Its share price dropped more than 10% following the investors day presentation of its strategy and sales channel projections, especially for infant formula (IMF) sales in China.
Revenue dropped 30% from $1.7 billion to $1.2b in FY21 and is now expected to gradually recover to $1.4b in FY24.
The company aims to rebuild revenue to $2b, although it called this a “medium-term” timeline in the presentation to investors.
Earnings per share, which had been over 50c in FY20, fell to 11c in FY21 and should return to 15c in FY24.
Having never paid a dividend, the company will keep reinvesting profits into expanding product lines and growing market reach in China, the United States and Australasia.
It said earnings margins would be in the low teens in the near-term, which prompted analysts to downgrade their forecasts, which in turn led to the share price fall.
Once the darling of the sharemarket, at over $20, a2 Milk (ATM) fell to a low of $5.50 recently before recovering to $7.50 before the investor day presentation.
It is now trading around $6.30.
Despite the recent difficulties, the company says it retains leadership in a2 IMF categories against multiple challengers, many of which are focused on the ultra-premium segment.
China is a $47b IMF market, both complex and fragmented into local versus multinational, and China label (CL) and English label (EL) across tens of thousands of stores in cities at different stages of market development.
In FY21 a2 Milk sold $390m of CL IMF and $520m of EL, only half of the EL revenue in FY20.
Multinationals have a shrinking share of China IMF sales, but a2 Milk at 5% claimed to be the exception to the trend because of its brand strength and differentiated products.
The daigou trade, which took a big hit from covid-19 lockdowns, has evolved from a suitcase trade into a sophisticated reseller network, the company said.
“Our brand health metrics are strong in all our markets and we will be investing more behind the brand to increase awareness, engage with our consumers and drive growth,” the company said.
But Chinese consumers “graduate” relatively quickly and new users must constantly be recruited.
“Each generation of new mothers has grown up in a different environment, has different values and obtains information from different sources,” managing director David Bortolussi said.
“Our ambition is to rebuild a2 Milk into an exciting, innovative and sustainable growth company.
“We will innovate and expand our IMF portfolio to appeal to a broader set of consumers and to maximise our distribution potential.”
The recently acquired Mataura Valley Milk plant in Southland is not expected to be profitable until FY26.
It is having to make more commodity products because its IMF customers have been hit by the changing market dynamics in China.
