A2 Milk Co. has reacted to pressure on its sales in China, a key market for the New Zealand-based dairy and infant-formula business, and lowered its forecasts for annual sales.
In November, A2 Milk Co. had provided guidance for its full-year revenue to hit NZD1.8-1.9bn (US$1.31-1.39bn). Yesterday (25 February), alongside half-year financial results that included a slide in sales and profits, the company said it now expects annual revenue “in the order of NZD1.4bn”. In A2 Milk Co.’s last full financial year, its sales were NZD1.73bn.
Part of A2 Milk Co.’s guidance for investors is on EBITDA margin, which, in November, the company advised it expected to be 31% for the whole of its current financial year. The business said it now expects that margin metric to be 24-26%, excluding the costs of acquiring a controlling interest in Mataura Valley Milk (MVM), a New Zealand dairy business.
In A2 Milk Co.’s stock-exchange filing yesterday, the company insisted it had confidence in the basic elements of its business but it indicated there remained pressure in two sales channels in China: the daigou channel, where traders outside China buy products for customers to be shipped back to the market; and cross-border e-commerce (CBEC).
“Globally there continues to be unprecedented levels of uncertainty and volatility due to Covid-19,” A2 Milk Co. said yesterday. “The company remains confident in the underlying fundamentals of the business and will continue to invest behind the brand and in its capability to drive long-term growth.
“However, the pace of recovery in the daigou/reseller channel and in the CBEC channel has been slower than previously anticipated and the company now expects revenue to be at the lower end of the previous guidance range. A lower EBITDA margin range is now expected due to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December.”
Nevertheless, A2 Milk Co. had a caveat on its revised outlook. “The outlook for fiscal year 2021 assumes the actions being taken to re-activate the daigou/reseller channel deliver a significant improvement in quarter-on-quarter growth from 3Q21 to 4Q21.”
In the first six months of the company’s current financial year, revenue fell 16% to NZD677.4m, with its EBITDA down 32.2% at NZD178.5m. A2 Milk Co.’s net profit after tax stood at NZD120m, versus NZD184.9m a year ago.
A2 Milk Co. pointed to a “strong performance” from its China-label infant nutrition business – where sales rose 45.2% to NZD213.1m – and a “solid” showing from its liquid milk operations in Australia.