1H22 Results and Interim Report
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuer The a2 Milk Company Limited
Reporting Period 6 months to 31 December 2021
Previous Reporting Period 6 months to 31 December 2020
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$ 660,546 (2.5%)
Total Revenue $ 660,546 (2.5%)
Net profit/(loss) from
continuing operations
$ 59,627 (50.3%)
Total net profit/(loss) $ 59,627 (50.3%)
Interim/Final Dividend
Amount per Quoted Equity
Security
The Company does not propose to pay a dividend for the half-
year ended 31 December 2021
Imputed amount per Quoted
Equity Security
Not applicable
Record Date Not applicable
Dividend Payment Date No applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$1.36 $1.37
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
For further information refer to the attached:
Interim Report for the half-year ended 31 December 2021
Half-Year Results Commentary
Half-Year Results Presentation
Authority for this announcement
Name of person
authorised
to make this announcement
Jaron McVicar
Contact person for this
announcement
Jaron McVicar
Contact phone number +61 2 9697 7000
Contact email address Jaron.McVicar@a2milk.com
Date of release through MAP
21/02/2022
Unaudited financial statements accompany this announcement.
---
NZX Code: ATM
ASX Code: A2M
The a2 Milk Company Limited
www.thea2milkcompany.com
21 February 2022
NZX/ASX Market Release
Interim results in line with expectations
Early signs of positive improvement from growth strategy execution
The a2 Milk Company (“the Company”, “a2MC”) today announces that its 1H22 result was in line with the Company’s
expectations, placing the Company in a strong position to execute its strategy and deliver revenue growth in FY22 in a
challenging and volatile market.
In October 2021, the Company announced its refreshed growth strategy which has been adapted to the rapidly changing infant
milk formula (“IMF”) market dynamics in China. The Company also outlined its medium-term indicative sales and EBITDA
margin ambition. With its growth strategy review completed, the Company has moved into the execution phase focused on
implementing its strategic priorities and related initiatives, which is in its early stages and progressing well.
The actions taken by the Company in 4Q21 and 1Q22 to address excess inventory are also proving effective with channel
inventory levels reducing to targeted levels, product freshness improving and market pricing increasing across English label and
China label IMF, enabling healthier channel economics for participants in the a2MC business system.
Key points
1
• Market conditions continued to be challenging with the China IMF market declining by 3.3% in value during 1H22 due
mainly to the cumulative impact of a lower birth rate, while the Australian and US (premium) liquid milk markets were
in growth. COVID-19 and other external factors continued to impact the Company’s supply chain
• Interim results in line with the Company’s expectations and expecting to deliver revenue growth in FY22
• Revenue was marginally lower than 1H21 in line with guidance, down 2.5% to $660.5 million on the prior corresponding
period (“pcp”), up 24.8% on 2H21
- As disclosed in the Company’s announcement on 26 August 2021, China label IMF sales were constrained by a2MC
in 1Q22 to rebalance distributor inventory levels with sales down 11.4% for 1H22 vs pcp. However, consumer
offtake growth in store and online was up double-digits with higher market share
- English and other label IMF sales were down 9.8% in 1H22 vs pcp with lower market share, but with an improvement
in sales trajectory during the half particularly in the ANZ reseller channel
- ANZ liquid milk sales were up with higher market share, while USA liquid milk sales were down
• Earnings before interest tax depreciation and amortisation (EBITDA
2
) was down 45.3% on pcp to $97.6 million
• EBITDA to sales margin of 14.8% in 1H22 compared to 26.4% in 1H21; EBITDA to sales margin excluding MVM of 17.3%
• Net profit after tax (“NPAT”) including the non-controlling interest was down 53.3% to $56.1 million on pcp
• Closing net cash was $667.2 million, now incorporating $80.0 million of MVM debt, with high operational cash
conversion during 1H22
• Mataura Valley Milk (“MVM”) acquisition and strategic partnership with China Animal Husbandry Group (“CAHG")
completed in July 2021 and fully consolidated into the results. Commenced planning for a laboratory and blending and
canning capability at MVM and accelerated actions to insource certain a2MC product
• Brand health metrics improved following a significant marketing campaign in 2Q22 with total brand / China label
metrics improving and English label metrics remaining relatively flat. Brand investment increased in 1H22 by 37.3% vs
pcp to $92.5 million in line with the Company’s growth strategy
• Growth strategy refresh to respond to the rapidly changing China IMF market dynamics completed and implementation
underway with good early progress across key initiatives
1
All figures are in New Zealand Dollars (NZ$) unless otherwise stated.
2
Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-GAAP measure. However, the Company believes that it assists in providing
investors with a comprehensive understanding of the underlying performance of the business. A reconciliation of EBITDA to net profit after tax is shown at
the end of this document.
2
• The Company’s outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with
growth now expected on 1H22 and for FY22 ahead of initial expectations due mainly to growth in China label and
English label IMF. However, this revenue improvement is not expected to translate into higher earnings as the Company
significantly increases brand and other reinvestment consistent with its growth strategy (the Outlook section below has
further detail including key industry and business risks)
Group financial performance
3,4
As foreshadowed in the Company’s FY21 Results Commentary in August 2021, 1H22 revenue was marginally lower than 1H21,
decreasing 2.5% to $660.5 million. 1H22 revenue was impacted by a number of factors, including the lower birth rate and
rapidly changing market dynamics in China. The Company’s 1H22 revenue also reflects strategic actions taken by the Company
in the first half to rebalance channel inventory for China label IMF. This was offset by the inclusion of five months of revenue
from MVM for the first time. Excluding MVM, revenue was 8.2% lower compared to 1H21.
Gross margin percentage
5
decreased to 46.2% with underlying gross margin of 50.7% excluding MVM. The lower 1H22 gross
margin was due to the inclusion of MVM, adverse product mix and cost headwinds, particularly raw milk and freight costs
partially offset by price increases.
EBITDA decreased by 45.3% to $97.6 million. This reflected lower revenue and gross margin as well as a 37.3% increase in
marketing investment vs pcp. Administrative and Other Expenses increased by 31.1% compared to pcp due to capability
investment, re-instatement of short-term and long-term incentives, professional services fees, legal fees and higher insurance
costs. This resulted in an EBITDA margin of 14.8% including MVM and 17.3% excluding MVM.
Net profit after tax and including the non-controlling interest was $56.1 million, a decrease of 53.3% on pcp.
The balance sheet remains in a strong position with closing cash of $747.2 million. The lower balance reflects the $268.5
million of capital invested in the acquisition of MVM which was completed in July 2021. The Group is now consolidating MVM
debt which was $80.0 million at period end as a result of the ownership structure, and therefore had net cash of $667.2
million. Operating cash flow was $98.4 million. Excluding interest and tax, this represented 130% cash conversion
6
.
Inventory at the end of the period was $127.9 million, higher than at the end of FY21, due to the inclusion of MVM. The
actions taken in 4Q21 and 1Q22 to address excess English label and China label IMF channel inventory respectively, are proving
to be effective with price stabilisation in the CBEC channel, significant price recovery in the ANZ reseller channel and an
improvement in China label trade economics. Targeted levels of channel inventory in English label and China label channels
were achieved and maintained during the period. It is, however, likely that both a2MC and channel inventory will need to be
increased incrementally in 2H22 to manage COVID-19 supply chain volatility following the omicron outbreak globally and due
to product innovation launches and changeovers.
China IMF market dynamics
As noted in the Company’s previous announcements in May and August 2021, the China IMF market is rapidly changing and
continues to be impacted by China’s lower birth rate. Following an 18.1% decrease in births in 2020, there was a further 11.5%
decrease in 2021 to 10.6 million
7
. In volume terms, the overall IMF market in China decreased
8
by 5.0% in 1H22 driven by the
reduction in the birth rate impacting early-stage products, partially offset by strong growth in Stage 4.
Although market performance varied by channel and segment, overall, market value also decreased
8
by 3.3% in 1H22 due to
the lower number of births, an increase in competitive intensity and promotional activity impacting average pricing, partially
offset by a continuation of the premiumisation trend as well as a mix shift to higher-priced China label channels.
Key&A cities reported a market value decrease of 6.6% whilst in BCD cities, market value was broadly flat, highlighting a
divergence of the impact of the lower birth rate across city tiers.
Local competitors continue to gain market share against the traditional multinational brands, driven both by the strength of
local brands, as well as an overall mix shift from cross-border to domestic channels.
In 1H22, the ultra-premium segment (where the Company’s China label product competes) performed above market and was
in growth, while the premium segment performed below market. The A2 protein segment also performed significantly above
market.
Despite the challenging China IMF market dynamics, a2MC performance in 1H22 in China label IMF was encouraging and
performance in English label IMF was stabilising.
3
All figures are in New Zealand Dollars (NZ$) unless otherwise stated.
4
All comparisons are with the 6 months ended 31 December 2020 (1H21), unless otherwise stated.
5
Gross margin percentage is calculated as sales less cost of goods sold, divided by sales.
6
Cash conversion defined as Operating cash flow before interest and tax/EBITDA.
7
Source: China National Bureau of Statistics.
8
Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key&A + BCD cities) for the 26 weeks ending 31 December 2021.
3
a2MC regional performance
1. China & Other Asia
China & Other Asia revenue of $306.3 million was down 6.0%, with EBITDA of $59.4 million, down 37.1% on pcp. Revenue was
impacted by the lower birth rate in China and the rebalancing of channel inventory for China label IMF during the period. In
addition to lower revenue, the reduction in EBITDA margin reflected a significant increase in marketing investment vs pcp to
drive awareness and improve new user recruitment and late-stage retention.
Brand health metrics improved following a significant marketing campaign in 2Q22. Based on the Company’s most recent
tracking (Jan-22), brand health through the funnel remained strong with total brand / China label brand awareness, trial and
loyalty improving, while English label awareness and other metrics remained relatively flat. This outcome was supported by an
increase in 1H22 in China brand investment of 47.7% vs pcp and was weighted to 2Q22.
IMF – China label channels
Sales in a2 至初® China label IMF of $188.7 million were achieved, representing a decrease of 11.4% vs pcp. a2MC constrained
sales to distributors in 1Q22 to rebalance channel inventory levels and improve channel dynamics. As a result of this, sales in
1Q22 were down significantly vs pcp, but were up vs pcp in 2Q22 as sales into distributors by a2MC more closely matched sales
out from distributors to mother and baby store (“MBS”) retailers and domestic online (“DOL”) platforms.
As measured by Nielsen, retail sales for MBS (ie sales from stores to consumers by value) for the overall market were down 1%
for 1H22
9
. a2MC’s 12-month rolling market value share in MBS was 2.6% at the end of December 2021, versus 2.5% at the end
of June 2021
9
. a2MC’s retail sales for MBS increased 11% in 1H22 vs pcp
9
and a2 至初® was one of a few significant
international brands that gained share in the period.
Distribution increased to 24.6k stores, from 22.8k at the end of June 2021
10
. As outlined at the Company’s investor day in
October 2021, a2MC’s performance in national key accounts (NKA) has been an important growth driver. The Company has
focussed its efforts on building share in NKA’s and is pursuing opportunities for growth in underpenetrated national and
regional key account chains as well as targeting greater penetration in BCD cities. As a result of these initiatives, the Company
increased its share in Key&A and BCD cities during the half.
As measured by Smart Path, retail sales for DOL platforms by value for the overall market were up 5% for 1H22
11
. The
Company’s 12-month rolling market value share in DOL was 2.1% at the end of December 2021, versus 2.0% at the end of June
2021
11
. a2MC’s retail sales for DOL platforms increased 17% in 1H22 vs pcp
11
.
China label channel inventory reached target levels in 2Q22. The actions taken to replace distributor inventory with fresher
stock were completed and resulted in a significant improvement in product freshness at the consumer level.
The Company continued to invest behind the brand to drive consumer demand. In FY21, marketing investment was weighted
to the second half, including a significant marketing campaign in China in 4Q21. A similar level of investment was made in
1H22, with a particular focus on creating and targeting digital content to engage with and recruit new users in 2Q22.
IMF – Cross-border e-commerce (CBEC)
a2 Platinum® English and other label IMF revenue of $102.4 million was down 1.1%. The result reflected reduced price
discounting during the “11/11” online sales period in China vs pcp, and no sales of Hong Kong label which ceased during FY21
due to COVID-19 restrictions.
During 11/11 the Company prioritised overall channel economics through reduced inventory levels and promotional activity in
CBEC. As a result, and as expected, English label sales during 11/11 were down on last year, but with improved market pricing
across CBEC platforms and reseller channels enhancing overall channel economics. Notwithstanding, the Company’s platform
rankings were maintained or improved relative to the competition.
As measured by Smart Path, retail sales (by value) for the overall CBEC market were down 6% for the period
12
. As expected, the
Company’s 12-month rolling market value share in CBEC was 19.5% at the end of December 2021, versus 21.1% at the end of
June 2021
12
. This performance reflected actions taken in 2H21 to rebalance channel inventory, as well as a reduction in levels
of cross selling from reseller channels.
Liquid milk and other nutritional products
Sales of liquid milk in China and Other Asia were up 50.3% to $5.5 million and revenue from other nutritional products was up
69.2% to $9.7 million. This reflected progress in executing against adjacent growth opportunities and leveraging learnings to
adapt outside of IMF, including the launch of UHT in China. The Company expanded distribution despite significant supply
disruptions due to COVID-19 and enhanced capability in the modern trade.
9
Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value). 1H22 versus 1H21.
10
a2MC internal data tracking of stores with active sales in the past 6 months.
11
Smart Path China IMF online market tracking: domestic online platform sales (by value). 1H22 versus 1H21.
12
Smart Path China IMF online market tracking: for CBEC only retail sales (by value). 1H22 versus 1H21.
4
2. ANZ
ANZ segment revenue of $283.3 million was down 10.7%, with EBITDA of $96.2 million down 18.1% versus pcp. Compared to
2H21, ANZ segment revenue was up 16.8% and EBITDA up 206.6%. ANZ reseller channel sales trajectory has improved. The
actions taken to rebalance excess inventory throughout the supply chain and improve freshness have resulted in an increase in
reseller market pricing of between 20-50% since July 2021, varying by product stage and channel. Revenue in the segment was
also impacted by a decrease in sales of other nutritional products, higher cost of goods sold, and foreign exchange headwinds,
partially offset by continued growth in liquid milk in Australia.
IMF – ANZ resellers and retail
IMF revenue in ANZ decreased 14.2% to $179.9 million vs pcp. However, there was positive momentum with 2Q22 significantly
higher than 1Q22. Whilst demand is recovering, supply is still being allocated carefully to ensure appropriate stock levels are
maintained in the channel.
The Company estimates it lost market share in the daigou channel during the period, particularly in Stage 1 IMF. Kantar data
13
indicates daigou consumer sales in the market were down 13% for 1H22
14
and that a2MC’s 12-month rolling daigou market
share declined to 20.2% at the end of December 2021, compared to 22.5% at the end of June 2021
13
. The ANZ reseller channel
is an important channel, particularly in relation to new user recruitment, and the Company is working closely with its reseller
partners to optimise its effectiveness and to increase its market share as part of its growth strategy.
An initiative to increase distribution in the offline to online (“O2O”) channel commenced during the period with growth
expected to continue in 2H22. A key strategic focus is working with partners to increase distribution through the O2O channel
and driving new user activation.
Liquid milk
Australian fresh milk revenue increased marginally by 0.2% vs pcp to $87.1 million, supported by COVID-19 lockdowns and
price increases. Sales growth was impacted by foreign exchange headwinds and was 2.5% on a constant currency basis.
The business achieved a new high value share of 12.4% at the end of December 2021 compared to 12.2% at the end of June
2021
15
. Additionally, three a2 Milk® products achieved ranking in the top ten products in the dairy category in grocery.
Over the period brand health metrics improved with awareness and trial increasing during the period. Market share gains were
achieved in all states except Western Australia, with a new high value share in New South Wales and Victoria vs pcp.
Successful trials of a2 Milk® UHT product were completed in 1H22, leading to a full national launch in 3Q22. The product is
now available in major supermarket chains from February 2022. This is a great addition to the Australian liquid milk portfolio
giving our loyal consumers a shelf-stable pantry backup or camping supply of their favourite a2 Milk®.
A price increase for milk in Australia was implemented in early November 2021 in response to higher raw milk prices.
a2 Milk™ by Anchor™ in the New Zealand market continues to gain market share in the A2 protein segment with retail sales
value growing 8.4%.
Other nutritional products
The disruption experienced in the ANZ reseller channel in FY21 and continued lower reseller activity in 1H22 impacted all
products in this segment. Revenue decreased 21.6% to $16.3 million. A stock obsolescence provision was recognised in this
category of $3.0 million in addition to clearance sales to improve inventory levels and freshness.
13
Kantar data based on a panel of 9,000 consumers covering 0-6 year olds and only seeks to project ~40% of the population.
14
Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key&A + BCD cities) for the 26 weeks ending 31 December 2021.
15
IRI Australian Grocery Weighted Scan 12-months ending 31 December 2021.
