Class action suit filed against A2 Milk

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A class action claim has been filed in Australia's Supreme Court of Victoria against infant formula company A2 Milk.

Baby formula (file picture).

By Nicholas Pointon of rnz.co.nz

Lawfirm Slater and Gordon is bringing the case on behalf of shareholders who suffered major losses after buying shares in the company between August 2020 and May 2021.

During the period, the company downgraded its earnings guidance four times as closed borders disrupted sales and it struggled with excess supply of its infant formula products and falling birth rates in its biggest export market, China.

It resulted in its share price falling more than 70 per cent from about $21 to $6 each.

Slater and Gordon class actions practice group leader Kaitlin Ferris said A2 was or ought to have been aware that its FY21 guidance did not adequately consider factors likely to affect the company's financial performance.

This included attempts to boost sales of its English label infant formula through e-commerce sales channels into China at the expense of sales through the unofficial daigou channel, she said.

She also alleged the company should have known that disruptions to the daigou channel would have affected the associated marketing activity, thus impeding sales through e-commerce channels.

"As a result of our investigation following A2's profit downgrades throughout FY21, we concluded that there was a strong basis to allege the company provided misleading guidance and was obliged to correct the market's understanding of its financial position at a much earlier time."

She said investors buying into the company are entitled to assume that when they do, all relevant financial information about its position had been disclosed to the market.

"The repeated downgrades by A2 ... 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," she said.

The claim had been issued on an open class basis, thus meaning it would cover all investors who purchased shares in the company between August 19 2020 and May 9 2021.

A2 Milk was contacted for comment.