A2 Milk share price plunges again as FY21 profits collapse

We examine the highlights from the infant formula company’s FY21 results.

A2 Milk (ASX: A2M) – once a market darling – has in the last 12-months become far removed from that coveted title.

The stock crashed again on Thursday after releasing its full-year FY21 results to the market. Investors were likely not expecting much heading into these results: the stock, after all, had been sold-off heavily leading into them as the coronavirus continues to extract a significant toll on the company’s operational performance.

FY21 results

On the top-line, the company reported a steep slump in overall sales, with revenue down ~30% to $1.21 billion. Broken down segment by segment, the company saw its China & Asia revenues fall 16.6% to $583.4 million, while Australia and New Zealand revenues plunged a more significant 42% to $559.7 million, and North American revenues dipped 3.7% to $63.6 million.

From there, things got worse. Earnings across the board collapsed, with earnings (EBITDA) falling a staggering 77.6% to $123 million. While the company stressed that much of this was driven by write-downs and acquisition costs, the market likely paid little attention to those qualifiers.

At the year end, A2 said it had $112.2 million of inventory, reflecting the significant write-down costs the company incurred in the period. Management noted that the inventory situation has improved, noting that 'early signs of price stabilisation in the CBEC channel and some recovery in the daigou/ reseller channel' has already been observed.

Net profits were equally impacted, FY21 NPAT was down 79.1% to $80.7 million.

With a mind to maintaining balance sheet strength, A2's management said they would not be declaring a dividend or pursuing any other capital management initiatives.

This weak performance was framed against macroeconomic and demographic trends that have thus far and may indeed continue to, negatively impact the company. Management stressed that the dynamics of China’s infant formula market are changing rapidly, noting that reduced volumes have been driven by lower birth rates in the country.

From a competitive perspective, it was added that 'Local players continue to gain share against the traditional multinational brands, driven both by the strength of local brands in domestic channels, as well as an overall mix shift from cross-border to domestic channels.'

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The outlook

Looking forward, given the current uncertainties and volatility across the company's key consumer markets, management said they would not be providing specific FY22 revenue and earnings (EBITDA) margin guidance, at this time.

Off the back of the full-year release, the stock fell 8.45% to $6.28 by 12:12 PM. At those price the stock is down ~46% year-to-date.

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