5
3. North America
USA segment revenue decreased 5.2% versus pcp to $32.4 million and EBITDA decreased 41.5% versus pcp resulting in a loss of
$16.4 million. The lower revenue was driven by the loss of certain regions of a major club channel customer due to private
label substitution, weaker growth due to the easing of COVID-19 restrictions in 1Q22 that led to lower in-home consumption
and unfavourable foreign exchange. Sales volumes improved in 2Q22 supported by the omicron outbreak towards the end of
the period and related impact on home consumption. On a constant currency basis, revenue decreased 2.6% vs pcp and
volume growth for 1H22 was down 3% but increased 13% excluding the major club channel customer. EBITDA losses increased
due to lower revenue and higher freight costs. Freight costs increased further during the first half due to COVID-19 and will
likely continue into the second half.
Average velocities grew within key accounts and distribution increased to 27.0k stores, from 26.8k stores at the end of June
2021
16
. The Company’s 12-month rolling market value share in the premium milk category for the Food channel, increased
from 1.8% in June 2021 to 1.9% in December 2021
17
.
Two new products were launched during the period – Hershey’s a2 Milk® and a2 Milk® Half and Half. Both have seen
significantly higher than expected listings in trade, particularly Hershey’s a2 Milk®.
Key marketing and public relations activities continued which resulted in driving improvements in brand health metrics, with
awareness improving and the a2 Milk® brand being one of the top two leading brands in the category for brand loyalty.
Accelerating the path to profitability in the USA by FY25/FY26 is a key strategic focus. In addition to driving growth, as planned,
the Company started to reduce trade spend in 1H22 and now intends to increase pricing in 2H22 to improve gross margins and
assist with mitigating increasing distribution costs.
In Canada, products were first launched in July 2020, initially focusing on Western Canada with subsequent distribution
expansion. The Company continues to work closely with Agrifoods (licensee), leveraging the Company’s intellectual property
and marketing assets as well as proprietary systems and know-how relating to local milk sourcing and processing.
4. Mataura Valley Milk
1H22 is the first time MVM has been included in a2MC’s financial reporting. MVM segment revenue of $38.6 million and an
EBITDA loss of $10.0 million were recorded for the five months of a2MC’s ownership.
On 30 July 2021, a2MC completed the acquisition of a 75% interest in MVM. The acquisition provides the opportunity to
participate in nutritional products manufacturing and the potential to pursue additional China label registrations and product
innovation opportunities in the future. It strengthens relationships with key strategic partners in China, achieves supplier and
geographic diversification, and over time will offer access to insourced manufacturing margins.
As previously indicated, a2MC’s lower volumes, together with the decline in third-party nutritional volumes has impacted
MVM economics and accelerating the path to profitability is a key strategic focus. In order to reach profitability during FY26 or
earlier, the Company commenced manufacturing a2 Milk® full cream milk powder during 1H22 previously manufactured by
Synlait Milk Limited (“Synlait”). The Company is working on in-sourcing certain existing English label IMF product from Synlait,
is planning to develop future product innovation at the facility, and is exploring additional third-party customer opportunities.
To complement this and facilitate future China label registration applications, MVM has commenced planning for a laboratory
and blending and canning capability at the site.
Progress against growth strategy
The Company’s ambition is to rebuild a2MC into an exciting, innovative and sustainable growth company. The Company
communicated its strategic plan to the market at an Investor Day in October 2021 and has since been focused on execution.
Early progress has been made against groupwide strategic initiatives as highlighted below with further detail on business unit
implementation progress provided in the Company’s 2022 Interim Results presentation:
1. Invest in people and planet leadership
• Commenced leadership and culture change program with Executive Leadership Team and completed team
engagement survey with action planning underway
• Invested in organisational capability expansion particularly in China with a renewed focus on brand marketing
(particularly digital) and e-commerce targeting DOL, CBEC and O2O growth opportunities
• Established sustainability targets across people and planet – including GHG emissions reduction, farm
environment and animal welfare, and sustainable packaging commitments
• Announced investment to reduce GHG emissions through MVM boiler electrification sourced from renewable
power and Synlait biomass boiler conversion
16
Updated prior year comparison due to expanded data set now being supplied.
17
SPINS data for the Food channel only for the 52 weeks ending 30 June 2021 and 31 December 2021.
6
2. Capture full potential in China IMF
• Increased above and below the line China marketing investment by 47.7% million in 1H22 vs pcp
• Progressed brand strategy refresh with new campaign to be launched later in 2H22
• Invested in digital content generation for CBEC and ANZ resellers to support English label channels
• Commenced China label in-market growth pilots with a mix of ATL and BTL brand and sales initiatives
• Grew liquid milk in China and Other Asia by 50.3% and other nutritional products by 69.2% demonstrating
progress in executing against adjacent growth opportunities outside of IMF
3. Ramp-up product innovation
• Progressed innovation and new product development pipeline for English label and China label IMF
• Completed and submitted SAMR China label IMF re-registration dossiers for all stages
• Advanced English label IMF product refresh for mid-2022
• Released UHT product in ANZ with additional products set to launch later in 2022
• Launched Half & Half and commenced Hershey’s licenced product shipments in the USA
4. Transform our supply chain
• Ramped up efforts to expand MVM’s A1 free milk pool targeting ~60% of total supply for the 2022 season
• Commenced planning for laboratory and blending and canning capability at MVM with third-party services being
procured in the meantime
• Accelerated efforts to explore opportunities relating to China label market access and in-market supply capability
• Progressed capacity expansion initiatives at Smeaton Grange and Kyabram manufacturing facilities
5. Accelerate path to profitability for USA and MVM
• Ramped up initiatives to maximise USA top-line growth through new product launches
• Commenced trade spend rollback and communicated price increases to improve USA gross margins
• Accelerated plans to insource a2 Milk® branded product manufacturing from Synlait and develop third-party
business at MVM to improve capacity utilisation
Outlook
Given the continuing uncertainty in a2MC’s consumer markets, the Company is providing its current observations on key
drivers and important issues that may impact FY22 results but not specific guidance regarding anticipated Group revenue or
EBITDA.
The Company’s outlook for 2H22 revenue has improved. It is still expected to be significantly higher than 2H21, and with
growth now expected on 1H22 and for FY22, ahead of initial expectations due mainly to growth in China label and English label
IMF. However, this revenue improvement is not expected to translate into higher earnings as the Company significantly
increases brand and other reinvestment consistent with its growth strategy. Whilst there is trading upside and downside
potential, COVID-19 impacts on supply chain have increased and are a key risk in 2H22 in addition to other industry and
business risks previously disclosed and noted below. Further commentary on the Company’s outlook for 2H22 and FY22 is
provided below.
Category and business divisions
China label IMF sales are still expected to be up in FY22 and now expected to be significantly up in 2H22 versus 1H22. This is
due to 1H22 having been impacted by distributor inventory rebalancing and in 2H22 as the Company’s growth strategy starts
to have a positive impact on MBS and DOL sales.
In English label IMF, sales are now expected to be up in FY22 and up in 2H22 versus 1H22 due to improved inventory levels and
pricing, as well as improved execution in ANZ reseller and CBEC channels driven by the Company’s growth strategy.
Incremental sales growth in Australian liquid milk for FY22 is still expected with sales still likely to be down in 2H22 versus
1H22 due to reduced COVID-19 related lockdowns and a corresponding reduction in levels of in-home consumption. Input
costs are significantly higher than FY21, partially offset by an increase in pricing that took effect from November 2021.
In USA liquid milk, sales growth for FY22 is expected, with sales up significantly in 2H22 versus 1H22 due mainly to new
product launches. EBITDA losses for FY22 in local currency are expected to remain at similar levels vs pcp due to a part-year
impact of trade spend reductions and price increases, lower margin new product sales and continuing higher freight costs.
MVM revenue is now expected to be approximately $100 million (excluding intercompany revenue), previously expected to be
$80 million. An EBITDA loss of approximately $20 million is still expected for the 11 months post-completion. No material
change in EBITDA is expected despite the increase in sales due to an increase in milk costs and a reduction in more profitable
nutritional sales.
7
Marketing and capability investment
Based on continuing strong brand fundamentals, the Company increased its brand investment, content generation and
activation in 1H22 vs pcp. This will step up again in 2H22 with FY22 investment now expected to be in the order of $220 million
which is higher than FY20 peak levels to drive execution of the Company’s growth strategy.
The Company is continuing to invest in capability building primarily in China and also in corporate functions to support future
growth. The majority of the FY22 capability impact will occur in 2H22. The Company is also expecting a realisation of short-
term and long-term employee incentive costs to drive performance and to retain and attract talent. Together with the
inclusion of operating costs for the MVM business, the Company is anticipating an uplift in SG&A costs in 2H22 vs 1H22 and a
significant uplift vs FY21.
Key financials
The outlook for revenue in FY22 has improved since the start of the year with the Company still expecting 2H22 revenue
(including MVM) to be significantly higher than 2H21, but with growth now expected on 1H22 and for FY22 which is ahead of
initial expectations due mainly to growth in China label and English label IMF.
The improved outlook for revenue in 2H22 should result in higher gross profit than previously expected. However, this is likely
to be offset by cost of goods sold headwinds related to increasing milk, ingredient and packaging costs.. Accordingly, the
Company still expects 2H22 gross margin percent to be broadly similar to 1H22.
Trading volatility and COVID-19 related supply chain risks mean that the Company still considers that a range of EBITDA
outcomes are possible in FY22. Revenue improvement is not expected to translate into higher earnings as the Company
significantly increases brand and other reinvestment consistent with its growth strategy.
Operational cash conversion is likely to be less than 100% in FY22 due mainly to the business expecting to hold higher
inventory and an increase in other working capital, as well as MVM needing to make a payment to CAHG in connection with
a2MC’s acquisition of its 75% interest in MVM that completed in 1H22.
The Company expects that capital expenditure will be approximately $15-18 million during 2H22 due mainly to strategic
investments in supply chain capacity and capability.
With the inclusion of MVM and completion of acquisition accounting, depreciation and amortisation for the Group is now
expected to be approximately $18 million in FY22.
The Company still anticipates an effective tax rate in the order of 37-39%. However, to the extent that revenue and EBITDA are
higher than expected, resulting in higher than expected income tax payable by the Company in New Zealand, the MVM losses
may be utilised to reduce the effective tax rate.
The outlook assumes no material changes in macro factors such as cross border trade, changes in the regulatory environment
and foreign exchange, and that COVID-19 related impacts continue at broadly current levels with increased volatility due to the
omicron variant.
Overall, FY22 is expected to deliver growth in revenue against a challenging FY21 which was materially disrupted by COVID-19
related impacts. The Company has a clear ambition and growth strategy that was communicated extensively at its Investor Day
in October 2021 and is now focused on investing in and executing a range of strategic initiatives to drive future growth.
8
Quotes for media
The a2 Milk Company’s Managing Director and CEO, David Bortolussi said:
• "Despite challenging market conditions in China and COVID-19 volatility, we are making good progress stabilising the
business.”
• “Our first half result is in line with expectations, placing the Company in a strong position to continue executing our
strategy and deliver revenue growth in FY22.”
• “The growth strategy we announced in October last year to respond to a rapidly changing China market has been
completed and implementation is underway with good early progress across a range of initiatives.”
• “We remain confident in the long-term China infant milk formula market, and we are growing share in our China label
business in-store and online with strong consumer offtake and share growth.”
• “The actions we took to address excess infant milk formula inventory last year are proving effective, and we are seeing
improvements in English label channel inventory levels, market pricing and product freshness.”
• "While English label sales were down during the half, we have seen an improvement in trajectory in the ANZ reseller /
daigou channel.”
• “Our brand health is strong, and we will continue to increase brand investment, content generation, and activation to
drive awareness and conversion.”
• “Our sales outlook for FY22 has improved but is not expected to translate into higher earnings as we significantly
increase brand reinvestment consistent with our growth strategy.”
Reconciliation of Group EBITDA
18
to net profit after tax
Half Year Ended Half Year Ended
31-Dec-21 31-Dec-20
$’000 $’000
Group EBITDA 97,573 178,523
Depreciation and amortisation (8,234) (3,200)
Group EBIT 89,339 175,323
Interest income
1,740
2,114
Interest expense
(627)
(366)
Income tax expense
(34,372)
(57,028)
Net profit after tax 56,080 120,043
Attributable to:
Owners of the Company
Non-controlling interests
59,627
(3,547)
120,043
-
56,080 120,043
Authorised for release by the Board of Directors
David Bortolussi
Managing Director and CEO
The a2 Milk Company Limited
18
Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-GAAP measure. However, the Company believes that it assists in providing
investors with a comprehensive understanding of the underlying performance of the business. A reconciliation of EBITDA to net profit after tax is shown at
the end of this document.
9
For further information, please contact:
Investors / Analysts
David Akers
Group Head of Investor Relations and Sustainability
M +61 412 944 577
david.akers@a2milk.com
Rebecca Culbertson
Senior Analyst Investor Relations
M +61 400 955 295
rebecca.culbertson@a2milk.com
Media
Rick Willis
M +61 411 839 344
rick@networkfour.com.au
Media – New Zealand
Barry Akers
M +64 21 571 234
akers@senescallakers.co.nz
---
ARBN: 158 331 965
THE a2 MILK COMPANY LIMITED
REPORT
INTERIM
2022
PRODUCT
S E G M E N T
REVENUE
$125m
Liquid milk 0.2%
$471m
Infant nutrition
10.5%
$65m
Other
*
143.3%
O P E R A T I N G
S E G M E N T
REVENUE
$283m
Australia and
New Zealand
10.7%
$306m
China and Other
Asia
6.0%
$32m
USA 5.2%
$39m
Mataura Valley
Milk
G R O U P
PERFORMANCE
$661m
Revenue 2.5%
$56m
NPAT including
non-controlling
interest
53.3%
$98m
EBITDA 45.3%
8.02c
Earnings per share
50.4%
$98m
Operating cash flow
$667m
Net cash
* Includes MVM
Operating and financial review 2
Financial statements 10
Directors’ declaration 10
Auditor’s review report 11
Consolidated statement of comprehensive income 13
Consolidated statement of changes in equity 14
Consolidated statement of financial position 17
Consolidated statement of cash flows 18
Notes to the interim financial statements 19
Corporate directory 30
CONTENTS
1
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
2
OPERATING AND
FINANCIAL REVIEW
FINANCIAL RESULTS FOR THE HALF YEAR ENDED
31 DECEMBER 2021 (NZD$)
Key points
1
—Market conditions continued to be challenging with the China IMF
market declining by 3.3% in value during 1H22 due mainly to the
cumulative impact of a lower birth rate, while the Australian and US
(premium) liquid milk markets were in growth. COVID-19 and other
external factors continued to impact the Company’s supply chain
—Interim results in line with the Company’s expectations and
expecting to deliver revenue growth in FY22
—Revenue was marginally lower than 1H21 in line with guidance,
down 2.5% to $660.5 million on the prior corresponding period
(“pcp”), up 24.8% on 2H21
—As disclosed in the Company’s announcement on 26 August
2021, China label IMF sales were constrained by a2MC in 1Q22
to rebalance distributor inventory levels with sales down 11.4%
for 1H22 vs pcp. However, consumer offtake growth in store and
online was up double-digits with higher market share
—English and other label IMF sales were down 9.8% in 1H22 vs
pcp with lower market share, but with an improvement in sales
trajectory during the half particularly in the ANZ reseller channel
—ANZ liquid milk sales were up with higher market share, while
USA liquid milk sales were down
—Earnings before interest tax depreciation and amortisation (EBITDA
2
)
was down 45.3% on pcp to $97.6 million
—EBITDA to sales margin of 14.8% in 1H22 compared to 26.4% in
1H21; EBITDA to sales margin excluding MVM of 17.3%
—Net profit after tax (“NPAT”) including the non-controlling interest
was down 53.3% to $56.1 million on pcp
—Closing net cash was $667.2 million, now incorporating
$80.0 million of MVM debt, with high operational cash conversion
during 1H22
—Mataura Valley Milk (“MVM”) acquisition and strategic partnership
with China Animal Husbandry Group (“CAHG”) completed in July
2021 and fully consolidated into the results. Commenced planning
for a laboratory and blending and canning capability at MVM and
accelerated actions to insource certain a2MC product
—Brand health metrics improved following a significant marketing
campaign in 2Q22 with total brand / China label metrics improving
and English label metrics remaining relatively flat. Brand investment
increased in 1H22 by 37.3% vs pcp to $92.5 million in line with the
Company’s growth strategy
—Growth strategy refresh to respond to the rapidly changing China
IMF market dynamics completed and implementation underway
with good early progress across key initiatives
—The Company’s outlook for 2H22 revenue has improved. It is still
expected to be significantly higher than 2H21, and with growth
now expected on 1H22 and for FY22 ahead of initial expectations
due mainly to growth in China label and English label IMF. However,
this revenue improvement is not expected to translate into higher
earnings as the Company significantly increases brand and other
reinvestment consistent with its growth strategy (the Outlook section
below has further detail including key industry and business risks)
1 All figures are in New Zealand Dollars (NZ$) unless otherwise stated.
2 Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-
GAAP measure. However, the Company believes that it assists in providing
investors with a comprehensive understanding of the underlying performance of
the business. A reconciliation of EBITDA to net profit after tax is shown on page 9.
