Thank you for standing by, and welcome to The a2 Milk Company Limited FY 22 results release. All participants are in a listen-only mode. There'll be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. David Akers, Head of Investor Relations. Please go ahead.
Hi, everyone. Thanks for joining the call today. We hope everyone's keeping well. As COVID-19 restrictions have eased, we're excited to be taking a more traditional approach to our results and roadshow this week. We're very pleased to be hosting this call from Auckland today. Turning to slide three, the agenda. On the call today, we have David Bortolussi, our Managing Director and Chief Executive Officer, Mark Sherwin, Chief Financial Officer, Li Xiao, our Chief Executive for Greater China, Yohan Senaratne, Executive General Manager, International, Kevin Bush, our Executive General Manager for ANZ, Blake Waltrip, Chief Executive for USA, and Rebecca Culbertson, Investor Relations Manager. To start the presentation, let me hand over to David Bortolussi, who will start on slide four.
Thanks, David. Good morning, everyone, and thank you for joining us. You'll see that we've released quite a lot of information this morning through our results, materials, and additional announcements. I want to start by summarizing the five key points I want you to take away from our presentation, which is summarized on page four. Firstly, the steps we took last year to address excess inventory have proven effective. Importantly, channel inventory is at target levels, product freshness is amongst the best in the industry, and market pricing has improved significantly. The actions we took last year were critical to restoring channel economics and have provided the foundation for growth this year. The second key point is that we have made strong early progress executing our refresh growth strategy that we shared with you at our Investor Day last year.
Our strategy is very much focused on capturing the full potential of our China market opportunity. Importantly, the increase in brand investment and other aspects of our strategy have driven our brand health metrics to new highs, and we have achieved record market shares. Thirdly, as a result of this and improved execution, our FY 2022 results delivered double-digit sales and earnings growth, which is particularly good given the market headwinds and COVID-related challenges we've had to manage over the year. Next, in terms of outlook, we see this as a positive for FY 2023, with continued sales and earnings growth. Pleasingly, our FY 2022 result and FY 2023 outlook means we're also on track to deliver our medium-term sales and EBITDA margin ambition I shared with you at our Investor Day last year.
Finally, with this confidence and after reviewing our strong balance sheet position, we have also announced today that we intend to execute an on-market share buyback of up to NZD 150 million. In addition to this, we also announced today the appointment of David Wang to our board, who brings additional China market and manufacturing capability, who will be a great addition to our board. Consistent with corporate governance best practice, the company's Deputy Chair, Julia Hoare, has announced her intention to step down as a director after our interim results this year, after nine years of exceptional contribution to the board. Julia will be very much missed in our organization, and we certainly have some big shoes to fill.
Before I move further into the presentation, I wanted to acknowledge, in particular, the achievements of all of our a2 team and our strategic partners in China and Synlait in New Zealand over the past year to deliver this result today. As well as our shareholders for your support and patience while we have returned the company to growth this year. Moving on into the presentation, slide three shows the incredible growth journey the company has been on over the past decade. Disrupted in FY 2021 by COVID-19-related demand and supply volatility, but returning to growth in FY 2022. Moving to slide six, our FY 2022 result is in line with our expectations. Group revenue increased by 19.8% or 11.2%, excluding the impact of the MVM acquisition. EBITDA was up 59% with an EBITDA margin of 13.6%.
Net profit after tax was up 42% to NZD 114.7 million, including the non-controlling interest as a result of the China Animal Husbandry Group owning a 25% in MVM. Backing out that non-controlling interest, which is a loss in MVM, our net profit after tax was NZD 122.6 million for the year. Our group result was driven by strong performance across our regions and product groups. China labelled IMF was up 12%, 12.2% with record high market shares in MBS and Dol. English labelled IMF was up 11.6% with market share increases in CBEC in the second half and O2O throughout the year. We lost share in the Daigou channel, but our trajectory is improving. A2 Milk was up 2% with record market share, and U.S Milk was up 30% with increased share in grocery. FY22 was our first year of including MVM for 11 months in the result. There are some key operational highlights we're particularly proud of. Our brand health metrics have reached new highs following significant investment during the year.
We deliberately shifted away from our main English label reseller to more transparent, performance-based and exclusive partners, which is progressing well, and we have increased our support to the Daigou channel. We've stepped up innovation with the most new product launches in the company's history, with more to come as we continue to build our pipeline. Lastly, we have significantly increased our sustainability targets, initiatives, and impact across the business. Moving to our outlook for FY23 on slide seven.
We've included the full outlook statement in our results announcement, and I encourage analysts and investors to read that in its entirety. In summary, we're expecting high single-digit revenue growth in FY23, with first half growth expected to be significantly higher than second half growth. We're expecting revenue growth in China label IMF, English label IMF, and U.S milk in FY23. ANZ milk to be broadly in line with last year, and MBM to be down on FY22 on an annualized basis, bearing in mind that MBM was with us for 11 months during the year, not 12. Gross margins are expected to be broadly in line with FY22, with cost pressures offset by pricing, product mix, and cost initiatives. We are planning to increase brand investment further in FY23, skewed marginally towards the first half due to campaign timing, which is different to last year.
Our SG&A will step up again in FY23. Consistent with our strategy, we'll be investing more in capability, science, innovation, and sustainability, as well as doing our best to manage inflationary impacts across the business. Overall, we're expecting the EBITDA growth in FY23 with a modest improvement in EBITDA margin, slightly skewed to the second half due to marketing phasing compared to last year. The last point to make on outlook is that our operational cash conversion will be significantly lower in FY23 due to the reversal of timing benefits in working capital experienced in FY22, and an increase in inventory levels. Slide 8 shows our refresh growth strategy on a page. We first shared this with you in October last year. It remains unchanged except for an updated purpose and vision, which I'll cover off on the next slide.
You'll see in the results announcement and in this presentation that we've provided an update on our performance against our strategic priorities. In the annual report, we've also gone into considerable detail on how we're tracking against our goals for people, planet, consumers, and shareholders. Moving to slide 9. Following the completion of our strategy refresh in 2021, we engaged our whole team in a process to refresh our purpose, to align on why our company exists, and to create an inspiring vision for the future we want to help create. Our refreshed purpose is to pioneer the future of dairy for good, and our vision is to create an A1-free world where dairy nourishes all people and our planet.
A2 has always been an extremely purpose-driven company, but this refreshed purpose and vision has been incredibly well received by our team and one that I'm personally excited about. I look forward to exploring this more with you during our roadshow during the rest of this week. Slide 10 highlights some of our achievements in sustainability over the past 12 months as we pioneer the future of dairy for good. We've committed to more ambitious targets, particularly in emissions reduction and sustainable packaging. Several investors will also be interested to review the detail we've published on TCFD in our annual report, having now also incorporated MBM into our emissions reporting. We've also commenced the pilot assessment for nature risk as we start the journey to become nature positive over time. We've invested significantly this year to reduce our emissions.
A few key highlights include, firstly and really importantly, committing to a new high-pressure electric boiler at MBM supplied by 100% renewable energy, which will be a first in the New Zealand dairy industry, and we will virtually eliminate our significant scope one emissions following the acquisition of MBM. The project has been supported by co-investment from the New Zealand Government's Investment in Decarbonizing Industry Fund, which we very much appreciate. Other highlights were contributing to Synlait's Boiler two conversion to biomass at the Dunsandel plant. Launching our New Zealand Farmer Sustainability Farm at Lincoln University, a program replicating our Farmer Grants program in Australia with Landcare. We have explored further on-farm commercial trials utilizing Sea Forest SeaFeed product, a methane inhibitor from Asparagopsis seaweed. For packaging, we aligned our Australian Packaging Covenant targets to extend to all markets.
