U L T S performance in a challenging market For personal use only I N T E R I M • A1-free category leadership as the pioneer and innovator in A1 protein free milk, allowing more consumers to enjoy its unique 1 digestive and other pot
Slide 12: Key segment trends also support a2MC growth
Key segment trends also support a2MC growth 12 R E S U L T S a2MC China label competes in the Ultra Premium segment A2 protein segment continues to gain share in the category For personal use only I N T E R I M MBS value sales by price segment1,2,3 A2 protein segment % value share of channel1,4 2 0
Slide 13: Brand health and market share continued to improve
Brand health and market share continued to improve 13 R E S U L T S a2MC China brand health metrics1 a2MC China label IMF market share Unprompted awareness DOL value share3 For personal use only MBS value share2 I N T E R I M 2 0 2 4 a2MC English label IMF market share Brand used most often Total En
Slide 14: a2MC being a top-5 brand in the China IMF market
Resulting in a2MC being a top-5 brand in the China IMF market 14 R E S U L T S Total IMF market value share by brand1 For personal use only I N T E R I M 2 0 2 4 2 2 China label IMF market value share by brand1 English label IMF market value share by brand1 1 Kantar Worldpanel 0-6 years old Baby & K
Slide 15: Brand concentration continued to increase
Brand concentration continued to increase with the top-5 brands now 15 R E S U L T S representing over 50% of the market IMF market value share by brand1 For personal use only I N T E R I M 2 0 2 4 74.2% 72.7% Top 10 2 69.7% 66.2% 52.0% 49.7% Top 5 45.1% 46.3% 2 1 Kantar Worldpanel 0-6 years old Bab
Slide 16: Revenue growth guidance for FY24 improved from prior outlook
Revenue growth guidance for FY24 improved from prior outlook 16 R E S U L T S See full outlook statement in results commentary and outlook announcement dated 19 February 2024 including market conditions and key risks For personal use only I N T E R I M Updated FY24 Outlook Revenue growth guidance fo
Slide 17: Growth strategy focused on capturing full potential of China market
Growth strategy focused on capturing full potential of China market with 17 R E S U L T S supply chain transformation a key priority For personal use only I N T E R I M Purpose We pioneer the future of Dairy for good Vision An A1-free world where Dairy nourishes all people and our planet 2 0 2 4 PEO
Slide 18: Progress towards medium-term goals reflected in measures of success
a2MC continued to make progress towards achieving medium-term 18 R E S U L T S goals reflected in measures of success For personal use only I N T E R I M PEOPLE PLANET CONSUMERS SHAREHOLDERS BRAND MARKET INNOVATION SUPPLY HEALTH SHARE CHAIN 2 0 2 4 1 2 3 4 5 6 7 Safety GHG emissions China MBS share
Slide 19: a2MC has gained share but China IMF market contracted more than expected
Whilst a2MC has gained significant share, the China IMF market has 19 contracted more than expected R E S U L T S a2MC China IMF market share gain China IMF market size reduced significantly Commentary For personal use only I N T E R I M a2MC China IMF market value share (Kantar, MAT) Kantar China I
Slide 20: Incremental revenue and EBITDA margin uplift since FY21
$415m incremental revenue and 3.6ppts EBITDA margin uplift since 20 R E S U L T S FY21 with medium-term revenue ambition timing modified Medium-term revenue and EBITDA margin ambition Areas of planned revenue growth Commentary For personal use only I N T E R I M EBITDA margin Revenue, NZ$ billions •
Slide 21: Financial Overview
For personal use only OVERVIEW FINANCIAL
Slide 22: NPAT growth of 16% driven by China sales growth
NPAT growth of 16% driven by China sales growth, SG&A leverage and 22 higher interest income – net of brand and capability investment R E S U L T S $ million1 1H24 1H23 % change Net Sales Revenue 811.1 782.0 3.7% • Net sales revenue reflects strong growth in the China & Other For personal use only I
Slide 23: Significant China & Other Asia growth
