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A2 Milk hit with class actions
After being slammed with a class action earlier this month by Slater and Gordon, a2 Milk could now potentially be facing a second as Shine Lawyers launches an investigation.
Lauren Croft
A2 Milk has been accused of engaging in misleading or deceptive conduct in breach of the Corporations Act in a class action claim filed by Slater and Gordon on 5 October. The claim, filed in the Supreme Court of Victoria, was brought on behalf of shareholders who bought shares over a nine-month period and suffered losses between 19 August 2020 and 9 May 2021.
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Now, Shine Lawyers has launched an additional investigation on behalf of investors who purchased shares within the same time period, wherein a2 Milk shares plummeted 62 per cent and the company posted four earnings downgrades. This followed a prediction from the milk company that its baby formula would fly off the shelves in the 2021 financial year, contributing to a 30 per cent boost to its earnings.
Slater and Gordon class actions practice group leader Kaitlin Ferris said a2 Milk either was or should have been aware that the company’s full-year FY21 guidance did not adequately consider factors 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,” she said in a statement earlier this month.
“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 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.”
Shine Lawyers has also alleged that a2 breached the Corporations Act. Class actions practice leader at Shine Lawyers, Craig Allsopp, said that the company may have also breached continuous disclosure obligations by failing to inform shareholders of its future trade plans.
“We believe a2 Milk did not have a reasonable basis for its sales forecast and knew or ought to have known its predicted profit margins were not going to be realised,” he said.
He added that the milk company also attempted to boost sales by promoting infant formula tins with English labels through the cross-border e-commerce channel, which ultimately negatively impacted sales in the Daigou channel.
“A2 Milk tried to boost sales by promoting its English label baby formula online, but this backfired by causing a decline in sales among Daigou or Chinese consumers in Australia who buy the product in stores and mail it to family overseas,” Mr Allsopp added.
“Investors deserve to be compensated for their losses given we say the company’s conduct is to blame.”
