Update FY21 Outlook, page-50

a2 Milk blames daigou channel woes for revenue plunge

ByAlex Druce

Dual-listed dairy firm a2 milk is tipping a first-half revenue dive on the disruption of daigou sales into China during Victoria's COVID lockdown.

The $13.7 billion company on Monday forecast revenue for the first half of FY21 of between $NZ725 million and $NZ775 million (or $A675m and $A721m), down from $NZ806.7 million ($A750.6m) a year ago.

Full-year revenue is expected to be between $NZ1.8 billion and $NZ1.9 billion ($A1.67b and $A1.77b), up on $NZ1.73 billion in FY20.

A2 Milk is expecting a first-half revenue hit from daigou channel disruption during the Victorian COVID lockdown.CREDIT:PETER MEECHAM

In a release, a2 said in September it had observed emerging additional disruption to the corporate daigou / reseller channel, particularly due to the Stage 4 lockdown in Victoria.

This is on the back of the existing flow-on effect of pantry destocking following a strong sales uplift of infant formula products in 3Q20 and lower than anticipated sales to retail daigous in Australia, due to reduced tourism from China and international student numbers.

"This disruption in the daigou channel is impacting our September sales and it is currently anticipated
that this will continue for the remainder of the first half of FY21," a2 said in a release.

"Sales in the daigou channel represent a significant proportion of infant formula sales in our Australia and New Zealand business and, as such, we now expect ANZ revenue to be materially below plan for the first half."

Continuing strong growth in its underlying China IMF brand health metrics, and the performance of the rest of the a2 business, has led the company to believe this to be a single channel logistics issue, as it is continuing to see strong underlying consumer demand for its brand in China.

"We are of the view that this short-term impact to the daigou channel will prove to be temporary, assuming stabilisation of COVID-19 related issues in Australia," a2 said.

The Company's ASX-listed shares were worth $17.16 before trade on Monday and have gained 20 per cent in 2020 against a 10.8 per cent decline for the wider market.

The firm's NZ shares fell nearly 12 per cent on the opening of New Zealand markets this morning.