Significant China & Other Asia growth due to China label IMF expansion 23 R E S U L T S and deliberate shift of English label IMF away from ANZ segment China & Total For personal use only I N T E R I M $ million ANZ Other Asia USA MVM1 Corporate Group Revenue 162.2 549.5 56.9 43.5 - 812.1 2 0 2 4 1H
Slide 24: Growth in all branded product categories
Growth in all branded product categories with 90% of IMF sales now 24 R E S U L T S through China & Other Asia segment Net sales revenue China & Total 1 $ million ANZ Other Asia USA MVM Group For personal use only I N T E R I M IMF 54.0 509.5 0.8 - 564.3 Liquid milk2 93.3 - 56.0 - 149.3 1H24 Other n
Slide 25: Gross margin % in line with FY23
Gross margin % in line with FY23 despite pressure from higher product 25 R E S U L T S costs, FX impacts and adverse sales mix Gross margin drivers Gross margin % For personal use only I N T E R I M • Gross margin of 46.7% was down 0.9ppts vs 1H23, however in Percent of net sales revenue line with F
Slide 26: Marketing and capability investment increase
Marketing and capability investment increase in line with growth strategy 26 R E S U L T S Marketing and SG&A drivers Marketing investment increase Administrative and other expenses (SG&A) For personal use only I N T E R I M • Marketing investment in 1H24 was higher $ million $ million than both 1H2
Slide 27: Operating cash flow reflects improved cash conversion
Operating cash flow reflects improved cash conversion of 87% with net 27 R E S U L T S cash up to $792 million • Cash flows from operating activities $ million 1H24 1H23 % change For personal use only I N T E R I M ‒ Higher cash conversion of 86.8%1 (1H23: 13.5%) due to Cash flows from operating act
Slide 28: Balance sheet remains strong
Balance sheet remains strong with significant capital to support 28 R E S U L T S growth strategy $ million 1H24 2H23 % change • Cash and term deposits balance and consolidated For personal use only I N T E R I M net cash position of $792.1 million1. The slightly lower Cash and term deposits 792.1 8
Slide 29: Regional & Product Performance
For personal use only REGIONAL & PRODUCT PERFORMANCE
Slide 30: China label IMF key messages
China label IMF China label key messages 30 R E S U L T S For personal use only I N T E R I M Strategic priorities Progress Business impact • Launched new GB registered China • Continued to reach new highs in brand 1 Continue to invest in brand to label IMF product with transition ahead health metri
Slide 31: China label IMF sales growth continued through new GB transition
China label IMF China label IMF sales growth continued through new GB transition period 31 R E S U L T S Sustained growth despite market volatility and product transition China label net sales revenue For personal use only I N T E R I M • CL net revenue up 10.4% to $299.0 million $ million by half4
Slide 32: China label IMF market has been challenging recently
China label IMF China label IMF market has been challenging recently driven by the 32 R E S U L T S cumulative impact of fewer newborns and market-wide new GB transition China label IMF market declines in MBS store and online IMF market prices under pressure during GB transition For personal use onl
Slide 33: Upgraded new China label product well received by the market
China label IMF Upgraded new China label product has been well received by the market 33 R E S U L T S Formula upgrade • High-purity lactoferrin at increased levels For personal use only I N T E R I M • Contains innate nutrients such as HMO, OPN and OPO • A1 protein free fresh milk base from New Zea
Slide 34: New product launch supported by integrated campaigns
China label IMF New China label IMF product launch supported by integrated 34 R E S U L T S campaigns across all media and sales channels Significant campaign launch integrated across High impact out-of-home media For personal use only I N T E R I M traditional and digital channels to drive awarenes
Slide 35: Strong execution with MBS customers in store