Interim results in line with
expectations
Early signs of positive
improvement from growth
strategy execution
The a2 Milk Company (“the Company”, “a2MC”)
today announces that its 1H22 result was in line with
the Company’s expectations, placing the Company
in a strong position to execute its strategy and
deliver revenue growth in FY22 in a challenging and
volatile market.
In October 2021, the Company announced its
refreshed growth strategy which has been adapted
to the rapidly changing infant milk formula (“IMF”)
market dynamics in China. The Company also
outlined its medium-term indicative sales and
EBITDA margin ambition. With its growth strategy
review completed, the Company has moved into
the execution phase focused on implementing its
strategic priorities and related initiatives, which is in
its early stages and progressing well.
The actions taken by the Company in 4Q21 and
1Q22 to address excess inventory are also proving
effective with channel inventory levels reducing
to targeted levels, product freshness improving
and market pricing increasing across English
label and China label IMF, enabling healthier
channel economics for participants in the a2MC
business system.
3
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
Group financial performance
3
,
4
As foreshadowed in the Company’s FY21 Results
Commentary in August 2021, 1H22 revenue was marginally
lower than 1H21, decreasing 2.5% to $660.5 million. 1H22
revenue was impacted by a number of factors, including the
lower birth rate and rapidly changing market dynamics in
China. The Company’s 1H22 revenue also reflects strategic
actions taken by the Company in the first half to rebalance
channel inventory for China label IMF. This was offset by the
inclusion of five months of revenue from MVM for the first
time. Excluding MVM, revenue was 8.2% lower compared
to 1H21.
Gross margin percentage
5
decreased to 46.2% with
underlying gross margin of 50.7% excluding MVM. The lower
1H22 gross margin was due to the inclusion of MVM, adverse
product mix and cost headwinds, particularly raw milk and
freight costs partially offset by price increases.
EBITDA decreased by 45.3% to $97.6 million. This reflected
lower revenue and gross margin as well as a 37.3% increase
in marketing investment vs pcp. Administrative and Other
Expenses increased by 31.1% compared to pcp due to
capability investment, re-instatement of short-term and
long-term incentives, professional services fees, legal fees and
higher insurance costs. This resulted in an EBITDA margin of
14.8% including MVM and 17.3% excluding MVM.
Net profit after tax and including the non-controlling
interest was $56.1 million, a decrease of 53.3% on pcp.
The balance sheet remains in a strong position with
closing cash of $747. 2 million. The lower balance reflects
the $268.5 million of capital invested in the acquisition of
MVM which was completed in July 2021. The Group is now
consolidating MVM debt which was $80.0 million at period
end as a result of the ownership structure, and therefore
had net cash of $667.2 million. Operating cash flow was
$98.4 million. Excluding interest and tax, this represented
130% cash conversion
6
.
3 All figures are in New Zealand Dollars (NZ$) unless otherwise stated.
4 All comparisons are with the 6 months ended 31 December 2020 (1H21),
unless otherwise stated.
5 Gross margin percentage is calculated as sales less cost of goods sold,
divided by sales.
6 Cash conversion defined as Operating cash flow before interest and tax/
EBITDA.
Inventory at the end of the period was $127.9 million, higher
than at the end of FY21, due to the inclusion of MVM. The
actions taken in 4Q21 and 1Q22 to address excess English
label and China label IMF channel inventory respectively, are
proving to be effective with price stabilisation in the CBEC
channel, significant price recovery in the ANZ reseller channel
and an improvement in China label trade economics. Targeted
levels of channel inventory in English label and China label
channels were achieved and maintained during the period.
It is, however, likely that both a2MC and channel inventory
will need to be increased incrementally in 2H22 to manage
COVID-19 supply chain volatility following the omicron
outbreak globally and due to product innovation launches
and changeovers.
China IMF market dynamics
As noted in the Company’s previous announcements in May
and August 2021, the China IMF market is rapidly changing
and continues to be impacted by China’s lower birth rate.
Following an 18.1% decrease in births in 2020, there was a
further 11.5% decrease in 2021 to 10.6 million
7
. In volume
terms, the overall IMF market in China decreased
8
by 5.0% in
1H22 driven by the reduction in the birth rate impacting early-
stage products, partially offset by strong growth in Stage 4.
Although market performance varied by channel and
segment, overall, market value also decreased
8
by 3.3%
in 1H22 due to the lower number of births, an increase in
competitive intensity and promotional activity impacting
average pricing, partially offset by a continuation of the
premiumisation trend as well as a mix shift to higher-priced
China label channels.
Key&A cities reported a market value decrease of 6.6%
whilst in BCD cities, market value was broadly flat,
highlighting a divergence of the impact of the lower birth
rate across city tiers.
Local competitors continue to gain market share against
the traditional multinational brands, driven both by the
strength of local brands, as well as an overall mix shift from
cross-border to domestic channels.
In 1H22, the ultra-premium segment (where the Company’s
China label product competes) performed above market and
was in growth, while the premium segment performed below
market. The A2 protein segment also performed significantly
above market.
Despite the challenging China IMF market dynamics, a2MC
performance in 1H22 in China label IMF was encouraging and
performance in English label IMF was stabilising.
7 Source: China National Bureau of Statistics.
8 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market
tracking (Key&A + BCD cities) for the 26 weeks ending 31 December
2021.
4
a2MC regional performance
1 China & Other Asia
China & Other Asia revenue of $306.3 million was down
6.0%, with EBITDA of $59.4 million, down 37.1% on pcp.
Revenue was impacted by the lower birth rate in China and
the rebalancing of channel inventory for China label IMF
during the period. In addition to lower revenue, the reduction
in EBITDA margin reflected a significant increase in marketing
investment vs pcp to drive awareness and improve new user
recruitment and late-stage retention.
Brand health metrics improved following a significant
marketing campaign in 2Q22. Based on the Company’s
most recent tracking (Jan-22), brand health through the
funnel remained strong with total brand / China label brand
awareness, trial and loyalty improving, while English label
awareness and other metrics remained relatively flat. This
outcome was supported by an increase in 1H22 in China
brand investment of 47.7% vs pcp and was weighted
to 2Q22.
IMF – China label channels
Sales in a2 至初
®
China label IMF of $188.7 million were
achieved, representing a decrease of 11.4% vs pcp. a2MC
constrained sales to distributors in 1Q22 to rebalance channel
inventory levels and improve channel dynamics. As a result
of this, sales in 1Q22 were down significantly vs pcp, but
were up vs pcp in 2Q22 as sales into distributors by a2MC
more closely matched sales out from distributors to mother
and baby store (“MBS”) retailers and domestic online
(“DOL”) platforms.
As measured by Nielsen, retail sales for MBS (ie sales from
stores to consumers by value) for the overall market were
down 1% for 1H22
9
. a2MC’s 12-month rolling market value
share in MBS was 2.6% at the end of December 2021, versus
2.5% at the end of June 2021
9
. a2MC’s retail sales for MBS
increased 11% in 1H22 vs pcp
9
and a2 至初
®
was one of
a few significant international brands that gained share in
the period.
9 Nielsen MBS retail measurement service: mother and baby stores only
retail sales (by value). 1H22 versus 1H21.
Distribution increased to 24.6k stores, from 22.8k at the
end of June 2021
10
. As outlined at the Company’s investor
day in October 2021, a2MC’s performance in national key
accounts (NKA) has been an important growth driver. The
Company has focussed its efforts on building share in NKA’s
and is pursuing opportunities for growth in underpenetrated
national and regional key account chains as well as targeting
greater penetration in BCD cities. As a result of these
initiatives, the Company increased its share in Key&A and
BCD cities during the half.
As measured by Smart Path, retail sales for DOL platforms
by value for the overall market were up 5% for 1H22
11
. The
Company’s 12-month rolling market value share in DOL
was 2.1% at the end of December 2021, versus 2.0% at the
end of June 2021
11
. a2MC’s retail sales for DOL platforms
increased 17% in 1H22 vs pcp
11
.
China label channel inventory reached target levels in 2Q22.
The actions taken to replace distributor inventory with
fresher stock were completed and resulted in a significant
improvement in product freshness at the consumer level.
The Company continued to invest behind the brand to drive
consumer demand. In FY21, marketing investment was
weighted to the second half, including a significant marketing
campaign in China in 4Q21. A similar level of investment
was made in 1H22, with a particular focus on creating and
targeting digital content to engage with and recruit new
users in 2Q22.
IMF – Cross-border e-commerce (CBEC)
a2 Platinum
®
English and other label IMF revenue of
$102.4 million was down 1.1%. The result reflected reduced
price discounting during the “11/11” online sales period in
China vs pcp, and no sales of Hong Kong label which ceased
during FY21 due to COVID-19 restrictions.
During 11/11 the Company prioritised overall channel
economics through reduced inventory levels and promotional
activity in CBEC. As a result, and as expected, English label
sales during 11/11 were down on last year, but with improved
market pricing across CBEC platforms and reseller channels
enhancing overall channel economics. Notwithstanding, the
Company’s platform rankings were maintained or improved
relative to the competition.
10 a2MC internal data tracking of stores with active sales in the past
6 months.
11 Smart Path China IMF online market tracking: domestic online platform
sales (by value). 1H22 versus 1H21.
OPERATING AND FINANCIAL REVIEW
CONTINUED
5
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
As measured by Smart Path, retail sales (by value) for the
overall CBEC market were down 6% for the period
12
. As
expected, the Company’s 12-month rolling market value share
in CBEC was 19.5% at the end of December 2021, versus
21.1% at the end of June 2021
12
. This performance reflected
actions taken in 2H21 to rebalance channel inventory, as well
as a reduction in levels of cross selling from reseller channels.
Liquid milk and other nutritional products
Sales of liquid milk in China and Other Asia were up 50.3%
to $5.5 million and revenue from other nutritional products
was up 69.2% to $9.7 million. This reflected progress
in executing against adjacent growth opportunities and
leveraging learnings to adapt outside of IMF, including the
launch of UHT in China. The Company expanded distribution
despite significant supply disruptions due to COVID-19 and
enhanced capability in the modern trade.
2 ANZ
ANZ segment revenue of $283.3 million was down 10.7%,
with EBITDA of $96.2 million down 18.1% versus pcp.
Compared to 2H21, ANZ segment revenue was up 16.8%
and EBITDA up 206.6%. ANZ reseller channel sales trajectory
has improved. The actions taken to rebalance excess inventory
throughout the supply chain and improve freshness have
resulted in an increase in reseller market pricing of between
20-50% since July 2021, varying by product stage and
channel. Revenue in the segment was also impacted by a
decrease in sales of other nutritional products, higher cost of
goods sold, and foreign exchange headwinds, partially offset
by continued growth in liquid milk in Australia.
IMF – ANZ resellers and retail
IMF revenue in ANZ decreased 14.2% to $179.9 million vs
pcp. However, there was positive momentum with 2Q22
significantly higher than 1Q22. Whilst demand is recovering,
supply is still being allocated carefully to ensure appropriate
stock levels are maintained in the channel.
12 Smart Path China IMF online market tracking: for CBEC only retail sales
(by value). 1H22 versus 1H21.
The Company estimates it lost market share in the daigou
channel during the period, particularly in Stage 1 IMF.
Kantar data
13
indicates daigou consumer sales in the market
were down 13% for 1H22
14
and that a2MC’s 12-month
rolling daigou market share declined to 20.2% at the end
of December 2021, compared to 22.5% at the end of June
2021
13
. The ANZ reseller channel is an important channel,
particularly in relation to new user recruitment, and the
Company is working closely with its reseller partners to
optimise its effectiveness and to increase its market share as
part of its growth strategy.
An initiative to increase distribution in the offline to online
(“O2O”) channel commenced during the period with growth
expected to continue in 2H22. A key strategic focus is
working with partners to increase distribution through the
O2O channel and driving new user activation.
Liquid milk
Australian fresh milk revenue increased marginally by 0.2%
vs pcp to $87.1 million, supported by COVID-19 lockdowns
and price increases. Sales growth was impacted by
foreign exchange headwinds and was 2.5% on a constant
currency basis.
The business achieved a new high value share of 12.4%
at the end of December 2021 compared to 12.2% at the
end of June 2021
15
. Additionally, three a2 Milk
®
products
achieved ranking in the top ten products in the dairy
category in grocery.
Over the period brand health metrics improved with
awareness and trial increasing during the period. Market
share gains were achieved in all states except Western
Australia, with a new high value share in New South Wales
and Victoria vs pcp.
Successful trials of a2 Milk
®
UHT product were completed in
1H22, leading to a full national launch in 3Q22. The product
is now available in major supermarket chains from February
2022. This is a great addition to the Australian liquid milk
portfolio giving our loyal consumers a shelf-stable pantry
backup or camping supply of their favourite a2 Milk
®
.
13 Kantar data based on a panel of 9,000 consumers covering 0-6 year olds
and only seeks to project ~40% of the population.
14 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market
tracking (Key&A + BCD cities) for the 26 weeks ending 31 December
2021.
15 IRI Australian Grocery Weighted Scan 12-months ending 31 December
2021.
6
A price increase for milk in Australia was implemented in early
November 2021 in response to higher raw milk prices.
a2 Milk™ by Anchor™ in the New Zealand market continues
to gain market share in the A2 protein segment with retail
sales value growing 8.4%.
Other nutritional products
The disruption experienced in the ANZ reseller channel in
FY21 and continued lower reseller activity in 1H22 impacted
all products in this segment. Revenue decreased 21.6% to
$16.3 million. A stock obsolescence provision was recognised
in this category of $3.0 million in addition to clearance sales
to improve inventory levels and freshness.
3 North America
USA segment revenue decreased 5.2% versus pcp to
$32.4 million and EBITDA decreased 41.5% versus pcp
resulting in a loss of $16.4 million. The lower revenue was
driven by the loss of certain regions of a major club channel
customer due to private label substitution, weaker growth
due to the easing of COVID-19 restrictions in 1Q22 that led
to lower in-home consumption and unfavourable foreign
exchange. Sales volumes improved in 2Q22 supported by the
omicron outbreak towards the end of the period and related
impact on home consumption. On a constant currency basis,
revenue decreased 2.6% vs pcp and volume growth for 1H22
was down 3% but increased 13% excluding the major club
channel customer. EBITDA losses increased due to lower
revenue and higher freight costs. Freight costs increased
further during the first half due to COVID-19 and will likely
continue into the second half.
Average velocities grew within key accounts and distribution
increased to 27.0k stores, from 26.8k stores at the end
of June 2021
16
. The Company’s 12-month rolling market
value share in the premium milk category for the Food
channel, increased from 1.8% in June 2021 to 1.9%
in December 2021
17
.
Two new products were launched during the period –
Hershey’s a2 Milk
®
and a2 Milk
®
Half and Half. Both have
seen significantly higher than expected listings in trade,
particularly Hershey’s a2 Milk
®
.
16 Updated prior year comparison due to expanded data set now being
supplied.
17 SPINS data for the Food channel only for the 52 weeks ending 30 June
2021 and 31 December 2021.
Key marketing and public relations activities continued which
resulted in driving improvements in brand health metrics, with
awareness improving and the a2 Milk
®
brand being one of
the top two leading brands in the category for brand loyalty.
Accelerating the path to profitability in the USA by FY25/
FY26 is a key strategic focus. In addition to driving growth,
as planned, the Company started to reduce trade spend
in 1H22 and now intends to increase pricing in 2H22 to
improve gross margins and assist with mitigating increasing
distribution costs.
In Canada, products were first launched in July 2020, initially
focusing on Western Canada with subsequent distribution
expansion. The Company continues to work closely with
Agrifoods (licensee), leveraging the Company’s intellectual
property and marketing assets as well as proprietary systems
and know-how relating to local milk sourcing and processing.
4 Mataura Valley Milk
1H22 is the first time MVM has been included in a2MC’s
financial reporting. MVM segment revenue of $38.6 million
and an EBITDA loss of $10.0 million were recorded for the five
months of a2MC’s ownership.
On 30 July 2021, a2MC completed the acquisition of a 75%
interest in MVM. The acquisition provides the opportunity
to participate in nutritional products manufacturing and the
potential to pursue additional China label registrations and
product innovation opportunities in the future. It strengthens
relationships with key strategic partners in China, achieves
supplier and geographic diversification, and over time will
offer access to insourced manufacturing margins.
As previously indicated, a2MC’s lower volumes, together with
the decline in third-party nutritional volumes has impacted
MVM economics and accelerating the path to profitability is a
key strategic focus. In order to reach profitability during FY26
or earlier, the Company commenced manufacturing a2 Milk
®
Full cream milk powder during 1H22 previously manufactured
by Synlait Milk Limited (“Synlait”). The Company is working
on in-sourcing certain existing English label IMF product from
Synlait, is planning to develop future product innovation at
the facility, and is exploring additional third-party customer
opportunities. To complement this and facilitate future
China label registration applications, MVM has commenced
planning for a laboratory and blending and canning capability
at the site.
