The A2 Milk Company Limited

Good morning everyone and thank you for joining us today.

My name is David Bortolussi. I'm the Managing Director and CEO of the A2 Milk Company. Today I'm joined on the call by our CFO, Dave Muscat, and our business unit leaders, Li Xiao, Yohan Senaratne, Jaron McVicar and Kevin Bush. The seminar will present the results and outlook and there will be time at the end for questions. During the presentation we will focus on continuing operations excluding MBM which we divested in the first half. and occasionally referred to underlying results which excludes both MDM and A2 Pocono. We've excluded A2 Pocono from the underlying results given that the site is currently underutilised and incurring manufacturing losses and transformation costs which are short term in nature. Starting on slide 4, we delivered FY26 results in line with or slightly ahead of our updated April guidance with double digit revenue growth. Input Milk Formula, or IMF, grew 5% in a flat China market, supported by strong English label growth, with China label sales significantly impacted by temporary supply chain disruption in the fourth quarter. Supply chain disruption had a material impact on China IMF product availability, performance and supply chain costs, which impacted our second half group sales and earnings. As you would expect, we have a comprehensive recovery plan in place and we commence execution, which I'll come back to later in the presentation. Other nutritionals grew significantly by 42% through innovation in kids, seniors, UHC and supplements. In liquid milk, growth was well above market at 22% in Australia and the US. Our commitment to innovation has resulted in the launch of a series of new products over recent years, which are making meaningful contributions to our growth. These new products accounted for more than 50% of our sales growth in FY26, with further launches planned in the first half of 27. We also advanced our supply chain transformation through the divestment of MVM and the acquisition of A2 Coconut with the transformation program on track or ahead of plan. Finally, following regulatory approval of our two new charter label registrations, we declared a $300 million special dividend and today announced an increase in our full-year ordinary dividends with improved payout ratio. In combination, we've declared a total of $453 million of ordinary and special dividends in FY26. 32 hour financial summary on slide 5. Revenue was up 12.4% to $1.95 billion. Report of EBITDA was down 2.5% to $284 million, which was impacted by supply chain disruption and A2 Pocono losses. On an underlying basis, excluding A2 Pocono, EBITDA was up 5.4% and underlying EBITDA margin was 15.6%. The earnings suspected underlying net profit up to tax and underlying EPS were up approximately 7%. Slide 6 shows that our growth was broad-based across all of our geographic markets and product categories. China and other Asia grew 11%, AMZ 10%, and the US over 28%. For a product category, IMF was up around 5%, liquid milk up 22% and other nutritionals up 42%, excluding A2 Pocono sales. Moving to slide 7, the China IMF market was relatively flat, with premiumisation offsetting a low single digit volume decline. The China label IMF market stabilised and English label growth slowed significantly in the second half due to the impacts of industry recalls. Pleasingly the A2 type protein and ultra premium segments continue to grow ahead of the category which plays to our strengths. Slide A addresses the supply chain disruption experience in the fourth quarter. As outlined in our market announcements in April and July, product availability was materially impacted by a number of factors including strong demand in the preceding quarter, freight challenges, a production backlog at Sinle, extended product release timeframes and additional customs and testing requirements. These factors have been resolved and availability has significantly improved. However, the in-market product development issues necessitated a large proportion of our existing users to switch to alternative brands, which as you can see, significantly impacted our China Label market share during the fourth quarter. The rate of recovery will depend on our ability to regain past users, new user recruitment momentum, and the performance of our new China Label IronNet products. Slide 9 sets out our recovery plan, built around rebuilding trust, driving past the new user recruitment, supporting our distributor and retailer ecosystem and launching new products. To see positive early progress against our plan, a new traceability tool has been very well received by consumers, brand sentiment is recovering and user recruitment conversion rates are back to or above historical levels. The first wave of marketing behind our China IMF recovery is focused on reassuring consumers that A2 products are of the highest quality. This includes a market-leading traceability tool with batch-by-batch testing, an endorsement campaign from China State Media , with a leading food safety expert, and independent validation by a leading quality assurance influencer . Together these initiatives are rebuilding confidence in quality and supply and driving positive sentiment. The next slide measures how our social media and PR activity is helping rebuild confidence in the A2 brand. Brand sentiment has recovered quickly towards prior levels, with the ratio of positive to negative sentiment improving significantly in July. Search