The a2 Milk Company (a2MC) has announced its fourth profit downgrade in four months and the resignation of its Asia Pacific CEO Peter Nathan. Investors wiped $690 million of its market capitalisation as it revealed a blowout to more than $90 million in old stock provision, including the cost of disposing excess inventory.
It said the challenging daigou market had resulted in excess and aging inventory, with April sales well below the forecast. In February, the company outlined actions planned for 2H21 to address challenges, particularly in the daigou/reseller and cross border ecommerce channels (CBEC). These actions failed to deliver the significant improvements the company had hoped for.
The company said: “The actions in 3Q21 and in April to address the challenges in the daigou/reseller and CBEC channels have had limited impact (i.e. temporary support to key daigou/reseller customers and reducing CBEC sales) or are expected to have a delayed impact (i.e. traceability system and distribution innovation).”
“Consequently, the April sales result and outlook for 4Q21 are significantly below plan.”
ANZ infant nutrition sales were $99.5 million and $22.1 million in the CBEC channel in 3Q21 - an 11 per cent and 57 per cent decline respectively against 2Q21.
A2MC managing director and CEO David Bortolussi said that while third quarter trading was broadly in line with the company’s plans, it was clear the actions to address daigou and CBEC channel challenges would not be enough to meet its previous guidance.
Channel inventory levels were higher than anticipated and the channel difficulties exacerbated by excess inventory and difficulties with visibility, he said.
“More aggressive actions to address inventory will be taken which will impact FY21 revenue and EBITDA and potentially 1Q22.
“We recognise that the China market and channel structure is changing rapidly and are commencing a comprehensive review of our growth strategy and executional plans to respond to this new environment. The board is actively considering capital management initiatives, including a potential share buy-back,” Bertolussi said.
Further details on these will be delivered at full year results in August.
A2MC is now targeting revenue for FY21 of $1.20-$1.25 billion, with the caveat “it will take some time to rebalance inventory levels and restore channel health”.
APAC CEO resigns
Asia Pacific CEO Peter Nathan has resigned after being with the company for 14 years.
Nathan said it had been an extraordinary journey working with the company for the past 14 years. “I am blessed to be part of the unique story and I am proud of the brand and business that we built from revenue of $7 million when we relaunched the brand in Australia to where it is today. I wish the company and my team, along with our people, customers and partners every success as they take the business forward in the next phase.”
Bertolussi said in his short time at a2MC he has watched Nathan’s strong commercial and operational leadership. “It is remarkable what he has built and what he has achieved with a2.”
Company chair David Hearn said the board wanted to acknowledge the significant contribution Nathan made to the company. “Peter has been a driving force behind the business and integral in building our brand since he started with the company over a decade ago.
“During his time with the company, Peter has led the successful relaunch of a2 Milk in Australia and has been instrumental in launching and establishing our a2 Platinum brand in Australia and China.”