OPERATING AND FINANCIAL REVIEW
CONTINUED
7
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
Progress against growth strategy
The Company’s ambition is to rebuild a2MC into an exciting,
innovative and sustainable growth company. The Company
communicated its strategic plan to the market at an Investor
Day in October 2021 and has since been focused on
execution. Early progress has been made against groupwide
strategic initiatives as highlighted below with further detail
on business unit implementation progress provided in the
Company’s 2022 Interim Results presentation:
1 Invest in people and planet leadership
—Commenced leadership and culture change program
with Executive Leadership Team and completed team
engagement survey with action planning underway
—Invested in organisational capability expansion particularly
in China with a renewed focus on brand marketing
(particularly digital) and e-commerce targeting DOL, CBEC
and O2O growth opportunities
—Established sustainability targets across people and
planet – including GHG emissions reduction, farm
environment and animal welfare, and sustainable
packaging commitments
—Announced investment to reduce GHG emissions through
MVM boiler electrification sourced from renewable power
and Synlait biomass boiler conversion
2 Capture full potential in China IMF
—Increased above and below the line China marketing
investment by 47.7% million in 1H22 vs pcp
—Progressed brand strategy refresh with new campaign
to be launched later in 2H22
—Invested in digital content generation for CBEC and ANZ
resellers to support English label channels
—Commenced China label in-market growth pilots with
a mix of ATL and BTL brand and sales initiatives
—Grew liquid milk in China and Other Asia by 50.3%
and other nutritional products by 69.2% demonstrating
progress in executing against adjacent growth
opportunities outside of IMF
3 Ramp-up product innovation
—Progressed innovation and new product development
pipeline for English label and China label IMF
—Completed and submitted SAMR China label IMF
re-registration dossiers for all stages
—Advanced English label IMF product refresh for mid-2022
—Released UHT product in ANZ with additional
products set to launch later in 2022
—Launched Half & Half and commenced Hershey’s
licenced product shipments in the USA
4 Transform our supply chain
—Ramped up efforts to expand MVM’s A1 free milk pool
targeting ~60% of total supply for the 2022 season
—Commenced planning for laboratory and blending and
canning capability at MVM with third-party services
being procured in the meantime
—Accelerated efforts to explore opportunities relating to
China label market access and in-market supply capability
—Progressed capacity expansion initiatives at Smeaton
Grange and Kyabram manufacturing facilities
5 Accelerate path to profitability for USA
and MVM
—Ramped up initiatives to maximise USA top-line growth
through new product launches
—Commenced trade spend rollback and communicated
price increases to improve USA gross margins
—Accelerated plans to insource a2 Milk
®
branded product
manufacturing from Synlait and develop third-party
business at MVM to improve capacity utilisation
8
Outlook
Given the continuing uncertainty in a2MC’s consumer
markets, the Company is providing its current observations
on key drivers and important issues that may impact FY22
results but not specific guidance regarding anticipated Group
revenue or EBITDA.
The Company’s outlook for 2H22 revenue has improved. It is
still expected to be significantly higher than 2H21, and with
growth now expected on 1H22 and for FY22, ahead of initial
expectations due mainly to growth in China label and English
label IMF. However, this revenue improvement is not expected
to translate into higher earnings as the Company significantly
increases brand and other reinvestment consistent with its
growth strategy. Whilst there is trading upside and downside
potential, COVID-19 impacts on supply chain have increased
and are a key risk in 2H22 in addition to other industry and
business risks previously disclosed and noted below. Further
commentary on the Company’s outlook for 2H22 and FY22 is
provided below.
Category and business divisions
China label IMF sales are still expected to be up in FY22 and
now expected to be significantly up in 2H22 versus 1H22. This
is due to 1H22 having been impacted by distributor inventory
rebalancing and in 2H22 as the Company’s growth strategy
starts to have a positive impact on MBS and DOL sales.
In English label IMF, sales are now expected to be up
in FY22 and up in 2H22 versus 1H22 due to improved
inventory levels and pricing, as well as improved execution
in ANZ reseller and CBEC channels driven by the Company’s
growth strategy.
Incremental sales growth in Australian liquid milk for FY22
is still expected with sales still likely to be down in 2H22
versus 1H22 due to reduced COVID-19 related lockdowns and
a corresponding reduction in levels of in-home consumption.
Input costs are significantly higher than FY21, partially
offset by an increase in pricing that took effect from
November 2021.
In USA liquid milk, sales growth for FY22 is expected, with
sales up significantly in 2H22 versus 1H22 due mainly to new
product launches. EBITDA losses for FY22 in local currency
are expected to remain at similar levels vs pcp due to a
part-year impact of trade spend reductions and price
increases, lower margin new product sales and continuing
higher freight costs.
MVM revenue is now expected to be approximately
$100 million (excluding intercompany revenue), previously
expected to be $80 million. An EBITDA loss of approximately
$20 million is still expected for the 11 months post-
completion. No material change in EBITDA is expected
despite the increase in sales due to an increase in milk costs
and a reduction in more profitable nutritional sales.
Marketing and capability investment
Based on continuing strong brand fundamentals, the
Company increased its brand investment, content generation
and activation in 1H22 vs pcp. This will step up again in 2H22
with FY22 investment now expected to be in the order of
$220 million which is higher than FY20 peak levels to drive
execution of the Company’s growth strategy.
The Company is continuing to invest in capability building
primarily in China and also in corporate functions to support
future growth. The majority of the FY22 capability impact will
occur in 2H22. The Company is also expecting a realisation of
short-term and long-term employee incentive costs to drive
performance and to retain and attract talent. Together with
the inclusion of operating costs for the MVM business, the
Company is anticipating an uplift in SG&A costs in 2H22 vs
1H22 and a significant uplift vs FY21.
OPERATING AND FINANCIAL REVIEW
CONTINUED
9
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
Key financials
The outlook for revenue in FY22 has improved since the
start of the year with the Company still expecting 2H22
revenue (including MVM) to be significantly higher than
2H21, but with growth now expected on 1H22 and for FY22
which is ahead of initial expectations due mainly to growth in
China label and English label IMF.
The improved outlook for revenue in 2H22 should result in
higher gross profit than previously expected. However,
this is likely to be offset by cost of goods sold headwinds
related to increasing milk, ingredient and packaging costs.
Accordingly, the Company still expects 2H22 gross margin
percent to be broadly similar to 1H22.
Trading volatility and COVID-19 related supply chain
risks mean that the Company still considers that a range
of EBITDA outcomes are possible in FY22. Revenue
improvement is not expected to translate into higher earnings
as the Company significantly increases brand and other
reinvestment consistent with its growth strategy.
Operational cash conversion is likely to be less than 100%
in FY22 due mainly to the business expecting to hold higher
inventory and an increase in other working capital, as well as
MVM needing to make a payment to CAHG in connection
with a2MC’s acquisition of its 75% interest in MVM that
completed in 1H22.
The Company expects that capital expenditure will be
approximately $15-18 million during 2H22 due mainly to
strategic investments in supply chain capacity and capability.
With the inclusion of MVM and completion of acquisition
accounting, depreciation and amortisation for the Group
is now expected to be approximately $18 million in FY22.
The Company still anticipates an effective tax rate in
the order of 37-39%. However, to the extent that revenue
and EBITDA are higher than expected, resulting in higher
than expected income tax payable by the Company in
New Zealand, the MVM losses may be utilised to reduce the
effective tax rate.
The outlook assumes no material changes in macro factors
such as cross border trade, changes in the regulatory
environment and foreign exchange, and that COVID-19
related impacts continue at broadly current levels with
increased volatility due to the omicron variant.
Overall, FY22 is expected to deliver growth in revenue
against a challenging FY21 which was materially disrupted by
COVID-19 related impacts. The Company has a clear ambition
and growth strategy that was communicated extensively
at its Investor Day in October 2021 and is now focused on
investing in and executing a range of strategic initiatives to
drive future growth.
Reconciliation of Group EBITDA to net profit
after tax
Earnings before interest, tax, depreciation and amortisation
(EBITDA) is a non-GAAP measure. However, the Company
believes that it assists in providing investors with a
comprehensive understanding of the underlying performance
of the business. A reconciliation of EBITDA to net profit after
tax is shown below.
Half Year
Ended
31-Dec-21
$’000
Half Year
Ended
31-Dec-20
$’000
Group EBITDA97,573178,523
Depreciation and amortisation(8,234)(3,200)
Group EBIT89,339175,323
Interest income1,7402,114
Interest expense(627)(366)
Income tax expense
(34,372)
(57,028)
Net profit after tax56,080120,043
Attributable to:
Owners of the Company59,627120,043
Non-controlling interests(3,547)–
56,080 120,043
10
FINANCIAL
STATEMENTS
DIRECTORS’ DECLARATION
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
The Directors of The a2 Milk Company Limited are pleased to present the interim report for the six months ended 31 December 2021.
The interim report is unaudited and was authorised for issue by the directors on 20 February 2022.
Signed on behalf of the Board by:
David Hearn
Chair
David Bortolussi
Managing Director and CEO
20 February 2022
11
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
INDEPENDENT AUDITOR’S REVIEW REPORT
To the Shareholders of The a2 Milk Company Limited (‘the Company”) and its subsidiaries (together
“the Group”)
Report on the Review of the Interim Financial Statements
Conclusion
We have reviewed the interim financial statements of The a2 Milk Company Limited and its
subsidiaries (together “the Group”) which comprise the consolidated statement of financial position
as at 31 December 2021, and the consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the period ended on
that date, and a summary of significant accounting policies and other explanatory information.
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying interim financial statements of the Group do not present fairly, in all material
respects, the financial position of the Group as at 31 December 2021, and its financial performance
and its cash flows for the period ended on that date, in accordance with New Zealand Equivalent to
International Accounting Standard 34: Interim Financial Reporting.
This report is made solely to the Company's shareholders, as a body. Our review has been
undertaken so that we might state to the Company's shareholders those matters we are required to
state to them in a review report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company and the Company's
shareholders as a body, for our review procedures, for this report, or for the conclusion we have
formed.
Basis for Conclusion
We conducted our review in accordance with NZ SRE 2410 (Revised) Review of Financial Statements
Performed by the Independent Auditor of the Entity. Our responsibilities are further described in the
Auditor’s Responsibilities for the Review of the Financial Statements section of our report. We are
independent of the Group in accordance with the relevant ethical requirements in New Zealand
relating to the audit of the annual financial statements, and we have fulfilled our other ethical
responsibilities in accordance with these ethical requirements.
Ernst & Young has provided market research services in relation to brand health tracking. Partners
and employees of our firm may deal with the Group on normal terms within the ordinary course of
trading activities of the business of the Group. We have no other relationship with, or interest in,
the Group.
Directors’ Responsibility for the Interim Financial Statements
The Directors are responsible, on behalf of the entity, for the preparation and fair presentation of
the interim financial statements in accordance with New Zealand Equivalent to International
Accounting Standard 34: Interim Financial Reporting and for such internal control as the Directors
determine is necessary to enable the preparation and fair presentation of the interim financial
statements that are free from material misstatement, whether due to fraud or error.
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
AUDITOR’S REVIEW REPORT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS
12
AUDITOR’S REVIEW REPORT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Auditor’s Responsibilities for the Review of the Interim Financial Statements
Our responsibility is to express a conclusion on the interim financial statements based on our review.
NZ SRE 2410 (Revised) requires us to conclude whether anything has come to our attention that
causes us to believe that the interim financial statements, taken as a whole, are not prepared in all
material respects, in accordance with New Zealand Equivalent to International Accounting Standard
34: Interim Financial Reporting.
A review of interim financial statements in accordance with NZ SRE 2410 (Revised) is a limited
assurance engagement. We perform procedures, consisting of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying analytical and other review
procedures. The procedures performed in a review are substantially less than those performed in an
audit conducted in accordance with International Standards on Auditing (New Zealand) and
consequently do not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion on
those interim financial statements.
The engagement partner on the review resulting in this independent auditor’s review report is Lisa
Nijssen-Smith.
Ernst & Young
Sydney
20 February 2022
13
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
Notes
31 Dec 21
$’000
31 Dec 20
$’000
Sales658,797676,546
Cost of sales(354,325) (336,090)
Gross margin304,472340,456
Other revenue1,749816
Distribution expenses(24,734)(22,572)
Administrative expenses(51,679)(34,732)
Marketing expenses(92,546)( 6 7, 416 )
Other expenses(47, 8 7 3)(41,193)
Operating profit89,389 175,359
Interest income1,7402,114
Finance costs(677) (402)
Net finance income1,063 1,712
Profit before tax90,45217 7, 071
Income tax expense(34,372) ( 5 7, 028 )
Profit for the period56,080 120,043
Profit for the period attributable to:
Owners of the Company59,627120,0 43
Non-controlling interests(3,547) –
56,080 120,0 43
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation profit/(loss)193(1,728)
Cash flow hedges480–
Items not to be reclassified to profit or loss:
Listed investment fair value loss10( 7, 8 0 4)(65,688)
Total other comprehensive loss(7,131) (67, 416)
Total other comprehensive loss attributable to:
Owners of the Company(6,974)( 6 7, 416 )
Non-controlling interests(157) –
( 7,131) ( 6 7, 416 )
Total comprehensive income48,949 52,627
Total comprehensive income attributable to:
Owners of the Company52,65352,627
Non-controlling interests(3,704) –
48,949 52,627
Earnings per share
Basic (cents per share)8.0216 .18
Diluted (cents per share)8.02 16.16
The accompanying notes form part of these financial statements.
FINANCIAL STATEMENTS
14
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
Attributable to owners of the CompanyAttributable to owners of the Company
Six months ended 31 December 2021
Foreign
currency
translation
reserve
$’000
Fair value
revaluation
reserve
$’000
Employee
equity settled
payments
reserve
$’000
Treasury
shares
reserve
$’000
Hedging
reserve
$’000
Total
reserves
$’000
Retained
earnings
$’000
Share
capital
$’000
Total
$’000
Non-controlling
interests
$’000
Total
equity
$’000
Balance 1 July 2021(11, 4 0 5 )(130,978)36,058(3,773)–(110 , 0 9 8 )1,04 4,937149,1211,083,960–1,083,960
Profit after tax for the period––––––59,627–59,627(3,547)56,080
Foreign currency translation differences – foreign
operations193–––
–193––193–193
Changes in cash flow hedges taken to equity––––637637––637(157)480
Listed investment – fair value movement–( 7, 8 0 4)–––( 7, 8 0 4)––( 7, 8 0 4)–( 7, 8 0 4)
Total comprehensive income for the period193( 7, 8 0 4)––637(6,974)59,627–52,653(3,704)48,949
Transactions with owners in their capacity as owners:
Issue of ordinary shares ––––
–––4545–45
Share issue costs–––––––(9)(9)–(9)
Employee withholding tax payments ––(249)––(249)––(249)–(249)
Treasury shares purchased–––(13,30 6)–(13,30 6)––(13,30 6)–(13,30 6)
Treasury shares transferred–––93–93––93–93
Share-based payments––4,566––4,566––4,566–4,566
Acquisition of subsidiary –––––––––22,57822,578
Income tax––6––6––6–6
Total transactions with owners––4,323(13,213)–(8,890)–36(8,854)22,57813,724
Balance 31 December 2021(11, 212)(138,782)40,381(16,986)637(125,962)1,104,564149,1571,127,75918,8741,14 6,633
The accompanying notes form part of these financial statements.
15
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
Attributable to owners of the CompanyAttributable to owners of the Company
Six months ended 31 December 2021
Foreign
currency
translation
reserve
$’000
Fair value
revaluation
reserve
$’000
Employee
equity settled
payments
reserve
$’000
Treasury
shares
reserve
$’000
Hedging
reserve
$’000
Total
reserves
$’000
Retained
earnings
$’000
Share
capital
$’000
Total
$’000
Non-controlling
interests
$’000
Total
equity
$’000
Balance 1 July 2021(11, 4 0 5 )(130,978)36,058(3,773)–(110 , 0 9 8 )1,04 4,937149,1211,083,960–1,083,960
Profit after tax for the period––––––59,627–59,627(3,547)56,080
Foreign currency translation differences – foreign
operations193–––
–193––193–193
Changes in cash flow hedges taken to equity––––637637––637(157)480
Listed investment – fair value movement–( 7, 8 0 4)–––( 7, 8 0 4)––( 7, 8 0 4)–( 7, 8 0 4)
Total comprehensive income for the period193( 7, 8 0 4)––637(6,974)59,627–52,653(3,704)48,949
Transactions with owners in their capacity as owners:
Issue of ordinary shares ––––
–––4545–45
Share issue costs–––––––(9)(9)–(9)
Employee withholding tax payments ––(249)––(249)––(249)–(249)
Treasury shares purchased–––(13,30 6)–(13,30 6)––(13,30 6)–(13,30 6)
Treasury shares transferred–––93–93––93–93
Share-based payments––4,566––4,566––4,566–4,566
Acquisition of subsidiary –––––––––22,57822,578
Income tax––6––6––6–6
Total transactions with owners––4,323(13,213)–(8,890)–36(8,854)22,57813,724
Balance 31 December 2021(11, 212)(138,782)40,381(16,986)637(125,962)1,104,564149,1571,127,75918,8741,14 6,633
The accompanying notes form part of these financial statements.
