Release Date: February 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue growth of 3.7% to $812 million, driven by strong performance in the China segment.
- EBITDA increased by 5% to $113 million, with an EBITDA margin of 13.9%.
- Net profit after tax rose by 15.6% to $85 million, with EPS up 18.6% to $0.11.
- Successful launch and transition of the new GB registered China label IMF product.
- Improved revenue growth guidance for FY '24, with expectations of low to mid-single-digit percent growth.
Negative Points
- ANZ segment sales were down 24%, reflecting changes in distribution strategy.
- MVM sales decreased by 4.7%, contributing to an EBITDA loss of $15.3 million.
- Gross margin decreased by 0.9 percentage points compared to first half '23 due to higher input costs and adverse sales mix.
- English label IMF sales were down 7.2%, with the Daigou channel declining by 18.6%.
- Challenges in the China IMF market, including a 10.7% decline in volume and 13.6% in value, impacting overall market conditions.
Q & A Highlights
Q: Just a couple of questions on the China label transition. Just want to understand if there's any kind of benefit in the half from stocking up the channel. I know that you did it quite late in the period firstly. And then secondly, was there any margin drag at the start of the period when you had -- I guess, you're getting rid of the old stock? I just want to understand what the margin looks like, excluding that impact potentially.
A: Sure. Thanks, Tom. I'll take the first question and Dave might talk about the margin. So in terms of the transition and benefit in the first half, not really. Our stock levels at the end of December were in line with what we normally planned. So we had thought that the transition previously post 11/11 might leave that transition not progressing as smoothly as hoped, but it did turn out pretty well. So stock levels in the trade in our distributors at the end of the half were in line with our normal targets. So you shouldn't think that there's any benefit or any I guess, associated with that. So Dave, you want to comment on margin?
David Muscat - A2 Milk Company Ltd - Chief Financial Officer: Yes. So I think on the margin, it's actually the opposite. Xiao and the team did such a great job with the transition and it being a soft changeover that there really wasn't a margin drag in the first part of the half. And if anything, you simply had the higher cost of the new China label coming through at the back end of the half. But the old label margins, there's really no impact there. And no write-offs (inaudible).
Q: Can I follow on from Thomas' question on -- because it seems to me that the terrific improvement, I suppose, in your sales outlook for this year. The majority, I'm assuming, has all come from the successful transition and also the stabilization of English label, but probably the majority is from the China label transition being such a success if you could confirm that. But my question is trying to understand why you have done such a great job, whereas others appear maybe be lacking a little bit. And I'm looking at Slide 9, I think Slide 9 is really interesting, where the number of imported has just fallen away significantly. So probably, you're now really, if not the number you're #2, I suppose, but you're dominating that.
A: Yes. Thanks, David. I might just briefly address your first part of your question. And then the other 2 components relating to why we've been successful in the transition and how we're comparing or competing against the competition. I might hand over to Xiao to talk to that. But firstly, in terms of the outlook and your comment is China label driving that improvement in our outlook. We sort of are of the view that the impact on China label was largely phasing. It may well do better than we expect, but most of the impact was phasing between first half and second half. Like in our initial guidance, we're cautious about the transition and bringing up new product to market just after double 11 and having to establish new product arrangements with all of our customers in store and online is a challenging task to do. And so we were a bit cautious about the ex-factory sales in that last 4 to 6 weeks, which fortunately proved out to flow through well. I do note that when you look at the full year English label, you mentioned that as well. Our performance and the outlook for English label has probably improved since our full year guidance given previously. And also the growth in other nutritionals has been pretty strong as well. So it's a combination of factors. It's not just due to the transition of China label. But having said that, I'm going to hand over to Xiao to comment on why our China label transition has been successful and why we're continuing to gain share in the market.
Li Xiao - A2 Milk Company Ltd - Chief Executive - Greater China: Yes. So I will contribute -- I mean, the guaranty transition to several factors. I mean we have the game plan ready by June 2023. Well, I mean because we are late in the SAMR approval, we get the opportunity, I mean, to really optimize the plant. I mean, by learning from all what the competition doing, are they working or not working. So until the last moment of the launch, we still optimize the plant, and this is probably the best game plan that we have. And then secondly, I mean, I think we upgrade the formula and also the package. So this is a new galaxy digital product, we have a much simplified sharpened and stronger new product proposition benefit claim as well as the product package and the formula upgrades. So it turned out to be a very successful, I mean, clear, simple, convincing message they will accept it by the consumer comparing with the O2O. And the server is the successful campaign and the integration. This we already covered a lot. I mean, in the previous slide that this is the biggest campaign. We increased our investment level and it's a much better integration in terms of marketing and the sales online or off-line. And probably, I mean, the fourth factor will contribute to the over stable price before the transition, while you see a lot of our MSC competitor, their price is collapsing before the transition which makes the price gap versus the old product under the new China label much bigger, and it did make the transition even more challenging. While in our case, it's a much more smooth transition in terms of the price gap. And lastly, I will contribute this success to the team, which is high morale and the share goal and everybody is a line because this is our only baby in China level. We don't have any chance, I mean, to make it feel. So hopefully, answer your question?
Q: Yes. Understood. Fair enough. No, there's no dispute to you guys in terms of what you're doing in a tough market as has been outstanding, but it's just a question mark over how tough the month is. So my second question was on Synlait.
A: So from an operational point of view, Richard, I think, I won't comment specifically on our arbitration case, but it's well known that, that was in response to service levels being below contractual levels in our view over an extended period. But thankfully, since then and more recently, service levels in Synlait have improved. So we don't have any major operational concerns with Synlait at the moment. And so we've always had a really strong operational relationship with Synlait. So I don't think you should be concerned about that at the moment. In terms of the SAMR license, the requirements under the regulations of the brand owner and the manufacturing facility need to demonstrate close association. And that is not specifically defined in the regulations but certainly, our stake of 20% is demonstrates that. And we are aware of cases in the market where that equity ownership can be as low as 1% in demonstrating close association. So I
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
