After seven years of stellar growth in Australia on the back of its healthier milk protein platform, a2 Milk has made two big moves in as many months: it has listed on the Australian Securities Exchange (ASX) and it has launched into the US.
The timing is no coincidence. The listing preceded what the company describes as a major strategic initiative to introduce a range of half-gallon a2 fresh milk cartons into supermarkets and natural products grocers in California.
Although the ASX listing didn't involve the raising of any new capital, it will, in conjunction with the listing on the Main Board of the New Zealand Securities Exchange, provide for improved access to capital markets over time, according to the company's managing director Geoffrey Babidge.
It's the company's fourth export initiative, with operations already established in China and the UK, though these have yet to replicate the success the New Zealand company has found in Australia.
In December last year, The a2 Milk Company announced that it supplied a whopping 9.3 per cent by value of fresh milk sales in grocery in Australia. In addition to fresh milk, the company has introduced several new product lines: a2 infant formula products, a2 cream and yoghurt and a2 long life milk.
In contrast, The a2 Milk Company entered the fresh milk market in the UK in 2011 through a joint venture with Robert Wiseman Dairies, but it had to change the business model after its partner was acquired, and is now building up sales from a small base, says Babidge.
“It does take time to communicate the difference in respect of the product. It's about educating consumers about protein in milk and the differences of that to build awareness.”
In the company's home country of New Zealand, a2 milk is sold under licence by Fresha Valley and its volumes remain low. The licence runs out in 2017.
Also, the company shipped its first consignments of a2 infant formula to China in 2013 but business growth was disrupted in 2014 when Chinese regulators changed the import regulations for Australian and New Zealand infant formula exporters. This was further compounded by the introduction of a new canning line at its New Zealand processing and packaging facility.
"Basically we were uanable to export product during a fair part of 2014," says Babidge.
The company is rebuilding this business, and now airfreights fresh milk a2 to China.
However, stronger than expected growth in infant formula sales in Australia more than compensated for the sales shortfall in China, says Babidge.
In the half-year to December, The a2 Milk Company reported Australian infant formula sales of around NZ$16 million, which Babidge describes as a very pleasing result given the product was only launched in October 2013. Overall the company's revenues for the six months to 31 December were up 38 per cent on the previous corresponding period to NZ$74.8 million.
Its profits, however, remain low – just $119,526 in the six months to December, which included one-off costs associated with the ASX listing, with the company instead focusing on building its markets and on revenue growth.
“Now that we've got a stable platform for growth, we are launching our fourth initiative into the US," Babidge says.
"From mid-April, a2 milk will be on the shelves in southern California in the specialty milk section of a broad range of supermarkets.”
The market's reception of pre-launch activity in the US was positive, according to Babidge, and this included a successful showing in March at the world's largest natural, organic and healthy product expo in Anaheim, California.
Heading up The a2 Milk Company’s wholly-owned business in the US is Jeffrey O'Neill, who has held president and CEO positions with Pepsi-Cola Canada, Priszm/YUM brands Canada, and most recently, The Einstein Noah Restaurant Group.
The a2 Milk products are being progressively listed in major supermarket groups between April and July, followed by a move into northern California during the next four to five months. The milk is sourced from local farmers.
