The a2 Milk (NZX:ATM): What is the Company’s growth strategy?

Highlights

• ATM saw a challenging FY21 with flat growth in the China market and the disruption of trade due to the COVOD-19 pandemic.
• The Group took a complete assessment of its growth opportunities and adopted a growth strategy.
• ATM has plans to focus on people, sustainability, brand, innovation and market share. 

NZ-based dairy nutrition firm The a2 Milk Company Limited (NZX:ATM; ASX:A2M) witnessed a tough FY21 with results impacted due to reduction in China infant nutrition market growth from high rates globally to flat in value terms.

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The Group also faced disturbances in cross-border trade due to the COVID-19 pandemic, which created considerable demand/supply volatility, leading to excess inventory. The decline in the trade led to a substantial drop in its English-label IMF sales through diagou and e-commerce channels.

Key actions taken to address problems

ATM recognised a reduction in stock values and purposefully reduced sales in the fourth quarter of FY21. This was done to reduce inventory and rebalance English-label IMF pricing across routes. The Group replaced older distributor inventory with more recent stock to build on-shelf freshness of the product.

ATM increased its investment in its brand and did a significant campaign in 4Q21 to drive consumer demand.

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The Group also strengthened its leadership team and reorganised its Asia Pacific division for a better focus on opportunities.

ATM’s Growth strategy

ATM has commenced a complete review of growth opportunities and has decided to prioritise 5 points in its growth strategy.

• Investing in people and taking measures to top the business in reducing greenhouse gas emissions and farming methods.
• Gaining more power on CL and EL distribution, getting closer to the consumer and increasing investment in digital marketing, brand, and e-commerce.
• Expanding CL and EL IMF product groups and entering nearby product groups in appropriate markets to propel growth.
• Transforming supply chain by improving the China supply capacity, utilising the MVM potential and developing CL-registered market access.
• Taking action in the US market potential and accelerating insourcing and third-party volume to considerably boost MVM utilisation.

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Road Ahead

ATM has plans to boost growth across various spheres. It will follow a stabilise and reset strategy in FY22, where it will prioritise restoring demand and supply balance, focus on new user recruitment, stabilising a drop in EL IMF and invest in content production.

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It has plans to roll out full-scale growth and other projects in FY23-24. Further, it has plans to innovate and transform its supply chain by expanding and growing in key markets in FY25-26.

On 14 January, at the time of writing, ATM was trading at $5.68, down 1.39%.

(NOTE: Currency is reported in NZ Dollar unless stated otherwise)