We achieved a leading rating with APCO earlier this year, which we still have a lot of more work to do. Finally, the team and I are proud of the contribution A2 has been able to make to support the communities in which we operate with proactive programs to support children and families in China, ANZ and the US, as well as making a number of additional contributions to support those in need in times of crisis. In order to build a sustainable business, we need to continue to deliver on our financial ambition. I'm pleased to show here on slide 11, we're on track to achieve our ambition to grow to NZD 2 billion in sales and improve our EBITDA margins over time.
In the chart on the left, you can see our FY21, first half 2022 LTM and FY22 performance in sales and our medium-term ambition. You can also see our EBITDA margin for those periods, along with our medium-term EBITDA margin ambition in the teens highlighted in green. The middle section in this slide is a reminder of the drivers to get to NZD 2 billion in sales, where we're tracking on each one. The incremental revenue growth in total is NZD 0.8 billion, is expressed in the same way as we did back in October last year at our Investor Day, i.e., off the FY21 base of NZD 1.2 billion. If we were to achieve our ambition by FY 2026, it would imply a four-year revenue CAGR of 8.5% from FY22.
FY22 demonstrated solid progress towards that ambition with positive leading indicators in brand health metrics and market share, providing a good foundation for future growth. Slide 12 provides an overview of our performance against our non-financial measures of success and key leading indicators. I won't go through this in depth now, but wanted you to know that the measures we announced in October last year are the same measures we are tracking and holding ourselves accountable to. Overall, we are on track. Before handing over to Mark, I'm going to cover off two more areas up front: our China label GB registration process and the on-market share buyback we announced today. On Slide 13, we provide an update on our new China GB registration process. We have been working closely with Synlait for a considerable time on this project.
While the new GB registration process is progressing, timing is uncertain and subject to SAMR approval. However, it's important to note that MPI has cooperation arrangements in place with SAMR, which, among other things, positions New Zealand well in relation to the registration process. Our current China Label IMF product registration expires in late September 2022. We have applied with Synlait for the renewal of this existing registration and anticipate receiving it in the next month, consistent with SAMR's practice with other brands in similar situations. This would, in effect, allow Synlait to manufacture our current registered product up until the end of the grace period in February next year, when the new GB standard applies. The current registered product manufactured up until this date is allowed to be sold in the market after that date.
There's not much else I can add at this stage other than to say that we'll update the market when we receive our extension and as the process evolves. The last topic I will cover is our share buyback on page 14. Our capital management framework prioritizes investment in growth initiatives and maintaining balance sheet flexibility ahead of capital returns to shareholders. However, there is capital that is surplus to achieving these priorities. We look at effective ways to return funds to shareholders. As you know, our balance sheet is in a strong position, and this provides the capacity to return capital at this point in time. The board has reviewed alternative options and determined that an on-market share buyback is the most appropriate form of capital management at this time.
We therefore intend to commence an on-market share buyback of up to NZD 150 million towards the end of September. The buyback also reflects the improved confidence we have in our strategy, execution, and outlook. That's enough for me for now. I'm going to hand over to Mark to take you through the financial result in more detail and then to the rest of my team to take you through the business performance. Over to you, Mark.
Thanks, David, and good morning, everyone. I'll start on slide 16, which summarizes the key numbers behind our result. Group revenue came in at NZD 1.44 billion, up 19.8% for the year. This reflected a strong performance in IMF, as well as incremental sales from the first time inclusion of MBM and strong US liquid milk growth, particularly in the second half. We delivered gross margin of 46%, which was up 3.7 percentage points from FY 2021. There are two aspects to this increase that I would like to call out. Firstly, adjusting for the first time inclusion of the MBM business, FY 2022 gross margin increases to 50.9%. Secondly, the business's cycled significant stock write-downs that occurred in FY 2021.
Adjusting for these items on a like-for-like basis, our gross margin percent in FY 2022 was broadly consistent with prior year. This reflects the benefit of price increases, both annualized and new, reduced trade spend and favorable foreign exchange. This has been offset by higher raw material costs, including the impact of elevated milk prices and logistics costs, which have been impacted by COVID-19. Distribution costs were higher due to our uplift in sales, along with elevated in-market freight rates in the USA, in particular. Our marketing investment increased significantly, up 36% to NZD 230 million, largely to support our growth strategy in China. Administration and other costs have increased, primarily reflecting ongoing capability build, including to support the ongoing growth of our China business, an increase in employee incentive costs, and higher professional service fees.
The company's effective tax rate for the period was 36.7%. Our net profit after tax was therefore NZD 114.7 million, which represents a 42.3% increase. Note that this figure includes the minority interest share of losses in MBM. Our diluted EPS was up 51.8%, NZD 0.165 per share. Slide 17 highlights the strong growth in our China and Other Asia segment, up 24.5% in revenue and substantial growth in EBITDA, reflecting in part stock write-downs that occurred in FY 2021. While ANZ revenue was down 4.8%, this reflects a review of our English label IMF route to market structure, resulting in a shift of IMF volume to our CBEC channel, which resides within our China and Other Asia segment.
USA revenue grew 30%, supported by new innovation, and the FY 2022 result also includes MBM for the first time. Slide 18 shows the breakdown of revenue by product and segment category. IMF was up 11.9% overall, driven primarily by China and Other Asia IMF growth of 24.5%. Liquid milk for the group was also up double digits, which is an excellent result and largely driven by gains in the U.S. Slide 19 provides further details behind our gross margin performance. After adjusting for the first time inclusion of MBM and FY 2021 stock write-downs, our product and IMF label mix have remained relatively consistent year-over-year, with minor impacts on gross margin through the period.
Turning to slide 20, this slide shows a significant uplift in our marketing investment and also the increase in administration and other expenses. We invested NZD 182 million in marketing in China during FY 2022. By far our largest single year investment, reflecting our confidence in the brand, its performance, and its potential in China. Adding to my earlier comments on administration and other expenses, the increase half on half mostly reflects capability build through the period. Slide 21. Our balance sheet is very strong. We closed the year with total cash and term deposits of NZD 887.3 million, or net cash of NZD 816.5 million, excluding debt of NZD 70.8 million. The significant increase in property, plant, and equipment reflects acquired assets as part of the company's recent acquisition of MVM. Turning to slide 22.
This shows cash flow for the year. Our cash flow from operating activities was extremely strong as we benefited from a favorable movement in working capital. This was mainly due to an increase in trade and other payables related to the timing of fourth quarter 2022 brand investment and inventory orders, combined with delayed invoicing and payments processing in China. Our high operating cash conversion of 114% primarily reflects the benefits of this movement in working capital. Our operating cash flow also includes a decline in tax payments, reflecting refunds received and deductions for the FY 2021 stock write-off claim during the year. I'll stop there and hand over to the regional head to take you through our regional and product performance. Over to you, Li Xiao.
Thank you, Mark. I will take you through the market dynamics for China IMF. The birth rate decreased in 2021 by 11.5% and is expected to decline in 2022. As a result, market volume was down 4.3% and the market value decreased by 3.1%. The market also saw the continuing shift towards China label from English label, but to a lesser extent. Growth rates varied between K&A and the BCD cities. K&A sales by value decreased by 7.1%, while BCD sales by value were broadly flat. There are three important points to note for the China label channels. Firstly, there is a continuing mixed shift to the premium segment. Second, there is a rapid growth in the a2 protein category, grew by 108% in full year 2022.
