Shareholders of a2 Milk have filed a class action lawsuit against the company after it posted four earnings downgrades in nine months.
The class action alleges that a2 Milk engaged in misleading and deceptive conduct as well as breaching continuous disclosure rules.
So, what does it all mean? Here is a breakdown.
What are a2 shareholders mad about?
During that period, the lawsuit alleges a2 Milk deceived investors into thinking the company was going to perform better than it did.
In August 2020, a2 Milk said it was expecting strong sales growth and earnings before interest, taxes, depreciation and amortisation (EBITDA) of around 30 per cent.
The lawsuit, filed by Slater and Gordon, alleged that on May 10, a2 Milk flagged a review of its key China business and had to pay a whopping $92.9 million.
The latest cut to its outlook resulted in the company expecting full-year sales of $1.2 billion to $1.25 billion and a group EBITDA of 11 to 12 per cent.
Slater and Gordon class actions practice group leader Kaitlin Ferris said a2 Milk either knew, or should have known, that the company's full year guidance didn’t adequately consider factors that were likely to impact its financial performance.
“As a result of our investigation following a2’s profit downgrades throughout FY21, we concluded that there was a strong basis to allege that the company provided misleading guidance and was obliged to correct the market’s understanding of its financial position at a much earlier time,” Ferris said.
“Investors are entitled to assume that when they purchase shares in a listed company, all of the material information relevant to its financial position has been disclosed.”
The lawsuit also alleged that a2 Milk attempted to boost sales by pushing English label infant formula tins through the cross-border e-commerce channel - that is selling online to other countries, mostly China.
The lawsuit alleged this resulted in those products being discounted and therefore negatively impacted sales.
Slater and Gordon said that the company went on to downgrade its forecast in announcements to the ASX that were unexpected due to a lack of communication from the company.
“The repeated downgrades by a2 during the August 2020 to May 2021 claim period caught the market by surprise and revealed that a2 had been facing systemic and structural issues with its distribution networks at an early stage of the financial year,” Ferris said.
Ferris said the claim had been issued on an open class basis, and therefore covers all shareholders who purchased shares in a2 Milk between 19 August 2020 and 9 May 2021 on the ASX or NZX.