The A2 Milk Company Ltd (ASX: A2M) share price will be on watch on Wednesday following the release of an update ahead of an appearance at the virtual CLSA Investors' Forum.
What was in a2 Milk Company's update?
As well as providing investors with a summary on its performance in FY 2020, the company spoke about current trading and its expectations for the full year.
In respect to current trading conditions, management advised that it is seeing an unwind of third quarter pantry stocking in the early part of FY 2021.
In addition to this, it warned that a sharp reduction in tourism from China and international student numbers is weighing on the retail daigou channel at present. It is a similar story for the corporate daigou/reseller channel because of Stage 4 lockdowns in Victoria.
Mataura Valley Milk acquisition.
Management also spoke about its recently announced plan to acquire a majority stake in Mataura Valley Milk.
It notes that the acquisition would mitigate risk by providing both supplier and geographic diversification.
It also believes it will complement its existing supply relationships. Especially given how Mataura Valley Milk's recently constructed and commissioned state of the art nutritionals facility has been independently validated by industry experts as being capable of producing the highest quality nutritional products.
Management also notes that it is well located for access to a growing productive milk pool supported by favourable climatic conditions and water availability.
FY 2021 outlook.
Despite the unwind of third quarter pantry stocking, the company has held firm with its guidance for FY 2021.
It continues to anticipate "strong revenue growth" this year, supported by its continued investment in marketing and organisational capability.
Management also reiterated that its FY 2021 earnings before interest, tax, depreciation and amortisation (EBITDA) margin is expected to be in the order of 30% to 31%.
Looking further ahead, the company continues to target an EBITDA margin of 30% in the medium term.
It commented: "This assumes the market performance and mix of our products remains broadly consistent and the competitive environment evolves as anticipated. We will keep the balance between growth and investment under constant review."
