A2 Milk Company Limited · NZX:ATM
A2 Milk — The a2 Milk Company — H1 2022 Earnings Presentation
44 slides from A2 Milk's earnings presentation, Feb 21, 2022
Slide 1: 2022 Interim Results
For personal use only 2022 INTERIM RESULTS 21 FEBRUARY 2022 The a2 Milk Company Limited 1
Slide 2: Disclaimer
R E S U L T S Disclaimer For personal use only This presentation dated 21 February 2022 provides additional While all reasonable care has been taken in relation to the I N T E R I M commentary on the Interim Report for the 6 months ended preparation of this presentation, none of the Company, its 31
Slide 3: Contents
Contents For personal use only Results overview 4 Financial overview 6 Regional performance 13 Outlook 37 Questions 39 Appendix 40 3
Slide 4: 1H22 Result overview and additional updates
R E S U L T S 1H22 Result overview and additional updates1 For personal use only • Continuing challenging market conditions but making good progress in stabilising sales and expect to deliver revenue growth this year I N T E R I M • Results summary ‒ Revenue marginally lower than 1H21 in line with g
Slide 5: Recap of a2MC's refreshed growth strategy
R E S U L T S Recap of a2MC’s refreshed growth strategy with updates provided throughout For personal use only I N T E R I M Purpose To enrich lives by harnessing the nutritional wonders of nature Ambition Rebuild a2MC into an exciting, innovative and sustainable growth company 2 0 2 2 People Sustai
Slide 6: Financial Overview
For personal use only 6 FINANCIAL OVERVIEW
Slide 7: Income statement impacted by lower IMF sales, MVM and increased investment
R E S U L T S Income statement impacted by lower IMF sales, MVM and increased investment For personal use only I N T E R I M NZ$ million1 1H22 1H21 % change • Net sales revenue lower than pcp impacted by the lower birth rate and rapidly changing market dynamics in China, as well as reflecting Net Sa
Slide 8: Geographic and product segment revenue performance as expected
R E S U L T S Geographic and product segment revenue performance as expected For personal use only I N T E R I M Revenue China & Total ANZ USA MVM (NZ$ million) Other Asia Group Liquid milk 87.1 5.5 32.3 - 124.9 2 0 2 2 IMF 179.9 291.1 - - 471.0 1H22 Other 16.3 9.7 0.2 38.6 64.7 TOTAL 283.3 306.3 32
Slide 9: Gross margin of 46.2% reflecting evolving business mix
R E S U L T S Gross margin of 46.2% reflecting evolving business mix For personal use only 1H22 higher proportion of other products 1H22 higher proportion of China I N T E R I M Gross margin drivers with inclusion of MVM label IMF 4% 5% 2 0 2 2 5% 5% 5% • Gross margin percentage of 46.2% 10% includi
Slide 10: Marketing investment increased significantly consistent with growth strategy
R E S U L T S Marketing investment increased significantly consistent with growth strategy For personal use only I N T E R I M Marketing and SG&A drivers Marketing investment increased vs pcp Administrative and other expenses • Group marketing investment +37.3% NZ$ million NZ$ million 2 0 2 2 in 1H2
Slide 11: Balance sheet remains strong post MVM acquisition
R E S U L T S Balance sheet remains strong post MVM acquisition For personal use only I N T E R I M • Cash balance of $747.2 million after purchasing MVM for $268.5 NZ$ million 1H22 2H21 % change million, partially offset by net cash inflows from operating activities Cash and short-term deposits 747
Slide 12: High operating cash flow driven by working capital movements
R E S U L T S High operating cash flow driven by working capital movements For personal use only I N T E R I M • Cash flows from operating activities NZ$ million 1H22 1H21 % change Cash flows from operating activities ‒ High operational cash conversion of 130%1, driven by an improvement in non-tax w
Slide 13: Regional Performance
For personal use only REGIONAL PERFORMANCE 13 13
Slide 14: China IMF challenging market dynamics and trends continue
R E S U L T S China IMF challenging market dynamics and trends continue For personal use only • IMF market dynamics in China continue to be challenging. Following an 18.1% decrease in I N T E R I M births in 2020, there was a further 11.5% decrease in 2021 to 10.6 million1 • Several years of fewer n
Slide 15: China label IMF sales impacted by inventory rebalancing but consumer offtake strong
R E S U L T S China label IMF sales impacted by inventory rebalancing but consumer offtake strong For personal use only Strong underlying consumer demand China label net sales revenue I N T E R I M • Although 1H22 net sales revenue of a2 至初® China label infant nutrition was down NZ$ million 11.4% vs
Slide 16: Distribution expanded with improvement in like-for-like sales
