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A2 Milk slumps 24% on updated guidance

A2 Milk Company slumped 24% after downgrading its 1H21 and FY21 earnings expectations on Friday. The company citing the impact of COVID-19 on its daigou market having been more significant and protracted than first anticipated.

A2M advised in August of a number of issues being experienced relating to its infant nutrition business as a result of COVID-19. This included:

  • The flow-on effect of pantry destocking following the strong sales uplift in 3Q20

  • Lower than anticipated sales to retail daigous in Australia, primarily due to reduced tourism from China and international student numbers

In September there was an additional disruption to the corporate daigou / reseller channel, particularly due to the prolonged Stage 4 lockdown in Victoria, with a contraction beyond earlier expectations.

Initially, the company believed this to be a single channel logistics issue and were of the view that the impact to the daigou channel would prove to be temporary, assuming stabilisation of COVID-19 related issues in Australia. However, the effect of the disruption has proved to be more significant and protracted than anticipated.

As a result, A2M updated has update 1H21 and FY21 guidance, now expecting:

  • Group revenue for 1H21 in the order of $670 million

  • Group EBITDA margin for 1H21 in the order of 27%

  • Group revenue for FY21 of $1.40 billion to $1.55 billion

  • Group EBITDA margin for FY21 of between 26-29%.

These numbers exclude any costs relating to the potential acquisition of an interest in Mataura Valley Milk Limited.

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