The a2 Milk Company Limited (NZX: ATM) Trading Update and Revised FY21 Outlook

Monday 10th May 2021

The a2 Milk Company today provides a trading update and a revised outlook for FY21.

Key points

• The trading dynamics in the China infant nutrition market have been and continue to be challenging for a2MC and many international competitors

• While a2MC’s 3Q21 trading was broadly in line with plan, it is clear that the actions taken to address challenges in the daigou/reseller and CBEC channels will not result in sufficient improvement on 3Q21 in pricing, sales and inventory levels to meet our previous guidance based on April sales being well below plan

• The Board tasked management to undertake a comprehensive review of inventory in the trade and this work has indicated that the level of channel inventory is higher than had been anticipated

• As a result of the inventory review, it is clear that the challenges in the daigou/reseller and CBEC channels have been exacerbated by excess inventory and difficulties with visibility

• In the interest of the long-term health of the a2 brand and the medium-term trading outlook of the business, more aggressive actions to address excess inventory will be taken which will impact FY21 revenue and EBITDA, and potentially 1Q22

• The inventory management actions being taken will provide Chinese mothers with the freshest infant milk formula and benefit the Company’s customers, distributors and partners

• The Company will also increase marketing investment in 4Q21 and into FY22 to drive consumer demand

• Despite these short-term setbacks, the Company remains confident in the long-term opportunity that the infant nutrition market in China represents, and is determined to build on the strong position which the Company has built within this market over the past five years

• However, the Company recognises that the China market and channel structure is changing rapidly and has therefore commenced a comprehensive process to review its growth strategy and executional plans to respond to this new environment

• In addition, the Board is actively considering capital management initiatives, including a potential share buy-back and an update will be provided at the full year results in August

The a2 Milk Company’s Managing Director and CEO, David Bortolussi said:

• “While our third quarter trading was broadly in line with plan, it is clear that the actions taken to address challenges in the Daigou and CBEC channels will not result in sufficient improvement in pricing, sales and inventory levels to meet our previous guidance

• “We have conducted a comprehensive review of inventory in the trade and this work has indicated that channel inventory levels are higher than had been anticipated

• “The challenges in the Daigou and CBEC channels have been exacerbated by excess inventory and difficulties with visibility

• “In the interest of the long-term health of our brand and the medium-term trading outlook of the business, more aggressive actions to address inventory will be taken which will impact FY21 revenue and EBITDA, and potentially 1Q22

• “Despite these short-term setbacks, we are confident in the long-term potential for infant nutrition and other opportunities we have in China, and are determined to build on the strong position we have built in the market over the past five years

• “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 and we will provide an update at the full year results in August

Please see the link below for details

Trading update and revised FY21 outlook

Source: The a2 Milk Company Limited

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