R E S U L T S Distribution expanded with improvement in like-for-like sales For personal use only I N T E R I M Expanding store footprint Improvement in growth in LFL stores a2MC China distribution (store count ‘000)1 a2MC CL IMF distributor sell-out to stores (units)1 2 0 2 2 INDICATIVE 1 a2MC inte
Slide 17: Growth reflected in MBS share gains in both Key&A and BCD cities
R E S U L T S Growth reflected in MBS share gains in both Key&A and BCD cities For personal use only I N T E R I M National MBS value share Key&A MBS value share BCD MBS value share a2MC MBS MAT value share (%) a2MC Key&A 6-month MBS value share (%) a2MC BCD 6-month MBS value share (%) 2.6% 2 0 2 2
Slide 18: Increasing DOL market share with high growth in priority platforms
R E S U L T S Increasing DOL market share with high growth in priority platforms For personal use only I N T E R I M DOL value share DOL growth in priority platforms a2MC DOL MAT value share1 a2MC CL IMF distributor sell-out to priority platforms (units)2 2 0 2 2 2.1% 2.0% 2.0% 1.9% 1.6% 1.3% Jun-19
Slide 19: Share gains experienced across all stages in MBS and DOL
R E S U L T S Share gains experienced across all stages in MBS and DOL For personal use only I N T E R I M Positive growth in early stage products MBS share by stage DOL share by stage a2MC CL IMF distributor sell-out by stage (units)1 MBS MAT value share by stage (%)2 DOL MAT value share by stage (
Slide 20: Share growth supported by increased ATL and BTL brand investment
R E S U L T S Share growth supported by increased ATL and BTL brand investment For personal use only Integrated marketing campaign in 2Q22 BTL activation stepped up in 1H22 I N T E R I M • Launched integrated marketing campaign in 2Q22, with • Roadshows: 619 high impact events run in 1H22 (+46% vs 1
Slide 21: Brand health metrics improved post 2Q22 campaign investment
R E S U L T S Brand health metrics improved post 2Q22 campaign investment For personal use only I N T E R I M Brand awareness Ever trialled Brand used most often a2MC brand awareness (%) a2MC ever trialled (%) a2MC brand used most often (%) 2 0 2 2 Source: IPSOS China brand health quarterly tracker
Slide 22: Summary of progress against China label IMF strategic priorities
R E S U L T S Summary of progress against China label IMF strategic priorities For personal use only I N T E R I M CL IMF Strategic priorities Update on progress • Ran successful integrated marketing campaign, 2 0 2 2 1• Continue to invest in and nurture our brand together with increased BTL, delive
Slide 23: English label IMF sales stabilising in 1H22 with early signs of recovery
R E S U L T S English label IMF sales stabilising in 1H22 with early signs of recovery For personal use only English label channel dynamics and sales drivers ANZ English label IMF net sales revenue I N T E R I M NZ$ million 745 • Reduced births and challenging channel dynamics impacted English label
Slide 24: English label market share decreased in 1H22
English label market share decreased in 1H22 due to reduced promotional R E S U L T S activity and careful supply allocation For personal use only I N T E R I M CBEC MAT market value share1 Daigou MAT market value share2 2 0 2 2 24.3% 22.5% 22.2% 21.7% 21.1% 20.2% 20.6% 19.5% 19.0% Jun-19 Dec-19 Jun
Slide 25: Actions in 2H21 resulted in improved channel health indicators
Actions taken in 2H21 to address excess channel inventory have resulted in R E S U L T S improved channel health indicators For personal use only I N T E R I M Age profile of distributor EL inventory holdings (Dec-21) EL Stage 1 market pricing (RMB/tin) 2 0 2 2 CBEC Reseller Network Note: *CBEC Aver
Slide 26: Some improvement in English label brand awareness post 2Q22 campaign
Some improvement in English label brand awareness post 2Q22 brand campaign R E S U L T S but overall remained relatively flat For personal use only I N T E R I M 2 0 2 2 Source: IPSOS China brand health quarterly tracker (n= 9750 respondents) 26
Slide 27: Investment in brand content increased to support reseller network
R E S U L T S Investment in brand content increased to support reseller network For personal use only Advertising in key WeChat outlets Driving brand visibility in reseller network Engaging and supporting Daigou directly I N T E R I M a2™ brand content in articles by key Australian-Chinese 2 0 2 2 W
Slide 28: Focused on driving online new user growth, with encouraging 11/11 results
R E S U L T S Focused on driving online new user growth, with encouraging 11/11 results For personal use only I N T E R I M 11/11 Activation overview – English label 11/11 Performance – English label 2 0 2 2 English label IMF tins sold through 11/11 sales 1.32m period (+0.4m vs 6/18 2021) English la
