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NZ's a2 Milk cuts sales view on China consumer woes, shares slump

05/09/2021 | 05:26pm EDT

* Company expects FY21 rev of NZ$1.20-1.25 bln

* 'Daigou' channel pressured by excess inventory - CEO

* Company mulling potential share buyback

May 10 (Reuters) - New Zealand's a2 Milk on Monday cut its annual sales forecast for the third time amid continued disruptions and excess inventory in its key sales channel in China, sending its shares to a more than 3-1/2-year low.

The company said it will review its growth strategy in the world's second-largest economy, where it has faced significant challenges in its "daigou" channel since the COVID-19 pandemic began.

The daigou channel, through which people buy products outside China and import them informally for Chinese consumption, has been severely hit by a drop in tourists and international students amid the pandemic with New Zealand closing its borders to most foreign arrivals.

"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.

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 ($873.5 million to $909.9 million), down from its earlier forecast of NZ$1.40 billion.

Its shares tumbled as much as 16.3% to NZ$6.05, their lowest since Sep. 25, 2017. The company's Australia-listed stock is among the worst performers on the benchmark index this year.

The firm will set aside about NZ$80 million-NZ$90 million in provisions as cover for writing off inventory, but added that shedding excess inventory 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," Bortolussi said.

A2 said while its balance sheet was strong, it was still reviewing options to manage its capital, including a potential share buyback. ($1 = 1.3738 New Zealand dollars) (Reporting by Shashwat Awasthi in Bengaluru; Editing by Diane Craft and Sam Holmes)

ę Reuters 2021
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