The New Zealand Overseas Investment Office (OIO) has given The a2 Milk Company’s plan to buy a 75 per cent interest in dairy nutrition business Mataura Valley Milk a tick of approval.
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The infant formula and milk business a2 Milk has posted four downgrades since September.

A completion of the $NZ270 million ($245 million) deal announced last August will move ahead from the end of July.

The factory in Southland, New Zealand, will enable a2 Milk to move down the supply chain into manufacturing nutritional products, as well as diversifying its suppliers and geographic markets.

The dual-listed company said the deal would strengthen its relationships with China because MVM’s current majority shareholder, China Animal Husbandry Group (CAHG), will retain a 25 per cent interest.

CAHG is a wholly owned subsidiary of China National Agriculture Development Group, which is also the parent company of a2 Milk’s strategic logistics and distribution partner in China, CSFA Holdings Shanghai (China State Farm).

A2 Milk also has strategic relationships with Synlait Milk and Fonterra Co-operative Group, which remain in place.

New chief executive David Bortolussi is cleaning up a major inventory blowout flagged in May, which it believes may take three to six months to resolve. The company plans to address inventory levels by writing off stock, slowing sales and swapping stock of top-tier distributors.

It has downgraded its sales guidance four times since September, and is now expecting full-year 2021 sales to be between $NZ1.2 billion to $NZ1.25 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) margin of between 11 per cent to 12 per cent (excluding MVM acquisition costs). Last August EBITDA margins were estimated to be between 30 per cent and 31 per cent.

In May a2 Milk said it was considering capital management initiatives including a potential share buyback.

Mr Bortolussi is beefing up his executive team. Last week he tapped former Danone Nutricia executive Edith Bailey as chief marketing officer, replacing long-serving Susan Massasso who recently stepped down after eight years.

The group is also seeking a head of HR after Lisa Burquest left to join her former boss Jayne Hrdlicka at Virgin Australia, and a new head of Asia Pacific with the long-serving boss of that region, Peter Nathan, stepping down.

Dairy products and, in particular, grass-fed products are performing strongly post-covid in overseas markets.

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