GICS - Food/Beverage/Tobacco

The a2 Milk Company Limited ASX Code: A2M Price: $6.00 12 Mth Target Price: $8.50 Rating: Buy

Business Summary Snapshot The A2 Milk Company Limited (A2M) is engaged in the sale of branded Date 28 September 2021 products in targeted markets made with milk from cows that produce milk Market Cap. $4,462m Shares on issue 743.6m naturally containing only the A2 protein type. It deals in the commercialisation 12 Month High $15.89 of A1 protein free branded milk and related products in targeted global 12 Month Low $5.04 markets. Rating A2 Milk: A2 Milk is pure dairy milk which comes from cows specially selected Rating Buy to produce A2 beta- protein rather than A1. Products relating to a2 Milk 12 Mth Target Price $8.50 include: A2 Full Cream Milk (full-bodied milk contains 4g of fat per 100mL); Capital Gain 41.7% A2 Light Milk (contains all the full cream with 1.3g of fat per 100mL); No Fat Gross Yield NA% Implied Total Return a2 Milk (does not contain any fat); A2 Long Life Full Cream Milk (Contains 41.7% 3.6g of fat per 100mL); a2 Jalna Natural Low Fat Creamy Yoghourt; Investment Fundamentals semi-skimmed a2 Milk and a2 Whole (as an ingredient in cooking, on cereal). FYE 30 Jun 2021A 2022F 2023F 2024F Latest Research Profit $m 96.5 217.0 244.0 0.0 Profit (norm)* $m 96.5 217.0 244.0 0.0 Dusk till dawn EPS* ¢ 13.0 29.1 32.7 0.0 A2M reported FY21 underlying NPAT broadly in line with expectations at EPS Growth % -75.3 124.4 12.4 0.0 NZ$80.7m. Key operating statistics of the result included: P/E* x 46.3 20.6 18.4 0.0 Operating results: Revenue of NZ$1,207m was down 30% YOY (vs. BPe P/E Relative % 0.0 0.0 0.0 0.0 NZ$1,223m and guidance of ~NZ$1,200-1,250m). EBITDA of NZ$123.4m DPS ¢ 0.0 0.0 0.0 0.0 was down 78% YOY. EBITDA ex-MVM was NZ$133.8m (vs. BPe of Yield % 0.0 0.0 0.0 0.0 NZ$138.2m, and guidance of ~NZ$132-150m). EBITDA ex-MVM includes Franking % 0.0 0.0 0.0 0.0 NZ$108.6m in inventory provisions and NZ$9.7m in ERP implementation * Adjusted for goodwill and unusual items costs, implying underlying EBITDA of NZ$252.1m. NPAT of Source: Based on Bell Potter estimates NZ$80.7m was down 79% YOY (vs. BPe of NZ$96.5m, this is pre- MVM Share Price Chart costs). Cashflow and balance sheet: Lease adjusted operating cash inflow of NZ$66.1m compares to an inflow of $425.6m in FY20. 2H21 was materially stronger than 1H21 which was the first negative operating cash flow event since 1H16. Net cash exited the period at $875.2m and compares to FY20 at NZ$854.6m (and BPe of $862.8m). The acquisition of MVM was settled post balance date (NZ$268.5m outflow). 2022 outlook: Key outlook points: (1) China label revenue expected to grow in FY22e; (2) English label revenue expected to stabilise; (3) liquid milk marginal growth; (4) US losses modestly lower; (5) MVM losses expanded to ~NZ$20m; (6) GM to be in line with FY21 ex-impairments (~51%); (7) marketing costs to be similar to FY20; and (8) a 37-39% tax rate reflecting higher MVM/US losses. Total Return on $10,000 Investment For more information see research 27 Aug 2021.