China label IMF Strong execution with MBS customers in store integrated with 35 R E S U L T S marketing campaign For personal use only I N T E R I M Collaboration with key In-store displays Significant contribution from account customers and point-of-sale materials in-store promotional team 2 0 2 4
Slide 36: Impactful social content throughout the campaign
China label IMF Impactful social content throughout the campaign resulting in 36 R E S U L T S significant increase in product search across online platforms Showcasing endorsements to For personal use only I N T E R I M Messaging focused on product benefits enhance product trust 2 0 2 4
Slide 37: Activation on key online platforms
China label IMF Activation on key online platforms driving increased brand and 37 R E S U L T S product engagement Generating momentum Tmall new brand Strong focus on sales conversion For personal use only I N T E R I M across JD arrival day including via live KOL broadcasts 2 0 2 4
Slide 38: Driving further improvement in China brand health metrics
China label IMF Driving further improvement in China brand health metrics 38 R E S U L T S a2MC total brand awareness % a2MC unprompted awareness % a2MC top of mind awareness % For personal use only I N T E R I M 2 0 2 4 a2MC ever trialled % a2MC past 3 months trialled % a2MC brand used most often %
Slide 39: Growth reflected in MBS record market share
China label IMF Growth reflected in MBS record market share led by BCD cities 39 R E S U L T S National MBS value share Key&A MBS value share BCD MBS value share For personal use only I N T E R I M a2MC MBS MAT value share (%) a2MC Key&A MBS MAT value share (%) a2MC BCD MBS MAT value share (%) 2 0 2
Slide 40: Numeric and weighted distribution improved
China label IMF Numeric and weighted distribution improved with a flat store footprint 40 R E S U L T S due to store closures in market Store footprint Improvement in LFL store growth and weighted distribution For personal use only I N T E R I M a2MC China distribution (store count ‘000)1 a2MC China
Slide 41: Record market share achieved in domestic online
China label IMF Record market share achieved in domestic online (DOL), now higher 41 R E S U L T S than MBS share DOL value share Tmall and JD value share Commentary For personal use only I N T E R I M a2MC DOL MAT value share (%)1 a2MC Tmall and JD MAT value share (%)1 • Online growth outpaced offl
Slide 42: Leading share gainer in MBS and DOL channels
China label IMF Resulting in a2MC being a leading share gainer in MBS and DOL channels 42 R E S U L T S Market share movements by IMF brand in MBS channel Market share movements by IMF brand in DOL channel For personal use only I N T E R I M Change in MBS value share (% pts)1 Change in DOL value sha
Slide 43: Share gains achieved across virtually all stages
China label IMF Share gains achieved across virtually all stages in MBS and DOL 43 R E S U L T S MBS share by stage DOL share by stage Commentary For personal use only I N T E R I M MAT value share by stage1 MAT value share by stage2 • a2MC brand benefits from strong loyalty across usage stages • Wi
Slide 44: English label IMF key messages
English label IMF English label IMF key messages 44 R E S U L T S For personal use only I N T E R I M Strategic priorities Progress update Business impact • Invested in significant EL IMF brand • Continued growth in a2MC English Continue to focus on more campaign label awareness in China 1 2 0 2 4 c
Slide 45: English label sales down on prior year but stable half on half
English label IMF English label sales down on prior year but stable half on half 45 R E S U L T S Sales reflected continued channel mix shift and refined operating model ANZ English label IMF net sales revenue For personal use only I N T E R I M • English label market declined by 0.1%1 in value in 1
Slide 46: Key&A cities driving English label market stabilisation
English label IMF Key&A cities driving English label market stabilisation in 1H24, primarily 46 R E S U L T S through CBEC and O2O channels Daigou narrowed decline with O2O growth in Key&A1 CBEC maintained high growth in BCD cities1 For personal use only I N T E R I M 2 0 2 4 FY23 1H24 FY23 1H24 1 K