interest in the A2 Brand, A2 GHU and A2 Platinum on the major e-commerce platforms has been recovering each week, reaching around 80% of December to January peak levels by the end of July. From mid-August, our new user education and recruitment program will ramp up, followed by a broader A2 Grand Superiority campaign in October. And for our outlook statement on slide 12, we expect revenue on EBITDA to grow in FY27, supported by innovation and new markets, continued momentum in other nutritionals and liquid milk, and improved profitability at A2 Pocono. IMS sales are expected to be impacted by the flow-on effects of supply chain disruption in the fourth quarter, with a gradual recovery over the course of the year, supported by an increase in marketing investment, particularly in the first half. As a result, group revenue and EBITDA are expected to be materially weighted to the second half. Overall, we currently expect mid- and single-digit revenue growth in FY27, with first-half revenue broadly in line with last year. The EBITDA margin is expected to be approximately 15% with the first half materially down on PCP before improving in the second half. Our full outlook statement including key risks is set out in our results commentary released today. Slide 13 outlines our strategy which is unchanged and enduring. We remain focused on capturing the full potential in China IMF, ramping up product innovation, entering new markets and transforming our supply chain. all underpinned by our brand strength and science and innovation capability. As slide 14 shows, we continue to track well against our medium-term financial and non-financial goals and remain on track to deliver the majority of our targets despite the temporary supply chain disruptions during the fourth quarter. Turning to the next slide, we've just fell short of achieving our medium-term revenue ambition of $2 billion this year, but will do so in FY27. Our market and category growth drivers remain on track except for Chanterelle IMF which has been impacted by supply chain disruption and is a key focus in working progress currently. Moving to the next page and beyond our FY27 goals, we have significant growth opportunities to capture in our core business, adjacent categories and new markets over the years ahead. We've been addressing these opportunities over time and thought it would be helpful to lay out the markets and categories we are focused on. The estimated size of these markets of retail, the addressable component, our current share and how our portfolio through innovation and new markets has evolved from FY21 to where we expect to be by the end of FY27. Interestingly our portfolio of products and markets has expanded from 8 in FY21 to a planned 36 by the end of this year which is an indication of the focus on innovation and market expansion. In summary, we have a low share of a large TAM with plenty of growth opportunities to pursue over the long term. Over recent years we have focused on expanding our product portfolio supported by investment in innovation and product development capability, A2 Procono and building a network of strategic manufacturing partners. Slide 17 highlights the many new innovations coming to market in FY27 and beyond. In the first half of 27 we'll launch two new China Label products that will expand our China Label portfolio from 1 to 3, significant updates to A2 Platinum and A2 Genesis, alongside continued expansion in other nutritionals which Xiao and Yohan will cover later. Moving to slide 18 which speaks to the science that underpins our A2 brand proposition and innovation. We have continued to invest in research for more than 25 years building scientific evidence around milk that is A1 protein free. A highlight this year was our US Growth Monitoring Study, a key clinical requirement for the FDA infant formula approval process. The study showed that infants consuming formula made with A2 milk demonstrated appropriate growth and had a comparable safety profile to infants consuming conventional formula which is the primary purpose of the study. However, secondary analysis of the data showed a 6% greater length and weight gain versus conventional infant formula. These findings were presented at the American Society for Nutrition Annual Meeting in July and attracted significant interest. Slides 19 and 20 cover our supply chain transformation. During the year we completed the acquisition of A2 Pocono, a world-class nutritional facility and the divestment of MBM. This acquisition has more than doubled our Pocono team, delivered the first stage of our multi-year capital investment program on time and on budget, and secured registration amendments for the two new China-labeled products. The site is on track for an EBITDA breakeven result in FY27 as we in-source A2 Platinum and capture vertical margin benefits. As for slide 20, all of our key milestones with respect to English local transition, China-level registrations and facility upgrades for FY26 are all complete, with our FY27 metrics on track, with the production of financials in line with plans. Finally, on slide 21, we continue to make good progress on sustainability, including commencing work to convert the A2 Pocono Gapside boiler to an electrode boiler to progress towards our scope 1 and 2 net zero target by 2030.

We also established real on-farm data collection approaches to increase the accuracy of our Scope 3 emissions reporting and awarded 27 new projects through our Farm Sustainability Fund.