Thirdly, there is an increasing preference for strong brands, resulting in brand consolidation. English label channels are showing signs of stabilization, with rate of decline by value down 9% compared to the decline of 33% in full year 2021. Despite challenging market dynamics, our growth in full year 2022 in China label and English label IMF was encouraging. Moving to slide 25. Our key messages for China are summarized on this slide. This year we continue to execute on our strategic priorities. We invested and nurtured our brand with a strong focus on integrated marketing campaign and new user recruitment. We expanded our key account coverage to major regional accounts. Offline distribution expanded in lower tier cities. We also invested heavily in digital marketing and e-commerce capability. We leveraged this capability to drive growth in UHT.
We are pleased with the impact from this progress. We achieved new highs in brand health metrics, delivered record market share in MBS on K&A, BCD, and across all stages. Numeric unweighted distribution and same-store sales growth increased. We delivered record market share in-store and a double-digit growth in UHT. It was a good year. I'm very proud of my team. With all those achievements, there is a lot to talk about, but we don't have enough time on this call, unfortunately. Slides 26 - 31 provides detail on all the key points I have discussed, including the results, store expansion, like-for-like sales, and the increasing shares. Slide 26 show the China label IMF result and how that's been driven by the execution of our refreshed growth strategy. Slide 27 highlights again some of the dynamics supporting our growth.
Slide 28 shows the expanding store footprint, improvement in like-for-like sales, numerical, and the weighted distribution. Slide 29 has our market share in MBS up to 3% overall, with 7.1% in K&A and 2.3% in BCD. Slide 30 shows our sales growth in Daigou in priority platforms and our overall share, which increased to 2.5%. Slide 31 is important as it highlights the positive growth in units of early stage pro-products in MBS and Daigou. It also shows growth in share across all stages, across MBS and Daigou. We show on slide 22 and 23 some of our integrated marketing campaigns and our below the line investment.
Slide 34 highlights how we partner with Operation Smile to provide corrective surgeries and the nutrition products to 300 children, a collaboration that we are very proud of, which went on to win the ADMA Gold Awards. Our marketing investment and how we executed with our campaign has led to a big uplift in our brand health metrics shown on slide 35. In particular, I'd like to draw your attention to the increase in top-of-mind awareness from 6% in 2021 to 9% now. Spontaneous awareness from 16% at 2021 to 21% now. I'd also like to point out slide 36, which shows the strength of the brand from trial to loyalty. It has been a very good year for us in China. The IMF category has had headwinds, but we are getting just stronger. Now I will hand over to Yohan.
Thanks, Li Xiao. Moving to slide 37. Now, this slide provides all the key messages for English Label, and the slides after this provide the supporting detail. In the gray box on the left, you can see the strategic priorities we shared with you at the Investor Day, and we're progressing well against these. Firstly, as David mentioned in the opening slides, we have rebalanced channel inventory and actively simplified our route to market. We are focused on developing more transparent, performance-based and exclusive distribution partnerships, and this will put us in a more sustainable and stronger position for the future. Linked to this change in approach, we have also taken more control of marketing communication by increasing brand support to resellers and directly engaging with Daigou. We have also invested significantly in digital marketing and e-commerce capability.
Linked to simplification and development of our route to market, we've also clarified our route to market for O2O, which means that we can also leverage the team in China and the team in ANZ to drive growth. We've also been focused on the refresh of our a2 Platinum infant formula and toddler milk range. The impact of this progress has been significant. Inventory levels have reached targeted levels, and overall pricing has increased. Inventory freshness is among the best in the industry. There's also been a reduction of unauthorized cross-channel sales from ANZ resellers to CBEC platforms. We have delivered material improvements in brand engagement and share of voice. We are also achieving growth in the O2O channel and are delivering innovation in our core markets.
Slide 38 shows how the underlying sales and market share have been impacted by the shift in our route to market approach. Following our review, we focused on developing more transparent, performance-based, exclusive and channel compliant distribution partnerships. As a result, significant ANZ volumes ultimately being onsold to CBEC platforms were rerouted through authorized CBEC platform distributors. Overall, English Label sales have stabilized and in fact up 11.6% if you combined ANZ and CBEC English Label sales. Slide 39 shows more supporting evidence of English Label stabilization. You can see on the left that BCD cities are leading that and actually are back in growth for second half 2022. This slide also highlights the channel mix shift from Daigou to CBEC and O2O, as well as the emergence of ultra-premium segment in FY 2022, which is an opportunity for growth for us.
A few callouts on slide 40. We've been consistent in showing you the 12-month MAP share for CBEC, and while our share has stabilized at 19.5%, if you look at it on a six-month basis, it was 18.5% in the first half, but up to 20.7% in the second half. For Daigou in the middle chart, market share has declined again, but our trajectory has improved in the second half. In first half 2021 and second half 2021, our decline was 2% plus. But this has reduced in the second half of 2022 to a less than 1% decline. Clearly not the direction we want yet, but an improving trajectory. Conversely, our share in O2O is a solid 18.6% for the year and 19.5% for the second half.
Slide 41 is a big feature of our improving performance. Freshness has improved significantly, as has overall pricing. On Slide 42, we're pleased that following two marketing campaigns in FY 2022, that our brand awareness has responded positively, ticking up to 29%. If we move to slide 43, we have shared some color on how we've supported the Daigou channel through events and outreach. We're still very much committed to this channel, that they were critical to driving new user recruitment and brand promotion. Our team is working closely with our Daigou community to drive growth.
On slide 44, some highlights from 618 in terms of activation and outperformance with offtake in major platforms up 21% versus last year. Finally, on slide 45, we are very proud to have been the first English Label IMF brand to offer product delivery during the Shanghai lockdown. FY 2022 was a very encouraging year for us in infant label. Channel inventory rebalanced, route to market significantly improved, direct Daigou engagement was enhanced, digital and online capability was strengthened, and now we're relaunching a2 Platinum with a new formulation and refreshed artwork. We're coming back. I'm gonna hand over now to Kevin.
Thanks, Yohan. Moving to slide 46. This slide outlines the strategic priorities for ANZ Milk and our progress. We continue to invest in major broadcast media partnerships and further optimize our brand integration. We focused on expanding channel distribution outside of supermarkets into convenience, and we launched three new products, including a2 Milk UHT and Cream on Top in FY 2022, and a2 Milk Lactose Free launching in the first quarter of fiscal 2023. In addition to launching new products, we are committed to introducing recycled content into bottle manufacturing and continuing our investment in Smeaton Grange and Kyabram facilities. As a result of these initiatives, we achieved great results during the period. We achieved top three branded SKU in the category in grocery, with improvement in key brand health metrics, and increased our market value share to 12.4% from 12.2% in FY 2021.
We expanded distribution in Seven-Eleven and launched our products in Coles Express, and achieved national distribution for our UHT product, and have strong early retailer demand for our new lactose-free product. The completed works at Smeaton Grange, which are set to finish in first quarter of this year, will increase the capacity on site by approximately 30%, which is fantastic. On slide 47, outlining the underlying sales and market share outcomes that were achieved during the period, despite the headwinds of lower in-home consumption levels with less COVID-19 stay-at-home restrictions.
Moving over to slide 48. I mentioned before the very recent launch of a2 Milk Lactose Free. This product has a distinctive positioning in the market. It's the only lactose-free product that is also A1 protein free. It's made from fresh milk, unlike some other products in the category, and of course, it tastes better. Really excited about this opportunity and delighted to offer a product that we think will bring consumers back into the category. Over to Blake now.