Slide 47: Partnership with O2O distributor Yuou
English label IMF a2MC has partnered with leading O2O distributor Yuou to expand 47 R E S U L T S ranging in Momtime and ‘long-tail’ O2O stores a2MC has formed a strategic partnership with Yuou … … expanding EL distribution in key O2O retail environments For personal use only I N T E R I M • Establi
Slide 48: English label market share stabilising across channels
English label IMF English label market share stabilising across channels with high growth in 48 emerging online channels (eg TikTok and Red) outside of CBEC R E S U L T S Total English Label market share1 CBEC market value share2 O2O and Daigou market value share1 For personal use only I N T E R I M
Slide 49: New English label IMF product a2 Gentle Gold
English label IMF First new English label IMF product since a2 Platinum® to be launched 49 R E S U L T S in 2H24 – a2 Gentle GoldTM English label portfolio strategy For personal use only I N T E R I M • Broadening a2MC’s English label IMF portfolio to appeal to more consumers • a2 Platinum® position
Slide 50: New fortified milk powder targeting Adult and Senior segments
English label IMF New fortified milk powder in a tub to be launched in 2H24 targeting 50 R E S U L T S Adult and Senior consumer segments For personal use only I N T E R I M a2TM Immune with Lactoferrin to support a healthy immune system a2TM Move with Fortigel® for bone, joint and muscle support 2
Slide 51: ANZ liquid milk key messages
ANZ liquid milk ANZ liquid milk key messages 51 R E S U L T S For personal use only I N T E R I M Strategic priorities Progress update Business impact • Leveraged new marketing channels • Achieved 18.3% combined share with 1 Maintain brand leadership to trial more ‘disruptive’ initiatives (eg a2 Mil
Slide 52: ANZ liquid milk sales supported by a2 Milk Lactose Free
ANZ liquid milk ANZ liquid milk sales supported by strong performance from 52 R E S U L T S a2 Milk® Lactose Free Australia liquid milk net sales revenue For personal use only I N T E R I M • Australia liquid milk net sales revenue increased 1.5% to $93.3 million, amidst a challenging macroeconomic
Slide 53: USA key messages
USA USA key messages 53 R E S U L T S For personal use only I N T E R I M Strategic priorities Progress update Business impact • Focused on driving consumer • Household penetration stable at 1 Educate consumers on the understanding of the A2 protein 2.2% with high loyalty rates versus 2 0 2 4 a2 Mil
Slide 54: Focus on improving profitability while investing in IMF approval
USA Focus on improving profitability while investing in long term IMF approval 54 R E S U L T S Revenue • Revenue increased 8.6% to $56.9 million For personal use only I N T E R I M • Revenue growth was mainly driven by lower trade spend due to reduced $ million2 promotional depth and frequency, and
Slide 55: MVM focused on building nutritional manufacturing capability
Mataura Valley Milk MVM remains focused on building nutritional manufacturing capability 55 R E S U L T S and reducing operating losses Revenue and EBITDA For personal use only I N T E R I M • Reported net sales revenue of $43.5 million broadly in line with 1H23 $ million1 • EBITDA loss of $15.3 mil
Slide 56: Questions
For personal use only QUESTIONS
Slide 57: Appendix
For personal use only APPENDIX
Slide 58: Reconciliation of non-GAAP measures
Reconciliation of non-GAAP measures 58 R E S U L T S $ million 1H24 1H23 For personal use only I N T E R I M Australia & New Zealand segment EBITDA 34.8 62.0 China & Other Asia segment EBITDA 135.9 111.5 2 0 2 4 USA segment EBITDA (8.3) (12.2) MVM segment EBITDA (15.3) (13.4) Corporate EBITDA (33.8)
Slide 59: a2MC glossary of terms
a2MC glossary of terms 59 R E S U L T S Acronym Meaning Acronym Meaning Acronym Meaning a2MC The a2 Milk Company Limited GAAP Generally accepted accounting principles NZD/NZ$ New Zealand Dollar For personal use only I N T E R I M ANZ Australia and New Zealand GB Guo Biao, national standards of China
Slide 60: www.thea2milkcompany.com
For personal use only www.thea2milkcompany.com