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A2 Milk (ASX:A2M) - Managing Director & CEO, David Bortolussi
Managing Director & CEO, David Bortolussi
Source: BusinessDesk
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  • The pandemic has taken a toll on cross-border eCommerce channels, and A2 Milk (A2M) says it’s left no other option but to take “aggressive action”
  • Sales have been largely in line with third quarter predictions, but recent measures are unlikely to result in a sufficient fourth quarter recovery
  • As a result, the company has cut its 2021 revenue target from $1.25 billion to $1 billion
  • Its EBITDA sales margin has also been dropped from between 24 and 26 per cent to between 11 and 12 per cent
  • Shares in A2 Milk finished trading last week at $7.02 per share.

The pandemic has taken a toll on cross-border eCommerce channels, and A2 Milk (A2M) says it’s left no other option but to take “aggressive action”.

While sales have been largely in line with predictions for the third quarter of the 2021 financial year, the company said the measures taken since have not resulted in a sufficient improvement in pricing, sales and inventory.

As a result, A2 Milk has cut its 2021 revenue target from $1.25 billion to $1 billion.

The company’s EBITDA sales margin has also been dropped from between 24 and 26 per cent to between 11 and 12 per cent.

“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,” said David Bortolussi, Managing Director and CEO of A2 Milk.

Chief among a variety of concerns is a blow-out in inventory levels, driven partly by a lack of visibility regarding third-party stocks. A2 Milk said it would therefore reduce its sales to resellers — potentially through to the first quarter of 2022 — which it hopes will rebalance supplies.

However, the decision is expected to result in reduced sales over the rest of this year, as well as a stock provision of between $80 million and $90 million, which comes on top of an additional $23 million stock provision recognised in the first half of the year.

“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,” Bortolussi added.

Shares in A2 Milk finished trading last week at $7.02 per share.

A2M by the numbers
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