FINANCIAL STATEMENTS
16
Six months ended
31 December 2020
Foreign
currency
translation
reserve
$’000
Fair value
revaluation
reserve
$’000
Employee
equity
settled
payments
reserve
$’000
Treasury
shares
reserve
$’000
Total
reserves
$’000
Retained
earnings
$’000
Share
capital
$’000
Total
equity
$’000
Balance 1 July 2020(12,478)3,64041,719(10,031)22,850964,279146,9331,13 4,0 62
Profit after tax for the
period–––––120,0 43–120,0 43
Foreign currency
translation differences
– foreign operations(1,728)–––(1,728)––(1,728)
Listed investment
– fair value movement–(65,688)––(65,688)––(65,688)
Total comprehensive
income for the period(1,728)(65,688)––( 6 7, 416 )120,0 43–52,627
Transactions with
owners in their capacity
as owners:
Issue of ordinary shares––––––159159
Share issue costs––––––(15)(15)
Treasury shares
transferred––(1,710)1,710––––
Options exercised––––––1,5121,512
Share-based payments––(927)–(927)––(927)
Income tax––(693)–(693)––(693)
Total transactions with
owners––(3,330)1,710(1,620)–1,65636
Balance
31 December 2020(14,206)(62,048)38,389(8,321)(4 6,18 6)1,084,322148,5891,18 6,725
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
17
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
Notes
31 Dec 21
$’000
30 Jun 21
$’000
Assets
Current assets
Cash and short-term deposits747,170875,150
Trade and other receivables79,62265,284
Prepayments52,77927, 819
Inventories6127,914112, 20 4
Other financial assets10480–
Income tax receivable40,92416,435
Total current assets1,048,8891,096,892
Non-current assets
Trade and other receivables2,692–
Property, plant and equipment7243,28617,16 2
Right-of-use assets13,95515,302
Investment property16,00916,614
Intangible assets8109,35615,137
Other financial assets10149,99915 7, 8 0 3
Prepayments3,102–
Deferred tax assets25,19 453,101
Total non-current assets563,593275 ,119
Total assets1,612,4 821, 37 2, 011
Liabilities
Current liabilities
Trade and other payables313,741266,296
Customer contract liabilities55,6654,746
Lease liabilities4,2323,648
Loans and borrowings913,794–
Total current liabilities3 8 7, 4 32274,69 0
Non-current liabilities
Trade and other payables1,301511
Lease liabilities10,91012,850
Loans and borrowings966,206–
Total non-current liabilities78,41713,361
Total liabilities465,84928 8,051
Net assets1,14 6,6331,083,960
Equity
Share capital5149,157149,121
Retained earnings1,104,5641,04 4,937
Reserves(125,962)(110 , 0 9 8 )
Total equity attributable to owners of the Company1,127,7591,083,960
Non-controlling interests18,874–
Total equity1,14 6,6331,083,960
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
AS AT 31 DECEMBER 2021
FINANCIAL STATEMENTS
18
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
Notes
31 Dec 21
$’000
31 Dec 20
$’000
Cash flows from operating activities
Receipts from customers673,419684,581
Payments to suppliers and employees(5 4 6,13 4)( 6 27, 4 61)
Interest received1,6552,114
Interest paid(512)(337)
Taxes paid(30,022)(68,070)
Net cash inflow/(outflow) from operating activities1298,406(9,173)
Cash flows from investing activities
Payments for property, plant and equipment(2,407)(4,273)
Payment for investment property(58)(16,352)
Payments for intangible assets(48)(3,674)
Acquisition of subsidiary13(213,74 6)–
Payment for listed investment–(39,8 41)
Net cash outflow from investing activities(216,259)(6 4 ,14 0)
Cash flows from financing activities
Payments of lease principal(2,008)(1,627)
Purchase of treasury shares(13,30 6)–
Proceeds from issue of equity shares5361,656
Net cash (outflow)/inflow from financing activities(15,278)29
Net decrease in cash and short-term deposits(133,131)(73,284)
Cash and short-term deposits at the beginning of the period875,15085 4,178
Effect of exchange rate changes on cash5,151(6, 251)
Cash and short-term deposits at the end of the period747,170774,643
The accompanying notes form part of these financial statements.
19
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021
1. Basis of preparation
The a2 Milk Company Limited (the Company) and its subsidiaries
(together the Group) is a for-profit entity incorporated and
domiciled in New Zealand.
The Company is registered in New Zealand under the Companies
Ac t 1993 and is an FMC reporting entity under the Financial
Markets Conduct Act 2013. The Company is also registered as a
foreign company in Australia under the Corporations Act 2001
(Cth, Australia). The shares of The a2 Milk Company Limited are
publicly traded on New Zealand’s Exchange (NZX), the Australian
Securities Exchange (ASX) and Chi-X Australia (Chi-X). The
financial report is presented in New Zealand dollars, and all
values are rounded to the nearest thousand ($’000), unless
otherwise indicated.
The principal activity of the Company is the sale of branded
products in targeted markets made with milk naturally containing
the A2 protein type.
These consolidated financial statements were authorised for issue
by the directors on 20 February 2022.
Statement of compliance
These interim financial statements have not been audited. The
interim financial statements have been prepared in accordance
with Generally Accepted Accounting Practice in New Zealand,
comply with NZ IAS 34 Interim Financial Reporting and IAS 34
Interim Financial Reporting, and have been the subject of a
review by the auditors.
This interim report should be read in conjunction with the
Group’s annual report for the year ended 30 June 2021, available
at www.thea2milkcompany.com/results.
The same accounting policies and methods of computation are
followed in this interim report as were applied in the preparation
of the Group’s financial statements for the year ended 30 June
2021, or if new in the period are included in the relevant note.
Certain comparative amounts have been reclassified to conform
with the current period’s presentation.
Changes in significant accounting policies
The Group has applied all of the new and revised Standards and
Interpretations issued by the New Zealand External Reporting
Board that are relevant to the Group’s operations and effective
for the current accounting period. Their application has not had
any material impact on the Group’s assets, profits or earnings per
share for the half-year ended 31 December 2021.
New standards and interpretations not yet
adopted
There are no new standards and interpretations that are issued,
but not yet effective as at 31 December 2021, that are expected
to have a material impact on the Group in current or future
reporting periods.
2. Operating segments
The Group’s key performance measures are segment revenue
and segment results before interest, tax, depreciation and
amortisation (Segment EBITDA, a non-GAAP measure). Further
information and analysis of performance can be found in the
Operating and financial review, which forms part of this interim
report.
For management purposes, the Group is organised into business
units based primarily on geographical location along with a
corporate function, and in the current financial year has four
reportable operating segments as follows:
—The Australia and New Zealand segment receives external
revenue from infant formula, milk and other dairy products,
along with royalty, licence fee and rental income.
—The China and Other Asia segment receives external revenue
from infant formula, milk and other dairy products.
—The USA segment receives external revenue from milk sales
and licence fees.
—The Mataura Valley Milk segment (from acquisition on 30 July
2021) receives external revenue from the manufacturing and
sale of nutritional and commodity products.
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
assessed on segment EBITDA and is measured in conformity with
the accounting policies adopted for preparing and presenting the
financial statements of the Group.
FINANCIAL STATEMENTS
20
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
2. Operating segments (continued)
Australia and
New Zealand
China and
Other AsiaUSA
Mataura
Valley MilkTotal
Six months to 31 December 2021$’000$’000$’000$’000$’000
Consolidated sales281,671306,30732,25938,560658,797
Other revenue1,596–153–1,749
Reportable segment revenue283,267306,30732,41238,560660,546
Reportable segment results
(Segment EBITDA)96,24159,387(16,429)(10,019)129,18 0
Corporate EBITDA(31,607)
Group EBITDA97, 5 7 3
Reconciliation to consolidated statement of comprehensive income
Interest income1,740
Interest expense(627)
Depreciation and amortisation(8,234)
Income tax expense(34,372)
Consolidated profit after tax56,080
Australia and
New Zealand
China and
Other AsiaUSATotal
Six months to 31 December 2020$’000$’000$’000$’000
Consolidated sales316,459325,9853 4,102676,546
Other revenue734–82816
Reportable segment revenue317,193325,9853 4,18 46 7 7, 3 6 2
Reportable segment results
(Segment EBITDA)117, 4 5 694,355(11, 610 )200,201
Corporate EBITDA(21,678)
Group EBITDA178,523
Reconciliation to consolidated statement of comprehensive income
Interest income2,114
Interest expense(366)
Depreciation and amortisation(3,200)
Income tax expense( 5 7, 028 )
Consolidated profit after tax120,0 43
21
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
3. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical location (reportable segments) and major product types.
Australia and
New Zealand
China and
Other AsiaUSA
Mataura
Valley MilkTotal
Six months to 31 December 2021$’000$’000$’000$’000$’000
Infant nutrition:
China label–188,701––188,701
English and other labels
1
179,8 87102,381––282,268
Liquid milk8 7, 0 8 85,53632,259–124,8 83
Other16,2929,68915338,56064,694
283,267306,30732,41238,560660,546
Australia and
New Zealand
China and
Other AsiaUSATotal
Six months to 31 December 2020$’000$’000$’000$’000
Infant nutrition:
China label–213,071–213,071
English and other labels
1
209,539103,506–313,0 45
Liquid milk86,8743,6833 4,102124,659
Other20,7805,7258226,587
317,193325,9853 4,18 46 7 7, 3 6 2
1 Revenue is allocated based on management responsibility and usually reflects the geographical location of the Group’s wholesale customers. It is understood
that the majority of the infant nutrition sales to customers in the Australia and New Zealand segment are ultimately consumed in China.
4. Expenses
31 Dec 21
$’000
31 Dec 20
$’000
Profit before income tax includes the following significant items:
Salary and wage costs38,09328,587
Equity settled share-based payments4,566(927)
Professional service fees12,3343,267
Insurance11,15 09,905
Depreciation and amortisation8,2343,200
Net foreign exchange loss3,5735,600
Mataura Valley Milk Limited acquisition costs (refer Note 13)–4,509
FINANCIAL STATEMENTS
22
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
5. Share capital
Movements in contributed equity:Number of shares
Share Capital
$’000
Fully paid ordinary shares:
Balance 30 June 2021743,410,79 0 149,121
Movements in the period:
Gift shares29,778–
Vesting of time-based rights201,636–
Share match programme14,32445
Share issue costs–(9)
245,73836
Balance 31 December 2021743,656,528 149,157
Gift shares: Shares issued to employees not participating in the Company’s Long Term Incentive plans. Each participating employee
received Company shares to the value of approximately A$1,000.
Vesting of time based rights: Shares issued to participating employees continuing in employment to a vesting date in the period.
Share match programme: Shares purchased by employees in the period from their after-tax pay. The Company will match the number
of shares acquired and retained; subject to continuing employment to September 2022.
Treasury Shares
As at 31 December 2021, the trustee of the a2MC Group Employee Share Trust held 2,551,368 of the Company’s shares
(30 June 2021: 362,823 shares) purchased on market and available solely to participants in Group employee share plans.
6. Inventories
31 Dec 21
$’000
30 Jun 21
$’000
Raw materials11, 26 916,309
Finished goods105,83789,579
Goods in transit10,8086,316
Total inventories at the lower of cost and net realisable value127,914112, 20 4
The inventory balance at 31 December 2021 includes $30,819,000 of inventory held by MVM (30 June 2021: $Nil). Excluding this
balance, inventory balances have reduced from the levels of 30 June 2021 as a consequence of the actions taken to improve channel
inventory dynamics and address excess inventory issues.
During the period $4.4 million (2020: $23.3 million) was recognised as an expense in cost of sales for inventories written down to net
realisable value.
7. Property, plant and equipment
31 December 2021
Land
$’000
Buildings
$’000
Office &
computer
$’000
Furniture &
fittings
$’000
Leasehold
improvements
$’000
Plant &
equipment
$’000
Total
$’000
Carrying amount 1 July 2021––9368144,01011, 4 0217,16 2
Acquisition of subsidiary (Note 13)8,76351,1622,247––166,741228,913
Additions––189301242,0642,407
Depreciation–(534)(571)(87)(489)(3,380)(5,0 61)
Net foreign currency exchange
differences––(2)9(5)(137)(135)
Carrying amount
31 December 20218,76350,6282,7997663,640176,69 0243,286
Cost8,76351,1624,5071,2295,598188,809260,068
Accumulated depreciation–(534)(1,708)(463)(1,958)(12,119 )(16,782)
Carrying amount
31 December 20218,76350,6282,7997663,640176,69 0243,286
23
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
8. Intangible assets
31 December 2021
Patents
$’000
Trademarks
$’000
Software
$’000
Goodwill
$’000
Total
$’000
Carrying amount 1 July 2021 8063,8122,3478 ,17215,137
Acquisition of subsidiary (Note 13) ––94394,07895,021
Additions48–––48
Amortisation (35)–(683)–(718)
Net foreign currency
exchange differences ––(24)(108)(132)
Carrying amount
31 December 2021 8193,8122,583102,142109,356
Cost 1,4573,8124,905102,142112, 316
Accumulated amortisation
and impairment (638)–(2,322)–(2,960)
Carrying amount
31 December 20218193,8122,583102,142109,356
9. Loans and borrowings
31 Dec 21
$’000
30 Jun 21
$’000
Current
Unsecured:
Loan from related party13,794–
Non-current
Secured:
Bank loan30,000–
Unsecured:
Loan from related party36,206–
66,206–
All of the loans and borrowings are specific to Mataura Valley Milk Limited (MVM) and are interest bearing.
The bank loan is secured against MVM’s property at Pease Street, Gore, New Zealand, and is subject to compliance with financial
covenants related solely to MVM. The bank loan matures in July 2024. The interest rate applicable as at 31 December 2021
was 1.96% pa.
Total bank debt facilities of $75 million are available, of which $30 million was drawn as at 31 December 2021. The related party loan
is provided by China Animal Husbandry Group. Refer Note 15.
Recognition and measurement
Interest bearing loans and borrowings are initially recognised at fair value at transaction date, less directly attributable transaction
costs, and subsequently measured at amortised cost using the effective interest rate method.
FINANCIAL STATEMENTS
24
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
10. Other financial assets
31 Dec 21
$’000
30 Jun 21
$’000
Current
Foreign currency forward contracts480–
Non-current
Listed investment149,99915 7, 8 0 3
Recognition and measurement
Foreign currency forward contracts are stated at fair value, calculated by reference to current forward exchange rates for contracts
with similar maturity profiles, adjusted to reflect the credit risk of the various counterparties.
Refer Note 17 for the Group’s foreign currency risk management policy.
Listed investment
The listed investment is a 19.8% holding of shares in Synlait Milk Limited (Synlait), a dairy processing company listed on the NZX and
the ASX.
A fair value loss of $7,804,000 (2020: loss $65,688,000) was recognised for the period, recognised through other comprehensive
income in the Fair Value Revaluation Reserve within equity.
Shareholding in
Synlait Milk Limited
Shares
‘000
Cost
$’000
Share price at
report date
$
Market
Value
$’000
Mark to
market
$’000
Movements in the period
Balance 30 Jun 202143,353288,7813.6415 7, 8 0 3(130,978)
Balance 31 Dec 202143,353288,7813.46149,999(138,782)
Fair value loss in period( 7, 8 0 4)
11. Financial instruments
Carrying amounts versus fair value
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position,
are as follows:
31 December 202130 June 2021
Hierarchy level
Carrying
amount
$’000
Fair
Value
$’000
Carrying
amount
$’000
Fair
Value
$’000
Cash and short-term deposits747,170747,170875,150875,150
Trade and other receivables82,31482,31465,28465,284
Foreign currency forward contracts2480480––
Listed investment1149,999149,99915 7, 8 0 315 7, 8 0 3
Secured bank loan2(30,000)(30,000)––
Related party loan2(50,000)(50,000)––
Trade and other payables(293,16 4)(293,16 4)(248,370)(248,370)
606,799606,799849,867849,867
25
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
11. Financial instruments (continued)
Fair value hierarchy
Financial instruments carried at fair value are classified by valuation method based on the following hierarchy:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Carrying amount (equalling fair value) is applied consistently in the current and prior year to assets and liabilities not recognised in the
statement of financial position at fair value.
Estimation of fair value
The following methods and assumptions are used in estimating the fair values of financial instruments:
—Listed investment: closing share price on the NZX
—Foreign currency forward contracts: calculated by reference to current forward exchange rates for contracts with similar maturity
profiles, adjusted to reflect the credit risk of the various counterparties
—Loans and borrowings: present value of future principal and interest cash flow, discounted at the market rate of interest at the
reporting date; and
—Cash and short-term deposits, trade and other receivables and payables: carrying amount equals fair value.