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Profit & Loss ($M) Cash Flow ($M) 2017A 2018A 2019A 2020A 2021A 2017A 2018A 2019A 2020A 2021A Sales Revenue 523 846 1,247 1,617 1,121 Receipts from Customers 499 851 1,260 1,614 1,165 Total Revenue ex. Int. 523 846 1,247 1,617 1,123 Funds from Operations 124 273 400 579 171 EBITDA 135 260 397 516 125 Net Operating Cashflow 95 212 276 399 83 Depreciation & Amort. -3 -2 -2 -4 -7 Capex -2 -4 -3 -7 -7 Goodwill Amortisation ------Acquisitions & Investments -46 -15 -155 -20 -53 EBIT 132 258 395 512 118 Sale of Invest. & Subsid. ------Net Interest 1 2 4 5 3 Net Investing Cashflow -49 -19 -158 -27 -60 Profit Before Tax 133 260 399 517 121 Proceeds from Issues 4 7 3 2 2 Income Tax -46 -80 -122 -154 -36 Dividends Paid ------Outside Equity Int. ------Net Financing Cashflow 4 7 3 -11 -1 Profit after Tax 86 179 277 360 85 Net Increase Cash 50 199 121 361 22 Significant Items after Tax -- -- -2 -- -10 Cash at Beginning 66 111 325 434 795 Reported Profit after Tax 86 179 275 360 75 Exchange Rate Adjust. -1 2 -2 3 -3 Preferred Dividends ------Cash at End 115 312 444 798 814

Ratios and Substantial Shareholders Balance Sheet ($M) 2017A 2018A 2019A 2020A 2021A 2017A 2018A 2019A 2020A 2021A Profitability Ratios Cash & Equivalent 115 312 444 798 814 EBITDA Margin % 25.72 30.70 31.88 31.90 11.11 Receivables 69 60 50 66 61 EBIT Margin % 25.23 30.47 31.71 31.65 10.49 Inventories 27 59 104 138 104 Net Profit Margin % 16.50 21.22 22.22 22.43 7.55 Other Current Assets 34 33 47 53 41 Return on Equity % 37.54 35.21 36.78 34.23 8.40 Current Assets 246 464 646 1,054 1,021 Return on Assets % 26.38 27.09 29.18 26.73 6.67 Prop. Plant & Equipment 8 9 10 28 30 Intangibles 13 14 12 13 14 Debt/Safety Ratios Other Non-Current Assets 34 33 47 53 41 Net Debt/Equity % -50.12 -61.26 -59.00 -73.84 -79.21 Non-Current Assets 82 199 304 303 256 Interest Cover x -184.31 -125.95 -99.45 -96.41 -39.27 Total Assets 328 663 950 1,358 1,277 Interest Bearing Debt ------16 15 Top 5 Substantial Shareholders Other Liabilities 98 153 197 283 253 UBS Group AG and its related bodies corporate 6.3% Total Liabilities 98 153 197 298 268 BlackRock, Inc and related bodies corporate 6.2% Net Assets 230 510 753 1,060 1,009 Mitsubishi UFJ Financial Group, Inc 5.4% Share Capital 128 130 138 137 139 The Goldman Sachs Group, Inc. 5.0% Reserves 12 113 62 21 -102 The Vanguard Group,Inc 5.0% Retained Earnings 90 267 553 901 972 Outside Equity Int. ------Total Shareholders Equity 230 510 753 1,060 1,009

Current Analyst Recommendations * Principals & Directors Principals Company Secretary Mr Jaron McVicar Directors Mr Warwick Lynton Every-Burns(Non-Executive Director) Ms Julia Cecile Hoare(Non-Executive Deputy Chairman,Non-Executive Director) Mr David Landt Bortolussi(Chief Executive Officer,Managing Director) Mr David Hearn(Executive Director,Executive Chairman) Ms Philippa (Pip) Mary Greenwood(Non-Executive Director) Ms Chienling (Bessie) Lee(Non-Executive Director)

* Source: Morningstar. This chart shows the spread of recommendations from those broker analyst's in with research coverage of this stock.

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