Slide 29: Summary of progress against English label IMF strategic priorities
R E S U L T S Summary of progress against English label IMF strategic priorities For personal use only I N T E R I M EL IMF Strategic priorities Update on progress • Stabilised English label pricing through careful 2 0 2 2 1• Maintain tight control of English label inventory allocation of supply, wi
Slide 30: Mixed performance in Other nutritional product segment
R E S U L T S Mixed performance in Other nutritional product segment For personal use only I N T E R I M ANZ performance • Overall net sales revenue decline of 21.6% to $16.3 million 2 0 2 2 • Impacted by challenges in ANZ reseller channel China & Other Asia performance • Overall net sales revenue i
Slide 31: Continued growth in ANZ liquid milk sales and market share
R E S U L T S Continued growth in ANZ liquid milk sales and market share For personal use only Performance Liquid milk net sales revenue (Australia) I N T E R I M • Australia liquid milk net sales revenue increased marginally, up 0.2% NZ$ million to $87.1 million 169 153 134 • Australia achieved a m
Slide 32: Summary of progress against ANZ strategic priorities
R E S U L T S Summary of progress against ANZ strategic priorities For personal use only I N T E R I M ANZ Strategic priorities Update on progress • Achieved top three branded SKUs in the category 2 0 2 2 1• Maintain brand leadership in grocery with improvement in key brand metrics • Recently expand
Slide 33: USA result driven by loss of club customer, higher freight costs and adverse FX
R E S U L T S USA result driven by loss of club customer, higher freight costs and adverse FX For personal use only Performance Revenue and EBITDA I N T E R I M • Revenue decreased by 5.2% to $32.4 million NZ$ million • EBITDA loss of $16.4 million, $4.8 million higher than pcp 38.1 34.2 • Result dr
Slide 34: Summary of progress against USA strategic priorities
R E S U L T S Summary of progress against USA strategic priorities For personal use only I N T E R I M USA Strategic priorities Update on progress 2 0 2 2 • New marketing campaign launched to drive 1• Educate consumers on the a2 Milk® difference increased awareness and new consumers to brand • Avera
Slide 35: Strengthening supply chain capability with MVM investment
R E S U L T S Strengthening supply chain capability with MVM investment For personal use only Performance I N T E R I M • First time MVM included in a2MC financial reporting in partnership with China Animal Husbandry Group • Net sales revenue of $38.6 million and an EBITDA loss of $10.0 million reco
Slide 36: Real focus on sustainability during 1H22 across the business
R E S U L T S Real focus on sustainability during 1H22 across the business For personal use only Targets and commitments I N T E R I M • Announced targets and commitments across key focus areas in sustainability • Included targets of reducing Scope 1 & 2 greenhouse gas emissions to net zero by 2030
Slide 37: Outlook
For personal use only 37 OUTLOOK
Slide 38: Outlook
R E S U L T S Outlook For personal use only See full outlook statement contained in results announcement dated 21 February 2022 I N T E R I M • The Company’s revenue growth outlook for FY22 has improved • However, this expected improvement in revenue is not expected to translate into higher earnings
Slide 39: Questions
For personal use only 39 QUESTIONS
Slide 40: Appendix
For personal use only 40 APPENDIX
Slide 41: Reconciliation of non-GAAP measures
R E S U L T S Reconciliation of non-GAAP measures For personal use only I N T E R I M NZ$ million 1H22 1H21 Australia & New Zealand segment EBITDA 96.2 117.5 2 0 2 2 China & Other Asia segment EBITDA 59.4 94.4 USA segment EBITDA (16.4) (11.6) MVM segment EBITDA (10.0) Corporate EBITDA (31.6) (21.7)
Slide 42: Geographic segment revenue and EBITDA
R E S U L T S Geographic segment revenue and EBITDA For personal use only I N T E R I M China & Total NZ$ million ANZ Other Asia USA MVM Corporate Group Revenue 283.3 306.3 32.4 38.6 - 660.5 2 0 2 2 1H22 EBITDA 96.2 59.4 (16.4) (10.0) (31.6) 97.6 EBITDA % 34.0% 19.4% (50.7%) (26.0%) nm 14.8% Revenue
Slide 43: Standard a2MC glossary of terms
R E S U L T S Standard a2MC glossary of terms For personal use only Acronym Meaning Acronym Meaning Acronym Meaning a2MC The a2 Milk Company Limited ESL Extended shelf life OOH Out of home I N T E R I M ANZ Australia and New Zealand FX Foreign exchange OTT Over the top APCO Australian Packaging Cove
Slide 44: For personal use only
For personal use only www.thea2milkcompany.com