ATM-A2 MILK

[Arbroath]

They could justify a 15c ordinary dividend and just use the cash pile to fund growth.

Not sure why the favour the buyback option really but it's ok.

[Basil]

Off to the races and yet it was already on very elevated metrics at Friday's closing price.

[Left Field]

A few things I like in tough economic times.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/397774/377792.pdf

• 1.446 mill revenue an increase of 19.8%
• 114.7 mill NPAT an increase of 42.3%
• USA revenue up 30.2%
• EPS up 51.8% to 16.5 cps
• Launch of New Lactose Free fresh milk into Aus market in Aug 2022 ( Market est at $130 mill.)
• New Management team have clearly turned A2M around and are showing a good understanding of this complex market.

Happy to retain my free held shares at 5% of portfolio. 

[Basil]

I still think a lot of caution is warranted, especially given the metrics
Improvements this year were all off disastrously bad comparatives so need to be viewed in that context.
I also note from the presentation:-
- Gross margin percentage in FY23 is expected to be broadly in line with FY22, (remember the days it was 30%, now just 13.6% and no improvement expected next year)
− Significant increase in sustainability targets, initiatives and impact in many areas of the business, particularly MVM electrification project, (lots more money to be poured down the ESG rat hole)

Lots of other positives and negatives in there http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ATM/397774/377792.pdf
Not for me.

[Left Field]

The market seems to like the result...... up over $6.00 today (ie up around 11%) and likely to settle north of $6.00 in the days/weeks ahead.

[CG]

Solid result under current circumstances. Better than I hoped for. SAMR renewal and any signs of birth rate increase in China will provide extra boost

[Minimoke]

Lets spend a moment or two focussing on the positives (since some of us have had enough of the negatives over the past year or so)

Remember how it was going to be all doom as chines birthrates were dropping. Well Chaina sales up 24.5% to $726m and Infant Formula up 11.9% to $1,022m

[Ferg]

Overall I would say a good result which shows they have turned a corner and are dealing with their issues.

IMO it's good to see a reduction in reliance on Daigou.  I do not view Daigou as a sustainable & legitimate sales channel for a company that needs to be above board in action AND appearance.  It was always going to be painful to transition away from it and I firmly believe ATM will emerge a stronger business as a result of the Covid lockdown shenanigans.

I still laugh at calling marketing spend "investment".  Yes that is how marketers see it.  However, in the real world it is an expense and increasing that spends hurts your profitability in the short term.  You know marketers are in charge when they talk of ATL vs BTL spend - on a side note I have never seen so many acronyms in a presentation!

I see they laid out a plan out to FY26 to get to $2b in sales.  I would really like to see USA sales kick on.

I am not 100% sold on share buybacks but with $190m of NZ tax losses and only $50m of NZ imputation credits, it appears a dividend would not be overly beneficial or sustainable for NZ shareholders in the short term.  There is little point paying dividends without imputation credits.

GLTAH.

[Left Field]

Guru from Fisher Funds on RNZ today said that ATM on track to $2 Bill in revenue in next 5 yrs  (no big stretch IMO,)  and that their success in these recent results are even more favourable when you consider the freight/logistics issues in the world this year, plus China's declining birth rates, plus  harsh Covid lock downs.

Interesting times ahead. Further gains today I reckon.

[KW]

Overall I would say a good result which shows they have turned a corner and are dealing with their issues.

IMO it's good to see a reduction in reliance on Daigou.  I do not view Daigou as a sustainable & legitimate sales channel for a company that needs to be above board in action AND appearance.  It was always going to be painful to transition away from it and I firmly believe ATM will emerge a stronger business as a result of the Covid lockdown shenanigans.

I would be wary of them moving away from it.  Social ecommerce is very, very big in China, and the lockdowns have only entrenched consumers reliance on it.  Chinese consumers individually and group buy through WeChat - a platform that just because we in the West do not use (or even understand) does not mean that its not a huge platform (which it is, along with ones like Pinduoduo).  Thinking that moving to a Western style of distribution is a good thing, may turn out to be a false economy.  Ditching the daigou almost destroyed Bellamys (and did destroy their shareholders).