12. Reconciliation of after tax profit with net cash flows from operating activities
31 Dec 21
$’000
31 Dec 20
$’000
Net profit for the period56,080120,0 43
Adjustments for non-cash items:
Depreciation and amortisation8,2343,200
Share-based payments4,566(927)
Gift shares satisfied by issue of Treasury shares93–
Net foreign exchange (gain)/loss(4,483)4,687
Net gain on disposals–(2)
Deferred tax27,91310, 851
Changes in working capital:
Trade and other receivables(3,171)6,395
Prepayments(20,137)10,912
Inventories( 7, 5 4 8 )(51, 226)
Trade and other payables33,538(90,053)
Customer contract liabilities27, 0 0 5(454)
Income tax payable–(16,328)
Income tax receivable(23,684)(6,271)
Net cash inflow/(outflow) from operating activities98,406(9,173)
FINANCIAL STATEMENTS
26
13. Mataura Valley Milk Limited acquisition
On 30 July 2021, The a2 Milk Company Limited (a2MC) acquired a 75% controlling interest in Mataura Valley Milk Limited (MVM), a
dairy nutrition business, located in Southland, New Zealand.
The acquisition will enable the Group to participate in nutritional products manufacturing, provide supplier and geographical
diversification, and strengthen relationships with key strategic partners in China.
Fair value of identifiable assets and (liabilities) acquired
Fair Value
provisional recognition
on acquisition
$’000
Cash and cash equivalents54,760
Trade and other receivables22,590
Inventories8 ,161
Property, plant and equipment228,913
Right-of-use assets642
Intangible assets943
Trade and other payables(38,361)
Borrowings – external(30,000)
Borrowings – shareholder loans(156,694)
Lease liabilities(642)
Net identifiable assets acquired9 0,312
Less: non-controlling interests(22,578)
a2MC’s share of net identifiable assets6 7,7 3 4
Assets and liabilities are measured on a provisional basis. If new information is obtained within one year of the date of acquisition
about facts and circumstances that existed at the date of acquisition, requiring adjustment to assets and liabilities, the accounting for
the acquisition may be revised.
Accounting policy for non-controlling interests
The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable assets. For the non-controlling interests in MVM the Group has elected to
recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets.
Total consideration paid and goodwill on acquisition
$’000
Net identifiable assets acquired6 7,7 3 4
Loan payable to a2MC in net assets acquired106,694
174,428
Goodwill 94,078
Total consideration paid 268,506
Goodwill comprises the value of expected strategic synergies arising from the acquisition including access to manufacturing margins
and the ability to provide more flexibility for product supply, based on this recently constructed world-class nutritional products
manufacturing facility with an established workforce, and access to a growing productive milk pool. It is not deductible for tax
purposes.
Goodwill is allocated to the cash generating units (CGUs) that are expected to benefit from the synergies of the business combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.
Total goodwill of $94,078,000 has been allocated to the following CGUs: Australia and New Zealand: $42,348,000; China
$51,730,000.
For the five months ended 31 December 2021, MVM contributed revenue of $38,560,000 and a loss of $14,187,000 to the Group’s
results. If the acquisition had occurred on 1 July 2021 management estimate that, for the six month period, consolidated revenue
would have been greater by $11,866,000 and consolidated profit would have been less by $5,610,000. In determining these amounts
management has assumed that the financing arrangements applicable from 30 July 2021 applied as if the acquisition had occurred on
1 July 2021.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
27
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
13. Mataura Valley Milk Limited acquisition (continued)
The net outflow of cash on acquisition of $213,746,000 consisted of the total consideration paid of $268,506,000, less cash balances
acquired of $54,760,000.
Acquisition-related costs
No acquisition related costs were paid in the period. Total acquisition-related costs of $10,376,000 were incurred in the year ended 30
June 2021 and included in Other expenses in the consolidated statement of comprehensive income and in operating cash flows in the
consolidated statement of cash flows.
Recognition and measurement
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the
acquiree.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised
for non-controlling interests, over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed.
Acquisition-related costs are expensed as incurred and included in profit or loss as Other expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
14. Share-based payments
Long-term incentives (LTI)
The LTI plan is designed to retain and motivate senior management to achieve the Group’s long term strategic goals
by providing rewards that align the interests of senior management with shareholders.
During the period the Board authorised the issue of 4,355,314 performance rights to senior management under the LTI plan.
The issue of performance rights under the LTI plan was temporarily deferred in FY21. To accommodate the deferral of the LTI
programme in FY21, the performance rights issued in the period are in two tranches, with differing performance periods and
performance hurdles as set out below.
The performance rights vest subject to:
—Continuing employment; and
—Achieving the following performance hurdles over the performance periods.
Revenue CAGR hurdles
Performance
rights grants:Performance periodEPS CAGR50% vest85% vest100% vest
Tranche 1 (FY21 plan)
1,955,113 rights
2 years to
30 June 202320%7. 5%10%12.5%
Tranche 2 (FY22 plan)
2,400,201 rights
3 years to
30 June 202420%6%8%10%
FINANCIAL STATEMENTS
28
14. Share-based payments (continued)
Both the minimum EPS CAGR (compound annual growth in diluted earnings per share) and minimum Revenue CAGR (compound
annual growth in normalised sales) must be achieved for any vesting of performance rights. The minimum vesting proportion
is 50%; thereafter, vesting is on a straight-line basis.
EPS CAGR and Revenue CAGR are derived from the annual report of the Company for the relevant financial years and subject to
adjustment to remove the impact of such items as the Board may determine, including, without limitation, adjustments made to
exclude the impact of unusual or one-off items, discontinued operations, and acquisitions and disposals.
No amount is payable upon vesting of the performance rights and conversion to shares. Each exercised right is an entitlement to one
fully paid ordinary share in the Company.
Fair value of performance rights
The fair value of services received in return for performance rights granted to employees is measured by reference to the fair value of
the rights granted. The estimate of the fair value of the services received is measured by reference to the vesting conditions specific to
the grant based on a simplified Black-Scholes option pricing model.
Performance rights
Fair value of performance rights granted during the period and assumptionsTranche 1Tranche 2
Grant date22 Oct 2122 Oct 21
Fair value at measurement date$7.18$7.18
Share price at grant date$7.18$7.18
Performance rights life1.8yrs2.8yrs
Other employee equity schemes
In the period, employees not participating in the LTI plan were invited to participate in a Gift offer scheme in which employees each
received Company shares to the value of approximately A$1,000.
Amounts recognised in the consolidated statement of comprehensive income
During the period a $4,566,000 expense was recognised in the consolidated statement of comprehensive income for equity settled
share-based payment awards (2020: ($927,000)).
15. Related party transactions
On 30 July 2021 the Company acquired a 75% controlling interest in Mataura Valley Milk Limited (refer Note 13).
The 25% non- controlling interest is held by China Animal Husbandry Group (CAHG), a company registered in China.
Transactions with related parties
Six months to 31 Dec 21
$’000
Sale to CAHG of whole milk powder3,705
Outstanding balances with related parties
31 Dec 21
$’000
Prepayments from CAHG for supply of whole milk powder20,651
Loan from CAHG50,000
Sales are made at arm’s length, on standard commercial terms. Interest is charged on the loan at arm’s length commercial rates.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
29
THE
a 2 MILK COMPANY | 2022 INTERIM REPORT
16. Contingent liabilities
On 6 October 2021, The a2 Milk Company Limited (“the
Company”) announced that group proceedings had been filed in
the Supreme Court of Victoria by Slater & Gordon Lawyers,
which named the Company as the defendant. The proceeding
relates to the period from 19 August 2020 to 9 May 2021
(Relevant Period) and makes allegations that the Company
engaged in misleading and deceptive conduct and breached its
disclosure obligations by failing to disclose certain information to
the market.
The claim filed by Slater & Gordon Lawyers is said to be brought
on behalf of shareholders who acquired an interest in fully paid
ordinary shares in the Company on the Australian Securities
Exchange (ASX) or NZX Main Board (NZSX) between 19 August
2020 and 9 May 2021 (inclusive).
On 24 November 2021, the Company was served with a
representative proceeding filed in the Supreme Court of Victoria
by Shine Lawyers, which names the Company as the defendant.
The proceeding makes allegations which are broadly similar to
those advanced by the class action proceeding filed by Slater &
Gordon Lawyers on 6 October 2021.
The claim filed by Shine Lawyers is said to be brought on behalf
of group members who acquired an interest in ordinary shares in
the Company on the ASX or the NZSX: (1) prior to 19 August
2020, and retained those shares until a date after 28 September
2020; or (2) during the Relevant Period.
The Company considers that it has at all times complied with its
disclosure obligations, denies any liability and will vigorously
defend the proceedings. As at this time, the Company has not
filed a defence and is not required to do so until further order by
the Court.
The claims of group members have not yet been and are not
required to be quantified. Based on the current status of the class
action proceedings, it is not practicable to provide: (a) an
estimate of the financial effect; (b) an indication of the
uncertainties relating to the amount or timing of any outflow; or
(c) the possibility of any reimbursement.
The proceedings are next listed in the Supreme Court of Victoria
on 5 May 2022 for hearing of the carriage motion to determine
issues in relation to multiplicity.
17. Financial risk management
Foreign currency risk management
The Group’s exposure to foreign currency risk arises principally
from its operations in Australia, the US and China, and the
resultant movements in the currencies of those countries against
the NZ dollar. The Group did not hedge this risk in prior periods.
The Group adopted a policy to commence hedging a portion of
this risk in the period using derivative financial instruments such
as foreign exchange contracts, to hedge certain currency risk
exposures. Derivatives are exclusively used for hedging purposes.
The Group does not enter into or trade financial instruments,
including derivative financial instruments, for speculative
purposes.
Hedging currency risk
On entering into a hedging relationship, the Group formally
designates and documents the hedge relationship and the risk
management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging
instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes
in the hedged item’s fair value or cash flows attributable to the
hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in fair value or cash flows and are
assessed on an ongoing basis to determine that they were
actually highly effective throughout the financial reporting
periods for which they are designated.
18. Subsequent events
No other matters or circumstances have arisen since the end of
the period which have significantly affected or may significantly
affect the operations, the result of these operations or state of
affairs of the Group in subsequent periods.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
The a2 Milk Company Limited (Australian Registered Body Number 158 331 965 – Incorporated in New Zealand)
Company
The a2 Milk Company Limited
New Zealand share registry
Link Market Services Limited
PO Box 91976
Victoria Street West
Auckland 1142
New Zealand
Telephone: +64 9 375 5998
Australian share registry
Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Australia
Telephone: +61 1300 554 474
Registered offices
Level 10
51 Shortland Street
Auckland 1010
New Zealand
Level 4
182 Blues Point Road
McMahons Point NSW 2060
Australia
Telephone: +61 2 9697 7000
Auditor
Ernst & Young
200 George Street
Sydney NSW 2000
Australia
Company Secretary
Jaron McVicar
Corporate website
www.thea2milkcompany.com
Company Directors
David Hearn (Chair and Independent, Non-Executive Director)
Julia Hoare (Deputy Chair and Independent, Non-Executive Director)
David Bortolussi (Managing Director and CEO)
Pip Greenwood (Independent, Non-Executive Director)
Warwick Every-Burns (Independent, Non-Executive Director)
Bessie Lee (Independent, Non-Executive Director)
CORPORATE
DIRECTORY
thea2milkcompany.com
---
1
21 FEBRUARY 2022
The a2 Milk Company Limited
2022 INTERIM RESULTS
2
Disclaimer
This presentation dated 21 February 2022 provides additional
commentary on the Interim Report for the 6 months ended
31 December 2021 of The a2 Milk Company Limited (the
“Company” or “a2MC”) and accompanying information released
to the market on the same date. As such, it should be read in
conjunction with the explanations and views in those documents.
This presentation is provided for general information purposes
only. The information contained in this presentation is not
intended to be relied upon as advice to investors and does not
take into account the investment objectives, financial situation or
needs of any particular investor. Investors should assess their
own individual financial circumstances and consider talking to a
financial adviser or consultant before making any investment
decision.
This presentation is not a prospectus, investment statement or
disclosure document, or an offer of shares for subscription, or
sale, in any jurisdiction.
Certain statements in this presentation constitute forward looking
statements. Such forward looking statements involve known and
unknown risks, uncertainties, assumptions and other important
factors, many of which are beyond the control of the Company
and which may cause actual results, performance or
achievements to differ materially from those expressed or implied
by such statements.
While all reasonable care has been taken in relation to the
preparation of this presentation, none of the Company, its
subsidiaries, or their respective directors, officers, employees,
contractors or agents accepts responsibility for any loss or
damage resulting from the use of or reliance on this presentation
by any person.
Past performance is not indicative of future performance and no
guarantee of future returns is implied or given.
Some of the information in this presentation is based on
unaudited financial data which may be subject to change.
All values are expressed in New Zealand currency unless
otherwise stated.
All intellectual property, proprietary and other rights and interests
in this presentation are owned by the Company.
2 0 2 2 I N T E R I M R E S U L T S
3
Results overview4
Financial overview6
Regional performance 13
Outlook 37
Questions39
Appendix40
Contents
4
1H22 Result overview and additional updates
1
•Continuing challenging market conditions but making good progress in stabilising sales and expect to deliver revenue growth thisyear
•Results summary
‒Revenue marginally lower than 1H21 in line with guidance, down 2.5% on pcp to $661 million, up 24.8% on 2H21
‒EBITDA
2
down 45.3% on pcp to $97.6 million, EBITDA margin 14.8% in 1H22 (17.3% ex-MVM) vs 26.4% in 1H21
‒NPAT including non-controlling interest was down 53.3% on pcp to $56.1 million
‒Closing net cash was $667.2 million with high operational cash conversion during 1H22
•Operational highlights
‒China label IMF sales down due to inventory rebalancing, but consumer offtake strong and market share increased to a new high
‒English label IMF sales down but with improved trajectory in ANZ reseller channel
‒ANZ liquid milk sales up with market share increased to a new high
‒USA liquid milk sales down due to the loss of distribution in a club customer
‒MVM acquisition completed in partnership with China Animal Husbandry Group and insourcing of a2MC product commenced
•Strategy update
‒Actions to address IMF channel inventory have had a significant positive impact
‒Brand health metrics have improved further following a 37.3% increase in investment on pcp
‒Growth strategy completed and implementation underway with good early progress across key initiatives
•FY22 revenue outlook improved but not expected to translate into higher earnings as the Company significantly increases brandand other
reinvestment consistent with its growth strategy
2 0 2 2 I N T E R I M R E S U L T S
1
All figures are in New Zealand Dollars (NZ$) unless otherwise stated
2
Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-GAAP measure. However, the Company believes that it assists in providing investors with a comprehensive understanding of the underlying performance of the business.
