The A2 Milk Company Ltd (ASX: A2M) share price is on the slide on Monday morning. This follows the release of its results for FY 2024.
At the time of writing, the infant formula company's shares are down a massive 24% to $5.34.
A2 Milk share price crashes on FY24 results
- Revenue up 5.2% to NZ$1,675.5 million
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 6.9% to NZ$234.3 million.
- EBITDA margin up 0.2 percentage points to 14%
- Net profit after tax (NPAT) up 7.7% to NZ$167.6 million
- Earnings per share up 9.2% to 23.2 cents
- Net cash of NZ$968.9 million
- FY25 guidance: Mid-single digits revenue growth and flat EBITDA margin
What happened during FY 2024?
For the 12 months ended 30 June, A2 Milk reported a 5.2% increase in revenue to NZ$1,675.5 million.
This was driven by a 14.1% increase in China & Other Asia revenue and an 8.2% lift in USA revenue, which offset an 11% decline in Mataura Valley Milk sales and a 14.6% decline in ANZ revenue. The latter reflects a change in its English label infant milk formula (IMF) distribution strategy.
In respect to categories, total IMF sales were up 4.6%, liquid milk sales in ANZ and USA were up 3.3% and 7.4%, respectively, and other nutritionals sales were up 36.7%.
A2 Milk achieved a small increase in its EBITDA margin in FY 2024, which led to its profits growing quicker than sales. It reported NPAT growth of 7.7% to NZ$167.6 million.
Also growing strongly was its cash balance. A2 Milk ended the year with net cash of NZ$968.9 million, which was up $211.7 million year on year. This represents an operational cash conversion of 125.7%.
How does this compare to expectations?
This result has fallen a touch short of what analysts at Bell Potter were forecasting.
They had pencilled in sales of NZ$1,689.8 million and a net profit of NZ$172.9 million.
Management commentary
A2 Milk's managing director and CEO, David Bortolussi, was pleased with the company's performance. He said:
We continued to execute well against our growth strategy, primarily focused on the China market, delivering positive FY24 results with strong revenue and EBITDA growth. The a2 brand continued to increase market share in the China IMF market and is now a top-5 brand. We grew IMF sales despite the China IMF market being down double-digits.
A major highlight for the year was the successful launch of our upgraded China label IMF product. We were pleased with the market's reaction to our new product and our sales growth of 9.5% on last year. After several years of COVID-19 related disruption and market decline, we are pleased that our English label IMF sales stabilised in the first half and grew 6.9% in the second half.
Also of note is management's very cautious commentary regarding the China market. This could be what is weighing down the A2 Milk share price today. It said:
The number of newborns in China declined 5.6% in CY23 to 9.0 million reflecting an improvement in trajectory over the past several years with a positive outlook for CY24, but with longer term decline expected due to socio-demographic trends. The China IMF market declined 8.6% in volume and 10.7% in value in FY24. The decline in Key&A cities exceeded BCD cities, with Key&A market value decreasing 11.9% and BCD market value decreasing 9.4%. The market decline reflected the cumulative impact of fewer newborns, increased competitive intensity and challenging macroeconomic conditions.
Outlook
A2 Milk has provided guidance for FY 2025. It is expecting mid-single digit revenue growth and an EBITDA margin that is "broadly similar to FY24." Though, it has warned that its first half margins are likely to be lower due to air freight impacts before rebounding in the second half.
This revenue growth guidance is weaker than expected. The market was looking for 9% growth in FY 2025.
The A2 Milk share price remains up 22% since this time last year.
