Leadership Shakeup At a2 Milk Company Adds To Market Uncertainty

Leadership Changes

The Company was founded in New Zealand in 2002 after a scientific study confirmed  that proteins in milk affect people differently.  a2MC provides a cows milk alternative with no difference in taste to people who have difficulty digesting milk but haven’t been clinically confirmed with a lactose intolerance.

The a2 Milk Company has today announced several leadership and organisational changes to its USA, Australia and New Zealand and Mataura Valley Milk (MVM) businesses, with immediate effect.

The new leader of the USA business was previously the General Manager of the Australia and New Zealand (ANZ) business. His focus will be to accelerate the path to profitability of the USA business, through innovation. The previous leader of the USA business has left the Company after 7 years in the role.

The leadership role of a2MC’s ANZ business will be added to the role of the Chief Strategy Officer. This existing role will now be titled ‘Managing Director – ANZ and Strategy’, with a focus on realising the potential of a2MC’s Lactose free product.

a2MC’s Managing Director and CEO believes that the new appointments will make a difference to the growth and performance of the Company’s USA and ANZ businesses.

In respect of the leadership of the MVM business, a newly appointed Interim General Manager will support a2MC’s Chief Supply Chain Officer to accelerate the transformation of the Company’s supply chain.

Other leadership changes in addition to the above have also been announced internally within the USA and MVM businesses. The extent and timing of these changes imply that operational improvements were overdue, and these changes should support profit growth in the period ahead.

Some Uncertainty Around FY23 Outlook

The above leadership changes follow a2MC’s announcement on 26 April that there is no material change to its FY23 profit outlook. This was despite a2MC’s key supplier of infant formula and base powder products, NZ-based Synlait Milk Limited (Synlait), in a market release also on 26 April, warning investors that a fall in demand for its infant formula and base powder products from a key customer, is expected to impact earnings guidance by NZ$16.5 million in FY23. The market immediately identified a2MC as the key customer referred to in the Synlait release and responded by slashing the a2MC share price by about 8 percent. Consistent with the ASX Continuous Disclosure rules, a2MC clarified the situation on the same day by acknowledging that Synlait’s announcement indirectly referred to a2MC, although a2MC expressed surprise at the extent of the reduction in Synlait’s earnings guidance range.  a2MC stated that in the 2 forecasts provided to Synlait since 17 March, it had lowered its total forecast production volume needs for consumer-packaged infant milk formula for the months from March to June 2023.  The lower production volumes total 1,650 metric tonnes in aggregate.

Although a2MC maintains that there is no material change to its FY23 earnings outlook as

re-affirmed on 26 April, it acknowledges that revenue growth will now be at the lower end of its previous expectations, being about 10 percent up on the prior year. The Company also stated that its FY23 sales margin is expected to be similar to FY22. Curiously, it went on to mention other risks such as COVID-19 impacts on supply and demand, SAMR approval and GB registration process timing and associated inventory transition and several other more general risks that could materially impact expected revenue and earnings outcomes.

Clearly the market has some concern around the robustness of a2MC’s FY23 slightly revised earnings outlook and this is likely to persist until some high conviction FY23 earnings clarity is provided to the market.