A2 Milk shares fall 12 percent to a five-month low

A2 Milk shares - the second most valuable company on the NZX.
A2 Milk shares - the second most valuable company on the NZX. Photo credit: Getty

A2 Milk shares have taken a battering on Monday after the company said it faced a tougher than expected first half because of reduced sales through a key channel.

In an earnings update to the stock exchange, it said it expected first-half sales between $725 million to $775m from $805.3m a year earlier, with group revenue at $1.80 billion to $1.90b.

A2 Milk said sales through the daigou channel - purchases made by Chinese visitors or companies in New Zealand and Australia - had been disrupted because of border closures and COVID-19 lockdowns.

It said Chinese consumers, who had bought large amounts of infant formula when COVID-19 broke out were also "pantry destocking" - using up their stocks.

"It is currently anticipated that this will continue for the remainder of the first half of FY21," the company said.

Sales in the unofficial daigou channel to China represent a significant proportion of infant formula sales in its Australia and New Zealand (ANZ) business.

"As such we now expect ANZ revenue to be materially below plan for the first half," it said.

Shares in A2 Milk, the second most valuable company on the NZX, fell 12 percent to a five-month low.

However, A2 said the sales problems appear confined to just the daigou channel because demand underlying consumer demand in China remained strong.

"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."

It said sales of other products including its liquid milk businesses in Australia and the USA were strong, as was its local China business.

Last month A2 reported a record annual profit of $386m and is also looking to take a majority stake in Southland milk company Mataura Valley Milk.