A2 Milk meets FY guidance warns on outlook

The a2 Milk Company met its culled full-year guidance, but warns that the outlook for the baby formula and fresh milk maker this year remains challenging, and it will take time to recover.

Despite having net cash of $NZ875.2 million ($838.8 million), the board dashed investors’ hopes of any return. Capital management was off the cards given market volatility and preferring to reinvest in growth and supply chain.

The company said on Thursday that growth in the Chinese market has reduced significantly from globally high rates to be flat, and cross border trade has been disrupted significantly, which has had a profound impact on the financial results.

Certain areas of the business performed well over the past financial year with market share gains in China label infant nutrition and Australian fresh milk, but a2 Milk was impacted by a major decline in cross-border English label baby formula sales via the daigou and e-commerce channels.

Net profit after tax was $NZ80.7 million, a decrease of 79 per cent, on revenue that tumbled 30 per cent to $NZ1.21 billion.

Earnings before interest, tax, depreciation and amortisation fell 78 per cent to $NZ123 million, inclusive of $NZ109 million in stock write-downs flagged in May and $NZ10 million in Mataura Valley Milk acquisition costs. The EBITDA to sales margin was 11.1 per cent (excluding MVM acquisition costs).

This was lower than the consensus analyst forecast for EBITDA of $NZ139 million and NPAT of $NZ94 million.

In May, the dual-listed baby formula company revealed another large stock provision and cut its full-year sales expectations to between $NZ1.2 billion and $NZ1.25 billion. A2 Milk also halved its margin guidance to between 11 and 12 per cent.

A2 Milk is seeking to address its major inventory problems which at the end of June stood at $NZ112.2 million, due to the stock write-down and product disposal costs.

The former market darling has reduced excess inventory and worked with customers and distributors to improve the dating of inventory across all labels and channels. This meant a2 Platinum English baby formula sales fell 51.1 per cent to $NZ166.9 million.

Chief executive David Bortolussi said these steps were having an impact with early signs of price stabilisation in the cross border e-commerce channel and some recovery in the daigou channel.

“Channel inventory in CBEC and daigou channels are now at target levels, with China label expected to reach target levels by the end of 1Q22,” he said.

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