A2 Milk has laid out its growth plans…
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The A2 Milk Company Ltd (ASX: A2M) share price will be one to watch on Wednesday.
This follows the release of the infant formula (IMF) company’s 162-page investor update this morning.
Below is a summary of some of the key highlights from the presentation.
Revised growth strategy
One of the key highlights from the presentation is the company’s decision to revise its growth strategy.
Management has stated that its new strategy is focused on rebuilding the company into an exciting, innovative and sustainable growth company, and has named five strategic priorities that it believes will help it achieve its ambitions.
The first one is investing in people and planet leadership. The company intends to invest in its people to help them thrive. It also wants to get on the green bandwagon by taking direct action to lead the industry in GHG emissions reduction and farming practices. A2 Milk is aiming to reduce its scope one and two greenhouse gas emissions to net zero by 2030 and scope three emissions to net zero by 2040.
Another strategic priority is capturing the full potential of the China IMF market. This will see the company aim to gain more control over its Chinese label (CL) and English label (EL) distribution and get closer to the consumer. It also intends to increase its investment in the A2 Brand, digital markets, and ecommerce.
A2 Milk intends to ramp-up product innovation. This will see the company expand its CL and EL IMF product portfolios and enter adjacent product categories to drive growth.
Another focus will be the transformation of its supply chain. It intends to expand CL registered market access, utilise its Mataura Valley Milk (MVM) capability, and develop a China supply capability.
A final priority will be accelerating its path to profitability. Management notes that it will take action to realise potential in the US and expedite insourcing and third party volume to significantly increase MVM utilisation.
NZ$2 billion sales target
The sum of the above, is the company setting itself a medium term (≥ 5 years) target of growing its sales to NZ$2 billion. This compares favourably to FY 2021’s sales of NZ$1.2 billion but only modestly to FY 2020’s pre-COVID sales of NZ$1.73 billion.
In respect to margins, A2 Milk will be targeting EBITDA margins “probably” in the teens in the medium term due to expected market conditions, investment, and innovation. This compares to its pre-COVID EBITDA margin of 31.7%.
These targets appear broadly in line with what analysts at Bell Potter were forecasting. The broker recently pencilled in an EBITDA margin of ~17.5% on revenue of NZ$1,472 million in FY 2023 and revenue of NZ$1,584 in FY 2024.
A2 Milk Company’s Managing Director and CEO, David Bortolussi, commented: “The China infant milk formula market has experienced unprecedented change over the past 12 months which has required us to adapt our growth strategy. Our ambition is to rebuild The a2 Milk Company into an exciting, innovative and sustainable growth company.”
“We will innovate and expand our infant milk formula product portfolio to appeal to a broader set of consumers and to maximise our distribution potential. Outside our core business, we are considering opportunities for adjacent category growth in China, ANZ and the USA as well as assessing opportunities in new emerging markets.”
The A2 Milk share price is down 6% in early trade on the New Zealand stock exchange.
The post A2 Milk (ASX:A2M) share price on watch following investor update appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.