Own A2 Milk (ASX:A2M) shares? Here’s what the company has planned for FY22

The A2 Milk Company Ltd (ASX: A2M) share price has fallen around 10% after the company’s FY21 result.

FY21 numbers

Management reported that revenue and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin were within guidance, but down heavily.

Revenue fell 30.3% to $1.21 billion and EBITDA plunged 77.6% to $123 million, including $109 million in stock write-downs and $10 million in Mataura Valley Milk (MVM) acquisition costs.

Net profit after tax (NPAT) dropped 79.1% to $80.7 million.

A2 Milk said actions taken from the fourth quarter of FY21 to address excess inventory are proving effective with channel inventory levels reducing, product freshness improving and market pricing increasing – rebalancing of channel inventory is expected to continue through the first quarter of FY22.

Management said that brand health metrics remain strong overall with some improvements in recent tracking research after a lot of marketing in China.

But what about A2 Milk’s FY22 expectations?

The outlook for a business may influence investor thoughts about the A2 Milk share price.

A2 Milk said that the company is confident in the underlying fundamentals of the business and that the growth opportunity in core markets remains positive.

Management said that the long-term outlook is positive with production innovation, category expansion and new markets, supported by its balance sheet.

The company is expecting that revenue for the first half of FY22 (including MVM) will be marginally lower than the first half of FY21 mainly because of lower English label infant nutrition sales offset by the addition of MVM revenue. FY22 second half recent is expected to be “significantly higher” than the second half of FY21 because of actions taken to rebalance its channel inventory, increase marketing investment and the inclusion of MVM revenue.

A2 Milk’s gross profit margin is expected to be broadly similar to the underlying gross profit margin of FY21. It reflects the annualised benefit of higher infant nutrition prices and the product mix benefit from an overall growth in infant nutrition volume. However, these benefits are expected to be offset by cost of goods headwinds related to increasing milk, ingredient and packaging costs.

The company wasn’t able to give EBITDA outlook commentary. However, it is expecting that depreciation and amortisation will increase by around $20 million because of the inclusion of FY22.

The A2 Milk share price has been challenged by the daigou/reseller channel for its English label products. This is expected to be “prolonged”. It’s adapting the strategy and expects growth to return over time.

However, with its Chinese label infant nutrition, it’s expecting to grow sales in FY22 as well as moderately increasing its market share. A2 Milk is focused on winning new clients and expanding distribution. Inventory levels are reducing and product freshness is improving.

The A2 Milk share price might also have been affected by its final comments:

Recovery in English label channels is expected to be slow and market growth in China will be subdued for some time.

The post Own A2 Milk (ASX:A2M) shares? Here’s what the company has planned for FY22 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison 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.

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