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.
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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.
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“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.”
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By GlobalDataNevertheless, 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.