Thanks, Kevin. You know, slide 49 summarizes the key points for USA liquid milk. The key progress updates include launching a new marketing campaign to drive increased awareness and new consumers to the brand, while continuing with key PR activities to engage with consumers and drive them to trial. We had some great innovations with a2 Milk Half & Half and the Hershey's a2 Milk co-brand. Both of these new products have been accepted in over 6,000 stores with velocities exceeding expectations. We achieved growth in market value share in the premium milk category for the grocery channel, delivered improvements in brand awareness, and household penetration increased from 2.1% - 2.3%. As we grew, we grew average velocities within key accounts. Slide 50 summarizes our performance for the year.
We're pleased that revenue grew 30% with a particularly good result in the second half, driven by growth in our core business and primarily in the grocery and mass channels. Our EBITDA loss was higher, though, mainly due to a significant increase in freight costs, coupled with fuel surcharges from higher diesel prices and higher raw milk costs. We're still maniacally working hard on our path to profitability, which remains a key strategic focus. With that, I'm going to hand it back to David.
Thanks for that, Blake. I know that was a whistle-stop presentation and a lot to digest, but we really wanted to give you some color around the result, as well as an update on how we're going to execute against our strategy and provide sufficient time for Q&A. Slide 51 has a page on the MBM result, which was slightly better than expected due to favorable GDT pricing and FX. I'm not going to go into that in detail, but the path to profitability is also a key focus for MBM as we focus on in-sourcing a2 product, developing future product innovation, and building capability to produce finished product. I'll pass back to David Akers to move on to Q&A now.
Thanks, David. We'll open the call for questions now. I'll ask that you please limit yourselves to two questions and then rejoin the queue. Darcy, can you please announce the first participant in the queue?
Thank you. Your first question comes from David Errington from Bank of America. Please go ahead.
Morning, David. You must be really feeling pretty good about life at the moment. It's a terrific set of results. Can I delve a little bit into the China label? Maybe Xiao Li could give a little bit more, because what I see, it's a terrific outcome where, you know, your sales or the market is down, yet you've been able to deliver market share growth of 2.2%-3%. Now there's three. That's also in the trend where your K&A cities are down, yet your B, C and D, where you're under-penetrated, are up. It just looks to me that China label was an outstanding result this period. Can Xiao Li talk at this? Seems to be, correct me if I'm wrong, are there three key buckets to this improved performance?
It looks like significant increase in brand awareness through your advertising. Can you elaborate on what the key messaging points were there? The industry trends toward the a2 seems to be stepping up a lot. Can you give us a bit of an update on that? Because that seems to be working in your favor, not a competitive threat. It seems to be increasing awareness of a2. If you know, so it seems to be like, you know, the ice cream, you put two ice cream shops next to each, it actually brings people to the area. The other one's the premiumization, which I was skeptical toward given, you know, tough Chinese conditions. Can Li Xiao give a little bit more detail, you know, 'cause he skipped over those must-see points, because it looks to me that China was just a terrific result in that second half.
Yeah. Thanks, David. I'll hand over straight to Li Xiao to take you through that. Yeah, three points from, yeah.
Yeah.
Over to you.
Yes. So the market is very tough, but I mean, there's a certain driving forces working to our advantage. The first one is, as we share in the October Investor Day that we are going to step up our investment, building our brand and then nurture our brand. Because at the moment, I mean, this is the critical successful factor that the stronger brand resonate with consumer will ultimately become stronger. So we are benefit from this step up investment. Also we increase our investment on the social seeding, as we call the social always on, the digital marketing, plus the medical marketing.
Because these practices help us, I mean, to further engage, educate all consumers and drive through the brand funnel from, I mean, the total awareness to unaided and to engagement and ultimately to try and purchase. Also in October, I mean, yesterday, we mentioned about, I mean, our initiative for lower tier city expansion replicates our activation playbook of NK to the RK. We talk about our intensive attack in the high potential province. All these good initiatives, I mean, strategy refresh strategy has been well executed in the second half. It's like the roadshow increased by 9%, I mean, the whole year to 9,932 events.
The mama class, which is important for consumer deeper education, is increased by 37%. We have 128 flagship stores plus 9,000 and 4,900 mama promotions in the world. All these well executed strategies actually contribute to our success. I mean, in our campaign, marketing campaign, you see we have a much clearer simple I mean message, balance functional message with the emotional message. This optimized media mix plus a clear simple message just cut through. That's why you see the big uplift, I mean, on the unaided awareness, which is I mean what we like. I mean, to drive consumer engagement rather than only awareness.
If you look at the a2 segment, I think we have all the competition in the category. In the last year, there's 68, I mean, a2 products launched by our competition. I think it helps us to educate, I mean, the consumer. As David mentioned, our vision is to build an A1-free world, I mean, where dairy nourish our people on the planet. This is good news because, I mean, with the more education, we are seeing more consumers coming to the category, which is a good news for us as a category leader and also the pioneer.
Thanks for that, Li Xiao.
Yeah.
David, like it is easy to get caught up in the headlines of the lower birth rate and the market being down. 30% overall. As you highlight, when you look at the segments in which we play in, from a premiumization point of view, the trend continues and the ultra premium segment was up 9% for the period and over half the market now. T he A2 protein category was up 108%. I mean, sure, our share went down from 65% - 41%. You know, we wanna advocate and agitate for change, in promoting the A1-free category.
Y ou know, we're playing in a good space at the moment and we're gaining share, which is terrific. That's the message I was thinking. You're in a bit of a sweet spot in that part. David, just quickly on changing tack, but your English label, you did change your approach going through an existing reseller to a direct distribution, you know, more strategic ones. Was that a headwind in this period with that change? I mean, I can understand why you wanna do it, but did it come as a bit of a headwind that will unlock in 2023 or is it not really that material?
Oh, not really. Like it was, I mean, Yohan and the team managed it exceptionally well. That transition that's been going on really right throughout the whole half, and it started back with our strategy day and well, even prior to that in terms of developing our strategy and our approach to this. You know, we've grown English label sales by, you know, 12% during the period, which is terrific and a big turnaround obviously from last year when we were down 51%. I think it's sort of been a relatively seamless execution. It's still a bit more work to be done on it. I think we're better set up for the future in managing the channels to market, which are English labels, how they find their way to the ultimate consumer in China.
We'll have far less indirect cross-channel selling. Because what was going on, David, was a lot of the product that was going through the reseller channel was being sold indirectly through different layers onto the CBEC platform. That was creating some challenges for us in managing the overall ecosystem. Now, it won't be perfect going forward, but we think that with the approach that we've got now, we'll stream the product through the channels more effectively, and we've adjusted pricing and everything across the board to try and make sure that as far as possible, we provide a level playing field for all of our participants in our business system. You seem to have a lot more control of your business now, David. Well, a lot more. Yeah, I think a lot more visibility and control. I mean, there's a lot of things that are outside our control, but what we can control, David, I think we're in better shape.
Yeah. Yep. Well done. Thanks, David.
Thanks.
Thank you. Your next question comes from Thomas Kierath from Barrenjoey. Please go ahead.
Morning, guys. Just a couple of quick ones. Just the logic in doing an on-market buyback as opposed to doing an off-market buyback or introducing dividends, just given the, I think it's a bit over AUD 500 million of franking credits that you've got at the moment.
Yeah. Hi, Tom, it's Mark here. Thanks for the question. Look, the board has reviewed a number of mechanisms, as you'd expect, including dividend, special dividend, off-market, on-market, and all of those may play out in the New Zealand and Australian context in the business. For this particular return, we've chosen the on-market for a couple of key reasons. First of all, it's really familiar in the New Zealand and Australian context. It's simple, relatively simple, and it's EPS accretive. Also, we feel it demonstrates the improved confidence that the board has in the strategy, the execution, and the outlook. That's the reason for the on-market.
