A2 Milk sticks to guidance, forecasts challenging year

A2 Milk chief executive Geoff Babidge. Photo / NZ Herald

A2 Milk said it was sticking to its revenue guidance issued in September but said the impact of Covid-19 had made forecasting difficult.

The company has already said the market dynamics have been challenging.

A2 Milk, in slides prepared for today's annual meeting, said it still expects group revenue for the first half of $725 million to $775m, down from $805.3m in the previous corresponding half.

Group revenue for 2021 was expected to come to $1.8 billion to $1.90b, up from $1.73b in the 2020 financial year.

The 2021 year's EBITDA margin was forecast to be in the order of 31 per cent.

"However, due to the volatility arising from Covid-19, and the difficulties this presents with forecasting, naturally there is uncertainty to this forecast," the company said.

"We also acknowledge the outlook provides for a significant increase in revenue in the second half, dependent on a number of key assumptions, including an improvement in the daigou channel and continued growth in our China label business," the company said.

A2 said it continued to observe "strong underlying brand health metrics", particularly in China, including market share expansion, and growth of brand awareness and loyalty measures.

"This gives us confidence that, notwithstanding the current headwinds, the fundamentals of the business over the medium term remain sound," the company said.

A2 Milk said in September that disruption in the unofficial daigou channel had affected sales "and it is currently anticipated that this will continue for the remainder of the first half of 2021".

The daigou trade channel to China represents a significant proportion of infant formula sales for a2 Milk's Australia and New Zealand (ANZ) business.

Much of that trade is through Melbourne, which has been severely affected by Covid-19 lockdowns.

A2 Milk's net profit hit a record $385.8 million in the June 2020 year, driven by a 34 per cent lift in infant formula sales.

For that period, A2 Milk estimated that Covid-19 had a "modest positive impact on revenue and earnings" thanks to pantry filling during lockdowns.

A2 Milk's shares last traded at $16.28, up 69c.