The A2 Milk Company Ltd (ASX: A2M) share price is $4.01, up 5.4% amid the infant formula company conducting its annual general meeting (AGM) today.
A2M management told investors there was no change to its FY24 outlook.
Back in August, when the company released its FY23 full-year results, it said it expected low single-digit revenue growth in FY24 and an EBITDA margin broadly in line with FY23.
In his speech today, Managing Director and CEO, David Bortolussi acknowledged the poor performance of the A2M Milk share price, which is down 41% in the year to date.
Let's see what he had to say to shareholders.
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A2 Milk share price decline 'disappointing'
The CEO said that times had changed since A2M's extraordinary share price growth in the years through to FY20.
Over the two years ending 30 June 2020, A2M shares rose by a staggering near-75%.
Since then, the stock has dived by 78%.
Bortolussi said:
I understand that our shareholders are disappointed with the company's share price. So am I and the rest of your management team.
He outlined why the A2M share price has been dragged down, commenting:
Firstly, the context that led to a2MC's extraordinary growth up to FY20 has changed materially from a consumer, channel and competitive perspective.
COVID-19 had a substantial impact on our business in FY21 disrupting particularly our cross-border English label business which was our largest and most profitable business
The key challenge, for us and our competitors, is that the IMF market in China has declined significantly, being down double-digits in FY23 essentially due to the cumulative impact of fewer newborns and lower market pricing which is a significant headwind.
These category issues – coupled with challenging macro-economic conditions, global geopolitical concerns and capital market dynamics – have weighed heavily on our share price over time.
A2M chair answers key questions
Chair David Hearn said the company continues to face a "very challenging macroeconomic landscape and external headwinds" in key markets.
But he said A2M was "delivering strong results and several important achievements in the areas we can control ourselves".
He said this included growing the IMF brand share in China, brand awareness and attribute scores, and continued distribution expansion.
Hearn raised a couple of key issues that he felt shareholders wanted addressed.
Why not do another share buyback with the A2M share price so low?
A2M conducted a NZ$149 million share buyback during FY23. Hearn said they would not undertake another one despite a strong balance sheet and the A2M share price being lower.
Hearn explained:
In addition to what I have already outlined in terms of our firm belief that we need to invest in supply chain transformation first, we are also somewhat constrained in being able to undertake another meaningful on-market share buyback given our limited available subscribed capital which was utilised in the previous share buyback.
What about the prospect of A2M dividends?
Hearn said it was understandable that investors wanted to know more about capital management, including the prospect of dividends, given the strong balance sheet and large amount of net cash being held.
He said A2M was prioritising investments in growth initiatives and maintaining balance sheet flexibility ahead of shareholder capital returns for now.
He explained:
Our immediate priority for capital is to drive the transformation of our supply chain, by expanding our China label registered market access through additional registrations and beter utilising our capacity at Mataura Valley Milk (MVM) through additional investment in our capability.
We believe it is prudent for the Company to first solve this supply chain transformation to set us up
for further growth in the future, and then to consider, with the remaining capital, the most
appropriate mechanism to implement further capital returns to shareholders in the future.