The off-market, of course, is perhaps something that's a little more familiar in Australian context. I won't go into all of the details here now, but other than to say that from a New Zealand perspective, there are some additional complexities that can come into play with the off-market. That doesn't mean it's not something we'll consider in the future. Of course, you're absolutely right. From a dividend perspective, there's substantial franking credits that are sitting with the business. Again, I'll just emphasize that we've chosen this way forward for this point in time. It doesn't mean that those returns may not be available in that mechanism in the future.
Great. That's helpful. Secondly, just on Errington's point, with the change in reseller that happened in the half, I think that reseller did about NZD 150 million. Are you confident that you can grow the Daigou business year-over-year? I know that English labeling is up, but is that all gonna be kind of CBEC or do you think that you can actually replace that reseller and grow the Daigou business year-over-year?
I think, Tom, the point I guess I was trying to make is that there was a lot of cross-channel selling going on. What we've done, one of the main impacts that you'll see is that you'll see a shift towards reported sales and CBEC, which you know are reported in our China and Other Asia segment. You'll see a more truer representation of which region those sales lie in.
From our effectiveness in executing there, and I think Yohan touched on a number of these points in terms of what we're doing to, you know, re-engage with, you know, proactively engage with our retailers in the first instance, and then also engage directly from the company's point of view with the individual Daigou as well, and supporting them with content generation and, you know, sales plan opportunities and different things that we're doing across the board. I think that's a big step for us actually, because in the past we haven't done that directly, and I think Yohan and the team are doing a great job there. One of the leading indicators we look at there is our share of voice, which has increased significantly over the last six to nine months.
For me, that's a leading indicator of potential improvements in market share. It's hard to predict exactly how the Daigou channel will evolve. You'll see in our materials it has been under pressure, obviously. Due to COVID-19 related impact. What we're really focused on is improving, growing our business and improving our share within the channel, 'cause it's a really important channel for us in terms of new user acquisition, and getting our brand message across in a really effective way.
Cool. Thanks, David.
Thank you. Your next question comes from Larry Gandler from Credit Suisse. Please go ahead.
Thanks a2 team, and a very comprehensive presentation. Appreciate that. Couple of questions from me. First, looking at your price increase slide, this is on slide 41. It does look like it's drifting up, David. Just wondering if you can give us an indication as to, you know, how strongly do you think unit pricing will move up in F-23, given there's a lot of cost of goods pressures coming through in freight, things like that.
I mean, you're referring to the English label pricing that we included in showing the recovery in that and a little bit of volatility recently. I might ask Yohan to talk about English label pricing. I mean, it's just in the market and how we see that evolving.
Yeah. I guess if we first look at, you know, how things have evolved in FY 2022, you're right, there has been an improvement. In the first half, we knew there was a challenge associated with trade inventory and that was having an impact on market pricing. As we've progressed into the second half, that has improved markedly, which you can see. As we go forward in FY 2023, of course, one of the key things will be with our new platinum product, there is an increase in the RRP associated with that product. What we would expect to see is that that would proportionally be, you know, reflected in the different layers of the value chain that you have on slide 41.
We would expect that the market pricing would increase. What we want to do, though, is continue to be careful around how we allocate supply, to make sure that we are able to maintain margins at the different layers of the value chain. We'll continue to do that. Yes, you would likely see an increase if not, for no other reason, but because the RRP of the new product is higher than the old label a2 Platinum product.
We wouldn't be talking double-digit higher? It'd be more modest than that, I imagine.
If we took RRP, just to give an example of RRP. In Australia, if you look at the RRP of our new product, which is on shelf now, stage one and stage two have increased by around 6%, and then stage three and stage four have increased by closer to 13%. That of course is driven by a combination of factors. There's of course increases in costs associated with manufacturing the product, plus a reformulation as well, which has had an impact. Yes, that's the increase in the RRP of the English label product. New label versus old label.
Great, thanks.
Which is not out of step with the market.
No. No, it's not out of step with the market.
Thanks. If I can ask a second question on O2O. I don't really understand that whole supply chain. If you could just educate me on how that supply chain works and, you know, maybe some of the factors for successful execution there.
Got it. Perhaps just to explain about O2O, maybe the best analogy I could use would be similar to a car showroom, right? In China, under the O2O model, there'll be showrooms of the English label product, where there'll be, you know, point-of-sale materials. And a consumer will walk into these showrooms to discuss the product and then ultimately put through an order. Like a car showroom, the car is not available for sale there. The order is actually put through the cross-border e-commerce protocol and is ultimately delivered via that protocol to the consumer's home address. Of course, the benefits of that model is that there's a physical aspect to it, which in you know English label and under you know cross-border e-commerce, typically it doesn't exist. It still works under the cross-border e-commerce protocol itself.
It's on different channels because you've got those dedicated stores you're in there, so.
Yes. There are even within O2O, there are different classes or segments of O2O that we look at. One element is what we would call, you know, our national key accounts. Imagine MBS stores that would have our China label product but also offer our English label product as an O2O offer alongside it. If you recall back to our investor presentation, when we conducted the pilot for these, we saw actually the net overall sales in those stores actually increased when selling both English label and China label together. That's one store model. There's also what we call a classic cross-border e-commerce O2O. These are stores like Mum Time. These are major key accounts where they are specifically dedicated to selling cross-border products via the O2O mechanism. Then lastly, what we refer to as the, say, the long tail of O2O stores.
These are quite small networks, maybe one, two, three, four stores in a network that operate under the O2O model. These are different segments and, you know, we in the presentation, I alluded to using the ANZ and the CBEC teams to attack this segment. As you can imagine, there are certain parts, certain elements of that segmentation that are most appropriate through our China team, particularly National Key Accounts, where we have China-level relationships, and we wanna leverage that, of course. There are other parts of the model, other parts of the channel that are better attacked differently.
Okay, great. That helps. It sounds like there does need to be some collaboration between Xiao Li's team and your team in penetrating those retail establishments.
Absolutely right. Because it's, yeah, as I said, it's there are different segments of the opportunity.
Understood.
It's a really interesting channel for us. Sorry, I mean, the channel's grown significantly, so up 23% for the last-
Yeah, I noticed it.
Share has improved on the channel side. It's a really interesting space for us to operate in.
Okay. Thank you, guys.
Thank you. Your next question comes from Matt Montgomerie from Forsyth Barr. Please go ahead.
Good morning, David. Just checking you can hear me okay.
Yes, I can, Matt. Thank you.
Cool. Thanks, David. Firstly, well done on a solid result. Just a couple of questions. Firstly, on the EBITDA margin guidance for 2023. You're guiding to modest improvement on FY 2022 despite the second half being down, given the increase in marketing spend as you guided. Given this marketing spend makeup, how big do you think we should think about the intensity as a percentage of sales? Is it more appropriate to look at it on a full year basis as a reasonable base to head into 2023 and beyond, as opposed to the 2H 2022 number that you reported?
We're like, consistent with our strategy, we are going to, you know, we've had quite a step up this year, but we are gonna progressively invest in our brand and above the line and below the line. All we've said at the moment is we plan to increase it. We haven't given any specific guidance on a reinvestment rate. You know, if we gave that, we'd be probably telling you the number or close to, because we've given some guidance on our top line being up by high single digits. We'll have a little bit of flexibility around that. If things are going well and we're seeing continued good response from our marketing campaign, then we might invest more.