A reconciliation of EBITDA to net profit after tax is shown onslide number 41
5
Recap of a2MC’s refreshed growth strategy with updates provided throughout
2 0 2 2 I N T E R I M R E S U L T S
Purpose
Goals
Strategic
priorities
Enablers
People
Create the safest and most diverse,
inclusive and engaging place for our
people to thrive
Sustainability
Support our farmers, protect our
planet and cows, rethink packaging
and contribute to our communities
Consumers
Bring the unique benefits of pure
and natural a2 Milk™to as many
consumers as possible
Shareholders
Create long-term, enduring value
for shareholders and a trusted,
transparent relationship
To enrich lives by harnessing the nutritional wonders of nature
Values
Bold PassionPioneering spiritRespectIntegrity
Brand strengthScience & innovationStrategic relationships
Transform our
supply chain
•Expand CL registered
market access
•Utilise MVM capability
•Develop China supply
capability over time
4
Capture full potential
in China IMF
•Gain more control over
CL and EL distribution
and get closer to our
consumer
•Increase investment in
our brand, digital
marketing and E-comm
2
Invest in people and
planet leadership
•Invest in our people to
enable them to thrive
•Take direct action to
lead the industry in
GHG emissions reduction
and farming practices
1
Ramp-up product
innovation
•Expand our CL and EL
IMF product portfolios
•Enter adjacent product
categories in relevant
markets to drive growth
3
Capability development
Accelerate path to
profitability
•Take action to realise
potential in USA
•Expedite insourcing and
3
rd
party volume to
significantly increase
MVM utilisation
5
Humility
Ambition
Rebuild a2MC into an exciting, innovative and sustainable growth company
6
F I N A N C I A L
O V E R V I E W
7
Income statement impacted by lower IMF sales, MVM and increased investment
•Net sales revenuelower than pcp impacted by the lower birth rate
and rapidly changing market dynamics in China, as well as reflecting
actions taken in 1H22 to continue rebalancing channel inventory for
China label IMF and reduced promotional activity in English label IMF,
offset by the inclusion of MVM revenue
•Gross marginpercentage of 46.2%
6
including MVM with underlying
gross margin of 50.7% excluding MVM
•Distributioncosts increased driven by significantly higher freight
rates in the USA due to driver shortages
•Marketinginvestment was a step-up from pcp consistent with growth
strategy to increase brand investment in China for the benefit of China
and English label product with a significant tactical campaign in 2Q22
cycling reduced investment in 1H21 due to COVID-19 disruption
•Admin & other reflects investment in capability, re-instatement of
bonuses and long-term incentives, professional services fees, legal
fees and higher insurance costs
•NPATreflects a higher effective tax rate than in 1H21 due to the
extent to which USA and MVM losses can be utilised and relative size
thereof, as well as the inclusion of MVM with the non-controlling
interest of $3.5 million reducing reported NPAT
2 0 2 2 I N T E R I M R E S U L T S
1
All figures quoted in New Zealand Dollars (NZ$) and all comparisons are with the 6 months ended 31 December 2020 (1H21) unless otherwise
stated. Numbers may not add down due to rounding
2
Other revenue & income comprises royalty, licence fee and rental income of $1.749 million and net finance income of $1.063 million
3
Group Revenue comprises Net Sales Revenue and other revenue
4
EBITDA is a non-GAAP measure and represents earnings before interest, tax, depreciation and amortisation
5
Earnings before interest, tax, depreciation and amortisation (EBITDA), Earnings before interest and tax (EBIT)
6
Gross margin percentage is calculated by dividing gross margin by net sales revenue
NZ$ million
1
1H221H21% change
Net Sales Revenue
658.8676.5(2.6%)
Gross margin
304.5340.5(10.6%)
GM %
46.2%50.3%
Other Revenue & Income
2
2.82.511.2%
Distribution
(24.7)(22.6)(9.6%)
Marketing
(92.5)(67.4)(37.3%)
Administration & Other
(99.6)(75.9)(31.1%)
Profit Before Tax
90.5177.1(48.9%)
Income Tax Expense
(34.4)(57.0)39.7%
NPAT
56.1120.0(53.3%)
-Attributable to owners of the Company
59.6120.0(50.3%)
-Attributable to non-controlling interests
(3.5)0.0
Group Revenue
3
660.5677.4(2.5%)
EBITDA
4,5
97.6178.5(45.3%)
EBIT
5
89.3175.3(49.0%)
EPS –diluted (cents)
8.016.2(50.4%)
8
Geographic and product segment revenue performance as expected
2 0 2 2 I N T E R I M R E S U L T S
Revenue
(NZ$ million)
ANZ
China &
Other Asia
USAMVM
Total
Group
1H22
Liquid milk
87.15.532.3-124.9
IMF
179.9291.1--471.0
Other
16.39.70.238.664.7
TOTAL
283.3306.332.438.6660.5
1H21
Liquid milk
86.93.734.1-124.7
IMF
209.5316.6--526.1
Other
20.85.70.1-26.6
TOTAL
317.2326.034.2-677.4
% Change
1
Liquid milk
+0.2%+50.3%(5.4%)-+0.2%
IMF
(14.2%)(8.1%)--(10.5%)
Other
(21.6%)+69.2%+86.5%-+143.3%
TOTAL
(10.7%)(6.0%)(5.2%)-(2.5%)
1
Group revenue growth includes MVM, growth excluding MVM is 8.2% lower than pcp
9
Gross margin of 46.2% reflecting evolving business mix
•Gross margin percentage of 46.2%
including MVM, with underlying gross
margin of 50.7% excluding MVM
•MVM has a dilutive impact on GM% owing
to current negative margin on commodity
products, including manufacturing
depreciation within COGS
•Several other factors have contributed to
1H22 GM% namely the inclusion of MVM,
adverse product mix and cost headwinds,
particularly raw milk and freight costs
partially offset by price increases
2 0 2 2 I N T E R I M R E S U L T S
Gross margin drivers
82%
82%
82%
78%
73%
71%
13%
13%
13%
18%
22%
19%
5%
5%
5%
4%
5%
10%
Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
IMFLiquid milkOther
6%
12%
16%
24%
39%
40%
20%
18%
22%
23%
24%
18%
22%
78%
76%
66%
61%
52%
43%
38%
FY16FY17FY18FY19FY20FY211H22
China labelCBEC & other labelsANZ reseller
1H22 higher proportion of other products
with inclusion of MVM
1H22 higher proportion of China
label IMF
China labelCBEC & other labelsANZ reseller
10
Marketing investment increased significantly consistent with growth strategy
•Group marketing investment +37.3%
in 1H22 vs pcp reflecting a significant
step-up in China ATL brand investment
as well as BTL activation in line with
refreshed growth strategy
•Incremental increase in ANZ and USA
marketing investment in connection
with new brand campaigns launched
in 1H22
•Higher SG&A costs driven by capability
investment, re-instatement of short and
long term incentives, professional
services fees, legal fees and higher
insurance costs
2 0 2 2 I N T E R I M R E S U L T S
23
17
6
12
7
16
19
14
15
16
45
74
47
74
70
84
110
67
101
93
1H202H201H212H211H22
USAANZChina
93
92
76
106
100
1H202H201H212H211H22
Marketing and SG&A drivers
Administrative and other expenses
NZ$ million
Marketing investment increased vs pcp
NZ$ million
11
Balance sheet remains strong post MVM acquisition
•Cash balance of $747.2 million after purchasing MVM for $268.5
million, partially offset by net cash inflows from operating activities
•Inventoryincorporates $30.8 million of MVM stock. Excluding this,
inventory is lower than pcp and all distributor stock is in line with
target levels
•Other current assets includes income tax receivables of $40.9 million,
and prepayments of $52.8 million mostly related to IMF production and
MVM farmer payments
•Property, plant & equipment includes $228.9 million of manufacturing
assets purchased as part of the MVM acquisition
•Intangible assets includes $94.1 million of goodwill arising on the
acquisition of MVM which has been allocated to the China and ANZ
cash generating units
•Debt of $80 million associated with the MVM acquisition as a
consequence of the ownership structure. This includes a term facility
of $30 million and a $50 million China Animal Husbandry Group
(CAHG) loan
•Consolidated net cashposition of $667.2 million (ie cash of $747.2
million less debt of $80 million)
2 0 2 2 I N T E R I M R E S U L T S
NZ$ million1H222H21% change
Cash and short-term deposits747.2875.2(14.6%)
Trade and other receivables79.665.322.0%
Inventories127.9112.214.0%
Other current assets94.244.3112.8%
Total current assets1,048.91,096.9(4.4%)
Property, plant & equipment243.317.21,317.6%
Intangible assets109.415.1622.4%
Other non-current assets
210.9242.8(13.1%)
Total non-current assets
563.6275.1104.9%
TOTAL ASSETS
1,612.51,372.017.5%
Trade and other payables
313.7266.317.8%
Other current liabilities
73.78.4777.9%
Total current liabilities
387.4274.7(41.0%)
Total non-current liabilities
78.413.4(486.9%)
TOTAL LIABILITIES
465.9288.1(61.7%)
NET ASSETS
1,146.61,084.05.8%
12
High operating cash flow driven by working capital movements
•Cash flows from operating activities
‒High operational cash conversion of 130%
1
, driven by an
improvement in non-tax working capital and includes the
timing benefit of advance payments from certain customers
due to COVID-19 impacts
‒Outflows relating tothe timing of tax instalments, some of
which are expected to be recouped as refunds within the
next 12 months
•Cash flows from investing activities
‒Consideration for 75% interest in MVM (net of cash
balances acquired)
‒Payments in relation to other assets (primarily purchases
of property, plant and equipment)
•Cash flows from financing activities
‒Treasury shares purchased on market during the period,
available solely to participants in Group employee share plans
2 0 2 2 I N T E R I M R E S U L T S
NZ$ million1H221H21% change
Cash flows from operating activities
Receipts from customers673.4684.6(1.6%)
Payments to suppliers and employees(546.1)(627.5)(13.0%)
Net interest flows and taxes paid(28.9)(66.3)(56.4%)
Net operating cash flows 98.4(9.2)nm
Cash flows from investing activities
Acquisition of subsidiary(213.7)-nm
Payment for listed investment-(39.8)nm
Payment for investment property
-(16.4)nm
Payment for other assets
(2.5)(7.9)(69.1%)
Net cash flows from investing activities
(216.3)(64.1)237.2%
Net cash flows from financing activities
(15.3)-nm
Net decrease in cash
(133.1)(73.3)81.7%
Cash at the beginning of the period
875.2854.22.5%
Effect of exchange rate changes on cash
5.2(6.3)nm
Closing cash at the end of the period
747.2774.6(3.5%)
1
Calculated as (Net operating cash flow before tax and interest flows) / EBITDA
13
13
R E G I O N A L
P E R F O R M A N C E
14
China IMF challenging market dynamics and trends continue
•IMF market dynamics in China continue to be challenging. Following an 18.1% decrease in
births in 2020, there was a further 11.5% decrease in 2021 to 10.6 million
1
•Several years of fewer newborns is having a cumulative impact on the size of the IMF market.
The overall IMF market in China decreased by 5.0% in volume terms in 1H22
2
, with the
decline in early stage products partly offset by growth in Stage 4
•China IMF market value decreased 3.3%
2
as the impact of reduced volume and increased
promotional activity was only partly offset by the ongoing premiumisation trend (including
consumers trading-up and new product innovation) and the mix shift to higher-priced China
label channels. However, the ultra-premium segment in China remained in growth with the
A2 protein segment performing significantly above market
•Within the IMF market, there is a strong divergence in performance between Key&A and BCD
cities, with Key&A market value down 6.6%
2
and BCD market value broadly flat
•Brands that resonate with consumers continue to perform well in this climate, in particular,
domestic brands Feihe, Junlebao and Yili, as well as a2
®
which is one of the few international
brands continuing to grow share
•The market trends observed are in-line with the Company’s expectations and reaffirm the
strategic priorities identified to deliver on IMF growth ambitions
•Despite the challenging China IMF market dynamics, a2MC performance in 1H22 in China
label IMF was encouraging and performance in English label IMF was stabilising
2 0 2 2 I N T E R I M R E S U L T S
1
Source: China National Bureau of Statistics
2
Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A+ BCD cities) for the 52 weeks ending 31 December 2021
15
40
73
147
213
189
44
95
191
177
84
168
338
390
189
FY18FY19FY20FY21FY22
1H2H
Strong underlying consumer demand
China label IMF sales impacted by inventory rebalancing but consumer offtake strong
•Although 1H22 net sales revenue of a2 至初
®
China label infant nutrition was down
11.4% vs pcp to $188.7 million, this was largely driven by planned efforts to
rebalance inventory levels through the Company constraining sales to distributors
during 1Q22. Sales in 1Q22 were down significantly on pcp and 2Q22 sales
increased vs pcp
•Importantly, Nielsen data indicates a2MC retail sales within MBS stores were up
11% and Smart Path data suggests DOL sales were up 17% in 1H22 vs pcp
•This is reflected in the Company’s channel shares on an MAT basis, with MBS
value share increasing to 2.6%
1
and DOL value share increasing to 2.1%
2
.
Performance in more recent months is stronger with MBS monthly value share in
December reaching a new high of 3.2%
•Strong consumer offtake and market share is being driven by the Company’s
growth strategy, including increased BTL investment in brand ambassadors, mama
classes, roadshows and in-store activations, as well as increased ATL investment in
an integrated marketing campaign in 2Q22 with revised marketing mix with greater
emphasis on digital and OOH
2 0 2 2 I N T E R I M R E S U L T S
China label net sales revenue
NZ$ million
1
Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value)
2
Smart Path China IMF online market tracking: domestic online platform sales (by value)
16
Distribution expanded with improvement in like-for-like sales
2 0 2 2 I N T E R I M R E S U L T S
a2MC China distribution (store count ‘000)
1
Expanding store footprint
1
a2MC internal data and tracking of stores with active sales in the past 6 months
Improvement in growth in LFL stores
INDICATIVE
a2MC CL IMF distributor sell-out to stores (units)
1
17
Growth reflected in MBS share gains in both Key&A and BCD cities
2 0 2 2 I N T E R I M R E S U L T S
Source: Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value)
1.3%
1.7%
2.0%
2.4%
2.5%
2.6%
Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
a2MC MBS MAT value share (%)
National MBS value share Key&A MBS value share BCD MBS value share
a2MC Key&A 6-month MBS value share (%)
Growth drivers
•Key&A MBS market value: Declined by 18%
on a 6-month basis in 1H22 vs 1H21
•a2MC retail sales: Remained flat during this
period, resulting in share gains
a2MC BCD 6-month MBS value share (%)
Growth drivers
•BCD MBS market value: Grew by 3% on a 6-
month basis in 1H22 vs 1H21
•a2MC retail sales: Grew at 18% during this
period, resulting in share gains
18
1.3%
1.6%
1.9%
2.0%2.0%
2.1%
Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
Increasing DOL market share with high growth in priority platforms
2 0 2 2 I N T E R I M R E S U L T S
1
Smart Path China IMF online market tracking: domestic online platform sales (by value)
2
a2MC internal data 1H21 vs 2H22
DOL value share DOL growth in priorityplatforms
a2MC CL IMF distributor sell-out to priority platforms (units)
2
a2MC DOL MAT value share
1
19
Share gains experienced across all stages in MBS and DOL
2 0 2 2 I N T E R I M R E S U L T S
Positive growth in early stage products
MBS share by stage
DOL share by stage
MBS MAT value share by stage (%)
2
DOL MAT value share by stage (%)
3
1
a2MC internal data 1H21 vs 2H22
2
Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value) across stages. 1H21 vs 1H22
3
Smart Path China IMF online market tracking: domestic online platform sales (by value) 1H21 vs 2H22
a2MC CL IMF distributor sell-out by stage (units)
1
20
Share growth supported by increased ATL and BTL brand investment
2 0 2 2 I N T E R I M R E S U L T S
Integrated marketing campaign in 2Q22BTL activation stepped up in 1H22
•Roadshows:619 high impactevents run in 1H22 (+46%vs1H21)
designed to build awareness and engagement
•Mama Classes:30.1K events run in 1H22 (+49% vs 1H21) to provide
an opportunity for deeper brand education
•Brand Ambassadors: 5.3K a2MC in-store consultants as at the end
of 1H22 to provide mothers with advice, sales and support
•In-store experiences: a2MC rolled out 96flagship stores in 1H22
•Launched integrated marketing campaign in 2Q22, with
investments across the funnel to drive awareness, engagement and
ultimately, purchase
•Campaign increased reachwith OTTacross 61 cities, OOHcovering
41 cities and digital activation generating 938K clicks
•Digital content engaged consumers, generating brand buzz, word-of-
mouth and increased brand rankings in social channels such as RED
and Babytree
•Campaign also extended into sales channel activation, including
22,000+POSMs, 200+ roadshowsand multi-screenexposure in
e-commerce channels such as Tmall, JD and VIP
21
Brand health metrics improved post 2Q22 campaign investment
2 0 2 2 I N T E R I M R E S U L T S
Brand awarenessEver trialledBrand used most often
Source: IPSOS China brand health quarterly tracker (n= 9750 respondents)
a2MC ever trialled (%)a2MC brand used most often (%)
a2MC brand awareness (%)
22
2 0 2 2 I N T E R I M R E S U L T S
CL IMF Strategic priorities
•Continue to invest in and nurture our brand
•Achieve full potential in key accounts
•Capture opportunity in lower tier cities
•Accelerate online growth
•Broaden our IMFportfolio
Update on progress
•Ran successful integrated marketing campaign,
together with increased BTL, delivering significant
gains in brand health
•Expanded key account management team to
broaden deployment of proven playbook
•Launched in-market pilots to optimise approach to
winning share in lower tier cities
•Increased investment in digital, to accelerate
growth online, particularly Tmall and JD
•Improvedpenetration of China label Stage 4,
delivering share gains from those efforts
1
2
3
4
5
Summary of progress against China label IMF strategic priorities
23
80
100
160
104
102
78
143
181
63
158
243
341
167
102
FY18FY19FY20FY21FY22
1H2H
221
322
352
210
180
261
331
393
147
482
653
745
357
180
FY18FY19FY20FY21FY22
1H2H
English label IMF sales stabilising in 1H22 with early signs of recovery
•Reduced births and challenging channel dynamics impacted English label market
volume; down 13% vs pcp (compared with 5% for the overall IMF market)
•There are signs that the channel is recovering –pricing for English label IMF (for
a2MC and other brands) has improved and there is a notable increase in engagement
from resellers
•To support channel recovery, a2MC carefully allocated supply to manage inventory
levels, reduced promotional activity and provided more support to ANZ resellers.
These actions have led to improvements in product freshness, continued uplift in pricing
and inventory levels remaining within target levels throughout the period
•The evolving channel trends throughout the half are reflected in a2MC’s performance:
‒ANZ resellers: 1H22 net sales revenue of $179.9 million was down 14.2% vs pcp
and daigou market share declined to 20.2%, with an improvement in momentum
throughout the half
‒CBEC: 1H22 net sales revenue of $102.4 million was broadly flat (down 1.1%
vs pcp), with sales being slightly weighted to 1Q22 due to “11/11” sales event.