[Left Field]

This from an unnamed source via Hot Copper

]a2 Milk mulls China, NZ deals to boost market access

The a2 Milk Company chief executive David Bortolussi is mulling acquisitions in China and New Zealand to help gain faster access to a wider range of Chinese label infant nutrition formulations for the largest infant formula market in the world.

"We're unable to expand our portfolio. We want to achieve greater market access in terms of registrations, which is a complicated process," he said. " We're not close to announcing any deals or anything but ... at some stage it wouldn't be surprising for us to potentially announce some form of joint venture or acquisition.

It could be in partnership with China Animal Husbandry Group to acquire an asset in New Zealand or in China, that brings with it the prospect or actual registration as part of that acquisition."

[CG]

I would be wary of them moving away from it.  Social ecommerce is very, very big in China, and the lockdowns have only entrenched consumers reliance on it.  Chinese consumers individually and group buy through WeChat - a platform that just because we in the West do not use (or even understand) does not mean that its not a huge platform (which it is, along with ones like Pinduoduo).  Thinking that moving to a Western style of distribution is a good thing, may turn out to be a false economy.  Ditching the daigou almost destroyed Bellamys (and did destroy their shareholders).

Ditching daigou would be a wary. Luckily they don't, daigou will remain as one of many other channels they support. David B was talking about it during investor call. I think he has much better understanding of issue than many on here might think.

[Ferg]

To put my comments into context, I was not suggesting a wholesale ditching of daigou...I mentioned a "reduction in reliance".  IMO building a business whereby private citizens buy your product from a third party to then take it across the border in their hand luggage is neither sustainable or (I know I will get bashed here) legitimate.  To put it bluntly it is a form of smuggling that is circumventing cross border controls/tariffs/whatever.  IMO ATM will emerge a better business if they are not so reliant on that sales channel.  Expending efforts on other sales channels will insulate them from the whims of social media, third party celebrities, stock aging issues and/or anti-smuggling initiatives.
 Strengthening more traditional sales channels and other sales channels will make them a more sustainable and legitimate business.   Edit: yes there is still a place for Daigou, but it should not be the #1 focus and/or the business should not be built around that.  So it appears ATM are on the right track with their sale channel initiatives.

[KW]

IMO building a business whereby private citizens buy your product from a third party to then take it across the border in their hand luggage is neither sustainable or (I know I will get bashed here) legitimate. 

Thats not how the daigou work. Australian based daigou buy the product in Australia, then post it direct to their buyers in China (either personally, or more often utilising one of the specialty freight forwarders set up to do this in bulk) - there is no suitcase or physical travel involved.  Then there are the daigou in China who place orders for the product in China which is fulfilled by a corporate daigou who has shipped the product into China, who then sends the product direct to the consumer.  BUBs calls their daigou channel a "recruitment channel" as the corporate daigou are responsible for recruiting and managing resellers.  So its more like multi-level marketing.  China has regulated the daigou, they need to be registered and pay tax on products sent across the border, so its perfectly legitimate and not smuggling or illegal in any way.  People just want to buy the English label products from a buyer they trust so they can be assured of quality and that its not counterfeit product.

The only place that someone might "smuggle" IF in their suitcase out of the country is NZ, because private exports of IF from NZ are banned.  In Australia its perfectly legal, and is a huge business.  It was estimated that the individual daigou (supermarket buyers) in Australia earned $125k plus a year doing it.  Border shutdowns have swung the balance from Australian daigou to corporate daigou supplying Chinese resellers. 

https://www.afr.com/companies/retail/australian-companies-urged-to-harness-daigou-power-20171128-gzum6m

[Ferg]

https://en.wikipedia.org/wiki/Daigou