If things aren't working so well, then we'll make some adjustments and work on the effectiveness of that spend as well. We're not providing anything specific in relation to that. The one thing we did note is the phasing of it, 'cause it's quite different between the two halves in terms of how that's gonna show up, because we had a you know a big spend in the second half of FY 2022. It's more evenly balanced between the two halves in 2023, but slightly skewed to the first half where you know as Yohan said, we're launching our English label refresh product, and we're also we've got more work to do on our brand and our positioning work in China as well. The first half marketing spend, it'll be weighted that way and that's one of the key drivers of the why we said our EBITDA margin would be slightly skewed to the second half versus the first half. I hope that helps provide some color.
No, that's great. Thank you. Maybe on CapEx, there's a couple of comments through the release around guidance for 2023, excluding any substantive investments to further develop the New Zealand and China supply chain capability. Similar comments were made at the Investor Day in 2021. Just wondering if you could please expand on these comments and how you're thinking about that going forward, particularly given the way the market's moved in the past ten months and the development of your strategy, et cetera.
I guess what we're referring to there, we called out what the 25 million dollars for our, I guess our DIU CapEx, which is slightly elevated because of some of the works we've got going on at the moment in the Australian supply chain, a little bit of MVM as well. But what we're saying is that we're not including any substantive investment in developing our supply chain in New Zealand and China. That 25 million doesn't include that. I mean, as you know, when we acquired MVM, we committed to installing laboratory capability, and we've also made it pretty clear that we intend to invest in blending and canning capability at the site as well. That's work in progress at the moment. We're going through the planning phase on that.
That could end up being quite a significant CapEx investment over time. I don't expect a lot of that would fall into this coming financial year just because of the lead time on execution of that. In addition to that, we are looking at other opportunities in New Zealand and China to accelerate our supply chain capability, whether that be in blending and canning capability or otherwise within New Zealand and China. Also part of our strategy was also importantly to gain greater access to China label registrations. Now, one avenue for that, which is our baseline plan, is to continue with the MVM capability build and apply for China label registration as well. Once that's in place with the you know support and assistance of our valued partner, China Animal Husbandry Group, in that regard.
That's gonna take some time. When you go back to our strategy materials, you'll see that, our portfolio, while it's very focused, you know, it would be great to have the opportunity to innovate more in China label beyond our new formulation, which is coming shortly, to appeal to greater segments in the population as well as, you know, manage the trade, different channels, et cetera. We would very much like to have, and we're currently working on gaining greater access to China label registrations over time. The other opportunity to do that is through M&A. We could potentially, acquire a facility with China label registrations, and over time, you know, reformulate, rebrand, et cetera.
We've got to be really careful how we do that and, you know, and 100% in compliance with some of the processes, et cetera. There are opportunities for that in New Zealand and in China, and other companies have done that before. What we're saying is we're not including in that CapEx, that organic CapEx figure, or potentially any M&A acquisition costs, down the track, are just not included in that. We're just highlighting that. Of course, if we're entering into any M&A transactions, we'd update the market at the time because it's material.
Perfect. Thanks, David. Appreciate it.
Thanks, Matt Montgomerie.
Thank you. Your next question comes from Adrian Allbon from Jarden. Please go ahead.
Good morning, team. Just the first question, probably for you, David. Just within the, and I do acknowledge, I think the outlook statement's got a lot more anchor points to it for us, so that's definitely helpful. Just within the revenue guidance, which is high single digits, are you able for the infant formula part of the business, be able to give us a sense of how much volume growth you're expecting? Like, just in the context obviously, that you've got a new English label launching, you've got SAMR for China, you've had Shanghai lockdowns in the base as well as other things. Are you able to sort of give us a bit more sort of split on that front?
Are you talking about volume versus value or just guidance overall on the sales increase?
Well.
volume historically or forward? If you're talking about the outlook business. Sorry, go on then. Gary, can you clarify what the question was, please?
I was wondering for infant formula, would you be able to give us an indication of volume versus value?
We're expecting volume growth, and we've indicated that we are pricing on English label with the refresh, plus we're putting through some price increases on China label at the moment. I mean, they're sort of single-digit price increases. We do expect volume growth as well. The impact on market volumes in response to those prices is to be determined. I hope that sort of gives you some clarity, but we've said that China label and English label, we expect sales revenue to be up, but we're not providing any specific guidance on. We've actually tried to put a fair bit of shape around the outlook statement for next year as it is by business and category and overall in terms of top line growth as well as EBITDA margins.
Hopefully there's a fair bit to work with in that regard.
Yep. That's good, thank you. Just related to that question, are you able to kinda just give a bit more depth on, like, what the impact was of the Shanghai lockdowns for the business? I think when that sort of broke out, most of us were sort of expecting that to be sort of a negative feature, but it looks like it's played through as a positive feature.
Yeah, well, it has actually, in a way. I mean, it's always very hard to tell these things, but you know, I think the lockdowns from a consumer demand point of view, like, no doubt there was a degree of panic buying or pantry fill, whatever you wanna call it. There was a degree of that and then, you know, sort of from March, April onwards. You know, I think during that period, I think you know, our team in China together with our support, particularly the support of our China partner, China State Farm, which we work together on distribution there, and our broader supply chain team supported by Synlait on the supply side.
I think it's always hard to assess, but I think we probably out executed in that second half. You can see that manifesting itself in our share gains. Trying to quantify that is really hard. Like, I mean, we probably in that second half were slightly ahead of our expectations in that regard. Now as we roll into this first half coming, we're expecting probably that a bit of that demand, that consumer demand will unwind. We've got price increases we're putting through.
To the extent that we out executed in the second half, you know, it would probably be inappropriate to expect that the competition doesn't come back pretty strong in the first half going into next year as well. I think from what we can tell from our team up there, a number of those competitors struggled for stock availability at that time. Yeah, we had our own issues, but overall, I'd say that we out executed in the second half and we're expecting pretty fierce competition in the first half.
Okay, that's good. Second question. Just looking at the U.S., and obviously there's been a lot of excitement around U.S. FDA in that market. Just upside potential, potentially getting the FDA, which I noticed in your own statements, you've referred to them as deferred. Like, how do you get that business to profitability? Like, what are the key steps in the next twelve months?
Yeah. Blake, you're on the line still. Would you like to answer this question?
Yeah.
I'm happy.
I think there's a few things, and thanks for the question, Adrian Allbon. There's a few things that we're working on in our profitability improvement project. We've taken a number of significant steps in terms of price increase, in terms of right sizing our marketing investment. As you would imagine, we invested very heavily early on to build brand awareness. We're now able to leverage that brand awareness, and we're seeing that in the effectiveness of our new products, so we can right size that investment. We're right sizing our trade investment during these time frames as well. We've taken down some of the costs of our merchandising expense.
Then also, you know, we're getting, you know, in terms of operational uplift across the board in terms of looking at how we're going to market and the products that the margin contribution on those products working through our co-manufacturers. There's not just one specific thing going on. There's a multitude of things and we've made some pretty significant steps as we go. We're very comfortable that we're on the path that we laid out in the Investor Day last October.
Adrian, in our outlook you'll see that we've given an indication we do expect a significant improvement in the profitability in our U.S. business and those aspects that Blake just called out will contribute to that. Hopefully we'll make a real difference heading into next year.
Okay, that's helpful. Can you just maybe just touch on the FDA, like how, like, I guess the strategic attractiveness of that market has sort of changed, like with the Abbott opportunity?
Yeah, David, would you like me to take that or you wanna?
You go, Blake. Happy to do so.
