Daigou trading – bulk purchasing on commission in Australia with couriering to China – has been hammered by covid-19 lockdowns and the absence of Chinese tourists and students.
“The disruption in the daigou channel has proved to be more significant and protracted than was previously anticipated,” the company said.
“Travel restrictions will continue to negatively impact sales through the remainder of FY21, with limited prospect of international students and tourists during this period.”
A2MC said on December 18 that its earlier guidance for FY21, made only a month earlier at the time of the annual meeting in November, had to be substantially revised.
Revenue in the first half-year would be down 10% to $670 million and for the full year the revenue guidance range has fallen 20%, from $1.8 to $1.9 billion, down to $1.4 to $1.55b.
These forecasts are below the FY20 outcomes of $806m in the first half-year and $1.73b for the full year.
A2MC also provided a guidance of the gross margin between 26% and 29%, compared with the previous guidance of 31% and last year’s outcome of 31.7%.
Should the lower forecasts eventuate, a2MC’s sales and results will go backwards for the first time in several years.
After the revised guidance the share price fell from $14 to $11, finishing a roller coaster year.
It began at $15, rose to $17.50 before the covid-19 lockdowns cut the price to $15 again, recovered strongly to peak at $21.50 in August and then slid to below $12 at year-end.
Chief executive officer Geoffrey Babidge says he had been expecting a rebound in infant formula sales in the second quarter but that had not eventuated to the extent hoped.
That had to be factored into the inventories and sales prospects for the second half.
The long lockdown in Victoria was mentioned, but Babidge says the bad state of diplomatic relations between Australia and China was not a factor.
A2 milk processor and infant formula supplier Synlait Milk shared the share price pain during 2020, starting the year at $9 and ending at $5.
On December 21, Synlait revised its trading guidance in response to that of a2MC, a “strategic customer and cornerstone shareholder.”
Synlait now expects total packaged infant formula volumes to be down 35% compared with FY20.
That will cut in half forecast net profit this financial year, the company warned.
The focus was now on mitigation opportunities, including diversification, asset optimisation and prudent cost management.
a2 Milk to invest $120m in MVM
The a2 Milk Company (a2MC)has agreed to the terms to snap up a large portion of Mataura Valley Milk (MVM) and plans to invest about $120 million in the facility during the next two-to-three years.
As previously signalled, a2MC will take 75% of the company for a total of $268.5m, based on an enterprise value of about $385m. The acquisition will be undertaken on a debt-free, cash-free basis and funded from a2 Milk’s existing cash reserves.
The deal is subject to approval from the Overseas Investment Office (OIO) and completion is expected to take place on May 31.
A2MC says it expects to incur approximately $10m in transaction costs which will be a one-off expense in the current period. Approximately half will be recognised in the first half.
As part of the acquisition process, a2MC has begun to develop a medium-term operating plan for the facility.
With the business currently producing a high proportion of commodity milk powder products, the plan is to support its transition to predominantly consumer packaged nutritional products for a2MC over the medium-term.