A2 Milk (ASX: A2M) is holding its annual general meeting (AGM) and gave updated guidance for FY20.
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
A2 Milk’s Profit Guidance
A2 Milk said that in FY20 it is anticipating continued strong growth across its key regions supported by brand and marketing investment in China and the US.
Management have been focusing on the company’s gross profit margin, which has helped the company predict that the full year EBITDA (click here to learn what EBITDA means) is now expected to be stronger than previously communicated and in the range of 29% to 30%.
The gross margin is being helped by two main factors: improved price yield and cost of goods sold expense reduction which includes the effects of favourable foreign exchange.
FY20 Half Year Expectations
In the half year result the company is expecting revenue to be in the range of $780 million to $800 million.
Within that, the company is expecting 84% growth of China label infant nutrition revenue to $135 million, 54% growth of cross border e-commerce infant nutrition sales to $155 million, 9% growth of ANZ English infant nutrition sales to $350 million, 110% growth of US sales to $27 million and 12% growth of Australian fresh milk sales to $75 million.
The EBITDA margin in the first half is expected to be higher than the full year and in a range of 31% to 32%.
A2 Milk Extends Supply Agreement With Synlait Milk (ASX: SM1)
A2 Milk has announced it has agreed a variation to its manufacturing and supply arrangements with Synlait.
The original supply agreement for a2 Platinum and other nutritional products agreed a couple of years ago was for a minimum term of five years with a rolling three-year term from August 2020.
The revised agreement includes:
A two-year extension to the term of the agreement, effectively providing a new minimum term to, at the earliest, 31 July 2025, an increase in the volume which Synlait already has exclusive supply rights, increased committed production capacity from Synlait and pricing terms that reflect the commitment on the part of both companies to an ongoing market-competitive pricing regime.
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