This was a relatively good result given that there was limited a2MC funded
promotional activity during 11/11 this year compared to the prior year. CBEC value
share reduced to 19.5%, but with improved channel economics
2 0 2 2 I N T E R I M R E S U L T S
English label channel dynamics and sales drivers
ANZ English label IMF net sales revenue
NZ$ million
CBEC English label IMF net sales revenue
NZ$ million
24
English label market share decreased in 1H22 due to reduced promotional
activity and careful supply allocation
1
Smart Path China IMF online market tracking: for CBEC only retail sales (by value)
2
Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities)
2 0 2 2 I N T E R I M R E S U L T S
19.0%
20.6%
21.7%
22.2%
21.1%
19.5%
Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
24.3%
22.5%
20.2%
Jun-20Jun-21Dec-21
CBEC MAT market value share
1
Daigou MAT market value share
2
25
Actions taken in 2H21 to address excess channel inventory have resulted in
improved channel health indicators
Note: *CBEC Average price calculated excluding Pinduoduo
Source: a2MC internal data, including data collected from distributors and from publicly available EC platforms
CBECReseller Network
Age profile of distributor EL inventory holdings (Dec-21)EL Stage 1 market pricing (RMB/tin)
2 0 2 2 I N T E R I M R E S U L T S
26
Some improvement in English label brand awareness post 2Q22 brand campaign
but overall remained relatively flat
2 0 2 2 I N T E R I M R E S U L T S
Source: IPSOS China brand health quarterly tracker (n= 9750 respondents)
27
Investment in brand content increased to support reseller network
2 0 2 2 I N T E R I M R E S U L T S
Brand content on
eStores
Brand content for display
in Gift Stores
Online brand content
repository (“Merchant App”)
established for Daigou use
Daily direct content
communications
with Daigou on WeChat
a2™brand content in articles
by key Australian-Chinese
WeChat media accounts
Daigou communication
WeChat account within
articles
Advertising in key WeChat outlets
Driving brand visibility in reseller network
Engaging and supporting Daigou directly
28
Focused on driving online new user growth, with encouraging 11/11 results
2 0 2 2 I N T E R I M R E S U L T S
1.32m
English label IMF tins sold through 11/11 sales
period (+0.4m vs 6/18 2021)
185RMB
English label IMF promotion price per tin on
major CBEC platforms (incl. Tmall, JD, VIP,
Kaola) (+30 RMB vs 11/11 2020)
71k
New users recruited across Tmall Flagship
Store and JD (+52k vs 6/18 2021)
#1
CBEC IMF Flagship store on Tmall
(#2 in 11/11 2020)
Co-ordinated
Out-site and In-
site activation to
drive traffic
13 ‘Live Talk’
Sessions hosted
by Paediatricians
1,376 Hours of
Livestreams;
10 Livestreams
with major KOLs
11/11 Activation overview –English label11/11 Performance –English label
29
2 0 2 2 I N T E R I M R E S U L T S
EL IMF Strategic priorities
•Maintain tight control of English label inventory
across channels
•Remain the preferred brand for the English label
reseller network
•Accelerate online growth with omni-channel
mindset
•Focus on developing O2O channel
•Broaden our IMF portfolio
Update on progress
•Stabilised English label pricing through careful
allocation of supply, with market pricing up 20-50%
across all stages vs July-21
•Improved product freshness, with reseller
and CBEC distributors’ holdings at >18 months
shelf life
•Increased brand support to resellers, also enabling
consistent comms across channels
•Maintained online brand rankings and increased
new users whilst reducing promotional activity
during 11/11
•Grew sales in Emerging Markets with 1H22 Net
Revenue in Korea +90% vs pcp
1
2
3
4
5
Summary of progress against English label IMF strategic priorities
30
Mixed performance in Other nutritional product segment
ANZ performance
•Overall net sales revenue decline of 21.6% to $16.3 million
•Impacted by challenges in ANZ reseller channel
China & Other Asia performance
•Overall net sales revenue increase of 69.2% to $9.7 million
•Grew liquid milk in China and Other Asia by 50.3% and other nutritional
products by 69.2% demonstrating progress in executing against adjacent
growth opportunities outside of IMF
•Increased distribution in modern trade and new product launches including
UHT product and fresh milk supporting growth
Growth potential
•Further growth potential across new channels, particularly in offline
China retail channels
2 0 2 2 I N T E R I M R E S U L T S
31
11.2%
11.3%11.3%
11.7%
12.2%
12.4%
Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
67
75
87 87
67
78
82
134
153
169
87
FY19FY20FY211H22
1H2H
Continued growth in ANZ liquid milk sales and market share
Performance
•Australia liquid milk net sales revenue increased marginally, up 0.2%
to $87.1 million
•Australia achieved a market share of 12.4%
1
–a new high
•Volumes +2.8% supported in 1H22 by ongoing COVID-19 lockdowns and
increased levels of in-home consumption
•Net sales revenue impacted by adverse foreign exchange currency
movement with constant currency sales up 2.5%
•Successful trials of a2 Milk® UHT leading to a national launch in 3Q22
•Price increase implemented across all customers in 2Q22
•a2 Milk™by Anchor™achieved retail sales value growth of 8.4%
in New Zealand
Investment in brand and strong presence
•The a2 Milk® brand continues to be the only fresh milk brand ranged in all
major Australian supermarket chains
•Largest brandadvertiser in the fresh milkcategory in Australia
2 0 2 2 I N T E R I M R E S U L T S
NZ$ million
1
IRI Australian Grocery Weighted Scan 12-months ending 31 December 2021
Liquid milk net sales revenue (Australia)
Australian milk market value share
1
32
2 0 2 2 I N T E R I M R E S U L T S
ANZ Strategic priorities
•Maintain brand leadership
•Increase household penetration
•Drive product innovation
•Invest in sustainability
•Expand capacity in our supply chain
Update on progress
•Achieved top three branded SKUs in the category
in grocery withimprovement inkey brand metrics
•Recently expanded channel distribution outside of
supermarkets into convenience, including launching
in Coles Express and increasing our store
distribution in 7/11
•Launched UHT a2 Milk® in Australiawith products
to be ranged in Coles supermarkets from Feb-22
•Committed to introducing recycled content into
bottle manufacturing
•Continued to invest in Smeaton Grange capacity
and planning for Kyabramupgrade
1
2
3
4
5
Summary of progress against ANZ strategic priorities
33
USA result driven by loss of club customer, higher freight costs and adverse FX
2 0 2 2 I N T E R I M R E S U L T S
28.0
38.1
34.2
29.4
32.4
(30.0)
(20.5)
(11.6)
(21.9)
(16.4)
1H202H201H212H211H22
RevenueEBITDA
1
Restated store count metrics based on expanded data set from external data provider
Performance
•Revenue decreased by 5.2% to $32.4 million
•EBITDA loss of $16.4 million, $4.8 million higher than pcp
•Result driven by the loss in certain regions of a major club channel
customer due to private label substitution and higher freight costs
•On a constant currency basis, revenue decreased by 2.6%
•Volume growth for 1H22 was down 3%, but increased 13% excluding the
major club channel customer
•Continued growth in mainstream grocery channel with key accounts
Change in execution approach
•Following utilisation of higher trade investment in FY21 resulting in increased
range, facings and shelf positioning, commenced roll-back of price promotion
•Recently announced 11% list price increase effective in 4Q22
Innovation
•Two new products launched during the period –Hershey’s a2 Milk® and
a2 Milk® Half and Half, both have seen significantly higher than expected
listings in trade
5.4
8.2
12.4
21.0
22.0
24.0
25.9
26.8
27.0
Dec-17Jun-18Dec-18Jun-19Dec-19Jun-20Dec-20Jun-21Dec-21
Distribution over time (store count
1
)
Revenue and EBITDA
NZ$ million
34
2 0 2 2 I N T E R I M R E S U L T S
USA Strategic priorities
•Educate consumers on the a2 Milk® difference
•Increase conversion and household penetration
•Continue to drive in-store velocities
•Extend brand into new categories
•Explore participation in manufacturing
Update on progress
•New marketing campaign launchedto drive
increased awareness and new consumers to brand
•Average velocities within key accounts grew
in 1H22
•Launched a2 Milk® Half and Half which has now
been accepted in over 6.0K stores with velocities
exceeding expectations in majority of accounts
•Launched Hershey’s a2 Milk®which has now been
accepted in over 4.7K stores including over 500
Sam’s club stores
1
2
3
4
5
Summary of progress against USA strategic priorities
35
Strengthening supply chain capability with MVM investment
Performance
•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 recorded
for the five months of a2MC ownership
•MVM’s infant nutrition customers have been impacted by China IMF market
dynamics with almost all production relating to commodity product during 1H22
Actions being taken to improve MVM utilisation and profitability
•a2 Milk® whole milk powder production commenced in 2Q22 with the intention
of MVM supplying 100% of a2MC’s needs within 12 months
•Steps taken to accelerate in-sourcing of certain English label IMF product from
Synlait and to prioritise future innovation in the category at MVM
•Commenced planning for a laboratory and blending and canning capability at
MVM to create an integrated facility for English label and to enable potential
China label registrations in the future
•Third party blending and canning services being sourced in the meantime
•Additional external business development opportunities being pursued
2 0 2 2 I N T E R I M R E S U L T S
36
Real focus on sustainability during 1H22 across the business
2 0 2 2 I N T E R I M R E S U L T S
Targets and commitments
•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
and Scope 3 emissions to net zero by 2040
Investing to significantly reduce our GHG emissions
•Investing in a new high pressure electrode boiler at MVM to replace coal-fired boiler on the
site by October 2023 and reduce MVM’s processing emissions to almost zero
•Contribution to convert Boiler 2 at Synlait’s Dunsandel site from coal-fired to biomass,
significantly reducing carbon emissions at the site
Committed to making a meaningful change in our packaging
•Aligned to APCO targets for products sold in all markets
•Sustainable packaging targets incorporated into new product development pipeline process
Support the communities in which we operate
•China: Partnered with rural schools and Guangming Daily to provide nutrition stations to
help drive better educational outcomes for children
•ANZ: Sponsorship of Foodbank School Breakfast Program to support 47 schools in some
of Australia’s most remote, indigenous communities
•USA: Supported Feed the Children back to school campaign; provided disaster relief
support for families affected by fires in Boulder
37
O U T L O O K
38
Outlook
2 0 2 2 I N T E R I M R E S U L T S
See full outlook statement contained in results announcement dated 21 February 2022
•The Company’s revenue growth outlook for FY22 has improved
•However, this expected improvement in revenue is not expected to translate into higher earnings in FY22 as the Company
increases its investment to drive growth
•Revenue in 2H22 (including MVM) is still expected to be significantly higher than 2H21, but with growth now expected
on 1H22 and for FY22 ahead of initial expectations due mainly to growth in China label and English label IMF
•Whilst there is some trading upside and downside potential, COVID-19 impacts on supply chain have increased and are a
key risk in 2H22 in addition to other industry and business risks previously disclosed
39
Q U E S T I O N S
40
A P P E N D I X
41
Reconciliation of non-GAAP measures
1
EBITDA and EBIT are non-GAAP measures. However, the Company believes they assist in providing investors with a comprehensive understanding of the underlying performance of the business. EBITDA is shown after non-recurring items
Note: Numbers may not add due to rounding
2 0 2 2 I N T E R I M R E S U L T S
NZ$ million1H221H21
Australia & New Zealand segment EBITDA
96.2117.5
China & Other Asia segment EBITDA
59.494.4
USA segment EBITDA
(16.4)(11.6)
MVM segment EBITDA
(10.0)
Corporate EBITDA
(31.6)(21.7)
EBITDA
1
97.6178.5
Depreciation / amortisation
(8.2)(3.2)
EBIT
1
89.3175.3
Net interest income
1.11.7
Income tax expense
(34.4)(57.0)
Netprofit for the period (including non-controlling interest)
56.1120.0
42
Geographic segment revenue and EBITDA
2 0 2 2 I N T E R I M R E S U L T S
NZ$ million
ANZ
China &
Other AsiaUSAMVMCorporate
Total
Group
1H22
Revenue
283.3306.332.438.6-660.5
EBITDA
96.259.4(16.4)(10.0)(31.6)97.6
EBITDA %
34.0%19.4%(50.7%)(26.0%)nm14.8%
1H21
Revenue
317.2326.034.2--677.4
EBITDA
117.594.4(11.6)-(21.7)178.5
EBITDA %
37.0%29.0%(34.0%)-nm26.4%
% change
Revenue
(10.7%)(6.0%)(5.2%)nm-(2.5%)
EBITDA
(18.1%)(37.1%)41.5%
1
nm45.8%
1
(45.3%)
1
Positive % change but adverse increase in EBITDA losses
43
Standard a2MC glossary of terms
AcronymMeaning
a2MCThe a2 Milk Company Limited
ANZAustralia and New Zealand
APCOAustralian Packaging Covenant Organisation
ASPAverage selling price
ATLAbove the line marketing
AUDAustralian Dollar
B2CBusiness to consumer
BCDLower tier cities in China
BHTBrand Health Tracker
BTLBelow the line marketing
BUBusiness unit
C2CConsumer to consumer
CAHGChina Animal Husbandry Industry Co., Ltd.
CBECCross-border e-commerce
CLChina label
CNADCChina National Agriculture Development Group Corp.
COGSCost of goods sold
CRMCustomer relationship management
CSFAChina State Farm Holdings Shanghai Co., Ltd.
DCDistribution centre
DOLDomestic online channel
DTDistributor
EBITEarnings before interest and tax
EBITDAEarnings before interest, taxes, depreciation and
amortisation
EECAEnergy Efficiency and Conservation Authority
ELEnglish label
EPSEarnings per share
AcronymMeaning
ESLExtended shelf life
FXForeign exchange
FYFinancial year
GAAPGenerally accepted accounting principles
GB“Guo Biao”, national standards of China
GHGGreenhouse gas
GMGross margin
HKHong Kong
IMFInfant milk formula
ITInformation Technology
KAKey accounts
Key&AUpper tier cities in China
KGKilogram
KOLKey opinion leader
LFLLike-for-like
LKALocal key accounts
MATMoving annual total
MBSMother & baby stores
MNCMultinational corporation
MTModern trade
MVMMataura Valley Milk Company
NDNumeric distribution
NKANational key accounts
NPATNet profit after tax
NPDNew product development
NPSNet Promoter Score
NZD/NZ$New Zealand Dollar
NZXNew Zealand Exchange
AcronymMeaning
OOHOut of home
OTTOver the top
O2OOffline to online
PCPPrior corresponding period
POSMPoint of sales marketing
P&PPick and pack
RKARegional key accounts
RMBOfficial currency of China
ROIReturn on investment
RRPRecommended retail price
RTMRoute-to-market
S1Stage 1 infant milk formula
S2Stage 2 infant milk formula
S3Stage 3 infant milk formula
S4Stage 4 infant milk formula
SAMRState Administration for Market Regulation
SGSmeaton Grange
SG&ASelling, general and administrative expenses
SKUStock keeping unit
SPSuper premium
TPTaobao Partner
TRIFRTotal recordable injury frequency rate
UHTUltra-high-temperature treated milk
UPUltra premium
USDUnited States Dollar
WDWeighted distribution
YoYYear-on-year
2 0 2 2 I N T E R I M R E S U L T S
www.thea2milkcompany.com
---
The a2 Milk Company Limited
ARBN 158 331 965
ASX Appendix 4D - Half Year Report
Results for announcement to the market
Reporting period Six months to 31 December 2021
Previous reporting
period
Six months to 31 December 2020
Amount (000s) Percentage change
Revenue from
continuing ordinary
activities
$NZ 660,546 (2.5%)
Profit (loss) from
continuing ordinary
activities after tax
attributable to security
holders
$NZ 59,627 (50.3%)
Net profit (loss)
attributable to security
holders
$NZ 59,627 (50.3%)
Final dividend Amount per security Imputed amount per
security
The Company does not
propose to pay a
dividend for the six
months ended 31
December 2021
Not applicable Not applicable
Record date Not applicable
Dividend payment date Not applicable
Comments: For further information refer to the attached:
Interim Report for the six months ended 31
December 2021
Half Year Results Commentary
Half Year Results Presentation
Net Tangible Assets per
security
31 December 2021
$NZ 1.36
30 June 2021
$NZ 1.37
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- FCG — Fonterra Co-operative Group Limited: Fonterra reports its Interim Results2022-03-16
“Fonterra Co-operative Group Page 1 Results for Announcement to the Market Results for announcement to the market Name of issuer Fonterra Co-operative Group Limited Reporting Period 6 months to 31 January 2022 Previous Reporting Period 6 months to 31 January 2021 Currency…”
- SML — Synlait Milk Limited: Synlait Publishes Half Year Result2022-03-31
“INVESTORS AND MEDIA Hannah Lynch Corporate Affairs Manager +64 21 252 8990 hannah.lynch@synlait.com --- Results announcement 1 April 2022 Results for announcement to the market Name of issuer Synlait Milk Limited Reporting Period 6 months to 31 January 2022 P…”
- FSF — Fonterra Shareholders' Fund: Fonterra reports its Interim Results2022-03-16
“Fonterra Co-operative Group Page 1 Results for Announcement to the Market Results for announcement to the market Name of issuer Fonterra Co-operative Group Limited Reporting Period 6 months to 31 January 2022 Previous Reporting Period 6 months to 31 January 2021 Currency…”