A2 Milk (A2M) – Margins stablising… Freedom Foods (FNP) – Sales expectations and infant formula launch… amaysim (AYS) – Trouble with the ACCC… Nearmaps (NEA) – Accelerating growth… Axsesstoday (AXL) – Simple bond raise successful

A2 Milk (A2M) – Margins stablising

A2M guided FY18 revenue of $922m, representing growth on FY17 period of ~68% and EBITDA margins of approximate 30%.

The company went on to say that despite increased marketing expenditure (as a % of sales), higher overhead costs, and on-off costs associated withe the transition to a new CEO, EBITDA margins for FY19 were expected to be broadly consistent with FY18.

This begs the question – where is the additional margin coming from to absorb all this additional cost? Gross margin has expanded significantly over the years from 35% in FY15 to 43% in FY16 and 48% in FY17. Expectations are for gross margin of close to 50% in FY18.

This can be the only answer. However, I question how much longer gross margins can continue to expand at this rate. Especially in order to absorb the additional overhead and marketing expenses that will be required as the company continues its expansion into the US and China.

It’ll be interesting to observe how the company manages the balance between top-line revenue growth and margins going forward.

Freedom Foods (FNP) – Sales expectations and infant formula launch

Net sales for FY18 are expected to be $353m, an increase of 35% on FY17. This is slightly below the company’s upgraded net sales revenue target of $360 to $380m.

The Company expects net sales revenue in FY19 to be in the range of $500 to $530m (42-50% growth).

Separately FNP announced the launch of Australia’s Own Diamond pro+ Premium Infant Formula, Follow-On Formula and Toddler Milk Drink products in Australia and within its existing distribution base in SE Asia. This is a significant growth market as evidenced by the growth of Bellamys and A2 Milks businesses in Australia and Asia over recent years.

More entrants equals more competition, which will have flow on effects across the industry. Key battle grounds are sure to be pricing and marketing spend, which makes the A2M discussion above even more pertinent as it relates to margins.

amaysim (AYS) – Trouble with the ACCC

The ACCC has commenced proceedings against amaysim Energy Pty Ltd (trading as Click Energy), in relation to statements about discounts and savings of its energy products that it considers to have contravened the false or misleading conduct provisions of the Australian Consumer Law.

The ACCC is alleging that claims made by amaysim that consumers would save by switching to Click Energy were false and misleading and with no basis.

ACCC chair Rod Sims was quoted in the AFR saying, “We believe that Click Energy’s conduct is among the worst practices we see in retail electricity marketing. We allege that consumers were misled about discounts and savings, with some consumers not getting any discount or savings at all”.

“The retail electricity market is too complex and opaque. Customers need to trust that discounts and savings advertised by retailers are accurate so they can make informed choices about which products are best for them.”

The ACCC is seeking penalties, injunctions as well as an order to allow customers who were lured under the promotions to cancel their plans without exit fees.

The is a big blow to the image of a company that fashions itself on being the consumer champion, with simple products and pricing. Especially since the company is so heavily reliant on it’s marketing message resonating with consumers in markets that are incredibly competitive including telco and energy.

Nearmaps (NEA) – Accelerating growth

Nearmaps provided an update of annualised contract value (ACV) at 30 June 2018. The results exceeded expectations with closing group ACV of $66.2m, 41% growth over the $47m reported at 30 June 2017.

H2 growth in group ACV came in at $12m, with growth in Australia of $5.5m compared to guidance of $3.3m and growth in the United States of USD$4.4m compared to guidance of USD$3.2m.

Half on half growth in Australia accelerated to 13%, up from the 8% growth rate they’ve been able to achieve over the last 3 HY periods. US half on half growth was 52%, compared to 60% achieved last HY:

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Axsesstoday (AXL) – Simple bond raise successful

Axsesstoday elected to up-size the deal (discussed previously) from $50m to $55m at a 490bps margin. This is a strong result for both the company and the market. Given the support received for the offer, expect others to make use of the listed debt market in the coming months.

By Danny Sandler

Founder of Ocean Asset Management.