a2 Milk (ASX:A2M) share price on watch after AGM update

The A2 Milk Company Ltd (ASX:A2M) share price is in focus today after the release of its annual general meeting presentation..

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A2M share price

Source: Company presentation

The A2 Milk Company Ltd (ASX: A2M) share price will be in focus today after the release of its annual general meeting presentation.

What was in a2 Milk Company’s presentation?

A2 Milk Company’s presentation provided investors with a summary on its performance in FY 2020, its future plans, and a trading update for the new financial year.

In respect to FY 2020, in case you missed it, a2 Milk Company was a very strong performer during the last financial year.

It delivered a 32.8% increase in total revenue to NZ$1.73 billion and a 32.9% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$549.7 million.

This strong result was underpinned by its infant nutrition sales, which were up 33.8% to NZ$1.42 billion. During the 12 months, its China label infant nutrition sales more than doubled to NZ$337.7 million after its distribution expanded to ~19,100 stores in the country.

Mataura Valley Milk (MVM) acquisition update.

In August, a2 Milk Company announced that it had made a non-binding indicative offer to acquire 75% of MVM for approximately NZ$270 million, based on an enterprise value of $385 million.

Management notes that this will allow the company to participate in the manufacturing of nutritional products that complements its existing supply arrangements and creates supplier and geographic diversification.

The due diligence process is almost complete and continues to support the strategic rationale for the investment. Management is currently reviewing the final aspects of the potential transaction and supporting strategic relationships. It expects to provide an update in coming months.

FY 2021 guidance.

The company has reaffirmed the guidance for FY 2021 it provided to the market in September.

It continues to expect first half revenue of NZ$725 million to NZ$775 million and full year revenue of NZ$1.80 billion to NZ$1.90 billion.

The company’s EBITDA margin is expected to be approximately 31% for the full year. Which implies EBITDA of NZ$558 million to NZ$589 million.

However, it notes that due to the volatility arising from COVID-19, there is uncertainty to this forecast. It also acknowledges that its guidance provides for a significant increase in revenue in the second half. It warned that this is dependent on a number of key assumptions, including an improvement in the daigou channel and continued growth in its China label business.

Management concluded: “We continue to observe strong underlying brand health metrics, in particular in China, including market share expansion, and growth of brand awareness and loyalty measures. This gives us confidence that, notwithstanding the current headwinds, the fundamentals of the business over the medium term remain sound.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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