A2 Milk will seek to boost direct sales to China despite simmering trade tensions after forecasting a hit of nearly half a billion dollars in sales due to trade disruption in the lucrative’ Daigou ‘reseller market

The milk giant lost up to a quarter of its stock market value on Friday afternoon The share price fell after the company announced to investors that its China-focused distribution channels were recovering from the Covid-19 pandemic

The managing director of a2 Milk Company, Geoff Babidge, wants to sell more products directly to ChinaCredit: Rhett Wyman

A2 had already downgraded its earnings forecast earlier this year after a drop in student and tourist arrivals from China led to a sharp drop in Daigou resellers However, on Friday, A2 warned that the effects “were more significant and protracted than before” had previously been expected ”

“We believe [the recovery] will be slower from our original expectations,” said Interim General Manager Geoff Babidge. “We anticipate gradual improvement in the second half of the year, but not as quickly as we expected before ”

The hurtful Daigou business has also started to bleed into A2 Milk’s other sales channels, including the broader cross-border e-commerce (CBEC), as Daigou sales often help fuel direct order demand

The company now expects fiscal 2021 revenue between $ 1.4 billion and $ 1.5 billion, a decrease of $ 250 to $ 500 million from the September forecast, with margins also likely to be between 3 and 5 percent weaker than previously forecast

Mr Babidge said the company is in “uncharted territory” but hoped to mitigate some of the loss by focusing on strengthening its CBEC channel along with A2 Milks’ own China-label range, which the company sells through a range of mother and mother animals to baby specialty stores in the country

“We are of course continuing to make sure we are pushing those parts of the business that are doing well, but we are also looking at what we can do to help restore the Daigou Canal,” he said

A2 Milk’s plans to increase sales in the region are due to mounting trade tensions between Australia and China, with China imposing tariffs on a number of imports including wine, barley, beef and cotton

Mr Babidge said he was concerned if China expanded its sanctions list to include the dairy industry, but noted that the current impact on A2 Milk’s business has more to do with COVID-19 than geopolitical tension

“The problem of tension between Australia and China is unfortunate, and it would be very preferable if we could restore the mutual respect and cooperation of past countries while recognizing that both countries have their own values, which you have to maintain, “he said

Much of the company’s anticipated recovery in the Daigou Canal is also due to both Australia and China being able to handle further COVID-19 outbreaks Babidge hopes the recent NSW outbreak can be contained quickly

In the medium term, A2 Milk continues to expect a profit margin of around 30 percent. The company’s liquid milk business, which operates in Australia and the USA, also continued to grow by half

The stock fell 23 percent to $ 1019 as of Jan.4pm in Sydney on Friday after dropping to $ 982 earlier that afternoon

A quick recap of the day in the markets, breaking business news and expert opinions delivered to your inbox each afternoon. Sign up for The Herald’s here and The Age’s here

A2 milk

World News – AU – A2 milk to boost direct China sales as market turns sour

Source: https://www.smh.com.au/business/companies/a2-milk-to-boost-direct-china-sales-as-daigou-market-sours-20201218-p56oq9.html