Always thought that young growing companies with exceptional margins that hoarded cash was a recipe for disaster
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Always thought that young growing companies with exceptional margins that hoarded cash was a recipe for disaster
I can’t read the article but I listened to the call with analysts and completely lost faith in the management of A2 milk. I don’t really know much about the new management but I didn’t get the feeling that they had the right approach to fix this. Yes, they are going to throw a lot of money at Marketing to reach the end consumer but let’s see how good their marketing is. The local Chinese companies now have a2 milk powder and advertise direct to consumers with local pop star celebrities and seem well organised.
The fact that ATM still need to do a strategic review to work out where they are really at and formulate a plan was extremely worrying. They also mentioned that population growth is slowing and there are less babies being born in China. Obviously, this means the market size is going to shrink. Unless they can penetrate other markets (products or new geographic regions) the writing is on the wall. I hope to be wrong and I wish to hell that I had followed all of the execs and sold when they did because this is an appalling run of bad management and bad decisions. I’m not convinced the new management can get on top of it.
Happy to hear arguments to the contrary
All these negative comments about management are quite interesting and again I feel no one should need to plan for a once in one hundred year scenario. I do agree that this Covid event has opened up some questions into management.
Now they will need to prove to us how competent they are in getting us out of the mess, but I have faith that they will.
Look at Fletcher building and how their share price has done after their fall from grace. A total comparison to the constant negative comments about management from posters when s$&7 hit the fan for them.
There is a world of difference between FBU & ATM - and I believe I should know as I took the opportunity of FBU’s fall from grace to load up on the shares last year.
Differences:
1. FBU purged its BOD and management during and after the debacle - allowing for a reset of strategy & direction.
2. FBU’s problems were confined principally to its large commercial building & construction projects division. The rest of the group, as Ralph Waters pointed out years ago, has sound underlying oligopolistic businesses which have always underpinned it as a company
3. FBU’s moat (domestic competitive advantages in building supplies & house buildings) is very much intact and very difficult to assail given NZ’s distance from competitors.
Compare & contrast with ATM:
1. BOD is intact and imo, dysfunctional - Chairman runs the board from the UK and management are based in Sydney while underlying production & origin are in NZ. Go figure!
2. ATM’s problem is massive - the all critical daigou sales channel where most of its sales & profits were made.
3. ATM’s much acclaimed moat has been breached.
Google "endowment effect".
Looking at the comments about managements capabilities - It does not really matter whether the company should have been prepared for Covid-19, but that they did not bother to understand and control their distribution chain, is in my view not how you recognize a good board and management.
Looking into the comparison with FBU ... I do agree that both companies used to have shocking governance and management. However - the difference is:
FBU has a quasi monopoly (well, the major player in a duopoly ...) position in providing building supplies in NZ. They do control part of the production of these products and they certainly have close links to the distribution chain. I am sure the links from the old Fletcher empire are still alive and kicking (remember who got the timber during the latest timber shortage?) and the distribution network is quite dependent on them as well. Talk with a Truckie, if you don't know what I mean. No matter how stupid FBU will act, as long as NZ does not roll up its toenails altogether they will benefit from nearly all building activities.
ATM has none of these advantages. Their major market was China, there are no moats protecting them from any competition and ATM did provide plenty of evidence that they neither understood the significance of their major distribution channel, nor did they try to manage it.
Sure - they might have had some first mover advantage, but they flushed this advantage down the drain by neglecting their distribution chain. Chinese babies survived quite well on competitors products ... why would their parents want to go back, buy a dearer product their babies are not used to anymore and pay through the nose?
So - why do you think that they are anything else than a boring old milk marketing company which does not even understand the meaning of marketing?
The period from 19/8/20 to 28/9/20 makes for sobering reading in hindsight. Starting with the FY20 Results where it was all peaches and a lot of cream, with a small side mention of channel weakness emerging.
Check these out:
19/8/20 FY20 Results - a boomer with a hint of channel weakness - SP $20.35
24/8/20 - Options conversions, Nathan & Massasso - SP $20.43
27/8/20 - The BIG DUMP!, Hearn, Babidge, Nathan, Masasso, Khan, Burquest - SP $20.11
24/9/20 - Performance Rights vest, Nathan, Strauss - SP $18.15
28/9/20 - Updated FY21 Outlook (the first downgrade) - SP $16.65
So in summary, just three 'market open' days after the FY20 results, the exec's unload big time after flagging a boomer FY20 with just a hint of issue in channels, then a mere 22 market open days later they say 'Oh Bugger' (for the first time). Then Oh Bugger again 18/12/20, then again 25/2/21, then AGAIN! 10/5/21 - SP $6.50
SP now $6.03, a 71% decline from the $21.74 high prior to FY20 results.
I agree with most of your comments, however the Chinese market is unique in that they equate price with quality. So, the ATM strategy is to increase the price. That’s partly to make up for the erosion of margins because their other channels have discounted prices online and partly because many Chinese consumers think that better products cost more
All in all the board do not impress me.
I recommend that everyone go to the ATM investor centre, listen to the phone call and make their own conclusions. My conclusion is that the board do not have a good handle on this and are unlikely to at the end of the “strategic review”.
To say that I am disappointed is an understatement. If you look at the 4 Ms of a good company management and moat now look weak.
https://thea2milkcompany.com/results
I think there is a good case to investigate the board for insider trading.
The board is so incompetent in my opinion, they should be replaced. But that’s another matter. I think the board knew it couldn’t last and none of them spoke up and said let’s get out in front of this and protect our channel. They sold out and went on their merry way
I agree that there are very few similarities between ATM and FBU except they ran into problems that needed fixing. The same will be required for ATM. Let’s hope the new CEO removes the rotten apples off the tree. The product will sell itself, if they market it correctly and understand their market and distribution centre better.
As BlackPeter mentioned. They need to get to grips with their distribution channel better. Flaw number 1.
Management selling at near the top off the market and a month later saying they had no idea things were that bad......... I call bull. Flaw number 2
I am sure there have many other flaws. Let’s hope the new CEO gets rid of flaws like these and learn to adapt from them. I am sure more skeletons will come out in the next few months.
I still own some, but sold most of mine around $11