All right. Well, I think probably the best way to describe this opportunity is, you know, when this opportunity came up, we submitted our application after very careful review. As you might imagine, they're very detailed applications in late May on a timely basis.
We subsequently answered a couple of rounds of questions from the FDA. What the FDA has taken as a position right now is that they're deferring a number of applications from players around the world that are applying to help with the infant formula shortage process. We stand ready to continue to help with that process, should the FDA change its perspective. Right now, it's in a deferral state.
Just to put some shape around it. Like, we would first of all like to be able to help because the crisis is still ongoing and mothers and infants are still struggling to get hold of product. We'd like to from a, I guess, from a you know, community good point of view, and given our presence in the U.S., we'd like to be able to help. If we got that opportunity, you know, of course, we'd take that up if the circumstances changed. It may, and there's no guarantee it may provide a pathway to longer term market access.
Having said that, just so that everyone's clear on the call, we see this as an interesting opportunity for our US business if it happens. It could be material to our U.S business, but there seems to be a lot of sensitivity in the market about it. From a group point of view, in the near term it would be unlikely to have a material impact on our, you know, growth and profitability at The a2 Milk Company level.
Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead.
Thank you. I wanted to ask about margins. Talking about EBITDA margins between the English label and ultimately the Chinese label infant formula products. I know obviously that's a number that you don't disclose, but at least if you can just sort of talk directionally for us. English label, there's a lot going on. You've obviously had to change in the route to market. Love to hear your thoughts there in terms of how that might play through in terms of a bit of a margin impact.
The shift from Daigou to CBEC and O2O. O2O, in particular, I imagine would be lower margin, but love to hear your thoughts there. Is that more akin to a Chinese label margin? If we're thinking about Chinese label with the strong growth there, are you able to give any sort of, maybe guidance is too strong a word, any sort of direction, or color on the way we should be thinking about the Chinese label, margins at an EBITDA level, even if it's relative to the English label?
Some aspects of that are complicated, but probably the easiest way to think about this, there's not an enormous difference in the margin, the growth margin structures by label, you know, by channel, across the board. You probably don't need to be too concerned about that. I mean, obviously our China label business has a higher cost to serve in market with, you know, high levels of marketing spend and cost of doing business to support that. But at the growth margin level, they're not significantly different. Even the shift that you're seeing in our reported result, from ANZ reseller market to CBEC in this year, which will be an even bigger shift as we annualize into that shift next year. The margin structures between the channels are not materially different.
At the GP level?
At the GP level, yeah. The cost to serve of CBEC versus reseller, it's not that different either. I mean, our highest cost to serve. You know, when we were selling into the reseller market here, we're selling into our partners, you know, in Australia and New Zealand, and then they're doing the work with their pick and pack operations, et cetera, from there. We're building our capability to engage directly, more directly with the resellers and the individual Daigou as well, but that's sort of not that material overall. The CBEC channel, you know. We've been investing in capability in e-com for both Daigou and CBEC in China. We had a very small team there of four or five people not so long ago. We've now got about 15 people there.
You know, that's kind of a fixed cost overhead structure, and the variable cost to serve of that channel is not materially different to the reseller market. Fortunately, I think from a mix point of view, you know, of course, there are differences, but it's not particularly material. I mean, one thing that is helpful is obviously from a product point of view overall, the company level, the more IMF we sell, the better we do from a profitability point of view. I guess that point's obvious.
Well, maybe just in terms of the cost to serve, at least a comment on the O2O. Is that the cost there similar to an MBS?
Yeah
Type cost? You know, we should be-
Yeah. If we get
Maybe that's the way we should be looking at it.
We get a lot of leverage out of that. Yeah, from a. It's really as Yohan highlighted, you know, in essence, it's an e-com transaction, so the consumer is seeing an empty tin presented at retail or point of sale materials and placing that order directly with the retailer or through a QR code and another mechanism. It's essentially an e-com fulfillment mechanism around that direct to consumer, because you obviously can't sell English label in-store direct to consumer. That's, in essence, very similar to CBEC from a margin and cost to serve point of view.
When we look to implement that with our own MBS channel, I mean, we have our own arrangements with those channels, and we have our own brand ambassadors in store that can help promote the product and facilitate that transaction. In essence, that's a relatively fixed investment in supporting that channel. The marginal cost of serving O2O is not that different to CBEC in a way.
The other question I had was around birth rate. I mean, you've given a little bit of commentary, and they're expected to decline in 2022. You've also hinted at the expectation of increase in competition coming through in this first half of 2023. I just want to try and put the two together. The third point is you talk about market or brand consolidation, which is another outcome of tighter volumes, probably. How are you thinking about the way competition emerges if we look into, you know, through FY 2023 and into 2024 in the context of birth rate expectations and market consolidation? Ultimately, this is a bit of a circling back on the margin story. Do you see this as being, I guess, negative for industry margins? Or do you think that the premiumization is enough to offset that?
You know, it's tough to tell, but I think just going back to your point on the birthrate, you know, clearly we've had significant double-digit declines in the birthrate over recent years. In our strategy, Investor Day presentation back in October, we outlined how we thought that may evolve and, you know, was illustrative, but obviously we build our own models around that in terms of the rolling impact on the different stages and by label as well. So we do expect the birthrate to continue to decline in the near term. The rolling impact on the total market, we still probably haven't felt the full impact of that in stage three and four. Yeah, we're seeing some.
I mean, it's probably too early to tell, but the data's a little bit mixed on this, but we're starting to see, you know, some early stage growth. Our business is actually performing quite well in that regard overall. For me, those trends in the market, as I mentioned to David Errington at the start of the call. You know, it's easy to get caught up in that birthrate impact, but, you know, overall, we only have a 4% or 5% share of the market. Our brand is one of the most you know from a consumer point of view, one of the most highly regarded in the market.
You know, I still see, no matter what those trends are, given that we play in the ultra premium segment, which is still in growth, 9%, and the A2 protein category, which, you know, it's growing much more rapidly than any other category in the marketplace, I think we're in a really nice spot to continue our growth, notwithstanding what the market's doing. Probably the only area that we are in terms of positioning for growth, we over-index to K and A versus BCD. On the one hand, BCD is a great opportunity for us to grow, and we've demonstrated during this, in our result that we've grown our share in BCD by a greater extent than K and A.
K&A has been pretty significantly impacted by the decline in the birthrate, more so than B, C, D, where the birthrate's been more constant. That might be something you wanna kinda factor into your modeling going forward. I don't know, like I can't really provide guidance and perspective on pricing and margins going forward into the longer term. One would think and hope, you know, there's pretty fierce competition over the next several years, but the market structure will evolve. Brand concentration will increase. We've already seen a degree of corporate consolidation as well, and as the market becomes more concentrated, hopefully, you know, the competitive dynamics and margins kind of settle to a normalized level. What that level is, I don't know.
No, there's a lot of moving parts. You're right. Thanks, David. Appreciate the answers.
No problem.
Thank you. Your next question comes from Marcus Curley from UBS. Please go ahead.
Good afternoon. Could we just start with David, on the product side? Could you just talk a little bit at the high level to the product differences, you know, for the English label and the China label, and also, you know, when you're looking to launch, and also, could you talk a little bit to, yeah, the transitional sales impacts that you've referred to in the guidance?
Sorry, the product differences to an English label and China label, and what was the last one, sorry?
Launch plan and impact from the transition between the products. What I meant by product differences is for the revised English label product, you know, specifically.
Yeah.
You know, what are you gonna be marketing? Is the product different? The same for the China label when it comes.
