A2 Milk announces ASX listing, push into US market, and renewal of sales into China

A2 Milk Co is planning to list on the Australian stock exchange and launch into the US market next year, has changed its marketing push in the UK including gaining entry into Sainsbury and Wholefoods supermarkets, and is about to renew infant formula sales in China.

The Auckland-based milk marketing company doesn't plan to raise any new capital in a listing on the ASX and will keep its New Zealand incorporation and NZX listing. It has hired Goldman Sachs New Zealand and DLA Piper Australia to manage the listing, and hopes to join the Australian bourse in the first quarter of 2015.

Managing director Geoffrey Babidge told shareholders at today's annual meeting in Auckland that the strength of the Australian market continued to underpin the company's strategic growth plans in the UK and China and soon in the US. A2 Milk is one of the fastest-growing dairy brands in Australia with year-on-year brand growth of 38 percent for the four months ending October compared to the previous corresponding period. It now has an estimated 9 percent share of milk sales by value in grocery.

Given the earnings growth out of Australia, an ASX listing was a logical move, he said. "Listing on ASX will enable more Australian investors to participate in the company's growth and will increase the attractiveness and liquidity of its shares. The board believes that this will benefit all shareholders."

The single biggest shareholder in the company is Australian-based Freedom Food Group with just under 18 per cent.

Future plans include leveraging its strong brand recognition in Australia to push further sales of A2 Platinum infant formula and to extend into other branded dairy products such as cheese and ice-cream. "It would be good to achieve one new product each year over the next couple of years," he said.

A launch into the west coast of the US is planned next year through a wholly-owned US subsidiary although packaging and milk supply will be outsourced as it is in the UK. The company has assumed a cash investment of US$20 million over three years for the launch which will be funded by cashflow and internal sources. Farmgate milk prices were in decline in the US and farmers were welcoming the premiums A2 Milk offered, which are around 5 percent on average above that paid by others, he said.

Following the full acquisition of the UK joint venture earlier this year, A2 Milk has shifted its model and is now positioning its brand into the speciality milk section in supermarkets, following more closely what worked with Australian consumers. From tomorrow it will be available in over 200 Sainsbury stores and the emerging Wholefood chain of stores from January. Its former joint venture partner Muller Wiseman continues to contract pack its products.

The company launched its branded infant formula into China in a year ago but sales have been lower than expected, mainly due to regulatory changes to infant formula importation in May which temporarily suspended supply.

A2 Milk's manufacturing partner, Synlait, has now gained registration from Chinese authorities and the milk company will recommence sales of infant formula either later this year or early next year. It has been selling A2 fresh milk sourced from Australia in China since August and has plan for UHT (long life) milk sales into China and other Asian markets.

Babidge was coy on discussions underway on other "strategic opportunities" for future growth in China, saying only to shareholders that it had had a number of approaches from parties interested in working with the company.

Sales in New Zealand remain miniscule and the sole licensee, Fresh Valley, has been told its licence won't be renewed when it lapses in May 2017.

One shareholder questioned when the company would start paying dividends. Babidge said the board was focused on reinvesting funds back into the global opportunity it believed would build shareholder value but it was aware "the patience of shareholders to continual reinvestment has a life". A dividend payout would be considered once the business was cashflow positive and seeing the full benefits of that reinvestment, he said.

Shares of A2 were unchanged at 60 cents, and have fallen some 25 percent since the start of the year, underperforming the NZX 50 Index's own 16 percent gain.