A2 Milk Confirms Guidance But Warns On “Short Term Softness”

By Glenn Dyer | More Articles by Glenn Dyer

The A2 Milk Company fell yesterday despite the company reaffirming earlier revenue guidance for the half-year to December and the June 30 full year. (it was one of the few companies to do so).

The shares fell 4.8% to $13.98.

The September guidance was to expect first-half revenue of $NZ725 million to $NZ775 million and full-year revenue of $NZ1.80 billion to NZ1.90 billion. An EBITDA margin of around 31% is also expected.

However, it has warned that its full-year guidance is dependent on an improvement in the daigou channel and continued growth in its China label business, which seems to be why the shares weakened yesterday.

Chairman David Hearn told the meeting:

“We did also anticipate that there would be continuing short term softness in retail daigou, primarily due to reduced tourism from China and dramatically fewer international student numbers.

“However, we did not anticipate the strict and prolonged lockdown in Victoria which has impacted our corporate daigou/reseller channel significantly.

“As a consequence, with weakness in pricing and uncertainty for the duration of the lockdown, we have seen a significant downturn in this channel, and whilst we believe it will ultimately be temporary, it will have an impact on our performance this year, which we made clear to the market as soon as the extent became apparent.

And then there’s the pandemic:

“However, due to the volatility arising from COVID-19, and the difficulties this presents with forecasting, naturally there is uncertainty to this forecast,” CEO Geoff Babidge told the AGM yesterday.

But the company remains confident of the 2020-21 outcome.

“We continue to observe strong underlying brand health metrics, in particular 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 meeting was reassured.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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