NZ's a2 Milk to review China plan as daigou woes force third sales downgrade

[BENGALURU] New Zealand's a2 Milk on Monday cut its full-year sales forecast for the third time amid continued disruptions and excess inventory in its key sales channel in China, where it will review its growth strategy.

Since the pandemic, the company has faced significant challenges in its "daigou" channel - where people buy products outside China for Chinese consumers and take them back to China - due to fewer tourists and international students.

"It is clear that the actions taken to address challenges in the daigou and cross-border e-commerce channels (CBEC) will not result in sufficient improvement in pricing, sales and inventory levels to meet our previous guidance," chief executive David Bortolussi said.

"The challenges in the daigou and CBEC channels have been exacerbated by excess inventory and difficulties with visibility."

A2 said its growth in China's infant nutrition market was also being hit by a more pronounced decline in birth rates, prompting a review of its branding and channel strategy and a ramping up in marketing spending into fiscal 2022.

The dairy producer now expects 2021 revenue between NZ$1.20 billion and NZ$1.25 billion (S$1.16 billion to S$1.21 billion), down from its earlier forecast of NZ$1.40 billion.

The firm said it will set aside about NZ$80-90 million in provisions, as cover for writing off inventory.

It added it would take "more aggressive actions" to address excess inventory, which could also affect its financial performance in the first quarter of fiscal 2022.

"Despite these short-term setbacks, we are confident in the long-term potential for infant nutrition and other opportunities we have in China," Mr Bortolussi said.

A2 said while its balance sheet was strong, it was still reviewing options to manage its capital, including a potential share buy back.

REUTERS