A2 says FY earnings flat, sees growth in 2016; pooh-poohs takeover bid
By Paul McBeth
July 20 (BusinessDesk) - A2 Milk Co, which markets milk with a protein variant said to have health benefits, says annual earnings were flat and are set to triple in 2016 with sales expected to rise faster than forecast. Separately, the company has told its suitors to try again after an initial offer wasn't compelling and drew out rival bidders.
Earnings before interest, tax, depreciation and amortisation was unchanged at $4 million in the 12 months ended June 30, and are forecast to rise to $12 million in 2016, ahead of plan, the Auckland-based company said in a statement. Annual revenue rose 39 percent to $154 million, and A2 raised its 2016 sales target to $267 million from a previous forecast of $230 million due to growth in infant formula sales in Australasia and China, new product launches in Australia and New Zealand and the company's launch into North America.
"The company considers that its budget has been prepared on a prudent basis and could reasonably expect performance to exceed budget projections if current trading conditions and trends in infant formula are sustained throughout the course of FY16," it said. "The A2 Milk Co continues to perform strongly, ahead of plan, in its core ANZ business which is delivering significantly increased profits and cash flow."
Last month, A2 said its cornerstone shareholder ASX-listed Freedom Foods Group and US food and beverage firm Dean Foods were eyeing a takeover of the company, stipulating a planned capital raise didn't go ahead.
A2 today said the offer put forward wasn't compelling, and the board wouldn't be in a position to recommend it to shareholders if a formal bid was made.
"The board has advised Freedom/Dean Foods that it is willing to have a discussion in relation to the EOI (expression of interest) subject to agreement on appropriate confidentiality and related undertakings customary in situations of this nature," it said. "The board has also received other confidential enquiries indicating potential interest in the company, and is in the course of evaluating these."
A2 shares last traded at 77 cents, and have climbed 33 percent this year.
The company said it plans to fund its growth from cash flows in the first instance, and has short-term debt facilities in place to support working capital needs.
A2's Australia and New Zealand segment accounted for the bulk of earnings in the 2015 year, generating a 58 percent increase in Ebitda to $30 million on a 39 percent gain in sales to $149 million. The region is forecast to post earnings of $40 million in 2016 on sales of $216 million.
Across China and Asia, A2's sales were flat at $3 million, while it reported an Ebitda loss of $4 million, compared to a loss of $3 million in 2014. The segment is forecast to breakeven on sales of $13 million in 2016.
The US and UK units doubled sales to $2 million, while trebling the Ebitda loss to $12 million in 2015. The two units are forecast to generate sales of $38 million for an Ebitda loss of $16 million in 2016. A2's corporate segment reported an Ebitda loss of $10 million in 2015, up from $8 million a year earlier, and expects that to widen to $12 million next year.
A2 said it repositioned its brand into the premium specialty category in the UK and downsized to a one litre package from two litres, which has improved margins. The company plans to introduce UHT milk and infant formula in the short to medium term in the UK.
"Following the changes implemented during FY15, the company is forecasting a reduced funding contribution to the business in FY16," it said.