Thursday, 18 August 2022
DairyListenOpinionSheep and BeefRural PropertyHorticultureVideo
InvercargillKaikouraReeftonWestportBlenheimNelsonMotuekaWellingtonMastertonGreymouthHokitikaGoreDunedinQueenstownOamaruWanakaTimaruAshburtonChristchurchParaparaumuLevinPalmerston NorthRotoruaWhakataneHamiltonTaurangaThamesAucklandDargavilleWhangareiTokoroaTe KuitiWhanganuiDannevirkeHastingsNapierNew PlymouthGisborneTaupoTaumarunuiKaitaia
NZ HeraldThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay Of Plenty TimesRotorua Daily PostHawke's Bay TodayWhanganui ChronicleThe Stratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu CourierVivaEat WellOneRoofDriven MotoringThe CountryPhoto SalesNZ Herald InsightsWatchMeGrabOneiHeart RadioRestaurant Hub

Advertisement

Advertise with NZME.
The Country

Former high flier A2 Milk takes a tumble on earnings downgrade

10 May, 2021 05:34 AM5 minutes to read
A2 Milk has taken a big knife to its EBITDA margin forecasts for 2021.

A2 Milk has taken a big knife to its EBITDA margin forecasts for 2021.

Jamie Gray
By
Jamie Gray

Business Reporter

VIEW PROFILE

Shares in former sharemarket darling a2 Milk took a battering after the alternative dairy company slashed its revenue and earnings forecasts for the 2021 financial year.

It was its fourth consecutive downgrade.

A2's shares closed at $6.62, having bounced off their session low of $6.05 but still well down from Friday's close of $7.59.

The dual listed company is now targeting revenue for 2021 of $1.20 billion to $1.25b, down from an earlier forecast of $1.4b.

A2 Milk now expects an earnings before interest, depreciation and amortisation (EBITDA) to sales margin for 2021 in the order of 11 per cent to 12 per cent (excluding Mataura Valley Milk transaction costs). The guidance in February was for EBITDA margins of 24 to 26 per cent.

Under the revised guidance, a2 Milk's ebitda would come in at between $132 and $150m, down from $549.7m in the 2020 year, which was based on a margin of 31.7 per cent.

The company said the trading dynamics in the China infant nutrition market have been and continue to be challenging for a2 Milk and many international competitors.

"While a2 Milk's third quarter trading was broadly in line with plan, it is clear that the actions taken to address challenges in the daigou/reseller and CBEC channels will not result in sufficient improvement in pricing, sales and inventory levels to meet its previous guidance," it said.

Advertisement

Advertise with NZME.

As a result of the inventory review, it was clear that the challenges in the daigou/reseller and cross border e-commerce channels had been made worse by excess inventory.

A2 Milk said an immediate recovery in the business was not expected.

Related articles

Plenty of spilt milk after tanker crashes in Southland

10 May 01:00 AM

The Country - Tussock Country edition

10 May 01:30 AM

The downgrade was the market's worst kept secret, but a2 Milk's new chief executive David Bortolussi defended its timing.

Read More

  • A2 Milk still committed to daigou despite 35% profit slump - NZ Herald
  • A2 Milk emphasises its Kiwi side as Sino-Australian relations sour - NZ Herald
  • A2 Milk closes loophole covering executive share sales as new CEO named - NZ Herald
  • Continuous Disclosure: The media furore over controversial former a2 Milk boss Jayne Hrdlicka

Bortolussi, who has been in job since January, said told the Herald that when the board met over the weekend it had become clear that a downgrade was necessary.

"When we updated the market at the half year, we said then that our plan was to do several things, so while the third quarter would be quite modest the actions that we were taking would lead to a significant improvement in the fourth quarter on the third quarter.

"It really only became apparent to us that the actions that we had taken were not going to be sufficient to deliver that fourth quarter uplift what we were looking for," he said.

A2 Milk's latest sales and inventory data had been disappointing.

"Together these two pieces of information led us to update the market today."
Bortolussi said the retail component of the daigou trade had reduced substantially, although it was better than it had been.

Advertisement

Advertise with NZME.
A2 chief executive David Bortolussi. Photo / Supplied
A2 chief executive David Bortolussi. Photo / Supplied

"The corporate daigou channel - which involves multiple routes to markets - is still operating, albeit at a reduced scale - but it is still operating in a healthy way.

He said he empathised with shareholders who had seen the share price tank from $21.50 just eight months ago.

"I know it's been painful for our investors but it's been a business that has delivered $1.3 billion in revenue and 20 per cent EBITDA margin.

"We have a very strong balance sheet and a very strong brand.

"We are not in a crisis. It's just that the company's performance is not in line with expectations."

A2 Milk has about $850m in the bank - with about $400m yet to be spent on its Mataura Valley Milk acquisition.

The company has already signalled that it is looking at its capital management options.
"We have plenty of cash and capital available to us. There is nothing wrong with our financial position."

On that score, a2 Milk will report back to shareholders at its annual result in August.
Among the options is a share buyback.

Daigou, until the onset of Covid-19 restrictions, has played a major role in a2 Milk's success - making it at one point New Zealand's biggest company by market cap.

A2 said it would take time to rebalance inventory levels to normal.

A stock provision of $80-$90m was made, in addition to the $23m stock provision recognised in the first half.

Oyvinn Rimer, senior research analyst at Harbour Asset Management, said the market had been expected a downgrade "for quite some time".

Rimer said a $90m provision "sounded sensible" but may not be enough.

A2 Milk said the revised outlook did not reflect the underlying performance or strength of the business.

"The board and management have determined that it is appropriate to address the inventory imbalances aggressively in order to allow the business to return to growth as quickly as possible and to deliver acceptable margins," the company said.

"Most of the actions that we are taking are non-cash in nature with the result that company's balance sheet will remain strong, and we would expect to see improved performance during 2022," it said.

Separately, the company also announced the resignation of one of its veteran executives - chief executive Asia Pacific, Peter Nathan.

Nathan has been a key figure in a2 Milk's success in recent years due to his expertise in the unofficial daigou trade into China.

Chairman David Hearn said Nathan had been a driving force behind the business and integral in building the brand since he started with the company over a decade ago, when a2 Milk's revenue came to just $7m.

Advertisement

Advertise with NZME.

Latest from The Country

The Country

Opinion: Why farmers can't ignore climate change

18 Aug 03:00 AM
The Country

Live: Storm strikes Auckland - yacht sinks; slips and flooding cut off Far North

18 Aug 01:53 AM
The Country

The Country Full Show: August 18, 2022

18 Aug 01:30 AM
The Country

Silver Fern Farms moving towards coal-free future

17 Aug 11:30 PM
Premium
The Country

Seeka's wild ride through a stormy horticulture half year

17 Aug 10:33 PM

Most Popular

'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line
The Country

'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line

17 Aug 08:33 PM
Weather: State of emergency declared for the West Coast
The Country

Weather: State of emergency declared for the West Coast

16 Aug 08:20 AM
Rare red warning issued for South Island as almost a metre of rain forecast
The Country

Rare red warning issued for South Island as almost a metre of rain forecast

16 Aug 01:11 AM

Advertisement

Advertise with NZME.
About NZMEHelp & SupportContact UsHouse RulesSubscribe to NZ Herald
Manage Your Print SubscriptionNZ Herald E-EditionAdvertise with NZMEBook Your AdPrivacy Policy
Terms of UseCompetition Terms & ConditionsSubscriptions Terms & Conditions
© Copyright 2022 NZME Publishing Limited
TOP