Yeah. Well, the English label. You know, and you might wanna comment on this, but the English label, we've done a pack change and I characterize it as an incremental sort of reformulation, particularly in stage three, where we've increased the DHA level. It's a new product and formulation. It's not vastly different to what we previously had. We said in the strategy day that we would refresh our range while we work on more substantive innovation in the English label range, which we hope to be able to bring to market maybe in the next 12-18 months.
From a China label point of view, it's commercially sensitive for me to comment on our new formulation, which is subject to SAMR approval, not only because it's going through a regulatory process, but just from a competitive point of view. Everyone's been very guarded, as you would expect, around formulations going forward.
In terms of the current formulation, there are a lot of smaller differences between English label and China label, but the key difference is the Lactoferrin content in the China label range versus English label, which doesn't have any Lactoferrin. Which in the Chinese consumers' mind is seen as, you know, a lot of substantial benefits in terms of immunity and other benefits. It's very highly valued by Chinese consumers, and it's a point of difference that we market heavily to our China label consumers.
In terms of transition, I mean, you would see that in our presentation that we've included an update on the GB registration process. The process is uncertain. In the short term, what needs to occur is that we were one of the first China label in the early wave of registrations of our current China label range. Our range, our dairy tree range at the moment is due to expire at the end of September. We, you know, some time ago as we went through this registration process, like many others, applied for an extension of the current registration range, which would take us through to well beyond.
The effective extension of that would be through to the end of the grace period at 21 February 2023. We're expecting, you know, it's all, again, of course, this is all up to SAMR, but we're expecting to receive an extension in our current registration within this next month coming in September, which we'll update the market on when that's received. In terms of the new GB registration approval process, that is progressing. We've been working really hard with Synlait on that and engaging with SAMR on that. But that process is inherently uncertain. There's no specific instructions, guidelines from SAMR around the timing of that.
Originally, we'd been hoping that we might achieve that by the end of this year, but I think due to you know, COVID-19 related impacts on various aspects and all, including you know, the impact on conducting site audits, which we understand NPI may do that on behalf of SAMR, that all needs to occur, and how that all flows through is a little bit uncertain. At the moment, in terms of our guidance relating it to that, we're anticipating and we'll know, we'll be able to firm these plans up in time and hopefully have more to share at the half.
We're anticipating that at some stage, perhaps in the second half of this coming financial year, that we will receive approval and go through a transition process, which would require us to, you know, we'd be building inventory in our existing range. We'd then switch over to manufacturing the new range. We'd run down our inventory from the old range, and we'd phase in our new product as well. Now, we've done that recently, and we're sort of in the process of doing that in our English label range at the moment, but that's a lot simpler than the China label transition, which we're gonna need to manage very carefully. Marcus, does that help you with the
Yes, thanks for the detail.
Any more questions?
Yes, the second question, just on the China retail store footprint outlook for this year coming, can you talk a little bit to how challenging it is to grow store footprint in the current market conditions or what your aspirations there for store footprint would be in the next 12 months?
Xiao Li, I mean, we can't give specific guidance around our store footprint going forward, but the challenges in building distribution expansion going forward in MBS.
Yeah. I think, I mean, in our October investor meeting, we talk about, I mean, we are ambitious to build our store. I mean, within five years, to 30-35 thousand stores, which is going to enable us the presence and the market share to 5%. This is still, I mean, well in progress. I mean, the challenge that you are in the expansion is the first that you see that there's a lot of store closure because of the economy under the challenging market situation for the IMF category. Yeah. Your new expansion, you need to be very cautious, selective on which store, which partner you work with and to expand your footprint.
The second one is, I mean, it's not only about the distribution. We are also, I mean, about, I mean, consumer education, store velocity. I mean, to improve the in-store sales. On that area, I mean, it's already shared in the investor meeting that's why we are trying to replicate our success in the national key account, which is mostly K&A cities, to the regional key account, which is mostly BCD cities. I mean, replicate the success playbook, optimize so that we can activate the distribution rather than just a display. Plus, I mean, step up the investment to expand our brand education and resonate with the lower tier city consumer. That's half-
I mean, the impact during this year has been pretty substantial. You know, Xiao Li's team has done a great job, so we've increased our weighted distribution, what, 41%-44%?
Yeah.
Our ambition is to get that to 50% or more. Yeah.
Yes, 53%.
Yeah, challenging, but we're making good progress.
I might just jump in there. Sorry, we have run a little bit over time. Go ahead with this question and then one more, I think from Stephen, who's next in the queue.
Did Marcus have another question or?
Yeah, Marcus, go ahead with your last one. Sorry, that was just maybe in context. Could you tell us how much store closures was a headwind to the store count this year finished?
Well, we haven't done it explicitly, but in the presentation, we've shown sort of illustratively what the impact of, you know, the rolling new stores that were put in place. If you go to plus new stores acquired, plus like-for-like growth and deactivated stores. On page 28 of the presentation, you'll see that. I mean, that's more or less to scale in terms of the bridge of those. You can see the deactivated stores was quite significant during the period, mainly due to store closures due to the economic reasons, the classic retail pressures that everyone's facing around the world. Hopefully, that. We haven't included the statistics around that because it's our distributor sellout numbers. They're not reported numbers.
Thank you. Your next question comes from Stephen Ridgewell from Craigs Investment Partners. Please go ahead.
Thanks, and well done on the result, guys. I just wanted to focus on the new English label formula and the guidance for the first half. I mean, just given the 10%, let's call it, average price increase, you know, with the new formulation and guidance for English label revenue to be flat first half 2023 versus second half 2022, you know, should we take this to imply a 5%-10% decline in volumes half on half? I f so, does that reflect some caution from A2 on the potential consumer reaction to the 10% price increase? Or is it simply, you know, the impact from softening up the inventory that you were talking to earlier?
On the price increase, Yohan was talking about the retail price increase in Australia in retail. That is a relatively small channel overall, so we haven't commented specifically on all the other channels and what our wholesale sell-in price changes may be, which are a little bit different to that. In terms of the volume, you've just got to bear in mind that we are phasing out the old English label and phasing in the new English label. That sort of started towards the end of the second half and then into the first quarter in particular of this year.
We're not necessarily saying that we're gonna have negative growth. We're just saying that that's a bit of a headwind for us as we manage that transition. So far, so good. It's actually progressing really well, and the product is starting to flow into the different channels. I think, you know, Yohan and the supply team and all the teams involved have managed that really effectively. The other thing we have to avoid is the big write-offs in relation to this, so we've managed the inventory situation well, which is a key risk.
Great. Thank you. That's all for me. Thanks.
Thank you. That is all the time we have for questions today.
Do you wanna make any last comments, David?
Thank you for joining us today. We had to run through the presentation quickly. Hopefully, you'll find all the materials helpful in understanding our business, and kinda relate that back to the investor day materials that we shared with you last year in October, and we've provided some tracking against that. You know, I guess in summary, we'll catch up with you all separately, investors and analysts, but you know, I guess the key message is for me, like those difficult decisions we made last year around inventory have worked, and set the foundations for the result this year.
Our strategy is, I think we've made the right calls in relation to that and the focus that we've got on the China market, and our execution of those initiatives is really starting to make good early progress, and hopefully you're seeing that come through in the result. The result this year is one step in the journey, and that's really encouraging to be reporting double-digit sales and earnings growth. Most importantly, we're on track for the medium term and that five or more year ambition that we put out there to grow sales to NZD 2 billion or more and improve our margins over time. I think in essence, you know, it's a pleasing result, and we're heading in the right direction, but there's more work to be done, and we look forward to talking to you shortly and catching up on the roadshow.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.