A2 Milk shares dive after first half profit drops 35% on daigou disruption

Author
Newstalk ZB / NZ Herald,
Publish Date
Thu, 25 Feb 2021, 8:25PM
David Bortolussi managing director and chief executive officer for the A2 Milk. Photo / Supplied
David Bortolussi managing director and chief executive officer for the A2 Milk. Photo / Supplied

A2 Milk shares dive after first half profit drops 35% on daigou disruption

Author
Newstalk ZB / NZ Herald,
Publish Date
Thu, 25 Feb 2021, 8:25PM

A2 Milk's share price dropped sharply after the company reported a drop in first half earnings.

By late morning, the stock was down $1.97 or 17.7 per cent at $9.16.

The company earlier said its net profit dropped by 35 per cent to $120m in the first half due to Covid-19 disruption in the unofficial daigou trade into China, and the flow-on impact of that on cross-border e-commerce channels.

At an operating level, a2 Milk's EBITDA dropped by 32.2 per cent to $178.5m.

Revenue eased by 16 per cent to $677.4m, slightly better than its December guidance of $670m.

A2 Milk's EBITDA margin came to 26.4 per cent, a touch down on its guidance of 27 per cent.

Looking ahead, a2 Milk said it expected its revenue to come in at the bottom of a previously advised $1.4b to $1.55b range for the year to June.

Its EBITDA margin forecast for the year was pitched in a range of 24 to 26 per cent, down from its previously advised range of 26 to 29 per cent.

Inventory at the end of the six months came to $198.6m, $51.2 million higher than at the end of 2020, and the consequence of managing the uncertainties and complexities of Covid-19 and its impact on supply chains.

The alternative milk company, which has appointed David Bortolussi as its new chief executive to replace the outing Geoff Babidge, said it had been a challenging first half, with revenue falling by 16 per cent.

"This was driven by performance through the daigou and cross-border e-commerce (CBEC) channels being significantly impacted due to disruption resulting primarily from Covid-19 related issues," the company said.

"This was partially offset by another period of strong growth for China label infant nutrition products, with sales of $213.1m, an increase of 45.2 per cent."

Further growth in the liquid milk businesses in both Australia and the USA was achieved.

Australian sales were up 16.3 per cent to $86.9m.

Changes in the approach in the United States, focusing more on affordable premium pricing, resulted in sales increasing 22.0 per cent, driven by improved in-store sales in established stores as well as an expanded store footprint.

A2 Milk balance sheet remained in a strong position with no debt and a closing cash position of $774.6m.

The cash position was $79.5m lower than June 2020 due to negative operating cash flow, participation in the recent Synlait capital raising and the acquisition of the Kyvalley milk processing facility.

text by Jamie Gray, NZ Herald