Nutritional dairy company A2 Milk (ASX: A2M) might not have qualified to provide baby milk formula in the US, but it definitely succeeded on other fronts, ushering in a double-digit revenue increase of 19.8% to $1,446.2 million with the second half of FY22 up 18.9% on the first half, largely thanks to China.
The Company’s earnings per share rose nearly 52% to 16.5 cents in FY22 compared to 10.9 cents in FY21. China and English label IMF (infant milk formula) sales were up 12.2% and 11.6% respectively, while Australia and New Zealand, and US liquid milk sales were up 1.8% and 30.2% respectively
In FY22, the Company ramped up efforts to capture the Chinese market. The efforts proved successful with China delivering significant growth in brand health metrics and record market shares, especially when it comes to the IMF label in mother and baby stores (MBS) and domestic online (DOL).
The Company was able to make its mark in China despite the challenging market conditions. The number of births in the country have fallen by 11.5% in 2021 to 10.6 million, and are expected to decline further in the coming year. This decline has been partially offset by an increase in household penetration and consumption within the China label IMF market. Yet, the overall IMF market in China fell by 4.3% in FY22, owing to the cumulative impact of fewer babies being born.
In spite of the decreasing number of newborns, last year, China label IMF accounted for 85% of the market (compared to 84% in FY21) and English label IMF accounted for 15% (compared to 16% in FY21). Pandemic-induced disruptions and supply-demand volatility drove the shift.
Moreover, besides IMF, sales of liquid milk in China and Asia at large were up 34.4% to $11.1 million, and revenue from other nutritional products were also up 19.7% to $22.1 million.
Pointing to the significant growth in China, Managing Director and CEO of A2 Milk, David Bortolussi noted, “Our significant increase in marketing investment has driven further gains in brand health metrics and record market shares delivering strong growth in our China infant milk formula business.”
He also reaffirmed A2’s commitment to the Daigou channel, after Chair David Hearn claimed last year that the Company will be departing from relying on the smaller communities. He said, “We remain committed to the Daigou channel and have increased our direct engagement and marketing support with more Daigou supporting the brand. We have maintained our brand leadership position in liquid milk in Australia with increased loyalty and household penetration, and our USA milk business grew strongly during the year driven by innovation.”
Along with that, the Company also witnessed the highest number of new product launches in the Company’s history, including a2 Milk® Half & Half, HERSHEY’S a2 Milk®, a2 Milk® UHT, a2 Milk® Cream on Top, a2 Milk® Lactose Free and refreshed a2 Platinum® English label IMF.
Bortolussi adds that the Company’s on-market buyback of up to $150 million demonstrates effective capital management and the improved confidence it has in its strategy, execution and outlook.
The Company has a positive financial outlook for FY23, expecting continued revenue and earnings growth. It is also on track to deliver on its medium-term financial and non-financial ambitions communicated to the market.
Investors are pleased by this report, as is evidenced by the Company’s share price increasing by nearly 10% to $5.37.
Alinda is a Business Reporter for The Sentiment
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