The A2 Milk Company Ltd (ASX: A2M) share price will be on watch on Monday.
This follows the release of the infant formula company's first half results this morning.
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A2 Milk share price on watch amid double-digit growth
- Revenue up 18.6% to NZ$783.3 million
- EBITDA up 10.5% to NZ$107.8 million
- Net profit after tax up 22.1% to NZ$68.5 million
- Cash balance of NZ$707.2 million
- Outlook: Low double-digit revenue growth and steady margins
What happened during the half?
For the six months ended 31 December, A2 Milk reported an 18.6% increase in revenue to NZ$783.3 million. This was driven by a 54% increase in China and Other Asia sales and a 61.8% jump in US sales, which offset a 24.6% decline in ANZ sales.
Infant formula sales were up 18%, with China label sales up 43.5% and English label sales up a modest 1%. Whereas Liquid milk sales were up 5.6% in the ANZ market and 62% in the USA.
A2 Milk's EBITDA came in 10.5% higher year over year at NZ$107.8 million, which equates to an EBITDA margin of 13.8%.
This reflects a 46% increase in marketing investment and a 15.8% increase in administrative and other expenses due to continued capability build, further investment in innovation and research projects, timing of long-term incentives, plus higher insurance and travel costs.
On the bottom line, the company's net profit after tax rose 22.1% to NZ$68.5 million, which was ahead of the consensus estimate of NZ$60.6 million, which could bode well for the A2 Milk share price today.
And thanks to its NZ$150 million share buyback, which is 60.1% complete, A2 Milk's earnings per share rose at a slightly quicker rate of 24.1% to 10 cents per share.
Management commentary
A2 Milk Company's Managing Director and CEO, David Bortolussi, was pleased with the half and the early success of its new growth strategy. He said:
We are pleased with progress in implementing our refreshed growth strategy focused on the China market and improving our execution in the face of significant market headwinds and COVID-19 related challenges.
Our performance in the China IMF category has been a significant highlight – growing sales 18.0% while the market was down 12.5% driven by strong growth in our China label MBS and DOL channels. As the China market continues to evolve, we are focused on refining our English label distribution model which resulted in a modest increase in sales with market share increases in the CBEC and Daigou channels.
Outlook
Bortolussi appears cautiously optimistic on the company's outlook. He added:
We are in good shape heading into an increasingly challenging period with the rolling impact of the decline in the birth rate and a market wide transition of China label product to the new GB standard. We have made solid progress towards achieving our sustainability goals, including breaking ground on our 100% renewable energy electrified boiler project at MVM which is the first of its kind in New Zealand.
Management revealed that it is expecting low double digit revenue growth in FY 2023, supported by growth in China label infant formula, ANZ liquid milk, and USA liquid milk sales. English label infant formula revenue is expected to be broadly in line with FY 2022 and any USA infant formula sales in FY 2023 are expected to be immaterial.
Finally, EBITDA growth is expected for the full year, with an EBITDA margin similar to FY 2022 levels (13.6%).
